N-CSRS 1 d15286_ncsrs.txt N-CSRS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES 811-05480 (Investment Company Act file number) CIGNA Variable Products Group ----------------------------- (Exact name of registrant as specified in charter) 2223 Washington Street 3 Newton Executive Park Suite 200 Newton, MA 02462 (Address of principal executive offices) Mark Butler, 2223 Washington Street, 3 Newton Executive Park Suite 200, Newton, MA 02462 (Name and address of agent for service) (860) 534-5576 -------------- Registrants' telephone number, including area code Date of fiscal year end: December 31, 2004 Date of reporting period: June 30, 2004 Item 1. Reports to Stockholders. [GRAPHIC OF LEAVES] TIMESSQUARE VP CORE PLUS BOND FUND ----------------------------------------------------------------- Semiannual Report June 30, 2004 [CIGNA LOGO](R) -------------------------------------------------------------------------------- 1 Dear Shareholders: Our commentary for TimesSquare VP Core Plus Bond Fund (the "Fund") covering the six months ended June 30, 2004 follows. Market Summary Rising interest rates, inflation concerns, and ongoing geopolitical tensions adversely affected fixed income market performance in the second quarter. The representative Lehman Brothers Aggregate Bond Index returned -2.44%, almost erasing the 2.66% gains posted in the first quarter. On June 30, 2004, the Federal Reserve (Fed) increased the federal funds rate 25 basis points for the first time in four years. This widely expected action was preceded by rising Treasury yields across the maturity spectrum over the second quarter, with the bellwether 10-year Treasury note rising from a low of 3.65% in late March to a peak of nearly 5% in June before leveling off. Steadily improving credit and liquidity profiles of many issuers continued to benefit investment-grade corporate bond valuations. Nevertheless, the sector, represented by the Lehman Brothers U.S. Credit Index, returned -3.43% for the second quarter, surrendering all of the 3.27% gained in the first quarter. During the first quarter in the Mortgage Backed Securities (MBS) market, banks and foreign investors were attracted to the high yield from MBS and absorbed some of the supply, strong technicals helped valuations remain at high levels, and the recent wave of refinancing slowed to keep volatility low. In this environment, the Lehman Brothers MBS Index generated returns of 1.92%. MBS started the second quarter under pressure, as investors faced extending durations and declining prices. By mid quarter, MBS had recovered modestly, and then registered strong gains in June to end the second quarter as the best performer in the Aggregate Bond Index. High yield sector performance moderated from its strong recovery in 2003, as the Lehman Brothers U.S. High Yield Index generated a 1.35% return for the six months ended June 30, 2004. Risk aversion creeping back into the market and issuer-specific weaknesses contributed to the performance slump. Emerging debt markets tumbled in the second quarter, with the JP Morgan Emerging Markets Bond Index Plus registering a return of -5.89%, down from 3.26% in the first quarter. Performance Returns for the Fund (which do not reflect expenses associated with variable products through which the Fund may be offered and which would have been lower if such expenses were reflected) were:
Second Quarter Year-to-date Fund -2.22% 0.10% Lipper Corporate Debt Funds -- 'A' Rated Average -2.71 -0.18 Lehman Brothers Aggregate Bond Index -2.44 0.16
The Fund's performance benefited primarily from its modest short-of-Index duration bias and yield curve positioning as interest rates rose and the yield curve flattened. In addition, gains from corporate bond and high yield bond selection helped offset less favorable results from longer-duration prepayment penalty bonds and structured securities in the MBS sector. To a lesser extent, performance was also favorably impacted by our allocation to high yield and investment-grade credits, where we reduced our exposure during the second quarter. -------------------------------------------------------------------------------- 2 Outlook With the economy on track to steadily improve, barring any political or geopolitical setbacks, Treasury yields should continue to rise. We remain constructive on investment-grade corporate bonds as valuations and break-even spreads continue to offer value and positive excess return potential. We will also remain vigilant in our sector allocation and security selection and monitor various risk factors that could impede improvement in credit spreads. Sincerely, /s/ Richard H. Forde Richard H. Forde Chairman of the Board and President CIGNA Variable Products Group Note: This commentary is not part of the Semiannual Report to Shareholders. -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Investments in Securities 3 June 30, 2004 (Unaudited)
Principal Value (000) (000) -------------------------------------------------------------------------------------- LONG-TERM BONDS - 85.4% BASIC MATERIALS - 0.4% International Paper Co., 5.50%, 2014 $190 $186 Stora Enso Oyj, 7.38%, 2011 115 127 Weyerhaeuser Co., 6.75%, 2012 70 76 ---- 389 ---- COMMUNICATIONS & MEDIA - 9.5% AOL Time Warner, Inc., 6.75%, 2011 495 533 AT&T Corp., 8.05%, 2011 60 62 8.75%, (coupon change based on rating), 2031 50 49 British Sky Broadcasting PLC, 8.20%, 2009 340 392 British Telecommunications PLC, 8.88% (coupon change based on rating), 2030 60 74 Comcast Cable Communications, 8.38%, 2007 65 73 Comcast Corp., 5.85%, 2010 140 146 Deutsche Telekom International Finance BV, 8.50% (coupon change based on rating), 2010 410 479 8.75% (coupon change based on rating), 2030 185 225 France Telecom SA, 8.20%, (coupon change based on rating), 2006 90 96 8.75%, (coupon change based on rating), 2011 535 620 9.50%, (coupon change based on rating), 2031 150 188 Intelsat Ltd., 6.50%, 2013 325 287 Kyivstar GSM, 12.75%, 2005 (144A security acquired Nov. 2002 & Jan. 2003 for $279) (b) 275 298 Koninklijke KPN, NV, 8.00%, 2010 445 515 Liberty Media Corp., 3.50%, 2006 570 569 5.70%, 2013 80 79 News America Holdings, Inc., 7.75%, 2045 90 103 7.90%, 2095 170 189 8.25%, 2096 75 87 PTC International Finance II SA, 11.25%, 2009 245 266 Qwest Services Corp., 13.50%, 2010 (144A security acquired Mar. 2004 for $53) (b) 45 52 Shaw Communications, Inc., 8.25%, 2010 250 272 Principal Value (000) (000) ---------------------------------------------------------------------------------------- Sprint Capital Corp., 6.13%, 2008 $100 $ 105 8.38%, 2012 105 121 6.88%, 2028 140 135 8.75%, 2032 220 256 Tele Communications, Inc., 9.80%, 