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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. 11 [X]
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and/or [_]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 11 [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) (Zip Code)
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)
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Approximate Date of Proposed Public Offering: Continuous
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It is proposed that this filing will become effective (check appropriate box):
[X] Immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 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:
[X] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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DECLARATION PURSUANT TO RULE 24f-2 UNDER THE INVESTMENT COMPANY ACT OF 1940
Registrant hereby declares pursuant to Rule 24f-2(a)(1) under the Investment
Company Act of 1940 that Registrant has registered an indefinite number of
shares under the Securities Act of 1933 and has paid the registration fee
appropriate thereto. The Rule 24f-2 Notice for the most recent fiscal year of
Registrant was filed on February 29, 1996.
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CIGNA VARIABLE PRODUCTS GROUP
PROSPECTUS
MARCH 1, 1996
CIGNA VARIABLE PRODUCTS MONEY MARKET FUND
CIGNA VARIABLE PRODUCTS S&P 500 INDEX FUND
This prospectus contains information about the two 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 in-
vestment objectives and policies.
The investment objective of CIGNA Variable Products Money Market Fund is to
provide as high a level of current income as is consistent with the preserva-
tion 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 in-
vestment objective of CIGNA Variable Products S&P 500 Index Fund is to provide
long-term growth of capital by investing principally in common stocks.
Shares of the Funds are available and are being marketed exclusively as pooled
funding vehicles for life insurance companies writing variable annuity con-
tracts 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 March
1, 1996, has been filed with the Securities and Exchange Commission and is
available upon request without charge by writing to the Funds at 1380 Main
Street, Springfield, Massachusetts 01103. The Funds' telephone number is (860)
726-3700. The Statement of Additional Information is incorporated by reference
into this prospectus. The Statement of Additional Information is not a prospec-
tus.
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Please read this prospectus and retain it for future reference.
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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 AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<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 annu-
ity and variable life insurance contracts and for Qualified Plans. This pro-
spectus offers two Funds of the Trust. Your Variable Contract may offer one or
more of the Funds offered by this prospectus.
Each Fund has its own distinct investment objective. Although each Fund will be
managed by experienced professionals, there can be no assurance that the objec-
tive will be achieved. CIGNA Variable Products Money Market Fund seeks to ob-
tain its objective by investing in high quality, U.S. dollar denominated short-
term money market instruments. CIGNA Variable Products S&P 500 Index Fund seeks
to obtain its objective by attempting to replicate the composition and total
return, reduced by Fund expenses, of the S&P 500.
There are levels of risk involved with each Fund. Investments in money market
instruments are subject to the ability of the issuer to make payment at maturi-
ty. 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 investment objective of each Fund is deemed to be a fundamental policy
which may not be changed without the approval of a majority of the Fund's out-
standing shares (within the meaning of the Investment Company Act of 1940 (the
"1940 Act")). Further information is available in the Statement of Additional
Information.
The above information is qualified in its entirety by the detailed information
appearing elsewhere in this prospectus, the statement of additional informa-
tion, and, as applicable, the Variable Account prospectus or Qualified Plan
documents.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY.................................................................... 2
EXPENSE TABLE.............................................................. 3
FINANCIAL HIGHLIGHTS....................................................... 5
ABOUT THE FUNDS............................................................ 5
INVESTMENT PROGRAMS........................................................ 6
CERTAIN INVESTMENT STRATEGIES AND POLICIES................................. 8
INVESTMENT RESTRICTIONS.................................................... 11
ELIGIBLE PURCHASERS........................................................ 12
PURCHASE AND REDEMPTION OF FUND SHARES..................................... 12
COMPUTATION OF NET ASSET VALUE............................................. 12
DISTRIBUTION OF DIVIDENDS AND CAPITAL GAINS................................ 13
TAX MATTERS................................................................ 13
MANAGEMENT OF THE FUNDS.................................................... 14
PERFORMANCE................................................................ 15
THE TRUST, ITS SHARES AND BOARD OF TRUSTEES................................ 16
APPENDIX--DESCRIPTION OF MONEY MARKET INSTRUMENTS.......................... 17
</TABLE>
2
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EXPENSE TABLE
The following Expense Table lists the transaction expenses and approximate an-
nual operating expenses related to an investment in each of the Funds. The Ta-
ble 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
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<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of the of-
fering 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>
MONEY S&P 500
MARKET INDEX
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<S> <C> <C>
Management Fees
Investment Management Fees/1/................................... .35% .25%
12b-1 Fees....................................................... None None
All Other Operating Expenses
(After Reimbursement)/1/........................................ .15% .35%
Total Fund Operating Expenses
(Reflects expense limitation. See Footnotes/1/ and/2/ below).... .50% .60%
</TABLE>
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/1/ For a more complete description of the Management Fees, see "Management of
the Trust." CIGNA Investments, Inc. ("CII"), the Funds' investment adviser,
has voluntarily agreed, as to each Fund, to reimburse such portion of its
management fee as is necessary to cause the Total Fund Operating Expenses of
each 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>
Money Market...................................................... -- .50%
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 de-crease 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 1995 were .73%
of this Fund's average daily net asset value. The stated Operating Expense
and Total Fund Operating Expenses reflect the current voluntary expense
limitation effective January 1, 1996. As to the Money Market Fund, Other
Operating Expenses are based on estimated amounts for the current fiscal
year. Other Operating Expenses include all expenses not specifically assumed
by CII.
3
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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>
S&P
MONEY 500
MARKET INDEX
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<S> <C> <C>
1 Year............................................................. $ 5 $ 6
3 Years............................................................ $16 $19
5 Years............................................................ $-- $33
10 Years........................................................... $-- $75
</TABLE>
The purpose of the Expense Table is to assist the investor in understanding
the various costs and expenses that an investor will bear directly or indirect-
ly. 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 Money Market Fund, Other Operating Expenses are
based on estimated amounts for the current fiscal year.
4
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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 conjunc-
tion with the financial statements and notes thereto available with the State-
ment of Additional Information.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, begin-
ning of year........... $ 8.19 $ 9.20 $ 11.94 $ 12.83 $ 10.75 $ 11.94 $ 10.14 $ 9.41 $ 13.37 $ 13.39
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income from investment
operations
Net investment income
**..................... 0.21 0.19 0.16 0.12 0.19 0.26 0.28 0.25 0.25 0.30
Net realized and
unrealized gains (loss-
es).................... 2.80 (0.13) 0.22 0.34 3.79 (0.74) 2.67 0.72 0.54 1.31
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations............. 3.01 0.06 0.38 0.46 3.98 (0.48) 2.95 0.97 0.79 1.61
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Less: Distributions
Dividends from net in-
vestment income........ (0.27) (0.14) (0.17) (0.12) (0.20) (0.25) (0.30) (0.24) (0.36) (0.38)
Distributions from capi-
tal gains.............. (0.18) (0.85) (2.95) (1.23) (1.70) (0.46) (0.85) -- (4.39) (1.25)
Required for tax
purposes in excess of
realized gains......... -- (0.08) -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions..... (0.45) (1.07) (3.12) (1.35) (1.90) (0.71) (1.15) (0.24) (4.75) (1.63)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
year................... $ 10.75 $ 8.19 $ 9.20 $ 11.94 $ 12.83 $ 10.75 $ 11.94 $ 10.14 $ 9.41 $ 13.37
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total return............ 36.82% 0.67% 2.97% 3.59% 37.46% -3.99% 29.22% 10.33% 3.90% 13.27%
Ratios and Supplemental
Data:
Net assets, end of pe-
riod (000)............. $66,283 $54,728 $61,478 $68,287 $73,446 $60,658 $69,389 $61,504 $70,501 $77,102
Ratio of expenses to
average net assets..... 0.73% 0.78% 0.66% 0.59% 0.56% 0.59% 0.56% 0.54% 0.51% 0.50%
Ratio of net investment
income to average net
assets................. 2.05% 2.23% 1.30% 0.94% 1.38% 2.08% 2.18% 2.16% 1.83% 2.19%
Portfolio Turnover...... 4% 4% 185%a 82% 77% 63% 55% 38% 75% 70%
</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 ac-
counting.
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 re-
ceives a prospectus.
ABOUT THE FUNDS
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CIGNA Variable Products Money Market Fund and CIGNA Variable Products S&P 500
Index Fund are separate series of CIGNA Variable Products Group, a Massachu-
setts 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 Fed-
eral income tax purposes. Their sole purpose
5
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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 avail-
able for investment to the Variable Contract owners or Qualified Plan partici-
pants, as the case may be. Historically, the variable annuity contracts have
been issued by Connecticut General Life Insurance Company ("CG Life"), an indi-
rect, wholly-owned subsidiary of CIGNA Corporation. CIGNA Corporation is an in-
surance and financial services holding company. The Funds may also serve as
funding vehicles for Variable Contracts issued by other life insurance compa-
nies 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 in-
tends to monitor events in order to identify any material irreconcilable con-
flicts which may possibly arise between Variable Contract owners and partici-
pants 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 disadvan-
tageous 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.
INVESTMENT PROGRAMS
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CIGNA VARIABLE PRODUCTS MONEY MARKET FUND
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The Fund's objective is to provide as high a level of current income as is con-
sistent 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 bank-
ers' acceptances, certificates of deposit, commercial loan participations, re-
purchase 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, includ-
ing commercial loan participations, are briefly described in "Description of
Money Market Instruments" and are described more fully in the Statement of Ad-
ditional 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 rat-
ing 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" securi-
ties. First tier securities have received the highest rating (e.g. Standard &
Poor's Corporation's (S&P) A-1 rating) from at least two rating services (or
one, if only one has rated the security). Second tier securities have received
ratings within the two highest categories (e.g., S&P's A-1 or A-2) from at
least two rating services (or one, if only one has rated the security), but do
not qualify as first tier securities. If a security has been assigned different
ratings by different rating services, at least two rating services must have
assigned the highest rating in order for CII to determine eligibility on the
basis of that highest rating. Based on procedures adopted by the Board of
Trustees, CII may determine that an unrated security is of equivalent quality
to a rated first or second tier security.
The Fund may not invest more than 5% of its total assets in second tier securi-
ties. In addition, the Fund
6
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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 generally limit its investments to securities with remaining ma-
turities of 397 days or less and will maintain a dollar-weighted average matu-
rity of 90 days or less.
CIGNA VARIABLE PRODUCTS S&P 500 INDEX FUND
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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 ex-
penses, 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 portfo-
lio 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 depos-
it, commercial paper, commercial loan participations, bankers' acceptances,
U.S. Government obligations and repurchase agreements, pending investment in
common stocks of companies in the S&P 500 or to meet anticipated short-term
cash needs such as dividend payments or redemptions of shares. The percentage
of the Fund's assets invested in various types of securities will vary in light
of existing economic conditions and other factors as determined by 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 S&P. S&P makes no rep-
resentation 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 relation-
ship 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 considera-
tion in determining, composing or calculating the S&P 500. S&P is not responsi-
ble 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 500 (R) is a trademark of S&P and has been licensed for use by the Fund.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
7
<PAGE>
500 OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ER-
RORS, 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 LIMIT-
ING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPE-
CIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
PORTFOLIO TURNOVER. 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 turn-
over rates are included in the Financial Highlights table above. A higher rate
of portfolio turnover may result in higher transaction costs, including broker-
age 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 "Dis-
tributions of Dividends and Capital Gains."
CERTAIN INVESTMENT STRATEGIES AND POLICIES
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In pursuit of its objectives and policies, either or both of the Funds may em-
ploy one or more of the following strategies in order to enhance investment re-
sults:
MONEY MARKET INSTRUMENTS. (BOTH FUNDS) When deemed appropriate for temporary or
defensive purposes, CIGNA Variable Products S&P 500 Fund may hold substantially
all of its assets in the form of cash or cash equivalent money market instru-
ments described in the appendix to this prospectus ("Money Market Instru-
ments.") However, CIGNA Variable Products S&P 500 Index Fund will only invest
in Money Market Instruments for temporary or defensive purposes under extraor-
dinary 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. Only 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" securi-
ties as those terms are defined in Rule 2a-7 under the 1940 Act.
SECURITIES ISSUED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS. (BOTH
FUNDS) Funds may purchase securities on a "when-issued" basis, that is, deliv-
ery 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 af-
ter 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 ac-
quiring such securities, but the Fund may sell these securities before the set-
tlement date if it is deemed advisable.
Investment in securities on a when-issued or delayed delivery basis may in-
crease 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 transac-
tion, 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
8
<PAGE>
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 de-
layed delivery transactions see the Statement of Additional Information.
ILLIQUID SECURITIES. CIGNA Variable Products Money Market Fund may invest up to
10% of its net assets in securities that are illiquid. Illiquid securities in-
clude 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 un-
der 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 liquid-
ity of each Fund's investments. Limitations on the resale of restricted securi-
ties may have an adverse effect on their marketability, which may prevent the
Fund from disposing of them promptly at reasonable prices. The Fund may have to
bear the expense of registering such securities for resale, and the risk of
substantial delays in effecting such registrations.
INVESTMENTS IN FOREIGN SECURITIES. (BOTH FUNDS) CIGNA Variable Products Money
Market Fund may invest up to 50% of its total assets and CIGNA Variable Prod-
ucts S&P 500 Index Fund may invest up to 25% of its total assets 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 for-
eign currency, as well as the availability and status of foreign securities
markets. The S&P 500 Fund may invest in securities of foreign issuers which are
in the form of American Depositary Receipts ("ADRs"), European Depositary Re-
ceipts ("EDRs"), or other securities representing underlying securities of for-
eign issuers, and such investments are treated as foreign securities for pur-
poses 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.
RISK FACTORS REGARDING FOREIGN SECURITIES. (BOTH FUNDS) Investments by a Fund
in foreign securities, whether denominated in U.S. dollars or foreign curren-
cies, 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 de-
scribed 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 for-
eign currency in which the security is denominated, and increases when the
value of the U.S. dollar falls against such currency.
POLITICAL AND ECONOMIC RISK. The economies of some 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
9
<PAGE>
standards, practices and requirements comparable to those applicable to do-
mestic 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 some 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 compa-
nies may be less liquid and experience more price volatility than compara-
ble domestic securities. Increased custodian costs and other administrative
costs may be associated with the maintenance of assets in foreign jurisdic-
tions. 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.
STOCK INDEX FUTURES CONTRACTS AND RELATED OPTIONS.
- -------------------------------------------------------------------------------
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. The
Fund may do so in order to simulate full investment in the underlying S&P 500
to obtain full market exposure immediately upon receiving cash pending invest-
ment 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. A
futures contract on an index (such as the S&P 500) is an agreement between two
parties (buyer and seller) to take or make delivery of an amount of cash equal
to the difference between the value of the index at the close of the last
trading day of the contract and the price at which the index contract was
originally written. In the case of futures contracts traded on U.S. exchanges,
the exchange itself or an affiliated clearing corporation assumes the opposite
side of each transaction (i.e., as buyer or seller). A futures contract may be
satisfied or closed out by delivery or purchase, as the case may be, of the
financial instrument or, in the case of stock index futures contracts, by pay-
ment 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 se-
curity or index will result in lower transaction costs being incurred.
The Fund 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 re-
turn 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 speci-
fied 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 op-
tion, 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 associ-
ated with these investments.
The Fund's use of stock index futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the regu-
lations of the Commodity Futures Trading Commission relating to exclusions
from regulation as a commodity pool operator. Those regulations currently pro-
vide that the Funds may use commodity futures and option positions (i) for
bona fide hedging purposes without regard to the percentage of assets commit-
ted 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 Ex-
change 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. The use of futures
contracts and options may involve risks not associated with other types of
10
<PAGE>
instruments which the Fund intends to purchase. In particular, the Fund's posi-
tions 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 assur-
ance that a liquid secondary market will exist for any particular futures con-
tract or option. The inability to close out options and futures positions could
have an adverse impact on the Fund's ability to effectively hedge its securi-
ties and might, in some cases, require a Fund to deposit cash to meet applica-
ble margin requirements. The Fund's ability to hedge effectively through trans-
actions in futures contracts or options depends on the degree to which price
movements in its holdings correlate with price movements of the futures and op-
tions. It is possible that there may be an imperfect correlation between the
hedging instrument and the hedged securities, which could result in an ineffec-
tive 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 per-
fect correlation among the Fund, the S&P 500, and stock index futures and op-
tions 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 In-
formation for a further description of the Funds' investments in futures con-
tracts.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The following summarizes the Funds' principal investment restrictions. Unless
otherwise noted, these restrictions 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 "The Trust, Its Shares and Board of Trustees" for a description of
the individual's rights with respect to giving voting instructions to Life Com-
panies).
Any investment restriction that involves a maximum or minimum percentage of se-
curities 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 invest-
ment, 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 pre-
ferred stocks of any issuer are regarded as a single class, and all debt secu-
rities 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.
4. 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 facili-
tate the meeting of redemption requests (not for leverage) which might other-
wise require the untimely disposition of portfolio investments or for extraor-
dinary or emergency purposes, except that CIGNA Variable Products S&P 500, Fund
may enter into stock index 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 re-
spect to the issuance of senior securities.)
11
<PAGE>
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 Gen-
eral 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 share-
holders. 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 Eli-
gible 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 Compa-
nies 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 re-
ceived by the Fund in proper form and in accordance with applicable require-
ments 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 place orders directly with
the Funds. The Funds do not issue share certificates. Please refer to the pro-
spectus 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 invest-
ment 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 dis-
rupt 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 suffi-
cient 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 computa-
tion 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 as-
sets 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, includ-
ing listed securities whose primary markets are believed to be over-the-count-
er, 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 dis-
cussed 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.
12
<PAGE>
FUTURES CONTRACTS
- --------------------------------------------------------------------------------
Initial margin deposits made upon entering into futures contracts are recog-
nized 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, depend-
ing 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 be-
tween the proceeds from (or cost of) the closing transaction and the Fund's ba-
sis 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 ex-
ercises 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 pur-
chases 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 mar-
ket value, in accordance with rules adopted by the Securities and Exchange Com-
mission. Using the amortized cost valuation method allows CIGNA Variable Prod-
ucts 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 pro-
cedure. 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.
DISTRIBUTION OF DIVIDENDS AND CAPITAL GAINS
- --------------------------------------------------------------------------------
It is expected that shares of the Funds will be held under the terms of Vari-
able Contracts or Qualified Plans. Under current tax law, dividends or capital
gain distributions from any Fund are not currently taxable when left to accumu-
late 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 be-
fore 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 capi-
tal 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 de-
clared 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 Inter-
nal 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,
13
<PAGE>
each Fund will generally seek to distribute annually to Shareholders most or
all of its undistributed taxable income and any undistributed net realized cap-
ital 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 im-
posed 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 un-
derlying 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 insur-
ance 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 Variable Contracts meet the diversification requirements
if, as of the close of each quarter, the underlying Fund assets meet the diver-
sification 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. Gov-
ernment securities and securities of other regulated investment companies.
There is an exception for securities issued by the Treasury Department in con-
nection 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 diversi-
fication 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 diver-
sified 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 in-
vestment.
The Code provides that for purposes of determining whether or not the diversi-
fication 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 diversifica-
tion requirements. It is possible that in order to comply with the diversifica-
tion 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 compa-
nies sponsored by affiliates of CIGNA Corporation, and for a number of pension,
advisory, corporate and other accounts. CII and other affiliates of CIGNA Cor-
poration manage combined assets of approximately $70 billion. CII's mailing ad-
dress 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
14
<PAGE>
assets of the Funds. Subject to the control and periodic review of the Board of
Trustees, CII determines what investments shall be purchased, held, sold or ex-
changed 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 ren-
dered 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 Prod-
ucts S&P 500 Index Fund--0.25% and CIGNA Variable Products Money Market Fund--
0.35%.
Each Fund will bear its own expenses. Operating expenses for each Fund gener-
ally consist of investment management fees, custodian fees, fees for necessary
professional and brokerage services, costs of regulatory compliance, costs as-
sociated 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 ex-
tent 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 S&P 500 Index Fund--0.60% and CIGNA Variable
Products Money Market Fund--0.50%.
The investment management fee payable in 1995 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 1995 were 0.73% of average daily
net assets.
