UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
811-05480
(Investment Company Act file number)
CIGNA Variable Products Group
-----------------------------
(Exact name of registrant as specified in charter)
2223 Washington Street
3 Newton Executive Park
Suite 200
Newton, MA 02462
(Address of principal executive offices)
Mark Butler, 2223 Washington Street, 3 Newton Executive Park
Suite 200, Newton, MA 02462
(Name and address of agent for service)
(860) 534-5576
--------------
Registrants' telephone number, including area code
Date of fiscal year end: December 31, 2004
Date of reporting period: June 30, 2004
Item 1. Reports to Stockholders.
[GRAPHIC OF LEAVES]
TIMESSQUARE
VP CORE PLUS
BOND FUND
- -----------------------------------------------------------------
Semiannual Report
June 30, 2004
[CIGNA LOGO](R)
- --------------------------------------------------------------------------------
1
Dear Shareholders:
Our commentary for TimesSquare VP Core Plus Bond Fund (the "Fund") covering the
six months ended June 30, 2004 follows.
Market Summary
Rising interest rates, inflation concerns, and ongoing geopolitical tensions
adversely affected fixed income market performance in the second quarter. The
representative Lehman Brothers Aggregate Bond Index returned -2.44%, almost
erasing the 2.66% gains posted in the first quarter.
On June 30, 2004, the Federal Reserve (Fed) increased the federal funds rate 25
basis points for the first time in four years. This widely expected action was
preceded by rising Treasury yields across the maturity spectrum over the second
quarter, with the bellwether 10-year Treasury note rising from a low of 3.65%
in late March to a peak of nearly 5% in June before leveling off.
Steadily improving credit and liquidity profiles of many issuers continued to
benefit investment-grade corporate bond valuations. Nevertheless, the sector,
represented by the Lehman Brothers U.S. Credit Index, returned -3.43% for the
second quarter, surrendering all of the 3.27% gained in the first quarter.
During the first quarter in the Mortgage Backed Securities (MBS) market, banks
and foreign investors were attracted to the high yield from MBS and absorbed
some of the supply, strong technicals helped valuations remain at high levels,
and the recent wave of refinancing slowed to keep volatility low. In this
environment, the Lehman Brothers MBS Index generated returns of 1.92%. MBS
started the second quarter under pressure, as investors faced extending
durations and declining prices. By mid quarter, MBS had recovered modestly, and
then registered strong gains in June to end the second quarter as the best
performer in the Aggregate Bond Index.
High yield sector performance moderated from its strong recovery in 2003, as
the Lehman Brothers U.S. High Yield Index generated a 1.35% return for the six
months ended June 30, 2004. Risk aversion creeping back into the market and
issuer-specific weaknesses contributed to the performance slump.
Emerging debt markets tumbled in the second quarter, with the JP Morgan
Emerging Markets Bond Index Plus registering a return of -5.89%, down from
3.26% in the first quarter.
Performance
Returns for the Fund (which do not reflect expenses associated with variable
products through which the Fund may be offered and which would have been lower
if such expenses were reflected) were:
Second Quarter Year-to-date
Fund -2.22% 0.10%
Lipper Corporate
Debt Funds -- 'A'
Rated Average -2.71 -0.18
Lehman Brothers
Aggregate Bond
Index -2.44 0.16
The Fund's performance benefited primarily from its modest short-of-Index
duration bias and yield curve positioning as interest rates rose and the yield
curve flattened. In addition, gains from corporate bond and high yield bond
selection helped offset less favorable results from longer-duration prepayment
penalty bonds and structured securities in the MBS sector. To a lesser extent,
performance was also favorably impacted by our allocation to high yield and
investment-grade credits, where we reduced our exposure during the second
quarter.
- --------------------------------------------------------------------------------
2
Outlook
With the economy on track to steadily improve, barring any political or
geopolitical setbacks, Treasury yields should continue to rise. We remain
constructive on investment-grade corporate bonds as valuations and break-even
spreads continue to offer value and positive excess return potential. We will
also remain vigilant in our sector allocation and security selection and
monitor various risk factors that could impede improvement in credit spreads.
Sincerely,
/s/ Richard H. Forde
Richard H. Forde
Chairman of the Board and President
CIGNA Variable Products Group
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 3
June 30, 2004 (Unaudited)
Principal Value
(000) (000)
- --------------------------------------------------------------------------------------
LONG-TERM BONDS - 85.4%
BASIC MATERIALS - 0.4%
International Paper Co., 5.50%, 2014 $190 $186
Stora Enso Oyj, 7.38%, 2011 115 127
Weyerhaeuser Co., 6.75%, 2012 70 76
----
389
----
COMMUNICATIONS & MEDIA - 9.5%
AOL Time Warner, Inc., 6.75%, 2011 495 533
AT&T Corp.,
8.05%, 2011 60 62
8.75%, (coupon change based on rating), 2031 50 49
British Sky Broadcasting PLC, 8.20%, 2009 340 392
British Telecommunications PLC,
8.88% (coupon change based on rating), 2030 60 74
Comcast Cable Communications, 8.38%, 2007 65 73
Comcast Corp., 5.85%, 2010 140 146
Deutsche Telekom International Finance BV,
8.50% (coupon change based on rating), 2010 410 479
8.75% (coupon change based on rating), 2030 185 225
France Telecom SA,
8.20%, (coupon change based on rating), 2006 90 96
8.75%, (coupon change based on rating), 2011 535 620
9.50%, (coupon change based on rating), 2031 150 188
Intelsat Ltd., 6.50%, 2013 325 287
Kyivstar GSM, 12.75%, 2005 (144A security
acquired Nov. 2002 & Jan. 2003 for $279) (b) 275 298
Koninklijke KPN, NV, 8.00%, 2010 445 515
Liberty Media Corp.,
3.50%, 2006 570 569
5.70%, 2013 80 79
News America Holdings, Inc.,
7.75%, 2045 90 103
7.90%, 2095 170 189
8.25%, 2096 75 87
PTC International Finance II SA, 11.25%, 2009 245 266
Qwest Services Corp., 13.50%, 2010 (144A security
acquired Mar. 2004 for $53) (b) 45 52
Shaw Communications, Inc.,
8.25%, 2010 250 272
Principal Value
(000) (000)
- ----------------------------------------------------------------------------------------
Sprint Capital Corp.,
6.13%, 2008 $100 $ 105
8.38%, 2012 105 121
6.88%, 2028 140 135
8.75%, 2032 220 256
Tele Communications, Inc.,
9.80%, 2012 515 646
7.88%, 2013 140 159
Telecom Italia Capital SA,
5.25%, 2013
(144A security acquired Oct. 2003 for $170) (b) 170 165
6.38%, 2033 (144A security acquired Oct. 2003
for $204) (b) 205 198
TELUS Corp.,
7.50%, 2007 405 441
8.00%, 2011 430 489
Time Warner, Inc.,
8.18%, 2007 640 715
9.13%, 2013 160 195
8.05%, 2016 55 62
TPSA Finance BV, 7.75%, 2008
(144A security acquired July & Aug. 2003 for
$148) (b) 130 144
Univision Communications, Inc., 7.85%, 2011 135 156
Verizon Florida, Inc., 6.13%, 2013 125 129
------
9,770
------
CONSUMER & RETAIL - 2.5%
Campbell Soup Co., 5.88%, 2008 115 122
Heinz (H.J.) Co., 6.38%, 2028 70 72
Heinz (H.J.) Finance Co.,
6.75% (coupon change based on rating), 2032 50 54
Kellogg Co., 6.60%, 2011 500 548
Kraft Foods, Inc.,
5.25%, 2007 140 146
5.63%, 2011 370 376
5.25%, 2013 155 151
Kroger Co., 7.50%, 2031 60 66
Miller Brewing Co., 5.50%, 2013
(144A security acquired Aug. 2003 for $184) (b) 185 186
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund Investments in Securities 4
June 30, 2004 (Unaudited) (Continued)
Principal Value
(000) (000)
- ---------------------------------------------------------------------------------------
CONSUMER & RETAIL (continued)
Safeway, Inc., 7.25%, 2031 $ 40 42
Tyson Foods, Inc., 8.25%, 2011 90 103
VFB LLC, 10.25%, 2009 (a) 2,044 429
Yum! Brands, Inc., 8.88%, 2011 195 235
-----
2,530
-----
DIVERSIFIED - 0.6%
General Electric Co., 5.00%, 2013 450 443
ITT Industries, Inc., 7.40%, 2025 155 172
-----
615
-----
FINANCIAL - 10.4%
BankBoston Corp., 8.25%, 2026 85 95
Bank of America Corp., 7.80%, 2010 100 115
Boeing Capital Corp., 6.10%, 2011 100 106
CIT Group, Inc.,
5.75%, 2007 95 100
6.88%, 2009 70 77
Citigroup, Inc.,
3.50%, 2008 910 898
7.25%, 2010 260 293
Countrywide Home Loans., 5.50%, 2007 110 115
Credit Suisse First Boston Mortgage Securities Corp.,
4.63%, 2008 165 168
5.50%, 2013 45 45
Interest Only 7.50%, 2032 (c) 700 17
Interest Only 8.00%, 2032 (c) 1,179 30
Dresdner Funding Trust I, 8.15%, 2031 (144A security
acquired June & Sep. 2003 for $268) (b) 245 273
Ford Motor Credit Co.,
7.38%, 2009 700 747
7.88%, 2010 315 343
7.38%, 2011 90 95
General Motors Acceptance Corp.,
6.88%, 2011 620 636
7.00%, 2012 145 149
Glencore Funding LLC, 6.00%, 2014
(144A security acquired May 2004 for $86) (b) 95 88
Principal Value
(000) (000)
- --------------------------------------------------------------------------------------
Golden West Financial Corp., 4.13%, 2007 $ 200 $ 202
Goldman Sachs Group, Inc., 6.88%, 2011 355 390
Household Finance Corp.,
4.75%, 2009 250 251
6.38%, 2012 250 265
HVB Funding Trust I, 8.74%, 2031 (144A security
acquired May & June 2003 for $174) (b) 170 196
HVB Funding Trust III, 9.00%, 2031
(144A security acquired June 2003 for $47) (b) 45 53
