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As filed with the Securities and Exchange Commission on February 12, 1999.
Securities Act File No. 33-20333
Investment Company Act File No. 811-5480
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OMB Number: U.S. SECURITIES AND EXCHANGE COMMISSION
3235-0307 WASHINGTON, D.C. 20549
Expires: 05/31/00 _______________
Estimated average
Burden hours per FORM N-1A
response 212.80
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 | |
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Pre-Effective Amendment No. __ | |
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Post-Effective Amendment No. 17 |X|
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and
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 | |
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Amendment No. 17 |X|
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(CHECK APPROPRIATE BOX OR BOXES.)
CIGNA VARIABLE PRODUCTS GROUP
(Exact Name of Registrant as Specified in Charter)
100 FRONT STREET, SUITE 300, WORCESTER, MASSACHUSETTS 01601
(Address of Principal Executive Offices) (Zip Code)
(860) 726-3700
Registrant's Telephone Number, including Area Code
BRIAN D. WELLS, 100 FRONT STREET, SUITE 300
WORCESTER, MASSACHUSETTS 01601
(Name and Address of Agent for Service)
CONTINUOUS
(Approximate Date of Proposed Public Offering)
_______________
It is proposed that this filing will become effective (check appropriate box):
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| | Immediately upon filing pursuant to paragraph (b)
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| | on (date) pursuant to paragraph (b)
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|X| 60 days after filing pursuant to paragraph (a)(1)
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| | on (date) pursuant to paragraph (a)(1)
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| | 75 days after filing pursuant to paragraph (a)(2)
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| | on (date) pursuant to paragraph (a)(2) of rule 485.
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If appropriate, check the following box:
_
| | This post-effective amendment designates a new effective date for a
- previously filed post-effective amendment.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended.
_____________
PLEASE SEND COMMUNICATIONS TO: JEFFREY S. WINER, ESQ.
C/O CIGNA INVESTMENTS, INC.
900 COTTAGE GROVE ROAD, S-215, HARTFORD, CT 06152-2215
(860) 726-5576
<PAGE>
CIGNA VARIABLE PRODUCTS GROUP
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Prospectus
May 1, 1999
CIGNA VARIABLE PRODUCTS MONEY MARKET FUND
CIGNA VARIABLE PRODUCTS INVESTMENT GRADE BOND FUND
CIGNA VARIABLE PRODUCTS S&P 500 INDEX FUND
The Securities and Exchange
Commission has not approved
or disapproved these
securities or determined
if this prospectus is accurate or
complete. Anyone who tells you
otherwise is committing a
crime.
<PAGE>
TABLE OF CONTENTS
PAGE
Summary............. .........................................................1
Bar Charts and Performance Tables..............................................2
Fees and Expenses of the Funds.................................................4
Investment Information.........................................................5
Management of the Funds.......................................................13
Year 2000 Issues..............................................................13
Pricing of Shares.............................................................13
Purchase and Redemption of Shares.............................................14
Distributions and Federal Income Tax Considerations ..........................15
Financial Highlights..........................................................16
<PAGE>
Shares of the funds offered by this prospectus 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").
FUND INVESTMENT OBJECTIVES:
- --------------------------
MONEY MARKET FUND: To provide as high a level of current income as is
consistent with the preservation of capital and
liquidity and the maintenance of a stable $1.00 per
share net asset value.
INVESTMENT GRADE BOND FUND: To provide as high a level of current income as
possible consistent with reasonable concern for
safety of principal.
S&P 500 INDEX FUND: To provide long-term growth of capital by investing
principally in common stocks.
PRINCIPAL INVESTMENT STRATEGIES
- -------------------------------
MONEY MARKET FUND: Invests exclusively in high-quality short-term
money market instruments.
INVESTMENT GRADE BOND FUND: Invests primarily in fixed rate investment grade
debt securities.
S&P 500 INDEX FUND: Attempts to replicate the composition and total
return, reduced by Fund expenses, of the Standard &
Poor's 500 Composite Stock Price Index (S&P 500) by
investing in common stocks of companies which make
up the S&P 500.
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
- -----------------------------------------
MONEY MARKET FUND: A major change in interest rates or a default on
the Fund's investments could cause the value of
your investment in the Fund to change.
An investment in the Money Market Fund is not
insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the
value of your investment at $1.00 per share, it is
possible to lose money by investing in the Fund.
1
<PAGE>
INVESTMENT GRADE BOND FUND: Interest Rate Risk - Changes in interest rates
could cause the value of your investment to
change. The Investment Grade Bond Fund will be
more sensitive to interest rate changes than the
Money Market Fund since its bonds generally will
have longer maturities.
Credit Risk - Defaults on the Fund's investments
could also cause the value of your investment to
change. Although the Investment Grade Bond Fund
invests primarily in investment grade debt
securities, there is a higher risk of default on
the Fund's investments than with the Money Market
Fund.
Prepayment Risk - Prepayment of the securities
owned by the Fund can affect the value of your
investment.
S&P 500 INDEX FUND: The Fund is subject to market risk, which is the
possibility that common stock prices will decline,
sometimes substantially, over short or extended
periods. The stock market tends to be cyclical,
with periods when stock prices generally rise and
periods when stock prices generally decline.
Loss of money is a risk of investing in any of the funds.
BAR CHARTS AND PERFORMANCE TABLES
The bar charts and tables shown below provide some indication of the risks of
investing in the funds. The bar charts show changes in the performance of the
funds' shares from year to year over the life of the funds. There is no bar
chart or table for the Investment Grade Bond Fund because this fund does not
have performance information for a full year.
The tables show how the funds' average annual returns for one, five and ten
years compare to those of a broad measure of relevant market performance. A
fund's past performance does not necessarily indicate how the Fund will perform
in the future.
[THE FOLLOWING INFORMATION APPEARS AS A BAR CHART GRAPHIC]
MONEY MARKET FUND - ANNUAL TOTAL RETURNS
4.18% 5.19% 5.14%
1996* 1997 1998
* Commenced operations March 1, 1996. Returns shown for 1996 are unannualized.
During the period shown in the bar chart, the highest quarterly return was __%
(for the quarter ended ____) and the lowest quarterly return was ___% (for the
quarter ended ___).
2
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AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1998
Past 1 year Since Inception
Money Market Fund 5.14% __%
3-Month U.S. Treasury bills 5.31% __%
The Money Market Fund's 7-day annualized yield as of December 31, 1998 was __%.
[THE FOLLOWING INFORMATION APPEARS AS A BAR CHART GRAPHIC]
S&P 500 INDEX FUND - ANNUAL TOTAL RETURNS
29.22% -3.99% 37.46% 3.59% 2.97% 0.67% 36.82% 22.48% 33.35% 28.6%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
During the ten-year period shown in the bar chart, the highest quarterly return
was __% (for the quarter ended ____) and the lowest quarterly return was ___%
(for the quarter ended ___).
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1998
Past 1 year Past 5 years Past 10 years*
S&P 500 Index Fund 28.60% __% __%
S&P 500 Index 28.57% __% __%
*Prior to November 1993 the S&P 500 Index Fund was actively managed.
3
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FEES AND EXPENSES OF THE FUNDS
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES 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 any additional
charges.
<TABLE>
<CAPTION>
Investment
Money Grade S&P 500
Market Bond Index
SHAREHOLDER FEES Fund Fund Fund
- ---------------- ---- ---- ----
<S> <C> <C> <C>
(fees paid directly from your investments)
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) None None None
Maximum deferred sales charge (load)
(as a percentage of offering price) None None None
Redemption fee (as a percentage
of amount redeemed) None None None
Exchange fee None None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management fees 0.35% 0.50% .25%
Distribution (12b-1) fees None None None
Other expenses (before waivers) 0.38% 0.15%(1) 0.22%
----- ------- -----
Total Annual Fund Operating Expenses (before waivers) 0.73% 0.65% 0.47%
Waiver of Fund expenses (2) (0.23%) (0.15%) (0.22%)
------- ------- ------
Total Actual Fund Operating Expenses (after waivers) (2) 0.50% 0.50% 0.25%
</TABLE>
(1) These expenses are based on estimated amounts for the fiscal year ending
December 31, 1999.
(2) CIGNA Investments has voluntarily agreed, until April 30, 2000, to waive
management fees and reimburse the funds if and to the extent total annual
fund operating expenses exceed 0.50% for the Money Market Fund and the
Investment Grade Bond Fund, and 0.25% for the S&P 500 Index Fund. CIGNA
Investments may agree to continue to waive management fees and reimburse
expenses after April 30, 2000.
4
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EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE FUNDS
WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
The Example assumes that you invest $10,000 in the funds for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
funds' operating expenses are before waivers as shown in the table above and
remain the same. The Example does not reflect charges and deductions which are
or may be imposed under Variable Contracts or Qualified Plans. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
MONEY MARKET FUND
1 year 3 years 5 years 10 years
$------- $------- $------- $--------
INVESTMENT GRADE BOND FUND
1 year 3 years
$------- $-------
S&P 500 INDEX FUND
1 year 3 years 5 years 10 years
$------- $------- $------- $--------
Taking into account CIGNA Investments' voluntary expense limitations described
above, your costs would be:
MONEY MARKET FUND
1 year 3 years 5 years 10 years
$------- $------- $-------- $--------
INVESTMENT GRADE BOND FUND
1 year 3 years
$------- $-------
S&P 500 INDEX FUND
1 year 3 years 5 years 10 years
$-------- $------- $------- $-------
5
<PAGE>
INVESTMENT INFORMATION
MONEY MARKET FUND
INVESTMENT OBJECTIVE AND POLICIES
The fund's objective is to provide as high a level of current income as is
consistent with the preservation of capital and liquidity and the maintenance of
a stable $1.00 per share net asset value by investing in short-term high quality
money market instruments. The fund invests in money market instruments such as
U.S. Government direct obligations and U.S. Government agencies' securities. In
addition, the fund may invest in other money market instruments such as
asset-backed securities, bankers' acceptances, certificates of deposit,
commercial loan participations, repurchase agreements, time deposits and
commercial paper, all of which will be denominated in U.S. dollars. Bankers'
acceptances, certificates of deposit and time deposits may be purchased from
U.S. or foreign banks. The fund purchases commercial paper primarily from U.S.
issuers but may purchase this type of security from foreign issuers so long as
it is denominated in U.S. dollars.
DESCRIPTION OF MONEY MARKET INSTRUMENTS
This is a description of the primary types of money market instruments the fund
will own:
U.S. GOVERNMENT DIRECT OBLIGATIONS - Obligations issued by the U.S. Treasury.
U.S. GOVERNMENT AGENCIES SECURITIES - The U.S. Government has established
certain Federal agencies such as the Government National Mortgage Association as
instrumentalities of the U.S. Government to supervise and finance certain types
of activities. Issues of these agencies, while not direct obligations of the
U.S. Government, are either backed by the full faith and credit of the United
States or are guaranteed by the Treasury or supported by the issuing agencies'
right to borrow from the Treasury.
ASSET-BACKED SECURITIES - include interests in pools of mortgages, loans,
receivables, or other assets. Payment of principal and interest may be largely
dependent on the cash flows generated by the assets backing the securities.
CERTIFICATES OF DEPOSIT - A negotiable interest-bearing instrument with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of Funds and normally can be
traded in the secondary market, prior to maturity.
COMMERCIAL PAPER - The term used to designate unsecured short-term promissory
notes issued by corporations and other entities. Maturities on these issues vary
from a few days to nine months.
COMMERCIAL LOAN PARTICIPATIONS - Participating interests in loans made by a
bank, or a syndicate of banks represented by an agent bank, to corporate
borrowers. Loan participations may extend for the entire term of the loan or may
extend only for short "strips" that correspond to stated payments on the
underlying loan. The loans underlying such participations may be secured or
unsecured, and the Fund may invest in loans collateralized by mortgages on real
property.
REPURCHASE AGREEMENTS - A repurchase agreement is a contract where the seller of
securities (limited to U.S. Government securities, including securities issued
or guaranteed by the U.S. Treasury or the various agencies and instrumentalities
of the U.S. Government) agrees to repurchase the securities at a specified price
6
<PAGE>
on a future date determined by negotiations. The repurchase agreement may be
considered a loan by a Fund to the issuer of the agreement, a bank or securities
dealer, with the U.S. Government securities serving as collateral for the loan.
VARIABLE AND FLOATING RATE INSTRUMENTS - Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic banks or corporations,
may carry variable or floating rates of interest. These instruments bear
interest at rates which are not fixed, but which vary with changes in specified
market rates or indices, such as a Federal Reserve composite index.
OPERATIONAL POLICIES
The fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and the Statement of Additional Information, in order to comply with
applicable laws and regulations governing money market funds, including the
provisions of and regulations under the Investment Company Act of 1940 (the 1940
Act). In particular, the fund intends to comply with the various requirements of
Rule 2a-7 of the 1940 Act, which regulates portfolio maturity, quality and
diversification. For example, the fund will limit its investments to securities
with effective remaining maturities of 397 days or less and will maintain a
dollar-weighted average maturity of 90 days or less. The fund will determine the
effective remaining maturity of its investments according to Rule 2a-7.
Pursuant to procedures adopted by the fund's Board of Trustees, the fund may
purchase only high quality securities that CIGNA Investments, Inc., the fund's
adviser (CIGNA Investments) believes present minimal credit risks. To be
considered high quality, a security must be a U.S. Government security or must
be rated in accordance with applicable rules in one of the two highest
categories for short-term securities by at least two nationally recognized
rating services (or by one, if only one rating service has rated the security)
or, if unrated, judged to be of equivalent quality by CIGNA Investments.
High quality securities are divided into "first tier" and "second tier"
securities. First tier securities have received the highest rating (e.g.
Standard & Poor's Corporation's ("S&P") A-1 rating) from at least two rating
services (or one, if only one has rated the security). Second tier securities
have received ratings within the two highest categories (e.g., S&P's A-1 or A-2)
from at least two rating services (or one, if only one has rated the security),
but do not qualify as first tier securities. If a security has been assigned
different ratings by different rating services, at least two rating services
must have assigned the highest of the ratings in order for CIGNA Investments to
determine eligibility on the basis of that highest rating. Based on procedures
adopted by the Board of Trustees, CIGNA Investments may determine that an
unrated security is of equivalent quality to a rated first or second tier
security.
The fund may not invest more than 5% of its total assets in second tier
securities. In addition, the fund may not invest more than 1% of its total
assets or $1 million (whichever is greater) in the second tier securities of a
single issuer.
The fund may change these operational policies to reflect changes in the laws
and regulations without the approval of shareholders.
7
<PAGE>
INVESTMENT GRADE BOND FUND
INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES AND RELATED RISKS
The fund's objective is to provide as high a level of current income as possible
consistent with reasonable concern for safety of principal. The fund intends to
achieve this objective by investing primarily in fixed rate investment grade
debt securities. The fund will consider a security to be investment grade as
long as at least one nationally recognized statistical rating organization (such
as Moody's or S&P) rates the security investment grade. Under normal market
conditions, the Fund will invest at least 65% of its assets in these securities.
The fund invests in a diversified portfolio of marketable debt securities. In
addition, the assets of the fund may be invested in obligations of, or
guaranteed by, U.S. banks or bank holding companies that are considered by CIGNA
Investments to be investment grade or better and money market instruments
eligible for purchase by the Money Market Fund.
The Investment Grade Bond Fund also may invest up to 20% of its assets in other
fixed-income securities, including convertible bonds and preferred stocks, and
in common stocks and similar equity securities when they are acquired as parts
of units with fixed-income securities (including warrants or rights to purchase
equity investments) or upon exercise of such warrants or rights or upon the
conversion of convertible bonds.
The fund may invest up to 40% of its assets in foreign entities of which up to
25% may be payable in foreign currencies and traded abroad. Purchases of foreign
securities payable in foreign currencies will be affected either favorably or
unfavorably by changes in the value of the foreign currencies against the U.S.
dollar. Investing in foreign securities payable in foreign currencies carries
increased risk to the Fund.
The fund's assets may include securities that have been purchased on a
when-issued or delayed-delivery basis. Delivery and payment for these securities
could take place a month or more after the date of the transaction, during which
time the value of the purchase commitment will fluctuate with the market for
comparable securities. However, both the payment and interest terms of the
securities are fixed at the time the Fund makes a commitment to purchase the
securities. The Fund makes these commitments only with the intention of actually
acquiring the securities, but may sell the securities before settlement date if
it is deemed advisable for investment reasons.
The fund may invest up to 20% of its assets in debt securities of less than
investment grade (i.e., securities rated Ba/BB or below by Moody's and S&P).
These securities are commonly referred to as junk bonds.
The Investment Grade Bond Fund pursues its goals by investing primarily in fixed
rate investment grade debt securities, and to a lesser degree, in convertible
bonds and preferred stocks. These investments are commonly known as fixed-income
investments.
* FIXED-INCOME INVESTMENTS - RISKS IN GENERAL. The value of a fixed-income
investment may fall as a result of factors directly relating to the company
issuing the investment, such as decisions made by its management or a reduction
in its credit rating. An investment's value may also fall because of factors
affecting many companies, such as increased production costs. The value of an
investment may also be affected by general changes in financial market
conditions, such as changing interest rates or currency exchange rates.
* INTEREST RATE RISK. The values of fixed-income investments usually rise and
fall in response to changes in interest rates. Declining interest rates
generally raise the value of existing fixed-income investments, and rising
interest rates generally lower the value of existing fixed-income investments.
Changes in the values of fixed-income investments usually will not affect the
amount of income a fund receives from
8
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them, but will affect the value of the fund's shares. Interest rate risk is
often greater for investments with longer maturities.
* PREPAYMENT RISK. Many types of debt securities, including mortgage securities
and asset-backed securities, are subject to prepayment risk. Prepayment risk
occurs when the issuer of a security can prepay principal prior to the
security's maturity. If an investment were to be prepaid during a time of
declining interest rates, a fund might have to reinvest the proceeds in an
investment offering a lower yield, and therefore might not benefit from any
increase in value as a result of declining interest rates. In addition, the
potential impact of prepayment features on the price of a debt security may be
difficult to predict and result in greater volatility.
* CREDIT RISK. Investors normally expect to be compensated in proportion to the
risk they assume. Fixed- income investments of companies with poor credit
usually offer higher yields than those of companies with better credit.
Higher-rated investments generally offer lower-credit risk, but not necessarily
lower interest rate risk. The value of a higher-rated investment still
fluctuates in response to changes in interest rates. The funds may at times
invest in "zero coupon" bonds and "payment-in-kind" bonds. Zero coupon bonds are
issued at less than face value and make payments of interest only at maturity
rather than at intervals during the life of the bond. Payment-in-kind bonds give
the issuing company the option to make interest payments in additional bonds
rather than in cash. Both kinds of bonds allow a company to avoid generating
cash to make current interest payments. These bonds therefore involve greater
credit risk and are typically subject to greater price fluctuations than bonds
that pay current interest in cash.
Up to 20% of the Investment Grade Bond Fund's investments may be in below
investment grade securities. Fixed-income investments rated BB or lower by
Standard & Poor's (or its equivalent) are considered below investment grade and
are commonly known as "junk bonds." The lower ratings of these investments
reflect a greater possibility that the issuing companies may be unable to make
timely payments of interest and principal and thus default. There may be an
increased risk of default in adverse economic conditions. If this happens, or is
perceived as likely to happen, the values of those investments will usually
drop. A default or expected default could also make it difficult for a fund to
sell the investments at prices approximating the values the fund had previously
placed on them. Because junk bonds are traded mainly by institutions, they
usually have a limited market, which may at times make it difficult for the fund
to establish their fair value. Credit ratings are based largely on the issuing
company's historical financial condition and the rating agencies' investment
analysis at the time of purchase. The rating assigned to any particular
investment does not necessarily reflect the issuing company's current financial
condition and does not reflect an assessment of an investment's volatility or
liquidity.
* NON-U.S. INVESTMENTS. Non-U.S. investments involve certain special risks. For
example, their values may drop in response to changes in currency exchange
rates, unfavorable political and legal developments, unreliable or untimely
information, or economic and financial instability. In addition, the liquidity
of these investments may be more limited than domestic investments, which means
a fund may at times be unable to sell them at desirable prices. Non-U.S.
settlement procedures may also involve additional risks. These risks are
generally greater in the case of "emerging markets" that typically have less
developed legal and financial systems. Certain of these risks may also apply to
some extent to domestic investments that are denominated in foreign currencies
or that are traded in foreign markets, or to investments in U.S. companies that
have significant foreign operations.
* SMALLER COMPANIES. The Investment Grade Bond Fund may invest in small and
relatively less well-known companies with market capitalizations of less than $1
billion. These companies are more likely than larger companies to have limited
product lines, markets or financial resources, or to depend on a small, less
9
<PAGE>
experienced management group. Investments in smaller companies may trade less
frequently and in limited volume, and their prices may fluctuate more than
investments in other companies. These investments may therefore be more
vulnerable to adverse developments.
* ILLIQUID INVESTMENTS. CIGNA Investments believes that opportunities to earn
high yields may exist in investments that are not liquid and that may be
considered speculative. The sale of these investments is usually restricted or
limited by law, which may mean that the fund will not be able to sell them when
CIGNA Investments considers it is desirable to do so or may be able to sell them
only at less than their market value. The Investment Grade Bond Fund may invest
up to 15% of its assets in illiquid investments.
* FREQUENT TRADING. The fund may buy and sell investments relatively often,
which involves higher expenses, including brokerage commissions, and may
increase the amount of taxes payable by shareholders.
PRIOR PERFORMANCE OF A FUND SIMILAR TO THE INVESTMENT GRADE BOND FUND
Because the Investment Grade Bond Fund commenced operation in April 1999 it has
no reportable operating history and performance. The Investment Grade Bond Fund
is modeled after an existing mutual fund, the CIGNA Income Fund, managed by
CIGNA Investments and having investment objectives and policies substantially
similar to the Investment Grade Bond Fund. The portfolio manager for both the
Investment Grade Bond Fund and the Income Fund is Thomas R. Foley. Mr. Foley has
been the portfolio manager of the Income Fund and has been primarily responsible
for its day-to-day management since July 1991. Prior to that, the Income Fund's
portfolio manager was Gary Brown. The Income Fund was established on
_____________. As of December 31, 1998, its net assets were $1,336,000 and its
sole shareholder was Connecticut General Life Insurance Company.
Below you will find performance information for the Income Fund. Although the
Investment Grade Bond Fund has substantially similar investment objectives and
policies and the same portfolio manager as the Income Fund, you should not
assume that the Investment Grade Bond Fund will have the same future performance
as the Income Fund. For example, the Investment Grade Bond Fund's future
performance may be greater or less than the performance of the Income Fund due
to, among other things, differences in expenses, asset sizes and cash flow
(particularly, the small size and infrequent purchase and redemption activity of
the Income Fund).
INCOME FUND - AVERAGE ANNUAL TOTAL RETURN
-----------------------------------------
1 YR. 3 YRS. 5 YRS. 10 YRS.
----- ------ ------ -------
9.26% 6.51% 6.35% 8.98%
INCOME FUND - TOTAL RETURN
---------------------------
1998 9.26%
1997 9.10%
1996 1.36%
1995 16.21%
1994 -3.12%
1993 13.36%
1992 7.08%
1991 17.94%
1990 6.15%
1989 14.29%
10
<PAGE>
These performance figures are based on the Income Fund's actual investment
performance, after deduction of operating expenses. CIGNA Investments has,
throughout the existence of the Income Fund, voluntarily agreed to waive
management fees and reimburse the Income Fund if and to the extent its total
annual fund operating expenses exceeded 1.00%. If CIGNA Investments had not done
so, the Income Fund's performance would be lower than the performance figures
shown above.
S&P 500 INDEX FUND
INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES AND RELATED RISKS
The primary objective of the fund is long-term growth of capital by investing
principally in common stocks. The fund will seek to fulfill this objective by
attempting to replicate the composition and total return, reduced by fund
expenses, of the S&P 500. Under normal conditions, the fund will invest at least
80% of its total assets in equity securities of companies which compose the S&P
500.
The S&P 500 includes 500 selected common stocks, most of which are listed on the
New York Stock Exchange. Each stock in the Index has a unique weighting,
depending on the number of shares outstanding and its current price. The 500
stocks in the S&P 500 are chosen by Standard & Poor's based on industry
representation, liquidity and stability. The stocks in the S&P 500 are not the
500 largest companies. Rather, the Index is designed to capture the returns of
many different sectors of the U.S. economy.
The fund is subject to market risk -- i.e., the possibility that common stock
prices will decline over short or even extended periods. The U.S. stock market
tends to be cyclical, with periods when stock prices generally rise and periods
when prices generally decline.
While the fund seeks to match the performance of the S&P 500, its stock
portfolio performance may not match that of the S&P 500 exactly. For example,
the fund's performance will reflect deductions for advisory fees and other
expenses that are not deducted from the performance figures reported for the S&P
500. In addition, while CIGNA Investments generally will seek to match the
composition of the S&P 500 as closely as possible, it may not always invest the
fund's stock portfolio to mirror the S&P 500 exactly. for instance, the fund may
at times have its portfolio weighted differently from the S&P 500 because of the
difficulty and expense of executing relatively small stock transactions. Under
normal conditions, the fund anticipates holding at least 480 of the S&P 500
issues at all times.
The fund may also invest in stock index futures contracts and related options
and in certain short-term fixed income securities (including variable and
floating rate instruments or demand instruments) such as Money Market Fund
shares, certificates of deposit, commercial paper, commercial loan
participations, bankers' acceptances, U.S. Government obligations and repurchase
agreements, pending investment in common stocks of companies in the S&P 500 or
to meet anticipated short-term cash needs such as dividend payments or
redemptions of shares. The percentage of the fund's assets invested in various
types of securities will vary in light of existing economic conditions and other
factors as determined by CIGNA Investments. Except in extraordinary
circumstances, the fund will not invest in short-term fixed income securities or
hold assets in cash for temporary, defensive purposes.
The fund is not sponsored, endorsed, sold or promoted by Standard & Poor's
Corporation ("S&P"). S&P makes no representation or warranty, express or
implied, to the record or beneficial owners of shares of the fund or any member
of the public regarding the advisability of investing in securities generally,
or in the fund particularly, or the ability of the S&P 500 to track general
stock market performance. S&P's only relationship to CIGNA Investments or the
fund is the licensing of certain trademarks and trade names of S&P and of the
11
<PAGE>
S&P 500 which is determined, composed and calculated by S&P without regard to
CIGNA Investments or the fund. S&P has no obligation to take the needs of CIGNA
Investments or the fund or the record or beneficial owners of the fund into
consideration in determining, composing or calculating the S&P 500. S&P is not
responsible for and has not participated in the valuation of the fund or the
pricing of the fund's shares or in the determination or calculation of the
equation by which the fund's portfolio investments are to be converted into
cash. S&P has no obligation or liability in connection with the administration,
marketing or trading of the fund.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 OR
ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY CIGNA INVESTMENTS, RECORD OR BENEFICIAL OWNERS
OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 OR ANY
DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE WITH RESPECT TO THE S&P 500 OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
TEMPORARY, DEFENSIVE POSITIONS. The Investment Grade Bond Fund and S&P 500 Index
Fund may, from time to time, take temporary defensive positions that are
inconsistent with their principal investment strategies by investing in
short-term fixed income securities in attempting to respond to adverse market,
economic, political or other conditions. If a fund takes a temporary defensive
position it may not achieve its investment objective.
CHANGES IN POLICIES. The funds' Trustees may change the funds' goals, investment
strategies and other policies without shareholder approval, except as otherwise
indicated.
12
<PAGE>
MANAGEMENT OF THE FUNDS
The investment adviser to the funds is CIGNA Investments, an indirect,
wholly-owned subsidiary of CIGNA Corporation. CIGNA Investments also serves as
investment adviser for other investment companies, and for a number of pension,
advisory, corporate and other accounts. CIGNA Investments and other affiliates
of CIGNA Corporation manage combined assets of approximately $63 billion. CIGNA
Investments' mailing address is 900 Cottage Grove Road, Hartford, Connecticut
06152.
Pursuant to a Master Investment Advisory Agreement, CIGNA Investments manages
the investment and reinvestment of the assets of the 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. CIGNA Investments is also responsible for overall
management of the business affairs of the funds.
As full compensation for the investment management and all other services
rendered by CIGNA Investments, the funds paid CIGNA Investments the following
amounts for calendar year 1998: $________ for the Money Market Fund; and
$________ for the S&P 500 Index Fund. CIGNA Investment's fee for managing the
funds, as a percentage of each fund's average daily net assets, is as follows:
Money Market Fund - 0.35%
Investment Grade Bond Fund - 0.50%
S&P 500 Index Fund - 0.25%
Thomas R. Foley has had primary responsibility for the day-to-day management of
the Investment Grade Bond Fund since its inception. He has been a Managing
Director of CIGNA Investments since 1995, and before that was a Vice President.
YEAR 2000 ISSUES. The funds could be adversely affected if the computer systems
used by CIGNA Investments and the funds' other service providers do not properly
process and calculate date-related information relating to the end of this
century and the beginning of the next. While year 2000-related computer problems
could have a negative effect on the funds, both in their operations and in their
investments, CIGNA Investments is working to avoid such problems and to obtain
assurances from service providers that they are taking similar steps. No
assurances, though, can be provided that the funds will not be adversely
impacted by these matters.
PRICING OF SHARES
The price of fund shares is based on each fund's net asset value. The funds'
custodian, State Street Bank and Trust Company ("State Street") calculates the
net asset value of each fund by dividing the number of outstanding shares of the
fund into the net assets of the fund. Net assets are the excess of a fund's
assets over its liabilities. Net asset value is determined as of the close of
regular trading (normally, 4:00 p.m. Eastern Time) on each day the New York
Stock Exchange ("NYSE") is open for trading.
The Investment Grade Bond and S&P 500 Index funds value their investments for
which market quotations are readily available at market value. They value
short-term investments that will mature within 60 days at amortized cost, which
approximates market value. They value all other investments and assets at their
fair value. The funds translate prices for their investments quoted in foreign
currencies into U.S. dollars at current exchange rates. As a result, changes in
the value of those currencies in relation to the U.S. dollar may affect a
13
<PAGE>
fund's NAV. Because foreign markets may be open at different times than the New
York Stock Exchange, the value of a fund's shares may change on days when
shareholders are not able to buy or sell them. If events materially affecting
the values of a fund's foreign investments occur between the close of foreign
markets and the close of regular trading on the New York Stock Exchange, these
investments may be valued at their fair value.
The Money Market Fund's investments are valued at amortized cost, which
approximates market value, in accordance with rules adopted by the Securities
and Exchange Commission. Using the amortized cost valuation method allows the
Money Market Fund to maintain its net asset value at $1.00 per share. There is
no assurance that this method will always be used, or if used, that the net
asset value under certain conditions will not deviate from $1.00 per share. If
the Board of Trustees deems it inadvisable to continue the practice of
maintaining the net asset value of $1.00 per share it may alter this procedure.
The fund will notify shareholders prior to any change, unless the change is only
temporary, in which case the shareholders will be notified after the change.
