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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. [_]
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Post-Effective Amendment No. 14 [X]
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 14 [X]
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(Check Appropriate Box or Boxes)
CIGNA VARIABLE PRODUCTS GROUP
(Exact Name of Registrant as Specified in Charter)
950 Winter Street, Suite 1200, Waltham, Massachusetts 02154
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (800) 528-6718
Alfred A. Bingham III, 950 Winter Street, Suite 1200
Waltham, Massachusetts 02154
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Continuous
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It is proposed that this filing will become effective (check appropriate box):
[_] Immediately upon filing pursuant to paragraph (b)
[_] On (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] On (date) pursuant to paragraph (a)(1)
[X] 75 days after filing pursuant to paragraph (a)(2)
[_] On (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[_] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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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 will be filed electronically with the Securities and Exchange
Commission no later than February 28, 1997.
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CROSS-REFERENCE SHEET
Showing the location in the Prospectus (Part A) and the Statement of Additional
Information (Part B) of the information required to be included in response to
the items of Form N-1A:
Part A
Item Number Prospectus Caption
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1. Cover Page Cover Page
2. Synopsis Expense Table; Portfolio
Transaction Fees
3. Condensed Financial Information Financial Highlights
4. General Description of About the Funds; Investment
Registrant Programs; Certain Investment
Strategies and Policies;
Investment Restrictions;
Appendix--Description of Money
Market Instruments
5. Management of the Fund Management of the Funds; The
Trust, its Shares and Board of
Trustees; Expense Table
5A. Management's Discussion of Fund Performance
Performance
6. Capital Stock and Other Distribution of Dividends and
Securities Capital Gains; Tax Matters; The
Trust, its Shares and Board of
Trustees
7. Purchase of Securities Being Cover Page; Eligible Purchasers;
Offered Pricing of Shares; Purchase and
Redemption of Shares of the
Funds; Computation of Net Asset
Value
8. Redemption or Repurchase Purchase and Redemption of
Shares of the Funds
9. Pending Legal Proceedings Not Applicable
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Part B
Statement of Additional
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Item Number Information
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10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History General Information About the
Funds
13. Investment Objectives and Investment Objectives and
Policies Policies; Futures Contracts;
Options on Futures Contracts;
Risks as to Futures Contracts
and Related Options; Investment
Restrictions; Portfolio Turnover
and Brokerage Allocation;
Ratings of Securities
14. Management of the Fund Management of the Funds
15. Control Persons and Principal Control Persons and Principal
Holders of Securities Holders of Securities; Portfolio
Turnover and Brokerage
Allocation
16. Investment Advisory and Other Investment Advisory and Other
Services Services
17. Brokerage Allocation and Other Portfolio Turnover and Brokerage
Practices Allocation; Activities of
Affiliated Companies
18. Capital Stock and Other General Information About the
Securities Funds
19. Purchase, Redemption and Pricing Purchase, Redemption and Pricing
of Securities Being Offered of Securities; Portfolio
Turnover and Brokerage
Allocation; Limitation on
Transfers
20. Tax Status Tax Matters
21. Underwriters Not Applicable
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
Part C
The information required to be included in response to the items in Part C of
Form N-1A is set forth under the appropriate item, so numbered, in Part C to
this amendment to Registrant's Registration Statement.
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CIGNA VARIABLE PRODUCTS GROUP
PROSPECTUS
MAY 1, 1997
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Money Market Fund - To provide as high a level of current income as is
consistent with the preservation of capital and liquidity and the maintenance of
a stable $1.00 per share net asset value by investing in short-term money market
instruments.
Intermediate Bond Index Fund - To provide as high a level of current income as
possible consistent with reasonable concern for safety of principal. The Fund
seeks to achieve its objective by attempting to replicate the composition and
total return, reduced by Fund expenses, of the Lehman Brothers Mutual Fund
Intermediate (5-10) Government/Corporate Index.
Long-Term Bond Index Fund - To provide as high a level of current income as
possible consistent with reasonable concern for safety of principal. The Fund
seeks to achieve its objective by attempting to replicate the composition and
total return, reduced by Fund expenses, of the Lehman Brothers Mutual Fund Long
(10+) Government/Corporate Index.
Utility Index Fund - To provide current income and capital growth. The Fund
seeks to achieve its objective by attempting to replicate the composition and
total return, reduced by Fund expenses, of the Russell 1000 (R) Utility Index.
REIT Index Fund - To provide a high level of current income and moderate long-
term capital growth. The Fund seeks to achieve its objective by attempting to
replicate the composition and total return, reduced by Fund expenses, of the
Morgan Stanley REIT Index.
S&P 500 Index Fund - To provide long-term growth of capital by investing
principally in common stocks. The Fund seeks to achieve its objective by
attempting to replicate the composition and total return, reduced by Fund
expenses, of the Standard & Poor's 500 Composite Stock Price Index.
Small Cap Index Fund - To provide long-term growth of capital by investing
principally in common stocks. The Fund seeks to achieve its objective by
attempting to replicate the composition and total return, reduced by Fund
expenses, of the Russell 2000 Small Stock Index.
International Index Fund - To provide long-term growth of capital by investing
principally in non-U.S. common stocks. The Fund seeks to achieve its objective
by attempting to replicate the composition and total return, reduced by Fund
expenses, of the Morgan Stanley Capital International Europe, Australia, Far-
East (EAFE) Index.
Emerging Markets Index Fund - To provide long-term growth of capital by
investing principally in non-U.S. common stocks. The Fund seeks to achieve its
objective by attempting to replicate the composition and total return, reduced
by Fund expenses, of the Morgan Stanley Capital International-Select Emerging
Markets Free Index.
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CIGNA VARIABLE PRODUCTS GROUP
PROSPECTUS
MAY 1, 1997
Money Market Fund
Intermediate Bond Index Fund
Long-Term Bond Index Fund
Utility Index Fund
REIT Index Fund
S&P 500 Index Fund
Small Cap Index Fund
International Index Fund
Emerging Markets Index Fund
This prospectus contains information about the mutual funds listed above (the
"Funds") which are separate portfolios of CIGNA Variable Products Group (the
"Trust"), a Massachusetts business trust. Each Fund has distinct investment
objectives and policies. Each Fund's investment objectives are listed on the
inside cover page.
Shares of the Funds are available and are being marketed exclusively as pooled
funding vehicles for life insurance companies writing variable annuity contracts
and variable life insurance contracts ("Variable Contracts") and for qualified
retirement and pension plans ("Qualified Plans").
This prospectus sets forth concisely the information about the Funds that a
prospective investor ought to know before investing. Additional information
about the Funds, contained in a Statement of Additional Information dated May 1,
1996, has been filed with the Securities and Exchange Commission and is
available upon request without charge by writing to the Funds at 950 Winter
Street, Waltham, Massachusetts 02154. The Funds' telephone number is
(860) 726-3700. The Statement of Additional Information is incorporated by
reference into this prospectus. The Statement of Additional Information is not a
prospectus.
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Please read this prospectus and retain it for future reference.
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Mutual Fund shares are not federally insured or guaranteed by the U.S.
government, the Federal Deposit Insurance Corporation, The Federal Reserve Board
or any other agency. Shares of the Funds involve investment risks, including the
possible loss of principal. The 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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Like all mutual funds, these securities have not been approved or disapproved by
The Securities and Exchange Commission or any state securities commission nor
has The Securities and Exchange Commission or any state securities commission
passed upon the accuracy or adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
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1
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SUMMARY
The Trust is an open-end, diversified management investment company offering a
selection of investment vehicles for insurance companies issuing variable
annuity and variable life insurance contracts and for Qualified Plans. This
prospectus offers nine Funds of the Trust. Your Variable Contract may offer one
or more of the Funds offered by this prospectus.
Each Fund (except the Money Market Fund) is an "index" fund and attempts to
match the investment performance of its benchmark index. The Funds (other than
the Money Market Fund) are referred to as the "Index Funds." The Index Funds
are not managed in a traditional sense, that is, by making discretionary
judgments based on analysis of economic, financial and market conditions.
Instead, each Index Fund seeks to match the investment performance of its
respective market segment, as represented by its index, by holding a portfolio
of securities selected through statistical procedures. Each Index Fund will
attempt to be fully invested in securities of its index and normally will invest
at least 80% of its net assets in those securities. The Fund's investment
adviser, CIGNA Investments, Inc. ("CIGNA Investments") generally selects
securities for the Index Funds on the basis of their weightings in the
respective indexes. Each Index Fund will only purchase a security that is
included in its index at the time of purchase.
While there can be no guarantee that each Index Fund's investment results will
precisely match the results of its corresponding index, CIGNA Investments
believes that, before deduction of operating expenses, there will be a very high
correlation between the returns generated by the Index Funds and their
respective indexes. Each Index Fund will attempt to achieve a correlation
between the performance of its portfolio and that of its respective index of at
least 0.95 before deduction of operating expenses. A correlation of 1.00 would
indicate perfect correlation which would be achieved when an Index Fund's net
asset value, including the value of its dividend and capital gains
distributions, increases or decreases in exact proportion to changes in its
index. Each Fund's ability to correlate its performance with its index,
however, may be affected by, among other things, changes in securities markets,
the manner in which Standard & Poor's Corporation, Frank Russell Company, Lehman
Brothers or Morgan Stanley calculate their respective indexes, and the timing of
purchases and redemptions.
Each Fund has its own distinct investment objective. Although each Fund will be
managed by experienced professionals, there can be no assurance that the
objective will be achieved.
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
maturity. The value of fixed income securities can be expected to vary
inversely with changes in prevailing interest rates, i.e., as interest rates
rise, market value tends to decrease, and vice versa. 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. Certain Funds may
invest in securities of foreign issuers, which may be subject to additional risk
factors, including foreign currency and political risks, not applicable to
securities of U.S. issuers. 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
2
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your Qualified Plan's documents for discussions relating to instructions on how
to invest in and redeem from each Fund.
CIGNA Investments provides each Fund with investment management and other
services. Each Fund pays CIGNA Investments 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 outstanding
shares (within the meaning of the Investment Company Act of 1940 (the "1940
Act")). Further information is available in the Statement of Additional
Information.
No one Fund is a balanced investment plan. Investors should consider their
investment objective and tolerance for risk when making an investor decision.
The above information is qualified in its entirety by the detailed information
appearing elsewhere in this prospectus, the statement of additional information,
and, as applicable, the Variable Account prospectus or Qualified Plan documents.
3
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY............................................ 2
EXPENSE TABLE...................................... 5
FINANCIAL HIGHLIGHTS............................... 8
ABOUT THE FUNDS.................................... 9
INVESTMENT PROGRAMS................................ 9
CERTAIN INVESTMENT STRATEGIES AND POLICIES......... 18
INVESTMENT RESTRICTIONS............................ 21
ELIGIBLE PURCHASERS................................ 22
PURCHASE AND REDEMPTION OF SHARES OF THE FUNDS..... 22
COMPUTATION OF NET ASSET VALUE..................... 22
DISTRIBUTION OF DIVIDENDS AND CAPITAL GAINS........ 24
TAX MATTERS........................................ 24
MANAGEMENT OF THE FUNDS............................ 25
PERFORMANCE........................................ 26
THE TRUST, ITS SHARES AND BOARD OF TRUSTEES........ 27
APPENDIX--DESCRIPTION OF MONEY MARKET INSTRUMENTS.. 28
</TABLE>
4
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The following Expense Table lists the transaction expenses and approximate
annual operating expenses related to an investment in each of the Funds. The
Table does not reflect charges and deductions which are or may be imposed under
Variable Contracts or Qualified Plans. Please refer to the applicable Variable
Contract prospectus or Qualified Plan documents for such charges. The expenses
and fees set forth in the Table are for the fiscal year beginning January 1,
1997.
SHAREHOLDER TRANSACTION EXPENSES
ALL SERIES
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<TABLE>
<S> <C>
Sales Load Imposed on Purchases.................................... None*
Sales Load Imposed on Reinvested Dividends......................... None
Redemption Fees.................................................... None**
Exchange Fees...................................................... None
</TABLE>
* For the Emerging Markets Index Fund, shareholders are charged a 1.5%
portfolio transaction fee, payable directly to the Fund, on each purchase of
shares. For the Small Cap Index Fund and the International Index Fund, the
portfolio transaction fee on purchases of Fund shares is .75% and .50%,
respectively, also payable directly to the applicable Fund.
** For the Emerging Market Index Fund, shareholders are charged a 1% portfolio
transaction fee, payable directly to the Fund, on each redemption of shares.
For the Utility Index Fund and the REIT Index Fund, shareholders are charged
a .5% portfolio transaction fee, payable directly to the applicable Fund, on
each redemption of shares held less than one year.
5
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Annual Fund Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
===========================================================================================================================
All Other Total Fund Operating
Operating Expenses (Reflects expense limitation.
Management Fees/1/ 12b-1 Fees (After Reimbursement)/1/ See Footnotes/1/ and /2/ below)
<S> <C> <C> <C> <C>
Money Market Fund .35% None .15% .50%
Intermediate Bond Index Fund .35% None .25% .60%
Long-Term Grade Bond Index Fund .35% None .25% .60%
Utility Index Fund .25% None .35% 60%
REIT Index Fund .25% None 35% 60%
S&P 500 Index Fund .25% None None .25%
Small Cap Index Fund .50% None .10% .60%
International Index Fund .50% None .30% .80%
Emerging Markets Index Fund .50% None .30% .80%
===========================================================================================================================
</TABLE>
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/1/ For a more complete description of the Management Fees, see "Management of
the Trust." CIGNA Investments has voluntarily agreed, as to each Fund, to waive
such portion of its management fee as is necessary to cause the annual Total
Fund Operating Expenses of each Fund not to exceed the following percentages of
each of the Fund's average daily net asset value:
<TABLE>
<S> <C>
Money Market........................... .50%
Intermediate Bond Index Fund........... .60%
Long-Term Bond Index Fund.............. .60%
Utility Index Fund..................... .60%
REIT Index Fund........................ .60%
S&P 500 Index Fund..................... .25%
Small Cap Index Fund................... .60%
International Index Fund............... .80%
Emerging Markets Index Fund............ .80%
</TABLE>
If this waiver is not sufficient to cause the annual Total Fund Operating
Expenses of any Fund not to exceed the applicable percentage of average daily
net asset value, CIGNA Investments has agreed to pay such other expenses of the
applicable fund as is necessary to keep annual Total Fund Operating Expenses
from exceeding the applicable percentage. These arrangements will continue in
effect until December 31, 1997, and afterwards to the extent described in the
Funds' then current prospectus. To the extent management fees are waived by
CIGNA Investments, or expenses of a Fund are paid by CIGNA Investments, the
total return to shareholders will increase. Total return to shareholders will
decrease to the extent management fees are no longer waived or expenses of a
Fund are no longer paid.
/2/ Total Fund Operating Expenses for the S&P 500 Index Fund for 1996, absent
expense reimbursements, were .__% of this Fund's average daily net asset value.
Total Fund Operating Expenses for the Money Market Fund for the period from
March 1, 1996 (commencement of operations) to December 31, 1996, absent expense
reimbursements, were .__% (.__% annualized) of this Fund's average daily net
asset value. Other Operating Expense and Total Fund Operating Expenses reflect
the current voluntary expense limitation effective January 1, 1997. Operating
Expenses for all other Funds are based on estimated amounts for the current
fiscal year, after expense reimbursements. Other Operating Expenses include all
expenses not specifically assumed by CIGNA Investments. Absent voluntary expense
limitations, estimated Other Operating Expenses and Total Fund Operating
Expenses (assuming average daily net assets of $10,000,000 per Fund ($15,000,000
for the International Index and Emerging Markets Index Funds)), respectively,
would be as follows: Small Cap - .85%, 1.35%; International - .71%, 1.21%;
Intermediate Bond - .60%, .95%; Long-Term Bond - .58%, .93%; Utility - .66%,
.91%; REIT - .69%, .94%; Emerging Markets - .73%, 1.23%.
6
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PORTFOLIO TRANSACTION FEES
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The Emerging Markets Index Fund assesses a portfolio transaction fee on
purchases of Fund shares equal to 1.5% of the dollar amount invested and the
Small Cap Index Fund and the EAFE Index Fund assess a portfolio transaction fee
equal to .75% and .50%, respectively, of the dollar amount invested. The
Emerging Markets Index Fund also charges a .5% portfolio transaction fee on each
redemption of shares. The Utility Index Fund and the REIT Index Fund charge a
.5% portfolio transaction fee on each redemption of shares owned less than one
year. All portfolio transaction fees are paid to the respective Fund, not to
CIGNA Investments. They are not sales charges.
Portfolio transaction fees on purchases apply to initial investments in the
applicable Fund and all subsequent purchases (including purchases made by
exchange from another Fund), but not to reinvested dividends or capital gains
distributions. Portfolio transaction fees on redemptions apply to all
redemptions from the applicable Fund.
The purpose of these transactions fees is to allocate transaction cost
associated with new purchases and redemptions to investors making those
purchases and redemptions, thus insulating existing shareholders from those
transaction costs. The portfolio transaction fees represent CIGNA Investment's
estimate of the brokerage and other transactions costs incurred by the
applicable Funds in acquiring and disposing of securities. Without the fees,
the Funds would incur these costs directly, reducing investment performance for
all shareholders in each Fund. With the fees, the transaction costs are borne
by those investors making purchases or redemptions from the Fund. Because the
shareholder, not the Fund, bears these costs, the Funds are expected to track
their respective benchmark indexes more closely.
7
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FINANCIAL HIGHLIGHTS
The following financial highlights of the Funds for a share outstanding
throughout each period have been audited by Price Waterhouse LLP, independent
accountants, whose report on the financial statement including this information
was unqualified. This information should be read in conjunction with the Funds'
financial statements and notes thereto, which, together with the remaining
portions of the Funds' 1996 Annual Report to Shareholders, are incorporated by
reference in the Statement of Additional Information and in this Prospectus, and
which appear, along with the report of Price Waterhouse LLP, in the Funds' 1996
Annual Report to Shareholders. For a more complete discussion of the Funds'
performance, please see the Funds' 1996 Annual Report to Shareholders which may
be obtained without charge by writing to the Fund.
