<PAGE>
CIGNA International Stock Fund
Annual Report to Shareholders
For the Year Ended December 31, 1997
[HORIZONTAL GLOBE GRAPHIC APPEARS HERE]
<PAGE>
CIGNA INTERNATIONAL STOCK FUND MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited)
- --------------------------------------------------------------------------------
The year was a volatile one for global stock markets as currency crises in Asia
led to a dramatic sell off in the equity markets in that region. The Asian
economic crisis, which began unravelling in Thailand in June, has spread
throughout the region. The crisis, which has resulted from easy global credit
and generally poor lending decisions, has exposed many of the capital hungry so
called `Asian tigers'. The collapse of the Korean markets and currency has
escalated the size of the crisis, as Korea is one of the 10 largest economies in
the world. Global capital markets are now so tightly interwoven that what
started as a regional problem is now a global one as the Korea crisis is a
serious threat to the already fragile Japanese banking system. The Asian crisis
will cause severe social and economic hardship for many years to come. There is
however a longer term positive if the governments and financial sectors in these
countries are reformed. We expect these markets to bottom only when reasonable
reforms are agreed to and the current accounts in each country move into a
surplus. This was certainly the lesson learned from the Mexican financial crisis
in 1994.
The U.S. economy has experienced solid growth with very little sign of
inflation. The financial markets have revelled in this environment although the
turmoil in Asia led to a sell off in the market during October.
The Japanese economy is most likely in recession. The only sector showing good
growth is the export sector. With world growth now vulnerable, this sector is
now also likely to slow. The government now realizes it must continue to reform
the finance sector and stimulate domestic demand. Recent policy initiatives in
this area are positive, but we still have a long away to go.
Europe is in a modest upswing. Fiscal tightening to meet the convergence
criteria for Monetary Union remains a drag on economic growth. Corporate
restructuring is also adding to the problem of unemployment. The export sector
is the main area of economic strength.
The world equity markets managed a modest gain in 1997. The MSCI EAFE Index
returned just 1.78% for the year. Asia was the major detractor from performance
over the year. Share prices in the region collapsed. Japan fell 23.54% over the
year, while Asia (ex-Japan) dropped a staggering 30.75%. Europe on the other
hand gained 24.19%. Emerging markets as measured by MSCI Emerging Markets Index
fell 11.59% over the year.
CIGNA International Stock Fund (the "Fund") ended the year with 37.9% invested
in the Pacific including Japan (21.6%). The Fund's total return for the year
was -3.84%.
OUTLOOK
Throughout 1997, the key issue for financial markets was whether economic growth
was accelerating, thus providing an inflationary risk. The debate has now
changed direction as the escalation of the economic crisis in Asia has raised
the possibility of global deflation. This is a positive development for bond
markets as real yields fall. In recent years, it has also been a positive for
equities as lower interest rates and inflation have led to increasing stock
prices. At the same time, companies have restructured and reduced costs,
boosting profitability despite flat or falling final sale prices. This scenario
has been the key driver of the bull market in stocks in the US and Europe. The
concern going forward is that, while the valuation prop of low interest rates
remains intact, the deflationary risk means that earnings are likely to
<PAGE>
CIGNA INTERNATIONAL STOCK FUND MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited)
- --------------------------------------------------------------------------------
(Continued)
- -----------
disappoint on the downside, leading to a correction in share prices. Our view is
that markets are vulnerable in this environment. We are therefore cautious until
we are better able to assess the impact on corporate earnings of the Asian
meltdown in 1998.
With respect to Japan, the financial turmoil has finally forced significant
action from the policy makers there. The debate as to the adequacy of these
measures relative to the size of the problem continues. We are of the view that
the government has finally recognized the extent of the economy's woes. It is
extremely important that the Japanese policy makers have finally stopped denying
that there is a problem.
