[GRAPHIC OF LEAVES]
TIMESSQUARE
VP CORE PLUS
BOND FUND
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Semiannual Report
June 30, 2003
[Cigna logo]
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1
Dear Shareholders:
Our commentary for TimesSquare VP Core Plus Bond Fund (the "Fund") covering the
six months ended June 30, 2003 follows.
Market Summary
On a six-month year-to-date basis, the total return on the Lehman Brothers
Aggregate Bond Index was 3.93%, compared with a total return of 7.32% on
investment-grade corporate bonds (Lehman Brothers U.S. Credit Index). Emerging
market debt (J.P. Morgan Emerging Market Bonds Plus Index) and high-yield
corporate bonds (Lehman Brothers High Yield Bond Index) produced the best total
returns by far on a year-to-date basis, with total returns from each market in
excess of 18%.
At the beginning of May, the Federal Reserve (Fed) Chairman Greenspan announced
that any necessary action would be taken to combat deflationary pressures.
Bondholders took this as a sign that the Fed would keep short-term rates low.
The 10-year Treasury yield plunged to an inter-generational low of 3.13% on
June 13, the lowest level since June 1958, before recovering to end the quarter
at 3.53%.
Performance
Returns for the six months ended June 30, 2003 were:
Fund 5.43%
Lipper Corporate Debt Funds -
'A' Rated Average 4.73
Lehman Brothers Aggregate Bond
Index 3.93
In the first quarter, the Fund benefited from its allocation to high yield and
to the overweight allocation to the investment-grade credit sector. The Fund
also was helped by the positive issue selection in investment-grade credits and
mortgage-backed securities (MBS) for the period.
In the second quarter, the overweight allocation and strong selection in
investment-grade corporate bonds were the largest positive contributors to Fund
performance. At June 30, 2003, the Fund was 14% overweight to corporate bonds
on a duration-adjusted basis. Continued positive issue selection in Yankee and
domestic telecommunications companies such as France Telecom, Deutsche Telekom,
and Sprint Capital added value. Other sectors that performed well for us
included Yankee Banks such as Royal Bank of Scotland and cable names, with
Comcast as an example.
In MBS, one of the more consistent and effective strategies that has been
undertaken is to purchase securities with better call protection when rates are
low. Our underweight in Agency bonds and selection within the sector,
especially in Financing Corporation (FICO) bonds (issued to finance the savings
and loan banking system bailout), continued to have a positive impact.
Outlook
We continue to favor investment-grade corporate bonds. Despite the extremely
strong returns in this sector over the past nine months, we still see further
upside, albeit not of the same magnitude. We remain vigilant in our monitoring
of individual credits and potential volatility associated with continued
accounting and corporate governance issues, potential profit disappointments,
and exogenous/geopolitical events. In high yield, we may once again increase
our allocation upon clearer signs of economic growth. In the MBS sector, we
have moved to an underweight allocation due to our cautious outlook.
Sincerely,
/s/ Richard H. Forde
Richard H. Forde
Chairman of the Board and President
TimesSquare VP Core Plus Bond Fund
Note: This commentary is not part of the Semiannual Report to Shareholders.
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TimesSquare VP Core Plus Bond Fund Investments in Securities 2
June 30, 2003 (Unaudited)
Principal Value
(000) (000)
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LONG-TERM BONDS - 84.3%
BASIC MATERIALS - 0.4%
Abitibi-Consolidated, Inc., 6.00%, 2013 $ 245 $ 233
Stora Enso Oyj, 7.38%, 2011 205 245
Weyerhaeuser Co., 5.25%, 2009 165 177
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655
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COMMUNICATIONS & MEDIA - 8.1%
AOL Time Warner, Inc., 6.75%, 2011 495 564
AT&T Corp.,
7.80%, 2011 60 69
8.50%, 2031 105 119
AT&T Wireless Services, Inc., 8.13%, 2012 170 205
British Telecommunications PLC, 8.88%
(coupon change based on rating), 2030 285 389
Comcast Cable Communications, 8.38%, 2007 65 77
Comcast Corp., 5.85%, 2010 140 154
Deutsche Telekom International Finance BV,
8.50%, (coupon change based on rating), 2010 410 504
8.75%, (coupon change based on rating), 2030 805 1,026
France Telecom SA,
8.70%, (coupon change based on rating), 2006 90 103
9.25%, (coupon change based on rating), 2011 1,410 1,775
10.00%, (coupon change based on rating), 2031 135 187
Kyivstar GSM, 12.75%, 2005 144A 275 303
Koninklijke KPN, NV, 8.00%, 2010 1,165 1,442
Liberty Media Corp., 5.70%, 2013 80 81
News America Holdings, 7.75%, 2045 405 482
News America, Inc., 6.75%, 2038 20 22
PTC International Finance II SA, 11.25%, 2009 355 401
Qwest Capital Funding, Inc., 6.50%, 2018 75 53
Speedway Motorsports, Inc., 6.75%, 2013 144A 130 135
Sprint Capital Corp.,
6.13%, 2008 100 109
8.38%, 2012 80 96
8.75%, 2032 365 437
Tele Communications, Inc.,
9.80%, 2012 950 1,199
7.88%, 2013 220 266
TELUS Corp., 8.00%, 2011 495 572
Principal Value
(000) (000)
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Time Warner, Inc.,
8.18%, 2007 $ 640 $ 750
9.13%, 2013 215 275
7.57%, 2024 300 340
TPSA Finance BV, 7.75%, 2008 144A 380 435
Univision Communications, Inc., 7.85%, 2011 430 512
Verizon Florida, Inc., 6.13%, 2013 190 215
--------
13,297
--------
CONSUMER & RETAIL - 1.7%
Ahold Finance USA, Inc., 8.25%, 2010 380 390
Campbell Soup Co., 5.88%, 2008 195 222
Foster's Finance Corp., 6.88%, 2011 144A 210 248
Heinz (H.J.) Co., 6.38%, 2028 70 79
Heinz (H.J.) Finance Co., 6.75%, 2032 210 250
Kellogg Co., 7.45%, 2031 355 450
Kraft Foods, Inc.,
5.25%, 2007 140 152
5.63%, 2011 350 381
Kroger Co., 7.50%, 2031 50 59
Safeway, Inc., 7.25%, 2031 55 62
Sears Roebuck Acceptance Corp., 7.00%, 2032 80 89
VFB LLC, 10.25%, 2009 (a) 1,930 463
--------
2,845
--------
DIVERSIFIED - 1.3%
Bombardier, Inc., 6.75%, 2012 144A 275 282
General Electric Co., 5.00%, 2013 690 729
Hutchison Whampoa International Ltd.,
6.50%, 2013 144A 430 451
ITT Industries, Inc., 7.40%, 2025 535 625
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2,087
--------
FINANCIAL - 11.3%
American Express Credit, Ser.1999-1A, 5.60%, 2006 1,200 1,242
Amvescap PLC, 5.90%, 2007 285 311
Bank of America Corp., 7.80%, 2010 100 123
BankBoston Corp., 8.25%, 2026 170 200
Bayerische Hypo-und Vereinsbank AG,
8.74%, 2031 144A 465 489
The Notes to Financial Statements are an integral part of these statements.
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TimesSquare VP Core Plus Bond Fund Investments in Securities 3
June 30, 2003 (Unaudited) (Continued)
Principal Value
(000) (000)
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Boeing Capital Corp., 6.10%, 2011 $ 325 $ 359
CIT Group, Inc.,
6.50%, 2006 265 290
6.88%, 2009 125 142
Citigroup, Inc.,
3.50%, 2008 1,455 1,497
7.25%, 2010 265 321
Countrywide Home Loans, Inc., 5.50%, 2007 110 120
Credit Suisse First Boston Mortgage Securities Corp.,
4.63%, 2008 165 176
Interest Only 7.50%, 2032 700 67
Interest Only 8.00%, 2032 1,200 120
Dresdner Funding Trust I, 8.15%, 2031 144A 590 651
Fifth Third Bank Michigan, 7.75%, 2010 300 333
First Union Capital 1, 7.94%, 2027 105 122
Ford Motor Credit Co.,
6.88%, 2006 300 318
7.38%, 2009 700 734
7.38%, 2011 700 724
General Motors Acceptance Corp.,
6.88%, 2011 1,180 1,184
7.00%, 2012 295 297
Golden West Financial Corp., 4.13%, 2007 200 211
Goldman Sachs Group, Inc., 6.88%, 2011 580 684
Household Finance Corp.,
4.63%, 2008 350 373
6.38%, 2011 270 307
6.38%, 2012 230 262
HVB Funding Trust III, 9.00%, 2031 144A 225 235
International Lease Finance Corp., 6.38%, 2009 275 308
Kazkommerts International BV, 8.50%, 2013 144A 250 249
Korea Development Bank,
4.25%, 2007 160 165
Lehman Brothers Holdings, Inc., 6.63%, 2012 365 428
Manufacturers & Traders Trust, 8.00%, 2010 150 185
Mississippi Business Finance Corp., 7.81%, 2024 500 487
Morgan (J.P.) Chase & Co., 6.75%, 2011 50 59
Morgan (J.P.) Co., 6.00%, 2009 205 230
Morgan Stanley Group, Inc., 6.75%, 2011 415 485
Principal Value
(000) (000)
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National Rural Utilities Cooperative Finance Corp.,
5.75%, 2009 $ 120 $ 133
NB Capital Trust IV, 8.25%, 2027 155 188
Prudential Funding LLC, 6.60%, 2008 190 220
Residential Asset Mortgage Products, Inc.,
Interest Only, 5.75%, 2005 2,049 124
Santander Central Hispano Issuances Ltd.,
7.63%, 2010 200 248
Santander Financial Issuances,
6.80%, 2005 95 104
6.38%, 2011 100 114
Sovereign Bancorp., Inc., 10.50%, 2006 1,685 2,024
Standard Chartered Bank, 8.00%, 2031 144A 215 273
Union Planters Corp., 6.75%, 2005 240 265
Zions Bancorp.,
Step Coupon (6.50%, 10/15/2006), 2011 340 378
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18,559
--------
FOREIGN GOVERNMENT - 2.1%
Bulgaria (Republic of),
Floating Rate, 2.19%, 2024 380 369
Quebec (Province of Canada),
5.50%, 2006 630 689
5.00%, 2009 790 866
7.50%, 2023 460 601
Russian Federation,
Step Coupon (5.00% to 3/31/07), 2030 144A 475 461
Ukraine Government, 7.65%, 2013 144A 180 179
United Mexican States, 8.30%, 2031 320 368
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3,533
--------
INDUSTRIAL - 2.0%
BAE Systems Holdings, 6.40%, 2011 144A 910 1,018
Lockheed Martin Corp.,
8.20%, 2009 1,240 1,568
8.50%, 2029 235 319
Systems 2001 Asset Trust LLC, 7.16%, 2011 144A 290 324
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3,229
--------
The Notes to Financial Statements are an integral part of these statements.