8
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FINANCIAL HIGHLIGHTS (continued)
ABOUT THE FUNDS
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The Funds are separate series of CIGNA Variable Products Group, a Massachusetts
business trust established by a Master Trust Agreement dated February 4, 1988
and registered under the 1940 Act as a diversified, open-end management
investment company (see "The Trust, Its Shares and Board of Trustees"). Each
Fund has its own investment objective and policies designed to meet specific
investment goals. Each Fund intends to qualify as a regulated investment company
for Federal income tax purposes. Their sole purpose is to serve as funding
vehicles for the investment of monies paid by holders of Variable Contracts
issued through separate accounts of life insurance companies ("Life Companies")
or by Qualified Plans. The Qualified Plans and the Life Companies may or may not
make all the Funds described in this prospectus available for investment to the
Variable Contract owners or Qualified Plan participants, as the case may be.
Historically, the Variable Contracts have been issued by Connecticut General
Life Insurance Company ("CG Life"), an indirect, wholly-owned subsidiary of
CIGNA Corporation. CIGNA Corporation is an insurance and financial services
holding company. The Funds may also serve as funding vehicles for Variable
Contracts issued by other life insurance companies affiliated with CIGNA
Corporation or by life insurance companies which may be unaffiliated with CIGNA
Corporation.
The Trust does not foresee any disadvantage to Variable Contract owners arising
out of the fact that the Trust offers its shares for products offered by Life
Companies which may or may not be affiliated with each other or that it offers
its shares to Qualified Plans. Nevertheless, the Trust's Board of Trustees
intends to monitor events in order to identify any material irreconcilable
conflicts which may possibly arise between Variable Contract owners and
participants under Qualified Plans and to determine what action, if any, should
be taken in response thereto. If such a conflict were to occur, one or more Life
Company separate accounts or Qualified Plans might withdraw its investment in
the Trust. This might force the Trust to sell portfolio securities at
disadvantageous prices.
Shares are offered only to Eligible Purchasers (see "Eligible Purchasers").
Shares are offered at net asset value without the imposition of a sales load,
sales charge or selling commission.
INVESTMENT PROGRAMS
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Money Market Fund
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The Fund's objective is to provide as high a level of current income as is
consistent with the preservation of capital and liquidity and the maintenance of
a stable $1.00 per share net asset value by investing in short-term money market
instruments. The Fund intends to invest in money market instruments such as U.S.
Government direct obligations and U.S. Government agencies' securities. In
addition, the Fund may invest in other money market instruments such as bankers'
acceptances, certificates of deposit, commercial loan participations, repurchase
agreements, time deposits and commercial paper, all of which will be denominated
in U.S. dollars. Bankers' acceptances, certificates of deposit and time deposits
may be purchased from U.S. or foreign banks. Commercial paper is
9
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purchased primarily from U.S. issuers but may be purchased from foreign issuers
so long as it is denominated in U.S. dollars. All of these instruments,
including commercial loan participations, are briefly described in "Description
of Money Market Instruments" and are described more fully in the Statement of
Additional Information.
Pursuant to procedures adopted by the Board of Trustees, the Fund may purchase
only high quality securities that CIGNA Investments believes present minimal
credit risks. To be considered high quality, a security must be a U.S.
government security or must be rated in accordance with applicable rules in one
of the two highest categories for short-term securities by at least two
nationally recognized rating services (or by one, if only one rating service has
rated the security) or, if unrated, judged to be of equivalent quality by CIGNA
Investments.
High quality securities are divided into "first tier" and "second tier"
securities. First tier securities have received the highest rating (e.g.
Standard & Poor's Corporation's (S&P) A-1 rating) from at least two rating
services (or one, if only one has rated the security). Second tier securities
have received ratings within the two highest categories (e.g., S&P's A-1 or A-2)
from at least two rating services (or one, if only one has rated the security),
but do not qualify as first tier securities. If a security has been assigned
different ratings by different rating services, at least two rating services
must have assigned the highest rating in order for CIGNA Investments to
determine eligibility on the basis of that highest rating. Based on procedures
adopted by the Board of Trustees, CIGNA Investments may determine that an
unrated security is of equivalent quality to a rated first or second tier
security.
The Fund may not invest more than 5% of its total assets in second tier
securities. In addition, the Fund may not invest more than 1% of its total
assets or $1 million (whichever is greater) in the second tier securities of a
single issuer.
The Fund will limit its investments to securities with remaining maturities of
397 days or less and will maintain a dollar-weighted average maturity of 90 days
or less.
Intermediate Bond Index Fund and Long-Term Bond Index Fund
- ----------------------------------------------------------
The Intermediate Bond Index Fund seeks to fulfill its objective by attempting
to replicate the composition and total return, reduced by Fund expenses, of the
Lehman Brothers Mutual Fund Intermediate (5-10) Government/Corporate Index
("Intermediate Index"). The Intermediate Index is a market-weighted index which
encompasses three major classes of investment-grade fixed income securities:
U.S. Treasury and agency securities, Corporate bonds, and international (dollar-
denominated) bonds, all with maturities between 5 and 10 years.
The Long-Term Bond Index Fund seeks to fulfill its objective by attempting to
replicate the composition and total return, reduced by Fund expenses, of the
Lehman Brothers Mutual Fund Long (10+) Government/Corporate Index ("Long-Term
Index"). The Long-Term Index is a market-weighted index which encompasses three
major classes of investment-grade fixed income securities: U.S. Treasury and
agency securities, corporate bonds, and international (dollar-denominated)
bonds, all with maturities greater than 10 years.
10
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As of December 31, 1995, the major classes of fixed income securities
represented the following proportions of the respective bond indexes' total
market values:
Intermediate Bond Long-Term Bond
----------------- --------------
<TABLE>
<CAPTION>
<S> <C> <C>
U.S. Treasury and Agency Securities 60% 68%
Corporate Bonds 29% 26%
International
(Dollar-Denominated) Bonds 11% 6%
Dollar-weighted
average maturity (Years) 7.6 Years 23.3 Years
</TABLE>
In its effort to duplicate the investment performance of its index, each Fund
will invest in classes of fixed-income securities approximating their relative
proportion of its index's total market value. Each Fund will invest at least
80% or more of its assets in securities included in its benchmark index. The
indexes measure the total investment return (capital change plus income)
provided by a universe of fixed income securities, weighted by the market value
outstanding of each security. The securities included in each index generally
meet the following criteria, as defined by Lehman Brothers: an outstanding
market value of at least $100 Million; and investment-grade quality - i.e.,
rated a minimum of Baa-3 by Moody's Investors Service, Inc. or BBB- by Standard
& Poor's Corporation.
The Funds will be unable to hold all the individual issues which comprise the
indexes because of the large number of securities involved. Instead, each Fund
will hold a representative sample of the classes in its respective index,
selecting a few issues to represent entire "classes" or types of securities in
the index. Each Fund will seek to hold securities which reflect the weighting
of the major asset classes in its respective index. The two major classes of
securities are U.S. Treasury and agency securities and corporate bonds.
Shareholders in the Intermediate Bond and Long-Term Bond Index Funds are
exposed to three types of risks from fixed income securities. Interest rate
risk is the potential for fluctuations in bond prices due to changing interest
rates. Income risk is the potential for a decline in a Fund's income due to
falling market interest rates. Credit risk is the possibility that a bond
issuer will fail to make timely payment of either interest or principal to a
Fund.
Since longer maturity bonds fluctuate more in price than shorter maturity bonds
for a given change in interest rate, the Long-Term Bond Index Fund has higher
interest rate risk. To compensate investors for this higher risk, longer
maturity bonds usually offer higher yield than shorter maturity bonds, other
factors being equal. Usually, income risk is higher for portfolios holding
shorter term bonds. Therefore, the Intermediate Bond Index Fund has higher
income risk than the Long Term Bond Index Fund.
The Long-Term Bond Fund is also subject to call risk, that is, the possibility
that corporate bonds held by the Fund will be repaid prior to maturity. When
interest rates are falling, bond issuers often exercise the right to call their
bonds or redeem them prior to maturity. For the Fund, the result will be that
bonds with high interest rates are "called" and must be replaced with lower
yielding instruments. This will cause the income of the Fund to decline.
11
<PAGE>
Neither the Intermediate Bond Index Fund nor the Long-Term Bond Index Fund are
sponsored, sold, promoted or endorsed by Lehman Brothers. The Intermediate
Index and Long-Term Index are the exclusive property of Lehman Brothers. They
have been licensed for use by the Funds.
Utility Index Fund
- ------------------
The Utility Index Fund seeks to achieve its objective by attempting to
replicate the composition and total return, reduced by Fund expenses, of the
Russell 1000 (R) Utility Index ("Utility Index").
Frank Russell Company chooses stocks for the Utility Index on the basis of
market capitalization and industry participation. To create the Utility Index,
Frank Russell Company chooses, with certain exceptions, the 1,000 companies with
the largest market capitalizations and further selects those companies from this
list that engage in the generation, transmission or distribution of electricity,
telecommunications, gas or water. As of December 31, 1995, the Utility Index
included 120 companies, reflecting the various segments of the utility industry
in the following percentages (on a market capitalization basis):
<TABLE>
<CAPTION>
% of
Sector Index
------ -----
<S> <C>
Telephone/Telecommunications.......................... 52.51%
Electric.............................................. 32.06%
Gas and Water......................................... 5.11%
Communications/Long Distance/Cable.................... 10.33%
</TABLE>
The weighting of stocks in the Utility Index is based on each stock's relative
market capitalization. Normally, so long as the Fund has sufficient assets, the
Utility Index Fund will hold every stock in the Utility Index and will hold each
stock in approximately the same percentage as that stock represents in the
Utility Index.
Historically, utility stocks have been one of the least volatile sectors of the
U.S. stock market when measured by statistics such as standard deviation of
return. Consequently, the Utility Index Fund may have less price volatility
utility than other stock index funds, although there can be no assurance of
this. The Utility Index Fund is subject to industry risk. Industry risk is the
possibility that a particular group of related stocks, such as stocks in a
particular industry, will decline in price due to industry specific
developments. For the utility industry, these developments could include:
. changing regulations which could limit profits, dividends, or access to new
markets;
. unexpected increases in fuel, environmental compliance, safety or other
operating costs, including high interest costs on borrowing needed for
capital improvement projects;
. increasing competition, particularly among providers of long distance
telephone service and gas utilities with the need to make large investments
in technology to meet this competition; and
. restriction to relatively mature markets, particularly among water companies,
which constrain potential for growth.
12
<PAGE>
The Fund will concentrate its investments in the utility industry. As a
result, the Fund's investments may be subject to greater risk and market
fluctuation than a fund that has securities representing a broader range of
industries.
The REIT Index Fund
- -------------------
The Fund seeks to fulfill its objective by attempting to replicate the
composition and total return, reduced by Fund expenses, of the Morgan Stanley
REIT Index ("REIT Index").
A real estate investment trust ("REIT") is a company that invests in a
portfolio of real estate in order to earn profits for its shareholders. The
REIT Index is made up of the stocks of all publicly-traded equity REITS (except
Healthcare REITs) that meet certain criteria. For example, to be included in
the REIT Index, a REIT must have a total market capitalization of at least $75
million and have enough shares and trading volume to be considered liquid. The
REIT Index Fund invests in equity REITs only. As of December 31, 1995, ninety-
three equity REITS were included in the REIT Index. The REIT Index is
rebalanced every calendar quarter as well as each time that a REIT is removed
from the REIT Index because of corporate activity such as a merger, acquisition,
leveraged buyout, bankruptcy, IRS removal of REIT status, fundamental change in
business, or a change in shares outstanding.
REITs provide investors with the ability to invest in real estate without
owning properties directly. Unlike corporations, REITs do not have to pay
income taxes if they meet certain Internal Revenue Code requirements. To
qualify, a REIT must distribute at least 95% of its taxable income to its
shareholders and receive at least 75% of that income from rents, mortgages, and
sales of property. REITs offer investors greater liquidity and diversification
than the direct ownership of a handful of properties, as well as greater income
potential than an investment in common stock. Like any investment in real
estate, however, a REIT's performance depends on several factors, such as its
ability to find tenants for its properties, to renew leases, and to finance
property purchases and renovations.
Stocks in the REIT Index represent a broadly diversified range of property
types and regions. The REIT Index's makeup, as of December 31, 1995, was as
follows:
<TABLE>
<CAPTION>
<S> <C>
Retail stores........................... 33.1%
Residential............................. 32.6%
Office.................................. 14.8%
Industrial.............................. 11.3%
Hotels.................................. 3.8%
Other................................... 4.4%
</TABLE>
The REIT Index's ten largest stocks are expected to make up 30% of its market
value. The REIT Index's largest stocks, as of December 31, 1995, were (1)
Security Capital Pacific Trust; (2) Security Capital Industrial Trust; (3) Simon
Property Group; (4) New Plan Realty Trust; (5) Equity Residential Properties
Trust; (6) Winegarten Realty; (7) Kimco Realty Corporation; (8) Franchise
Financial Corporation; (9) Vornado Realty Trust; (10) United Dominion
Realty.
The REIT Index Fund is subject to, among other risks:
13
<PAGE>
. Real Estate Industry Risk - the chance that property values will fall due
to a variety of factors, such as a decline in rental rates;
. Market Risks - the chance that stock market prices will fall, sometimes
suddenly and sharply;
. Interest Rate Risk - the chance that changes in interest rates will hurt
real estate value.
The Fund's performance normally is strongly linked to the performance of the
real estate market. A variety of factors effect real estate values, including
supply and demand for properties, the economic health of the country and regions
of the country, and the strength of specific industries renting properties.
Ultimately, a REIT's performance depends on the performance of the properties it
owns.
The REIT Index Fund is not sponsored, sold, promoted, or endorsed by Morgan
Stanley. The REIT Index is the exclusive property of Morgan Stanley and is a
service mark of Morgan Stanley Group, Inc. It has been licensed for use by the
Fund.
S&P 500 Index Fund
- ------------------
The Fund seeks to fulfill its objective by attempting to replicate the
composition and total return, reduced by Fund expenses, of the Standard & Poor's
500 Composite Stock Price Index ("S&P 500").
The S&P 500 includes 500 selected common stocks, most of which are listed on
the New York Stock Exchange. The S&P 500 is an index emphasizing large-
capitalization stocks. A company's stock market capitalization is the total
market value of its issued and outstanding common stock. Each stock in the S&P
500 has a unique weighting, depending on the number of shares outstanding and
its current price. In seeking to replicate the performance of the S&P 500,
before deduction of Fund expenses, CIGNA Investments will attempt over time to
allocate the Fund's investment among common stocks in approximately the same
proportions as they are represented in the S&P 500, beginning with the heaviest
weighted stocks that make up a larger portion of the index's value.
The Fund is subject to market risk--i.e., the possibility that common stock
prices will decline over short or even extended periods. The U.S. stock market
tends to be cyclical, with periods when stock prices generally rise and periods
when prices generally decline.
While the Fund seeks to match the performance of the S&P 500, its stock
portfolio performance may not match this index exactly. While CIGNA Investments
generally will seek to match the composition of the S&P 500 as closely as
possible, it may not always invest the Fund's stock portfolio to mirror the S&P
500 exactly. For instance, the Fund may at times have its portfolio weighted
differently from the S&P 500 because of the difficulty and expense of executing
relatively small stock transactions. In addition, the Fund may omit or remove
any S&P 500 stock from the Fund if, following objective criteria, CIGNA
Investments judges the stock to be insufficiently liquid or believes the merit
of the investment has been substantially impaired by extraordinary events or
financial conditions. Under normal conditions, the Fund anticipates holding at
least 480 of the S&P 500 issues at all times.
The Fund is not sponsored, endorsed, sold or promoted by Standard & Poor's
Corporation ("S&P"). S&P makes no representation or warranty, express or
14
<PAGE>
implied, to the record or beneficial owners of shares of the Fund or any member
of the public regarding the advisability of investing in securities generally,
or in the Fund particularly, or the ability of the S&P 500 to track general
stock market performance. S&P's only relationship to CIGNA Investments or the
Fund is the licensing of certain trademarks and trade names of S&P and of the
S&P 500 which is determined, composed and calculated by S&P without regard to
CIGNA Investments or the Fund. S&P has no obligation to take the needs of CIGNA
Investments or the Fund or the record or beneficial owners of the Fund into
consideration in determining, composing or calculating the S&P 500. S&P is not
responsible for and has not participated in the valuation of the Fund or the
pricing of the Fund's shares or in the determination or calculation of the
equation by which the Fund's portfolio investments are to be converted into
cash. S&P has no obligation or liability in connection with the administration,
marketing or trading of the Fund.
Standard & Poor's 500 Composite Stock Price Index(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 500 OR
ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY CIGNA Investments, RECORD OR BENEFICIAL OWNERS
OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 OR ANY
DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE WITH RESPECT TO THE S&P 500 OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
Small Cap Index Fund
- --------------------
The Fund seeks to fulfill its objective by attempting to replicate the
composition and total return, reduced by Fund expenses, of the Russell 2000
Small Stock Index ("Russell 2000 Index"). The Russell 2000 Index is composed of
approximately 2000 small-capitalization common stocks. As of _______, the
average stock market capitalization of the Russell 2000 Index was ________
million, although the capitalization of some companies included in the Russell
2000 Index is significantly higher. The Small Cap Index Fund is neither
sponsored by nor affiliated with the Frank Russell Company. Frank Russell
Company's only relationship to the Fund is the licensing of the use of the
Russell 2000 Index. Frank Russell Company is the owner of the trademarks and
copyrights relating to the Russell indices.
The Small Cap Index Fund invests in a statistically selected sample of the
approximately 2,000 stocks included in the Russell 2000 Index. The stocks of
the Russell 2000 Index to be included in the Small Cap Index Fund will be
selected utilizing a statistical sampling technique known as "optimization."
This process selects stocks for the Fund so that various industry weightings,
market capitalizations and fundamental characteristics (e.g. price-to-book,
price-to earnings, debt-to-asset ratios, and dividend yields) closely
approximate those of the Russell 2000 Index. The stocks held by the Fund are
weighted to make the Fund's aggregate investment characteristics similar to
those of the Russell 2000 Index as a whole.
Like the S&P 500 Index Fund, the Small Cap Index Fund is subject to market
risks, the possibility that common stocks prices will decline. Historically,
small-capitalization stocks have been more volatile in price than the
larger
15
<PAGE>
capitalization stocks included in the S&P 500 Index. Among the reasons for the
greater price volatility of these securities are the less certain growth
prospects of small firms, lower degree of liquidity in the market for such
stock, and the greater sensitivity of small sized companies to changing economic
conditions. Beside exhibiting greater volatility, small-size company stocks
may, to a degree, fluctuate independently of larger company stocks. Small size
company stocks may decline in price as large company stocks rise, or rise in
price as large company stocks decline.