International Lease Finance Corp., 6.38%, 2009 275 295
Korea Development Bank, 4.25%, 2007 160 159
Lehman Brothers Holdings, Inc., 6.63%, 2012 210 228
Manufacturers & Traders Trust, 8.00%, 2010 140 164
Midland Funding II, 13.25%, 2006 95 109
Mississippi Business Finance Corp., 7.81%, 2024 500 481
Mizuho Financial Group Cayman Ltd., 5.79%, 2014
(144A security acquired Feb. 2004 for $200) (b) 200 197
Morgan (J.P.) Chase & Co., 6.75%, 2011 50 54
Morgan (J.P.) Co., 6.00%, 2009 120 127
Morgan Stanley Group, Inc., 6.75%, 2011 245 268
National Rural Utilities Cooperative Finance Corp.,
5.75%, 2009 120 127
NB Capital Trust IV, 8.25%, 2027 75 83
Old Kent Bank,
Step Coupon (7.75% to 8/15/05), 2010 300 314
Residential Asset Mortgage Products, Inc.,
Interest Only, 5.75%, 2005 (c) 1,024 31
Santander Financial Issuances,
6.80%, 2005 95 99
6.38%, 2011 60 65
Sanwa Finance Aruba AEC, 8.35%, 2009 205 233
Sovereign Bancorp., Inc., 10.50%, 2006 1,205 1,381
Union Planters Corp., 6.75%, 2005 240 253
U.S. West Capital Funding, Inc., 6.50%, 2018 75 56
Wells Fargo & Co., 4.95%, 2013 140 135
-------
10,606
-------
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, 2004 (Unaudited) (Continued)
Principal Value
(000) (000)
- --------------------------------------------------------------------------------------
FOREIGN GOVERNMENTS - 2.1%
Argentina (Republic of),
11.38%, 2010 $320 $ 94
11.38%, 2017 100 29
Brazil (Federal Republic of), 9.25%, 2010 85 81
Export-Import Bank of Korea, 4.13%, 2009
(144A security acquired Feb. 2004 for $139) (b) 140 136
Quebec (Province of Canada),
5.50%, 2006 630 658
7.50%, 2023 210 252
Russian Federation,
Step Coupon (5.00% to 3/31/07), 2030
(144A security acquired Sept. & Oct. 2002,
July & Oct. 2003 & Feb. 2004 for $465) (b) 540 493
United Mexican States, 8.30%, 2031 345 361
-------
2,104
-------
HEALTH CARE - 0.2%
HCA, Inc.,
5.25%, 2008 155 154
7.50%, 2033 45 44
-------
198
-------
INDUSTRIAL - 1.9%
Arrow Electronics, Inc., 6.88%, 2013 200 209
BAE Systems Holdings, 6.40%, 2011
(144A security acquired July & Nov. 2002 &
April 2003 for $482) (b) 465 495
Bombardier, Inc., 6.30%, 2014
(144A security acquired May & June 2004
for $113) (b) 125 106
Lockheed Martin Corp., 8.20%, 2009 745 873
Systems 2001 Asset Trust LLC, 7.16%, 2011 (144A
security acquired Mar. 2002 for $284) (b) 277 294
-------
1,977
-------
Principal Value
(000) (000)
- --------------------------------------------------------------------------------------
INSURANCE - 1.3%
American Re Corp., 7.45%, 2026 335 355
AXA SA, 8.60%, 2030 130 159
Monumental Global Funding II, 3.85%, 2008
(144A security acquired Feb. & Apr. 2003 for
$240) (b) 240 239
TTTravelers Property Casualty Corp., 5.00%, 2013 135 131
Zurich Capital Trust I, 8.38%, 2037
(144A security acquired Jan., June,
& Oct. 2003 for $357) (b) 360 398
-----
1,282
-----
OIL & GAS - 1.9%
Amerada Hess Corp., 7.30%, 2031 140 142
Conoco Funding Co., 6.35%, 2011 515 560
Devon Financing Corp. ULC, 6.88%, 2011 140 152
Duke Capital Corp., 4.30%, 2006 160 163
Duke Energy Field Services LLC, 5.75%, 2006 60 63
Morgan Stanley Bank AG for OAO Gazprom,
9.63%, 2013 (144A security acquired
Apr. & June 2004 for $213) (b) 200 206
Occidental Petroleum Corp.,
7.65%, 2006 420 450
6.75%, 2012 115 127
Petroleos Mexicanos, 9.50%, 2027 55 62
Salomon Bros. for OAO Gazprom, 10.50%, 2009 55 63
-----
1,988
-----
PHARMACEUTICALS - 0.6%
Lilly (Eli) & Co., 6.77%, 2036 350 384
Wyeth,
5.50% (coupon change based on rating), 2013 80 77
5.50%, 2014 195 186
-----
647
-----
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund Investments in Securities 6
June 30, 2004 (Unaudited) (Continued)
Principal Value
(000) (000)
- --------------------------------------------------------------------------------
TRANSPORTATION - 1.0%
American Airlines, 7.86%, 2011 $ 225 $ 224
Burlington Northern Santa Fe, 6.75%, 2029 60 63
Federal Express Corp., 7.60%, 2097 105 115
Norfolk Southern Corp.,
7.70%, 2017 115 133
7.90%, 2097 235 269
Union Pacific Corp., 6.13%, 2012 220 232
-------
1,036
-------
U.S. GOVERNMENT & AGENCIES (d) - 50.0%
Fannie Mae,
2.50%, 2008 3,480 3,306
4.38%, 2013 1,155 1,102
5.50%, 2017 1,596 1,637
4.00%, 2018 630 601
6.50%, 2032 965 1,006
7.00%, 2032 1,811 1,912
5.50%, 2033 4,079 4,071
6.50%, 2033 1,020 1,063
5.00%, 2034 1,304 1,261
5.50%, 2034 790 787
Interest Only 5.85%, 2042 (c) 8,178 148
Federal Home Loan Banks,
4.13%, 2005 1,375 1,393
Financing Corp.,
Principal Strips from
8.60%, 2019 830 344
9.70%, 2019 840 359
Freddie Mac,
2.75%, 2008 1,080 1,042
6.50%, 2013 140 148
6.50%, 2016 676 715
6.00%, 2017 751 784
6.50%, 2017 100 106
4.50%, 2018 3,547 3,475
5.00%, 2018 3,213 3,223
6.00%, 2032 1,769 1,812
7.50%, 2032 728 784
5.00%, 2033 3,764 3,645
Principal Value
(000) (000)
---------- ---------
5.50%, 2033 $1,861 $ 1,858
6.00%, 2033 796 814
6.50%, 2034 536 559
Interest Only 7.60%, 2043 (c) 7,000 158
Ginnie Mae,
6.50%, 2031 418 437
6.50%, 2032 379 396
5.50%, 2033 1,161 1,161
6.00%, 2033 2,184 2,242
U.S. Treasury Bonds,
8.75%, 2017 185 251
6.00%, 2026 1,240 1,336
U.S. Treasury Notes,
4.63%. 2006 2,770 2,868
4.38%, 2007 700 724
3.38%, 2008 710 701
6.00%, 2009 540 593
5.00%. 2011 75 79
4.25%. 2013 2,285 2,231
4.75%. 2014 135 136
-------
51,268
-------
UTILITIES - 3.0%
American Electric Power, Inc., 5.38%, 2010 90 92
Carolina Power & Light Co., 6.50%, 2012 95 102
CenterPoint Energy,
5.70%, 2013 140 143
7.88%, 2013 245 274
Cleveland Electric Illuminating Co., 7.88%, 2017 200 231
Columbus Southern Power Co., 5.50%, 2013 25 25
Detroit Edison Co.,
6.13%, 2010 185 197
6.35%, 2032 60 60
Dominion Resources Inc., 6.25%, 2012 70 73
DPL, Inc., 8.25%, 2007 180 191
First Energy Corp.,
5.50%, 2006 50 52
6.45%, 2011 300 311
Korea Electric Power Corp., 5.13%, 2034
(144A security acquired Apr. 2004 for $89) (b) 90 86
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund Investments in Securities 7
June 30, 2004 (Unaudited) (Continued)
Principal Value
(000) (000)
- --------------------------------------------------------------------------------
UTILITIES (continued)
Nisource Finance Corp., 7.88%, 2010 $275 $ 315
Ohio Power Co., 5.50%, 2013 45 45
Oncor Electric Delivery Co., 7.25%, 2033 140 155
Pacific Gas & Electric Co.,
3.60%, 2009 120 116
4.20%, 2011 110 105
6.05%, 2034 145 136
Progress Energy, Inc.,
7.10%, 2011 110 121
7.00%, 2031 100 103
Tenaska Alabama II Partners LP, 6.13%, 2023
(144A security acquired Oct. 2003 for $175) (b) 175 175
-------
3,108
-------
TOTAL LONG-TERM BONDS
(Cost - $87,153) 87,518
-------
Number of
Shares
----------
PREFERRED STOCK - 2.3%
COMMUNICATIONS & MEDIA - 0.3%
Centaur Funding Corp., 9.08% (144A security
acquired Aug. & Nov. 2001 for $261) (b) 235 $293
----
FINANCIAL - 1.8%
BCI US Funding Trust,
Step Coupon (8.01% to 7/15/08)
(144A security acquired Jan., Mar. & Apr. 2003
for $462) (b) 420 470
DBS Capital Funding Corp.,
Step Coupon (7.66% to 3/21/2011)
(144A security acquired Oct. 2003 for $231) (b) 205 229
IBJ Preferred Capital Co. LLC,
Step Coupon (8.79% to 6/30/08)
(144A security acquired Aug., Oct. &
Dec. 2003 & Jan. 2004 for $517) (b) 480 526
Number of Value
Shares 000s
---------- ------
Natexis AMBS Co. LLC.,
Step Coupon (8.44% to 6/30/08)
(144A security acquired May 2002 for $228) (b) 210 $ 240
RBS Capital Trust I,
Step Coupon (4.71% to 7/01/13) 360 332
------
1,797
------
INDUSTRIAL - 0.2%
RC Trust I, 7.00% 4,100 217
------
TOTAL PREFERRED STOCK
(Cost - $2,273) 2,307
------
SHORT-TERM OBLIGATIONS - 6.5%
MONEY MARKET FUND - 6.3%
TimesSquare VP Money Market Fund (e) 6,443,816 6,444
------
Principal
(000)
---------
U.S. GOVERNMENT - 0.2%
U.S. Treasury Bills,
1.00%, 9/2/04 (f) $ 50 50
0.98%, 9/30/04 (f) 200 199
--------
249
--------
TOTAL SHORT-TERM OBLIGATIONS
(Cost - $6,693) 6,693
--------
TOTAL INVESTMENTS IN SECURITIES - 94.2%
(Total Cost - $96,119) (h) 96,518
Cash and Other Assets Less Liabilities - 5.8% 5,916
--------
NET ASSETS - 100.0% $102,434
========
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund Investments in Securities 8
June 30, 2004 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES
(a) This is a fair valued security which is in default due to
bankruptcy. The principal amount represents beneficial ownership interest for
future cash receipts under the bankruptcy filings.
(b) Indicates restricted security; the aggregate value of restricted
securities is $6,235,674 (aggregate cost $6,070,387), which is
approximately 6.1% of net assets. Valuations have been furnished
by brokers trading in the securities or a pricing service for all
restricted securities.
(c) Illiquid security.
(d) Agency obligations are not guaranteed by the U.S. Government.
(e) TimesSquare Capital Management, Inc., the fund's Investment
Adviser, is also the Adviser to the TimesSquare VP Money Market Fund.
(f) Pledged as collateral for financial futures contracts. At June 30,
2004, the Fund was long 83, 2-year U.S. Treasury Notes, 19,
30-year U.S. Treasury Bonds and 12, 10-year U.S. Treasury Notes,
and was short 92, 5-year U.S. Treasury Notes futures contracts, all
expiring in September 2004. Net unrealized gain amounted to
$9,562. Underlying face values of the long and short positions were
$20,731,694 and ($9,932,053), respectively, and underlying market
values were $20,808,453 and ($9,999,250), respectively.