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TimesSquare VP Core Plus Bond Fund Investments in Securities 4
June 30, 2003 (Unaudited) (Continued)
Principal Value
(000) (000)
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INSURANCE - 1.4%
American Re Corp., 7.45%, 2026 $ 200 $ 221
AXA SA, 8.60%, 2030 175 225
Monumental Global Funding II, 3.85%, 2008 144A 345 357
Progressive Corp.,
6.38%, 2012 35 40
6.25%, 2032 65 72
Travelers Property Casualty Corp., 5.00%, 2013 190 198
XL Capital Europe PLC, 6.50%, 2012 320 366
Zurich Capital Trust I, 8.38%, 2037 144A 690 758
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2,237
--------
MEDICAL - 0.3%
Tenet Healthcare Corp., 7.38%, 2013 445 429
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OIL & GAS - 1.8%
Amerada Hess Corp., 7.30%, 2031 250 289
Conoco Funding, Co., 6.35%, 2011 895 1,045
Devon Financing Corp. ULC, 6.88%, 2011 230 270
Duke Energy Field Services LLC,
5.75%, 2006 60 64
6.88%, 2011 40 46
Gazprom OAO, 9.63%, 2013 144A 200 221
Occidental Petroleum Corp.,
7.65%, 2006 480 542
6.75%, 2012 175 208
Petroleos Mexicanos, 9.50%, 2027 270 333
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3,018
--------
PHARMACEUTICALS - 0.5%
Lilly (Eli) & Co., 6.77%, 2036 610 747
Wyeth, 5.25%, 2013 80 85
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832
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TRANSPORTATION - 1.9%
American Airlines, 7.38%, 2016 596 280
Burlington Northern Santa Fe, 6.75%, 2029 310 350
Continental Airlines, Inc.,
6.90%, 2017 475 358
6.55%, 2020 26 25
Delta Air Lines, Inc., 7.90%, 2009 270 215
Principal Value
(000) (000)
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Federal Express Corp., 7.60%, 2097 $ 185 $ 211
General Motors Corp., 7.13%, 2013 235 234
Norfolk Southern Corp.,
7.70%, 2017 405 518
7.90%, 2097 75 90
Union Pacific Corp., 6.13%, 2012 680 768
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3,049
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U.S. GOVERNMENT & AGENCIES - 49.1%
Fannie Mae,
5.50%, 2017 2,671 2,775
7.00%, 2031 809 857
8.00%, 2031 378 407
6.50%, 2032 6,167 6,431
7.00%, 2032 5,588 5,926
6.50%, 2033 2,895 3,019
Interest Only 7.20%, 2042 12,848 263
Federal Home Loan Banks,
4.13%, 2005 1,375 1,434
Financing Corp.,
Principal Strips from
9.90%, 2018 134 62
10.00%, 2018 1,985 952
8.60%, 2019 830 362
9.65%, 2019 695 315
9.70%, 2019 1,260 568
Freddie Mac,
6.00%, 2017 1,465 1,524
4.50%, 2018 2,708 2,769
5.00%, 2018 4,081 4,219
6.00%, 2032 8,163 8,463
7.50%, 2032 1,653 1,757
5.50%, 2033 6,361 6,571
Interest Only 9.89%, 2043 10,247 284
Ginnie Mae,
6.50%, 2031 1,025 1,076
6.50%, 2032 894 939
5.50%, 2033 765 796
6.00%, 2033 1,700 1,783
The Notes to Financial Statements are an integral part of these statements.
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TimesSquare VP Core Plus Bond Fund Investments in Securities 5
June 30, 2003 (Unaudited) (Continued)
Principal Value
(000) (000)
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U.S. Treasury Bonds,
8.75%, 2017 $ 1,440 $ 2,155
6.00%, 2026 5,020 6,001
U.S. Treasury Notes,
7.88%, 2004 1,730 1,888
4.63%, 2006 10,125 10,976
4.38%, 2007 2,330 2,531
6.00%, 2009 2,775 3,273
5.00%, 2011 70 79
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80,455
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UTILITIES - 2.4%
American Electric Power, Inc., 5.38%, 2010 90 96
Carolina Power & Light Co., 6.50%, 2012 95 110
CenterPoint Energy
5.70%, 2013 144A 225 244
7.88%, 2013 144A 135 155
Cleveland Electric Illuminating Co., 7.88%, 2017 200 251
Columbus Southern Power Co., 5.50%, 2013 144A 85 91
Detroit Edison Co.,
6.13%, 2010 320 365
6.35%, 2032 60 68
Dominion Resources Inc., 6.25%, 2012 100 113
DPL, Inc., 8.25%, 2007 270 306
Duke Capital Corp., 6.25%, 2013 60 64
First Energy Corp.,
5.50%, 2006 260 279
6.45%, 2011 350 384
Nisource Finance Corp., 7.88%, 2010 400 472
Ohio Power Co., 5.50%, 2013 144A 45 48
Oncor Electric Delivery Co., 7.25%, 2033 144A 260 307
Pinnacle Partners, 8.83%, 2004 144A 200 208
Progress Energy, Inc.,
7.10%, 2011 110 128
7.00%, 2031 225 248
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3,937
--------
TOTAL LONG-TERM BONDS
(Cost - $131,712) 138,162
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Number of Value
Shares (000)
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PREFERRED STOCK - 1.9%
COMMUNICATIONS & MEDIA - 0.3%
Centaur Funding Corp., 9.08%, 144A 435 $ 523
--------
FINANCIAL - 1.6%
BCI US Funding Trust,
Step Coupon (8.01% to 7/15/08) 144A 650 759
IBJ Preferred Capital Co. LLC,
Step Coupon (8.79% to 6/30/08) 144A 235 236
Natexis AMBS Co. LLC.,
Step Coupon (8.44% to 6/30/08) 144A 210 254
RBS Capital Trust I,
Step Coupon (4.71% to 7/01/13) 1,275 1,276
--------
2,525
--------
TOTAL PREFERRED STOCK
(Cost - $2,904) 3,048
--------
SHORT-TERM OBLIGATIONS - 13.9%
MONEY MARKET FUND - 13.6%
TimesSquare VP Money Market Fund 22,228,000 22,228
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Principal
(000)
-------------
U.S. GOVERNMENT - 0.1%
U.S. Treasury Bill,
1.10%, 10/2/03 (b) $ 200 199
--------
UTILITIES - 0.2%
Niagara Mohawk Power Co.,
7.38%, 2003 250 250
--------
TOTAL SHORT-TERM OBLIGATIONS
(Cost - $22,677) 22,677
--------
TOTAL INVESTMENTS IN SECURITIES - 100.1%
(Total Cost - $157,293) (d) 163,887
Liabilities in Excess of Cash and Other Assets - (0.1)% (119)
--------
NET ASSETS - 100.0% $163,768
========
The Notes to Financial Statements are an integral part of these statements.
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TimesSquare VP Core Plus Bond Fund Investments in Securities 6
June 30, 2003 (Unaudited) (Continued)
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NOTES TO INVESTMENTS IN SECURITIES
(a) Indicates defaulted security.
(b) Pledged as collateral for financial futures contracts. At June 30,
2003, the Fund was long 59, 2-year U.S. Treasury Notes and was
short 22, U.S. Treasury Bond futures contracts, 53, 10-year and 22,
5-year U.S. Treasury Note futures contracts, all expiring in
September 2003. Net unrealized gain amounted to $147,757. Underlying face
values of the long and short positions were $12,744,000 and
($11,468,742), respectively, and underlying market values were
$12,761,515 and ($11,338,500), respectively.
(c) A summary of outstanding forward currency contracts, as of June 30,
2003, is as follows:
Net Unrealized
Settlement Forward Foreign Contract Appreciation
Date Contract Currency Value (Depreciation)
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Sells
09/15/03 EURO 3,640,000 $4,000,194 $(179,260)
Buys
09/15/03 EURO 5,070,000 $5,539,306 $ 279,559
Tax Information
(d) At June 30, 2003, the net unrealized appreciation of investments, based on
cost for federal income tax purposes of $157,699,054 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of
value over tax cost $6,498,168
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax
cost over value (310,353)
----------
Unrealized appreciation-net $6,187,815
==========
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Quality Ratings* of Long-Term Bonds (Unaudited)
June 30, 2003
Value % of
(000) Value
----------------------------------
Aaa/AAA $ 82,914 60.0%
Aa/AA 5,709 4.1
A/A 17,258 12.5
Baa/BBB 28,552 20.7
Ba/BB 1,806 1.3
B/B 1,407 1.0
Below B 53 0.0
Not Rated 463 0.4
-------- -----
$138,162 100.0%
======== =====
*The higher of Moody's or Standard & Poor's Ratings.
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The Notes to Financial Statements are an integral part of these statements.
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TimesSquare VP Core Plus Bond Fund 7
Statement of Assets and Liabilities
June 30, 2003 (Unaudited)
(In Thousands)
Assets:
Investments in securities at value $163,887
Interest and dividend receivable 1,560
Receivable for investments sold 678
Swap contracts receivable 141
Receivable for forward currency contracts 100
Investments for Trustees' deferred compensation plan 2
--------
Total assets 166,368
--------
Liabilities:
Payable for investments purchased 2,421
Advisory fees payable 48
Futures variation margin payable 38
Custody fees payable 29
Administrative fees payable 17
Audit and legal fees payable 14
Deferred Trustees' fees payable 2
Transfer agent fees payable 1
Other 30
--------
Total liabilities 2,600
--------
Net Assets $163,768
========
Components of Net Assets:
Paid in capital $153,093
Undistributed net investment income 4,804
Accumulated net realized loss (977)
Net unrealized appreciation of investments, futures,
forward contracts and swaps 6,848
--------
Net Assets $163,768
========
Shares Outstanding 15,331
========
Net Asset Value and Redemption Price per Share $ 10.68
========
Cost of Investments $157,293
========
Statement of Operations
For the Six Months Ended June 30, 2003 (Unaudited)
(In Thousands)
Investment Income:
Income:
Interest income $4,366
Dividends 112
------
4,478
Expenses:
Investment advisory fees $362
Custodian fees 76
Administrative services fees 39
Audit and legal fees 14
Transfer agent fees 3
Trustees' fees 1
Shareholder reports 1
----
Total expenses 496
Less expenses waived by Adviser (106)
----
Net expenses $390
----
Net Investment Income 4,088
------
Realized and Unrealized Gain (Loss)
on Investments:
Net realized gain (loss) from:
Forward currency contracts 2
Futures contracts (874)
Investments 2,397
------
1,525
------
Net change in unrealized appreciation:
Forward currency contracts 98
Futures contracts 252
Swaps 5
Investments 2,416
------
2,771
------
Net Realized and Unrealized Gain
on Investments 4,296
------
Net Increase in Net Assets Resulting
from Operations $8,384
======
The Notes to Financial Statements are an integral part of these statements.
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TimesSquare VP Core Plus Bond Fund 8
Statements of Changes in Net Assets
(In Thousands)
For the Six For the
Months Ended Year Ended
June 30, 2003 December 31,
(Unaudited) 2002
------------- ------------
Operations:
Net investment income $ 4,088 $ 5,673
Net realized gain (loss) on investments 1,525 (412)
Net unrealized appreciation on investments 2,771 5,418
---------- --------
Net increase in net assets from operations 8,384 10,679
---------- --------
Dividends and Distributions:
From net investment income -- (5,821)
---------- --------
Total dividends and distributions -- (5,821)
---------- --------
Capital Share Transactions:
Net proceeds from shares sold 26,748 108,118
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions -- 5,821
---------- --------
26,748 113,939
Cost of shares redeemed (21,091) (120,160)
---------- --------
Net increase (decrease) from Fund share
transactions 5,657 (6,221)
---------- --------
Net Increase (Decrease) in Net
Assets 14,041 (1,363)
Net Assets:
Beginning of period 149,727 151,090
---------- --------
End of period* $ 163,768 $149,727
========== ========
* includes undistributed net investment
income of: $ 4,804 $ 716
========== ========
For the Six For the
Months Ended Year Ended
June 30, 2003 December 31,
(Unaudited) 2002
------------- ------------
Transactions in Capital Stock:
Shares sold 2,592 10,641
Shares issued in reinvestment of dividends
and distributions -- 575
---------- --------
2,592 11,216
Shares redeemed (2,036) (12,020)
---------- --------
Net increase (decrease) in shares
outstanding 556 (804)
========== ========
The Notes to Financial Statements are an integral part of these statements.
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TimesSquare VP Core Plus Bond Fund 9
Financial Highlights
For the Six From May 3,
Months Ended For the Year Ended December 31, 1999* to
June 30, 2003 ----------------------------------- December 31,
(Unaudited) 2002 2001(e) 2000 1999
- --------------------------------------------------------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value, beginning of period $ 10.13 $ 9.70 $ 9.87 $ 9.53 $ 10.00
-------- -------- -------- ------- -------
Income from investment operations
Net investment income (a) 0.27 0.42 0.45 0.54 0.33
Net realized and unrealized gain (loss) 0.28 0.42 0.44 0.35 (0.48)
-------- -------- -------- ------- -------
Total from investment operations 0.55 0.84 0.89 0.89 (0.15)
-------- -------- -------- ------- -------
Less dividends and distributions:
Dividends from net investment income -- (0.41) (0.94) (0.55) (0.32)
Distributions from net realized capital gains -- -- (0.04) -- --
Return of capital dividends -- -- (0.08) -- --
-------- -------- -------- ------- -------
Total dividends and distributions -- (0.41) (1.06) (0.55) (0.32)
-------- -------- -------- ------- -------
Net asset value, end of period $ 10.68 $ 10.13 $ 9.70 $ 9.87 $ 9.53
======== ======== ======== ======= =======
Total Investment Return (b) 5.43%(c) 8.66% 9.06% 9.34% (1.48)(c)
Ratios to Average Net Assets:
Gross expenses 0.64%(d) 0.62% 0.60% 0.70% 0.79%(d)
Fees and expenses waived or borne by the Adviser 0.14%(d) 0.12% 0.10% 0.20% 0.29%(d)
Net expenses 0.50%(d) 0.50% 0.50% 0.50% 0.50%(d)
Net investment income 5.69%(d) 4.24% 5.39%(e) 6.66% 6.09%(d)
Portfolio Turnover 126%(c) 518% 396% 320% 303%(c)
Net assets, End of Period (000 omitted) $163,768 $149,727 $151,090 $84,014 $ 39,261
(a) 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.