CII investment personnel may invest in securities for their own account pursu-
ant 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 trans-
actions to brokers who may be deemed to be affiliates of CIGNA Corporation un-
der the 1940 Act, as amended. See the Statement of Additional Information for
further details.
PERFORMANCE
- --------------------------------------------------------------------------------
Each Fund's performance may be quoted in advertising in terms of yield and to-
tal return if accompanied by performance of your Life Company's separate ac-
count. 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.
CIGNA Variable Products Money Market Fund's yield refers to the income gener-
ated 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 S&P 500 Index Fund,
Yield refers to the income generated by an investment in the Fund over a speci-
fied 30-day (or one month) period, expressed as an annual percentage rate.
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 (ex-
cept 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 re-
turn reflects the hypothetical annually compounded return that would have pro-
duced the same cumulative total return if a Fund's performance had been con-
stant 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
15
<PAGE>
results. To illustrate the components of overall performance, a Fund may sepa-
rate 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 perfor-
mance quoted. You should bear in mind the effect of these charges when compar-
ing a Fund's performance to that of other funds.
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, Compan-
ion Fund would become a series of the Trust (such series to be known as Compan-
ion Fund) and shareholders of Companion Fund, the series of shares of CIGNA An-
nuity 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 effec-
tive 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, two of which are offered by this prospectus. 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 Mas-
ter 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 sharehold-
ers 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 outstand-
ing shares of the Trust can require that the Trustees call a meeting of share-
holders 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 ac-
counts 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 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 pro-
portionate voting for fractional shares), irrespective of the relative net as-
set 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
16
<PAGE>
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. How-
ever, 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 incur-
ring financial loss on account of shareholder liability is limited to circum-
stances 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 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 stor-
age of goods and to furnish dollar exchange. Maturities are generally six
months or less.
CERTIFICATES OF DEPOSIT--A negotiable interest-bearing instrument with a spe-
cific 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 bor-
rowers. 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 under-
lying 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 participa-
tions 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
17
<PAGE>
seller of securities (limited to U.S. Government securities, including securi-
ties issued or guaranteed by the U.S. Treasury or the various agencies and in-
strumentalities 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 collat-
eral for the loan.
VARIABLE AND FLOATING RATE INSTRUMENTS--Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic banks or corporations,
may carry variable or floating rates of interest. Such instruments bear inter-
est at rates which are not fixed, but which vary with changes in specified mar-
ket rates or indices, such as a Federal Reserve composite index.
18
<PAGE>
Custodian and Transfer Agent:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Investment Adviser:
CIGNA Investments, Inc.
900 Cottage Grove Road
Hartford, Connecticut 06152
Independent Accountants:
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
[RECYCLED PAPER LOGO APPEARS HERE] Printed on recycled paper
CIGNA VARIABLE PRODUCTS
GROUP
PROSPECTUS
MARCH 1, 1996
<PAGE>
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
M A R C H 1, 1 9 9 6
================================================================================
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the prospectus for CIGNA Variable Products Group, (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, 1995, as contained in the Annual Report to Shareholders dated
December 31, 1995, are hereby incorporated by reference into this Statement of
Additional Information. The financial statements for the fiscal year ended
December 31, 1995 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.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
General Information About the Funds......................... 3
-----------------------------------
Investment Objectives and Policies.......................... 4
----------------------------------
Futures Contracts.......................................... 15
-----------------
Options on Futures Contracts............................... 16
----------------------------
Risks as to Futures Contracts and Related Options.......... 17
-------------------------------------------------
Investment Restrictions.................................... 20
-----------------------
Tax Matters................................................ 23
-----------
Activities Of Affiliated Companies......................... 26
----------------------------------
Control Persons and Principal Holders of Securities........ 26
---------------------------------------------------
Management of the Funds.................................... 26
-----------------------
Investment Advisory and Other Services..................... 29
--------------------------------------
Portfolio Turnover and Brokerage Allocation................ 31
-------------------------------------------
Performance Information.................................... 33
-----------------------
Purchase, Redemption and Pricing of Securities............. 35
----------------------------------------------
Dividends.................................................. 37
---------
Limitation on Transfers.................................... 37
-----------------------
Ratings of Securities...................................... 37
---------------------
2
<PAGE>
GENERAL INFORMATION ABOUT THE FUNDS
-----------------------------------
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 Group 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.
3
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
----------------------------------
The following information supplements the material contained in the
prospectus regarding each Fund's investment objectives and policies.
Description of Money Market Instruments
---------------------------------------
U.S. GOVERNMENT DIRECT OBLIGATIONS--issued by the U.S. Treasury and include
bills, notes, and bonds.
. 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
4
<PAGE>
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
5
<PAGE>
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.
6
<PAGE>
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
------------------------------------------------------------------------
Fund
----
As noted in the prospectus, the Fund purchases principally debt securities
that are rated Ba or lower by Moody's or BB or lower by S&P.
Included among the high-yield, high risk securities in which the Fund may
invest are securities issued in connection with corporate restructurings
such as takeovers or leveraged buyouts. Securities issued to finance
corporate restructurings may have special credit risks due to the highly
leveraged conditions of the issuer. In addition, such issuers may lose
experienced management as a result of the restructuring. Also, the market
price of such securities may be more volatile to the extent that expected
benefits from the restructuring do not materialize.
Because investors generally perceive that there are greater risks associated
with the medium to lower rated securities of the type constituting high-
yield, high risk securities, the yields and prices of such securities may
tend to fluctuate more than those for higher rated securities. In the lower
quality segments of the fixed income securities market, changes in
perceptions of issuer's creditworthiness tend to occur more frequently and
in a more pronounced manner than do such changes with respect to higher
quality segments of the fixed income securities market, causing greater
yield and price volatility. Commissions and underwriting spreads associated
with the purchase of high-yield, high risk bonds are typically higher than
those associated with the purchase of high grade bonds.
7
<PAGE>
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
-------------------------------------------------------------------------
In pursuing its investment objective, the assets of CIGNA Variable Products
Income Fund will be principally invested in the following types of interest-
bearing securities:
8
<PAGE>
(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
9
<PAGE>
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
--------------------------------------------------------------------------
Fund: Risk Factors
-------------------
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
10
<PAGE>
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
-------------------------------------------------------------
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
11
<PAGE>
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.
12
<PAGE>
As discussed in the prospectus, the Money Market Fund may invest in U.S.
dollar-denominated obligations of U.S. and foreign depository institutions,
including commercial and savings banks and savings and loan associations.
The obligations may be issued by U.S. or foreign depository institutions,
foreign branches or subsidiaries of U.S. depository institutions
("Eurodollar" obligations), U.S. branches or subsidiaries of foreign
depository institutions ("Yankeedollar" obligations) or foreign branches or
subsidiaries of foreign depository institutions. Obligations of foreign
depository institutions, their branches and subsidiaries, and Eurodollar and
Yankeedollar obligations may involve additional investment risks to the
risks of obligations of U.S. institutions. Such investment risk include
adverse political and economic developments, the possible imposition of
withholding taxes on interest income payable on such obligations, the
possible seizure or nationalization of foreign deposits and the possible
establishment of exchange controls or other foreign governmental laws or
restrictions which might adversely affect the payment of principal and
interest. Generally, the issuers of such obligations are subject to fewer
regulatory requirements than are applicable to U.S. banks. Foreign
depository institutions, their branches or subsidiaries, and foreign
branches or subsidiaries of U.S. banks may be subject to less stringent
reserve requirements than U.S. banks. U.S. branches or subsidiaries of
foreign banks are subject to the reserve requirements of the state in which
they are located. There may be less publicly available information about a
foreign bank or a branch or subsidiary of a foreign bank than about a U.S.
institution, and such branches or subsidiaries may not be subject to the
same accounting, auditing and financial record keeping standards and
requirements as U.S. banks. Evidence of ownership of foreign depository and
Eurodollar obligations may be held outside of the United States and the Fund
may be subject to the risks associated with the holding of such property
overseas. Foreign depository and Eurodollar obligations of the Fund held
overseas will be held by foreign branches of the custodian for the Funds
portfolio securities or by other U.S. or foreign banks under subcustodian
arrangements complying with the requirements of the Investment Company Act
of 1940, as amended (the "1940 Act"). CII will consider the above factors
in making investments in foreign depository, Eurodollar and Yankeedollar
obligations and will not knowingly purchase obligations which, at the time
of purchase, are subject to exchange controls or withholding taxes.
Generally, the Fund will limit its foreign depository and Yankeedollar
investments to obligations of banks organized in Canada, France, Germany,
Japan, the Netherlands, Switzerland, the United Kingdom and other western
industrialized nations. As discussed in the prospectus, the Fund may also
invest in U.S. dollar-denominated commercial paper and other short-term
obligations issued by foreign entities. Such investments are subject to
quality standards similar to those applicable to investments in comparable
obligations of domestic issuers. Investments in foreign entities in general
involve the same risks as those described above in connection with
investments in Eurodollar and Yankeedollar obligations and obligations of
foreign depository institutions and their foreign branches and subsidiaries.
The Money Market Fund's investments in short-term corporate debt and bank
money instruments will be rated, or will be issued by issuers who have been
rated, in one of the two highest rating categories for
13
<PAGE>
short-term debt obligations by a nationally recognized statistical rating
organization (an "NRSRO") or, if not rated, will be of comparable quality as
determined by the Trustees of the Trust. The Money Market Fund's
investments in corporate bonds and debentures (which must have maturities at
the date of purchase of 397 days (13 months) or less) will be in issuers who
have received from an NRSRO a rating with respect to a class of short-term
debt obligations that is comparable in priority and security with the
investment in one of the two highest rating categories for short-term
obligations or if not rated, will be of comparable quality as determined by
the Trustees of the Trust. Currently, there are six NRSROs: Duff and
Phelps Inc., Fitch Investors Services, Inc., IBCA Limited and its affiliate
IBCA Inc., Thompson BankWatch, Inc., Moody's Investors Service Inc. and
Standard & Poor's Rating Group. See "Appendix--Description of Money Market
Instruments".
The rating applied to a security at the time the security is purchased by
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
14
<PAGE>
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 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.
15
<PAGE>
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.
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
16
<PAGE>
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 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
17
<PAGE>
its portfolio securities. Similar risks exist with respect to foreign
currency hedges.
Positions in futures contracts or options may be closed out only on an
Exchange on which such contracts are traded. Although the Funds intend to
purchase or sell futures contracts or purchase options only on Exchanges or
Boards of Trade where there appears to be an active market, there is no
assurance that a liquid market on an Exchange or Board of Trade will exist
for any particular contract or at any particular time. If there is not a
liquid market at a particular time, it may not be possible to close a
futures position or purchase an option at such time. In the event of
adverse price movements under those circumstances, a Fund would continue to
be required to make daily cash payments of maintenance margin on its futures
positions. The extent to which the Fund may engage in futures contracts or
related options will be limited by Internal Revenue Code requirements for
qualification as a regulated investment company and the Fund's intent to
continue to qualify as such. The result of a hedging program cannot be
foreseen and may cause the portfolio of the Fund to suffer losses which it
would not otherwise sustain.
Foreign Currency Transactions (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
18
<PAGE>
are exercisable at anytime during the option period. European options are
exercisable only on a designated date.
When it engages in position hedging, a Fund enters into foreign currency
exchange transactions to protect against a decline in the values of the
foreign currencies in which its portfolio securities are denominated or an
increase in the value of currency for securities which the Fund expects to
purchase, when the Fund holds cash or short-term investments. In connection
with position hedging, a Fund may purchase put or call options on foreign
currency and foreign currency futures contracts and buy or sell forward
contracts and foreign currency futures contracts. The Funds may also
purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the dates the currency exchange transactions are
entered into and the dates they mature. For example, it may be necessary
for a Fund to purchase additional foreign currency on the spot market (and
bear the expense of such purchase) if the market value of the security or
securities being hedged is less than the amount of foreign currency a Fund
is obligated to deliver and a decision is made to sell the security or
securities and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received
upon the sale of the portfolio security or securities if the market value of
such security or securities exceeds the amount of foreign currency a Fund is
obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which a Fund owns or intends to purchase
or sell. They simply establish a rate of exchange which one can achieve at
some future point in time. Additionally, although these techniques tend to
minimize the risk of loss due to a decline in the value of the hedged
currency, they tend to limit any potential gain which might result from the
increase in value of such currency.
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.
19
<PAGE>
In the case of a cancelable forward contract, the holder has the unilateral
right to cancel the contract at maturity by paying a specified fee. The
contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks and their customers). A
forward contract generally has no deposit requirements, and no commissions
are charged at any stage for trades.
Forward currency contracts are less liquid than currency futures contracts,
and there is an increased risk of default by the counterparty as compared to
futures contracts. Forward currency contracts differ from currency futures
contracts in certain other respects as well. For example, the maturity date
of a forward contract may be any fixed number of days from the date in a
given month. Forward contracts may be in any amounts agreed upon by the
parties rather than predetermined amounts. Also, forward currency contracts
are traded directly between currency traders so no intermediary is required.
A forward contract generally requires no margin or other deposit.
At the maturity of a forward contract, a Fund may either accept or make
delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of
an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to
the original forward contract. There is no assurance that 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'
20
<PAGE>
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.
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
21
<PAGE>
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 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
22
<PAGE>
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.
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.
23
<PAGE>
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 "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
24
<PAGE>
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 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.
25
<PAGE>
Under a mark-to-market election, if the fair market value ("FMV") of the
Fund's PFIC shares at the end of its taxable year is greater than the FMV of
the shares at the beginning of its taxable year (or the date of purchase
whichever is later), the difference will be included in the Fund's gross
income whether or not the Fund's shares are sold in that year. This income
would then be passed through to shareholders as ordinary income. Any mark-
to-market gain recognized by the Fund would be added to its tax basis in the
PFIC shares. If, however, as of the end of the Fund's taxable year the FMV
of the PFIC shares has decreased relative to their FMV at the beginning of
the year (or the date of purchase whichever is later), the Fund would not be
entitled to recognize the loss.
Shareholders who are not U.S. persons (i.e., U.S. citizens and residents and
U.S. domestic corporations, partnerships, trusts and estates) should consult
their tax advisers regarding U.S. and foreign tax consequences of ownership
of shares of the Fund including the likelihood that distributions to them
would be subject to withholding of U.S. tax at a rate of 30% (or at a lower
rate under a tax treaty).
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, Trustee; Senior Managing Director and Division Head,
CIGNA Portfolio Advisers, a division of CII; Chairman of the Board and
President, CIGNA Funds Group (f/k/a CIGNA Annuity Funds Group), 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
26
<PAGE>
Director, CII; Senior Vice President, CII and CIGNA Investment Management
Company and President, CIGNA Capital Brokerage, Inc.
HUGH R. BEATH, 63, Trustee; 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, Trustee; Vice President, Kaman Corporation
(helicopters and aircraft components, scientific research); Trustee,
Connecticut Policy and Economic Counsel; Corporator, Hartford Seminary;
Secretary, Bloomfield Chamber of Commerce.
PAUL J. MCDONALD, 52, Trustee; 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, Trustee; 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 Funds Group
(f/k/a 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
Funds Group (f/k/a 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
Funds Group (f/k/a 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).
27
<PAGE>
*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 table shows compensation
paid by the Trust and other investment companies in the CIGNA fund complex to
Trust Trustees in 1995:
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Accrued As from Trusts and
Aggregate Part of Estimated Annual CIGNA Fund
Name of Person, Compensation Trust Benefits Upon Complex Paid to
Position with Trusts from Trust Expense Retirement Trustees (d)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
R. Bruce Albro, Trustee, $ - $ - $ - $ -
Chairman and President
Hugh R. Beath, Trustee (a) $ 3,600 - - $21,800
Russell H. Jones, Trustee $ 2,100 - - $13,150
Paul J. McDonald, Trustee (b) $ 2,100 - - $13,150
Arthur C. Reeds, III, Trustee - - - -
Worth Loomis* $ 2,000 - - $12,300
Nathaniel J. Howe* (c) $ 2,000 - - $12,300
------------ ------------ ------------ ------------
$11,800 $ $ $72,700
============ ============ ============ ============
</TABLE>
*Retired April 1995
28
<PAGE>
(a) All of Mr. Beath's 1995 compensation was deferred under a deferred
compensation plan for all CIGNA funds (the "Plan") in which he had an
aggregate balance of $90,019 as of December 31, 1995. The Plan permits
Trustees to defer receipt of all compensation or to revoke the election to
defer receipt of Trustee fees and receive payment directly.
(b) All of Mr. McDonald's 1995 compensation was deferred under a deferred
compensation plan (the "Plan") for all CIGNA funds in which he had an
aggregate balance of $13,838 as of December 31, 1995. The Plan permits
Trustees to defer receipt of all compensation or to revoke the election to
defer receipt of Trustee fees and receive payment directly.
(c) All of Mr. Howe's 1995 compensation was deferred under a deferred
compensation plan for all CIGNA Funds (the "Plan") in which he had an
aggregate balance of $154,087 as of December 31, 1995. The Plan permits
Trustees to defer receipt of all compensation or to evoke the election to
defer receipt of Trustee fees and receive payment directly.
(d) There were three (3) investment companies besides the Trusts in the
CIGNA fund complex.
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
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
29
<PAGE>
advisory agreements. CII has estimated that in 1996 the total expenses of the
Office of the Treasurer will not exceed $277,000 and the expenses of the Office
of the Secretary are not expected to exceed $88,000. The portion of these
expenses allocated to each Fund for calendar year 1996 are not expected to
exceed the following amounts:
Office of Office of
the Treasurer the Secretary
------------- -------------
CIGNA Variable Products S&P 500 $40,000 $ 15,500
Index Fund
In 1995 the costs reimbursed by the Trust for the Office of the Treasurer and
the Office of the Secretary were $38,902 and $15,152, 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, are comparable to those paid by funds with similar
investment objectives.
Trust-wide expenses not identifiable to any particular Fund will be allocated
among the Funds. CII has voluntarily agreed 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 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 - 0.50%; 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 $213,557, $201,131 and $226,788 for fiscal years 1995, 1994 and 1993,
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
30
<PAGE>
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.
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.
31
<PAGE>
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.
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
32
<PAGE>
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 1995, 1994 and 1993 totaled $4,667,
$3,100 and $208,900, respectively, substantially all of which were paid to firms
which provided research services to CII.
As of December 31, 1995, Sanford C. Bernstein & Co., Inc. ("SCB") reported
ownership of approximately 7.40% of the outstanding common stock of CIGNA
Corporation. In addition, FMR Corp. ("FMR") reported ownership of approximately
7.70% of the outstanding common stock of CIGNA as of December 31, 1995.
Accordingly, CIGNA may be deemed to be an affiliated person of SCB and FMR
pursuant to the provisions of the 1940 Act. As long as CIGNA may be deemed to
be an affiliated person of SCB or FMR, a Fund will not engage in any transaction
with SCB or FMR when SCB or FMR is acting for their own account and will engage
in brokerage transactions with SCB and FMR only under circumstances where the
commission, spread or profit received by the broker is fair and reasonable
pursuant to rules established by the Securities and Exchange Commission and
procedures adopted and monitored by the Board of Trustees of the Trust. During
1995, the Funds did not engage in brokerage transactions with SCB or FMR. This
amount of brokerage commissions represented less than 1% of the aggregate of
brokerage and underwriting commissions paid by the Funds in 1995 and represented
less than 1% of the total value of the Funds' portfolio transactions which
involved brokerage or underwriting commissions.
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>
<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
</TABLE>
33
<PAGE>
<TABLE>
<S> <C> <C>
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:
<TABLE>
<S> <C>
Lipper Analytical Services Stanger Report
CDA Investment Technologies, Inc. Weisenberger
Frank Russell Co. Micropal, Ltd.
InterSec Research
</TABLE>
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
Where P = A hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment at
the end of the 1, 5, or 10 year periods (or fractional
portion of such period).
Cumulative total return across a stated period may be calculated as follows:
P(1+V)=ERV
Where P = A hypothetical initial payment of $1,000.
V = cumulative total return.
ERV = ending redeemable value of a hypothetical $1,000 payment at
the end of the stated period.