International Stock Index Fund
- ------------------------------
The Fund seeks to achieve its objective by attempting to replicate the
composition and total return, reduced by Fund expenses, of the Morgan Stanley
Capital International Europe, Australia, Far East (EAFE) Index
("EAFE Index").
The EAFE Index is a capitalization-weighted index containing approximately
1,100 equity securities of companies located outside the United States. The
countries currently included in the EAFE Index are Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia,
The Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland and
United Kingdom.
The International Stock Index Fund is constructed to have aggregate investment
characteristics similar to those of the EAFE Index. The Fund invests in a
statistically selected sample of the securities included in the EAFE Index,
although not all companies within a country will be represented in the Fund at
the same time. Stocks are selected for inclusion in the Fund based on country
of origin, market capitalization, yield, volatility and industry sector. CIGNA
Investments will manage the Fund using advanced statistical techniques to
determine which stocks are to be purchased or sold to replicate the EAFE Index.
From time to time, adjustments may be made in the Fund because of changes in the
composition of the EAFE Index, but these changes should be infrequent.
Investing in securities of foreign issuers involves consideration not typically
associated with investing in securities of U.S. Companies. The value of the
Fund's investments may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
exchange control or tax regulations in foreign countries. In addition, changes
in government administrations or economic or monetary policies in the United
States or abroad could result in the appreciation or depreciation of the Fund's
securities and could affect the Fund's operation. The economy of individual
foreign nations may differ from the U.S. economy whether favorably or
unfavorably, in areas such as growth or gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payment position. In general, less information is publicly available for
foreign issuers than is available for U.S. companies. Most foreign companies
are also not subject to the uniform accounting and financial reporting
requirements applicable to U.S. issuers. Foreign investments made by the Fund
must be made in compliance with U.S. and foreign currency restrictions and tax
laws restricting the amounts and types of foreign investments.
Because foreign securities generally are denominated and pay dividends in
foreign currency, the value of the Fund's securities as measured in U.S. dollars
will be affected by changes in exchange rates. In order to protect against
uncertainty in the level of future foreign currency exchange rates, the Fund is
authorized to enter into foreign currency exchange transactions. The Fund's
securities may be less liquid and the prices may be more volatile than
16
<PAGE>
comparable investments in U.S. companies. The settlement periods for foreign
securities, which are often longer than those for U.S. securities may affect
Fund liquidity. Finally, there may be less government supervision and
regulations of securities exchanges, brokers and issuers in foreign countries
than in the United States.
Please refer to the disclaimer concerning Morgan Stanley in the section on the
Emerging Markets Index Fund.
Emerging Markets Index Fund
- ---------------------------
The Emerging Markets Index Fund seeks to achieve its objective by attempting to
replicate the composition and total return, reduced by Fund expenses, of the
Morgan Stanley Capital International-Select Emerging Markets Free Index ("MSCI-
Select Emerging Markets Free Index").
The MSCI-Select Emerging Markets Free Index is made up of common stocks of
companies located in fourteen emerging markets of Europe, Asia, Africa and Latin
America (Argentina, Brazil, Greece, Hong-Kong, Indonesia, Israel, Malaysia,
Mexico, Philippines, Portugal, Singapore, South Africa, Thailand and Turkey).
The Emerging Markets Index Fund invests in a statistically selected sample of
the approximately 500 stocks included in the MSCI-Select Emerging Markets Free
Index. Four countries, Malaysia, South Africa, Hong Kong and Brazil, represent
a majority of the MSCI-Select Emerging Markets Index, with 17%, 15%, 14% and 11%
of the market capitalization of the Index, respectively, as of March 31, 1996.
The fourteen countries of the Index and their percentage weightings as of
_______________, 1996, were:
<TABLE>
<CAPTION>
<S> <C>
Greece.............. 1.7%
Portugal............ 2.6%
Turkey.............. 1.7%
----
Europe.............. 6.0%
Argentina........... 4.9%
Brazil.............. 14.5%
Mexico (Free)....... 10.2%
----
Latin America....... 30.2%
Hong Kong........... 13.5%
Indonesia........... 7.0%
Malaysia............ 20.0%
Philippines (Free).. 3.9%
Singapore........... 6.6%
Thailand............ 12.8%
Israel.............. 0.0%
----
Asia................ 63.8%
South America....... 0.0%
</TABLE>
The Index includes only shares that U.S. investors are "free" or allowed by
law, to purchase and sell and that have sufficient trading liquidity.
The Emerging Markets Index Fund will be unable to hold all of the issues that
comprised its index because of the cost involved and the illiquidity of many of
the securities. Instead, the Fund will attempt to hold a representative sample
of approximately 400 or more of the securities in its index. CIGNA Investments
will consider stocks for inclusion in the Fund based on each stock's
contribution to certain country, capitalization, industry, and fundamental
investment characteristics. The Fund is constructed so that, in the aggregate,
the Fund's country, capitalization, industry and fundamental investment
characteristics resemble those of the MSCI Select Emerging Markets Free Index.
Over time, Fund composition is rebalanced to reflect changes in the
characteristics of the index.
17
<PAGE>
In addition to the risks outlined in the discussion of the International Stock
Index Fund, investors should be aware that emerging markets can be substantially
more volatile than both US and more developed foreign markets. This volatility
in emerging markets made be exacerbated by illiquidity. Average daily trading
volume in all of the emerging markets combined is a small fraction of the
average daily volume of US markets. Small trading volumes may result in
investors being forced to purchase securities at substantially higher prices
than the current market, or sell securities at lower prices than the current
market.
Neither the International Stock Index Fund nor the Emerging Markets Index Fund
are sponsored, endorsed, sold or promoted by Morgan Stanley. Morgan Stanley
makes no representation or warranty, express or implied, to the owners of these
Funds or any member of the public regarding the advisability of investing in
securities generally or in these Funds particularly or the ability of the EAFE
Index or the MSCI-select Emerging Markets Free Index ("Morgan Stanley Indexes")
to track general stock market performance. Morgan Stanley is the licensor of
certain trademarks, service marks and trade names of Morgan Stanley and of the
Morgan Stanley Indexes which are determined, composed and calculated by Morgan
Stanley without regard to the issuer of these Funds or these Funds themselves.
Morgan Stanley has no obligation to take the needs of the issuer of these Funds
or the owners of these Funds into consideration in determining, composing or
calculating the Morgan Stanley Indexes. Inclusion of a security in the Morgan
Stanley Indexes in no way implies an opinion by Morgan Stanley as to its
attractiveness as an investment. Morgan Stanley is not responsible for and has
not participated in the determination of the timing of, prices at, or quantities
of these Funds to be issued or in the determination or calculation of the
equation by which these Funds are redeemable for cash. Morgan Stanley has no
obligation or liability to owners of these Funds in connection with the
administration, marketing, or trading of these Funds. These Funds are neither
sponsored by nor affiliated with Morgan Stanley.
ALTHOUGH MORGAN STANLEY SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN
THE CALCULATION OF THE MORGAN STANLEY INDEXES FROM SOURCES WHICH MORGAN STANLEY
CONSIDERS RELIABLE, MORGAN STANLEY DOES NOT GUARANTEE THE ACCURACY AND/OR THE
COMPLETENESS OF THE MORGAN STANLEY INDEXES OR ANY DATA INCLUDED THEREIN. MORGAN
STANLEY MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY
CIGNA INVESTMENTS OR THE FUNDS, FUND SHAREHOLDERS, OWNERS OF THE PRODUCTS, OR
ANY OTHER PERSON OR ENTITY FROM THE USE OF THE MORGAN STANLEY INDEXES OR ANY
DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED HEREUNDER OR FOR
ANY OTHER USE. MORGAN STANLEY MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND
HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT TO THE MORGAN STANLEY INDEXES OR ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL
MORGAN STANLEY HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE,
CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
CERTAIN INVESTMENT STRATEGIES AND POLICIES
- ------------------------------------------
In pursuit of their objectives and policies, the Funds may employ one or more
of the following strategies.
Money Market Instruments
- ------------------------
The Index Funds may invest in Money Market Instruments to invest uncommitted
cash balances pending investment in securities included in their respective
18
<PAGE>
index or to meet anticipated short-term cash needs. The Index Funds will invest
in Money Market Instruments (as described in the appendix to this prospectus)
for temporary, defensive purposes only under extraordinary circumstances. Of
course, the Money Market Fund invests exclusively in Money Market Instruments.
Only the Money Market Fund is required to limit such investments to those which,
at the date of purchase, are "First Tier" or "Second Tier" securities as those
terms are defined in Rule 2a-7 under the 1940 Act.
Futures Contracts, Related Options and Swap Agreements
- ------------------------------------------------------
Each Index Fund may invest in futures having an aggregate face value of up to
20% of its total assets. The Index Funds may do so in order to maintain cash
reserves while simulating full investment and to limit transaction costs should
invested assets need to be sold to meet redemption requests, or to seek higher
investment returns when a futures contract or option is priced more attractively
than the underlying index. 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 index futures
contracts, by payment of the change in the cash value of the index. Frequently,
using futures to effect a particular strategy instead of using the underlying or
related security or index will result in lower transaction costs to the
Fund.
The Index Funds may also purchase and write call options and put options on
indexes and futures contracts on indexes. An option on a futures contract gives
the holder the right, in return for the premium paid, to assume a long position
(in the case of a call) or a short position (in the case of a put) in a futures
contract at a specified exercise price prior to the expiration of the option.
Upon exercise of a call option, the holder acquires a long position in the
futures contract and the writer is assigned the opposite short position. In the
case of a put option, the opposite is true. An option on a futures contract
generally may be closed out (before exercise or expiration) by an offsetting
purchase or sale of an option on a futures contract. See the information set
forth below and the Statement of Additional Information for information on the
risks associated with these investments.
The Index Funds may also invest in swap agreements. Unlike futures and
options, which are publicly traded on exchanges, swap agreements are customized
contracts, often arranged through a broker, between two institutions. Swap
agreements function like futures.
Each Index Fund's use of index futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the
regulations of the Commodity Futures Trading Commission relating to exclusions
from regulation as a commodity pool operator. Those regulations currently
provide that the Funds may use commodity futures and option positions (i) for
bona fide hedging purposes without regard to the percentage of assets committed
to margin and option premiums, or (ii) for other purposes permitted by the
entity's principal regulator (in the case of the Funds, the Securities and
Exchange Commission) to the extent that the aggregate initial margin and option
premiums required to establish such non-hedging positions do not exceed 5% of
19
<PAGE>
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 instruments which the Index Funds intend to purchase. In
particular, a Fund's position in futures contracts and options may be closed out
only on an exchange which provides a liquid secondary market therefor, and there
can be no assurance that a liquid secondary market will exist for any particular
futures contract or option. The inability to close out options and futures
positions could have an adverse impact on a Fund's ability to effectively hedge
its securities and might, in some cases, require a Fund to deposit cash to meet
applicable margin requirements. A Fund's ability to hedge effectively through
transactions in futures contracts or options depends on the degree to which
price movements in its holdings correlate with price movements of the futures
and options. It is possible that there may be an imperfect correlation between
the hedging instrument and the hedged securities, which could result in an
ineffective hedge and a loss to the Fund. See the Statement of Additional
Information for a further description of the Funds' investments in futures
contracts.
Foreign Currency Forward, Futures and Related Options Transactions
- ------------------------------------------------------------------
The International Index Fund and the Emerging Markets Index Fund may enter into
foreign currency forward and foreign currency futures contracts in order to
maintain the same currency exposure as their exchange rates between foreign
currencies and the U.S. dollar. A foreign currency forward contract is an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These contracts do not
eliminate fluctuations in the underlying prices of securities held by the Funds.
Although these contracts tend to minimize the risk of loss due to a decline in
the value of a currency that ha been sold forward, and the risk of loss due to
an increase in the value of a currency that has been purchased forward, at the
same time they tend to limit any potential gain that might be realized should
the value of the currency increase.
Asset Coverage
- --------------
To assure that a Fund's use of futures and related options, as well as when-
issued and delayed-delivery securities, interest rate swaps and foreign currency
forward futures and related options transactions are not used to achieve
excessive investment leverage, a Fund will cover such transactions, as required
under applicable interpretations of the Securities and Exchange Commission,
either by owning the underlying securities, entering into an off-setting
transaction, or by establishing a segregated account with the Fund's custodian
containing securities in an amount at all times equal to or exceeding the Fund's
commitment with respect to these instruments or contracts.
Securities Lending
- ------------------
Each Fund may lend its investment securities to qualified institutional
investors for either short-term or long-term purposes of realizing additional
income. Loans of securities by a Fund will be collateralized by cash, letters of
credit, or securities issued or guaranteed by the U.S. Government or its
20
<PAGE>
agencies. The collateral will equal at least 100% of the current market value of
the loaned securities.
Turnover
- --------
The frequency of Fund transactions - the Fund's portfolio turnover rate - will
vary from year to year depending on market conditions and a Fund's cash flows.
Each Index Fund's annual portfolio turnover rate is not expected to exceed
100%.
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
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 the
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 and (c) except for the S&P 500
Fund and the Money Market Fund, up to 25% of a Fund's total assets may be
invested without regard to this 5% limitation.
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 (a) that
the Money Market Fund may invest up to 100% of its assets in the domestic
banking industry, (b) the Utility Index Fund may invest up to 100% of its assets
in the utilities industries, and (c) the REIT Index Fund may invest up to 100%
of its assets in the real estate industry.
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 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 Index Funds may enter into futures
contracts, as indicated. Such borrowings will be repaid before any additional
investments are made. Interest paid on such borrowings would reduce
21
<PAGE>
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.)
ELIGIBLE PURCHASERS
- -------------------
Shares may be purchased only by Eligible Purchasers. Eligible Purchasers are
limited to: (1) those separate accounts established by CG Life or by other Life
Companies that are registered as unit investment trusts under the Investment
Company Act of 1940, as amended, and that serve as the underlying investment
vehicles for Variable Contracts; (2) Qualified Plans; and (3) Connecticut
General Life Insurance Company (on behalf of Connecticut General Life Insurance
Company Field Individual Deferred Compensation Plan) ("CG Life Field Plan").
Thus, Eligible Purchasers who have purchased Fund shares are the only
shareholders. Shares may not be purchased by individuals or by the general
public. The Board of Trustees of the Trust may broaden or limit the definition
of Eligible Purchasers. Purchase of shares is subject to acceptance by the Trust
and is not binding until so accepted.
PURCHASE AND REDEMPTION OF SHARES OF THE FUNDS
- ----------------------------------------------
Shares of the Funds are sold exclusively to and redeemed by Eligible Purchasers
on a continuous basis.
Purchase and redemption orders received by Life Companies and Qualified Plans
on a given business day from Variable Contract owners or Qualified Plan
participants, as the case may be, will be effected at the net asset value of the
applicable Fund on such business day if the orders are received by the Fund in
proper form and in accordance with applicable requirements on the next business
day. It is each Eligible Purchaser's responsibility to properly transmit
purchase and redemption orders and payments in accordance with applicable
requirements. Individuals may not place orders directly with the Funds. The
Funds do not issue share certificates. Please refer to the prospectus of your
Life Company's separate account or Qualified Plan documents for information on
how to invest in each Fund.
Investments by Eligible Purchasers in each Fund are expressed in terms of full
and fractional shares of each Fund. All investments in the Funds are credited to
an Eligible Purchaser's account immediately upon acceptance of the investment by
a Fund.
The offering of shares of any Fund may be suspended for a period of time and
each Fund reserves the right to reject any specific purchase order. Purchase
orders may be refused if, in CIGNA Investments's opinion, they are of a size
that would disrupt the management of a Fund.
COMPUTATION OF NET ASSET VALUE
- ------------------------------
State Street determines the net asset value of shares of each of the Funds as
of the close of business on the New York Stock Exchange ("NYSE") on each day the
NYSE is open for trading and on any other day on which there is a sufficient
degree of trading in a Fund's investments that the current net asset value of
its shares might be materially affected. The NYSE is closed on New Year's Day,
President's Day, Good Friday, Martin Luther King Day, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day, and Christmas Day. The
22
<PAGE>
computation of net asset value is made by dividing each Fund's total net assets
by the number of outstanding shares of such Fund at the time of calculation. Net
assets are the excess of a Fund's assets over its liabilities. Equity
securities, including warrants, that are listed on a national securities
exchange or that are part of the NASDAQ National Markets system are valued at
the last sale price or, if there has been no sale that day, at the last bid
price. Debt and other equity securities actively traded in the over-the-counter
market, including listed securities whose primary markets are believed to be
over-the-counter, are valued at the most recent bid price, which may be based
upon valuations furnished by a pricing service or from independent securities
dealers. Short-term investments with remaining maturities of up to and including
60 days are valued at amortized cost which approximates market value. Except in
the case of the Money Market Fund, short-term investments that mature in more
than 60 days are valued at current market quotations. Other securities and
assets of a Fund, with the exception of futures contracts which are discussed
below, are appraised at fair value as determined in good faith by, or under the
authority of, the Board of Trustees of the Trust. The net asset value so
computed applies to all purchase orders and redemption requests in the hands of
State Street, duly executed in accordance with applicable instructions, on the
day of such determination. Any orders received after such time are executed at
the net asset value next determined.
Futures Contracts
- -----------------
Initial margin deposits made upon entering into futures contracts are
recognized as assets due from the broker (the Fund's agent in acquiring the
futures position). During the period the futures contract is open, changes in
the value of the contract are recognized as unrealized gains or losses by
"marking-to-market" on a daily basis to reflect the market value of the contract
at the end of each day's trading. Variation margin payments are made or
received, depending upon whether unrealized losses or gains are incurred. When
the contract is closed, the Fund records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transaction and
the Fund's basis in the contract.
Options on Futures Contracts
- ----------------------------
The premium paid by a Fund for the purchase of a call or put option on futures
contracts is recorded as an investment and subsequently "marked-to-market" to
reflect the current market value of the option purchased. The current market
value of a purchased option on futures contracts is the last reported sale price
or, if no sales are reported, the last bid price. If an option on futures
contracts which a Fund has purchased expires on the stipulated expiration date,
the Fund realizes a loss in the amount of the cost of the option. If a Fund
exercises a purchased put option on futures contracts, it realizes a gain or
loss from the sale of the underlying security and the proceeds from such sale
will be decreased by the premium originally paid. If a Fund exercises a
purchased call option on futures contracts, the cost of the security which the
Fund purchases upon exercise will be increased by the premium originally paid.