(b) Had the Adviser not waived or reimbursed a portion of expenses, total return
would have been reduced.
(c) Not annualized.
(d) Annualized.
(e) Effective January 1, 2001, the Fund was required to start amortizing premium
and discount on all debt securities. The effect of this change on net
investment income per share was a decrease of $0.02 per share. The effect to
the ratio of net investment income to average net assets was a decrease of
0.19%. Per share, ratios, and supplemental data for periods prior to January
1, 2001, have not been restated to reflect this change in accounting
principle.
* Commencement of operations
The Notes to Financial Statements are an integral part of these statements.
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TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 10
(Unaudited)
1. Significant Accounting Policies.
TimesSquare VP Core Plus Bond Fund (the "Fund") is a separate series of CIGNA
Variable Products Group, a Massachusetts business trust (the "Trust"). The
Trust is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund seeks to provide
the highest current income attainable, consistent with reasonable risk, as
determined by the Fund's investment adviser, through investment in a
professionally managed, diversified portfolio of fixed income securities. The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America 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 -- Debt securities traded in the over-the-counter market,
including listed securities whose primary markets are believed to be
over-the-counter, are valued on the basis of valuations furnished by brokers
trading in the securities or a pricing service, which determines valuations for
normal, institutional-size trading units of such securities using market
information, transactions for comparable securities and various relationships
between securities which are generally recognized by institutional traders.
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 Fund's Board of Trustees. If
events occurring after the close of the principal market in which securities
are traded (but before the close of regular trading on the NYSE) are believed
to materially affect the value of those securities, such securities are valued
at their fair value, taking such events into account.
B. Delayed Delivery Commitments -- The Fund may enter into commitment
agreements -- i.e., TBA's -- for the purchase of securities at an agreed-upon
price on a specified future date. Since the delivery and payment for such
securities can be scheduled to take place up to three months after the
transaction date, they are subject to market fluctuations. The Fund does not
begin to earn interest on such purchase commitments until settlement date. The
Fund may sell a purchase commitment prior to settlement for the purpose of
enhancing its total return. The Fund segregates assets with a market value
equal to the amount of its purchase commitments. To the extent securities are
segregated, they may not be available for new investments or to meet
redemptions. Delayed delivery commitments may increase the Fund's exposure to
market fluctuations and may increase the possibility that the Fund may realize
a short-term gain (subject to taxation) or loss if the Fund must engage in
portfolio transactions in order to honor its commitments. Due to the longer
settlement period, there may be an increased risk of failure of the other party
to honor the transaction. The Fund records changes in market value of the
securities underlying unsettled commitments in unrealized gains and losses.
Gains and losses are realized upon sale of the commitment.
C. Foreign Currency Translations -- Foreign currency transactions from foreign
investment activity are translated into U.S. dollars on the following basis:
(i) market value of investment securities, other assets and liabilities at the
daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and interest income
and certain
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 11
(Unaudited) (Continued)
expenses at the rates of exchange prevailing on the respective dates of
such transactions.
The Fund does not isolate that portion of gains and losses on investments which
is due to changes in foreign exchange rates from that which is due to changes
in market prices of the investments. Such fluctuations are included with the
net realized and unrealized gains and losses from investments.
Net realized and unrealized gains (losses) from foreign currency-related
transactions include gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex-dividend and payment dates on
dividends, interest, and foreign withholding taxes.
D. Foreign Investments -- The Fund may invest in securities of foreign
countries and governments, which involve certain risks in addition to those
inherent in domestic investments. Such risks generally include, among others,
currency risk (fluctuations in currency exchange rates), information risk (key
information may be inaccurate or unavailable) and political risk
(expropriation, nationalization or the imposition of capital or currency
controls or punitive taxes). Other risks of investing in foreign securities
include inadequate accounting controls, liquidity and valuation risks.
E. Forward Currency Transactions -- The Fund is authorized to enter into
forward exchange contracts for the purpose of hedging against foreign exchange
risk arising from the Fund's investment or anticipated investment in securities
denominated in foreign currencies. The Fund may also enter into these contracts
for purposes of increasing exposure to a foreign currency or to shift exposure
to foreign currency fluctuations from one country to another. All commitments
are marked to market daily at the applicable translation rates and any
resulting unrealized gains or losses are recorded. Realized gains or losses are
recorded at the time the forward contract matures or by delivery of the
currency. Due to market fluctuations, the Fund maintains, in a segregated
account with its custodian, assets with a market value equal to the amount of
its purchase commitments. Risks may arise upon entering into these contracts
from the potential inability of counterparties to meet the terms of their
contracts and from unanticipated movements in the value of a foreign currency
relative to the U.S. dollar.
F. Futures Contracts -- The Fund is authorized to enter into futures contracts.
The Fund may use futures contracts for reasons such as managing its exposure to
the markets or movements in interest rates and currency values. Upon entering
into a futures contract, the Fund is required to pledge to the broker an amount
of cash and/or securities equal to the initial margin requirements. During the
period a futures contract is open, changes in the value of a 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. Daily variation margin payments are received or made, depending on
whether there were unrealized gains or losses. When a contract is closed, the
Fund records a realized gain or loss equal to the difference between the value
of the contract at the time it was opened and the value at the time it was
closed. Futures contracts include the risk that a change in the value of the
contract may not correlate with the value of the underlying securities and the
possibility of an illiquid market.
G. High Yield Bonds -- The Fund may invest in high yield bonds i.e. fixed
income securities rated below investment grade. While the market values of
these securities tend to react less to fluctuations in interest rate levels
than do those of investment-grade securities, the market values of certain of
these securities also tend to be more sensitive to individual corporate
developments and changes in economic conditions than investment-grade
securities. In addition, the issuers of these securities are often highly
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 12
(Unaudited) (Continued)
leveraged and may not have more traditional methods of financing available to
them so that their ability to service their debt obligations during an economic
downturn or during sustained periods of rising interest rates may be impaired.
H. Swap Agreements -- The Fund may enter into swap agreements for investment,
liquidity, hedging and risk management purposes. For example, the Fund may
enter into swap agreements to preserve a return on a particular investment or a
portion of its portfolio and as a technique for managing duration (i.e., price
sensitivity to changes in interest rates). Swaps involve the exchange of
commitments to pay or receive -- e.g., an exchange of floating rate payments
for fixed-rate payments and/or payments of the appreciation or depreciation of
a security or an index. If forecasts of interest rates and other market
factors, including those that may impact the indexes of the total return swaps,
are incorrect, investment performance will differ compared to what performance
would have been if these investment techniques were not used. Even if the
forecasts are correct, there are risks that the positions may correlate
imperfectly with the asset or liability being hedged, a liquid secondary market
may not always exist, or the counterparty to a transaction may default.
As of June 30, 2003, the Fund had the following outstanding swap agreements:
Spread Unrealized
Notional (Basis Termination Appreciation/
Counterparty Index Amount Points) Date (Depreciation)
- ---------------------------------------------------------------------------------------
Bear Stearns Bear Stearns High
Yield Index $1,400,000 75 07/01/03 $ 0
Bear Stearns Bear Stearns High
Yield Index $ 160,000 10 10/01/03 $ 260
Lehman Lehman US High
Brothers Yield Index $1,250,000 85 11/01/03 $ (568)
Bear Stearns Bear Stearns High
Yield Index $1,600,000 (10) 12/01/03 $5,712
Lehman Lehman US High
Brothers Yield Index $ 70,000 5 12/01/03 $ 206
The terms of the agreement require the Fund to pay LIBOR (which is set monthly)
plus the spread and to receive the monthly total return on the Index, both
based on the notional amount. The Fund records the net amount
receivable/payable on a daily basis. The net receivable/payable is settled in
cash monthly and recorded as net investment income.
I. 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, and interest
income, which includes amortization of premium and accrual of discount, is
recorded on an accrual basis. Securities gains and losses are determined on the
basis of identified cost.
J. 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 to its
shareholders. Therefore, no federal income or excise taxes on realized income
or net capital gains have been accrued. Distributions reported in the Statement
of Changes in Net Assets from net investment income, including short-term
gains, and capital gains are treated as ordinary income and long-term capital
gains, respectively, for federal income tax purposes.
At December 31, 2002, the Fund had a Post-October loss of $22,315. Under
current tax law, capital losses realized after October 31 may be deferred and
treated as occurring on the first day of the following year.
K. Dividends and Distributions to Shareholders -- Dividends from net investment
income and distributions from net capital gains, to the extent such gains would
otherwise be taxable to the Fund, are declared and distributed at least
annually. Dividends and distributions are recorded by the Fund on the
ex-dividend date.
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 13
(Unaudited) (Continued)
The timing and characterization of certain income and capital gains
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 reclassification to the Components of Net
Assets may be required. As a result, at December 31, 2002, the Fund decreased
accumulated net realized loss by $1,347,955, and increased undistributed net
investment income by the same amount.
2. Investment Advisory Fees and Other Transactions with Affiliates. Investment
advisory fees are paid or accrued to TimesSquare Capital Management, Inc.
("TimesSquare"), certain officers and directors of which are affiliated with
the Fund. Such advisory fees are based on an annual rate of 0.50% of the Fund's
average daily net assets. TimesSquare has contractually agreed to reimburse the
Fund for any amount by which its expenses (including the advisory fee, but
excluding interest, taxes, transaction costs incurred in acquiring and
disposing of portfolio securities, and extraordinary expenses) exceed, on an
annual basis, 0.50% of average daily net assets until April 30, 2004, and
thereafter to the extent described in the Fund's then current prospectus.
TimesSquare retains the right to be repaid by the Fund if the Fund's expenses
fall below the percentage specified above prior to the end of the fiscal year
or within three years after TimesSquare waives advisory fees or reimburses a
Fund's operating expenses. The Fund's remaining contingent liability and
expiration dates are as shown below:
Remaining
Contingent Expires Expires Expires Expires
Liability during 2003 during 2004 during 2005 during 2006
(000's) (000's) (000's) (000's) (000's)
- ------------ ------------- ------------- ------------- ------------
$464 $77 $127 $154 $106
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission, the Fund may invest its excess cash, up to 25% of the Fund's total
assets, in the affiliated TimesSquare VP Money Market Fund ("TSVPMM") managed
by TimesSquare. TimesSquare will waive the amount of its advisory fee for the
Fund in an amount that offsets the amount of the advisory fees incurred in the
affiliated Fund. For the six months ended June 30, 2003, TimesSquare waived
$28,770 of its advisory fee payable by the Fund. Income distributions from
TSVPMM, which amounted to $75,836 for the six months ended June 30, 2003, are
recorded as dividend income in the Statement of Operations.
TimesSquare is an indirect, wholly-owned subsidiary of CIGNA Corporation.
For administrative services, the Fund reimburses TimesSquare 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 six months ended June 30, 2003, the Fund paid or accrued
$39,369.
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, for the six months ended June 30, 2003, were
$149,247,518 and $150,564,418 respectively, for U.S. Government and Agency
Obligations and $39,781,492 and $23,054,871 respectively, for all other
securities.
5. Capital Stock. The Fund offers an unlimited number of shares of beneficial
interest without par value. All of the shares outstanding at June 30, 2003,
were held by Connecticut General Life Insurance Company ("CG Life") life
insurance contracts issued by that company. CG Life is an indirect,
wholly-owned subsidiary of CIGNA Corporation.
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund 14
(Unaudited)
Trustees
Russell H. Jones
Senior Vice President,
Chief Investment Officer, and
Treasurer, Kaman Corporation
Paul J. McDonald
Special Advisor to the Board of
Directors, Friendly Ice Cream
Corporation
Richard H. Forde
Managing Director, CIGNA Retirement &
Investment Services and
TimesSquare Capital Management, Inc.
Officers
Richard H. Forde
Chairman of the Board
and President
Alfred A. Bingham III
Vice President and
Treasurer
Jeffrey S. Winer
Vice President and
Secretary
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund is an open-end, diversified management
investment company that invests primarily in fixed income securities. The
investment adviser is TimesSquare Capital Management, Inc., 280 Trumbull
Street, Hartford, Connecticut 06103.