(g) A summary of outstanding forward currency contracts, as of June 30,
2004, is as follows:
Net Unrealized
Settlement Forward Foreign Contract Appreciation
Date Contract Currency Value (Depreciation)
- -----------------------------------------------------------------------
Buys
7/26/04 Euro 2,670,000 3,235,264 17,062
12/10/04 Euro 850,000 1,028,832 6,860
Sells
7/26/04 Euro 2,670,000 3,161,013 (89,597)
- --------------------------------------------------------------------------------
Tax Information
(h) At June 30, 2004, the net unrealized depreciation of investments,
based on cost for federal income tax purposes of $96,667,520, was
as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value
over tax cost $ 976,666
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value (1,126,034)
------------
Unrealized depreciation-net $ (149,368)
============
- --------------------------------------------------------------------------------
Quality Ratings* of Long-Term Bonds (Unaudited)
June 30, 2004
Value % of
(000) Value
- -----------------------------------------------------------------------
Aaa/AAA $ 51,788 59.2%
Aa/AA 3,722 4.3
A/A 9,824 11.2
Baa/BBB 20,038 22.9
Ba/BB 1,044 1.2
B/B 549 0.6
Below B 124 0.1
Not Rated 429 0.5
-------- -----
$ 87,518 100.0%
======== =====
* The higher of Moody's or Standard & Poor's Ratings.
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund 9
Statement of Assets and Liabilities
June 30, 2004 (Unaudited)
(In Thousands)
Assets:
Investments in securities at value $ 96,518
Cash 21
Receivable for investments sold 5,907
Interest and dividends receivable 939
Receivable for forward currency contracts 24
Futures variation margin receivable 19
Investments for Trustees' deferred compensation plan 3
Swap contracts receivable 1
--------
Total assets 103,432
--------
Liabilities:
Payable for investments purchased 812
Payable for forward currency contracts 90
Advisory fees payable 37
Audit and legal fees payable 16
Administrative fees payable 15
Insurance expenses payable 12
Custody fees payable 7
Shareholder reports payable 5
Deferred Trustees' fees payable 3
Other 1
--------
Total liabilities 998
--------
Net Assets $102,434
========
Components of Net Assets:
Paid in capital $ 98,972
Undistributed net investment income 2,225
Accumulated net realized gain 894
Net unrealized appreciation of investments, futures,
forward contracts and swaps 343
--------
Net Assets $102,434
========
Shares Outstanding 10,092
========
Net Asset Value and Redemption
Price per Share $ 10.15
========
Cost of Investments $ 96,119
========
Statement of Operations
For the Six Months Ended June 30, 2004 (Unaudited)
(In Thousands)
Investment Income:
Income:
Interest income $ 3,118
Dividends 44
-------
3,162
Expenses:
Investment advisory fees $ 322
Custodian fees 66
Administrative services fees 34
Audit and legal fees 16
Shareholder reports 3
Transfer agent fees 3
Trustees' fees 2
Insurance expenses 1
Other 1
-----
Total expenses 448
Less expenses waived by Adviser (110)
-----
Net expenses $ 338
-----
Net Investment Income 2,824
-------
Realized and Unrealized Gain (Loss)
on Investments:
Net realized gain (loss) from:
Forward currency contracts 246
Futures contracts (622)
Swap contracts 20
Investments 2,523
-------
2,167
-------
Net change in unrealized appreciation:
Forward currency contracts (221)
Futures contracts (26)
Swap contracts --
Investments (4,023)
-------
(4,270)
-------
Net Realized and Unrealized Loss
on Investments (2,103)
-------
Net Increase in Net Assets Resulting
from Operations $ 721
=======
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund 10
Statements of Changes in Net Assets
(In Thousands)
For the Six For the
Months Ended Year Ended
June 30, 2004 December 31,
(Unaudited) 2003
------------- ------------
Operations:
Net investment income $ 2,824 $ 6,119
Net realized gain on investments 2,167 3,852
Net unrealized appreciation (depreciation)
on investments (4,270) 467
-------- --------
Net increase in net assets from operations 721 10,438
-------- --------
Dividends and Distributions:
From net investment income -- (9,988)
-------- --------
Total dividends and distributions -- (9,988)
-------- --------
Capital Share Transactions:
Net proceeds from shares sold 848 63,896
Net asset value of shares issued to
shareholders in reinvestment of dividends
and distributions -- 9,988
-------- --------
848 73,884
Cost of shares redeemed (61,596) (61,600)
-------- --------
Net increase (decrease) from Fund share
transactions (60,748) 12,284
-------- --------
Net Increase (Decrease) in Net Assets (60,027) 12,734
Net Assets:
Beginning of period 162,461 149,727
-------- --------
End of period * $102,434 $162,461
======== ========
* includes (overdistributed) & undistributed
net investment income of: $ 2,225 $ (599)
======== ========
For the Six For the
Months Ended Year Ended
June 30, 2004 December 31,
(Unaudited) 2003
------------- ------------
Transactions in Capital Stock:
Shares sold 83 6,103
Shares issued in reinvestment of
dividends and distributions -- 988
------ ------
83 7,091
Shares redeemed (6,019) (5,838)
------ ------
Net increase (decrease) in shares
outstanding (5,936) 1,253
====== ======
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund 11
Financial Highlights
- --------------------------------------------------------------------------------
For the Six From May 3,
Months Ended For the Year Ended December 31, 1999* to
June 30, 2004 ----------------------------------------------- December 31,
(Unaudited) 2003 2002 2001(e) 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value, beginning of period $ 10.14 $ 10.13 $ 9.70 $ 9.87 $ 9.53 $ 10.00
-------- ------- ------- ------- ------- -------
Income from investment operations
Net investment income (a) 0.26 0.45 0.42 0.45 0.54 0.33
Net realized and unrealized gain (loss) (0.25) 0.25 0.42 0.44 0.35 (0.48)
-------- ------- ------- ------- ------- -------
Total from investment operations 0.01 0.70 0.84 0.89 0.89 (0.15)
-------- ------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income -- (0.69) (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 -- (0.69) (0.41) (1.06) (0.55) (0.32)
-------- -------- -------- ------- -------- -------
Net asset value, end of period $ 10.15 $ 10.14 $ 10.13 $ 9.70 $ 9.87 $ 9.53
======== ======== ======== ======= ======== =======
Total Investment Return (b) 0.10%(c) 6.98% 8.66% 9.06% 9.34% (1.48)%(c)
Ratios to Average Net Assets:
Gross expenses 0.66%(d) 0.65% 0.62% 0.60% 0.70% 0.79%(d)
Fees and expenses waived or borne by the Adviser 0.16%(d) 0.15% 0.12% 0.10% 0.20% 0.29%(d)
Net expenses 0.50%(d) 0.50% 0.50% 0.50% 0.50% 0.50%(d)
Net investment income 4.17%(d) 3.91% 4.24% 5.39%(e) 6.66% 6.09%(d)
Portfolio Turnover 34%(c) 182% 518% 396% 320% 303%(c)
Net assets, End of Period (000 omitted) $102,434 $162,461 $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.
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 12
(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. The
Funds' Board of Trustees has designated the Pricing Committee of TimesSquare
Capital Management, Inc. to make, pursuant to procedures approved by the Board
and under the Board's supervision, all necessary determinations of fair value
for the portfolio securities for which market quotations are not readily
available. When fair valuing securities, the Pricing Committee takes into
account factors such as fundamental and analytical information about the
security, the nature and duration of any restrictions on disposition of the
security, market information (including, for example, factors such as
historical price relationships and valuations for securities with similar
characteristics), and evaluation of significant market events. 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
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 13
(Unaudited) (Continued)
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 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,
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 14
(Unaudited) (Continued)
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
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, 2004, the Fund had the following outstanding swap agreements:
Spread Unrealized
Notional (Basis Termination Appreciation/
Counterparty Index Amount Points) Date (Depreciation)
- ---------------------------------------------------------------------------------
Lehman Lehman US High
Brothers Yield Index $60,000 (30) 12/01/04 $0
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 realized gain/loss.
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.
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 15
(Unaudited) (Continued)
At December 31, 2003 the Fund had a Post-October loss of $1,327 and a
Post-October currency loss of $51,181. 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. 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, 2003, the Fund
decreased its accumulated net realized gain by $2,622,808, and decreased
overdistributed 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 2004 during 2005 during 2006 during 2007
(000's) (000's) (000's) (000's) (000's)
- ------------ ------------- ------------- ------------- ------------
$619 $127 $154 $228 $110
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, 2004, TimesSquare waived
$15,783 of its advisory fee payable by the Fund. Income distributions from
TSVPMM, which amounted to $29,149 for the six months ended June 30, 2004, 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, 2004, the Fund paid or accrued
$34,332.
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.
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 16
(Unaudited) (Continued)
4. Purchases and Sales of Securities.
Purchases and sales of securities, excluding short-term obligations, for the
six months ended June 30, 2004, were $28,748,350 and $61,738,990, respectively,
for U.S. Government and Agency Obligations and $14,868,245 and $39,954,241
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, 2004,
were held by Connecticut General Life Insurance Company ("CG Life"). CG Life is
an indirect, wholly-owned subsidiary of CIGNA Corporation.
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund 17
(Unaudited)
Trustees Officers
Russell H. Jones Marnie Wagstaff Mueller Richard H. Forde
Senior Vice President, Diocesan Consultant, Episcopal Chairman of the Board
Chief Investment Officer, and Diocese of Connecticut and President
Treasurer, Kaman Corporation
Paul J. McDonald Carol Ann Hayes Alfred A. Bingham III
Special Advisor to the Board of Director and Chair of Audit Vice President and
Directors, Friendly Ice Cream Committee, Reed and Barton Treasurer
Corporation Corporation
Richard H. Forde Jeffrey S. Winer
Chief Investment Officer, CIGNA Vice President and
Investment Management Secretary
- --------------------------------------------------------------------------------
* All Trustees and officers have an address c/o TimesSquare Capital Management,
Inc., 280 Trumbull Street, H16C, Hartford, CT 06103.
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, 2004
[CIGNA LOGO](R)
- --------------------------------------------------------------------------------
1
Dear Shareholders:
Our report for CIGNA Variable Products Money Market Fund (the "Fund") covering
the six months ended June 30, 2004 follows.
Market Environment
The Federal Reserve ("Fed") met four times during the first six months of 2004.
In the first three meetings, the Fed funds rate was left unchanged at 1%.
However at the June 30, 2004 meeting, the Fed funds rate was raised 25 basis
points to 1.25%, after a year of keeping rates on hold. The Fed also announced
that it was willing to move more aggressively in raising rates in the future if
inflation data warranted.
The U.S. economy is currently firing on all cylinders, with prospects for
continued solid economic growth over the next several quarters. The business
sector has become the new "engine" of economic growth. Corporate sector
fundamentals continued to improve, reflected in record levels of earnings,
dividends, and cash flow as well as significantly improved balance sheets.
Portfolio Composition and Performance
On June 30, 2004, the portfolio contained: 55% top-tier commercial paper and
45% U.S. Government Agencies. The Fund is well diversified.
Total returns for the six months ended June 30, 2004 (which do not reflect
expenses associated with variable products through which the Fund may be
offered and which would have been lower if such expenses were reflected) were:
Fund 0.32%
Lipper Money Market Funds Average 0.17
3-month U.S. Treasury Bill 0.47
As of June 30, 2004, the Fund's weighted average portfolio maturity was 33
days, and the annualized 7-day yield was 0.79%.