PURCHASE AND REDEMPTION OF SHARES
Shares may be purchased only by Eligible Purchasers. Eligible Purchasers are
limited to: (1) those separate accounts established by life insurance companies
that serve as the underlying investment vehicles for Variable Contracts; and (2)
Qualified Plans. Shares may not be purchased by individuals or by the general
public. The Board of Trustees of CIGNA Variable Products Group may broaden or
limit the definition of Eligible Purchasers. Purchase of shares is subject to
acceptance by each fund. Fund shares are sold exclusively to and redeemed by
Eligible Purchasers on a continuous basis.
Purchase and redemption orders received by life insurance companies and
Qualified Plans on a given business day from their 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 that business day if the orders are
received by a 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 a fund.
The funds do not issue share certificates. Please refer to the prospectus of
your life insurance company's Variable Contract or Qualified Plan documents for
information on how to invest in a fund.
Investments by Eligible Purchasers in a fund are expressed in terms of full and
fractional shares of a fund. All investments in a fund are credited to an
Eligible Purchaser's account immediately upon acceptance of the investment by
the 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 Investment's opinion, they would disrupt the
management of a fund.
Each fund normally pays for shares redeemed within seven days after the life
insurance company that issued the Variable Contract or the Qualified Plan
receives the redemption request. However, a fund may suspend redemption or
postpone payment for any period when:
- - the NYSE closes for other than weekends and holidays
- - the SEC restricts trading on the NYSE;
- - the SEC determines that an emergency exists, so that a fund's (1) disposal
of investment securities, or (2) determination of net asset value, is not
reasonably practicable; or
14
<PAGE>
- - the SEC permits, by order, for the protection of fund shareholders.
CIGNA Variable Products Group 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 insurance companies which may or may not be affiliated
with each other or that is offers its shares to Qualified Plans. Nevertheless,
the CIGNA Variable Products Group 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. If a conflict were
to occur, one or more life insurance company separate accounts or Qualified
Plans might withdraw its investment in a fund. This might force the fund to sell
portfolio securities at disadvantageous prices.
DISTRIBUTIONS AND FEDERAL INCOME TAX CONSIDERATIONS
Each fund's policy is to distribute substantially all of its net investment
income and net realized capital gains each year. A fund may distribute net
realized capital gains only once a year. Each fund pays these distributions to
the life insurance company issuing the Variable Contract or the Qualified Plan,
which automatically reinvest the distributions in additional fund shares at no
charge.
Each fund has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). The
Code relieves a regulated investment company from certain Federal income tax and
excise tax, if the company distributes substantially all of its net investment
income and net realized capital gains. See the SAI for a more complete
discussion.
Each fund must meet asset diversification requirements under Section 817(h) of
the Code and the related regulation of the United States Treasury Department.
Each fund intends to comply with these diversification requirements.
The sole shareholders of the funds are life insurance companies issuing Variable
Contracts and Qualified Plans. Consequently, this prospectus does not discuss
the federal income tax consequences at the shareholder level. For information
concerning the federal income tax consequences to owners of Variable Contracts
and Qualified Plan participants, including the failure of a fund to meet the
diversification requirements discussed above, see the Prospectus for the
Variable Contract or your Qualified Plan documents.
15
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
funds' financial performance for the past 5 years. Certain information
reflects financial results for a single fund share. The total returns in
the table represent the rate that an investor would have earned on an
investment in a fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers
LLP, whose report, along with the Funds' financial statements, are included
in the annual report which is available upon request.
[FINANCIAL HIGHLIGHTS FOR MONEY MARKET FUND AND S&P 500 INDEX FUND TO BE
INSERTED]
16
<PAGE>
For investors who want more information about the funds, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS: Additional information about the funds' investments
is available in each fund's annual and semi-annual reports to shareholders. In
the fund's annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected a fund's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the funds and is incorporated into this prospectus by
reference.
You can get free copies of reports and SAIs, request other information and
discuss your questions about the funds by contacting the funds at:
CIGNA Variable Products Group
900 Cottage Grove Road
Hartford, CT 06152-2210
Telephone: 1-800-________
You can review and copy the funds' reports and SAIs at the Public Reference Room
of the Securities and Exchange Commission. You can get text-only copies:
For a fee, by writing to or calling the Public Reference Room of the Commission,
Washington, DC 20549-6009.
Free from the Commission's Internet website at http://www.sec.gov.
Information on the operation of the public reference room may be obtained by
calling the Commission at: 1-800-SEC-0330.
CIGNA VARIABLE PRODUCTS GROUP
CIGNA VARIABLE PRODUCTS MONEY MARKET FUND
CIGNA VARIABLE PRODUCTS INVESTMENT GRADE BOND FUND
CIGNA VARIABLE PRODUCTS S&P 500 INDEX FUND
(Investment
Company Act
file no. 811-1646)
<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
------------------------------------------------------------
CIGNA Variable Products Money Market Fund
CIGNA Variable Products Investment Grade Bond Fund
CIGNA Variable Products S&P 500 Index Fund
S T A T E M E N T O F A D D I T I O N A L I N F O R M A T I O N
M A Y 1, 1 9 9 9
==============================================================================
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the prospectus for CIGNA 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 c/o CIGNA Investments, 900 Cottage
Grove Road, S-210, Hartford, CT 06152-2210.
The financial statements for each of the Funds of CIGNA Variable Products Group
for fiscal year ended December 31, 1998 as contained in the Annual Reports to
Shareholders dated December 31, 1998, are hereby incorporated by reference into
this Statement of Additional Information. The financial statements for the
fiscal year ended December 31, 1998 have been examined by PricewaterhouseCoopers
LLP, independent accountants, whose report thereon also is incorporated herein
by reference. The Shareholder Reports are available, without charge, upon
request, by calling 1-800-________.
The financial statements of the Funds will be delivered with this Statement of
Additional Information.
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<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
General Information About the Funds......................... 3
-----------------------------------
The Funds, Their Investment Objectives and Policies......... 4
---------------------------------------------------
Investment Grade Bond Fund.................................. 6
--------------------------
Investment Grade Bond Fund - Risk Factors................... 8
-----------------------------------------
S&P 500 Index Fund.......................................... 9
------------------
Matters Relating to All Funds............................... 9
-----------------------------
Investment Restrictions.................................... 18
-----------------------
Tax Matters................................................ 20
-----------
Activities Of Affiliated Companies......................... 22
----------------------------------
Control Persons and Principal Holders of Securities........ 22
---------------------------------------------------
Management of the Funds.................................... 22
-----------------------
Investment Advisory and Other Services..................... 25
--------------------------------------
Portfolio Turnover and Brokerage Allocation................ 28
-------------------------------------------
Capital Stock............................................. 30
-------------
Performance Information.................................... 31
-----------------------
Purchase, Redemption and Pricing of Securities............. 34
----------------------------------------------
Dividends.................................................. 35
---------
Limitation on Transfers.................................... 35
-----------------------
Ratings of Securities...................................... 35
---------------------
Page 2
<PAGE>
GENERAL INFORMATION ABOUT THE FUNDS
- -----------------------------------
The Trust offers three series portfolios or Funds for sale:
Money Market Fund
Investment Grade Bond Fund
S&P 500 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 Money Market Fund was
added to the Trust on January 2, 1996 and the Investment Grade Bond Fund was
added and commenced operation in April 1999.
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 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.
Page 3
<PAGE>
THE FUNDS, THEIR INVESTMENT OBJECTIVES AND POLICIES
- ---------------------------------------------------
CLASSIFICATION
- --------------
The Funds are diversified, open-end management investment companies.
INVESTMENT STRATEGIES AND RISKS
- -------------------------------
MONEY MARKET FUND
- -----------------
The types of money market instruments in which the Money Market Fund presently
invests are listed in the prospectus and in this Statement of Additional
Information. If the Trustees determine that it may be advantageous to invest in
other types of money market instruments, the Money Market Fund may invest in
such instruments, if it is permitted to do so by its investment objective,
policies and restrictions.
OBLIGATIONS OF DEPOSITORY INSTITUTIONS AND COMMERCIAL PAPER OF FOREIGN ISSUERS.
As discussed in the Prospectus, the Money Market Fund may invest in U.S.
dollar-denominated obligations of U.S. and foreign depository institutions,
including commercial and savings banks and savings and loan associations. The
obligations may be issued by U.S. or foreign depository institutions, foreign
branches or subsidiaries of U.S. depository institutions ("Eurodollar"
obligations), U.S. branches or subsidiaries of foreign depository institutions
("Yankeedollar" obligations) or foreign branches or subsidiaries of foreign
depository institutions. Obligations of foreign depository institutions, their
branches and subsidiaries, and Eurodollar and Yankeedollar obligations may
involve additional investment risks compared to the risks of obligations of U.S.
institutions. Such investment risks include adverse political and economic
developments, the possible imposition of withholding taxes on interest income
payable on such obligations, the possible seizure or nationalization of foreign
deposits and the possible establishment of exchange controls or other foreign
governmental laws or restrictions which might adversely affect the payment of
principal and interest. Generally, the issuers of such obligations are subject
to fewer regulatory requirements than are applicable to U.S. banks. Foreign
depository institutions, their branches or subsidiaries, and foreign branches or
subsidiaries of U.S. banks may be subject to less stringent reserve requirements
than U.S. banks. U.S. branches or subsidiaries of foreign banks are subject to
the reserve requirements of the state in which they are located. There may be
less publicly available information about a foreign bank or a branch or
subsidiary of a foreign bank than about a U.S. institution, and such branches or
subsidiaries may not be subject to the same accounting, auditing and financial
record keeping standards and requirements as U.S. banks. Evidence of ownership
of foreign depository and Eurodollar obligations may be held outside of the
United States and the Fund may be subject to the risks associated with the
holding of such property overseas. Foreign depository and Eurodollar obligations
of the Fund held overseas will be held by foreign branches of the custodian for
the Fund's portfolio securities or by other U.S. or foreign banks under
subcustodian arrangements complying with the requirements of the Investment
Company Act of 1940, as amended (the "1940
Page 4
<PAGE>
Act"). CIGNA Investments will consider the above factors in making investments
in foreign depository, Eurodollar and Yankeedollar obligations and will not
knowingly purchase obligations which, at the time of purchase, are subject to
exchange controls or withholding taxes. Generally, the Fund will limit its
foreign depository and Yankeedollar investments to obligations of banks
organized in Canada, France, Germany, Japan, the Netherlands, Switzerland, the
United Kingdom and other western industrialized nations. As discussed in the
prospectus, the Fund may also invest in U.S. dollar-denominated commercial paper
and other short-term obligations issued by foreign entities. These investments
are subject to quality standards similar to those applicable to investments in
comparable obligations of domestic issuers. Investments in foreign entities in
general involve the same risks as those described above in connection with
investments in Eurodollar and Yankeedollar obligations and obligations of
foreign depository institutions and their foreign branches and subsidiaries.
RATING AGENCIES. The Money Market Fund's investments in short-term corporate
debt and bank money instruments will be rated, or will be issued by issuers who
have been rated, in one of the two highest rating categories for short-term debt
obligations by a nationally recognized statistical rating organization (an
"NRSRO") or, if not rated, will be of comparable quality as determined by the
Trustees of the Trust. The Money Market Fund's investments in corporate bonds
and debentures (which must have maturities at the date of purchase of 397 days
(13 months) or less) will be in issuers who have received from an NRSRO a rating
with respect to a class of short-term debt obligations that is comparable in
priority and security with the investment in one of the two highest rating
categories for short-term obligations or if not rated, will be of comparable
quality as determined by the Trustees of the Trust. Currently, there are six
NRSROs: Duff and Phelps Inc., Fitch Investors Services, Inc., IBCA Limited and
its affiliate IBCA Inc., Thompson BankWatch, Inc., Moody's Investors Service
Inc. and Standard & Poor's Rating Group.
The rating applied to a security at the time the security is purchased by the
Fund may be changed while the Fund holds such security in its portfolio. This
change may affect, but will not necessarily compel, a decision to dispose of a
security. If the major rating services used by the Fund were to alter their
standards or systems for rating, the Fund would then employ ratings under the
revised standards or systems that would be comparable to those specified in its
current investment objective, policies and restrictions.
RULE 2A-7. The Board of Trustees has established procedures in compliance with
Rule 2a-7 under the 1940 Act that include reviews of portfolio holdings by the
Trustees at such intervals as they may deem appropriate to determine whether net
asset value of the Money Market Funds, calculated by using available market
quotations, deviates from $1.00 per share and, if so, whether this deviation may
result in material dilution or is otherwise unfair to existing shareholders. In
the event the Trustees determine that a deviation having this result exists,
they intend to take such corrective action as they deem necessary and
appropriate, including the sale of portfolio instruments prior to maturity in
order to realize capital gains or losses or to shorten average portfolio
maturity; withholding dividends; or establishing a net asset value
Page 5
<PAGE>
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 Money Market Fund
resulting from the reinvestment of dividend income is reflected by an increase
in the number of shares in the shareholder's account.
INVESTMENT GRADE BOND FUND
- --------------------------
In pursuing its investment objective, the Investment Grade Bond Fund will
principally invest in the following types of interest-bearing securities:
(1) Marketable debt securities that are rated at the time of purchase
within the four highest grades assigned by Moody's Investors
Service, Inc. (Aaa, Aa, A or Baa) or Standard & Poor's Corporation
(AAA, AA, A or BBB).
(2) U.S. Government securities, as described below.
(3) Obligations of, or guaranteed by, U.S. banks or bank holding
companies, which obligations are considered by CIGNA Investments
to have investment qualities comparable to securities which may be
purchased under Item (1) above, although there can be no assurance
that these obligations shall have such qualities.
(4) Money market instruments eligible for purchase by the Money Market
Fund, which instruments are considered by CIGNA Investments to
have investment qualities comparable to securities which may be
purchased under Item (1) above, although there can be no assurance
that said obligations shall have such qualities.
(5) Marketable securities (payable in U.S. dollars) of, or guaranteed
by, the Government of Canada or of a Province of Canada or any
instrumentality or political subdivision thereof.
The balance of the Investment Grade Bond 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 Investment Grade Bond 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.
Page 6
<PAGE>
Treasury, by various agencies of the U.S. Government or by various
instrumentalities that have been established or sponsored by the U.S.
Government. Treasury securities include Treasury bills, Treasury notes and
Treasury bonds. Treasury bills have a maturity of one year or less; Treasury
notes have maturities of one to ten years; Treasury bonds generally have a
maturity of greater than ten years. The Federal agencies established as
instrumentalities of the U.S. Government to supervise and finance certain types
of activities include the Federal Home Loan Banks, the Government National
Mortgage Association, the Federal National Mortgage Association, the Federal
Land Banks, the Small Business Administration, the Export-Import Bank, the
Federal Intermediate Credit Banks and the Bank for Cooperatives.
U.S. Government securities may take the form of participation interests in, and
may be evidenced by, deposit or safekeeping receipts. Participation interests
are pro rata interests in U.S. Government securities such as interests in pools
of mortgages sold by the Government National Mortgage Association; instruments
evidencing deposit or safekeeping are documentary receipts for such original
securities held in custody by others.
U.S. Government obligations, including those that are guaranteed by Federal
agencies or instrumentalities, may or may not be backed by the "full faith and
credit" of the United States. Some securities issued by Federal agencies or
instrumentalities are only supported by the credit of the agency or
instrumentality (such as the Federal Home Loan Banks) while others have an
additional line of credit with the U.S. Treasury (such as the Federal National
Mortgage Association). Certain securities issued by Federal agencies or
instrumentalities backed by the full faith and credit of the U.S. Government
include those issued by the Government National Mortgage Association and the
Small Business Administration. In the case of securities not backed by the full
faith and credit of the United States, the Fund must look principally to the
agency issuing or guaranteeing the obligation for ultimate repayment and may not
be able to assert a claim against the United States itself in the event the
agency or instrumentality does not meet its commitments.
Warrants are, in effect, longer term call options. They give the holder the
right to purchase a given number of shares of a particular company at specified
prices within certain periods of time. The purchaser of a warrant expects that
the market price of the security will exceed the purchase price of the warrant
plus its exercise price, thus resulting in a profit. However, since the market
price may never exceed the exercise price before the expiration date of the
warrant, 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.
Page 7
<PAGE>
Considerations of liquidity and preservation of capital mean that the Investment
Grade Bond 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.
INVESTMENT GRADE BOND FUND: RISK FACTORS
- -----------------------------------------
As noted in the prospectus, the Investment Grade Bond Fund may invest up to 20%
of its assets in debt securities of less than investment grade (i.e., securities
rated Ba/BB or below by Moody's and S&P). Such securities are often referred to
as high yield or junk bonds and are typically considered "high risk" securities.
High yield bonds may be subject to certain risk factors to which other
securities are not subject to the same degree. An economic downturn tends to
disrupt the market for high yield bonds and adversely effect their values. Such
an economic downturn may be expected to result in increased price volatility of
high yield bonds and of the value of the Fund's shares, and an increase in
issuers' defaults on such bonds.
Also, issuers of high yield bonds are substantially leveraged, which may impair
their ability to meet their obligations. In some cases, the high yield
securities in which a Fund invest are subordinated to the prior payment of
senior indebtedness, thus potentially limiting 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.
S&P INDEX FUND
- --------------
The S&P 500 Index Fund seeks long-term growth of capital by investing primarily
in common stocks. Realization of current income is an incidental consideration,
although it is hoped that growth in income will accompany growth in capital. The
portfolio of the Fund normally will consist primarily of equity securities of
companies which compose the S&P 500.
The Fund also may invest in certain short-term fixed income securities, stock
index futures and options on futures, as more fully described in the prospectus.
MATTERS RELATING TO ALL FUNDS
- -----------------------------
Except as described under "Fund Policies," the foregoing investment policies are
not fundamental and the Board of Trustees may change such policies without
shareholder approval. The Board will not change a Fund's investment objectives
without the required shareholder vote as set forth in "Fund Policies" below.
There is risk inherent in any investment, and there is no assurance that any of
the strategies and methods of investment available to any Fund will result in
the achievement of its objectives.
Each Fund's investments must be consistent with its investment objective and
policies. Accordingly, not all of the security types and investment techniques
discussed below are eligible investments for each of the Funds.
SECURITIES ISSUED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS. Each Fund may
purchase securities on a "when-issued" basis, that is, delivery of and placement
for the securities is not fixed at the date of purchase, but is set after the
securities are issued (normally within forty-five days after the date of the
transaction). A Fund also may purchase or sell securities on a delayed delivery
basis. The payment obligation and the interest rate that will be received on the
delayed delivery securities are fixed at the time the buyer enters into the
commitment. A Fund will only make commitments to purchase when-issued or delayed
delivery securities with the intention of actually acquiring such securities,
but a Fund may sell these securities before the settlement date if it is deemed
advisable.
Investment in securities on a when-issued or delayed delivery basis may increase
a Fund's exposure to market fluctuation and may increase the possibility that
the Fund will incur short-term gains subject to Federal taxation or short-term
losses if the Fund must engage in portfolio transactions in order to honor a
when-issued or delayed delivery commitment. In a delayed delivery transaction,
the Fund relies on the other party to complete the transaction. If the
transaction is not completed, the Fund may
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miss a price or yield considered to be advantageous. A Fund will employ
techniques designed to reduce such risks. If the Fund purchases a when-issued
security, the Fund's custodian bank will segregate cash or high grade securities
in an amount equal to the when-issued commitment. If the market value of the
segregated securities declines, additional cash or securities will be segregated
on a daily basis so that the market value of the segregated assets will equal
the amount of the Fund's when-issued commitments. To the extent cash and
securities are segregated, they will not be available for new investments or to
meet redemptions. Securities purchased on a delayed delivery basis may require a
similar segregation of cash or other high grade securities. For a more complete
description of when-issued securities and delayed delivery transactions see the
Statement of Additional Information.
ILLIQUID SECURITIES. Each Fund may invest up to 15% (10% for the Money Market
Fund) of its net assets in securities that are illiquid. Illiquid securities
include securities that have no readily available market quotations and cannot
be disposed of promptly (within seven days) in the normal course of business at
approximately the price at which they are valued. Illiquid securities may
include securities that are subject to restrictions on resale because they have
not been registered under the Securities Act of 1933 (the "1933 Act").
Restricted securities may, in certain circumstances, be resold pursuant to Rule
144A under the 1933 Act, and thus may or may not constitute illiquid securities.
To the extent that qualified institutional buyers become uninterested in
purchasing these restricted securities the level of illiquidity in a Fund may
increase. CIGNA Investments determines the liquidity of the Fund's investments.
Limitations on the resale of restricted securities may have an adverse effect on
their marketability, which may prevent the Fund from disposing of them promptly
at reasonable prices. The Fund may have to bear the expense of registering such
securities for resale, and the risk of substantial delays in effecting such
registrations.
BORROWING. Each Fund may borrow from banks or through reverse repurchase
agreements to the extent permitted by the 1940 Act. If a Fund borrows money, its
share price may be subject to greater fluctuation until the borrowing is paid
off. Under the 1940 Act as currently in effect, a fund may borrow from any
lender only for temporary purposes in an amount not exceeding 5% of its total
assets, and may borrow from a bank in an amount not exceeding 33 1/3% of its
total assets.
FUTURES CONTRACTS. A stock index assigns relative values to the common stocks
included in the index and the index fluctuates with changes in the market values
of the common stocks so included. A stock index futures contract is a bilateral
agreement pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the stock index value at the close of the last trading day of the contract and
the price at which the futures contract is originally struck. There is no
physical delivery of the underlying stocks in the index.
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Generally, a fund will only enter into stock index futures contracts as a hedge
against changes resulting from market conditions in the values of the securities
held or which the fund intends to purchase. When the fund anticipates a
significant market or market sector advance, the purchase of a stock index
futures contract affords a hedge against not participating in such advance.
Conversely, in anticipation of or in a general market or market sector decline
that adversely affects the market values of the fund's portfolio of securities,
the fund may sell stock index futures contracts. The S&P 500 Index Fund's use of
stock index futures is discussed in the prospectus, and includes using available
cash to purchase S&P 500 futures contracts pending investment in the S&P 500 or
to meet anticipated short-term cash needs.
An interest rate futures contract is an agreement between two parties to buy and
sell a debt security for a set price on a future date. A fund generally may
enter into interest rate futures contracts for the purpose of hedging debt
securities in their portfolios or the value of debt securities which the Funds
intend to purchase. For example, if a fund owned long-term debt securities and
interest rates were expected to increase, it might sell interest rate futures
contracts. If, on the other hand, a fund held cash reserves and interest rates
were expected to decline, it might purchase interest rate futures contracts.
In cases of purchases of futures contracts, an amount of cash and cash
equivalents, equal to the market value of the futures contracts (less any
related margin deposits), will be deposited in a segregated account with the
Fund's custodian to collateralize the position and ensure that the use of such
futures contracts is unleveraged. Unlike when a Fund purchases or sells a
security, no price is paid or received by a Fund upon the purchase or sale of a
futures contract. Initially, a Fund will be required to deposit with the
custodian for the Fund for the account of the broker a stated amount, as called
for by a particular contract, of cash or U.S. Treasury bills. This amount is
known as "initial margin." The nature of initial margin in futures transactions
is different from that of margin in securities transactions in that futures
contract margin does not involve the borrowing of funds by the customer to
finance the transactions.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the applicable Fund upon
termination of the futures contract, assuming all contractual obligations have
been satisfied. Subsequent payments, called "variation margin," to and from the
broker will be made on a daily basis as the price of the futures contract
fluctuates making the long and short positions in the futures contract more or
less valuable, a process known as "marking-to-market." For example, when a Fund
has purchased a stock index futures contract and the price of the underlying
stock index has risen, that position will have increased in value and the Fund
will receive from the broker a variation margin payment with respect to that
increase in value. Conversely, where a Fund purchases a stock index futures
contract and the price of the underlying stock index has declined, the position
would be less valuable and the Fund would be required to make a variation margin
payment to the broker.
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Variation margin payments would be made in a similar fashion when a Fund
purchases an interest rate futures contract. At any time prior to expiration of
the futures contract, a Fund may elect to close the position by taking an
opposite position which will operate to terminate the Fund's position in the
futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the Fund and the Fund
realizes a loss or a gain.
OPTIONS ON FUTURES CONTRACTS. An option on a futures contract gives the
purchaser (the Fund) the right, in return for the premium paid, to assume a
position in a futures contract (a long position if the option is a call and a
short position if the option is a put) at a specified exercise price at any time
during the option exercise period. The writer of the option is required upon
exercise to assume an offsetting futures position (a short position if the
option is a call and a long position if the option is a put) at a specified
exercise price at any time during the period of the option. Upon exercise of the
option, the assumption of offsetting futures positions by the writer and holder
of the option will be accompanied by delivery of the accumulated cash balance in
the writer's futures margin account which represents the amount by which the
market price of the futures contract, at exercise, exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of the option on
the futures contract. If an option on a futures contract is exercised on the
last trading date prior to the expiration date of the option, the settlement
will be made entirely in cash equal to the difference between the exercise price
of the option and the closing price of the futures contract on the expiration
date.
The 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
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securities or foreign currency, a Fund will experience either a loss or a gain
on the hedging instrument which will not be completely offset by movements in
the price of the stock, debt securities or foreign currency which are the
subject of the hedge. The use of options on futures contracts involves the
additional risk that changes in the value of the underlying futures contract
will not be fully reflected in the value of the option.
Successful use of hedging instruments by a Fund is also subject to CIGNA
Investments' ability to predict correctly movements in the direction of the
stock market, of interest rates or of foreign exchange rates (foreign
currencies). Because of possible price distortions in the futures and options
markets and because of the imperfect correlation between movements in the prices
of hedging instruments and the investments being hedged, even a correct forecast
by CIGNA Investments of general market trends may not result in a completely
successful hedging transaction.
It is also possible that where a Fund has sold futures contracts to hedge its
portfolio against a decline in the market, the market may advance and the value
of stocks or debt securities held in a Fund's portfolio may decline. If this
occurred, a Fund would lose money on the futures contracts and also experience a
decline in the value of its portfolio securities. Similar risks exist with
respect to foreign currency hedges.
Positions in futures contracts or options may be closed out only on an exchange
on which such contracts are traded. Although the Funds intend to purchase or
sell futures contracts or purchase options only on exchanges or boards of trade
where there appears to be an active market, there is no assurance that a liquid
market on an exchange or board of trade will exist for any particular contract
or at any particular time. If there is not a liquid market at a particular time,
it may not be possible to close a futures position or purchase an option at such
time. In the event of adverse price movements under those circumstances, a Fund
would continue to be required to make daily cash payments of maintenance margin
on its futures positions. The extent to which the Fund may engage in futures
contracts or related options will be limited by Internal Revenue Code
requirements for qualification as a regulated investment company and the Fund's
intent to continue to qualify as such. The result of a hedging program cannot be
foreseen and may cause the portfolio of the Fund to suffer losses which it would
not otherwise sustain.
FOREIGN CURRENCY TRANSACTIONS. Although they generally will not do so, a Fund
holding securities denominated in currency other than U.S. dollars may engage in
currency exchange transactions to protect against uncertainty in the level of
future currency exchange rates.
Generally, Funds may engage in both "transaction hedging" and "position
hedging". When a Fund engages in transaction hedging, the Fund enters into
foreign currency transactions with respect to specific receivables or payables,
generally arising in connection with the purchase or sale of portfolio
securities. A Fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to
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purchase or sell, or the U.S. dollar equivalent of a dividend or interest
payment in a foreign currency. By transaction hedging, a Fund will attempt to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the applicable foreign currency during
the period between the date on which the security is purchased or sold or on
which the dividend or interest payment is declared, and the date on which such
payments are made or received.
A Fund may purchase or sell a foreign currency on a spot (or cash) basis at the
prevailing spot rate in connection with the settlement of transactions in
portfolio securities denominated in that foreign currency. A Fund may also enter
into contracts to purchase or sell foreign currencies at a future date ("forward
contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes a Fund may also purchase exchange-listed call
and put options on foreign currencies. A put option on currency gives the Fund
the right to sell a currency at a specific exercise price. A call option on
currency gives a Fund the right to purchase a currency at a specific exercise
price. The time when call and put options are exercisable depends on whether the
options are American options or European options. American options are
exercisable at anytime during the option period. European options are
exercisable only on a designated date.
When it engages in position hedging, a Fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which its portfolio securities are denominated or an increase in
the value of currency for securities which the Fund expects to purchase, when
the Fund holds cash or short-term investments. In connection with position
hedging, a Fund may purchase put or call options on foreign currency and foreign
currency futures contracts and buy or sell forward contracts and foreign
currency futures contracts. The Funds may also purchase or sell foreign currency
on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio securities involved will not generally be
possible since the future value of such securities in 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.
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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 determines that it is advisable to hedge
a Fund's currency risk, the Funds will have to convert their holdings of foreign
currencies into U.S. dollars from time to time. Although foreign exchange
dealers generally do not charge a fee for conversion, they do realize a profit
based on the difference (the "spread") between the prices at which they are
buying and selling various currencies.
FORWARD CURRENCY CONTRACTS. A forward currency contract is an agreement between
two parties to purchase and sell a specific quantity of a currency at a price
specified at the time of the contract, with delivery and settlement at a
specified future date. In the case of purchases of forward currency contracts,
an amount of cash and cash equivalents, equal to the market value of the
portfolio security sold, will be deposited in a segregated account with the
Trust's Custodian to collateralize the position and ensure that the use of such
contracts is unleveraged.
In the case of a cancelable forward contract, the holder has the unilateral
right to cancel the contract at maturity by paying a specified fee. The
contracts are traded in the interbank market conducted directly between currency
traders (usually large commercial banks and their customers). A forward contract
generally has no deposit requirements, and no commissions are charged at any
stage for trades.
Forward currency contracts are less liquid than currency futures contracts, and
there is an increased risk of default by the counterparty as compared to futures
contracts. Forward currency contracts differ from currency futures contracts in
certain other respects as well. For example, the maturity date of a forward
contract may be any fixed number of days from the date in a given month. Forward
contracts may be in any amounts agreed upon by the parties rather than
predetermined amounts. Also, forward currency contracts are traded directly
between currency traders so no intermediary is required. A forward contract
generally requires no margin or other deposit.
At the maturity of a forward contract, a Fund may either accept or make delivery
of the currency specified in the contract, or at or prior to maturity enter into
a closing transaction involving the purchase or sale of an offsetting contract.
Closing transactions with respect to forward contracts are usually effected with
the currency trader who is a party to the original forward contract. There is no
assurance that the Fund will be able to close a forward contract prior to
maturity and, under such circumstances, the Fund may have exposure to adverse
changes in exchange rates.
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LOANS AND OTHER DIRECT DEBT INSTRUMENTS.
- ---------------------------------------
Direct debt instruments are interests in amounts owed by a corporate,
governmental, or other borrower to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or other
receivables), or to other parties. Direct debt instruments are subject to each
Fund's policies regarding the quality of debt securities.
Purchasers of loans and other forms of direct indebtedness depend primarily upon
the creditworthiness of the borrower for payment of principal and interest.
