UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
811-5480
--------
(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) 757-7276
---------------
Registrants' telephone number, including area code
Date of fiscal year end: December 31, 2004
Date of reporting period: December 31, 2004
Item 1. Reports to Stockholders.
TimesSquare
VP Core Plus
Bond Fund
- --------------------------------------------------------------------------------
Annual Report
December 31, 2004
CIGNA [Logo]
- --------------------------------------------------------------------------------
1
Dear Shareholders:
Our commentary for TimesSquare VP Core Plus Bond Fund (the "Fund") covering the
year ended December 31, 2004 follows.
Management's Discussion of Fund Performance
Market Summary
Bonds gained ground in the first quarter of 2004 as concerns about the
durability of the U.S. economic recovery pushed low interest rates even lower.
Demand for relatively safe assets such as bonds rose amid renewed fears of
terrorist attacks after the Madrid bombing. Lifted by the tailwind of falling
interest rates, every fixed income sector was in positive territory for the
quarter.
Rising interest rates, inflation concerns, and ongoing geopolitical tensions
adversely affected fixed income market performance in the second quarter. The
representative U.S. Lehman Brothers Aggregate Bond Index, benchmark for the
Fund, returned -2.44%, almost completely erasing the 2.66% gains posted in the
first quarter. For the second and first quarters, the Fund returned -2.22% and
2.37%, respectively.
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.
In the third quarter in an environment of softer-than-expected economic news,
record crude oil prices and persistent geopolitical concerns, the benchmark
Index rallied, returning 3.20% for the period. The Fund returned 3.15% for the
third quarter.
The rally of the third quarter continued into the last three months of the
year, when all major fixed income sectors posted gains, capping a year in which
bonds showed unexpected strength, despite 125 basis points of federal funds
rate increases. The central bank raised the federal funds rate five times
during the year. Investors understood that the Fed was lifting rates from
unusually low levels that had been set to ward off deflation. The benchmark
Index returned 0.95% compared with a 1.14% return for the Fund in the fourth
quarter.
New Interim Adviser
The Board of Trustees of the Fund approved an interim investment advisory
agreement with Pacific Investment Management Company LLC (PIMCO) effective
November 23, 2004, pursuant to which PIMCO now serves as investment adviser to
the Fund, responsible for management of the Fund's portfolio.
William H. Gross leads a team that manages the Fund. He is a Managing Director,
Chief Investment Officer and a founding partner of PIMCO. He has been with
PIMCO since 1971. He has 35 years of investment experience.
There has been no change to the investment objective of the Fund as a result of
the appointment of PIMCO as adviser to the Fund. In addition, PIMCO and CIGNA
Investment Advisors, Inc., formerly known as TimesSquare Capital Management,
Inc., have agreed to waive fees and reimburse expenses if total Fund operating
expenses (excluding extraordinary items) exceed 0.50% per annum of the Fund's
average net assets.
During the term of the interim advisory agreement, CIGNA Investment Advisors,
Inc. will provide administrative services to the Core Plus Bond Fund.
Proposed Merger of the Fund
The Board of Trustees of the Fund has approved, subject to shareholder
approval, a reorganization pursuant to which the Fund would transfer
- --------------------------------------------------------------------------------
2
substantially all of its assets and liabilities to the Total Return Fund of
PIMCO Variable Insurance Trust (PVIT) in exchange for Institutional Class
shares of the PVIT fund having a net asset value equal to the net asset value
of the assets and liabilities so transferred. The PVIT shares would then be
distributed pro rata to shareholders of the Fund. The Fund expects to hold a
special meeting of shareholders in March 2005 to seek shareholder approval of
the merger. You will receive additional information about the proposed merger,
along with a proxy soliciting your approval, prior to the meeting. Please be
sure to vote.
Proxy Voting Information
A description of the Fund's proxy voting policies and procedures is available
without charge, upon request, by calling the Fund at 1-800-528-6718 and on the
Securities and Exchange Commission's website at www.sec.gov. Information
regarding how the Fund voted proxies relating to portfolio securities during
the 12-month period ended June 30, 2004 is available on the SEC website.
Quarterly Portfolio Securities
The Fund files a complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. Forms N-Q will be
available on the SEC's website at www.sec.gov and may be reviewed and copied at
the SEC's Public Reference Room in Washington, D.C. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
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:
Year-to-
date
Fund 4.43%
Lipper Corporate Debt Funds -
"A" Rated Average 4.09
Lehman Brothers Aggregate Bond Index 4.34
In the first half of the year, 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.
The primary drivers of the Fund's performance for the third quarter were sector
allocations to and security selections in corporate bonds and high yield. Even
though the bifurcation of performance among issuers and sectors was not
significant in the third quarter, higher beta and lower quality debt did
perform best. Our allocation to emerging market debt and our international (non
dollar) exposure were also positive contributors to results.
In the fourth quarter, holdings in short and intermediate Treasury Inflation
Protected Securities (TIPS) contributed positively to performance as they
outperformed their nominal counterparts. Lastly, holdings in emerging market
bonds added to performance.
Information about Your Fund's Expenses
As an investor of the Fund, you incur two types of costs: ongoing expenses and
transaction costs. Ongoing expenses include management fees and other Fund
expenses. Examples of transaction costs include sales charges (loads),
redemption fees and account maintenance fees, which are not
- --------------------------------------------------------------------------------
3
shown in this section and which would result in higher total expenses (although
this Fund does not charge transaction fees). The following table, which you are
seeing for the first time, represents a new SEC requirement and is intended to
help you understand your ongoing expenses of investing in the Fund and to help
you compare these expenses (which do not reflect any expenses associated with
variable products through which the Fund may be offered) with the ongoing
expenses of investing in other mutual funds. The table is based on an
investment of $1,000 made at the beginning of the six-month period ended
December 31, 2004.
The table illustrates your Fund's expenses in two ways:
Actual Expenses. The first line of the table below provides information about
actual account values and actual expenses. This helps you estimate the actual
dollar amount of ongoing expenses paid on a $1,000 investment in the Fund using
the Fund's actual return during the period. To estimate the expenses you paid
over the period, simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number in the first line under the heading entitled "Expenses Paid During
Period."
Hypothetical Example for Comparison Purposes. The second line of the table
below provides information about hypothetical account values and hypothetical
expenses based on the Fund's actual expense ratio and an assumed rate of return
of 5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare your Fund's ongoing expenses with those of other mutual
funds. To do so, compare this 5% hypothetical Fund return with the 5%
hypothetical return examples that appear in the shareholder reports of other
mutual funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing expenses only and do not reflect any transaction costs, such as sales
charges (loads) or redemption fees. If these transaction costs had been
included, your costs would have been higher. The "Expenses Paid During Period"
line of the table is useful in comparing ongoing expenses only and will not
help you determine the relative total expenses of owning different funds.
Expenses and value of a $1,000 investment for the six-month period ended
December 31, 2004
Beginning Ending Expenses Paid
Account Account During Period*
Value Value 07/01/04 to
07/01/04 12/31/04 12/31/04
-------------- -------------- ---------------
Actual $ 1,000.00 $ 1,043.30 $ 2.57
Hypothetical (5%
return before
expenses) $ 1,000.00 $ 1,022.62 $ 2.54
* Expenses are equal to the Fund's annualized expense ratio of 0.50%,
multiplied by the average account value over the period, multiplied by the
number of days in the most recent fiscal half year period, then divided by
366. The "Expenses Paid During Period" and the annualized expense ratio are
based on actual expenses paid by the Fund during the period, net of fee
waivers and/or expense reimbursements. If those fee waivers and/or expense
reimbursements had not been in effect, the Fund's actual expenses would
have been higher.
For more information, please refer to the Fund's prospectus.
Outlook
Our new manager's view is that global growth will likely slow over the next
year as the U.S. recovery cools and Europe and Japan prove unable to pick up
the slack. Higher unit labor costs and a weaker dollar will create some
inflationary pressure, but lingering overcapacity worldwide will limit this
effect over a cyclical time frame. Slack in the U.S.
- --------------------------------------------------------------------------------
4
economy is closing but growth may be constrained by a removal of accommodative
monetary and fiscal policy, as the Federal Reserve tightens and fiscal stimulus
fades. Also, with its low savings rate, the U.S. is relying on foreign lenders,
mainly Asian central banks, to finance its prodigious consumption and the trade
deficit that accompanies it. PIMCO is skeptical that China and Japan will
continue to provide this "vendor financing" on agreeable terms over the long
run. In the short run, however, the game will go on, since it keeps interest
rates low for U.S. borrowers and mitigates appreciation of the Chinese and
Japanese currencies versus the dollar, which would hurt export-led growth in
those countries.
Sincerely,
/s/ Richard H. Forde
Richard H. Forde
Chairman of the Board and President
CIGNA Variable Products Group
- --------------------------------------------------------------------------------
5
[THE FOLLOWING WAS REPRESENTED AS A GRAPH IN THE PRINTED MATERIAL]
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (Unaudited)
5/3/99* - 12/31/04
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURN
1 Year Life of Fund Inception Date
Fund 4.43% 6.47% 5/3/99
Lehman Brothers 4.34% 6.39%
Aggregate Bond Index
- --------------------------------------------------------------------------------
Fund Lehman Brothers Aggregate Bond Index
5/3/99 10,000 10,000
12/31/99 9,852 9,797
12/31/00 10,772 10,936
12/31/01 11,748 11,860
12/31/02 12,765 13,076
12/31/03 13,655 13,613
12/31/04 14,260 14,203
CIGNA Variable Products Core Plus Fund (the "Fund") performance figures are
historical and reflect reinvestment of all dividends. The Fund's investment
return and principal value will fluctuate so taht an investor's shares, when
sold may be worth more or less than their original cost. Past performance does
not predict future performance. The Fund's return has been compared with the
total return performance of Lehman Brothers Aggregate Bond Index. This index is
a group of unmanaged securities widely regarded by investors to be
representative of the bond market in general. An investment cannot be made in
the index. Index results do not reflect brokerage changes or other investment
expenses.
* Commencement of operations
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund Investments in Securities 6
December 31, 2004
PRINCIPAL VALUE
(000) (000)
- ------------------------------------------------------------------------------------
LONG-TERM BONDS - 96.5%
COMMUNICATIONS & MEDIA - 0.2%
TPSA Finance BV, 7.75%, 2008 (144A security
acquired July & Aug. 2003 for $137) (a) $ 120 $ 132
------
CONSUMER & RETAIL - 0.5%
VFB LLC, 10.25%, 2009 (b) 2,044 470
------
FINANCIAL - 11.5%
Bank of America Commercial Mortgage, Inc.,
4.88%, 2039 590 607
4.13%, 2042 395 395
Citifinancial Mortgage Securities, Inc.,
3.08, 2033 100 100
3.22%, 2033 100 99
Countrywide Alternative Loan Trust, 4.67%, 2034 520 520
Countrywide Asset-Backed Certificates,
3.32%, 2022 250 248
3.32%, 2023 365 362
Credit Suisse First Boston Mortgage Securities Corp.,
Interest Only 7.50%, 2032 (c) 700 -
Interest Only 8.00%, 2032 (c) 765 -
General Motors Acceptance Corp., 6.75%, 2006 1,700 1,744
Greenwich Capital Commercial Funding Corp.,
5.32%, 2036 915 951
GS Mortgage Securities Corp. II, 5.40%, 2038 905 944
HVB Funding Trust I, 8.74%, 2031 (144A security
acquired May & June 2003 for $174) (a) 170 219
Merrill Lynch Mortgage Trust, 4.35%, 2042 515 520
Morgan Stanley Capital I, 4.05%, 2041 530 526
Residential Asset Mortgage Products, Inc.,
Interest Only, 5.75%, 2005 (c) 720 9
3.81%, 2026 220 220
4.45%, 2028 1,145 1,157
4.23%, 2029 165 166
4.00%, 2030 275 276
Santander Financial Issuances, 6.80%, 2005 95 97
Sanwa Finance Aruba AEC, 8.35%, 2009 205 239
Structured Asset Securities Corp., 4.37%, 2034 525 521
Union Planters Corp., 6.75%, 2005 240 247
------
10,167
------
PRINCIPAL VALUE
(000) (000)
- ------------------------------------------------------------------------------------
FOREIGN GOVERNMENT - 2.8%
Brazil (Federal Republic of),
9.25%, 2010 $ 85 $ 95
11.00%, 2012 80 97
10.50%, 2014 240 284
8.88%, 2024 90 93
Export-Import Bank of Korea, 4.13%, 2009 (144A
security acquired Feb. 2004 for $139) (a) 140 140
Germany (Federal Republic of), 2.00%, 2005 150 (d) 203
Quebec (Province of Canada), 5.50%, 2006 630 649
Russian Federation, Step Coupon (5.00% to
3/31/07), 2030 (144A security acquired Sep. &
Oct. 2002, July & Oct. 2003 & April & Aug.