The average annual total returns for CIGNA Variable Products S&P 500 Index
Fund for the one, five and ten year periods (or since inception, if shorter)
ended December 31, 1995 were as follow:
<TABLE>
<CAPTION>
Periods ended December 31, 1995
CIGNA Variable Products 1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
S&P 500 Index Fund 36.82% 15.09% 12.52%
</TABLE>
Yield Quotations
----------------
34
<PAGE>
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]
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.
The standard formula for calculating annualized yield for CIGNA Variable
Products Money Market Fund, as described in the prospectus, is as follows:
Y = V\\1\\ - V\\o\\ 365
V\\o\\ 7
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.
The standard formula for calculating effective annualized yield for CIGNA
Variable Products Money Market Fund, as described in the prospectus, is as
follows:
EY = [(Y+1)/365/7/] -1
Where EY = effective annualized yield.
Y = annualized yield, as determined above.
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
35
<PAGE>
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.
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
36
<PAGE>
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.
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:
37
<PAGE>
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following
characteristics:
. Leading market positions in well-established industries.
. High rates of return on funds employed.
. Conservative capitalization structures with moderate reliance on
debt and ample asset protection.
. Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
. Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
BOND RATINGS--S&P describes its ratings for corporate bonds as follows:
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
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.
38
<PAGE>
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.
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.
39
<PAGE>
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." 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.
40
<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 CIGNA Variable Products S&P 500
Index Fund (f/k/a 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, 1995 and filed with the Securities and Exchange
Commission on March 5, 1996:
Investments in Securities, December 31, 1995
Statement of Assets and Liabilities, December 31, 1995
Statement of Operations, Year ended December 31, 1995
Statement of Changes in Net Assets, Years ended December 31, 1995 and
1994
Notes to Financial Statements
Report of Independent Accountants
(b) Exhibits
* (1) The First Amended and Restated Master Trust Agreement of
Registrant dated as of March 1, 1996.
(2) The By-Laws of Registrant, incorporated by reference to 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 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 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 Registrant's Registration Statement filed March 1,
1994.
(3) None.
(4) Relative to the rights of shareholders, Article IV and Article V of
Registrant's First Amended and Restated Master Trust Agreement dated
as of March 1, 1996 filed herinbefore as Exhibit (1).
- 1 -
<PAGE>
(4a) Relative to the rights of shareholders, the form of Participation
Agreement among CIGNA Variable Products Group, CIGNA Financial
Advisors, Inc. and Connecticut General Life Insurance Company, as
hereinafter filed as Exhibit (9d).
(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
Registrant's Registration Statement filed April 28, 1988.
* (5a) The Side Letter to the Master Investment Advisory Agreement
dated as of November 9, 1995 between CIGNA Variable Products Group
and CIGNA Investments, Inc.
(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
Registrant's Registration Statement filed April 28, 1988.
* (8a) The Side Letter to the Custodian Contract dated as of February 15,
1996 between CIGNA Variable Products Group and State Street Bank and
Trust Company.
(9) The Transfer Agency and Service Agreement 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
Registrant's Registration Statement filed April 28, 1988.
* (9a) The Side Letter to the Transfer Agency and Service Agreement dated as
of February 15, 1996 between CIGNA Variable Products Group and State
Street Bank and Trust Company.
(9b) 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
Registrant's Registration Statement filed April 28, 1988.
(9c) Form of Trustees' Deferred Fee Agreement, incorporated by reference
to Post-Effective Amendment No. 9 to Registrant's Registration
Statement filed on October 16, 1995.
* (9d) Form of Participation Agreement among CIGNA Variable Products Group,
CIGNA Financial Advisors, Inc. and Connecticut General Life Insurance
Company.
* (10) Consent of Counsel.
* (11) Consent of Price Waterhouse LLP.
(12) None.
(13) None.
(14) None.
- 2 -
<PAGE>
(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 certain 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.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
- -----------------------------------------
As of March 1, 1996:
(1)
Title of Class: Shares of Beneficial Interest
(2)
Name of Series Number of Record Holders
- -------------- ------------------------
CIGNA Variable Products High Yield Fund -0-
CIGNA Variable Products Income Fund -0-
CIGNA Variable Products International Stock Fund -0-
CIGNA Variable Products Money Market Fund -1-
CIGNA Variable Products S&P 500 Index Fund -1-
----------------------------------------
ITEM 27. INDEMNIFICATION.
- -------------------------
The First Amended and Restated Master Trust Agreement, dated as of March 1, 1996
(the "Master Trust Agreement"), provides, among other things, for the
indemnification out of 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.
- ---------------------------
*Filed Herewith
- 3 -
<PAGE>
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,
as amended.
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, as amended.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
- --------------------------------------------------------------
As of the date hereof, CIGNA Investments, Inc. ("CII") serves as investment
adviser to ten series of shares of CIGNA Funds Group (f/k/a as CIGNA Annuity
Funds Group) known as CIGNA Income Fund (f/k/a CIGNA Annuity Income Fund),
CIGNA Money Market Fund (f/k/a CIGNA Annuity Money Market Fund), CIGNA Developed
Markets Stock Fund, CIGNA Emerging Markets Stock Fund, CIGNA Global Bond Fund,
CIGNA Government Obligations Cash Fund, CIGNA Government Securities Fund, CIGNA
High Yield Fund, CIGNA S&P 500 Index Fund and CIGNA Treasury Obligations Cash
Fund; to CIGNA Institutional Funds Group and its series of shares known as CIGNA
International Stock Fund; to CIGNA Variable Products Group and its five series
of shares known as CIGNA Variable Products High Yield Fund, CIGNA Variable
Products Income Fund, CIGNA Variable Products International Stock Fund, CIGNA
Variable Products Money Market Fund and CIGNA Variable Products S&P 500 Index
Fund (f/k/a Companion Fund); and to CIGNA High Income Shares (CIGNA Funds Group
(f/k/a CIGNA Annuity Funds Group), CIGNA 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.
801-18094) 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:
- 4 -
<PAGE>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Business Connections
- ------------------------------- ------------------------------------------
Harold W. Albert Director and Counsel, CII; Director, CIGNA
International Investment Advisors, Ltd.**;
Chief Counsel, CIGNA Investment Management, a
division of CIGNA Corporation*; Counsel, CIGNA
Investment Advisory Company, Inc.*; Director,
Senior Vice President and Chief Counsel, CIGNA
Investment Group, Inc.*; Director, 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 and Chief Investment Officer, CIGNA
Investment Management, a division of CIGNA
Corporation*; President and Director, CII and
CIGNA Investment Group, Inc.*; President, CIGNA
Investment Advisory Company, Inc.*; Director,
CIGNA International Investment Advisors, Ltd.**
and Connecticut General Pension Services,
Inc.*; Trustee, the Trusts; Director, IIS.
R. Bruce Albro Senior Managing Director, CII; Director and
Senior Managing Director, CIGNA Investment
Advisory Company, Inc.*; Director, Connecticut
General Pension Services, Inc.*; Chairman of
the Board, President and Trustee, the Trusts;
Chairman of the Board, President and Director,
IIS.
Mary Louise Casey Senior Managing Director, CII and CIGNA
International Investment Advisors, Ltd.**
Richard H. Forde Senior Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*; President,
Senior Managing Director and Director, CIGNA
International Investment Advisors, Ltd.**; Vice
President, CIGNA Institutional Funds Group.
Edward F. Guay Senior Managing Director and Chief Economist,
CII; Senior Managing Director, CIGNA Investment
Advisory Company, Inc.*; previously, Managing
Director, CII and CIGNA Investment Advisory
Company, Inc.*
- 5 -
<PAGE>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Business Connections
- ------------------------------- ------------------------------------------
Lawrence S. Harris Senior Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*; Vice
President, CIGNA Annuity Funds Group, CIGNA
High Income Shares, CIGNA Variable Products
Group and IIS.
Malcolm S. Smith Senior Managing Director, CII; Director and
Senior Managing Director, CIGNA Investment
Advisory Company, Inc.*
Philip J. Ward Senior Managing Director, CII; Director and
Senior Managing Director, CIGNA Investment
Advisory Company, Inc.*
J. Robert Andrews Managing Director, CII.
Julia B. Bazenas Managing Director, CII; previously Vice
President, CII.
Mark E. Benoit Managing Director, CII; previously Vice
President, CII.
Susan B. Bosworth Managing Director, CII.
Thomas J. Bowen Managing Director, CII and CIGNA Investment
Advisory Company, Inc.*
Richard H. Chase Managing Director, CII; previously Vice
President, CII.
Rosemary C. Clarke Managing Director, CII and CIGNA Investment
Advisory Company, Inc.*
James F. Coggins, Jr. Managing Director, CII.
Dorothy Cunningham Managing Director, CII; previously Vice
President, CII.
Robert F. DeLucia Managing Director, CII and CIGNA Investment
Advisory Company, Inc.*; Director, Connecticut
General Pension Services, Inc.*
Lawrence A. Drake Managing Director, CII and CIGNA Investment
Advisory Company, Inc.*
Denise T. Duffee Managing Director, CII.
John G. Eisele Managing Director, CII; previously Vice
President, CII.
Robert Fair Managing Director, CII; previously Vice
President, CII.
John P. Feeney Managing Director, CII; previously Vice
President, CII.
Thomas R. Foley Managing Director, CII; previously Vice
President, CII.
- 6 -
<PAGE>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Business Connections
- ------------------------------- ------------------------------------------
Chris W. Jacobs Managing Director, CII.
David R. Johnson Managing Director, CII and CIGNA Investment
Advisory Company, Inc.*
Richard H. Kupchunos Managing Director, CII and CIGNA Investment
Advisory Company, Inc.*
James R. Kuzemchak Managing Director, CII.
David A. Leone Managing Director, CII.
Edward Lewis Managing Director, CII.
Timothy J. Lord Managing Director, CII.
Thomas P. Mahoney Managing Director, CII.
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.
Joseph W. Springman Managing Director, CII and CIGNA Investment
Advisory Company, Inc.*
Susan S. Sullivan Managing Director, CII.
- 7 -
<PAGE>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Business Connections
- ------------------------------- ------------------------------------------
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.*
Jean M. Anderson Vice President, CII.
Paul A. Bankson Vice President, CII; previously Vice President,
Connecticut General Pension Services, Inc.*
Paul Bergsteinsson Vice President, CII, CIGNA Investment Advisory
Company Inc.*, CIGNA Investment Group, Inc.*,
CIGNA International Investment Advisors, Ltd.**
and Connecticut General Pension Services, Inc.*
Marcy F. Blender Vice President, CII, CIGNA Investment Advisory
Company, Inc.*, CIGNA Investment Group, Inc.*
and Connecticut General Pension Services,
Inc.*; previously Treasurer, CIGNA Investment
Group, Inc.* and Connecticut General Pension
Services, Inc.*; Vice President and Treasurer,
CIGNA International Investment Advisors, Ltd.**
Marguerite A. Boslaugh Vice President, CII.
William C. Carlson Vice President, CII.
Antonio M. Caxide Vice President, CII and CIGNA International
Investment Advisors, Ltd.**
Rosemary S. Cleaves Vice President, CII; President and Director,
Connecticut General Pension Services, Inc.*
R. Thomas Clemmenson Vice President, CII.
Nancy M. Corrigan Vice President, CII.
Lee P. Crockett Vice President, CII.
Michael P. Daly Vice President; previously Economist, CII.
Mark V. DePucchio Vice President, CII.
- 8 -
<PAGE>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Business Connections
- ------------------------------- ------------------------------------------
Eric C. DiMiceli Vice President, CII.
Celia R. Dondes Vice President, CII.
Michael Q. Doyle Vice President, CII.
Ronald J. Dupont Vice President, CII and CIGNA Investment
Advisory Company, Inc.*
Robert W. Eccles Vice President, CII.
Mark Everette Vice President, CII.
Richard L. Fletcher Vice President, CII.
Jonathan S. Frankel Vice President, CII.
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 and CIGNA Investment
Advisory Company, Inc.*
Chuel D. Hwang Vice President, CII.
Edward B. Johns Vice President, CII.
Thomas W. Johnson Vice President, CII.
Patricia F. Judd Vice President, CII.
Peter K. Kofoed Vice President, CII.
Mark S. Korinek Vice President, CII.
James R. Lagasse Vice President, CII.
Mary S. Law Vice President, CII.
Dennis Leary Vice President, CII.
Paul T. Martin Vice President, CII.
Joseph G. Mazon Vice President, CII.
Linda L. Morel Vice President, CII.
Stephen J. Myott Vice President, CII.
Alpha O. Nicholson, III Vice President, CII.
- 9 -
<PAGE>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Business Connections
- ------------------------------- ------------------------------------------
Donald E. Norton Vice President, CII.
Ann Marie O'Rourke Vice President, CII.
Pamela S. Peck Vice President, CII.
Myrna Phillips Vice President, CII.
Scott S. Piccone Vice President, CII.
Elisabeth Piker Vice President, CII.
Geoffrey R. Plume Vice President, CII.
Thomas J. Podgorski Vice President, CII.
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.
Alexander Rybchinsky Vice President, CII.
Annette Sanders Vice President, CII.
Frank Sataline, Jr. Vice President, CII.
David S. Scheibe Vice President, CII; previously Assistant Vice
President and Controller, CII.
John R. Schumann Vice President, CII.
John A. Shaw Vice President, CII.
Thomas P. Shea, III Vice President, CII.
Philip Spak Vice President, CII.
- 10 -
<PAGE>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Business Connections
- ------------------------------- ------------------------------------------
Stephen C. Stachelek Vice President, CII and CIGNA Investment
Advisory Company, Inc.*; Vice President and
Treasurer, CIGNA Investment Group, Inc.* and
Connecticut General Pension Services, Inc.*;
Treasurer, CIGNA International Investment
Advisors, Ltd.**
Carlton C. Taylor Vice President, CII.
Patrick H. Thompson Vice President, CII.
Ruth D. VanWinkle Vice President, CII and CIGNA Investment
Advisory Company, Inc.*
Victor J. Visockis, Jr. Vice President, CII.
Henry C. Wagner, III Vice President, CII and CIGNA Investment
Advisory Company, Inc.*; Portfolio Manager,
CIGNA Variable Products S&P 500 Index Fund, a
series of CIGNA Variable Products Group.
William Weissenburger, Jr. Vice President, CII; Assistant Vice President,
Connecticut General Pension Services, Inc.*
Carey A. White Vice President, CII.
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.
David C. Kopp Secretary, CII, CIGNA Investment Advisory
Corporation*, CIGNA International Investment
Advisors, Ltd.**, CIGNA Investment Group,
Inc.*, Connecticut General Pension Services,
Inc.* and CIGNA Financial Advisors, Inc.*;
Assistant General Counsel and Assistant
Corporate Secretary, CIGNA Corporation*;
Corporate Secretary, Connecticut General Life
Insurance Company*.
CIGNA International Investment Advisors, Ltd. ("CIIA") serves as sub-adviser to
CIGNA Variable Products International Stock Fund, a series of shares of
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.
- 11 -
<PAGE>
Substantial business and other connections of the Directors and officers of CIIA
during the past two fiscal years are listed below:
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Business Connections
- ------------------------------- ------------------------------------------
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.*
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.
Arthur C. Reeds, III Director, CIIA and Connecticut General
Pension Services, Inc.*; President and Chief
Investment Officer, CIGNA Investment
Management, a division of CIGNA Corporation*;
President and Director, CII and CIGNA
Investment Group, Inc.*; President, CIGNA
Investment Advisory Company, Inc.*; Trustee,
the Trusts; Director, IIS.
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,
CII*, CIGNA Investment Advisory Company,
Inc.* , CIGNA Investment Group, Inc.* and
Connecticut General Pension Services, Inc.*
Paul Bergsteinsson Vice President and Assistant Treasurer, CIIA,
CII*, CIGNA Investment Group, Inc.*, CIGNA
Investment Advisory Company, Inc.* and
Connecticut General Pension Services, Inc.*
Antonio M. Caxide Vice President, CIIA and CII.*
Matthew P. Hutchinson Vice President, CIIA; previously, Fund
Manager, CIIA.
Lee C. Mickelburough Vice President, CIIA.
- 12 -
<PAGE>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Business Connections
- ------------------------------- ------------------------------------------
Timothy F. Roberts Vice President - Finance and Compliance
Officer, CIIA; Vice President, International
Finance/Global Compliance, CIGNA Investment
Management, a division of CIGNA Corporation*;
Vice President and Compliance Officer, CII*;
Compliance Officer, CIGNA Investment Advisory
Company, Inc.*
Flora Kong Financial Controller, CIIA.
Joel W. Messing Counsel, CIIA.
David C. Kopp Secretary, CIIA, CII*, CIGNA Investment
Advisory Corporation*, CIGNA Investment Group,
Inc.*, Connecticut General Pension Services,
Inc.* and CIGNA Financial Advisors, Inc.*;
Assistant General Counsel and Assistant
Corporate Secretary, CIGNA Corporation*;
Corporate Secretary, Connecticut General Life
Insurance Company.*
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 (f/k/a
Companion 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 shareholders
are maintained by State Street Bank and Trust Company, Boston, Massachusetts.
Registrant's corporate records and financial records are maintained c/o CIGNA
Investments, Inc., 900 Cottage Grove Road, Bloomfield, CT 06002.
ITEM 31. MANAGEMENT SERVICES.
- -----------------------------
None.
ITEM 32. UNDERTAKINGS.
- ----------------------
(a) Not Applicable.
(b) Not Applicable.
(c) Registrant undertakes to furnish each person to whom a Prospectus is
delivered a copy upon request and without charge of Registrant's most
recent annual report to shareholders.
- ----------------------
* 900 Cottage Grove Road, Bloomfield, CT
** Park House, 16 Finsbury Circus, London, England
- 13 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant, CIGNA Variable Products Group,
certifies that it meets all of the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment No. 11 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 5th day of March, 1996.
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. 11 to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
R. Bruce Albro Chairman of March 5, 1996.
the Board of
Trustees and
President (principal
executive officer)
By: /s/ Jeffrey S. Winer
------------------------
Jeffrey S. Winer
Attorney-in-Fact
/s/ Alfred A. Bingham III
--------------------------
Alfred A. Bingham III Treasurer March 5, 1996.
(principal
financial officer
and principal
accounting officer)
This Amendment to the Registration Statement has also been signed below by
Jeffrey S. Winer, Attorney-in-Fact, on behalf of the following Trustees on the
date indicated, such Trustees being 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 March 5, 1996.
--------------------------
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. 11 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 11 [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
* (1) The First Amended and Restated Master Trust Agreement dated as of
March 1, 1996.
* (5a) The Side Letter to the Master Investment Advisory Agreement
dated as of November 9, 1995 between CIGNA Variable Products Group and
CIGNA Investments, Inc.
* (8a) The Side Letter to the Custodian Contract dated as of February
15, 1996 between CIGNA Variable Products Group and State Street Bank
and Trust Company.
* (9a) The Side Letter to the Transfer Agency and Service Agreement
dated as of February 15, 1996 between CIGNA Variable Products Group
and State Street Bank and Trust Company.
* (9d) Form of Participation Agreement among CIGNA Variable Products
Group, CIGNA Financial Advisors, Inc. and Connecticut General Life
Insurance Company.
* (10) Consent of Counsel.
* (11) Consent of Price Waterhouse LLP.
* (17) Financial Data Schedule.