Direct debt instruments may not be rated by any NRSRO. If a Fund does not
receive scheduled interest or principal payments on such indebtedness, the
Fund's share price and yield could be adversely affected. Loans that are fully
secured offer a Fund more protections than an unsecured loan in the event of
non-payment of scheduled interest or principal. However, there is no assurance
that the liquidation of collateral from a secured loan would satisfy the
borrower's obligation, or that the collateral could be liquidated. Indebtedness
of borrowers whose creditworthiness is poor involves substantially greater risks
and may be highly speculative. Borrowers that are in bankruptcy or restructuring
may never pay off their indebtedness, or may pay only a small fraction of the
amount owed. Direct indebtedness of developing countries also involves a risk
that the government entities responsible for the repayment of the debt may be
unable, or unwilling, to pay interest and repay principal when due.
Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks to a Fund. For
example, if a loan is foreclosed, the Fund could become part owner of any
collateral, and would bear the costs and liabilities associated with owing and
disposing of the collateral. In addition, it is conceivable that under emerging
legal theories of lender liability, the Fund could be held liable as a
co-lender. Direct debt instruments may also involve a risk of insolvency of the
lending bank or other intermediary. Direct debt instruments that are not in the
form of securities may offer less legal protection to a Fund in the event of
fraud or misrepresentation. In the absence of definitive regulatory guidance,
each Fund relies on CIGNA Investments' research in an attempt to avoid
situations where fraud or misrepresentation could adversely affect the Fund.
A loan is often administered by a bank or other financial institution that acts
as agent for all holders. The agent administers the terms of the loan, as
specified in the loan agreement. Unless, under the terms of the loan or other
indebtedness, each Fund has direct recourse against the borrower, it may have to
rely on the agent to apply appropriate credit remedies against a borrower. If
assets held by the agent for the benefit of a Fund were determined to be subject
to the claims of the agent's general creditors, the Fund might incur certain
costs and delays in realizing payment on the loan or loan participation and
could suffer a loss of principal or interest.
Each Fund (except the Money Market Fund, to a limited degree) limits the amount
of total assets that it will invest in any one issuer or in issues
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within the same industry. For purposes of these limitations, each Fund generally
will treat the borrower as the "issuer" of indebtedness held by the Fund. In the
case of loan participations where a bank or other lending institution serves as
financial intermediary between each Fund and the borrower, if the participation
does not shift to the Fund the direct debtor-creditor relationship with the
borrower, SEC interpretations requires the Fund, in appropriate circumstances,
to treat both the lending bank or other lending institution and the borrower as
"issuers" for these purposes. Treating a financial intermediary as an issuer of
indebtedness may restrict a Fund's ability to invest in indebtedness related to
a single financial intermediary, or a group of intermediaries engaged in the
same industry, even if the underlying borrowers represent many different
companies and industries.
SECURITIES LENDING. A Fund may lend securities to parties such as broker-
dealers or institutional investors.
Securities lending allows a Fund to retain ownership of the securities loaned
and, at the same time, to earn additional income. Since there may be delays in
the recovery of loaned securities, or even a loss of rights in collateral
supplied should the borrower fail financially, loans will be made only to
parties deemed by CIGNA Investments, Inc. to be of good standing. Furthermore,
they will only be made if, in CIGNA Investments, Inc.'s judgment, the
consideration to be earned from such loans would justify the risk.
CIGNA Investments understands that it is the current view of the SEC Staff that
a fund may engage in loan transactions only under the following conditions: (1)
the fund must receive 100% collateral in the form of cash or cash equivalents
(e.g. U.S. Treasury bills or notes) from the borrower; (2) the borrower must
increase the collateral whenever the market value of the securities loaned
(determined on a daily basis) rises above the value of the collateral; (3) after
giving notice, the fund must be able to terminate the loan at any time; (4) the
fund must receive reasonable interest on the loan or a flat fee from the
borrower, as well as amounts equivalent to any dividends, interest, or other
distributions on the securities loaned and to any increase in market value; (5)
the fund may pay only reasonable custodian fees in connection with the loan; and
(6) the Board of Trustees must be able to vote proxies on the securities loaned,
either by terminating the loan or by entering into an alternative arrangement
with the borrower.
Cash received through loan transactions may be invested in any security in which
a Fund is authorized to invest. Investing this cash subjects that investment, as
well as the security loaned, to market forces (i.e., capital appreciation or
depreciation).
SOVEREIGN DEBT OBLIGATIONS. A Fund may purchase sovereign debt instruments
issued or guaranteed by foreign governments or their agencies, including debt of
Latin American nations or other developing countries. Sovereign debt may be in
the form of conventional securities or other types of debt instruments such as
loans or loan participations. Sovereign debt of
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developing countries may involve a high degree of risk, and may be in default or
present the risk of default. Governmental entities responsible for repayment of
the debt may be unable or unwilling to repay principal and interest when due,
and may require renegotiation or rescheduling of debt payments. In addition,
prospects for repayment of principal and interest may depend on political as
well as economic factors.
INVESTMENT RESTRICTIONS
- -----------------------
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.
2. Acquire more than 10% of the voting securities of any issuer or more than 10%
of any class of securities of any issuer. (For these purposes, all preferred
stocks of any issuer are regarded as a single class, and all debt securities of
an issuer are regarded as a single class.)
3. Concentrate more than 25% of its assets in any one industry, except that the
Money Market Fund may invest up to 100% of its assets in the domestic banking
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.
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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, provided, however, that repurchase agreements maturing in
more than seven days will not exceed 10% of a Fund's total assets (taken at
current value) and (b) through the lending of its portfolio securities with
respect to not more than 25% of its total assets. (As a matter of policy,
securities loans would be made to broker-dealers pursuant to agreements
requiring that loans be continuously secured by collateral in cash or cash
equivalents at least equal at all times to the value of the securities lent. The
borrower pays to the Fund an amount equal to any dividends or interest received
on the securities lent. The Fund may invest the cash collateral received in
interest-bearing short-term securities or receive a fee from the borrower. The
Fund may call such loans in order to sell the securities involved or to exercise
voting or other rights available to it as beneficial owner of the securities
involved.)
11. Borrow money in excess of one-third of the value (taken at the lower of cost
or current value) of its total assets (not including the amount borrowed) at the
time the borrowing is made, and then only as a temporary measure to facilitate
the meeting of redemption requests (not for leverage) which might otherwise
require the untimely disposition of portfolio investments or for extraordinary
or emergency purposes, except that the Funds 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
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<PAGE>
setting forth the Trust's policy with respect to the issuance of senior
securities.)
12. Pledge, hypothecate, mortgage or otherwise encumber its assets in excess of
one-third of the value of its total assets (taken at the lower of cost or
current value) and then only to secure borrowings permitted by Restriction No.
11 above. (For the purpose of this restriction, collateral arrangements with
respect to margin for a financial futures contract or stock index futures
contract are not deemed to be a pledge of assets.)
13. Purchase or sell mortgages or real estate, although it may purchase
securities of issuers that deal in real estate and may purchase securities that
are secured by interests in real estate.
14. Purchase or sell commodities or commodity contracts, except, however, that 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 Investment Grade
Bond 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.
TAX MATTERS
- -----------
Each series of shares of the Trust is treated as a separate association taxable
as a corporation.
Each Fund intends to qualify under the Internal Revenue Code of 1986 (the
"Code"), as amended, as a regulated investment company ("RIC") for each taxable
year. As of the date hereof, each Fund must, among other things, meet the
following requirements: A. Each Fund must derive at least 90% of its gross
income from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock, securities, foreign
currencies, or other income including but not limited to gains from options,
futures or forward contracts derived with respect to its business of investing
in such stock, securities or currencies. B. Each Fund must 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
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<PAGE>
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
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
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<PAGE>
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.
ACTIVITIES OF AFFILIATED COMPANIES
- ----------------------------------
From time to time, as purchases of securities are made for the portfolios of
companies affiliated with CIGNA Corporation it is possible that two or more
portfolios may simultaneously purchase or sell the same security. To the extent
that two or more such portfolios, buying or selling the same security, increase
the total demand or supply, there may be an adverse effect on the price of such
security or on the amount which the Fund can purchase or sell.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
- ---------------------------------------------------
As of 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, on behalf of
separate accounts exempt from registration under the 19400 Act, and on behalf of
a pension plan for certain CG Life employees. 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 of separate accounts registered as unit investment trusts 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
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<PAGE>
five years and other principal business affiliations. Currently each holds the
equivalent position as Trustee and/or officer of CIGNA Funds Group, 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, c/o
CIGNA Investments, 900 Cottage Grove Road, S- 210, Hartford, CT 06152-2210.
HUGH R. BEATH, 67, Trustee; Advisory Director, AdMedia Corporate Advisors,
Inc. (investment banking); previously Managing Director, Admedia Corporate
Advisors, Inc.; Chairman of the Board of Directors, Beath Advisors, Inc.
(investment advisor).
RUSSELL H. JONES, 54, Trustee; Vice President and Treasurer, Kaman Corporation
(helicopters and aircraft components, industrial products and services);
Trustee, Connecticut Policy and Economic Counsel; Corporator, Hartford Seminary;
Secretary, Bloomfield Chamber of Commerce.
THOMAS C. JONES*, 51, Trustee; President, CIGNA Investment Management;
President and Director, CIGNA Investment Group, Inc. and CII; Director,
CIGNA International Investment Advisors, Ltd. Mr. Jones is also an officer
or director of various other entities which are subsidiaries or affiliates
of CIGNA. Previously President, CIGNA Individual Insurance, a division of
CIGNA; President, CIGNA Reinsurance--Property & Casualty, a division of
CIGNA; Executive Vice President and Director, NAC RE Corporation (property
and casualty reinsurance).
PAUL J. MCDONALD, 54, Trustee; Senior Executive Vice President and Chief
Financial Officer, Friendly Ice Cream Corporation (family restaurants/dairy
products); Chairman, Dean's Advisory Council, University of Massachusetts School
of Management; Director, Springfield YMCA; Trustee, Basketball Hall of Fame;
Regional Director-Western Massachusetts, Bank of Boston. Previously, Senior
Executive Vice President & Chief Administrative Officer Executive Vice
President, Finance and Chief Financial Officer, Friendly Ice Cream Corporation.
ALFRED A. BINGHAM III, 53, Vice President and Treasurer, CIGNA Funds Group,
CIGNA Institutional Funds Group, CIGNA Variable Products Group, CIGNA High
Income Shares and INA Investment Securities, Inc.; Assistant Vice President,
CII.
RICHARD H. FORDE, 45, President, CIGNA Variable Products Group; Senior Managing
Director and President of CIGNA International Investment Advisors, Ltd.;
Chairman of the Board, Trustee and President, CIGNA Funds Group and other
investment companies in CIGNA Funds' complex. Mr. Forde is also an officer or
director of various other entities which are subsidiaries or affiliates of
CIGNA.
Page 23
<PAGE>
JEFFREY S. WINER, 41, Senior Counsel, CIGNA; Vice President and Secretary, CIGNA
Funds Group, CIGNA Institutional Funds Group, CIGNA Variable Products Group,
CIGNA High Income Shares and INA Investment Securities, Inc.; previously
Counsel, CIGNA.
*Trustees identified with an asterisk are considered interested persons 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 PricewaterhouseCoopers LLP, independent
accountants for the Trust, a Contracts Committee which, as part of its duties,
considers the terms and the renewal of the Master Investment Advisory Agreement
with CIGNA Investments and 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 1998:
Page 24
<PAGE>
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Accrued As from Trust and
Aggregate Part of Estimated Annual CIGNA Fund
Name of Person, Compensation Trust Benefits Upon Complex Paid to
Position with Trust from Trust Expense Retirement Trustees(d)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
R. Bruce Albro, (a) $ - $ - $ - $ -
Hugh R. Beath, Trustee (b) - - - -
Russell H. Jones, Trustee - - - -
Thomas C. Jones, Trustee - - - -
Paul J. McDonald, Trustee (c) - - - -
------------ ------------ ------------- -------------
$ $ $ $
============ ============ ============= =============
</TABLE>
- ------------------------
(a) Mr. Albro retired from CIGNA Corporation and resigned from the Trust in
1998.
(b) All but $___ of Mr. Beath's 1998 compensation was deferred under a plan for
all CIGNA funds in which he had an aggregate balance of $________ as of
December 31, 1998.
(c) All but $___ of Mr. McDonald's 1998 compensation was deferred under a plan
for all CIGNA funds in which he had an aggregate balance of $________ as of
December 31, 1998.
(d) There were four (4) investment companies besides the Trust in the CIGNA fund
complex.
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 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 approximately $63 billion. CIGNA Investments's mailing
address is 900 Cottage Grove Road, 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 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.
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<PAGE>
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 1999 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 1999 are not expected to exceed the following amounts:
Office of Office of
the Treasurer the Secretary
------------- -------------
S&P 500 $ ________ $ ________
Index Fund
Money Market Fund $ ________ $ ________
Investment Grade
Bond Fund $ ________ $ ________
In 1998 the costs incurred by the Trust for the Office of the Treasurer and the
Office of the Secretary were $________ and $________, 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: Money Market Fund - 0.35%, Investment Grade Bond Fund - 0.50%, and S&P
500 Index Fund - 0.25%.
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<PAGE>
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: Money Market Fund and Investment Grade Bond Fund - 0.50% and S&P 500
Index Fund - 0.25%.
The S&P 500 Index Fund incurred a management fee payable to CIGNA Investments of
$________, 224,054 and $172,165 for fiscal years 1998, 1997 and 1996,
respectively. The amount payable for 1998 was reduced to $________ due to the
then applicable expense limitation. The amount payable for 1997 was waived and
CIGNA Investments reimbursed the Fund an additional $46,603 due to the then
applicable expense limitation. The amount payable for 1996 was reduced to
$146,301 due to the then applicable expense limitation. The Money Market Fund
incurred a management fee payable to CIGNA Investments of $________, $33,579 and
$14,474 for fiscal years 1998, 1997 and 1996. These amounts were waived and
CIGNA Investments reimbursed the Fund an additional $________, $25,787 and
$30,209 for 1998, 1997 and 1996, respectively, due to 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
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.
CUSTODIAN AND TRANSFER AGENT
- ----------------------------
The Trust's Custodian and Transfer Agent is State Street Bank and Trust Company
("State Street"), Boston, Massachusetts 02107. Under its Custodian Agreement,
State Street maintains the portfolio securities of each Fund, administers the
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<PAGE>
purchases and sales of portfolio securities, collects interest and dividends and
other distributions made on the securities held in the portfolio, determines the
net asset value of shares of each Fund on a daily basis and performs such other
ministerial duties as are included in the Custodian Agreement and Agency
Agreement, copies of which are on file with the Securities and Exchange
Commission.
INDEPENDENT ACCOUNTANTS
- -----------------------
PricewaterhouseCoopers LLP acts as independent accountants for the Trust. Its
offices are at 160 Federal Street, Boston, Massachusetts 02110.
PricewaterhouseCoopers LLP representatives annually perform an audit of the
financial statements of the Funds and provide accounting advice and services
throughout the year. PricewaterhouseCoopers LLP reports its activities and the
results of its audit to the Audit Committee of the Board of Trustees.
PricewaterhouseCoopers LLP also provides certain tax advice to the Trust.
PORTFOLIO TURNOVER AND BROKERAGE ALLOCATION
- -------------------------------------------
It is anticipated that each Fund's annual portfolio turnover will not exceed
100%. With respect to the Money Market Fund and Investment Grade Bond 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 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.
Page 28
<PAGE>
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.
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.
Page 29
<PAGE>
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 1998, 1997 and 1996 totaled $________, $4,338 and $4,940,
respectively, substantially all of which were paid to firms which provided
research services to CIGNA Investments.
As of December 31, 1997, Sanford C. Bernstein & Co., Inc. ("Sanford Bernstein"),
767 Fifth Avenue, New York, NY 10153, reported that it held 6,263,994 shares or
8.66% of the outstanding common stock of CIGNA for the accounts of discretionary
clients who have the right to receive dividends on these shares and any proceeds
from the sale of these shares. Sanford Bernstein also reported sole voting power
as to 3,368,544, shared voting power as to 749,963, and sole dispositive power
as to all of these shares. Wellington Management Company, LLP ("Wellington"), 75
State Street, Boston, MA 02109, reported that as of December 31, 1997 it held
4,276,700 shares, or 5.91% of the outstanding common stock of CIGNA for the
accounts of discretionary clients who have the right to receive dividends on
these shares and any proceeds from the sale of these shares. Wellington also
reported sole voting power as to none, shared voting power as to 323,700, and
shared dispositive power as to all of these shares. Swiss Bank Corporation
("Swiss Bank"), Aeschenplatz 6 CH-4002, Basel, Switzerland, reported on a joint
basis with its subsidiaries, SBC Holding (USA), Inc. ("SBC"), Brinson Partners,
Inc. and Brinson Holdings, Inc. that as of December 31, 1997, Swiss Bank and SBC
had shared voting and dispositive power over 3,868,333 shares, or 5.35% of the
outstanding common stock of CIGNA. Brinson Partners, Inc. and Brinson Holdings,
Inc. reported shared voting and dispositive power over 3,859,472 shares.
CAPITAL STOCK
- -------------
The capitalization of the Trust consists solely of an unlimited number of shares
of beneficial interest with a par value of $0.001 each.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Trust's Master Trust Agreement disclaims liability of the
shareholders, Trustees or officers of the Trust for acts or obligations of the
Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or the Trustees. The Master Trust
Agreement provides for indemnification out of Trust property for all loss and
expense of any shareholder held personally liable for the obligations of the
Trust. The risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust itself
would be unable to meet its obligations and thus should be considered remote.
Shares of each Fund will entitle their holders to one vote per share (with
proportionate voting for fractional shares), irrespective of the relative net
asset value of the shares of any other series of the Trust. On any matter
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<PAGE>
submitted to a vote of shareholders of the Trust, all shares of the Trust then
issued and outstanding shall be voted in the aggregate. However, on matters
affecting an individual series or class of shares, a separate vote of
shareholders of that series or class would be required. Shareholders of a series
or class would not be entitled to vote on any matter which does not affect that
series or class but which would require a separate vote of another series or
class.
When issued, shares of the Funds are fully paid and nonassessable, and have no
preemptive or subscription rights. There are no conversion rights. Shares do not
have cumulative voting rights, which means that in situations in which
shareholders elect Trustees, holders of more than 50% of the shares voting for
the election of Trustees can elect 100% of the Trustees of the Trust and the
holders of less than 50% of the shares voting for the election of Trustees will
not be able to elect any Trustees.
PERFORMANCE INFORMATION
- -----------------------
Total return and yield figures for the Funds are neither fixed nor guaranteed,
and no Fund's principal is insured. Performance quotations reflect historical
information and should not be considered representative of a Fund's performance
for any period in the future. Performance is a function of a number of factors
which can be expected to fluctuate. The Funds may provide performance
information in reports, sales literature and advertisements if accompanied by
performance of your Life Company's separate account. The Funds may also, from
time to time, quote information about the Funds published or aired by
publications or other media entities which contain articles or segments relating
to investment results or other data about one or more of the Funds. The
following is a list of such publications or media entities:
<TABLE>
<S> <C> <C>
Advertising Age Financial Times Kiplinger
Barron's Financial Weekly Money
Barron's/Nelson's Financial World Mutual Fund Forecaster
Best's Review Forbes Nation's Business
Broker World Fortune New York Times
Business Week Global Investor Pensions World
Changing Times Hartford Courant Pensions & Investments
Christian Science Monitor Institutional Investor Personal Investor
Consumer Reports Insurance Forum Philadelphia Inquirer
Economist Insurance Weekly The Times (London)
Equity International International Business USA Today
FACS of the Week Week U.S. News & World Report
Far Eastern Investing Wall Street Journal
Economic Review Investor's Chronicle Washington Post
Financial Adviser Investor's Daily CNN
Financial Planning Journal of the American CNBC
Financial Product News Society of CLU & ChFC PBS
Financial Services Week
</TABLE>
Page 31
<PAGE>
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.
Yield and Total Return Quotations
- ---------------------------------
The standard formula for calculating total return, as described in the
prospectus, is as follows:
P(1+T)n=ERV
Where P = A hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment
at the end of the 1, 5, or 10 year periods (or
fractional portion of such period).
Cumulative total return across a stated period may be calculated as follows:
P(1+V)=ERV
Where P = A hypothetical initial payment of $1,000.
V = cumulative total return.
ERV = ending redeemable value of a hypothetical $1,000 payment
at the end of the stated period.
The average annual total returns for 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, 1998 were as follows:
1 Year 5 Years 10 Years
------ -------- ---------
S&P 500 Index Fund . % . % . %
Money Market Fund . % N/A N/A
Page 32
<PAGE>
Yield Quotations
- ----------------
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 the Money Market Fund,
as described in the prospectus, is as follows:
Y = V1 - Vo x 365
------- ---
Vo 7
Where Y = annualized yield.
Vo = the value of a hypothetical pre-existing account in the
Fund having a balance of one share at the beginning of a
stated seven-day period.
V1 = the value of such an account at the end of the stated
period.
The annualized yield for the Money Market Fund for the 7 days ended December 31,
1998 was 5. %.
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
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, 1998 was 5. %.
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
Page 33
<PAGE>
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 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
Page 34
<PAGE>
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 ratings:
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.
Page 35
<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 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 supporting institutions) have a superior capacity for
repayment of senior short-term debt 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 supporting institutions) have a strong capacity for
repayment of senior short-term debt 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, may 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.
Page 36
<PAGE>
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB-B-CCC-CC - Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Moody's describes its ratings for corporate bonds as follows:
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
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.
Page 37
<PAGE>
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
MUNICIPAL BOND RATINGS--The four highest ratings of Moody's for Municipal Bonds
are Aaa, Aa, A and Baa. Municipal bonds rated Aaa are judged to be of the "best
quality." The rating of Aa is assigned to municipal bonds which are of "high
quality by all standards," but as to which margins of protection or other
elements make long-term risks appear somewhat larger than Aaa-rated municipal
bonds. The Aaa- and Aa-rated municipal bonds comprise what are generally known
as "high-grade bonds." Municipal bonds which are rated A by Moody's possess many
favorable investment attributes and are considered "upper-medium-grade
obligations." Factors giving security to principal and interest of A-rated
municipal bonds are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future. Bonds rated Baa
are considered as "medium-grade" obligations. They are neither highly protected
nor poorly secured. Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time.
The four highest ratings of Standard & Poor's for municipal bonds are AAA
(Prime), AA (High Grade), A (Good Grade) and BBB (Medium Grade). Municipal bonds
rated AAA are "obligations of the highest quality." The rating of AA is accorded
issues with investment characteristics "only slightly less marked than those of
the prime quality issues." 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
Page 38
<PAGE>
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 23. EXHIBITS.
- -----------------
* a. The Second Amended and Restated Master Trust Agreement of
Registrant dated July 28, 1998.
b. The Amended And Restated By-Laws of Registrant dated April
29, 1997, incorporated by reference to Post-Effective
Amendment No. 16 to Registrant's Registration Statement
filed electronically April 30, 1998.
c. 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.
c. (i) Relative to the rights of shareholders, Article 9 of the
Amended and Restated By-Laws of Registrant dated April 29,
1997 as hereinbefore incorporated by reference as Exhibit b.
c. (ii) Relative to the rights of shareholders, the Participation
Agreement among CIGNA Variable Products Group, CIGNA
Financial Services, Inc. and Connecticut General Life
Insurance Company dated as of December 1, 1997, as
hereinafter incorporated by reference in Exhibit h (v).
c. (iii) Relative to the rights of shareholders, the Participation
Agreement among CIGNA Variable Products Group, CIGNA
Financial Services, Inc. and CIGNA Life Insurance Company
dated as of December 1, 1997, as hereinafter incorporated by
reference in Exhibit h (vii).
d. The Master Investment Advisory Agreement dated as of April
26, 1988 between CIGNA Variable Products Group and CIGNA
Investments, Inc., incorporated by reference to Post-
Effective Amendment No. 16 to Registrant's Registration
Statement filed electronically April 30, 1998.
d. (i) 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.
d. (ii) The Side Letter to the Master Investment Advisory Agreement
dated April 30, 1996 between CIGNA Variable Products Group
and CIGNA Investments, Inc., incorporated by reference to
Post-Effective Amendment No. 14 to Registrant's Registration
Statement filed electronically January 28, 1997.
d. (iii) The Side Letter to the Master Investment Advisory Agreement
dated February 25, 1997 between CIGNA Variable Products
Group and CIGNA Investments, Inc., incorporated by reference
to Post-Effective Amendment No. 15 to Registrant's
Registration Statement filed electronically April 10, 1997.
d. (iv) 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.
e. None.
C-1
<PAGE>
f. None.
* g The Custodian Contract dated as of April 15, 1988 between
CIGNA Variable Products Group and State Street Bank and
Trust Company.
* g. (i) The Custodian Fee Schedule Effective January 1, 1999
relative to the Custodian Contract hereinbefore filed as
Exhibit g.
g. (ii) 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.
g. (iii) The Side Letter to the Custodian Contract dated as of
February 25, 1997 between CIGNA Variable Products Group and
State Street Bank and Trust Company, incorporated by
reference to Post-Effective Amendment No. 15 to Registrant's
Registration Statement filed electronically April 10, 1997.
h. 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
Post-Effective Amendment No. 16 to Registrant's Registration
Statement filed electronically April 30, 1998.
h. (i) 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.
h. (ii) The Side Letter to the Transfer Agency and Service Agreement
dated as of February 25, 1997 between CIGNA Variable
Products Group and State Street Bank and Trust Company,
incorporated by reference to Post-Effective Amendment No. 15
to Registrant's Registration Statement filed electronically
April 10, 1997.
h. (iii) The Agreement For Use Of The Term "CIGNA" dated February 4,
1988 between CIGNA Variable Products Group and CIGNA
Corporation, incorporated by reference to Post-Effective
Amendment No. 15 to Registrant's Registration Statement
filed electronically April 10, 1997.
h. (iv) 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.
h. (v) The Participation Agreement dated as of December 1, 1997
among CIGNA Variable Products Group, CIGNA Financial
Services, Inc. and Connecticut General Life Insurance
Company, incorporated by reference to Post-Effective
Amendment No. 16 to Registrant's Registration Statement
filed electronically April 30, 1998.
* h. (vi) Amendment No. 1 to the Participation Agreement dated as of
December 1, 1998 among CIGNA Variable Products Group, CIGNA
Financial Services, Inc. and Connecticut General Life
Insurance Company.
h. (vii) The Participation Agreement dated as of December 1, 1997
among CIGNA Variable Products Group, CIGNA Financial
Services, Inc. and CIGNA Life Insurance Company,
incorporated by reference to Post-Effective Amendment No. 16
to Registrant's Registration Statement filed electronically
April 30, 1998.
* h. (viii) Powers of Attorney.
i. Consent of Counsel, to be filed by amendment.
C-2
<PAGE>
j. Consent of PricewaterhouseCoopers LLP, to be filed by
amendment.
k. None.
l. None.
m. None.
n. Financial Data Schedule, to be filed by amendment.
o. None.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND.
- --------------------------------------------------------------------
As of the date hereof, no person is directly or indirectly controlled by or
under common control with CIGNA Variable Products Group.
ITEM 25. INDEMNIFICATION.
- ------------------------
The Second Amended and Restated Master Trust Agreement, dated July 28, 1998 (the
"Master Trust Agreement"), provides, among other things, for the indemnification
out of Registrant's assets (or the assets of a series of Registrant where
applicable) of the Trustees and officers of Registrant against all liabilities
incurred by them in such capacity, except for liability by reason of wilful
misfeasance, bad faith, gross negligence or reckless disregard of their duties.
Trustees may consult counsel or other experts concerning the meaning and
operation of the Master Trust Agreement, and may rely upon the books and records
of Registrant. Trustees are not liable for errors of judgment, mistakes of fact
or law, or for the negligence of other Trustees or Registrant's officers or
agents.
Trustees are not required to give a bond or other security for the performance
of their duties. Payments in compromise of any action brought against a Trustee
or officer may be paid by Registrant if approved by either a majority of
disinterested Trustees or by independent legal counsel. The right of
indemnification under the Master Trust Agreement is not exclusive of any other
rights to which the Trustees or officers may be entitled.
The Master Trust Agreement also provides that shareholders shall be indemnified
and held harmless by the applicable series of Registrant with respect to actions
brought against them in their capacity as shareholders. Also, the Master Trust
Agreement provides that creditors of a series of Registrant may look only to the
assets of that series for payment; and neither shareholders nor Trustees shall
be personally liable therefor. All instruments executed on behalf of Registrant
are required to contain a statement to the effect of the foregoing.
CIGNA Investments, Inc., Registrant and other investment companies managed by
CIGNA Investments, Inc., their officers, trustees, directors and employees (the
"Insured Parties") are insured under an Investment Management Errors and
Omissions Insurance Policy in the amount of $10,000,000 offered by Lloyd's
Insurance Company, an affiliate of Lloyd's of London, on a joint policy basis
with CIGNA Investments, Inc. and CIGNA International Investment Advisors, Ltd.
In addition, Registrant and other investment companies managed by CIGNA
Investments, Inc. and CIGNA International Investment Advisors, Ltd. are insured
under a Lloyd's Insurance Company Investment Company Blanket Bond with a stated
maximum coverage of $10,000,000. Premiums and policy benefits are allocated
among participating companies pursuant to Rule 17g-1(d) under the Investment
Company Act of 1940, as amended.
- ------------------------
*Filed Herewith
C-3
<PAGE>
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
- -----------------------------------------------------------------
As of the date hereof, CIGNA Investments, Inc. ("CII") serves as investment
adviser to CIGNA Funds Group, CIGNA Institutional Funds Group, CIGNA Variable
Products Group and their series of shares 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 to INA
Investment Securities, Inc. ("IIS"), all of which (except for IIS and CIGNA High
Income Shares) are open-end investment companies, and to certain other clients,
most of which are affiliated with CIGNA Corporation. For a description of the
business of CII, see its most recent Form ADV (File No. 801-18094) filed with
the Securities and Exchange Commission. The principal 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 - 100 Front Street, Suite
300, Worcester, Massachusetts 01601
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.* and
CIGNA Financial Futures, Inc.*
Robert W. Burgess Director and Senior Vice President, CII;
Director, CIGNA International Investment
Advisors, Ltd.**; Chief Financial
Officer, CIGNA Investment Management, a
division of CIGNA Corporation*; Director
and Senior Vice President, CIGNA
Investment Group, Inc.*; Director, CIGNA
Financial Futures, Inc.* and Global
Portfolio Strategies, Inc.*
Thomas C. Jones President and Chief Investment Officer,
CIGNA Investment Management, a division
of CIGNA Corporation*; President and
Director, CII and CIGNA Investment
Group, Inc.*; President, CIGNA
Investment Advisory Company, Inc.*;
Director, CIGNA International Investment
Advisors, Ltd.**, CIGNA Financial
Futures, Inc.* and Global Portfolio
Strategies, Inc.*; Trustee, the Trusts;
Director, IIS.