2012 515 646 7.88%, 2013 140 159 Telecom Italia Capital SA, 5.25%, 2013 (144A security acquired Oct. 2003 for $170) (b) 170 165 6.38%, 2033 (144A security acquired Oct. 2003 for $204) (b) 205 198 TELUS Corp., 7.50%, 2007 405 441 8.00%, 2011 430 489 Time Warner, Inc., 8.18%, 2007 640 715 9.13%, 2013 160 195 8.05%, 2016 55 62 TPSA Finance BV, 7.75%, 2008 (144A security acquired July & Aug. 2003 for $148) (b) 130 144 Univision Communications, Inc., 7.85%, 2011 135 156 Verizon Florida, Inc., 6.13%, 2013 125 129 ------ 9,770 ------ CONSUMER & RETAIL - 2.5% Campbell Soup Co., 5.88%, 2008 115 122 Heinz (H.J.) Co., 6.38%, 2028 70 72 Heinz (H.J.) Finance Co., 6.75% (coupon change based on rating), 2032 50 54 Kellogg Co., 6.60%, 2011 500 548 Kraft Foods, Inc., 5.25%, 2007 140 146 5.63%, 2011 370 376 5.25%, 2013 155 151 Kroger Co., 7.50%, 2031 60 66 Miller Brewing Co., 5.50%, 2013 (144A security acquired Aug. 2003 for $184) (b) 185 186
The Notes to Financial Statements are an integral part of these statements. -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Investments in Securities 4 June 30, 2004 (Unaudited) (Continued)
Principal Value (000) (000) --------------------------------------------------------------------------------------- CONSUMER & RETAIL (continued) Safeway, Inc., 7.25%, 2031 $ 40 42 Tyson Foods, Inc., 8.25%, 2011 90 103 VFB LLC, 10.25%, 2009 (a) 2,044 429 Yum! Brands, Inc., 8.88%, 2011 195 235 ----- 2,530 ----- DIVERSIFIED - 0.6% General Electric Co., 5.00%, 2013 450 443 ITT Industries, Inc., 7.40%, 2025 155 172 ----- 615 ----- FINANCIAL - 10.4% BankBoston Corp., 8.25%, 2026 85 95 Bank of America Corp., 7.80%, 2010 100 115 Boeing Capital Corp., 6.10%, 2011 100 106 CIT Group, Inc., 5.75%, 2007 95 100 6.88%, 2009 70 77 Citigroup, Inc., 3.50%, 2008 910 898 7.25%, 2010 260 293 Countrywide Home Loans., 5.50%, 2007 110 115 Credit Suisse First Boston Mortgage Securities Corp., 4.63%, 2008 165 168 5.50%, 2013 45 45 Interest Only 7.50%, 2032 (c) 700 17 Interest Only 8.00%, 2032 (c) 1,179 30 Dresdner Funding Trust I, 8.15%, 2031 (144A security acquired June & Sep. 2003 for $268) (b) 245 273 Ford Motor Credit Co., 7.38%, 2009 700 747 7.88%, 2010 315 343 7.38%, 2011 90 95 General Motors Acceptance Corp., 6.88%, 2011 620 636 7.00%, 2012 145 149 Glencore Funding LLC, 6.00%, 2014 (144A security acquired May 2004 for $86) (b) 95 88 Principal Value (000) (000) -------------------------------------------------------------------------------------- Golden West Financial Corp., 4.13%, 2007 $ 200 $ 202 Goldman Sachs Group, Inc., 6.88%, 2011 355 390 Household Finance Corp., 4.75%, 2009 250 251 6.38%, 2012 250 265 HVB Funding Trust I, 8.74%, 2031 (144A security acquired May & June 2003 for $174) (b) 170 196 HVB Funding Trust III, 9.00%, 2031 (144A security acquired June 2003 for $47) (b) 45 53 International Lease Finance Corp., 6.38%, 2009 275 295 Korea Development Bank, 4.25%, 2007 160 159 Lehman Brothers Holdings, Inc., 6.63%, 2012 210 228 Manufacturers & Traders Trust, 8.00%, 2010 140 164 Midland Funding II, 13.25%, 2006 95 109 Mississippi Business Finance Corp., 7.81%, 2024 500 481 Mizuho Financial Group Cayman Ltd., 5.79%, 2014 (144A security acquired Feb. 2004 for $200) (b) 200 197 Morgan (J.P.) Chase & Co., 6.75%, 2011 50 54 Morgan (J.P.) Co., 6.00%, 2009 120 127 Morgan Stanley Group, Inc., 