Outlook
The Fed's current monetary tightening is not expected to seriously impact the
rate of economic growth until the middle of next year. Economic and investment
risks are likely to increase as 2005 unfolds.
Sincerely,
/s/ Richard H. Forde
Richard H. Forde
Chairman of the Board and President
CIGNA Variable Products Group
Note: This commentary is not part of the Semiannual
Report to Shareholders.
- --------------------------------------------------------------------------------
TimesSquare VP Money Market Fund Investments in Securities 2
June 30, 2004 (Unaudited)
Principal Value
(000) (000)
---------- ------
ASSET BACKED SECURITY - 0.2%
Chase Manhattan Auto Owner Trust, 1.14%,
12/15/04 $ 912 $ 912
--------
COMMERCIAL PAPER - 54.5%
Domestic - 50.4%
American Express Credit Corp., 1.17%, 7/9/04 17,228 17,224
Barton Capital Corp.,
1.15%, 7/7/04 12,000 11,998
1.15%, 7/8/04 10,000 9,998
Bear Stearns Co., Inc., 1.16%, 7/8/04 10,000 9,998
Bemis Company, Inc., 1.10%, 7/7/04 5,288 5,287
Citicorp,
1.02%, 7/1/04 9,790 9,790
1.15%, 7/8/04 12,000 11,997
Fortune Brands, Inc., 1.05%, 7/6/04 10,021 10,020
Gannett, Inc., 1.23%, 7/14/04 20,000 19,991
Goldman Sachs Group, Inc., 1.08%, 7/2/04 21,000 20,999
Household Finance Corp., 1.12%, 7/12/04 20,000 19,993
Kimberly Clark Worldwide, Inc., 1.08%, 7/7/04 5,123 5,122
Morgan Stanley, Dean Witter, Discover & Co.,
1.20%, 7/13/04 9,000 8,996
Nestle Capital Corp., 1.27%, 7/22/04 20,278 20,263
Old Line Funding Corp., 1.21%, 7/15/04 11,860 11,854
1.20%, 7/16/04 11,500 11,494
PepsiCo, Inc.,
1.25%, 7/12/04 12,007 12,002
1.28%, 7/19/04 9,000 8,994
United Parcel Service of America, Inc.,
1.01%, 7/1/04 20,000 20,000
Verizon Network Funding,
1.24%, 7/7/04 10,000 9,998
1.30%, 7/13/04 440 440
Wal-Mart Stores, Inc., 1.12%, 7/13/04 20,000 19,993
Windmill Funding Corp., 1.08%, 7/6/04 16,000 15,998
--------
292,449
--------
Foreign - 4.1%
Novartis Finance Corp., 1.30%, 7/9/04 11,600 11,597
Toyota Motor Credit Corp., 1.27%, 12/23/04 (a) 12,500 12,504
--------
24,101
--------
Total Commercial Paper 316,550
--------
Principal Value
(000) (000)
---------- ------
U.S. GOVERNMENT AGENCIES (b) - 45.3%
Fannie Mae,
1.04%, 7/14/04 $ 6,469 $ 6,467
1.15%, 7/14/04 2,938 2,937
1.25%, 7/16/04 12,154 12,148
1.05%, 7/20/04 3,050 3,048
1.05%, 7/21/04 3,805 3,803
1.06%, 7/21/04 2,000 1,999
1.26%, 7/21/04 9,138 9,132
1.08%, 8/9/04 5,523 5,517
1.06%, 8/20/04 1,160 1,158
1.15%, 8/20/04 2,335 2,331
1.18%, 9/1/04 2,040 2,036
1.11%, 10/15/04 1,500 1,495
1.24%, 11/12/04 2,976 2,962
1.26%, 11/12/04 1,655 1,647
1.24%, 1/28/05 (a) 11,500 11,498
1.65%, 5/16/05 2,500 2,500
1.53%, 10/7/05 (a) 20,000 19,997
Federal Farm Credit Bank,
1.25%, 8/18/04 4,588 4,580
1.10%, 10/15/04 1,484 1,479
1.14%, 10/18/04 5,000 4,983
1.22%, 10/18/04 8,500 8,469
1.20%, 3/24/05 (a) 15,000 14,999
1.23%, 6/23/05 (a) 2,500 2,500
1.50%, 3/1/06 (a) 15,000 15,000
1.22%, 6/2/06 (a) 12,500 12,500
Federal Home Loan Bank,
1.04%, 7/16/04 7,500 7,497
1.50%, 10/6/04 (a) 10,000 10,000
4.37%, 2/15/05 2,000 2,038
1.30%, 2/23/05 4,000 3,999
1.51%, 3/30/05 (a) 7,500 7,500
2.02%, 6/8/05 2,500 2,500
0.99%, 10/5/05 (a) 7,500 7,495
Freddie Mac,
1.15%, 7/15/04 11,998 11,993
1.22%, 9/9/04 2,000 1,995
1.13%, 9/14/04 5,000 4,988
1.15%, 9/14/04 5,000 4,988
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP Money Market Fund Investments in Securities 3
June 30, 2004 (Unaudited) (Continued)
Principal Value
(000) (000)
--------- --------
U.S. GOVERNMENT AGENCIES (continued)
Freddie Mac (continued),
1.25%, 9/28/04 $2,061 $ 2,055
1.20%, 10/19/04 7,500 7,472
1.25%, 11/4/04 7,500 7,467
1.27%, 12/6/04 5,646 5,614
1.19%, 12/30/04 1,500 1,491
1.23%, 1/11/05 1,500 1,490
1.30%, 1/11/05 7,500 7,447
1.40%, 1/19/05 2,224 2,206
1.10%, 10/7/05 (a) 7,500 7,500
--------
262,920
--------
TOTAL INVESTMENTS IN SECURITIES - 100.0%
(Total Cost - $580,382) (c) 580,382
Cash and Other Assets, Less Liabilities - 0.0% 74
--------
NET ASSETS - 100.0% $580,456
========
NOTES TO INVESTMENTS IN SECURITIES
(a) Variable rate security. Rate is as of June 30, 2004.
(b) Agency obligations are not guaranteed by the U.S. Government.
Tax Information
(c) As of June 30, 2004, the cost for federal tax purposes on a tax basis is
the same as on a book basis.
- --------------------------------------------------------------------------------
TimesSquare VP Money Market Fund
Value % of
Ten Largest Positions (Unaudited) (000) Net Assets
- ----------------------------------------------------------------------------
Fannie Mae $90,675 15.6%
Freddie Mac 66,706 11.5
Federal Farm Credit Bank 64,510 11.1
Federal Home Loan Bank 41,029 7.1
Old Line Funding Corp. 23,348 4.0
Barton Capital Corp. 21,996 3.8
Citicorp 21,787 3.8
Goldman Sachs Group, Inc. 20,999 3.6
PepsiCo, Inc. 20,996 3.6
Nestle Capital Corp. 20,263 3.5
- --------------------------------------------------------------------------------
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, 2004 (Unaudited)
(In Thousands)
Assets:
Investments in securities at value $580,382
Cash 101
Interest receivable 232
Investment for Trustees' deferred compensation plan 1
--------
Total assets 580,716
--------
Liabilities:
Investment advisory fees payable 170
Administrative services fees payable 28
Custodian fees payable 21
Audit and legal fees payable 20
Insurance payable 10
Shareholder reports 10
Deferred Trustees' fees payable 1
--------
Total liabilities 260
--------
Net Assets $580,456
========
Components of Net Assets:
Paid in capital $580,456
--------
Net Assets $580,456
========
Shares Outstanding 580,454
========
Net Asset Value and Redemption Price per Share $ 1.00
========
Cost of Investments $580,382
========
Statement of Operations
For the Six Months Ended June 30, 2004 (Unaudited)
(In Thousands)
Investment Income:
Income:
Interest $2,579
------
Expenses:
Investment advisory fees $ 835
Administrative services fees 70
Custodian fees and expenses 62
Auditing and legal fees 24
Shareholder reports 10
Trustees' fees 5
Insurance expense 3
Transfer agent fees 3
Other 1
------
Total expenses 1,013
------
Net Investment Income 1,566
------
Realized and Unrealized Gain (Loss)
on Investments:
Net realized gain from investments --
------
Net Realized and Unrealized Gain (Loss)
on Investments --
------
Net Increase in Net Assets Resulting
From Operations $1,566
======
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, 2004 December 31,
(Unaudited) 2003
---------- --------
Operations:
Net investment income $ 1,566 $ 2,939
--------- ---------
Net increase in net assets from operations 1,566 2,939
--------- ---------
Dividends and Distributions:
From net investment income (1,566) (2,872)
--------- ---------
Total dividends and distributions (1,566) (2,872)
--------- ---------
Capital Share Transactions:
Net proceeds from sales of shares 381,483 546,426
Net asset value of shares issued to
shareholders in reinvestment of dividends
and distributions 1,566 2,883
--------- ---------
383,049 549,309
Cost of shares redeemed (187,709) (529,819)
--------- ---------
Net increase in net assets from
Fund share transactions 195,340 19,490
--------- ---------
Net Increase in Net Assets 195,340 19,557
Net Assets:
Beginning of period 385,116 365,559
--------- ---------
End of period $ 580,456 $385,116
========= =========
For the Six For the
Months Ended Year Ended
June 30, 2004 December 31,
(Unaudited) 2003
---------- --------
Transactions in Capital Stock
Shares sold 381,483 546,426
Shares issued in reinvestment of
dividends and distributions 1,566 2,883
---------- --------
383,049 549,309
Shares redeemed (187,709) (529,819)
---------- --------
Net increase in shares outstanding 195,340 19,490
========== ========
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 For the Year Ended December 31,
June 30, 2004 -------------------------------------------------------------
(Unaudited) 2003 2002 2001 2000 1999
---------------- ----------- ----------- ----------- ------------- -----------
Per Share Operating Performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income (a) (A) 0.01 0.01 0.04 0.06 0.05
-------- ------- ------- ------- -------- -------
Total from investment operations (A) 0.01 0.01 0.04 0.06 0.05
-------- ------- ------- ------- -------- -------
Less dividends and distributions:
Dividends from net investment income (A) (0.01) (0.01) (0.04) (0.06) (0.05)
-------- -------- -------- -------- -------- -------
Total dividends and distributions (A) (0.01) (0.01) (0.04) (0.06) (0.05)
-------- -------- -------- -------- -------- -------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== =======
Total Return 0.32%(c) 0.77% 1.41% 3.73% 6.06%(b) 4.83%(b)
Ratios to Average Net Assets:
Gross expenses 0.42%(d) 0.44% 0.43% 0.48% 0.54% 0.64%
Fees and expenses waived by the Adviser 0.00% 0.00% 0.00% 0.00% 0.04% 0.14%
Net expenses 0.42%(d) 0.44% 0.43% 0.48% 0.50% 0.50%
Net investment income 0.66%(d) 0.78% 1.37% 3.53% 6.01% 4.72%
Net Assets, End of Period (000 omitted) $580,456 $385,116 $365,559 $217,305 $160,905 $31,345
(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
accountings.
(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, 2004, 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. For the six months ended
June 30, 2004 the total tax distributions were $1,566,016.