We expect more announcements as we move into 1998 on this front.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (UNAUDITED)
1/11/93-12/31/97
- ---------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year Life of Fund
-3.84% 1.88% 9.24%
- ---------------------------------------------
CIGNA Lipper
Point of International International EAFE Index
Measurement Stock Fund Funds - Total Return
----------- ---------------- ---------------- ------------------
01/11/93 $10,000 $10,000 $10,000
12/31/93 $14,273 $13,940 13,256
12/31/94 $14,669 $14,521 14,287
12/31/95 $15,167 $15,887 15,889
12/31/96 $16,132 $17,754 16,850
12/31/97 $15,512 $18,720 17,150
- --------------------------------------------------------------------------------
CIGNA International Stock Fund's performance figures are historical and reflect
reinvestment of all dividends and capital gains distributions, and changes in
net asset value. The Fund does not charge a sales load. The Fund's investment
return and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. Past performance
cannot guarantee comparable future results. The Fund's performance has been
compared with the total return performance for the Morgan Stanley Capital
Markets Europe, Australia, Far East Index (EAFE) and with the Lipper
International Funds. The EAFE index performance does not reflect brokerage
charges or other investment expenses. The Lipper International Funds average
total return consists of funds which invest their assets in securities whose
primary trading markets are outside the United States. The average total return
is reduced by brokerage charges, advisory fees and other fund expenses.
<PAGE>
CIGNA INTERNATIONAL STOCK FUND
INVESTMENTS IN SECURITIES
DECEMBER 31, 1997
NUMBER MARKET
OF SHARES VALUE
- ------------------------------------------------------------------------------
EQUITIES - 91.2%
ARGENTINA - 0.9%
YPF Sociedad Anomima ADR** (Oil & Gas) 2,000 $ 68,375
------------------
AUSTRALIA - 3.2%
Ausmelt Ltd. (Metal)* 15,000 10,082
Meekatharra Minerals (Mining)* 225,000 29,329
Rio Tinto Ltd. (Metal) 15,000 175,024
Savage Resources (Mining)* 50,000 23,463
Star Mining Corp. (Mining)* 870,000 9,639
------------------
247,537
------------------
BELGIUM - 0.5%
Union Miniere (Metal) 500 34,682
------------------
CHILE - 0.4%
Telecom de Chile ADR** (Telecommunication) 1,062 31,727
------------------
DENMARK - 2.7%
ALM Brand (Insurance) 1,500 47,505
BG Bank (Banking) 1,250 84,101
Tele Danmark AS (Telecommunication) 1,250 77,533
------------------
209,139
------------------
FINLAND - 0.6%
Nokia AB (Telecommunication) 700 49,698
------------------
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
CIGNA INTERNATIONAL STOCK FUND
INVESTMENTS IN SECURITIES (Continued)
DECEMBER 31, 1997
NUMBER MARKET
OF SHARES VALUE
- --------------------------------------------------------------------------------
FRANCE - 7.0%
AXA (Insurance) 742 57,415
Banque National Paris (Banking) 4,103 218,086
Carrefour (Food Retailing) 90 46,955
ELF Aquitaine (Oil) 715 83,160
Etam Development (Merchandising/Stores) 880 51,029
France Telecom (Telecommunication) 2,500 90,679
------------------
547,324
------------------
GERMANY - 8.2%
Allianz AG Holdings (Insurance) 250 64,760
Bayer AG (Chemicals) 800 29,884
Commerzbank AG (Banking) 1,300 51,163
Commerzbank AG (Banking) RFD*** 92 3,426
Daimler-Benz AG (Multi - Industry)* 550 38,584
Deutsche Bank AG (Banking) 1,095 77,303
Deutsche Telekom AG (Telecommunication) 2,907 54,700
Dresdner Bank AG (Banking) 1,500 69,207
Dresdner Bank AG (Banking) RFD*** 75 3,273