2004 for $499) (a) 545 561
United Mexican States, 8.30%, 2031 335 393
------
2,515
------
OIL & GAS - 0.2%
Morgan Stanley Bank AG for Gazprom OAO,
9.63%, 2013, (144A security acquired Sep. 2004
for $110) (a) 100 118
Petroleos Mexicanos, 9.50%, 2027 55 69
------
187
------
U.S. GOVERNMENT & AGENCIES (e) - 81.2%
Fannie Mae,
2.50%, 2008 3,480 3,357
4.38%, 2013 1,155 1,152
4.00%, 2018 585 572
4.50%, 2019 1,131 1,128
5.50%, 2019 2,399 2,481
6.50%, 2032 803 843
7.00%, 2032 1,330 1,409
5.00%, 2033 799 795
5.50%, 2033 682 693
6.50%, 2033 814 855
5.00%, 2034 1,552 1,541
5.50%, 2034 5,837 5,929
6.00%, 2034 2,352 2,434
TBA 5.50%, 2019 1,500 1,550
Federal Home Loan Banks,
4.13%, 2005 $ 1,375 $1,376
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund Investments in Securities 7
December 31, 2004 (Continued)
PRINCIPAL VALUE
(000) (000)
- ------------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCIES (continued)
Financing Corp.,
Principal Strips from
8.60%, 2019 830 389
9.70%, 2019 840 405
Freddie Mac,
2.61%, 2011 1,226 1,212
6.50%, 2013 106 112
6.50%, 2016 557 589
6.00%, 2017 637 668
6.50%, 2017 85 90
4.50%, 2018 3,302 3,299
5.00%, 2018 2,938 2,986
6.00%, 2032 926 958
7.50%, 2032 531 569
5.00%, 2033 3,578 3,560
5.50%, 2033 1,686 1,714
6.00%, 2033 711 735
6.50%, 2034 436 458
Ginnie Mae,
6.50%, 2031 295 311
6.50%, 2032 279 294
5.50%, 2033 1,001 1,023
U.S. Treasury Bonds,
8.75%, 2017 200 280
6.00%, 2026 5,193 5,949
6.13%, 2029 40 47
U.S. Treasury Inflation Indexed Note,
2.00%, 2014 2,067 2,132
U.S. Treasury Notes,
3.38%, 2008 1,430 1,425
3.50%, 2009 6,800 6,781
3.88%, 2009 1,800 1,826
6.00%. 2009 540 596
5.00%. 2011 535 569
4.38%, 2012 5,800 5,938
4.88%, 2012 1,000 1,057
-----
72,087
------
PRINCIPAL VALUE
(000) (000)
- ------------------------------------------------------------------------------------
UTILITIES - 0.1%
Korea Electric Power Corp., 5.13%, 2034 (144A
security acquired April 2004 for $89) (a) $ 90 $ 90
-------
TOTAL LONG-TERM BONDS
(Cost - $84,635) 85,648
-------
NUMBER OF
SHARES
-----------
PREFERRED STOCK - 0.9%
FINANCIAL - 0.8%
IBJ Preferred Capital Co. LLC, Step Coupon (8.79%
to 6/30/08) (144A security acquired Aug., Oct.,
& Dec. 2003 & Jan. 2004 for $497) (a) 460 521
Natexis AMBS Co. LLC, Step Coupon (8.44% to
6/30/08) (144A security acquired May 2002
for $174) (a) 160 180
-------
701
-------
U.S. GOVERNMENT AGENCIES (e) - 0.1%
Fannie Mae, 7.00% (f) 1,600 91
-------
TOTAL PREFERRED STOCK
(Cost - $751) 792
-------
PRINCIPAL
(000)
----------
SHORT-TERM OBLIGATIONS - 8.3%
COMMERCIAL PAPER - 3.4%
Barclays U.S. Funding LLC, 2.50%, 4/20/05 $ 3,100 3,076
NUMBER OF
SHARES
---------
MONEY MARKET FUND - 4.8%
TimesSquare VP Money Market Fund (g) 4,239,544 4,240
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund Investments in Securities 8
December 31, 2004 (Continued)
PRINCIPAL VALUE
(000) (000)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT - 0.1%
U.S. Treasury Bills, 1.96%, 3/31/05 $ 75 $ 75
TOTAL SHORT-TERM OBLIGATIONS
(Cost - $7,391) 7,391
-------
TOTAL INVESTMENTS IN SECURITIES - 105.7%
(Total Cost - $92,777) (i) 93,831
Liabilities Less Cash and Other Assets - (5.7)% (5,041)
-------
NET ASSETS - 100.0% $88,790
=======
NOTES TO INVESTMENTS IN SECURITIES
(a) Indicates restricted security; the aggregate value of restricted securities
is $1,961,667 (aggregate cost $1,818,807), which is approximately 2.2% of
net assets. Valuations have been furnished by brokers trading in the
securities or a pricing service for all restricted securities.
(b) 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.
(c) Illiquid security.
(d) Principal is denominated in Euros.
(e) Agency obligations are not guaranteed by the U.S. Government.
(f) Floating rate security.
(g) This Fund is a separate series of the CIGNA Variable Products Group.
(h) A summary of outstanding forward currency contracts, as of December 31,
2004, is as follows:
Net Unrealized
Settlement Forward Foreign Contract Appreciation
Date Contract Currency Value (Depreciation)
- ------------- ---------- ---------- ------------- ---------------
Buys
1/10/05 Euro 850,000 $1,130,334 $ 20,388
Sells
1/10/05 Euro 882,000 $1,184,080 $ (9,964)
- --------------------------------------------------------------------------------
Tax Information
(i) At December 31, 2004, the net unrealized appreciation of investments, based
on cost for federal income tax purposes of $92,987,874, was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value
over tax cost $ 1,093,054
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value (250,199)
-----------
Unrealized appreciation-net $ 842,855
===========
(j) As of December 31, 2004, the components of distributable earnings
(excluding unrealized appreciation/(depreciation) disclosed above) on a tax
basis consisted of the following:
Undistributed ordinary income $ --
Undistributed capital gains $ 587,085
- ----------------------------------------------------
Quality Ratings* of Long-Term Bonds (Unaudited)
December 31, 2004
Value % of
(000) Value
- ----------------------------------------------------
Aaa/AAA $ 79,911 93.3%
Aa/AA 1,461 1.7
A/A 3,118 3.6
Ba/BB 688 0.8
Not Rated 470 0.6
-------- -----
$ 85,648 100.0%
======== =====
- ----------------------------------------------------
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund 9
Statement of Assets and Liabilities
December 31, 2004
(In Thousands)
Assets:
Investments in securities at value $ 93,831
Receivable for fund shares sold 2,231
Interest and dividends receivable 776
Receivable for investments sold 84
Swap premium received 39
Receivable for forward currency contracts 20
Investments for Trustees' deferred compensation plan 4
Unrealized appreciation on swap agreements 4
Prepaid Insurance 4
--------
Total assets 96,993
--------
Liabilities:
Payable for investments purchased 8,070
Custody fees payable 42
Advisory fees payable 29
Audit and legal fees payable 27
Administrative fees payable 13
Payable for forward currency contracts 10
Shareholder reports payable 5
Deferred Trustees' fees payable 4
Other 3
--------
Total liabilities 8,203
--------
Net Assets $ 88,790
========
Components of Net Assets:
Paid in capital $ 87,512
Overdistributed net investment income (192)
Accumulated net realized gain 401
Net unrealized appreciation of investments, futures, forward
contracts and swaps 1,069
--------
Net Assets $ 88,790
========
Shares Outstanding 8,904
========
Net Asset Value and Redemption Price per Share $ 9.97
========
Cost of Investments $ 92,777
========
Statement of Operations
For the Year Ended December 31, 2004
(In Thousands)
Investment Income:
Income:
Interest income $ 5,549
Dividends 99
-------
5,648
Expenses:
Investment advisory fees $ 580
Custodian fees 135
Administrative services fees 67
Audit and legal fees 35
Shareholder reports 7
Transfer agent fees 6
Trustees' fees 5
Other 3
-----
Total expenses 838
Less expenses waived by Adviser (228)
-----
Net expenses 610
-----
Net Investment Income 5,038
-------
Realized and Unrealized Gain (Loss) on
Investments:
Net realized gain (loss) from:
Forward currency contracts 262
Futures contracts (737)
Swap contracts 25
Investments 4,140
-------
3,690
-------
Net change in unrealized appreciation:
Forward currency contracts (144)
Futures contracts (36)
Swap contracts 4
Investments (3,368)
-------
(3,544)
-------
Net Realized and Unrealized Gain
on Investments 146
-------
Net Increase in Net Assets
Resulting from Operations $5,184
=======
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 Year
Ended December 31,
-------------------------
2004 2003
--------- ---------
Operations:
Net investment income $ 5,038 $ 6,119
Net realized gain on investments 3,690 3,852
Net unrealized appreciation (depreciation)
on investments (3,544) 467
--------- ---------
Net increase in net assets from operations 5,184 10,438
--------- ---------
Dividends and Distributions:
From net investment income (6,060) (9,988)
From capital gains (518) --
--------- ---------
Total dividends and distributions (6,578) (9,988)
--------- ---------
Capital Share Transactions:
Net proceeds from shares sold 10,688 63,896
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions 6,578 9,988
--------- ---------
17,266 73,884
Cost of shares redeemed (89,543) (61,600)
--------- ---------
Net increase (decrease) from Fund share
transactions (72,277) 12,284
--------- ---------
Net Increase (Decrease) in Net
Assets (73,671) 12,734
Net Assets:
Beginning of period 162,461 149,727
--------- ---------
End of period * $ 88,790 $ 162,461
========= =========
* includes overdistributed net investment
income of: $ (192) $ (599)
========= =========
For the Year
Ended December 31,
---------------------
2004 2003
------ ------
Transactions in Capital Stock:
Shares sold 1,033 6,103
Shares issued in reinvestment of dividends
and distributions 662 988
------ ------
1,695 7,091
Shares redeemed (8,819) (5,838)
------ ------
Net increase (decrease) in shares
outstanding (7,124) 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 Year Ended December 31,
------------------------------------------------------------------------------
2004 2003 2002 2001 (c) 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value, beginning of period $ 10.14 $ 10.13 $ 9.70 $ 9.87 $ 9.53
-------- -------- -------- -------- -------
Income from investment operations
Net investment income (a) 0.42 0.45 0.42 0.45 0.54
Net realized and unrealized gain 0.03 0.25 0.42 0.44 0.35
-------- -------- -------- -------- -------
Total from investment operations 0.45 0.70 0.84 0.89 0.89
-------- -------- -------- -------- -------
Less dividends and distributions:
Dividends from net investment income (0.57) (0.69) (0.41) (0.94) (0.55)
Distributions from net realized capital gains (0.05) -- -- (0.04) -
Return of capital dividends - - - (0.08) -
-------- --------- --------- -------- --------
Total dividends and distributions (0.62) (0.69) (0.41) (1.06) (0.55)
-------- --------- --------- -------- --------
Net asset value, end of period $ 9.97 $ 10.14 $ 10.13 $ 9.70 $ 9.87
-------- --------- --------- -------- --------
Total Investment Return (b) 4.43% 6.98% 8.66% 9.06% 9.34%
Ratios to Average Net Assets:
Gross expenses 0.69% 0.65% 0.62% 0.60% 0.70%
Fees and expenses waived or borne by the Adviser 0.19% 0.15% 0.12% 0.10% 0.20%
Net expenses 0.50% 0.50% 0.50% 0.50% 0.50%
Net investment income 4.13% 3.91% 4.24% 5.39%(c) 6.66%
Portfolio Turnover 130% 182% 518% 396% 320%
Net assets, End of Period (000 omitted) $ 88,790 $162,461 $ 49,727 $151,090 $ 84,014
(a) Net investment income per share has been calcul ated in accor dance with SE
C 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) 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.
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 12
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 CIGNA
Investment Advisors, Inc. (formerly, 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
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 13
(Continued)
honor its commitments. Due to the longer settlement period, there may be an
increased risk of failure of the other party to honor the transaction. The Fund
records changes in market value of the securities underlying unsettled
commitments in unrealized gains and losses. Gains and losses are realized upon
sale of the commitment.
C. Foreign Currency Translations -- Foreign currency transactions from foreign
investment activity are translated into U.S. dollars on the following basis:
(i) market value of investment securities, other assets and liabilities at the
daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and interest income
and certain 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
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 14
(Continued)
variation margin payments are received or made, depending on whether there were
unrealized gains or losses. When a contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed. Futures
contracts include the risk that a change in the value of the contract may not
correlate with the value of the underlying securities and the possibility of an
illiquid market.
G. High Yield Bonds -- The Fund may invest in high yield bonds; i.e., fixed
income securities rated below investment grade. While the market values of
these securities tend to react less to fluctuations in interest rate levels
than do those of investment-grade securities, the market values of certain of
these securities also tend to be more sensitive to individual corporate
developments and changes in economic conditions than investment-grade
securities. In addition, the issuers of these securities are often highly
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 December 31, 2004, the Fund had the following outstanding swap
agreements:
Notional Effective Termination Unrealized
Counterparty Terms Amount Date Date Appreciation
- ----------------- ----------------- ------------- ----------- ------------- -------------
Bank of America Receive a fixed
rate equal to
6.0% and pay
floating rate
based on 3-month
USD-LIBOR $3,800,000 12/16/14 12/16/19 $ 366
Bank of America Receive floating
rate based on
3-month USD-
LIBOR and pay a
fixed rate equal
to 5.0% $3,000,000 12/16/09 12/16/14 $3,928
Swaps are marked to market daily based upon quotations from market makers and
the change in value, if any, is recorded as unrealized gain or (loss) in the
Statement of Operations. Payments received or made at the beginning of the
measurement period are reflected as such on the Statement of Assets and
Liabilities. Such payments amounted to $38,610 as of December 31, 2004. A
liquidation payment received or made at the termination of the swap is recorded
as realized gain or (loss) on the Statement of Operations. Net periodic
payments, if any, received by the Fund are included as part of realized gain or
(loss) on the Statement of Operations.
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.
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 15
(Continued)
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. The tax character of distributions paid
to shareholders during 2004 was $5,930,414 of Ordinary Income Dividends and
$647,582 of Long-term Capital Gains.
At December 31, 2004, the Fund had no post-October loss. 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, 2004, the Fund
decreased its accumulated net realized gain by $1,498,150, decreased
overdistributed net investment income by $1,429,135, and increased Paid in
capital by $69,015.
2. Investment Advisory Fees and Other Transactions with Affiliates. Through
November 22, 2004, investment advisory fees, in the amount of $315,444 (net of
waivers), were paid or accrued to CIGNA Investment Advisors, Inc. ("CIAI")
(formerly, TimesSquare Capital Management, Inc.), certain officers and
directors of which were affiliated with the Fund. Such advisory fees were based
on an annual rate of 0.50% of the Fund's average daily net assets. CIAI
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) exceeded, on an annual basis, 0.50% of average daily net assets.