6.75%, 2011 245 268 National Rural Utilities Cooperative Finance Corp., 5.75%, 2009 120 127 NB Capital Trust IV, 8.25%, 2027 75 83 Old Kent Bank, Step Coupon (7.75% to 8/15/05), 2010 300 314 Residential Asset Mortgage Products, Inc., Interest Only, 5.75%, 2005 (c) 1,024 31 Santander Financial Issuances, 6.80%, 2005 95 99 6.38%, 2011 60 65 Sanwa Finance Aruba AEC, 8.35%, 2009 205 233 Sovereign Bancorp., Inc., 10.50%, 2006 1,205 1,381 Union Planters Corp., 6.75%, 2005 240 253 U.S. West Capital Funding, Inc., 6.50%, 2018 75 56 Wells Fargo & Co., 4.95%, 2013 140 135 ------- 10,606 -------
The Notes to Financial Statements are an integral part of these statements. -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Investments in Securities 5 June 30, 2004 (Unaudited) (Continued)
Principal Value (000) (000) -------------------------------------------------------------------------------------- FOREIGN GOVERNMENTS - 2.1% Argentina (Republic of), 11.38%, 2010 $320 $ 94 11.38%, 2017 100 29 Brazil (Federal Republic of), 9.25%, 2010 85 81 Export-Import Bank of Korea, 4.13%, 2009 (144A security acquired Feb. 2004 for $139) (b) 140 136 Quebec (Province of Canada), 5.50%, 2006 630 658 7.50%, 2023 210 252 Russian Federation, Step Coupon (5.00% to 3/31/07), 2030 (144A security acquired Sept. & Oct. 2002, July & Oct. 2003 & Feb. 2004 for $465) (b) 540 493 United Mexican States, 8.30%, 2031 345 361 ------- 2,104 ------- HEALTH CARE - 0.2% HCA, Inc., 5.25%, 2008 155 154 7.50%, 2033 45 44 ------- 198 ------- INDUSTRIAL - 1.9% Arrow Electronics, Inc., 6.88%, 2013 200 209 BAE Systems Holdings, 6.40%, 2011 (144A security acquired July & Nov. 2002 & April 2003 for $482) (b) 465 495 Bombardier, Inc., 6.30%, 2014 (144A security acquired May & June 2004 for $113) (b) 125 106 Lockheed Martin Corp., 8.20%, 2009 745 873 Systems 2001 Asset Trust LLC, 7.16%, 2011 (144A security acquired Mar. 2002 for $284) (b) 277 294 ------- 1,977 ------- Principal Value (000) (000) -------------------------------------------------------------------------------------- INSURANCE - 1.3% American Re Corp., 7.45%, 2026 335 355 AXA SA, 8.60%, 2030 130 159 Monumental Global Funding II, 3.85%, 2008 (144A security acquired Feb. & Apr. 2003 for $240) (b) 240 239 TTTravelers Property Casualty Corp., 5.00%, 2013 135 131 Zurich Capital Trust I, 8.38%, 2037 (144A security acquired Jan., June, & Oct. 2003 for $357) (b) 360 398 ----- 1,282 ----- OIL & GAS - 1.9% Amerada Hess Corp., 7.30%, 2031 140 142 Conoco Funding Co., 6.35%, 2011 515 560 Devon Financing Corp. ULC, 6.88%, 2011 140 152 Duke Capital Corp., 4.30%, 2006 160 163 Duke Energy Field Services LLC, 5.75%, 2006 60 63 Morgan Stanley Bank AG for OAO Gazprom, 9.63%, 2013 (144A security acquired Apr. & June 2004 for $213) (b) 200 206 Occidental Petroleum Corp., 7.65%, 2006 420 450 6.75%, 2012 115 127 Petroleos Mexicanos, 9.50%, 2027 55 62 Salomon Bros. for OAO Gazprom, 10.50%, 2009 55 63 ----- 1,988 ----- PHARMACEUTICALS - 0.6% Lilly (Eli) & Co., 6.77%, 2036 350 384 Wyeth, 5.50% (coupon change based on rating), 2013 80 77 5.50%, 2014 195 186 ----- 647 -----
The Notes to Financial Statements are an integral part of these statements. -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Investments in Securities 6 June 30, 2004 (Unaudited) (Continued)