- --------------------------------------------------------------------------------
[GRAPHIC OF LEAVES]
TIMESSQUARE
VP MONEY MARKET
FUND
- --------------------------------------------------------------------------------
Semiannual Report
June 30, 2003
[LOGO] CIGNA
- --------------------------------------------------------------------------------
1
Dear Shareholders:
Our commentary for TimesSquare VP Money Market Fund (the "Fund") covering the
six months ended June 30, 2003 follows.
Market Environment
The Federal Reserve (Fed) met four times during the first half of 2003, but
waited until the fourth meeting to cut interest rates. At the June 25 Open
Market Committee meeting, the Fed cut the federal funds rate by 25 basis points
to a 45-year low of 1%. This was the thirteenth interest rate cut since the
easing cycle began in January 2001. The Fed statement noted recent firming in
spending as well as a stabilization in labor and "markedly improved financial
conditions."
Portfolio Composition and Performance
On June 30, 2003, the portfolio contained: top-tier domestic commercial paper,
46%; top-tier foreign commercial paper, 17%; and U.S. Government and Agencies,
37%. The Fund is well diversified.
Total returns for the six months ended June 30, 2003 were:
Fund 0.45%
Lipper Money Market Funds Average 0.26
3-month U.S. Treasury Bill 0.59
As of June 30, 2003, the Fund's weighted average portfolio maturity was 56
days, and the annualized 7-day yield was 0.69%.
Outlook
Economists expect stimulus from low interest rates and tax cuts to help spur
growth in the latter part of the year. Manufacturing is starting to show signs
of strength. The Fed has openly signaled its willingness to support growth, and
the markets are focused on trying to find strength in the economy.
Sincerely,
/s/ Richard H. Forde
Richard H. Forde
Chairman of the Board and President
TimesSquare VP Money Market Fund
Note: This commentary is not part of the Semiannual Report to Shareholders.
- --------------------------------------------------------------------------------
TimesSquare VP Money Market Fund Investments in Securities 2
June 30, 2003 (Unaudited)
Principal Value
(000) (000)
- --------------------------------------------------------------------------------
COMMERCIAL PAPER - 62.5%
Domestic - 45.9%
American Express Credit Corp., 1.00%, 7/16/03 $ 7,697 $ 7,694
CAFCO LLC,
1.10%, 7/1/03 4,538 4,538
1.08%, 7/14/03 7,000 6,997
ChevronTexaco Funding Corp., 0.90%, 7/9/03 13,322 13,319
Coca Cola Co.,
0.94%, 7/10/03 6,400 6,398
0.99%, 7/11/03 6,987 6,985
du Pont (E.I.) de Nemours and Co., 1.03%, 7/7/03 13,400 13,398
Exxon Project Investment Corp., 1.05%, 7/1/03 12,059 12,059
Fortune Brands, Inc., 1.22%, 7/8/03 10,058 10,056
General Electric Capital Corp.,
0.99%, 7/1/03 6,200 6,200
1.11%, 1/28/04 (a) 7,500 7,502
Morgan Stanley, Dean Witter, Discover & Co.,
1.02%, 7/3/03 10,443 10,442
Nestle Capital Corp., 1.19%, 7/8/03 6,006 6,005
Paccar Financial Corp., 0.92%, 7/24/03 10,800 10,794
Pfizer, Inc., 0.93%, 8/1/03 8,400 8,393
State Street Corp., 0.90%, 7/14/03 13,400 13,396
Wells Fargo & Co., 1.12%, 1/14/04 (a) 5,000 5,000
Windmill Funding Corp.,
1.16%, 7/10/03 3,831 3,830
1.06%, 7/15/03 9,500 9,496
--------
162,502
--------
Foreign - 16.6%
ANZ Delaware, Inc.,
1.21%, 7/7/03 6,290 6,289
1.13%, 7/11/03 7,000 6,998
Diageo Capital PLC,
0.94%, 7/8/03 2,432 2,432
1.04%, 7/10/03 10,000 9,997
National Australia Funding Del., Inc.,
1.03%, 7/2/03 9,876 9,875
Novartis Finance Corp., 1.00%, 7/17/03 13,282 13,276
Rabobank Nederland N.V., 1.06%, 7/9/03 10,000 9,998
--------
58,865
--------
Total Commercial Paper 221,367
--------
Principal Value
(000) (000)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCIES - 37.3%
Fannie Mae,
0.96%, 7/9/03 $ 147 $ 147
0.90%, 8/27/03 3,000 2,996
0.90%, 10/15/03 2,550 2,543
0.90%, 10/29/03 4,818 4,804
4.75%, 11/14//03 4,000 4,047
3.13%, 11/15//03 2,500 2,515
1.32%, 1/9/04 2,500 2,482
1.08%, 3/5/04 2,500 2,481
1.08%, 4/2/04 4,000 3,967
0.89%, 5/27/04 (a) 12,500 12,494
Federal Farm Credit Bank,
3.13%, 10/1/03 4,500 4,516
0.95%, 3/24/05 (a) 15,000 14,997
1.00%, 6/23/05 (a) 2,500 2,500
Federal Home Loan Bank,
1.63.%, 8/12/03 1,000 1,000
6.88%, 8/15/03 665 669
5.60%, 9/2/03 2,500 2,517
3.18%, 12/3/03 4,000 4,026
1.35%, 3/30/04 2,500 2,500
1.25%, 4/15/04 2,500 2,499
1.08%, 4/19/04 3,114 3,087
Freddie Mac,
3.40%, 10/1/03 2,500 2,510
3.18%, 10/24/03 3,500 3,515
1.08%, 11/21/03 4,000 3,983
1.25%, 12/4/03 2,000 1,989
1.29%, 12/4/03 2,500 2,486
1.08%, 1/15/04 5,334 5,302
5.00%, 1/15/04 4,000 4,073
1.29%, 1/29/04 2,000 1,985
5.25%, 2/15/04 2,350 2,404
1.28%, 3/25/04 2,500 2,476
Sallie Mae,
2.25%,7/2/03 4,000 4,000
2.60%, 7/2/03 4,500 4,500
1.21%, 7/16/03 (a) 5,000 5,001
1.18%, 8/15/03 (a) 3,500 3,501
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP Money Market Fund Investments in Securities 3
June 30, 2003 (Unaudited) (Continued)
Principal Value
(000) (000)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCIES (continued)
Sallie Mae (continued)
0.91%, 12/18/03 (a) $ 2,000 $ 2,000
4.75%, 4/23/04 5,500 5,651
--------
132,163
--------
TOTAL INVESTMENTS IN SECURITIES - 99.8%
(Total Cost - $353,530) (b) 353,530
Cash and Other Assets, Less Liabilities - 0.2% 515
--------
NET ASSETS - 100.0% $354,045
========
NOTES TO INVESTMENTS IN SECURITIES
(a) Variable rate security. Rate is as of June 30, 2003.
Tax Information
(b) As of June 30, 2003, the cost for federal tax purposes was equal to book
cost.
- --------------------------------------------------------------------------------
TimesSquare VP Money Market Fund
Value % of
Ten Largest Positions (Unaudited) (000) Net Assets
- -----------------------------------------------------------
Fannie Mae $38,476 10.9%
Freddie Mac 30,723 8.7
Sallie Mae 24,653 7.0
Federal Farm Credit Bank 22,013 6.2
Federal Home Loan Bank 16,298 4.6
General Electric Capital Corp. 13,702 3.9
du Pont (E.I.) de Nemours and Co. 13,398 3.8
State Street Corp. 13,396 3.8
Coca Cola Co. 13,383 3.8
Windmill Funding Corp. 13,326 3.8
- --------------------------------------------------------------------------------
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP Money Market Fund 4
Statement of Assets and Liabilities
June 30, 2003 (Unaudited)
(In Thousands)
Assets:
Investments in securities at value $353,530
Cash 62
Interest receivable 538
Investment for Trustees' deferred compensation plan 1
--------
Total assets 354,131
--------
Liabilities:
Investment advisory fees payable 51
Administrative services fees payable 13
Custodian fees payable 10
Audit and legal fees payable 9
Shareholder reports 2
Deferred Trustees' fees payable 1
--------
Total liabilities 86
--------
Net Assets $354,045
========
Components of Net Assets:
Paid in capital $354,045
--------
Net Assets $354,045
========
Shares Outstanding 354,043
========
Net Asset Value and Redemption Price per Share $ 1.00
========
Cost of Investments $353,530
========
Statement of Operations
For the Six Months Ended June 30, 2003 (Unaudited)
(In Thousands)
Investment Income:
Income:
Interest $2,486
------
Expenses:
Investment advisory fees $599
Administrative services fees 61
Custodian fees and expenses 45
Auditing and legal fees 15
Transfer agent fees 3
Trustees' fees 3
Shareholder reports 1
Other 1
----
Total expenses $728
----
Net Investment Income 1,758
------
Realized and Unrealized Gain on
Investments:
Net realized gain from investments --
------
Net Realized and Unrealized Gain on
Investments --
------
Net Increase in Net Assets Resulting From
Operations $1,758
======
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP Money Market Fund 5
Statements of Changes in Net Assets
(In Thousands)
For the Six For the
Months Ended Year Ended
June 30, 2003 December 31,
(Unaudited) 2002
------------- ------------
Operations:
Net investment income $ 1,758 $ 4,356
Net realized gain on investments -- 2
--------- ---------
Net increase in net assets from operations 1,758 4,358
--------- ---------
Dividends and Distributions:
From net investment income (1,691) (4,423)
--------- ---------
Total dividends and distributions (1,691) (4,423)
--------- ---------
Capital Share Transactions:
Net proceeds from sales of shares 319,971 612,437
Net asset value of shares issued to
shareholders in reinvestment of dividends
and distributions 1,703 4,420
--------- ---------
321,674 616,857
Cost of shares redeemed (333,255) (468,538)
--------- ---------
Net increase (decrease) in net assets from
Fund share transactions (11,581) 148,319
--------- ---------
Net Increase (Decrease) in Net Assets (11,514) 148,254
Net Assets:
Beginning of period 365,559 217,305
--------- ---------
End of period $ 354,045 $ 365,559
========= =========
For the Six For the
Months Ended Year Ended
June 30, 2003 December 31,
(Unaudited) 2002
------------- ------------
Transactions in Capital Stock
Shares sold 319,971 612,437
Shares issued in reinvestment of dividends
and distributions 1,703 4,420
--------- ---------
321,674 616,857
Shares redeemed (333,255) (468,538)
--------- ---------
Net increase (decrease) in shares
outstanding (11,581) 148,319
========= =========
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP Money Market Fund 6
Financial Highlights
- --------------------------------------------------------------------------------
For the Six
Months Ended
June 30, 2003
(Unaudited)
--------------
Per Share Operating Performance:
Net asset value, beginning of period $ 1.00
Income from investment operations:
Net investment income (a) (A)
--------
Total from investment operations (A)
--------
Less dividends and distributions:
Dividends from net investment income (A)
--------
Total dividends and distributions (A)
--------
Net asset value, end of period $ 1.00
========
Total Return 0.45%(c)
Ratios to Average Net Assets:
Gross expenses 0.39%(d)
Fees and expenses waived by the Adviser 0.00%(d)
Net expenses 0.39%(d)
Net investment income 0.95%(d)
Net Assets, End of Period (000 omitted) $354,045
For the Year Ended December 31,
--------------------------------------------------------------------
2002 2001 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income (a) 0.01 0.04 0.06 0.05 0.05
-------- -------- -------- ------- -------
Total from investment operations 0.01 0.04 0.06 0.05 0.05
-------- -------- -------- ------- -------
Less dividends and distributions:
Dividends from net investment income (0.01) (0.04) (0.06) (0.05) (0.05)
-------- -------- -------- ------- -------
Total dividends and distributions (0.01) (0.04) (0.06) (0.05) (0.05)
-------- -------- -------- ------- -------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======= =======
Total Return 1.41% 3.73% 6.06%(b) 4.83%(b) 5.14%(b)
Ratios to Average Net Assets:
Gross expenses 0.43% 0.48% 0.54% 0.64% 0.73%
Fees and expenses waived by the Adviser 0.00% 0.00% 0.04% 0.14% 0.23%
Net expenses 0.43% 0.48% 0.50% 0.50% 0.50%
Net investment income 1.37% 3.53% 6.01% 4.72% 4.98%
Net Assets, End of Period (000 omitted) $365,559 $217,305 $160,905 $31,345 $28,612
(A) Less than $0.01 per share.
(a) Net investment income per share has been calculated in accordance with SEC
requirements, with the exception that end of year accumulated
undistributed/(overdistributed) net investment income has not been adjusted
to reflect current year permanent differences between financial and tax
accounting.