- ----------------------------
*Filed Herewith
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> S&P 500 INDEX FUND (FKA COMPANION FUND)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 50,574,275
<INVESTMENTS-AT-VALUE> 66,475,529
<RECEIVABLES> 136,962
<ASSETS-OTHER> 1,398
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 66,613,889
<PAYABLE-FOR-SECURITIES> 198,392
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 132,386
<TOTAL-LIABILITIES> 330,778
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 50,441,483
<SHARES-COMMON-STOCK> 6,164,150
<SHARES-COMMON-PRIOR> 6,685,332
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 46,038
<ACCUMULATED-NET-GAINS> 61,404
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,826,262
<NET-ASSETS> 66,283,111
<DIVIDEND-INCOME> 1,471,083
<INTEREST-INCOME> 225,414
<OTHER-INCOME> 0
<EXPENSES-NET> 444,501
<NET-INVESTMENT-INCOME> 1,251,996
<REALIZED-GAINS-CURRENT> 1,677,326
<APPREC-INCREASE-CURRENT> 16,086,849
<NET-CHANGE-FROM-OPS> 19,016,171
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,638,540
<DISTRIBUTIONS-OF-GAINS> 1,065,000
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 161,710
<NUMBER-OF-SHARES-REDEEMED> 935,565
<SHARES-REINVESTED> 252,673
<NET-CHANGE-IN-ASSETS> 11,554,701
<ACCUMULATED-NII-PRIOR> (340,506)
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 550,922
<GROSS-ADVISORY-FEES> 213,557
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 444,501
<AVERAGE-NET-ASSETS> 61,045,664
<PER-SHARE-NAV-BEGIN> 8.19
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> 2.80
<PER-SHARE-DIVIDEND> 0.27
<PER-SHARE-DISTRIBUTIONS> 0.18
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.75
<EXPENSE-RATIO> 0.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 1
FIRST AMENDED AND RESTATED CIGNA VARIABLE PRODUCTS GROUP
MASTER TRUST AGREEMENT
MARCH 1, 1996
(C)1995 GOODWIN, PROCTER & HOAR
ALL RIGHTS RESERVED
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - NAME AND DEFINITIONS...................................................... 1
Section 1.1 Name and Principal Office..................................... 1
Section 1.2 Principal Office.............................................. 2
Section 1.3 Definitions................................................... 2
(a) "By-Laws"..................................................... 2
(b) "class"....................................................... 2
(c) "Commission".................................................. 2
(d) "Declaration of Trust"........................................ 2
(e) "1940 Act".................................................... 2
(f) "securities" or "security".................................... 2
(g) "Shareholder"................................................. 2
(h) "Shares"...................................................... 2
(i) "Sub-Trust" or "Series"....................................... 2
(j) "Trust"....................................................... 2
(k) "Trustees".................................................... 2
ARTICLE II - PURPOSE OF TRUST......................................................... 3
ARTICLE III - THE TRUSTEES............................................................ 3
Section 3.1 Number, Designation, Election, Term, etc...................... 3
(a) Trustees...................................................... 3
(b) Number........................................................ 3
(c) Election and Term............................................. 3
(d) Resignation and Retirement.................................... 3
(e) Removal....................................................... 3
(f) Vacancies..................................................... 4
(g) Effect of Death, Resignation, etc............................. 4
(h) No Accounting................................................. 4
Section 3.2 Powers of Trustees............................................ 4
(a) Investments................................................... 5
(b) Disposition of Assets......................................... 5
(c) Ownership Powers.............................................. 5
(d) Subscription.................................................. 5
(e) Form of Holding............................................... 6
(f) Reorganization, etc........................................... 6
(g) Voting Trusts, etc............................................ 6
(h) Compromise.................................................... 6
(i) Partnerships, etc............................................. 6
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
(j) Borrowing and Security........................................ 6
(k) Guarantees, etc............................................... 6
(l) Insurance..................................................... 6
(m) Pensions, etc................................................. 7
(n) Distribution Plans............................................ 7
Section 3.3 Certain Contracts............................................. 7
(a) Advisory...................................................... 7
(b) Administration................................................ 8
(c) Distribution.................................................. 8
(d) Custodian and Depository...................................... 8
(e) Transfer and Dividend Disbursing Agency....................... 8
(f) Shareholder Servicing......................................... 8
(g) Accounting.................................................... 8
Section 3.4 Payment of Trust Expenses and Compensation of Trustees........ 9
Section 3.5 Ownership of Assets of the Trust.............................. 9
ARTICLE IV - SHARES................................................................... 9
Section 4.1 Description of Shares......................................... 9
Section 4.2 Establishment and Designation of Sub-Trusts and Classes....... 11
(a) Assets Belonging to Sub-Trusts................................ 11
(b) Liabilities Belonging to Sub-Trusts........................... 12
(c) Dividends..................................................... 12
(d) Liquidation................................................... 13
(e) Voting........................................................ 13
(f) Redemption by Shareholder..................................... 13
(g) Redemption by Trust........................................... 14
(h) Net Asset Value............................................... 14
(i) Transfer...................................................... 14
(j) Equality...................................................... 15
(k) Fractions..................................................... 15
(l) Conversion Rights............................................. 15
(m) Class Differences............................................. 15
(n) Termination of Sales.......................................... 15
Section 4.3 Ownership of Shares........................................... 15
Section 4.4 Investments in the Trust...................................... 16
Section 4.5 No Pre-emptive Rights......................................... 16
Section 4.6 Status of Shares and Limitation of Personal Liability......... 16
Section 4.7 No Appraisal Rights........................................... 16
ARTICLE V - SHAREHOLDERS' VOTING POWERS AND MEETINGS.................................. 16
Section 5.1 Voting Powers................................................. 16
Section 5.2 Meetings...................................................... 17
Section 5.3 Record Dates.................................................. 17
Section 5.4 Quorum and Required Vote...................................... 18
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
Section 5.5 Action by Written Consent..................................... 18
Section 5.6 Inspection of Records......................................... 18
Section 5.7 Additional Provisions......................................... 18
Section 5.8 Shareholder Communications.................................... 18
ARTICLE VI - LIMITATION OF LIABILITY; INDEMNIFICATION................................. 19
Section 6.1 Trustees, Shareholders, etc. Not Personally Liable; Notice.... 19
Section 6.2 Trustee's Good Faith Action; Expert Advice; No Bond or Surety. 19
Section 6.3 Indemnification of Shareholders............................... 20
Section 6.4 Indemnification of Trustees, Officers, etc.................... 20
Section 6.5 Compromise Payment............................................ 21
Section 6.6 Indemnification Not Exclusive, etc............................ 21
Section 6.7 Liability of Third Persons Dealing with Trustees.............. 21
ARTICLE VII - MISCELLANEOUS........................................................... 22
Section 7.1 Duration and Termination of Trust............................. 22
Section 7.2 Reorganization................................................ 22
Section 7.3 Amendments.................................................... 22
Section 7.4 Filing of Copies; References; Headings........................ 23
Section 7.5 Applicable Law................................................ 23
Section 7.6 Name of Trust................................................. 23
Section 7.7 Integration................................................... 24
</TABLE>
(iii)
<PAGE>
FIRST AMENDED AND RESTATED MASTER TRUST AGREEMENT
FIRST AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST made at
Springfield, Massachusetts as of this 1st day of March, 1996, by the Trustees
hereunder, and by the holders of shares of beneficial interest to be issued
hereunder as hereinafter provided, which amends and restates the Master Trust
Agreement dated February 4, 1988, as amended by Amendment No. 1 dated as of
October 13, 1995.
W I T N E S S E T H:
WHEREAS this Trust has been formed to carry on the business of an
investment company; and
WHEREAS this Trust is authorized to issue its shares of beneficial interest
in separate series, each separate series to be a Sub-Trust hereunder, all in
accordance with the provisions hereinafter set forth; and
WHEREAS the Trustees have agreed to manage all property coming into their
hands as trustees of a Massachusetts business trust in accordance with the
provisions hereinafter set forth; and
WHEREAS the Trustees desire to restate the Master Trust Agreement by
incorporating Amendment No. 1 to such Master Trust Agreement dated as of October
13, 1995, and to amend the Master Trust Agreement by making certain other
changes in connection therewith by adopting this First Amended and Restated
Master Trust Agreement, which shall supersede such Master Trust Agreement, as
amended, and be the governing instrument of the Trust from and after the date
hereof.
NOW, THEREFORE, the Trustees hereby amend and restate the Master Trust
Agreement dated February 4, 1988, as amended by Amendment No. 1 dated as of
October 13, 1995, in its entirety and declare that they will hold all cash,
securities and other assets which they may from time to time acquire in any
manner as Trustees hereunder IN TRUST to manage and dispose of the same upon the
following terms and conditions for the benefit of the holders from time to time
of shares of beneficial interest in this Trust and the Sub-Trusts created
hereunder as hereinafter set forth.
ARTICLE I - NAME, PRINCIPAL OFFICE AND DEFINITIONS
--------- --------------------------------------
Section 1.1 Name. This Trust shall be known as "CIGNA VARIABLE PRODUCTS
----
GROUP" and the Trustees shall conduct the business of the Trust under that name
or any other name or names as they may from time to time determine.
<PAGE>
Section 1.2 Principal Office. The principal office of the Trust shall be
----------------
located at 1380 Main Street, Springfield, Massachusetts 01103 or at such other
location as the Trustees may from time to time determine. In the event that the
Trust changes its principal office, the Trustees shall so inform the Secretary
of The Commonwealth of Massachusetts by the filing of a certificate of change
therewith, specifying the street address of its new principal office in the
Commonwealth and by filing the same with the Clerk of the City of Springfield,
as well as any other governmental office where such filing may from time to time
be required.
Section 1.3 Definitions. Whenever used herein, unless otherwise required
-----------
by the context or specifically provided:
(a) "By-Laws" shall mean the By-Laws of the Trust as amended from
time to time;
(b) "class" refers to any class of Shares of any Series or Sub-
Trust established and designated under or in accordance with the provisions of
Article IV;
(c) "Commission" shall have the meaning given it in the 1940 Act;
(d) "Declaration of Trust" shall mean this Agreement and
Declaration of Trust as amended or restated from time to time;
(e) "1940 Act" refers to the Investment Company Act of 1940 and the
Rules and Regulations thereunder, all as amended from time to time;
(f) "securities" or "security" shall mean and include, but shall
not be limited to, those securities described in Section 2(a)(36) of the 1940
Act;
(g) "Shareholder" means a record owner of Shares;
(h) "Shares" refers to the transferable units of interest into
which the beneficial interest in the Trust and each Sub-Trust of the Trust
and/or any class of any Sub-Trust (as the context may require) shall be divided
from time to time;
(i) "Sub-Trust" or "Series" refers to a series of Shares
established and designated under or in accordance with the provisions of Article
IV;
(j) "Trust" refers to the Massachusetts business trust established
by this Declaration of Trust, as amended from time to time, inclusive of each
and every Sub-Trust established hereunder; and
(k) "Trustees" refers to the Trustees of the Trust and of each Sub-
Trust hereunder named herein or elected in accordance with Article III.
2
<PAGE>
ARTICLE II - PURPOSE OF TRUST
---------- ----------------
The purpose of the Trust is to operate as an investment company and to
offer Shareholders of the Trust and each Sub-Trust of the Trust one or more
investment programs primarily in securities and debt instruments.
ARTICLE III - THE TRUSTEES
----------- ------------
Section 3.1 Number, Designation, Election, Term, etc.
-----------------------------------------
(a) Trustees. The initial Trustees hereof and of each Sub-Trust
--------
hereunder shall be R. Bruce Albro, Hugh R. Beath, Russell H. Jones, Paul J.
McDonald and Arthur C. Reeds, III.
(b) Number. The Trustees serving as such, whether named above or
------
hereafter becoming Trustees, may increase or decrease the number of Trustees to
a number other than the number theretofore determined. No decrease in the
number of Trustees shall have the effect of removing any Trustee from office
prior to the expiration of such Trustee's term, but the number of Trustees may
be decreased in conjunction with the removal of a Trustee pursuant to subsection
(e) of this Section 3.1.
(c) Election and Term. Trustees in addition to those named herein
-----------------
may become such by election by Shareholders or the Trustees in office pursuant
to Section 3.1(f). Each Trustee, whether named above or hereafter becoming a
Trustee, shall serve as a Trustee of the Trust and of each Sub-Trust hereunder
during the lifetime of this Trust and until its termination as hereinafter
provided except as such Trustee sooner dies, resigns, retires or is removed.
Subject to Section 16(a) of the 1940 Act, the Trustees may elect their own
successors and may, pursuant to Section 3.1(f) hereof, appoint Trustees to fill
vacancies.
(d) Resignation and Retirement. Any Trustee may resign or retire as
--------------------------
a Trustee, by written instrument signed by such Trustee and delivered to the
other Trustees or to any officer of the Trust, and such resignation or
retirement shall take effect upon such delivery or upon such later date as is
specified in such instrument and shall be effective as to the Trust and each
Sub-Trust hereunder.
(e) Removal. Any Trustee may be removed with or without cause at
-------
any time: (i) by written instrument, signed by at least two-thirds of the number
of Trustees in office immediately prior to such removal, specifying the date
upon which such removal shall become effective; or (ii) by vote of Shareholders
holding not less than two-thirds of the Shares then outstanding, cast in person
or by proxy at any meeting called for the purpose; or (iii) by a written
declaration signed by Shareholders holding not less than two-thirds of the
Shares then outstanding and filed with the Trust's custodian. Any such removal
shall be effective as to the Trust and each Sub-Trust hereunder.
3
<PAGE>
(f) Vacancies. Any vacancy or anticipated vacancy resulting from
---------
any reason, including without limitation the death, resignation, retirement,
removal or incapacity of any of the Trustees, or resulting from an increase in
the number of Trustees by the other Trustees may (but so long as there are at
least two remaining Trustees, need not unless required by the 1940 Act) be
filled by a majority of the remaining Trustees, subject to the provisions of
Section 16(a) of the 1940 Act, through the appointment in writing of such other
person as such remaining Trustees in their discretion shall determine and such
appointment shall be effective upon the written acceptance of the person named
therein to serve as a Trustee and agreement by such person to be bound by the
provisions of this Declaration of Trust, except that any such appointment in
anticipation of a vacancy to occur by reason of retirement, resignation or
increase in number of Trustees to be effective at a later date shall become
effective only at or after the effective date of said retirement, resignation or
increase in number of Trustees. As soon as any Trustee so appointed shall have
accepted such appointment and shall have agreed in writing to be bound by this
Declaration of Trust and the appointment is effective, the Trust estate shall
vest in the new Trustee, together with the continuing Trustees, without any
further act or conveyance.
(g) Effect of Death, Resignation, etc. The death, resignation,
---------------------------------
retirement, removal or incapacity of the Trustees, or any one of them, shall not
operate to annul or terminate the Trust or any Sub-Trust hereunder or to revoke
or terminate any existing agency or contract created or entered into pursuant to
the terms of this Declaration of Trust.
(h) No Accounting. Except to the extent required by the 1940 Act or
-------------
under circumstances which would justify removal for cause, no person ceasing to
be a Trustee as a result of death, resignation, retirement, removal or
incapacity (nor the estate of any such person) shall be required to make an
accounting to the Shareholders or remaining Trustees upon such cessation.
Section 3.2 Powers of Trustees. Subject to the provisions of this
------------------
Declaration of Trust, the business of the Trust shall be managed by the
Trustees, and they shall have all powers necessary or convenient to carry out
that responsibility and the purpose of the Trust. The Trustees in all instances
shall act as principals, and are and shall be free from the control of the
Shareholders. The Trustees shall have full power and authority to do any and
all acts and to make and execute any and all contracts and instruments that they
may consider necessary or appropriate in connection with the management of the
Trust. The Trustees shall not be bound or limited by present or future laws or
customs with regard to investment by trustees or fiduciaries, but shall have
full authority and absolute power and control over the assets of the Trust and
the business of the Trust to the same extent as if the Trustees were the sole
owners of the assets of the Trust and the business in their own right, including
such authority, power and control to do all acts and things as they, in their
uncontrolled discretion, shall deem proper to accomplish the purposes of this
Trust. Without limiting the foregoing, the Trustees may adopt By-Laws not
inconsistent with this Declaration of Trust providing for the conduct of the
business and affairs of the Trust and may amend and repeal them to the extent
that such By-Laws do not reserve that right to the Shareholders; they may sue or
be sued in the name of the Trust; they may from time to time in accordance with
the provisions of Section 4.1 hereof establish Sub-Trusts, each such Sub-Trust
to operate as a separate and distinct investment
4
<PAGE>
medium and with separately defined investment objectives and policies and
distinct investment purposes; they may from time to time in accordance with the
provisions of Section 4.1 hereof establish classes of Shares of any Series or
Sub-Trust or divide the Shares of any Series or Sub-Trust into classes; they may
as they consider appropriate elect and remove officers and appoint and terminate
agents and consultants and hire and terminate employees, any one or more of the
foregoing of whom may be a Trustee, and may provide for the compensation of all
of the foregoing; they may appoint from their own number, and terminate, any one
or more committees consisting of two or more Trustees, including without implied
limitation an executive committee, which may, when the Trustees are not in
session and subject to the 1940 Act, exercise some or all of the power and
authority of the Trustees as the Trustees may determine; in accordance with
Section 3.3 they may employ one or more advisers, administrators, depositories
and custodians and may authorize any depository or custodian to employ
subcustodians or agents and to deposit all or any part of such assets in a
system or systems for the central handling of securities and debt instruments,
retain transfer, dividend, accounting or Shareholder servicing agents or any of
the foregoing, provide for the distribution of Shares by the Trust through one
or more distributors, principal underwriters or otherwise, and set record dates
or times for the determination of Shareholders or various of them with respect
to various matters; they may compensate or provide for the compensation of the
Trustees, officers, advisers, administrators, custodians, other agents,
consultants and employees of the Trust or the Trustees on such terms as they
deem appropriate; and in general they may delegate to any officer of the Trust,
to any committee of the Trustees and to any employee, adviser, administrator,
distributor, depository, custodian, transfer and dividend disbursing agent, or
any other agent or consultant of the Trust such authority, powers, functions and
duties as they consider desirable or appropriate for the conduct of the business
and affairs of the Trust, including without implied limitation, the power and
authority to act in the name of the Trust and any Sub-Trust and of the Trustees,
to sign documents and to act as attorney-in-fact for the Trustees.
Without limiting the foregoing and to the extent not inconsistent with
the 1940 Act or other applicable law, the Trustees shall have power and
authority for and on behalf of the Trust and each separate Sub-Trust established
hereunder:
(a) Investments. To invest and reinvest cash and other property,
-----------
and to hold cash or other property uninvested without in any event being bound
or limited by any present or future law or custom in regard to investments by
trustees;
(b) Disposition of Assets. To sell, exchange, lend, pledge,
---------------------
mortgage, hypothecate, write options on and lease any or all of the assets of
the Trust;
(c) Ownership Powers. To vote or give assent, or exercise any
----------------
rights of ownership, with respect to stock or other securities, debt instruments
or property; and to execute and deliver proxies or powers of attorney to such
person or persons as the Trustees shall deem proper, granting to such person or
persons such power and discretion with relation to securities, debt instruments
or property as the Trustees shall deem proper;
(d) Subscription. To exercise powers and rights of subscription or
------------
otherwise which in any manner arise out of ownership of securities or debt
instruments;
5
<PAGE>
(e) Form of Holding. To hold any security, debt instrument or
---------------
property in a form not indicating any trust, whether in bearer, unregistered or
other negotiable form, or in the name of the Trustees or of the Trust or of any
Sub-Trust or in the name of a custodian, subcustodian or other depository or a
nominee or nominees or otherwise;
(f) Reorganization, etc. To consent to or participate in any plan
-------------------
for the reorganization, consolidation or merger of any corporation or issuer,
any security or debt instrument of which is or was held in the Trust; to consent
to any contract, lease, mortgage, purchase or sale of property by such
corporation or issuer, and to pay calls or subscriptions with respect to any
security or debt instrument held in the Trust;
(g) Voting Trusts, etc. To join with other holders of any
------------------
securities or debt instruments in acting through a committee, depositary, voting
trustee or otherwise, and in that connection to deposit any security or debt
instrument with, or transfer any security or debt instrument to, any such
committee, depositary or trustee, and to delegate to them such power and
authority with relation to any security or debt instrument (whether or not so
deposited or transferred) as the Trustees shall deem proper, and to agree to
pay, and to pay, such portion of the expenses and compensation of such
committee, depositary or trustee as the Trustees shall deem proper;
(h) Compromise. To compromise, arbitrate or otherwise adjust
----------
claims in favor of or against the Trust or any Sub-Trust or any matter in
controversy, including but not limited to claims for taxes;
(i) Partnerships, etc. To enter into joint ventures, general or
-----------------
limited partnerships and any other combinations or associations;
(j) Borrowing and Security. To borrow funds and to mortgage and
----------------------
pledge the assets of the Trust or any part thereof to secure obligations arising
in connection with such borrowing;
(k) Guarantees, etc. To endorse or guarantee the payment of any
---------------
notes or other obligations of any person; to make contracts of guaranty or
suretyship, or otherwise assume liability for payment thereof; and to mortgage
and pledge the Trust property or any part thereof to secure any of or all such
obligations;
(l) Insurance. To purchase and pay for entirely out of Trust
---------
property such insurance and/or bonding as they may deem necessary or appropriate
for the conduct of the business, including, without limitation, insurance
policies insuring the assets of the Trust and payment of distributions and
principal on its portfolio investments, and insurance policies insuring the
Shareholders, Trustees, officers, employees, agents, consultants, investment
advisers, managers, administrators, distributors, principal underwriters, or
independent contractors, or any thereof (or any person connected therewith), of
the Trust individually against all claims and liabilities of every nature
arising by reason of holding, being or having held any such office or position,
or by reason of any action alleged to have been taken or omitted by any such
person in any such capacity, including any action taken or omitted that may be
determined
6
<PAGE>
to constitute negligence, whether or not the Trust would have the power to
indemnify such person against such liability; and
(m) Pensions, etc. To pay pensions for faithful service, as deemed
-------------
appropriate by the Trustees, and to adopt, establish and carry out pension,
profit-sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions, including the
purchasing of life insurance and annuity contracts as a means of providing such
retirement and other benefits, for any or all of the Trustees, officers,
employees and agents of the Trust.