Mary Louise Casey Senior Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*;
Director Global Portfolio Strategies,
Inc.*
Richard H. Forde Senior Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*;
President, Senior Managing Director and
Director, CIGNA International Investment
Advisors, Ltd.**; Chairman of the Board,
President and Trustee CIGNA Funds Group,
CIGNA High Income Shares, CIGNA
Institutional Funds Group and INA
Investment Securities, Inc.; President
CIGNA Variable Products Group.
C-4
<PAGE>
Malcolm S. Smith Senior Managing Director, CII; Director
and Senior Managing Director, CIGNA
Investment Advisory Company, Inc.*
Philip J. Ward Senior Managing Director, CII; Director
and Senior Managing Director, CIGNA
Investment Advisory Company, Inc.*
Kevin D. Barry Managing Director, CII.
Julia B. Bazenas Managing Director, CII.
Marguerite A. Boslaugh Managing Director, CII.
Susan B. Bosworth Managing Director, CII.
Thomas J. Bowen Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
William C. Carlson Managing Director, CII; previously Vice
President, CII.
Antonio M. Caxide Managing Director, CII and CIGNA
International Investment Advisors,
Ltd.**; previously Vice President, CII
and CIGNA International Investment
Advisors, Ltd.**
Richard H. Chase Managing Director, CII.
Rosemary C. Clarke Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
Rosemary S. Cleaves Managing Director, CII; previously
President and Director, Global Portfolio
Strategies, Inc.*
Robert F. DeLucia Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*;
Director, Global Portfolio Strategies,
Inc.*
Mark V. DePucchio Managing Director, CII; previously Vice
President, CII.
Michael Q. Doyle Managing Director, CII; previously Vice
President, CII.
Lawrence A. Drake Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
Denise T. Duffee Managing Director, CII.
John G. Eisele Managing Director, CII.
Robert Fair Managing Director, CII.
John P. Feeney Managing Director, CII.
Thomas R. Foley Managing Director, CII; previously Vice
President, CII.
C-5
<PAGE>
Keith A. Gollenberg Managing Director, CII; previously Vice
President, CII.
Maurice A. Gordon Managing Director, CII; previously Vice
President, CII.
William J. Grady Managing Director, CII.
Debra J. Height Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
David R. Johnson Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
Richard H. Kupchunos Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
James R. Kuzemchak Managing Director, CII.
Edward Lewis Managing Director, CII.
Timothy J. Lord Managing Director, CII; Vice President,
CIGNA Financial Futures, Inc.*
Richard B. McGauley Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
Bret E. Meck Managing Director, CII.
Stephen J. Olstein Managing Director, CII.
Stephen A. Osborn Managing Director, CII.
Alan C. Petersen Managing Director, CII; Vice President,
CIGNA High Income Shares.
Anthony J. Pierson Managing Director, CII.
Leon Pouncy Managing Director, CII.
Donald F. Rieger, Jr. Managing Director, CII.
Peter F. Roby Managing Director, CII; previously Vice
President, CII.
Frank Sataline, Jr. Managing Director, CII; previously Vice
President, CII.
James G. Schelling Managing Director, CII.
John A. Shaw Managing Director, CII.
Joseph W. Springman Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
C-6
<PAGE>
Susan S. Sullivan Managing Director, CII.
William A. Taylor Managing Director, CII.
George Varga Managing Director, CII.
Victor J. Visockis, Jr. Managing Director, CII; previously Vice
President, CII.
Henry C. Wagner, III Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*;
President, CIGNA Financial Futures,
Inc.*; previously Vice President, CII.
Deborah B. Wiacek Managing Director, CII; previously Vice
President, CII.
Stephen H. Wilson Managing Director, CII.
Victor E. Saliterman Senior Vice President, CII.
Jean M. Anderson Vice President, CII.
Thomas P. Au Vice President, CII.
Andrew Brown Vice President, CII.
Timothy C. Burns Vice president, CII and Global Portfolio
Strategies, Inc.*
John D. Carey Vice President, CII.
David M. Cass Vice President, CII.
R. Thomas Clemmenson Vice President, CII.
Maryanne P. dePreaux Vice President, CII.
Eric C. DiMiceli Vice President, CII.
Kim L. DiPietro Vice President, CII.
Celia R. Dondes Vice President, CII.
Ronald J. Dupont Vice President, CII and CIGNA Investment
Advisory Company, Inc.*
Mark W. Everette Vice President, CII.
Daniel E. Feder Vice President, CII.
Richard L. Fletcher Vice President, CII.
Jonathan S. Frankel Vice President, CII.
Ivy B. Freedman Vice President, CII.
C-7
<PAGE>
Susan M. Grayson Vice President, CII and Global Portfolio
Strategies, Inc.*; previously Director,
Global Portfolio Strategies, Inc.*
Dennis P. Hannigan Vice President, CII.
Amy F. Hatfield Vice President, CII.
John Hurley Vice President, CII.
Chuel D. Hwang Vice President, CII.
William H. Jefferis Vice president, CII.
Edward B. Johns Vice President, CII.
Thomas W. Johnson Vice President, CII.
Thomas J. Keene Vice President, CII.
Joseph R. Kennedy Vice President, CII.
Peter K. Kofoed Vice President, CII.
Mark S. Korinek Vice President, CII.
James R. Lagasse Vice President, CII.
Mary S. Law Vice President, CII.
Margaret Y. Leong Vice President, CII.
Paul T. Martin Vice President, CII.
Daniel McDonough Vice President, CII, CIGNA International
Investment Advisors, Ltd.** and Global
Portfolio Strategies, Inc.*
Dean M. Molinaro Vice President, CII
Linda L. Morel Vice President, CII.
Alpha O. Nicholson, III Vice President, CII; Senior Counsel,
CIGNA companies*.
Ann Marie O'Rourke Vice President, CII.
Pamela S. Peck Vice President, CII.
Elisabeth A. Perenick Vice President, CII.
Scott S. Piccone Vice President, CII.
Elisabeth Piker Vice President, CII.
C-8
<PAGE>
Thomas J. Podgorski Vice President, CII.
Michael J. Riccio Vice President, CII.
Timothy F. Roberts Vice President and Compliance Officer,
CII; Vice President, International
Finance/Global Compliance, CIGNA
Investment Management, a division of
CIGNA Corporation*; Vice President -
Finance and Compliance Officer, CIGNA
International Investment Advisors,
Ltd.**; Compliance Officer, CIGNA
Investment Advisory Company, Inc.*
Alexander Rybchinsky Vice President, CII.
Annette Sanderson Vice President, CII.
Kevin W. Schmitt Vice President, CII.
John R. Schumann Vice President, CII.
Thomas P. Shea, III Vice President, CII.
Philip Spak Vice President, CII.
Marie E. Swartzwelder Vice President, CII and Global Portfolio
Strategies, Inc.*; previously Vice
President, Global Portfolio Strategies,
Inc.*
Carlton C. Taylor Vice President, CII.
Patrick H. Thompson Vice President, CII.
Ruth D. Van Winkle Vice President, CII and CIGNA Investment
Advisory Company, Inc.*
Michael J. Walker Vice President, CII.
Carey A. White Vice President, CII.
William S. Woodsome Vice President, CII.
Alfred A. Bingham III Assistant Vice President, CII; Vice
President and Treasurer, the Trusts and
IIS.
Susan L. Cooper Secretary, CII, CIGNA Investment
Advisory Company*, CG Trust Company* and
Global Portfolio Strategies, Inc.*
CIGNA International Investment Advisors, Ltd. ("CIIA") serves as investment
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, 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:
C-9
<PAGE>
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.*
Robert W. Burgess Director, CIIA; Director and Senior Vice
President, 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.*
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.
Thomas C. Jones Director, CIIA and Global Portfolio
Strategies, 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.*
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.*
Flora Kong Financial Controller and Compliance
Officer, CIIA.
Joel W. Messing Counsel, CIIA; Assistant General
Counsel, CIGNA companies*.
- ------------------------
* 900 Cottage Grove Road, Bloomfield, CT
** Park House, 16 Finsbury Circus, London, England
C-10
<PAGE>
David C. Kopp Secretary, CIIA, CIGNA Investment Group,
Inc.*, Global Portfolio Strategies,
Inc.* and CIGNA Financial Services,
Inc.*; Assistant Corporate Secretary,
CIGNA Corporation*; Corporate Secretary,
Connecticut General Life Insurance
Company*; Assistant General Counsel,
CIGNA companies*.
ITEM 27. PRINCIPAL UNDERWRITERS.
- -------------------------------
Registrant has no principal underwriter. CIGNA Financial Services, 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 series of CIGNA Variable Products Group.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
- -----------------------------------------
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, as amended, (15 U.S.C. 80a-30(a)) and the Rules
(17 CFR 270.31a-1 to 31a-3) promulgated thereunder and records relating to
shareholders are maintained by State Street Bank and Trust Company, Boston,
Massachusetts. Registrant's corporate records and financial records are
maintained c/o CIGNA Investments, Inc., 900 Cottage Grove Road, Bloomfield, CT
06002.
ITEM 29. MANAGEMENT SERVICES.
- ----------------------------
Not Applicable
ITEM 30. UNDERTAKINGS.
- ---------------------
Not Applicable.
______________________
* 900 Cottage Grove Road, Bloomfield, CT
C-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, Registrant, CIGNA Variable
Products Group has duly caused this Amendment No. 17 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 12th day of February,
1999.
CIGNA VARIABLE PRODUCTS GROUP
Richard H. Forde
President
By: /s/ Jeffrey S. Winer
_____________________________________
Jeffrey S. Winer
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 17 to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
Richard H. Forde President February 12, 1999.
(principal executive
officer
By: /s/ Jeffrey S. Winer
____________________________
Jeffrey S. Winer
Attorney-in-Fact
/s/ Alfred A. Bingham III Treasurer February 12, 1999.
____________________________ (principal
Alfred A. Bingham III financial officer
and principal
accounting officer)
This Amendment No. 17 to the Registration Statement has also been signed
below by Jeffrey S. Winer, Attorney-in-Fact, on behalf of the following Trustees
on the date indicated, such Trustees being all of the Trustees currently holding
the office of Trustee of Registrant.
Hugh R. Beath Thomas C. Jones
Russell H. Jones Paul J. McDonald
By: /s/ Jeffrey S. Winer February 12, 1999.
____________________________
Jeffrey S. Winer
C-12
<PAGE>
SECURITIES ACT FILE NO. 33-20333
INVESTMENT COMPANY ACT FILE NO. 811-5489
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
_
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 | |
-
_
Pre-Effective Amendment | |
-
_
Post-Effective Amendment No. 17 |X|
-
and
_
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 | |
-
_
Amendment No. 17 |X|
-
CIGNA VARIABLE PRODUCTS GROUP
(Exact Name of Registrant as Specified in Charter)
100 FRONT STREET, SUITE 300, WORCESTER, MA 01601
(Address of Principal Executive Office)
EXHIBITS
<PAGE>
EXHIBIT INDEX
a. The Second Amended and Restated Master Trust Agreement of
Registrant dated July 28, 1998.
g. The Custodian Contract dated as of April 15, 1988 between CIGNA
Variable Products Group and State Street Bank and Trust Company.
g. (i) The Custodian Fee Schedule Effective January 1, 1999 relative to
the Custodian Contract hereinbefore filed as Exhibit g.
h. (vi) Amendment No. 1 to the Participation Agreement dated as of
December 1, 1998 among CIGNA Variable Products Group, CIGNA
Financial Services, Inc. and Connecticut General Life Insurance
Company.
h. (viii) Powers of Attorney.
<PAGE>
Exhibit a
SECOND AMENDED AND RESTATED CIGNA VARIABLE PRODUCTS GROUP
MASTER TRUST AGREEMENT
JULY 28, 1998
(C)1995 GOODWIN, PROCTER & HOaR
ALL RIGHTS RESERVED
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I - NAME, PRINCIPAL BUSINESS OFFICE AND DEFINITIONS.................. 1
Section 1.1 Name.............................................. 1
Section 1.2 Principal Business Office......................... 1
Section 1.3 Definitions....................................... 1
(a) "By-Laws"......................................... 1
(b) "class"........................................... 1
(c) "Commission"...................................... 1
(d) "Declaration of Trust"............................ 2
(e) "1940 Act"........................................ 2
(f) "securities" or "security"........................ 2
(g) "Shareholder"..................................... 2
(h) "Shares".......................................... 2
(i) "Sub-Trust" or "Series"........................... 2
(j) "Trust"........................................... 2
(k) "Trustees"........................................ 2
ARTICLE II - PURPOSE OF TRUST................................................ 2
ARTICLE III - THE TRUSTEES................................................... 2
Section 3.1 Number, Designation, Election, Term, etc.......... 2
(a) Trustees.......................................... 2
(b) Number............................................ 2
(c) Election and Term................................. 3
(d) Resignation and Retirement........................ 3
(e) Removal........................................... 3
(f) Vacancies......................................... 3
(g) Effect of Death, Resignation, etc................. 3
(h) No Accounting..................................... 3
Section 3.2 Powers of Trustees................................ 4
(a) Investments....................................... 5
(b) Disposition of Assets............................. 5
(c) Ownership Powers.................................. 5
(d) Subscription...................................... 5
(e) Form of Holding................................... 5
(f) Reorganization, etc............................... 5
(g) Voting Trusts, etc................................ 5
(h) Compromise........................................ 5
(i) Partnerships, etc................................. 5
(j) Borrowing and Security............................ 5
(i)
<PAGE>
(k) Guarantees, etc................................... 6
(l) Insurance......................................... 6
(m) Pensions, etc..................................... 6
(n) Distribution Plans................................ 6
Section 3.3 Certain Contracts................................. 6
(a) Advisory.......................................... 7
(b) Administration.................................... 7
(c) Distribution...................................... 7
(d) Custodian and Depository.......................... 7
(e) Transfer and Dividend Disbursing Agency........... 7
(f) Shareholder Servicing............................. 7
(g) Accounting........................................ 7
Section 3.4 Payment of Trust Expenses and Compensation of
Trustees.......................................... 8
Section 3.5 Ownership of Assets of the Trust.................. 8
ARTICLE IV - SHARES........................................................... 8
Section 4.1 Description of Shares.............................. 8
Section 4.2 Establishment and Designation of Sub-Trusts and
Classes........................................... 10
(a) Assets Belonging to Sub-Trusts.................... 10
(b) Liabilities Belonging to Sub-Trusts............... 11
(c) Dividends......................................... 11
(d) Liquidation....................................... 12
(e) Voting............................................ 12
(f) Redemption by Shareholder......................... 12
(g) Redemption by Trust............................... 13
(h) Net Asset Value................................... 13
(i) Transfer.......................................... 13
(j) Equality.......................................... 13
(k) Fractions......................................... 14
(l) Conversion Rights................................. 14
(m) Class Differences................................. 14
(n) Termination of Sales...............................14
Section 4.3 Ownership of Shares............................... 14
Section 4.4 Investments in the Trust.......................... 14
Section 4.5 No Pre-emptive Rights............................. 15
Section 4.6 Status of Shares and Limitation of Personal
Liability......................................... 15
Section 4.7 No Appraisal Rights............................... 15
ARTICLE V - SHAREHOLDERS' VOTING POWERS AND MEETINGS......................... 15
Section 5.1 Voting Powers..................................... 15
Section 5.2 Meetings.......................................... 16
Section 5.3 Record Dates...................................... 16
Section 5.4 Quorum and Required Vote.......................... 16
Section 5.5 Action by Written Consent......................... 17
Section 5.6 Inspection of Records............................. 17
(ii)
<PAGE>
Section 5.7 Additional Provisions............................. 17
Section 5.8 Shareholder Communications........................ 17
ARTICLE VI - LIMITATION OF LIABILITY; INDEMNIFICATION........................ 18
Section 6.1 Trustees, Shareholders, etc. Not Personally Liable;
Notice............................................ 18
Section 6.2 Trustee's Good Faith Action; Expert Advice; No
Bond or Surety.................................... 18
Section 6.3 Indemnification of Shareholders................... 18
Section 6.4 Indemnification of Trustees, Officers, etc........ 19
Section 6.5 Compromise Payment................................ 19
Section 6.6 Indemnification Not Exclusive, etc................ 20
Section 6.7 Liability of Third Persons Dealing with Trustees.. 20
ARTICLE VII - MISCELLANEOUS.................................................. 20
Section 7.1 Duration and Termination of Trust................. 20
Section 7.2 Reorganization.................................... 20
Section 7.3 Amendments........................................ 21
Section 7.4 Filing of Copies; References; Headings............ 21
Section 7.5 Applicable Law............................ ....... 22
Section 7.6 Name of Trust............................ ........ 22
Section 7.7 Integration....................................... 22
(iii)
<PAGE>
SECOND AMENDED AND RESTATED MASTER TRUST AGREEMENT
SECOND AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST made at
Springfield, Massachusetts this 28th day of July, 1998, by the Trustees
hereunder, and by the holders of shares of beneficial interest to be issued
hereunder as hereinafter provided, which amends and restates the First Amended
And Restated Master Trust Agreement dated as of March 1, 1996, as amended.
W I T N E S S E T H:
WHEREAS the Trustees of CIGNA Variable Products Group (the "Trust")
desire to amend the First Amended And Restated Master Trust Agreement dated as
of March 1, 1996, as amended (the "Master Trust Agreement") to change the
address of the principal business office of the Trust and to make certain other
changes as set forth herein.
NOW, THEREFORE, the Trustees hereby amend and restate the Master Trust
Agreement in its entirety by adopting this Second Amended and Restated Master
Trust Agreement, which shall supersede the Master Trust Agreement and be the
governing instrument of the Trust from and after the date hereof, and declare
that they will hold all cash, securities and other assets which they may from
time to time acquire in any manner as Trustees hereunder IN TRUST to manage and
dispose of the same upon the following terms and conditions for the benefit of
the holders from time to time of shares of beneficial interest in this Trust and
the Sub-Trusts as hereinafter set forth.
ARTICLE I - NAME, PRINCIPAL BUSINESS OFFICE AND DEFINITIONS
--------- -----------------------------------------------
Section 1.1 Name. This Trust shall be known as "CIGNA VARIABLE
----
PRODUCTS GROUP" and the Trustees shall conduct the business of the Trust under
that name or any other name or names as they may from time to time determine.
Section 1.2 Principal Business Office. The principal business
-------------------------
office of the Trust shall be located at 100 Front Street, Suite 300, Worcester,
Massachusetts 01601 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
business office, the Trustees shall notify, in the appropriate manner, the
Secretary of The Commonwealth of Massachusetts and the Clerk of the city of
where the Trust is to be located as well as any other governmental office where
such filing may from time to time be required.
Section 1.3 Definitions. Whenever used herein, unless otherwise
-----------
required by the context or specifically provided:
(a) "By-Laws" shall mean the By-Laws of the Trust as
amended from time to time;
(b) "class" refers to any class of Shares of any Series
or Sub-Trust established and designated under or in accordance with the
provisions of Article IV;
(c) "Commission" shall have the meaning given it in the
1940 Act;
<PAGE>
(d) "Declaration of Trust" shall mean this Agreement and
Declaration of Trust as amended or restated from time to time;
(e) "1940 Act" refers to the Investment Company Act of
1940 and the Rules and Regulations thereunder, all as amended from time to time;
(f) "securities" or "security" shall mean and include,
but shall not be limited to, those securities described in Section 2(a)(36) of
the 1940 Act;
(g) "Shareholder" means a record owner of Shares;
(h) "Shares" refers to the transferable units of interest
into which the beneficial interest in the Trust and each Sub-Trust of the Trust
and/or any class of any Sub-Trust (as the context may require) shall be divided
from time to time;
(i) "Sub-Trust" or "Series" refers to a series of Shares
established and designated under or in accordance with the provisions of Article
IV;
(j) "Trust" refers to the Massachusetts business trust
established by this Declaration of Trust, as amended from time to time,
inclusive of each and every Sub-Trust established hereunder; and
(k) "Trustees" refers to the Trustees of the Trust and of
each Sub-Trust hereunder named herein or elected in accordance with Article III.
ARTICLE II - PURPOSE OF TRUST
---------- ----------------
The purpose of the Trust is to operate as an investment company and to
offer Shareholders of the Trust and each Sub-Trust of the Trust one or more
investment programs primarily in securities
and debt instruments.
ARTICLE III - THE TRUSTEES
---------- ------------
Section 3.1 Number, Designation, Election, Term, etc.
-----------------------------------------
(a) Trustees. The initial Trustees hereof and of each
--------
Sub-Trust hereunder, as of the date of this Second Amended And Restated Master
Trust Agreement, shall be R. Bruce Albro, Hugh R. Beath, Russell H. Jones,
Thomas C. Jones and Paul J. McDonald.
(b) Number. The Trustees serving as such, whether named
------
above or hereafter becoming Trustees, may increase or decrease the number of
Trustees to a number other than the number theretofore determined. No decrease
in the number of Trustees shall have the effect of removing any Trustee from
office prior to the expiration of such Trustee's term, but the number of
Trustees may be decreased in conjunction with the removal of a Trustee pursuant
to subsection (e) of this Section 3.1.
2
<PAGE>
(c) Election and Term. Trustees in addition to those
-----------------
named herein may become such by election by Shareholders or the Trustees in
office pursuant to Section 3.1(f). Each Trustee, whether named above or
hereafter becoming a Trustee, shall serve as a Trustee of the Trust and of
each Sub-Trust hereunder during the lifetime of this Trust and until its
termination as hereinafter provided except as such Trustee sooner dies, resigns,
retires or is removed. Subject to Section 16(a) of the 1940 Act, the Trustees
may elect their own successors and may, pursuant to Section 3.1(f) hereof,
appoint Trustees to fill vacancies.
(d) Resignation and Retirement. Any Trustee may resign or
--------------------------
retire as a Trustee, by written instrument signed by such Trustee and delivered
to the other Trustees or to any officer of the Trust, and such resignation or
retirement shall take effect upon such delivery or upon such later date as is
specified in such instrument and shall be effective as to the Trust and each
Sub-Trust hereunder.
(e) Removal. Any Trustee may be removed with or without
-------
cause at any time: (i) by written instrument, signed by at least two-thirds of
the number of Trustees in office immediately prior to such removal, specifying
the date upon which such removal shall become effective; or (ii) by vote of
Shareholders holding not less than two-thirds of the Shares then outstanding,
cast in person or by proxy at any meeting called for the purpose; or (iii) by a
written declaration signed by Shareholders holding not less than two-thirds of
the Shares then outstanding and filed with the Trust's custodian. Any such
removal shall be effective as to the Trust and each Sub-Trust hereunder.
(f) Vacancies. Any vacancy or anticipated vacancy
---------
resulting from any reason, including without limitation the death, resignation,
retirement, removal or incapacity of any of the Trustees, or resulting from an
increase in the number of Trustees by the other Trustees may (but so long as
there are at least two remaining Trustees, need not unless required by the 1940
Act) be filled by a majority of the remaining Trustees, subject to the
provisions of Section 16(a) of the 1940 Act, through the appointment in writing
of such other person as such remaining Trustees in their discretion shall
determine and such appointment shall be effective upon the written acceptance of
the person named therein to serve as a Trustee and agreement by such person to
be bound by the provisions of this Declaration of Trust, except that any such
appointment in anticipation of a vacancy to occur by reason of retirement,
resignation or increase in number of Trustees to be effective at a later date
shall become effective only at or after the effective date of said retirement,
resignation or increase in number of Trustees. As soon as any Trustee so
appointed shall have accepted such appointment and shall have agreed in writing
to be bound by this Declaration of Trust and the appointment is effective, the
Trust estate shall vest in the new Trustee, together with the continuing
Trustees, without any further act or conveyance.
(g) Effect of Death, Resignation, etc. The death,
----------------------------------
resignation, retirement, removal or incapacity of the Trustees, or any one of
them, shall not operate to annul or terminate the Trust or any Sub-Trust
hereunder or to revoke or terminate any existing agency or contract created or
entered into pursuant to the terms of this Declaration of Trust.
(h) No Accounting. Except to the extent required by the
-------------
1940 Act or under circumstances which would justify removal for cause, no person
ceasing to be a Trustee as a result of death, resignation, retirement, removal
or incapacity (nor the estate of any such person) shall be required to make an
accounting to the Shareholders or remaining Trustees upon such cessation.
3
<PAGE>
Section 3.2 Powers of Trustees. Subject to the provisions of this
------------------
Declaration of Trust, the business of the Trust shall be managed by the
Trustees, and they shall have all powers necessary or convenient to carry out
that responsibility and the purpose of the Trust. The Trustees in all instances
shall act as principals, and are and shall be free from the control of the
Shareholders. The Trustees shall have full power and authority to do any and all
acts and to make and execute any and all contracts and instruments that they may
consider necessary or appropriate in connection with the management of the
Trust. The Trustees shall not be bound or limited by present or future laws or
customs with regard to investment by trustees or fiduciaries, but shall have
full authority and absolute power and control over the assets of the Trust and
the business of the Trust to the same extent as if the Trustees were the sole
owners of the assets of the Trust and the business in their own right, including
such authority, power and control to do all acts and things as they, in their
uncontrolled discretion, shall deem proper to accomplish the purposes of this
Trust. Without limiting the foregoing, the Trustees may adopt By-Laws not
inconsistent with this Declaration of Trust providing for the conduct of the
business and affairs of the Trust and may amend and repeal them to the extent
that such By-Laws do not reserve that right to the Shareholders; they may sue or
be sued in the name of the Trust; they may from time to time in accordance with
the provisions of Section 4.1 hereof establish Sub-Trusts, each such Sub-Trust
to operate as a separate and distinct investment medium and with separately
defined investment objectives and policies and distinct investment purposes;
they may from time to time in accordance with the provisions of Section 4.1
hereof establish classes of Shares of any Series or Sub-Trust or divide the
Shares of any Series or Sub-Trust into classes; they may as they consider
appropriate elect and remove officers and appoint and terminate agents and
consultants and hire and terminate employees, any one or more of the foregoing
of whom may be a Trustee, and may provide for the compensation of all of the
foregoing; they may appoint from their own number, and terminate, any one or
more committees consisting of two or more Trustees, including without implied
limitation an executive committee, which may, when the Trustees are not in
session and subject to the 1940 Act, exercise some or all of the power and
authority of the Trustees as the Trustees may determine; in accordance with
Section 3.3 they may employ one or more advisers, administrators, depositories
and custodians and may authorize any depository or custodian to employ
subcustodians or agents and to deposit all or any part of such assets in a
system or systems for the central handling of securities and debt instruments,
retain transfer, dividend, accounting or Shareholder servicing agents or any of
the foregoing, provide for the distribution of Shares by the Trust through one
or more distributors, principal underwriters or otherwise, and set record dates
or times for the determination of Shareholders or various of them with respect
to various matters; they may compensate or provide for the compensation of the
Trustees, officers, advisers, administrators, custodians, other agents,
consultants and employees of the Trust or the Trustees on such terms as they
deem appropriate; and in general they may delegate to any officer of the Trust,
to any committee of the Trustees and to any employee, adviser, administrator,
distributor, depository, custodian, transfer and dividend disbursing agent, or
any other agent or consultant of the Trust such authority, powers, functions and
duties as they consider desirable or appropriate for the conduct of the business
and affairs of the Trust, including without implied limitation, the power and
authority to act in the name of the Trust and any Sub-Trust and of the Trustees,
to sign documents and to act as attorney-in-fact for the Trustees.
Without limiting the foregoing and to the extent not inconsistent with
the 1940 Act or other applicable law, the Trustees shall have power and
authority for and on behalf of the Trust and each
separate Sub-Trust established hereunder:
4
<PAGE>
(a) Investments. To invest and reinvest cash and other
-----------
property, and to hold cash or other property uninvested without in any event
being bound or limited by any present or future law or custom in regard to
investments by trustees;
(b) Disposition of Assets. To sell, exchange, lend,
---------------------
pledge, mortgage, hypothecate, write options on and lease any or all of the
assets of the Trust;
(c) Ownership Powers. To vote or give assent, or exercise
----------------
any rights of ownership, with respect to stock or other securities, debt
instruments or property; and to execute and deliver proxies or powers of
attorney to such person or persons as the Trustees shall deem proper, granting
to such person or persons such power and discretion with relation to securities,
debt instruments or property as the Trustees shall deem proper;
(d) Subscription. To exercise powers and rights of
------------
subscription or otherwise which in any manner arise out of ownership of
securities or debt instruments;
(e) Form of Holding. To hold any security, debt
---------------
instrument or property in a form not indicating any trust, whether in bearer,
unregistered or other negotiable form, or in the name of the Trustees or of the
Trust or of any Sub-Trust or in the name of a custodian, subcustodian or other
depository or a nominee or nominees or otherwise;
(f) Reorganization, etc. To consent to or participate in
-------------------
any plan for the reorganization, consolidation or merger of any corporation or
issuer, any security or debt instrument of which is or was held in the Trust; to
consent to any contract, lease, mortgage, purchase or sale of property by such
corporation or issuer, and to pay calls or subscriptions with respect to any
security or debt instrument held in the Trust;
(g) Voting Trusts, etc. To join with other holders of any
------------------
securities or debt instruments in acting through a committee, depositary, voting
trustee or otherwise, and in that connection to deposit any security or debt
instrument with, or transfer any security or debt instrument to, any such
committee, depositary or trustee, and to delegate to them such power and
authority with relation to any security or debt instrument (whether or not so
deposited or transferred) as the Trustees shall deem proper, and to agree to
pay, and to pay, such portion of the expenses and compensation of such
committee, depositary or trustee as the Trustees shall deem proper;
(h) Compromise. To compromise, arbitrate or otherwise
----------
adjust claims in favor of or against the Trust or any Sub-Trust or any matter in
controversy, including but not limited to claims for taxes;
(i) Partnerships, etc. To enter into joint ventures,
-----------------
general or limited partnerships and any other combinations or associations;
(j) Borrowing and Security. To borrow funds and to
----------------------
mortgage and pledge the assets of the Trust or any part thereof to secure
obligations arising in connection with such borrowing;
5
<PAGE>
(k) Guarantees, etc. To endorse or guarantee the payment
---------------
of any notes or other obligations of any person; to make contracts of guaranty
or suretyship, or otherwise assume liability for payment thereof; and to
mortgage and pledge the Trust property or any part thereof to secure any of or
all such obligations;
(l) Insurance. To purchase and pay for entirely out of
---------
Trust property such insurance and/or bonding as they may deem necessary or
appropriate for the conduct of the business, including, without limitation,
insurance policies insuring the assets of the Trust and payment of distributions
and principal on its portfolio investments, and insurance policies insuring the
Shareholders, Trustees, officers, employees, agents, consultants, investment
advisers, managers, administrators, distributors, principal underwriters, or
independent contractors, or any thereof (or any person connected therewith), of
the Trust individually against all claims and liabilities of every nature
arising by reason of holding, being or having held any such office or position,
or by reason of any action alleged to have been taken or omitted by any such
person in any such capacity, including any action taken or omitted that may be
determined to constitute negligence, whether or not the Trust would have the
power to indemnify such person against such liability; and
(m) Pensions, etc. To pay pensions for faithful service,
-------------
as deemed appropriate by the Trustees, and to adopt, establish and carry out
pension, profit-sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions, including the
purchasing of life insurance and annuity contracts as a means of providing such
retirement and other benefits, for any or all of the Trustees, officers,
employees and agents of the Trust.