Effective November 23, 2004, the Board of Trustees approved an interim
investment advisory agreement with Pacific Investment Management Company LLC
("PIMCO"), pursuant to which PIMCO now serves as Investment Adviser to the
Fund. Advisory fees, in the amount of $36,733 (net of waivers), paid or accrued
to PIMCO are based on an annual rate of 0.50% of the Fund's average daily net
assets. According to an expense limitation agreement between PIMCO, CIAI and
the Fund, to the extent that the ordinary operating expenses incurred by the
Fund in any fiscal year, including but not limited to investment management
fees of the Investment Adviser, but excluding interest, taxes, brokerage
commissions, extraordinary expenses such as litigation and other expenses not
incurred in the ordinary course of the Fund's business ("Fund Operating
Expenses"), exceed the operating expenses limit of 0.50%, such excess amount
("Excess Amount") shall be the liability of the Investment Adviser, provided
that in no event shall the liability of the Investment Adviser exceed 0.25%. In
the event the Excess Amount exceeds 0.25%, such amount shall be the liability
of CIAI, the Administrator. While the interim investment advisory agreement is
in effect, PIMCO and CIAI retain the right to be
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 16
(Continued)
repaid by the Fund if the Fund's expenses fall below the operating expenses
limit of 0.50%, with PIMCO being repaid all amounts waived before CIAI. As of
December 31, 2004, the Fund had a contingent liability of $23,324.
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 CIAI. CIAI has contractually agreed to 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 year ended December 31, 2004, CIAI waived
$30,089 of its advisory fee payable by the Fund. Income distributions from
TSVPMM, which amounted to $79,054 for the year ended December 31, 2004, are
recorded as dividend income in the Statement of Operations.
CIAI is an indirect, wholly-owned subsidiary of CIGNA Corporation.
For administrative services, the Fund reimburses CIAI 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. Effective November 23, 2004, CIAI entered into an administrative
services agreement with the Fund under which CIAI receives 0.05% of the Fund's
average daily net asset. For the year ended December 31, 2004, the Fund paid or
accrued $67,398.
3. Trustees' Fees. Trustees' fees represent remuneration paid or accrued to
Trustees who are not employees of CIGNA Corporation or any of its affiliates.
Trustees may elect to defer receipt of all or a portion of their fees, which
are invested in mutual fund shares in accordance with a deferred compensation
plan.
4. Purchases and Sales of Securities. Purchases and sales of securities,
excluding short-term obligations, for the year ended December 31, 2004, were
$120,665,761 and $121,534,665, respectively, for U.S. Government and Agency
Obligations and $26,102,698 and $88,981,116, 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 December 31, 2004,
were held by Connecticut General Life Insurance Company ("CG Life"). CG Life is
an indirect, wholly-owned subsidiary of CIGNA Corporation.
6. Proposed Merger of the Fund. The Board of Trustees of the Fund has approved,
subject to shareholder approval, a reorganization pursuant to which the Fund
would transfer substantially all of its assets and liabilities to the Total
Return Fund of PIMCO Variable Insurance Trust (PVIT) in exchange for
Institutional Class shares of the PVIT fund having a net asset value equal to
the net asset value of the assets and liabilities so transferred. The PVIT
shares would then be distributed pro rata to shareholders of the Fund. The Fund
expects to hold a special meeting of shareholders in March 2005 to seek
shareholder approval of the merger.
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund 17
Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders of TimesSquare VP Core Plus Bond Fund
In our opinion, the accompanying statement of assets and liabilities, including
the investments in securities, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of TimesSquareVP Core Plus Bond Fund
("Fund") at December 31, 2004, and the results of its operations, the changes
in its net assets and the financial highlights for the periods indicated, in
conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at December 31, 2004 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 16, 2005
- --------------------------------------------------------------------------------
TimesSquare VP Core Plus Bond Fund 18
(Unaudited)
Trustees and Officers
Shareholders elect a Board that oversees the Fund's operations. The Board
appoints officers who are responsible for day-to-day business decisions based
on policies set by the Board.
The following is a list of the Fund's Board of Trustees and officers. Each
Trustee's term of office will be until the next annual meeting of shareholders
or until the election of the Trustee's successor.
Number of
Name, Position Length Portfolios in Other
Address* Held with of Time Principal Occupation(s) During Fund Complex Directorships
and Age Fund Served Past 5 Years Overseen Held by Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Independent
Trustees
Russell H. Trustee Trustee since Senior Vice President (Investor 7 --
Jones 1995 Relations, Public Relations), Chief
60 Investment Officer and Treasurer,
Kaman Corporation
(helicopters and aircraft
components, industrial
distribution)
Paul J. Trustee Trustee since Special Advisor to the Board of 7 Western
McDonald 1995 Directors, Friendly Ice Cream Massachusetts
61 Corporation (family restaurants Electric Company
and dairy products)
Marnie Trustee Trustee since Diocesan Consultant, Episcopal 7 Boston Mutual Life
Wagstaff 2001 Diocese of Connecticut; Insurance Company
Mueller Previously, Visiting Professor of
65 Health Economics, Wesleyan
University
Carol Ann Trustee Trustee since Director and Chair of Audit 7 Reed & Barton
Hayes 2003 Committee, Reed and Barton Corporation
60 Corporation
Affiliated Trustees and Fund Officers
Richard H. Trustee, Trustee, Chief Investment Officer, CIGNA 7 Director of various
Forde Chairman of Chairman and Investment Management subsidiaries of
51 the Board and President since CIGNA Corporation
President 1998
Alfred A. Vice President Officer CIGNA Funds Treasurer; 7 --
Bingham III and Treasurer Since 1982 Assistant Vice President, CIGNA
60 Investment Management
Jeffrey S. Vice President Officer Senior Counsel, 7 --
Winer and Secretary Since 1993 CIGNA Corporation
47
- ------------------------------------------------------------------------------------------------------------------------------------
* All Trustees and officers have an address c/o CIGNA Investment Advisors, Inc. (formerly, 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 Pacific Investment Management Company LLC, 840 Newport
Center Drive, Newport Beach, CA 92660.
- --------------------------------------------------------------------------------
TimesSquare
VP Money Market
Fund
- --------------------------------------------------------------------------------
Annual Report
December 31, 2004
CIGNA [LOGO}
- --------------------------------------------------------------------------------
1
Dear Shareholders:
Our report for CIGNA Variable Products Money Market Fund (the "Fund") covering
the year ended December 31, 2004 follows.
Market Environment
The Federal Reserve ("Fed") met four times during first six months of 2004. In
the first three meetings, the Fed funds rate was left unchanged at 1%. However,
after a year of keeping rates on hold, at the June 30, 2004 meeting the Fed
funds rate was raised 25 basis points to 1.25%. The Fed also announced that it
was willing to move more aggressively in raising rates in the future if
inflation data warranted.
The Fed met four more times during the second half of the year, raising the Fed
funds rate 25 basis points each time. The Fed has confirmed their plan to
continue this trend with further increases at a "measured" pace. Market
economists continue to believe the Fed is "staying the course" to keep policy
accommodative by moving at a measured pace that will support growth and prevent
inflation from accelerating.
Portfolio Composition and Performance
On December 31, 2004, the portfolio contained: top-tier domestic commercial
paper, 58.1%; top-tier foreign commercial paper, 12.6%; and U.S. Government and
Agencies, 29.3%. The Fund is well diversified.
Total returns for the year ended December, 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 0.97%
Lipper Money Market Funds Average 0.60
3-month U.S. Treasury Bill 1.24
As of December 31, 2004, the Fund's weighted average portfolio maturity was 13
days, and the annualized 7-day yield was 1.81%.
Information about Your Fund's Expenses
As an investor of the Fund, you incur two types of costs: ongoing expenses and
transaction costs. Ongoing expenses include management fees and other Fund
expenses. Examples of transaction costs include sales charges (loads),
redemption fees and account maintenance fees, which are not shown in this
section and which would result in higher total expenses (although this Fund
does not charge transaction fees). The following table, which you are seeing
for the first time, represents a new SEC requirement and is intended to help
you understand your ongoing expenses of investing in the Fund and to help you
compare these expenses (which do not reflect any expenses associated with
variable products through which the Fund may be offered) with the ongoing
expenses of investing in other mutual funds. The table is based on an
investment of $1,000 made at the beginning of the six-month period ended
December 31, 2004.
The table illustrates your Fund's expenses in two ways:
Actual Expenses. The first line of the table below provides information about
actual account values and actual expenses. This helps you estimate the actual
dollar amount of ongoing expenses paid on a $1,000 investment in the Fund using
the Fund's actual return during the period. To estimate the expenses you paid
over the period, simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number in the first line under the heading entitled "Expenses Paid During
Period."
- --------------------------------------------------------------------------------
2
Hypothetical Example for Comparison Purposes. The second line of the table
below provides information about hypothetical account values and hypothetical
expenses based on the Fund's actual expense ratio and an assumed rate of return
of 5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare your Fund's ongoing expenses with those of other mutual
funds. To do so, compare this 5% hypothetical Fund return with the 5%
hypothetical return examples that appear in the shareholder reports of other
mutual funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing expenses only and do not reflect any transaction costs, such as sales
charges (loads) or redemption fees. If these transaction costs had been
included, your costs would have been higher. The "Expenses Paid During Period"
line of the table is useful in comparing ongoing expenses only and will not
help you determine the relative total expenses of owning different funds.
Expenses and value of a $1,000 investment for the six-month period ended
December 31, 2004
Beginning Ending Expenses Paid
Account Account During Period*
Value Value 07/01/04 to
07/01/04 12/31/04 12/31/04
Actual $ 1,000.00 $ 1,006.50 $ 2.05
Hypothetical (5%
return before
expenses) $ 1,000.00 $ 1,023.09 $ 2.07
* Expenses are equal to the Fund's annualized expense ratio of 0.41%,
multiplied by the average account value over the period, multiplied by the
number of days in the most recent fiscal half year period, then divided by
366.
For more information, please refer to the Fund's prospectus.
Proposed Merger of the Fund
The Board of Trustees of CIGNA Variable Product Group (CVPG) has approved,
subject to Fund shareholder approval, a reorganization pursuant to which the
TimesSquare VP Money Market Fund would transfer substantially all of its assets
and liabilities to the Money Market Fund of PIMCO Variable Insurance Trust
(PVIT) in exchange for Institutional Class shares of the PVIT fund having a net
asset value equal to the net asset value of the assets and liabilities so
transferred. The PVIT shares would then be distributed pro rata to shareholders
of the Fund. The Fund has scheduled a special meeting of shareholders on March
29, 2005 to seek shareholder approval of the merger.
Proxy Voting Information
A description of the Fund's proxy voting policies and procedures is available
without charge, upon request, by calling the Fund at 1-800-528-6718 and on the
Securities and Exchange Commission's website at www.sec.gov. Information
regarding how the Fund voted proxies relating to portfolio securities during
the 12-month period ended June 30, 2004 is available on the SEC website.
Quarterly Portfolio Securities
The Fund files a complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. Forms N-Q will be
available on the SEC's website at www.sec.gov and may be reviewed and copied at
the SEC's Public Reference Room in Washington, D.C. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Outlook
Economic data continues to show signs of strength, and we expect Fed policy
makers to maintain their "measured" approach and continue tightening into
- --------------------------------------------------------------------------------
3
the first half of 2005. Economic data is expected to reflect an economy which
is firmly established and resilient in the face of inflation and rising oil
prices. With this in mind, we will continue to focus on the developing trends
in both the U.S. and global economy as keys to further Federal Reserve action,
and adjust our portfolio strategy accordingly. Sincerely,
/s/ Richard H. Forde
Richard H. Forde
Chairman of the Board and President
CIGNA Variable Products Group
- --------------------------------------------------------------------------------
4
[THE FOLLOWING WAS REPRESENTED AS A GRAPH IN THE PRINTED MATERIAL]
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (Unaudited)
3/1/96* - 12/31/04
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURN
1 Year 5 Year Life of Fund Inception Date
Fund 0.97% 2.56% 3.63% 3/1/96
3 Month U.S. 1.24% 2.79% 3.77%
Treasury Bill
- --------------------------------------------------------------------------------
Date Fund 3 Month U.S. Treasury Bill
3/96 10,000 10,000
12/96 10,418 10,435
12/97 10,959 10,983
12/98 11,523 11,537
12/99 12,079 12,084
12/00 12,809 12,804
12/01 13,286 13,327
12/02 13,473 13,554
12/03 13,576 13,700
12/04 13,708 13,870
CIGNA Variable Products Money Market Fund (the "Fund") performance figures
are historical and reflect reinvestment of all dividends. The annualized yield
for the seven days ended December 31, 2004 as 1.81%, and the Fund's average
maturity was 13 days. An investment in the Fund is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund. Past performance
does not predict future performance. The Fund's return has been compared with
the total return performance of the three month U.S. Treasury Bill, which does
not reflect brokerage charges or other investment expenses. The principal value
of the U.S. Treasury Bill is guaranteed by the full faith and credit of the
United States.