(n) Distribution Plans. To adopt on behalf of the Trust or any
------------------
Sub-Trust with respect to any class thereof a plan of distribution and related
agreements thereto pursuant to the terms of Rule 12b-1 of the 1940 Act and to
make payments from the assets of the Trust or the relevant Sub-Trust or Sub-
Trusts pursuant to said Rule 12b-1 Plan.
Except as otherwise provided by the 1940 Act or other applicable law,
this Declaration of Trust or the By-Laws, any action to be taken by the Trustees
on behalf of or with respect to the Trust or any Sub-Trust or class thereof may
be taken by a majority of the Trustees present at a meeting of Trustees (a
quorum, consisting of at least one-half of the Trustees then in office, being
present), within or without Massachusetts, including any meeting held by means
of a conference telephone or other communications equipment by means of which
all persons participating in the meeting can hear each other at the same time,
and participation by such means shall constitute presence in person at a
meeting, or by written consents of a majority of the Trustees then in office (or
such larger or different number as may be required by the 1940 Act or other
applicable law).
Section 3.3 Certain Contracts. Subject to compliance with the
-----------------
provisions of the 1940 Act, but notwithstanding any limitations of present and
future law or custom in regard to delegation of powers by trustees generally,
the Trustees may, at any time and from time to time and without limiting the
generality of their powers and authority otherwise set forth herein, enter into
one or more contracts with any one or more corporations, trusts, associations,
partnerships, limited partnerships, other type of organizations, or individuals
(a "Contracting Party"), to provide for the performance and assumption of some
or all of the following services, duties and responsibilities to, for or on
behalf of the Trust and/or any Sub-Trust, and/or the Trustees, and to provide
for the performance and assumption of such other services, duties and
responsibilities in addition to those set forth below as the Trustees may
determine appropriate:
(a) Advisory. Subject to the general supervision of the Trustees
--------
and in conformity with the stated policy of the Trustees with respect to the
investments of the Trust or of the assets belonging to any Sub-Trust of the
Trust (as that phrase is defined in subsection (a) of Section 4.2), to manage
such investments and assets, make investment decisions with respect thereto, and
to place purchase and sale orders for portfolio transactions relating to such
investments and assets;
7
<PAGE>
(b) Administration. Subject to the general supervision of the
--------------
Trustees and in conformity with any policies of the Trustees with respect to the
operations of the Trust and each Sub-Trust (including each class thereof), to
supervise all or any part of the operations of the Trust and each Sub-Trust, and
to provide all or any part of the administrative and clerical personnel, office
space and office equipment and services appropriate for the efficient
administration and operations of the Trust and each Sub-Trust;
(c) Distribution. To distribute the Shares of the Trust and each
------------
Sub-Trust (including any classes thereof), to be principal underwriter of such
Shares, and/or to act as agent of the Trust and each Sub-Trust in the sale of
Shares and the acceptance or rejection of orders for the purchase of Shares;
(d) Custodian and Depository. To act as depository for and to
------------------------
maintain custody of the property of the Trust and each Sub-Trust and accounting
records in connection therewith;
(e) Transfer and Dividend Disbursing Agency. To maintain records
---------------------------------------
of the ownership of outstanding Shares, the issuance and redemption and the
transfer thereof, and to disburse any dividends declared by the Trustees and in
accordance with the policies of the Trustees and/or the instructions of any
particular Shareholder to reinvest any such dividends;
(f) Shareholder Servicing. To provide service with respect to the
---------------------
relationship of the Trust and its Shareholders, records with respect to
Shareholders and their Shares, and similar matters; and
(g) Accounting. To handle all or any part of the accounting
----------
responsibilities, whether with respect to the Trust's properties, Shareholders
or otherwise.
The same person may be the Contracting Party for some or all of the
services, duties and responsibilities to, for and of the Trust and/or the
Trustees, and the contracts with respect thereto may contain such terms
interpretive of or in addition to the delineation of the services, duties and
responsibilities provided for, including provisions that are not inconsistent
with the 1940 Act relating to the standard of duty of and the rights to
indemnification of the Contracting Party and others, as the Trustees may
determine. Nothing herein shall preclude, prevent or limit the Trust or a
Contracting Party from entering into sub-contractual arrangements relating to
any of the matters referred to in Sections 3.3(a) through (g) hereof.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is
a shareholder, director, officer, partner, trustee, employee, manager,
adviser, principal underwriter or distributor or agent of or for any
Contracting Party, or of or for any parent or affiliate of any Contracting
Party or that the Contracting Party or any parent or affiliate thereof is a
Shareholder or has an interest in the Trust or any Sub-Trust, or that
8
<PAGE>
(ii) any Contracting Party may have a contract providing for the
rendering of any similar services to one or more other corporations,
trusts, associations, partnerships, limited partnerships or other
organizations, or have other business or interests, shall not affect the
validity of any contract for the performance and assumption of services,
duties and responsibilities to, for or of the Trust or any Sub-Trust and/or
the Trustees or disqualify any Shareholder, Trustee or officer of the Trust
from voting upon or executing the same or create any liability or
accountability to the Trust, any Sub-Trust or its Shareholders, provided
that in the case of any relationship or interest referred to in the
preceding clause (i) on the part of any Trustee or officer of the Trust
either (x) the material facts as to such relationship or interest have been
disclosed to or are known by the Trustees not having any such relationship
or interest and the contract involved is approved in good faith by a
majority of such Trustees not having any such relationship or interest
(even though such unrelated or disinterested Trustees are less than a
quorum of all of the Trustees), (y) the material facts as to such
relationship or interest and as to the contract have been disclosed to or
are known by the Shareholders entitled to vote thereon and the contract
involved is specifically approved in good faith by vote of the
Shareholders, or (z) the specific contract involved is fair to the Trust as
of the time it is authorized, approved or ratified by the Trustees or by
the Shareholders.
Section 3.4 Payment of Trust Expenses and Compensation of Trustees. The
------------------------------------------------------
Trustees are authorized to pay or to cause to be paid out of the principal or
income of the Trust or any Sub-Trust, or partly out of principal and partly out
of income, and to charge or allocate the same to, between or among such one or
more of the Sub-Trusts and/or one or more classes of Shares thereof that may be
established and designated pursuant to Article IV, as the Trustees deem fair,
all expenses, fees, charges, taxes and liabilities incurred or arising in
connection with the Trust, any Sub-Trust and/or any class of Shares thereof, or
in connection with the management thereof, including, but not limited to, the
Trustees' compensation and such expenses and charges for the services of the
Trust's officers, employees, investment adviser, administrator, distributor,
principal underwriter, auditor, counsel, depository, custodian, transfer agent,
dividend disbursing agent, accounting agent, Shareholder servicing agent, and
such other agents, consultants, and independent contractors and such other
expenses and charges as the Trustees may deem necessary or proper to incur.
Without limiting the generality of any other provision hereof, the Trustees
shall be entitled to reasonable compensation from the Trust for their services
as Trustees and may fix the amount of such compensation.
Section 3.5 Ownership of Assets of the Trust. Title to all of the assets
--------------------------------
of the Trust and of each Sub-Trust shall at all times be considered as vested in
the Trustees.
ARTICLE IV - SHARES
---------- ------
Section 4.1 Description of Shares. The beneficial interest in the Trust
---------------------
shall be divided into Shares, all without par value, but the Trustees shall have
the authority from time to time to issue Shares in one or more Series (each of
which Series of Shares shall represent the beneficial interest in a separate and
distinct Sub-Trust of the Trust, including without limitation each Sub-Trust
specifically established and designated in Section 4.2), as they deem necessary
or desirable. For all purposes under this Declaration of Trust or otherwise,
including, without
9
<PAGE>
implied limitation, (i) with respect to the rights of creditors and (ii) for
purposes of interpreting the relevant rights of each Sub-Trust and the
Shareholders of each Sub-Trust, each Sub-Trust established hereunder shall be
deemed to be a separate trust. The Trustees shall have exclusive power without
the requirement of Shareholder approval to establish and designate such separate
and distinct Sub-Trusts, and to fix and determine the relative rights and
preferences as between the shares of the separate Sub-Trusts as to right of
redemption and the price, terms and manner of redemption, special and relative
rights as to dividends and other distributions and on liquidation, sinking or
purchase fund provisions, conversion rights, and conditions under which the
several Sub-Trusts shall have separate voting rights or no voting rights.
In addition, the Trustees shall have exclusive power, without the
requirement of Shareholder approval, to issue classes of Shares of any Sub-Trust
or divide the Shares of any Sub-Trust into classes, each class having such
different dividend, liquidation, voting and other rights as the Trustees may
determine, and may establish and designate the specific classes of Shares of
each Sub-Trust. The fact that a Sub-Trust shall have initially been established
and designated without any specific establishment or designation of classes
(i.e., that all Shares of such Sub-Trust are initially of a single class), or
that a Sub-Trust shall have more than one established and designated class,
shall not limit the authority of the Trustees to establish and designate
separate classes, or one or more further classes, of said Sub-Trust without
approval of the holders of the initial class thereof, or previously established
and designated class or classes thereof.
The number of authorized Shares and the number of Shares of each Sub-Trust
or class thereof that may be issued is unlimited, and the Trustees may issue
Shares of any Sub-Trust or class thereof for such consideration and on such
terms as they may determine (or for no consideration if pursuant to a Share
dividend or split-up), all without action or approval of the Shareholders. All
Shares when so issued on the terms determined by the Trustees shall be fully
paid and non-assessable (but may be subject to mandatory contribution back to
the Trust as provided in subsection (h) of Section 4.2). The Trustees may
classify or reclassify any unissued Shares or any Shares previously issued and
reacquired of any Sub-Trust or class thereof into one or more Sub-Trusts or
classes thereof that may be established and designated from time to time. The
Trustees may hold as treasury Shares, reissue for such consideration and on such
terms as they may determine, or cancel, at their discretion from time to time,
any Shares of any Sub-Trust or class thereof reacquired by the Trust.
The Trustees may from time to time close the transfer books or establish
record dates and times for the purposes of determining the holders of Shares
entitled to be treated as such, to the extent provided or referred to in Section
5.3.
The establishment and designation of any Sub-Trust or of any class of
Shares of any Sub-Trust in addition to those established and designated in
Section 4.2 shall be effective (i) upon the execution by a majority of the then
Trustees of an instrument setting forth such establishment and designation of
the relative rights and preferences of the Shares of such Sub-Trust or class,
(ii) upon the execution of an instrument in writing by an officer of the Trust
pursuant to the vote of a majority of the Trustees, or (iii) as otherwise
provided in either such instrument. At any time that there are no Shares
outstanding of any particular Sub-Trust or class
10
<PAGE>
previously established and designated, the Trustees may by an instrument
executed by a majority of their number (or by an instrument executed by an
officer of the Trust pursuant to the vote of a majority of the Trustees) abolish
that Sub-Trust or class and the establishment and designation thereof. Each
instrument establishing and designating any Sub-Trust shall have the status of
an amendment to this Declaration of Trust.
Any Trustee, officer or other agent of the Trust, and any organization in
which any such person is interested may acquire, own, hold and dispose of Shares
of any Sub-Trust (including any classes thereof) of the Trust to the same extent
as if such person were not a Trustee, officer or other agent of the Trust; and
the Trust may issue and sell or cause to be issued and sold and may purchase
Shares of any Sub-Trust (including any classes thereof) from any such person or
any such organization subject only to the general limitations, restrictions or
other provisions applicable to the sale or purchase of Shares of such Sub-Trust
(including any classes thereof) generally.
Section 4.2 Establishment and Designation of Sub-Trusts. Without
-------------------------------------------
limiting the authority of the Trustees set forth in Section 4.1 to establish and
designate any further Sub-Trusts, the Trustees hereby redesignate the
established Sub-Trust known as Companion Fund and designate this Sub-Trust as
CIGNA Variable Products S&P 500 Index Fund and establish and designate four
additional Sub-Trusts: CIGNA Variable Products High Yield Fund, CIGNA Variable
Products Income Fund, CIGNA Variable Products International Stock Fund and CIGNA
Variable Products Money Market Fund, and the Shares of each such Sub-Trust and
any Shares of any further Sub-Trusts that may from time to time be established
and designated by the Trustees shall (unless the Trustees otherwise determine
with respect to some further Sub-Trust at the time of establishing and
designating the same) have the following relative rights and preferences:
(a) Assets Belonging to Sub-Trusts. All consideration received by
------------------------------
the Trust for the issue or sale of Shares of a particular Sub-Trust or any
classes thereof, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall be held by the Trustees in trust for the
benefit of the holders of Shares of that Sub-Trust or class thereof and shall
irrevocably belong to that Sub-Trust (and be allocable to any classes thereof)
for all purposes, and shall be so recorded upon the books of account of the
Trust. Such consideration, assets, income, earnings, profits, and proceeds
thereof, including any proceeds derived from the sale, exchange or liquidation
of such assets, and any funds or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, together with any General Items (as
hereinafter defined) allocated to that Sub-Trust as provided in the following
sentence, are herein referred to as "assets belonging to" that Sub-Trust (and
allocable to any classes thereof). In the event that there are any assets,
income, earnings, profits, and proceeds thereof, funds, or payments which are
not readily identifiable as belonging to any particular Sub-Trust (collectively
"General Items"), the Trustees shall allocate such General Items to and among
any one or more of the Sub-Trusts established and designated from time to time
in such manner and on such basis as they, in their sole discretion, deem fair
and equitable; and any General Items so allocated to a particular Sub-Trust
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shall belong to that Sub-Trust (and be allocable to any classes thereof). Each
such allocation by the Trustees shall be conclusive and binding upon the holders
of all Shares of all Sub-Trusts (including any classes thereof) for all
purposes.
(b) Liabilities Belonging to Sub-Trusts. The assets belonging to
-----------------------------------
each particular Sub-Trust shall be charged with the liabilities in respect of
that Sub-Trust and all expenses, costs, charges and reserves belonging to that
Sub-Trust, and any general liabilities, expenses, costs, charges or reserves of
the Trust which are not readily identifiable as belonging to any particular Sub-
Trust shall be allocated and charged by the Trustees to and among any one or
more of the Sub-Trusts established and designated from time to time in such
manner and on such basis as the Trustees in their sole discretion deem fair and
equitable. In addition, the liabilities in respect of a particular class of
Shares of a particular Sub-Trust and all expenses, costs, charges and reserves
belonging to that class of Shares, and any general liabilities, expenses, costs,
charges or reserves of that particular Sub-Trust which are not readily
identifiable as belonging to any particular class of Shares of that Sub-Trust
shall be allocated and charged by the Trustees to and among any one or more of
the classes of Shares of that Sub-Trust established and designated from time to
time in such manner and on such basis as the Trustees in their sole discretion
deem fair and equitable. The liabilities, expenses, costs, charges and reserves
allocated and so charged to a Sub-Trust or class thereof are herein referred to
as "liabilities belonging to" that Sub-Trust or class thereof. Each allocation
of liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders, creditors and any other persons
dealing with the Trust or any Sub-Trust (including any classes thereof) for all
purposes. Any creditor of any Sub-Trust may look only to the assets of that Sub-
Trust to satisfy such creditor's debt.
The Trustees shall have full discretion, to the extent not inconsistent
with the 1940 Act, to determine which items shall be treated as income and which
items as capital; and each such determination and allocation shall be conclusive
and binding upon the Shareholders.
(c) Dividends. Dividends and distributions on Shares of a
---------
particular Sub-Trust or any class thereof may be paid with such frequency as the
Trustees may determine, which may be daily or otherwise pursuant to a standing
resolution or resolutions adopted only once or with such frequency as the
Trustees may determine, to the holders of Shares of that Sub-Trust or class,
from such of the income and capital gains, accrued or realized, from the assets
belonging to that Sub-Trust, or in the case of a class, belonging to that Sub-
Trust and allocable to that class, as the Trustees may determine, after
providing for actual and accrued liabilities belonging to that Sub-Trust or
class. All dividends and distributions on Shares of a particular Sub-Trust or
class thereof shall be distributed pro rata to the holders of Shares of that
Sub-Trust or class in proportion to the number of Shares of that Sub-Trust or
class held by such holders at the date and time of record established for the
payment of such dividends or distributions, except that in connection with any
dividend or distribution program or procedure the Trustees may determine that no
dividend or distribution shall be payable on Shares as to which the
Shareholder's purchase order and/or payment have not been received by the time
or times established by the Trustees under such program or procedure. Such
dividends and distributions may be made in cash or Shares of that Sub-Trust or
class or a combination thereof as determined by the Trustees or pursuant to any
program that the Trustees may have in effect at the time for the election by
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each Shareholder of the mode of the making of such dividend or distribution to
that Shareholder. Any such dividend or distribution paid in Shares will be paid
at the net asset value thereof as determined in accordance with subsection (h)
of Section 4.2.
The Trustees shall have full discretion to determine which items shall be
treated as income and which items as capital; and each such determination and
allocation shall be conclusive and binding upon the Shareholders.
(d) Liquidation. In the event of the liquidation or dissolution of
-----------
the Trust, the holders of Shares of each Sub-Trust or any class thereof that has
been established and designated shall be entitled to receive, when and as
declared by the Trustees, the excess of the assets belonging to that Sub-Trust,
or in the case of a class, belonging to that Sub-Trust and allocable to that
class, over the liabilities belonging to that Sub-Trust or class. The assets so
distributable to the holders of Shares of any particular Sub-Trust or class
thereof shall be distributed among such holders in proportion to the number of
Shares of that Sub-Trust or class thereof held by them and recorded on the books
of the Trust. The liquidation of any particular Sub-Trust or class thereof may
be authorized at any time by vote of a majority of the Trustees then in office.
(e) Voting. On each matter submitted to a vote of the
------
Shareholders, each holder of a Share shall be entitled to one vote for each
whole Share standing and to a proportionate fractional vote for each fractional
share standing in such Shareholder's name on the books of the Trust irrespective
of the Series thereof or class thereof and all Shares of all Series and classes
thereof shall vote together as a single class; provided, however, that as to any
matter (i) with respect to which a separate vote of one or more Series or
classes thereof is required by the 1940 Act or the provisions of the writing
establishing and designating the Sub-Trust or class, such requirements as to a
separate vote by such Series or class thereof shall apply in lieu of all Shares
of all Series and classes thereof voting together; and (ii) as to any matter
which affects the interests of one or more particular Series or classes thereof,
only the holders of Shares of the one or more affected Series or classes shall
be entitled to vote, and each such Series or class shall vote as a separate
class.
(f) Redemption by Shareholder. Each holder of Shares of a
-------------------------
particular Sub-Trust or any class thereof shall have the right at such times as
may be permitted by the Trust to require the Trust to redeem all or any part of
such holder's Shares of that Sub-Trust or class thereof at a redemption price
equal to the net asset value per Share of that Sub-Trust or class thereof next
determined in accordance with subsection (h) of this Section 4.2 after the
Shares are properly tendered for redemption, subject to any contingent deferred
sales charge or redemption charge in effect at the time of redemption. Payment
of the redemption price shall be in cash; provided, however, that if the
Trustees determine, which determination shall be conclusive, that conditions
exist which make payment wholly in cash unwise or undesirable, the Trust may,
subject to the requirements of the 1940 Act, make payment wholly or partly in
securities or other assets belonging to the Sub-Trust of which the Shares being
redeemed are part at the value of such securities or assets used in such
determination of net asset value.