(n) Distribution Plans. To adopt on behalf of the Trust
------------------
or any Sub-Trust with respect to any class thereof a plan of distribution and
related agreements thereto pursuant to the terms of Rule 12b-1 of the 1940 Act
and to make payments from the assets of the Trust or the relevant Sub-Trust or
Sub-Trusts pursuant to said Rule 12b-1 Plan.
Except as otherwise provided by the 1940 Act or other applicable law,
this Declaration of Trust or the By-Laws, any action to be taken by the Trustees
on behalf of or with respect to the Trust or any Sub-Trust or class thereof may
be taken by a majority of the Trustees present at a meeting of Trustees (a
quorum, consisting of at least one-half of the Trustees then in office, being
present), within or without Massachusetts, including any meeting held by means
of a conference telephone or other communications equipment by means of which
all persons participating in the meeting can hear each other at the same time,
and participation by such means shall constitute presence in person at a
meeting, or by written consents of a majority of the Trustees then in office (or
such larger or different number as may be required by the 1940 Act or other
applicable law).
Section 3.3 Certain Contracts. Subject to compliance with the
-----------------
provisions of the 1940 Act, but notwithstanding any limitations of present and
future law or custom in regard to delegation of powers by trustees generally,
the Trustees may, at any time and from time to time and without limiting the
generality of their powers and authority otherwise set forth herein, enter into
one or more contracts with any one or more corporations, trusts, associations,
partnerships, limited partnerships, other type of organizations, or individuals
(a "Contracting Party"), to provide for the performance and assumption of some
or all of the following services, duties and responsibilities to, for or on
behalf of the Trust and/or any Sub-Trust, and/or the Trustees, and to provide
for the performance and
6
<PAGE>
assumption of such other services, duties and responsibilities in addition to
those set forth below as the Trustees may determine appropriate:
(a) Advisory. Subject to the general supervision of the
--------
Trustees and in conformity with the stated policy of the Trustees with respect
to the investments of the Trust or of the assets belonging to any Sub-Trust of
the Trust (as that phrase is defined in subsection (a) of Section 4.2), to
manage such investments and assets, make investment decisions with respect
thereto, and to place purchase and sale orders for portfolio transactions
relating to such investments and assets;
(b) Administration. Subject to the general supervision of
--------------
the Trustees and in conformity with any policies of the Trustees with respect to
the operations of the Trust and each Sub-Trust (including each class thereof),
to supervise all or any part of the operations of the Trust and each Sub-Trust,
and to provide all or any part of the administrative and clerical personnel,
office space and office equipment and services appropriate for the efficient
administration and operations of the Trust and each Sub-Trust;
(c) Distribution. To distribute the Shares of the Trust
------------
and each Sub-Trust (including any classes thereof), to be principal underwriter
of such Shares, and/or to act as agent of the Trust and each Sub-Trust in the
sale of Shares and the acceptance or rejection of orders for the purchase of
Shares;
(d) Custodian and Depository. To act as depository for
------------------------
and to maintain custody of the property of the Trust and each Sub-Trust and
accounting records in connection therewith;
(e) Transfer and Dividend Disbursing Agency. To maintain
---------------------------------------
records of the ownership of outstanding Shares, the issuance and redemption and
the transfer thereof, and to disburse any dividends declared by the Trustees and
in accordance with the policies of the Trustees and/or the instructions of any
particular Shareholder to reinvest any such dividends;
(f) Shareholder Servicing. To provide service with
---------------------
respect to the relationship of the Trust and its Shareholders, records with
respect to Shareholders and their Shares, and similar matters; and
(g) Accounting. To handle all or any part of the
----------
accounting responsibilities, whether with respect to the Trust's properties,
Shareholders or otherwise.
The same person may be the Contracting Party for some or all of the
services, duties and responsibilities to, for and of the Trust and/or the
Trustees, and the contracts with respect thereto may contain such terms
interpretive of or in addition to the delineation of the services, duties and
responsibilities provided for, including provisions that are not inconsistent
with the 1940 Act relating to the standard of duty of and the rights to
indemnification of the Contracting Party and others, as the Trustees may
determine. Nothing herein shall preclude, prevent or limit the Trust or a
Contracting Party from entering into sub-contractual arrangements relating to
any of the matters referred to in Sections 3.3(a) through (g) hereof.
The fact that:
7
<PAGE>
(i) any of the Shareholders, Trustees or officers of
the Trust is a shareholder, director, officer, partner, trustee,
employee, manager, adviser, principal underwriter or distributor or
agent of or for any Contracting Party, or of or for any parent or
affiliate of any Contracting Party or that the Contracting Party or any
parent or affiliate thereof is a Shareholder or has an interest in the
Trust or any Sub-Trust, or that
(ii) any Contracting Party may have a contract
providing for the rendering of any similar services to one or more
other corporations, trusts, associations, partnerships, limited
partnerships or other organizations, or have other business or
interests, shall not affect the validity of any contract for the
performance and assumption of services, duties and responsibilities to,
for or of the Trust or any Sub-Trust and/or the Trustees or disqualify
any Shareholder, Trustee or officer of the Trust from voting upon or
executing the same or create any liability or accountability to the
Trust, any Sub-Trust or its Shareholders, provided that in the case of
any relationship or interest referred to in the preceding clause (i) on
the part of any Trustee or officer of the Trust either (x) the material
facts as to such relationship or interest have been disclosed to or are
known by the Trustees not having any such relationship or interest and
the contract involved is approved in good faith by a majority of such
Trustees not having any such relationship or interest (even though such
unrelated or disinterested Trustees are less than a quorum of all of
the Trustees), (y) the material facts as to such relationship or
interest and as to the contract have been disclosed to or are known by
the Shareholders entitled to vote thereon and the contract involved is
specifically approved in good faith by vote of the Shareholders, or (z)
the specific contract involved is fair to the Trust as of the time it
is authorized, approved or ratified by the Trustees or by the
Shareholders.
Section 3.4 Payment of Trust Expenses and Compensation of
---------------------------------------------
Trustees. The Trustees are authorized to pay or to cause to be paid out of the
- --------
principal or income of the Trust or any Sub-Trust, or partly out of principal
and partly out of income, and to charge or allocate the same to, between or
among such one or more of the Sub-Trusts and/or one or more classes of Shares
thereof that may be established and designated pursuant to Article IV, as the
Trustees deem fair, all expenses, fees, charges, taxes and liabilities incurred
or arising in connection with the Trust, any Sub-Trust and/or any class of
Shares thereof, or in connection with the management thereof, including, but not
limited to, the Trustees' compensation and such expenses and charges for the
services of the Trust's officers, employees, investment adviser, administrator,
distributor, principal underwriter, auditor, counsel, depository, custodian,
transfer agent, dividend disbursing agent, accounting agent, Shareholder
servicing agent, and such other agents, consultants, and independent contractors
and such other expenses and charges as the Trustees may deem necessary or proper
to incur. Without limiting the generality of any other provision hereof, the
Trustees shall be entitled to reasonable compensation from the Trust for their
services as Trustees and may fix the amount of such compensation.
Section 3.5 Ownership of Assets of the Trust. Title to all of the
--------------------------------
assets of the Trust and of each Sub-Trust shall at all times be considered as
vested in the Trustees.
ARTICLE IV - SHARES
---------- ------
Section 4.1 Description of Shares. The beneficial interest in the
---------------------
Trust shall be divided into Shares, all without par value, but the Trustees
shall have the authority from time to time to issue Shares in one or more Series
(each of which Series of Shares shall represent the beneficial interest
8
<PAGE>
in a separate and distinct Sub-Trust of the Trust, including without limitation
each Sub-Trust specifically established and designated in Section 4.2), as they
deem necessary or desirable. For all purposes under this Declaration of Trust or
otherwise, including, without implied limitation, (i) with respect to the rights
of creditors and (ii) for purposes of interpreting the relevant rights of each
Sub-Trust and the Shareholders of each Sub-Trust, each Sub-Trust established
hereunder shall be deemed to be a separate trust. The Trustees shall have
exclusive power without the requirement of Shareholder approval to establish and
designate such separate and distinct Sub-Trusts, and to fix and determine the
relative rights and preferences as between the shares of the separate Sub-Trusts
as to right of redemption and the price, terms and manner of redemption, special
and relative rights as to dividends and other distributions and on liquidation,
sinking or purchase fund provisions, conversion rights, and conditions under
which the several Sub-Trusts shall have separate voting rights or no voting
rights.
In addition, the Trustees shall have exclusive power, without the
requirement of Shareholder approval, to issue classes of Shares of any Sub-Trust
or divide the Shares of any Sub-Trust into classes, each class having such
different dividend, liquidation, voting and other rights as the Trustees may
determine, and may establish and designate the specific classes of Shares of
each Sub-Trust. The fact that a Sub-Trust shall have initially been established
and designated without any specific establishment or designation of classes
(i.e., that all Shares of such Sub-Trust are initially of a single class), or
that a Sub-Trust shall have more than one established and designated class,
shall not limit the authority of the Trustees to establish and designate
separate classes, or one or more further classes, of said Sub-Trust without
approval of the holders of the initial class thereof, or previously established
and designated class or classes thereof.
The number of authorized Shares and the number of Shares of each
Sub-Trust or class thereof that may be issued is unlimited, and the Trustees may
issue Shares of any Sub-Trust or class thereof for such consideration and on
such terms as they may determine (or for no consideration if pursuant to a Share
dividend or split-up), all without action or approval of the Shareholders. All
Shares when so issued on the terms determined by the Trustees shall be fully
paid and non-assessable (but may be subject to mandatory contribution back to
the Trust as provided in subsection (h) of Section 4.2). The Trustees may
classify or reclassify any unissued Shares or any Shares previously issued and
reacquired of any Sub-Trust or class thereof into one or more Sub-Trusts or
classes thereof that may be established and designated from time to time. The
Trustees may hold as treasury Shares, reissue for such consideration and on such
terms as they may determine, or cancel, at their discretion from time to time,
any Shares of any Sub-Trust or class thereof reacquired by the Trust.
The Trustees may from time to time close the transfer books or
establish record dates and times for the purposes of determining the holders of
Shares entitled to be treated as such, to the extent provided or referred to in
Section 5.3.
The establishment and designation of any Sub-Trust or of any class of
Shares of any Sub-Trust in addition to those established and designated in
Section 4.2 shall be effective (i) upon the execution by a majority of the then
Trustees of an instrument setting forth such establishment and designation of
the relative rights and preferences of the Shares of such Sub-Trust or class,
(ii) upon the execution of an instrument in writing by an officer of the Trust
pursuant to the vote of a majority of the Trustees, or (iii) as otherwise
provided in either such instrument. At any time that there are no Shares
outstanding of any particular Sub-Trust or class previously established and
designated, the
9
<PAGE>
Trustees may by an instrument executed by a majority of their number (or by an
instrument executed by an officer of the Trust pursuant to the vote of a
majority of the Trustees) abolish that Sub-Trust or class and the establishment
and designation thereof. Each instrument establishing and designating any
Sub-Trust shall have the status of an amendment to this Declaration of Trust.
Any Trustee, officer or other agent of the Trust, and any organization
in which any such person is interested may acquire, own, hold and dispose of
Shares of any Sub-Trust (including any classes thereof) of the Trust to the same
extent as if such person were not a Trustee, officer or other agent of the
Trust; and the Trust may issue and sell or cause to be issued and sold and may
purchase Shares of any Sub-Trust (including any classes thereof) from any such
person or any such organization subject only to the general limitations,
restrictions or other provisions applicable to the sale or purchase of Shares of
such Sub-Trust (including any classes thereof) generally.
Section 4.2 Establishment and Designation of Sub-Trusts. Without
-------------------------------------------
limiting the authority of the Trustees set forth in Section 4.1 to establish and
designate any further Sub-Trusts, the Trustees hereby redesignate the
established Sub-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 may from time to time be established and designated by
the Trustees shall (unless the Trustees otherwise determine with respect to some
further Sub-Trust at the time of establishing and designating the same) have the
following relative rights and preferences:
(a) Assets Belonging to Sub-Trusts. All consideration
------------------------------
received by the Trust for the issue or sale of Shares of a particular Sub-Trust
or any classes thereof, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall be held by the Trustees in trust for the
benefit of the holders of Shares of that Sub-Trust or class thereof and shall
irrevocably belong to that Sub-Trust (and be allocable to any classes thereof)
for all purposes, and shall be so recorded upon the books of account of the
Trust. Such consideration, assets, income, earnings, profits, and proceeds
thereof, including any proceeds derived from the sale, exchange or liquidation
of such assets, and any funds or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, together with any General Items (as
hereinafter defined) allocated to that Sub-Trust as provided in the following
sentence, are herein referred to as "assets belonging to" that Sub-Trust (and
allocable to any classes thereof). In the event that there are any assets,
income, earnings, profits, and proceeds thereof, funds, or payments which are
not readily identifiable as belonging to any particular Sub-Trust (collectively
"General Items"), the Trustees shall allocate such General Items to and among
any one or more of the Sub-Trusts established and designated from time to time
in such manner and on such basis as they, in their sole discretion, deem fair
and equitable; and any General Items so allocated to a particular Sub-Trust
shall belong to that Sub-Trust (and be allocable to any classes thereof). Each
such allocation by the
10
<PAGE>
Trustees shall be conclusive and binding upon the holders of all Shares of all
Sub-Trusts (including any classes thereof) for all purposes.
(b) Liabilities Belonging to Sub-Trusts. The assets
-----------------------------------
belonging to each particular Sub-Trust shall be charged with the liabilities in
respect of that Sub-Trust and all expenses, costs, charges and reserves
belonging to that Sub-Trust, and any general liabilities, expenses, costs,
charges or reserves of the Trust which are not readily identifiable as belonging
to any particular Sub-Trust shall be allocated and charged by the Trustees to
and among any one or more of the Sub-Trusts established and designated from time
to time in such manner and on such basis as the Trustees in their sole
discretion deem fair and equitable. In addition, the liabilities in respect of a
particular class of Shares of a particular Sub-Trust and all expenses, costs,
charges and reserves belonging to that class of Shares, and any general
liabilities, expenses, costs, charges or reserves of that particular Sub-Trust
which are not readily identifiable as belonging to any particular class of
Shares of that Sub-Trust shall be allocated and charged by the Trustees to and
among any one or more of the classes of Shares of that Sub-Trust established and
designated from time to time in such manner and on such basis as the Trustees in
their sole discretion deem fair and equitable. The liabilities, expenses, costs,
charges and reserves allocated and so charged to a Sub-Trust or class thereof
are herein referred to as "liabilities belonging to" that Sub-Trust or class
thereof. Each allocation of liabilities, expenses, costs, charges and reserves
by the Trustees shall be conclusive and binding upon the Shareholders, creditors
and any other persons dealing with the Trust or any Sub-Trust (including any
classes thereof) for all purposes. Any creditor of any Sub-Trust may look only
to the assets of that Sub-Trust to satisfy such creditor's debt.
The Trustees shall have full discretion, to the extent not inconsistent
with the 1940 Act, to determine which items shall be treated as income and which
items as capital; and each such determination and allocation shall be conclusive
and binding upon the Shareholders.
(c) Dividends. Dividends and distributions on Shares of a
---------
particular Sub-Trust or any class thereof may be paid with such frequency as the
Trustees may determine, which may be daily or otherwise pursuant to a standing
resolution or resolutions adopted only once or with such frequency as the
Trustees may determine, to the holders of Shares of that Sub-Trust or class,
from such of the income and capital gains, accrued or realized, from the assets
belonging to that Sub-Trust, or in the case of a class, belonging to that
Sub-Trust and allocable to that class, as the Trustees may determine, after
providing for actual and accrued liabilities belonging to that Sub-Trust or
class. All dividends and distributions on Shares of a particular Sub-Trust or
class thereof shall be distributed pro rata to the holders of Shares of that
Sub-Trust or class in proportion to the number of Shares of that Sub-Trust or
class held by such holders at the date and time of record established for the
payment of such dividends or distributions, except that in connection with any
dividend or distribution program or procedure the Trustees may determine that no
dividend or distribution shall be payable on Shares as to which the
Shareholder's purchase order and/or payment have not been received by the time
or times established by the Trustees under such program or procedure. Such
dividends and distributions may be made in cash or Shares of that Sub-Trust or
class or a combination thereof as determined by the Trustees or pursuant to any
program that the Trustees may have in effect at the time for the election by
each Shareholder of the mode of the making of such dividend or distribution to
that Shareholder. Any such dividend or distribution paid in Shares will be paid
at the net asset value thereof as determined in accordance with subsection (h)
of Section 4.2.
11
<PAGE>
The Trustees shall have full discretion to determine which items shall
be treated as income and which items as capital; and each such determination and
allocation shall be conclusive and binding upon the Shareholders.
(d) Liquidation. In the event of the liquidation or
-----------
dissolution of the Trust, the holders of Shares of each Sub-Trust or any class
thereof that has been established and designated shall be entitled to receive,
when and as declared by the Trustees, the excess of the assets belonging to that
Sub-Trust, or in the case of a class, belonging to that Sub-Trust and allocable
to that class, over the liabilities belonging to that Sub-Trust or class. The
assets so distributable to the holders of Shares of any particular Sub-Trust or
class thereof shall be distributed among such holders in proportion to the
number of Shares of that Sub-Trust or class thereof held by them and recorded on
the books of the Trust. The liquidation of any particular Sub-Trust or class
thereof may be authorized at any time by vote of a majority of the Trustees then
in office.
(e) Voting. On each matter submitted to a vote of the
------
Shareholders, each holder of a Share shall be entitled to one vote for each
whole Share standing and to a proportionate fractional vote for each fractional
share standing in such Shareholder's name on the books of the Trust irrespective
of the Series thereof or class thereof and all Shares of all Series and classes
thereof shall vote together as a single class; provided, however, that as to any
matter (i) with respect to which a separate vote of one or more Series or
classes thereof is required by the 1940 Act or the provisions of the writing
establishing and designating the Sub-Trust or class, such requirements as to a
separate vote by such Series or class thereof shall apply in lieu of all Shares
of all Series and classes thereof voting together; and (ii) as to any matter
which affects the interests of one or more particular Series or classes thereof,
only the holders of Shares of the one or more affected Series or classes shall
be entitled to vote, and each such Series or class shall vote as a separate
class.
(f) Redemption by Shareholder. Each holder of Shares of a
-------------------------
particular Sub-Trust or any class thereof shall have the right at such times as
may be permitted by the Trust to require the Trust to redeem all or any part of
such holder's Shares of that Sub-Trust or class thereof at a redemption price
equal to the net asset value per Share of that Sub-Trust or class thereof next
determined in accordance with subsection (h) of this Section 4.2 after the
Shares are properly tendered for redemption, subject to any contingent deferred
sales charge or redemption charge in effect at the time of redemption. Payment
of the redemption price shall be in cash; provided, however, that if the
Trustees determine, which determination shall be conclusive, that conditions
exist which make payment wholly in cash unwise or undesirable, the Trust may,
subject to the requirements of the 1940 Act, make payment wholly or partly in
securities or other assets belonging to the Sub-Trust of which the Shares being
redeemed are part at the value of such securities or assets used in such
determination of net asset value.
Notwithstanding the foregoing, the Trust may postpone payment of the
redemption price and may suspend the right of the holders of Shares of any
Sub-Trust or class thereof to require the Trust to redeem Shares of that
Sub-Trust during any period or at any time when and to the extent permissible
under the 1940 Act.
12
<PAGE>
(g) Redemption by Trust. Each Share of each Sub-Trust or
-------------------
class thereof that has been established and designated is subject to redemption
by the Trust at the redemption price which would be applicable if such Share was
then being redeemed by the Shareholder pursuant to subsection (f) of this
Section 4.2: (i) at any time, if the Trustees determine in their sole discretion
and by majority vote that failure to so redeem may have materially adverse
consequences to the Trust or any Sub-Trust or to the holders of the Shares of
the Trust or any Sub-Trust thereof or class thereof, or (ii) upon such other
conditions as may from time to time be determined by the Trustees and set forth
in the then current Prospectus of the Trust. Upon such redemption the holders of
the Shares so redeemed shall have no further right with respect thereto other
than to receive payment of such redemption price.
(h) Net Asset Value. The net asset value per Share of any
---------------
Sub-Trust shall be (i) in the case of a Sub-Trust whose Shares are not divided
into classes, the quotient obtained by dividing the value of the net assets of
that Sub-Trust (being the value of the assets belonging to that Sub-Trust less
the liabilities belonging to that Sub-Trust) by the total number of Shares of
that Sub-Trust outstanding, and (ii) in the case of a class of Shares of a
Sub-Trust whose Shares are divided into classes, the quotient obtained by
dividing the value of the net assets of that Sub-Trust allocable to such class
(being the value of the assets belonging to that Sub-Trust allocable to such
class less the liabilities belonging to such class) by the total number of
Shares of such class outstanding; all determined in accordance with the methods
and procedures, including without limitation those with respect to rounding,
established by the Trustees from time to time.
The Trustees may determine to maintain the net asset value per Share of
any Sub-Trust at a designated constant dollar amount and in connection therewith
may adopt procedures not inconsistent with the 1940 Act for the continuing
declarations of income attributable to that Sub-Trust as dividends payable in
additional Shares of that Sub-Trust at the designated constant dollar amount and
for the handling of any losses attributable to that Sub-Trust. Such procedures
may provide that in the event of any loss each Shareholder shall be deemed to
have contributed to the capital of the Trust attributable to that Sub-Trust such
Shareholder's pro rata portion of the total number of Shares required to be
canceled in order to permit the net asset value per Share of that Sub-Trust to
be maintained, after reflecting such loss, at the designated constant dollar
amount. Each Shareholder of the Trust shall be deemed to have agreed, by making
an investment in any Sub-Trust with respect to which the Trustees shall have
adopted any such procedure, to make the contribution referred to in the
preceding sentence in the event of any such loss.
(i) Transfer. All Shares of each particular Sub-Trust or
--------
class thereof shall be transferable, but transfers of Shares of a particular
Sub-Trust or class thereof will be recorded on the Share transfer records of the
Trust applicable to that Sub-Trust or class only at such times as Shareholders
shall have the right to require the Trust to redeem Shares of that Sub-Trust or
class and at such other times as may be permitted by the Trustees.
(j) Equality. Except as provided herein or in the
--------
instrument designating and establishing any class of Shares or any Sub-Trust,
all Shares of each particular Sub-Trust or class thereof shall represent an
equal proportionate interest in the assets belonging to that Sub-Trust, or in
the case of a class, belonging to that Sub-Trust and allocable to that class,
subject to the liabilities belonging to that Sub-Trust or class, and each Share
of any particular Sub-Trust or class shall be equal to each other Share of that
Sub-Trust or class; but the provisions of this sentence shall not
13
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restrict any distinctions permissible under subsection (c) of this Section 4.2
that may exist with respect to dividends and distributions on Shares of the same
Sub-Trust or class. The Trustees may from time to time divide or combine the
Shares of any particular Sub-Trust or class into a greater or lesser number of
Shares of that Sub-Trust or class without thereby changing the proportionate
beneficial interest in the assets belonging to that Sub-Trust or class or in any
way affecting the rights of Shares of any other Sub-Trust or class.
(k) Fractions. Any fractional Share of any Sub-Trust or
---------
class, if any such fractional Share is outstanding, shall carry proportionately
all the rights and obligations of a whole Share of that Sub-Trust or class,
including rights and obligations with respect to voting, receipt of dividends
and distributions, redemption of Shares, and liquidation of the Trust or any
Sub-Trust.
(l) Conversion Rights. Subject to compliance with the
-----------------
requirements of the 1940 Act, the Trustees shall have the authority to provide
that holders of Shares of any Sub-Trust or class thereof shall have the right to
convert said Shares into Shares of one or more other Sub-Trust or class thereof
in accordance with such requirements and procedures as may be established by the
Trustees.
(m) Class Differences. The relative rights and
-----------------
preferences of the classes of any Sub-Trust may differ in such other respects as
the Trustees may determine to be appropriate in their sole discretion, provided
that such differences are set forth in the instrument establishing and
designating such classes and executed by a majority of the Trustees (or by an
instrument executed by an officer of the Trust pursuant to a vote of a majority
of the Trustees).
(n) Termination of Sales. The Trustees shall have the
--------------------
authority to terminate the sales of Shares of any Sub-Trust at any time or for
such periods as the Trustees may from time to time decide.
Section 4.3 Ownership of Shares. The ownership of Shares shall be
-------------------
recorded on the books of the Trust or of a transfer or similar agent for the
Trust, which books shall be maintained separately for the Shares of each
Sub-Trust and each class thereof that has been established and designated. No
certificates certifying the ownership of Shares need be issued except as the
Trustees may otherwise determine from time to time. The Trustees may make such
rules as they consider appropriate for the issuance of Share certificates, the
use of facsimile signatures, the transfer of Shares and similar matters. The
record books of the Trust as kept by the Trust or any transfer or similar agent,
as the case may be, shall be conclusive as to who are the Shareholders and as to
the number of Shares of each Sub-Trust and class thereof held from time to time
by each such Shareholder.
Section 4.4 Investments in the Trust. The Trustees may accept or
------------------------
reject investments in the Trust and each Sub-Trust from such persons and on such
terms and for such consideration, not inconsistent with the provisions of the
1940 Act, as they from time to time authorize or determine. The Trustees may
authorize any distributor, principal underwriter, custodian, transfer agent or
other person to accept orders for the purchase of Shares that conform to such
authorized terms and to reject any purchase orders for Shares whether or not
conforming to such authorized terms.
14
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Section 4.5 No Pre-emptive Rights. Shareholders shall have no
---------------------
pre-emptive or other right to subscribe to any additional Shares or other
securities issued by the Trust or any Sub-Trust.
Section 4.6 Status of Shares and Limitation of Personal
-------------------------------------------
Liability. Shares shall be deemed to be personal property giving only the rights
- ---------
provided in this instrument. Every Shareholder by virtue of having become a
Shareholder shall be held to have expressly assented and agreed to the terms
hereof and to have become a party hereto. The death of a Shareholder during the
continuance of the Trust shall not operate to terminate the Trust or any
Sub-Trust thereof nor entitle the representative of any deceased Shareholder to
an accounting or to take any action in court or elsewhere against the Trust or
the Trustees, but only to the rights of said decedent under this Trust.
Ownership of Shares shall not entitle the Shareholder to any title in or to the
whole or any part of the Trust property or right to call for a partition or
division of the same or for an accounting, nor shall the ownership of Shares
constitute the Shareholders partners. Neither the Trust nor the Trustees, nor
any officer, employee or agent of the Trust shall have any power to bind
personally any Shareholder, nor except as specifically provided herein to call
upon any Shareholder for the payment of any sum of money or assessment
whatsoever other than such as the Shareholder may at any time personally agree
to pay.
Section 4.7 No Appraisal Rights. Shareholders shall have no right
-------------------
to demand payment for their shares or to any other rights of dissenting
shareholders in the event the Trust participates in any transaction which would
give rise to appraisal or dissenters' rights by a shareholder of a corporation
organized under Chapter 156B of the General Laws of the Commonwealth of
Massachusetts, or otherwise.
ARTICLE V - SHAREHOLDERS' VOTING POWERS AND MEETINGS
--------- ----------------------------------------
Section 5.1 Voting Powers. The Shareholders shall have power to
-------------
vote only (i) for the election or removal of Trustees as provided in Section
3.1, (ii) with respect to any contract with a Contracting Party as provided in
Section 3.3 as to which Shareholder approval is required by the 1940 Act, (iii)
with respect to any termination or reorganization of the Trust to the extent and
as provided in Sections 7.1 and 7.2, (iv) with respect to any amendment of this
Declaration of Trust to the extent and as provided in Section 7.3, (v) to the
same extent as the stockholders of a Massachusetts business corporation as to
whether or not a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Trust
or any Sub-Trust thereof or the Shareholders (provided, however, that a
Shareholder of a particular Sub-Trust shall not be entitled to a derivative or
class action on behalf of any other Sub-Trust (or Shareholder of any other
Sub-Trust) of the Trust) and (vi) with respect to such additional matters
relating to the Trust as may be required by the 1940 Act, this Declaration of
Trust, the By-Laws or any registration of the Trust with the Commission (or any
successor agency) or any state, or as the Trustees may consider necessary or
desirable. There shall be no cumulative voting in the election of Trustees.
Shares may be voted in person or by proxy. Proxies may be given orally or in
writing or pursuant to any computerized or mechanical data gathering process
specifically approved by the Trustees. A proxy with respect to Shares held in
the name of two or more persons shall be valid if executed by any one of them
unless at or prior to exercise of the proxy the Trust receives a specific
written notice to the contrary from any one of them. A proxy purporting to be
executed by or on behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise and the
15
<PAGE>
burden of proving invalidity shall rest on the challenger. Until Shares are
issued, the Trustees may exercise all rights of Shareholders and may take any
action required by law, this Declaration of Trust or the By-Laws to be taken by
Shareholders.
Section 5.2 Meetings. No annual or regular meeting of
--------
Shareholders is required. Special meetings of Shareholders may be called by the
Trustees from time to time for the purpose of taking action upon any matter
requiring the vote or authority of the Shareholders as herein provided or upon
any other matter deemed by the Trustees to be necessary or desirable. Written
notice of any meeting of Shareholders shall be given or caused to be given by
the Trustees by mailing such notice at least seven days before such meeting,
postage prepaid, stating the time, place and purpose of the meeting, to each
Shareholder at the Shareholder's address as it appears on the records of the
Trust. The Trustees shall promptly call and give notice of a meeting of
Shareholders for the purpose of voting upon removal of any Trustee of the Trust
when requested to do so in writing by Shareholders holding not less than 10% of
the Shares then outstanding. If the Trustees shall fail to call or give notice
of any meeting of Shareholders for a period of 30 days after written application
by Shareholders holding at least 10% of the Shares then outstanding requesting a
meeting be called for any other purpose requiring action by the Shareholders as
provided herein or in the By-Laws, then Shareholders holding at least 10% of the
Shares then outstanding may call and give notice of such meeting, and thereupon
the meeting shall be held in the manner provided for herein in case of call
thereof by the Trustees.
Section 5.3 Record Dates. For the purpose of determining the
------------
Shareholders who are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to participate in any dividend or distribution, or
for the purpose of any other action, the Trustees may from time to time close
the transfer books for such period, not exceeding 30 days (except at or in
connection with the termination of the Trust), as the Trustees may determine; or
without closing the transfer books the Trustees may fix a date and time not more
than 90 days prior to the date of any meeting of Shareholders or other action as
the date and time of record for the determination of Shareholders entitled to
vote at such meeting or any adjournment thereof or to be treated as Shareholders
of record for purposes of such other action, and any Shareholder who was a
Shareholder at the date and time so fixed shall be entitled to vote at such
meeting or any adjournment thereof or to be treated as a Shareholder of record
for purposes of such other action, even though such Shareholder has since that
date and time disposed of such Shareholder's Shares, and no Shareholder becoming
such after that date and time shall be so entitled to vote at such meeting or
any adjournment thereof or to be treated as a Shareholder of record for purposes
of such other action.
