<PAGE>
SECURITIES ACT FILE NO. 33-52724
INVESTMENT COMPANY ACT FILE NO. 811-7236
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
Pre-Effective Amendment No. [_]
---
Post-Effective Amendment No. 6 [X]
---
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 7 [x]
---
(Check appropriate box or boxes.)
CIGNA Institutional Funds Group
(Exact Name of Registrant as Specified in Charter)
950 Winter Street, Suite 1200, Waltham, Massachusetts 02154
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (800) 528-6718
Alfred A. Bingham III, 950 Winter Street, Suite 1200
Waltham, Massachusetts 02154
(Name and Address of Agent for Service)
-------------------------
Approximate Date of Proposed Public Offering: Continuous
----------
It is proposed that this filing will become effective (check appropriate box):
[_] Immediately upon filing pursuant to paragraph (b)
[X] on April 30, 1997 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
-------------------------
DECLARATION PURSUANT TO RULE 24f-2 UNDER THE INVESTMENT COMPANY ACT OF 1940
Registrant hereby declares pursuant to Rule 24f-2(a)(1) under the Investment
Company Act of 1940 that Registrant has registered an indefinite number of
shares under the Securities Act of 1933 and has paid the registration fee
appropriate thereto. The Rule 24f-2 Notice for the most recent fiscal year of
Registrant was filed electronically with the Securities and Exchange Commission
on February 28, 1997.
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<PAGE>
CROSS-REFERENCE SHEET
Showing the location in the Prospectus (Part A) and the Statement of Additional
Information (Part B) of the information required to be included in response to
the items of Form N-1A:
Part A
<TABLE>
<CAPTION>
Item Number Prospectus Caption
- ----------- ------------------
<S> <C>
1. Cover Page Cover Page
2. Synopsis Expense Table
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant About the Funds; Investment
Programs; Certain Restrictions;
Appendix
5. Management of the Fund Management of the Funds; The
Trusts, Their Shares and Board
of Trustees
5A. Management's Discussion of Fund Performance Performance Information
6. Capital Stock and Other Securities Dividends and Capital Gains
Distributions; Tax Matters; The
Trusts, Their Shares and Board
of Trustees
7. Purchase of Securities Being Offered Pricing of Shares; Purchase and
Redemption of Shares; Cover Page
8. Redemption or Repurchase Purchase and Redemption of Shares
9. Pending Legal Proceedings Not Applicable
<CAPTION>
Part B
Item Number Statement of Additional Information
- ----------- -----------------------------------
<S> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History General Information About the Trusts
13. Investment Objectives and Investment Objectives and
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Policies Policies; Futures Contracts; Options
on Futures Contracts; Risks as to Futures
Contracts and Related Options; Foreign
Currency Transactions; Investment
Restrictions; Description of Money Market
Instruments; Rating of Securities; Portfolio
Turnover and Brokerage Allocation
14. Management of the Fund Management of the Trusts
15. Control Persons Control Persons and Principal Holder of Securities
16. Investment Advisory and Other Services Investment Advisory and Other Services; Services Fees
17. Brokerage Allocation and Other Practices Portfolio Turnover and Brokerage Allocation; Activities
of Affiliated Companies
18. Capital Stock and Other Securities Classes of Shares
19. Purchase, Redemption and Pricing Purchase, Redemption and Pricing of Securities;
of Securities Being Offered Redemption Paid in Cash
20. Tax Status Tax Matters
21. Underwriters Underwriter
22. Calculation of Performance Data Performance Information
23. Financial Statements Incorporated By Reference
</TABLE>
Part C
The information required to be included in response to the items in Part C of
Form N-1A is set forth under the appropriate item, so numbered, in Part C to
this Registration Statement.
Page 2
<PAGE>
CIGNA MONEY MARKET FUND
CIGNA TREASURY OBLIGATIONS CASH FUND
CIGNA GOVERNMENT OBLIGATIONS CASH FUND
CIGNA GOVERNMENT SECURITIES FUND
CIGNA INCOME FUND Principal Underwriter:
CIGNA HIGH YIELD FUND CIGNA Financial Advisors, Inc.
CIGNA INTERNATIONAL STOCK FUND Hartford, CT 06152
CIGNA S&P 500 INDEX FUND
PROSPECTUS
MAY 1, 1997
This Prospectus contains information about the mutual funds listed above (the
"Funds"). CIGNA International Stock Fund is a separate series portfolio of
CIGNA Institutional Funds Group. The other Funds are separate series portfolios
of CIGNA Funds Group. Each Fund has distinct investment objectives and
policies. The investment objectives of each Fund are listed on the inside cover
page.
This prospectus sets forth concisely the information about the Funds that a
prospective investor ought to know before investing. Additional information
about the Funds, contained in a Statement of Additional Information dated May 1,
1997, has been filed with the Securities and Exchange Commission and is
available upon request without charge by writing to the Funds at 950 Winter
Street, Suite 1200, Waltham, Massachusetts 02154. The Funds' telephone number is
(800) 528-6718. The Statement of Additional Information is incorporated by
reference into this prospectus. The Statement of Additional Information is not a
prospectus.
- ---------------------------------------------------------------------------
Please read this prospectus and retain it for future reference.
The Funds' shares are not federally insured or guaranteed by the U.S.
Government, the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other agency. Shares of the Funds involve investment risks, including
the possible loss of principal.
CIGNA High Yield Fund may invest up to 100% of its net assets in non-investment
grade debt securities, commonly referred to as "junk bonds." Junk bonds are
considered to be speculative, and entail greater risks, including default risks,
than those found in higher rated securities. Purchasers should carefully
consider the risks associated with an investment in this Fund prior to
investing. See "Investment Programs - High Yield Fund."
CIGNA Money Market Fund, CIGNA Government Obligations Cash Fund and CIGNA
Treasury Obligations Cash Fund seek to maintain a stable net asset value of
$1.00 per share. However, there can be no assurance that these funds will be
able to maintain a stable net asset value of $1.00 per share.
- -----------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- -----------------------------------------------------------------------------
Page 1
<PAGE>
INVESTMENT OBJECTIVES
The investment objectives of the Funds are as follows:
CIGNA Money Market Fund: To provide as high a level of current income as is
consistent with the preservation of capital and liquidity and the maintenance
of a stable $1.00 per share net asset value by investing in short-term money
market instruments.
CIGNA Treasury Obligations Cash Fund: To provide as high a level of current
income as is consistent with the preservation of capital and liquidity and the
maintenance of a stable $1.00 per share net asset value by investing in short-
term U.S. Treasury bills, notes and bonds and other direct obligations of the
U.S. Treasury.
CIGNA Government Obligations Cash Fund: To provide as high a level of current
income as is consistent with the preservation of capital and liquidity and the
maintenance of a stable $1.00 per share net asset value by investing in a
portfolio of short-term U.S. Government securities.
CIGNA Government Securities Fund: To achieve a high level of current income
consistent with reasonable concern for safety of principal by investing in
debt securities issued, guaranteed or otherwise backed by the U.S. Government,
its agencies, authorities or instrumentalities.
CIGNA Income Fund: To provide as high a level of current income as possible
consistent with reasonable concern for safety of principal by investing
primarily in investment grade corporate debt securities and U.S. Government
securities.
CIGNA High Yield Fund: To provide the highest current income attainable
consistent with reasonable risk through investment primarily in high yield,
high risk non-investment grade debt securities.
CIGNA International Stock Fund: To provide long-term growth of capital by
investing primarily in common stocks, preferred stocks and convertible debt of
companies based outside the United States.
CIGNA S&P 500 Index Fund: To achieve long-term growth of capital by investing
principally in common stocks of companies in the Standard & Poor's 500
Composite Stock Price Index ("S&P 500"), an index emphasizing large-
capitalization stocks.
Each Fund pursues its investment objective through separate investment
policies, and is managed separately by the investment adviser, CIGNA
Investments, Inc. ("CIGNA Investments"). The investment objective of each
Fund is deemed to be a fundamental policy which may not be changed without the
approval of a majority of the Fund's outstanding shares (within the meaning of
the Investment Company Act of 1940, as amended (the "1940 Act")). Further
information is available in the Statement of Additional
Page 2
<PAGE>
Information. There are risks in the ownership of any security and no assurance
can be given that any particular Fund will achieve its investment objective.
SUMMARY
CIGNA Funds Group and CIGNA Institutional Funds Group (the "Trusts") are open-
end management investment companies currently consisting of eight investment
portfolios, referred to in this prospectus as the Funds. Each Fund proposes to
operate as a diversified management investment company. Each Fund offers two
classes of shares: the institutional class and the retail class. Both classes of
shares are offered to institutional investors, including financial institutions,
endowments, foundations and corporations, employer-sponsored retirement or
savings plans, such as tax qualified pension and profit sharing plans and 401(k)
thrift plans, as well as 403(b) custodial accounts for non-profit educational
and charitable organizations. In addition, the retail class is also offered to
Individual Retirement Accounts ("IRAs"), Rollover IRAs, Simplified Employee
Pension Plans and individual investors. Shares of the retail class are offered
to those investors who require or desire additional shareholders services that
are not provided to shareholders of the institutional class. Retail class
shareholders pay the costs associated with the provision of these services.
Please refer to "Purchase and Redemption of Shares" in this Prospectus for a
description of how to purchase and redeem shares of a Fund.
Each Fund has its own distinct investment objective. These objectives are
described in more detail under the heading "Investment Objectives." Although
each Fund will be managed by experienced professionals, there can be no
assurance that the objectives will be achieved.
There are levels of risk involved with each Fund. For fixed income securities,
there is the risk that interest rates will change, thereby affecting the value
of the securities. Generally, the value of fixed income securities declines as
interest rates rise, and conversely, their value rises as interest rates
decline. There is also a credit risk; that is, a risk related to the financial
ability of an issuer to make periodic interest payments and ultimately repay the
principal at maturity. For equity securities, there is the market risk
associated with movement of the stock market in general. In addition, there is
the financial risk related to earnings stability and overall financial soundness
of individual issuers and of issuers collectively which are a part of a
particular industry. For foreign securities, there are additional risks
associated with currency values, the political and regulatory environment, and
overall economic factors in the countries in which a Fund invests. See "Certain
Investment Strategies and Policies" for a discussion of these risks.
CIGNA Funds are "no-load" investments, which means there are no sales charges
or commissions. CIGNA Funds have no 12b-1 plan or deferred sales charges.
3
<PAGE>
CIGNA Investments, the Funds' adviser, provides each Fund with investment advice
and other services. Each Fund pays CIGNA Investments a management fee for the
management of investments and business affairs. For a discussion of these
services, please see "Management of the Funds."
The above information is qualified in its entirety by the detailed information
appearing elsewhere in this prospectus and the Statement of Additional
Information.
4
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
INVESTMENT OBJECTIVES.............................................. 2
SUMMARY ........................................................... 3
EXPENSE TABLE...................................................... 5
FINANCIAL HIGHLIGHTS............................................... 8
ABOUT THE FUNDS.................................................... 10
INVESTMENT PROGRAMS................................................ 10
CERTAIN INVESTMENT STRATEGIES AND POLICIES......................... 18
INVESTMENT RESTRICTIONS............................................ 28
PURCHASE AND REDEMPTION OF SHARES.................................. 29
PRICING OF SHARES ................................................. 31
MANAGEMENT OF THE FUNDS............................................ 33
PERFORMANCE INFORMATION............................................ 37
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.......................... 40
TAX MATTERS........................................................ 40
THE TRUSTS, THEIR SHARES AND BOARD OF TRUSTEES..................... 41
APPENDIX - DESCRIPTION OF MONEY MARKET INSTRUMENTS AND
OF RATING CATEGORIES ........................................... 43
</TABLE>
5
<PAGE>
EXPENSE TABLE
The following Expense Tables list the transaction expenses and annual operating
expenses related to an investment in each of the Funds. Shareholder transaction
expenses are charges you pay when you buy, sell, exchange or hold shares of a
Fund. The expenses and fees set forth in the Tables are for the fiscal year
beginning January 1, 1997.
Shareholder Transaction Expenses
<TABLE>
<CAPTION>
All Series
----------
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of the offering price)............................... None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of the offering price).................... None
Deferred Sales Load (as a percentage of original purchase price or redemption proceeds as applicable)......... None
Redemption Fees (as a percentage of amount redeemed, if applicable)........................................... None
Exchange Fee.................................................................................................. None
</TABLE>
Page 6
<PAGE>
Annual Fund Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Total Fund Operating Expenses (Reflects
Management Other Operating Expenses /1/ expense limitation. See Footnotes /1/
Institutional Class Fees/1/ 12b-1Fees (Reflects expense limitation) and /2/ below)
- -------------------
<S> <C> <C> <C> <C>
Money Market Fund .35 None .10 .45
Treasury Obligations Cash .35 None .10 .45
Fund
Government Obligations .35 None .10 .45
Cash Fund
Government Securities Fund .50 None .20 .70
Income Fund .50 None .20 .70
High Yield Fund .75 None .15 .90
International Stock Fund .80 None .30 1.10
S&P 500 Index Fund .25 None .10 .35
====================================================================================================================================
Retail Class
- ------------
Money Market Fund .35 None .35 .70
Government Obligations
Cash Fund .35 None .35 .70
Treasury Obligations Cash
Fund .35 None .35 .70
Government Securities Fund .50 None .50 1.00
Income Fund .50 None .50 1.00
High Yield Fund .75 None .45 1.20
International Stock Fund .80 None .65 1.45
S&P 500 Index Fund .25 None .20 .45
====================================================================================================================================
</TABLE>
-------------------------------------------
/1/For a more complete description of the Management Fees, see "Management of
the Funds." CIGNA Investments, the Funds' investment adviser, has voluntarily
agreed, as to each Fund, to reimburse such portion of its management fee as is
necessary to cause the Total Fund Operating Expenses of each class of each Fund
(exclusive of certain expenses) not to exceed the percentages of average daily
net asset value of each class of each Fund as set forth above as Total Fund
Operating Expenses.
If this reimbursement is not sufficient to cause the Total Fund Operating
Expenses of any class of each Fund not to exceed the applicable percentage of
average daily net asset value, CIGNA Investments, Inc. has agreed to pay such
other expenses of the applicable Fund as is necessary to keep Total Fund
Operating Expenses from exceeding the applicable percentage. These arrangements
will continue in effect until April 30, 1998, and afterwards to the extent
described in the Funds' then current prospectus. To the extent management fees
are reimbursed by CIGNA Investments, Inc., or expenses of a Fund are paid by
CIGNA Investments, Inc., the total return to shareholders will increase. Total
return to shareholders will decrease to the extent management fees are no
longer reimbursed or expenses of a Fund are no longer paid.
/2/Total Fund Operating Expenses for the Money Market Fund, Income Fund and
International Stock Fund for 1996, before expense reimbursement, were .69%,
5.62% and 2.61% respectively, of their average daily Net Asset values. Other
Operating Expenses for all other Funds are based on estimated amounts for the
current fiscal year, after expense reimbursements. Absent the voluntary expense
limitations, estimated Other Operating Expenses and Total Fund Operating
Expenses (assuming average daily net assets of $5,000,000 per Fund) as a
percentage of average daily Net Asset Values would be as follows, respectively:
Treasury Obligations Cash - 2.57%, 2.92%; Government Obligations Cash - 2.57%,
2.92%; Government Securities - 2.54%, 3.04%; High Yield - 2.53%, 3.28%; S&P 500
Index - 2.62%, 2.87%. It is not expected that Total Fund Operating Expenses
(absent voluntary expense limitations) would materially vary between classes
until the classes have a substantial number of shareholders.
7
<PAGE>
Annual Fund Operating Expenses (Continued)
Example of Fund Expenses:
The following example illustrates the expenses that you would pay on a $1,000
investment over various time periods assuming (1) a 5% annual rate of return,
and (2) redemption at the end of each time period. As noted above, the Funds
charge no redemption fees of any kind.
<TABLE>
<CAPTION>
Institutional Class
Money Treasury Government Government High S&P 500
Market Obligations Obligations Securities Income Yield International Index
Fund Cash Fund Cash Fund Fund Fund Fund Stock Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 5 $ 5 $ 5 $ 7 $ 7 $ 9 $ 11 $ 4
3 years $ 14 $ 14 $ 14 $ 22 $ 22 $ 29 $ 35 $ 11
5 years $ 25 $ 61
10 years $ 57 $134
=============================================================================================================
Retail Class
Money Treasury Government Government High S&P 500
Market Obligations Obligations Securities Income Yield International Index
Fund Cash Fund Cash Fund Fund Fund Fund Stock Fund Fund
1 year $ 7 $ 7 $ 7 $ 10 $ 10 $ 12 $ 15 $ 5
3 years $ 22 $ 22 $ 22 $ 32 $ 32 $ 38 $ 46 $ 14
5 years $ 55
10 years $122
=============================================================================================================
</TABLE>
The purpose of the Expense Table is to assist the investor in understanding the
various costs and expenses that an investor will bear directly or indirectly.
For the purpose of the example, assume reinvestment of all dividends and
distributions. This example assumes that the estimated voluntary expense
limitations effective in 1997 would be in place for the entire periods
indicated. CIGNA Investments has reserved the right to terminate or revise these
limitations at any time after April 30, 1998. The Example should not be
considered a representation of past or future expenses. Actual expenses may be
greater or less than those shown.
8
<PAGE>
Total Fund Operating Expenses for each Fund's retail class are higher than the
Total Fund Operating Expenses for each Fund's institutional class due to the
costs associated with providing retail class shareholders with additional
services. Please refer to "Management of the Funds - Service Expenses - Retail
Shares" for a more complete description of these services.
9
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights of the following Funds for a share
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants, whose report on the financial statement, including this
information, was unqualified. This information should be read in conjunction
with the Funds' financial statements and notes thereto, which, together with
remaining portions of the Funds' 1996 Annual Report to Shareholders, are
incorporated by reference in the Statement of Additional Information and in this
Prospectus, and which appears, along with the report of Price Waterhouse LLP, in
the Funds' 1996 Annual Report to Shareholders. For a more complete discussion
of the Funds' performance, please see the Funds' 1996 Annual Report to
Shareholders which may be obtained without charge by writing to the Fund or
calling (860) 726-3700.
<TABLE>
<CAPTION>
Year Ended December 31
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ------------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUND /1/
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year.......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income from Investment
Operations
Net Investment Income*......... .0479 .0516 .0337 .0237 .0334 .0561 .0755 .0861 .0705 .0622
Net Realized & Unrealized Gain
on Investments................ .0001 .0003 - - - - - - - -
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from Investment
Operations.................... .0480 .0519 .0337 .0237 .0334 .0561 .0755 .0861 .0705 .0622
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Less: Distributions
Dividends from Net Investment
Income........................ (.0479) (.0516) (.0337) (.0237) (.0334) (.0561) (.0755) (.0861) (.0705) (.0622)
Distributions From Realized
Capital Gains................. (.0001) (.0003) - - - - - - - -
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions............ (.0480) (.0519) (.0337) (.0237) (.0334) (.0561) (.0755) (.0861) (.0705) (.0622)
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value End of Year.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return................... 4.91% 5.33% 3.43% 2.39% 3.36% 5.75% 7.82% 8.96% 7.29% 6.40%
Ratios and Supplemental Data:
Net Assets at End of Year (000
omitted)...................... $120,505 $ 1,034 $16,673 $20,508 $25,808 $32,555 $41,818 $45,337 $47,825 $54,701
Ratio of Expenses to Average
Net Assets.................... 0.45%a 0.80%a 1.00%a 1.00%a 0.84% 0.81% 0.81% 0.77% 0.75% 0.69%
Ratio of Net Investment Income
to Average Net Assets......... 4.95%b 5.38%b 3.32%b 2.39%b 3.35% 5.66% 7.55% 8.62% 7.04% 6.22%
Portfolio Turnover Rate........ - - - - - - - - - -
</TABLE>
a. Ratio of expenses to average net assets prior to reduction of advisory fee
were 0.69%, 1.21%, 1.11% and 1.02% for the years ended 12/31/96, 12/31/95,
12/31/94 and 12/31/93, respectively.
b. Ratio of net investment income to average net assets prior to reduction of
advisory fee were 4.71%, 4.91%, 3.22% and 2.37% for the years ended 12/31/96,
12/31/95, 12/31/94 and 12/31/93, respectively.
<TABLE>
<CAPTION>
Year Ended December 31
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FUND /1/
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year........................... $ 1.02 $ .92 $ 1.01 $ 1.02 $ 1.04 $ .95 $ 1.02 $ .97 $ .98 $ 1.08
------ ------ ------- ------- ------- ------- ------- ------- ------- -------
Income from Investment
Operations
Net Investment Income*.......... .05 .06 .06 .06 .07 .08 .08 .08 .08 .09
Net Realized & Unrealized Gain
(Loss) on Investments.......... (.05) .09 (.09) .07 (.01) .09 (.02) .05 (.01) (.08)
------ ------ ------- ------- ------- ------- ------- ------- ------- -------
Total From Investment Operations - .15 (.03) .13 .06 .17 .06 .13 .07 .01
------ ------ ------- ------- ------- ------- ------- ------- ------- -------
Less: Distributions
Dividends from Net Investment
Income......................... (.05) (.05) (.06) (.06) (.07) (.08) (.08) (.08) (.08) (.09)
Distributions From Realized
Capital Gains.................. (.03) - - (.08) (.01) - (.05) - - (.02)
------ ------ ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions............. (.08) (.05) (.06) (.14) (.08) (.08) (.13) (.08) (.08) (.11)
------ ------ ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value End of Year..... $ .94 $ 1.02 $ .92 $ 1.01 $ 1.02 $ 1.04 $ .95 $ 1.02 $ .97 $ .98
====== ====== ======= ======= ======= ======= ======= ======= ======= =======
Total Return.................... 1.36% 16.21% -3.12% 13.36% 7.08% 17.94% 6.15% 14.29% 7.87% .66%
Ratios and Supplemental Data:
Net Assets at End of Year (000
omitted)....................... $1,121 $1,105 $15,210 $19,910 $20,588 $22,716 $24,096 $28,437 $28,615 $28,132
Ratio of Expenses to Average
Net Assets..................... 1.00%c 0.95%c 1.00%c 1.00%c 0.90% 0.84% 0.89% 0.87% 0.84% 0.77%
Ratio of Net Investment Income
to Average Net Assets.......... 5.33%d 6.50%d 6.37%d 6.06%d 7.29% 7.81% 8.21% 8.26% 8.38% 8.51%
Portfolio Turnover Rate......... - 45% 8% 116% 23% 62% 132% 184% 241% 113%
</TABLE>
10
<PAGE>
c. Ratios of expenses to average net assets prior to reduction of advisory fee
were 5.62%, 1.37%, 1.15% and 1.01% for the periods ended 12/31/96, 12/31/95,
12/31/94 and 12/31/93, respectively.
d. Ratios of net investment income to average net assets prior to reduction of
advisory fee were 0.72%, 6.08%, 6.22% and 6.06% for the periods ended
12/31/96, 12/31/95, 12/31/94 and 12/31/93, respectively.
- --------------------------------------------------------------------------------
/1/ Prior to October 16, 1985, the Money Market Fund and the Income Fund were
series of shares (Portfolios) of CIGNA Annuity Fund, Inc., a Maryland
corporation. Prior to 1996, the names of these Funds were CIGNA Annuity
Money Market Fund and CIGNA Annuity Income Fund.
* Net investment income per share has been calculated in accordance with SEC
requirements, with the exception that end of the year accumulated
undistributed/(overdistributed) net investment income has not been adjusted
to reflect current year permanent differences between financial and tax
accounting.
11
<PAGE>
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
Year Ended December 31
- -----------------------------------------------------------------------------------------------
1996 1995 1994 1/11/93** to 12/31/93
- -----------------------------------------------------------------------------------------------
INTERNATIONAL STOCK FUND
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period....... $11.27 $11.77 $13.21 $10.00
------ ------ ------ ------
Income from Investment Operations
Net Investment Income*..................... .08 .15 .04 .09
Net Realized & Unrealized Gain on
Investments............................... .62 .23 .33 4.18
------ ------ ------ ------
Total from Investment Operations........... .70 .38 .37 4.27
------ ------ ------ ------
Less: Distributions
Dividends from Net Investment Income....... (.08) (.15) (.04) (.09)
Distributions in excess of Net Investment
Income.................................... (.12) (.12) - (.02)
Distributions from Realized Capital Gains.. (.29) (.61) (1.77) (.95)
------ ------ ------ ------
Total Distributions........................ (.49) (.88) (1.81) (1.06)
------ ------ ------ ------
Net Asset Value End of Period.............. $11.48 $11.27 $11.77 $13.21
====== ====== ====== ======
Total Return............................... 6.36% 3.40% 2.77% 42.73%
Ratios and Supplemental Data:
Net Assets at End of Period (000 omitted).. $8,069 $7,581 $7,335 $7,136
Ratio of Expenses to Average Net Assets.... 1.12% 1.14%e 1.25%e 1.25%e
Ratio of Net Investment Income to Average
Net Assets................................ 0.63% .37%f .32%f .75%f
Portfolio Turnover Rate.................... 60% 63% 63% 66%
Average Commission Rate***................. $.0121
</TABLE>
e. Ratios of expenses to average net assets prior to expense reimbursements
were 2.61%, 2.59%, 2.35% and 2.67%, respectively, for years ended 12/31/96,
12/31/95, 12/31/94 and 12/31/93, respectively. Per share expenses prior to
reduction were $0.29, $0.28, $0.29 and $0.30, respectively, for each of
those periods.
f. Ratios of net investment income to average net assets prior to expense
reimbursements were (0.88), (1.08)%, (0.78)% and (0.73)%, respectively, for
1996, 1995, 1994 and 1993. Per share net investment loss amounts prior to
reduction were $(0.10), $(0.12), $(0.10) and $(0.08), respectively, for each
of those periods.
* Net investment income per share has been calculated in accordance with SEC
requirements, with the exception that end of the year accumulated
undistributed/(overdistributed) net investment income has not been adjusted
to reflect current year permanent differences between financial and tax
accounting.
** Commencement of operations.
*** For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged. This amount may vary from period to
period and fund to fund depending on the mix of trades executed in various
markets where trading practices and commission rule structures may
differ.
- --------------------------------------------------------------------------------
As of May 1, 1997, the sole shareholder of the Income Fund was Connecticut
General Life Insurance Company, and the sole shareholder of the International
Stock Fund was Century Indemnity Company, both of which are wholly-owned
subsidiaries of CIGNA Corporation. As of May 1, 1997, the sole shareholders of
the Money Market Fund were Connecticut General Life Insurance Company and
various CIGNA Healthcare companies. Prior to March 1996, each Fund had only one
class of shares.
12
<PAGE>
Certain additional performance and other information concerning the
International Stock, Income and Money Market Funds is contained in their
most recent Annual Report to Shareholders, a copy of which will be
provided upon request and without charge to each person who receives a
prospectus.
ABOUT THE FUNDS
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CIGNA International Stock Fund is a series of CIGNA Institutional Funds
Group, a Massachusetts business trust established by a Master Trust
Agreement dated as of August 10, 1992 and registered under the 1940 Act
as an open-end management investment company. The rest of the Funds are
separate series of shares of CIGNA Funds Group, a Massachusetts business
trust established by a Master Trust Agreement dated April 10, 1985, and
registered under the 1940 Act as an open-end management investment
company. (See "The Trusts, Their Shares and Board of Trustees"). CIGNA
Funds Group was formerly known as CIGNA Annuity Funds Group. Each Fund
is a mutual fund, an investment that pools shareholders' money and
invests it toward a specified goal.
Each Fund intends to qualify as a regulated investment company for
Federal Income Tax purposes. Each Fund has its own investment objective
and policies designed to meet specific investment goals. The Funds
continuously offer new shares for sale and stand ready to redeem their
outstanding shares at their net asset value. The Funds' investment
adviser, CIGNA Investments, and, where applicable, each sub-adviser,
continuously review and, from time to time, change the portfolio holdings
of the Funds in pursuit of each Fund's objective.
INVESTMENT PROGRAMS
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Money Market Fund
The Fund's objective is to provide as high a level of current income as
is consistent with the preservation of capital and liquidity and the
maintenance of a stable $1.00 per share net asset value by investing in
short-term money market instruments. The Fund intends to invest in money
market instruments such as U.S. Government direct obligations and U.S.
Government agencies' securities. In addition, the Fund may invest in
other money market instruments such as bankers' acceptances, certificates
of deposit, commercial loan participations, repurchase agreements, time
deposits and commercial paper, all of which will be denominated in U.S.
dollars. Bankers' acceptances, certificates of deposit and time deposits
may be purchased from U.S. or foreign banks. Commercial paper is
purchased primarily from U.S. issuers but may be purchased from foreign
issuers so long as it is denominated in U.S. dollars. All of these
instruments, including commercial loan participations, are briefly
described
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<PAGE>
in the Appendix under "Description of Money Market Instruments" and are
described more fully in the Statement of Additional Information.
Pursuant to procedures adopted by the Board of Trustees, the Fund may
purchase only high quality securities that CIGNA Investments believes
present minimal credit risks. To be considered high quality, a security
must be a U.S. Government security or must be rated in accordance with
applicable rules in one of the two highest categories for short-term
securities by at least two nationally recognized rating services (or by
one, if only one rating service has rated the security) or, if unrated,
judged to be of equivalent quality by CIGNA Investments.
High quality securities are divided into "first tier" and "second tier"
securities. First tier securities have received the highest rating (e.g.
Standard & Poor's Corporation's ("S&P") A-1 rating) from at least two
rating services (or one, if only one has rated the security). Second
tier securities have received ratings within the two highest categories
(e.g., S&P's A-1 or A-2) from at least two rating services (or one, if
only one has rated the security), but do not qualify as first tier
securities. If a security has been assigned different ratings by
different rating services, at least two rating services must have
assigned the highest 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.
Treasury Obligations Cash Fund
The Fund's objective is to provide as high a level of current income as
is consistent with the preservation of capital and liquidity and the
maintenance of a stable $1.00 per share net asset value by investing in
short-term U.S. Treasury bills, notes and bonds and other direct
obligations of the U.S. Treasury. The Fund may also enter into
repurchase agreements relating to these obligations.
Government Obligations Cash Fund
The Fund's objective is to provide as high a level of current income as
is consistent with the preservation of capital and liquidity and the
maintenance of a stable $1.00 per share net asset value by investing in a
portfolio of short-term U.S.
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<PAGE>
Government securities. These instruments are either issued or guaranteed
by the U.S. Government, its agencies, or instrumentalities. These
securities include, but are not limited to:
. direct obligations of the U.S. Treasury, such as U.S. Treasury
bills, notes, and bonds; and
. notes, bonds, and discount notes of U.S. Government agencies or
instrumentalities, such as the: Farm Credit System, including the
National Bank for Cooperatives, Farm Credit Banks, and Banks for
Cooperatives; Federal Home Loan Banks; Federal Home Loan Mortgage
Corporation; Federal National Mortgage Association; Government
National Mortgage Association ("GNMA"); and Student Loan
Marketing Association.
