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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.
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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
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292,449
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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
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24,101
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Total Commercial Paper 316,550
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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.
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TimesSquare VP Money Market Fund Investments in Securities 3
June 30, 2004 (Unaudited) (Continued)
Principal Value
(000) (000)
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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
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262,920
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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.
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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.
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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
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Total expenses 1,013
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Net Investment Income 1,566
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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.
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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
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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)
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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
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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.
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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.
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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
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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.
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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
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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.
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