* Commencement of operations
- --------------------------------------------------------------------------------
TimesSquare VP Money Market Fund Investments in Securities 5
December 31, 2004
Principal Value
(000) (000)
---------- ---------
COMMERCIAL PAPER - 70.7%
Domestic - 58.1%
Abbott Laboratories, 2.24%, 1/11/05 $ 1,201 $ 1,200
Barton Capital Corp.,
2.28%, 1/5/05 7,465 7,463
2.30%, 1/5/05 12,000 11,997
Bemis Company, Inc., 2.25%, 1/10/05 15,000 14,992
CAFCO LLC, 2.27%, 1/4/05 1,001 1,001
ChevronTexaco Funding Corp., 2.26%, 1/6/05 19,510 19,504
Exxon Asset Management Co., 2.24%, 1/12/05 20,053 20,039
Gannett, Inc.,
2.19%, 1/3/05 6,367 6,366
2.24%, 1/3/05 11,862 11,861
Gillette Co., 2.24%, 1/18/05 21,000 20,978
Hershey Foods Corp., 2.18%, 1/18/05 2,500 2,497
International Business Machines Corp.,
2.26%, 1/12/05 20,000 19,986
Kimberly Clark Corp.,
2.25%, 1/18/05 17,606 17,587
2.15%, 1/20/05 1,037 1,036
Minnesota Mining & Manufacturing Co.,
2.17%, 1/6/05 10,000 9,997
Morgan Stanley, Dean Witter, Discover & Co.,
2.34%, 1/4/05 21,000 20,996
Nestle Capital Corp., 2.25%, 1/10/05 15,844 15,835
Old Line Funding Corp., 2.32%, 1/5/05 21,401 21,395
Paccar Financial Corp.,
2.30%, 1/4/05 9,246 9,244
2.28%, 1/6/05 10,000 9,997
PepsiCo, Inc., 2.25%, 1/13/05 11,369 11,360
Pfizer, Inc., 2.28%, 1/24/05 21,309 21,278
Procter & Gamble Co., 2.26%, 1/10/05 21,000 20,988
State Street Boston Corp., 2.26%, 1/18/05 20,000 19,979
Windmill Funding Corp., 2.33%, 1/13/05 10,000 9,992
--------
327,568
--------
Foreign - 12.6%
BNP Paribas Finance, Inc., 2.32%, 1/13/05 10,000 9,992
B P Capital Markets PLC, 2.24%, 1/7/05 21,500 21,492
Caisse D' Amortissement, 2.23%, 1/31/05 1,463 1,460
KFW International Finance, Inc., 2.25%, 1/7/05 12,634 12,629
Principal Value
(000) (000)
---------- ---------
Novartis Finance Corp.,
2.24%, 1/3/05 $ 3,343 $ 3,343
2.15%, 1/4/05 9,892 9,890
Royal Bank of Scotland, 2.29%, 1/11/05 11,498 11,491
UBS Finance LLC, 2.36%, 1/5/05 1,038 1,038
--------
71,335
--------
Total Commercial Paper 398,903
--------
U.S. GOVERNMENT AGENCIES (b) - 29.3%
Fannie Mae,
2.24%, 1/3/05 25,000 24,997
2.24%, 1/5/05 7,480 7,478
2.25%, 1/7/05 11,262 11,258
2.33%, 1/28/05 (a) 11,500 11,500
1.65%, 5/16/05 2,500 2,500
2.42%, 10/7/05 (a) 20,000 19,998
Federal Farm Credit Bank,
2.33%, 3/24/05 (a) 15,000 15,000
2.36%, 6/23/05 (a) 2,500 2,500
2.39%, 3/1/06 (a) 15,000 15,000
Federal Home Loan Bank,
4.37%, 2/15/05 2,000 2,007
1.30%, 2/23/05 4,000 4,000
2.48%, 3/30/05 (a) 7,500 7,500
2.02%, 6/8/05 2,500 2,500
1.91%, 10/5/05 (a) 7,500 7,497
Freddie Mac,
2.22%, 1/4/05 12,612 12,610
1.23%, 1/11/05 1,500 1,500
1.30%, 1/11/05 7,500 7,497
1.40%, 1/19/05 2,224 2,222
2.00%, 10/7/05 (a) 7,500 7,500
--------
165,064
--------
TOTAL INVESTMENTS IN SECURITIES - 100.0%
(Total Cost - $563,967) (c) 563,967
Cash and Other Assets, Less Liabilities - 0.0% 13
--------
NET ASSETS - 100.0% $563,980
========
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP Money Market Fund Investments in Securities 6
December 31, 2004 (Continued)
- --------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES
(a) Variable rate security. Rate is as of December 31, 2004.
(b) Agency obligations are not guaranteed by the U.S. Government.
Tax Information
(c) As of December 31, 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 $77,731 13.8%
Federal Farm Credit Bank 32,500 5.8
Freddie Mac 31,329 5.6
Federal Home Loan Bank 23,504 4.2
B P Capital Markets PLC 21,492 3.8
Old Line Funding Corp. 21,395 3.8
Pfizer, Inc. 21,278 3.8
Morgan Stanley, Dean Witter, Discover & Co. 20,996 3.7
Procter & Gamble Co. 20,988 3.7
Gillette Co. 20,978 3.7
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TimesSquare VP Money Market Fund
Portfolio by Type of Short Term Security Value % of
(Unaudited) (000) Net Assets
- ------------------------------------------------------- --------- ----------
Domestic Commercial Paper $ 327,568 58.1%
Foreign Commercial Paper 71,335 12.6
U.S. Government Agencies 165,064 29.3
--------- -----
$ 563,967 100.0%
- --------------------------------------------------------------------------------
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP Money Market Fund 7
Statement of Assets and Liabilities
December 31, 2004
(In Thousands)
Assets:
Investments in securities at value $ 563,967
Interest receivable 286
Prepaid insurance 5
---------
Total assets 564,258
---------
Liabilities:
Investment advisory fees payable 168
Custodian fees payable 39
Audit and legal fees payable 29
Administrative services fees payable 28
Registration fees payable 8
Transfer agent fees payable 3
Shareholder reports 3
---------
Total liabilities 278
---------
Net Assets $ 563,980
=========
Components of Net Assets:
Paid in capital $ 563,980
---------
Net Assets $ 563,980
=========
Shares Outstanding 563,978
=========
Net Asset Value and Redemption Price per Share $ 1.00
=========
Cost of Investments $ 563,967
=========
Statement of Operations
For the Year Ended December 31, 2004
(In Thousands)
Investment Income:
Income:
Interest $ 7,451
-------
Expenses:
Investment advisory fees $ 1,844
Administrative services fees 139
Custodian fees and expenses 112
Auditing and legal fees 45
Trustees' fees 16
Registration fees 9
Shareholder reports 9
Transfer agent fees 6
Insurance expense 5
-------
Total expenses 2,185
-------
Net Investment Income 5,266
-------
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 $ 5,266
=======
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP Money Market Fund 8
Statements of Changes in Net Assets
(In Thousands)
For the Year Ended
December 31,
-------------------------
2004 2003
--------- ---------
Operations:
Net investment income $ 5,266 $ 2,939
--------- ---------
Net increase in net assets from operations 5,266 2,939
--------- ---------
Dividends and Distributions:
From net investment income (5,266) (2,872)
--------- ---------
Total dividends and distributions (5,266) (2,872)
--------- ---------
Capital Share Transactions:
Net proceeds from sales of shares 457,778 546,426
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions 5,266 2,883
--------- ---------
463,044 549,309
Cost of shares redeemed (284,180) (529,819)
--------- ---------
Net increase in net assets from
Fund share transactions 178,864 19,490
--------- ---------
Net Increase in Net Assets 178,864 19,557
Net Assets:
Beginning of period 385,116 365,559
--------- ---------
End of period $ 563,980 $ 385,116
========= =========
For the Year Ended
December 31,
-------------------------
2004 2003
-------- --------
Transactions in Capital Stock
Shares sold 457,778 546,426
Shares issued in reinvestment of
dividends and distributions 5,266 2,883
-------- --------
463,044 549,309
Shares redeemed (284,180) (529,819)
-------- --------
Net increase in shares outstanding 178,864 19,490
======== ========
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP Money Market Fund 9
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended December 31,
----------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income (a) 0.01 0.01 0.01 0.04 0.06
-------- -------- -------- ------- --------
Total from investment operations 0.01 0.01 0.01 0.04 0.06
-------- -------- -------- ------- --------
Less dividends and distributions:
Dividends from net investment income (0.01) (0.01) (0.01) (0.04) (0.06)
--------- --------- --------- -------- --------
Total dividends and distributions (0.01) (0.01) (0.01) (0.04) (0.06)
--------- --------- --------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ======== ========
Total Return 0.97% 0.77% 1.41% 3.73% 6.06%(b)
Ratios to Average Net Assets:
Gross expenses 0.41% 0.44% 0.43% 0.48% 0.54%
Fees and expenses waived by the Adviser 0.00% 0.00% 0.00% 0.00% 0.04%
Net expenses 0.41% 0.44% 0.43% 0.48% 0.50%
Net investment income 1.00% 0.78% 1.37% 3.53% 6.01%
Net Assets, End of Period (000 omitted) $563,980 $385,116 $365,559 $217,305 $160,905
(a) Net investment income per share has been calculated in accordance with SEC
requirements, with the exception that end of year accumulated
undistributed/(overdistributed) net investment income has not been adjusted
to reflect current year permanent differences between financial and tax
accounting.
(b) Had the Adviser not waived or reimbursed a portion of expenses, total
return would have been reduced.
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP Money Market Fund Notes To Financial Statements 10
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 December 31, 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 year ended
December 31, 2004, the total tax distributions were $5,266,395.
2. Investment Advisory Fees and Other Transactions with Affiliates. Investment
advisory fees are paid or accrued to CIGNA Investment Advisors, Inc. ("CIAI")
(formerly, TimesSquare Capital Management, Inc.), 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.
CIAI 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. Effective May 1, 2002, CIAI 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 VP Money Market Fund Notes To Financial Statements 11
(Continued)
CIAI waives advisory fees or reimburses the Fund's operating expenses. As of
December 31, 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. CIAI 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 CIAI 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 year ended December 31, 2004, the Fund paid or accrued
$139,102.
CIAI 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 98.6%, 0.8%, and 0.6%,
respectively, as of December 31, 2004.
5. Proposed Merger of the Fund. The Board of Trustees of CIGNA Variable Product
Group (CVPG) has approved, subject to Fund shareholder approval, a
reorganization pursuant to which the TimesSquare VP Money Market Fund would
transfer substantially all of its assets and liabilities to the Money Market
Fund of PIMCO Variable Insurance Trust (PVIT) in exchange for Institutional
Class shares of the PVIT fund having a net asset value equal to the net asset
value of the assets and liabilities so transferred. The PVIT shares would then
be distributed pro rata to shareholders of the Fund. The Fund has scheduled a
special meeting of shareholders on March 29, 2005 to seek shareholder approval
of the merger.
- --------------------------------------------------------------------------------
TimesSquare VP Money Market Fund 12
Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders of TimesSquare VP Money Market Fund
In our opinion, the accompanying statement of assets and liabilities, including
the investments in securities, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of TimesSquare VP Money Market Fund
("Fund") at December 31, 2004, and the results of its operations, the changes
in its net assets and the financial highlights for the periods indicated, in
conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at December 31, 2004 by correspondence with the custodian, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 16, 2005
- --------------------------------------------------------------------------------
TimesSquare VP Money Market Fund 13
(Unaudited)
Trustees and Officers
Shareholders elect a Board that oversees the Fund's operations. The Board
appoints officers who are responsible for day-to-day business decisions based
on policies set by the Board.
The following is a list of the Fund's Board of Trustees and officers. Each
Trustee's term of office will be until the next annual meeting of shareholders
or until the election of the Trustee's successor.
Number of
Name, Position Length Portfolios in Other
Address* Held with of Time Principal Occupation(s) During Fund Complex Directorships
and Age Fund Served Past 5 Years Overseen Held by Trustee
- ------------- ---------------- ----------------- -------------------------------------- --------------- -----------------
Independent Trustees
Russell H. Trustee Trustee since Senior Vice President (Investor 7 --
Jones 1995 Relations, Public Relations),
60 Chief Investment Officer and
Treasurer, Kaman Corporation
(helicopters and aircraft components,
industrial distribution)
Paul J. Trustee Trustee since Special Advisor to the Board of 7 Western
McDonald 1995 Directors, Friendly Ice Cream Massachusetts
61 Corporation (family restaurants and Electric Company
dairy products)
Marnie Trustee Trustee since Diocesan Consultant, Episcopal 7 Boston Mutual
Wagstaff 2001 Diocese of Connecticut; Previously, Life Insurance
Mueller Visiting Professor of Health Company
65 Economics, Wesleyan University
Carol Ann Trustee Trustee since Director and Chair of Audit 7 Reed & Barton
Hayes 2003 Committee, Reed and Barton Corporation
60 Corporation
Affiliated Trustees and Fund Officers
Richard H. Trustee, Trustee, Chief Investment Officer, CIGNA 7 Director of
Forde Chairman of Chairman and Investment Management various
51 the Board and President since subsidiaries of
President 1998 CIGNA
Corporation
Alfred A. Vice President Officer CIGNA Funds Treasurer; 7 --
Bingham III and Treasurer Since 1982 Assistant Vice President, CIGNA
60 Investment Management
Jeffrey S. Vice President Officer Senior Counsel, 7 --
Winer and Secretary Since 1993 CIGNA Corporation
47
- --------------------------------------------------------------------------------------------------------------------------
* All Trustees and officers have an address c/o TimesSquare Capital Management, Inc., 280 Trumbull Street, H16C, Hartford,
CT 06103.
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 CIGNA Investment Advisors, Inc., 280 Trumbull Street,
Hartford, Connecticut 06103.
- --------------------------------------------------------------------------------
TimesSquare VP
S&P 500(R) Index Fund
- -------------------------------------------------------
Annual Report
December 31, 2004
[CIGNA LOGO]
- --------------------------------------------------------------------------------
1
Dear Shareholders:
Our commentary for TimesSquare VP S&P 500(R) Index Fund (the "Fund")
covering the year ended December 31, 2004 follows.
Management's Discussion of Fund Performance
Market
Equity markets were up nearly 4% through the first few weeks of 2004, 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 ISM index number in seven years, and a
two-year low in unemployment, the S&P 500(R) 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(R) up 1.69% for the first quarter.
The Fund returned 1.64% for the first quarter.
In the second quarter, the stock market, as measured by the S&P 500(R), returned
1.72% as equity declines in April were offset by gains in May and June. The Fund
returned 1.68% for the second quarter. Corporate earnings continued to surprise
on the upside, but concerns over rising interest rates continued to dissuade
buyers.
During the third quarter, the U.S. economy softened, a victim of rising oil
prices and declining consumer confidence. Job growth slowed to a monthly
increase of 125,000 new jobs in August from 308,000 new jobs in March; however,
the unemployment rate ratcheted downward in 2004 to 5.4% in August versus 5.7%
at the end of 2003.
In spite of increasing earnings, U.S. stocks turned in negative returns in the
third quarter, with the S&P 500(R) Index and the Fund returning -1.87% and
- -1.96%, respectively. Value stocks outperformed growth issues. As has been the
case each quarter since the first quarter of 2003, small cap stocks outperformed
their large cap counterparts.
During the fourth quarter of 2004, stocks again posted positive performance,
with the S&P 500(R) Index and the Fund up 9.23% and 9.18%, respectively. The
equity markets rebounded, as such positive factors as improving corporate
earnings and the decisive resolution of the U.S. presidential election offset
various headwinds. Oil prices receded from record levels as the Organization of
Petroleum Exporting Countries increased production. Inflation remained low, in
large part due to the Federal Reserve Board's continued measured approach to
raising the federal funds target rate. However, slower-than-anticipated
economic, productivity and jobs growth continued to be a drag on the market. All
sectors finished in positive territory for the quarter, with the information
technology, consumer discretionary, utilities and industrial sectors performing
best. In contrast, the materials, telecommunications, consumer staples,
financial, health care and energy sectors lagged the overall market.