Mannesman AG (Machinery/General Industries) 150 75,794
SAP AG (Electronics) 225 73,605
Siemens AG (Electricals & Electronics) 765 45,289
Veba AG (Diversified) 710 48,348
------------------
635,336
------------------
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
CIGNA INTERNATIONAL STOCK FUND
INVESTMENTS IN SECURITIES (Continued)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
HONG KONG - 6.9%
Beijing Enterprises (Real Estate) 15,000 $ 38,521
Beijing North Star (Real Estate) 160,000 26,636
Cheung Kong Infras (Building Heavy Construction) 32,000 90,437
China Everbright (Metal) 112,500 29,036
China Res Beijing Land (Real Estate) 150,000 71,622
China Telecom (Telecommunication) 50,000 85,818
Innovative International (Industrial Components) 300,000 53,813
Shanghai Industrial Holdings (Tobacco) 10,000 37,166
Tem Fat Hing Fung Holdings (Retail) 1,000,000 99,368
------------------
532,417
------------------
ITALY - 1.7%
Credito Italiano (Banking) 13,950 43,017
San Paolo (Banking) 2,650 25,316
Telecom Italia (Telecommunication) 10,069 64,319
------------------
132,652
------------------
JAPAN - 21.6%
Canon, Inc. (Precision Instrument) 5,000 116,413
Fuji Machine Mfg (Machinery) 5,000 120,625
Fuji Photo Film Co. (Recreation & Consumer Goods) 1,000 38,294
Fujitsu Ltd. (Electronics) 8,000 85,778
Ibiden (Electrical Machinery) 7,000 84,705
Minebea Co. (Machinery) 5,000 53,611
Mitsui Fudosan Co. (Real Estate) 8,000 77,200
NEC Corp. (Electrical Machinery) 5,000 53,228
Nippon Telephone & Telegraph (Telecommunication) 10 85,778
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
CIGNA INTERNATIONAL STOCK FUND
INVESTMENTS IN SECURITIES (Continued)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Nippon Trust Bank (Banking) 30,000 $ 49,169
NTT Data Communications Systems (Data Processing) 1 53,841
Ohbayashi Corp. (Construction & Housing) 20,000 68,009
Orix Corp. (Financial Services) 1,500 104,542
Seven Eleven Japan (Merchandising) 1,000 70,767
Shin-Etsu Chemical Co. (Chemicals) 5,000 95,351
Sony Corp. (Electronics) 2,000 177,682
Sumitomo Realty & Development (Real Estate) 10,000 57,440
Sumitomo Sitix Corp. (Non-Ferrous Metals) 3,000 31,937
TDK Corp. (Electronics Components) 1,000 75,362
Tokyo Electronics (Electronics) 2,000 64,027
Tokyo Seimitsu Co. (Machinery & Engineering) 5,000 111,817
------------------
1,675,576
------------------
MALAYSIA - 0.4%
Konsortium Perkapalan (Transportation/Marine)* 10,000 4,628
Malaysian Resources Corp. (Real Estate) 20,000 4,628
Renong Berhad (Multi - Industry) * 40,000 18,511
------------------
27,767
------------------
MEXICO - 2.5%
Cemex (Cement) 6,750 30,570
Desc. Formento Industries B (Miscellaneous) 10,000 94,666
Desc. Formento Industries C (Miscellaneous) 3,096 29,308
Telefonos de Mexico SA ADR** (Telecommunications) 750 42,047
------------------
196,591
------------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
CIGNA INTERNATIONAL STOCK FUND
INVESTMENTS IN SECURITIES (Continued)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
NETHERLANDS - 5.8%
Baan Company NV (Electronic Components) 3,190 $ 104,464
Ing Groep NV (Insurance & Finance) 964 40,602
Koninklijke PTT Nederland (Telecommunications) 1,400 58,412
Philips Electronics (Electronics) 1,050 62,969
Randstad Holdings (Business & Public Services) 1,050 39,511
Royal Dutch Petroleum (Energy) 2,600 142,717
------------------
448,675
------------------
NEW ZEALAND - 2.9%
Air New Zealand (Airline) 15,000 30,049
Carter Holt Harvey Ltd. (Forest Products) 60,379 93,257
Fernz Corp. (Forest Products) 10,000 25,839