The Fund may also enter into repurchase agreements relating to these
obligations.
Government Securities Fund
The Fund's objective is to achieve a high level of current income
consistent with reasonable concern for safety of principal by investing
in obligations issued, guaranteed or otherwise backed by the U.S.
Government, its agencies, authorities or instrumentalities. Under normal
market conditions, the Fund will invest at least 65% of its total assets
in these securities. The securities which may be purchased by the Fund
include but are not limited to (1) U.S. Treasury obligations such as
Treasury Bills (maturities of one year or less), Treasury Notes
(maturities of one to ten years) and Treasury Bonds (generally maturities
of greater than ten years) and (2) obligations issued, guaranteed or
otherwise backed by U.S. Government agencies and instrumentalities which
are supported by any of the following: (a) the full faith and credit of
the U.S. Treasury (such as obligations of GNMA) (b) the right of the
issuer to borrow an amount limited to a specific line of credit from the
U.S. Treasury (such as obligations of the Federal Home Loan Bank) (c) the
discretionary authority of the U.S. Government to purchase the agency's
obligations (such as obligations of the Federal National Mortgage
Association) or (d) the credit of the agency or instrumentality (such as
obligations of the Student Loan Marketing Association).
The composition and weighted average maturity of the Fund's portfolio
will vary from time to time, based upon the determination of CIGNA
Investments of how best to further the Fund's investment objective. The
Fund may invest in securities of all maturities, short-term,
intermediate-term and long-term.
15
<PAGE>
Income Fund
The Fund's objective is to provide as high a level of current income as
possible consistent with reasonable concern for safety of principal by
investing primarily in investment grade corporate debt securities and
U.S. Government securities. Under normal market conditions, the Fund
will invest at least 65% of its total assets in these securities. The
Fund invests in a diversified portfolio of marketable debt securities.
Up to 55% of the assets of the Fund may be invested in U.S. government
securities, including securities of U.S. Government agencies or
instrumentalities. In addition, the assets of the Fund may be
invested in money market instruments eligible for purchase by the Money
Market Fund.
The Fund also may invest up to 20% of its assets in other fixed-income
securities, including convertible bonds and preferred stocks, and in
common stocks and similar equity securities when they are acquired as
parts of units with fixed-income securities (including warrants or rights
to purchase equity investments) or upon exercise of such warrants or
rights or upon the conversion of such securities. See the Statement of
Additional Information for a description of warrants.
The Fund may invest up to 25% of its assets in foreign securities (See
the description of the International Stock Fund for a discussion of
foreign securities.). The Fund will limit its investment in foreign
securities denominated in foreign currencies to 15% of its total assets.
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 carries increased risk to the Fund (see "Certain Investment
Strategies and Policies -- Risk Factors Regarding Foreign Securities").
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
Investors Services, Inc. ("Moody's") and S&P). Such securities are
commonly referred to as junk bonds. See "Certain Investment Strategies
and Policies -- Non-Investment Grade Debt Securities" for the risk
factors associated with investments in such securities. Investments in
convertible bonds shall be included in determining this 20% limit.
Changes in interest rates are likely to result in increases or decreases
in the value of the investments in the Fund. The value of the securities
in this Fund can be expected to vary inversely with the changes in
prevailing interest rates. Thus, when interest rates go up, bond prices
go down, and vice versa.
16
<PAGE>
High Yield Fund
The Fund's objective is to provide the highest current income attainable
consistent with reasonable risk through investment primarily in high
yield, high risk, non-investment grade fixed income securities. The Fund
will also consider the possibility of capital growth when it purchases
and sells securities.
The Fund seeks high income by purchasing principally securities that are
rated Ba or lower by Moody's or BB or lower by S&P, or securities of
comparable quality in the opinion of CIGNA Investments that are either
non-rated or rated by other recognized credit rating agencies. Under
normal market conditions, the Fund will invest at least 65% of its total
assets in these securities. It should be noted, however, that
achievement of the Fund's investment objective may be more dependent on
CIGNA Investments' own credit analysis, and less on that of credit rating
agencies, than may be the case for funds that invest in more highly rated
bonds. Under normal market conditions, at least 80% of the value of the
Fund's total assets will be invested in debt securities, including
convertible debt securities, warrants and/or cash and cash equivalents.
The Fund may also invest in preferred stocks.
The Fund may invest up to 100% of its assets in debt securities of less
than investment grade (i.e., securities rated Ba/BB or below by Moody's
and S&P). Such securities are commonly referred to as junk bonds. See
"Certain Investment Strategies and Policies -- Risk Factors Regarding
Non-Investment Grade Debt Securities" for the risk factors associated
with investments in such securities.
The foregoing Moody's and S&P ratings are described in the Appendix to
this prospectus.
While the securities held by the Fund are expected to provide greater
income and, possibly, opportunity for greater gain than investments in
more highly rated securities, they may be subject to greater risk of loss
of income and principal and are more speculative in nature. The Fund's
yield and the net asset value of its shares should be expected to
fluctuate over time.
International Stock Fund
The Fund's investment objective is to provide long-term growth of capital
by investing primarily in common stocks, convertible and non-convertible
preferred stocks, and convertible debt of companies based outside the
United States. Income is an incidental consideration. For these
purposes, the phrase "based outside the United States" means companies
the principal
17
<PAGE>
headquarters of which are located in a foreign country and which are
organized under the laws of a foreign country.
CIGNA Investments serves as investment adviser to the Fund, and CIGNA
International Investment Advisors, Ltd. ("CIIA") serves as sub-adviser.
See "Management Of The Funds." In selecting securities for the Fund,
CIIA will generally seek to allocate the Fund's assets among companies
based in 8-12 different foreign countries. It is the present intention
of CIIA to invest primarily in the securities of companies based in (a)
countries included in the Morgan Stanley Capital International Europe,
Australia and Far East Index (the "EAFE Index"), (b) countries which the
sponsor of the EAFE Index has announced it will include in the EAFE
Index, and (c) Canada. As of April 30, 1997, the EAFE Index included the
following countries: Australia, Austria, Belgium, Denmark, Finland,
France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia, Netherlands,
New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, and the
United Kingdom.
Under normal conditions the Fund will maintain no less than 65% of its
total assets in the equity securities of companies based in at least five
of the aforementioned countries. The 65% figure represents a minimum
level of investment under normal circumstances. The actual level of
investment will, of course, fluctuate in accordance with CIIA's
assessment of market conditions. Ordinarily, the Fund will not invest
more than 50% of its total assets in the securities of companies based in
Japan, nor more than 30% of its total assets in the securities of
companies based in the United Kingdom. The Fund will not ordinarily
invest more than 25% of its total assets in any other single developed
country, such as Australia, Canada, France or Germany.
The Fund may invest up to 15% of its total assets in the equity and
convertible debt securities of companies based in (a) developing
countries as defined by the Morgan Stanley Capital International Emerging
Markets Index (Global) (the "Emerging Markets Index"), (b) countries
which the sponsor of the Emerging Markets Index has announced it will
include in the Emerging Markets Index, and (c) other countries which, in
the opinion of CIIA, are generally considered to be an emerging or
developing country by the international financial community. As of
April 30, 1997, the Emerging Markets Index included the following
countries: Argentina, Brazil, Chile, China, Columbia, Czech Republic,
Greece, Hungary, India, Indonesia, Israel, Jordan, Malaysia, Mexico,
Pakistan, Peru, Philippines, Poland, Portugal, South Africa, South Korea,
Sri Lanka, Taiwan, Thailand, Turkey, and Venezuela.
18
<PAGE>
While the Fund intends to invest primarily in the securities of companies
based in countries included in the EAFE Index and in securities of
emerging market issuers, it will not necessarily invest its assets
according to the percentage weightings assigned by any index to a
particular country or company; the Fund is actively managed and is not an
index fund. Since Malaysia is included in both the EAFE Index and is
regarded as an emerging market, securities of companies based in Malaysia
will not be included in the 15% limitation noted above.
The Fund intends to invest principally in the securities of companies
which CIIA believes possess a strong financial base and have
opportunities for growth within expanding international economies and
markets. In determining the appropriate distribution of investments
among various countries, CIIA ordinarily considers various factors,
including, but not limited to: prospects for relative economic growth;
expected levels of inflation; relative price levels of the various
capital markets; government policies influencing business conditions; and
the range of individual investment opportunities available to the
international investor. CIIA's expectations with respect to currency
movements are also considered in evaluating investment in each country.
While CIIA does not generally hedge against currency risks, the Fund may
from time to time engage in foreign exchange transactions to hedge the
Fund's exposure to changes in foreign currency relative to the U.S.
dollar. See "Certain Investment Strategies and Policies -- Foreign
Exchange Transactions." Once CIIA has determined that a particular
country has favorable investment characteristics, CIIA seeks to identify
(a) those economic sectors within the national economy that have the
potential for strong and sustainable growth and (b) those companies that
stand to benefit from this expected outcome. In this regard, CIIA seeks
to focus on long-term political, demographic, and sociological change to
anticipate important valuation shifts in securities prices.
In appropriate circumstances, such as when a direct investment by the
Fund in the securities of a particular country cannot be made or when the
securities of an investment company are more liquid than the underlying
portfolio securities, the Fund may, consistent with the provisions of the
1940 Act, invest in the securities of closed-end investment companies
that invest in foreign securities. Since the Fund's shareholders would
be subject to additional fees, including management fees, for any asset
so invested, CIIA will invest in such closed-end investment companies
only where, in its opinion, the potential returns justify incurring the
additional expense.
The Fund may invest in convertible preferred stock and convertible debt
when, in the opinion of CIIA, the yield or conversion price makes
investment in such instruments more
19
<PAGE>
attractive than investment in the underlying equity security. The Fund
will limit investments in convertible debt securities to 10% of the
Fund's net assets. The Fund will dispose of any bond, as soon as
practicable consistent with achieving an orderly disposition, that would
cause the Fund to hold more than 5% of its net assets in bonds rated
below investment grade (i.e., bonds rated BB or Ba or below by S&P or
Moody's or, if not so rated, which in the opinion of CIIA are of
comparable quality).
Under normal conditions the Fund will maintain 0 - 20% of its total
assets in government obligations, cash or high quality money market
instruments (such as banker's acceptances, certificates of deposit, time
deposits, and commercial paper), each of which may be denominated in U.S.
dollars or foreign currencies. The Fund will not invest more than 20% of
its assets in obligations issued by a single foreign government, its
agencies and instrumentalities.
S&P 500 Index Fund
The objective of the Fund is to achieve long-term growth of capital by
investing primarily in common stocks of companies in the S&P 500. The
Fund will invest in these common stocks in approximately the same
proportions as they are represented in the S&P 500. Under normal
conditions, the Fund will invest at least 80% of its total assets in
common stocks of companies which compose the S&P 500. The Fund is
designed as a long-term investment vehicle.
The S&P 500 includes 500 selected common stocks, most of which are listed
on the New York Stock Exchange. Each stock in the S&P 500 has a unique
weighting, depending on the number of shares outstanding and its current
price.
The Fund is subject to market risk -- i.e., the possibility that common
stock prices will decline over short or even extended periods. The U.S.
stock market tends to be cyclical, with periods when stock prices
generally rise and periods when prices generally decline.
While the Fund seeks to match the performance of the S&P 500, its stock
portfolio performance may not match that of the S&P 500 exactly. For
example, the Fund's performance will reflect deductions for advisory fees
and other expenses that are not deducted from the performance figures
reported for the S&P 500. In addition, while 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
20
<PAGE>
transactions. Under normal conditions, the Fund anticipates holding at least 480
of the S&P 500 Index issues at all times. The common stock of CIGNA Corporation
is in the S&P 500. CIGNA Investments is an indirect, wholly-owned subsidiary of
CIGNA Corporation. The S&P 500 Index Fund will invest its assets in CIGNA
Corporation stock approximately in proportion to the percentage CIGNA
Corporation stock represents in the S&P 500. CIGNA Corporation and Standard and
Poor's Corporation have no control over each other.
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 Fund may also invest in stock index futures contracts and related
options and in certain short-term fixed income securities (including variable
and floating rate instruments or demand instruments) such as certificates of
deposit, commercial paper, commercial loan participations, bankers' acceptances,
U.S. Government obligations and repurchase agreements.
S&P 500/R/ is a trademark of Standard & Poor's Corporation ("S&P") and has been
licensed for use by the Fund.
The Fund is not sponsored, endorsed, sold or promoted by S&P. S&P makes no
representation or warranty, express or implied, to the record or beneficial
owners of shares of the Fund or any member of the public regarding the
advisability of investing in securities generally, or in the Fund particularly,
or the ability of the S&P 500 to track general stock market performance. S&P's
only relationship to CIGNA Investments or the Fund is the licensing of certain
trademarks and trade names of S&P and of the S&P 500 which is determined,
composed and calculated by S&P without regard to CIGNA Investments or the Fund.
S&P has no obligation to take the needs of CIGNA Investments or the Fund or the
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
21
<PAGE>
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
S&P 500 OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN
NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
CERTAIN INVESTMENT STRATEGIES, AND POLICIES
- ------------------------------------------------------------------------
In pursuit of its objectives and policies, one or more of the Funds may employ
one or more of the following strategies in order to enhance investment results:
Money Market Instruments. (All Funds) When deemed appropriate for temporary,
defensive purposes, each of the Funds except the S&P 500 Index Fund may hold
substantially all of its assets in the form of cash or cash equivalent money
market instruments described in the appendix to this prospectus ("Money Market
Instruments."). The S&P 500 Index Fund may invest in Money Market Instruments
pending investment of cash in common stocks or to meet anticipated short-term
cash needs. Of course, the Money Market Funds invest exclusively in Money Market
Instruments.
Regulatory Compliance - Money Market, Treasury Obligations Cash and Government
Obligations Cash Funds (the "Money Market Funds").
The Money Market Funds may follow non-fundamental operational policies that are
more restrictive than their 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 1940 Act. In particular, the Funds
intend to comply with the various requirements of Rule 2a-7 of the 1940 Act,
which regulates portfolio maturity, quality and diversification. For example,
each Fund will limit its investments to securities with remaining maturities of
397 days or less and will maintain a dollar-weighted average maturity of 90 days
or less. Each Fund will determine the effective maturity of its investments
according to Rule 2a-7. The Funds may change these operational policies to
reflect changes in the laws and regulations without the approval of their
shareholders.
Securities Issued on a When-Issued or Delayed Delivery Basis. (All Funds) Funds
may purchase securities on a "when-issued" basis, that is, delivery of and
placement for the securities is not fixed at the date of purchase, but is set
after the securities are issued (normally within forty-five days after the date
of the transaction). Funds also may purchase or sell securities on a delayed
delivery basis. The payment obligation
22
<PAGE>
and the interest rate that will be received on the delayed delivery securities
are fixed at the time the buyer enters into the commitment. A Fund will only
make commitments to purchase when-issued or delayed delivery securities with the
intention of actually acquiring such securities, but the Fund may sell these
securities before the settlement date if it is deemed advisable.
Investment in securities on a when-issued or delayed delivery basis may increase
a Fund's exposure to market fluctuation and may increase the possibility that
the Fund will incur short-term gains subject to Federal taxation or short-term
losses if the Fund must engage in portfolio transactions in order to honor a
when-issued or delayed delivery commitment. In a delayed delivery transaction,
the Fund relies on the other party to complete the transaction. If the
transaction is not completed, the Fund may miss a price or yield considered to
be advantageous. Each Fund will employ techniques designed to reduce such risks.
If a Fund purchases a when-issued security, the Fund's custodian bank will
segregate cash or high grade securities in an amount equal to the when-issued
commitment. If the market value of the segregated securities declines,
additional cash or securities will be segregated on a daily basis so that the
market value of the segregated assets will equal the amount of the Fund's when-
issued commitments. To the extent cash and securities are segregated, they will
not be available for new investments or to meet redemptions. Securities
purchased on a delayed delivery basis may require a similar segregation of cash
or other high grade securities. For a more complete description of when-issued
securities and delayed delivery transactions see the Statement of Additional
Information.
Dollar Roll Transactions. (Income Fund and Government Securities Fund only) In
order to enhance portfolio returns and manage prepayment risks, the Income Fund
and the Government Securities Fund may engage in dollar roll transactions with
respect to mortgage securities issued by GNMA, FNMA and FHLMC. In a dollar roll
transaction, a Fund sells a mortgage security held in the portfolio to a
financial institution such as a bank or broker-dealer, and simultaneously agrees
to purchase a substantially similar security (same type, coupon and maturity)
from the institution at a later date at an agreed upon price. The mortgage
securities that are purchased will bear the same interest rate as those sold,
but generally will be collateralized by different pools of mortgages with
different prepayment histories. During the period between the sale and purchase,
the Fund will not be entitled to receive interest and principal payments on the
securities sold. Proceeds of the sale will be invested in short-term
instruments, and the income from these investments, together with any additional
fee income received on the sale, could generate income for the Fund exceeding
the yield on the sold security.
23
<PAGE>
Dollar roll transactions involve the risk that the market value of the
securities the Fund has committed to purchase may decline below the price of the
securities that the Fund has sold. In the event the buyer of securities in a
dollar roll transaction files for bankruptcy, or becomes insolvent, the Fund's
use of the proceeds from the sale of the securities may be restricted pending a
determination by the other party, or its trustee or receiver, whether to enforce
the Fund's obligation to purchase the securities from the bankrupt party.
Obligations Issued or Guaranteed by U.S. Government Agencies. (Money Market
Fund, Government Obligations Cash Fund, Government Securities Fund and Income
Fund)
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. Government, such as GNMA participation certificates, are backed by the full
faith and credit of the U.S. Treasury. No assurances can be given that the U.S.
Government will provide financial support to other agencies or
instrumentalities, since it is not obligated to do so. The obligations of these
other agencies and instrumentalities are supported by:
. the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury (for example, obligations of the Federal
Home Loan Bank);
. discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality (for example, obligations of
the Federal National Mortgage Association ("FNMA"); or
. the credit of the agency or instrumentality (for example, obligations of
the Student Loan Marketing Association.
The Funds may invest in mortgage-backed securities, including GNMA Certificates
and pass-through securities issued by FNMA and the Federal Home Loan Mortgage
Corporation ("FHLMC"). GNMA Certificates represent a part ownership in pools of
mortgage loans which are either insured by the Federal Housing Administration or
guaranteed by the Veterans Administration. As mentioned above, the timely
payment of interest and principal on the GNMA Certificates is guaranteed by the
full faith and credit of the U.S. Government. FNMA and FHLMC, which guarantee
payment of interest and principal on their securities, are supervised by the
U.S. Government. Securities issued by FNMA and FHLMC are not backed by the full
faith and credit of the U.S. Government; however, their close relationship with
the U.S. Government makes them high quality securities with minimal credit
risks. Mortgage-backed
24
<PAGE>
securities consist of interests in underlying mortgages with maturities of up to
thirty years. Mortgage-backed securities may have maturities shorter than
anticipated if the underlying mortgages are prepaid. This prepayment feature
will make such mortgage-backed securities less effective than other types of
securities as a means of locking in attractive long-term interest rates. This is
caused by the need to reinvest prepayments of principal generally and the
possibility of significant unscheduled prepayments resulting from declines in
mortgage interest rates. At the time principal payments or prepayments are
received by the Fund, prevailing interest rates may be higher or lower than the
current yield of the Fund. As a result, GNMA certificates and other mortgage-
backed securities will have less potential for capital appreciation during
periods of declining interest rates than other investments of comparable
maturities due to the likelihood of increased prepayments of mortgages as
interest rates decline. If the Fund buys mortgage-backed securities at a
premium, mortgage foreclosures and prepayment of principal by mortgagors (which
may be made at any time without penalty) may result in some loss of the Fund's
principal investment to the extent of the premium paid.
Illiquid Securities. (All Funds except Government Securities Fund) A Fund may
invest up to 15% of its net assets (10% of the net assets of the Money Market
Funds,) 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 each Fund's investments. Limitations on the resale
of restricted securities may have an adverse effect on their marketability,
which may prevent the Fund from disposing of them promptly at reasonable prices.
The Fund may have to bear the expense of registering such securities for resale,
and the risk of substantial delays in effecting such registrations.
Investments In Foreign Securities. (All Funds except Government Securities Fund,
Treasury Obligations Cash Fund, Government Obligations Cash Fund and S&P 500
Index Fund) A Fund may invest up to 25% of its total assets (50% for the Money
Market Fund and 100% for the International Stock Fund) in Canadian and other
foreign securities, although the Money Market Fund may only invest in foreign
securities denominated in U.S. dollars and the Income Fund may only invest up to
15% of its total assets in
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foreign securities denominated in foreign currencies. To the extent it invests
in securities denominated in foreign currencies, a Fund bears the risks of
changes in the exchange rates between U.S. currency and the foreign currency, as
well as the availability and status of foreign securities markets. These Funds
(other than the Money Market Fund) may invest in securities of foreign issuers
which are in the form of American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") or Global Depository Receipts ("GDRs"), or other
securities representing underlying securities of foreign issuers, and such
investments are treated as foreign securities for purposes of percentage
limitations on investments in foreign securities. ADRs are dollar-denominated
receipts issued generally by a domestic bank and representing the deposit with
the bank of a security of a foreign issuer, and are publicly traded on exchanges
or over the counter in the United States. EDRs are receipts similar to ADRs and
are issued and traded in Europe. GDRs may be offered privately in the United
States and also traded in public or private markets in other countries. For a
discussion of the risks pertaining to investments in foreign securities, see
"Risk Factors Regarding Foreign Securities" below.
Risk Factors Regarding Foreign Securities. (All Funds except Treasury
Obligations Cash Fund, Government Obligations Cash Fund Government Securities
Fund and S&P 500 Index Fund) Investments by a Fund in foreign securities,
whether denominated in U.S. dollars or foreign currencies, may entail all of the
risks set forth below.
Currency Risk. The value of the Funds' foreign investments will be affected
by changes in currency exchange rates. The U.S. dollar value of a foreign
security decreases when the value of the U.S. dollar rises against the
foreign currency in which the security is denominated, and increases when
the value of the U.S. dollar falls against such currency.
Political and Economic Risk. The economies of many of the countries in
which the Funds may invest may not be as developed as the United States
economy and may be subject to significantly different forces. Political or
social instability, expropriation, confiscatory taxation, and limitations
on the removal of funds or other assets could also adversely affect the
value of the Funds' investments.
Regulatory Risk. Foreign companies that are not registered with the
Securities and Exchange Commission are generally not subject to the
regulatory controls imposed on United States issuers and, as a consequence,
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there is generally less publicly available information about such foreign
securities than is available about domestic securities. Foreign companies
are generally not subject to uniform accounting, auditing and financial
reporting standards, practices and requirements comparable to those
applicable to domestic companies. Income from foreign securities owned by
the Funds may be reduced by a withholding tax at the source, which tax
would reduce dividend income payable to the Funds' shareholders.
Market Risk. The securities markets in many of the countries in which the
Funds invest will have substantially less trading volume than the major
United States markets. As a result, the securities of some foreign
companies may be less liquid and experience more price volatility than
comparable domestic securities. Increased custodian costs and other
administrative costs may be associated with the maintenance of assets in
foreign jurisdictions. There is generally less government regulation and
supervision of foreign stock exchanges, brokers and issuers which may make
it difficult to enforce contractual obligations. In addition, transaction
costs in foreign securities markets are likely to be higher, since
brokerage commission rates in foreign countries are likely to be higher
than in the United States.
Emerging Markets Risk (International Stock Fund). The risks associated with
investing in foreign securities are often heightened for investments in
developing or emerging markets. Moreover, the economies of individual
emerging market countries may differ favorably or unfavorably from the U.S.
economy in such respects as the rate of growth in gross domestic product,
the rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position. Because certain securities of foreign issuers
that the Fund will hold may be denominated in foreign currencies, the value
of such securities to the Fund will be affected by changes in currency
exchange rates and in exchange control regulations. A change in the value
of a foreign currency against the U.S. dollar will result in a
corresponding change in the U.S. dollar value of the Fund's securities. In
addition, some emerging market countries may have fixed or managed
currencies which are not free-floating against the U.S. dollar. Further,
certain emerging market countries' currencies may not be internationally
traded. Certain of these currencies have experienced a steady devaluation
relative to the U.S. dollar. Many emerging markets countries have
experienced substantial, and in some periods extremely high, rates of
inflation for many years.
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<PAGE>
Inflation and rapid fluctuations in inflation rates have had, and may
continue to have, negative effects on the economies and securities markets
of certain emerging market countries.
Investments by a Fund in ADRs, GDRs, EDRs or similar securities also may entail
some or all of the risks described above.
Foreign Exchange Transactions. (All Funds except Money Market Funds, Government
Securities Fund and S&P 500 Index Fund) Each of these Funds has authority to
deal in foreign exchange between currencies of the different countries in which
it will invest as a hedge against possible variations in the foreign exchange
rates between those countries. This may be accomplished through direct purchases
or sales of foreign currency, purchases of options on futures contracts with
respect to foreign currency, and contractual agreements to purchase or sell a
specified currency at a specified future date (up to one year) at a price set at
the time of the contract. Such contractual commitments may be forward contracts
entered into directly with another party or exchange traded futures contracts.
The Funds may purchase and sell options on futures contracts, forward contracts
or futures contracts which are denominated in a particular foreign currency to
hedge the risk of fluctuations in the value of another currency. Each Fund's
dealings in foreign exchange will be limited to hedging involving either
specific transactions or portfolio positions. Transaction hedging is the
purchase or sale of foreign currency with respect to specific receivables or
payables of the Fund accruing in connection with the purchase or sale of its
portfolio securities, the sale and redemption of shares of the Fund, or the
payment of dividends and distributions by the Fund. Position hedging is the
purchase or sale of foreign currency with respect to portfolio security
positions denominated or quoted in a foreign currency. The Funds will not
speculate in foreign exchange. No Fund will commit a larger percentage of its
total assets to foreign exchange hedges than the percentage of its total assets
which it could invest in foreign securities.
Investments by a Fund in ADRs, GDRs, EDRs or similar securities also may entail
some or all of the risks described above.
Futures Contracts and Related Options. (S&P 500 Index and International Stock
Fund) ("Equity Funds") (High Yield, Government Securities and Income Funds)
("Debt Funds").
The S&P 500 Index Fund may invest in stock index futures having an aggregate
face value of up to 20% of the Fund's total assets in order to simulate full
investment in underlying S&P 500 stocks to obtain full market exposure
immediately upon receiving cash
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<PAGE>
pending investment in common stocks of companies in the S&P 500, to limit
transaction costs should invested assets need to be sold to meet redemption
requests, to limit transaction costs, or to seek higher investment returns when
a futures contract or option is priced more attractively than the underlying
equity security or index. The other Equity Fund may enter into stock index
futures contracts as a hedge against changes in the values of the securities
held or which a Fund intends to purchase. Similarly, each of the Debt Funds may
purchase and sell interest rate futures contracts or purchase and sell options
on such contracts to hedge its portfolio of debt securities against changes in
interest rates. A futures contract on an index (such as the S&P 500) is an
agreement between two parties (buyer and seller) to take or make delivery of an
amount of cash equal to the difference between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written. In the case of futures contracts traded on U.S.
exchanges, the exchange itself or an affiliated clearing corporation assumes the
opposite side of each transaction (i.e., as buyer or seller). A futures contract
may be satisfied or closed out by delivery or purchase, as the case may be, of
the financial instrument or, in the case of stock index futures contracts, by
payment of the change in the cash value of the index. Frequently, using futures
to effect a particular strategy instead of using the underlying or related
security or index will result in lower transaction costs being incurred.
The Funds may also purchase and write call options and put options on futures
contracts. An option on a futures contract gives the holder the right, in return
for the premium paid, to assume a long position (in the case of a call) or a
short position (in the case of a put) in a futures contract at a specified
exercise price prior to the expiration of the option. Upon exercise of a call
option, the holder acquires a long position in the futures contract and the
writer is assigned the opposite short position. In the case of a put option, the
opposite is true. An option on a futures contract generally may be closed out
(before exercise or expiration) by an offsetting purchase or sale of an option
on a futures contract. See the information set forth below and the Statement of
Additional Information for information on the risks associated with these
investments.
The Funds' use of futures and options thereon will in all cases be consistent
with applicable regulatory requirements and in particular the regulations of the
Commodity Futures Trading Commission relating to exclusions from regulation as a
commodity pool operator. Those regulations currently provide that the Funds may
use commodity futures and option positions (i) for bona fide hedging purposes
without regard to the percentage of assets
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<PAGE>
committed to margin and option premiums, or (ii) for other purposes permitted by
the entity's principal regulator (in the case of the Funds, the Securities and
Exchange Commission) to the extent that the aggregate initial margin and option
premiums required to establish such non-hedging positions do not exceed 5% of
the liquidation value (i.e., the net asset value) of the applicable Fund's
portfolio. For further information regarding futures contracts and options
thereon, see the Statement of Additional Information.
The use of futures contracts and options may involve risks not associated with
other types of instruments which the Funds intend to purchase. In particular, a
Fund's positions in futures contracts and options may be closed out only on an
exchange which provides a liquid secondary market therefor, and there can be no
assurance that a liquid secondary market will exist for any particular futures
contract or option. The inability to close out options and futures positions
could have an adverse impact on a Fund's ability to effectively hedge its
securities and might, in some cases, require a Fund to deposit cash to meet
applicable margin requirements. A Fund's ability to hedge effectively through
transactions in futures contracts or options depends on the degree to which
price movements in its holdings correlate with price movements of the futures
and options. It is possible that there may be an imperfect correlation between
the hedging instrument and the hedged securities, which could result in an
ineffective hedge and a loss to a Fund. See the Statement of Additional
Information for a further description of the Funds' investments in futures
contracts.
Non-Investment Grade Debt Securities. (High Yield Fund and Income Fund). The
High Yield Fund, and to a lesser extent the Income Fund, seek to meet their
respective investment objectives by investing in non-investment grade debt
securities, commonly known as "junk bonds." While generally providing greater
income and opportunity for gain, non-investment grade debt securities may be
subject to greater risks than higher rated securities. Economic downturns tend
to disrupt the market for junk bonds and adversely affect their values. Such
economic downturns may be expected to result in increased price volatility of
junk bonds and of the value of shares of the above-named Funds, and increased
issuer defaults on junk bonds.
In addition many issuers of junk bonds are substantially leveraged, which may
impair their ability to meet their obligations. In some cases, junk bonds are
subordinated to the prior payment of senior indebtedness, which potentially
limits a Fund's ability to fully recover principal or accrued interest or to
receive payments when senior securities are in default.
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<PAGE>
The credit rating of a junk bond does not necessarily address its market value
risk, and ratings may from time to time change to reflect developments regarding
the issuer's financial condition. Junk bonds have speculative characteristics
which are likely to increase in number and significance with each successive
lower rating category.