Interim Adviser
Effective October 1, 2004 the Board of Trustees of the Fund appointed Merrill
Lynch Investment Managers, L.P. (MLIM(R)) as investment adviser to the Fund
under an interim investment advisory agreement. The Fund agreed to pay MLIM an
advisory fee at an annual rate of 0.10% of the Fund's average net assets.
The former adviser to the Fund, CIGNA Investment Advisors, Inc. (CIGNA Advisors)
(formerly known as TimesSquare Capital Management, Inc.) continues to provide
- --------------------------------------------------------------------------------
2
administrative services to the Fund, such as preparation of prospectuses and
shareholder reports and bookkeeping and accounting services.
These arrangements resulted in no change to the investment objective or strategy
of the Fund. In addition, CIGNA Advisors continues to reimburse the Fund if
total Fund operating expenses (excluding extraordinary items) exceed 0.25% per
annum of the Fund's average net assets.
Proposed Merger of the Fund
The Board of Trustees of the Fund expects to approve a reorganization pursuant
to which the Fund would transfer substantially all of its assets and liabilities
to the Dreyfus Stock Index Fund, Inc. ("Dreyfus Fund") in exchange for Initial
Class shares of the Dreyfus Fund having a net asset value equal to the net asset
value of the assets and liabilities so transferred. The Dreyfus Fund shares
would then be distributed pro rata to shareholders of the Fund. The Dreyfus Fund
has the same investment strategy as the Fund -- it seeks to match the total
return of the S&P 500(R) by investing in all 500 stocks in the index. The Fund
expects to hold a special meeting of shareholders in April 2005 to seek
shareholder approval of the merger. You will receive additional information
about the proposed merger, along with a proxy, before the meeting. Please be
sure to vote.
The CVPG Board of Trustees also expects to approve Mellon Equity Associates, LLP
(an affiliate of Dreyfus) to serve as interim manager of the Fund in February
2005. Mellon Equity Associates would manage the Fund until it merges with the
Dreyfus Fund. There will be no change to the investment objective of the Fund as
a result of the appointment of Mellon Equity Associates as adviser to the Fund.
In addition, CIGNA Advisors will, during the term of the interim advisory
agreement, continue to waive fees and reimburse expenses if total Fund operating
expenses (excluding extraordinary items) exceed 0.25% per annum of the Fund's
average net assets.
During the term of the new interim advisory agreement, CIGNA Advisors will
continue to provide administrative services to the S&P 500(R) Index Fund.
Proxy Voting Information
A description of the Fund's proxy voting policies and procedures is available
without charge, upon request, by calling the Fund at 1-800-528-6718 and on the
Securities and Exchange Commission's website at www.sec.gov. Information
regarding how the Fund voted proxies relating to portfolio securities during the
12-month period ended June 30, 2004 is available on the SEC website.
Quarterly Portfolio Securities
The Fund files a complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. Forms N-Q will be
available on the SEC's website at www.sec.gov and may be reviewed and copied at
the SEC's Public Reference Room in Washington, D.C. Information on the operation
of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Performance Summary
Returns for the twelve months ended December 31, 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:
Year-to-date
Fund 10.63%
Lipper S&P 500(R) Funds Average 10.21
S&P 500(R) Index 10.88
Information about Your Fund's Expenses
As an investor of the Fund, you incur two types of costs: ongoing expenses and
transaction costs. Ongoing expenses include management fees and
- --------------------------------------------------------------------------------
3
other Fund expenses. Examples of transaction costs include sales charges
(loads), redemption fees and account maintenance fees, which are not shown in
this section and which would result in higher total expenses (although this Fund
does not charge transaction fees). The following table, which you are seeing for
the first time, represents a new SEC requirement and is intended to help you
understand your ongoing expenses of investing in the Fund and to help you
compare these expenses (which do not reflect any expenses associated with
variable products through which the Fund may be offered) with the ongoing
expenses of investing in other mutual funds. The table is based on an investment
of $1,000 made at the beginning of the six-month period ended December 31, 2004.
The table illustrates your Fund's expenses in two ways:
Actual Expenses. The first line of the table below provides information about
actual account values and actual expenses. This helps you estimate the actual
dollar amount of ongoing expenses paid on a $1,000 investment in the Fund using
the Fund's actual return during the period. To estimate the expenses you paid
over the period, simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number in the first line under the heading entitled "Expenses Paid During
Period."
Hypothetical Example for Comparison Purposes. The second line of the table below
provides information about hypothetical account values and hypothetical expenses
based on the Fund's actual expense ratio and an assumed rate of return of 5% per
year before expenses, which is not the Fund's actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending
account balance or expenses you paid for the period. You may use this
information to compare your Fund's ongoing expenses with those of other mutual
funds. To do so, compare this 5% hypothetical Fund return with the 5%
hypothetical return examples that appear in the shareholder reports of other
mutual funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing expenses only and do not reflect any transaction costs, such as sales
charges (loads) or redemption fees. If these transaction costs had been
included, your costs would have been higher. The "Expenses Paid During Period"
line of the table is useful in comparing ongoing expenses only and will not help
you determine the relative total expenses of owning different funds.
Expenses and value of a $1,000 investment for the six-month period ended
December 31, 2004
Beginning Ending Expenses Paid
Account Account During Period*
Value Value 07/01/04 to
07/01/04 12/31/04 12/31/04
Actual $1,000.00 $1,070.40 $1.30
Hypothetical (5%
return before
expenses) $1,000.00 $1,023.88 $1.27
* Expenses are equal to the Fund's annualized expense ratio of 0.25%,
multiplied by the average account value over the period, multiplied by the
number of days in the most recent fiscal half year period, then divided by
366. The "Expenses Paid During Period" and the annualized expense ratio are
based on actual expenses paid by the Fund during the period, net of fee
waivers and/or expense reimbursements. If those fee waivers and/or expense
reimbursements had not been in effect, the Fund's actual expenses would have
been higher.
- --------------------------------------------------------------------------------
4
For more information, please refer to the Fund's prospectus.
Outlook
The 2005 outlook for financial markets appears more challenging than that of the
year just ended, as a consequence of both fundamental economic as well as
valuation considerations. The combination of a progressive tightening in
liquidity and monetary conditions, an upward trend in bond market yields, higher
inflation, and a sharp slowdown in the growth of corporate profits could create
a challenging environment for common stocks.
Sincerely,
/s/ Richard H. Forde
Richard H. Forde
Chairman of the Board and President
CIGNA Variable Products Group
- --------------------------------------------------------------------------------
5
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (Unaudited)
12/31/93 - 12/31/04
[TABULAR REPRESENTATION OF LINE CHART]
S&P
Fund 500(R) Index
------ -------------
12/94 10,000 10,000
12/95 13,682 13,758
12/96 16,757 16,917
12/97 22,346 22,560
12/98 28,738 29,007
12/99 34,705 35,110
12/00 31,453 31,913
12/01 27,621 28,121
12/02 21,404 21,905
12/03 27,456 28,188
12/04 30,374 31,256
AVERAGE ANNUAL RETURN
1 Year 5 Year 10 Year
Fund 10.63% -2.63% 11.75%
S&P 500 Index 10.88% -2.30% 12.07%
CIGNA Variable Products S&P 500(R) Index Fund (the "Fund") performance figures
are historical and reflect reinvestment of all dividends. The Fund's investment
return and principal value will fluctuate so that an investor's shares, when
sold may be worth more or less than their original cost. Past performance does
not predict future performance. The Fund's return has been compared with the
total return performance of S&P 500(R) Index. This index is a group of unmanaged
securities widely regarded by investors to be representative of the stock market
in general. An investment cannot be made in the index. Index results do not
reflect brokerage changes or other investment expenses.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500(R) Index Fund Investments in Securities 6
December 31, 2004
Number of Value
Shares (000)
- --------------------------------------------------------------------------------
COMMON STOCKS - 96.1%
AEROSPACE/DEFENSE - 1.7%
Boeing (The) Co. 12,876 $ 667
General Dynamics Corp. 3,100 324
Goodrich Corp. 1,800 59
L-3 Communications Holdings, Inc. 1,802 132
Lockheed Martin Corp. 6,860 381
Northrop Grumman Corp. 5,478 298
Raytheon Co. 6,900 268
Rockwell Collins, Inc. 2,800 110
United Technologies Corp. 7,900 816
------
3,055
------
AGRICULTURE - 1.5%
Altria Group, Inc. 31,600 1,931
Archer-Daniels-Midland Co. 9,987 223
Monsanto Co. 4,135 230
Reynolds American, Inc. 2,300 181
UST, Inc. 2,600 125
------
2,690
------
AUTO MANUFACTURERS & PARTS - 0.8%
Cooper Tire & Rubber Co. 1,100 24
Dana Corp. 2,343 41
Delphi Corp. 8,626 78
Ford Motor Co. 28,297 414
General Motors Corp. 8,700 349
Goodyear (The) Tire & Rubber Co. (a) 2,700 40
Johnson Controls, Inc. 2,900 184
Navistar International Corp. (a) 1,100 48
Paccar, Inc. 2,687 216
Visteon Corp. 2,051 20
------
1,414
------
BIOTECHNOLOGY - 1.1%
Amgen, Inc. (a) 19,568 1,255
Biogen Idec, Inc. (a) 5,235 349
Chiron Corp. (a) 2,900 97
Genzyme Corp. (General Division) (a) 3,500 203
Number of Value
Shares (000)
- --------------------------------------------------------------------------------
BIOTECHNOLOGY (continued)
Medimmune, Inc. (a) 3,800 $ 103
Millipore Corp. (a) 800 40
------
2,047
------
CHEMICALS - 1.6%
Air Products & Chemicals, Inc. 3,500 203
Ashland, Inc. 1,100 64
Dow (The) Chemical Co. 14,410 713
du Pont (E.I.) de Nemours & Co. 15,378 754
Eastman Chemical Co. 1,200 69
Ecolab, Inc. 4,000 141
Engelhard Corp. 1,950 60
Great Lakes Chemical Corp. 800 23
Hercules, Inc. (a) 1,700 25
International Flavors & Fragrances, Inc. 1,400 60
PPG Industries, Inc. 2,600 177
Praxair, Inc. 5,000 221
Rohm & Haas Co. 3,485 154
Sherwin-Williams (The) Co. 2,300 103
Sigma-Aldrich Corp. 1,100 67
------
2,834
------
COMMERCIAL SERVICES - 0.9%
Apollo Group, Inc., Class A (a) 3,000 242
Block (H&R), Inc. 2,500 123
Cendant Corp. 16,204 379
Convergys Corp. (a) 2,200 33
Donnelley (RR) & Sons Co. 3,300 116
Equifax, Inc. 2,200 62
McKesson Corp. 4,523 142
Moody's Corp. 2,300 200
Paychex, Inc. 5,800 198
Robert Half International, Inc. 2,600 77
------
1,572
------
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500(R) Index Fund Investments in Securities 7
December 31, 2004 (Continued)
Number of Value
Shares (000)
- --------------------------------------------------------------------------------
COMMUNICATIONS - 1.4%
eBay, Inc. (a) 10,200 $ 1,186
Interpublic (The) Group of Cos., Inc. (a) 6,400 86
Monster Worldwide, Inc. (a) 1,700 57
Omnicom Group 2,900 245
Symantec Corp. (a) 9,600 247
Yahoo, Inc. (a) 20,900 788
--------
2,609
--------
COMPUTERS - 4.1%
Affiliated Computer Services, Inc., Class A (a) 2,000 120
Apple Computer, Inc. (a) 6,000 386
Computer Sciences Corp. (a) 2,900 163
Dell, Inc. (a) 38,400 1,618
Electronic Data Systems Corp. 7,900 182
EMC Corp. (a) 37,424 556
Gateway, Inc. (a) 5,800 35
Hewlett-Packard Co. 46,524 976
International Business Machine Corp. 25,600 2,524
Lexmark International, Inc., Class A (a) 2,000 170
NCR Corp. (a) 1,500 104
Network Appliance, Inc. (a) 5,300 176
Sun Microsystems, Inc. (a) 50,900 274
Sungard Data Systems, Inc. (a) 4,400 125
Unisys Corp. (a) 5,100 52
--------
7,461
--------
CONSUMER PRODUCTS & SERVICES - 2.7%
Alberto-Culver Co. 1,400 68
Avery Dennison Corp. 1,700 102
Avon Products, Inc. 7,200 279
Clorox Co. 2,400 141
Colgate-Palmolive Co. 8,200 420