Fletcher Challenge Forests (Forest Products) 83,000 68,917
Shortland Properties (Real Estate) 10,000 5,052
------------------
223,114
------------------
NORWAY - 0.6%
Norsk Hydro (Energy) 1,000 48,674
------------------
SINGAPORE - 0.4%
Overseas-Chinese Banking Corp., Ltd. (Banking) 2,760 16,047
Wing Tai Holdings (Real Estate) 10,000 11,688
------------------
27,735
------------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
CIGNA INTERNATIONAL STOCK FUND
INVESTMENTS IN SECURITIES (Continued)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
SOUTH AFRICA - 0.8%
Gold Fields of South Africa (Mining) 1,700 $ 26,025
Western Areas Gold Mining (Mining) 6,022 33,163
------------------
59,188
------------------
SPAIN - 0.8%
Banco Bilbao Vizcaya (Banking) 750 24,270
Telefon NAC de Espana (Telecommunication) 1,400 39,974
------------------
64,244
------------------
SWEDEN - 0.8%
Foreningssparbanken (Banking) 1,000 22,733
Swedish Match (Automobiles) 11,600 38,716
------------------
61,449
------------------
SWITZERLAND - 6.5%
Ares-Serono SA (Health & Personal Care) 38 62,674
Credit Suisse Group (Banking) 350 54,134
Nestle SA (Food & Household Products) 35 52,433
Novartis AG (Health & Personal Care) 85 137,866
Roche Holdings AG (Health & Personal Care) 10 99,268
Schweiz Bankverein (Banking) 200 62,141
Sulzer AG (Machinery & Engineering) 55 34,855
Sulzer Medica AG (Machinery & Engineering) 5 1,198
------------------
504,569
------------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
CIGNA INTERNATIONAL STOCK FUND
INVESTMENTS IN SECURITIES (Continued)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
THAILAND - 0.1%
Industrial Finance Corp. (Financial Services) 20,000 $ 3,074
------------------
UNITED KINGDOM - 15.9%
Associated British Ports Holdings PLC (Transportation) 4,000 19,776
BAT Industries PLC (Tobacco) 8,410 76,692
British Telecommunications PLC (Telecommunications) 5,500 43,338
Cable & Wireless PLC (Telecommunication) 25,000 108,405
Cadbury Schweppes (Bevarages & Tobacco) 10,000 100,928
Diageo PLC (Brewing) 8,000 73,190
Energy Group (Multi Industry) 2,870 31,678
Glaxo Wellcome (Pharmaceutical) 5,000 119,203
Imperial Chemical Industry (Chemicals) 3,800 59,357
Land Securities (Real Estate) 10,000 159,322
National Westminister (Banking) 8,000 132,977
Prudential Corp. PLC (Life Assurance) 16,539 201,401
Reuters Holdings (Media) 10,000 109,226
------------------
1,235,493
------------------
VENEZEULA - 0.0%
Corimon C A S A C A ADR** (Pollution Control) 140 822
------------------
TOTAL EQUITIES (Cost $6,757,683) 7,065,859
------------------
WARRANTS - 2.4%
BTR PLC (Diversified) (United Kingdom), 1998* 229 2
Crown Casino Ltd. (Leisure) (Australia), Exp. 2001* 300,000 12,318
Electronic Resources (Electronics) (Singapore), Exp. 2001* 10,309 6,116
Innovative International (Industrial Components)
(Hong Kong), Exp. 1999* 30,000 267
Meekatharra Minerals (Mining) (Australia), Exp.1999* 75,000 3,031
Westpac Banking Co. (Banking) (Australia), Exp. 2000* 30,000 169,129
------------------
TOTAL WARRANTS (Cost $118,770) 190,863
------------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
CIGNA INTERNATIONAL STOCK FUND
INVESTMENTS IN SECURITIES (Continued)
DECEMBER 31, 1997
MARKET
VALUE
- --------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES - 93.6%
(Total Cost - $6,876,453) $ 7,256,722
Cash and Other Assets Less Liabilities - 6.4% 499,071
------------------
NET ASSETS - 100.0%
(equivalent to $10.82 per share based on 716,803
shares outstanding) $ 7,755,793
==================
* Non-income Producing Securities.