When the secondary market for junk bonds becomes more illiquid, or in the
absence of readily available market quotations for such securities, the relative
lack of reliable objective data makes it more difficult to value a Fund's
securities, and judgment plays a more important role in determining such
valuations. Increased illiquidity in the junk bond market also may affect a
Fund's ability to dispose of such securities at desirable prices.
In the event a Fund experiences an unexpected level of net redemptions, the Fund
could be forced to sell its junk bonds without regard to their investment
merits, thereby decreasing the asset base upon which the Fund's expenses can be
spread and possibly reducing the Fund's rate of return. Generally, prices of
junk bonds have been found to be less sensitive to fluctuations in interest
rates, and more sensitive to adverse economic changes and individual corporate
developments than those of higher-rated debt securities.
Borrowing. (All Funds). 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.
Lending of Portfolio Securities. (All Funds). In order to generate additional
income, each Fund may lend its portfolio securities on a short-term or long-term
basis, or both, to broker/dealers, banks, or other institutional borrowers of
securities. Each Fund will only enter into loan arrangements with
broker/dealers, banks, or other institutions which CIGNA Investments or CIIA, as
applicable, has determined are creditworthy under guidelines established by the
Funds' Trustees and will receive collateral at all times equal to at least 100%
of the value of the securities loaned. There is the risk that when lending
portfolio securities, the securities may not be available to the Fund on a
timely basis and the Fund may, therefore, lose the opportunity to sell the
securities at a desirable price. In addition, in the event that a borrower of
securities would file for bankruptcy or become insolvent, disposition of the
securities may be delayed pending court action.
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<PAGE>
Portfolio Turnover. (All Funds except Money Market Funds and S&P 500 Index
Fund). Any particular security will be sold, and the proceeds reinvested,
whenever such action is deemed prudent from the viewpoint of a Fund's investment
objectives, regardless of the holding period of that security. It is
anticipated, given the S&P 500 Index Fund's policy of attempting to replicate
composition and performance, before expenses, of the S&P 500, that portfolio
turnover will be lower than that of an actively managed fund. A higher rate of
portfolio turnover may result in higher transaction costs, including brokerage
commissions. Also, to the extent that higher portfolio turnover results in a
higher rate of net realized capital gains to a Fund, the portion of the Fund's
distributions constituting taxable capital gains may increase. See "Dividends
and Capital Gains Distributions."
INVESTMENT RESTRICTIONS
- ---------------------------------------------------------------
Each Fund's investment objective, as set forth under "Investment Objectives,"
and the investment restrictions listed below are among each Fund's fundamental
policies, that is, subject to change only by shareholder approval. See the
Statement of Additional Information for other investment restrictions. All
policies stated throughout this prospectus, other than those identified as
fundamental, can be changed without shareholder approval.
A Fund may not:
1. With respect to 75% of its assets, purchase the securities of any issuer if
such purchase would cause more than 5% of the value of its total assets
(taken at market value at the time of such investment) to be invested in the
securities of such issuer except (a) U.S. Government securities including
securities issued by its agencies and instrumentalities (or repurchase
agreements with respect thereto), and (b) with respect to the Money Market
Funds, to securities or obligations issued by U.S. banks.
2. With respect to 75% of its assets, purchase the securities of any issuer if
such purchase would cause more than 5% of the voting securities, or more
than 10% of the securities of any class of such issuer (taken at the time of
such investment), to be held by the Fund.
3. Concentrate 25% or more of its total assets in a particular industry.
Investing in cash or high quality money market instruments, for temporary
defensive purposes, securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities or repurchase agreements secured by these
instruments shall not be considered investments in a particular industry. In
addition, each Money Market Fund
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<PAGE>
may invest up to 100% of its assets in the domestic banking industry.
4. Borrow money, issue senior securities, or pledge, mortgage or hypothecate
its assets, except that a Fund may (i) borrow to the extent permitted by the
1940 Act, and pledge, mortgage or hypothecate its assets in connection
therewith, and (ii) enter into transactions in options, futures and options
on futures and other derivative instruments (the deposit of assets in escrow
in connection with the writing of covered put and call options and the
purchase of securities on a when-issued or delayed delivery basis,
collateral arrangements with respect to initial or variation margin deposits
for futures contracts, and commitments entered into under swap agreements or
other derivative instruments will not be deemed to be pledges of a Fund's
assets).
PURCHASE AND REDEMPTION OF SHARES
- ---------------------------------------------------------------
General Information
The Funds presently offer two methods of purchasing shares (institutional class
and retail class), enabling the Funds to respond to service needs of different
classes of investors. This structure has been developed to attract large
institutions, retirement plans and individual investors as Fund shareholders so
that certain expenses (such as custodian fees, administrative services, audit
fees, legal fees, fees of trustees unaffiliated with the Funds, regulatory fees
and certain printing expenses) can be shared rather than duplicated, in an
effort to achieve economies of scale.
Institutional Shares
Institutional shares of any Fund will be offered to employer-sponsored
retirement or savings plans, such as tax-qualified pension and profit-sharing
plans and 401(k) thrift plans, as well as 403(b) custodial accounts for non-
profit and charitable organizations; corporations; banks; trust companies;
savings and loan associations; broker-dealers; insurance companies; charitable
foundations; and other institutional investors.
Retail Shares
Retail shares may be purchased by employer-sponsored retirement or savings
plans, individuals, IRAs or any other investor who wants the additional personal
services provided to shareholders of the retail class. The retail class of each
Fund will pay the
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costs associated with the additional services provided to retail class
shareholders.
HOW TO PURCHASE SHARES
Shares of each Fund are sold on a continuous basis without any initial
sales charge or contingent deferred charge at the Fund's net asset value
per share (see "Pricing of Shares"). The Funds do not issue share
certificates.
Retirement and Savings Plan Participants
One or more of the Funds may be available as investment options in
employer-sponsored retirement or savings plans. All orders to purchase
shares must be made through and in accordance with procedures established
by the participant's employer or plan administrator. The plan
administrator can provide participants with detailed information on how
to participate in the plan and how to select a CIGNA Fund as an
investment option.
Brokerage Account Purchases
All investors other than employer sponsored retirement or savings plan
participants must purchase shares through CIGNA Financial Advisors, Inc.
("CFA"). Orders placed through your brokerage representative are priced
as of the close of business on the day the order is received by CIGNA
Funds Shareholder Services or the transfer agent, provided the order is
received by 4:00 p.m. Eastern Time. Brokerage representatives are
responsible for the prompt transmission of purchase and redemption orders
placed through them by shareholders. A completed Application is
required to establish a new brokerage account. Purchase orders must be
accepted by CFA. CFA reserves the right to reject any purchase order.
Additional information regarding establishing a brokerage account and
purchasing shares may be obtained by calling your dealer representative
at 1-800-XXX-XXXX.
Additional Information:
Each Fund reserves the right to limit purchases of shares for any one
account or related accounts to 2% of the total net asset value of the
Fund, or may refuse to sell shares of the Fund to any person.
HOW TO REDEEM SHARES
Retirement and Savings Plan Participants.
Plan participants should contact their plan administrator for information
on how to redeem Fund shares.
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<PAGE>
Brokerage Account Redemptions.
All other investors must redeem shares through their brokerage account
with CFA. A signature guarantee may be required before payment can be
made on redemption orders. For additional information regarding
redeeming shares from your brokerage account, call your dealer
representative at 1-800-XXX-XXXX.
Further Redemption Information.
Redemptions from the Funds may not be processed if a redemption request
is not submitted in proper form. To be in proper form, the investor must
furnish a taxpayer identification number and address. The Funds may be
required to impose "back-up" withholding of federal income tax on
dividends, distributions and redemption of proceeds when non-corporate
investors have not provided a certified taxpayer identification number.
In addition, if an investor sends a check for the purchase of Fund shares
and shares are issued before the investor's check has cleared, the
transmittal of any proceeds from the redemption of the shares will occur
upon clearance of the check, which may take up to 15 days.
Each of the Funds reserves the right to suspend the right of redemption
and to postpone the date of payment upon redemption for up to seven days
and for such other periods as the 1940 Act or Securities and Exchange
Commission ("SEC") may permit.
TELEPHONE SERVICES
If you are a retirement or savings plan participant and have questions or
want information about your plan account, contact your plan
administrator.
All other investors should call 1-800-XXX-XXXX for account information or
to speak to their dealer representative.
MAKING EXCHANGES
Shares of a Fund may be exchanged for shares of the same class of another
Fund based on the respective net asset values of the shares involved. An
exchange order is treated the same as a redemption followed by a
purchase. Each Fund reserves the right to discontinue, alter or limit
its exchange privilege at any time.
Retirement and Savings Plan Participants.
Retirement plans may allow participants to exchange monies from one
investment option to another. Plan participants should check
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<PAGE>
with their plan administrator for details on the rules governing
exchanges in their plan. Exchanges are accepted by the Funds only as
permitted by the applicable retirement plan. Participants' plan
administrators can explain how frequently exchanges are allowed.
Brokerage Accounts
Shareholders with CFA brokerage accounts may obtain additional
information regarding exchanging shares in their brokerage account by
calling their dealer representative at 1-800-XXX-XXXX.
PRICING OF SHARES
--------------------------------------------------------------------
The net asset value of each class of a Fund is calculated by the Funds'
custodian, State Street, by dividing the number of outstanding shares of
such class into the net assets of the Fund attributable to that class.
Net assets are the excess of a Fund's assets over its liabilities. Net
asset value is determined as of 4:00 p.m. Eastern Time on each day the
New York Stock Exchange ("NYSE") is open for trading and on any other day
on which there is a sufficient degree of trading in a Fund's investments
that the current net asset value of its shares might be materially
affected. Portfolio securities and other assets are valued on the basis
of market quotations or, if quotations are not readily available, by a
method that the Trust's Board of Trustees believes accurately reflects
fair value. Orders for purchases and redemption will not be processed if
received when the NYSE is closed. The NYSE is closed on New Year's Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
Equity securities, including warrants, that are listed on a securities
exchange or that are part of the Nasdaq National Market are generally
valued at the last sale price or, if there has been no sale that day, at
the last bid price. Debt and other equity securities actively traded in
the over-the-counter market, including listed securities whose primary
markets are believed to be over-the-counter, are valued at the most
recent bid price, which may be based upon valuations furnished by a
pricing service or from independent securities dealers. High quality
short-term investments with remaining maturities of up to and including
60 days are valued at amortized cost to the extent that it is believed to
approximate market value. Except for money market instruments owned by a
Money Market Fund, which are valued at amortized cost, investments that
mature in more than 60 days are valued at current market quotations.
Other securities and assets of a Fund, with the exception of futures
contracts and options on future contracts, which are discussed below, are
valued in good faith by, or under the authority of, the Board of Trustees
of the
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<PAGE>
Trust. The net asset value so computed applies to all purchase
orders and redemption requests in the hands of State Street Bank and
Trust Company, the Funds' custodian ("State Street") by 4:00 P.M., duly
executed in accordance with applicable instructions, on the day of such
determination. Any orders received after such time are executed at the
net asset value next determined.
Futures Contracts
Initial margin deposits made upon entering into futures contracts are
recognized as assets due from the broker (the Fund's agent in acquiring
the futures position). During the period the futures contract is open,
changes in the value of the contract are recognized as unrealized gains
or losses by "marking-to-market" on a daily basis to reflect the market
value of the contract at the end of each day's trading. Variation margin
payments are made or received, depending upon whether unrealized losses
or gains are incurred. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the proceeds from
(or cost of) the closing transaction and the Fund's basis in the
contract.
Options on Futures Contracts
The premium paid by a Fund for the purchase of a call or put option on
futures contracts is recorded as an investment and subsequently "marked-
to-market" to reflect the current market value of the option purchased.
The current market value of a purchased option on futures contracts is
generally the last reported sale price or, if no sales are reported, the
last bid price. If an option on futures contracts which a Fund has
purchased expires on the stipulated expiration date, the Fund realizes a
loss in the amount of the cost of the option. If a Fund exercises a
purchased put option on a futures contract, it realizes a gain or loss
from the sale of the underlying futures contract and the proceeds from
such sale will be decreased by the premium originally paid. If a Fund
exercises a purchased call option on futures contracts, the cost of the
futures contract which the Fund purchases upon exercise will be increased
by the premium originally paid.
Valuation of Money Market Investments (Money Market Funds)
Money market investments are generally 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 Funds to maintain their 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
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<PAGE>
continue the practice of maintaining the net asset value of $1.00 per
share it may alter this procedure. The shareholders of a Fund will be
notified prior to any such change, unless such change is only temporary,
in which case the shareholders will be notified after the change. See the
Statement of Additional Information for more information on amortized
cost procedures.
MANAGEMENT OF THE FUNDS
=================================================================
The investment adviser to each of the Funds is CIGNA Investments, an
indirect, wholly-owned subsidiary of CIGNA Corporation. CIGNA Investments
also serves as investment adviser for other investment companies,
including investment companies sponsored by affiliates of CIGNA
Corporation, and for a number of pension, advisory, corporate and other
accounts. CIGNA Investments and other affiliates of CIGNA Corporation
manage combined assets of approximately $70 billion. CIGNA Investments'
mailing address is 900 Cottage Grove Road, Hartford, Connecticut
06152.
Pursuant to a Master Investment Advisory Agreement, the Trust, on behalf
of the Funds, employs CIGNA Investments to manage the investment and
reinvestment of the assets of the Funds.
CIGNA Investments has a sub-advisory agreement with CIIA, an indirect,
wholly-owned subsidiary of CIGNA Corporation, for the International Stock
Fund. CIIA's mailing address is Park House, 16 Finsbury Circus, London,
England EC2M 7AX
Subject to the control and periodic review of the Board of Trustees,
CIGNA Investments (and CIIA with respect to the International Stock Fund)
determines what investments shall be purchased, held, sold or exchanged
by the Funds and what portion, if any, of the assets of the Funds shall
be held in cash and other temporary investments. CIGNA Investments is
also responsible for overall management of the business affairs of the
Trust and the Funds.
As full compensation for the investment management and all other services
rendered by 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: Government Securities Fund - 0.50%, Income
Fund - 0.50%; High Yield Fund - 0.75%; S&P 500 Index Fund - 0.25%; Money
Market Fund - 0.35%; Government Obligations Cash Fund - 0.35%; Treasury
Obligations Cash Fund - 0.35%, and International Stock Fund - 0.80%.
page38
<PAGE>
Each Fund will bear its own expenses. Operating expenses for each Fund
generally consist of all costs not specifically borne by CIGNA
Investments, including investment management fees, fees for necessary
professional and brokerage services, costs of regulatory compliance,
compensation of trustees not affiliated with CIGNA Corporation and costs
associated with maintaining legal existence. Trust-wide expenses not
attributable to any particular Fund will be allocated among the Funds on
a pro rata basis based upon each Fund's average net assets.
CIGNA Investments has voluntarily agreed, until April 30, 1998, and
thereafter to the extent described in the Funds' then-current prospectus,
to reimburse the institutional and retail classes of each Fund to the
extent that the annual operating expenses in any one year (excluding
interest, taxes, amortized organizational expense, transaction costs in
acquiring and disposing of portfolio securities and extraordinary
expenses) exceed a percentage of the value of average daily net assets,
as follows:
<TABLE>
<CAPTION>
Institutional Retail
Class Class
<S> <C> <C>
Money Market Funds .45 .70
Treasury Obligations Cash Fund .45 .70
Government Obligations Cash Fund .45 .70
Government Securities .70 1.00
Income Fund .70 1.00
High Yield Fund .90 1.20
International Stock Fund 1.10 1.45
S&P 500 Index Fund .35 .45
</TABLE>
As long as these temporary voluntary expense limitations continue, they
may lower the Funds' expenses and increase their respective yields.
CIGNA Investments retains the ability to be repaid by a Fund if expenses
fall below the specified limit prior to the end of the fiscal year.
Unless otherwise specified, reimbursement arrangements can be terminated
without notice.
The investment management fee payable by the Funds in operation during
1996 and total Fund expenses during 1996, both as a percentage of average
daily net assets, were as follows:
<TABLE>
<CAPTION>
Total Fund
Expenses
(Excluding
Fee Waiver
Investment Management And Expense
Fee Reimbursement)
<S> <C>
</TABLE>
page39
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Money Market Fund .35% .69%
Income Fund .50% 5.62%
International Stock Fund .80% 2.61%
</TABLE>
CIGNA Investments and CIIA investment personnel may invest in securities
for their own account pursuant to a code of ethics that establishes
procedures for personal investing and restricts certain
transactions.
State Street serves as transfer agent and dividend disbursing agent for
the Funds. State Street is also custodian of the assets of the Funds.
From time to time, the Funds may pay brokerage commissions on portfolio
transactions to brokers who may be deemed to be affiliates of CIGNA
Corporation under the 1940 Act. See the Statement of Additional
Information for further details.
Service Expenses - Retail Shares
The retail class of each Fund has adopted a shareholder services plan.
Under each plan, the retail class of each Fund is authorized to pay CFA,
its affiliates or independent third-party service providers, up to $30
per shareholder account per year for providing particular services to the
shareholders of the retail class of such Fund and/or maintenance of
retail class shareholder accounts. The Board of Trustees of the Trusts
may change the per account charge based upon its assessment of fair and
reasonable fees.
Investors who purchase retail class shares of a Fund will receive
additional shareholder services, described below, that are not provided
to the institutional class investors. In return for these services, the
retail class shares shall bear the expense of the shareholder services
plan. Because of the costs associated with the shareholder services
plan, the performance of the retail class shares of each Fund will be
lower than the performance of institutional class shares of that Fund.
Service activities provided by CFA, its affiliates or third-party service
providers to shareholders of retail class shares of a Fund may include:
receiving, aggregating and processing shareholder or beneficial owner
(collectively "shareholder") orders; furnishing shareholder
subaccounting; providing and maintaining retirement plan records;
communicating periodically with shareholders; acting as the sole
shareholder of record and nominee for shareholders; maintaining account
records for shareholders; answering questions and handling correspondence
from shareholders about their accounts; issuing various
Page 40
<PAGE>
shareholder reports and confirmations for transactions by shareholders;
and performing similar account and administrative services. For a more
complete description of the shareholder services plan and its terms, see
the Statement of Additional Information.
Portfolio Management
The individuals who are primarily responsible for the day-to-day
management of each of the Funds (other than the Money Market Funds and
the S&P 500 Index Fund) and their occupations for the past five years are
described below:
Government Securities Fund. Thomas J. Bowen is a Managing Director of
CIGNA Investments and has been the portfolio manager of the Fund since
its inception. Mr. Bowen has been a Managing Director of CIGNA
Investments since 1990.
High Yield Fund. Alan C. Petersen has been a Managing Director of CIGNA
Investments since 1990. Mr. Petersen has been the portfolio manager of
the Fund since its inception. Mr. Petersen also manages CIGNA High
Income Shares, a closed-end management investment company that invests
primarily in high yield, high risk securities.
Income Fund. Thomas R. Foley has been a Managing Director of CIGNA
Investments since 1995, and has been the portfolio manager of this Fund
since 1991. From 1990 to 1995, Mr. Foley was a Vice President of CIGNA
Investments. Mr. Foley also manages INA Investment Securities, Inc., a
closed-end management investment company managed by CIGNA Investments
that invests primarily in investment grade bond investments.
International Stock Fund. Lee Mickelburough is Senior Portfolio Manager
and Head of London Office Equities for CIIA, the sub-adviser to this
Fund. Since 1989, Mr. Mickelburough has held various positions with
CIGNA International Investment Advisers Australia Limited, starting as
Portfolio Manager and moving to Resident Director and Head of Australia
office. Mr. Mickelburough has been the portfolio manager of this Fund
since its inception in 1993.
Distributor
CFA acts as the principal underwriter and distributor of each Fund's
shares pursuant to a distribution agreement with the Funds. CFA will pay
the cost of printing and mailing
page 41
<PAGE>
prospectuses and sales literature to potential investors and any
advertising expenses incurred by it in connection with its distribution
of shares of the Funds.
PERFORMANCE INFORMATION
----------------------------------------------------------------------
Each Fund's and class's investment performance may from time to time be
included in advertisements about that Fund. Mutual fund performance is
commonly measured as total return and/or yield.
Total return quotations will, unless otherwise indicated, be calculated
according to a standard formula described in regulations issued by the
SEC. This formula equates an amount invested in a Fund at the beginning
of a stated period to the value of that investment (assuming reinvestment
of all dividends and capital gains) at the end of the period. The
resulting return quote is an average annual total return across the
stated period. Due to the deduction of the shareholder service fee,
performance of the retail class of each Fund will be lower than the
performance of the institutional class of each Fund.
In addition, each Fund may calculate its total return pursuant to non-
standard formulas (such as a cumulative return across a stated period),
provided that standard return quotes for the one-, five- and ten-year
periods (or from the Fund's inception, if shorter) ending no earlier than
the end of the last calendar quarter are illustrated with equal
prominence.
Yield quotations for all Funds will be calculated according to the
applicable standard formula described in regulations issued by the SEC.
Yield refers to the income generated by an investment in a fund over a
given period of time, expressed as an annual percentage rate. For all
Funds except the Money Market Funds, the formula is based upon a stated
30-day period. Net investment income for the period is divided by the
maximum offering price on the last day of the period, multiplied by the
average number of shares outstanding during the period. The resulting
figure is then compounded semiannually. The net investment income for
this purpose is generally different from net investment income determined
in accordance with generally accepted accounting principles.
For the Money Market Funds, the applicable formula is based on a stated
seven-day period. The change in value of a hypothetical pre-existing
account across the stated period (assuming reinvestment of dividends) is
divided by the value of such an account at the beginning of the period.
The result is then multiplied by 365/7. This yield is an annualized
yield. The Fund may also calculate its effective annualized yield by
adding
page 42
<PAGE>
"1" to the annualized yield, raising the sum to a power equal to
365/7, and subtracting "1" from the result.
Also, each Fund may compare its performance in advertisements, sales
literature and reports to shareholders to applicable market indices, such
as the S&P 500, the Dow Jones Industrial Average, the NASDAQ OTC
Composite or the EAFE Index (Equity Funds), the Shearson Lehman Brothers
Government/Corporate Bond Index, the Shearson Lehman Brothers High Yield
Bond Index or the First Boston High Yield Index (Debt Funds) and Donoghue
Money Market Institutional Averages (Money Market Funds). Each Fund may
also compare its performance to performance data of similar mutual funds
as published by services such as Lipper Analytical Services, Inc.,
Morningstar, Inc. and Donoghue's Money Fund Average. Each Fund may also
include in performance information evaluations of the Fund published by
nationally recognized financial publications.
page 43
<PAGE>
Set forth below are certain performance data relating to all high yield
bond portfolios which have been managed with full investment authority by
Alan Petersen, portfolio manager of CIGNA High Yield Fund, and which have
the same investment objective and use substantially similar investment
strategies, policies and techniques that are used for CIGNA High Yield
Fund. The performance information set forth below reflects past
performance and is not necessarily indicative of the future performance
of CIGNA High Yield Fund.
COMPOSITE PERFORMANCE/1/ SHOWING AVERAGE ANNUAL TOTAL RETURNS/2/ FOR
VARIOUS PERIODS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
One Year..................... 13.62%
Three Years.................. 10.00%
Five Years................... 13.26%
Ten Years.................... 10.72%
</TABLE>
COMPOSITE/3/ PERFORMANCE SHOWING ANNUAL TOTAL RETURNS/4/ FROM
JANUARY 1, 1986 THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Year Ended December 31, 1996 . 13.62%
Year Ended December 31, 1995 . 18.41%
Year Ended December 31, 1994 . -1.10%
Year Ended December 31, 1993 . 18.56%
Year Ended December 31, 1992 . 18.11%
Year Ended December 31, 1991 . 42.06%
Year Ended December 31, 1990 . -11.99%
Year Ended December 31, 1989 . -0.81%
Year Ended December 31, 1988 . 16.47%
Year Ended December 31, 1987 . 2.76%
Year Ended December 31, 1986 . 15.88%
</TABLE>
Performance data is historical, and therefore should not be considered a
representation of future results, and should be
- --------------------
/1/ The performance presented is that of Connecticut General Life Insurance
Company Separate Account 70, which commenced operations in December 1990, CIGNA
High Income Shares, which commenced operations in September 1988, AIM High Yield
Fund, which commenced operations in June 1978, and The Ministers and
Missionaries Benefit Board of the American Baptist Churches, managed by CII from
June 1990 through February 1992. CII ceased management of AIM High Yield Fund in
September 1995. The performance presented includes the performance of AIM High
Yield Fund through September 1995.
/2/ The information is the average annual total return for the periods
indicated, assuming reinvestment of all net investment income and taking into
account annual operating expenses of 1.20% of average daily net assets, which is
the current expense ratio for the retail class of CIGNA High Yield Fund, after
expense limitations.
/3/ Performance presented for the period from January 1986 through September
1988 is solely of AIM High Yield Fund.
/4/ The information is the annual total return for the periods indicated,
assuming reinvestment of all net investment income and taking into account
annual operating expense of 1.20% of average daily net assets, which is the
current expense ratio for the retail class of CIGNA High Yield Fund, after
expense limitations.
page 44
<PAGE>
considered in light of each Fund's investment objective(s) and policies,
characteristics of its portfolio and periods selected.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
----------------------------------------------------------------
The Funds declare and distribute dividends representing substantially all
net investment income as follows:
<TABLE>
<CAPTION>
Dividends Dividends
Declared Paid
--------- ---------
<S> <C> <C>
Money Market Funds daily monthly
Government Securities Fund daily monthly
Income Fund daily monthly
High Yield Fund daily monthly
Global Bond Fund daily monthly
International Stock Fund annually annually
S&P 500 Index Fund annually annually
</TABLE>
Substantially all net realized capital gains, if any, are distributed on
an annual basis, except for the Money Market Funds, which include
realized gains and losses in their daily declarations of dividends from
net investment income.
All such distributions will be automatically reinvested for you in shares
of the Fund issuing the distribution at the net asset value determined on
the record date or, if you have so elected on forms approved by the
Funds, will be paid in cash to you or to someone you designate, either by
check or automatic deposit into a bank checking account.
TAX MATTERS
----------------------------------------------------------------
Each Fund intends to qualify under the Internal Revenue Code of 1986, as
amended (the "Code"), as a regulated investment company ("RIC") for each
taxable year. Each Fund intends to satisfy requirements under the Code
relating to the distribution of net income so that, in general, the Fund
will not be subject to Federal income tax ("FIT").
Each Fund is subject to a nondeductible 4% excise tax if it does not meet
certain distribution requirements under the Code. The Funds intend to
make sufficient distributions to avoid this excise tax.
Distributions of net investment income and of any net short-term capital
gain are taxable as ordinary income to shareholders, whether received in
cash or reinvested in shares. Distributions of net capital gain, if
properly designated as capital gain dividends by a Fund, generally are
taxable to shareholders as long-term capital gain, regardless of how long
the shares have
page 45
<PAGE>
been held, and are not eligible for the corporate dividends-received
deduction. Distributions of net investment income and net capital gains
will be taxable as described above whether received in cash or reinvested
in shares. Shortly after the end of each year, the Fund will inform
shareholders of the amount and FIT treatment of all distributions paid
during the year. Dividends declared to shareholders of record on a
date in October,November, or December will be taxable to shareholders
in the yeardeclared, as long as the Fund pays the dividends no later
than January of the following year.
Upon a sale or redemption of Fund shares, a shareholder who is not a
dealer in securities will realize gain or loss which generally will be
treated as long-term capital gain or loss if the shares have been held
for more than one year, and otherwise as short-term capital gain or loss.
However, if a shareholder disposes of shares held for six months or less,
any loss realized will be characterized as long-term capital loss to the
extent of any capital gain dividends (or undistributed capital gain) made
(or credited) to such shareholder prior to such disposition.
Tax-exempt shareholders will generally not be subject to FIT on amounts
distributed to them.
Pursuant to the Code and IRS regulations, each Fund will withhold FIT at
a rate of 31% from ordinary income dividends and capital gain
distributions, and from redemption payments made to any shareholder who
fails to furnish a correct taxpayer identification number, or, in certain
cases, fails to properly report income for FIT purposes.
Distributions may also be subject to state and local taxes depending on
each shareholder's tax situation. Shareholders should consult their tax
advisers regarding the particular tax consequences of investing in the
Funds.
Government Securities Fund: The Fund generally pays dividends to its
shareholders based upon its financial statement income. Certain ordinary
income dividends may be treated as a return of capital to shareholders
for tax purposes as a result of different tax and financial statement
treatments of certain mortgaged-backed securities. The Fund will inform
each shareholder of the percentage of dividends received which are
treated as a return of capital following the end of each year.
Debt Funds: For FIT purposes, the Funds report imputed interest on
certain securities as income, even though a Fund may receive no cash
interest payments until the securities' maturity or payment dates.
Page 46
<PAGE>
THE TRUSTS, THEIR SHARES AND BOARD OF TRUSTEES
-----------------------------------------------------------------
The Trusts currently offer eight series of shares. The Board of Trustees
of the Trusts is authorized in each Trust's Master Trust Agreement to
create new series of shares without the necessity of a vote of
shareholders of either Trust. There is a remote possibility that one Fund
might become liable for a misstatement in the prospectus about another
Fund. The capitalization of the Trusts consists solely of an unlimited
number of shares of beneficial interest with a par value of $0.001 each.
The institutional class and the retail class of the same Fund represent
interests in that Fund's assets and have identical voting, dividend,
liquidation and other rights on the same terms and conditions, except
that each class of shares bears differing class-specific expenses and
exchange privileges and the retail class has exclusive voting rights on
matters pertaining to the shareholder services plan.
Under Massachusetts law, each Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of their
Trust. However, each Trusts' 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. Each 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.
Under the Master Trust Agreements no annual or regular meetings of
shareholders are required. Meetings of shareholders of a series will be
held from time to time to consider matters requiring a vote of such
shareholders in accordance with the requirements of the 1940 Act, state
law or the provisions of the Master Trust Agreement. It is not expected
that shareholder meetings will be held annually.
Shares of each Fund will entitle their holders to one vote per share
(with proportionate voting for fractional shares), irrespective of the
relative net asset value of the shares of any Fund. On any matter
submitted to a vote of shareholders of a Trust, all shares of that Trust
then issued and outstanding shall be voted in the aggregate. However, on
matters affecting an individual Fund or class of shares, a separate vote
of shareholders of that Fund or class would be required.
Page 47
<PAGE>
Shareholders of a Fund or class would not be entitled to vote on any
matter which does not affect that Fund or class but which would require a
separate vote of another Fund or class.
When issued, shares of a Fund are fully paid and nonassessable, and have
no preemptive or subscription rights. There are no conversion rights.
Shares do not have cumulative voting rights, which means that in
situations in which shareholders elect trustees, holders of more than 50%
of the shares voting for the election of trustees can elect 100% of the
trustees of such 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.