Fortune Brands, Inc. 2,200 170
Genuine Parts Co. 2,650 117
Gillette (The), Co. 15,400 690
Grainger (W.W.), Inc. 1,400 93
Kimberly-Clark Corp. 7,632 502
Number of Value
Shares (000)
- --------------------------------------------------------------------------------
CONSUMER PRODUCTS & SERVICES (continued)
Newell Rubbermaid, Inc. 4,207 $ 102
Procter & Gamble Co. 39,100 2,154
--------
4,838
--------
ELECTRICAL COMPONENTS & EQUIPMENT - 0.3%
American Power Conversion 3,100 66
Emerson Electric Co. 6,500 456
Molex, Inc. 2,975 89
Power-One, Inc. (a) 1,300 12
--------
623
--------
ELECTRONICS - 0.5%
Agilent Technologies, Inc. (a) 7,328 177
Applera Corp. - Applied Biosystems Group 3,200 67
Fisher Scientific International, Inc. (a) 1,700 106
Jabil Circuit, Inc. (a) 3,100 79
PerkinElmer, Inc. 2,000 45
Sanmina-SCI Corp. (a) 8,000 68
Solectron Corp. (a) 14,800 79
Symbol Technologies, Inc. 3,600 62
Tektronix, Inc. 1,300 39
Thermo Electron Corp. (a) 2,600 78
Waters Corp. (a) 1,900 89
--------
889
--------
FINANCIAL - 14.8%
American Express Co. 19,500 1,099
AmSouth Bancorp 5,400 140
Bank (The) of New York Co., Inc. 12,000 401
Bank of America Corp. 62,032 2,915
BB&T Corp. 8,500 357
Bear Stearns (The) Cos., Inc. 1,625 166
Capital One Financial Corp. 3,700 312
CIT Group, Inc. 3,500 160
Citigroup, Inc. 79,672 3,839
Comerica, Inc. 2,650 162
Compass Bancshares, Inc. 1,994 97
Countrywide Financial Corp. 8,700 322
E*Trade Financial Corp. (a) 5,700 85
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500(R) Index Fund Investments in Securities 8
December 31, 2004 (Continued)
Number of Value
Shares (000)
- --------------------------------------------------------------------------------
FINANCIAL (continued)
Fannie Mae 14,900 $ 1,061
Federated Investors, Inc., Class B 1,700 52
Fifth Third Bancorp 8,758 414
First Horizon National Corp. 1,900 82
Franklin Resources, Inc. 3,900 272
Freddie Mac 10,600 781
Golden West Financial Corp. 4,800 295
Goldman Sachs Group, Inc. 7,500 780
Huntington Bancshares, Inc. 3,566 88
Janus Capital Group, Inc. 3,700 62
Keycorp 6,216 211
Lehman Brothers Holdings, Inc. 4,180 366
M&T Bank Corp 1,800 194
Marshall & Ilsley Corp. 3,500 155
MBNA Corp. 19,752 557
Mellon Financial Corp. 6,500 202
Merrill Lynch & Co., Inc. 14,500 867
Morgan (J.P.) Chase & Co. 54,867 2,140
Morgan Stanley Dean Witter & Co. 16,940 941
National City Corp. 10,200 383
North Fork Bancorporation, Inc. 4,050 117
Northern Trust Corp. 3,400 165
PNC Financial Services Group, Inc. 4,300 247
Providian Financial Corp. (a) 4,500 74
Regions Financial Corp. 7,147 254
Schwab, (The) Charles Corp. 21,025 251
SLM Corp. 6,700 358
Sovereign Bancorp, Inc. 5,300 120
State Street Corp. 5,200 255
SunTrust Banks, Inc. 4,400 325
Synovus Financial Corp. 4,650 133
T. Price Rowe Group, Inc. 1,900 118
US Bancorp 28,951 907
Wachovia Corp. 24,667 1,297
Washington Mutual, Inc. 13,407 567
Wells Fargo & Co. 25,960 1,613
Zions Bancorporation 1,400 95
--------
26,854
--------
Number of Value
Shares (000)
- --------------------------------------------------------------------------------
FOOD & BEVERAGES - 3.8%
Albertson's, Inc. 5,713 $ 136
Anheuser-Busch Cos., Inc. 12,300 624
Brown-Forman Corp., Class B 1,900 92
Campbell Soup Co. 6,400 191
Coca-Cola (The) Co. 37,300 1,553
Coca-Cola Enterprises, Inc. 7,100 148
ConAgra Foods, Inc. 8,300 244
Coors (Adolph) Co., Class B 600 45
General Mills, Inc. 5,800 288
Heinz (H.J) Co. 5,400 211
Hershey Foods Corp. 3,800 211
Kellogg Co. 6,400 286
Kroger Co. (a) 11,500 202
McCormick & Co., Inc. 2,100 81
Pepsi Bottling Group, Inc. 4,000 108
PepsiCo., Inc. 26,060 1,360
Safeway, Inc. (a) 6,800 134
Sara Lee Corp. 12,200 295
Supervalu, Inc. 2,100 73
Sysco Corp. 9,800 374
Wrigley (Wm) Jr. Co. 3,500 242
--------
6,898
--------
FOREST PRODUCTS & PAPER - 0.6%
Georgia-Pacific Corp. 3,916 147
International Paper Co. 7,451 313
Louisiana-Pacific Corp. 1,600 43
MeadWestvaco Corp. 3,076 104
Plum Creek Timber Co., Inc. 2,800 108
Temple-Inland, Inc. 800 55
Weyerhaeuser Co. 3,700 249
--------
1,019
--------
HEALTHCARE PRODUCTS & SERVICES - 4.9%
Aetna, Inc. 2,342 292
Bard (C.R.), Inc. 1,600 102
Bausch & Lomb, Inc. 800 52
Baxter International, Inc. 9,400 325
Becton Dickinson & Co. 3,900 222
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500(R) Index Fund Investments in Securities 9
December 31, 2004 (Continued)
Number of Value
Shares (000)
- --------------------------------------------------------------------------------
HEALTHCARE PRODUCTS & SERVICES (continued)
Biomet, Inc. 4,000 $ 174
Boston Scientific Corp. (a) 13,000 462
Guidant Corp. 4,800 346
HCA, Inc. 6,420 257
Health Management Associates, Class A 3,800 86
Humana, Inc. (a) 2,500 74
Johnson & Johnson 45,684 2,897
Laboratory Corp. of America Holdings (a) 2,200 110
Manor Care, Inc. 1,400 50
Medtronic, Inc. 18,600 924
Quest Diagnostics 1,600 153
St. Jude Medical, Inc. (a) 5,400 226
Stryker Corp. 6,200 299
Tenet Healthcare Corp. (a) 7,150 79
UnitedHealth Group, Inc. 10,100 889
WellPoint, Inc. (a) 4,500 518
Zimmer Holdings, Inc. (a) 3,780 303
--------
8,840
--------
HOME BUILDERS & FURNISHINGS - 0.2%
Centex Corp. 1,900 113
KB Home 700 73
Maytag Corp. 1,200 25
Pulte Homes, Inc. 1,900 121
Whirlpool Corp. 1,100 76
--------
408
--------
INDUSTRIAL - 7.0%
3M Co. 12,100 993
Allied Waste Industries, Inc. (a) 5,000 46
American Standard Cos., Inc. (a) 3,300 136
Black & Decker Corp. 1,200 106
Caterpillar, Inc. 5,300 517
Cooper Industries Ltd., Class A 1,400 95
Cummins, Inc. 700 59
Danaher Corp. 4,800 276
Deere & Co. 3,800 283
Dover Corp. 3,100 130
Eastman Kodak Co. 4,400 142
Number of Value
Shares (000)
- --------------------------------------------------------------------------------
INDUSTRIAL (continued)
Eaton Corp. 2,400 $ 174
Fluor Corp. 1,300 71
General Electric Co. 162,500 5,931
Honeywell International, Inc. 13,287 470
Illinois Tool Works, Inc. 4,700 436
Ingersoll-Rand Co., Class A 2,700 217
ITT Industries, Inc. 1,400 118
Leggett & Platt, Inc. 3,000 85
Masco Corp. 6,700 245
Pall Corp. 1,900 55
Parker Hannifin Corp. 1,825 138
Rockwell Automation, Inc. 2,900 144
Snap-On, Inc. 950 33
Stanley (The) Works 1,300 64
Textron, Inc. 2,100 155
Tyco International Ltd. 30,965 1,107
Vulcan Materials Co. 1,600 87
Waste Management, Inc. 8,932 267
--------
12,580
--------
INSURANCE - 4.4%
ACE Ltd. 4,300 184
Aflac, Inc. 7,900 315
Allstate (The) Corp. 10,696 553
AMBAC Financial Group, Inc. 1,650 136
American International Group 40,084 2,632
AON Corp. 4,825 115
Chubb Corp. 2,900 223
CIGNA Corp. (b) 2,100 171
Cincinnati Financial Corp. 2,625 116
Hartford Financial Services Group 4,500 312
Jefferson-Pilot Corp. 2,112 110
Lincoln National Corp. 2,800 131
Loews Corp. 2,900 204
Marsh & McLennan Cos., Inc. 8,000 263
MBIA, Inc. 2,200 139
Metlife, Inc. 11,600 470
MGIC Investment Corp. 1,500 103
Principal Financial Group 4,800 197
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500(R) Index Fund Investments in Securities 10
December 31, 2004 (Continued)
Number of Value
Shares (000)
- --------------------------------------------------------------------------------
INSURANCE (continued)
Progressive (The) Corp. 3,200 $ 271
Prudential Financial, Inc. 8,000 440
Safeco Corp. 2,100 110
St. Paul (The) Travelers Companies, Inc. 10,291 381
Torchmark Corp. 1,700 97
UnumProvident Corp. 4,625 83
XL Capital Ltd., Class A 2,100 163
--------
7,919
--------
IRON/STEEL & MINING - 0.7%
Alcoa, Inc. 13,468 423
Allegheny Technologies, Inc. 1,270 28
Freeport-McMoRan Copper & Gold, Class B 2,700 103
Newmont Mining Corp. 6,735 299
Nucor Corp. 2,400 126
Phelps Dodge Corp. 1,416 140
United States Steel Corp. 1,800 92
--------
1,211
--------
LEISURE & ENTERTAINMENT - 0.7%
Brunswick Corp. 1,400 69
Carnival Corp. 9,700 559
Harley-Davidson, Inc. 4,500 273
Hasbro, Inc. 2,675 52
International Game Technology 5,400 186
Mattel, Inc. 6,345 124
Sabre Holdings Corp., Class A 2,140 47
--------
1,310
--------
LODGING - 0.4%
Harrah's Entertainment, Inc. 1,750 117
Hilton Hotels Corp. 5,900 134
Marriott International, Inc., Class A 3,600 227
Starwood Hotels & Resorts Worldwide, Inc. 3,200 187
--------
665
--------
MEDIA - 3.7%
Clear Channel Communications, Inc. 9,100 305
Comcast Corp., Class A (a) 34,362 1,144
Disney (Walt) Co. 31,700 881
Number of Value
Shares (000)
- --------------------------------------------------------------------------------
MEDIA (continued)
Dow Jones & Co., Inc. 1,300 $ 56
Gannett Co., Inc. 4,100 335
Knight-Ridder, Inc. 1,200 80
McGraw-Hill (The) Cos., Inc. 2,900 265
Meredith Corp. 800 43
New York Times Co., Class A 2,300 94
News Corp. 38,800 724
Time Warner, Inc. (a) 70,400 1,369
Tribune Co. 4,900 206
Univision Communications, Inc., Class A (a) 5,000 146
Viacom, Inc., Class B 26,233 955
--------
6,603
--------
OFFICE/BUSINESS EQUIPMENT - 0.2%
Pitney Bowes, Inc. 3,600 167
Xerox Corp. (a) 14,600 248
--------
415
--------
OIL & GAS - 6.9%
Amerada Hess Corp. 1,400 115
Anadarko Petroleum Corp. 3,833 248
Apache Corp. 5,022 254
Baker Hughes, Inc. 5,190 221
BJ Services Co. 2,500 116
Burlington Resources, Inc. 6,120 266
ChevronTexaco Corp. 32,768 1,721
ConocoPhillips 10,568 918
Devon Energy Corp. 7,400 288
Dynegy, Inc., Class A (a) 5,800 27
EL Paso Corp. 9,943 103
EOG Resources, Inc. 1,800 128
Exxon Mobil Corp. 99,024 5,076
Halliburton Co. 6,800 267
Kerr-McGee Corp. 2,338 135
Kinder Morgan, Inc. 1,900 139
Marathon Oil Corp. 5,300 199
Nabors Industries Ltd. (a) 2,300 118
Noble Corp. (a) 2,100 104
Occidental Petroleum Corp. 6,000 350
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500(R) Index Fund Investments in Securities 11
December 31, 2004 (Continued)
Number of Value
Shares (000)
- --------------------------------------------------------------------------------
OIL & GAS (continued)
Rowan Cos., Inc. (a) 1,600 $ 41
Schlumberger Ltd. 9,100 609
Sunoco, Inc. 1,200 98
Transocean, Inc. (a) 4,971 211
Unocal Corp. 4,000 173
Valero Energy Corp. 4,000 182
Williams Companies, Inc. 8,000 130
XTO Energy, Inc. 4,400 156
--------
12,393
--------
PACKAGING & CONTAINERS - 0.1%
Ball Corp. 1,800 79
Bemis Co. 1,600 47
Pactiv Corp. (a) 2,400 61
Sealed Air Corp. (a) 1,361 73
--------
260
--------
PHARMACEUTICALS - 5.7%
Abbott Laboratories 24,000 1,120
Allergan, Inc. 2,000 162
AmerisourceBergen Corp. 1,700 100
Bristol-Myers Squibb Co. 30,000 769
Cardinal Health, Inc. 6,575 382
Caremark Rx, Inc. (a) 7,200 284
Eli Lilly & Co. 17,400 987
Express Scripts, Inc. (a) 1,200 92
Forest Laboratories, Inc. (a) 5,700 256
Gilead Sciences, Inc. (a) 6,600 231
Hospira, Inc. (a) 2,420 81
King Pharmaceuticals, Inc. (a) 3,766 47
Medco Health Solutions, Inc. (a) 4,166 173
Merck & Co., Inc. 34,100 1,096
Mylan Laboratories 4,100 72
Pfizer, Inc. 115,632 3,109
Schering-Plough Corp. 22,800 476
Watson Pharmaceuticals, Inc. (a) 1,700 56
Wyeth 20,600 877
--------
10,370
--------
Number of Value
Shares (000)
- --------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 0.5%
Apartment Investment & Mgt. Co., Class A 1,400 $ 54
Archstone-Smith Trust 2,900 111
Equity Office Properties Trust 6,200 181
Equity Residential 4,300 156
Prologis 2,800 121
Simon Property Group, Inc. 3,200 207
--------
830
--------
RETAIL - 7.2%
Autonation, Inc. (a) 4,300 83
Autozone, Inc. (a) 1,300 119
Bed Bath & Beyond, Inc. (a) 4,600 183
Best Buy Co., Inc. 5,000 297
Big Lots, Inc. (a) 1,800 22
Cintas Corp. 2,600 114
Circuit City Stores, Inc. 3,300 52
Coach, Inc. (a) 2,900 164
Costco Wholesale Corp. 7,100 344
CVS Corp. 6,100 275
Darden Restaurants, Inc. 2,550 71
Dillard's, Inc., Class A 1,300 35
Dollar General Corp. 5,247 109
Family Dollar Stores, Inc. 2,700 84
Federated Department Stores 2,800 162
Gap (The), Inc. 13,862 293
Home Depot, Inc. 33,750 1,442
Jones Apparel Group, Inc. 2,000 73
Kohl's Corp. (a) 5,300 261
Limited Brands, Inc. 6,200 143
Liz Claiborne, Inc. 1,700 72
Lowe's Companies, Inc. 12,000 691
May (The) Department Stores Co. 4,450 131
McDonald's Corp. 19,500 625
Nike, Inc., Class B 4,100 372
Nordstrom, Inc. 2,100 98
Office Depot, Inc. (a) 4,800 83
OfficeMax, Inc. 1,300 41
Penney (J.C.) Co., Inc. 4,400 182
RadioShack Corp. 2,500 82
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500(R) Index Fund Investments in Securities 12
December 31, 2004 (Continued)
Number of Value
Shares (000)
- --------------------------------------------------------------------------------
RETAIL (continued)
Reebok International Ltd. 900 $ 40
Sears Roebuck and Co. 3,300 168
Staples, Inc. 7,750 261
Starbucks Corp. (a) 6,100 380
Target Corp. 13,900 722
Tiffany & Co. 2,300 74
TJX Cos., Inc. 7,500 188
Toys R US, Inc. (a) 3,300 68
VF Corp. 1,700 94
Walgreen Co. 15,800 606
Wal-Mart Stores, Inc. 65,300 3,449
Wendy's International, Inc. 1,800 71
Yum! Brands, Inc. 4,580 216
--------
13,040
--------