Section 5.4 Quorum and Required Vote. Except as otherwise
------------------------
provided by the 1940 Act or other applicable law, thirty percent of the Shares
entitled to vote shall be a quorum for the transaction of business at a
Shareholders' meeting, but any lesser number shall be sufficient for
adjournments. Any meeting of shareholders, whether or not a quorum is present,
may be adjourned for any lawful purpose provided that no meeting shall be
adjourned for more than six months beyond the originally scheduled meeting date.
Any adjourned session or sessions may be held, within a reasonable time after
the date set for the original meeting without the necessity of further notice.
A majority of the Shares voted, at a meeting of which a quorum is present shall
decide any questions and a plurality shall elect a Trustee, except when a
different vote is required or permitted by any provision of the 1940 Act or
other applicable law or by this Declaration of Trust or the By-Laws.
16
<PAGE>
Section 5.5 Action by Written Consent. Subject to the provisions
-------------------------
of the 1940 Act and other applicable law, any action taken by Shareholders may
be taken without a meeting if a majority of Shareholders entitled to vote on the
matter (or such larger proportion thereof as shall be required by the 1940 Act
or by any express provision of this Declaration of Trust or the By-Laws) consent
to the action in writing and such written consents are filed with the records of
the meetings of Shareholders. Such consent shall be treated for all purposes as
a vote taken at a meeting of Shareholders.
Section 5.6 Inspection of Records. The records of the Trust shall
---------------------
be open to inspection by Shareholders for any lawful purpose reasonably related
to a Shareholder's interest as a Shareholder. The Trustees may from time to time
establish reasonable standards including standards governing what information
and documents are to be furnished, at what time and location and at whose
expense with respect to Shareholder inspection of Trust records to the same
extent as is permitted stockholders of a Massachusetts business corporation
under the Massachusetts Business Corporation Law.
Section 5.7 Additional Provisions. The By-Laws may include
---------------------
further provisions for Shareholders' votes and meetings and related matters not
inconsistent with the provisions hereof.
Section 5.8 Shareholder Communications. Whenever ten or more
--------------------------
Shareholders of record who have been such for at least six months preceding the
date of application, and who hold in the aggregate either Shares having a net
asset value of at least $25,000 or at least 1% of the outstanding Shares,
whichever is less, shall apply to the Trustees in writing, stating that they
wish to communicate with other Shareholders with a view to obtaining signatures
to a request for a Shareholder meeting and accompanied by a form of
communication and request which they wish to transmit, the Trustees shall within
five business days after receipt of such application either (1) afford to such
applicants access to a list of the names and addresses of all Shareholders as
recorded on the books of the Trust or Sub-Trust, as applicable; or (2) inform
such applicants as to the approximate number of Shareholders of record, and the
approximate cost of mailing to them the proposed communication and form of
request.
If the Trustees elect to follow the course specified in clause (2)
above, the Trustees, upon the written request of such applicants, accompanied by
a tender of the material to be mailed and of the reasonable expenses of mailing,
shall, with reasonable promptness, mail such material to all Shareholders of
record at their addresses as recorded on the books, unless within five business
days after such tender the Trustees shall mail to such applicants and file with
the Commission, together with a copy of the material to be mailed, a written
statement signed by at least a majority of the Trustees to the effect that in
their opinion either such material contains untrue statements of fact or omits
to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the basis
of such opinion. The Trustees shall thereafter comply with any order entered by
the Commission and the requirements of the 1940 Act and the Securities Exchange
Act of 1934.
17
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ARTICLE VI - LIMITATION OF LIABILITY; INDEMNIFICATION
---------- ----------------------------------------
Section 6.1 Trustees, Shareholders, etc. Not Personally Liable;
---------------------------------------------------
Notice. All persons extending credit to, contracting with or having any claim
- ------
against the Trust shall look only to the assets of the Sub-Trust with which such
person dealt for payment under such credit, contract or claim; and neither the
Shareholders of any Sub-Trust nor the Trustees, nor any of the Trust's officers,
employees or agents, whether past, present or future, nor any other Sub-Trust
shall be personally liable therefor. Every note, bond, contract, instrument,
certificate or undertaking and every other act or thing whatsoever executed or
done by or on behalf of the Trust, any Sub-Trust or the Trustees or any of them
in connection with the Trust shall be conclusively deemed to have been executed
or done only by or for the Trust (or the Sub-Trust) or the Trustees and not
personally. Nothing in this Declaration of Trust shall protect any Trustee or
officer against any liability to the Trust or the Shareholders to which such
Trustee or officer would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee or of such officer.
Every note, bond, contract, instrument, certificate or undertaking made
or issued by the Trustees or by any officers or officer shall give notice that
this Declaration of Trust is on file with the Secretary of The Commonwealth of
Massachusetts and shall recite to the effect that the same was executed or made
by or on behalf of the Trust or by them as Trustees or Trustee or as officers or
officer and not individually and that the obligations of such instrument are not
binding upon any of them or the Shareholders individually but are binding only
upon the assets and property of the Trust, or the particular Sub-Trust in
question, as the case may be, but the omission thereof shall not operate to bind
any Trustees or Trustee or officers or officer or Shareholders or Shareholder
individually.
Section 6.2 Trustee's Good Faith Action; Expert Advice; No Bond
---------------------------------------------------
or Surety. The exercise by the Trustees of their powers and discretion hereunder
- ---------
shall be binding upon everyone interested. A Trustee shall be liable for such
Trustee's own willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee, and
for nothing else, and shall not be liable for errors of judgment or mistakes of
fact or law. Subject to the foregoing, (a) the Trustees shall not be responsible
or liable in any event for any neglect or wrongdoing of any officer, agent,
employee, consultant, adviser, administrator, distributor or principal
underwriter, custodian or transfer, dividend disbursing, Shareholder servicing
or accounting agent of the Trust, nor shall any Trustee be responsible for the
act or omission of any other Trustee; (b) the Trustees may take advice of
counsel or other experts with respect to the meaning and operation of this
Declaration of Trust and their duties as Trustees, and shall be under no
liability for any act or omission in accordance with such advice or for failing
to follow such advice; and (c) in discharging their duties, the Trustees, when
acting in good faith, shall be entitled to rely upon the books of account of the
Trust and upon written reports made to the Trustees by any officer appointed by
them, any independent public accountant, and (with respect to the subject matter
of the contract involved) any officer, partner or responsible employee of a
Contracting Party appointed by the Trustees pursuant to Section 3.3. The
Trustees as such shall not be required to give any bond or surety or any other
security for the performance of their duties.
Section 6.3 Indemnification of Shareholders. In case any
-------------------------------
Shareholder (or former Shareholder) of any Sub-Trust of the Trust shall be
charged or held to be personally liable for any obligation or liability of the
Trust solely by reason of being or having been a Shareholder and not
18
<PAGE>
because of such Shareholder's acts or omissions or for some other reason, said
Sub-Trust (upon proper and timely request by the Shareholder) shall assume the
defense against such charge and satisfy any judgment thereon, and the
Shareholder or former Shareholder (or such Shareholder's heirs, executors,
administrators or other legal representatives or in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled out of
the assets of said Sub-Trust estate to be held harmless from and indemnified
against all loss and expense arising from such liability.
Section 6.4 Indemnification of Trustees, Officers, etc. The Trust
-------------------------------------------
shall indemnify (from the assets of the Sub-Trust or Sub-Trusts in question)
each of its Trustees and officers (including persons who serve at the Trust's
request as directors, officers or trustees of another organization in which the
Trust has any interest as a shareholder, creditor or otherwise [hereinafter
referred to as a "Covered Person"]) against all liabilities, including but not
limited to amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and expenses, including reasonable accountants' and counsel fees,
incurred by any Covered Person in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which such Covered Person may be
or may have been involved as a party or otherwise or with which such person may
be or may have been threatened, while in office or thereafter, by reason of
being or having been such a Trustee or officer, director or trustee, except with
respect to any matter as to which it has been determined that such Covered
Person had acted with willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Covered
Person's office (such conduct referred to hereafter as "Disabling Conduct"). A
determination that the Covered Person is entitled to indemnification may be made
by (i) a final decision on the merits by a court or other body before whom the
proceeding was brought that the person to be indemnified was not liable by
reason of Disabling Conduct, (ii) dismissal of a court action or an
administrative proceeding against a Covered Person for insufficiency of evidence
of Disabling Conduct, or (iii) a reasonable determination, based upon a review
of the facts, that the indemnitee was not liable by reason of Disabling Conduct
by (a) a vote of a majority of a quorum of Trustees who are neither "interested
persons" of the Trust as defined in section 2(a)(l9) of the 1940 Act nor parties
to the proceeding, or (b) an independent legal counsel in a written opinion.
Expenses, including accountants' and counsel fees so incurred by any such
Covered Person (but excluding amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), may be paid from time to time by the
Sub-Trust in question in advance of the final disposition of any such action,
suit or proceeding, provided that the Covered Person shall have undertaken to
repay the amounts so paid to the Sub-Trust in question if it is ultimately
determined that indemnification of such expenses is not authorized under this
Article VI and (i) the Covered Person shall have provided security for such
undertaking, (ii) the Trust shall be insured against losses arising by reason of
any lawful advances, or (iii) a majority of a quorum of the disinterested
Trustees who are not a party to the proceeding, or an independent legal counsel
in a written opinion, shall have determined, based on a review of readily
available facts (as opposed to a full trial-type inquiry), that there is reason
to believe that the Covered Person ultimately will be found entitled to
indemnification.
Section 6.5 Compromise Payment. As to any matter disposed of by a
------------------
compromise payment by any such Covered Person referred to in Section 6.4,
pursuant to a consent decree or otherwise, no such indemnification either for
said payment or for any other expenses shall be provided unless such
indemnification shall be approved (a) by a majority of the disinterested
Trustees who are not parties to the proceeding or (b) by an independent legal
counsel in a written opinion. Approval by the Trustees pursuant to clause (a) or
by independent legal counsel pursuant to clause (b) shall not
19
<PAGE>
prevent the recovery from any Covered Person of any amount paid to such Covered
Person in accordance with any of such clauses as indemnification if such Covered
Person is subsequently adjudicated by a court of competent jurisdiction to have
been liable to the Trust or its Shareholders by reason of wilful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such Covered Person's office.
Section 6.6 Indemnification Not Exclusive, etc. The right of
-----------------------------------
indemnification provided by this Article VI shall not be exclusive of or affect
any other rights to which any such Covered Person may be entitled. As used in
this Article VI, "Covered Person" shall include such person's heirs, executors
and administrators, an "interested Covered Person" is one against whom the
action, suit or other proceeding in question or another action, suit or other
proceeding on the same or similar grounds is then or has been pending or
threatened, and a "disinterested" person is a person against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending or threatened.
Nothing contained in this Article shall affect any rights to indemnification to
which personnel of the Trust, other than Trustees and officers, and other
persons may be entitled by contract or otherwise under law, nor the power of the
Trust to purchase and maintain liability insurance on behalf of any such person.
Section 6.7 Liability of Third Persons Dealing with Trustees. No
------------------------------------------------
person dealing with the Trustees shall be bound to make any inquiry concerning
the validity of any transaction made or to be made by the Trustees or to see to
the application of any payments made or property transferred to the Trust or
upon its order.
ARTICLE VII - MISCELLANEOUS
----------- -------------
Section 7.1 Duration and Termination of Trust. Unless terminated
---------------------------------
as provided herein, the Trust shall continue without limitation of time and,
without limiting the generality of the foregoing, no change, alteration or
modification with respect to any Sub-Trust or class thereof shall operate to
terminate the Trust. The Trust may be terminated at any time by a majority of
the Trustees then in office subject to a favorable vote of a majority of the
outstanding voting securities, as defined in the 1940 Act, shares of each
Sub-Trust or class thereof voting separately by Sub-Trust or class thereof.
Upon termination, after paying or otherwise providing for all charges,
taxes, expenses and liabilities, whether due or accrued or anticipated as may be
determined by the Trustees, the Trust shall in accordance with such procedures
as the Trustees consider appropriate reduce the remaining assets to
distributable form in cash, securities or other property, or any combination
thereof, and distribute the proceeds to the Shareholders, in conformity with the
provisions of subsection (d) of Section 4.2.
Section 7.2 Reorganization. The Trust, or any one or more Sub-
--------------
Trusts, may, either as the successor, survivor, or non-survivor, (1) consolidate
or merge with one or more other trusts, sub-trusts, partnerships, associations
or corporations organized under the laws of the Commonwealth of Massachusetts or
any other state of the United States, to form a consolidated or merged trust,
partnership, limited liability company, association or corporation under the
laws of which any one of the constituent entities is organized, with the Trust
to be the survivor or non-survivor of such consolidation or merger or (2)
transfer a substantial portion of its assets to one or more other trusts,
sub-trusts, partnerships, limited liability companies, associations or
corporations organized under the
20
<PAGE>
laws of the Commonwealth of Massachusetts or any other state of the United
States, or have one or more such trusts, sub-trusts, partnerships, limited
liability companies, associations or corporations transfer a substantial portion
of its assets to it, any such consolidation, merger or transfer to be upon such
terms and conditions as are specified in an agreement and plan of reorganization
authorized and approved by the Trustees and entered into by the Trust, or one or
more Sub-Trusts as the case may be, in connection therewith. Any such
consolidation, merger or transfer shall require the affirmative vote of the
holders of a majority of the outstanding voting Shares, as defined in the 1940
Act, of the Trust (or each Sub-Trust affected thereby, as the case may be),
except that such affirmative vote of the holders of Shares shall not be required
if the Trust (or Sub-Trust affected thereby, as the case may be) shall be the
survivor of such consolidation or merger or transferee of such assets.
Section 7.3 Amendments. All rights granted to the Shareholders
----------
under this Declaration of Trust are granted subject to the reservation of the
right to amend this Declaration of Trust as herein provided, except that no
amendment shall repeal the limitations on personal liability of any Shareholder
or Trustee or repeal the prohibition of assessment upon the Shareholders without
the express consent of each Shareholder or Trustee involved. Subject to the
foregoing, the provisions of this Declaration of Trust (whether or not related
to the rights of Shareholders) may be amended at any time, so long as such
amendment does not materially adversely affect the rights of any Shareholder
with respect to which such amendment is or purports to be applicable and so long
as such amendment is not in contravention of applicable law, including the 1940
Act, by an instrument in writing signed by a majority of the then Trustees (or
by an officer of the Trust pursuant to the vote of a majority of such Trustees).
Any amendment to this Declaration of Trust that materially adversely affects the
rights of Shareholders may be adopted at any time by an instrument in writing
signed by a majority of the then Trustees (or by an officer of the Trust
pursuant to a vote of a majority of such Trustees) when authorized to do so by
the vote in accordance with subsection (e) of Section 4.2 of Shareholders as
specified in Section 5.4 hereof. Subject to the foregoing, any such amendment
shall be effective as of any prior or future time as provided in the instrument
containing the terms of such amendment or, if there is no provision therein with
respect to effectiveness, upon the execution of such instrument and of a
certificate (which may be a part of such instrument) executed by a Trustee or
officer of the Trust to the effect that such amendment has been duly adopted.
Section 7.4 Filing of Copies; References; Headings. The original
--------------------------------------
or a copy of this instrument and of each amendment hereto shall be kept at the
office of the Trust where it may be inspected by any Shareholder. Anyone dealing
with the Trust may rely on a certificate by an officer of the Trust as to
whether or not any such amendments have been made, as to the identities of the
Trustees and officers, and as to any matters in connection with the Trust
hereunder; and, with the same effect as if it were the original, may rely on a
copy certified by an officer of the Trust to be a copy of this instrument or of
any such amendments. In this instrument and in any such amendment, references to
this instrument, and all expressions like "herein", "hereof" and "hereunder"
shall be deemed to refer to this instrument as a whole as the same may be
amended or affected by any such amendments. Headings are placed herein for
convenience of reference only and shall not be taken as a part hereof or control
or affect the meaning, construction or effect of this instrument. This
instrument may be executed in any number of counterparts each of which shall be
deemed an original.
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Section 7.5 Applicable Law. This Declaration of Trust is made in
--------------
The Commonwealth of Massachusetts, and it is created under and is to be governed
by and construed and administered according to the laws of said Commonwealth,
including the Massachusetts Business Corporation Law as the same may be amended
from time to time, to which reference is made with the intention that matters
not specifically covered herein or as to which an ambiguity may exist shall be
resolved as if the Trust were a business corporation organized in Massachusetts,
but the reference to said Business Corporation Law is not intended to give the
Trust, the Trustees, the Shareholders or any other person any right, power,
authority or responsibility available only to or in connection with an entity
organized in corporate form. The Trust shall be of the type referred to in
Section 1 of Chapter 182 of the Massachusetts General Laws and of the type
commonly called a Massachusetts business trust, and without limiting the
provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
Section 7.6 Name of Trust. It is understood that the name
-------------
"CIGNA", and any logo associated with the name is the valuable property of the
CIGNA Corporation, a Delaware corporation, and that the trust or any Sub-Trust
has the right to include "CIGNA" as a part of its name only through permission
of CIGNA Corporation. If CIGNA Corporation withdraws the right to the use of its
name, the Trust (and any Sub-Trust) shall forthwith cease to use the CIGNA name
and logo and shall take such action as may be necessary to change its name (or
the name of any Sub-Trust) to eliminate all use of or reference to the word
"CIGNA". The Trust hereby stipulates that companies or trusts other than the
Trust may be formed with the word "CIGNA" in their titles.
Section 7.7 Integration. This Declaration of Trust constitutes
-----------
the entire agreement among the parties hereto pertaining to the subject matter
hereof and supersedes all prior agreements and understandings pertaining
thereto.
22
<PAGE>
IN WITNESS WHEREOF, the undersigned hereunto have set their hands and
seals in the City of Springfield, Commonwealth of Massachusetts, for themselves
and their assigns, on the day and year first above written.
Senior Managing Director
CIGNA Investments, Inc.
S-306
900 Cottage Grove Road /s/ R. Bruce Albro
Hartford, CT 06152-2306 _________________________________________
R. Bruce Albro
44 Brook Hills Circle /s/ Hugh R. Beath
White Plains, NY 10605 _________________________________________
Hugh R. Beath
Vice President and Treasurer
Kaman Corporation
1332 Blue Hills Avenue /s/ Russell H. Jones
Bloomfield, CT 06002 _________________________________________
Russell H. Jones
President
CIGNA Investments, Inc.
S-211
900 Cottage Grove Road /s/ Thomas C. Jones
Hartford, CT 06152-2211 _________________________________________
Thomas C. Jones
Senior Executive Vice President and
Chief Administrative Officer
Friendly Ice Cream Corporation
1855 Boston Road /s/ Paul J. McDonald
Wilbraham, MA 01095 _________________________________________
Paul J. McDonald
23
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
HAMPDEN COUNTY, City of Springfield
Then personally appeared the within-named R. Bruce Albro, Hugh R.
Beath, Russell H. Jones, Thomas C. Jones and Paul J. McDonald who acknowledged
the execution of the foregoing instrument to be their free act and deed, before
me, this 28th day of July, 1998.
/s/ Geoffrey R. T. Kenyon
_____________________________________
Notary Public
[NOTARIAL SEAL MARK APPEARS HERE]
My commission expires: GEOFFREY R.T. KENYON,
NOTARY PUBLIC
---------------------
MY COMMISSION EXPIRES
APRIL 14, 2000
24
<PAGE>
Exhibit (g)
CUSTODIAN CONTRACT
BETWEEN
CIGNA ANNUITY FUNDS GROUP
AND
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Employment of Custodian and Property to be Held By
It.....................................................................1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian......................................2
2.1 Holding Securities............................................2
2.2 Delivery of Securities........................................3
2.3 Registration of Securities....................................8
2.4 Bank Accounts.................................................8
2.5 Payments for Shares...........................................9
2.6 Availability of Federal Funds.................................9
2.7 Collection of Income.........................................10
2.8 Payment of Fund Monies.......................................11
2.9 Liability for Payment in Advance of
Receipt of Securities Purchased..............................13
2.10 Payments for Repurchases or Redemptions
of Shares of the Fund........................................14
2.11 Appointment of Agents........................................14
2.12 Deposit of Fund Assets in Securities Systems.................15
2.12A Fund Assets Held in the Custodian's Direct
Paper System.................................................18
2.13 Segregated Account...........................................20
2.14 Ownership Certificates for Tax Purposes......................21
2.15 Proxies......................................................21
2.16 Communications Relating to Portfolio
Securities...................................................22
2.17 Proper Instructions..........................................22
2.18 Actions Permitted Without Express Authority..................23
2.19 Evidence of Authority........................................24
3. Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net
Income................................................................24
4. Records...............................................................25
5. Opinion of Fund's Independent Accountants.............................26
6. Reports to Fund by Independent Public Accountants.....................26
7. Compensation of Custodian.............................................27
8. Responsibility of Custodian...........................................27
9. Effective Period, Termination and Amendment...........................28
10. Successor Custodian...................................................30
11. Interpretive and Additional Provisions................................31
12. Additional Funds......................................................32
13. Massachusetts Law to Apply............................................32
14. Prior Contracts.......................................................32
15. Trust Liability.......................................................32
<PAGE>
CUSTODIAN CONTRACT
------------------
This Contract between CIGNA Annuity Funds Group, a business trust
organized and existing under the laws of Massachusetts, having its principal
place of business at 1380 Main Street, Springfield, Massachusetts 01103,
hereinafter called the "Fund", and State Street Bank and Trust Company, a
Massachusetts corporation, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to Issue shares in separate
series, with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund presently intends to offer shares in six
series, the CIGNA Annuity Equity Fund, CIGNA Annuity Income Fund, CIGNA Annuity
Money Market Fund, CIGNA Annuity Growth and Income Fund, CIGNA Annuity
Aggressive Equity Fund, and the Companion Fund (such series together with all
other series subsequently established by the Fund and made subject to this
Contract in accordance with paragraph 12, being herein referred to as the
"Portfolio(s)");
NOW THEREFOR, in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
-----------------------------------------------------
The Fund hereby employs the Custodian as the custodian of its
assets of the Portfolios of the Fund pursuant to the provisions of the
Declaration of Trust. The Fund agrees to deliver to the Custodian all securities
and cash owned by it, and
<PAGE>
all payments of income, payments of principal or capital distributions received
by it with respect to all securities owned by the Portfolios from time to time,
and the cash consideration received by it for such new or treasury shares of
beneficial interest ("Shares") of the Portfolios as may be issued or sold from
time to time. The Custodian shall not be responsible for any property of a
Portfolio held or received by the Portfolio and not delivered to the Custodian.
Upon receipt of 'Proper Instructions" (within the meaning of
Section 2.17), the Custodian shall from time to time employ one or more
sub-custodians, but only in accordance with an applicable vote by the Board of
Trustees of the Fund, and provided that the Custodian shall have no more or less
responsibility or liability to the Fund on account of any actions or omissions
of any sub-custodian so employed than any such sub-custodian has to the
Custodian.
2. Duties of the Custodian with Respect to Property of the Fund Held
-----------------------------------------------------------------
By the Custodian
- ----------------
2.1 Holding Securities. The Custodian shall hold and physically
------------------
segregate for the account of each Portfolio all non-cash
property, including all securities owned by such Portfolio, other
than (a) securities which are maintained pursuant to Section 2.12
in a clearing agency which acts as a securities depository or in
a book-entry system authorized by the U.S. Department of the
Treasury, collectively referred to herein as "Securities System"
and (b) commercial paper of an issuer for which State
-2-
<PAGE>
Street Bank and Trust Company acts as issuing and paying agent
("Direct Paper") which is deposited and/or maintained in the
Direct Paper System of the Custodian pursuant to Section 2.12A.
2.2 Delivery of Securities. The Custodian shall release and
----------------------
deliver securities owned by a Portfolio held by the Custodian or
in a Securities System account of the Custodian or in the
Custodian's Direct Paper book entry system account ("Direct Paper
System Account") only upon receipt of Proper Instructions, which
may be continuing instructions when deemed appropriate by the
parties, and only in the following cases:
1) Upon sale of such securities for the account
of the Portfolio and receipt of payment
therefor;
2) Upon the receipt of payment in connection
with any repurchase agreement related to
such securities entered into by the
Portfolio;
3) In the case of a sale effected through a
Securities System, in accordance with the
provisions of Section 2.12 hereof;
4) To the depository agent in connection with
tender or other similar offers for
securities of the Portfolio;
5) To the issuer thereof or its agent when such
securities are called, redeemed, retired or
otherwise become payable; provided that, in
-3-
<PAGE>
any such case, the cash or other
consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for
transfer into the name of the Portfolio or
into the name of any nominee or nominees of
the Custodian or into the name or nominee
name of any agent appointed pursuant to
Section 2.11 or into the name or nominee
name of any sub-custodian appointed pursuant
to Article 1; or for exchange for a
different number of bonds, certificates or
other evidence representing the same
aggregate face amount or number of units;
provided that, in any such case, the new
--------
securities are to be delivered to the
Custodian;
7) Upon the sale of such securities for the
account of the Portfolio, to the broker or
its clearing agent, against a receipt, for
examination in accordance with "street
delivery" custom; provided that in any such
case, the Custodian shall have no
responsibility or liability for any loss
arising from the delivery of such securities
prior to receiving payment for such
securities except as may arise from the
Custodian's own negligence or willful
misconduct;
-4-
<PAGE>
8) For exchange or conversion pursuant to any
plan of merger, consolidation,
recapitalization, reorganization or
readjustment of the securities of the issuer
of such securities, or pursuant to
provisions for conversion contained in such
securities, or pursuant to any deposit
agreement; provided that, in any such case,
the new securities and cash, if any, are to
be delivered to the Custodian;
9) In the case of warrants, rights or similar
securities, the surrender thereof in the
exercise of such warrants, rights or similar
securities or the surrender of interim
receipts or temporary securities for
definitive securities; provided that, in any
such case, the new securities and cash, if
any, are to be delivered to the Custodian;
10) For delivery in connection with any loans of
securities made by the Portfolio, but only
--------
against receipt of adequate collateral as
agreed upon from time to time by the
Custodian and the Fund on behalf of the
Portfolio, which may be in the form of cash
or obligations issued by the United States
government, its agencies or instrumental-
ities, except that in connection with any
-5-
<PAGE>
loans for which collateral is to be
credited to the Custodian's account in the
book-entry system authorized by the U.S.
Department of the Treasury, the Custodian
will not be held liable or responsible for
the delivery of securities owned by the
Portfolio prior to the receipt of such
collateral;
11) For delivery as security in connection with
any borrowings by the Portfolio requiring a
pledge of assets by the Portfolio, but only
--- ----
against receipt of amounts borrowed;
12) For delivery in accordance with the
provisions of any agreement among the Fund
on behalf of the Portfolio, the Custodian
and a broker-dealer registered under the
Securities Exchange Act of 1934 (the
"Exchange Act") and a member of The National
Association of Securities Dealers, Inc.
("NASD"), relating to compliance with the
rules of The Options Clearing Corporation
and of any registered national securities
exchange, or of any similar organization or
organizations, regarding escrow or other
arrangements in connection with transactions
by the Portfolio of the Fund;
13) For delivery in accordance with the
provisions of any agreement among the Fund
on
-6-
<PAGE>
behalf of the Portfolio, the Custodian, and
a Futures Commission Merchant registered
under the Commodity Exchange Act, relating
to compliance with the rules of the
Commodity Futures Trading Commission and/or
any Contract Market, or any similar
organization or organizations, regarding
account deposits in connection with
transactions by the Portfolio of the Fund;
14) Upon receipt of instructions from the
transfer agent ("Transfer Agent") for the
Fund, for delivery to such Transfer Agent or
to the holders of shares in connection with
distributions in kind, as may be described
from time to time in the Fund's currently
effective prospectus and statement of
additional information ("prospectus"), in
satisfaction of requests by holders of Share
for repurchase or redemption; and
15) For any other proper corporate purpose, but
---
only upon receipt of, in addition to Proper
----
Instructions, a certified copy of a
resolution of the Board of Trustees or of
the Executive Committee signed by an officer
of the Fund and certified by the Secretary
or an Assistant Secretary, specifying the
securities to be delivered, setting forth
the
-7-
<PAGE>
purpose for which such delivery is to be
made, declaring such purpose to be a proper
corporate purpose, and naming the person or
persons to whom delivery of such securities
shall be made.
2.3 Registration of Securities. Securities held by the Custodian
--------------------------
(other than bearer securities) shall be registered in the name of
the Portfolio or in the name of any nominee of the Portfolio or
of any nominee of the Custodian which nominee shall be assigned
exclusively to the Portfolio, unless the Fund has authorized in
------
writing the appointment of a nominee to be used in common with
other registered investment companies having the same investment
adviser as the Portfolio, or in the name or nominee name of any
agent appointed pursuant to Section 2.11 or in the name or
nominee name of any sub-custodian appointed pursuant to Article
1. All securities accepted by the Custodian on behalf of the
Portfolio under the terms of this Contract shall be in "street
name" or other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate
-------------
bank account or accounts in the name of each Portfolio of the
Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such
account or accounts, subject to the provisions hereof, all cash
received by it from or for the account of the Portfolio, other
than cash
-8-
<PAGE>
maintained by the Portfolio in a bank account established and
used in accordance with Rule 17f-3 under the Investment Company
Act of 1940. Funds held by the Custodian for a Portfolio may be
deposited by it to its credit as Custodian in the Banking
Department of the Custodian or In such other banks or trust
companies as it may in its discretion deem necessary or
desirable; provided, however, that every such bank or trust
--------
company shall be qualified to act as a custodian under the
Investment Company Act of 1940 and that each such bank or trust
company and the funds to be deposited with each such bank or
trust company shall be approved by vote of a majority of the
Board of Trustees of the Fund. Such funds shall be deposited by
the Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.
2.5 Payments for Shares. The Custodian shall receive from the
-------------------
distributor for the Fund's Shares or from the Transfer Agent of
the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that
Portfolio issued or sold from time to time by the Fund. The
Custodian will provide timely notification to the Portfolio and
the Transfer Agent of any receipt by it of payments for Shares of
such Portfolio.
2.6 Availability of Federal Funds. Upon mutual agreement between the
-----------------------------
Fund and the Custodian, the Custodian shall,
-9-
<PAGE>
upon the receipt of Proper Instructions, make federal funds
available to a Portfolio as of specified times agreed upon from
time to time by the Fund and the Custodian in the amount of
checks received in payment for Shares of such Portfolio which are
deposited into the Portfolio's account.
2.7 Collection of Income. The Custodian shall collect on a timely
--------------------
basis all income and other payments with respect to registered
securities held hereunder to which each Portfolio shall be
entitled either by law or pursuant to custom in the securities
business, and shall collect on a timely basis all income and
other payments with respect to bearer securities if, on the date
of payment by the issuer, such securities are held by the
Custodian or its agent thereof and shall credit such income, as
collected, to such Portfolio's custodian account. Without
limiting the generality of the foregoing, the Custodian shall
detach and present for payment all coupons and other income items
requiring presentation as and when they become due and shall
collect interest when due on securities held hereunder. Income
due each Portfolio on securities loaned pursuant to the
provisions of Section 2.2 (10) shall be the responsibility of the
Fund. The Custodian will have no duty or responsibility in
connection therewith, other than to provide the Fund with such
information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the
-10-
<PAGE>
Custodian of the income to which the Portfolio is properly
entitled.