Each Master Trust Agreement provides that the trustees of the Trust
shall hold office during the existence of the Trust, except as follows:
(a) any trustee may resign or retire; or (b) any trustee may be removed
by a vote of shareholders holding not less than two-thirds of the
outstanding shares of the Trust, or at any time by written instrument
signed by at least two-thirds of the trustees and specifying when such
removal becomes effective. The Trustees are required to call a meeting
for the purpose of considering the removal of a person serving as Trustee
if requested in writing to do so by the holders of not less than 10% of
the outstanding shares of the Trust.
A majority of the trustees is not affiliated with CIGNA Corporation or
any of its subsidiary companies. The trustees meet quarterly to review
the results of the Funds, to monitor investment activities and practices,
and to review and act upon future plans for the Funds. The role of the
trustees is not to approve specific investment purchases and sales, but
rather to exercise a control and review function.
APPENDIX
-----------------------------------------------------------------
Description of Money Market Instruments
U.S. GOVERNMENT DIRECT OBLIGATIONS - Bills, notes, and bonds issued by
the U.S. Treasury.
U.S. GOVERNMENT AGENCIES SECURITIES - Certain Federal agencies such as
the Government National Mortgage Association have been established as
instrumentalities of the U.S. Government to supervise and finance certain
types of activities. Issues of these agencies, while not direct
obligations of the U.S. Government, are either backed by the full faith
and credit of the United States or are guaranteed by the Treasury or
supported by the issuing agencies' right to borrow from the Treasury.
Page 48
<PAGE>
BANKERS' ACCEPTANCES - A bill of exchange or time draft drawn on and
accepted by a commercial bank. It is used by corporations to finance the
shipment and storage of goods and to furnish dollar exchange. Maturities
are generally six months or less.
CERTIFICATES OF DEPOSIT - A negotiable interest-bearing instrument with a
specific maturity. Certificates of deposit are issued by banks and
savings and loan institutions in exchange for the deposit of funds and
normally can be traded in the secondary market, prior to maturity.
TIME DEPOSITS - A non-negotiable receipt issued by a bank in exchange for
the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it
cannot be traded in the secondary market.
COMMERCIAL PAPER - The term used to designate unsecured short-term
promissory notes issued by corporations and other entities. Maturities
on these issues vary from a few days to nine months.
COMMERCIAL LOAN PARTICIPATIONS - Participating interests in loans made by
a bank, or a syndicate of banks represented by an agent bank, to
corporate borrowers. Loan participations may extend for the entire term
of the loan or may extend only for short "strips" that correspond to
stated payments on the underlying loan. The loans underlying such
participations may be secured or unsecured, and a Fund may invest in
loans collateralized by mortgages on real property. Each Fund will limit
its investments in commercial loan participations to those which are
considered by the Trustees (with the advice of CIGNA Investments) to be
of comparable quality to permitted commercial paper investments.
REPURCHASE AGREEMENTS - A repurchase agreement is a contractual
undertaking whereby the seller of securities (limited to U.S. Government
securities, including securities issued or guaranteed by the U.S.
Treasury or the various agencies and instrumentalities of the U.S.
Government) agrees to repurchase the securities at a specified price on a
future date determined by negotiations. The repurchase agreement may be
considered a loan by a Fund to the issuer of the agreement, a bank or
securities dealer, with the U.S. Government security serving as
collateral for the loan.
VARIABLE AND FLOATING RATE INSTRUMENTS - Certain instruments issued,
guaranteed or sponsored by the U.S. Government or its agencies, state and
local government issuers, and certain debt instruments issued by domestic
banks or corporations, may carry variable or floating rates of interest.
Such instruments bear interest at rates which are not fixed, but which
vary with
Page 49
<PAGE>
changes in specified market rates or indices, such as a Federal Reserve
composite index.
Descriptions of Rating Categories
The following are descriptions of ratings assigned by Moody's and S&P to
certain debt securities in which the High Yield Fund and, to a lesser
extent, the Income Fund may invest. See the Statement of Additional
Information for descriptions of other Moody's and S&P rating categories.
Moody's:
-------
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during other good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
S&P:
---
BB, B, CCC, CC, C - Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the terms
of the obligations. 'BB' indicates the lowest degree of speculation and
'C' the highest degree of speculation. While such debt will likely have
some quality and protective characteristics, these are outweighed by
large uncertainties of major risk exposures to adverse conditions.
Page 50
<PAGE>
Custodian and Transfer Agent: CIGNA Funds
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110 Prospectus
May 1, 1997
Investment Adviser:
CIGNA Investments, Inc.
900 Cottage Grove Road
Hartford, Connecticut 06152
Investment Sub-Adviser:
International Stock Fund
CIGNA International Investment Advisors, Ltd.
Park House 16 Finsbury Circus
London, England EC2M 7AX
Independent Accountants:
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
Principal Underwriter:
CIGNA Financial Advisors, Inc.
900 Cottage Grove Road
Hartford, CT 06152
[ART]
51
<PAGE>
52
<PAGE>
C I G N A I N S T I T U T I O N A L F U N D S G R O U P
-------------------------------------------------------------
A N D
-----
C I G N A F U N D S G R O U P
---------------------------------
S T A T E M E N T O F A D D I T I O N A L I N F O R M A T I O N
---------------------------------------------------------------------
M A Y 1, 1 9 9 7
-------------------
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the prospectus for CIGNA Institutional Funds Group ("CIFG")
and CIGNA Funds Group ("CFG") (the "Trusts") having the same date as the date of
this Statement of Additional Information. Much of the information contained
herein expands upon subjects discussed in the prospectus. No investment in
shares of the Trusts should be made without first reading the prospectus. A
copy of the prospectus of the Trusts may be obtained by writing to CIGNA Funds
Shareholder Services, Hartford, Connecticut 06152-2210.
The financial statements for CIGNA International Stock Fund, the sole series of
CIGNA Institutional Funds Group, and CIGNA Funds Group, for the year ended
December 31, 1996, as contained in the Annual Reports to Shareholders, are
hereby incorporated by reference into this Statement of Additional Information.
The financial statements for the year ended December 31, 1996 have been examined
by Price Waterhouse LLP, independent accountants, whose report thereon also is
incorporated herein by reference.
CIGNA Funds Group/CIGNA Institutional Funds Group Page 1
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
General Information About the Trusts.................................... 3
- ------------------------------------
Investment Objectives and Policies...................................... 3
- ----------------------------------
Futures Contracts....................................................... 15
- -----------------
Options on Futures Contracts............................................ 16
- ----------------------------
Risks as to Futures Contracts and Related Options....................... 17
- -------------------------------------------------
Foreign Currency Transactions........................................... 18
- -----------------------------
Investment Restrictions................................................. 23
- -----------------------
Tax Matters............................................................. 25
- -----------
Activities of Affiliated Companies...................................... 28
- ----------------------------------
Control Persons and Principal Holders of Securities..................... 29
- ---------------------------------------------------
Management of the Trusts................................................ 29
- ------------------------
Investment Advisory and Other Services.................................. 32
- --------------------------------------
Portfolio Turnover and Brokerage Allocation............................. 35
- -------------------------------------------
Purchase, Redemption and Pricing of Securities.......................... 37
- ----------------------------------------------
Dividends............................................................... 39
- ---------
Performance Information................................................. 39
- -----------------------
Redemptions Paid in Cash................................................ 42
- ------------------------
Classes of Shares....................................................... 43
- -----------------
Underwriter............................................................. 43
- -----------
Service Fees............................................................ 43
- ------------
Description of Money Market Instruments................................. 44
- ---------------------------------------
Ratings of Securities................................................... 46
- ---------------------
</TABLE>
CIGNA Funds Group/CIGNA Institutional Funds Group Page 2
<PAGE>
GENERAL INFORMATION ABOUT THE TRUSTS
- ------------------------------------
The Trusts are Massachusetts business trusts. CIFG was organized pursuant to a
Master Trust Agreement dated as of August 10, 1992, as amended from time to
time. CFG was organized pursuant to a Master Trust Agreement dated April 10,
1985, as amended and restated by the First Amended and Restated Master Trust
Agreement dated as of March 1, 1996. CIFG currently offers one series of shares
(CIGNA International Stock Fund). CFG currently has seven series of shares
(CIGNA Money Market Fund, CIGNA Treasury Obligations Cash Fund, CIGNA Government
Obligations Cash Fund, CIGNA Government Securities Fund, CIGNA Income Fund,
CIGNA High Yield Fund and CIGNA S&P 500 Index Fund). Each series is sometimes
referred to in this Statement of Additional Information as a "Fund". CIGNA
Funds Group was formerly known as CIGNA Annuity Funds Group. CIGNA Money Market
Fund and CIGNA Income Fund, two series of CFG, were formerly known as CIGNA
Annuity Money Market Fund and CIGNA Annuity Income Fund, respectively. Five
additional series were added to CFG under the Amended and Restated Master Trust
Agreement. The Board of Trustees of CFG and CIFG is authorized to create new
series of shares without the necessity of a vote of shareholders of the Trust.
The assets received by the Trust from the issue or sale of shares of each of
its series of shares, and all income, earnings, profits and proceeds thereof,
subject only to the rights of creditors, are specifically allocated to the
appropriate series. They constitute the underlying assets of each series, are
required to be segregated on the books of account, and are to be charged with
the expenses with respect to such series. Any general expenses of the Trust not
readily identifiable as belonging to a particular series shall be allocated by
or under the direction of the Board of Trustees, primarily on the basis of
relative net assets.
Each share of each series represents an equal proportionate interest in that
series with each other share and is entitled to such dividends and distributions
out of the income belonging to such series as are declared by the Board. Upon
any liquidation of a Trust, shareholders of each series of the Trust are
entitled to share pro rata in the net assets belonging to that series available
for distribution.
INVESTMENT OBJECTIVES AND POLICIES
- ----------------------------------
The following information supplements the material contained in the prospectus
regarding each Fund's investment objectives and policies.
Description of Money Market Instruments
- ---------------------------------------
U.S. GOVERNMENT DIRECT OBLIGATIONS--issued by the U.S. Treasury and include
bills, notes, and bonds.
CIGNA Funds Group/CIGNA Institutional Funds Group Page 3
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. Treasury bills are issued with maturities of up to one year. They are
issued in bearer form, are sold on a discount basis and are payable at par
value at maturity.
. Treasury notes are longer-term interest bearing obligations with original
maturities of one to ten years.
. Treasury bonds are longer-term interest bearing obligations with original
maturities from ten to thirty years.
U.S. GOVERNMENT AGENCIES SECURITIES--Certain Federal agencies have been
established as instrumentalities of the U.S. Government to supervise and finance
certain types of activities. These agencies include the Bank for Cooperatives,
Federal Land Banks, Federal Intermediate Credit Banks, Federal Home Loan Banks,
Federal National Mortgage Association, Government National Mortgage Association,
Export-Import Bank, and Tennessee Valley Authority. Issues of these agencies,
while not direct obligations of the U.S. Government, are either backed by the
full faith and credit of the United States or are guaranteed by the Treasury or
supported by the issuing agencies' right to borrow from the Treasury. There can
be no assurance that the U.S. Government itself will pay interest and principal
on securities as to which it is not legally obligated to do so.
BANKERS' ACCEPTANCES--A banker's acceptance is a bill of exchange or time draft
drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange. When
the draft is accepted by a bank, the bank guarantees to pay the face value of
the instrument on its maturity date. An investor can purchase a banker's
acceptance in the secondary market at the going rate of discount for a specific
maturity. In addition to purchasing bankers' acceptances from domestic branches
and foreign branches of U.S. commercial banks, bankers' acceptances denominated
in each case in U.S. dollars, may be purchased from foreign branches and U.S.
branches of foreign banks having at least one billion dollars (U.S.) of assets.
Maturities are generally six months or less.
CERTIFICATES OF DEPOSIT--A certificate of deposit ("CD") is a negotiable
interest-bearing instrument with a specific maturity. Certificates of deposit
are issued by banks and savings and loan institutions in exchange for the
deposit of funds and normally can be traded in the secondary market, prior to
maturity. Each Fund may invest in U.S. dollar denominated CD's issued by
domestic branches and foreign branches of U.S. banks which are members of the
Federal Reserve System; by foreign branches and U.S. branches of foreign banks
and by U.S. domiciled savings and loan institutions having in each case at least
one billion dollars (U.S.) of assets. CD's issued by foreign branches of U.S.
banks are called "Eurodollar CD's" while CD's issued by U.S. branches of foreign
banks are called "Yankee CD's."
CIGNA Funds Group/CIGNA Institutional Funds Group Page 4
<PAGE>
COMMERCIAL LOAN PARTICIPATIONS--Each Fund will limit its investments in loan
participations to those which are considered by the Fund's adviser, CIGNA
Investments, Inc. ("CII"), or the Fund's sub-adviser to be of comparable quality
to permitted commercial paper investments. These ratings are described under
"Ratings of Securities." Further, for the purposes of each Fund's investment
restrictions, each loan participation will be treated as an obligation of both
the originating bank (or agent bank in the case of loans originated by a
syndicate of banks) and the corporate borrower. In addition, each Fund may only
invest up to 5% of the value of its total assets in loan participations.
Loan participations in which a Fund may invest may vary in legal structure.
Occasionally, lenders assign to another institution both the lenders's rights
and obligations under a credit agreement. Since this type of assignment
relieves the original lender of its obligations, it is called a novation. Such
novations are relatively rare since they typically require the consent of the
borrower. More typically, a lender assigns only its right to receive payments
of principal and interest under a promissory note, credit agreement or similar
document. A true assignment shifts to the assignee the direct debtor-creditor
relationship with the underlying borrower. Alternatively, a lender may assign
only part of its rights to receive payments pursuant to the underlying
instrument or loan agreement. Such partial assignments, which are more
accurately characterized as "participating interests," do not shift the debtor-
creditor relationship to the assignee, who must rely on the original lending
institution to collect sums due and to otherwise enforce its rights against the
agent bank which administers the loan or against the underlying borrower. An
active secondary market for particular loan participations may not develop,
which would result in a substantial restriction on a Fund's ability to liquidate
such participations prior to maturity.
REPURCHASE AGREEMENTS--Each Fund may engage in repurchase agreement
transactions in pursuit of its investment objective. Under the terms of a
typical repurchase agreement, a Fund purchases an underlying U.S. Government
security, including securities issued or guaranteed by the U.S. Treasury or
agencies and instrumentalities of the U.S. Government, for a relatively short
period (most likely overnight and usually not more than five days) subject to an
obligation of the seller to repurchase, and the Fund to resell, the security at
an agreed upon price and time, thereby determining the yield during the Fund's
holding period. The arrangement results in a fixed rate of return that is not
subject to market fluctuations during the Fund's holding period. The Funds may
enter into repurchase agreements with banks having $1 billion or more of assets
and with broker/dealers having net capital of $100 million or more. The Funds
require that the counter-party's obligation under repurchase agreements be
sufficiently collateralized so that the value of the underlying collateral
securities at least equals the amount of the repurchase agreement. Also, the
Funds require that the underlying securities be
CIGNA Funds Group/CIGNA Institutional Funds Group Page 5
<PAGE>
held by the custodian of Fund assets, either physically or under the Federal
Book Entry System.
Repurchase agreements could involve certain risks in the event of default or
insolvency of the repurchasing bank or broker/dealer, including possible delays
or restrictions upon a Fund's ability to dispose of the underlying securities.
CII, in accordance with procedures adopted by the Board of Trustees of the
Trust, monitors and evaluates the credit-worthiness of banks and dealers with
which the Funds engage in repurchase agreements.
TIME DEPOSITS--A time deposit is a non-negotiable receipt issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. U.S. dollar denominated time deposits may be
purchased from domestic branches and foreign branches of U.S. banks which are
members of the Federal Reserve System (not including savings and loan
institutions) and from foreign branches and U.S. branches of foreign banks
having at least one billion dollars (U.S.) of assets.
U.S. dollar denominated certificates of deposit, time deposits and bankers'
acceptances issued by foreign branches of U.S. banks or by foreign banks either
in the U.S. or abroad may present investment risks in addition to the risks
involved in investments in obligations of, or guaranteed by, domestic banks.
Such risks include future political and economic developments, the possible
imposition of withholding taxes on interest income payable on such obligations,
the possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls or the adoption of other governmental
restrictions. Generally, foreign branches of U.S. banks and U.S. branches of
foreign banks are subject to fewer U.S. regulatory restrictions than are
applicable to domestic banks, and foreign branches of U.S. banks may be subject
to less stringent reserve requirements than domestic banks. U.S. branches of
foreign banks and foreign branches of U.S. banks may provide less public
information than, and may not be subject to the same accounting, auditing and
financial record-keeping standards as, domestic banks. Foreign branches of
foreign banks generally would not be subject to any U.S. regulatory restrictions
or disclosure, financial recordkeeping or accounting requirements.
COMMERCIAL PAPER--Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations and other business entities.
Maturities on these issues vary from a few days to nine months. Commercial
paper may be purchased from U.S. domiciled issuers. Commercial paper may also
be purchased from foreign issuers issued either in the U.S. ("Yankee" commercial
paper) or abroad if, in any case, such paper is denominated in U.S. dollars.
OTHER CORPORATE OBLIGATIONS--Each Fund may purchase notes, bonds and debentures
issued by corporations and other business entities. However, the Money Market
Funds will purchase such obligations only
CIGNA Funds Group/CIGNA Institutional Funds Group Page 6
<PAGE>
if at the time of purchase there are 397 days or less remaining until maturity
or if they carry a variable or floating rate of interest.
VARIABLE AND FLOATING RATE INSTRUMENTS--Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, or state and local
government issuers, and certain debt instruments issued by domestic banks or
corporations, may carry variable or floating rates of interest. Such
instruments bear interest at rates which are not fixed, but which vary with
changes in specified market rates or indices, such as a Federal Reserve
composite index.
Description of Income Instruments for the High Yield Fund
- ---------------------------------------------------------
As noted in the prospectus, the Fund purchases principally debt securities that
are rated Ba or lower by Moody's or BB or lower by S&P.
Included among the high-yield, high risk securities in which the Fund may
invest are securities issued in connection with corporate restructurings such as
takeovers or leveraged buyouts. Securities issued to finance corporate
restructurings may have special credit risks due to the highly leveraged
conditions of the issuer. In addition, such issuers may lose experienced
management as a result of the restructuring. Also, the market price of such
securities may be more volatile to the extent that expected benefits from the
restructuring do not materialize.
Because investors generally perceive that there are greater risks associated
with the medium to lower rated securities of the type constituting high-yield,
high risk securities, the yields and prices of such securities may tend to
fluctuate more than those for higher rated securities. In the lower quality
segments of the fixed income securities market, changes in perceptions of
issuer's creditworthiness tend to occur more frequently and in a more pronounced
manner than do such changes with respect to higher quality segments of the fixed
income securities market, causing greater yield and price volatility.
Commissions and underwriting spreads associated with the purchase of high-yield,
high risk bonds are typically higher than those associated with the purchase of
high grade bonds.
The Fund may also invest in preferred stocks with yields that are attractive,
provided that such investments are otherwise consistent with the investment
objective and policies of the Fund. A preferred stock is an equity security
that entitles the holders to a priority in liquidation over holders of the
issuer's common stock. In liquidation, the holders of preferred stock are
subordinate to the holders of the issuer's debt obligations. Typically,
preferred stocks include the right to receive regular dividend payments and may
also include conversion rights, put and call obligations and other features. In
determining whether to invest in any particular stock, CII will consider all
relevant factors, including the dividend yield, its conversion features, if any,
its liquidity, and the overall
CIGNA Funds Group/CIGNA Institutional Funds Group Page 7
<PAGE>
financial condition of the issuer. Under normal circumstances, the Fund will not
invest more than 10% of its assets in preferred stock.
The Fund may invest up to 15% of its total assets in "private placements,"
i.e., securities that are subject to restrictions on resale because they have
not been registered under the securities Act of 1933, as amended (the "1933
Act"). Privately placed securities, which include securities eligible for
resale under Rule 144A under the 1933 Act, ordinarily can be sold by the Fund in
privately negotiated transactions to a limited number and/or particular type of
purchasers or in a public offering made pursuant to an effective registration
statement under the 1933 act. Private or public sales of such securities by the
Fund are likely to involve delays and expenses. Private sales require
negotiation with one or more purchasers and may produce less favorable prices
than the sale of similar unrestricted securities. Public sales generally
involve the time and expense of the preparation and processing of a registration
statement under the 1933 Act (and the possible decline in value of the
securities during such period) and may involve the payment of underwriting
commissions. For these reasons, restricted securities are less liquid than
registered securities and certain restricted securities may be illiquid. The
lack of third party evaluation of the credit quality of these securities and the
possibility of a less liquid secondary market because of restrictions placed by
some investors with respect to the purchase of non-rated securities may also
increase the risk to investors.
The Fund will not acquire common stocks, except when (i) attached to or
included in a unit with income-generating securities that otherwise would be
attractive to the Fund; (ii) acquired through the exercise of equity features
accompanying convertible securities held by the Fund, such as conversion or
exchange privileges or warrants for the acquisition of stock or equity interest
of the same or different issuer; or (iii) in the case of an exchange offering
whereby the equity security would be acquired with the intention of exchanging
it for a debt security issued on a "when-issued" basis.
Description of Income Instruments for the Income Fund
- -----------------------------------------------------
In pursuing its investment objective, the Income Fund will principally invest
in the following types of interest-bearing securities:
(1) Marketable debt securities that are rated at the time of purchase within
the four highest grades assigned by Moody's Investors Service, Inc. (Aaa,
Aa, A or Baa) or Standard & Poor's Corporation (AAA, AA, A or BBB); see
"Ratings of Securities."
(2) U.S. Government securities, as described below.
(3) Obligations of, or guaranteed by, U.S. banks or bank holding companies,
which obligations are considered by CII to have
CIGNA Funds Group/CIGNA Institutional Funds Group Page 8
<PAGE>
investment qualities comparable to securities which may be purchased
under Item (1) above, although there can be no assurance that said
obligations shall have such qualities.
(4) Money market instruments eligible for purchase by the Money Market Fund,
which instruments are considered by CII to have investment qualities
comparable to securities which may be purchased under Item (1) above,
although there can be no assurance that said obligations shall have such
qualities.
(5) Marketable securities (payable in U.S. dollars) of, or guaranteed by, the
Government of Canada or of a Province of Canada or any instrumentality or
political subdivision thereof.
The balance of the Income Fund's assets may be invested in other fixed-income
securities, including straight debt and convertible debt securities and
preferred stock. Investment positions may be held in common stock and similar
equity securities (including warrants or rights to purchase equity investments
as described below) when they are acquired as parts of units with fixed-income
securities or upon exercise of such warrants or rights or upon the conversion of
such securities. The Income Fund also may purchase and sell interest rate
futures contracts and purchase options on futures contracts as described under
"Futures Contracts" and "Options on Futures Contracts."
U.S. Government securities include a variety of securities that are issued or
guaranteed by the U.S. Treasury, by various agencies of the U.S. Treasury, by
various agencies of the U.S. Government or by various instrumentalities that
have been established or sponsored by the U.S. Government. Treasury securities
include Treasury bills, Treasury notes and Treasury bonds. Treasury bills have
a maturity of one year or less; Treasury notes have maturities of one to ten
years; Treasury bonds generally have a maturity of greater than ten years. The
Federal agencies established as instrumentalities of the U.S. Government to
supervise and finance certain types of activities include the Federal Home Loan
Banks, the Government National Mortgage Association, the Federal National
Mortgage Association, the Federal Land Banks, the Small Business Administration,
the Export-Import Bank, the Federal Intermediate Credit Banks and the Bank for
Cooperatives.
U.S. Government securities may take the form of participation interests in, and
may be evidenced by, deposit or safekeeping receipts. Participation interests
are pro rata interests in U.S. Government securities such as interests in pools
of mortgages sold by the Government National Mortgage Association; instruments
evidencing deposit or safekeeping are documentary receipts for such original
securities held in custody by others. The Fund will not invest in obligations
of the Asian Development Bank, the Inter-American Development Bank or the
International Bank for Reconstruction and Development (World Bank).
CIGNA Funds Group/CIGNA Institutional Funds Group Page 9
<PAGE>
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.
Considerations of liquidity and preservation of capital mean that the Income
Fund may not necessarily invest in instruments paying the highest available
yield at a particular time. This Fund may, consistent with its investment
objective, attempt to maximize yields by buying and selling portfolio
investments in anticipation of or in response to changing economic and money
market conditions and trends. This Fund will also invest to take advantage of
what are believed to be temporary disparities in the yields of the different
segments of the market or among particular instruments within the same segment
of the market. These policies, as well as the relatively short maturity of
obligations to be held by this Fund, may result in frequent changes in portfolio
holdings. There usually are no brokerage commissions as such paid in connection
with the purchase of securities of the type in which this Fund may invest. See
"Brokerage Allocation" for a discussion of underwriters' commissions and
dealers' spreads involved in the purchase and sale of portfolio securities.
CIGNA Funds Group/CIGNA Institutional Funds Group Page 10
<PAGE>
Changes in interest rates are likely to result in increases or decreases in the
value of the investments of the Income Fund. The value of the securities in this
Fund can be expected to vary inversely with the changes in prevailing interest
rates. Thus, depending upon whether interest rates have increased or decreased
since the time a security was purchased, such security, if sold, might be sold
at a loss or a gain. If debt instruments are held to maturity, no gain or loss
would normally be realized as a result of interest rate fluctuations.
High Yield Fund and Income Fund: Risk Factors
- ----------------------------------------------
As noted in the prospectus, the High Yield Fund, and, to a lesser extent, the
Income Fund invest in debt securities of less than investment grade (i.e.,
securities rated Ba/BB or below by Moody's and S&P). Such securities are often
referred to as high yield or junk bonds and are typically considered "high risk"
securities. High yield bonds may be subject to certain risk factors to which
other securities are not subject to the same degree. An economic downturn tends
to disrupt the market for high yield bonds and adversely effect their values.
Such an economic downturn may be expected to result in increased price
volatility of high yield bonds and of the value of the Fund's shares, and an
increase in issuers' defaults on such bonds.
Also, issuers of high yield bonds are substantially leveraged, which may impair
their ability to meet their obligations. In some cases, the securities in which
the Fund invests are subordinated to the prior payment of senior indebtedness,
thus potentially limiting the Fund's ability to recover full principal or to
receive payments when senior securities are in default. When the secondary
market for high yield bonds becomes increasingly illiquid, or in the absence of
readily available market quotations for high yield bonds, the relative lack of
reliable, objective data makes the responsibility of the Trustees to value the
Fund's securities more difficult, and judgement plays a greater role in the
valuation of portfolio securities. Also, increased illiquidity of the high
yield bond market may affect the Fund's ability to dispose of portfolio
securities at a desirable price.
The credit rating of a security does not necessarily address its market value
risk. Also, ratings may from time to time, be changed to reflect developments
in the issuer's financial condition. High yield bonds have speculative
characteristics which are apt to increase in number and significance with each
lower rating category. Also, prices of high yield bonds have been found to be
less sensitive to interest rate changes and more sensitive to adverse economic
changes and individual corporate developments than more highly rated
investments.
Certain laws or regulations may have a material effect on the Fund's net asset
value and investment practices. For example, legislation requiring federally-
insured savings and loan associations to divest their investments in high yield
bonds may further adversely affect the market for such bonds.
CIGNA Funds Group/CIGNA Institutional Funds Group Page 11
<PAGE>
Characteristics of the S&P 500 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
under "S&P 500 Index Fund" and "Stock Index Futures Contracts and Related
Options."
Characteristics of the International Stock Fund
- -----------------------------------------------
The Fund will invest in securities listed on foreign securities exchanges or
securities traded in the over-the-counter market. Debt securities will be
acquired in new offerings or in principal trades with broker/dealers.
Ordinarily, the Fund will not purchase securities with the intention of engaging
in short-term trading. However, any particular security will be sold, and the
proceeds reinvested, whenever such action is deemed prudent from the viewpoint
of the Fund's investment objective, regardless of the holding period of that
security. The rating applied to a debt security or money market instrument (see
"Ratings of Securities" below) at the time the security is purchased by the Fund
may be changed while the Fund holds such security in its portfolio. This change
may affect, but may not compel, a decision to dispose of a security.
Nonetheless, the Fund does not intend to hold more than 5% of its net assets in
bonds rated below investment grade (i.e. bonds rated BB or Ba or below by S&P or
Moody's or if not so rated, which in the opinion of CIGNA International
Investment Advisors, Ltd. ("CIIA"), sub-adviser to the Fund, are of comparable
quality). Therefore, the Fund will dispose of any bond, as soon as practicable
consistent with achieving an orderly disposition, that would cause the Fund to
violate the above-referenced limitation. If the major rating services used by
the Fund were to alter their standards or systems for rating, the Fund would
then employ ratings under the revised standards or systems that would be
comparable to those specified in its current investment objective, policies and
restrictions.
Characteristics of the Money Market Funds
- -----------------------------------------
The types of money market instruments in which the Funds presently invest (to
the extent permitted by each Fund's investment objective) are listed under
"Description of Money Market Instruments" in the appendix of 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, a
Money Market Fund may invest in such instruments, if it is permitted to do so by
its investment objective, policies and restrictions.
CIGNA Funds Group/CIGNA Institutional Funds Group Page 12
<PAGE>
As discussed in the Prospectus, the Money Market Fund may invest in U.S. dollar-
denominated obligations of U.S. and foreign depository institutions, including
commercial and savings banks and savings and loan associations. The obligations
may be issued by U.S. or foreign depository institutions, foreign branches or
subsidiaries of U.S. depository institutions ("Eurodollar" obligations), U.S.
branches or subsidiaries of foreign depository institutions ("Yankeedollar"
obligations) or foreign branches or subsidiaries of foreign depository
institutions. Obligations of foreign depository institutions, their branches
and subsidiaries, and Eurodollar and Yankeedollar obligations may involve
additional investment risks to the risks of obligations of U.S. institutions.
Such investment risk include adverse political and economic developments, the
possible imposition of withholding taxes on interest income payable on such
obligations, the possible seizure or nationalization of foreign deposits and the
possible establishment of exchange controls or other foreign governmental laws
or restrictions which might adversely affect the payment of principal and
interest. Generally, the issuers of such obligations are subject to fewer
regulatory requirements than are applicable to U.S. banks. Foreign depository
institutions, their branches or subsidiaries, and foreign branches or
subsidiaries of U.S. banks may be subject to less stringent reserve requirements
than U.S. banks. U.S. branches or subsidiaries of foreign banks are subject to
the reserve requirements of the state in which they are located. There may be
less publicly available information about a foreign bank or a branch or
subsidiary of a foreign bank than about a U.S. institution, and such branches or
subsidiaries may not be subject to the same accounting, auditing and financial
record keeping standards and requirements as U.S. banks. Evidence of ownership
of foreign depository and Eurodollar obligations may be held outside of the
United States and the Fund may be subject to the risks associated with the
holding of such property overseas. Foreign depository and Eurodollar
obligations of the Fund held overseas will be held by foreign branches of the
custodian for the Funds portfolio securities or by other U.S. or foreign banks
under subcustodian arrangements complying with the requirements of the
Investment Company Act of 1940, as amended (the "1940 Act"). CII will consider
the above factors in making investments in foreign depository, Eurodollar and
Yankeedollar obligations and will not knowingly purchase obligations which, at
the time of purchase, are subject to exchange controls or withholding taxes.