(b) Had the Adviser not waived or reimbursed a portion of expenses, total
return would have been reduced.
(c) Not annualized.
(d) Annualized.
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP Money Market Fund Notes To Financial Statements (Unaudited) 7
1. Significant Accounting Policies. TimesSquare VP Money Market Fund (the
"Fund") is a separate series of CIGNA Variable Products Group, a Massachusetts
business trust (the "Trust"). The Trust is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The objective of the Fund 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 preparation of financial statements in
accordance with accounting principles generally accepted in the United States
of America 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 -- The Fund's investments are valued at amortized cost,
which the Board of Trustees has determined constitutes fair value, and which,
at June 30, 2003, approximated cost for federal income tax purposes.
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). Interest income, which includes amortization of premium and
accretion of discount, is recorded on the accrual basis. Securities gains and
losses are recognized 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. Distributions reported in the Statement of
Changes in Net Assets from net investment income, including short-term capital
gains, and capital gains are treated as ordinary income and long-term capital
gains, respectively, for federal income tax purposes.
D. Dividends and Distributions to Shareholders -- Dividends from net investment
income are declared and reinvested daily. Dividends and distributions are
recorded by the Fund on the ex-dividend date. The timing and characterization
of certain income and capital gains 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
reclassification to paid-in capital may be required.
2. Investment Advisory Fees and Other Transactions with Affiliates. Investment
advisory fees are paid or accrued to TimesSquare Capital Management, Inc.
("TimesSquare"), certain officers and directors of which are affiliated with
the Fund. Such advisory fees are based on an annual rate of 0.35% applied to
the average daily net assets of the Fund. TimesSquare has contractually agreed
to reimburse the Fund for any amount by which its expenses (including the
advisory fee, but excluding interest, taxes, transaction costs incurred in
acquiring and disposing of portfolio securities, and extraordinary expenses)
exceed, on an annual basis, 0.50% of average daily net assets until April 30,
2004, and thereafter, to the extent described in the Fund's then current
prospectus. Effective May 1, 2002, TimesSquare retains the right to be repaid
by the Fund if the Fund's expenses fall below the percentage specified above
prior to the end of the fiscal year or within three years after TimesSquare
- --------------------------------------------------------------------------------
TimesSquare VP Money Market Fund Notes To Financial Statements (Unaudited) 8
(Continued)
waives advisory fees or reimburses the Fund's operating expenses. As of June
30, 2003, the Fund has no such liability.
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission, other affiliated CIGNA Variable Products Funds may invest in the
Fund. TimesSquare will waive the amount of its advisory fee for the affiliated
Funds in an amount that offsets the amount of the advisory fees incurred by the
TimesSquare VP Money Market Fund.
For administrative services, the Fund reimburses TimesSquare for a portion of
the compensation and related expenses of the Trust's Treasurer and Secretary
and certain persons who assist in carrying out the responsibilities of those
offices. For the six months ended June 30, 2003, the Fund paid or accrued
$61,211.
TimesSquare 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 all or a portion of their fees, which are invested
in mutual fund shares in accordance with a deferred compensation plan.
4. Capital Stock. The Fund offers an unlimited number of shares of beneficial
interest, without par value. Connecticut General Life Insurance Company, an
indirect, wholly-owned subsidiary of CIGNA Corporation, TimesSquare VP Core
Plus Bond Fund and TimesSquare VP S&P 500[RegTM] Index Fund are the
shareholders of the Fund, with ownership of 89.0% 6.3%, and 4.7%, respectively.
- --------------------------------------------------------------------------------
TimesSquare VP Money Market Fund 9
Trustees Officers
Russell H. Jones Richard H. Forde
Senior Vice President, Chief Investment Chairman of the Board
Officer, and Treasurer, and President
Kaman Corporation
Alfred A. Bingham III
Paul J. McDonald Vice President and
Special Advisor to the Board of Treasurer
Directors, Friendly Ice Cream
Corporation Jeffrey S. Winer
Vice President and
Richard H. Forde Secretary
Managing Director, CIGNA Retirement &
Investment Services and
TimesSquare Capital Management, Inc.
- --------------------------------------------------------------------------------
TimesSquare VP Money Market Fund is an open-end, diversified management
investment company that invests in short-term money market instruments. The
investment adviser is TimesSquare Capital Management, Inc., 280 Trumbull
Street, Hartford, Connecticut 06103.
- --------------------------------------------------------------------------------
[GRAPHIC OF LEAVES]
TIMESSQUARE
VP S&P 500(R) INDEX
FUND
- --------------------------------------------------------------------------------
Semiannual Report
June 30, 2003
[Logo] CIGNA
- --------------------------------------------------------------------------------
1
Dear Shareholders:
Our commentary for TimesSquare VP S&P 500[RegTM] Index Fund (the "Fund")
covering the six months ended June 30, 2003 follows.
Economy
Economic touchstones which had provided hope of an improving recovery at year
end grew decidedly weaker over the first three months of the year. Financial
markets closely followed the course of Operation Iraqi Freedom. Uncertainties
were compounded by the deterioration of the western alliance and the realization
that the U.S./U.K. "coalition of the willing" would have to act in defiance of
France, Germany, Russia and the U.N. The promotion of a shock and awe campaign
by coalition forces promising early resolution to the conflict left investors
relieved when war finally commenced in mid-March. However, by the quarter's end,
Turkey's broken promise to provide a northern access route to Iraq and the
inflammatory nature of real-time network war coverage had instead generated
expectations for a messy and prolonged engagement.
Financial markets received psychological boosts from a number of directions in
the second quarter. U.S. and coalition forces achieved a decisive victory in
Iraq and turned their attention to instituting a provisional civil authority to
oversee the transition. President Bush declared an end to "major" hostilities,
although a clean end to the conflict has been elusive. Congress passed the
president's 2003 tax cut initiative. The SARS epidemic, which had been
perceived as a world threat earlier in the year, received unprecedented
international coordinated attention and was brought under control. In an
unusual step, Federal Reserve (Fed) chairman Alan Greenspan acknowledged the
threat of deflation, declared formal steps to guard against it, and suggested
that the Fed would tolerate and even welcome moderate inflation.
Equity Markets
Equity markets retreated, intermediate rates fell and the dollar weakened
through mid-March as the lack of U.N. resolve left questionable the U.S. course
of action related to Iraq. These trends reversed dramatically during the first
two weeks of engagement in anticipation of an early success, and then reversed
again during the final week of March on concerns of a longer U.S. presence in
Iraq. By first quarter's end, total return for the S&P 500[RegTM] Index was
- -3.15%.
In the second quarter, equity market participants, buoyed by improving
confidence indicators and better-than-expected reported earnings announcements,
drove stock indexes to their best quarterly return in three and a half years.
AMG Data Services (which provides information on mutual fund cash flows)
reported that investors, anticipating a second-half acceleration in earnings,
poured nearly $33 billion into stock mutual funds in the second quarter. The
average diversified U.S. stock fund returned 16.82% during the period according
to Lipper Analytics. Among large capitalization companies, value (+18.84%)
outperformed growth (+12.17%), as measured by representative S&P/Barra indexes.
The best-performing industries for the three months included employment
services, computer & electronics, tobacco and utilities, which all returned
more than 48%. Health care facilities, the principal loser, gave back 19%.
Performance Summary
Returns for the six months ended June 30, 2003, were:
Fund 11.64%
Lipper S&P 500 Funds Average 11.36
S&P 500[RegTM] Index 11.77
- --------------------------------------------------------------------------------
2
Outlook
Despite increases in the number of companies reporting improved corporate
earnings and cash flow, results continue to be mixed and top-line growth weak.
Unemployment has now increased to a nine-year high of 6.4%. The effectiveness
of the 2003 tax cut in stimulating new capital investment by business owners
may be slow to emerge. We continue to foresee slow, steady growth in an economy
that is subject at once to both substantial sources of stimulus but also to a
number of influences that do not allow the traditional business cycle to play
out, not the least of which is the growth in overseas outsourcing.
The recent advance in equity markets reflects anticipation of a broadening and
acceleration in earnings growth over the remainder of the year and therefore is
susceptible to any evidence to the contrary.
Sincerely,
/s/ Richard H. Forde
Richard H. Forde
Chairman of the Board and President
TimesSquare VP S&P 500[RegTM] Index Fund