** An American Depository Receipt (ADR) is a certificate issued by a U.S.
bank representing the right to receive securities of the foreign issuer
described. The values of ADR's are significantly influenced by trading
on exchanges not located in the United States or Canada.
*** Ranking for dividend (RFD) results when stock is due less than the full
dividend as a result of a corporate action.
<PAGE>
CIGNA INTERNATIONAL STOCK FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments in securities at value (Cost - $6,876,453) $ 7,256,722
Foreign currency (Cost - $397,174) 382,638
Cash on deposit with custodian 14,210
Dividends receivable 9,209
Receivable for investments sold 115,516
Receivable from advisor 21,720
Investment for Trustees' deferred compensation plan (Cost - $17,089) 24,033
------------------
TOTAL ASSETS 7,824,048
------------------
LIABILITIES:
Payable for investments purchased 1,640
Payable for Trustees' deferred compensation plan 24,033
Other accrued expenses 42,582
------------------
TOTAL LIABILITIES 68,255
------------------
NET ASSETS (applicable to 716,803 shares of beneficial Interest with par value
of $.001 per share issued and outstanding; unlimited number of shares
authorized) $ 7,755,793
==================
Shares outstanding 716,803
==================
Net asset value, offering price and redemption price per share $ 10.82
==================
COMPONENTS OF NET ASSETS:
Paid in capital $ 7,588,167
Overdistributed net investment income (88,545)
Net unrealized appreciation of investments and
Foreign currencies 372,677
Accumulated net realized loss on investments (116,506)
------------------
NET ASSETS $ 7,755,793
==================
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
CIGNA INTERNATIONAL STOCK FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INVESTMENT INCOME
INCOME:
<S> <C>
Dividends (net of foreign taxes withheld of $17,598) $ 124,947
Interest 1,276
------------------
126,223
EXPENSES:
Custodian fees and expenses 70,250
Investment advisory fees 66,311
Auditing and legal fees 28,562
Administrative services 20,337
Other 20,414
------------------
Total expenses 205,874
Less expenses waived by investment advisor (114,319)
------------------
Net expenses 91,555
------------------
NET INVESTMENT INCOME 34,668
------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FOREIGN CURRENCIES AND OTHER NET ASSETS:
Net realized loss from securities transactions (77,198)
Net realized loss on foreign currencies and forward
foreign exchange contracts (1,413)
Net unrealized depreciation of investments (272,101)
Net unrealized appreciation of foreign currencies and
other net assets 2,390
------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS,
FOREIGN CURRENCIES AND OTHER NET ASSETS (348,322)
------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (313,654)
==================
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
CIGNA INTERNATIONAL STOCK FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
------------------ ------------------
OPERATIONS:
<S> <C> <C>
Net investment income $ 34,668 $ 49,528
Net realized gain (loss) from securities transactions
and foreign currency transactions (78,611) 361,511
Net unrealized appreciation (depreciation) of investments,
deferred compensation plan, foreign currencies
and other net assets (269,711) 77,333
------------------ ------------------
Net increase (decrease) in net assets from operations (313,654) 488,372
------------------ ------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (59,133) (54,926)
In excess of net investment income (38,332) (84,848)
From net realized capital gains (65,764) (195,624)
------------------ ------------------
Total distributions to shareholders (163,229) (335,398)
------------------ ------------------
CAPITAL SHARE TRANSACTIONS:
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions 163,229 335,398
------------------ ------------------
Net increase from capital share transactions 163,229 335,398
------------------ ------------------
Net increase (decrease) in net assets (313,654) 488,372
NET ASSETS:
Beginning of period 8,069,447 7,581,075
------------------ ------------------
End of period (including overdistributed net investment
income of $88,545 and $52,695 respectively) $ 7,755,793 $ 8,069,447
================== ==================
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
CIGNA INTERNATIONAL STOCK FUND Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES. CIGNA International Stock Fund (the "Fund")
was organized as the sole series of CIGNA Institutional Funds Group, a
Massachusetts business trust (the "Trust") on August 10, 1992 and is registered
under the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund's objective is 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. The preparation
of financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements.