Valuation of Money Market Investments
- -------------------------------------
Money market investments owned by the Money Market Fund are valued at amortized
cost, which approximates market value, in accordance with rules adopted by the
Securities and Exchange Commission. Using the amortized cost valuation method
allows the 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
23
<PAGE>
per share. If the Board of Trustees deems it inadvisable to continue the
practice of maintaining the net asset value of $1.00 per share they may alter
this procedure. The shareholders of the Fund will be notified prior to any such
change, unless such change is only temporary, in which case the shareholders
will be notified after the change. See the Statement of Additional Information
for more information on amortized cost procedures.
DISTRIBUTION OF DIVIDENDS AND CAPITAL GAINS
- -------------------------------------------
It is expected that shares of the Funds will be held under the terms of
Variable Contracts or Qualified Plans. Under current tax law, dividends or
capital gain distributions from any Fund are not currently taxable when left to
accumulate within a Variable Contract or Qualified Plans. Depending on the
Variable Contract or Qualified Plan, withdrawals from the contracts may be
subject to ordinary income tax and, in addition, to a 10% penalty tax on
withdrawals before age 59 1/2.
Each Fund is treated as a separate entity for federal income tax purposes. Each
Fund intends to pay out all of its net investment income and net realized
capital gains for each year. Dividends and net realized capital gains, if any,
from the Funds will be distributed at least annually (except that dividends are
declared and paid daily in the case of the Money Market Fund). After
distribution from a Fund (other than the Money Market Fund), the Fund's share
price drops by the amount of the distribution. Because dividends and capital
gain distributions are reinvested in shares of the Fund paying the dividend or
distribution, the total value of a shareholder's account will not be affected
because, although the shares will have a lower price, there will be
correspondingly more of them.
TAX MATTERS
- -----------
Each Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), and intends to take all
other action required to ensure that no Federal income taxes will be payable by
the Funds. As a result, each Fund will generally seek to distribute annually to
Shareholders most or all of its undistributed taxable income and any
undistributed net realized capital gains (after use of any available capital
loss carry forwards). Because of this policy, the Funds do not anticipate being
subject to the 4% excise tax imposed on the undistributed income of mutual
funds.
The Trust was established as the underlying investment for Variable Contracts
issued by the Life Companies. (See "About the Funds")
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of Variable Contracts held in the Funds. The Code provides
that a Variable Contract shall not be treated as an annuity contract or life
insurance for any period (and any subsequent period) for which the investments
of the underlying Fund are not, in accordance with regulations prescribed by the
Treasury Department, adequately diversified. Disqualification of the Variable
Contract as an annuity contract or life insurance would result in imposition of
federal income tax on contract owners with respect to earnings allocable to the
Variable Contract prior to the receipt of payments under the Variable Contract.
Section 817(h)(2) of the Code is a safe harbor provision which provides that
contracts such as the Variable Contracts meet the diversification requirements
if, as of the close of each quarter, the
24
<PAGE>
underlying Fund assets meet the diversification standards for a regulated
investment company and no more than fifty-five percent (55%) of the total assets
consists of cash, cash items, U.S. Government securities and securities of other
regulated investment companies. There is an exception for securities issued by
the Treasury Department in connection with variable life insurance policies.
On March 2, 1989, the Treasury Department issued Regulations (Treas. Reg.
1.817-5), which established diversification requirements for the investment
portfolios underlying Variable Contracts. The Regulations amplify the
diversification requirements for Variable Contracts set forth in Section 817(h)
of the Code and provide an alternative to the safe harbor provision described
above. Under the Regulations, an investment portfolio will be deemed adequately
diversified if (i) no more than 55 percent of the value of the total assets of
the portfolio is represented by any one investment; (ii) no more than 70 percent
of such value is represented by any two investments; (iii) no more than 80
percent of such value is represented by any three investments; and (iv) no more
than 90 percent of such value is represented by any four investments. For
purposes of these Regulations all securities of the same issuer are treated as a
single investment.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of Variable Contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
As indicated elsewhere in this prospectus, Fund shares are also offered for
sale to Qualified Plans. The Regulations also provide that satisfaction of the
requirements of the Regulations shall not be prevented by reason of the fact
that shares in the investment company (i.e., a Fund) may be held by the trustee
of a qualified pension or other retirement plan (i.e., Qualified Plan).
Each Fund will be managed in such manner as to comply with these diversification
requirements. It is possible that in order to comply with the diversification
requirements, less desirable investment decisions may be made which would affect
the investment performance of the Fund.
MANAGEMENT OF THE FUNDS
- -----------------------
The investment adviser to each of the Funds is CIGNA Investments, an indirect,
wholly-owned subsidiary of CIGNA Corporation. CIGNA Investments also serves as
investment adviser for other investment companies including investment companies
sponsored by affiliates of CIGNA Corporation, and for a number of pension,
advisory, corporate and other accounts. CIGNA Investments and other affiliates
of CIGNA Corporation manage combined assets of approximately $70 billion. CIGNA
Investments's mailing address is 900 Cottage Grove Road, Hartford, Connecticut
06152.
Pursuant to a Master Investment Advisory Agreement the Trust, on behalf of the
Funds, employs CIGNA Investments to manage the investment and reinvestment of
the assets of the Funds. Subject to the control and periodic review of the Board
of Trustees, CIGNA Investments determines what investments shall be purchased,
held, sold or exchanged by the Funds and what portion, if any, of the assets of
the Funds shall be held in cash and other temporary investments. CIGNA
Investments is also responsible for overall management of the business affairs
of the Trust and the Funds.
25
<PAGE>
As full compensation for the investment management and all other services
rendered by CIGNA Investments, each Fund pays CIGNA Investments a separate fee
computed daily and paid monthly at annual rates based on a percentage of the
value of the relevant Fund's average daily net assets, as follows: S&P 500 Index
Fund--0.25%, Money Market Fund--0.35%; Intermediate Bond Index Fund--.35%; Long-
Term Bond Index Fund--.35%; Utility Index Fund--.25%; REIT Index Fund--.25%;
Small Cap Index Fund--.50%; International Index Fund--.50%; Emerging Market
Index Fund--.50%.
Each Fund will bear its own expenses. Operating expenses for each Fund
generally consist of investment management fees, custodian fees, fees for
necessary professional and brokerage services, costs of regulatory compliance,
costs associated with maintaining legal existence and all other costs not
specifically borne by CIGNA Investments. Trust-wide expenses not identifiable to
any particular Fund will be allocated among the Funds. CIGNA Investments has
voluntarily agreed to reimburse the Funds to the extent that the annual
operating expenses (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: S&P 500 Index Fund--0.25%,
Money Market Fund--0.50%; Intermediate Bond Index Fund--.60%; Long-Term Bond
Index Fund--.60%; Utility Index Fund--.60%; REIT Index Fund--.60%; Small Cap
Index Fund--.60%; International Index Fund--.80%; Emerging Market Index
Fund--.80%.
The investment management fee payable in 1996 to CIGNA Investments by the S&P
500 Index Fund was 0.25% of average daily net assets, and total expenses of this
Fund in 1996 were _____% of average daily net assets. The investment management
fee payable in 1996 to CIGNA Investments by the Money Market Fund was .35% of
average daily net assets, and total expenses of this Fund from March 31, 1996
(inception) to December 31, 1996 were _________% of average daily net assets.
CIGNA Investments investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for personal
investing and restricts certain transactions.
State Street Bank and Trust Company ("State Street"), Boston, Massachusetts
02105 serves as transfer agent and dividend disbursing agent for the Funds.
State Street is also custodian of the assets of the Funds.
From time to time, the Funds may pay brokerage commissions on portfolio
transactions to brokers who may be deemed to be affiliates of CIGNA Corporation
under the 1940 Act, as amended. See the Statement of Additional Information for
further details.
PERFORMANCE
- -----------
Each Fund's performance may be quoted in advertising in terms of yield and
total return if accompanied by performance of your Life Company's separate
account. Performance is based on historical results and not intended to indicate
future performance. For additional performance information, contact your Life
Company for a free annual report.
The Money Market Fund's yield refers to the income generated by an investment
in the Fund over a specified seven day period, expressed as an annual percentage
rate. Its effective yield is calculated similarly, but assumes that
26
<PAGE>
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 the S&P 500 Index Fund, Yield refers to the income
generated by an investment in the Fund over a specified 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 (except
for the Money Market Fund) and assuming each Fund's dividends and capital gain
distributions, if any, are reinvested. A cumulative total return reflects a
Fund's performance over a stated period of time. An average annual total return
reflects the hypothetical annually compounded return that would have produced
the same cumulative total return if a Fund's performance had been constant over
the entire period. Because average annual returns tend to smooth out variations
in a Fund's return, you should recognize that they are not the same as actual
year-by-year results. To illustrate the components of overall performance, a
Fund may separate its cumulative and average annual returns into income results
and capital gain or loss.
Yields and total returns quoted for the Funds include the effect of deducting
each Fund's expenses, but may not include charges and expenses attributable to
any particular Variable Contract or Qualified Plan. Since shares of the Funds
may only be purchased by Eligible Purchasers, you should carefully review the
prospectus of the Variable Contract you have chosen or Qualified Plan documents
for information on relevant charges and expenses. Excluding these charges from
quotations of each Fund's performance has the effect of increasing the
performance quoted. You should bear in mind the effect of these charges when
comparing a Fund's performance to that of other funds.
THE TRUST, ITS SHARES AND BOARD OF TRUSTEES
- -------------------------------------------
The Trust is a Massachusetts Business Trust established in 1988. The Board of
Trustees is authorized in the Trust's Master Trust Agreement to create new
series of shares (funds) 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. Currently the
Trust is offering shares of _______ Funds.
Under the Master Trust Agreement no annual or regular meetings of shareholders
are required. Meetings of shareholders of a series will be held from time to
time to consider matters requiring a vote of such shareholders in accordance
with the requirements of the 1940 Act, state law or the provisions of the Master
Trust Agreement. It is not expected that shareholder meetings will be held
annually.
Except as otherwise provided under the 1940 Act, the Board of Trustees will be
a self-perpetuating body until fewer than two thirds of the Trustees are
Trustees who were elected by shareholders of the Trust. In the event less than a
majority of the Trustees serving as such were elected by shareholders of the
Trust, a meeting of shareholders will be called to elect Trustees. Under the
Master Trust Agreement, any Trustee may be removed by vote of two thirds of the
outstanding Trust shares; holders of 10% or more of the outstanding shares of
the Trust can require that the Trustees call a meeting of shareholders for
purposes of voting on the removal of one or more Trustees.
Shares of the Trust may be owned by the CG Life Field Plan, by separate
accounts of Life Companies or by Qualified Plans (see "About the Funds" and
27
<PAGE>
"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
proportionate voting for fractional shares), irrespective of the relative net
asset value of the shares of any Fund. On any matter submitted to a vote of
shareholders, all shares of the Trust then issued and outstanding shall be voted
in the aggregate. However, on matters affecting an individual Fund, a separate
vote of shareholders of that Fund would be required. Shareholders of a Fund
would not be entitled to vote on any matter which does not affect that Fund but
which would require a separate vote of another Fund.
When issued, shares of a Fund are fully paid and nonassessable, and have no
preemptive or subscription rights. There are no conversion rights. Shares do not
have cumulative voting rights, which means that in situations in which
shareholders elect Trustees, holders of more than 50% of the shares voting for
the election of Trustees can elect 100% of the Trustees of the Trust and the
holders of less than 50% of the shares voting for the election of Trustees will
not be able to elect any Trustees.
Under Massachusetts law, the shareholders of the Trust could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Master Trust Agreement disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed on behalf of
the Trust. The Master Trust Agreement provides for indemnification from the
Trust property for all losses and expenses of any shareholder held personally
liable for the obligations of the Trust. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations.
A majority of the Trustees is not affiliated with CIGNA Corporation or any of
its subsidiary companies. The Trustees meet quarterly to review the results of
the Funds, to monitor investment activities and practices, and to review and act
upon future plans for the Funds. The role of the Trustees is not to approve
specific investment purchases and sales, but rather to exercise a control and
review function.
APPENDIX
- --------
DESCRIPTION OF MONEY MARKET INSTRUMENTS
- ---------------------------------------
U.S. GOVERNMENT DIRECT OBLIGATIONS--Bills, notes, and bonds issued by the U.S.
Treasury.
U.S. GOVERNMENT AGENCIES SECURITIES--Certain Federal agencies such as the
Government National Mortgage Association have been 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
28
<PAGE>
U.S. Government, are either backed by the full faith and credit of the United
States or are guaranteed by the Treasury or supported by the issuing agencies'
right to borrow from the Treasury.
BANKERS' ACCEPTANCES--A bill of exchange or time draft drawn on and accepted by
a commercial bank. It is used by corporations to finance the shipment and
storage of goods and to furnish dollar exchange. Maturities are generally six
months or less.
CERTIFICATES OF DEPOSIT--A negotiable interest-bearing instrument with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market, prior to maturity.
TIME DEPOSITS--A non-negotiable receipt issued by a bank in exchange for the
deposit of funds. Like a certificate of deposit, it earns a specified rate of
interest over a definite period of time; however, it cannot be traded in the
secondary market.
COMMERCIAL PAPER--The term used to designate unsecured short-term promissory
notes issued by corporations and other entities. Maturities on these issues vary
from a few days to nine months.
COMMERCIAL LOAN PARTICIPATIONS--Participating interests in loans made by a
bank, or a syndicate of banks represented by an agent bank, to corporate
borrowers. Loan participations may extend for the entire term of the loan or may
extend only for short "strips" that correspond to stated payments on the
underlying loan. The loans underlying such participations may be secured or
unsecured, and a Fund may invest in loans collateralized by mortgages on real
property. Each Fund will limit its investments in commercial loan participations
to those which are considered by the Trustees (with the advice of CIGNA
Investments) to be of comparable quality to permitted commercial paper
investments.
REPURCHASE AGREEMENTS--A repurchase agreement is a contractual undertaking
whereby the seller of securities (limited to U.S. Government securities,
including securities issued or guaranteed by the U.S. Treasury or the various
agencies and instrumentalities of the U.S. Government) agrees to repurchase the
securities at a specified price on a future date determined by negotiations.
The repurchase agreement may be considered a loan by a Fund to the issuer of the
agreement, a bank or securities dealer, with the U.S. Government security
serving as collateral for the loan.
VARIABLE AND FLOATING RATE INSTRUMENTS--Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic banks or corporations,
may carry variable or floating rates of interest. Such instruments bear interest
at rates which are not fixed, but which vary with changes in specified market
rates or indices, such as a Federal Reserve composite index.
29
<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
30
<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 Y 1, 1 9 9 7
================================================================================
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the prospectus for CIGNA Variable Products Group, (the
series of CIGNA Variable Products Group are referred to as 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 950 Winter Street, Waltham MA
02154.
The financial statements for CIGNA Variable Products Group for fiscal year ended
December 31, 1996, as contained in the Annual Report to Shareholders dated
December 31, 1996, are hereby incorporated by reference into this Statement of
Additional Information. The financial statements for the fiscal year ended
December 31, 1996 have been examined by Price Waterhouse LLP, independent
accountants, whose report thereon also is incorporated herein by reference.
The financial statements of the Funds will be delivered with this Statement of
Additional Information.
Page 1
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
General Information About the Funds......................... 4
-----------------------------------
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
---------------------
Page 2
<PAGE>
GENERAL INFORMATION ABOUT THE FUNDS
- -----------------------------------
The Trust has twelve separate series portfolios or Funds:
High Yield Fund
Income Fund
International Stock Fund
Money Market Fund
S&P 500 Index Fund
Intermediate Bond Index Fund
Long-Term Bond Index Fund
Utility Index Fund
REIT Index Fund
Small Cap Index Fund
International Index Fund
Emerging Markets Index Fund.
Prior to January 2, 1996 the sole series of the Trust was the S&P 500 Index
Fund, which was formerly known as Companion Fund. The High Yield Fund, Income
Fund, International Stock Fund and Money Market Fund were added to the Trust on
January 2, 1996. In April 1997 the Intermediate Bond Index Fund, Long-Term Bond
Index Fund, Utility Index Fund, REIT Index Fund, Small Cap Index Fund,
International Index Fund and Emerging Markets Index Funds (which, together with
the S&P 500 Index Fund, are referred to as the "Index Funds") were added to the
Trust.
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. ("CIGNA Investments"), 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 CIGNA Investments 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 (n/k/a CIGNA Funds Group). As mentioned above, Companion Fund is
now known as the 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
Page 3
<PAGE>
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.
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.
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CERTIFICATES OF DEPOSIT--A certificate of deposit ("CD") is a negotiable
interest-bearing instrument with a specific maturity. Certificates of deposit
are issued by banks and savings and loan institutions in exchange for the
deposit of funds and normally can be traded in the secondary market, prior to
maturity. Each Fund may invest in U.S. dollar denominated CD's issued by
domestic branches and foreign branches of U.S. banks which are members of the
Federal Reserve System; by foreign branches and U.S. branches of foreign banks
and by U.S. domiciled savings and loan institutions having in each case at least
one billion dollars (U.S.) of assets. CD's issued by foreign branches of U.S.
banks are called "Eurodollar CD's" while CD's issued by U.S. branches of foreign
banks are called "Yankee CD's."
COMMERCIAL LOAN PARTICIPATIONS--Each Fund will limit its investments in loan
participations to those which are considered by CIGNA Investments 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' 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
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collateral securities at least equals the amount of the repurchase agreement.
Also, the Funds require that the underlying securities be held by the custodian
of Fund assets, either physically or under the Federal Book Entry System.
Repurchase agreements could involve certain risks in the event of default or
insolvency of the repurchasing bank or broker/dealer, including possible delays
or restrictions upon a Fund's ability to dispose of the underlying securities.
CIGNA Investments, in accordance with procedures adopted by the Board of
Trustees of the Trust, monitors and evaluates the credit-worthiness of banks and
dealers with which the Funds engage in repurchase agreements.
TIME DEPOSITS--A time deposit is a non-negotiable receipt issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. U.S. dollar denominated time deposits may be
purchased from domestic branches and foreign branches of U.S. banks which are
members of the Federal Reserve System (not including savings and loan
institutions) and from foreign branches and U.S. branches of foreign banks
having at least one billion dollars (U.S.) of assets.
U.S. dollar denominated certificates of deposit, time deposits and bankers'
acceptances issued by foreign branches of U.S. banks or by foreign banks either
in the U.S. or abroad may present investment risks in addition to the risks
involved in investments in obligations of, or guaranteed by, domestic banks.