2.8 Payment of Fund Monies. Upon receipt of Proper Instructions,
----------------------
which may be continuing instructions when deemed appropriate by
the parties, the Custodian shall pay out moneys of a Portfolio in
the following cases only:
1) Upon the purchase of securities, options,
futures contracts or options on futures
contracts for the account of the Portfolio
but only (a) against the delivery of such
securities or evidence of title to such
options, futures contracts or options on
futures contracts to the Custodian (or any
bank, banking firm or trust company doing
business in the United States or abroad
which is qualified under the Investment
Company Act of 1940, as amended, to act as a
custodian and has been designated by the
Custodian as its agent for this purpose)
registered in the name of the Portfolio or
in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in
proper form for transfer; (b) in the case of
a purchase effected through a Securities
System, in accordance with the conditions
set forth in Section 2.12 hereof; or (c) in
the case of a purchase involving the Direct
Paper System,
-11-
<PAGE>
in accordance with the conditions set forth
in Section 2.12A; or (d) in the case of
repurchase agreements entered into between
the Fund on behalf of the Portfolio and the
Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i)
against delivery of the securities either in
certificate form or through an entry
crediting the Custodian's account at the
Federal Reserve Bank with such securities or
(ii) against delivery of the receipt
evidencing purchase by the Portfolio of
securities owned by the Custodian along with
written evidence of the agreement by the
Custodian to repurchase such securities from
the Portfolio;
2) In connection with conversion, exchange or
surrender of securities owned by the
Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares
issued by the Portfolio as set forth in
Section 2.10 hereof;
4) For the payment of any expense or liability
incurred by the Portfolio, including but not
limited to the following payments for the
account of the Portfolio: interest, taxes,
management, accounting, transfer agent and
-12-
<PAGE>
legal fees, and operating expenses of the
Fund whether or not such expenses are to be
in whole or part capitalized or treated as
deferred expenses;
5) For the payment of any dividends declared
pursuant to the governing documents of the
Fund;
6) For payment of the amount of dividends
received in respect of securities sold
short;
7) For any other proper purpose, but only upon
--- ----
receipt of, in addition to Proper
Instructions, a certified copy of a
resolution of the Board of Trustees or of
the Executive Committee of the Fund signed
by an officer of the Fund and certified by
its Secretary or an Assistant Secretary,
specifying the amount of such payment,
setting forth the purpose for which such
payment is to be made, declaring such
purpose to be a proper purpose, and naming
the person or persons to whom such payment
is to be made.
2.9 Liability for Payment in Advance of Receipt of Securities
---------------------------------------------------------
Purchased. In any and every case where payment for purchase of
---------
securities for the account of a Portfolio is made by the
Custodian in advance of receipt of the securities purchased in
the absence of specific written instructions from such Portfolio
to so pay in advance,
-13-
<PAGE>
the Custodian shall be absolutely liable to the Portfolio for
such securities to the same extent as if the securities had been
received by the Custodian.
2.10 Payments for Repurchases or Redemptions of Shares of the
--------------------------------------------------------
Fund. From such funds as may be available for the purpose but
----
subject to the limitations of the Declaration of Trust and any
applicable votes of the Board of Trustees of the Fund pursuant
thereto, the Custodian shall, upon receipt of instructions from
the Transfer Agent, make funds available for payment to holders
of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the
redemption or repurchase of Shares of a Portfolio, the Custodian
is authorized upon receipt of instructions from the Transfer
Agent to wire funds to or through a commercial bank designated by
the redeeming shareholders. In connection with the redemption or
repurchase of Shares of the Fund, the Custodian shall honor
checks drawn on the Custodian by a holder of Shares, which checks
have been furnished by the Fund to the holder of Shares, when
presented to the Custodian in accordance with such procedures and
controls as are mutually agreed upon from time to time between
the Fund and the Custodian.
2.11 Appointment of Agents. The Custodian may at any time or times in
---------------------
its discretion appoint (and may at any time remove) any other
bank or trust company which is itself
-14-
<PAGE>
qualified under the Investment Company Act of 1940, as amended,
to act as a custodian, as its agent to carry out such of the
provisions of this Article 2 as the Custodian may from time to
time direct; provided, however, that the appointment of any agent
--------
shall not relieve the Custodian of its responsibilities or
liabilities hereunder.
2.12 Deposit of Fund Assets in Securities Systems. The Custodian may
--------------------------------------------
deposit and/or maintain securities owned by a Portfolio in a
clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of
1934, which acts as a securities depository, or in the book-entry
system authorized by the U.S. Department of the Treasury and
certain federal agencies, collectively referred to herein as
"Securities System" in accordance with applicable Federal Reserve
Board and Securities and Exchange Commission rules and
regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the
Portfolio in a Securities System provided
that such securities are represented in an
account ("Account") of the Custodian in the
Securities System which shall not include
any assets of the Custodian other than
assets held as a fiduciary, custodian or
otherwise for customers;
-15-
<PAGE>
2) The records of the Custodian with respect to
securities of the Portfolio which are
maintained in a Securities System shall
identify by book-entry those securities
belonging to the Portfolio;
3) The Custodian shall pay for securities
purchased for the account of the Portfolio
upon (i) receipt of advice from the
Securities System that such securities have
been transferred to the Account, and (ii)
the making of an entry on the records of the
Custodian to reflect such payment and
transfer for the account of the Portfolio.
The Custodian shall transfer securities sold
for the account of the Portfolio upon (i)
receipt of advice from the Securities System
that payment for such securities has been
transferred to the Account, and (ii) the
making of an entry on the records of the
Custodian to reflect such transfer and
payment for the account of the Portfolio.
Copies of all advices from the Securities
System of transfers of securities for the
account of the Portfolio shall identify the
Portfolio, be maintained for the Portfolio
by the Custodian and be provided to the Fund
at its request. Upon request, the Custodian
-16-
<PAGE>
shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to
or from the account of the Portfolio in the
form of a written advice or notice and shall
furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets
reflecting each day's transactions in the
Securities System for the account of the
Portfolio.
4) The Custodian shall provide the Fund for the
Portfolio with any report obtained by the
Custodian on the Securities System's
accounting system, internal accounting
control and procedures for safeguarding
securities deposited in the Securities
System;
5) The Custodian shall have received the
initial or annual certificate, as the case
may be, required by Article 9 hereof;
6) Anything to the contrary in this Contract
notwithstanding, the Custodian shall be
liable to the Fund for the benefit of the
Portfolio for any loss or damage to the
Portfolio resulting from use of the
Securities System by reason of any
negligence, misfeasance or misconduct of the
Custodian or any of its agents or of any of
its or their employees or from failure of
the
-17-
<PAGE>
Custodian or any such agent to enforce
effectively such rights as it may have
against the Securities System; at the
election of the Fund, it shall be entitled
to be subrogated to the rights of the
Custodian with respect to any claim against
the Securities System or any other person
which the Custodian may have as a
consequence of any such loss or damage if
and to the extent that the Portfolio has not
been made whole for any such loss or damage.
2.12A Fund Assets Held in the Custodian's Direct Paper System.
-------------------------------------------------------
The Custodian may deposit and/or maintain securities owned by a
Portfolio in the Direct Paper System of the Custodian subject to
the following provisions:
1) No transaction relating to securities in the
Direct Paper System will be effected in the
absence of Proper Instructions;
2) The Custodian may keep securities of the
Portfolio in the Direct Paper System only if
such securities are represented in an
account ("Account") of the Custodian in the
Direct Paper System which shall not include
any assets of the Custodian other than
assets held as a fiduciary, custodian or
otherwise for customers;
-18-
<PAGE>
3) The records of the Custodian with respect to
securities of the Portfolio which are
maintained in the Direct Paper System shall
identify by book-entry those securities
belonging to the Portfolio;
4) The Custodian shall pay for securities
purchased for the account of the Portfolio
upon the making of an entry on the records
of the Custodian to reflect such payment and
transfer of securities to the account of the
Portfolio. The Custodian shall transfer
securities sold for the account of the
Portfolio upon the making of an entry on the
records of the Custodian to reflect such
transfer and receipt of payment for the
account of the Portfolio;
5) The Custodian shall furnish the Fund on
behalf of the Portfolio confirmation of each
transfer to or from the account of the
Portfolio, in the form of a written advice
or notice, of Direct Paper on the next
business day following such transfer and
shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets
reflecting each day's transaction in the
Securities System for the account of the
Portfolio;
-19-
<PAGE>
6) The Custodian shall provide the Fund on
behalf of the Portfolio with any report on
its system of internal accounting control as
the Fund may reasonably request from time to
time.
2.13 Segregated Account. The Custodian shall upon receipt of Proper
------------------
Instructions establish and maintain a segregated account or
accounts for and on behalf of each Portfolio, into which account
or accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to
Section 2.12 hereof, (i) in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Exchange Act
and a member of the NASD (or any futures commission merchant
registered under the Commodity Exchange Act), relating to
compliance with the rules of The Options Clearing Corporation and
of any registered national securities exchange (or the Commodity
Futures Trading Commission or any registered contract market),
or of any similar organization or organizations, regarding escrow
or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written
by the Portfolio or commodity futures contracts or options
thereon purchased or sold by the Portfolio, (iii) for the
purposes of compliance by
-20-
<PAGE>
the Portfolio with the procedures required by Investment Company
Act Release No. 10666, or any subsequent release or releases of
the Securities and Exchange Commission relating to the
maintenance of segregated accounts by registered investment
companies and (iv) for other proper corporate purposes, but only,
--- ----
in the case of clause (iv), upon receipt of, in addition to
Proper Instructions, a certified copy of a resolution of the
Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an
Assistant Secretary, setting forth the purpose or purposes of
such segregated account and declaring such purposes to be proper
corporate purposes.
2.14 Ownership Certificates for Tax Purposes. The Custodian shall
---------------------------------------
execute ownership and other certificates and affidavits for all
federal and state tax purposes in connection with receipt of
income or other payments with respect to securities of each
Portfolio held by it and in connection with transfers of
securities.
2.15 Proxies. The Custodian shall, with respect to the securities
-------
held hereunder, cause to be promptly executed by the registered
holder of such securities, if the securities are registered
otherwise than in the name of the Portfolio or a nominee of the
Portfolio, all proxies, without indication of the manner in which
such proxies are to be voted, and shall promptly deliver to the
Portfolio such proxies, all proxy soliciting materials and all
notices relating to such securities.
-21-
<PAGE>
2.16 Communications Relating to Portfolio Securities. The Custodian
-----------------------------------------------
shall transmit promptly to the Fund for each Portfolio all
written information (including, without limitation, pendency of
calls and maturities of securities and expirations of rights in
connection therewith and notices of exercise of call and put
options written by the Fund on behalf of the Portfolio and the
maturity of futures contracts purchased or sold by the Portfolio)
received by the Custodian from issuers of the securities being
held for the Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Portfolio
all written information received by the Custodian from Issuers of
the securities whose tender or exchange is sought and from the
party (or his agents) making the tender or exchange offer. If
the Portfolio desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the
Portfolio shall notify the Custodian at least three business days
prior to the date on which the Custodian is to take such action.
2.17 Proper Instructions. Proper Instructions as used throughout this
-------------------
Article 2 means a writing signed or initialed by one or more
person or persons as the Board of Trustees shall have from time
to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a
specific statement of the purpose for which such action
-22-
<PAGE>
is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such instructions with
respect to the transaction involved. The Fund shall cause all
oral instructions to be confirmed in writing. Upon receipt of a
certificate of the Secretary or an Assistant Secretary as to the
authorization by the Board of Trustees of the Fund accompanied by
a detailed description of procedures approved by the Board of
Trustees, Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices
provided that the Board of Trustees and the Custodian are
satisfied that such procedures afford adequate safeguards for the
Portfolio's assets.
2.18 Actions Permitted without Express Authority. The Custodian may
-------------------------------------------
in its discretion, without express authority from the Fund on
behalf of the Portfolio:
1) make payments to itself or others
for minor expenses of handling
securities or other similar items
relating to its duties under this
Contract, provided that all such
--------
payments shall be accounted for to
the Fund on behalf of the Portfolio;
2) surrender securities in temporary
form for securities in definitive
form;
-23-
<PAGE>
3) endorse for collection, in the name
of the Portfolio, checks, drafts and
other negotiable instruments; and
4) in general, attend to all non-
discretionary details in connection
with the sale, exchange,
substitution, purchase, transfer and
other dealings with the securities
and property of the Portfolio except
as otherwise directed by the Board
of Trustees of the Fund.
2.19 Evidence of Authority. The Custodian shall be protected in
---------------------
acting upon any instructions, notice, request, consent,
certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the
Fund. The Custodian may receive and accept a certified copy of a
vote of the Board of Trustees of the Fund as conclusive evidence
(a) of the authority of any person to act in accordance with such
vote or (b) of any determination or of any action by the Board of
Trustees pursuant to the Declaration of Trust as described in
such vote, and such vote may be considered as in full force and
effect until receipt by the Custodian of written notice to the
contrary.
3. Duties of Custodian with Respect to the Books of Account
--------------------------------------------------------
and Calculation of Net Asset Value and Net Income.
-------------------------------------------------
The Custodian shall cooperate with and supply necessary
information to the entity or entities appointed by the Board of
-24-
<PAGE>
Trustees of the Fund to keep the books of account of each Portfolio and/or
compute the net asset value per share of the outstanding shares of each
Portfolio or, if directed in writing to do so by the Portfolio, shall itself
keep such books of account and/or compute such net asset value per share. If so
directed, the Custodian shall also calculate daily the net income of the
Portfolio as described in the Fund's currently effective prospectus and shall
advise the Fund and the Transfer Agent daily of the total amounts of such net
income and, if instructed in writing by an officer of the Fund to do so, shall
advise the Transfer Agent periodically of the division of such net income among
its various components. The calculations of the net asset value per share and
the daily income of each Portfolio shall be made at the time or times described
from time to time in the Fund's currently effective prospectus.
4. Records
-------
The Custodian shall create and maintain all records relating to
its activities and obligations under this Contract in such manner as will meet
the obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 3la-1 and 3la-2 thereunder,
applicable federal and state tax laws and any other law or administrative rules
or procedures which may be applicable to the Fund. All such records shall be the
property of the Fund and shall at all times during the regular business hours of
the Custodian be open for inspection by duly authorized officers, employees or
agents of the Fund and employees and agents of the
-25-
<PAGE>
Securities and Exchange Commission. The Custodian shall, at the Fund's request,
supply the Fund with a tabulation of securities owned by each Portfolio and held
by the Custodian and shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
5. Opinion of Fund's Independent Accountant
----------------------------------------
The Custodian shall take all reasonable action, as the Fund may
from time to time request, to obtain from year to year favorable opinions from
the Fund's independent accountants with respect to its activities hereunder in
connection with the preparation of the Fund's Form N-lA, and Form N-SAR or other
annual reports to the Securities and Exchange Commission and with respect to any
other requirements of such Commission.
6. Reports to Fund by Independent Public Accountants
-------------------------------------------------
The Custodian shall provide the Fund, at such times as the Fund
may reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian under this Contract; such reports, shall be
of sufficient scope and in sufficient detail, as may reasonably be required by
the Fund to provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.
-26-
<PAGE>
7. Compensation of Custodian
-------------------------
The Custodian shall be entitled to reasonable compensation for
its services and expenses as Custodian, as agreed upon from time to time between
the Fund and the Custodian.
8. Responsibility of Custodian
---------------------------
So long as and to the extent that it is in the exercise of
reasonable care, the Custodian shall not be responsible for the title, validity
or genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties.
The Custodian shall be held to the exercise of reasonable care in carrying out
the provisions of this Contract, but shall be kept indemnified by and shall be
without liability to the Fund for any action taken or omitted by it in good
faith without negligence. It shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice. Notwithstanding the foregoing, the responsibility of the Custodian with
respect to redemptions effected by check shall be in accordance with a separate
Agreement entered into between the Custodian and the Fund.
If the Fund requires the Custodian to take any action with
respect to securities, which action involves the payment of money or which
action may, in the opinion of the Custodian,
-27-
<PAGE>
result in the Custodian or its nominee assigned to the Fund or the Portfolio
being liable for the payment of money or incurring liability of some other form,
the Fund, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Fund requires the Custodian to advance cash or securities
for any purpose for the benefit of a Portfolio or in the event that the
Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any property
at any time held for the account of the Portfolio shall be security therefor and
should the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of the Portfolio's assets to
the extent necessary to obtain reimbursement.
9. Effective Period, Termination and Amendment
-------------------------------------------
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
--------
however that the Custodian shall not act under
-28-
<PAGE>
Section 2.12 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees of the Fund has
approved the initial use of a particular Securities System and the receipt of an
annual certificate of the Secretary or an Assistant Secretary that the Board of
Trustees has reviewed the use by the Fund of such Securities System, as required
in each case by Rule 17f-4 under the Investment Company Act of 1940, as amended
and that the Custodian shall not act under Section 2.12A hereof in the absence
of receipt of an initial certificate of the Secretary or an Assistant Secretary
that the Board of Trustees has approved the initial use of the Direct Paper
System and the receipt of an annual certificate of the Secretary or an Assistant
Secretary that the Board of Trustees has reviewed the use by the Fund of the
Direct Paper System; provided further, however, that the Fund shall not amend or
-------- -------
terminate this Contract in contravention of any applicable federal or state
regulations, or any provision of the Declaration of Trust, and further provided,
that the Fund may at any time by action of its Board of Trustees (i) substitute
another bank or trust company for the Custodian by giving notice as described
above to the Custodian, or (ii) immediately terminate this Contract in the event
of the appointment of a conservator or receiver for the Custodian by the
Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
-29-
<PAGE>
Upon termination of the Contract, the Fund shall pay to the
Custodian such compensation as may be due as of the date of such termination and
shall likewise reimburse the Custodian for its costs, expenses and
disbursements.
10. Successor Custodian
-------------------
If a successor custodian shall be appointed by the Board of
Trustees of the Fund, the Custodian shall, upon termination, deliver to such
successor custodian at the office of the Custodian, duly endorsed and in the
form for transfer, all securities then held by it hereunder and shall transfer
to an account of the successor custodian all of the Portfolio's securities held
in a Securities System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of the Board
of Trustees of the Fund, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor
custodian or certified copy of a vote of the Board of Trustees shall have been
delivered to the Custodian on or before the date when such termination shall
become effective, then the Custodian shall have the right to deliver to a bank
or trust company, which is a "bank" as defined in the Investment Company Act of
1940, doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by
-30-
<PAGE>
the Custodian and all instruments held by the Custodian relative thereto and all
other property held by it under this Contract and to transfer to an account of
such successor custodian all of the Portfolio's securities held in any
Securities System. Thereafter, such bank or trust company shall be the successor
of the Custodian under this Contract.
In the event that securities, funds and other properties remain
in the possession of the Custodian after the date of termination hereof owing
to failure of the Fund to procure the certified copy of the vote referred to or
of the Board of Trustees to appoint a successor custodian, the Custodian shall
be entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
11. Interpretive and Additional Provisions
--------------------------------------
In connection with the operation of this Contract, the Custodian
and the Fund may from time to time agree on such provisions interpretive of or
in addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
--------
shall contravene any applicable federal or state regulations or any provision of
the Declaration of Trust of the Fund. No interpretive or additional
-31-
<PAGE>
provisions made as provided in the preceding sentence shall be deemed to be an
amendment of this Contract.
12. Additional Funds
----------------
In the event that the Fund establishes one or more series of
Shares in addition to the CIGNA Annuity Equity Fund, CIGNA Annuity Income Fund,
CIGNA Annuity Money Market Fund, CIGNA Annuity Growth and Income Fund, CIGNA
Annuity Aggressive Equity Fund, and the Companion Fund with respect to which it
desires to have the Custodian render services as custodian under the terms
hereof, it shall so notify the Custodian in writing, and if the Custodian agrees
in writing to provide such services, such series of Shares shall become a
Portfolio hereunder.
13. Massachusetts Law to Apply
--------------------------
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth of
Massachusetts.
14. Prior Contracts
---------------
This Contract supersedes and terminates, as of the date hereof,
all prior contracts between the Fund and the Custodian relating to the custody
of the Fund's assets.
15. Trust Liability
---------------
Copies of the Master Trust Agreement, as amended, establishing
CIGNA Annuity Funds Group (the "Trust") are on file with the Secretary of the
Commonwealth of Massachusetts, and notice is hereby given that this Custodian
Contract is executed on behalf of the Trust by officers of the Trust as officers
and not Individually and that the obligations of or arising out of
-32-
<PAGE>
this Custodian Contract are not binding upon any of the Trustees, officers,
shareholders, employees or agents of the Trust individually but are binding only
upon the assets and property of the Trust.
IN WITNESS WHEREOF, each of the parties has caused this
instrument to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed as of the 15 day of October,
1987.
ATTEST CIGNA ANNUITY FUNDS GROUP
/s/ Everett E. Clark By: /s/ Alfred A. Bingham III
- ----------------------------------- ------------------------------------
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ J. Farell By: /s/ K. Bergeron
- ----------------------------------- ------------------------------------
Assistant Secretary Vice President
-33-
<PAGE>
DATA ACCESS ADDENDUM TO CUSTODIAN AGREEMENT
-------------------------------------------
AGREEMENT between each fund listed on Appendix A, (individually a
"Fund" and collectively, the "Funds") as amended from time to time, and State
Street Bank and Trust Company ("State Street").
PREAMBLE
WHEREAS, State Street has been appointed as custodian of certain assets
of each Fund pursuant to a certain Custodian Agreement (the "Custodian
Agreement") for each of the respective Funds;
WHEREAS, State Street has developed and utilizes proprietary accounting
and other systems, including State Street's proprietary Multicurrency HORIZON/R/
Accounting System, in its role as custodian of each Fund, and maintains certain
Fund-related data ("Fund Data") in databases under the control and ownership of
State Street (the "Data Access Services"); and
WHEREAS, State Street makes available to each Fund certain Data Access
Services solely for the benefit of the Fund, and intends to provide additional
services, consistent with the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and for other good and valuable consideration, the parties
agree as follows:
1. SYSTEM AND DATA ACCESS SERVICES
a. System. Subject to the terms and conditions of this Agreement, State
------
Street hereby agrees to provide each Fund with access to State Street's
Multicurrency HORIZON/R/ Accounting System and the other information systems
(collectively, the "System") as described in Attachment A, on a remote basis for
the purpose of obtaining reports, solely on computer hardware, system software
and telecommunication links, as listed in Attachment B (the "Designated
Configuration") of the Fund, or certain third parties approved by State Street
that serve as investment advisors or investment managers (the "Investment
Advisor") or independent auditors (the "Independent Auditors") of a Fund and
solely with respect to the Fund or on any designated substitute or back-up
equipment configuration with State Street's written consent, such consent not to
be unreasonably withheld.
b. Data Access Services. State Street agrees to make available to each
--------------------
Fund the Data Access Services subject to the terms and conditions of this
Agreement and data access operating standards and procedures as may be issued by
State Street from time to time. The ability of each Fund to originate electronic
instructions to State Street on behalf of each Fund in order to (i) effect the
transfer or movement of cash or securities held under custody by State
<PAGE>
Street or (ii) transmit accounting or other information (such transactions are
referred to herein as "Client Originated Electronic Financial Instructions"),
and (iii) access data for the purpose of reporting and analysis, shall be deemed
to be Data Access Services for purposes of this Agreement.
c. Additional Services. State Street may from time to time agree to
-------------------
make available to a Fund additional Systems that are not described in the
attachments to this Agreement. In the absence of any other written agreement
concerning such additional systems, the term "System" shall include, and this
Agreement shall govern, a Fund's access to and use of any additional System made
available by State Street and/or accessed by the Fund.
2. NO USE OF THIRD PARTY SOFTWARE
State Street and each Fund acknowledge that in connection with the Data
Access Services provided under this Agreement, each Fund will have access,
through the Data Access Services, to Fund Data and to functions of State
Street's proprietary systems; provided, however that in no event will the Fund
have direct access to any third party systems-level software that retrieves data
for, stores data from, or otherwise supports the System.
3. LIMITATION ON SCOPE OF USE
a. Designated Equipment: Designated Location. The System and the
-----------------------------------------
Data Access Services shall be used and accessed solely on and through the
Designated Configuration at the offices of a Fund or the Investment Advisor or
Independent Auditor located in Hartford/Bloomfield Connecticut ("Designated
Location").
b. Designated Configuration Trained Personnel. State Street shall be
------------------------------------------
responsible for supplying, installing and maintaining the Designated
Configuration at the Designated Location. State Street and each Fund agree that
each will engage or retain the services of trained personnel to enable both
State Street and the Fund to perform their respective obligations under this
Agreement. State Street agrees to use commercially reasonable efforts to
maintain the System so that it remains serviceable, provided, however, that
State Street does not guarantee or assure uninterrupted remote access use of the
System.
c. Scope of Use. Each Fund will use the System and the Data Access
------------
Services only for the processing of securities transactions, the keeping of
books of account for the Fund and accessing data for purposes of reporting and
analysis. Each Fund shall not, and shall cause its employees and agents not to
(i) permit any third party* to use the System or the Data Access Services, (ii)
sell, rent, license or otherwise use the System or the Data Access Services in
the operation of a service bureau or for any purpose other than as expressly
authorized under this Agreement, (iii) use the System or the Data Access
Services for any fund, trust or other investment vehicle without the prior
written consent of State Street, (iv) allow access to the System or the Data
Access Services through terminals or any other computer or telecommunications
facilities located outside the Designated Locations, (v) allow
*except its Investment Adviser
2
<PAGE>
or cause any information (other than portfolio holdings, valuations of portfolio
holdings, and other information reasonably necessary for the management or
distribution of the assets of the Fund) transmitted from State Street's
databases, including data from third party sources, available through use of the
System or the Data Access Services to be redistributed or retransmitted to
another computer, terminal or other device for other than use for or on behalf
of the Fund or (vi) modify the System in any way, including without limitation,
developing any software for or attaching any devices or computer programs to any
equipment, system, software or database which forms a part of or is resident on
the Designated Configuration.
d. Other Locations. Except in the event of an emergency or of a planned
---------------
System shutdown, each Fund's access to services performed by the System or to
Data Access Services at the Designated Location may be transferred to a
different location only upon the prior written consent of State Street. In the
event of an emergency or System shutdown, each Fund may use any back-up site
included in the Designated Configuration or any other back-up site agreed to by
State Street, which agreement will not be unreasonably withheld. Each Fund may
secure from State Street the right to access the System or the Data Access
Services through computer and telecommunications facilities or devices complying
with the Designated Configuration at additional locations only upon the prior
written consent of State Street and on terms to be mutually agreed upon by the
parties.
e. Title. Title and all ownership and proprietary rights to the System,
-----
including any enhancements or modifications thereto, whether or not made by
State Street, are and shall remain with State Street.
f. No Modification. Without the prior written consent of State Street,
---------------
a Fund shall not modify, enhance or otherwise create derivative works based upon
the System, nor shall the Fund reverse engineer, decompile or otherwise attempt
to secure the source code for all or any part of the System.
g. Security Procedures. Each Fund shall comply with data access
-------------------
operating standards and procedures and with user identification or other
password control requirements and other security procedures as may be issued
from time to time by State Street for use of the System on a remote basis and to
access the Data Access Services. Each Fund shall have access only to the Fund
Data and authorized transactions agreed upon from time to time by State Street
and, upon notice from State Street, the Fund shall discontinue remote use of the
System and access to Data Access Services for any security reasons cited by
State Street; provided, that, in such event, State Street shall, for a period
not less than 180 days (or such other shorter period specified by the Fund)
after such discontinuance, assume responsibility to provide accounting services
under the terms of the Custodian Agreement.
h. Inspections. State Street shall have the right to inspect the use of
-----------
the System and the Data Access Services by the Fund and the Investment Advisor
to ensure compliance with this Agreement. The on-site inspections shall be upon
prior written notice to Fund and the Investment Advisor and at reasonably
convenient times and frequencies so as not to result in an unreasonable
disruption of the Fund's or the Investment Advisor's business.
3
<PAGE>
4. PROPRIETARY INFORMATION
a. Proprietary Information. Each Fund acknowledges and State Street
-----------------------
represents that the System and the databases, computer programs, screen formats,
report formats, interactive design techniques, documentation and other
information made available to the Fund by State Street as part of the Data
Access Services and through the use of the System constitute copyrighted, trade
secret, or other proprietary information of substantial value to State Street,
Any and all such information provided by State Street to each Fund shall be
deemed proprietary and confidential information of State Street (hereinafter
"Proprietary Information"). Each Fund agrees that it will hold such Proprietary
Information in confidence and secure and protect it in a manner consistent with
its own procedures for the protection of its own confidential information and to
take appropriate action by instruction or agreement with its employees who are
permitted access to the Proprietary Information to satisfy its obligations
hereunder. Each Fund further acknowledges that State Street shall not be
required to provide the Investment Advisor or the Investment Auditor with access
to the System unless it has first received from the Investment Advisor of the
Investment Auditor an undertaking with respect to State Street's Proprietary
Information in the form of Attachment C and/or Attachment C-1 to this Agreement.
Each Fund shall use all commercially reasonable efforts to assist State Street
in identifying and preventing any unauthorized use, copying or disclosure of the
Proprietary Information or any portions thereof or any of the logic, formats or
designs contained therein.
b. Cooperation. Without limitation of the foregoing, each Fund shall
-----------
advise State Street immediately in the event the Fund learns or has reason to
believe that any person to whom the Fund has given access to the Proprietary
Information, or any portion thereof, has violated or intends to violate the
terms of this Agreement, and each Fund will, at its expense, co-operate with
State Street in seeking injunctive or other equitable relief in the name of the
Fund or State Street against any such person.
c. Injunctive Relief. Each Fund acknowledges that the disclosure of any
-----------------
Proprietary Information, or of any information which at law or equity ought to
remain confidential, will immediately give rise to continuing irreparable injury
to State Street inadequately compensable in damages at law. In addition, State
Street shall be entitled to obtain immediate injunctive relief against the
breach or threatened breach of any of the foregoing undertakings, in addition to
any other legal remedies which may be available.
d. Survival. The provisions of this Section 4 shall survive the
--------
termination of this Agreement.