A. SECURITY VALUATION - Equity securities, including warrants, that are listed
on a United States or foreign securities exchange are valued at the last sale
price or, if there is no such price available, at the last bid price. Portfolio
securities that are traded on foreign securities exchanges are generally valued
at the preceding closing prices of such securities on their respective
exchanges. A security that is listed or traded on more than one exchange is
valued on the exchange determined to be the primary market for such security by
the Board of Trustees or its delegates. Other equity securities 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 on valuations furnished from a pricing service or from independent
securities dealers. Short-term investments with remaining maturities of up to
and including 60 days are valued at amortized cost, which approximates market.
Short-term investments that mature in more than 60 days are valued at current
market quotations. Other securities and assets of the Fund are appraised at fair
value as determined in good faith by, or under the authority of, the Trustees.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions
are accounted for on the trade date (date the order to buy or sell is executed).
Dividend income is recorded on the ex-dividend date or when such information
becomes available, and interest income is recorded on the accrual basis.
Securities gains and losses are determined on the basis of identified cost.
C. FEDERAL TAXES - It is the Fund's policy to continue to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income and capital gains, if any,
to its shareholders. Therefore, no Federal income or excise taxes on realized
income have been accrued.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions are
recorded by the Fund on the ex-dividend date. The timing and characterization of
certain income and capital gain distributions are determined in accordance with
federal tax regulations which may differ from generally accepted accounting
principles. To the extent that such differences are permanent, a reclass to paid
in capital may be required.
E. CURRENCY TRANSLATION AND FORWARD CURRENCY CONTRACTS - Foreign currency
amounts are translated into U.S. dollars at the prevailing exchange rates as
follows: assets and liabilities at the rate of exchange at the end of the
period, purchases and sales of securities and expenses at the rate of exchange
prevailing on the dates of such transactions. The Fund from time to time may
enter into foreign currency transactions to convert to and from different
foreign currencies and to convert foreign currencies to and
<PAGE>
CIGNA INTERNATIONAL STOCK FUND Notes to Financial Statements (Continued)
from the U.S. dollar. The Fund enters into these transactions either on a spot
basis at the spot rate prevailing in the foreign currency exchange market or
uses forward currency exchange contracts to purchase or sell foreign currencies.
Realized and unrealized gains and losses on foreign currency transactions
represent foreign exchange gains and losses arising from the sale of holdings of
foreign currencies, foreign currency exchange rate fluctuations between trade
dates and settlement dates on securities transactions, and the difference
between the amounts of interest and dividends recorded on the books of the Fund
and the amount actually received.
2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES. Investment
advisory fees were paid or accrued to CIGNA Investments, Inc. ("CII"), certain
officers and directors of which are affiliated with the Fund. Such advisory fees
are based on an annual rate of 0.80% applied to the average daily net assets of
the Fund. CII has voluntarily agreed to reimburse such portion of its fee and
absorb other expenses as is necessary to cause the total annual operating
expenses of the Fund not to exceed 1.10% of the Fund's average daily net assets
(1.25% prior to July 1, 1996).
The Fund reimburses CII for a portion of the compensation and related expenses
of the Fund's Treasurer and Secretary and certain persons who assist in carrying
out the responsibilities of those offices. For the year ended December 31,
1997, the Fund paid or accrued $20,337.
CII is an indirect, wholly-owned subsidiary of CIGNA Corporation.
3. TRUSTEES' FEES. Trustees' fees represent remuneration paid or accrued to
trustees who are not employees of CIGNA Corporation or any of its affiliates.
Trustees may elect to defer receipt of all or a portion of their fees which are
invested in mutual fund shares in accordance with a deferred compensation plan.
4. PURCHASES AND SALES OF SECURITIES. Purchases and sales of securities,
excluding short-term obligations, aggregated $6,685,923 and $6,391,217,
respectively, for the year ended December 31, 1997. As of December 31, 1997 the
cost of securities for Federal income tax purposes was $7,001,618. At December
31, 1997, unrealized appreciation for Federal income tax purposes aggregated
$255,104 of which $1,313,490 related to appreciated securities and $1,058,386
related to depreciated securities.