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,
2005, 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
- --------------------------------------------------------------------------------
TimesSquare VP Money Market Fund Notes To Financial Statements (Unaudited) 8
(Continued)
percentage specified above prior to the end of the fiscal year or within three
years after TimesSquare waives advisory fees or reimburses the Fund's operating
expenses. As of June 30, 2004, the Fund has no such liability.
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission, other affiliated CIGNA Variable Products Group 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 in 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, 2004, the Fund paid or accrued
$69,551.
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 97.4%, 1.7%, and 0.9%, respectively.
- --------------------------------------------------------------------------------
TimesSquare VP Money Market Fund 9
Trustees Officers
Russell H. Jones Marnie Wagstaff Mueller Richard H. Forde
Senior Vice President, Diocesan Consultant, Episcopal Chairman of the Board
Chief Investment Officer, and Diocese of Connecticut and President
Treasurer, Kaman Corporation
Paul J. McDonald Carol Ann Hayes Alfred A. Bingham III
Special Advisor to the Board of Director and Chair of Audit Vice President and
Directors, Friendly Ice Cream Committee, Reed and Barton Treasurer
Corporation Corporation
Richard H. Forde Jeffrey S. Winer
Chief Investment Officer, CIGNA Vice President and
Investment Management Secretary
- --------------------------------------------------------------------------------
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, 2004
[CIGNA LOGO](R)
- --------------------------------------------------------------------------------
1
Dear Shareholders:
Our commentary for TimesSquare VP S&P 500(RegTM) Index Fund (the "Fund")
covering the six months ended June 30, 2004 follows.
Economy
The U.S. economic expansion continues to gather steam. The consensus is that
real Gross Domestic Product will grow at a 4%+ rate in the second half of 2004.
The manufacturing sector has been expanding for the past 13 months, and consumer
confidence is improving. In the second quarter, companies began hiring new
workers at a pace of around 250,000 jobs a month. The unemployment rate has
fallen to 5.6%. Inflation, fueled by increasing food and energy prices, has
become a concern. The year-over-year rate of increase of the Consumer Price
Index was 3.0% in May, up from 1.7% at the end of March. Responding to the signs
of inflation, the Federal Reserve raised the Fed Funds interest rate 0.25% to
1.25% on June 30 and announced that it was willing to move more aggressively in
raising rates in the future if inflation data warranted.
Equity Markets
Equity markets were up nearly 4% through the first few weeks of the year,
propelled by record revenues from Intel and good news in the auto and
construction industries. After a brief period of profit-taking, a positive
earnings surprise from CISCO, the highest non-manufacturing Institute for Supply
Management Index number in seven years, and a two-year low in unemployment, the
S&P 500(RegTM) Index reached its highest level since March 2002. Despite the
strong durable goods report in late February, the market gave back much of its
gains over the remainder of the quarter. A decrease in consumer confidence,
increased terrorist threats and the unfavorable Microsoft ruling all took a toll
and left the S&P 500(RegTM) Index up 1.69% for the first quarter.
Also in the first quarter, both the S&P MidCap Index (+5.06%) and the S&P Small
Cap Index (+6.22%) outperformed the large capitalization index during the
period. Within the large capitalization segment, value (+3.35%) outpaced growth
(+0.02%), as measured by the respective S&P/Barra Indexes.
In the second quarter, the stock market, as measured by the S&P 500(RegTM)
Index, returned 1.72%, as equity declines in April were offset by gains in May
and June. Corporate earnings continued to surprise on the upside, but concerns
over rising interest rates continued to dissuade buyers. For the second quarter,
growth stocks (+2.69%) outperformed value stocks (+0.79%), as measured by the
respective S&P/Barra Indexes. The S&P Small Cap Index (+3.60%) continued to
outperform large cap stocks.
Performance Summary
Returns for the year ended December 31, 2003 (which do not reflect expenses
associated with variable products through which the Fund may be offered and
which would have been lower if such expenses were reflected) were:
Second Quarter Year-to-date
Fund 1.68% 3.35%
Lipper S&P 500
Funds Average 1.56 3.13
S&P 500 Index 1.72 3.44
- --------------------------------------------------------------------------------
2
Outlook
Financial markets are likely to remain in a volatile trading pattern through
year end, with equity markets expected to continue to outperform bonds. Fixed
income markets remain in a cyclical bear market and, in an environment of rising
inflation and tightening monetary conditions, further market declines are highly
likely. Assuming the pace of Fed monetary tightening is moderate and cautious,
equity markets should not be seriously impacted by the shift in policy until
2005. However, a more aggressive monetary tightening next year could result in a
sharp, but brief and temporary, equity market correction.
Sincerely,
/s/ Richard H. Forde
Richard H. Forde
Chairman of the Board and President
CIGNA Variable Products Group
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, 2004 (Unaudited)
Number of Value
Shares (000)
- --------------------------------------------------------------------------
COMMON STOCKS - 92.2%
General Electric Co. 157,800 $5,113
Microsoft Corp. 167,000 4,770
Exxon Mobil Corp. 101,424 4,504
Pfizer, Inc. 118,032 4,046
Citigroup, Inc. 79,672 3,705
Wal-Mart Stores, Inc. 67,000 3,535
American International Group 40,384 2,879
Intel Corp. 100,300 2,768
Bank of America Corp. 31,616 2,675
Johnson & Johnson 45,884 2,556
Cisco Systems, Inc. (a) 106,300 2,519
International Business Machine Corp. 26,300 2,318
Procter & Gamble Co. 40,000 2,178
Coca-Cola (The) Co. 37,800 1,908
Merck & Co., Inc. 34,400 1,634
Altria Group, Inc. 31,700 1,587
ChevronTexaco Corp. 16,534 1,556
Verizon Communications, Inc. 42,726 1,546
Wells Fargo & Co. 26,160 1,497
PepsiCo., Inc. 26,460 1,426
Dell, Inc. (a) 39,600 1,418
United Parcel Service, Inc., Class B 17,500 1,315
SBC Communications, Inc. 51,194 1,241
Home Depot, Inc. 35,250 1,241
Time Warner, Inc. (a) 70,400 1,238
Morgan (J.P.) Chase & Co. 31,806 1,233
Eli Lilly & Co. 17,400 1,216
Amgen, Inc. (a) 19,968 1,090
3M Co. 12,100 1,089
Fannie Mae 15,000 1,070
Tyco International Ltd. 30,965 1,026
American Express Co. 19,900 1,022
Hewlett-Packard Co. 47,224 996
Abbott Laboratories 24,200 986
Comcast Corp., Class A (a) 34,862 977
Viacom, Inc., Class B 27,033 966
Oracle Corp. (a) 80,872 965
eBay, Inc. (a) 10,000 920
Number of Value
Shares (000)
- --------------------------------------------------------------------------
Medtronic, Inc. 18,800 $916
Qualcomm, Inc. 12,500 912
Wachovia Corp. 20,328 905
Morgan Stanley Dean Witter & Co. 16,940 894
Bank One Corp. 17,319 883
US Bancorp 29,751 820
Merrill Lynch & Co., Inc. 15,000 810
Disney (Walt) Co. 31,700 808
ConocoPhillips 10,568 806
Yahoo, Inc. (a) 20,600 748
Wyeth 20,600 745
BellSouth Corp. 28,300 742
Bristol-Myers Squibb Co. 30,000 735
United Technologies Corp. 8,000 732
Goldman Sachs Group, Inc. 7,500 706
du Pont (E.I.) de Nemours & Co. 15,478 688
Anheuser-Busch Cos., Inc. 12,600 680
Freddie Mac 10,700 677
Boeing (The) Co. 13,076 668
Gillette (The), Co. 15,600 661
Motorola, Inc. 36,191 660
Texas Instruments, Inc. 26,800 648
Lowe's Companies, Inc. 12,200 641
First Data Corp. 13,758 613
UnitedHealth Group, Inc. 9,700 604
AT&T Wireless Services, Inc. (a) 42,139 603
Target Corp. 14,100 599
Dow (The) Chemical Co. 14,410 586
Schlumberger Ltd. 9,100 578
Walgreen Co. 15,900 576
Boston Scientific Corp. (a) 12,700 544
Washington Mutual, Inc. 13,907 537
Applied Materials, Inc. (a) 26,000 510
MBNA Corp. 19,752 509
Kimberly-Clark Corp. 7,732 509
Allstate (The) Corp. 10,896 507
McDonald's Corp. 19,500 507
Honeywell International, Inc. 13,287 487
Colgate-Palmolive Co. 8,200 479
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, 2004 (Unaudited) (Continued)