Note: This commentary is not part of the Semiannual Report to shareholders.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500[RegTM] Index Fund Investments in Securities 3
June 30, 2003 (Unaudited)
Number of Value
Shares (000)
- -----------------------------------------------------------------------
COMMON STOCKS - 90.6%
General Electric Co. 197,100 $ 5,653
Microsoft Corp. 211,800 5,424
Pfizer, Inc. 157,932 5,393
Exxon Mobil Corp. 133,224 4,784
Wal-Mart Stores, Inc. 87,400 4,691
Citigroup, Inc. 101,772 4,356
Johnson & Johnson 58,784 3,039
American International Group 51,684 2,852
International Business Machine Corp. 33,500 2,764
Intel Corp. 131,200 2,727
Merck & Co., Inc. 44,500 2,694
Cisco Systems, Inc. (a) 140,800 2,350
Bank of America Corp. 29,718 2,349
Procter & Gamble Co. 25,600 2,283
Coca-Cola (The) Co. 49,100 2,279
Verizon Communications, Inc. 54,226 2,139
Altria Group, Inc. 41,000 1,863
Amgen, Inc. (a) 25,468 1,692
Wells Fargo & Co. 33,460 1,686
SBC Communications, Inc. 65,694 1,678
Dell Computer Corp. (a) 51,100 1,633
Eli Lilly & Co. 22,200 1,531
ChevronTexaco Corp. 21,134 1,526
Home Depot, Inc. 46,050 1,525
Viacom, Inc. (a) 34,833 1,521
PepsiCo., Inc. 34,160 1,520
AOL Time Warner, Inc. (a) 88,500 1,424
United Parcel Service, Inc. 22,300 1,421
Comcast Corp., Class A (a) 45,662 1,378
Abbott Laboratories 30,900 1,352
Morgan (J.P.) Chase & Co. 39,506 1,350
Fannie Mae 19,700 1,329
Hewlett-Packard Co. 60,424 1,287
Oracle Corp. (a) 104,272 1,253
Wyeth 26,200 1,193
Medtronic, Inc. 24,100 1,156
American Express Co. 26,000 1,087
Wachovia Corp. 26,928 1,076
Number of Value
Shares (000)
- -----------------------------------------------------------------------
Bristol-Myers Squibb Co. 38,400 $ 1,043
3M Co. 7,700 993
BellSouth Corp. 36,800 980
US Bancorp 37,851 927
Morgan Stanley Dean Witter & Co. 21,440 917
Anheuser-Busch Cos., Inc. 16,900 863
Bank One Corp. 23,019 856
du Pont (E.I.) de Nemours & Co. 19,678 819
Merrill Lynch & Co., Inc. 17,100 798
Disney (Walt) Co. 40,400 798
Goldman Sachs Group, Inc. 9,300 779
Washington Mutual, Inc. 18,707 773
Tyco International Ltd. 39,365 747
ConocoPhillips 13,368 733
Freddie Mac 13,800 701
Target Corp. 18,000 680
Lowe's Companies, Inc. 15,500 666
Gillette (The), Co. 20,700 660
United Technologies Corp. 9,300 659
Fifth Third Bancorp 11,458 657
eBay, Inc. (a) 6,100 635
Colgate-Palmolive Co. 10,700 620
First Data Corp. 14,900 617
FleetBoston Financial Corp. 20,687 614
Walgreen Co. 20,300 611
UnitedHealth Group, Inc. 12,000 603
Texas Instruments, Inc. 34,200 602
Cardinal Health, Inc. 8,975 577
Boeing (The) Co. 16,576 569
Qualcomm, Inc. 15,600 558
Dow (The) Chemical Co. 18,010 558
McDonald's Corp. 25,200 556
Schlumberger Ltd. 11,500 547
Marsh & McLennan Cos., Inc. 10,600 541
Schering-Plough Corp. 29,000 539
Kimberly-Clark Corp. 10,232 533
MBNA Corp. 25,252 526
Applied Materials, Inc. (a) 32,700 519
Clear Channel Communications, Inc. (a) 12,100 513
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500[RegTM] Index Fund Investments in Securities 4
June 30, 2003 (Unaudited) (Continued)
Number of Value
Shares (000)
- -------------------------------------------------------------------------
Exelon Corp. 8,325 $ 498
Allstate (The) Corp. 13,896 495
Boston Scientific Corp. (a) 8,100 495
Honeywell International, Inc. 16,987 456
EMC Corp. (a) 43,524 456
Southern (The) Co. 14,100 439
AT&T Wireless Services, Inc. (a) 53,439 439
Bank (The) of New York Co., Inc. 15,200 437
Lockheed Martin Corp. 9,060 431
Motorola, Inc. 45,391 428
Alcoa, Inc. 16,668 425
Emerson Electric Co. 8,300 424
Gannett Co., Inc. 5,300 407
Automatic Data Processing 11,900 403
Illinois Tool Works, Inc. 6,100 402
General Motors Corp. 11,100 400
Ford Motor Co. 36,297 399
National City Corp. 12,100 396
Forest Laboratories, Inc. (a) 7,200 394
Metlife, Inc. 13,900 394
Dominion Resources, Inc. 6,099 392
Sysco Corp. 12,900 388
Yahoo, Inc. (a) 11,700 383
Caterpillar, Inc. 6,800 378
Carnival Corp. 11,600 377
Prudential Financial, Inc. 11,200 377
Cendant Corp. (a) 20,504 376
FedEx Corp. 5,900 366
SLM Corp. 9,000 353
Duke Energy Corp. 17,524 350
General Mills, Inc. 7,300 346
Nextel Communications, Inc., Class A (a) 19,100 345
Kohl's Corp. (a) 6,700 344
International Paper Co. 9,451 338
SunTrust Banks, Inc. 5,600 332
Costco Wholesale Corp. (a) 9,000 329
Gap (The), Inc. 17,462 328
HCA, Inc. 10,200 327
BB&T Corp. 9,300 319
Number of Value
Shares (000)
- -------------------------------------------------------------------------
Lehman Brothers Holdings, Inc. 4,780 $ 318
Progressive (The) Corp. 4,300 314
Northrop Grumman Corp. 3,639 314
Aflac, Inc. 10,200 313
Travelers Property Casualty Co. 19,796 312
Baxter International, Inc. 11,700 304
Alltel Corp. 6,200 299
Avon Products, Inc. 4,700 292
AT&T Corp. 15,185 292
Sara Lee Corp. 15,500 292
Sun Microsystems, Inc. (a) 63,300 291
Union Pacific Corp. 5,000 290
General Dynamics Corp. 4,000 290
Tribune Co. 6,000 290
Waste Management, Inc. 11,732 283
Kellogg Co. 8,100 278
Nike, Inc. 5,200 278
Best Buy Co., Inc. (a) 6,300 277
Entergy Corp. 5,200 273
PNC Financial Services Group, Inc. 5,600 273
Guidant Corp. 6,100 271
Stryker Corp. 3,900 271
Schwab, (The) Charles Corp. 26,625 269
Omnicom Group 3,700 265
Southwest Airlines Co. 15,287 263
Raytheon Co. 8,000 263
State Street Corp. 6,600 260
Newmont Mining Corp. 7,935 258
Hartford Financial Services Group 5,100 257
Computer Associates International, Inc. 11,412 254
Sprint Corp (FON Group) 17,600 253
Wrigley (Wm) Jr. Co. 4,500 253
Kroger Co. (a) 15,100 252
Analog Devices, Inc. (a) 7,200 251
ConAgra Foods, Inc. 10,600 250
Occidental Petroleum Corp. 7,400 248
Devon Energy Corp. 4,600 246
WellPoint Health Networks (a) 2,900 244
FPL Group, Inc. 3,600 241
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500[RegTM] Index Fund Investments in Securities 5
June 30, 2003 (Unaudited) (Continued)
Number of Value
Shares (000)
- -------------------------------------------------------------------------
Golden West Financial Corp. 3,000 $ 240
Harley-Davidson, Inc. 6,000 239
Mellon Financial Corp. 8,600 239
McGraw-Hill (The) Cos., Inc. 3,800 236
Masco Corp. 9,800 234
Veritas Software Corp. (a) 8,100 232
Weyerhaeuser Co. 4,300 232
American Electric Power Co., Inc. 7,700 230
Heinz (H.J) Co. 6,900 228
FirstEnergy Corp. 5,900 227
Bed Bath & Beyond, Inc. (a) 5,800 225
Baker Hughes, Inc. 6,690 225
XL Capital Ltd., Class A 2,700 224
Equity Office Properties Trust 8,200 221
Anadarko Petroleum Corp. 4,933 219
Maxim Integrated Products 6,400 219
CVS Corp. 7,800 219
Paychex, Inc. 7,400 217
Burlington Resources, Inc. 4,010 217
Janus Capital Group, Inc. 13,200 216
Capital One Financial Corp. 4,400 216
Apollo Group, Inc., Class A (a) 3,500 216
Anthem, Inc. (a) 2,800 216
Deere & Co. 4,700 215
Keycorp 8,416 213
Burlington Northern Santa Fe Corp. 7,467 212
Sears Roebuck and Co. 6,200 209
Electronic Arts, Inc. (a) 2,800 207
Progress Energy, Inc. 4,700 206
Apache Corp. 3,161 206
McKesson Corp. 5,723 205
Danaher Corp. 3,000 204
Chubb Corp. 3,400 204
Electronic Data Systems Corp. 9,500 203
Principal Financial Group 6,300 203
St. Jude Medical, Inc. (a) 3,500 201
Allergan, Inc. 2,600 200
Linear Technology Corp. 6,200 200
Franklin Resources, Inc. 5,100 199
Number of Value
Shares (000)
- -------------------------------------------------------------------------
Campbell Soup Co. 8,100 $ 198
Becton Dickinson & Co. 5,100 198
Halliburton Co. 8,600 198
TJX Cos., Inc. 10,400 196
Praxair, Inc. 3,200 192
Starbucks Corp. (a) 7,700 189
Hershey Foods Corp. 2,700 188
Clorox Co. 4,400 187
Air Products & Chemicals, Inc. 4,500 187
Public Service Enterprise Group 4,400 186
SouthTrust Corp. 6,800 185
Northern Trust Corp. 4,400 184
Intuit, Inc. (a) 4,100 183
Medimmune, Inc. (a) 5,000 182
Consolidated Edison, Inc. 4,200 182
Pitney Bowes, Inc. 4,700 181
Agilent Technologies, Inc. (a) 9,128 178
ACE Ltd. 5,200 178
Safeway, Inc. (a) 8,700 177
Aetna, Inc. 2,942 177
Lexmark International, Inc., Class A (a) 2,500 177
Marriott International, Inc., Class A 4,600 177
Kla-Tencor Corp. (a) 3,800 177
Genzyme Corp. (Genl Division) (a) 4,200 176
John Hancock Financial Services 5,700 175
Loews Corp. 3,700 175
Zimmer Holdings, Inc. (a) 3,880 175
International Game Technology (a) 1,700 174
Countrywide Financial Corp. 2,500 174
Yum! Brands, Inc. (a) 5,880 174
Corning, Inc. (a) 23,500 174
PPG Industries, Inc. 3,400 173
PG&E Corp. (a) 8,100 171
Staples, Inc. (a) 9,250 170
Xilinx, Inc. (a) 6,700 170
Archer-Daniels-Midland Co. 12,887 166
Mattel, Inc. (a) 8,645 164
St. Paul Companies 4,432 162
Chiron Corp. (a) 3,700 161
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500[RegTM] Index Fund Investments in Securities 6
June 30, 2003 (Unaudited) (Continued)
Number of Value
Shares (000)
- -------------------------------------------------------------------------
Coca-Cola Enterprises, Inc. 8,900 $ 161
Marathon Oil Corp. 6,100 161
Comerica, Inc. 3,450 160
Limited Brands, Inc. 10,300 160
Eastman Kodak Co. 5,800 159
Qwest Communications International (a) 33,101 158
Moody's Corp. 3,000 158
Lucent Technologies, Inc. (a) 77,436 157
Paccar, Inc. 2,325 157
Fortune Brands, Inc. 3,000 157
Ingersoll-Rand Co., Class A 3,300 156
AmSouth Bancorp 7,100 155
Johnson Controls, Inc. 1,800 154
AmerisourceBergen Corp. 2,200 153
Xerox Corp. (a) 14,400 152
H&R Block (H&R), Inc. 3,500 151
Symantec Corp. (a) 3,400 149
Biomet, Inc. 5,200 149
Concord EFS, Inc. (a) 10,100 149
Regions Financial Corp. 4,400 149
Newell Rubbermaid, Inc. 5,307 149
Norfolk Southern Corp. 7,700 148
Adobe Systems, Inc. 4,600 148
AON Corp. 6,125 147
Centerpoint Energy, Inc. 18,007 146
Unocal Corp. 5,100 145
Sungard Data Systems, Inc. (a) 5,600 145
Simon Property Group, Inc. 3,700 144
Autozone, Inc. (a) 1,900 144
Albertson's, Inc. 7,513 144
TXU Corp. 6,400 144
MBIA, Inc. 2,900 141
Ameren Corp. 3,200 141
Charter One Financial, Inc. 4,524 141
Computer Sciences Corp. (a) 3,700 141
Equity Residential 5,400 140
Federated Department Stores (a) 3,800 140
Bear Stearns (The) Cos., Inc. 1,925 139