5. CAPITAL STOCK. The Fund offers an unlimited number of shares of beneficial
interest with a par value of $.001 per share. All of the shares outstanding at
December 31, 1997 were owned by the Century Indemnity Company, an indirect
wholly-owned subsidiary of CIGNA Corporation. The only transactions in capital
stock for the periods ended December 31, 1996 and 1997 were the reinvestment of
dividends and distributions in the amount of $335,398 and $163,229,
respectively, resulting in 29,723 and 14,195 additional shares, respectively.
6. POST OCTOBER LOSSES. Under current tax law, certain net long-term capital
losses realized after October 31 may be deferred and treated as occurring on the
first day of the following year. For the year ended December 31, 1997, the Fund
will elect to defer losses of $40,247 occurring between November 1, 1997 and
December 31, 1997.
<PAGE>
CIGNA INTERNATIONAL STOCK FUND Notes to Financial Statements (Continued)
7. FINANCIAL HIGHLIGHTS. The following selected per share data is computed on
the basis of a share outstanding throughout each period.
<TABLE>
<CAPTION>
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January 11, 1993*
Year Ended December 31, through
1997 1996 1995 1994 December 31, 1993
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<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.48 $ 11.27 $ 11.77 $ 13.21 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income** 0.05 0.08 0.15 0.04 0.09
Net realized and unrealized gains (losses)
on securities transactions, foreign
currencies and forward foreign
exchange contracts (0.48) 0.62 0.23 0.33 4.18
------ ----- ----- ----- ----
TOTAL FROM INVESTMENT OPERATIONS (0.43) 0.70 0.38 0.37 4.27
------ ----- ----- ----- ----
LESS DISTRIBUTIONS:
Distributions from net investment income (0.05) (0.08) (0.15) (0.04) (0.09)
Distributions in excess of net investment income (0.09) (0.12) (0.12) - (0.02)
Distributions from realized capital gains (0.09) (0.29) (0.61) (1.77) (0.95)
------ ------ --------------- ------ ------
TOTAL DISTRIBUTIONS (0.23) (0.49) (0.88) (1.81) (1.06)
------ ------ --------------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 10.82 $ 11.48 $ 11.27 $ 11.77 $ 13.21
====== ============= =============== ====== =====
TOTAL INVESTMENT RETURN -3.84% 6.36% 3.40% 2.77% 42.73%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $ 7,756 $ 8,069 $ 7,581 $ 7,335 $ 7,136
Ratio of operating expenses to average net
assets (a) 1.10% 1.12% 1.14% 1.25% 1.25%
Ratio of net investment income to average
net assets (b) 0.42% 0.63% 0.37% 0.32% 0.75%
Portfolio turnover 82% 60% 63% 63% 66%
Average commission rate*** $ 0.009 $ 0.012
</TABLE>
a. Ratios of expenses to average net assets prior to expense
reimbursements were 2.48%, 2.61%, 2.59%,2.35% and 2.67%, respectively,
for 1997, 1996, 1995, 1994 and 1993. Per share expenses prior to
reduction were $0.29, $0.29, $0.28, $0.29 and $0.30, respectively.
b. Ratios of net investment income to average net assets prior to expense
reimbursements were (0.96)%,(0.85)%, (1.08)%, (0.78)% and (0.73)%,
respectively, for 1997, 1996, 1995, 1994 and 1993. Per share net
investment loss amounts prior to reduction were $(0.11), $(0.10),
$(0.12), $(0.10) and $(0.08), respectively.
* Commencement of operations.
** Net investment income per share has been calculated in accordance with
SEC requirements, with the exception that end of year
accumulated/(overdistributed) net investment income has not been
adjusted to reflect current year permanent differences between financial
and tax accounting.
*** 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.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of CIGNA International Stock Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of CIGNA International Stock Fund (the
"Fund") at December 31, 1997, the results of its operations for the year then
ended, the changes in its net assets and the financial highlights for each of
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1997 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 20, 1998