Number of Value
Shares (000)
- --------------------------------------------------------------------------
Cardinal Health, Inc. 6,775 $475
Fifth Third Bancorp 8,758 471
Illinois Tool Works, Inc. 4,800 460
Carnival Corp. 9,700 456
Nextel Communications, Inc., Class A (a) 17,000 453
Alcoa, Inc. 13,468 445
Ford Motor Co. 28,297 443
Caterpillar, Inc. 5,400 429
EMC Corp. (a) 37,424 427
Metlife, Inc. 11,800 423
Schering-Plough Corp. 22,800 421
St. Paul (The) Travelers Companies, Inc. 10,291 417
Emerson Electric Co. 6,500 413
General Motors Corp. 8,700 405
Prudential Financial, Inc. 8,400 390
Sprint Corp. (FON Group) 22,000 387
Cendant Corp. 15,604 382
Automatic Data Processing, Inc. 9,100 381
FedEx Corp. 4,600 376
Marsh & McLennan Cos., Inc. 8,200 372
Lockheed Martin Corp. 6,960 362
Sysco Corp. 10,000 359
Gannett Co., Inc. 4,200 356
Bank (The) of New York Co., Inc. 12,000 354
Clear Channel Communications, Inc. 9,500 351
Exelon Corp. 10,250 341
Stryker Corp. 6,200 341
Gap (The), Inc. 13,862 336
Zimmer Holdings, Inc. (a) 3,780 333
International Paper Co. 7,451 333
Avon Products, Inc. 7,200 332
Southern (The) Co. 11,300 329
National City Corp. 9,400 329
Baxter International, Inc. 9,400 324
Forest Laboratories, Inc. (a) 5,700 323
Aflac, Inc. 7,900 322
Lehman Brothers Holdings, Inc. 4,280 322
HCA, Inc. 7,700 320
Biogen Idec, Inc. (a) 5,035 318
Number of Value
Shares (000)
- --------------------------------------------------------------------------
Dominion Resources, Inc. 4,999 $315
BB&T Corp. 8,500 314
Nike, Inc., Class B 4,100 311
Hartford Financial Services Group 4,500 309
General Dynamics Corp. 3,100 308
Northrop Grumman Corp. 5,678 305
Countrywide Financial Corp. 4,200 295
Costco Wholesale Corp. 7,100 292
Harley-Davidson, Inc. 4,700 291
Occidental Petroleum Corp. 6,000 290
Progressive (The) Corp. 3,400 290
SunTrust Banks, Inc. 4,400 286
Duke Energy Corp. 14,024 285
SLM Corp. 7,000 283
Sara Lee Corp. 12,200 280
General Mills, Inc. 5,800 276
Waste Management, Inc. 8,932 274
Analog Devices, Inc. 5,800 273
Corning, Inc. (a) 20,900 273
WellPoint Health Networks (a) 2,400 269
Guidant Corp. 4,800 268
Kellogg Co. 6,400 268
Maxim Integrated Products 5,100 267
Deere & Co. 3,800 267
Starbucks Corp. (a) 6,100 265
Newmont Mining Corp. 6,735 261
CVS Corp. 6,100 256
Golden West Financial Corp. 2,400 255
State Street Corp. 5,200 255
Best Buy Co., Inc. 5,000 254
Computer Associates International, Inc. 9,012 253
Electronic Arts, Inc. (a) 4,600 251
Lucent Technologies, Inc. (a) 65,936 249
Danaher Corp. 4,800 249
Capital One Financial Corp. 3,600 246
Alltel Corp. 4,800 243
Apollo Group, Inc., Class A (a) 2,700 238
Union Pacific Corp. 4,000 238
Devon Energy Corp. 3,600 238
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, 2004 (Unaudited) (Continued)
Number of Value
Shares (000)
- ----------------------------------------------------------------------------
Tribune Co. 5,100 $232
Anadarko Petroleum Corp. 3,933 230
McGraw-Hill (The) Cos., Inc. 3,000 230
Raytheon Co. 6,400 229
PNC Financial Services Group, Inc. 4,300 228
Caremark Rx, Inc. (a) 6,900 227
Staples, Inc. 7,750 227
Burlington Resources, Inc. 6,220 225
ConAgra Foods, Inc. 8,300 225
Kohl's Corp. (a) 5,300 224
Sun Microsystems, Inc. (a) 50,900 221
Wrigley (Wm) Jr. Co. 3,500 221
Omnicom Group 2,900 220
Broadcom Corp., Class A (a) 4,700 220
Apache Corp. 5,022 219
Masco Corp. 7,000 218
ManuLife Financial Corp. 5,333 216
Weyerhaeuser Co. 3,400 215
Agilent Technologies, Inc. (a) 7,328 215
Heinz (H.J) Co. 5,400 212
Symantec Corp. (a) 4,800 210
Kroger Co. (a) 11,500 209
International Game Technology 5,400 208
Coca-Cola Enterprises, Inc. 7,100 206
Halliburton Co. 6,800 206
Southwest Airlines Co. 12,187 204
St. Jude Medical, Inc. (a) 2,700 204
TXU Corp. 5,000 203
Burlington Northern Santa Fe Corp. 5,767 202
Schwab, (The) Charles Corp. 21,025 202
Becton Dickinson & Co. 3,900 202
Entergy Corp. 3,600 202
Marathon Oil Corp. 5,300 201
Praxair, Inc. 5,000 200
Aetna, Inc. 2,342 199
SouthTrust Corp. 5,100 198
Chubb Corp. 2,900 198
Mellon Financial Corp. 6,700 197
Paychex, Inc. 5,800 197
Number of Value
Shares (000)
- --------------------------------------------------------------------------
Baker Hughes, Inc. 5,190 $195
Franklin Resources, Inc. 3,900 195
American Electric Power Co., Inc. 6,100 195
Keycorp 6,516 195
Lexmark International, Inc., Class A (a) 2,000 193
FirstEnergy Corp. 5,100 191
Linear Technology Corp. 4,800 189
TJX Cos., Inc. 7,800 188
Anthem, Inc. (a) 2,100 188
Apple Computer, Inc. (a) 5,700 185
FPL Group, Inc. 2,900 185
Hershey Foods Corp. 4,000 185
Ingersoll-Rand Co., Class A 2,700 184
Air Products & Chemicals, Inc. 3,500 184
Veritas Software Corp. (a) 6,600 183
ACE Ltd. 4,300 182
PG&E Corp. (a) 6,500 182
AT&T Corp. 12,285 180
Marriott International, Inc., Class A 3,600 180
Allergan, Inc. 2,000 179
Xerox Corp. (a) 12,300 178
Biomet, Inc. 4,000 178
Clorox Co. 3,300 177
Bed Bath & Beyond, Inc. (a) 4,600 177
Xilinx, Inc. 5,300 177
Principal Financial Group 5,000 174
Loews Corp. 2,900 174
Fortune Brands, Inc. 2,300 173
Safeway, Inc. (a) 6,800 172
Adobe Systems, Inc. 3,700 172
Campbell Soup Co. 6,400 172
Yum! Brands, Inc. 4,580 170
Equity Office Properties Trust 6,200 169
Archer-Daniels-Midland Co. 9,987 168
Progress Energy, Inc. 3,800 167
Genzyme Corp. (General Division) (a) 3,500 166
PPG Industries, Inc. 2,600 162
Norfolk Southern Corp. 6,100 162
Univision Communications, Inc., Class A (a) 5,000 159
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, 2004 (Unaudited) (Continued)
Number of Value
Shares (000)
- --------------------------------------------------------------------------
Pitney Bowes, Inc. 3,600 $159
Monsanto Co. 4,135 159
Penney (J.C.) Co., Inc. 4,200 159
XL Capital Ltd. 2,100 158
M&T Bank Corp 1,800 157
Medco Health Solutions, Inc. (a) 4,166 156
Paccar, Inc. 2,687 156
Eaton Corp. 2,400 155
McKesson Corp. 4,523 155
Johnson Controls, Inc. 2,900 155
Simon Property Group, Inc. 3,000 154
Unocal Corp. 4,000 152
Albertson's, Inc. 5,713 152
CIGNA Corp. (b) 2,200 151
Charter One Financial, Inc. 3,424 151
Comerica, Inc. 2,750 151
Moody's Corp. 2,300 149
Kla-Tencor Corp. (a) 3,000 148
Public Service Enterprise Group 3,700 148
Valero Energy Corp. 2,000 148
Rohm & Haas Co. 3,485 145
Georgia-Pacific Corp. 3,916 145
Micron Technology, Inc. (a) 9,400 144
Transocean, Inc. (a) 4,971 144
Northern Trust Corp. 3,400 144
Starwood Hotels & Resorts Worldwide, Inc. 3,200 144
Electronic Data Systems Corp. 7,400 142
Consolidated Edison, Inc. 3,500 139
AmSouth Bancorp 5,400 138
Federated Department Stores 2,800 137
AON Corp. 4,825 137
Bear Stearns (The) Cos., Inc. 1,625 137
Marshall & Ilsley Corp. 3,500 137
Quest Diagnostics 1,600 136
Computer Sciences Corp. (a) 2,900 135
Limited Brands, Inc. 7,200 135
Block (H&R), Inc. 2,800 134
American Standard Cos., Inc. (a) 3,300 133
Lincoln National Corp. 2,800 132
Number of Value
Shares (000)
- --------------------------------------------------------------------------
Altera Corp. (a) 5,900 $131
Dover Corp. 3,100 131
Chiron Corp. (a) 2,900 129
Sears Roebuck and Co. 3,400 128
Edison International 5,000 128
Equity Residential 4,300 128
Ecolab, Inc. 4,000 127
MBIA, Inc. 2,200 126
Textron, Inc. 2,100 125
Regions Financial Corp. 3,400 124
Cintas Corp. 2,600 124
PPL Corp. 2,700 124
National Semiconductor Corp. (a) 5,600 123
Sempra Energy 3,554 122
May (The) Department Stores Co. 4,450 122
Pepsi Bottling Group, Inc. 4,000 122
Mattel, Inc. 6,645 121
AMBAC Financial Group, Inc. 1,650 121
Ameren Corp. 2,800 120
Intuit, Inc. (a) 3,100 120
Eastman Kodak Co. 4,400 119
Synovus Financial Corp. 4,650 118
Fiserv, Inc. (a) 3,000 117
ITT Industries, Inc. 1,400 116
BJ Services Co. (a) 2,500 115
Sungard Data Systems, Inc. (a) 4,400 114
Cincinnati Financial Corp. 2,625 114
Network Appliance, Inc. (a) 5,300 114
MGIC Investment Corp. 1,500 114
Kinder Morgan, Inc. 1,900 113
Jefferson-Pilot Corp. 2,212 112
Autozone, Inc. (a) 1,400 112
Affiliated Computer Services, Inc. (a) 2,100 111
Amerada Hess Corp. 1,400 111
Hilton Hotels Corp. 5,900 110
Phelps Dodge Corp. 1,416 110
Donnelley (RR) & Sons Co. 3,300 109
Avery Dennison Corp. 1,700 109
Rockwell Automation, Inc. 2,900 109
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, 2004 (Unaudited) (Continued)
Number of Value
Shares (000)
- --------------------------------------------------------------------------