5. LIMITATION ON LIABILITY
4
<PAGE>
a. Limitation on Amount and Time for Bringing Action. Each Fund agrees
-------------------------------------------------
any liability of State Street to the Fund or any third party arising out of
State Street's provision of Data Access Services or the System under this
Agreement shall be limited to the amount paid by the Fund for the preceding 24
months for such services. In no event shall State Street be liable to the Fund
or any other party for any special, indirect, punitive or consequential damages
even if advised of the possibility of such damages. No action, regardless of
form, arising out of this Agreement may be brought by the Fund more than two
years after the Fund has knowledge that the cause of action has arisen.
b. NO OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, ARE MADE BY STATE STREET. IN NO EVENT WILL STATE STREET BE
LIABLE TO THE FUND OR ANY OTHER PARTY FOR ANY CONSEQUENTIAL OR INCIDENTAL
DAMAGES WHICH MAY ARISE FROM THE FUND'S ACCESS TO THE SYSTEM OR USE OF
INFORMATION OBTAINED THEREBY.
c. Third-Party Data. Organizations from which State Street may obtain
----------------
certain data included in the System or the Data Access Services are solely
responsible for the contents of such data, and State Street shall have no
liability for claims arising out of the contents of such third-party data,
including, but not limited to, the accuracy thereof.
d. Regulatory Requirements. As between State Street and each Fund, the
-----------------------
Fund shall be solely responsible for the accuracy of any accounting statements
or reports produced using the Data Access Services and the System and the
conformity thereof with any requirements of law.
e. Force Majeure. Neither State Street or a Fund shall be liable for
-------------
any costs or damages due to delay or nonperformance under this Agreement arising
out of any cause or event beyond such party's control, including without
limitation, cessation of services hereunder or any damages resulting therefrom
to the other party, or the Fund as a result of work stoppage, power or other
mechanical failure, computer virus, natural disaster, governmental action, or
communication disruption.
6. INDEMNIFICATION
Each Fund agrees to indemnify and hold State Street harmless from any
loss, damage or expense including reasonable attorney's fees, (a "loss")
suffered by State Street arising from (i) the negligence or willful misconduct
in the use by the Fund of the Data Access Services or the System, including any
loss incurred by State Street resulting from a security breach at the Designated
Location or committed by the Fund's employees or agents or the Investment
Advisor or the Independent Auditor of the Fund and (ii) any loss resulting from
incorrect Client Originated Electronic Financial Instructions. State Street
shall be entitled to rely on the validity and authenticity of Client Originated
Electronic Financial Instructions without
5
<PAGE>
undertaking any further inquiry as long as such instruction is undertaken in
conformity with security procedures established by State Street from time to
time.
7. FEES
Fees and charges for the use of the System and the Data Access Services
and related payment terms shall be as set forth in the Custody Fee Schedule in
effect from time to time between the parties (the "Fee Schedule"). Any tariffs,
duties or taxes imposed or levied by any government or governmental agency by
reason of the transactions contemplated by this Agreement, including, without
limitation, federal, state and local taxes, use, value added and personal
property taxes (other than income, franchise or similar taxes which may be
imposed or assessed against State Street) shall be borne by each Fund. Any
claimed exemption from such tariffs, duties or taxes shall be supported by
proper documentary evidence delivered to State Street.
8. TRAINING, IMPLEMENTATION AND CONVERSION
a. Training. State Street agrees to provide training, at a designated
--------
State Street training facility or at the Designated Location, to the Fund's
personnel in connection with the use of the System on the Designated
Configuration. Each Fund agrees that it will set aside, during regular business
hours or at other times agreed upon by both parties, sufficient time to enable
all operators of the System and the Data Access Services, designated by the
Fund, to receive the training offered by State Street pursuant to this
Agreement.
b. Installation and Conversion. State Street shall be responsible for
---------------------------
the technical installation and conversion ("Installation and Conversion") of the
Designated Configuration. Each Fund shall have the following responsibilities in
connection with Installation and Conversion of the System:
(i) The Fund shall be solely responsible for the timely
acquisition and maintenance of the hardware and software that
attach to the Designated Configuration in order to use the
Data Access Services at the Designated Location.
(ii) State Street and the Fund each agree that they will assign
qualified personnel to actively participate during the
Installation and Conversion phase of the System implementation
to enable both parties to perform their respective obligations
under this Agreement.
9. SUPPORT
During the term of this Agreement, State Street agrees to provide the
support services set out in Attachment D to this Agreement.
10. TERM OF AGREEMENT
6
<PAGE>
a. Term of Agreement. This Agreement shall become effective on the date
-----------------
of its execution by State Street and shall remain in full force and effect until
terminated as herein provided.
b. Termination of Agreement. Any party may terminate this Agreement (i)
------------------------
for any reason by giving the other parties at least one-hundred and eighty days'
prior written notice in the case of notice of termination by State Street to the
Fund or thirty days' notice in the case of notice from the Fund to State Street
of termination; or (ii) immediately for failure of the other party to comply
with any material term and condition of the Agreement by giving the other party
written notice of termination. In the event the Fund shall cease doing business,
shall become subject to proceedings under the bankruptcy laws (other than a
petition for reorganization or similar proceeding) or shall be adjudicated
bankrupt, this Agreement and the rights granted hereunder shall, at the option
of State Street, immediately terminate with notice to the Fund. Termination of
this Agreement with respect to any given Fund shall in no way affect the
continued validity of this Agreement with respect to any other Fund. This
Agreement shall in any event terminate as to any Fund within 90 days after the
termination of the Custodian Agreement applicable to such Fund.
c. Termination of the Right to Use. Upon termination of this Agreement
-------------------------------
for any reason, any right to use the System and access to the Data Access
Services shall terminate and the Fund shall immediately cease use of the System
and the Data Access Services. Immediately upon termination of this Agreement for
any reason, the Fund shall return to State Street all copies of documentation
and other Proprietary Information in its possession; provided, however, that in
the event that either State Street or the Fund terminates this Agreement or the
Custodian Agreement for any reason other than the Fund's breach, State Street
shall provide the Data Access Services for a period of time and at a price to be
agreed upon by State Street and the Fund.
11. MISCELLANEOUS
a. Assignment: Successors. This Agreement and the rights and
----------------------
obligations of each Fund and State Street hereunder shall not be assigned by any
party without the prior written consent of the other parties, except that State
Street may assign this Agreement to a successor of all or a substantial portion
of its business, or to a party controlling, controlled by, or under common
control with State Street.
b. Survival. All provisions regarding indemnification, warranty,
--------
liability and limits thereon, and confidentiality and/or protection of
proprietary rights and trade secrets shall survive the termination of this
Agreement.
c. Entire Agreement. This Agreement and the attachments hereto
----------------
constitute the entire understanding of the parties hereto with respect to the
Data Access Services and the use of the System and supersedes any and all prior
or contemporaneous representations or
7
<PAGE>
agreements, whether oral or written, between the parties as such may relate to
the Data Access Services or the System, and cannot be modified or altered except
in a writing duly executed by the parties. This Agreement is not intended to
supersede or modify the duties and liabilities of the parties hereto under the
Custodian Agreement or any other agreement between the parties hereto except to
the extent that any such agreement specifically refers to the Data Access
Services or the System. No single waiver or any right hereunder shall be deemed
to be a continuing waiver.
d. Severability. If any provision or provisions of this Agreement shall
------------
be held to be invalid, unlawful, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired.
e. Governing Law. This Agreement shall be interpreted and construed in
-------------
accordance with the internal laws of The Commonwealth of Massachusetts without
regard to the conflict of laws provisions thereof.
8
<PAGE>
IN WITNESS WHEREOF, each of the undersigned Funds severally
has caused this Agreement to be duly executed in its name and through its duly
authorized officer as of the date hereof.
STATE STREET BANK AND TRUST
COMPANY
By: /s/ Ronald E. Logue
------------------------------------
Title: Executive Vice President
---------------------------------
Date:
----------------------------------
EACH FUND LISTED, ON APPENDIX A
By: /s/ Alfred A. Bingham III
------------------------------------
Title: Vice President and Treasurer
---------------------------------
Date: 8/18/97
----------------------------------
COPIES OF THE MASTER TRUST AGREEMENT ESTABLISHING
THE TRUST ARE ON FILE WITH THE SECRETARY OF THE
COMMONWEALTH OF MASSACHUSETTS, AND NOTICE IS HEREBY
GIVEN THAT THIS DOCUMENT IS EXECUTED ON BEHALF OF
THE TRUST BY AN OFFICER OF THE TRUST AS AN OFFICER
OF THE TRUST AND NOT INDIVIDUALLY AND THAT ANY
OBLIGATIONS OF OR ARISING OUT OF THIS DOCUMENT ARE
NOT BINDING UPON ANY OF THE TRUSTEES, OFFICERS,
SHAREHOLDERS, EMPLOYEES OR AGENT OF THE TRUST
INDIVIDUALLY, BUT ARE BINDING ONLY UPON THE ASSETS
AND PROPERTY OF THE TRUST.
<PAGE>
APPENDIX A
CIGNA Funds Group
CIGNA High Income Shares
CIGNA Institutional Funds Group
CIGNA Variable Products Group
INA Investment Securities, Inc.
<PAGE>
ATTACHMENT A
Multicurrency HORIZON/R/ Accounting System
System Product Description
--------------------------
1. The Multicurrency HORIZON/R/ Accounting System is designed to provide lot
level portfolio and general ledger accounting for SEC and ERISA type
requirements and includes the following services: 1) recording of general ledger
entries; 2) calculation of daily income and expense; 3) reconciliation of daily
activity with the trial balance, and 4) appropriate automated feeding mechanisms
to (i) domestic and international settlement systems, (ii) daily, weekly and
monthly evaluation services, (iii) portfolio performance and analytic services,
(iv) Fund's internal computing systems and (v) various State Street provided
information services products.
II. GlobalQuest/R/ GlobalQuest/R/ is designed to provide Fund access to the
following information maintained on The Multicurrency HORIZON/R/ Accounting
System: 1) cash transactions and balances; 2) purchases and sales; 3) income
receivables; 4) tax refund receivables; 5) daily priced positions; 6) open
trades; 7) settlement status; 8) foreign exchange transactions; 9) trade
history; and 10) daily, weekly and monthly evaluation services.
<PAGE>
ATTACHMENT B ADVISOR
CIGNA INVESTMENT
MANAGEMENT, INC.
- -------------------
STATE STREET [PC GRAPHIC APPEARS HERE]
BANK AND
TRUST
COMPANY
MULTICURRENCY Software is installed for access.
HORIZON/R/ AND Click on icon for access.
GLOBALQUEST/R/
- -------------------
CIGNA FUNDS
DIAL UP ACCESS
CONFIGURATION
<PAGE>
ATTACHMENT C
Undertaking
The undersigned understands that in the course of employment as
Investment Advisor to each fund listed on Appendix A (individually a, "Fund",
collectively, the "Funds"), as amended from time to time, it will have access to
State Street Bank and Trust Company's ("State Street") Multicurrency /R/
Accounting System and other information systems (collectively, the "System").
The undersigned acknowledges that the System and the databases,
computer programs, screen formats, report formats, interactive design
techniques, documentation, and other information made available to the
Undersigned by State Street as part of the Data Access Services provided to the
Fund and through the use of the System constitute copyrighted, trade secret, or
other proprietary information of substantial value to State Street. Any and all
such information provided by State Street to the Undersigned shall be deemed
proprietary and confidential information of State Street (hereinafter
"Proprietary Information"). The Undersigned agrees that it will hold such
Proprietary Information in confidence and secure and protect it in a manner
consistent with its own procedures for the protection of its own confidential
information and to take appropriate action by instruction or agreement with its
employees who are permitted access to the Proprietary Information to satisfy its
obligations hereunder.
The Undersigned will not attempt to intercept data, gain access to data
in transmission, or attempt entry into any system or files for which it is not
authorized. It will not intentionally adversely affect the integrity of the
System through the introduction of unauthorized code or data, or through
unauthorized deletion.
Upon notice by State Street for any reason, any right to use the System
and access to the Data Access Services shall terminate and the Undersigned shall
immediately cease use of the System and the Data Access Services. Immediately
upon notice by State Street for any reason, the Undersigned shall return to
State Street all copies of documentation and other Proprietary Information in
its possession.
CIGNA INVESTMENTS, INC
By: /s/ Alfred A. Bingham III
----------------------------------
Title: Assistant vice President
-------------------------------
Date: 10/31/97
--------------------------------
<PAGE>
ATTACHMENT C- I
Undertaking
The undersigned understands that in the course of its employment
as Independent Auditor to each fund listed on Appendix A (individually a,
"Fund", collectively, the "Funds"), as amended from time to time, it will have
access to State Street Bank and Trust Company's ("State Street") Multicurrency
HORIZON/R/ Accounting System and other information systems (collectively, the
"System").
The undersigned acknowledges that the System and the databases,
computer programs, screen formats, report formats, interactive design
techniques, documentation, and other information made available to the
Undersigned by State Street as part of the Data Access Services provided to the
Fund and through the use of the System constitute copyrighted, trade secret, or
other proprietary information of substantial value to State Street. Any and all
such information provided by State Street to the Undersigned shall be deemed
proprietary and confidential information of State Street (hereinafter
"Proprietary Information"). The Undersigned agrees that it will hold such
Proprietary Information in confidence and secure and protect it in a manner
consistent with its own procedures for the protection of its own confidential
information and to take appropriate action by instruction or agreement with its
employees who are permitted access to the Proprietary Information to satisfy its
obligations hereunder.
The Undersigned will not attempt to intercept data, gain access
to data in transmission, or attempt entry into any system or files for which it
is not authorized. It will not intentionally adversely affect the integrity of
the System through the introduction of unauthorized code or data, or through
unauthorized deletion.
Upon notice by State Street for any reason, any right to use the
System and access to the Data Access Services shall terminate and the
Undersigned shall immediately cease use of the System and the Data Access
Services. Immediately upon notice by State Street for any reason, the
Undersigned shall return to State Street all copies of documentation and other
Proprietary Information in its possession.
[Independent Auditor]
By: /s/ Price Waterhouse LLP
-------------------------------------
Title:
----------------------------------
Date: 11/5/97
-----------------------------------
<PAGE>
ATTACHMENT D
Support
During the term of this Agreement, State Street agrees to provide the
following on-going support services:
a. Telephone Support. The Fund Designated Persons may contact State
-----------------
Street's HORIZON/R/ Help Desk and Fund Assistance Center between the hours of 8
a.m. and 6 p.m. (Eastern time) on all business days for the purpose of obtaining
answers to questions about the use of the System, or to report apparent problems
with the System. From time to time, the Fund shall provide to State Street a
list of persons, not to exceed five in number, who shall be permitted to contact
State Street for assistance (such persons being referred to as "the Fund
Designated Persons").
b. Technical Support. State Street will provide technical support to
-----------------
assist the Fund in using the System and the Data Access Services. The total
amount of technical support provided by State Street shall not exceed 10
resource days per year. State Street shall provide such additional technical
support as is expressly set forth in the fee schedule in effect from time to
time between the parties (the "Fee Schedule"). Technical support, including
during installation and testing, is subject to the fees and other terms set
forth in the Fee Schedule.
c. Maintenance Support. State Street shall use commercially
-------------------
reasonable efforts to correct system functions that do not work according to the
System Product Description as set forth on Attachment A in priority order in the
next scheduled delivery release or otherwise as soon as is practicable.
d. System Enhancements. State Street will provide to the Fund any
-------------------
enhancements to the System developed by State Street and made a part of the
System; provided that, sixty (60) days prior to installing any such enhancement,
State Street shall notify the Fund and shall offer the Fund reasonable training
on the enhancement. Charges for system enhancements shall be as provided in the
Fee Schedule. State Street retains the right to charge for related systems or
products that may be developed and separately made available for use other than
through the System.
e. Custom Modifications. In the event the Fund desires custom
--------------------
modifications in connection with its use of the System, the Fund shall make a
written request to State Street providing specifications for the desired
modification. Any custom modifications may be undertaken by State Street in its
sole discretion in accordance with the Fee Schedule.
f. Limitation on Support. State Street shall have no obligation to
---------------------
support the Fund's use of the System: (1) for use on any computer equipment or
telecommunication facilities which does not conform to the Designated
Configuration or (ii) in the event the Fund has modified the System in breach of
this Agreement.
<PAGE>
Exhibit g(i)
STATE STREET BANK
CUSTODIAN FEE SCHEDULE
CIGNA FUNDS
EFFECTIVE JANUARY 1, 1999
I ADMINISTRATION
--------------
Custody, Portfolio and Fund Accounting Service: Maintain custody of
fund assets. Settle portfolio purchases and sales. Report buy and sell
fails. Determine and collect portfolio income. Make cash disbursements
and report cash transactions. Maintain investment ledgers, provide
selected portfolio transactions, position and income reports. Maintain
general ledger and capital stock accounts. Prepare daily trial
balances. Calculate net asset value daily. Provide selected general
ledger reports.
The administration fee shown below is an annual charge, billed and
payable monthly, based on average monthly net assets.
Custody Portfolio and
Fund Net Assets Fund Accounting
--------------- ---------------
First $20 million 1/10 of 1%
Next $80 million 1/30 of 1%
Excess 1/100 of 1%
Minimum monthly charges: Domestic Portfolio * $1,000
International Portfolio ** $2,000
* NEW FUND PHASE-IN; NO BASE FEE ON NEW DOMESTIC FUNDS FOR ONE TO
THREE MONTHS.
** THE ADMINISTRATION FEE FOR INTERNATIONAL FUNDS REFLECTS
PORTFOLIO AND FUND ACCOUNTING SERVICES ONLY. CUSTODY FEES ARE
LISTED SEPARATELY IN SECTION II.
<PAGE>
II GLOBAL CUSTODY
--------------
Includes: Maintaining custody of fund assets. Settling portfolio
purchases and sales. Reporting buy and sell fails. Determining and
collecting portfolio income. Making cash disbursements and
reporting cash transactions. Monitoring corporate actions.
Withholding foreign taxes. Filing foreign tax reclaims:
A. Holding Fees (basis points per portfolio per annum):
------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
GROUP I Group II Group III Group IV Group V Group VI
==========================================================================================================
<S> <C> <C> <C> <C> <C>
Denmark Australia Austria Belgium Hong Kong Argentina
- ----------------------------------------------------------------------------------------------------------
Euroclear Canada Ireland Finland Italy Brazil
- ----------------------------------------------------------------------------------------------------------
Germany France Netherlands Indonesia Spain Chile
- ----------------------------------------------------------------------------------------------------------
Japan Norway Singapore Malaysia Thailand Greece
- ----------------------------------------------------------------------------------------------------------
New Zealand UK Switzerland Sweden Mexico
- ----------------------------------------------------------------------------------------------------------
Philippines
- ----------------------------------------------------------------------------------------------------------
Turkey
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
USA Group I Group II Group III Group IV Group V Group
VI
===========================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
First $50 mil 3.0 7.0 9.0 11.0 14.0 20.0 30.0
-------------------------------------------------------------------------------------------
Next $50 mil 2.0 6.0 8.0 10.0 13.0 18.0 30.0
-------------------------------------------------------------------------------------------
Over $100 mil 1.0 5.0 7.0 8.0 11.0 11.0 30.0
-------------------------------------------------------------------------------------------
B. Transaction Charges (US dollars):
-------------------
</TABLE>
<TABLE>
<CAPTION>
=======================================================================================================================
USA Group I Group II Group III Group IV Group V Group VI
=======================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
See itemized $30 $60 $75 $100 $125 *Greece/20 basis points
fee schedule per settlement , minimum
$10.00;
Portugal/*Turkey
Turkey/.50 per security
settled; max/$7,500,
min/$250
- -----------------------------------------------------------------------------------------------------------------------
Canada Austria Australia Argentina Indonesia
- -----------------------------------------------------------------------------------------------------------------------
Euroclear Chile Brazil Belgium Philippines
- -----------------------------------------------------------------------------------------------------------------------
Germany Hong Kong Ireland Denmark
- -----------------------------------------------------------------------------------------------------------------------
Japan Italy Mexico Finland
- -----------------------------------------------------------------------------------------------------------------------
Netherlands Spain France
- -----------------------------------------------------------------------------------------------------------------------
Switzerland Sweden New Zealand
- -----------------------------------------------------------------------------------------------------------------------
UK Thailand Norway
- -----------------------------------------------------------------------------------------------------------------------
Singapore
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* TRANSACTION CHARGE WAIVED IF BROKERAGE PROVIDED BY NATIONAL SECURITIES COMPANY
<PAGE>
III PORTFOLIO TRADES - For each line item processed:
---------------- -----------------------------
State Street Bank repos $7.00
DTC trades $10.00
Fed Book Entry $15.00
New York physical settlements $30.00
All other trades $16.00
Boston book entry $20.00
Maturity collections $8.00
IV OPTIONS
-------
Option charge for each option written or closing,
contract, per issue, per broker $25.00
Option expiration charge, per issue, per broker $15.00
Option exercised charge, per issue, per broker $15.00
V LENDING OF SECURITIES
---------------------
Deliver loaned securities versus cash collateral $20.00
Deliver loaned securities versus securities collateral $30.00
Receive/deliver additional cash collateral $6.00
Substitutions of securities collateral $30.00
Deliver cash collateral versus receipt of loaned securities $15.00
Deliver securities collateral versus receipt of loaned
securities $25.00
Loan administration - mark-to-market per day, per loan $3.00
VI INTEREST RATE FUTURES
---------------------
Transactions - no security movement $ 8.00
VII COUPON BONDS
------------
Monitor calls and process coupons - for each coupon issue
held - monthly charge $ 5.00
<PAGE>
VIII HOLDING CHARGE
--------------
For each issue maintained - monthly charge $ 5.00
IX PRINCIPAL REDUCTION PAYMENTS
----------------------------
Per paydown $10.00
X DIVIDEND CHARGES (for items held at the request of traders
----------------
over record date in street form) $75.00
XI SPECIAL SERVICES
----------------
Fees for activities of a non-recurring nature such as fund
consolidations or reorganizations, extraordinary security shipments,
and the preparation of special reports will be subject to negotiation.
Fees for tax accounting/recordkeeping for options, financial futures,
and other special items will be negotiated separately.
XII OUT OF POCKET EXPENSES
----------------------
A billing for the recovery of applicable out of pocket expenses will be
made as of the end of each month. Out of pocket expenses include but
are not limited to the following:
Telephone
Wire charges ($4.75 per wire in and $4.55 out)
Postage and Insurance
Courier service
Duplicating
Legal fees
Supplies related to fund records
Rush transfer - $8.00 each
Transfer fees
Subcustodian charges
Price Waterhouse Audit Letter
Federal Reserve fee for return check items over
$2,500 - $4.25
GNMA transfer - $15 each
Rapicom lease and supplies
XIII PAYMENT
-------
The above fees are expected to be paid within 30 days of receipt of
invoice.
<PAGE>
CIGNA INSTITUTIONAL FUNDS GROUP
- -------------------------------
CIGNA International Stock Fund
CIGNA Funds Group
- -----------------
CIGNA Money Market Fund
CIGNA S&P 500 Index Fund
CIGNA Income Fund
*CIGNA Government Obligations Cash Fund
*CIGNA Government Securities Fund
*CIGNA Treasury Obligations Cash Fund
*CIGNA High Yield Fund
CIGNA Variable Products Group
- -----------------------------
CIGNA Variable Products S&P 500 Index Fund
CIGNA Variable Products Money Market Fund
*CIGNA Variable Products Income Fund
*CIGNA Variable Products Intermediate Bond Index Fund
*CIGNA Variable Products Long-Term Bond Index Fund
*CIGNA Variable Products Utility Index Fund
*CIGNA Variable Products REIT Index Fund
*CIGNA Variable Products Small Cap Index Fund
*CIGNA Variable Products International Index Fund
*CIGNA Variable Products Emerging Markets Index Fund
*CIGNA Variable Products High Yield Fund
*CIGNA Variable Products International Stock Fund
INA Investment Securities, Inc.
CIGNA High Income Shares
Copies of the Master Trust Agreements establishing CIGNA Institutional Funds
Group, CIGNA Funds Group, CIGNA Variable Products Group and CIGNA High Income
Shares (the "Trusts"), are on file with the Secretary of the Commonwealth of
Massachusetts, and notice is hereby given that this agreement is executed on
behalf of the Trusts by an officer of the Trusts, as an officer and not
individually, and that the obligations of or arising out of this agreement are
not binding upon any of the trustees, officers, shareholders, employees, agents
or any subsequent series of the Trusts, either individually or collectively, but
are binding only upon the assets or property of the series of the Trusts listed
above.
This Custodian Fee Schedule supersedes all prior fee schedules.
For each of the above:
CIGNA FUNDS STATE STREET BANK AND TRUST COMPANY.
By: /s/ Alfred A. Bingham III By: /s/ James M. Curran
----------------------------- ------------------------------
Title: Vice President & Treasurer Title: Vice President
----------------------------- ------------------------------
Date: 12/16/98 Date: 12-18-98
----------------------------- ------------------------------
*Not active as of January 1, 1999
<PAGE>
Exhibit h(vi)
AMENDMENT NO. 1 TO PARTICIPATION AGREEMENT
------------------------------------------
Among
CIGNA VARIABLE PRODUCTS GROUP,
------------------------------
CIGNA FINANCIAL SERVICES, INC.
------------------------------
and
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
------------------------------------------
AMENDMENT NO. 1 TO THE PARTICIPATION AGREEMENT, made as of December
1, 1998 by and among CONNECTICUT GENERAL LIFE INSURANCE COMPANY (the "Company"),
a Connecticut corporation, on its own behalf and on behalf of each segregated
asset account of the Company set forth on Schedule A hereto as may be amended
from time to time (each such account hereinafter referred to as the "Account"),
and CIGNA VARIABLE PRODUCTS GROUP, an unincorporated business trust organized
under the laws of the Commonwealth of Massachusetts (the "Fund") and CIGNA
Financial Services, Inc. (the "Underwriter"), a Connecticut corporation.
WITNESSETH:
WHEREAS, the Company, the Fund and the Underwriter entered into a
participation agreement dated as of December 1, 1997 (the "Agreement"); and
WHEREAS, the Company, the Fund and the Underwriter desire to amend
the Agreement by adding Connecticut General Life Insurance Company Private
Placement Variable Universal Life Separate Account PG to those Accounts set
forth on Schedule A to the Agreement;
NOW, THEREFORE, the Company, the Fund and the Underwriter amend the
Agreement by deleting Schedule A and replacing it with Schedule A attached
hereto.
- 1 -
<PAGE>
IN WITNESS WHEREOF each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative as of the date specified above.
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
/s/ Jeffrey S. Winer
By:________________________________________
Jeffrey S. Winer
Name:______________________________________
Vice President and Secretary
Title:_____________________________________
CIGNA VARIABLE PRODUCTS GROUP
/s/ Jeffrey S. Winer
By:________________________________________
Jeffrey S. Winer
Name:______________________________________
Vice President and Secretary
Title:_____________________________________
CIGNA FINANCIAL SERVICES, INC.
/s/ Willard S. Bashan
By:________________________________________
Willard S. Bashan
Name:______________________________________
President
Title:_____________________________________
- 2 -
<PAGE>
Schedule A
----------
The following is a list of separate accounts and contract forms for which one or
more portfolios of CIGNA Variable Products Group are to be made available by
Connecticut General Life Insurance Company:
Policy Form Numbers of Contracts
Name of Separate Account Funded By Separate Account
- ----------------------- ----------------------------
CG Variable Life Insurance XX605481 - Group Flexible Premium Variable Life
Separate Account A Insurance Policy, - Nonpar
established May 22, 1995
CG Variable Life Insurance LN605, LN615 and state variations thereof
Separate Account II,
established July 6, 1994
CG Corporate Insurance LN620, together with riders, and state variation
Variable Life Insurance thereof
Account 02, established
February 23, 1996
CG Variable Life Insurance LN601, together with riders, and state variation
Separate Account FE, thereof
established March 21, 1997
CG Variable Annuity Separate AN425, AN426, together with riders, and state
Account II, established variation thereof
January 25, 1994
CG Variable Annuity Account I
established March 12, 1968
CG Variable Annuity Account II
established March 12, 1968
Connecticut General Life LN604, together with riders, and state variation
Insurance Company thereof
Private Placement Variable
Universal Life
Separate Account PG
established November 25, 1998
- 3 -
<PAGE>
Exhibit h(viii)
CIGNA FUNDS GROUP
CIGNA INSTITUTIONAL FUNDS GROUP
CIGNA VARIABLE PRODUCTS GROUP
POWER OF ATTORNEY
The undersigned hereby appoints Alfred A. Bingham III and Jeffrey S. Winer, each
of them singly and with full power of substitution, attorney-in-fact and agent
for me and in my name and on my behalf in any and all capacities to sign any
Registration Statement under the Securities Act of 1933, as amended, any
Registration Statement under the Investment Company Act of 1940, as amended, or
any filing under the securities laws of any of the states of the United States
of America or of any jurisdiction ("Blue Sky Law") for CIGNA Funds Group, CIGNA
Institutional Funds Group and CIGNA Variable Products Group and any amendment to
any such Registration Statement or any Blue Sky Law filing with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, and under
the Investment Company Act of 1940, as amended, or with the appropriate state
agency under the applicable Blue Sky Laws, to file such Registration Statements,
amendments and filings and generally to do and perform all things necessary to
be done in that connection, hereby ratifying and confirming my signature as it
may be signed by said attorney-in-fact and agent to any and all Registration
Statements and amendments thereto and to any and all Blue Sky Law filings and
amendments thereto and ratifying and confirming all other acts that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue of this
appointment.
Signed this 1st day of December, 1998.
/s/ Richard H. Forde
--------------------------------------
Richard H. Forde
Chairman of the Board, President and
Trustee
CIGNA Funds Group
CIGNA Institutional Funds Group
/s/ Richard H. Forde
--------------------------------------
Richard H. Forde
President
CIGNA Variable Products Group
<PAGE>
CIGNA FUNDS GROUP
CIGNA INSTITUTIONAL FUNDS GROUP
CIGNA VARIABLE PRODUCTS GROUP
POWER OF ATTORNEY
The undersigned hereby appoint Alfred A. Bingham III and Jeffrey S. Winer, each
of them singly and with full power of substitution, attorney-in-fact and agent
for me and in my name and on my behalf in any and all capacities to sign any
Registration Statement under the Securities Act of 1933, as amended, any
Registration Statement under the Investment Company Act of 1940, as amended, or
any filing under the securities laws of any of the states of the United States
of America or of any jurisdiction ("Blue Sky Law") for CIGNA Funds Group, CIGNA
Institutional Funds Group and CIGNA Variable Products Group and any amendment to
any such Registration Statement or any Blue Sky Law filing with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, and under
the Investment Company Act of 1940, as amended, or with the appropriate state
agency under the applicable Blue Sky Laws, to file such Registration Statements,
amendments and filings and generally to do and perform all things necessary to
be done in that connection, hereby ratifying and confirming my signature as it
may be signed by said attorney-in-fact and agent to any and all Registration
Statements and amendments thereto and to any and all Blue Sky Law filings and
amendments thereto and ratifying and confirming all other acts that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue of this
appointment.
Signed this 24th day of February, 1998.
/s/ R. Bruce Albro
--------------------------------------
R. Bruce Albro,
Chairman of the Board, President and
Trustee
/s/ Hugh R. Beath
--------------------------------------
Hugh R. Beath, Trustee
/s/ Russell H. Jones
--------------------------------------
Russell H. Jones, Trustee
/s/ Thomas C. Jones
--------------------------------------
Thomas C. Jones, Trustee
/s/ Paul J. McDonald
--------------------------------------
Paul J. McDonald, Trustee