SEMICONDUCTORS - 2.9%
Advanced Micro Devices, Inc. (a) 5,400 119
Altera Corp. (a) 5,900 122
Analog Devices, Inc. 5,800 214
Applied Materials, Inc. (a) 26,000 445
Applied Micro Circuits Corp. (a) 4,800 20
Broadcom Corp., Class A (a) 5,000 161
Freescale Semiconductor, Inc. (a) 5,596 103
Intel Corp. 97,100 2,271
Kla-Tencor Corp. (a) 3,000 140
Linear Technology Corp. 4,800 186
LSI Logic Corp. (a) 5,900 32
Maxim Integrated Products 5,100 216
Micron Technology, Inc. (a) 9,400 116
National Semiconductor Corp. 5,600 101
Novellus Systems, Inc. (a) 2,200 61
Nvidia Corp. (a) 2,500 59
PMC--Sierra, Inc. (a) 2,700 30
QLogic Corp. (a) 1,500 55
Teradyne, Inc. (a) 3,000 51
Texas Instruments, Inc. 26,800 660
Xilinx, Inc. 5,300 157
--------
5,319
--------
Number of Value
Shares (000)
- --------------------------------------------------------------------------------
SOFTWARE - 4.6%
Adobe Systems, Inc. 3,700 $ 232
Autodesk, Inc. 3,400 129
Automatic Data Processing, Inc. 9,100 404
BMC Software, Inc. (a) 3,500 65
Citrix Systems, Inc. (a) 2,500 61
Computer Associates International, Inc. 9,012 280
Compuware Corp. (a) 5,900 38
Electronic Arts, Inc. (a) 4,600 284
First Data Corp. 12,758 543
Fiserv, Inc. (a) 3,000 121
IMS Health, Inc. 3,700 86
Intuit, Inc. (a) 2,900 128
Mercury Interactive Corp. (a) 1,400 64
Microsoft Corp. 167,300 4,469
Novell, Inc. (a) 5,800 39
Oracle Corp. (a) 79,572 1,092
Parametric Technology Corp. (a) 4,100 24
Siebel Systems, Inc. (a) 7,700 81
Veritas Software Corp. (a) 6,600 188
--------
8,328
--------
TELECOMMUNICATIONS - 5.7%
ADC Telecommunications, Inc. (a) 12,500 34
Alltel Corp. 4,800 282
Andrew Corp. (a) 2,493 34
AT&T Corp. 12,285 234
Avaya, Inc. (a) 6,928 119
BellSouth Corp. 28,300 786
CenturyTel, Inc. 2,050 73
CIENA Corp. (a) 7,300 24
Cisco Systems, Inc. (a) 101,100 1,951
Citizens Communications Co. 5,100 70
Comverse Technology, Inc. (a) 3,000 73
Corning, Inc. (a) 21,400 252
JDS Uniphase Corp. (a) 22,200 70
Lucent Technologies, Inc. (a) 65,936 248
Motorola, Inc. 36,191 622
Nextel Communications, Inc., Class A (a) 17,000 510
Qualcomm, Inc. 25,000 1,060
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500(R) Index Fund Investments in Securities 13
December 31, 2004 (Continued)
Number of Value
Shares (000)
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS (continued)
Qwest Communications International (a) 27,301 $ 121
SBC Communications, Inc. 50,994 1,314
Scientific-Atlanta, Inc. 2,400 79
Sprint Corp. (FON Group) 22,400 557
Tellabs, Inc. (a) 6,400 55
Verizon Communications, Inc. 42,726 1,731
--------
10,299
--------
TRANSPORTATION - 1.7%
Burlington Northern Santa Fe Corp. 5,767 273
CSX Corp. 3,300 132
Delta Air Lines, Inc. (a) 1,900 14
FedEx Corp. 4,600 453
Norfolk Southern Corp. 6,100 221
Ryder System, Inc. 1,000 48
Southwest Airlines Co. 12,187 198
Union Pacific Corp. 4,000 269
United Parcel Service, Inc., Class B 17,300 1,478
--------
3,086
--------
UTILITIES - 2.8%
AES (The) Corp. (a) 9,600 131
Allegheny Energy, Inc. (a) 2,000 39
Ameren Corp. 3,000 150
American Electric Power Co., Inc. 6,100 209
Calpine Corp. (a) 6,400 25
Centerpoint Energy, Inc. 4,707 53
Cinergy Corp. 2,720 113
CMS Energy Corp. (a) 2,500 26
Consolidated Edison, Inc. 3,700 162
Constellation Energy Group, Inc. 2,600 114
Dominion Resources, Inc. 5,099 345
DTE Energy Co. 2,600 112
Duke Energy Corp. 14,424 365
Edison International 5,000 160
Entergy Corp. 3,600 243
Exelon Corp. 10,250 452
FirstEnergy Corp. 5,100 202
FPL Group, Inc. 2,900 217
Number of Value
Shares (000)
- --------------------------------------------------------------------------------
UTILITIES (continued)
KeySpan Corp. 2,500 $ 99
Nicor, Inc. 700 26
NiSource, Inc. 4,100 93
Peoples Energy Corp. 600 26
PG&E Corp. (a) 6,200 206
Pinnacle West Capital Corp. 1,400 62
PPL Corp. 2,900 155
Progress Energy, Inc. 3,800 172
Public Service Enterprise Group 3,700 192
Sempra Energy 3,554 130
Southern (The) Co. 11,300 379
TECO Energy, Inc. 2,900 44
TXU Corp. 3,900 252
Xcel Energy, Inc. 6,220 113
---------
5,067
---------
Total Common Stocks
(Cost - $164,623) 173,746
---------
SHORT-TERM OBLIGATIONS - 2.4%
Money Market Fund - 2.0%
TimesSquare VP Money Market Fund (c) 3,565,222 3,565
--------
Principal
(000)
----------
U.S. Government - 0.4%
U.S. Treasury Bills, 1.92%, 3/31/05 (d) $800 796
--------
Total Short-Term Obligations
(Cost - $4,361) 4,361
--------
TOTAL INVESTMENTS IN SECURITIES - 98.5%
(Total Cost - $168,984) (e) 178,107
Cash and Other Assets Less Liabilities - 1.5% 2,797
--------
NET ASSETS - 100.0% $180,904
========
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500(R) Index Fund Investments in Securities 14
December 31, 2004 (Continued)
- --------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES
(a) Non-income producing securities.
(b) CIGNA Investment Advisors, Inc., the fund's administrator, is a wholly
owned subsidiary of CIGNA Corp.
(c) This fund is a separate series of the CIGNA Variable Products Group.
(d) This security, or a portion thereof, was pledged as collateral for Stock
Index Futures Contracts. At Deceember 31, 2004, the Fund was long
16 S&P 500(R) Futures Contracts expiring in March 2005. Unrealized
gains amounted to $76,275. Underlying face value was $4,778,525
and underlying market value was $4,854,800.
Tax Information
(e) At December 31, 2004, the net unrealized appreciation of
investments, based on cost for federal income tax purposes of
$169,778,332, was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value
over tax cost $ 35,655,996
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value (27,327,050)
------------
Unrealized appreciation - net $ 8,328,946
============
(f) As of December 31, 2004, the components of distributable earnings
(excluding unrealized appreciation/(depreciation) disclosed above) on
a tax basis consisted of the following:
Undistributed ordinary income $ -0-
Undistributed capital gains $ -0-
- -----------------------------------------------------------------
Market % of
Value Net
Ten Largest Positions (Unaudited) (000) Assets
- ------------------------------------------------------------------
General Electric Co. $ 5,931 3.3%
Exxon Mobil Corp. 5,076 2.8
Microsoft Corp. 4,469 2.5
Citigroup, Inc. 3,839 2.1
Wal-Mart Stores, Inc. 3,449 1.9
Pfizer, Inc. 3,109 1.7
Bank of America Corp. 2,915 1.6
Johnson & Johnson 2,897 1.6
American International Group 2,632 1.5
International Business Machine Corp. 2,524 1.4
Aerospace/Defense $ 3,055 1.7%
Agriculture 2,690 1.5
Auto Manufacturers & Parts 1,414 0.8
Biotechnology 2,047 1.1
Chemicals 2,834 1.6
Commercial Services 1,572 0.9
Communications 2,609 1.4
Computers 7,461 4.1
Consumer Products & Services 4,838 2.7
Electrical Components & Equipment 623 0.3
Electronics 889 0.5
Financial 26,854 14.8
Food & Beverages 6,898 3.8
Forest Products & Paper 1,019 0.6
Healthcare Products & Services 8,840 4.9
Home Builders & Furnishings 408 0.2
Industrial 12,580 7.0
Insurance 7,919 4.4
Iron/Steel & Mining 1,211 0.7
Leisure & Entertainment 1,310 0.7
Lodging 665 0.4
Media 6,603 3.7
Office/Business Equipment 415 0.2
Oil & Gas 12,393 6.9
Packaging & Containers 260 0.1
Pharmaceuticals 10,370 5.7
Real Estate Investment Trusts 830 0.5
Retail 13,040 7.2
Semiconductors 5,319 2.9
Software 8,328 4.6
Telecommunications 10,299 5.7
Transportation 3,086 1.7
Utilities 5,067 2.8
-------- ----
173,746 96.1%
- -----------------------------------------------------------------
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500(R) Index Fund 15
Statement of Assets and Liabilities
December 31, 2004
(In Thousands)
Assets:
Investments in securities at value $ 178,107
Receivable for fund shares sold 2,727
Interest and dividends receivable 225
Investment for Trustees' deferred compensation plan 81
Prepaid insurance 5
---------
Total assets 181,145
---------
Liabilities:
Deferred Trustees' fees payable 81
Custodian fees payable 52
Audit and legal fees payable 34
Payable for Fund shares redeemed 20
Shareholder reports payable 20
Administrative services fees payable 19
Advisory fees payable 7
Futures variation margin payable 4
Other accrued expenses 4
---------
Total liabilities 241
---------
Net Assets $ 180,904
=========
Components of Net Assets:
Paid in capital $ 172,627
Undistributed net investment income 9
Overdistributed net realized gain (931)
Net unrealized appreciation of investments and futures 9,199
---------
Net Assets $ 180,904
=========
Shares Outstanding 11,817
=========
Net Asset Value and Redemption Price per Share $ 15.31
=========
Cost of Investments $ 168,984
=========
Statement of Operations
For the Year Ended December 31, 2004
(In Thousands)
Investment Income:
Income:
Dividends $ 3,618
Interest 31
-------
3,649
Expenses:
Investment advisory fees $ 363
Custodian fees and expenses 152
Administrative services fees 90
Auditing and legal fees 44
Shareholder reports 26
Trustees' fees 7
Transfer agent fees 6
Other 5
----
Total expenses 693
Less expenses waived by Adviser (211)
----
Net expenses 482
----
Net Investment Income 3,167
-------
Realized and Unrealized Gain on
Investments:
Net realized gain from:
Futures contracts 2,144
Investments 17,709
-------
19,853
-------
Net change in unrealized depreciation of:
Futures contracts (468)
Investments (3,019)
-------
(3,487)
-------
Net Realized and Unrealized Gain on
Investments 16,366
-------
Net Increase in Net Assets Resulting from
Operations $19,533
=======
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500(R) Index Fund 16
Statements of Changes in Net Assets
(In Thousands)
For the Year Ended December 31,
-------------------------------
2004 2003
-------------------------------
Operations:
Net investment income $ 3,167 $ 2,898
Net realized gain on investments 19,853 5,298
Net unrealized appreciation (depreciation)
on investments (3,487) 43,080
-------- --------
Net increase in net assets from operations 19,533 51,276
-------- --------
Dividends and Distributions:
From net investment income (3,205) (4,276)
From net realized gain (19,241) (2,574)
From return of capital (240) --
-------- --------
Total dividends and distributions (22,686) (6,850)
-------- --------
Capital Share Transactions:
Net proceeds from shares sold 8,862 66,928
Net asset value of shares issued to
shareholders in reinvestment of dividends
and distributions 22,686 6,850
-------- --------
31,548 73,778
Cost of shares redeemed (81,580) (71,408)
-------- --------
Net increase (decrease) in net assets from
Fund share transactions (50,032) 2,370
-------- --------
Net Increase (Decrease) in Net Assets (53,185) 46,796
Net Assets:
Beginning of period 234,089 187,293
-------- --------
End of period* $180,904 $234,089
======== ========
* includes undistributed net investment
income of: $ 9 $ 871
======== ========
For the Year Ended December 31,
-------------------------------
2004 2003
-------------------------------
Transactions in Capital Stock:
Shares sold 556 4,884
Shares issued in reinvestment of dividends
and distributions 1,480 439
-------- --------
2,036 5,323
Shares redeemed (5,005) (5,261)
-------- --------
Net increase (decrease) in shares
outstanding (2,969) 62
======== ========
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500(R) Index Fund 17
Financial Highlights
For the Year Ended December 31,
-----------------------------------------------------------------
2004 2003 2002 2001 2000
-------- -------- -------- -------- --------
Per Share Operating Performance:
Net asset value, beginning of period $ 15.83 $ 12.72 $ 17.31 $ 19.95 $ 22.83
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income (a) 0.32 0.21 0.23 0.23 0.35
Net realized and unrealized gain (loss) 1.36 3.38 (4.13) (2.66) (2.49)
-------- -------- -------- -------- --------
Total from investment operations 1.68 3.59 (3.90) (2.43) (2.14)
-------- -------- -------- -------- --------
Less dividends and distributions:
From net investment income (0.31) (0.30) (0.22) (0.21) (0.44)
From capital gains (1.87) (0.18) (0.47) -- (0.30)
From return of capital (0.02) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (2.20) (0.48) (0.69) (0.21) (0.74)
-------- -------- -------- -------- --------
Net asset value, end of period $ 15.31 $ 15.83 $ 12.72 $ 17.31 $ 19.95
======== ======== ======== ======== ========
Total Return (b) 10.63% 28.27% (22.51)% (12.18)% (9.37)%
Ratios to Average Net Assets:
Gross expenses 0.36% 0.37% 0.37% 0.35% 0.36%
Fees and expenses waived or borne by the Adviser 0.11% 0.12% 0.12% 0.10% 0.11%
Net expenses 0.25% 0.25% 0.25% 0.25% 0.25%
Net investment income 1.64% 1.42% 1.32% 1.38% 1.64%
Portfolio Turnover 3% 2% 7% 2% 4%
Net assets, End of Period (000 omitted) $180,904 $234,089 $187,293 $302,802 $292,739
(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.