Such risks include future political and economic developments, the possible
imposition of withholding taxes on interest income payable on such obligations,
the possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls or the adoption of other governmental
restrictions. Generally, foreign branches of U.S. banks and U.S. branches of
foreign banks are subject to fewer U.S. regulatory restrictions than are
applicable to domestic banks, and foreign branches of U.S. banks may be subject
to less stringent reserve requirements than domestic banks. U.S. branches of
foreign banks and foreign branches of U.S. banks may provide less public
information than, and may not be subject to the same accounting, auditing and
financial record-keeping standards as, domestic banks. Foreign branches of
foreign banks generally would not be subject to any U.S. regulatory restrictions
or disclosure, financial recordkeeping or accounting requirements.
COMMERCIAL PAPER--Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations and other business entities.
Maturities on these issues vary from a few days to nine months. Commercial
paper may be purchased from U.S. domiciled issuers. Commercial paper may also
be purchased from foreign issuers issued either in the U.S. ("Yankee" commercial
paper) or abroad if, in any case, such paper is denominated in U.S. dollars.
OTHER CORPORATE OBLIGATIONS--Each Fund may purchase notes, bonds and debentures
issued by corporations and other business entities. However, the Money Market
Fund will purchase such obligations only if at the time of purchase there are
397 days or less remaining until maturity or if they carry a variable or
floating rate of interest.
VARIABLE AND FLOATING RATE INSTRUMENTS--Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, or state and local
government issuers, and certain debt instruments issued by domestic banks or
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corporations or other business entities, 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.
The Money Market Fund may invest in variable and floating rate instruments even
if they carry stated maturities in excess of 397 days, 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.
The 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. CIGNA Investments 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 The High Yield Fund
- ---------------------------------------------------------
As noted in the prospectus, the Fund purchases principally debt securities that
are rated Ba or lower by Moody's Investors Service, Inc. ("Moody's") or BB or
lower by Standard & Poor's Corporation ("S&P").
Included among the high-yield, high risk securities in which the Fund may invest
are securities issued in connection with corporate restructurings such as
takeovers or leveraged buyouts. Securities issued to finance corporate
restructurings may have special credit risks due to the highly leveraged
conditions of the issuer. In addition, such issuers may lose experienced
management as a result of the restructuring. Also, the market price of such
securities may be more volatile to the extent that expected benefits from the
restructuring do not materialize.
Because investors generally perceive that there are greater risks associated
with the medium to lower rated securities of the type constituting high- yield,
high risk securities, the yields and prices of such securities may tend to
fluctuate more than those for higher rated securities. In the lower quality
segments of the fixed income securities market, changes in perceptions of
issuer's creditworthiness tend to occur more frequently and in a more pronounced
manner than do such changes with respect to higher quality segments of the fixed
income securities market, causing greater yield and price volatility.
Commissions and underwriting spreads associated with the purchase of high-yield,
high risk bonds are typically higher than those associated with the purchase of
high grade bonds. The Fund may also invest in preferred stocks with yields that
are attractive, provided that such investments are otherwise consistent with the
investment objective and policies of the fund. A preferred stock is an equity
security that entitles the holders to a priority in liquidation over holders of
the issuer's common stock. In liquidation, the holders of preferred stock are
subordinate to the holders of the issuer's debt obligations. Typically,
preferred stocks include the right to receive regular dividend payments and may
also include conversion rights, put and call
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obligations and other features. In determining whether to invest in any
particular stock, CIGNA Investments will consider all relevant factors,
including the dividend yield, its conversion features, if any, its liquidity,
and the overall financial condition of the issuer. Under normal circumstances,
the Fund will not invest more than 10% of its assets in preferred stock.
The Fund may invest up to 15% of its total assets in "private placements," i.e.,
securities that are subject to restrictions on resale because they have not been
registered under the securities Act of 1933, as amended (the "1933 Act").
Privately placed securities, which include securities eligible for resale under
Rule 144A under the 1933 Act, ordinarily can be sold by the Fund in privately
negotiated transactions to a limited number and/or particular type of 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 The Income Fund
- -----------------------------------------------------
In pursuing its investment objective, the assets of the Income Fund will be
principally invested in the following types of interest-bearing securities:
(1) Marketable debt securities that are rated at the time of purchase
within the four highest grades assigned by Moody's (Aaa, Aa, A or Baa) or
S&P (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 CIGNA Investments to have investment
qualities comparable to securities which may be purchased under Item (1)
above, although there can be no assurance that said obligations shall
have such qualities.
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(4) Money market instruments eligible for purchase by the Money Market Fund,
which instruments are considered by CIGNA Investments to have investment
qualities comparable to securities which may be purchased under Item (1)
above, although there can be no assurance that said obligations shall
have such qualities.
(5) Marketable securities (payable in U.S. dollars) of, or guaranteed by, the
Government of Canada or of a Province of Canada or any instrumentality or
political subdivision thereof.
The balance of the Income Fund's assets may be invested in other fixed-income
securities, including straight debt and convertible debt securities and
preferred stock. Investment positions may be held in common stock and similar
equity securities (including warrants or rights to purchase equity investments
as described below) when they are acquired as parts of units with fixed-income
securities or upon exercise of such warrants or rights or upon the conversion of
such securities. The Income Fund also may purchase and sell interest rate
futures contracts and purchase options on futures contracts as described under
"Futures Contracts" and "Options on Futures Contracts."
U.S. Government securities include a variety of securities that are issued or
guaranteed by the U.S. Treasury, by various agencies of the U.S. Treasury, by
various agencies of the U.S. Government or by various instrumentalities that
have been established or sponsored by the U.S. Government. Treasury securities
include Treasury bills, Treasury notes and Treasury bonds. Treasury bills have
a maturity of one year or less; Treasury notes have maturities of one to ten
years; Treasury bonds generally have a maturity of greater than ten years. The
Federal agencies established as instrumentalities of the U.S. Government to
supervise and finance certain types of activities include the Federal Home Loan
Banks, the Government National Mortgage Association, the Federal National
Mortgage Association, the Federal Land Banks, the Small Business Administration,
the Export-Import Bank, the Federal Intermediate Credit Banks and the Bank for
Cooperatives.
U.S. Government securities may take the form of participation interests in, and
may be evidenced by, deposit or safekeeping receipts. Participation interests
are pro rata interests in U.S. Government securities such as interests in pools
of mortgages sold by the Government National Mortgage Association; instruments
evidencing deposit or safekeeping are documentary receipts for such original
securities held in custody by others. The Fund will not invest in obligations
of the Asian Development Bank, the Inter-American Development Bank or the
International Bank for Reconstruction and Development (World Bank).
U.S. Government obligations, including those that are guaranteed by Federal
agencies or instrumentalities, may or may not be backed by the "full faith and
credit" of the United States. Some securities issued by Federal agencies or
instrumentalities are only supported by the credit of the agency or
instrumentality (such as the Federal Home Loan 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
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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.
High Yield Fund and Income Fund
- -------------------------------
The High Yield Fund, and, to a lesser extent, the Income Fund, invest in debt
securities of less than investment grade (i.e., securities rated Ba/BB or below
by Moody's and S&P, respectively). Such securities are often referred to as
high yield or junk bonds and are typically considered "high risk" securities.
High yield bonds may be subject to certain risk factors to which other
securities are not subject to the same degree. An economic downturn tends to
disrupt the market for high yield bonds and adversely effect their values. Such
an economic downturn may be expected to result in increased price volatility of
high yield bonds and of the value of the Fund's shares, and an increase in
issuers' defaults on such bonds.
Also, issuers of high yield bonds are substantially leveraged, which may impair
their ability to meet their obligations. In some cases, the securities in which
the Fund invests are subordinated to the prior payment of senior indebtedness,
thus potentially limiting the Fund's ability to recover full principal or to
receive payments when senior securities are in default. When the secondary
market for high yield bonds becomes increasingly illiquid, or in the absence of
readily available market quotations for high yield bonds, the relative lack of
reliable, objective data makes the responsibility of the Trustees to value the
Fund's securities more difficult, and judgement plays a greater role in the
valuation of portfolio securities. Also, increased illiquidity of the high
yield bond market may affect the Fund's ability to dispose of portfolio
securities at a desirable price.
The credit rating of a security does not necessarily address its market value
risk. Also, ratings may from time to time, be changed to reflect developments
in the issuer's financial condition. High yield bonds have speculative
characteristics which are apt to increase in number and significance with each
lower rating category. Also, prices of high yield bonds have been found to be
less sensitive to interest rate changes and more sensitive to adverse economic
changes and individual corporate developments than more highly rated
investments.
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Certain laws or regulations may have a material effect on the Fund's net asset
value and investment practices. For example, legislation requiring federally-
insured savings and loan associations to divest their investments in high yield
bonds may further adversely affect the market for such bonds.
Characteristics of the Index Funds
- ----------------------------------
The Index Funds will only purchase securities included in their respective index
at the time of purchase (except for money market instruments and derivative
securities such as futures and options as disclosed in the prospectus). A Fund
may temporarily continue to hold a security that has been deleted from its index
pending the rebalancing of the Fund's portfolio. Certain of the Index Funds may
not hold all of the issues in their respective indexes because of the costs
involved and the illiquidity of some of the securities in the index. In
addition, an Index Fund may not hold all of the securities in its index until
the Fund has sufficient assets to enable it to acquire all of the securities in
its index.
Characteristics of the Income Fund
- ----------------------------------
Considerations of liquidity and preservation of capital mean that The Income
Fund may not necessarily invest in instruments paying the highest available
yield at a particular time. This Fund may, consistent with its investment
objective, attempt to maximize yields by buying and selling portfolio
investments in anticipation of or in response to changing economic and money
market conditions and trends. This Fund will also invest to take advantage of
what are believed to be temporary disparities in the yields of the different
segments of the market or among particular instruments within the same segment
of the market. These policies, as well as the relatively short maturity of
obligations to be held by this Fund, may result in frequent changes in portfolio
holdings. There usually are no brokerage commissions as such paid in connection
with the purchase of securities of the type in which this Fund may invest. See
"Brokerage Allocation" for a discussion of underwriters' commissions and
dealers' spreads involved in the purchase and sale of portfolio securities.
Changes in interest rates are likely to result in increases or decreases in the
value of the investments of the Income Fund. The value of the securities in
this Fund can be expected to vary inversely with the changes in prevailing
interest rates. Thus, depending upon whether interest rates have increased or
decreased since the time a security was purchased, such security, if sold, might
be sold at a loss or a gain. If debt instruments are held to maturity, no gain
or loss would normally be realized as a result of interest rate
fluctuations.
Characteristics of the International Stock Fund
- -----------------------------------------------
The Fund will invest in securities listed on foreign securities exchanges or
securities traded in the over-the-counter market. Debt securities will be
acquired in new offerings or in principal trades with broker/dealers.
Ordinarily, the Fund will not purchase securities with the intention of engaging
in short-term trading. However, any particular security will be sold,
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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, respectively or if not so rated, which in the opinion
of CIGNA International Investment Advisors, Ltd. ("CIIA"), sub-adviser to the
Fund, are of comparable quality). Therefore, the Fund will dispose of any bond,
as soon as practicable consistent with achieving an orderly disposition, that
would cause the Fund to violate the above-referenced limitation. If the major
rating services used by the Fund were to alter their standards or systems for
rating, the Fund would then employ ratings under the revised standards or
systems that would be comparable to those specified in its current investment
objective, policies and restrictions.
Characteristics of the Money Market 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. 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
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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"). CIGNA
Investments will consider the above factors in making investments in foreign
depository, Eurodollar and Yankeedollar obligations and will not knowingly
purchase obligations which, at the time of purchase, are subject to exchange
controls or withholding taxes. Generally, the Fund will limit its foreign
depository and Yankeedollar investments to obligations of banks organized in
Canada, France, Germany, Japan, the Netherlands, Switzerland, the United Kingdom
and other western industrialized nations. As discussed in the prospectus, the
Fund may also invest in U.S. dollar-denominated commercial paper and other
short-term obligations issued by foreign entities. 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 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
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establishing a net asset value per share by using available market quotations;
in which case, the net asset value could possibly be greater or less than $1.00
per share. If the Trustees deem it inadvisable to continue the practice of
maintaining the net asset value at $1.00 per share, they may alter this
procedure. The shareholders of the Fund will be notified promptly after any
such change.
Any increase in the value of a shareholder's investment in the Fund resulting
from the reinvestment of dividend income is reflected by an increase in the
number of shares in the shareholder's account.
Matters relating to all Funds
- -----------------------------
Except as described under "Investment Restrictions," the foregoing investment
characteristics are not fundamental and the Board of Trustees may change such
policies without shareholder approval. The Board will not change a Fund's
investment objectives without the required shareholder vote as set forth in
"Investment Restrictions" below. There is risk inherent in any investment, and
there is no assurance that any of the strategies and methods of investment
available to any Fund will result in the achievement of its objectives.
FUTURES CONTRACTS
- -----------------
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.
The 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.
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
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10 Year Bond, London InterBank Offer Rate, Sterling, Long Gilt and the Bond
Buyer Municipal Bond Index.
In addition to the uses permitted for futures contracts set forth in the
prospectus, the Funds may enter into interest rate futures contracts for the
purpose of hedging debt securities in their portfolios or the value of debt
securities which the Funds intend to purchase. For example, if one of these
Funds owned long-term debt securities and interest rates were expected to
increase, they might sell interest rate futures contracts. If, on the other
hand, these Funds held cash reserves and interest rates were expected to
decline, they might purchase interest rate futures contracts. In cases of
purchases of futures contracts, an amount of cash and cash equivalents, equal to
the market value of the futures contracts (less any related margin deposits),
will be deposited in a segregated account with the Trust's Custodian to
collateralize the position and ensure that the use of such futures contracts is
unleveraged.
Unlike when a Fund purchases or sells a security, no price is paid or received
by a Fund upon the purchase or sale of a futures contract. Initially, a Fund
will be required to deposit with the custodian for the Fund for the account of
the broker a stated amount, as called for by a particular contract, of cash or
U.S. Treasury bills. This amount is known as "initial margin." The nature of
initial margin in futures transactions is different from that of margin in
securities transactions in that futures contract margin does not involve the
borrowing of funds by the customer to finance the transactions. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the applicable Fund upon termination of the
futures contract assuming all contractual obligations have been satisfied.
Subsequent payments, called "variation margin," to and from the broker will be
made on a daily basis as the price of the futures contract fluctuates making the
long and short positions in the futures contract more or less valuable, a
process known as "marking-to-market." For example, when a Fund has purchased a
stock index futures contract and the price of the underlying stock index has
risen, that position will have increased in value and the Fund will receive from
the broker a variation margin payment with respect to that increase in value.
Conversely, where a Fund purchases a stock index futures contract and the price
of the underlying stock index has declined, the position would be less valuable
and the Fund would be required to make a variation margin payment to the broker.
Variation margin payments would be made in a similar fashion when a Fund
purchases an interest rate futures contract. At any time prior to expiration of
the futures contract, a Fund may elect to close the position by taking an
opposite position which will operate to terminate the Fund's position in the
futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the Fund and the Fund
realizes a loss or a gain.
OPTIONS ON FUTURES CONTRACTS
- ----------------------------
An option on a futures contract gives the purchaser (the Fund) the right, in
return for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the option exercise period. The
writer of the option is required upon exercise to assume an offsetting futures
position (a short position if the option is a call and a long position
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if the option is a put) at a specified exercise price at any time during the
period of the option. Upon exercise of the option, the assumption of offsetting
futures positions by the writer and holder of the option will be accompanied by
delivery of the accumulated cash balance in the writer's futures margin account
which represents the amount by which the market price of the futures contract,
at exercise, exceeds, in the case of a call, or is less than, in the case of a
put, the exercise price of the option on the futures contract. If an option on
a futures contract is exercised on the last trading date prior to the expiration
date of the option, the settlement will be made entirely in cash equal to the
difference between the exercise price of the option and the closing price of the
futures contract on the expiration date.
The Funds may purchase put options on futures contracts to hedge against the
risk of falling prices for their portfolio securities, and may purchase call
options on futures contracts as a hedge against a rise in the price of
securities which they intend to purchase. Options on futures contracts may also
be used to hedge the risks of changes in the exchange rate of foreign
currencies. The purchase of a put option on a futures contract is similar to
the purchase of protective put options on portfolio securities or a foreign
currency. The purchase of a call option on a futures contract is similar in
some respects to the purchase of a call option on an individual security or a
foreign currency. Depending on the pricing of the option compared to either the
price of the futures contract upon which it is based or the price of the
underlying securities or currency, it may or may not be less risky than
ownership of the futures contract or underlying securities or currency.
RISKS AS TO FUTURES CONTRACTS AND RELATED OPTIONS
- -------------------------------------------------
There are several risks in connection with the use of futures contracts and
related options as hedging devices. One risk arises because of the imperfect
correlation between movements in the price of hedging instruments and movements
in the price of the stock, debt securities or foreign currency which are the
subject of the hedge. If the price of a hedging instrument moves less than the
price of the stocks, debt securities or foreign currency which are the subject
of the hedge, the hedge will not be fully effective. If the price of a hedging
instrument moves more than the price of the stock, debt securities or foreign
currency, a Fund will experience either a loss or a gain on the hedging
instrument which will not be completely offset by movements in the price of the
stock, debt securities or foreign currency which are the subject of the hedge.
The use of options on futures contracts involves the additional risk that
changes in the value of the underlying futures contract will not be fully
reflected in the value of the option.
Successful use of hedging instruments by a Fund is also subject to CIGNA
Investments's ability to predict correctly movements in the direction of the
stock market, of interest rates or of foreign exchange rates (foreign
currencies). Because of possible price distortions in the futures and options
markets and because of the imperfect correlation between movements in the prices
of hedging instruments and the investments being hedged, even a correct forecast
by CIGNA Investments of general market trends may not result in a completely
successful hedging transaction.
It is also possible that where a Fund has sold futures contracts to hedge its
portfolio against a decline in the market, the market may advance and the value
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of stocks or debt securities held in a Fund's portfolio may decline. If this
occurred, a Fund would lose money on the futures contracts and also experience a
decline in the value of its portfolio securities. Similar risks exist with
respect to foreign currency hedges.
Positions in futures contracts or options may be closed out only on an Exchange
on which such contracts are traded. Although the Funds intend to purchase or
sell futures contracts or purchase options only on Exchanges or Boards of Trade
where there appears to be an active market, there is no assurance that a liquid
market on an Exchange or Board of Trade will exist for any particular contract
or at any particular time. If there is not a liquid market at a particular
time, it may not be possible to close a futures position or purchase an option
at such time. In the event of adverse price movements under those
circumstances, a Fund would continue to be required to make daily cash payments
of maintenance margin on its futures positions. The extent to which the Fund
may engage in futures contracts or related options will be limited by Internal
Revenue Code requirements for qualification as a regulated investment company
and the Fund's intent to continue to qualify as such. The result of a hedging
program cannot be foreseen and may cause the portfolio of the Fund to suffer
losses which it would not otherwise sustain.