Micron Technology, Inc. (a) 11,900 138
Number of Value
Shares (000)
- -------------------------------------------------------------------------
Transocean, Inc. (a) 6,271 $ 138
PPL Corp. 3,200 138
Univision Communications, Inc. (a) 4,500 137
New York Times Co., Class A 3,000 137
Rohm & Haas Co. 4,385 136
AMBAC Financial Group, Inc. 2,050 136
Apple Computer, Inc. (a) 7,100 136
Fiserv, Inc. (a) 3,800 135
Broadcom Corp., Class A (a) 5,400 135
Quest Diagnostics (a) 2,100 134
Ecolab, Inc. 5,200 133
Marshall & Ilsley Corp. 4,300 131
CIGNA Corp. (b) 2,800 131
Kinder Morgan, Inc. 2,400 130
Synovus Financial Corp. 6,050 130
Family Dollar Stores 3,400 130
DTE Energy Co. 3,300 128
CSX Corp. 4,200 126
May (The) Department Stores Co. 5,650 126
Lincoln National Corp. 3,500 125
Altera Corp. (a) 7,500 123
Union Planters Corp. 3,950 123
Cinergy Corp. 3,320 122
Cintas Corp. 3,400 120
Dover Corp. 4,000 120
Dollar General Corp. 6,547 120
Cincinnati Financial Corp. 3,200 119
ITT Industries, Inc. 1,800 118
Xcel Energy, Inc. 7,820 118
Jefferson-Pilot Corp. 2,812 117
BJ Services Co. (a) 3,100 116
Sempra Energy 4,054 116
UST, Inc. 3,300 116
Nabors Industries Ltd., Class A (a) 2,900 115
Sprint Corp (PCS Group) (a) 19,700 113
Pepsi Bottling Group, Inc. 5,600 112
Starwood Hotels & Resorts Worldwide, Inc. 3,900 112
Monsanto Co. 5,135 111
Avery Dennison Corp. 2,200 110
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500[RegTM] Index Fund Investments in Securities 7
June 30, 2003 (Unaudited) (Continued)
Number of Value
Shares (000)
- -------------------------------------------------------------------------
Genuine Parts Co. 3,450 $ 110
Knight-Ridder, Inc. 1,600 110
Biogen, Inc. (a) 2,900 110
Eaton Corp. 1,400 110
KeySpan Corp. 3,100 110
First Tennessee National Corp. 2,500 110
Constellation Energy Group, Inc. 3,200 110
North Fork Bancorporation, Inc. 3,200 109
Tenet Healthcare Corp. (a) 9,350 109
Peoplesoft, Inc. (a) 6,130 108
Network Appliance, Inc. (a) 6,600 107
Novellus Systems, Inc. (a) 2,900 106
Textron, Inc. 2,700 105
Edison International (a) 6,400 105
American Standard Cos., Inc. (a) 1,400 104
Molex, Inc. 3,775 102
Interpublic Group Cos., Inc. (a) 7,600 102
CenturyTel, Inc. 2,850 99
JDS Uniphase Corp. (a) 28,000 98
MeadWestvaco Corp. 3,976 98
Parker Hannifin Corp. 2,325 98
EOG Resources, Inc. 2,300 96
Plum Creek Timber Co., Inc. 3,700 96
Safeco Corp. 2,700 95
Delphi Corp. 11,026 95
Tiffany & Co. 2,900 95
Hilton Hotels Corp. 7,400 95
Brown-Forman Corp. 1,200 94
Centex Corp. 1,200 93
MGIC Investment Corp. 2,000 93
EL Paso Corp. 11,543 93
Georgia-Pacific Corp. 4,916 93
Huntington Bancshares, Inc. 4,766 93
Noble Corp. (a) 2,700 93
NiSource, Inc. 4,800 91
Zions Bancorporation 1,800 91
T. Price Rowe Group, Inc. 2,400 91
Harrah's Entertainment, Inc. (a) 2,250 91
Siebel Systems, Inc. (a) 9,400 90
Number of Value
Shares (000)
- -------------------------------------------------------------------------
Autonation, Inc. (a) 5,700 $ 90
RadioShack Corp. 3,400 89
Torchmark Corp. 2,400 89
Penney (J.C.) Co., Inc. 5,300 89
Whirlpool Corp. 1,400 89
Rockwell Collins, Inc. 3,600 89
Amerada Hess Corp. 1,800 89
Office Depot, Inc. (a) 6,100 89
Rockwell Automation, Inc. 3,700 88
QLogic Corp. (a) 1,800 87
Kerr-McGee Corp. 1,938 87
Health Management Associates 4,700 87
IMS Health, Inc. 4,800 86
Jabil Circuit, Inc. (a) 3,900 86
Watson Pharmaceuticals, Inc. (a) 2,100 85
Grainger (W.W.), Inc. 1,800 84
Sherwin-Williams (The) Co. 3,000 81
Williams Cos., Inc. 10,200 81
Leggett & Platt, Inc. 3,900 80
Applera Corp. (Applied Biosystem) 4,200 80
Sealed Air Corp. 1,661 79
Unisys Corp. (a) 6,400 79
McCormick & Co., Inc. 2,800 76
Sigma-Aldrich Corp. 1,400 76
Waters Corp. (a) 2,600 76
BMC Software, Inc. (a) 4,600 75
VF Corp. 2,200 75
Cooper Industries Ltd. 1,800 74
Vulcan Materials Co. 2,000 74
Liz Claiborne, Inc. 2,100 74
Pulte Homes, Inc. 1,200 74
Scientific-Atlanta, Inc. 3,100 74
Nucor Corp. 1,500 73
Jones Apparel Group Inc. (a) 2,500 73
Equifax, Inc. 2,800 73
Citizens Communications Co. (a) 5,600 71
Bard (C.R.), Inc. 1,000 71
Citrix Systems, Inc. (a) 3,500 71
Freeport-McMoRan Copper & Gold, Class B 2,900 71
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500[RegTM] Index Fund Investments in Securities 8
June 30, 2003 (Unaudited) (Continued)
Number of Value
Shares (000)
- -------------------------------------------------------------------------
National Semiconductor Corp. (a) 3,600 $ 71
King Pharmaceuticals, Inc. (a) 4,766 70
Sabre Holdings Corp., Class A (a) 2,840 70
Black & Decker Corp. 1,600 70
Thermo Electron Corp. (a) 3,300 69
Nvidia Corp. (a) 3,000 69
Dow Jones & Co., Inc. 1,600 69
Federated Investors Inc., Class B 2,500 69
AES (The) Corp. (a) 10,700 68
Pinnacle West Capital Corp. 1,800 67
Wendy's International, Inc. 2,300 67
Robert Half International, Inc. (a) 3,500 66
Phelps Dodge Corp. (a) 1,716 66
Apartment Investment & Management Co. 1,900 66
Mercury Interactive Corp. (a) 1,700 66
Sanmina-SCI Corp. (a) 10,400 66
Darden Restaurants, Inc. 3,350 64
UnumProvident Corp. 4,725 63
Reynolds (RJ) Tobacco Holdings, Inc. 1,700 63
Engelhard Corp. 2,550 63
Teradyne, Inc. (a) 3,600 62
Alberto-Culver Co. 1,200 61
Pactiv Corp. (a) 3,100 61
Solectron Corp. (a) 16,300 61
American Power Conversion (a) 3,900 61
International Flavors & Fragrances, Inc. 1,900 61
Hasbro, Inc. 3,375 59
Symbol Technologies, Inc. 4,500 59
Donnelley (RR) & Sons Co. 2,200 58
Sunoco, Inc. 1,500 57
KB Home 900 56
Comverse Technology, Inc. (a) 3,700 56
Supervalu, Inc. 2,600 55
Convergys Corp. (a) 3,400 54
Pall Corp. 2,400 54
Fluor Corp. 1,600 54
Deluxe Corp. 1,200 54
Tellabs, Inc. (a) 8,100 53
Providian Financial Corp. (a) 5,700 53
Number of Value
Shares (000)
- -------------------------------------------------------------------------
Nordstrom, Inc. 2,700 $ 53
Avaya, Inc. (a) 8,028 52
LSI Logic Corp. (a) 7,300 52
Toys R US, Inc. (a) 4,200 51
Calpine Corp. (a) 7,700 51
Ball Corp. 1,100 50
Humana, Inc. (a) 3,300 50
NCR Corp. (a) 1,900 49
Goodrich Corp. 2,300 48
Manor Care, Inc. (a) 1,900 48
Eastman Chemical Co. 1,500 48
Temple-Inland, Inc. 1,100 47
Stanley (The) Works 1,700 47
Bemis Co. 1,000 47
Navistar International Corp. (a) 1,400 46
Brunswick Corp. 1,800 45
Carmax, Inc. (a) 1,475 44
Millipore Corp. (a) 1,000 44
CIENA Corp. (a) 8,500 44
Meredith Corp. 1,000 44
Advanced Micro Devices. Inc. (a) 6,800 44
Monster Worldwide Inc. (a) 2,200 43
Ashland, Inc. 1,400 43
Compuware Corp. (a) 7,400 43
Rowan Cos., Inc. 1,900 43
TECO Energy, Inc. 3,500 42
Bausch & Lomb, Inc. 1,100 41
Reebok International Ltd. (a) 1,200 40
Allied Waste Industries, Inc. (a) 3,900 39
Tektronix, Inc. (a) 1,800 39
PMC - Sierra, Inc. (a) 3,300 39
PerkinElmer, Inc. 2,700 37
Autodesk, Inc. 2,300 37
Maytag Corp. 1,500 37
ADC Telecommunications, Inc. (a) 15,700 37
Circuit City Stores, Inc. 4,100 36
Applied Micro Circuits Corp. (a) 5,900 36
Delta Air Lines, Inc. 2,400 35
Big Lots, Inc. 2,300 35
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500[RegTM] Index Fund Investments in Securities 9
June 30, 2003 (Unaudited) (Continued)
Number of Value
Shares (000)
- ------------------------------------------------------------------------------
Winn-Dixie Stores, Inc. 2,800 $ 34
Coors (Adolph) Co. 700 34
Dana Corp. 2,943 34
Nicor, Inc. 900 33
Snap-On, Inc. 1,150 33
Dynegy, Inc., Class A (a) 7,800 33
United States Steel Corp. 2,000 33
Quintiles Transnational Corp. (a) 2,300 33
Reliant Resources, Inc. (a) 5,210 32
Ryder System, Inc. 1,200 31
Peoples Energy Corp. 700 30
Cummins, Inc. 800 29
Boise Cascade Corp. 1,200 29
Del Monte Foods Co. (a) 3,081 27
Crane Co. 1,200 27
Cooper Tire & Rubber Co. 1,500 26
American Greetings, Class A (a) 1,300 26
CMS Energy Corp. (a) 3,000 24
Gateway, Inc. (a) 6,400 23
Mirant Corp. (a) 7,960 23
Smucker (J.M.) Co. 578 23
Dillard's, Inc., Class A 1,700 23
Worthington Industries 1,700 23
Louisiana-Pacific Corp. (a) 2,100 23
Novell, Inc. (a) 7,200 22
Hercules, Inc. 2,200 22
Allegheny Energy, Inc. (a) 2,500 21
Great Lakes Chemical Corp. 1,000 20
Parametric Technology Corp. (a) 5,800 18
Visteon Corp. 2,551 18
Thomas & Betts Corp. (a) 1,200 17
Tupperware Corp. 1,200 17
Goodyear (The) Tire & Rubber Co. (a) 3,200 17
Andrew Corp. (a) 1,793 16
Power-One, Inc. (a) 1,900 14
Allegheny Technologies, Inc. 1,770 12
Advanced Medical Optics, Inc. (a) 644 11
Number of Value
Shares (000)
- ------------------------------------------------------------------------------
McDermott International, Inc. (a) 1,300 $ 8
Texas Genco Holdings, Inc. 300 7
EnPro Industries, Inc. (a) 460 5
Hudson Highland Group, Inc. (a) 165 3
Agere Systems, Inc., Class A (a) 823 2
Unilever NV 1 --
Kadant, Inc. (a) 1 --
WorldCom, Inc. (MCI Group) (a) 12 --
WorldCom, Inc. (WorldCom Group) (a) 1 --
--------
Total Common Stocks
(Cost - $190,963) 178,526
--------
PREFERRED STOCK - 0.0%
Sealed Air Corp., 4.00%, (Convertible) Class A
(Cost - $19) 475 24
--------
SHORT-TERM OBLIGATIONS - 9.4%
Money Market Fund - 8.4%
TimesSquare VP Money Market Fund 16,510,000 16,510
--------
Principal
(000)
----------
U.S. Government - 1.0%
U.S. Treasury Bills,
1.16%, 7/24/03 (c) $ 400 400
1.09%, 10/30/03 (c) 1,500 1,494
--------
1,894
--------
Total Short-Term Obligations
(Cost - $18,404) 18,404
--------
TOTAL INVESTMENTS IN SECURITIES - 100.0%
(Total Cost - $209,386) (d) 196,954
Cash and Other Assets, Less Liabilities - 0.0% 40
--------
NET ASSETS - 100.0% $196,994
========
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500[RegTM] Index Fund Investments in Securities 10
June 30, 2003 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES
(a) Non-income producing securities.
(b) Times Square Capital Management, Inc., the fund's
Investment Advisor, is an indirect wholly owned
subsidiary of CIGNA Corp.
(c) This security, or a portion thereof, was pledged
as collateral for Stock Index Futures Contracts. At
June 30, 2003, the Fund was long 77 S&P 500[RegTM]
Futures Contracts expiring in September 2003.
Unrealized loss amounted to $780,587. Underlying
face value was $19,516,612 and underlying market
value was $18,736,025.