Notwithstanding the foregoing, the Trust may postpone payment of the
redemption price and may suspend the right of the holders of Shares of any Sub-
Trust or class thereof to require
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the Trust to redeem Shares of that Sub-Trust during any period or at any time
when and to the extent permissible under the 1940 Act.
(g) Redemption by Trust. Each Share of each Sub-Trust or class
-------------------
thereof that has been established and designated is subject to redemption by the
Trust at the redemption price which would be applicable if such Share was then
being redeemed by the Shareholder pursuant to subsection (f) of this Section
4.2: (i) at any time, if the Trustees determine in their sole discretion and by
majority vote that failure to so redeem may have materially adverse consequences
to the Trust or any Sub-Trust or to the holders of the Shares of the Trust or
any Sub-Trust thereof or class thereof, or (ii) upon such other conditions as
may from time to time be determined by the Trustees and set forth in the then
current Prospectus of the Trust. Upon such redemption the holders of the Shares
so redeemed shall have no further right with respect thereto other than to
receive payment of such redemption price.
(h) Net Asset Value. The net asset value per Share of any Sub-
---------------
Trust shall be (i) in the case of a Sub-Trust whose Shares are not divided into
classes, the quotient obtained by dividing the value of the net assets of that
Sub-Trust (being the value of the assets belonging to that Sub-Trust less the
liabilities belonging to that Sub-Trust) by the total number of Shares of that
Sub-Trust outstanding, and (ii) in the case of a class of Shares of a Sub-Trust
whose Shares are divided into classes, the quotient obtained by dividing the
value of the net assets of that Sub-Trust allocable to such class (being the
value of the assets belonging to that Sub-Trust allocable to such class less the
liabilities belonging to such class) by the total number of Shares of such class
outstanding; all determined in accordance with the methods and procedures,
including without limitation those with respect to rounding, established by the
Trustees from time to time.
The Trustees may determine to maintain the net asset value per Share of any
Sub-Trust at a designated constant dollar amount and in connection therewith may
adopt procedures not inconsistent with the 1940 Act for the continuing
declarations of income attributable to that Sub-Trust as dividends payable in
additional Shares of that Sub-Trust at the designated constant dollar amount and
for the handling of any losses attributable to that Sub-Trust. Such procedures
may provide that in the event of any loss each Shareholder shall be deemed to
have contributed to the capital of the Trust attributable to that Sub-Trust such
Shareholder's pro rata portion of the total number of Shares required to be
cancelled in order to permit the net asset value per Share of that Sub-Trust to
be maintained, after reflecting such loss, at the designated constant dollar
amount. Each Shareholder of the Trust shall be deemed to have agreed, by making
an investment in any Sub-Trust with respect to which the Trustees shall have
adopted any such procedure, to make the contribution referred to in the
preceding sentence in the event of any such loss.
(i) Transfer. All Shares of each particular Sub-Trust or class
--------
thereof shall be transferable, but transfers of Shares of a particular Sub-Trust
or class thereof will be recorded on the Share transfer records of the Trust
applicable to that Sub-Trust or class only at such times as Shareholders shall
have the right to require the Trust to redeem Shares of that Sub-Trust or class
and at such other times as may be permitted by the Trustees.
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(j) Equality. Except as provided herein or in the instrument
--------
designating and establishing any class of Shares or any Sub-Trust, all Shares of
each particular Sub-Trust or class thereof shall represent an equal
proportionate interest in the assets belonging to that Sub-Trust, or in the case
of a class, belonging to that Sub-Trust and allocable to that class, subject to
the liabilities belonging to that Sub-Trust or class, and each Share of any
particular Sub-Trust or class shall be equal to each other Share of that Sub-
Trust or class; but the provisions of this sentence shall not restrict any
distinctions permissible under subsection (c) of this Section 4.2 that may exist
with respect to dividends and distributions on Shares of the same Sub-Trust or
class. The Trustees may from time to time divide or combine the Shares of any
particular Sub-Trust or class into a greater or lesser number of Shares of that
Sub-Trust or class without thereby changing the proportionate beneficial
interest in the assets belonging to that Sub-Trust or class or in any way
affecting the rights of Shares of any other Sub-Trust or class.
(k) Fractions. Any fractional Share of any Sub-Trust or class, if
---------
any such fractional Share is outstanding, shall carry proportionately all the
rights and obligations of a whole Share of that Sub-Trust or class, including
rights and obligations with respect to voting, receipt of dividends and
distributions, redemption of Shares, and liquidation of the Trust or any Sub-
Trust.
(l) Conversion Rights. Subject to compliance with the
-----------------
requirements of the 1940 Act, the Trustees shall have the authority to provide
that holders of Shares of any Sub-Trust or class thereof shall have the right to
convert said Shares into Shares of one or more other Sub-Trust or class thereof
in accordance with such requirements and procedures as may be established by the
Trustees.
(m) Class Differences. The relative rights and preferences of the
-----------------
classes of any Sub-Trust may differ in such other respects as the Trustees may
determine to be appropriate in their sole discretion, provided that such
differences are set forth in the instrument establishing and designating such
classes and executed by a majority of the Trustees (or by an instrument executed
by an officer of the Trust pursuant to a vote of a majority of the Trustees).
(n) Termination of Sales. The Trustees shall have the authority to
--------------------
terminate the sales of Shares of any Sub-Trust at any time or for such periods
as the Trustees may from time to time decide.
Section 4.3 Ownership of Shares. The ownership of Shares shall be
-------------------
recorded on the books of the Trust or of a transfer or similar agent for the
Trust, which books shall be maintained separately for the Shares of each Sub-
Trust and each class thereof that has been established and designated. No
certificates certifying the ownership of Shares need be issued except as the
Trustees may otherwise determine from time to time. The Trustees may make such
rules as they consider appropriate for the issuance of Share certificates, the
use of facsimile signatures, the transfer of Shares and similar matters. The
record books of the Trust as kept by the Trust or any transfer or similar agent,
as the case may be, shall be conclusive as to who are the Shareholders and as to
the number of Shares of each Sub-Trust and class thereof held from time to time
by each such Shareholder.
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Section 4.4 Investments in the Trust. The Trustees may accept or reject
------------------------
investments in the Trust and each Sub-Trust from such persons and on such terms
and for such consideration, not inconsistent with the provisions of the 1940
Act, as they from time to time authorize or determine. The Trustees may
authorize any distributor, principal underwriter, custodian, transfer agent or
other person to accept orders for the purchase of Shares that conform to such
authorized terms and to reject any purchase orders for Shares whether or not
conforming to such authorized terms.
Section 4.5 No Pre-emptive Rights. Shareholders shall have no pre-emptive
---------------------
or other right to subscribe to any additional Shares or other securities issued
by the Trust or any Sub-Trust.
Section 4.6 Status of Shares and Limitation of Personal Liability. Shares
-----------------------------------------------------
shall be deemed to be personal property giving only the rights provided in this
instrument. Every Shareholder by virtue of having become a Shareholder shall be
held to have expressly assented and agreed to the terms hereof and to have
become a party hereto. The death of a Shareholder during the continuance of the
Trust shall not operate to terminate the Trust or any Sub-Trust thereof nor
entitle the representative of any deceased Shareholder to an accounting or to
take any action in court or elsewhere against the Trust or the Trustees, but
only to the rights of said decedent under this Trust. Ownership of Shares shall
not entitle the Shareholder to any title in or to the whole or any part of the
Trust property or right to call for a partition or division of the same or for
an accounting, nor shall the ownership of Shares constitute the Shareholders
partners. Neither the Trust nor the Trustees, nor any officer, employee or
agent of the Trust shall have any power to bind personally any Shareholder, nor
except as specifically provided herein to call upon any Shareholder for the
payment of any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay.
Section 4.7 No Appraisal Rights. Shareholders shall have no right to
-------------------
demand payment for their shares or to any other rights of dissenting
shareholders in the event the Trust participates in any transaction which would
give rise to appraisal or dissenters' rights by a shareholder of a corporation
organized under Chapter 156B of the General Laws of the Commonwealth of
Massachusetts, or otherwise.
ARTICLE V - SHAREHOLDERS' VOTING POWERS AND MEETINGS
--------- ----------------------------------------
Section 5.1 Voting Powers. The Shareholders shall have power to vote only
-------------
(i) for the election or removal of Trustees as provided in Section 3.1, (ii)
with respect to any contract with a Contracting Party as provided in Section 3.3
as to which Shareholder approval is required by the 1940 Act, (iii) with respect
to any termination or reorganization of the Trust to the extent and as provided
in Sections 7.1 and 7.2, (iv) with respect to any amendment of this Declaration
of Trust to the extent and as provided in Section 7.3, (v) to the same extent as
the stockholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or any Sub-Trust
thereof or the Shareholders (provided, however, that a Shareholder of a
particular Sub-Trust shall not be entitled to a derivative or class action on
behalf of any other
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Sub-Trust (or Shareholder of any other Sub-Trust) of the Trust) and (vi) with
respect to such additional matters relating to the Trust as may be required by
the 1940 Act, this Declaration of Trust, the By-Laws or any registration of the
Trust with the Commission (or any successor agency) or any state, or as the
Trustees may consider necessary or desirable. There shall be no cumulative
voting in the election of Trustees. Shares may be voted in person or by proxy.
Proxies may be given orally or in writing or pursuant to any computerized or
mechanical data gathering process specifically approved by the Trustees. A
proxy with respect to Shares held in the name of two or more persons shall be
valid if executed by any one of them unless at or prior to exercise of the proxy
the Trust receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a Shareholder shall
be deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger. Until Shares are issued, the
Trustees may exercise all rights of Shareholders and may take any action
required by law, this Declaration of Trust or the By-Laws to be taken by
Shareholders.
Section 5.2 Meetings. No annual or regular meeting of Shareholders is
--------
required. Special meetings of Shareholders may be called by the Trustees from
time to time for the purpose of taking action upon any matter requiring the vote
or authority of the Shareholders as herein provided or upon any other matter
deemed by the Trustees to be necessary or desirable. Written notice of any
meeting of Shareholders shall be given or caused to be given by the Trustees by
mailing such notice at least seven days before such meeting, postage prepaid,
stating the time, place and purpose of the meeting, to each Shareholder at the
Shareholder's address as it appears on the records of the Trust. The Trustees
shall promptly call and give notice of a meeting of Shareholders for the purpose
of voting upon removal of any Trustee of the Trust when requested to do so in
writing by Shareholders holding not less than 10% of the Shares then
outstanding. If the Trustees shall fail to call or give notice of any meeting
of Shareholders for a period of 30 days after written application by
Shareholders holding at least 10% of the Shares then outstanding requesting a
meeting be called for any other purpose requiring action by the Shareholders as
provided herein or in the By-Laws, then Shareholders holding at least 10% of the
Shares then outstanding may call and give notice of such meeting, and thereupon
the meeting shall be held in the manner provided for herein in case of call
thereof by the Trustees.
Section 5.3 Record Dates. For the purpose of determining the Shareholders
------------
who are entitled to vote or act at any meeting or any adjournment thereof, or
who are entitled to participate in any dividend or distribution, or for the
purpose of any other action, the Trustees may from time to time close the
transfer books for such period, not exceeding 30 days (except at or in
connection with the termination of the Trust), as the Trustees may determine; or
without closing the transfer books the Trustees may fix a date and time not more
than 90 days prior to the date of any meeting of Shareholders or other action as
the date and time of record for the determination of Shareholders entitled to
vote at such meeting or any adjournment thereof or to be treated as Shareholders
of record for purposes of such other action, and any Shareholder who was a
Shareholder at the date and time so fixed shall be entitled to vote at such
meeting or any adjournment thereof or to be treated as a Shareholder of record
for purposes of such other action, even though such Shareholder has since that
date and time disposed of such Shareholder's Shares, and no Shareholder becoming
such after that date and time shall be so entitled to vote
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at such meeting or any adjournment thereof or to be treated as a Shareholder of
record for purposes of such other action.
Section 5.4 Quorum and Required Vote. Except as otherwise provided by the
------------------------
1940 Act or other applicable law, thirty percent of the Shares entitled to vote
shall be a quorum for the transaction of business at a Shareholders' meeting,
but any lesser number shall be sufficient for adjournments. Any meeting of
shareholders, whether or not a quorum is present, may be adjourned for any
lawful purpose provided that no meeting shall be adjourned for more than six
months beyond the originally scheduled meeting date. Any adjourned session or
sessions may be held, within a reasonable time after the date set for the
original meeting without the necessity of further notice. A majority of the
Shares voted, at a meeting of which a quorum is present shall decide any
questions and a plurality shall elect a Trustee, except when a different vote is
required or permitted by any provision of the 1940 Act or other applicable law
or by this Declaration of Trust or the By-Laws.
Section 5.5 Action by Written Consent. Subject to the provisions of the
-------------------------
1940 Act and other applicable law, any action taken by Shareholders may be taken
without a meeting if a majority of Shareholders entitled to vote on the matter
(or such larger proportion thereof as shall be required by the 1940 Act or by
any express provision of this Declaration of Trust or the By-Laws) consent to
the action in writing and such written consents are filed with the records of
the meetings of Shareholders. Such consent shall be treated for all purposes as
a vote taken at a meeting of Shareholders.
Section 5.6 Inspection of Records. The records of the Trust shall be open
---------------------
to inspection by Shareholders for any lawful purpose reasonably related to a
Shareholder's interest as a Shareholder. The Trustees may from time to time
establish reasonable standards including standards governing what information
and documents are to be furnished, at what time and location and at whose
expense with respect to Shareholder inspection of Trust records to the same
extent as is permitted stockholders of a Massachusetts business corporation
under the Massachusetts Business Corporation Law.
Section 5.7 Additional Provisions. The By-Laws may include further
---------------------
provisions for Shareholders' votes and meetings and related matters not
inconsistent with the provisions hereof.
Section 5.8 Shareholder Communications. Whenever ten or more Shareholders
--------------------------
of record who have been such for at least six months preceding the date of
application, and who hold in the aggregate either Shares having a net asset
value of at least $25,000 or at least 1% of the outstanding Shares, whichever is
less, shall apply to the Trustees in writing, stating that they wish to
communicate with other Shareholders with a view to obtaining signatures to a
request for a Shareholder meeting and accompanied by a form of communication and
request which they wish to transmit, the Trustees shall within five business
days after receipt of such application either (1) afford to such applicants
access to a list of the names and addresses of all Shareholders as recorded on
the books of the Trust or Sub-Trust, as applicable; or (2) inform such
applicants as to the approximate number of Shareholders of record, and the
approximate cost of mailing to them the proposed communication and form of
request.
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If the Trustees elect to follow the course specified in clause (2) above,
the Trustees, upon the written request of such applicants, accompanied by a
tender of the material to be mailed and of the reasonable expenses of mailing,
shall, with reasonable promptness, mail such material to all Shareholders of
record at their addresses as recorded on the books, unless within five business
days after such tender the Trustees shall mail to such applicants and file with
the Commission, together with a copy of the material to be mailed, a written
statement signed by at least a majority of the Trustees to the effect that in
their opinion either such material contains untrue statements of fact or omits
to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the basis
of such opinion. The Trustees shall thereafter comply with any order entered by
the Commission and the requirements of the 1940 Act and the Securities Exchange
Act of 1934.
ARTICLE VI - LIMITATION OF LIABILITY; INDEMNIFICATION
---------- ----------------------------------------
Section 6.1 Trustees, Shareholders, etc. Not Personally Liable; Notice.
----------------------------------------------------------
All persons extending credit to, contracting with or having any claim against
the Trust shall look only to the assets of the Sub-Trust with which such person
dealt for payment under such credit, contract or claim; and neither the
Shareholders of any Sub-Trust nor the Trustees, nor any of the Trust's officers,
employees or agents, whether past, present or future, nor any other Sub-Trust
shall be personally liable therefor. Every note, bond, contract, instrument,
certificate or undertaking and every other act or thing whatsoever executed or
done by or on behalf of the Trust, any Sub-Trust or the Trustees or any of them
in connection with the Trust shall be conclusively deemed to have been executed
or done only by or for the Trust (or the Sub-Trust) or the Trustees and not
personally. Nothing in this Declaration of Trust shall protect any Trustee or
officer against any liability to the Trust or the Shareholders to which such
Trustee or officer would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee or of such officer.
Every note, bond, contract, instrument, certificate or undertaking made or
issued by the Trustees or by any officers or officer shall give notice that this
Declaration of Trust is on file with the Secretary of The Commonwealth of
Massachusetts and shall recite to the effect that the same was executed or made
by or on behalf of the Trust or by them as Trustees or Trustee or as officers or
officer and not individually and that the obligations of such instrument are not
binding upon any of them or the Shareholders individually but are binding only
upon the assets and property of the Trust, or the particular Sub-Trust in
question, as the case may be, but the omission thereof shall not operate to bind
any Trustees or Trustee or officers or officer or Shareholders or Shareholder
individually.
Section 6.2 Trustee's Good Faith Action; Expert Advice; No Bond or Surety.
-------------------------------------------------------------
The exercise by the Trustees of their powers and discretion hereunder shall be
binding upon everyone interested. A Trustee shall be liable for such Trustee's
own willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of the office of Trustee, and for nothing
else, and shall not be liable for errors of judgment or mistakes of fact or law.
Subject to the foregoing, (a) the Trustees shall not be responsible or liable in
any event for any
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neglect or wrongdoing of any officer, agent, employee, consultant, adviser,
administrator, distributor or principal underwriter, custodian or transfer,
dividend disbursing, Shareholder servicing or accounting agent of the Trust, nor
shall any Trustee be responsible for the act or omission of any other Trustee;
(b) the Trustees may take advice of counsel or other experts with respect to the
meaning and operation of this Declaration of Trust and their duties as Trustees,
and shall be under no liability for any act or omission in accordance with such
advice or for failing to follow such advice; and (c) in discharging their
duties, the Trustees, when acting in good faith, shall be entitled to rely upon
the books of account of the Trust and upon written reports made to the Trustees
by any officer appointed by them, any independent public accountant, and (with
respect to the subject matter of the contract involved) any officer, partner or
responsible employee of a Contracting Party appointed by the Trustees pursuant
to Section 3.3. The Trustees as such shall not be required to give any bond or
surety or any other security for the performance of their duties.
Section 6.3 Indemnification of Shareholders. In case any Shareholder (or
-------------------------------
former Shareholder) of any Sub-Trust of the Trust shall be charged or held to be
personally liable for any obligation or liability of the Trust solely by reason
of being or having been a Shareholder and not because of such Shareholder's acts
or omissions or for some other reason, said Sub-Trust (upon proper and timely
request by the Shareholder) shall assume the defense against such charge and
satisfy any judgment thereon, and the Shareholder or former Shareholder (or such
Shareholder's heirs, executors, administrators or other legal representatives or
in the case of a corporation or other entity, its corporate or other general
successor) shall be entitled out of the assets of said Sub-Trust estate to be
held harmless from and indemnified against all loss and expense arising from
such liability.