Parker Hannifin Corp. 1,825 $109
CSX Corp. 3,300 108
EOG Resources, Inc. 1,800 107
DTE Energy Co. 2,600 105
Genuine Parts Co. 2,650 105
Peoplesoft, Inc. (a) 5,630 104
Nabors Industries Ltd. (a) 2,300 104
Xcel Energy, Inc. 6,220 104
Cinergy Corp. 2,720 103
Avaya, Inc. (a) 6,528 103
New York Times Co., Class A 2,300 103
Dollar General Corp. 5,247 103
AmerisourceBergen Corp. 1,700 102
Newell Rubbermaid, Inc. 4,207 99
Pulte Homes, Inc. 1,900 99
Constellation Energy Group, Inc. 2,600 99
Qwest Communications International (a) 27,301 98
Torchmark Corp. 1,800 97
Tenet Healthcare Corp. (a) 7,150 96
T. Price Rowe Group, Inc. 1,900 96
Sherwin-Williams (The) Co. 2,300 96
Molex, Inc. 2,975 95
AES (The) Corp. (a) 9,600 95
Williams Companies., Inc. 8,000 95
Express Scripts, Inc. (a) 1,200 95
Harrah's Entertainment, Inc. 1,750 95
UST, Inc. 2,600 94
Rockwell Collins, Inc. 2,800 93
Safeco Corp. 2,100 92
Prologis 2,800 92
Delphi Corp. 8,626 92
Nucor Corp. 1,200 92
KeySpan Corp. 2,500 92
Brown-Forman Corp., Class B 1,900 92
Plum Creek Timber Co., Inc. 2,800 91
Waters Corp. (a) 1,900 91
Bard (C.R.), Inc. 1,600 91
MeadWestvaco Corp. 3,076 90
Freeport-McMoRan Copper & Gold, Class B 2,700 90
Number of Value
Shares (000)
- --------------------------------------------------------------------------
Nordstrom, Inc. 2,100 $89
Medimmune, Inc. (a) 3,800 89
Union Planters Corp. 2,950 88
Interpublic (The) Group of Cos., Inc. (a) 6,400 88
Reynolds (RJ) Tobacco Holdings, Inc. 1,300 88
North Fork Bancorporation, Inc. 2,300 88
Centex Corp. 1,900 87
IMS Health, Inc. 3,700 87
Knight-Ridder, Inc. 1,200 86
First Horizon National Corp. 1,900 86
Zions Bancorporation 1,400 86
Office Depot, Inc. (a) 4,800 86
Advanced Micro Devices, Inc. (a) 5,400 86
Health Management Associates, Class A 3,800 85
Tiffany & Co. 2,300 85
NiSource, Inc. 4,100 85
JDS Uniphase Corp. (a) 22,200 84
Solectron Corp. (a) 12,900 83
Cooper Industries Ltd., Class A 1,400 83
Mylan Laboratories 4,100 83
Scientific-Atlanta, Inc. 2,400 83
VF Corp. 1,700 83
Kerr-McGee Corp. 1,538 83
Siebel Systems, Inc. (a) 7,700 82
Family Dollar Stores, Inc. 2,700 82
Huntington Bancshares, Inc. 3,566 82
Grainger (W.W.), Inc. 1,400 81
Leggett & Platt, Inc. 3,000 80
Thermo Electron Corp. (a) 2,600 80
Noble Corp. (a) 2,100 80
Jones Apparel Group, Inc. 2,000 79
EL Paso Corp. 9,943 78
Jabil Circuit, Inc. (a) 3,100 78
Robert Half International, Inc. 2,600 77
Sunoco, Inc. 1,200 76
Vulcan Materials Co. 1,600 76
Whirlpool Corp. 1,100 75
Novellus Systems, Inc. (a) 2,400 75
Black & Decker Corp. 1,200 75
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, 2004 (Unaudited) (Continued)
Number of Value
Shares (000)
- --------------------------------------------------------------------------
NCR Corp. (a) 1,500 $74
UnumProvident Corp. 4,625 74
Autonation, Inc. (a) 4,300 74
Sanmina-SCI Corp. (a) 8,000 73
Autodesk, Inc. 1,700 73
Sealed Air Corp. (a) 1,361 73
RadioShack Corp. 2,500 72
McCormick & Co., Inc. 2,100 71
Unisys Corp. (a) 5,100 71
Alberto-Culver Co. 1,400 70
Mercury Interactive Corp. (a) 1,400 70
Applera Corp.--Applied Biosystems Group 3,200 70
Teradyne, Inc. (a) 3,000 68
CenturyTel, Inc. 2,250 68
Hospira, Inc. (a) 2,420 67
Providian Financial Corp. (a) 4,500 66
Allied Waste Industries, Inc. (a) 5,000 66
Sigma-Aldrich Corp. 1,100 66
Ball Corp. 900 65
BMC Software, Inc. (a) 3,500 65
Supervalu, Inc. 2,100 64
E*Trade Financial Corp. (a) 5,700 64
United States Steel Corp. 1,800 63
Engelhard Corp. 1,950 63
Wendy's International, Inc. 1,800 63
Fluor Corp. 1,300 62
Liz Claiborne, Inc. 1,700 61
Janus Capital Group, Inc. 3,700 61
American Power Conversion 3,100 61
Pactiv Corp. (a) 2,400 60
Comverse Technology, Inc. (a) 3,000 60
Sabre Holdings Corp., Class A 2,140 59
Stanley (The) Works 1,300 59
Dow Jones & Co., Inc. 1,300 59
Goodrich Corp. 1,800 58
Ashland, Inc. 1,100 58
Brunswick Corp. 1,400 57
Pinnacle West Capital Corp. 1,400 57
Reliant Energy, Inc. (a) 5,210 56
Number of Value
Shares (000)
- --------------------------------------------------------------------------
Tellabs, Inc. (a) 6,400 $56
Eastman Chemical Co. 1,200 55
Temple-Inland, Inc. 800 55
Equifax, Inc. 2,200 54
Centerpoint Energy, Inc. 4,707 54
Citizens Communications Co. (a) 4,400 53
Symbol Technologies, Inc. 3,600 53
Toys R US, Inc. (a) 3,300 53
Darden Restaurants, Inc. 2,550 52
International Flavors & Fragrances, Inc. 1,400 52
Bausch & Lomb, Inc. 800 52
Federated Investors, Inc., Class B 1,700 52
Nvidia Corp. (a) 2,500 51
Citrix Systems, Inc. (a) 2,500 51
Hasbro, Inc. 2,675 51
Andrew Corp. (a) 2,493 50
Pall Corp. 1,900 50
Boise Cascade Corp. 1,300 49
Novell, Inc. (a) 5,800 49
KB Home 700 48
Dana Corp. 2,343 46
Manor Care, Inc. 1,400 46
Watson Pharmaceuticals, Inc. (a) 1,700 46
Bemis Co. 1,600 45
Millipore Corp. (a) 800 45
LSI Logic Corp. (a) 5,900 45
Tektronix, Inc. 1,300 44
Meredith Corp. 800 44
Cummins, Inc. 700 44
Monster Worldwide, Inc. (a) 1,700 44
Apartment Investment & Mgt. Co., Class A 1,400 44
Coors (Adolph) Co., Class B 600 43
King Pharmaceuticals, Inc. (a) 3,766 43
Circuit City Stores, Inc. 3,300 43
Navistar International Corp. (a) 1,100 43
Humana, Inc. (a) 2,500 42
PerkinElmer, Inc. 2,000 40
Ryder System, Inc. 1,000 40
QLogic Corp. (a) 1,500 40
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, 2004 (Unaudited) (Continued)
Number of Value
Shares (000)
- --------------------------------------------------------------------------
Compuware Corp. (a) 5,900 $39
Rowan Cos., Inc. (a) 1,600 39
PMC--Sierra, Inc. (a) 2,700 39
Louisiana-Pacific Corp. 1,600 38
ADC Telecommunications, Inc. (a) 12,500 35
Deluxe Corp. 800 35
TECO Energy, Inc. 2,900 35
Convergys Corp. (a) 2,200 34
Reebok International Ltd. 900 32
Carmax, Inc. (a) 1,475 32
Snap-On, Inc. 950 32
Del Monte Foods Co. (a) 3,081 31
Allegheny Energy, Inc. (a) 2,000 31
Maytag Corp. 1,200 29
Dillard's, Inc., Class A 1,300 29
Crane Co. 900 28
Calpine Corp. (a) 6,400 28
Advanced Medical Optics, Inc. (a) 644 27
Ciena Corp. (a) 7,300 27
Worthington Industries 1,300 27
Smucker (J.M.) Co. 578 27
Gateway, Inc. (a) 5,800 26
Big Lots, Inc. (a) 1,800 26
Applied Micro Circuits Corp. (a) 4,800 26
Cooper Tire & Rubber Co. 1,100 25
Peoples Energy Corp. 600 25
Dynegy, Inc., Class A (a) 5,800 25
Goodyear (The) Tire & Rubber Co. (a) 2,700 25
Thomas & Betts Corp. 900 25
Visteon Corp. 2,051 24
Nicor, Inc. 700 24
American Greetings, Class A (a) 1,000 23
Allegheny Technologies, Inc. 1,270 23
CMS Energy Corp. (a) 2,500 23
Great Lakes Chemical Corp. 800 22
Hercules, Inc. (a) 1,700 21
Parametric Technology Corp. (a) 4,100 21
Piper Jaffray Companies (a) 381 17
Winn-Dixie Stores, Inc. (a) 2,200 16
Number of Value
Shares (000)
- --------------------------------------------------------------------------
Power-One, Inc. (a) 1,300 $ 14
Delta Air Lines, Inc. (a) 1,900 14
Texas Genco Holdings, Inc. 300 14
Eagle Materials, Inc. 178 12
EnPro Industries, Inc. (a) 460 11
Hudson Highland Group, Inc. (a) 165 5
Eagle Materials, Inc. 53 4
Mirant Corp. (a) 7,960 3
Cavco Industries, Inc. (a) 60 2
Agere Systems, Inc., Class A (a) 823 2
Unilever NV 1 --
Kadant, Inc. (a) 1 --
--------
Total Common Stocks
(Cost - $164,358) 164,668
--------
SHORT-TERM OBLIGATIONS - 7.7%
Money Market Fund - 5.5%
TimesSquare VP Money Market Fund (c) 9,730,888 9,731
--------
Principal
(000)
----------
U.S. Government - 2.2%
U.S. Treasury Bills,
0.98%, 9/30/04 (d) $1,500 1,496
1.00%, 9/30/04 (d) 2,500 2,494
--------
3,990
--------
Total Short-Term Obligations
(Cost - $13,721) 13,721
--------
TOTAL INVESTMENTS IN SECURITIES - 99.9%
(Total Cost - $178,079) (e) 178,389
Cash and Other Assets, Less Liabilities - 0.1% 121
--------
NET ASSETS - 100.0% $178,510
========
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, 2004 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES
(a) Non-income producing securities.
(b) TimesSquare Capital Management, Inc., the fund's Investment Adviser, is an
indirect wholly owned subsidiary of CIGNA Corp.
(c) TimesSquare Capital Management, Inc., the fund's Investment Adviser, is also
the Adviser to the TimesSquare VP Money Market Fund.
(d) This security, or a portion thereof, was pledged as collateral for Stock
Index Futures Contracts. At June 30, 2004, the Fund was long 50 S&P
500(RegTM) Futures Contracts expiring in September 2004. Unrealized gains
amounted to $211,875. Underlying face value was $14,043,125 and underlying
market value was $14,255,000.