Generally, the Fund will limit its foreign depository and Yankeedollar
investments to obligations of banks organized in Canada, France, Germany, Japan,
the Netherlands, Switzerland, the United Kingdom and other western
industrialized nations. As discussed in the prospectus, the Fund may also
invest in U.S. dollar-denominated commercial paper and other short-term
obligations issued by foreign entities. Such investments are subject to quality
standards similar to those applicable to investments in comparable obligations
of domestic issuers. Investments in foreign entities in general involve the
same risks as those described above in connection with investments in Eurodollar
and Yankeedollar obligations and obligations of foreign depository institutions
and their foreign branches and subsidiaries.
CIGNA Funds Group/CIGNA Institutional Funds Group Page 13
<PAGE>
The Money Market Funds' investments in short-term corporate debt and bank money
instruments will be rated, or will be issued by issuers who have been rated, in
one of the two highest rating categories for short-term debt obligations by a
nationally recognized statistical rating organization (an "NRSRO") or, if not
rated, will be of comparable quality as determined by the Trustees of the Trust.
The Money Market Fund's investments in corporate bonds and debentures (which
must have maturities at the date of purchase of 397 days (13 months) or less)
will be in issuers who have received from an NRSRO a rating with respect to a
class of short-term debt obligations that is comparable in priority and security
with the investment in one of the two highest rating categories for short-term
obligations or if not rated, will be of comparable quality as determined by the
Trustees of the Trust. Currently, there are six NRSROs: Duff and Phelps Inc.,
Fitch Investors Services, Inc., IBCA Limited and its affiliate IBCA Inc.,
Thompson BankWatch, Inc., Moody's Investors Service Inc. and Standard & Poor's
Rating Group. See "Appendix--Description of Money Market Instruments".
The rating applied to a security at the time the security is purchased by a Fund
may be changed while the Fund holds such security in its portfolio. This change
may affect, but will not necessarily compel, a decision to dispose of a
security. If the major rating services used by the Fund were to alter their
standards or systems for rating, the Fund would then employ ratings under the
revised standards or systems that would be comparable to those specified in its
current investment objective, policies and restrictions.
The Board of Trustees has established procedures in compliance with Rule 2a-7
under the 1940 Act that include reviews of portfolio holdings by the Trustees at
such intervals as they may deem appropriate to determine whether net asset value
of the Money Market Funds, calculated by using available market quotations,
deviates from $1.00 per share and, if so, whether such deviation may result in
material dilution or is otherwise unfair to existing shareholders. In the event
the Trustees determine that a deviation having such a result exists, they intend
to take such corrective action as they deem necessary and appropriate, including
the sale of portfolio instruments prior to maturity in order to realize capital
gains or losses or to shorten average portfolio maturity; withholding dividends;
or establishing a net asset value per share by using available market
quotations; in which case, the net asset value could possibly be greater or less
than $1.00 per share. If the Trustees deem it inadvisable to continue the
practice of maintaining the net asset value at $1.00 per share, they may alter
this procedure. The shareholders of the Fund will be notified promptly after any
such change.
Any increase in the value of a shareholder's investment in a 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.
CIGNA Funds Group/CIGNA Institutional Funds Group Page 14
<PAGE>
Matters relating to all Funds
- -----------------------------
Except as described under "Investment Restrictions," the foregoing investment
characteristics are not fundamental and the Board of Trustees may change such
policies without shareholder approval. The Board will not change a Fund's
investment objectives without the required shareholder vote as set forth in
"Investment Restrictions" below. There is risk inherent in any investment, and
there is no assurance that any of the strategies and methods of investment
available to any Fund will result in the achievement of its objectives.
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.
FUTURES CONTRACTS
- -----------------
A stock index assigns relative values to the common stocks included in the index
and the index fluctuates with changes in the market values of the common stocks
so included. A stock index futures contract is a bilateral agreement pursuant
to which two parties agree to take or make delivery of an amount of cash equal
to a specified dollar amount times the difference between the stock index value
at the close of the last trading day of the contract and the price at which the
futures contract is originally struck. No physical delivery of the underlying
stocks in the index is made.
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.
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 one of these Funds owned long-term debt
securities and interest rates were expected to increase, they might sell
interest rate futures contracts. If, on the other hand, these Funds held cash
reserves and interest rates were expected to decline, they might purchase
interest rate futures contracts.
CIGNA Funds Group/CIGNA Institutional Funds Group Page 15
<PAGE>
In cases of purchases of futures contracts, an amount of cash and cash
equivalents, equal to the market value of the futures contracts (less any
related margin deposits), will be deposited in a segregated account with the
Fund's custodian to collateralize the position and ensure that the use of such
futures contracts is unleveraged. Unlike when a Fund purchases or sells a
security, no price is paid or received by a Fund upon the purchase or sale of a
futures contract. Initially, a Fund will be required to deposit with the
custodian for the Fund for the account of the broker a stated amount, as called
for by a particular contract, of cash or U.S. Treasury bills. This amount is
known as "initial margin." The nature of initial margin in futures transactions
is different from that of margin in securities transactions in that futures
contract margin does not involve the borrowing of funds by the customer to
finance the transactions.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the applicable Fund upon
termination of the futures contract assuming all contractual obligations have
been satisfied. Subsequent payments, called "variation margin," to and from the
broker will be made on a daily basis as the price of the futures contract
fluctuates making the long and short positions in the futures contract more or
less valuable, a process known as "marking-to-market." For example, when a Fund
has purchased a stock index futures contract and the price of the underlying
stock index has risen, that position will have increased in value and the Fund
will receive from the broker a variation margin payment with respect to that
increase in value. Conversely, where a Fund purchases a stock index futures
contract and the price of the underlying stock index has declined, the position
would be less valuable and the Fund would be required to make a variation margin
payment to the broker. Variation margin payments would be made in a similar
fashion when a Fund purchases an interest rate futures contract. At any time
prior to expiration of the futures contract, a Fund may elect to close the
position by taking an opposite position which will operate to terminate the
Fund's position in the futures contract. A final determination of variation
margin is then made, additional cash is required to be paid by or released to
the Fund and the Fund realizes a loss or a gain.
OPTIONS ON FUTURES CONTRACTS
- ----------------------------
An option on a futures contract gives the purchaser (the Fund) the right, in
return for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the option exercise period. The
writer of the option is required upon exercise to assume an offsetting futures
position (a short position if the option is a call and a long position if the
option is a put) at a specified exercise price at any time during the period of
the option. Upon exercise of the option, the assumption of offsetting futures
positions by the writer and holder of the option will be accompanied by delivery
of the accumulated cash balance in the writer's futures margin account which
represents the amount by which
CIGNA Funds Group/CIGNA Institutional Funds Group Page 16
<PAGE>
the market price of the futures contract, at exercise, exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of the option on
the futures contract. If an option on a futures contract is exercised on the
last trading date prior to the expiration date of the option, the settlement
will be made entirely in cash equal to the difference between the exercise price
of the option and the closing price of the futures contract on the expiration
date.
The S&P 500 Index Fund's use of options on futures contracts is discussed in the
prospectus. The other Funds may purchase put options on futures contracts to
hedge against the risk of falling prices for their portfolio securities, and may
purchase call options on futures contracts as a hedge against a rise in the
price of securities which they intend to purchase. Options on futures contracts
may also be used to hedge the risks of changes in the exchange rate of foreign
currencies. The purchase of a put option on a futures contract is similar to the
purchase of protective put options on portfolio securities or a foreign
currency. The purchase of a call option on a futures contract is similar in some
respects to the purchase of a call option on an individual security or a foreign
currency. Depending on the pricing of the option compared to either the price of
the futures contract upon which it is based or the price of the underlying
securities or currency, it may or may not be less risky than ownership of the
futures contract or underlying securities or currency.
RISKS AS TO FUTURES CONTRACTS AND RELATED OPTIONS
- -------------------------------------------------
There are several risks in connection with the use of futures contracts and
related options as hedging devices. One risk arises because of the imperfect
correlation between movements in the price of hedging instruments and movements
in the price of the stock, debt securities or foreign currency which are the
subject of the hedge. If the price of a hedging instrument moves less than the
price of the stocks, debt securities or foreign currency which are the subject
of the hedge, the hedge will not be fully effective. If the price of a hedging
instrument moves more than the price of the stock, debt securities or foreign
currency, a Fund will experience either a loss or a gain on the hedging
instrument which will not be completely offset by movements in the price of the
stock, debt securities or foreign currency which are the subject of the hedge.
The use of options on futures contracts involves the additional risk that
changes in the value of the underlying futures contract will not be fully
reflected in the value of the option.
Successful use of hedging instruments by a Fund is also subject to CII's ability
to predict correctly movements in the direction of the stock market, of interest
rates or of foreign exchange rates (foreign currencies). Because of possible
price distortions in the futures and options markets and because of the
imperfect correlation between movements in the prices of hedging instruments and
the investments being hedged, even a correct forecast by CII of general market
trends may not result in a completely successful hedging transaction.
CIGNA Funds Group/CIGNA Institutional Funds Group Page 17
<PAGE>
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, the Funds may engage in currency
exchange transactions to protect against uncertainty in the level of future
currency exchange rates.
Generally, Funds may engage in both "transaction hedging" and "position
hedging". When a Fund engages in transaction hedging, the Fund enters into
foreign currency transactions with respect to specific receivables or payables,
generally arising in connection with the purchase or sale of portfolio
securities. A Fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging a Fund will attempt to protect itself against
a possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
A Fund may purchase or sell a foreign currency on a spot (or cash) basis at the
prevailing spot rate in connection with the settlement of transactions in
portfolio securities denominated in that foreign currency. A Fund may also
enter into contracts to purchase or sell foreign currencies at a future date
("forward contracts") and purchase and sell foreign currency futures contracts.
CIGNA Funds Group/CIGNA Institutional Funds Group Page 18
<PAGE>
For transaction hedging purposes a Fund may also purchase exchange-listed call
and put options on foreign currencies. A put option on currency gives the Fund
the right to sell a currency at a specific exercise price. A call option on
currency gives a Fund the right to purchase a currency at a specific exercise
price. The time when call and put options are exercisable depends on whether
the options are American options or European options. American options are
exercisable at anytime during the option period. European options are
exercisable only on a designated date.
When it engages in position hedging, a Fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which its portfolio securities are denominated or an increase in
the value of currency for securities which the Fund expects to purchase, when
the Fund holds cash or short-term investments. In connection with position
hedging, a Fund may purchase put or call options on foreign currency and foreign
currency futures contracts and buy or sell forward contracts and foreign
currency futures contracts. The Funds may also purchase or sell foreign currency
on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio securities involved will not generally be
possible since the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature. For example, it may be necessary for a Fund to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security or securities being hedged is less
than the amount of foreign currency a Fund is obligated to deliver and a
decision is made to sell the security or securities and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security or
securities if the market value of such security or securities exceeds the amount
of foreign currency a Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying
prices of the securities which a Fund owns or intends to purchase or sell. They
simply establish a rate of exchange which one can achieve at some future point
in time. Additionally, although these techniques tend to minimize the risk of
loss due to a decline in the value of the hedged currency, they tend to limit
any potential gain which might result from the increase in value of such
currency.
Regardless of whether CII (or CIIA, as applicable) 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.
CIGNA Funds Group/CIGNA Institutional Funds Group Page 19
<PAGE>
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, the 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.
Loans and Other Direct Debt Instruments.
- ---------------------------------------
Direct debt instruments are interests in amounts owed by a corporate,
governmental, or other borrower to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or other
receivables), or to other parties. Direct debt instruments are subject to each
Fund's policies regarding the quality of debt securities.
Purchaser of loans and other forms of direct indebtedness depend primarily upon
the creditworthiness of the borrower for payment of principal and interest.
Direct debt instruments may not be rated by
CIGNA Funds Group/CIGNA Institutional Funds Group Page 20
<PAGE>
any NRSRO. If a Fund does not receive scheduled interest or principal payments
on such indebtedness, the Fund's share price and yield could be adversely
affected. Loans that are fully secured offer a Fund more protections than an
unsecured loan in the event of non-payment of scheduled interest or principal.
However, there is no assurance that the liquidation of collateral from a secured
loan would satisfy the borrower's obligation, or that the collateral could be
liquidated. Indebtedness of borrowers whose creditworthiness is poor involves
substantially greater risks and may be highly speculative. Borrowers that are in
bankruptcy or restructuring may never pay off their indebtedness, or may pay
only a small fraction of the amount owed. Direct indebtedness of developing
countries also involves a risk that the government entities responsible for the
repayment of the debt may be unable, or unwilling, to pay interest and repay
principal when due.
Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks to a Fund. For
example, if a loan is foreclosed, the Fund could become part owner of any
collateral, and would bear the costs and liabilities associates with owing and
disposing of the collateral. In addition, it is conceivable that under emerging
legal theories of lender liability, the Fund could be held liable as a co-
lender. Direct debt instruments may also involve a risk of insolvency of the
lending bank or other intermediary. Direct debt instruments that are not in the
form of securities may offer less legal protection to a Fund in the event of
fraud or misrepresentation. In the absence of definitive regulatory guidance,
each Fund relies on CII's (or CIIA's, as applicable) 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 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
CIGNA Funds Group/CIGNA Institutional Funds Group Page 21
<PAGE>
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.
Restricted Securities generally can be sold in privately negotiated
- ---------------------
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is
required, a Fund may be obligated to pay all or part of the registration expense
and a considerable period may elapse between the time it decides to seek
registration and the time it may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, a Fund might obtain a less favorable price than
prevailed when it decided to seek registration of the security.
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 CII to be of good standing. Furthermore, they will only be
made if, in CII's judgment, the consideration to be earned from such loans would
justify the risk.
CII 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).
Securities of Small Capitalization Companies. Smaller capitalization companies
- --------------------------------------------
may have limited products lines, markets, or financial resources. These
conditions may make them more susceptible to setbacks and reversals. Therefore,
their securities may have limited
CIGNA Funds Group/CIGNA Institutional Funds Group Page 22
<PAGE>
marketability and may be subject to more abrupt or erratic market movements than
securities of larger companies.
Sovereign Debt Obligations. A Fund may purchase sovereign debt instruments
- --------------------------
issued or guaranteed by foreign governments or their agencies, including debt of
Latin American nations or other developing countries. Sovereign debt may be in
the form of conventional securities or other types of debt instruments such as
loans or loan participations. Sovereign debt of developing countries may
involve a high degree of risk, and may be in default or present the risk of
default. Governmental entities responsible for repayment of the debt may be
unable or unwilling to repay principal and interest when due, and may require
renegotiation or rescheduling of debt payments. In addition, prospects for
repayment of principal and interest may depend on political as well as economic
factors.
INVESTMENT RESTRICTIONS
- -----------------------
The Funds are subject to the following restrictions which may not be changed
without approval of the lesser of (i) 67% or more of that Fund's shares present
at a meeting if the holders of more than 50% of the outstanding shares are
present in person or represented by proxy, or (ii) more than 50% of that Fund's
outstanding shares. Any investment restriction that involves a maximum or
minimum percentage of securities or assets shall not be considered to be
violated unless an excess over or a deficiency under the percentage occurs
immediately after, and is caused by, an acquisition or disposition of securities
or utilization of assets by the Fund.
A Fund may not:
1. With respect to 75% of its assets, purchase the securities of any issuer if
such purchase would cause more than 5% of the value of its total assets
(taken at market value at the time of such investment) to be invested in the
securities of such issuer except (a) U.S. Government securities including
securities issued by its agencies and instrumentalities (or repurchase
agreements with respect thereto), and (b) with respect to the Money Market
Fund, to securities or obligations issued by U.S. banks.
2. With respect to 75% of its assets, purchase the securities of any issuer if
such purchase would cause more than 5% of the voting securities, or more
than 10% of the securities of any class of such issuer (taken at the time of
such investment), to be held by the Fund.
3. Concentrate 25% or more of its total assets in a particular industry.
Investing in cash or high quality money market instruments, for defensive
purposes, securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities or repurchase agreements secured by these
instruments shall not be considered investments in a particular industry.
In addition, each Money Market Fund may invest up to
CIGNA Funds Group/CIGNA Institutional Funds Group Page 23
<PAGE>
100% of its assets (a) in the domestic banking industry, (b) in the personal
credit institution or business credit institution industries when, in the
opinion of management, yield differentials make such investments desirable,
or (c) in any combination of these.
4. Purchase securities of any company with a record of less than three years'
continuous operation (including that of predecessors) if such purchase would
cause any Fund's aggregate investments in all such companies taken at cost
to exceed 5% of the Fund's total assets taken at market value.
5. Make investments for the purpose of gaining control of a company's
management.
6. Make short sales of securities or maintain a short position for the account
of the Fund unless at all times when a short position is open it owns an
equal amount of such securities or owns securities convertible into or
exchangeable for securities of the same issuer as, and equal in amount to,
the securities sold short.
7. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of purchases and sales of securities, provided,
however, a Fund may, subject to restrictions described in the prospectus and
elsewhere in this Statement of Additional Information, make margin payments
in connection with transactions in options, futures contracts, financial
futures contracts and related options thereon.
8. Underwrite securities issued by other persons except to the extent that, in
connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under Federal securities laws.
9. Invest in securities of any issuer if, to the knowledge of the Fund,
officers and trustees of the Trust or officers and directors of its
investment adviser who beneficially own more than 1/2 of 1% of the
securities of that issuer, together own more than 5% of the securities of
such issuer.
10. Lend any funds or other assets, except that a Fund may, consistent with its
investment objective and policies: (a) invest in debt obligations including
bonds, debentures or other debt securities, bankers' acceptances and
commercial paper, even though the purchase of such obligations may be deemed
to be the making of loans, (b) enter into repurchase agreements, and (c)
lend its portfolio securities in an amount not to exceed one-third of the
value of its total assets, provided such loans are made in accordance with
applicable guidelines established by the Securities and Exchange Commission.
CIGNA Funds Group/CIGNA Institutional Funds Group Page 24
<PAGE>
11. Borrow money, issue senior securities, or pledge, mortgage or hypothecate
its assets, except that a Fund may (i) borrow to the extent permitted by the
1940 Act, and pledge, mortgage or hypothecate its assets in connection
therewith, and (ii) enter into transactions in options, futures and options
on futures and other derivative instruments (the deposit of assets in escrow
in connection with the writing of covered put and call options and the
purchase of securities on a when-issued or delayed delivery basis,
collateral arrangements with respect to initial or variation margin deposits
for futures contracts, and commitments entered into under swap agreements or
other derivative instruments will not be deemed to be pledged of a Fund's
assets).
12. Purchase or sell mortgages or real estate, or invest in real estate limited
partnerships, although it may purchase securities of issuers that deal in
real estate and may purchase securities that are secured by interests in
real estate.
13. Purchase or sell commodities or commodities contracts or oil, gas or mineral
programs. This restriction shall not prohibit a Fund from purchasing,
selling or entering into futures contracts, options on futures contracts,
foreign currency forward contracts, foreign currency options, or any
interest rate, securities-related or foreign currency-related derivative
instrument, subject to compliance with any applicable provisions of the
federal securities or commodities laws.
14. Purchase, write or sell options or puts, calls, straddles, spreads or
combinations thereof, however, a Fund may purchase warrants and may
purchase, write or sell options to the extent consistent with its underlying
investment program.
15. Buy or sell oil, gas or other mineral leases, rights or royalty contracts.
TAX MATTERS
- -----------
All shareholders should consult a qualified tax adviser regarding their
investment in a Fund.
Each series of shares of the Trust is treated as a separate association taxable
as a corporation.
Each Fund intends to qualify and elect to be treated under the Internal Revenue
Code of 1986 (the Code), as amended, as a regulated investment company (RIC) for
each taxable year. As of the date hereof, each Fund must, among other things
meet the following requirements: A. Each Fund must generally derive at least
90% of its gross income from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock, securities,
foreign currencies, or other income derived with respect to its business of
investing in such stock, securities or currencies.
CIGNA Funds Group/CIGNA Institutional Funds Group Page 25
<PAGE>
B. Each Fund must derive less than 30% of its gross income from the sale or
disposition of any of the following held less than three months: i) stock or
securities, ii) options, futures, or forward contracts (other than options,
futures, or forward contracts on foreign currencies), or iii) foreign currencies
(or options, futures, or forward contracts on foreign currencies) but only if
such currencies are not directly related to the Fund's business of investing in
stock, securities or options and futures thereon. Accordingly, the extent to
which a Fund may engage in futures contracts and related options may be
materially limited by this 30% test. C. Each Fund must diversify its holdings so
that, at the end of each fiscal quarter: i) at least 50% of the market value of
the Fund's total assets is represented by cash, U.S. Government securities and
other securities, with such other securities limited, with respect to any one
issuer, to an amount not greater than 5% of the Fund's total assets and not more
than 10% of the outstanding voting securities of such issuer, and ii) not more
than 25% of the value of its total assets is invested in the securities of any
one issuer (other than U.S. Government securities).
Each Fund intends to satisfy requirements under the Code relating to the
distribution of its net income so that, in general, a Fund will not be subject
to Federal income tax (FIT) on its investment company taxable income and net
capital gains designated by the Fund as capital gain dividends, if any, that it
distributes to shareholders on a timely basis. Each Fund intends to distribute
to its shareholders, at least annually, substantially all of its investment
company taxable income and any net capital gains.
Each Fund is subject to a nondeductible 4% excise tax if it does not meet
certain distribution requirements under the Code. To avoid this excise tax,
during each calendar year, a Fund must distribute: 1) at least 98% of its
ordinary income (not taking into account any capital gains or losses) for the
calendar year, 2) at least 98% of its capital gains in excess of its capital
losses for the twelve month period ending on October 31 of the calendar year,
and 3) all ordinary income and capital gains from previous years that were not
distributed during such years.
Dividends declared to shareholders of record on a date in October, November or
December will be taxable to shareholders in the year declared as long as the
Fund pays the dividends no later than January of the following year.
Section 1092 of the Code affects the taxation of certain transactions involving
futures or options contracts. If a futures or options contract is part of a
"straddle" (which could include another futures or options contract or
underlying stock or securities), as defined in Section 1092 of the Code, then,
generally, losses are deferred first, to the extent that the modified "wash
sale" rules of the Section 1092 regulations apply, and second to the extent of
unrecognized gains on offsetting positions. Further, a Fund may be required to
capitalize, rather than deduct currently, any interest expense on indebtedness
CIGNA Funds Group/CIGNA Institutional Funds Group Page 26
<PAGE>
incurred or continued to purchase or carry any positions that are part of a
straddle. Sections 1092 and 246 of the Code and the Regulations thereunder also
suspend the holding periods for straddle positions with possible adverse effects
regarding long-term capital gain treatment and the corporate dividends-received
deduction. In certain cases, the "wash sale" rules of Section 1091 of the Code
may operate to defer deductions for losses.
Section 1256 of the Code generally requires that certain futures and options be
"marked-to-market" at the end of each year for FIT purposes. Section 1256
further characterizes 60% of any gain or loss with respect to such futures and
options as long-term capital gain or loss and 40% as short-term capital gain or
loss. If such a future or option is held as an offsetting position and can be
considered a straddle under Section 1092 of the Code such a straddle will
constitute a mixed straddle. A mixed straddle will be subject to both Section
1256 and Section 1092 unless certain elections are made by the Fund.
Upon a sale or redemption of Fund shares, a shareholder who is not a dealer in
securities will realize gain or loss which will be treated as long-term capital
gain or loss if the shares have been held for more than one year, and otherwise
as short-term capital gain or loss. However, if a shareholder disposes of shares
held for six months or less, any loss realized will be characterized as long-
term capital loss to the extent of any capital gain dividends made to such
shareholder prior to such disposition. In addition, shareholders need to
consider the general wash sale rule which may impact shareholders who sell their
shares at a loss and purchase shares within a sixty-one day time frame.
The Funds may invest in certain foreign currency transactions which may be
subject to taxation under Section 988.
International Stock Fund
- ------------------------
If more than 50% of the value of the Fund's total assets consist of foreign
stock or securities at the close of its taxable year, the Fund may elect to pass
through the credit or deduction for foreign taxes to shareholders who are U.S.
persons (i.e., U.S. citizens and residents and U.S. domestic corporations,
partnerships, trusts, and estates). As a result, shareholders who want to take
the benefit of the foreign tax credit or deduction on their U.S. income tax
returns would include in gross income, in addition to taxable dividends actually
received from the Fund, their proportionate share of foreign taxes paid by the
Fund. If the Fund makes such an election, it will report to shareholders,
shortly after the end of the taxable year, their proportionate share of gross
foreign source income and foreign taxes paid by the Fund.
The Fund may invest in shares of stock of a foreign entity which is classified
under the Internal Revenue Code as a Passive Foreign Investment Company
("PFIC"). Investments in PFIC's may affect the
CIGNA Funds Group/CIGNA Institutional Funds Group Page 27
<PAGE>
character of gains, the timing of recognition of gains or losses, and the amount
of gains or losses recognized. In addition, such investments may subject the
Fund to a U.S. federal income tax which cannot currently be eliminated by making
distributions to Fund shareholders.
A foreign corporation may be classified as a PFIC for a taxable year if 75% or
more of its gross income is passive income or the average holdings of assets
that produce passive income is at least one half of its total assets. Passive
income would include investment income, including but not limited to, interest
and dividend income. Under IRS rules, the Fund may be taxed on its share of
gain from a disposition of the PFIC stock, or an excess distribution from the
PFIC stock whether or not the income is distributed by the Fund to its
shareholders. In general, such gains or excess distributions are held to be
earned ratably over the period the Fund held the PFIC stock. Amounts allocated
to the Fund's prior taxable years will be taxed at the highest corporate rate in
effect for that year and an interest factor will be added to the tax. Excess
distributions and gains from the disposition of the PFIC stock are treated as
ordinary income.
Where feasible, the Funds intend to make either (1) a qualified electing fund
("QEF") election or (2) a mark-to-market election under IRS rules in order to
avoid the imposition of a Fund level tax on its PFIC holdings.
If a QEF election is made the Fund must include in its gross income its share of
the ordinary earnings and net capital gains from the PFIC shares in the year
that the election is made (and all future years the PFIC stock is held)
regardless of whether distributions are received from the PFIC in the current
year. This income would then be passed through to shareholders.
Under a mark-to-market election, if the fair market value ("FMV") of the Fund's
PFIC shares at the end of its taxable year is greater than the FMV of the shares
at the beginning of its taxable year (or the date of purchase whichever is
later), the difference will be included in the Fund's gross income whether or
not the Fund's shares are sold in that year. This income would then be passed
through to shareholders as ordinary income. Any mark-to-market gain recognized
by the Fund would be added to its tax basis in the PFIC shares. If, however, as
of the end of the Fund's taxable year the FMV of the PFIC shares has decreased
relative to their FMV at the beginning of the year (or the date of purchase
whichever is later), the Fund would not be entitled to recognize the loss.
Shareholders who are not U.S. persons (i.e., U.S. citizens and residents and
U.S. domestic corporations, partnerships, trusts and estates) should consult
their tax advisers regarding U.S. and foreign tax consequences of ownership of
shares of the Fund including the likelihood that distributions to them would be
subject to withholding of U.S. tax at a rate of 30% (or at a lower rate under a
tax treaty).
CIGNA Funds Group/CIGNA Institutional Funds Group Page 28
<PAGE>
The Funds will engage in certain foreign currency transactions which may be
subject to taxation under Section 988. Generally, Section 988 requires that
most foreign currency gains and losses be treated as ordinary income and loss,
not capital gain and loss.
Due to the nature of the Funds' investment objectives, it is anticipated that
none of the Fund's ordinary dividends will qualify for the 70% dividends
received deduction for corporate shareholders.
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 March 31, 1997, all of the outstanding shares of the International Stock
Fund were owned by Century Indemnity Company, 1601 Chestnut Street,
Philadelphia, Pennsylvania 19101. As of March 31, 1997, all of the outstanding
shares of the Income Fund were owned by Connecticut General Life Insurance
Company, 900 Cottage Grove Road, Bloomfield, CT 06002. As of March 31, 1997,
owners of five percent or more of the shares of the Money Market Fund were as
follows:
<TABLE>
<CAPTION>
Percentage of
Shareholder Address Ownership
<S> <C> <C>
CIGNA Health Plan of Texas 600 E. Las Colinas Blvd. 19.02%
Irving, TX 75039
CIGNA Health Plan of Virginia 4050 Innslake Drive 13.41%
Glen Allen, VA 23060
CIGNA Health Plan of California 505 North Brand Blvd. 56.98%
Glendale CA 91205
CIGNA Health Plan of Arizona 11001 N. Black Canyon Highway 9.75%
Phoenix, AZ 85029
</TABLE>
CIGNA Funds Group/CIGNA Institutional Funds Group Page 29
<PAGE>
MANAGEMENT OF THE TRUSTS
- ------------------------
The Trustees and the executive officers of the Trusts are listed below, together
with information as to their principal occupations during the past five years
and other principal business affiliations. With the exception of Messrs. Forde
and Harris, each currently holds the equivalent position as Trustee and/or
officer of CIGNA High Income Shares and CIGNA Variable Products Group, and holds
a similar position as Director and/or executive officer of INA Investment
Securities, Inc. Correspondence with any Trustee or officer may be addressed to
the Trust, 950 Winter Street, Suite 1200, Waltham, Massachusetts 02154.
R. BRUCE ALBRO*, 54, Trustee; Senior Managing Director and Division Head, CIGNA
Portfolio Advisers, a division of CIGNA Investments; Chairman of the Board and
President, CIGNA Funds Group, CIGNA Institutional Funds Group, CIGNA Variable
Products Group, CIGNA High Income Shares and INA Investment Securities, Inc.
Mr. Albro is also an officer or director of various other entities which are
subsidiaries or affiliates of CIGNA. Previously Trustee, CIGNA Funds Group;
Managing Director - Division Head, CII; Managing Director, CII; Senior Vice
President, CII and CIGNA Investment Management Company and President, CIGNA
Capital Brokerage, Inc.
HUGH R. BEATH, 65, Trustee; Advisory Director, AdMedia Corporate Advisors,
Inc.; previously Chairman of the Board of Directors, Beath Advisors, Inc.
Chairman, President and Chief Executive Officer, ADVO-System, Inc. (presently
known as ADVO, Inc.) (direct mail advertising); Executive Vice President,
Operations, John Blair & Co. (marketing and communications); President,
Specialty Grocery Products Division, R. J. Reynolds Industries (consumer
products); and Vice President and Treasurer, Heublein, Inc. (maker of distilled
spirits).