Foreign Currency Transactions (All Funds Except The Money Market Fund)
- ---------------------------------------------------------------------
The Funds may engage in currency exchange transactions to protect against
uncertainty in the level of future currency exchange rates.
Generally, Funds may engage in both "transaction hedging" and "position
hedging". When a Fund engages in transaction hedging, the Fund enters into
foreign currency transactions with respect to specific receivables or payables,
generally arising in connection with the purchase or sale of portfolio
securities. A Fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging a Fund will attempt to protect itself against
a possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
A Fund may purchase or sell a foreign currency on a spot (or cash) basis at the
prevailing spot rate in connection with the settlement of transactions in
portfolio securities denominated in that foreign currency. A Fund may also
enter into contracts to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes a Fund may also purchase exchange-listed call
and put options on foreign currencies. A put option on currency gives the Fund
the right to sell a currency at a specific exercise price. A call option on
currency gives a Fund the right to purchase a currency at a specific exercise
price. The time when call and put options are exercisable depends on whether
the options are American options or European options. American options are
exercisable at anytime during the option period. European options are
exercisable only on a designated date.
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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 CIGNA Investments (or CIGNA International Investments in
the case of the International Stock Fund) determines that it is advisable to
hedge a Fund's currency risk, the Funds will have to convert their holdings of
foreign currencies into U.S. dollars from time to time. Although foreign
exchange dealers generally do not charge a fee for conversion, they do realize a
profit based on the difference (the "spread") between the prices at which they
are buying and selling various currencies.
Forward Currency Contracts
- --------------------------
A forward currency contract is an agreement between two parties to purchase and
sell a specific quantity of a currency at a price specified at the time of the
contract, with delivery and settlement at a specified future date. In the case
of purchases of forward currency contracts, an amount of cash and cash
equivalents, equal to the market value of the portfolio security sold, will be
deposited in a segregated account with the Trust's Custodian to collateralize
the position and ensure that the use of such contracts is unleveraged.
In the case of a cancelable forward contract, the holder has the unilateral
right to cancel the contract at maturity by paying a specified fee. The
contracts are traded in the interbank market conducted directly between
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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
The 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 and (c) except for the S&P
500 Fund and the Money Market Fund, up to 25% of a Fund's total assets may be
invested without regard to this 5% limitation.
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
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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 (a)
the Money Market Fund may invest up to 100% of its assets in the domestic
banking industry, (b) the Utility Index Fund will invest up to 100% of its
assets in the utilities industries, and (c) the REIT Index Fund will invest up
to 100% of its assets in the real estate industry.
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. For purposes
of this restriction, the deposit or payment of initial or variation margin
payments in connection with transactions in stock index futures contracts,
financial futures contracts and related options thereon will not be deemed to be
a purchase of securities on margin by a Fund.
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 CIGNA
Investments who beneficially own more than 1/2 of 1% of the securities of that
issuer, together own more than 5%.
10. Make loans, except (a) by purchase of debt obligations and through
repurchase agreements referred to under "Certain Investment Practices" in the
Funds' prospectus, provided, however, that repurchase agreements maturing in
more than seven days will not exceed 10% of a Fund's total assets (taken at
current value) and (b) through the lending of its portfolio securities with
respect to not more than 25% of its total assets. (As a matter of policy,
securities loans would be made to broker-dealers pursuant to agreements
requiring that loans be continuously secured by collateral in cash or cash
equivalents at least equal at all times to the value of the securities lent.
The borrower pays to the Fund an amount equal to any dividends or interest
received on the securities lent. The Fund may invest the cash collateral
received in interest-bearing short-term securities or receive a fee from the
borrower. The Fund may call such loans in order to sell the securities involved
or to exercise voting or other rights available to it as beneficial owner of the
securities involved.)
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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 may enter into stock index futures
contracts and financial futures contracts. 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. This restriction shall not apply to
the REIT Index Fund, which will invest up to 100% of its assets in real estate
investment trusts.
14. Purchase or sell commodities or commodity contracts, except, however, that a
Fund may purchase and sell stock index futures and options thereon and financial
futures contracts and options thereon.
15. Purchase options or puts, calls, straddles, spreads or combinations thereof
except, however, a Fund may purchase and sell options on stock index futures
contracts and on stock indices and 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 The Income Fund"
and "Description of Income Instruments for The High Yield Fund" for a
description of the policy of these Funds with respect to such warrants or other
rights.)
16. Buy or sell oil, gas or other mineral leases, rights or royalty contracts.
The foregoing percentages, as well as those percentages referred to under
"Investment Objectives and Policies," will apply at the time of the purchase of
a security and shall not be considered violated unless an excess or deficiency
occurs or exists immediately after and as a result of a purchase of such
security.
TAX MATTERS
- -----------
Each series of shares of the Trust is treated as a separate association taxable
as a corporation.
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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
the Money Market Fund which does not engage in such transactions. C. Each Fund
must diversify its holdings so that, at the end of each fiscal quarter: i) at
least 50% of the market value of the Fund's assets is represented by cash, U.S.
Government securities and other securities, with such other securities limited,
with respect to any one issuer, to an amount not greater than 5% of the Fund's
assets and not more than 10% of the outstanding voting securities of such
issuer, and ii) not more than 25% of the value of its assets is invested in the
securities of any one issuer (other than U.S. Government securities).
As a RIC, each Fund will not be subject to Federal income tax ("FIT") on its
income and gains distributed to shareholders if it distributes at least 90% of
its investment company taxable income for the taxable year. Under the
provisions of Section 817(h) of the Code, a variable annuity contract - other
than a contract issued in connection with certain tax qualified retirement plans
or retirement plans maintained by certain government employers - will not be
treated as an annuity contract for any period for which the investments of the
separate account, such as the separate accounts that are eligible to purchase
shares of the Fund, are not "adequately diversified". In general, the
regulations issued under Section 817(h) provide that a separate account shall be
considered adequately diversified if the assets of such separate account are
invested so that no more than 55% of the value of such assets is represented by
any one investment, no more than 70% of such value is represented by any two
investments, no more than 80% of such value is represented by any three
investments and no more than 90% is represented by any four investments. The
Code allows a separate account to look through to the assets of a regulated
investment company for purposes of the "adequately diversified" requirement.
Each Fund intends that the investments in its portfolio shall be "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
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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 the Money Market Fund:
- ---------------------------------------
Section 1092 of the Code affects the taxation of certain transactions involving
futures or options contracts. If a futures or options contract is part of a
"straddle" (which could include another futures contract or underlying stock or
securities), as defined in Section 1092 of the Code, then, generally, losses are
deferred first to the extent that the modified wash sale rules of the Section
1092 regulations apply, and second to the extent of unrecognized gains on
offsetting positions. Further, a Fund may be required to capitalize, rather
than deduct currently, any interest expense on indebtedness incurred or
continued to purchase or carry any positions that are part of a straddle.
Sections 1092 and 246 of the Code and the regulations thereunder also suspend
the holding periods for straddle positions with possible adverse effects
regarding long-term capital gain treatment and the corporate dividends-received
deduction. In certain cases, the wash sale rules of Section 1091 of the Code
may operate to defer deductions for losses.
Section 1256 of the Code generally requires that futures contracts and options
on future contracts be "marked-to-market" at the end of each year for Federal
income tax purposes. Section 1256 further characterizes 60% of any gain or loss
with respect to a futures contract as long-term capital gain or loss and 40% as
short-term capital gain or loss. If a futures contract is held as an offsetting
position and can be considered a straddle under Section 1092 of the Code, such a
straddle will constitute a mixed straddle. A mixed straddle will be subject to
both Section 1256 and Section 1092 unless certain elections are made by the
Fund.
The Funds may invest in certain foreign currency transactions which may be
subject to taxation under Section 988.
International Stock Fund, International Index Fund and Emerging Markets Index
- -----------------------------------------------------------------------------
Fund
- ----
If more than 50% of the value of a 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.
A 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
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<PAGE>
("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 Funds intend to make either (1) a qualified electing fund
("QEF") election or (2) a mark-to-market election under IRS rules in order to
avoid the imposition of a Fund level tax on its PFIC holdings.
If a QEF election is made a Fund must include in its gross income its share of
the ordinary earnings and net capital gains from the PFIC shares in the year
that the election is made (and all future years the PFIC stock is held)
regardless of whether distributions are received from the PFIC in the current
year. This income would then be passed through to shareholders. Under a mark-
to-market election, if the fair market value ("FMV") of the Fund's PFIC shares
at the end of its taxable year is greater than the FMV of the shares at the
beginning of its taxable year (or the date of purchase whichever is later), the
difference will be included in the Fund's gross income whether or not the Fund's
shares are sold in that year. This income would then be passed through to
shareholders as ordinary income. Any mark-to-market gain recognized by the Fund
would be added to its tax basis in the PFIC shares. If, however, as of the end
of the Fund's taxable year the FMV of the PFIC shares has decreased relative to
their FMV at the beginning of the year (or the date of purchase whichever is
later), the Fund would not be entitled to recognize the loss.
Shareholders who are not U.S. persons (i.e., U.S. citizens and residents and
U.S. domestic corporations, partnerships, trusts and estates) should consult
their tax advisers regarding U.S. and foreign tax consequences of ownership of
shares of the Fund including the likelihood that distributions to them would be
subject to withholding of U.S. tax at a rate of 30% (or at a lower rate under a
tax treaty).
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,
Page 24
<PAGE>
increase the total demand or supply, there may be an adverse effect on the price
of such security or on the amount which the Fund can purchase or sell.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
- ---------------------------------------------------
As of the date of this statement of additional information, 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. CG Life owns Fund shares on behalf of separate
accounts registered as unit investment trusts under the 1940 Act. Under the
1940 Act, unit investment trust variable contractowners are afforded pass
through voting privileges for most matters concerning Fund shares owned by the
unit investment trust. This means that although CG Life is the shareholder of
the Fund, variable contractowners will actually be voting on Fund matters.
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, 950 Winter Street, Waltham, Massachusetts
02154.
R. BRUCE ALBRO*, 54, Trustee; Senior Managing Director and Division Head, CIGNA
Portfolio Advisers, a division of CIGNA Investments; Chairman of the Board and
President, CIGNA Funds Group, CIGNA Institutional Funds Group, CIGNA Variable
Products Group, CIGNA High Income Shares and INA Investment Securities, Inc.
Mr. Albro is also an officer or director of various other entities which are
subsidiaries or affiliates of CIGNA. Previously Trustee, CIGNA Funds Group;
Managing Director - Division Head, CII; Managing Director, CII; Senior Vice
President, CII and CIGNA Investment Management Company and President, CIGNA
Capital Brokerage, Inc.
HUGH R. BEATH, 65, Trustee; Advisory Director, AdMedia Corporate Advisors,
Inc.; previously Chairman of the Board of Directors, Beath Advisors, Inc.
Chairman, President and Chief Executive Officer, ADVO-System, Inc. (presently
known as ADVO, Inc.) (direct mail advertising); Executive Vice President,
Operations, John Blair & Co. (marketing and communications); President,
Specialty Grocery Products Division, R. J. Reynolds Industries (consumer
products); and Vice President and Treasurer, Heublein, Inc. (maker of distilled
spirits).
RUSSELL H. JONES, 52, 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.
Page 25
<PAGE>
PAUL J. MCDONALD, 53, 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*, 53, Trustee; President, CIGNA Investment Management;
President and Director, CIGNA Investment Group, Inc. and CII; Director, CIGNA
International Investment Advisors, Ltd. Mr. Reeds is also an officer or
director of various other entities which are subsidiaries or affiliates of
CIGNA. Previously Trustee, CIGNA Funds Group; Managing Director - Division
Head, CIGNA Portfolio Advisers, a division of CII; Senior Vice President, CII.
ALFRED A. BINGHAM III, 52, 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.
JEFFREY S. WINER, 39, 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).
*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 CIGNA Investments and the Sub-Advisory Agreement with CIGNA International
Investments, and a Nominating Committee which considers the identification of
new members of the Board and the compensation of Trustees. The Nominating
Committee, Audit Committee and Contracts Committee consist of Trustees who are
not affiliated with CIGNA Corporation or any of its subsidiaries.
The Trust pays no compensation to any of its officers, other than the
reimbursement of the costs of the Office of the Treasurer and the Office of the
Secretary, or to any of 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 1996:
Page 26
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Pension or
Retirement Total
Benefits Estimated Compensation
Accrued As Annual from Trusts and
Aggregate Part of Benefits CIGNA Fund
Name of Person, Compensation Trust 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 - - - -
------------ ----------- -------- ---------
$ 7,800 $ $ $48,100
============ =========== ======== =========
</TABLE>
(a) All of Mr. Beath's 1996 compensation was deferred under a deferred
compensation plan for all CIGNA funds (the "Plan") in which he had an aggregate
balance of $ , as of December 31, 1996. 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 1996 compensation was deferred under a deferred
compensation plan (the "Plan") for all CIGNA funds in which he had an aggregate
balance of $ , as of December 31, 1996. The Plan permits Trustees to defer
------
receipt of all compensation or to revoke the election to defer receipt of
Trustee fees and receive payment directly.
(c) There were three (3) investment companies besides the Trust in the CIGNA
fund complex.
Page 27
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
- --------------------------------------
The investment adviser to each of the Funds is CIGNA Investments, an indirect,
wholly-owned subsidiary of CIGNA Corporation. CIGNA International Investments
serves as investment sub-adviser to The International Stock Fund. CIGNA
Investments 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. CIGNA Investments and other affiliates of CIGNA
Corporation manage combined assets of over $70 billion. CIGNA Investments's
mailing address is Hartford, Connecticut 06152.
Pursuant to a Master Investment Advisory Agreement between the Trust and CIGNA
Investments, CIGNA Investments manages the investment and reinvestment of the
assets of the Funds.
Subject to the control and periodic review of the Board of Trustees of the
Trust, CIGNA Investments (CIGNA International Investments in the case of The
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 CIGNA Investments
including compensation and expenses of Trustees who are not Directors, officers
or employees of CIGNA Investments or any other affiliates of CIGNA Corporation;
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.
CIGNA Investments, at its own expense, furnishes to the Trust office space and
facilities and, except with respect to the Office of the Treasurer and Office of
the Secretary as provided in the Master Investment Advisory Agreement, all
personnel for managing the affairs of the Trust and each of Funds. The Trust and
other registered investment companies advised by CIGNA Investments have agreed
to reimburse CIGNA Investments for its costs of maintaining the Office of the
Treasurer and the cost of the Office of the Secretary as provided in their
respective investment advisory agreements. CIGNA Investments has estimated that
in 1997 the total expenses of the Office of the Treasurer will not exceed
$_____,______ and the expenses of the Office of the Secretary are not expected
to exceed $_____,______. The portion of these expenses allocated to each Fund
for calendar year 1997 are not expected to exceed the following amounts:
Page 28
<PAGE>
<TABLE>
<CAPTION>
Office of Office of
the Treasurer the Secretary
------------- -------------
<S> <C>
S&P 500 $ , $ ,
------ ------
Index Fund
Money Market Fund $ , $ ,
------ ------
</TABLE>
In 1996 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 CIGNA Investments and any sub-adviser, each Fund pays CIGNA
Investments a separate fee computed daily and paid monthly at annual rates based
on a percentage of the value of the relevant Fund's average daily net assets, as
follows: Income Fund - 0.50%; High Yield Fund - 0.75%; Money Market Fund -
0.35%; S&P 500 Index Fund - 0.25%; International Stock Fund -0.80%; Intermediate
Bond Index Fund - 0.35%; Long-Term Bond Index Fund - 0.35%; Utility Index Fund -
0.25%; REIT Index Fund - 0.25%; Small Cap Index Fund -0.50%; International Index
Fund - 0.50% and Emerging Markets Index Fund -0.50%. Reflecting the specialized
nature of their investment policies, the management fees paid by High Yield Fund
and 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. CIGNA Investments has voluntarily agreed to reimburse the
Funds to the extent that the annual operating expenses (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: High Yield Fund - 1.25%; Income Fund - 1%; International Stock Fund -
1.25%; Money Market Fund - 0.50%; S&P 500 Index Fund - 0.25%; Intermediate Bond
Index Fund - 0.60%; Long-Term Bond Index Fund - 0.60%; Utility Index Fund -
0.60%; REIT Index Fund - 0.60%; Small Cap Index Fund - 0.60%; International
Index Fund - 0.80% and Emerging Markets Index Fund - 0.80%.
The S&P 500 Index Fund incurred a management fee payable to CIGNA Investments of
$213,557, $201,131 and $226,788 for fiscal years 1996, 1995 and 1994,
respectively. The amounts payable were not reduced by the then applicable
expense limitation. The Money Market Fund incurred a management fee payable to
CII of $_______ for fiscal year 1996. This amount was 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 Act) of any party thereto, cast in person at a meeting
Page 29
<PAGE>
called for the purpose of voting on such approval. The Master Investment
Advisory Agreement provides that it (i) may be terminated at any time without
penalty (a) upon 60 days' written notice by vote of the Trustees of the Trust,
or with respect to any Fund, by vote of a majority of the outstanding voting
securities of such Fund, or (b) by CIGNA Investments upon 90 days' written
notice to the Trust in the case of the Master Investment Advisory Agreement and
(ii) will automatically terminate in the event of its "assignment" (as such term
is defined in the 1940 Act).
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 each Fund's annual portfolio turnover will not exceed
100%. With respect to Money Market Fund, Intermediate Bond Index Fund, Long-
Term Bond Index Fund, High Yield Fund and 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 the other Funds 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
Page 30
<PAGE>
an undisclosed dealer commission or mark-up as well as a disclosed, fixed
commission or discount retained by the underwriter or dealer.
It is the policy of CIGNA Investments 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, CIGNA Investments 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 CIGNA Investments 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 CIGNA
Investments may select a broker/dealer who may receive a commission for
portfolio transactions exceeding the amount another broker/dealer would have
charged for the same transaction if they determine that such amount of
commission is reasonable in relation to the value of the brokerage or research
services performed or provided by the broker/dealer, viewed in terms of either
that particular transaction or CIGNA Investments' overall responsibilities to
the client for whose account such portfolio transaction is executed and other
accounts advised by CIGNA Investments or accounts advised by other investment
advisers which are related persons of CIGNA Investments.
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 CIGNA
Investments may prefer the broker/dealer who has furnished research services.