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500(R) Index Fund Notes to Financial Statements 18
1. Utilization of Indexation Approach. TimesSquare VP S&P 500(R) 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(R) 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 CIGNA
Investment Advisor's, Inc. (formerly, 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(R) 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(R)
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
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500(R) Index Fund Notes to Financial Statements 19
(Continued)
or losses. When a contract is closed, the Fund records a realized gain or loss
equal to the difference between the value of the contract at the time it was
opened and the value at the time it was closed. Futures contracts include the
risk that a change in the value of the contract may not correlate with the value
of the underlying securities and the possibility of an illiquid market.
C. Security Transactions and Related Investment Income -- Security transactions
are accounted for on the trade date (date the order to buy or sell is executed).
Dividend income is recorded on the ex-dividend date, and interest income is
recorded on the accrual basis. Securities gains and losses are determined on the
basis of identified cost.
D. Federal Taxes -- It is the Fund's policy to continue to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income and capital gains to its
shareholders. Therefore, no federal income or excise taxes on realized income or
net capital gains have been accrued. The tax character of distributions paid to
shareholders during 2004 was $3,773,674 of Ordinary Income Dividends,
$18,672,389 of Long-term Capital Gains, and $240,280 of Return of Capital.
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 deferred compensation. To the
extent that such differences are permanent, a reclassification to Components of
Net Assets may be required. As a result, at December 31, 2004, the Fund
decreased its undistributed net investment income by $823,736, decreased
accumulated net realized gain by $1,415,665 and increased paid in capital by
$2,239,401.
3. Investment Advisory Fees and Other Transactions with Affiliates. Through
September 30, 2004, investment advisory fees, in the amount of $108,560 (net of
waivers), were paid or accrued to CIGNA Investment Advisors, Inc. ("CIAI")
(formerly, TimesSquare Capital Management, Inc.), certain officers and directors
of which were affiliated with the Fund. Such advisory fees were based on an
annual rate of 0.25% of the Fund's average daily net assets. Though the Advisory
Services Agreement with CIAI was terminated, the Expense Limitation Agreement
remains in full force and CIAI agrees 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, 0.25% of average daily
net assets. Effective October 1, 2004, the Board of Trustees approved an interim
investment advisory agreement with Merrill Lynch Investment Managers, L.P.
("MLIM(R)"), pursuant to which MLIM(R) serves as investment adviser to the Fund.
Advisory fees, in the amount of $43,748 (net of waivers), paid or accrued to
MLIM(R) are based on an annual rate of 0.10% of the Fund's average daily net
assets.
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")
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500(R) Index Fund Notes to Financial Statements 20
(Continued)
managed by CIAI. CIAI has contractually agreed to 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 year ended December 31, 2004, CIAI
waived $53,327 of its advisory fees payable by the Fund. Income distributions
from TSVPMM, which amounted to $119,718 for the year ended December 31, 2004,
are recorded as dividend income in the Statement of Operations.
For administrative services, the Fund reimbursed CIAI 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. Effective October 1, 2004, CIAI continues to provide such
administrative services to the Fund, for which it receives a fee at an annual
rate of 0.05% of the Fund's average daily net assets. For the year ended
December 31, 2004, the Fund paid or accrued $90,367.
CIAI 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 year ended December 31, 2004, were $0
and $516,279 respectively, for U.S. Government and Agency Obligations and
$4,889,176 and $49,169,011 respectively, for all other securities.
6. Capital Stock. The Fund offers an unlimited number of shares of beneficial
interest without par value. All of the shares outstanding at December 31, 2004,
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.
7. Proposed Merger of the Fund. The Board of Trustees of the Fund expects to
approve a reorganization pursuant to which the Fund would transfer substantially
all of its assets and liabilities to the Dreyfus Stock Index Fund, Inc.
("Dreyfus Fund") in exchange for Initial Class shares of the Dreyfus Fund having
a net asset value equal to the net asset value of the assets and liabilities so
transferred. The Dreyfus Fund shares would then be distributed pro rata to
shareholders of the Fund. The Dreyfus Fund has the same investment strategy as
the Fund -- it seeks to match the total return of the S&P 500(R) by investing in
all 500 stocks in the index. The Fund expects to hold a special meeting of
shareholders in April 2005 to seek shareholder approval of the merger.
The CVPG Board of Trustees also expects to approve Mellon Equity Associates, LLP
(an affiliate of Dreyfus) to serve as interim manager of the Fund in February
2005. Mellon Equity Associates would manage the Fund until it merges with the
Dreyfus Fund. There will be no change to the investment objective of the Fund as
a result of the appointment of Mellon Equity Associates as adviser to the Fund.
In addition, CIGNA Advisors will, during the term of the interim advisory
agreement, continue to waive fees and reimburse expenses if total Fund operating
expenses (excluding extraordinary items) exceed 0.25% per annum of the Fund's
average net assets.
During the term of the new interim advisory agreement, CIGNA Advisors will
continue to provide administrative services to the S&P 500(R) Index Fund.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500(R) Index Fund 21
Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders of TimesSquare VP S&P 500(R) Index Fund
In our opinion, the accompanying statement of assets and liabilities, including
the investments in securities, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of TimesSquare VP S&P 500(R) Index
Fund ("Fund") at December 31, 2004, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2004 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 16, 2005
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500(R) Index Fund 22
(Unaudited)
Trustees and Officers
Shareholders elect a Board that oversees the Fund's operations. The Board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the Board.
The following is a list of the Fund's Board of Trustees and officers. Each
Trustee's term of office will be until the next annual meeting of shareholders
or until the election of the Trustee's successor.
Number of
Name, Position Length Portfolios in Other
Address* Held with of Time Principal Occupation(s) During Fund Complex Directorships
and Age Fund Served Past 5 Years Overseen Held by Trustee
- ----------------------------------------------------------------------------------------------------------------------------------
Independent Trustees
Russell H. Trustee Trustee since Senior Vice President (Investor 7 --
Jones 1995 Relations, Public Relations), Chief
60 Investment Officer and Treasurer,
Kaman Corporation
(helicopters and aircraft
components, industrial
distribution)
Paul J. Trustee Trustee since Special Advisor to the Board of 7 Western
McDonald 1995 Directors, Friendly Ice Cream Massachusetts
61 Corporation (family restaurants Electric Company
and dairy products)
Marnie Trustee Trustee since Diocesan Consultant, Episcopal 7 Boston Mutual Life
Wagstaff 2001 Diocese of Connecticut; Insurance Company
Mueller Previously, Visiting Professor of
65 Health Economics, Wesleyan
University
Carol Ann Trustee Trustee since Director and Chair of Audit 7 Reed & Barton
Hayes 2003 Committee, Reed and Barton Corporation
60 Corporation
Affiliated Trustees and Fund Officers
Richard H. Trustee, Trustee, Chief Investment Officer, CIGNA 7 Director of various
Forde Chairman of Chairman and Investment Management subsidiaries of
51 the Board and President since CIGNA Corporation
President 1998
Alfred A. Vice President Officer CIGNA Funds Treasurer; 7 --
Bingham III and Treasurer Since 1982 Assistant Vice President, CIGNA
60 Investment Management
Jeffrey S. Vice President Officer Senior Counsel, 7 --
Winer and Secretary Since 1993 CIGNA Corporation
47
- --------------------------------------------------------------------------------
* All Trustees and officers have an address c/o CIGNA Investment Advisors, Inc.
(formerly, TimesSquare Capital Management, Inc.), 280 Trumbull Street, H16C,
Hartford, CT 06103.
- --------------------------------------------------------------------------------
TimesSquare VP S&P 500(R) Index Fund (Continued) 23
(Unaudited)
- --------------------------------------------------------------------------------
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "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(R) 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(R) 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(R) Composite Stock Price Index. The investment
adviser is Merrill Lynch Investment Managers L.P., 800 Scudders Mill Road,
Plainsboro, N.J. 08536.
- --------------------------------------------------------------------------------
CIGNA Variable Products S&P 500(R) Index Fund was organized by Connecticut
General Life Insurance Company in 1968. The name of the fund was changed in May
2002 from CIGNA Variable Products S&P 500(R) Index Fund to TimesSquare VP S&P
500(R) Index Fund.
[CIGNA LOGO]
Printed in U.S.A.
501370 12/04
Item 2. Code of Ethics.
The Registrant has adopted a Code of Ethics that applies to its principal
executive officer and principal financial officer. The Registrant undertakes to
provide to any person without charge, upon request, a copy of the Code of
Ethics. Such request can be made to the Secretary of the Registrant, c/o CIGNA
Investment Advisors, Inc., 280 Trumbull Street, H16C, Hartford, CT 06103.
Item 3. Audit Committee Financial Expert.
The Registrant's Board of Trustees has determined that Carol Ann Hayes, Russell
H. Jones and Paul J. McDonald are "audit committee financial experts", all of
whom are "independent." Mr. Jones serves as Senior Vice President, Chief
Investment Officer and Treasurer of Kaman Corporation. His responsibilities
include communications with financial analysts concerning Kaman Corporation.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees
For the audit of the Registrant's annual financial statements for the fiscal
year ended December 31, 2003 and December 31, 2004, included in the Registrant's
annual report to shareholders for those fiscal years, PricewaterhouseCoopers LLP
("PWC") billed the Registrant $59,900 and $96,850 respectively.
(b) Audit-Related Fees
For the fiscal years ended December 31, 2003 and December 31, 2004, PWC did not
bill the Registrant any amounts for assurance or related services related to the
audit of the Registrant's financial statements.
(c) Tax Fees
For the fiscal years ended December 31, 2003 and December 31, 2004, PWC billed
the Registrant $14,675 and $16,000, respectively, for reviewing the Registrant's
federal income tax and excise tax returns and reviewing excise distribution
estimate calculations.
(d) All Other Fees
For the fiscal years ended December 31, 2003 and December 31, 2004, PWC did not
bill the Registrant for any other products and services.
(e)(1) The Audit Committee has not developed pre-approval policies and
procedures relating to the provision of services to the Registrant by the
Registrant's independent accountant.
(e)(2) For the fiscal years ended December 31, 2003 and December 31, 2004, 100%
of the PWC fees described above under the captions "Audit Related Fees", "Tax
Fees" and "All Other Fees" were approved by the Registrant's Audit Committee
pursuant to paragraph (c)(7)(i)(C) of Rule 2.01 of Regulation S-X.
For the fiscal years ended December 31, 2003 and December 31, 2004, PWC did not
bill any fees that were required to be approved by the Registrant's Audit
Committee pursuant to paragraph (c)(7)(ii)(C) of Rule 2.01 of Regulation S-X.
(f) Not applicable.
(g) The aggregate non-audit fees billed by PWC for services rendered to CIGNA
Investment Advisors, Inc. ("CIGNA Advisors"), Pacific Investment Management
Company LLC ("PIMCO") and Merrill Lynch Investment Managers, L.P. ("MLIM"), the
investment advisers to the Registrant, and other entities controlling,
controlled by, under common control with CIGNA Advisors, PIMCO or MLIM that
provide ongoing services to the Registrant for fiscal years ending December 31,
2003 and 2004, were $100,148 and $6,220,368, respectively.
(h) In considering PWC's independence, the Audit Committee considered whether
the provision of non-audit services rendered by PWC to CIGNA Advisors and other
entities controlling, controlled by, under common control with CIGNA Advisors
that provide ongoing services to the Registrant that were not pre-approved
pursuant to paragraph (c)(7)(ii)(C) of Rule 2.01 of Regulation S-X was
compatible with maintaining PWC's independence.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
See reports 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. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not Applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
The Registrant has adopted a nominating committee charter that sets forth
procedures by which shareholders may recommend nominees to the Registrant's
Board of Trustees. The charter is attached as an exhibit hereto.
Item 11. Controls and Procedures.
(a) The Registrant's principal executive and principal financial officer have
concluded that the Registrant's disclosure controls and procedures (as
defined in Rule 30a-3(c) under the Investment Company Act of 1940, as
amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a
date within 90 days of the filing date of the report that includes the
disclosure required by this paragraph, based on their evaluation of these
controls and procedures required by Rule 30a-3(b) under the 1940 Act (17
CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There was no change in the Registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act) (17 CFR
270.30a-3(d)) that occurred during the second fiscal quarter of the period
covered by this report that has materially affected, or is reasonably
likely to materially affect, the Registrant's internal control over
financial reporting.
Item 12. Exhibits.
(a)(1) Code of ethics attached hereto.
(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.
(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.
Nominating Committee Charter.
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
-----------------------------------------
Alfred A. Bingham III, Vice President and Treasurer
Date: March 8, 2005
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
---------------------------------------------------
Richard H. Forde, Chairman of the Board and President
Date: March 8, 2005
By (Signature and Title) /s/ Alfred A. Bingham III
-------------------------------------------------------
Alfred A. Bingham III, Vice President and Treasurer
Date: March 8, 2005