RUSSELL H. JONES, 52, Trustee; Vice President and Treasurer, Kaman Corporation
(helicopters and aircraft components, scientific research); Trustee, Connecticut
Policy and Economic Counsel; Corporator, Hartford Seminary; Secretary,
Bloomfield Chamber of Commerce.
PAUL J. MCDONALD, 53, Trustee; Executive Vice President, Finance and Chief
Financial Officer, Friendly Ice Cream Corporation (family restaurants/dairy
products); Chairman, Dean's Advisory Council, University of Massachusetts School
of Management; Vice Chairman, Springfield YMCA; Corporator, Springfield
Institution for Savings; Trustee, Springfield College. Previously, Vice
President, Finance and Chief Financial Officer, Friendly Ice Cream Corporation.
CIGNA Funds Group/CIGNA Institutional Funds Group Page 30
<PAGE>
ARTHUR C. REEDS, III*, 53, Trustee; President, CIGNA Investment Management;
President and Director, CIGNA Investment Group, Inc. and CII; Director, CIGNA
International Investment Advisors, Ltd. Mr. Reeds is also an officer or
director of various other entities which are subsidiaries or affiliates of
CIGNA. Previously Trustee, CIGNA Funds Group; Managing Director -- Division
Head, CIGNA Portfolio Advisers, a division of CII; Senior Vice President, CII.
ALFRED A. BINGHAM III, 52, Vice President and Treasurer, CIGNA Funds Group
(f/k/a CIGNA Annuity Funds Group), CIGNA Institutional Funds Group, CIGNA
Variable Products Group, CIGNA High Income Shares and INA Investment Securities,
Inc.; Assistant Vice President, CII.
JEFFREY S. WINER, 39, Counsel, CIGNA; Vice President and Secretary, CIGNA Funds
Group (f/k/a CIGNA Annuity Funds Group), CIGNA Institutional Funds Group, CIGNA
Variable Products Group, CIGNA High Income Shares and INA Investment Securities,
Inc.; previously Attorney, CIGNA; Associate, Tarlow, Levy, Harding & Droney
(private law firm).
*Trustees identified with an asterisk are considered interested persons of the
Funds within the meaning of the 1940 Act because of their affiliation with CIGNA
Corporation or its affiliates.
The Board has created an Audit Committee from among its members which meets
periodically with representatives of Price Waterhouse LLP, independent
accountants for the Trust, a Contracts Committee which, as part of its duties,
considers the terms and the renewal of the Master Investment Advisory Agreement
with CII and the Sub-Advisory Agreement with CIIA, and a Nominating Committee
which considers the identification of new members of the Board and the
compensation of Trustees. The Nominating Committee, Audit Committee and
Contracts Committee consist of Trustees who are not affiliated with CIGNA
Corporation or any of its subsidiaries.
The Trusts pay no compensation to any of its officers, other than the
reimbursement of the costs of the Office of the Treasurer and the Office of the
Secretary, or to any of their Trustees who are officers or employees of CIGNA
Corporation or its affiliates. The following
CIGNA Funds Group/CIGNA Institutional Funds Group Page 31
<PAGE>
table shows compensation paid by the Trusts and other investment companies in
the CIGNA fund complex to Trust Trustees in 1996:
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Accrued As from Trusts and
Aggregate Part of Estimated Annual CIGNA Fund
Name of Person, Compensation Trust Benefits Upon Complex Paid to
Position with Trusts from Trusts Expense Retirement Trustees (c)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
R. Bruce Albro, Trustee, $ - $ - $ - $ -
Chairman and President
Hugh R. Beath, Trustee (a) $ 3,600 - - $25,600
Russell H. Jones, Trustee $ 3,600 - - $25,600
Paul J. McDonald, Trustee(b) $ 3,600 - - $25,600
Arthur C. Reeds, III, Trustee - - - -
------- --------- --------------- -------
$10,800 $ $ $76,800
======= ========= =============== =======
</TABLE>
CIGNA Funds Group/CIGNA Institutional Funds Group Page 32
<PAGE>
(a) All of Mr. Beath's 1996 compensation was deferred under a deferred
compensation plan for all CIGNA funds (the "Plan") in which he had an
aggregate balance of $135,139 as of December 31, 1996. The Plan permits
Trustees to defer receipt of all compensation or to revoke the election to
defer receipt of Trustee fees and receive payment directly.
(b) All of Mr. McDonald's 1996 compensation was deferred under a deferred
compensation plan (the "Plan") for all CIGNA funds in which he had an
aggregate balance of $43,898 as of December 31, 1996. The Plan permits
Trustees to defer receipt of all compensation or to revoke the election to
defer receipt of Trustee fees and receive payment directly.
(c) There were three (3) investment companies besides the Trusts in the CIGNA
fund complex.
CIGNA Funds Group/CIGNA Institutional Funds Group Page 33
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
- --------------------------------------
The investment adviser to each of the Funds is CII, an indirect, wholly-owned
subsidiary of CIGNA Corporation. CIIA serves as investment sub-adviser to the
International Stock Fund. CII also serves as investment adviser for other
investment companies sponsored by affiliates of CIGNA Corporation, and for a
number of pension, advisory, corporate and other accounts. CII and other
affiliates of CIGNA Corporation manage combined assets of over $70 billion.
CII's mailing address is 900 Cottage Grove Road, Hartford, Connecticut 06152.
Pursuant to Master Investment Advisory Agreements between the Trusts and CII,
CII manages the investment and reinvestment of the assets of the Funds.
Subject to the control and periodic review of the Board of Trustees of the
Trusts, CII (CIIA in the case of the International Stock Fund, Emerging Markets
Stock Fund, Developed Markets Stock Fund and Global Bond Fund) determines what
investments shall be purchased, held, sold or exchanged for the account of the
Funds, and what portion, if any, of the assets of the Funds shall be held in
cash and other temporary investments. Accordingly, the role of the Trustees is
not to approve specific investments, but rather to exercise a control and review
function.
The Trusts pay all expenses not specifically assumed by CII including
compensation and expenses of Trustees who are not Directors, officers or
employees of CII or any other affiliates of CIGNA Corporation; investment
management fees; registration, filing and other fees in connection with filings
with regulatory authorities; the fees and expenses of independent accountants;
costs of printing and mailing registration statements, prospectuses, proxy
statements, and annual and periodic reports to shareholders; custodian and
transfer agent fees; brokerage commissions and securities transactions costs
incurred by the Trust; taxes and corporate fees; legal fees incurred in
connection with the affairs of the Trust; expenses of meetings of the
shareholders and Trustees; and any expenses allocated or allocable to a specific
class of shares.
CII, at its own expense, furnishes to the Trusts 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 Agreements, all
personnel for managing the affairs of the Trust and each of Funds. The Trusts
and other registered investment companies advised by CII have agreed to
reimburse CII for its costs of maintaining the Office of the Treasurer and the
cost of the Office of the Secretary as provided in their respective investment
advisory agreements. CII has estimated that in 1997 the total expenses of the
Office of the Treasurer will not exceed $337,000 and the expenses of the Office
of the Secretary are not expected to exceed $94,000. The portion
CIGNA Funds Group/CIGNA Institutional Funds Group Page 34
<PAGE>
of these expenses allocated to each Fund for calendar year 1997 are not expected
to exceed the following amounts:
<TABLE>
<CAPTION>
Office of Office of
the Treasurer the Secretary
------------- -------------
<S> <C> <C>
Money Market Fund $65,416 $18,247
Treasury Obligations Cash Fund $ - $ -
Government Obligations Cash Fund $ - $ -
Government Securities Fund $ - $ -
Income Fund $12,533 $ 3,496
High Yield Fund $ - $ -
CIGNA International Stock Fund $15,610 $ 4,354
S&P 500 Index Fund $ - $ -
Developed Markets Stock Fund $ - $ -
</TABLE>
In 1996 the costs reimbursed by the Trusts for the Office of the Treasurer and
the Office of the Secretary were $36,188 and $9,766, respectively.
The Board of Trustees of the Trust has approved the method under which this cost
will be allocated to the Trust, and then to each Fund.
As full compensation for the investment management and all other services
rendered by CII and any sub-adviser, each Fund pays CII a separate fee computed
daily and paid monthly at annual rates based on a percentage of the value of the
relevant Fund's average daily net assets, as follows: Income Fund - 0.50%; High
Yield Fund -0.75%; Money Market Fund - 0.35%; Governmental Obligations Cash Fund
- - 0.35%, Treasury Obligations Cash Fund - 0.35%; S&P 500 Index Fund - 0.25%;
Government Securities Fund - .50%; International Stock Fund - 0.80%. Reflecting
the specialized nature of their investment policies, the management fees paid by
the High Yield, International Stock, Emerging Markets Stock, Developed Markets
Stock and Global Bond Funds exceed those paid by most other investment
companies. These fees, however, are comparable to those paid by funds with
similar investment objectives.
Trust-wide expenses not identifiable to any particular Fund will be allocated
among the Funds. CII has voluntarily agreed, until April 30, 1998, to reimburse
the Funds to the extent that the annual operating expenses in any one year
(excluding interest,
CIGNA Funds Group/CIGNA Institutional Funds Group Page 35
<PAGE>
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:
<TABLE>
<CAPTION>
Institutional Retail
Class Class
-------------- -------
<S> <C> <C>
Money Market Fund .45% .70%
Treasury Obligations Cash Fund .45% .70%
Government Obligations Cash Fund .45% .70%
Government Securities Fund .70% 1.00%
Income Fund .70% 1.00%
High Yield Fund .90% 1.20%
International Stock Fund 1.10% 1.45%
S&P 500 Index Fund .35% .45%
</TABLE>
CIGNA Institutional Funds Group incurred a management fee payable to CII of
$63,000, $57,492 and $56,609 in 1996, 1995 and 1994, respectively. However, due
to the expense limitation, CII waived these fees and reimbursed an additional
$53,870, $46,590 and $25,412 to the Fund in 1996, 1995 and 1994, respectively.
CIGNA Money Market Fund incurred a management fee of $111,530, $26,892 and
$92,369 in 1996, 1995 and 1994, respectively. However, due to the expense
limitation, CII waived $78,697 of this fee in 1996 and waived its management
fees and reimbursed $23,194 and $19,546 to the Fund in 1995 and 1994,
respectively.
CIGNA Income Fund incurred a management fee of $5,465, $25,580 and $86,634 in
1996, 1995 and 1994, respectively. However, due to the expense limitation, CII
waived these fees and reimbursed $44,851 in 1996 and reimbursed $21,690 and
$45,267 to the Fund in 1995 and 1994, respectively.
Each 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. Each 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
CIGNA Funds Group/CIGNA Institutional Funds Group Page 36
<PAGE>
respect to any Fund, by vote of a majority of the outstanding voting securities
of such Fund, or (b) by CII upon 90 days' written notice to the Trust in the
case of the Master Investment Advisory Agreement and (ii) will automatically
terminate in the event of its "assignment" (as such term is defined in the 1940
Act).
Each Master Trust Agreement acknowledges CIGNA Corporation's control over the
name "CIGNA". The Trust and the Fund would be obliged to change their names to
eliminate the word "CIGNA" (to the extent they could lawfully do so) in the
event CIGNA Corporation were to withdraw its permission for use of such name.
CIGNA Corporation has agreed not to withdraw such permission from the Trust or a
series of the Trust so long as an affiliate of CIGNA Corporation shall be the
investment adviser for such series.
The Trusts' Custodian and Transfer Agent is State Street Bank and Trust Company
("State Street"), Boston, Massachusetts 02107. Under its Custodian Agreement,
State Street maintains the portfolio securities of each Fund, administers the
purchases and sales of portfolio securities, collects interest and dividends and
other distributions made on the securities held in the portfolio, determines the
net asset value of shares of each Fund on a daily basis and performs such other
ministerial duties as are included in the Custodian Agreement and Agency
Agreement, copies of which are on file with the Securities and Exchange
Commission.
Price Waterhouse LLP acts as independent accountants for the Trusts. Its
offices are at 160 Federal Street, Boston, Massachusetts 02110. Price
Waterhouse LLP representatives annually perform an audit of the financial
statements of the Funds and provide accounting advice and services throughout
the year. Price Waterhouse LLP reports its activities and the results of its
audit to the Audit Committee of the Board of Trustees. Price Waterhouse LLP
also provides certain tax advice to the Trusts.
PORTFOLIO TURNOVER AND BROKERAGE ALLOCATION
- -------------------------------------------
It is anticipated that each Fund's annual portfolio turnover rate will not
exceed 100%.
With respect to Fund transactions, it is the policy of CII and CIIA (the
"Advisers") on behalf of their 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, consistent with obtaining best execution.
In seeking best execution, the Advisers will select brokers/dealers on the basis
of their professional capability and the value and quality of their brokerage
services. Brokerage services include the ability to execute most effectively
large orders without adversely affecting markets and the positioning of
securities in order to effect orderly sales for clients.
CIGNA Funds Group/CIGNA Institutional Funds Group Page 37
<PAGE>
The officers of the Advisers will determine, generally without limitation, the
brokers/dealers through whom, and the commission rates or spreads at which,
securities transactions for client accounts are executed. The officers of the
Advisers may select a broker/dealer who may receive a commission for portfolio
transactions exceeding the amount another broker/dealer would have charged for
the same transaction if they determine that such amount of commission is
reasonable in relation to the value of the brokerage or research services
performed or provided by the executing broker/dealer, viewed in terms of either
that particular transaction or the Advisers' overall responsibilities to the
client for whose account such portfolio transaction is executed and other
accounts advised by the Advisers or accounts advised by other investment
advisers which are related persons of the Advisers.
A portion of the securities in which certain Funds invest may be traded in over-
the-counter ("OTC") markets, and in such transactions, the Fund deals directly
with the dealer who makes markets in the securities involved, except in those
circumstances where better prices and executions are available elsewhere.
Portfolio transactions placed through dealers serving as primary market makers
are effected at net prices, without commissions as such, but which include
compensation in the form of mark up or mark down.
Foreign equity securities may be held by a Fund in the form of American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") or other
securities representing underlying securities of foreign issuers, or securities
convertible into foreign equity securities. These securities may not
necessarily be denominated in the same currency as the securities into which
they converted. ADRs are securities issued by a foreign corporation. EDRs are
receipts issued in Europe which evidence a similar ownership arrangement.
Generally, ADRs, in registered form, are designed for use in the United States
and EDRs may be listed on stock exchanges, or traded in OTC markets in the
United States or Europe, as the case may be. ADRs, like other securities traded
in the United States, will be subject to negotiated commission rates.
If two or more brokers/dealers are considered able to offer the same favorable
price with the equivalent likelihood of best execution, the officers of the
Advisers 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 the Advisers, and not
all such services are necessarily used by the Advisers in connection with the
specific account that paid commissions to the broker/dealer providing such
services.
CIGNA Funds Group/CIGNA Institutional Funds Group Page 38
<PAGE>
The overall reasonableness of brokerage commissions paid is evaluated
continually. Such evaluation includes review of what competing brokers/dealers
are willing to charge for similar types of services and what discounts are being
granted by brokerage firms. The evaluation also considers the timeliness and
accuracy of the research received.
In addition, the Advisers may, if permitted by applicable law, use brokerage
commissions to pay for products or services (other than brokerage and research
services) obtained from broker/dealers and third parties in accordance with SEC
Release 34-23170 dated April 23, 1986. Pursuant to that Release, products and
services which provide lawful and appropriate assistance to the Advisers'
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, the Advisers allocate 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 through credit earned
from the Fund's brokerage business. The Advisers will not acquire research
services through the generation of credits with respect to the Funds' principal
transactions or transactions in financial futures, except in new issue fixed
price underwritings. During 1994, 1995 and 1996, brokerage commissions paid by
the CIGNA Institutional Funds Group amounted to $56,609, $47,611 and $32,798,
respectively, substantially all of which was paid to firms which provide
research services to the Advisers. CIGNA Money Market Fund and CIGNA Income Fund
paid no brokerage commissions in 1994, 1995 or 1996.
As of December 31, 1996, Sanford C. Bernstein & Co., Inc. ("SCB") reported
ownership of approximately 8.1% of the outstanding common stock of CIGNA
Corporation. Accordingly, CIGNA may be deemed to be an affiliated person of SCB
pursuant to the provisions of the 1940 Act. As long as CIGNA may be deemed to
be an affiliated person of SCB, a Fund will not engage in any transaction with
SCB when SCB is acting for its own account and will engage in brokerage
transactions with SCB only under circumstances where the commission, spread or
profit received by the broker is fair and reasonable pursuant to rules
established by the Securities and Exchange Commission and procedures adopted and
monitored by the Board of Trustees of the Trust. During 1996, the Funds did not
engage in brokerage transactions with SCB.
Neither the Trust nor the Advisers presently allocate brokerage commissions to,
or place orders for portfolio transactions with,
CIGNA Funds Group/CIGNA Institutional Funds Group Page 39
<PAGE>
either directly or indirectly, brokers or dealers based on their sales of Fund
shares. Except as noted, neither the Trust nor the Advisers utilize an
affiliated broker or dealer in effecting Fund portfolio transactions and do not
recapture commissions paid in such transactions.
PURCHASE, REDEMPTION AND PRICING OF SECURITIES
- ----------------------------------------------
Each Fund reserves the right to revise its redemption procedures on 30-days'
notice. Each Fund may suspend redemptions or postpone the date of payment
during any period when: (a) the New York Stock Exchange is closed for other
than customary weekend and holiday closings or trading on such Exchange is
restricted; (b) the Securities and Exchange Commission has by order permitted
such suspension for the protection of the Fund's shareholders; or (c) an
emergency exists as determined by the Securities and Exchange Commission making
disposal of portfolio securities or valuation of net assets of 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.
Money Market Funds. The investments of the Money Market Funds are generally
- -------------------
valued at amortized cost. The amortized cost of an instrument is determined by
valuing it at cost originally and thereafter amortizing any discount or premium
from its face value at a constant rate until maturity, regardless of the effect
of fluctuating interest rates or other factors on the market value of the
instrument. The amortized cost method may result at times in determinations of
value that are higher or lower than the price the Fund would receive if the
instruments were sold. During periods of declining interest rates, use by the
Fund of the amortized cost method of valuing its portfolio may result in a lower
value than the market value of the portfolio, which could be an advantage to new
investors relative to existing shareholders. The converse would apply in a
period of rising interest rates.
The valuation of the investments of the Money Market Funds at amortized cost is
permitted by the Securities and Exchange Commission, and the Funds are required
to adhere to certain conditions so long as they use this valuation method. The
Money Market Funds will maintain a dollar-weighted average portfolio maturity of
90 days or less, will purchase only instruments having remaining maturities of
397 days or less (except as permitted under Rule 2a-7 of the 1940 Act with
respect to variable and floating rate instruments) and will invest only in
securities determined by the Board of Trustees to be of high quality with
minimal credit risks. The Board of Trustees has also established procedures
reasonably designed, taking into account current market conditions and the
Fund's investment objective, to stabilize the Fund's price per share as computed
for the purpose of distribution, redemption and repurchase at $1.00. Such
procedures
CIGNA Funds Group/CIGNA Institutional Funds Group Page 40
<PAGE>
include a review of the Fund's portfolio holdings by the Board of Trustees, at
such intervals as they may deem appropriate, to determine whether the Fund's net
asset value, calculated by using readily available market quotations, deviates
from $1.00 per share, and, if so, whether such deviation may result in material
dilution or is otherwise unfair to existing shareholders. In the event the Board
of Trustees determines that such a deviation exists, it will take such
corrective action as it deems necessary and appropriate, including selling
portfolio instruments prior to maturity to realize capital gains or losses or to
shorten average portfolio maturity; withholding dividends; redeeming shares in
kind; or establishing a net asset value per share by using readily available
market quotations in which case, the net asset value could possibly be greater
or less than $1.00 per share.
Income Fund, High Yield Fund, S&P 500 Index Fund, Government Securities Fund and
- --------------------------------------------------------------------------------
International Stock Fund, Information describing the valuation of securities
- -------------------------
held in these Funds is found in the prospectus under "Computation of Net Asset
Value."
DIVIDENDS
- ---------
Information concerning dividends is found in the current prospectus for the
Funds.
PERFORMANCE INFORMATION
- -----------------------
Total return figures for the Funds are neither fixed nor guaranteed, and a
Fund's principal is not insured. Performance quotations reflect historical
information and should not be considered representative of a Fund's performance
for any period in the future. Performance is a function of a number of factors
which can be expected to fluctuate. Each Fund may provide performance
information in reports, sales literature and advertisements. Each Fund may
also, from time to time, quote information about the Fund published or aired by
publications or other media entities which contain articles or segments relating
to investment results or other data about the Fund. The following is a list of
such publications or media entities:
<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 Pension World
Changing Times Hartford Courant Pensions & Investments
Christian Science Monitor Institutional Investor Personal Investor
Consumer Reports Insurance Forum Philadelphia Inquirer
Economist Insurance Weekly The Times (London)
Equity International International Business USA Today
FACS of the Week Week U.S. News & World Report
Far Eastern Investing Wall Street Journal
Economic Review Investor's Chronicle Washington Post
Financial Adviser Investor's Daily CNN
Financial Planning Journal of the American CNBC
</TABLE>
CIGNA Funds Group/CIGNA Institutional Funds Group Page 41
<PAGE>
<TABLE>
<S> <C> <C>
Financial Product News Society of CLu & ChFC PBS
Financial Services Week
</TABLE>
Each Fund may also compare its performance to performance data of similar mutual
funds as published by the following services:
<TABLE>
<S> <C>
Bank Rate Monitor
Lipper Analytical Services Stanger Report
CDA Investment Technologies, Inc. Weisenberger
Frank Russell Co. Micropal, Ltd.
InterSec Research Donoghues
Mutual Fund Values (Morningstar)
</TABLE>
Each Fund's performance may also be compared in advertising to the performance
of comparative benchmarks such as the following:
<TABLE>
<S> <C>
Standard & Poor's 400 Index
Standard & Poor's 500 Stock Index Bond Buyer Index
Dow Jones Industrial Average NASDAQ
EAFE Index COFI
Consumer Price Index First Boston High Yield Index
Lehman Bond Indices
</TABLE>
Each Fund May also compare its performance to rates on Certificates of Deposit
and other fixed rate investments such as the following:
10 year Treasuries
30 year Treasuries
90 day Treasury Bills
Advertising for a Fund may from time to time include discussions of general
economic conditions and interest rates, and may also include references to the
use of those Funds as part of an individual's overall retirement investment
program. From time to time, sales literature and/or advertisements for any of
the Funds may disclose the largest holdings in the Fund's portfolio.
From time to time, the Funds' sales literature and/or advertisements may discuss
generic topics pertaining to the mutual fund industry. This includes, but is
not limited to, literature addressing general information about mutual funds,
variable annuities, dollar-cost averaging, stocks, bonds, money markets,
certificates of deposit, retirement, retirement plans, asset allocation, tax-
free investing, college planning, inflation.
Although performance data may be useful to prospective investors in comparing
with other funds and other potential investments, investors should note that the
methods of computing performance of other potential investments are not
necessarily comparable to the methods employed by the Fund.
CIGNA Funds Group/CIGNA Institutional Funds Group Page 42
<PAGE>
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 each of the named Funds, for the 1, 5 and
10 year periods (or since inception, if shorter) ended December 31, 1996, were
as follows:
<TABLE>
<CAPTION>
Periods ended December 31, 1996
-------------------------------
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
CIGNA Income Fund................ 1.36% 6.74% 7.97%
CIGNA International Stock Fund*.. 6.36%
CIGNA Money Market Fund.......... 4.91% 3.88% 5.54%
</TABLE>
*The inception date of CIGNA International Stock Fund was January 11, 1993. Its
average annual return since inception was 12.80%.
Yield Quotations
- ----------------
The standard formula for calculating yield for each Fund except the CIGNA Money
Market Funds, 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
CIGNA Funds Group/CIGNA Institutional Funds Group Page 43
<PAGE>
of each obligation (or, if more appropriate, based on yield to call
date).
b = expenses accrued during period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The yield for CIGNA Income Fund was as follows:
30 Days ended December 31, 1996
-------------------------------
CIGNA Income Fund........................ 5.09%
The standard formula for calculating annualized yield for the CIGNA Money Market
Fund, as described in the Prospectus, is as follows:
Y = V\1\ - V\o\ x 365
----------- ---
Where Y = 7 day annualized yield.
V\o\ = the value of a hypothetical pre-existing account in the Fund
having a balance of one share at the beginning of a stated
seven-day period.
V\1\ = the value of such an account at the end of the stated period.
V\1\ - V\o\ = base period return.
-----------
V\o\
The annualized yield for the CIGNA Money Market Fund for the 7 days ended
December 31, 1996 was 4.97%.
The standard formula for calculating effective annualized yield for the CIGNA
Money Market Funds, as described in the Prospectus, is as follows:
EY = [(Y+1)/365/7/] - 1
Where EY = effective annualized yield.
Y = base period return.
The effective annualized yield for CIGNA Money Market Fund for the 7 days ended
December 31, 1996 was 5.09%.
For the purpose of the annualized yield and effective annualized yield, the net
change in the value of the hypothetical CIGNA Money Market Fund account reflects
the value of additional shares purchased
CIGNA Funds Group/CIGNA Institutional Funds Group Page 44
<PAGE>
with dividends from the original shares and any such additional shares, and all
fees charged (if any), other than non-recurring account charges, to all
shareholder accounts in proportion to the length of the base period and the
Fund's average account size, but does not include realized gains and losses or
unrealized appreciation and depreciation.
REDEMPTIONS PAID IN CASH
- ------------------------
Pursuant to Rule 18f-1 under the Investment Company Act of 1940, as amended,
each Fund has committed to pay in cash all requests for redemption by any
shareholder of record, limited in amount with respect to each shareholder during
any 90 day period to the lesser of $250,000 or 1% of the net assets of the Fund
at the beginning of such period. This election is irrevocable while such Rule
is in effect unless the Securities and Exchange Commission by order upon
application permits the withdrawal of the Fund's notification of election.
Redemptions by any one shareholder during any 90 day period in excess of
$250,000 or 1% of the net assets of the Fund may be made in readily marketable
securities.
CLASSES OF SHARES
- -----------------
Each Fund offers two classes of shares: the institutional class and the retail
class. Retail class shares pay service fees to CIGNA Financial Advisors, Inc.
("CFA"), its affiliates or independent service providers for services provided
to shareholders of that class.
Each Trust has adopted a Dual Class Plan pursuant to Rule 18f-3 under the 1940
Act. Under the Plan, shares of each class of a Fund represent an equal pro rata
interest in such Fund and, generally, have identical voting, dividend,
liquidation, and other rights, preferences, powers, restrictions, limitations,
qualifications and terms and conditions, except that: (a) each class has a
different designation; (b) each class of shares bears any class-specific
expenses allocated to it; and (c) the retail class has exclusive voting rights
on any matter submitted to shareholders that relates solely to its service
arrangement, and each class has separate voting rights on any matter submitted
to shareholders in which the interests of one class differ from the interests of
any other class.
UNDERWRITER
- -----------
CFA serves as the Trusts' distributor pursuant to Distribution Contracts
("Distribution Contracts") which are subject to annual approval by the Board of
Trustees. CFA is an indirect, wholly-owned subsidiary of CIGNA Corporation.
The Distribution Contract is terminable with respect to a Fund without penalty,
at any time, by the Trust upon 60 days' written notice to CFA or by CFA upon 60
days' notice, to the Trust. CFA is not obligated to sell any specific
CIGNA Funds Group/CIGNA Institutional Funds Group Page 45
<PAGE>
amount of Trust shares. Pursuant to the Distribution Contracts, CFA continuously
offers Fund shares.
SERVICE FEES
- ------------
Each Trust has adopted an Administrative Services Plan with respect to the
retail class shares of each Fund. Under the terms of each Plan, the Trusts are
permitted to pay CFA, its affiliates or independent service provides, out of the
retail class assets of each Fund, for providing services such as receiving,
aggregating and processing shareholder orders; furnishing shareholder sub-
accounting; providing and maintaining retirement plan records; acting as the
sole shareholder of record and nominee for shareholders; communicating
periodically with shareholders and forwarding shareholder communications;
maintaining accounting records for shareholders; answering questions and
handling correspondence from shareholders about their accounts; and performing
similar account administrative services.
Each Plan provides that it may not take effect until approved by vote of a
majority of both (i) the Trustees of the Trust and (ii) the Trustees
unaffiliated with CIGNA Corporation (the "Plan Trustees"). The Plans were
approved by the Trustees, including the Plan Trustees, at a meeting held
April 30, 1996.
Each Plan provides that any person authorized to direct the disposition of
monies paid or payable by a class pursuant to the Plan or any related agreement
shall provide to the Trustees, and the Board shall review at least quarterly, a
written report of the amounts so expended and the purposes for which such
expenditures were made.
DESCRIPTION OF MONEY MARKET INSTRUMENTS
- ---------------------------------------
U.S. GOVERNMENT DIRECT OBLIGATIONS--issued by the U.S. Treasury and include
bills, notes, and bonds.
- Treasury bills are issued with maturities of up to one year. They are
issued in bearer form, are sold on a discount basis and are payable
at par value at maturity.
- Treasury notes are longer-term interest bearing obligations with
original maturities of one to ten years.
- Treasury bonds are longer-term interest bearing obligations with
original maturities from ten to thirty years.
BANKERS' ACCEPTANCES--A bankers' acceptance is a bill of exchange or time draft
drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange. When
the draft is accepted by a bank, the bank guarantees to pay the face value of
the instrument on its
CIGNA Funds Group/CIGNA Institutional Funds Group Page 46
<PAGE>
maturity date. An investor can purchase a bankers' acceptance in the secondary
market at the going rate of discount for a specific maturity. In addition to
purchasing bankers acceptances from domestic branches and foreign branches of
U.S. commercial banks, bankers' acceptances denominated in each case in U.S.
dollars, may be purchased from foreign branches and U.S. branches of foreign
banks having at least one billion dollars (U.S.) of assets. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT--A certificate of deposit (CD) is a negotiable interest-
bearing instrument with a specific maturity. Certificates of deposit are issued
by banks and savings and loan institutions in exchange for the deposit of funds
and normally can be traded in the secondary market, prior to maturity. The Fund
may invest in U.S. dollar denominated CD's issued by domestic branches and
foreign branches of U.S. banks which are members of the Federal Reserve System;
by foreign branches and U.S. branches of foreign banks and by U.S. domiciled
savings and loan institutions having in each case at least one billion dollars
(U.S.) of assets. CD's issued by foreign branches of U.S. banks are called
"Eurodollar CD's" while CD's issued by U.S. branches of foreign banks are called
"Yankee CD's."
TIME DEPOSITS--A time deposit is a non-negotiable receipt issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits denominated in U.S. dollars or
other currencies may be purchased from domestic branches and foreign branches of
U.S. banks which are members of the Federal Reserve System (not including
savings and loan institutions) and from foreign branches and U.S. branches of
foreign banks having at least one billion dollars (U.S.) of assets. The Fund
shall not invest in time deposits maturing in more than seven days.