Tax Information
(d) At June 30, 2003, the net unrealized depreciation of
investments, based on cost for federal income tax
purposes of $210,273,669, was as follows:
Aggregate gross unrealized depreciation for all
investments in which there was an excess of value
over tax cost $ 24,886,638
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value (38,205,826)
------------
Unrealized depreciation - net $(13,319,188)
============
- --------------------------------------------------------------------------------
TimesSquare Variable Products S&P 500[RegTM] Index Fund
Market % of
Value Net
Ten Largest Positions (Unaudited) (000) Assets
- ------------------------------------------ -------- ---------
General Electric Co. $5,653 2.9%
Microsoft Corp. 5,424 2.8
Pfizer, Inc. 5,393 2.7
Exxon Mobil Corp. 4,784 2.4
Wal-Mart Stores, Inc. 4,691 2.4
Citigroup, Inc. 4,356 2.2
Johnson & Johnson 3,039 1.5
American International Group 2,852 1.4
International Business Machine Corp. 2,764 1.4
Intel Corp. 2,727 1.4
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500[RegTM] Index Fund 11
Statement of Assets and Liabilities
June 30, 2003 (Unaudited)
(In Thousands)
Assets:
Investments in securities at value $196,954
Receivable for fund shares sold 22
Interest and dividends receivable, net of withholding taxes 220
Investment for Trustees' deferred compensation plan 101
---------
Total assets 197,297
---------
Liabilities:
Deferred Trustees' fees payable 101
Payable for Fund shares redeemed 79
Custodian fees payable 40
Administrative services fees payable 31
Audit and legal fees payable 21
Advisory fees payable 19
Shareholder reports payable 8
Other accrued expenses 4
---------
Total liabilities 303
---------
Net Assets $196,994
=========
Components of Net Assets:
Paid in capital $207,179
Undistributed net investment income 1,522
Accumulated net realized gain 1,506
Net unrealized depreciation of investments and futures (13,213)
---------
Net Assets $196,994
=========
Shares Outstanding 13,873
=========
Net Asset Value and Redemption Price per Share $ 14.20
=========
Cost of Investments $209,386
=========
Statement of Operations
For the Six Months Ended June 30, 2002 (Unaudited)
(In Thousands)
Investment Income:
Income:
Dividends $ 1,587
Interest 47
-------
1,634
Expenses:
Investment advisory fees $195
Custodian fees and expenses 93
Administrative services fees 58
Auditing and legal fees 22
Shareholder reports 6
Trustees' fees 2
Other 7
----
Total expenses 383
Less expenses waived by Adviser (144)
----
Net expenses $239
----
Net Investment Income 1,395
-------
Realized and Unrealized Gain (Loss) on
Investments:
Net realized gain (loss) from:
Futures contracts 2,375
Investments (141)
-------
2,234
-------
Net change in unrealized appreciation
(depreciation) of:
Futures contracts (371)
Investments 17,552
-------
17,181
-------
Net Realized and Unrealized Gain on
Investments 19,415
-------
Net Increase in Net Assets Resulting from
Operations $20,810
=======
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500[RegTM] Index Fund 12
Statements of Changes in Net Assets
(In Thousands)
For the Six For the
Months Ended Year Ended
June 30, 2003 December 31,
(Unaudited) 2002
------------- ------------
Operations:
Net investment income $ 1,395 $ 3,172
Net realized gain on investments 2,234 14,399
Net unrealized appreciation (depreciation)
on investments 17,181 (76,909)
-------- --------
Net increase (decrease) in net assets from
operations 20,810 (59,338)
-------- --------
Dividends and Distributions:
From net investment income -- (3,122)
From net realized gain -- (6,528)
-------- --------
Total dividends and distributions -- (9,650)
-------- --------
Capital Share Transactions:
Net proceeds from shares sold 38,720 70,188
Net asset value of shares issued to
shareholders in reinvestment of dividends
and distributions -- 9,650
-------- --------
38,720 79,838
Cost of shares redeemed (49,829) (126,359)
-------- --------
Net decrease in net assets from
Fund share transactions (11,109) (46,521)
-------- --------
Net Increase (Decrease) in Net Assets 9,701 (115,509)
Net Assets:
Beginning of period 187,293 302,802
-------- --------
End of period* $196,994 $187,293
======== ========
* includes undistributed net investment
income of: $ 1,522 $ 127
======== ========
For the Six For the
Months Ended Year Ended
June 30, 2003 December 31,
(Unaudited) 2002
------------- ------------
Transactions in Capital Stock:
Shares sold 2,997 4,601
Shares issued in reinvestment of dividends
and distributions -- 763
------ ------
2,997 5,364
Shares redeemed (3,848) (8,131)
------ ------
Net decrease in shares outstanding (851) (2,767)
====== ======
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500[RegTM] Index Fund 13
Financial Highlights
- --------------------------------------------------------------------------------
For the Six
Months Ended
June 30, 2003
(Unaudited)
- ------------------------------------------------------------------
Per Share Operating Performance:
Net asset value, beginning of period $ 12.72
--------
Income from investment operations:
Net investment income (a) 0.10
Net realized and unrealized gain (loss) 1.38
--------
Total from investment operations 1.48
--------
Less dividends and distributions:
From net investment income --
From capital gains --
--------
Total dividends and distributions --
--------
Net asset value, end of period $ 14.20
========
Total Return (b) 11.64%(c)
Ratios to Average Net Assets:
Gross expenses 0.40%(d)
Fees and expenses waived or borne by the Adviser 0.15%(d)
Net expenses 0.25%(d)
Net investment income 1.46%(d)
Portfolio Turnover 1%(c)
Net assets, End of Period (000 omitted) $196,994
For the Year Ended December 31,
-----------------------------------------------------------------
2002 2001 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value, beginning of period $ 17.31 $ 19.95 $ 22.83 $ 19.73 $ 15.83
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income (a) 0.23 0.23 0.35 0.32 0.34
Net realized and unrealized gain (loss) (4.13) (2.66) (2.49) 3.75 4.14
-------- -------- -------- -------- --------
Total from investment operations (3.90) (2.43) (2.14) 4.07 4.48
-------- -------- -------- -------- --------
Less dividends and distributions:
From net investment income (0.22) (0.21) (0.44) (0.51) (0.40)
From capital gains (0.47) -- (0.30) (0.46) (0.18)
-------- -------- -------- -------- --------
Total dividends and distributions (0.69) (0.21) (0.74) (0.97) (0.58)
-------- -------- -------- -------- --------
Net asset value, end of period $ 12.72 $ 17.31 $ 19.95 $ 22.83 $ 19.73
======== ======== ======== ======== ========
Total Return (b) (22.51)% (12.18)% (9.37)% 20.77% 28.60%
Ratios to Average Net Assets:
Gross expenses 0.37% 0.35% 0.36% 0.38% 0.63%
Fees and expenses waived or borne by the Adviser 0.12% 0.10% 0.11% 0.13% 0.19%
Net expenses 0.25% 0.25% 0.25% 0.25% 0.44%
Net investment income 1.32% 1.38% 1.64% 1.57% 1.95%
Portfolio Turnover 7% 2% 4% 3% 2%
Net assets, End of Period (000 omitted) $187,293 $302,802 $292,739 $282,781 $206,475
(a) 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.
(b) Had the Adviser not waived or reimbursed a portion of expenses, total
return would have been reduced.
(c) Not annualized
(d) Annualized
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500[RegTM] Index Fund Notes to Financial Statements 14
(Unaudited)
1. Utilization of Indexation Approach.
TimesSquare VP S&P 500[RegTM] Index Fund (the "Fund") seeks to achieve its
long-term growth objective by attempting to replicate the total return
performance, reduced by Fund expenses, of the Standard & Poor's 500[RegTM]
Composite Stock Price Index.
2. Significant Accounting Policies. The Fund is a separate series of CIGNA
Variable Products Group, a Massachusetts business trust (the "Trust"). The
Trust is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The preparation of
financial statements in accordance with accounting principles generally
accepted in the United States of America 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 national securities exchange or are part of the NASDAQ National Market
System are valued at the last sale price (NASDAQ Official Closing Price
["NOCP"] for NASDAQ stocks) or, if there has been no sale that day, at the last
bid price. Debt and 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. 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 Trust's Board of Trustees. If
events occurring after the close of the principal market in which securities
are traded (but before the close of regular trading on the NYSE) are believed
to materially affect the value of those securities, such securities are valued
at their fair value taking such events into account.
B. Futures Contracts -- The Fund is authorized to enter into S&P 500[RegTM]
futures contracts. A Fund may use futures contracts with the objective of
earning returns on its short-term investments equivalent to returns on the S&P
500[RegTM] Composite Stock Index. As a result, the purchase of futures
contracts simulates a fully invested position in the underlying index, while
maintaining liquidity. Upon entering into a futures contract, the Fund is
required to pledge to the broker an amount of cash and/or securities equal to
the initial margin requirements. During the period a futures contract is open,
changes in the value of a 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. Daily variation margin payments are
received or made, depending on whether there were unrealized gains or losses.
When a contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed. Futures contracts include the risk that a
change in the value of the contract may not correlate with the value of the
underlying securities and the possibility of an illiquid market.
C. 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, and interest
income is recorded on the accrual basis. Securities gains and losses are
determined on the basis of identified cost.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500[RegTM] Index Fund Notes to Financial Statements 15
(Unaudited) (Continued)
D. 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 to its
shareholders. Therefore, no federal income or excise taxes on realized income
or net capital gains have been accrued. The tax character of distributions paid
to shareholders during the year ended December 31, 2002 is $3,368,021 and
$6,281,979 from ordinary income and long-term capital gains, respectively. For
the six months ended June 30, 2003, distributions, if any, are reported in the
Statement of Changes in Net Assets from net investment income, including
short-term capital gains, and capital gains are treated as ordinary income and
long-term capital gains, respectively, for federal income tax purposes.
At December 31, 2002, the Fund had a Post-October loss of $236,819. Under
current tax law, capital losses realized after October 31 may be deferred and
treated as occurring on the first day of the following year.
E. Dividends and Distributions to Shareholders -- Dividends from net investment
income and distributions from net capital gains, to the extent such gains would
otherwise be taxable to the Fund, are declared and distributed at least
annually. Dividends and distributions are recorded by the Fund on the
ex-dividend date. The timing and characterization of certain income and capital
gains 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 reclassification to Components of Net
Assets may be required. As a result, at December 31, 2002, the Fund decreased
undistributed net investment income by $252,868, decreased accumulated net
realized loss by $254,135 and decreased paid in capital by $1,267.
3. Investment Advisory Fees and Other Transactions with Affiliates. Investment
advisory fees are paid or accrued to TimesSquare Capital Management, Inc.
("TimesSquare"), certain officers and directors of which are affiliated with
the Fund. Such advisory fees are based on an annual rate of 0.25% applied to
the daily average net assets of the Fund. TimesSquare has contractually agreed
to reimburse the Fund for any amount by which its expenses (including the
advisory fee, but excluding interest, taxes, amortized organization expenses,
transaction costs incurred in acquiring and disposing of portfolio securities,
and extraordinary expenses) exceed, on an annual basis, 0.25% of average daily
net assets until April 30, 2004, and thereafter to the extent described in the
Fund's then current prospectus. Effective May 1, 2002, TimesSquare retains the
right to be repaid by the Fund if the Fund's expenses fall below the percentage
specified above prior to the end of the fiscal year or within three years after
TimesSquare waives advisory fees or reimburses a Fund's operating expenses. The
Fund's remaining contingent liability and expiration dates are as shown below:
Remaining
Contingent Liability Expires during Expires during
(000's) 2005 (000's) 2006 (000's)
- -------------------- -------------- --------------
$374 $230 $144
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission, the Fund may invest its excess cash in the affiliated TimesSquare
VP Money Market Fund ("TSVPMM") managed by TimesSquare. TimesSquare will waive
the amount of its advisory fee for the Fund in an amount that offsets the
amount of the advisory fees incurred in the affiliated Fund. For the six months
ended June 30, 2003, TimesSquare waived $144,100 of its advisory fees payable
by the Fund. Income distributions from TSVPMM, which amounted to $117,393 for
the six months ended
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500[RegTM] Index Fund Notes to Financial Statements 16
(Unaudited) (Continued)
June 30, 2003, are recorded as dividend income in the Statement of Operations.
For administrative services, the Fund reimburses TimesSquare 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 six months ended June 30, 2003, the Fund paid or accrued
$58,224.
TimesSquare is an indirect, wholly-owned subsidiary of CIGNA Corporation.
4. 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.
5. Purchases and Sales of Securities.
Purchases and sales of securities, excluding short-term obligations, for the
six months ended June 30, 2003, were $12,243 and $0, respectively, for U.S.
Government and Agency Obligations and $1,448,167 and $1,124,080 respectively,
for all other securities.
6. Capital Stock. The Fund offers an unlimited number of shares of beneficial
interest without par value. Of the 13,872,544 shares outstanding at June 30,
2003, 13,700,974 shares were held by Connecticut General Life Insurance Company
("CG Life") relating to variable annuity and variable universal life insurance
contracts issued by CG Life. CG Life is an indirect, wholly-owned subsidiary of
CIGNA Corporation. The remainder, representing 1.2% of the shares outstanding,
was held by an employee benefit plan established by CG Life for certain of its
employees.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500[RegTM] Index Fund 17
(Unaudited)
Trustees Officers
Russell H. Jones Richard H. Forde
Senior Vice President, Chairman of the Board
Chief Investment Officer, and and President
Treasurer, Kaman Corporation
Paul J. McDonald Alfred A. Bingham III
Special Advisor to the Board of Vice President and
Directors, Friendly Ice Cream Treasurer
Corporation
Richard H. Forde Jeffrey S. Winer
Managing Director, CIGNA Retirement & Vice President and
Investment Services and Secretary
TimesSquare Capital Management, Inc.
- --------------------------------------------------------------------------------
"Standard & Poor's[RegTM]," "S&P[RegTM]," "S&P 500[RegTM]," "Standard & Poor's
500," and "500" are trademarks of the Standard & Poor's Corporation (S&P) and
have been licensed for use by CG Life. The TimesSquare VP S&P 500[RegTM] Index
Fund is not sponsored, endorsed, sold or promoted by S&P, and S&P makes no
representation regarding the advisability of investing in the Fund.
TimesSquare VP S&P 500[RegTM] Index Fund is an open-end, diversified management
investment company that seeks to achieve its long-term growth objective by
attempting to replicate the total return performance, reduced by Fund expenses,
of the Standard & Poor's 500[RegTM] Composite Stock Price Index. The investment
adviser is TimesSquare Capital Management, Inc., 280 Trumbull Street, Hartford,
Connecticut 06103.
- --------------------------------------------------------------------------------