Research services include market information, analysis of specific issues,
presentation of special situations and trading opportunities on a timely basis,
advice concerning industries, economic factors and trends, portfolio strategy
and performance of accounts.
Research services are used in advising all accounts, including accounts advised
by related persons of CIGNA Investments, and not all such services are
necessarily used by CIGNA Investments in connection with the specific account
that paid commissions to the broker/dealer providing such services.
The overall reasonableness of brokerage commissions paid is evaluated
continually. Such evaluation includes review of what competing 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, CIGNA Investments may, if permitted by applicable law, pay for
products or services other than brokerage and research services with brokerage
commissions as interpreted in SEC Release 34-23170 dated April 23, 1986.
Pursuant to that release, products and services which provide lawful and
appropriate assistance to CIGNA Investments's investment decision-making process
may be paid for with brokerage commissions to the extent such products and
services are used in that process.
Page 31
<PAGE>
Where the research service product has a mixed use, that is, the product may
serve a number of functions certain of which are not related to the making of
investment decisions, CIGNA Investments allocates the cost of the product on a
basis which they deem reasonable, according to the various uses of the product,
and maintain records documenting the allocation process followed. Only that
portion of the cost of the product allocable to research services is paid from
the Fund. The Fund does not acquire research services through the generation of
credits with respect to principal transactions or transactions in financial
futures, except in new issue fixed price underwritings.
The Trust does not presently allocate brokerage commissions to, or place orders
for portfolio transactions with, either directly or indirectly, brokers based on
their sales of shares of the Funds. Except as noted, the Trust does not utilize
an affiliated broker in effecting portfolio transactions and does not recapture
commissions paid in such transactions. Brokerage commissions paid by the S&P
500 Index Fund for 1996, 1995 and 1994 totaled $ , , $ , and $ , ,
respectively, substantially all of which were paid to firms which provided
research services to CIGNA Investments.
As of December 31, 1996, Sanford C. Bernstein & Co., Inc. ("SCB") reported
ownership of approximately . % of the outstanding common stock of CIGNA
Corporation. In addition, FMR Corp. ("FMR") reported ownership of approximately
. % of the outstanding common stock of CIGNA as of December 31, 1996.
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
1996, 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 1996 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
Page 32
<PAGE>
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 Institutional Investor Personal Investor
Monitor Insurance Forum Philadelphia Inquirer
Consumer Reports Insurance Weekly The Times (London)
Economist International Business USA Today
Equity International Week U.S. News & World Report
FACS of the Week Investing Wall Street Journal
Far Eastern Investor's Chronicle Washington Post
Economic Review Investor's Daily CNN
Financial Adviser Journal of the American CNBC
Financial Planning Society of CLu & ChFC PBS
Financial Product News
Financial Services Week
</TABLE>
Each Fund may also compare its performance to performance data of similar mutual
funds as published by the following services:
Lipper Analytical Services Stanger Report
CDA Investment Technologies, Inc. Weisenberger
Frank Russell Co. Micropal, Ltd.
InterSec Research
Although performance data may be useful to prospective investors in comparing
with other funds and other potential investments, investors should note that the
methods of computing performance of other potential investments are not
necessarily comparable to the methods employed by a Fund.
Total Return Quotations
- -----------------------
The standard formula for calculating total return, as described in the
prospectus, is as follows:
P(1+T)/n/=ERV
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.
Page 33
<PAGE>
The average annual total returns for the S&P 500 Index Fund and the Money Market
Fund for the one, five and ten year periods (or since inception, if shorter)
ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Periods ended December 31, 1996
1 Year 5 Years 10 Years
-------- --------- ----------
<S> <C> <C> <C>
S&P 500 Index Fund
Money Market Fund *
--------- ----------
</TABLE>
Yield Quotations
- ----------------
* For period from March 1, 1996 (commencement of operations) to December 31,
1996
The standard formula for calculating yield for each Fund except 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 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 period.
The annualized yield for the Money Market Fund for the 7 days ended December 31,
1996 was . %.
----
The standard formula for calculating effective annualized yield for the Money
Market Fund, as described in the prospectus, is as follows:
EY = [(Y+1)/365/7/] -1
Page 34
<PAGE>
Where EY = effective annualized yield.
Y = annualized yield, as determined above.
The effective annualized yield for the Money Market Fund for the 7 days ended
December 31, 1996 was . %.
----
For the purpose of the annualized yield and effective annualized yield, the net
change in the value of the hypothetical CIGNA Variable Products Money Market
Fund account reflects the value of additional shares purchased with dividends
from the original share and any such additional shares, and all fees charged to
all shareholder accounts in proportion to the length of the base period and the
Fund's average account size, but does not include realized gains and losses or
unrealized appreciation and depreciation.
PURCHASE, REDEMPTION AND PRICING OF SECURITIES
- ----------------------------------------------
The Funds may suspend redemptions or postpone the date of payment during any
period when: (a) the New York Stock Exchange is closed for other than customary
weekend and holiday closings or trading on such Exchange is restricted; (b) the
Securities and Exchange Commission has by order permitted such suspension for
the protection of the Fund's shareholders; or (c) an emergency exists as
determined by the Securities and Exchange Commission making disposal of
portfolio securities or valuation of net assets of the Fund not reasonably
practicable.
A Fund's net asset value is calculated by dividing the number of outstanding
shares into the net assets of the Fund. Net assets are the excess of a Fund's
assets over its liabilities. Additional information concerning purchase and
redemption of securities may be found in the current prospectus for the Funds.
The Money Market Fund.
- ---------------------
The investments of The Money Market Fund are valued at amortized cost. The
amortized cost of an instrument is determined by valuing it at cost originally
and thereafter amortizing any discount or premium from its face value at a
constant rate until maturity, regardless of the effect of fluctuating interest
rates 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. The Money Market Fund will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will purchase only instruments having
remaining maturities of 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
Page 35
<PAGE>
quality with minimal credit risks. The Board of Trustees has also established
procedures reasonably designed, taking into account current market conditions
and the Fund's investment objective, to stabilize the Fund's price per share as
computed for the purpose of distribution, redemption and repurchase at $1.00.
Such procedures include a review of the Fund's portfolio holdings by the Board
of Trustees, at such intervals as they may deem appropriate, to determine
whether the Fund's net asset value, calculated by using readily available market
quotations, deviates from $1.00 per share, and, if so, whether such deviation
may result in material dilution or is otherwise unfair to existing shareholders.
In the event the Board of Trustees determines that such a deviation exists, it
will take such corrective action as it deems necessary and appropriate,
including selling portfolio instruments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity; withholding dividends;
redeeming shares in kind; or establishing a net asset value per share by using
readily available market quotations in which case, the net asset value could
possibly be greater or less than $1.00 per share.
All Other Funds
- ---------------
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.
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<PAGE>
The two highest categories, A-1 and A-2, are described as follows:
"A-1" This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus
(+) sign designation.
"A-2" Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for
issues designated "A-1."
Moody's employs three designations, all judged to be investment grade, to
indicate the relative repayment capacity of rated issuers. The two highest
designations are as follows:
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:
. Leading market positions in well-established industries.
. High rates of return on funds employed.
. Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
. Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
. Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
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
Page 37
<PAGE>
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB-B-CCC-CC - Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Moody's describes its ratings for corporate bonds as follows:
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
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.
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<PAGE>
Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
MUNICIPAL BOND RATINGS--The four highest ratings of Moody's for Municipal Bonds
are Aaa, Aa, A and Baa. Municipal bonds rated Aaa are judged to be of the "best
quality." The rating of Aa is assigned to municipal bonds which are of "high
quality by all standards," but as to which margins of protection or other
elements make long-term risks appear somewhat larger than Aaa-rated municipal
bonds. The Aaa- and Aa-rated municipal bonds comprise what are generally known
as "high-grade bonds." Municipal bonds which are rated A by Moody's possess many
favorable investment attributes and are considered "upper-medium-grade
obligations." Factors giving security to principal and interest of A-rated
municipal bonds are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future. Bonds rated Baa
are considered as "medium-grade" obligations. They are neither highly protected
nor poorly secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time.
The four highest ratings of Standard & Poor's for municipal bonds are AAA
(Prime), AA (High Grade), A (Good Grade) and BBB (Medium Grade). Municipal
bonds rated AAA are "obligations of the highest quality." The rating of AA is
accorded issues with investment characteristics "only slightly less marked than
those of the prime quality issues." 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.
Page 39
<PAGE>
REGISTRATION STATEMENT
on
FORM N-1A
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
- -------------------------------------------
(a) Financial Statements:
PART A:
None
PART B:
The following Financial Statements of CIGNA Variable Products S&P 500 Index
Fund and CIGNA Variable Products Money Market Fund are incorporated by
reference into Part B from the Annual Report to Shareholders of CG Variable
Annuity Accounts I and II dated December 31, 1996 and filed electronically
with the Securities and Exchange Commission on _______, 1997 and the Annual
Report to Shareholders of CG Variable Life Insurance Separate Account 02
dated December 31, 1996 and filed electronically with the Securities and
Exchange Commission on ____, 1997.
Investments in Securities, December 31, 1996
Statement of Assets and Liabilities, December 31, 1996
Statement of Operations, Year ended December 31, 1996
Statement of Changes in Net Assets, Years ended December 31, 1996 and
1995
Notes to Financial Statements
(b) Exhibits:
(1) The First Amended and Restated Master Trust Agreement of Registrant
dated as of March 1, 1996, incorporated by reference to Post-
Effective Amendment No. 11 to Registrant's Registration Statement
filed electronically March 7, 1996.
* (1a) Amendment No. 1 to the First Amended and Restated Master Trust
Agreement of Registrant dated October 28, 1996.
* (1b) Amendment No. 2 to the First Amended and Restated Master Trust
Agreement of Registrant dated as of January 16, 1997.
(2) The By-Laws of Registrant, incorporated by reference to Registrant's
initial Registration Statement filed February 26, 1988.
(2a) Amendment No. 1 to By-Laws of Registrant dated as of October 25,
1988, incorporated by reference to Post-Effective Amendment No. 7 to
Registrant's Registration Statement filed March 1, 1994.
(2b) Amendment No. 2 to By-Laws of Registrant dated as of October 27,
1992, incorporated by reference to Post-Effective Amendment No. 7 to
Registrant's Registration Statement filed March 1, 1994.
(2c) Amendment No. 3 to By-Laws of Registrant dated as of February 11,
1994, incorporated by reference to Post-Effective Amendment No. 7
- 1 -
<PAGE>
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, incorporated by reference to Post-Effective
Amendment No. 11 to Registrant's Registration Statement filed
electronically March 7, 1996.
(4a) Relative to the rights of shareholders, the Participation Agreement
among CIGNA Variable Products Group, CIGNA Financial Advisors, Inc.
and Connecticut General Life Insurance Company dated as of February
27, 1996, as hereinafter incorporated by reference in 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 No. 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., incorporated by reference to Post-Effective
Amendment No. 11 to Registrant's Registration Statement filed
electronically March 7, 1996.
* (5b) The Side Letter to the Master Investment Advisory Agreement
dated April 30, 1996 between CIGNA Variable Products Group and CIGNA
Investments, Inc.
*(5c) The Sub-Advisory Agreement dated as of October 24, 1995 between CIGNA
Investments, Inc. and CIGNA International Investment Advisors, Ltd.
with respect to CIGNA Variable Products International Stock Fund, a
series of shares of Registrant, incorporated by reference to Post-
Effective Amendment No. 13 to Registrant's Registration Statement
filed electronically April 29, 1996.
(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 No. 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, incorporated by reference to Post-Effective Amendment
No. 11 to Registrant's Registration Statement filed electronically
March 7, 1996.
(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 No. 1
to Registrant's Registration Statement filed April 28, 1988.
- ------------------------
*Filed Herewith.
- 2 -
<PAGE>
(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, incorporated by reference to Post-
Effective Amendment No. 11 to Registrant's Registration Statement
filed electronically March 7, 1996.
(9b) The Agreement For Use Of The Term "CIGNA" dated February 4, 1988
between CIGNA Variable Products Group and CIGNA Corporation to be
filed by amendment.
(9c) Form of Trustees' Deferred Fee Agreement, incorporated by reference
to Post-Effective Amendment No. 9 to Registrant's Registration
Statement filed electronically October 16, 1995.
(9d) The Participation Agreement among CIGNA Variable Products Group,
CIGNA Financial Advisors, Inc. and Connecticut General Life Insurance
Company dated as of February 27, 1996, incorporated by reference to
Post-Effective Amendment No. 13 to Registrant's Registration
Statement filed electronically April 29, 1996.
(10) Opinion of Counsel to be filed by post-effective amendment.
(11) Consent of Price Waterhouse LLP to be filed by post-effective
amendment.
(12) None.
(13) None.
(14) None.
(15) None.
(16) None.
(17) Financial Data Schedule to be filed by post-effective amendment.
(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. All of the outstanding shares of CIGNA Variable Products Money
Market Fund and CIGNA Variable Products S&P 500 Index Fund, series of shares of
CIGNA Variable Products Group, are owned by Connecticut General Life Insurance
Company, a Connecticut Corporation governed by the laws of the State of
Connecticut, for the benefit of variable annuity and/or variable life insurance
contractholders.
Item 26. Number of Holders of Securities.
- -----------------------------------------
As of December 31, 1996:
(1)
Title of Class: Shares of Beneficial Interest
(2)
<TABLE>
<CAPTION>
Name of Series Number of Record Holders
- -------------- ------------------------
<S> <C>
High Yield Fund -0-
Income Fund -0-
</TABLE>
- 3 -
<PAGE>
<TABLE>
<S> <C>
International Stock Fund -0-
Money Market Fund -1-
S&P 500 Index Fund -1-
Intermediate Bond Index Fund -0-
Long-Term Bond Index Fund -0-
Utility Index Fund -0-
REIT Index Fund -0-
International Index Fund -0-
Emerging Markets Index Fund -0-
</TABLE>
Item 27. Indemnification.
- -------------------------
The First Amended and Restated Master Trust Agreement, dated as of March 1,
1996, as amended (the "Master Trust Agreement"), provides, among other things,
for the indemnification out of Registrant's assets (or the assets of a series of
Registrant where applicable) of the Trustees and officers of Registrant against
all liabilities incurred by them in such capacity, except for liability by
reason of wilful misfeasance, bad faith, gross negligence or reckless disregard
of their duties. Trustees may consult counsel or other experts concerning the
meaning and operation of the Master Trust Agreement, and may rely upon the books
and records of Registrant. Trustees are not liable for errors of judgment,
mistakes of fact or law, or for the negligence of other Trustees or Registrant's
officers or agents.
Trustees are not required to give a bond or other security for the performance
of their duties. Payments in compromise of any action brought against a Trustee
or officer may be paid by Registrant if approved by either a majority of
disinterested Trustees or by independent legal counsel. The right of
indemnification under the Master Trust Agreement is not exclusive of any other
rights to which the Trustees or officers may be entitled.
The Master Trust Agreement also provides that shareholders shall be indemnified
and held harmless by the applicable series of Registrant with respect to actions
brought against them in their capacity as shareholders. Also, the Master Trust
Agreement provides that creditors of a series of Registrant may look only to the
assets of that series for payment; and neither shareholders nor Trustees shall
be personally liable therefor. All instruments executed on behalf of Registrant
are required to contain a statement to the effect of the foregoing.
CIGNA Investments, Inc., Registrant and other investment companies managed by
CIGNA Investments, Inc., their officers, trustees, directors and employees (the
"Insured Parties") are insured under an Investment Management Errors and
Omissions Insurance Policy in the amount of $10,000,000 offered by Lexington
Insurance Company, an affiliate of American International Group on a joint
policy basis with CIGNA Investments, Inc. and CIGNA International Investment
Advisors, Ltd.
In addition, Registrant and other investment companies managed by CIGNA
Investments, Inc. and CIGNA International Investment Advisors, Ltd. are insured
under a National Union Fire Insurance Company of Pittsburgh, PA Investment
Company Blanket Bond with a stated maximum coverage of $10,000,000. Premiums
and policy benefits are allocated among participating companies pursuant to Rule
17g-1(d) under the Investment Company Act of 1940, as amended.
Item 28. Business and Other Connections of Investment Adviser.
- --------------------------------------------------------------
As of the date hereof, CIGNA Investments, Inc. ("CII") serves as investment
adviser to seven series of shares of CIGNA Funds Group known as CIGNA Income
- 4 -
<PAGE>
Fund, CIGNA Money Market 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 twelve series of shares known as High Yield Fund, Income
Fund, International Stock Fund, Money Market Fund, S&P 500 Index Fund,
Intermediate Bond Index Fund, Long-Term Bond Index Fund, Utility Index Fund,
REIT Index Fund, Small Cap Index Fund, International Index Fund and Emerging
Markets Index Fund, ten of such series being inactive at this time, namely, High
Yield Fund, Income Fund, International Stock Fund, Intermediate Bond Index Fund,
Long-Term Bond Index Fund, Utility Index Fund, REIT Index Fund, Small Cap Index
Fund, International Index Fund and Emerging Markets Index Fund; and to CIGNA
High Income Shares (CIGNA 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 - 950 Winter Street, Suite
1200, Waltham, Massachusetts 02154
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:
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Substantial Business Connections
- ------------------------------- --------------------------------------------
Harold W. Albert Director and Counsel, CII; Director, CIGNA
International Investment Advisors, Ltd.**;
Chief Counsel, CIGNA Investment Management, a
division of CIGNA Corporation*; Counsel, CIGNA
Investment Advisory Company, Inc.*; Director,
Senior Vice President and Chief Counsel, CIGNA
Investment Group, Inc.*; Director, Global
Portfolio Strategies, Inc. (f/k/a 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, Global Portfolio Strategies,
Inc. (f/k/a Connecticut General Pension
Services, Inc.)*
- 5 -
<PAGE>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Substantial Business Connections
- ------------------------------- --------------------------------------------
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 Global Portfolio Strategies, Inc. (f/k/a
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, Global
Portfolio Strategies, Inc. (f/k/a 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
Investment Advisory Company, Inc.*
Richard H. Forde Senior Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*; President,
Senior Managing Director and Director, CIGNA
International Investment Advisors, Ltd.**; Vice
President, CIGNA Institutional Funds Group.
Edward F. Guay Senior Managing Director and Chief Economist,
CII; Senior Managing Director, CIGNA Investment
Advisory Company, Inc.*
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.
Mark E. Benoit Managing Director, CII.
Marguerite A. Boslaugh Managing Director, CII.
Susan B. Bosworth Managing Director, CII.