U.S. dollar denominated certificates of deposit, time deposits and bankers'
acceptances issued by foreign branches of U.S. banks or by foreign banks either
in the U.S. or abroad may present investment risks in addition to the risks
involved in investments in obligations of, or guaranteed by, domestic banks.
Such risks include future political and economic developments, the possible
imposition of withholding taxes on interest income payable on such obligations,
the possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls or the adoption of other governmental
restrictions. Generally, foreign branches of U.S. banks and U.S. branches of
foreign banks are subject to fewer U.S. regulatory restrictions than are
applicable to domestic banks, and foreign branches of U.S. banks may be subject
to less stringent reserve requirements than domestic banks. U.S. branches of
foreign banks and foreign branches of U.S. banks may provide less public
information than, and may not be subject to the same accounting, auditing and
financial record-keeping standards as, domestic banks. Foreign branches of
foreign banks generally would not be subject to
CIGNA Funds Group/CIGNA Institutional Funds Group Page 47
<PAGE>
any U.S. regulatory restrictions or disclosure, financial record-keeping or
accounting requirements.
COMMERCIAL PAPER--Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations and other business entities.
Maturities on these issues vary from a few days to nine months. Commercial
paper may be purchased from U.S. domiciled issuers. Commercial paper may also
be purchased from foreign issuers issued either in the U.S. ("Yankee" commercial
paper) or abroad.
OTHER CORPORATE OBLIGATIONS--The Fund may purchase notes, bonds and debentures
issued by corporations and other business entities if at the time of purchase
there is less than one year remaining until maturity or if they carry a variable
or floating rate of interest.
VARIABLE AND FLOATING RATE INSTRUMENTS--Certain debt instruments in which the
Fund invests may carry variable or floating rates of interest. Such instruments
bear interest at rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index.
RATINGS OF SECURITIES
- ---------------------
Description of Standard & Poor's Corporation ("S&P") and Moody's Investors
Service, Inc. ("Moody's") commercial paper and bond ratings:
COMMERCIAL PAPER RATINGS--S&P commercial paper ratings are graded into four
categories, ranging from "A" for the highest quality obligations to "D" for the
lowest. Issues assigned an "A" rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2, and 3 to indicate the relative degree of safety. The two highest
categories, A-1 and A-2, are described as follows:
"A-1" This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics will be
denoted with a plus (+) sign designation.
"A-2" Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for
issues designated "A-1."
Moody's employs three designations, all judged to be investment grade, to
indicate the relative repayment capacity of rated issuers. The two highest
designations are as follows:
CIGNA Funds Group/CIGNA Institutional Funds Group Page 48
<PAGE>
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:
. Leading market positions in well-established industries.
. High rates of return on funds employed.
. Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
. Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
. Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
BOND RATINGS--S&P describes its ratings for corporate bonds as follows:
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Moody's describes its ratings for bonds as follows:
CIGNA Funds Group/CIGNA Institutional Funds Group Page 49
<PAGE>
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.
CIGNA Funds Group/CIGNA Institutional Funds Group Page 50
<PAGE>
REGISTRATION STATEMENT
on
FORM N-1A
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
PART A:
None
PART B:
The following Financial Statements are incorporated by reference into Part
B from the Annual Report to shareholders of CIGNA International Stock Fund for
the year-ended 12/31/96, filed electronically with the Securities and Exchange
Commission on March 12, 1997:
Investments in Securities, December 31, 1996
Statement of Assets and Liabilities, December 31, 1996
Statement of Operations, Year-ended December 31, 1996
Statement of Changes in Net Assets, Years-ended December 31, 1996 and 1995
Notes to Financial Statements
(b) Exhibits
* (1) The First Amended and Restated Master Trust Agreement of Registrant
dated October 28, 1996.
* (2) The Amended and Restated By-Laws of Registrant dated April 29, 1997.
(3) None.
(4) Relative to the rights of shareholders, Article IV and Article V of
Registrant's First Amended and Restated Master Trust Agreement dated
October 28, 1996 filed as Exhibit (1) to this amendment to
Registrant's Registration Statement.
(4a) Relative to the rights of shareholders, the Dual Class Plan Pursuant
to Rule 18f-3 for CIGNA Institutional Funds Group dated as of April
30, 1996, as
-1-
<PAGE>
incorporated by reference as Exhibit (18) to Registrant's
Registration Statement filed electronically June 28, 1996.
(5) The Master Investment Advisory Agreement dated as of December 28, 1992
between CIGNA Institutional Funds Group and CIGNA Investments, Inc.,
incorporated by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement filed December 31, 1992.
(5a) The Sub-Advisory Agreement dated as of December 28, 1992 between CIGNA
Investments, Inc. and CIGNA International Investment Advisors, Ltd.,
incorporated by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement filed December 31, 1992.
*(6) The Distribution Agreement dated as of April 30, 1996 between CIGNA
Institutional Funds Group and CIGNA Financial Advisors, Inc.,
incorporated by reference to Post-Effective Amendment No. 6 to
Registrant's Registration Statement filed electronically June 28,
1996.
(7) None.
(8) The Custodian Contract dated as of January 5, 1993 between CIGNA
Institutional Funds Group and State Street Bank and Trust Company,
incorporated by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement filed June 3, 1993.
(9) The Transfer Agency and Service Agreement dated as of January 5, 1993
between CIGNA Institutional Funds Group and State Street Bank and
Trust Company, incorporated by reference to Post-Effective Amendment
No. 1 to Registrant's Registration Statement filed June 3, 1993.
(9a) The Service and Trade Name License Agreement dated as of August 10,
1992 between CIGNA Institutional Funds Group and CIGNA Corporation,
incorporated by reference to Post-Effective Amendment No. 4 to
Registrant's Registration Statement filed electronically April 15,
1996.
(9b) Form of Trustees' Deferred Fee Agreement, incorporated by reference to
Post-Effective Amendment No. 4 to Registrant's Registration Statement
filed electronically April 15, 1996.
(9c) Form of Shareholder Services Plan of Registrant between CIGNA
Institutional Funds Group and CIGNA Financial Advisors, Inc.,
incorporated by reference to Post-Effective Amendment No. 4 to
Registrant's Registration Statement filed electronically April 15,
1996.
* (10) Consent of Counsel.
* (11) Consent of Price Waterhouse LLP.
(12) None.
(13) None.
-2-
<PAGE>
(14) None.
(15) None.
(16) None.
* (17) Financial Data Schedule.
(18) The Dual Class Plan Pursuant to Rule 18f-3 for CIGNA Institutional
Funds Group dated as of April 30, 1996, incorporated by reference to
Registrant's Registration Statement filed electronically June 28,
1996.
- ---------------------------
* Filed herewith.
Item 25. Persons Controlled by or Under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
As of April 1, 1997:
<TABLE>
<CAPTION>
Number of Record Holders of
Shares of Beneficial Interest
---------------------------------
Name of Series Institutional Class Retail Class
- -------------- ------------------- ------------
<S> <C> <C>
CIGNA International Stock Fund -1- -0-
</TABLE>
Item 27. Indemnification
The First Amended and Restated Master Trust Agreement, dated October 28, 1996
(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, nor
officers of Registrant shall be personally liable therefor.
-3-
<PAGE>
All instruments executed on behalf of Registrant are required to contain a
statement to the effect of the foregoing.
CIGNA Investments, Inc., Registrant and other investment companies managed by
CIGNA Investments, Inc., their officers, trustees, directors and employees (the
"Insured Parties") are insured under an Investment Management Errors and
Omissions Insurance Policy in the amount of $10,000,000 offered by Lexington
Insurance Company, an affiliate of American International Group on a joint
policy basis with CIGNA Investments, Inc. and CIGNA International Investment
Advisors, Ltd.
In addition, Registrant and other investment companies managed by CIGNA
Investments, Inc. and CIGNA International Investment Advisors, Ltd. are insured
under a National Union Fire Insurance Company of Pittsburgh, PA Investment
Company Blanket Bond with a stated maximum coverage of $10,000,000. Premiums
and policy benefits are allocated among participating companies pursuant to Rule
17g-1(d) under the Investment Company Act of 1940, as amended.
Item 28. Business and Other Connections of Investment Adviser
As of the date hereof, CIGNA Investments, Inc. ("CII") serves as investment
adviser to CIGNA Institutional Funds Group and its series of shares known as
CIGNA International Stock Fund; to seven series of shares of CIGNA Funds Group
known as CIGNA Government Obligations Cash Fund, CIGNA Government Securities
Fund, CIGNA High Yield Fund, CIGNA Income Fund, CIGNA Money Market Fund, CIGNA
S&P 500 Index Fund and CIGNA Treasury Obligations Cash Fund; to CIGNA Variable
Products Group and its twelve series of shares known as High Yield Fund, Income
Fund, International Stock Fund, Money Market Fund, S&P 500 Index Fund,
Intermediate Bond Fund, Long-Term Bond Index Fund, Utility Index Fund, REIT
Index fund, Small Cap Index Fund, International Index Fund, and Emerging Markets
Index Fund; and to CIGNA High Income Shares (CIGNA Institutional Funds Group,
CIGNA 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 - 950 Winter Street, Suite
1200, Waltham, Massachusetts 02154
IIS - Two Liberty Place, 1601 Chestnut Street, Philadelphia, Pennsylvania
19192
Substantial business and other connections of the Directors and officers of CII
during the past two fiscal years are listed below:
Names of Officers and Directors Positions with the Adviser and
-4-
<PAGE>
<TABLE>
<CAPTION>
of the Investment Adviser Other Business Connections
- --------------------------------- ----------------------------------------
<S> <C>
Harold W. Albert Director and Counsel, CII; Director,
CIGNA International Investment Advisors,
Ltd.**; Chief Counsel, CIGNA Investment
Management, division of CIGNA
Corporation*; Counsel, CIGNA Investment
Advisory Company, Inc.*; Director, Senior
Vice President and Chief Counsel, CIGNA
Investment Group, Inc.*; Director, Global
Portfolio Strategies, Inc. (f/k/a
Connecticut General Pension Services, Inc.)*
Robert W. Burgess Director, CII and CIGNA International Investment
Advisors, Ltd.**; Chief Financial Officer, CIGNA
Investment Management, a division of CIGNA
Corporation*; Director and Senior Vice President,
CIGNA Investment Group, Inc.*; Director, Global
Portfolio Strategies, Inc. (f/k/a Connecticut
General Pension Services, Inc.)*
Arthur C. Reeds, III President and Chief Investment Officer, CIGNA
Investment Management, a division of CIGNA
Corporation*; President and Director, CII and
CIGNA Investment Group, Inc.*; President, CIGNA
Investment Advisory Company, Inc.*; Director,
CIGNA International Investment Advisors, Ltd.**
and Global Portfolio Strategies, Inc. (f/k/a
Connecticut General Pension Services, Inc.)*;
Trustee, the Trusts; Director, IIS.
R. Bruce Albro Senior Managing Director, CII; Director and
Senior Managing Director, CIGNA Investment
Advisory Company, Inc.*; Director, Global
Portfolio Strategies, Inc. (f/k/a Connecticut
General Pension Services, Inc.)*; Chairman of
the Board, President and Trustee, the Trusts;
Chairman of the Board, President and Director,
IIS.
Mary Louise Casey Senior Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
Richard H. Forde Senior Managing Director, CII and CIGNA Investment
Advisory Company, Inc.*; President, Senior Managing
Director and Director, CIGNA International
Investment Advisors, Ltd.**; Vice President, CIGNA
Institutional Funds Group.
Edward F. Guay Senior Managing Director and Chief Economist, CII;
Senior Managing Director, CIGNA Investment Advisory
Company, Inc.*
</TABLE>
-5-
<PAGE>
<TABLE>
<S> <C>
Malcolm S. Smith Senior Managing Director, CII; Director
and Senior Managing Director, CIGNA Investment
Advisory Company, Inc.*
Philip J. Ward Senior Managing Director, CII; Director and Senior
Managing Director, CIGNA Investment Advisory
Company, Inc.*
J. Robert Andrews Managing Director, CII.
Kevin D. Barry Managing Director, CII.
Julia B. Bazenas Managing Director, CII.
Mark E. Benoit Managing Director, CII.
Marguerite A. Boslaugh Managing Director, CII.
Susan B. Bosworth Managing Director, CII.
Thomas J. Bowen Managing Director, CII and CIGNA Investment Advisory
Company, Inc.*
William C. Carlson Managing Director, CII.
Antonio M. Caxide Managing Director, CII and CIIA**; previously Vice President,
CII and CIIA.*
Richard H. Chase Managing Director, CII.
Rosemary C. Clarke Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
James F. Coggins, Jr. Managing Director, CII.
Dorothy Cunningham Managing Director, CII; previously Vice
President, CII.
Robert F. DeLucia Managing Director, CII and CIGNA Investment
Advisory Company, Inc.*; Director, Global
Portfolio Strategies, Inc. (f/k/a Connecticut
General Pension Services, Inc.)*
Mark V. DePucchio Managing Director, CII.
Michael Q. Doyle Managing Director, CII.
</TABLE>
-6-
<PAGE>
Lawrence A. Drake Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
Denise T. Duffee Managing Director, CII.
John G. Eisele Managing Director, CII.
Robert Fair Managing Director, CII.
John P. Feeney Managing Director, CII.
Thomas R. Foley Managing Director, CII; previously Vice
President, CII.
Maurice A. Gordon Managing Director, CII; previously Vice
President, CII.
Debra J. Height Managing Director, CII and CIAC*;
previously Vice President, CII and
CIAC.*
Chris W. Jacobs Managing Director, CII.
David R. Johnson Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
Richard H. Kupchunos Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
James R. Kuzemchak Managing Director, CII.
Edward Lewis Managing Director, CII.
Timothy J. Lord Managing Director, CII.
Thomas P. Mahoney Managing Director, CII.
Richard B. McGauley Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
Bret E. Meck Managing Director, CII.
Stephen J. Olstein Managing Director, CII.
Stephen A. Osborn Managing Director, CII.
Alan C. Petersen Managing Director, CII; Vice President,
CIGNA High Income Shares.
Robert E. Peterson Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
Anthony J. Pierson Managing Director, CII.
-7-
<PAGE>
Leon Pouncy Managing Director, CII.
Donald F. Rieger, Jr. Managing Director, CII.
Peter F. Roby Managing Director, CII.
James H. Rogers Managing Director, CII.
Frank Sataline, Jr. Managing Director, CII; previously Vice
President, CII.
James G. Schelling Managing Director, CII.
Linda W. Schumann Managing Director, CII.
John A. Shaw Managing Director, CII; previously Vice
President, CII.
Thomas M. Smith Managing Director, CII.
Joseph W. Springman Managing Director, CII and CIGNA
Investment Advisory Company, Inc.*
Susan S. Sullivan Managing Director, CII.
William A. Taylor Managing Director, CII.
George Varga Managing Director, CII.
Victor J. Visockis, Jr. Managing Director, CII.
Deborah B. Wiacek Managing Director, CII; previously Vice
President, CII.
Stephen H. Wilson Managing Director, CII.
James A. White Senior Vice President, CII and CIGNA
Investment Advisory Company, Inc.*
Jean M. Anderson Vice President, CII.
Thomas P. Au Vice President, CII.
-8-
<PAGE>
David M. Cass Vice President, CII; previously
Counsel, CIGNA companies.
Rosemary S. Cleaves Vice President, CII; President and Director,
Global Portfolio Strategies, Inc. (f/k/a
Connecticut General Pension Services,
Inc.)*
R. Thomas Clemmenson Vice President, CII.
Lee P. Crockett Vice President, CII.
Michael P. Daly Vice President, CII.
Maryanne P. DePreaux Vice President, CII.
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.
Keith A. Gollenberg Vice President, CII.
-9-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
William J. Grady Vice President, CII.
Dennis P. Hannigan 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.
Paul T. Martin Vice President, CII.
Daniel McDonough Vice President, CII.
Linda L. Morel Vice President, CII.
Stephen J. Myott Vice President, CII.
Alpha O. Nicholson, III Vice President, CII; Counsel, CIGNA
companies.
Ann Marie O'Rourke Vice President, CII.
Pamela S. Peck Vice President, CII.
Elisabeth A. Perenick Vice President, CII.
Myrna Phillips Vice President, CII.
Scott S. Piccone Vice President, CII.
Elisabeth Piker Vice President, CII.
Thomas J. Podgorski Vice President, CII.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Suresh Raghaven Vice President, CII.
Michael J. Riccio Vice President, CII.
Stephen L. Roberts Vice President, CII.
Timothy F. Roberts Vice President and Compliance Officer,
CII; Vice President, International
Finance/Global Compliance, CIGNA
Investment Management, a division of
CIGNA Corporation*; Vice President -
Finance and Compliance Officer, CIGNA
International Investment Advisors,
Ltd.**; Compliance Officer, CIGNA
Investment Advisory Company, Inc.*
Alexander Rybchinsky Vice President, CII.
Annette Sanderson Vice President, CII.
John R. Schumann Vice President, CII.
Thomas P. Shea, III Vice President, CII.
Philip Spak Vice President, CII.
Carlton C. Taylor Vice President, CII.
Patrick H. Thompson Vice President, CII.
Ruth D. VanWinkle Vice President, CII and CIGNA
Investment Advisory Company, Inc.*
Henry C. Wagner, III Vice President, CII and CIGNA
Investment Advisory Company, Inc.*
Carey A. White Vice President, CII.
William S. Woodsome Vice President, CII.
Alfred A. Bingham III Assistant Vice President, CII; Vice
President and Treasurer, the Trusts
and IIS.
</TABLE>
<PAGE>
David C. Kopp Secretary, CII, CIGNA Investment Advisory
Company, Inc.*, CIGNA International Investment
Advisors, Ltd.**, CIGNA Investment Group,
Inc.*, Global Portfolio Strategies, Inc. (f/k/a
Connecticut General Pension Services, Inc.)*
and CIGNA Financial Advisors, Inc.*; Assistant
General Counsel and Assistant Corporate
Secretary, CIGNA Corporation*; Corporate
Secretary, Connecticut General Life Insurance
Company*; Assistant General Counsel, CIGNA
companies.
As of the date hereof, CIGNA International Investment Advisors, Ltd. ("CIIA")
serves as investment sub-adviser to CIGNA 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 business 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:
<TABLE>
<CAPTION>
Names of Officers and Directors Positions with the Adviser and
of the Investment Adviser Other Substantial Business Connections
- ------------------------------- --------------------------------------
<S> <C>
Harold W. Albert Director, CIIA; Director and Counsel, CII*;
Chief Counsel, CIGNA Investment Management,
a division of CIGNA Corporation*; Counsel,
CIGNA Investment Advisory Company, Inc.*;
Director, Senior Vice President and Chief
Counsel, CIGNA Investment Group, Inc.*;
Director, Global Portfolio Strategies, Inc.
(f/k/a Connecticut General Pension Services,
Inc.)*
Robert W. Burgess Director, CIIA and CII*; Chief Financial
Officer, CIGNA Investment Management, a
division of CIGNA Corporation*; Director and
Senior Vice President, CIGNA Investment
Group, Inc.*; Director, Global Portfolio
Strategies, Inc. (f/k/a Connecticut General
Pension Services, Inc.)*
Richard H. Forde Director, President and Senior Managing
Director, CIIA; Senior Managing Director,
CII* and CIGNA Investment Advisory Company,
Inc.*; Vice President, CIGNA Institutional
Funds Group.
Arthur C. Reeds, III Director, CIIA and Global Portfolio
Strategies, Inc. (f/k/a Connecticut General
Pension Services, Inc.)*; President and
Chief Investment Officer, CIGNA Investment
Management, a division of CIGNA
Corporation*; President and Director, CII
and CIGNA Investment Group, Inc.*;
President, CIGNA
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Investment Advisory Company, Inc.*; Trustee,
the Trusts; Director, IIS.
John Townley Director, Member Board of Directors and
Division Head -International Systems, CIIA;
previously Administrative Head - London
Office, CIIA; Resident Director, CIIA.
Antonio M. Caxide Managing Director, CIIA and CII*; previously
Vice President, CIIA and CII.*
Matthew P. Hutchinson Vice President, CIIA.
Daniel McDonough Vice President, CIIA and CII.*
Lee C. Mickelburough Vice President, CIIA.
Timothy F. Roberts Vice President - Finance and Chief
Compliance Officer, CIIA; Vice President,
International Finance/Global Compliance,
CIGNA Investment Management, a division of
CIGNA Corporation*; Vice President and
Compliance Officer, CII*; Compliance
Officer, CIGNA Investment Advisory Company,
Inc.*; previously Compliance Officer, CIIA.
Flora Kong Financial Controller and Compliance Officer,
CIIA.
Joel W. Messing Counsel, CIIA and CIGNA companies.
David C. Kopp Secretary, CIIA, CII*, CIGNA Investment
Advisory Company, Inc.*, CIGNA Investment
Group, Inc.*, Global Portfolio Strategies,
Inc. (f/k/a Connecticut General Pension
Services, Inc.)* and CIGNA Financial
Advisors, Inc.*; Assistant Corporate
Secretary, CIGNA Corporation*; Corporate
Secretary, Connecticut General Life
Insurance Company*; Assistant General
Counsel, CIGNA companies.
</TABLE>
Item 29. Principal Underwriters
<PAGE>
(a) CIGNA Financial Advisors, Inc. is the principal underwriter for CIGNA
Institutional Funds Group and CIGNA Funds Group and for their series.
(b) The officers and Directors of CIGNA Financial Advisors, Inc. as of
April 17, 1997 are:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------------ ---------------------------- ---------------------
<S> <C> <C>
Vacancy Member Board of Directors --------
Karen E. Goldman Member Board of Directors --------
Karen R. Mattheson Member Board of Directors --------
Vacancy President --------
Karen R. Mattheson Vice President --------
Joy P. McConnell Vice President --------
James F. Meehan Vice President --------
Peter R. Scanlon Vice President --------
Allan P. Wick Vice President and Treasurer --------
Robert A. Picarello Chief Counsel and --------
Assistant Secretary
H. Edward Cohen Assistant Vice President --------
Karen E. Goldman Assistant Vice President --------
Robert B. Pinkham Assistant Vice President --------
Therese M. Squillacote Director of Compliance --------
David C. Kopp Secretary --------
David M. Porcello Assistant Secretary --------
Pamela S. Williams Assistant Secretary --------
Melinda J. Zwecker Assistant Secretary --------
John M. DiIorio Assistant Treasurer --------
</TABLE>
(c) Not Applicable.
Item 30. Location of Accounts and Records
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940 (15 U.S.C. 80a-30(a)) and the Rules (17 CFR
270.31a-1 to 31a-3) promulgated thereunder and records relating to shareholders
are maintained by State Street Bank and Trust Company, Boston, Massachusetts.
Registrant's corporate records and financial records are maintained c/o CIGNA
Investments, Inc., 900 Cottage Grove Road, Bloomfield, CT 06002.
Item 31. Management Services
None.
<PAGE>
Item 32. Undertakings
(a) Not Applicable.
(b) Not Applicable.
(c) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to shareholders,
upon request and without charge.
- ----------------------
* 900 Cottage Grove Road, Bloomfield, CT
** Park House, 16 Finsbury Circus, London, England
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, Registrant, CIGNA Institutional Funds Group, certifies that
it meets all of the requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Post-Effective Amendment No. 7 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 29th day of April, 1997.
CIGNA INSTITUTIONAL FUNDS GROUP
R. Bruce Albro
Chairman of the Board of Trustees
and President
By: /s/ Jeffrey S. Winer
---------------------------------
Jeffrey S. Winer
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 7
to the Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
R. Bruce Albro Chairman of April 29, 1997.
the Board of
Trustees and
President (principal
executive officer)
By: /s/ Jeffrey S. Winer
--------------------------------
Jeffrey S. Winer
Attorney-in-Fact
/s/ Alfred A. Bingham III
--------------------------------
Alfred A. Bingham III Treasurer April 29, 1997.
(principal
financial officer
and principal
accounting officer)
</TABLE>
This Amendment to the Registration Statement has also been signed below by
Jeffrey S. Winer, Attorney-in-Fact, on behalf of the following Trustees on the
date indicated, such Trustees being all of the Trustees currently holding the
office of Trustee of Registrant.
R. Bruce Albro Paul J. McDonald
Hugh R. Beath Arthur C. Reeds, III
Russell H. Jones
By: /s/ Jeffrey S. Winer April 29, 1997.
--------------------------------
Jeffrey S. Winer
<PAGE>
SECURITIES ACT FILE NO. 33-52724
INVESTMENT COMPANY ACT FILE NO. 811-7236
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 6 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 7 [ X ]
CIGNA Institutional Funds Group
(Exact Name of Registrant as Specified in Charter)
950 Winter Street, Suite 1200, Waltham, MA 02154
(Address of Principal Executive Office)
EXHIBITS
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
(b) Exhibits:
* (1) The First Amended and Restated Master Trust Agreement of Registrant
dated October 28, 1996.
* (2) The Amended and Restated By-Laws of Registrant dated April 29,
1997.
* (10) Consent of Counsel.
* (11) Consent of Price Waterhouse LLP.
* (17) Financial Data Schedule.
</TABLE>
- ----------------------
* Filed herewith.
<PAGE>
EXHIBIT (1)
FIRST AMENDED AND RESTATED CIGNA INSTITUTIONAL FUNDS GROUP
MASTER TRUST AGREEMENT
October 28, 1996
(C)1996 Goodwin, Procter & Hoar
All Rights Reserved
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I - NAME, PRINCIPAL OFFICE AND DEFINITIONS ....................... 1
Section 1.1 Name .................................................. 1
Section 1.2 Principal 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 ......................................... 4
Section 3.2 Powers of Trustees .................................... 4
(a) Investments ........................................... 5
(b) Disposition of Assets ................................. 5
(c) Ownership Powers ...................................... 5
(d) Subscription .......................................... 5
(e) Form of Holding ....................................... 5
(f) Reorganization, etc ................................... 5
(g) Voting Trusts, etc .................................... 5
(h) Compromise ............................................ 6
(i) Partnerships, etc ..................................... 6
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C> <C>
(j) Borrowing and Security ................................ 6
(k) Guarantees, etc ....................................... 6
(l) Insurance ............................................. 6
(m) Pensions, etc ......................................... 6
(n) Distribution Plans .................................... 6
Section 3.3 Certain Contracts ..................................... 7
(a) Advisory .............................................. 7
(b) Administration ........................................ 7
(c) Distribution .......................................... 7
(d) Custodian and Depository .............................. 7
(e) Transfer and Dividend Disbursing Agency ............... 7
(f) Shareholder Servicing ................................. 8
(g) Accounting ............................................ 8
Section 3.4 Payment of Trust Expenses and Compensation of Trustees. 8
Section 3.5 Ownership of Assets of the Trust ...................... 9
ARTICLE IV - SHARES ...................................................... 9
Section 4.1 Description of Shares ................................. 9
Section 4.2 Establishment and Designation of Sub-Trusts and Classes 10
(a) Assets Belonging to Sub-Trusts ........................ 11
(b) Liabilities Belonging to Sub-Trusts ................... 11
(c) Dividends ............................................. 12
(d) Liquidation ........................................... 12
(e) Voting ................................................ 12
(f) Redemption by Shareholder ............................. 13
(g) Redemption by Trust ................................... 13
(h) Net Asset Value ....................................... 13
(i) Transfer .............................................. 14
(j) Equality .............................................. 14
(k) Fractions ............................................. 14
(l) Conversion Rights ..................................... 14
(m) Class Differences ..................................... 15
(n) Termination of Sales .................................. 15
Section 4.3 Ownership of Shares ................................... 15
Section 4.4 Investments in the Trust .............................. 15
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 ................................... 16
ARTICLE V - SHAREHOLDERS' VOTING POWERS AND MEETINGS ..................... 16
Section 5.1 Voting Powers ......................................... 16
Section 5.2 Meetings .............................................. 16
Section 5.3 Record Dates .......................................... 17
Section 5.4 Quorum and Required Vote .............................. 17
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C> <C>
Section 5.5 Action by Written Consent ............................. 17
Section 5.6 Inspection of Records ................................. 18
Section 5.7 Additional Provisions ................................. 18
Section 5.8 Shareholder Communications ............................ 18
ARTICLE VI - LIMITATION OF LIABILITY; INDEMNIFICATION .................... 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 ........................................... 19
Section 6.3 Indemnification of Shareholders ....................... 19
Section 6.4 Indemnification of Trustees, Officers, etc ............ 20
Section 6.5 Compromise Payment .................................... 20
Section 6.6 Indemnification Not Exclusive, etc .................... 21
Section 6.7 Liability of Third Persons Dealing with Trustees ...... 21
ARTICLE VII - MISCELLANEOUS .............................................. 21
Section 7.1 Duration and Termination of Trust ..................... 21
Section 7.2 Reorganization ........................................ 21
Section 7.3 Amendments ............................................ 22
Section 7.4 Filing of Copies; References; Headings ................ 22
Section 7.5 Applicable Law ........................................ 23
Section 7.6 Name of Trust ......................................... 23
Section 7.7 Integration ........................................... 23
</TABLE>
(iii)
<PAGE>
FIRST AMENDED AND RESTATED MASTER TRUST AGREEMENT
FIRST AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST made at
Springfield, Massachusetts this 28th day of October, 1996, by the Trustees
hereunder, and by the holders of shares of beneficial interest as hereinafter
provided, which amends and restates the CIGNA Institutional Funds Group Master
Trust Agreement dated August 10, 1992 (the "Trust Agreement").
W I T N E S S E T H:
WHEREAS the Trustees of CIGNA Institutional Funds Group (the "Trust")
desire to amend the Trust Agreement to change the address of the principal
office of the Trust and make certain other changes as set forth herein.
NOW, THEREFORE, the Trustees hereby amend and restate the Trust Agreement
in its entirety by adopting this First Amended and Restated Master Trust
Agreement, which shall supersede the 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 OFFICE AND DEFINITIONS
--------- --------------------------------------
Section 1.1 Name. This Trust shall be known as "CIGNA Institutional
----
Funds 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 Office. The principal office of the Trust shall be
----------------
located at 950 Winter Street, Waltham, Massachusetts 02154 or at such other
location as the Trustees may from time to time determine. In the event that the
Trust changes the address of its principal office, the Trustees shall notify, in
the appropriate manner, the Secretary of The Commonwealth of Massachusetts and
the Clerk of the city 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 Trustees hereof and of each Sub-Trust hereunder, as
--------
of the date of this First Amended and Restated Master Trust Agreement, shall be
R. Bruce Albro, Hugh R. Beath, Russell H. Jones, Paul J. McDonald and Arthur C.
Reeds, III.
(b) Number. The Trustees serving as such, whether named above or
------
hereafter becoming Trustees, may increase or decrease the number of Trustees to
a number other than the number theretofore determined. No decrease in the
number of Trustees shall have the effect of removing any Trustee from office
prior to the expiration of such Trustee's term, but the number of Trustees may
be decreased in conjunction with the removal of a Trustee pursuant to subsection
(e) of this Section 3.1.