Section 6.4 Indemnification of Trustees, Officers, etc. The Trust shall
------------------------------------------
indemnify (from the assets of the Sub-Trust or Sub-Trusts in question) each of
its Trustees and officers (including persons who serve at the Trust's request as
directors, officers or trustees of another organization in which the Trust has
any interest as a shareholder, creditor or otherwise [hereinafter referred to as
a "Covered Person"]) against all liabilities, including but not limited to
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and expenses, including reasonable accountants' and counsel fees,
incurred by any Covered Person in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which such Covered Person may be
or may have been involved as a party or otherwise or with which such person may
be or may have been threatened, while in office or thereafter, by reason of
being or having been such a Trustee or officer, director or trustee, except with
respect to any matter as to which it has been determined that such Covered
Person had acted with willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Covered
Person's office (such conduct referred to hereafter as "Disabling Conduct"). A
determination that the Covered Person is entitled to indemnification may be made
by (i) a final decision on the merits by a court or other body before whom the
proceeding was brought that the person to be indemnified was not liable by
reason of Disabling Conduct, (ii) dismissal of a court action or an
administrative proceeding against a Covered Person for insufficiency of evidence
of Disabling Conduct, or (iii) a reasonable determination, based upon a review
of the facts, that the indemnitee was not liable by reason of Disabling Conduct
by (a) a vote of a majority of a
20
<PAGE>
quorum of Trustees who are neither "interested persons" of the Trust as defined
in section 2(a)(l9) of the 1940 Act nor parties to the proceeding, or (b) an
independent legal counsel in a written opinion. Expenses, including
accountants' and counsel fees so incurred by any such Covered Person (but
excluding amounts paid in satisfaction of judgments, in compromise or as fines
or penalties), may be paid from time to time by the Sub-Trust in question in
advance of the final disposition of any such action, suit or proceeding,
provided that the Covered Person shall have undertaken to repay the amounts so
paid to the Sub-Trust in question if it is ultimately determined that
indemnification of such expenses is not authorized under this Article VI and (i)
the Covered Person shall have provided security for such undertaking, (ii) the
Trust shall be insured against losses arising by reason of any lawful advances,
or (iii) a majority of a quorum of the disinterested Trustees who are not a
party to the proceeding, or an independent legal counsel in a written opinion,
shall have determined, based on a review of readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that the Covered
Person ultimately will be found entitled to indemnification.
Section 6.5 Compromise Payment. As to any matter disposed of by a
------------------
compromise payment by any such Covered Person referred to in Section 6.4,
pursuant to a consent decree or otherwise, no such indemnification either for
said payment or for any other expenses shall be provided unless such
indemnification shall be approved (a) by a majority of the disinterested
Trustees who are not parties to the proceeding or (b) by an independent legal
counsel in a written opinion. Approval by the Trustees pursuant to clause (a)
or by independent legal counsel pursuant to clause (b) shall not prevent the
recovery from any Covered Person of any amount paid to such Covered Person in
accordance with any of such clauses as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction to have been
liable to the Trust or its Shareholders by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office.
Section 6.6 Indemnification Not Exclusive, etc. The right of
----------------------------------
indemnification provided by this Article VI shall not be exclusive of or affect
any other rights to which any such Covered Person may be entitled. As used in
this Article VI, "Covered Person" shall include such person's heirs, executors
and administrators, an "interested Covered Person" is one against whom the
action, suit or other proceeding in question or another action, suit or other
proceeding on the same or similar grounds is then or has been pending or
threatened, and a "disinterested" person is a person against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending or threatened.
Nothing contained in this Article shall affect any rights to indemnification to
which personnel of the Trust, other than Trustees and officers, and other
persons may be entitled by contract or otherwise under law, nor the power of the
Trust to purchase and maintain liability insurance on behalf of any such person.
Section 6.7 Liability of Third Persons Dealing with Trustees. No person
------------------------------------------------
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
21
<PAGE>
ARTICLE VII - MISCELLANEOUS
----------- -------------
Section 7.1 Duration and Termination of Trust. Unless terminated as
---------------------------------
provided herein, the Trust shall continue without limitation of time and,
without limiting the generality of the foregoing, no change, alteration or
modification with respect to any Sub-Trust or class thereof shall operate to
terminate the Trust. The Trust may be terminated at any time by a majority of
the Trustees then in office subject to a favorable vote of a majority of the
outstanding voting securities, as defined in the 1940 Act, shares of each Sub-
Trust or class thereof voting separately by Sub-Trust or class thereof.
Upon termination, after paying or otherwise providing for all charges,
taxes, expenses and liabilities, whether due or accrued or anticipated as may be
determined by the Trustees, the Trust shall in accordance with such procedures
as the Trustees consider appropriate reduce the remaining assets to
distributable form in cash, securities or other property, or any combination
thereof, and distribute the proceeds to the Shareholders, in conformity with the
provisions of subsection (d) of Section 4.2.
Section 7.2 Reorganization. The Trust, or any one or more Sub-Trusts,
--------------
may, either as the successor, survivor, or non-survivor, (1) consolidate or
merge with one or more other trusts, sub-trusts, partnerships, associations or
corporations organized under the laws of the Commonwealth of Massachusetts or
any other state of the United States, to form a consolidated or merged trust,
partnership, limited liability company, association or corporation under the
laws of which any one of the constituent entities is organized, with the Trust
to be the survivor or non-survivor of such consolidation or merger or (2)
transfer a substantial portion of its assets to one or more other trusts, sub-
trusts, partnerships, limited liability companies, associations or corporations
organized under the laws of the Commonwealth of Massachusetts or any other state
of the United States, or have one or more such trusts, sub-trusts, partnerships,
limited liability companies, associations or corporations transfer a substantial
portion of its assets to it, any such consolidation, merger or transfer to be
upon such terms and conditions as are specified in an agreement and plan of
reorganization authorized and approved by the Trustees and entered into by the
Trust, or one or more Sub-Trusts as the case may be, in connection therewith.
Any such consolidation, merger or transfer shall require the affirmative vote of
the holders of a majority of the outstanding voting Shares, as defined in the
1940 Act, of the Trust (or each Sub-Trust affected thereby, as the case may be),
except that such affirmative vote of the holders of Shares shall not be required
if the Trust (or Sub-Trust affected thereby, as the case may be) shall be the
survivor of such consolidation or merger or transferee of such assets.
Section 7.3 Amendments. All rights granted to the Shareholders under this
----------
Declaration of Trust are granted subject to the reservation of the right to
amend this Declaration of Trust as herein provided, except that no amendment
shall repeal the limitations on personal liability of any Shareholder or Trustee
or repeal the prohibition of assessment upon the Shareholders without the
express consent of each Shareholder or Trustee involved. Subject to the
foregoing, the provisions of this Declaration of Trust (whether or not related
to the rights of Shareholders) may be amended at any time, so long as such
amendment does not materially adversely affect the rights of any Shareholder
with respect to which such amendment is or purports to be applicable and so long
as such amendment is not in contravention of applicable law, including
22
<PAGE>
the 1940 Act, by an instrument in writing signed by a majority of the then
Trustees (or by an officer of the Trust pursuant to the vote of a majority of
such Trustees). Any amendment to this Declaration of Trust that materially
adversely affects the rights of Shareholders may be adopted at any time by an
instrument in writing signed by a majority of the then Trustees (or by an
officer of the Trust pursuant to a vote of a majority of such Trustees) when
authorized to do so by the vote in accordance with subsection (e) of Section 4.2
of Shareholders as specified in Section 5.4 hereof. Subject to the foregoing,
any such amendment shall be effective as of any prior or future time as provided
in the instrument containing the terms of such amendment or, if there is no
provision therein with respect to effectiveness, upon the execution of such
instrument and of a certificate (which may be a part of such instrument)
executed by a Trustee or officer of the Trust to the effect that such amendment
has been duly adopted.
Section 7.4 Filing of Copies; References; Headings. The original or a
--------------------------------------
copy of this instrument and of each amendment hereto shall be kept at the office
of the Trust where it may be inspected by any Shareholder. Anyone dealing with
the Trust may rely on a certificate by an officer of the Trust as to whether or
not any such amendments have been made, as to the identities of the Trustees and
officers, and as to any matters in connection with the Trust hereunder; and,
with the same effect as if it were the original, may rely on a copy certified by
an officer of the Trust to be a copy of this instrument or of any such
amendments. In this instrument and in any such amendment, references to this
instrument, and all expressions like "herein", "hereof" and "hereunder" shall be
deemed to refer to this instrument as a whole as the same may be amended or
affected by any such amendments. Headings are placed herein for convenience of
reference only and shall not be taken as a part hereof or control or affect the
meaning, construction or effect of this instrument. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.
Section 7.5 Applicable Law. This Declaration of Trust is made in The
--------------
Commonwealth of Massachusetts, and it is created under and is to be governed by
and construed and administered according to the laws of said Commonwealth,
including the Massachusetts Business Corporation Law as the same may be amended
from time to time, to which reference is made with the intention that matters
not specifically covered herein or as to which an ambiguity may exist shall be
resolved as if the Trust were a business corporation organized in Massachusetts,
but the reference to said Business Corporation Law is not intended to give the
Trust, the Trustees, the Shareholders or any other person any right, power,
authority or responsibility available only to or in connection with an entity
organized in corporate form. The Trust shall be of the type referred to in
Section 1 of Chapter 182 of the Massachusetts General Laws and of the type
commonly called a Massachusetts business trust, and without limiting the
provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
Section 7.6 Name of Trust. It is understood that the name "CIGNA", and
-------------
any logo associated with the name is the valuable property of the CIGNA
Corporation, a Delaware corporation, and that the trust or any Sub-Trust has the
right to include "CIGNA" as a part of its name only through permission of CIGNA
Corporation. If CIGNA Corporation withdraws the right to the use of its name,
the Trust (and any Sub-Trust) shall forthwith cease to use the CIGNA name and
logo and shall take such action as may be necessary to change its name (or the
name of any Sub-Trust) to eliminate all use of or reference to the word "CIGNA".
The
23
<PAGE>
Trust hereby stipulates that companies or trusts other than the Trust may be
formed with the word "CIGNA" in their titles.
Section 7.7 Integration. This Declaration of Trust constitutes the entire
-----------
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understandings pertaining thereto.
24
<PAGE>
IN WITNESS WHEREOF, the undersigned hereunto have set their hands and seals
in the City of Springfield, Commonwealth of Massachusetts, for themselves and
their assigns, as of the day and year first above written.
/s/ R. Bruce Albro
-------------------------
R. Bruce Albro
/s/ Hugh R. Beath
-------------------------
Hugh R. Beath
/s/ Russell H. Jones
-------------------------
Russell H. Jones
/s/ Paul J. McDonald
-------------------------
Paul J. McDonald
/s/ Arthur C. Reeds, III
-------------------------
Arthur C. Reeds, III
25
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
Hampden County, ss Springfield
Then personally appeared the within-named R. Bruce Albro, Hugh R. Beath,
Russell H. Jones, Paul J. McDonald and Arthur C. Reeds, III who acknowledged the
execution of the foregoing instrument to be their free act and deed, before me,
this 27th day of February, 1996.
Geoffrey R.T. Kenyon
--------------------
Notary Public
[Notarial Seal]
My commission expires: April 14, 2000
--------------
26
<PAGE>
Exhibit (5a)
CIGNA VARIABLE PRODUCTS GROUP
1380 MAIN STREET
SPRINGFIELD, MA 01103
November 9, 1995
CIGNA Investments, Inc.
900 Cottage Grove Road
Bloomfield, CT 06002
Re: Master Investment Advisory Agreement Dated as of April 26, 1988 Between
CIGNA Investments, Inc. (the "Adviser") and CIGNA Variable Products Group
(the "Trust")
Dear Sirs:
Please be advised that the Trust has established four new series of shares:
CIGNA Variable Products High Yield Fund, CIGNA Variable Products Income Fund,
CIGNA Variable Products International Stock Fund and CIGNA Variable Products
Money Market Fund. The Trust desires to retain you to render management and
investment advisory services pursuant to the above-captioned Master Investment
Advisory Agreement for these new series. The advisory fee payable with
respect to these additional series is set forth on Schedule A-3 attached
hereto.
If you are willing to render management and investment advisory services
pursuant to the Master Investment Advisory Agreement and the fee schedule
attached hereto, would you please so indicate by signing below.
Sincerely,
CIGNA VARIABLE PRODUCTS GROUP
By: /s/ R. Bruce Albro
--------------------------------------------
Its: Chairman of the Board and President
Accepted and Agreed to this 15th day of November, 1995.
----
CIGNA INVESTMENTS, INC.
By: /s/ Arthur C. Reeds, III
-------------------------------
Its: President
<PAGE>
SCHEDULE A-3
Compensation Schedule for the following Series:
CIGNA Variable Products High Yield Fund ("High Yield Fund")
CIGNA Variable Products Income Fund ("Income Fund")
CIGNA Variable Products International Stock Fund ("International Stock Fund")
CIGNA Variable Products Money Market Fund ("Money Market Fund")
The Trust shall pay the Adviser as full compensation for all services rendered
and all facilities furnished hereunder, a management fee for each Series by
applying the following percentages of the average daily net asset value of
each Series for the calendar year, computed in the manner used for the
determination of the offering price of Shares of the Series:
High Yield Fund - 0.75%
Income Fund - 0.50%
International Stock Fund - 0.80%
Money Market Fund - 0.35%
The fee accrued as of the end of each month shall be paid no later than the
15th of the following month.
In the event that expenses of any Series for any calendar year should exceed
the expense limitation on investment company expenses imposed by any statute
or regulatory authority of any state, whether or not shares of the Series are
qualified for offer and sale in any state, the compensation due the Adviser
for such shall be reduced by the amount of such excess by a reduction or
refund thereof, and, if necessary, the Adviser shall assume expenses of the
Series to the extent required by any such expense limitation, provided, that
--------
the Board of Trustees of the Trust may waive any specific expense limitation
which, in the judgment of the Board, is more stringent than is imposed by
states generally.
<PAGE>
Exhibit 8(a)
CIGNA VARIABLE PRODUCTS GROUP
1380 MAIN STREET
SPRINGFIELD, MA 01103
February 15, 1996
State Street Bank and Trust Company
2 Heritage Drive
Quincy, Massachusetts 02171
Re: Custodian Contract Dated as of April 15, 1988 Between CIGNA Variable
Products Group (the "Trust") and State Street Bank and Trust Company (the
"Custodian")
Dear Madam or Sir:
Please be advised that the Trust has established four new series of shares:
CIGNA Variable Products High Yield Fund, CIGNA Variable Products Income Fund,
CIGNA Variable Products International Stock Fund and CIGNA Variable Products
Money Market Fund. The Trust desires to retain you as custodian to render
custodial services pursuant to the above-captioned Custodian Contract for these
new series.
If you are willing to act as custodian and render custodial services pursuant to
the Custodian Contract, would you please so indicate by executing the enclosed
copy of this letter and returning it to Alfred A. Bingham III, S-210, 900
Cottage Grove Road, Hartford, CT 06152-2210.
Please note that the Trust had changed the name of its series known as Companion
Fund to CIGNA Variable Products S&P 500 Index Fund.
Sincerely,
CIGNA VARIABLE PRODUCTS GROUP
By:/s/ Alfred A. Bingham III
---------------------------------
By: Alfred A. Bingham III
Its: Vice President and Treasurer
Accepted and Agreed to this 26th day of February, 1996.
STATE STREET BANK AND TRUST COMPANY
By:/s/ Donald P. De Marco
---------------------------------
By: Donald P. De Marco
Its: Vice President
Copies of the Master Trust Agreement establishing the Trust are on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby given that
this document is executed on behalf of the Trust by an officer of the Trust as
an officer of the Trust and not individually and that any obligations of or
arising out of this document are not binding upon any of the Trustees, officers,
shareholders, employees or agents of the Trust individually, but are binding
only upon the assets and property of the Trust.
<PAGE>
EXHIBIT (9a)
CIGNA VARIABLE PRODUCTS GROUP
1380 MAIN STREET
SPRINGFIELD, MA 01103
February 15, 1996
State Street Bank and Trust Company
2 Heritage Drive
Quincy, Massachusetts 02171
Re: Transfer Agency and Service Agreement Dated as of April 15, 1988 Between
CIGNA Variable Products Group (the "Trust") and State Street Bank and Trust
Company (the "Transfer Agent")
Dear Madam or Sir:
Please be advised that the Trust has established four new series of shares:
CIGNA Variable Products High Yield Fund, CIGNA Variable Products Income Fund,
CIGNA Variable Products International Stock Fund and CIGNA Variable Products
Money Market Fund. The Trust desires to retain you to act as and render
services as transfer agent and dividend disbursing agent pursuant to the above-
captioned Transfer Agency and Service Agreement for these new series.
If you are willing to act as and render services as transfer agent and dividend
disbursing agent pursuant to the Transfer Agency and Service Agreement, would
you please so indicate by executing the enclosed copy of this letter and
returning it to Alfred A. Bingham III, S-210, 900 Cottage Grove Road, Hartford,
CT 06152-2210.
Please note that the Trust changed the name of its series known as Companion
Fund to CIGNA Variable Products S&P 500 Index Fund.
Sincerely,
CIGNA VARIABLE PRODUCTS GROUP
By: /s/ Alfred A. Bingham III
-----------------------------------------------
By: Alfred A. Bingham III
Its: Vice President and Treasurer
Accepted and Agreed to this 26th day of February, 1996.
----
STATE STREET BANK AND TRUST COMPANY
By: /s/ Donald P. De Marco
-----------------------------------------------
By: Donald P. De Marco
Its: Vice President
Copies of the Master Trust Agreement establishing the Trust are on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby given that
this document is executed on behalf of the Trust by an officer of the Trust as
an officer of the Trust and not individually and that any obligations of or
arising out of this document are not binding upon any of the Trustees, officers,
shareholders, employees, or agents of the Trust individually, but are binding
only upon the assets and property of the Trust.
<PAGE>
EXHIBIT 9d
PARTICIPATION AGREEMENT
Among
CIGNA VARIABLE PRODUCTS GROUP,
-----------------------------
CIGNA FINANCIAL ADVISORS, INC.
------------------------------
and
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
------------------------------------------
THIS AGREEMENT, made and entered into as of the ____ day of _______, 1996 by
and among CONNECTICUT GENERAL LIFE INSURANCE COMPANY (hereinafter the
"Company"), a Connecticut corporation, on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A hereto as may be
amended from time to time (each such account hereinafter referred to as the
"Account"), and CIGNA VARIABLE PRODUCTS GROUP, an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts (hereinafter the
"Fund") and CIGNA Financial Advisors, Inc. (hereinafter the "Underwriter"), a
Connecticut corporation.
WITNESSETH:
WHEREAS, the Fund is registered as an open-end management investment company
under the Investment Company Act of 1940 (the "1940 Act") and is available to
act as an investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts (collectively, the "Variable
Insurance Products") to be offered by insurance companies which have entered
into participation agreements with the Fund and the Underwriter (hereinafter
"Participating Insurance Companies") and the Fund's shares are registered under
the Securities Act of 1933 ("1933 Act");
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each representing the interest in a particular managed portfolio of
securities and other assets, any one or more of which may be made available
under this Agreement, as may be amended from time to time by mutual agreement of
the parties hereto (each such series hereinafter referred to as a "Portfolio");
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated December 29, 1995 (File No.812-9698), granting Participating
Insurance Companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and
15(b) of the 1940 Act and Rules
Page 1
<PAGE>
6e-2(b) (15) and 6e-3(T) (b) (15) thereunder, to the extent necessary to permit
shares of the Fund to be sold to and held by variable annuity and variable life
insurance separate accounts of both affiliated and unaffiliated life insurance
companies (hereinafter the "Mixed and Shared Funding Exemptive Order");
WHEREAS, CIGNA Investments, Inc. (the "Adviser") is duly registered as an
investment adviser under the 1940 Act and any applicable state securities law;
WHEREAS, the Company has registered or will register certain variable
insurance products under the 1933 Act;
WHEREAS, each Account is a duly organized, validly existing segregated asset
account, established by resolution of the Board of Directors of the Company, on
the date shown for such Account on Schedule A hereto, to set aside and invest
assets attributable to the aforesaid variable insurance products;
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act;
WHEREAS, the Underwriter is registered as a broker dealer with the Securities
and Exchange Commission ("SEC" or "Commission") under the Securities Exchange
Act of 1934, as amended, (hereinafter the "1934 Act"), and is a member in good
standing of the National Association of Securities Dealers, Inc. (hereinafter
"NASD");
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable insurance products
and the Underwriter is authorized to sell such shares to each Account at net
asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I. Sale and Redemption of Fund Shares
----------------------------------
1.1. The Underwriter agrees to sell to the Company those shares of the Fund
which each Account orders, executing such orders on a daily basis at the net
asset value next computed after receipt by the Fund or its designee of the order
for the shares of the Fund. For purposes of this Section 1.1. the Company shall
be the designee of the Fund for receipt of such orders from each Account and
receipt by such designee shall constitute receipt by the Fund; provided that the
Fund receives notice of such order on the next following Business Day.