Thomas J. Bowen Managing Director, CII and CIGNA Investment
Advisory Company, Inc.*
Antonio M. Caxide Managing Director, CII and CIIA**; previously
Vice President, CII and CIIA.**
- 6 -
<PAGE>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Substantial Business Connections
- ------------------------------- --------------------------------------------
Richard H. Chase Managing Director, 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, Global
Portfolio Strategies, Inc. (f/k/a 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.
Robert Fair Managing Director, CII.
John P. Feeney Managing Director, CII.
Thomas R. Foley Managing Director, CII; previously Vice
President, CII.
Maurice A. Gordon Managing Director, CII; previously Vice
President, CII.
Debra J. Height Managing Director, CII and CIAC*; previously
Vice President, CII and CIAC.*
Chris W. Jacobs Managing Director, CII.
David R. Johnson Managing Director, CII and CIGNA Investment
Advisory Company, Inc.*
Richard H. Kupchunos Managing Director, CII and CIGNA Investment
Advisory Company, Inc.*
James R. Kuzemchak Managing Director, CII.
Edward Lewis Managing Director, CII.
Timothy J. Lord Managing Director, CII.
Thomas P. Mahoney Managing Director, CII.
Richard B. McGauley Managing Director, CII and CIGNA Investment
Advisory Company, Inc.*
Bret E. Meck Managing Director, CII.
Stephen J. Olstein Managing Director, CII.
- 7 -
<PAGE>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Substantial Business Connections
- ------------------------------- ------------------------------------------
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.
Donald F. Rieger, Jr. Managing Director, CII.
James H. Rogers Managing Director, CII.
Frank Sataline, Jr. Managing Director, CII; previously Vice
President, CII.
James G. Schelling Managing Director, CII.
Linda W. Schumann Managing Director, CII.
John A. Shaw Managing Director, CII; previously Vice
President, CII.
Thomas M. Smith Managing Director, CII.
Joseph W. Springman Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
Susan S. Sullivan Managing Director, CII.
William A. Taylor Managing Director, CII.
George Varga Managing Director, CII.
Deborah B. Wiacek Managing Director, CII; previously Vice
President, CII.
Stephen H. Wilson Managing Director, CII.
James A. White Senior Vice President, CII and CIGNA
Investment Advisory Company, Inc.*
Jean M. Anderson Vice President, CII.
Thomas P. Au Vice President, CII.
William C. Carlson Vice President, CII.
David M. Cass Vice President, CII; previously Counsel,
CIGNA companies.
-8-
<PAGE>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Substantial Business Connections
- ------------------------------- ------------------------------------------
Rosemary S. Cleaves Vice President, CII; President and
Director, Global Portfolio Strategies,
Inc. (f/k/a Connecticut General Pension
Services, Inc.)*
R. Thomas Clemmenson Vice President, CII.
Lee P. Crockett Vice President, CII.
Michael P. Daly Vice President, CII.
Maryanne P. DePreaux Vice President, CII.
Mark V. DePucchio Vice President, CII.
Eric C. DiMiceli Vice President, CII.
Kim L. DiPietro 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.*
Mark W. Everette Vice President, CII.
Daniel E. Feder Vice President, CII.
Richard L. Fletcher Vice President, CII.
Jonathan S. Frankel Vice President, CII.
Ivy B. Freedman Vice President, CII.
Keith A. Gollenberg Vice President, CII.
William J. Grady Vice President, CII.
John Hurley Vice President, CII.
Chuel D. Hwang Vice President, CII.
Edward B. Johns Vice President, CII.
Thomas W. Johnson Vice President, CII.
Joseph R. Kennedy Vice President, CII.
Peter K. Kofoed Vice President, CII.
Mark S. Korinek Vice President, CII.
James R. Lagasse Vice President, CII.
Mary S. Law Vice President, CII.
-9-
<PAGE>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Substantial Business Connections
- ------------------------------- ------------------------------------------
Paul T. Martin Vice President, CII.
Joseph G. Mazon Vice President, CII.
Daniel McDonough Vice President, CII.
Linda L. Morel Vice President, CII.
Stephen J. Myott Vice President, CII.
Alpha O. Nicholson, III Vice President, CII; Counsel, CIGNA
companies.
Ann Marie O'Rourke Vice President, CII.
Pamela S. Peck Vice President, CII.
Elisabeth A. Perenick Vice President, CII.
Myrna Phillips Vice President, CII.
Scott S. Piccone Vice President, CII.
Elisabeth Piker Vice President, CII.
Thomas J. Podgorski 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.
David S. Scheibe Vice President, CII; previously Assistant
Vice President and Controller, CII.
John R. Schumann Vice President, CII.
Thomas P. Shea, III Vice President, CII.
Philip Spak Vice President, CII.
-10-
<PAGE>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Substantial Business Connections
- ------------------------------- ------------------------------------------
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.*
Carey A. White Vice President, CII.
William S. Woodsome Vice President, CII.
Alfred A. Bingham III Assistant Vice President, CII; Vice
President and Treasurer, the Trusts and
IIS.
David C. Kopp Secretary, CII, CIGNA Investment Advisory
Company, Inc.*, CIGNA International
Investment Advisors, Ltd.**, CIGNA
Investment Group, Inc.*, Global Portfolio
Strategies, Inc. (f/k/a Connecticut
General Pension Services, Inc.)* and CIGNA
Financial Advisors, Inc.*; Assistant
General Counsel and Assistant Corporate
Secretary, CIGNA Corporation*; Corporate
Secretary, Connecticut General Life
Insurance Company*; Assistant General
Counsel, CIGNA companies.
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.
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 Substantial 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, Global
Portfolio Strategies, Inc. (f/k/a
Connecticut General Pension Services,
Inc.)*
-11-
<PAGE>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Substantial Business Connections
- ------------------------------- ---------------------------------------------
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, Global Portfolio Strategies,
Inc. (f/k/a 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 Global Portfolio Strategies,
Inc. (f/k/a 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, Member Board of Directors and
Division Head -International Systems, CIIA;
previously Administrative Head - London Office,
CIIA; Resident Director, CIIA.
Antonio M. Caxide Managing Director, CIIA and CII*; previously
Vice President, CIIA and CII.*
Matthew P. Hutchinson Vice President, CIIA.
Daniel McDonough Vice President, CIIA and CII.*
Lee C. Mickelburough Vice President, CIIA.
Timothy F. Roberts Vice President - Finance and Chief 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.*; previously Compliance Officer,
CIIA.
Flora Kong Financial Controller and Compliance Officer,
CIIA.
Joel W. Messing Counsel, CIIA and CIGNA companies.
-12-
<PAGE>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Substantial Business Connections
- ------------------------------- ----------------------------------------------
David C. Kopp Secretary, CIIA, CII*, CIGNA Investment
Advisory Company, Inc.*, CIGNA Investment
Group, Inc.*, Global Portfolio Strategies, Inc.
(f/k/a Connecticut General Pension Services,
Inc.)* and CIGNA Financial Advisors, Inc.*;
Assistant Corporate Secretary, CIGNA
Corporation*; Corporate Secretary, Connecticut
General Life Insurance Company*; Assistant
General Counsel, CIGNA companies.
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 part in Money Market Fund and S&P 500 Index Fund.
Item 30. Location of Accounts and Records.
- ------------------------------------------
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940 (15 U.S.C. 80a-30(a)) and the Rules (17 CFR
270.31a-1 to 31a-3) promulgated thereunder are maintained by State Street Bank
and Trust Company, Boston, Massachusetts. Registrant's corporate records and
financial records are maintained c/o CIGNA Investments, Inc., 900 Cottage Grove
Road, Bloomfield, CT 06002.
Item 31. Management Services.
- -----------------------------
Not Applicable
Item 32. Undertakings.
- ----------------------
(a) Not Applicable.
(b) Registrant undertakes to file a post-effective amendment, using financial
statements which need not be certified, within four to six months from the
effective date of Registrant's 1933 Act registration statement.
(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, has duly caused
this Amendment No. 14 to the Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized in the City of Bloomfield, and State
of Connecticut on the 23rd day of January, 1997.
----
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. 14 to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
R. Bruce Albro Chairman of January 23, 1997.
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 January 23, 1997.
(principal
financial officer
and principal
accounting officer)
</TABLE>
This Amendment to the Registration Statement has also been signed below by
Jeffrey S. Winer, Attorney-in-Fact, on behalf of the following Trustees on the
date indicated, such Trustees being all of the Trustees currently holding the
office of Trustee of Registrant.
<TABLE>
<S> <C> <C>
R. Bruce Albro Paul J. McDonald
Hugh R. Beath Arthur C. Reeds, III
Russell H. Jones
By:/s/ Jeffrey S. Winer January 23, 1997.
-----------------------------
Jeffrey S. Winer
</TABLE>
-14-
<PAGE>
CIGNA VARIABLE PRODUCTS GROUP
POWER OF ATTORNEY
The undersigned hereby appoint Alfred A. Bingham III and Jeffrey S. Winer, each
of them singly and with full power of substitution, attorney-in-fact and agent
for me and in my name and on my behalf in any and all capacities to sign any
Registration Statement under the Securities Act of 1933, 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 with
the Securities and Exchange Commission under the Securies Act of 1933 and under
the Investment Company Act of 1940 or with the appropriate state agency under
the applicable Blue Sky Laws, to file such Registration Statements, amendments
and filings and generally to do and perform all things necessary to be done in
that connection, hereby ratifying and confirming my signature as it may be
signed by said attorney-in-fact and agent to any and all Registration Statements
and amendments thereto and to any and all Blue Sky Law filings and amendments
thereto and ratifying and confirming all other acts that said attorney-in-fact
and agent may lawfully do or cause to be done by virtue of this appointment.
Signed this 28th day of October, 1996.
/s/ R. Bruce Albro
-----------------------------------------
R. Bruce Albro,
Chairman of the Board, President and
Trustee
/s/ Hugh R. Beath
-----------------------------------------
Hugh R. Beath, Trustee
/s/ Russell H. Jones
-----------------------------------------
Russell H. Jones, Trustee
/s/ Paul J. McDonald
-----------------------------------------
Paul J. McDonald, Trustee
/s/ Arthur C. Reeds, III
-----------------------------------------
Arthur C. Reeds, III, Trustee
15
<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. 14 [ X ]
-----
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
-----
Amendment No. 14 [ X ]
-----
CIGNA VARIABLE PRODUCTS GROUP
(Exact Name of Registrant as Specified in Charter)
950 Winter Street, Waltham, MA 02154
(Address of Principal Executive Office)
EXHIBITS
-16-
<PAGE>
EXHIBIT INDEX
(b) Exhibits
* (1a) Amendment No. 1 to the First Amended and Restated Master Trust
Agreement of Registrant dated October 28, 1996.
* (1b) Amendment No. 2 to the First Amended and Restated Master Trust
Agreement of Registrant dated as of January 16, 1997.
* (5b) The Side Letter to the Master Investment Advisory Agreement dated
April 30, 1996 between CIGNA Variable Products Group and CIGNA
Investments, Inc.
- ----------------------------
*Filed herewith
-16-
<PAGE>
EXHIBIT 1a
AMENDMENT NO. 1 TO FIRST AMENDED AND RESTATED
CIGNA VARIABLE PRODUCTS GROUP MASTER TRUST AGREEMENT
AMENDMENT NO. 1 to the First Amended and Restated CIGNA Variable Products
Group Master Trust Agreement dated as of March 1, 1996 (the "Trust Agreement"),
made at Springfield, Massachusetts this 28th day of October, 1996, by the
Trustees hereunder.
W I T N E S S E T H:
WHEREAS the Trustees of CIGNA Variable Products Group (the "Trust") desire
to amend the Trust Agreement to change the address of the principal office of
the Trust.
NOW, THEREFORE, the Trustees hereby amend the Trust Agreement by deleting
Section 1.2 of Article I entitled "Principal Office." in its entirety and by
----------------
replacing it with the following:
Section 1.2 Principal Office. The principal office of the Trust
----------------
shall be located at 950 Winter Street, Waltham, Massachusetts 02154 or at
such other location as the Trustees may from time to time determine. In
the event that the Trust changes the address of its principal office, the
Trustees shall notify in the appropriate manner the Secretary of The
Commonwealth of Massachusetts and the Clerk of the city where the Trust is
to be located, as well as any other governmental office where such filing
may from time to time be required.
The undersigned hereby certify that this Amendment has been duly adopted in
accordance with the provisions of the Trust Agreement.
IN WITNESS WHEREOF, the undersigned being all of the Trustees of the Trust
hereunto have set their hands and seals in the City of Springfield, The
Commonwealth of Massachusetts, for themselves and their assigns, on the day and
year first above written.
Senior Managing Director
CIGNA Investments, Inc.
S-306
900 Cottage Grove Road
Hartford, CT 06152-2306 /s/ R. Bruce Albro
----------------------------------------
R. Bruce Albro
44 Brook Hills Circle
White Plains, NY 10605 /s/ Hugh R. Beath
----------------------------------------
Hugh R. Beath
<PAGE>
Vice President
Kaman Corporation
1332 Blue Hills Avenue
Bloomfield, CT 06002 /s/ Russell H. Jones
----------------------------------------
Russell H. Jones
Executive Vice President and
Chief Financial Officer
Friendly Ice Cream Corporation
1855 Boston Road
Wilbraham, MA 01095 /s/ Paul J. McDonald
----------------------------------------
Paul J. McDonald
President
CIGNA Investments, Inc.
S-211
900 Cottage Grove Road
Hartford, CT 06152-2211 /s/ Arthur C. Reeds, III
----------------------------------------
Arthur C. Reeds, III
THE COMMONWEALTH OF MASSACHUSETTS
HAMPDEN COUNTY, City of 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 28th day of October, 1996.
/s/ Geoffrey R.T. Kenyon, Esq.
----------------------------------------
Notary Public
[Notarial Seal]
My commission expires: 4/14/2000
-----------------
<PAGE>
EXHIBIT 1b
CIGNA VARIABLE PRODUCTS GROUP
AMENDMENT NO. 2 TO AMENDED AND RESTATED MASTER TRUST AGREEMENT
AMENDMENT NO. 2 to Amended and Restated Master Trust Agreement of CIGNA
Variable Products Group dated as of March 1, 1996 (the "Master Trust
Agreement"), made as of this 16th day of January, 1997 by the Trustees
hereunder.
W I T N E S S E T H
WHEREAS, the Trustees have the authority, under Article IV, Section 4.1 of
the Master Trust Agreement, to divide the class of Shares of the Trust into two
or more Series of Shares as they deem necessary or desirable (each of which
Series of Shares is a separate and distinct Sub-Trust of the Trust): and
WHEREAS, the Trustees desire to redesignate its established Sub-Trusts
known as CIGNA Variable Products S&P 500 Index Fund, CIGNA Variable Products
High Yield Fund, CIGNA Variable Products Income Fund, CIGNA Variable Products
International Stock Fund and CIGNA Variable Products Money Market Fund and
designate same as S&P 500 Index Fund, High Yield Fund, Income Fund,
International Stock Fund and Money Market Fund, respectively; and
WHEREAS, the Trustees desire to establish and designate new Sub-Trusts,
namely Intermediate Bond Index Fund, Long-Term Bond Index Fund, Utility Index
Fund, REIT Index Fund, Small Cap Index Fund, International Index Fund and
Emerging Markets Index Fund;
NOW, THEREFORE, the Trustees hereby amend the initial paragraph of Article
IV, Section 4.2 of the Master Trust Agreements as heretofore in effect to read
as follows:
"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-Trusts known as CIGNA Variable Products S&P
500 Index Fund, CIGNA Variable Products High Yield Fund, CIGNA Variable
Products Income Fund, CIGNA Variable Products International Stock Fund and
CIGNA Variable Products Money Market Fund and designate these Sub-Trusts as
S&P 500 Index Fund, High Yield Fund, Income Fund, International Stock Fund,
and Money Market Fund, respectively, and establish and designate seven
additional Sub-Trusts: Intermediate Bond Index Fund, Long-Term Bond Index
Fund, Utility Index Fund, REIT Index Fund, Small Cap Index Fund,
International Index Fund and Emerging Markets Index Fund, and the Shares of
each such Sub-Trust and any Shares of any further Sub-Trusts that
Page 1
<PAGE>
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:"
The undersigned hereby certify that the amendment set forth above has been duly
adopted in accordance with the provisions of the Master Trust Agreement.
IN WITNESS WHEREOF, the undersigned have hereunto executed this Amendment
No. 2 to Master Trust Agreement as of the day and year first above written.
/s/ R. Bruce Albro /s/ Hugh R. Beath
- ------------------------------- -------------------------------
R. Bruce Albro Hugh R. Beath
/s/ Russell H. Jones /s/ Paul J. McDonald
- ------------------------------- -------------------------------
Russell H. Jones Paul J. McDonald
/s/ Arthur C. Reeds, III
--------------------------------------
Arthur C. Reeds, III
Page 2
<PAGE>
EXHIBIT 5b
CIGNA Variable Products Group
1380 Main Street
Springfield, MA 01103
April 30, 1996
CIGNA Investments, Inc.
900 Cottage Grove Road
Bloomfield, CT 06002
Re: Master Investment Advisory Agreement Dated as of April 26, 1988 (the
"Agreement") Between CIGNA Investments, Inc. (the "Adviser") and CIGNA
Variable Products Group (the "Trust")
Dear Madam or Sir:
This is to confirm that the management fee for the series of the Trust known
as CIGNA Variable Products S&P 500 Index Fund (f/k/a Companion Fund) (the
"Fund") has been reduced effective January 1, 1996 from 0.35% of the average
daily net asset value of the Fund to 0.25% of the average daily net asset
value of the Fund. All other terms and conditions of the Agreement remain in
full force and effect.
Please indicate your agreement with the foregoing by signing below.
Copies of the Master Trust Agreement establishing the Trust are on file with
the Secretary of the Commonwealth of Massachusetts, and notice is hereby given
that this document is executed on behalf of the Trust by an officer of the
Trust and not individually and that any obligations of or arising out of this
document are not binding upon any of the Trustees, officers, shareholders,
employees or agents of the Trust individually, but are binding only upon the
assets and property of the Trust.
Sincerely,
CIGNA VARIABLE PRODUCTS GROUP
By: /s/ R. Bruce Albro
--------------------------------------------------
By: R. Bruce Albro
Its: Chairman of the Board and President
Accepted and Agreed to this 30th day of April, 1996.
CIGNA INVESTMENTS, INC.
By: /s/ Arthur C. Reeds, III
-----------------------------------------------
By: Arthur C. Reeds, III
Its: President