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(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.
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(h) No Accounting. Except to the extent required by the 1940 Act or
-------------
under circumstances which would justify removal for cause, no person ceasing to
be a Trustee as a result of death, resignation, retirement, removal or
incapacity (nor the estate of any such person) shall be required to make an
accounting to the Shareholders or remaining Trustees upon such cessation.
Section 3.2 Powers of Trustees. Subject to the provisions of this
------------------
Declaration of Trust, the business of the Trust shall be managed by the
Trustees, and they shall have all powers necessary or convenient to carry out
that responsibility and the purpose of the Trust. The Trustees in all instances
shall act as principals, and are and shall be free from the control of the
Shareholders. The Trustees shall have full power and authority to do any and
all acts and to make and execute any and all contracts and instruments that they
may consider necessary or appropriate in connection with the management of the
Trust. The Trustees shall not be bound or limited by present or future laws or
customs with regard to investment by trustees or fiduciaries, but shall have
full authority and absolute power and control over the assets of the Trust and
the business of the Trust to the same extent as if the Trustees were the sole
owners of the assets of the Trust and the business in their own right, including
such authority, power and control to do all acts and things as they, in their
uncontrolled discretion, shall deem proper to accomplish the purposes of this
Trust. Without limiting the foregoing, the Trustees may adopt By-Laws not
inconsistent with this Declaration of Trust providing for the conduct of the
business and affairs of the Trust and may amend and repeal them to the extent
that such By-Laws do not reserve that right to the Shareholders; they may sue or
be sued in the name of the Trust; they may from time to time in accordance with
the provisions of Section 4.1 hereof establish Sub-Trusts, each such Sub-Trust
to operate as a separate and distinct investment 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
4
<PAGE>
such authority, powers, functions and duties as they consider desirable or
appropriate for the conduct of the business and affairs of the Trust, including
without implied limitation, the power and authority to act in the name of the
Trust and any Sub-Trust and of the Trustees, to sign documents and to act as
attorney-in-fact for the Trustees.
Without limiting the foregoing and to the extent not inconsistent with the
1940 Act or other applicable law, the Trustees shall have power and authority
for and on behalf of the Trust and each separate Sub-Trust established
hereunder:
(a) Investments. To invest and reinvest cash and other property, and
-----------
to hold cash or other property uninvested without in any event being bound or
limited by any present or future law or custom in regard to investments by
trustees;
(b) Disposition of Assets. To sell, exchange, lend, pledge, mortgage,
---------------------
hypothecate, write options on and lease any or all of the assets of the Trust;
(c) Ownership Powers. To vote or give assent, or exercise any rights
----------------
of ownership, with respect to stock or other securities, debt instruments or
property; and to execute and deliver proxies or powers of attorney to such
person or persons as the Trustees shall deem proper, granting to such person or
persons such power and discretion with relation to securities, debt instruments
or property as the Trustees shall deem proper;
(d) Subscription. To exercise powers and rights of subscription or
------------
otherwise which in any manner arise out of ownership of securities or debt
instruments;
(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;
5
<PAGE>
(h) Compromise. To compromise, arbitrate or otherwise adjust claims
----------
in favor of or against the Trust or any Sub-Trust or any matter in controversy,
including but not limited to claims for taxes;
(i) Partnerships, etc. To enter into joint ventures, general or
-----------------
limited partnerships and any other combinations or associations;
(j) Borrowing and Security. To borrow funds and to mortgage and
----------------------
pledge the assets of the Trust or any part thereof to secure obligations arising
in connection with such borrowing;
(k) Guarantees, etc. To endorse or guarantee the payment of any notes
---------------
or other obligations of any person; to make contracts of guaranty or suretyship,
or otherwise assume liability for payment thereof; and to mortgage and pledge
the Trust property or any part thereof to secure any of or all such obligations;
(l) Insurance. To purchase and pay for entirely out of Trust property
---------
such insurance and/or bonding as they may deem necessary or appropriate for the
conduct of the business, including, without limitation, insurance policies
insuring the assets of the Trust and payment of distributions and principal on
its portfolio investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, consultants, investment advisers,
managers, administrators, distributors, principal underwriters, or independent
contractors, or any thereof (or any person connected therewith), of the Trust
individually against all claims and liabilities of every nature arising by
reason of holding, being or having held any such office or position, or by
reason of any action alleged to have been taken or omitted by any such person in
any such capacity, including any action taken or omitted that may be determined
to constitute negligence, whether or not the Trust would have the power to
indemnify such person against such liability;
(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; and
(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
6
<PAGE>
conference telephone or other communications equipment by means of which all
persons participating in the meeting can hear each other at the same time, and
participation by such means shall constitute presence in person at a meeting, or
by written consents of a majority of the Trustees then in office (or such larger
or different number as may be required by the 1940 Act or other applicable law).
Section 3.3 Certain Contracts. Subject to compliance with the provisions
-----------------
of the 1940 Act, but notwithstanding any limitations of present and future law
or custom in regard to delegation of powers by trustees generally, the Trustees
may, at any time and from time to time and without limiting the generality of
their powers and authority otherwise set forth herein, enter into one or more
contracts with any one or more corporations, trusts, associations, partnerships,
limited partnerships, other type of organizations, or individuals (a
"Contracting Party"), to provide for the performance and assumption of some or
all of the following services, duties and responsibilities to, for or on behalf
of the Trust and/or any Sub-Trust, and/or the Trustees, and to provide for the
performance and assumption of such other services, duties and responsibilities
in addition to those set forth below as the Trustees may determine appropriate:
(a) Advisory. Subject to the general supervision of the Trustees and
--------
in conformity with the stated policy of the Trustees with respect to the
investments of the Trust or of the assets belonging to any Sub-Trust of the
Trust (as that phrase is defined in subsection (a) of Section 4.2), to manage
such investments and assets, make investment decisions with respect thereto, and
to place purchase and sale orders for portfolio transactions relating to such
investments and assets;
(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;
7
<PAGE>
(f) Shareholder Servicing. To provide service with respect to the
---------------------
relationship of the Trust and its Shareholders, records with respect to
Shareholders and their Shares, and similar matters; and
(g) Accounting. To handle all or any part of the accounting
----------
responsibilities, whether with respect to the Trust's properties, Shareholders
or otherwise.
The same person may be the Contracting Party for some or all of the
services, duties and responsibilities to, for and of the Trust and/or the
Trustees, and the contracts with respect thereto may contain such terms
interpretive of or in addition to the delineation of the services, duties and
responsibilities provided for, including provisions that are not inconsistent
with the 1940 Act relating to the standard of duty of and the rights to
indemnification of the Contracting Party and others, as the Trustees may
determine. Nothing herein shall preclude, prevent or limit the Trust or a
Contracting Party from entering into sub-contractual arrangements relating to
any of the matters referred to in Sections 3.3(a) through (g) hereof.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is
a shareholder, director, officer, partner, trustee, employee, manager,
adviser, principal underwriter or distributor or agent of or for any
Contracting Party, or of or for any parent or affiliate of any Contracting
Party or that the Contracting Party or any parent or affiliate thereof is a
Shareholder or has an interest in the Trust or any Sub-Trust, or that
(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
8
<PAGE>
Sub-Trust, or partly out of principal and partly out of income, and to charge or
allocate the same to, between or among such one or more of the Sub-Trusts and/or
one or more classes of Shares thereof that may be established and designated
pursuant to Article IV, as the Trustees deem fair, all expenses, fees, charges,
taxes and liabilities incurred or arising in connection with the Trust, any Sub-
Trust and/or any class of Shares thereof, or in connection with the management
thereof, including, but not limited to, the Trustees' compensation and such
expenses and charges for the services of the Trust's officers, employees,
investment adviser, administrator, distributor, principal underwriter, auditor,
counsel, depository, custodian, transfer agent, dividend disbursing agent,
accounting agent, Shareholder servicing agent, and such other agents,
consultants, and independent contractors and such other expenses and charges as
the Trustees may deem necessary or proper to incur. Without limiting the
generality of any other provision hereof, the Trustees shall be entitled to
reasonable compensation from the Trust for their services as Trustees and may
fix the amount of such compensation.
Section 3.5 Ownership of Assets of the Trust. Title to all of the assets
--------------------------------
of the Trust and of each Sub-Trust shall at all times be considered as vested in
the Trustees.
ARTICLE IV - SHARES
---------- ------
Section 4.1 Description of Shares. The beneficial interest in the Trust
---------------------
shall be divided into Shares, all without par value, but the Trustees shall have
the authority from time to time to issue Shares in one or more Series (each of
which Series of Shares shall represent the beneficial interest in a separate and
distinct Sub-Trust of the Trust, including without limitation each Sub-Trust
specifically established and designated in Section 4.2), as they deem necessary
or desirable. For all purposes under this Declaration of Trust or otherwise,
including, without 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.
9
<PAGE>
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 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 establish and designate a
single Sub-Trust: CIGNA International Stock Fund. The Shares of each 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:
10
<PAGE>
(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 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.
11
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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.
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
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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.
(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.
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The Trustees may determine to maintain the net asset value per Share of any
Sub-Trust at a designated constant dollar amount and in connection therewith may
adopt procedures not inconsistent with the 1940 Act for the continuing
declarations of income attributable to that Sub-Trust as dividends payable in
additional Shares of that Sub-Trust at the designated constant dollar amount and
for the handling of any losses attributable to that Sub-Trust. Such procedures
may provide that in the event of any loss each Shareholder shall be deemed to
have contributed to the capital of the Trust attributable to that Sub-Trust such
Shareholder's pro rata portion of the total number of Shares required to be
cancelled in order to permit the net asset value per Share of that Sub-Trust to
be maintained, after reflecting such loss, at the designated constant dollar
amount. Each Shareholder of the Trust shall be deemed to have agreed, by making
an investment in any Sub-Trust with respect to which the Trustees shall have
adopted any such procedure, to make the contribution referred to in the
preceding sentence in the event of any such loss.
(i) Transfer. All Shares of each particular Sub-Trust or class
--------
thereof shall be transferable, but transfers of Shares of a particular Sub-Trust
or class thereof will be recorded on the Share transfer records of the Trust
applicable to that Sub-Trust or class only at such times as Shareholders shall
have the right to require the Trust to redeem Shares of that Sub-Trust or class
and at such other times as may be permitted by the Trustees.
(j) Equality. Except as provided herein or in the instrument
--------
designating and establishing any class of Shares or any Sub-Trust, all Shares of
each particular Sub-Trust or class thereof shall represent an equal
proportionate interest in the assets belonging to that Sub-Trust, or in the case
of a class, belonging to that Sub-Trust and allocable to that class, subject to
the liabilities belonging to that Sub-Trust or class, and each Share of any
particular Sub-Trust or class shall be equal to each other Share of that Sub-
Trust or class; but the provisions of this sentence shall not restrict any
distinctions permissible under subsection (c) of this Section 4.2 that may exist
with respect to dividends and distributions on Shares of the same Sub-Trust or
class. The Trustees may from time to time divide or combine the Shares of any
particular Sub-Trust or class into a greater or lesser number of Shares of that
Sub-Trust or class without thereby changing the proportionate beneficial
interest in the assets belonging to that Sub-Trust or class or in any way
affecting the rights of Shares of any other Sub-Trust or class.
(k) Fractions. Any fractional Share of any Sub-Trust or class, if any
---------
such fractional Share is outstanding, shall carry proportionately all the rights
and obligations of a whole Share of that Sub-Trust or class, including rights
and obligations with respect to voting, receipt of dividends and distributions,
redemption of Shares, and liquidation of the Trust or any Sub-Trust.
(l) Conversion Rights. Subject to compliance with the requirements of
-----------------
the 1940 Act, the Trustees shall have the authority to provide that holders of
Shares of any Sub-Trust or class thereof shall have the right to convert said
Shares into Shares of one or more other Sub-Trust or class thereof in accordance
with such requirements and procedures as may be established by the Trustees.
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(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.
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
15
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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 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
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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.
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.
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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.
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
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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 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.
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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 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
20
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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
21
<PAGE>
corporations organized under the laws of the Commonwealth of Massachusetts or
any other state of the United States, or have one or more such trusts, sub-
trusts, partnerships, limited liability companies, associations or corporations
transfer a substantial portion of its assets to it, any such consolidation,
merger or transfer to be upon such terms and conditions as are specified in an
agreement and plan of reorganization authorized and approved by the Trustees and
entered into by the Trust, or one or more Sub-Trusts as the case may be, in
connection therewith. Any such consolidation, merger or transfer shall require
the affirmative vote of the holders of a majority of the outstanding voting
Shares, as defined in the 1940 Act, of the Trust (or each Sub-Trust affected
thereby, as the case may be), except that such affirmative vote of the holders
of Shares shall not be required if the Trust (or Sub-Trust affected thereby, as
the case may be) shall be the survivor of such consolidation or merger or
transferee of such assets.
Section 7.3 Amendments. All rights granted to the Shareholders under this
----------
Declaration of Trust are granted subject to the reservation of the right to
amend this Declaration of Trust as herein provided, except that no amendment
shall repeal the limitations on personal liability of any Shareholder or Trustee
or repeal the prohibition of assessment upon the Shareholders without the
express consent of each Shareholder or Trustee involved. Subject to the
foregoing, the provisions of this Declaration of Trust (whether or not related
to the rights of Shareholders) may be amended at any time, so long as such
amendment does not materially adversely affect the rights of any Shareholder
with respect to which such amendment is or purports to be applicable and so long
as such amendment is not in contravention of applicable law, including 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.
22
<PAGE>
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 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.
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
Hartford, CT 06152-2306 /s/ R. Bruce Albro
-----------------------------------
R. Bruce Albro
44 Brook Hills Circle
White Plains, NY 10605 /s/ Hugh R. Beath
-----------------------------------
Hugh R. Beath
23
<PAGE>
Vice President
Kaman Corporation
1332 Blue Hills Avenue
Bloomfield, CT 06002 /s/ Russell H. Jones
----------------------------------
Russell H. Jones
Executive Vice President and
Chief Financial Officer
Friendly Ice Cream Corporation
1855 Boston Road
Wilbraham, MA 01095 /s/ Paul J. McDonald
----------------------------------
Paul J. McDonald
President
CIGNA Investments, Inc.
S-211
900 Cottage Grove Road
Hartford, CT 06152-2211 /s/ Arthur C. Reeds, III
----------------------------------
Arthur C. Reeds, III
THE COMMONWEALTH OF MASSACHUSETTS
HAMPDEN COUNTY, City of Springfield
Then personally appeared the within-named R. Bruce Albro, Hugh R.
Beath, Russell H. Jones, Paul J. McDonald and Arthur C. Reeds, III who
acknowledged the execution of the foregoing instrument to be their free act and
deed, before me, this 28th day of October, 1996.
/s/ Geoffrey R.T. Kenyon
----------------------------------
Notary Public
[Notarial Seal]
My commission expires: 4/14/2000
-----------
24
<PAGE>
EXHIBIT (2)
AMENDED AND RESTATED BY-LAWS
OF
CIGNA INSTITUTIONAL FUNDS GROUP
ARTICLE 1
---------
Agreement and Declaration
-------------------------
of Trust and Principal Office
-----------------------------
1.1 Agreement and Declaration of Trust. These By-Laws shall be
----------------------------------
subject to the Master Trust Agreement, as from time to time in effect and as the
same may be amended from time to time (the "Declaration of Trust"), of CIGNA
Institutional Funds Group, the Massachusetts business trust established by the
Declaration of Trust (the "Trust").
1.2 Principal Office of the Trust. The principal office of the
-----------------------------
Trust shall be located in Waltham, Massachusetts.
ARTICLE 2
---------
Meetings of Trustees
--------------------
2.1 Regular Meetings. Regular meetings of the Trustees may be held
----------------
without call or notice at such places and at such times as the Trustees may from
time to time determine, provided that notice of the first regular meeting
following any such determination shall be given to absent Trustees.
2.2 Special Meetings. Special meetings of the Trustees may be held
----------------
at any time and at any place designated in the call of the meeting when called
by the Chairman of the Trustees, the President or the Treasurer or by two or
more Trustees, sufficient notice thereof being given to each Trustee by the
Secretary or an Assistant Secretary or by the officer of the Trustees calling
the meeting.
2.3 Notice. It shall be sufficient notice to a Trustee of a special
------
meeting to send notice by mail at least forty-eight hours or by telegram at
least twenty-four hours before the meeting addressed to the Trustee at his or
her usual or last known business or residence address or to give notice to him
or her in person or by telephone at least twenty-four hours before the meeting.
Notice of a meeting need not be given to any Trustee if a written waiver of
notice, executed by him or her before or after the meeting, is filed with the
records of the meeting, or to any Trustee who attends the meeting without
protesting prior thereto or at its commencement the lack of
-1-
<PAGE>
notice to him or her. Neither notice of a meeting nor a waiver of a notice need
specify the purpose of the meeting.
2.4 Quorum. At any meeting of the Trustees a majority of the
------
Trustees then in office shall constitute a quorum. Any meeting may be adjourned
from time to time by a majority of the votes cast upon the question, whether or
not a quorum is present, and the meeting may be held as adjourned without
further notice.
2.5 Participation by Telephone. One or more of the Trustees or of
--------------------------
any committee of the Trustees may participate in a meeting thereof by means of a
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at a meeting.
ARTICLE 3
---------
Officers
--------
3.1 Enumeration; Qualification. The officers of the Trust shall be a
--------------------------
Chairman of the Board of Trustees, a President, a Treasurer, a Secretary and
such other officers, including Vice President, if any, as the Trustees from time
to time may in their discretion elect. The Trust may also have such agents as
the Trustees from time to time may in their discretion appoint. The Chairman of
the Board of Trustees shall be a Trustee and may but need not be a shareholder;
and any other officer may be but none need be a Trustee or shareholder. Any two
or more offices may be held by the same person.
3.2 Election. The Chairman of the Board of Trustees, the President,
--------
the Treasurer, and the Secretary shall be elected annually by the Trustees at a
meeting at which a quorum is present. The meeting at which the officers are
elected shall be known as the annual meeting of Trustees. Other officers, if
any, may be elected or appointed by the Trustees at said meeting or at any other
time. Vacancies in any office may be filled at any time.
3.3 Tenure. The Chairman of the Board of Trustees, the President,
------
the Treasurer, and the Secretary shall hold office until the next annual meeting
of the Trustees and until their respective successors are chosen and qualified,
or in each case until he or she sooner dies, resigns, is removed or becomes
disqualified. Each other officer shall hold office and each agent shall retain
authority at the pleasure of the Trustees.
3.4 Powers. Subject to the other provisions of these By-Laws, each
------
officer shall have, in addition to the duties and powers herein and in the
Declaration of Trust set forth, such duties and powers as are commonly incident
to the office occupied by him or her as if the Trust were organized as a
Massachusetts
-2-
<PAGE>
business corporation and such other duties and powers as the Trustees may from
time to time designate.
3.5 Chairman; President. Unless the Trustees otherwise provide, the
-------------------
Chairman of the Board of Trustees, or, if there is none, or in the absence of
the Chairman, the President shall preside at all meetings of the shareholders
and of the Trustees. The President shall be the chief executive officer.
3.6 Vice President. The Vice President, or if there be more than one
--------------
Vice President, the Vice Presidents in the order determined by the Trustees (or
if there be no such determination, then in the order of their election) shall in
the absence of the President or in the event of his inability or refusal to act,
perform the duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. The Vice
Presidents shall perform such other duties and have such other powers as the
Board of Trustees may from time to time prescribe.
3.7 Treasurer. The Treasurer shall be the chief financial and
---------
accounting officer of the Trust, and shall, subject to the provisions of the
Declaration of Trust and to any arrangement made by the Trustees with a
custodian, investment adviser or manager, or transfer, shareholder servicing or
similar agent, be in charge of the valuable papers, books of account and
accounting records of the Trust, and shall have such other duties and powers as
may be designated from time to time by the Trustees or by the President.
3.8 Assistant Treasurer. The Assistant Treasurer, if any, or if
-------------------
there shall be more than one, the Assistant Treasurers in the order determined
by the Trustees (or if there be no such determination, then in the order of
their election), shall, in the absence of the Treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Board of Trustees may from time to time prescribe.
3.9 Secretary. The Secretary shall record all proceedings of the
---------
shareholders and the Trustees in books to be kept therefor, which books or a
copy thereof shall be kept at the principal office of the Trust or the
investment adviser. In the absence of the Secretary from any meeting of the
shareholders or Trustees, an assistant secretary, or if there be none or if he
or she is absent, a temporary secretary chosen at such meeting shall record the
proceedings thereof in the aforesaid books.
3.10 Assistant Secretary. The Assistant Secretary, if any, or if
--------------------
there be more than one, the Assistant Secretaries in the order determined by the
Trustees (or if there be no determination, then in the order of their election),
shall, in the absence of the Secretary or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the
-3-
<PAGE>
Secretary and shall perform such other duties and have such other powers as the
Board of Trustees may from time to time prescribe.
3.11 Resignations and Removals. Any Trustee or officer may resign at
-------------------------
any time by written instrument signed by him or her and delivered to the
Chairman, the President or the Secretary or to a meeting of the Trustees. Such
resignation shall be effective upon receipt unless specified to be effective at
some other time. The Trustees may remove any officer elected by them with or
without cause. Except to the extent expressly provided in a written agreement
with the Trust, no Trustee or officer resigning and no officer removed shall
have any right to any compensation for any period following his or her
resignation or removal, or any right to damages on account of such removal. Any
Trustee shall retire as a Trustee of the Trust after attaining the age of 70
years.
ARTICLE 4
---------
Committees
----------
4.1 General. The Trustees, by vote of a majority of the Trustees
-------
then in office, may elect from their number an Executive Committee or other
committees and may delegate thereto some or all of their powers except those
which by law, by the Declaration of Trust, or by these By-Laws may not be
delegated. Except as the Trustees may otherwise determine, any such committee
may make rules for the conduct of its business, but unless otherwise provided by
the Trustees or in such rules, its business shall be conducted so far as
possible in the same manner as is provided by these By-Laws for the Trustees
themselves. All members of such committees shall hold such offices at the
pleasure of the Trustees. The Trustees may abolish any such committee at any
time. Any committee to which the Trustees delegate any of their powers or duties
shall keep records of its meetings and shall report its action to the Trustees.
The Trustees shall have power to rescind any action of any committee, but no
such rescission shall have retroactive effect.
ARTICLE 5
---------
Reports
-------
5.1 General. The Trustees and officers shall render reports at the
-------
time and in the manner required by the Declaration of Trust or any applicable
law. Officers and Committees shall render such additional reports as they may
deem desirable or as may from time to time be required by the Trustees.
-4-
<PAGE>
ARTICLE 6
---------
Fiscal Year
-----------
6.1 General. The fiscal year each of the Sub-Trusts shall be
-------
fixed by resolution of the Trustees.
ARTICLE 7
---------
Seal
----
7.1 General. The seal of the Trust shall consist of a flat-faced die
-------
with the word "Massachusetts", together with the name of the Trust and the year
of its organization cut or engraved thereon, but, unless otherwise required by
the Trustees, the seal shall not be necessary to be placed on, and its absence
shall not impair the validity of, any document, instrument or other paper
executed and delivered by or on behalf of the Trust.
ARTICLE 8
---------
Execution of Papers
-------------------
8.1 General. Except as the Trustees may generally or in particular
-------
cases authorize the execution thereof in some other manner, all deeds, leases,
contracts, notes and other obligations made by the Trustees shall be signed by
the President, any Vice President, or by the Treasurer and need not bear the
seal of the Trust.
ARTICLE 9
---------
Issuance of Share Certificates
------------------------------
9.1 Share Certificates. In lieu of issuing certificates for shares,
------------------
the Trustees or the transfer agent may either issue receipts therefor or may
keep accounts upon the books of the Trust for the record holders of such shares,
who shall in either case be deemed, for all purposes hereunder, to be the
holders of certificates for such shares as if they had accepted such
certificates and shall be held to have expressly assented and agreed to the
terms hereof.
The Trustees may at any time authorize the issuance of share
certificates either in limited cases or to all shareholders. In that event, a
shareholder may receive a certificate stating the number of shares owned by him
or her, in such form as shall be prescribed from time to time by the Trustees.
Such certificate shall be signed by the President or a Vice President and by the
Treasurer or an Assistant Treasurer. Such signatures may be facsimiles if the
certificate is signed by a transfer agent, or by a registrar, other than a
Trustee, officer or employee of the Trust. In case any officer who has signed or
whose facsimile signature has been placed on such certificate shall cease to be
-5-
<PAGE>
such officer before such certificate is issued, it may be issued by the Trust
with the same effect as if he or she were such officer at the time of its issue.
9.2 Loss of Certificates. In case of the alleged loss or destruction
--------------------
or the mutilation of a share certificate, a duplicate certificate may be issued
in place thereof, upon such terms as the Trustees shall prescribe.
9.3. Issuance of New Certificate to Pledgee. A pledgee of shares
--------------------------------------
transferred as collateral security shall be entitled to a new certificate if the
instrument of transfer substantially describes the debt or duty that is intended
to be secured thereby. Such new certificate shall express on its face that it is
held as collateral security, and the name of the pledgor shall be stated
thereon, who alone shall be liable as a shareholder, and entitled to vote
thereon.
9.4 Discontinuance of Issuance of Certificates. The Trustees may at
------------------------------------------
any time discontinue the issuance of share certificates and may, by written
notice to each shareholder, require the surrender of shares certificates to the
Trust for cancellation. Such surrender and cancellation shall not affect the
ownership of shares in the Trust.
ARTICLE 10
----------
Dealings with Trustees and Officers
-----------------------------------
10.1 General. Any Trustee, officer or other agent of the Trust may
--------
acquire, own and dispose of shares of the Trust to the same extent as if he or
she were not a Trustee, officer or agent; and the Trustees may accept
subscriptions to shares or repurchase shares from any firm or company in which
any Trustee, officer or other agent of the Trust may have an interest.
ARTICLE 11
----------
Amendments to the By-Laws
-------------------------
11.1 General. These By-Laws may be amended or repealed, in whole or
-------
in part, by a majority of the Trustees then in office at any meeting of the
Trustees, or by one or more writings signed by such a majority.
The foregoing By-Laws were adopted by the Board of Trustees of the
Trust on April 29, 1997.
/s/ Jeffrey S. Winer
-------------------------------------
Jeffrey S. Winer
Secretary
-6-
<PAGE>
GOODWIN, PROCTER & HOAR LLP
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
TELEPHONE (817) 570-1000
TELEPHONE (817) 523-1231
Exhibit 10
April 29, 1997
CIGNA Institutional Funds Group
950 Winter Street
Waltham, Massachusetts 02154
Ladies and Gentlemen:
Reference is made to Post-Effective Amendment No. 7 to the Registration
Statement of CIGNA Institutional Funds Group (the "Trust") on Form N-1A
(Registration No. 33-52724) filed with the Securities and Exchange Commission
with respect to the CIGNA International Stock Fund, a series of the Trust, and
specifically to Item 24(b) thereof. We hereby consent to the incorporation by
reference therein of our opinion, dated June 27, 1996 filed as Exhibit (10) to
Post-Effective Amendment No. 6 to such Registration Statement.
Very truly yours,
/s/ GOODWIN, PROCTER & HOAR LLP
GOODWIN, PROCTER & HOAR LLP
/hex
DOCSC\510690.1
<PAGE>
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 7 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 14, 1997, relating to the financial
statements and financial highlights appearing in the December 31, 1996 Annual
Report to Shareholders of the CIGNA International Stock Fund, which is also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Financial Highlights" in the Prospectus
and on the cover page of, and under the heading "Investment Advisory and Other
Services" in, the Statement of Additional Information.
Price Waterhouse LLP
Boston, Massachusetts
April 28, 1997
<PAGE>
CIGNA INSTITUTIONAL FUNDS GROUP
POWER OF ATTORNEY
The undersigned hereby appoint Alfred A. Bingham III and Jeffrey S. Winer, each
of them singly and with full power of substitution, attorney-in-fact and agent
for me and in my name and on my behalf in any and all capacities to sign any
Registration Statement under the Securities Act of 1933, any Registration
Statement under the Investment Company Act of 1940 or any filing under the
securities laws of any of the states of the United States of America or of any
jurisdiction ("Blue Sky Law") for CIGNA Institutional Funds 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 and under
the Investment Company Act of 1940 or with the appropriate state agency under
the applicable Blue Sky Laws, to file such Registration Statements, amendments
and filings and generally to do and perform all things necessary to be done in
that connection, hereby ratifying and confirming my signature as it may be
signed by said attorney-in-fact and agent to any and all Registration Statements
and amendments thereto and to any and all Blue Sky Law filings and amendments
thereto and ratifying and confirming all other acts that said attorney-in-fact
and agent may lawfully do or cause to be done by virtue of this appointment.
Signed this 28th day of October, 1996.
/s/ R. Bruce Albro
--------------------------------------
R. Bruce Albro,
Chairman of the Board, President and
Trustee
/s/ Hugh R. Beath
--------------------------------------
Hugh R. Beath, Trustee
/s/ Russell H. Jones
--------------------------------------
Russell H. Jones, Trustee
/s/ Paul J. McDonald
--------------------------------------
Paul J. McDonald, Trustee
/s/ Arthur C. Reeds, III
--------------------------------------
Arthur C. Reeds, III, Trustee
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> CIGNA INTERNATIONAL STOCK FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 6,660,550
<INVESTMENTS-AT-VALUE> 7,303,840
<RECEIVABLES> 50,754
<ASSETS-OTHER> 1,175
<OTHER-ITEMS-ASSETS> 760,463
<TOTAL-ASSETS> 8,116,232
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 46,785
<TOTAL-LIABILITIES> 46,785
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,424,892
<SHARES-COMMON-STOCK> 702,608
<SHARES-COMMON-PRIOR> 672,885
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 52,695
<ACCUMULATED-NET-GAINS> 54,862
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 642,388
<NET-ASSETS> 8,069,447
<DIVIDEND-INCOME> 137,980
<INTEREST-INCOME> 78
<OTHER-INCOME> 0
<EXPENSES-NET> 88,530
<NET-INVESTMENT-INCOME> 49,528
<REALIZED-GAINS-CURRENT> 329,447
<APPREC-INCREASE-CURRENT> 109,397
<NET-CHANGE-FROM-OPS> 488,372
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 139,774
<DISTRIBUTIONS-OF-GAINS> 195,624
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 335,398
<NET-CHANGE-IN-ASSETS> 488,372
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 60,843
<OVERDISTRIB-NII-PRIOR> 131,871
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 63,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 205,400
<AVERAGE-NET-ASSETS> 7,878,694
<PER-SHARE-NAV-BEGIN> 11.27
<PER-SHARE-NII> 0.10
<PER-SHARE-GAIN-APPREC> 0.60
<PER-SHARE-DIVIDEND> 0.20
<PER-SHARE-DISTRIBUTIONS> 0.29
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.48
<EXPENSE-RATIO> 1.12
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