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading and on which the Fund calculates its net asset value pursuant to the
rules of the Commission.
1.2. The Fund agrees to make its shares available indefinitely for purchase
at the applicable net asset value per share by the Company and its Accounts on
those days on which the Fund calculates its net asset value pursuant to rules of
the Commission and the Fund shall use reasonable efforts to calculate such net
asset value on each day on which the
Page 2
<PAGE>
New York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction.
1.3. The Fund and the Underwriter agree that shares of the Fund will be sold
only to Participating Insurance Companies and their separate accounts and to
qualified pension and retirement plans. No shares of any Portfolio will be sold
to the general pubic.
1.4. The Fund and the Underwriter will not sell Fund shares to any insurance
company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any full
or fractional shares of the Fund held by the Company, executing such requests on
a daily basis at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption. For purposes of this Section 1.5,
the Company shall be the designee of the Fund for receipt of requests for
redemption from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives notice of such request for
redemption on the next following Business Day. Payment shall be in federal
funds transmitted by wire.
1.6. The Company agrees that purchases and redemptions of Portfolio shares
offered by the then current prospectus of the Fund shall be made in accordance
with the provisions of such prospectus.
1.7. The Company shall pay for Fund shares on the next Business Day after an
order to purchase Fund shares is made in accordance with the provisions of
Section 1.1. hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital gain
distributions payable on the Fund's shares. The Company hereby elects to
receive all such income dividends and capital gain distributions as are payable
on the Portfolio shares in additional shares of that Portfolio. The Company
reserves the right to revoke this election and to receive all such income
dividends and capital gain distributions in cash. The Fund shall notify the
Company of the number of shares so issued as payment of such dividends and
distributions.
Page 3
<PAGE>
1.10. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis by 6:30 p.m. Hartford, Connecticut
time.
ARTICLE II. Representations and Warranties
------------------------------
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable Federal and State laws
and that the sale of the Contracts shall comply in all material respects with
state insurance law suitability requirements. The Company further represents
and warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any issuance or sale thereof as a segregated asset account
under Section 38a-433 of the Connecticut General Statutes and has registered or,
prior to any issuance or sale of the Contracts, will register each Account as a
unit investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to this
Agreement shall be registered under the 1933 Act, duly authorized for issuance
and sold in compliance with all applicable federal and state securities laws
and that the Fund is and shall remain registered under the 1940 Act. The Fund
shall amend the Registration Statement for its shares under the 1933 Act and the
1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Fund shall register and qualify the shares for sale
in accordance with the laws of the various states only if and to the extent
deemed advisable by the Fund or the Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated as life
insurance contracts (including endowment contracts) or annuity insurance
contracts under applicable provisions of the Code, and that it will make every
effort to maintain such treatment and that it will notify the Fund and the
Underwriter immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.5. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. To the extent that it decides
to finance distribution expenses pursuant to Rule 12b-1, the Fund undertakes to
have a board of trustees, a majority of whom are not interested persons of the
Fund, formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
Page 4
<PAGE>
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with applicable laws
and the Fund and the Underwriter represent that their respective operations are
and shall at all times remain in material compliance with applicable laws to
the extent required to perform this Agreement.
2.7. The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Connecticut and all applicable state
and federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly existing
under the laws of the Commonwealth of Massachusetts and that it does and will
comply in all material respects with the 1940 Act.
2.9. The Fund and Underwriter each severally represent and warrant that all
of its directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-1 under the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.10. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities under
its control dealing with the money and/or securities of the Fund are covered by
a blanket fidelity bond or similar coverage for the benefit of the Fund, and
that said bond is issued by a reputable bonding company, includes coverage for
larceny and embezzlement, and is in an amount not less than $5 million. The
Company agrees to make all reasonable efforts to see that this bond or another
bond containing these provisions is always in effect, and agrees to notify the
Fund and the Underwriter in the event that such coverage no longer applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
-----------------------------------------
3.1. The Fund shall provide the Company with as many printed copies of the
Fund's current prospectus and Statement of Additional Information as the Company
may reasonably request. If requested by the Company in lieu thereof, the Fund
shall provide camera-ready copy or computer diskettes containing the Fund's
prospectus and Statement of Additional Information, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus and/or Statement of Additional Information for the
Fund is amended or supplemented during the year) to have the prospectus for the
Contracts and the Fund's prospectus printed together in one document, and to
have the Statement of Additional Information if applicable, for the Fund and
the Statement of Additional Information for the Contracts printed together in
one document.
Page 5
<PAGE>
Alternatively, the Company may print the Fund's prospectus and/or its Statement
of Additional Information in combination with other fund companies' prospectuses
and statements of additional information. Except as provided below, all
expenses of printing and distributing Fund prospectuses and Statements of
Additional Information shall be the expense of the Company. For prospectuses and
Statements of Additional Information provided by the Company to its existing
owners of Contracts in order to update disclosure as required by the 1933 Act
and/or the 1940 Act, the cost of printing shall be borne by the Fund. The cost
of preparing, printing and shipping of the prospectuses, proxy materials,
periodic fund reports and other materials of the Fund to the Company shall be
paid by the Fund; provided, however, that if at any time the Fund or its agent
reasonably deems the usage by the Company of such items to be excessive, it may,
prior to the delivery of any quantity of materials in excess of what is deemed
reasonable, request that the Company demonstrate the reasonableness of such
usage. If the reasonableness of such usage has not been adequately demonstrated,
the Fund may request that the Company pay the cost of printing and delivery of
any excess copies of such materials. If the Company chooses to receive camera-
ready copy or computer diskettes in lieu of receiving printed copies of the
Fund's prospectus, the Fund will reimburse the Company in an amount equal to the
product of A and B where A is the number of such prospectuses distributed to
owners of the Contracts, and B is the Fund's per unit cost of typesetting and
printing the Fund's prospectus. The same procedures shall be followed with
respect to the Fund's Statement of Additional Information.
The Company agrees to provide the Fund or its designee with such information
as may be reasonably requested by the Fund to assure that the Fund's expenses do
not include the cost of printing any prospectuses or Statements of Additional
Information other than those actually distributed to existing owners of the
Contracts. The Company shall be responsible for the cost of printing and
distributing Fund prospectuses and Statements of Additional Information to
prospective Contract Owners.
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Fund, Underwriter or the Company.
3.3. The Fund, at its expense, shall provide the Company with copies of its
proxy statements, reports to shareholders, and other communications (except for
prospectuses and Statements of Additional Information, which are covered in
Section 3.1) to shareholders in such quantity as the Company shall reasonably
require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners:
(ii) vote the Fund shares in accordance with instructions received
from Contract owners; and
(iii) vote Fund shares for which no instructions have been received in
a particular separate account in the same proportion as Fund
shares of such portfolio for which instructions have been
received in that separate account,
Page 6
<PAGE>
so long as and to the extent that the Commission continues to interpret the
1940 Act to require pass-through voting privileges for variable contract owners.
The Company reserves the right to vote Fund shares held in any segregated asset
account in its own right, to the extent permitted by law.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16) of the 1940 Act (although the Fund is
not one of the trusts described in Section 16(c) of that Act) to the extent
applicable. Further, the Fund will act in accordance with the Commission's
interpretation of the requirements of Section 16(a) with respect to periodic
elections of trustees and with whatever rules the Commission may promulgate with
respect thereto.
3.6 The Company will vote the shares of the Fund held by the Company in the
Separate Account in accordance with written instructions received from
certificate or policy owners. The Company will vote shares for which it has not
received instructions, as well as shares attributable to the Company, in the
same proportion as it votes shares for which it has received instructions.
ARTICLE IV. Sales Material and Information
------------------------------
4.1. The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material in
which the Fund or its investment adviser or the Underwriter is named, at least
ten Business Days prior to its use. No such material shall be used if the Fund
or its designee reasonably objects to such use within seven Business Days after
receipt of such material.
4.2. The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus for the Fund shares, as
such registration statement and prospectus may be amended or supplemented from
time to time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund or its designee or
by the Underwriter, except with the permission of the Fund or the designee of
the Fund.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall cause to
be furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company and/or its separate account(s),
is named at least ten Business Days prior to its use. No such material shall be
used if the Company or its designee reasonably objects to such use within seven
Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or make any
representations on behalf of the Company or concerning the Company, each
Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account
Page 7
<PAGE>
which are in the public domain or approved by the Company for distribution to
Contract owners, or in sales literature or other promotional material approved
by the Company or its designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, contemporaneously with the filing of such document with the SEC or
other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, any of the following that
refer to the Fund for any affiliate of the Fund: advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media), sales literature
(i.e., any written communication distributed or made generally available to
----
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
Statements of Additional Information, shareholder reports, and proxy materials.
ARTICLE V. Fees and Expenses
-----------------
5.1. The Fund and Underwriter shall pay no fee or other compensation to the
Company under this agreement, except that if the Fund or any Portfolio adopts
and implements a plan pursuant to Rule 12b-1 to finance distribution expenses,
then the Underwriter may make payments to the Company or to the underwriter for
the Contracts in amounts agreed to by the Underwriter in writing and such
payments will be made out of existing fees otherwise payable to the Underwriter,
past profits of the Underwriter or other resources available to the Underwriter.
No such payments shall be made directly by the Fund. (Currently, no such
payments are contemplated.)
5.2. All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed advisable by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares, preparation and
filing of the Fund's prospectus and registration statement, proxy materials and
reports, setting the prospectus in type, setting in type and printing the proxy
materials
Page 8
<PAGE>
and reports to shareholders, the preparation of all statements and notices
required by any federal or state law, and all taxes on the issuance or transfer
of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
ARTICLE VI. Diversification
---------------
6.1. The Fund will at all times invest money from the Contracts in such a
manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the
scope of the foregoing, the Fund will at all times comply with Section 817(h) of
the Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify Company of such breach and (b) to adequately diversify the
Fund so as to achieve compliance with the grace period afforded by Regulation
1.817-5.
ARTICLE VII. Potential Conflicts
-------------------
7.1. The Board of Directors of the Fund will monitor the Fund for the
existence of any material irreconcilable conflict between the interests of the
contract owners of all separate accounts investing in the Fund. An
irreconcilable material conflict may arise for a variety of reasons, including:
(a) an action by any state insurance regulatory authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or regulations,
or a public ruling, private letter ruling, no-action or interpretative letter,
or any similar action by insurance, tax, or securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of any Portfolio are being managed; (e) a
difference in voting instructions given by variable annuity contract and
variable life insurance contract owners; or (f) a decision by an insurer to
disregard the voting instructions of contract owners. The Board shall promptly
inform the Company if it determines that an irreconcilable material conflict
exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which it
is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Mixed and Shared Funding Exemptive Order, by
providing the Board with all information reasonably necessary for the Board to
consider any issues raised. This includes, but is not limited to, an obligation
by the Company to inform the Board whenever contract owner voting instructions
are disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested trustees, that the Company has caused or created a material
irreconcilable conflict, the Company shall at its expense and to the extent
reasonably practicable (as determined by a majority of the disinterested
trustees), take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including: (1), withdrawing the
assets allocable to some or all of the separate accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Fund, or submitting the
question whether such segregation should
Page 9
<PAGE>
be implemented to a vote of all affected Contract owners and, as appropriate,
segregating the assets of any appropriate group (i.e., annuity contract owners,
----
life insurance contract owners, or variable contract owners of one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected contract owners the option of making such a change; and
(2), establishing a new registered management investment company or managed
separate account.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account within six months after the Board informs the Company in writing
that it has determined that such decision has created an irreconcilable material
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Until
the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contracts if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within Six (6) months after the Board informs the Company in writing
of the foregoing determination, provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions
materially different from those
Page 10
<PAGE>
contained in the Mixed and Shared Funding Exemptive Order, then (a) the Fund
and/or the Participating Insurance Companies, as appropriate, shall take such
steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections
3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect
only to the extent that terms and conditions substantially identical to such
Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
---------------
8.1. The Company agrees to indemnify and hold harmless the Fund and the
Underwriter and their respective officers, directors, employees, agents,
affiliates and each person, if any, who controls the Fund and the Underwriter
within the meaning of the Securities Act of 1933 (collectively, the "Indemnified
Parties" for purposes of this Section 8.2) against any Losses to which the
Indemnified Parties may become subject, insofar as such losses result from a
breach by the Company of this Agreement. The Company will reimburse any legal
or other expenses reasonably incurred by the Indemnified Parties in connection
with investigating or defending any such Losses. The Company shall not be liable
for indemnification hereunder if such Losses are attributable to the negligence
or misconduct of the Fund or the Underwriter in performing their obligations
under this Agreement.
8.2. Promptly after receipt by an Indemnified Party hereunder of notice of
the commencement of action, such Indemnified Party will, if a claim in respect
thereof is to be made against the Indemnifying Party hereunder, notify the
Indemnifying Party of the commencement thereof; but the omission so to notify
the Indemnifying Party will not relieve it from any liability which it may have
to any Indemnified Party otherwise than under this Section 8. In case any such
action is brought against any Indemnified Party, and it notifies the
Indemnifying Party of the commencement thereof, the Indemnifying Party will be
entitled to participate therein and, to the extent that it may wish to, assume
the defense thereof, with counsel satisfactory to such Indemnified Party, and
after notice from the Indemnifying Party to such Indemnified Party of its
election to assume the defense thereof, the Indemnifying Party will not be
liable to such Indemnified Party under this Section 8 for any legal or other
expenses subsequently incurred by such Indemnified Party in connection with the
defense thereof other than the reasonable costs of investigation.
8.3. If the Indemnifying Party assumes the defense of any such action, the
Indemnifying Party shall not, without the prior written consent of the
indemnified parties in such action, settle or compromise the liability of the
indemnified parties in such action, or permit a default or consent to the entry
of any judgement in respect thereof, unless in connection with such settlement,
compromise or consent, each Indemnified Party receives from such claimant an
unconditional release from all liability in respect of such claim.
ARTICLE IX. Applicable Law
--------------
9.1. This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts.
Page 11
<PAGE>
9.2. This Agreement shall be subject to the provisions of the 1933 Act, the
1934 Act, and the 1940 Act, and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and regulations
as the Securities and Exchange Commission may grant (including, but not limited
to, the Mixed and Shared Funding Exemptive Order) and the terms hereof shall be
interpreted and construed in accordance therewith.
ARTICLE X. Termination
-----------
10.1. This Agreement shall continue in full force and effect until the first
to occur of:
(a) termination by any party for any reason by 6 months' advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio based upon the
Company's determination that shares of such Portfolio are not
reasonably available to meet the requirements of the Contracts;
or
(c) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such law
precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by the Company; or
(d) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company
under Subchapter M of the Code or under any successor or similar
provision, or if the Company reasonably believes that the Fund
may fail to so qualify; or
(e) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements
specified in Article VI hereof.
10.2. Effect of Termination. Notwithstanding any termination of the
---------------------
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that
continuation of availability to existing contracts shall not apply if proscribed
by law or the SEC or other regulatory body.
Page 12
<PAGE>
ARTICLE XI. Notices
-------
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
CIGNA Variable Products Group
900 Cottage Grove Road
Hartford, Ct. 06152-2210
Attention: Alfred A. Bingham, III, S-210
If to the Company:
Connecticut General Life Insurance Company
CIGNA Group Insurance Division
1601 Chestnut Street, TLP-47
Philadelphia, PA 19192
Attention: Jerold H. Rosenblum, Chief Counsel
CIGNA Group Insurance Division
If to the Underwriter:
CIGNA Financial Advisors, Inc.
900 Cottage Grove
Hartford, CT 06152-2203
Attention: Karen Goldman, S-203
ARTICLE XII. Miscellaneous
-------------
12.1. All persons dealing with the Fund must look solely to the property of
the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2. Subject to the requirements of legal process and regularly authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
the Agreement, shall not disclose, disseminate or utilize such names and
addressed and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
Page 13
<PAGE>
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Underwriter may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Underwriter, if such assignee is duly licensed and registered
to perform the obligations of the Underwriter under this Agreement.
12.9. The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory accounting
principles) and annual report (if one is prepared under generally
accepted accounting principles ("GAAP"), as soon as practical and
in any event within 120 days after the end of each fiscal year;
(b) the Company's quarterly statements (statutory) (and GAAP if any),
as soon as practical and in any event within 60 days after the end
of each quarterly period:
(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders and/or policyholders, as soon as
practical after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial reports
of the Company filed with the Securities and Exchange Commission or
any state insurance regulator, as soon as practical after the
filing thereof;
Page 14
<PAGE>
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or special audit
made by them of the books of the Company, as soon as practical
after the receipt thereof.
(f) such reports, materials, or data as the Fund may reasonably request
so that the Fund may fully carry out the obligations imposed on the
Fund by the Fund's Mixed and Shared Funding Exemptive Order, and
such reports, materials, and data shall be submitted more
frequently if deemed appropriate by the Fund.
IN WITNESS WHEREOF each of the parties hereto has caused this Agreement to be
executed in its name and on its behalf by its duly authorized representative and
its seal to be hereunder affixed hereto as of the date first above written.
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By:
--------------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
CIGNA VARIABLE PRODUCTS GROUP
By:
--------------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
CIGNA FINANCIAL ADVISORS, INC.
By:
--------------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
Page 15
<PAGE>
SCHEDULE A
The following is a list of separate accounts and contract forms for which one or
more portfolios of CIGNA Variable Products Group are to be made available by
Connecticut General Life Insurance Company:
Policy Form Numbers of Contracts Funded By
Name of Separate Account Separate Account
------------------------ ------------------------------------------
CG Variable Life Insurance XX605481 - Group Flexible Premium
Separate Account A, established Variable Life Insurance Policy, - Nonpar
May 22, 1995
CG Variable Life Insurance LN605, LN605 - and state variations thereof
Separate Account II, established
July 6, 1994
Page 16
<PAGE>
Exhibit (10)
[LETTERHEAD OF GOODWIN, PROCTER & HOAR, LLP APPEARS HERE]
March 5, 1996
CIGNA Variable Products Group
1380 Main Street
Springfield, MA 01103
Ladies and Gentlemen:
Reference is made to Post-Effective Amendment No. 11 to the Registration
Statement of CIGNA Variable Products Group (the "Trust") on Form N-1A
(Registration No. 33-20333) filed with the Securities and Exchange Commission
with respect to the following series of the Trust: CIGNA Variable Products S&P
500 Index Fund (formerly, Companion Fund) and CIGNA Variable Products Money
Market Fund. We hereby consent to the incorporation by reference therein of our
opinion, dated December 26, 1995 filed as Exhibit (10) to Post-Effective
Amendment No. 10 to such Registration Statement.
Very truly yours,
/s/ Goodwin, Procter & Hoar, LLP
GOODWIN, PROCTER & HOAR, LLP
<PAGE>
Exhibit (11)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 11 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 15, 1996, relating to the financial
statements and financial highlights appearing in the December 31, 1995 Annual
Report to Shareholders of CIGNA Variable Products S&P 500 Index Fund (formerly
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
March 4, 1996
<PAGE>
Exhibit (24)
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, any Registration
Statement under the Investment Company Act of 1940 or any filing under the
securities laws of any of the states of the United States of America or of any
jurisdiction ("Blue Sky Law") for CIGNA Variable Products Group, and any
amendment to any such Registration Statement or any Blue Sky Law filing to be
filed not later than March 31, 1996 with the Securities and Exchange Commission
under the Securities Act of 1933 and under the Investment Company Act of 1940 or
with the appropriate state agency under the applicable Blue Sky Laws, 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 to any and all Blue Sky Law
filings and amendments thereto.
Signed this 27th day of February, 1996.
/s/ R. Bruce Albro
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R. Bruce Albro,
Chairman of the Board and President
/s/ R. Bruce Albro
--------------------------------------
R. Bruce Albro, Trustee
/s/ Hugh R. Beath
--------------------------------------
Hugh R. Beath, Trustee
/s/ Russell H. Jones
--------------------------------------
Russell H. Jones, Trustee
/s/ Paul J. McDonald
--------------------------------------
Paul J. McDonald, Trustee
/s/ Arthur C. Reeds, III
--------------------------------------
Arthur C. Reeds, III, Trustee