Tax Information
(e) At June 30, 2004, the net unrealized depreciation of investments, based on
cost for federal income tax purposes of $178,950,080, was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of
value over tax cost $27,339,124
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax
cost over value (27,900,693)
-----------
Unrealized depreciation - net $ (561,569)
===========
- --------------------------------------------------------------------------------
- -------------------------------------------------------------
CIGNA Variable Products S&P 500(RegTM) Index Fund
Market % of
Value Net
Ten Largest Positions (Unaudited) (000) Assets
- -----------------------------------------------------------
General Electric Co. $5,113 2.9%
Microsoft Corp. 4,770 2.7
Exxon Mobil Corp. 4,504 2.5
Pfizer, Inc. 4,046 2.3
Citigroup, Inc. 3,705 2.1
Wal-Mart Stores, Inc. 3,535 2.0
American International Group 2,879 1.6
Intel Corp. 2,768 1.6
Bank of America Corp. 2,675 1.5
Johnson & Johnson 2,556 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, 2004 (Unaudited)
(In Thousands)
Assets:
Investments in securities at value $178,389
Interest and dividends receivable, net of withholding taxes 184
Investment for Trustees' deferred compensation plan 88
Futures variation margin receivable 57
Receivable for fund shares sold 4
--------
Total assets 178,722
--------
Liabilities:
Deferred Trustees' fees payable 88
Custodian fees payable 26
Audit and legal fees payable 21
Payable for Fund shares redeemed 19
Administrative services fees payable 19
Insurance expenses payable 14
Shareholder reports payable 13
Advisory fees payable 12
--------
Total liabilities 212
--------
Net Assets $178,510
========
Components of Net Assets:
Paid in capital $157,320
Undistributed net investment income 2,204
Accumulated net realized gain 18,464
Net unrealized appreciation of investments and futures 522
--------
Net Assets $178,510
========
Shares Outstanding 10,914
========
Net Asset Value and Redemption Price per Share $ 16.36
========
Cost of Investments $178,079
========
Statement of Operations
For the Six Months Ended June 30, 2004 (Unaudited)
(In Thousands)
Investment Income:
Income:
Dividends $ 1,581
Interest 17
-------
1,598
Expenses:
Investment advisory fees $ 225
Custodian fees and expenses 78
Administrative services fees 46
Auditing and legal fees 22
Shareholder reports 12
Transfer agent fees 3
Trustees' fees 3
Other 3
------
Total expenses 392
Less expenses waived by Adviser (127)
------
Net expenses $ 265
------
Net Investment Income 1,333
-------
Realized and Unrealized Gain on
Investments:
Net realized gain from:
Futures contracts 1,747
Investments 16,845
-------
18,592
-------
Net change in unrealized appreciation of:
Futures contracts (332)
Investments (11,832)
-------
(12,164)
-------
Net Realized and Unrealized Gain on
Investments 6,428
-------
Net Increase in Net Assets Resulting from
Operations $ 7,761
=======
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, 2004 December 31,
(Unaudited) 2003
------------- ------------
Operations:
Net investment income $ 1,333 $ 2,898
Net realized gain on investments 18,592 5,298
Net unrealized appreciation (depreciation)
on investments (12,164) 43,080
-------- --------
Net increase in net assets from operations 7,761 51,276
-------- --------
Dividends and Distributions:
From net investment income -- (4,276)
From net realized gain -- (2,574)
-------- --------
Total dividends and distributions -- (6,850)
-------- --------
Capital Share Transactions:
Net proceeds from shares sold 4,866 66,928
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions -- 6,850
-------- --------
4,866 73,778
Cost of shares redeemed (68,206) (71,408)
-------- --------
Net increase (decrease) in net assets from
Fund share transactions (63,340) 2,370
-------- --------
Net Increase (Decrease) in Net Assets (55,579) 46,796
Net Assets:
Beginning of period 234,089 187,293
-------- --------
End of period* $178,510 $234,089
======== ========
* includes undistributed net investment
income of: $ 2,204 $ 871
======== ========
For the Six For the
Months Ended Year Ended
June 30, 2004 December 31,
(Unaudited) 2003
------------- ------------
Transactions in Capital Stock:
Shares sold 300 4,884
Shares issued in reinvestment of
dividends and distributions -- 439
------ ------
300 5,323
Shares redeemed (4,172) (5,261)
------ ------
Net increase (decrease) in shares
outstanding (3,872) 62
====== ======
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 For the Year Ended December 31,
June 30, 2004 ------------------------------------------------------------------
(Unaudited) 2003 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value, beginning of period $ 15.83 $ 12.72 $ 17.31 $ 19.95 $ 22.83 $ 19.73
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income (a) 0.14 0.21 0.23 0.23 0.35 0.32
Net realized and unrealized gain (loss) 0.39 3.38 (4.13) (2.66) (2.49) 3.75
-------- -------- --------- -------- -------- --------
Total from investment operations 0.53 3.59 (3.90) (2.43) (2.14) 4.07
-------- -------- --------- -------- -------- --------
Less dividends and distributions:
From net investment income -- (0.30) (0.22) (0.21) (0.44) (0.51)
From capital gains -- (0.18) (0.47) -- (0.30) (0.46)
-------- -------- -------- -------- -------- --------
Total dividends and distributions -- (0.48) (0.69) (0.21) (0.74) (0.97)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 16.36 $ 15.83 $ 12.72 $ 17.31 $ 19.95 $ 22.83
======== ======== ======== ======== ======== ========
Total Return (b) 3.35%(c) 28.27% (22.51)% (12.18)% (9.37)% 20.77%
Ratios to Average Net Assets:
Gross expenses 0.37%(d) 0.37% 0.37% 0.35% 0.36% 0.38%
Fees and expenses waived or borne by the Adviser 0.12%(d) 0.12% 0.12% 0.10% 0.11% 0.13%
Net expenses 0.25%(d) 0.25% 0.25% 0.25% 0.25% 0.25%
Net investment income 1.26%(d) 1.42% 1.32% 1.38% 1.64% 1.57%
Portfolio Turnover 1%(c) 2% 7% 2% 4% 3%
Net assets, End of Period (000 omitted) $178,510 $234,089 $187,293 $302,802 $292,739 $282,781
(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 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. The
Fund's Board of Trustees has designated the Pricing Committee of TimesSquare
Capital Management, Inc. to make, pursuant to procedures approved by the Board
and under the Board's supervision, all necessary determinations of fair value
for the portfolio securities for which market quotations are not readily
available. When fair valuing securities, the Pricing Committee takes into
account factors such as fundamental and analytical information about the
security, the nature and duration of any restrictions on disposition of the
security, market information (including, for example, factors such as historical
price relationships and valuations for securities with similar characteristics),
and evaluation of significant market events. 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. The 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
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500(RegTM) Index Fund Notes to Financial Statements 15
(Unaudited) (Continued)
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.
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.
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. These
differences are primarily due to differing book and tax treatment for wash
sales, real estate investment trusts income and capital loss carryforwards. To
the extent that such differences are permanent, a reclassification to Components
of Net Assets may be required. As a result, at December 31, 2003, the Fund
increased its undistributed net investment income by $2,123,183, decreased
accumulated net realized gain by $2,124,450 and increased 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 Expires during
(000's) 2005 (000's) 2006 (000's) 2007 (000's)
- ---------------------- ---------------- ---------------- ---------------
$609 $230 $252 $127
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,
2004, TimesSquare waived
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500(RegTM) Index Fund Notes to Financial Statements 16
(Unaudited) (Continued)
$39,925 of its advisory fees payable by the Fund. Income distributions from
TSVPMM, which amounted to $72,602 for the six months ended June 30, 2004, 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, 2004, the Fund paid or accrued
$45,662.
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, 2004, were $0 and $501,847 respectively, for U.S.
Government and Agency Obligations and $1,692,075 and $45,397,423 respectively,
for all other securities.
6. Capital Stock. The Fund offers an unlimited number of shares of beneficial
interest without par value. Of the 10,914,165 shares outstanding at June 30,
2004, 10,737,322 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 1.6% 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 Marnie Wagstaff Mueller Richard H. Forde
Senior Vice President, Diocesan Consultant, Episcopal Chairman of the Board
Chief Investment Officer, and Diocese of Connecticut and President
Treasurer, Kaman Corporation
Paul J. McDonald Carol Ann Hayes Alfred A. Bingham III
Special Advisor to the Board of Director and Chair of Audit Vice President and
Directors, Friendly Ice Cream Committee, Reed and Barton Treasurer
Corporation Corporation
Richard H. Forde Jeffrey S. Winer
Chief Investment Officer, CIGNA Vice President and
Investment Management Secretary
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"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.
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Item 2. Code of Ethics.
Not applicable
Item 3. Audit Committee Financial Expert.
Not applicable
Item 4. Principal Accountant Fees and Services.
Not applicable
Item 5. Audit Committee Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
See report to shareholders filed under Item 1 of this Form.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 9. Submission of Matters to a Vote of Security Holders.
The registrant has adopted procedures by which shareholders may recommend
nominees to the registrant's board of trustees, as follows:
The Nominating Committee or the registrant will, when a vacancy on the Board
exists or is anticipated, consider any Trustee candidate recommended by security
holders. The current procedures to be followed by security holders are set forth
below:
1. All security holder recommendations for Trustee candidates must be
submitted to the Secretary of the registrant who will forward all
recommendations to the Committee.
2. All security holder recommendations for Trustee candidates must be
submitted to the registrant not less than one hundred twenty (120)
calendar days prior to the date on which the registrant's proxy
statement was released to shareholders in connection with the previous
year's annual meeting.
3. All security holder recommendations for Trustee candidates must include
the following information:
(a) The name and address of the security holder of record;
(b) A representation that the security holder is a record holder
of the applicable Fund's securities, or if the security holder
is not a record holder, evidence of ownership in accordance
with Rule 14a-8(b)(2) of the Securities Exchange Act of 1934,
as amended;
(c) The name, age, business and residential address, educational
background, current principal occupation or employment, and
principal occupation or employment for the preceding five (5)
full fiscal years of the proposed Trustee candidate;
(d) A description of the qualifications and background of the
proposed Trustee candidate that addresses the minimum
qualifications and other criteria for Board membership
approved by the Board from time to time;
(e) A description of all arrangements or understandings between
the security holder and the proposed Trustee candidate;
(f) The consent of the proposed Trustee candidate (i) to be named
in the proxy statement relating to the applicable Fund's
annual meeting of shareholders and (ii) to serve as a Trustee
if elected at such annual meeting; and
(g) Any other information regarding the proposed Trustee candidate
that is required to be included in a proxy statement filed
pursuant to the rules of the Securities and Exchange
Commission.
The Committee has not established specific, minimum qualifications that must be
met by an individual for the Committee to recommend that individual for
nomination as a Trustee. In seeking candidates to consider for nomination to
fill a vacancy on the Board, the Committee expects to seek referrals from a
variety of sources, including current Trustees, management of the registrant and
counsel to the registrant. The Committee may also engage a search firm to
identify or evaluate or assist in identifying or evaluating candidates. In
evaluating Trustee candidates, the Committee considers a variety of factors,
including, as appropriate: (i) the candidate's knowledge in matters relating to
investment companies; (ii) any experience possessed by the candidate as a
director or senior officer of other public companies; (iii) the candidate's
educational background; (iv) the candidate's reputation for high ethical
standards and personal and professional integrity; (v) any specific financial,
technical or other expertise possessed by the candidate, and the extent to which
such expertise would complement the Board's existing mix of skills and
qualifications; (vi) the candidate's perceived ability to contribute to the
ongoing functions of the Board, including the candidate's ability and commitment
to attend meetings regularly and work collaboratively with other members of the
Board; (vii) the candidate's ability to qualify as an Independent Trustee for
purposes of the 1940 Act, the candidate's independence from the registrant's
service providers and the existence of any other relationships that might give
rise to a conflict of interest or the appearance of a conflict of interest;
(viii) the candidate's age relative to the registrant's retirement age for
Trustees and (ix) such other factors as the Committee determines to be relevant
in light of the existing composition of the Board and any anticipated vacancies
or other transitions, e.g., whether or not a candidate is an "audit committee
financial expert" under the federal securities laws. Prior to making a final
recommendation to the Board, the Committee conducts personal interviews with the
candidate(s) it concludes are the most qualified. Any candidates recommended by
security holders will be evaluated in the same manner.
Item 10. Controls and Procedures.
(a) Based on an evaluation of the registrant's disclosure controls and
procedures as of a date within 90 days of the filing date of this Form
N-CSR, the registrant's principal executive officer and principal financial
officer concluded that the disclosure controls and procedures are
reasonably designed to ensure that the information required in filings on
Forms N-CSR is recorded, processed, summarized, and reported on a timely
basis.
(b) There were no significant changes in the registrant's internal control over
financial reporting that occurred during the registrant's last fiscal
half-year that have materially affected, or are reasonably likely to
materially affect, the registrant's internal control over financial
reporting.
Item 11. Exhibits.
(a)(1) Not applicable
(a)(2) Separate certifications by the registrant's principal executive officer
and principal financial officer, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment
Company Act of 1940.
(a)(3) Not applicable
(b) A certification by the registrant's chief executive officer and chief
financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) CIGNA Variable Products Group
By: /s/ Alfred A. Bingham III
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Alfred A. Bingham III, Vice
President and Treasurer
Date: August 30, 2004.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By (Signature and Title) /s/ Richard H. Forde
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Richard H. Forde, Chairman of the Board and
President
Date: August 30, 2004.
By (Signature and Title) /s/ Alfred A. Bingham III
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Alfred A. Bingham III, Vice President and
Treasurer
Date: August 30, 2004