Principal Value (000) (000) -------------------------------------------------------------------------------- TRANSPORTATION - 1.0% American Airlines, 7.86%, 2011 $ 225 $ 224 Burlington Northern Santa Fe, 6.75%, 2029 60 63 Federal Express Corp., 7.60%, 2097 105 115 Norfolk Southern Corp., 7.70%, 2017 115 133 7.90%, 2097 235 269 Union Pacific Corp., 6.13%, 2012 220 232 ------- 1,036 ------- U.S. GOVERNMENT & AGENCIES (d) - 50.0% Fannie Mae, 2.50%, 2008 3,480 3,306 4.38%, 2013 1,155 1,102 5.50%, 2017 1,596 1,637 4.00%, 2018 630 601 6.50%, 2032 965 1,006 7.00%, 2032 1,811 1,912 5.50%, 2033 4,079 4,071 6.50%, 2033 1,020 1,063 5.00%, 2034 1,304 1,261 5.50%, 2034 790 787 Interest Only 5.85%, 2042 (c) 8,178 148 Federal Home Loan Banks, 4.13%, 2005 1,375 1,393 Financing Corp., Principal Strips from 8.60%, 2019 830 344 9.70%, 2019 840 359 Freddie Mac, 2.75%, 2008 1,080 1,042 6.50%, 2013 140 148 6.50%, 2016 676 715 6.00%, 2017 751 784 6.50%, 2017 100 106 4.50%, 2018 3,547 3,475 5.00%, 2018 3,213 3,223 6.00%, 2032 1,769 1,812 7.50%, 2032 728 784 5.00%, 2033 3,764 3,645 Principal Value (000) (000) ---------- --------- 5.50%, 2033 $1,861 $ 1,858 6.00%, 2033 796 814 6.50%, 2034 536 559 Interest Only 7.60%, 2043 (c) 7,000 158 Ginnie Mae, 6.50%, 2031 418 437 6.50%, 2032 379 396 5.50%, 2033 1,161 1,161 6.00%, 2033 2,184 2,242 U.S. Treasury Bonds, 8.75%, 2017 185 251 6.00%, 2026 1,240 1,336 U.S. Treasury Notes, 4.63%. 2006 2,770 2,868 4.38%, 2007 700 724 3.38%, 2008 710 701 6.00%, 2009 540 593 5.00%. 2011 75 79 4.25%. 2013 2,285 2,231 4.75%. 2014 135 136 ------- 51,268 ------- UTILITIES - 3.0% American Electric Power, Inc., 5.38%, 2010 90 92 Carolina Power & Light Co., 6.50%, 2012 95 102 CenterPoint Energy, 5.70%, 2013 140 143 7.88%, 2013 245 274 Cleveland Electric Illuminating Co., 7.88%, 2017 200 231 Columbus Southern Power Co., 5.50%, 2013 25 25 Detroit Edison Co., 6.13%, 2010 185 197 6.35%, 2032 60 60 Dominion Resources Inc., 6.25%, 2012 70 73 DPL, Inc., 8.25%, 2007 180 191 First Energy Corp., 5.50%, 2006 50 52 6.45%, 2011 300 311 Korea Electric Power Corp., 5.13%, 2034 (144A security acquired Apr. 2004 for $89) (b) 90 86
The Notes to Financial Statements are an integral part of these statements. -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Investments in Securities 7 June 30, 2004 (Unaudited) (Continued)
Principal Value (000) (000) -------------------------------------------------------------------------------- UTILITIES (continued) Nisource Finance Corp., 7.88%, 2010 $275 $ 315 Ohio Power Co., 5.50%, 2013 45 45 Oncor Electric Delivery Co., 7.25%, 2033 140 155 Pacific Gas & Electric Co., 3.60%, 2009 120 116 4.20%, 2011 110 105 6.05%, 2034 145 136 Progress Energy, Inc., 7.10%, 2011 110 121 7.00%, 2031 100 103 Tenaska Alabama II Partners LP, 6.13%, 2023 (144A security acquired Oct. 2003 for $175) (b) 175 175 ------- 3,108 ------- TOTAL LONG-TERM BONDS (Cost - $87,153) 87,518 ------- Number of Shares ---------- PREFERRED STOCK - 2.3% COMMUNICATIONS & MEDIA - 0.3% Centaur Funding Corp., 9.08% (144A security acquired Aug. & Nov. 2001 for $261) (b) 235 $293 ---- FINANCIAL - 1.8% BCI US Funding Trust, Step Coupon (8.01% to 7/15/08) (144A security acquired Jan., Mar. & Apr. 2003 for $462) (b) 420 470 DBS Capital Funding Corp., Step Coupon (7.66% to 3/21/2011) (144A security acquired Oct. 2003 for $231) (b) 205 229 IBJ Preferred Capital Co. LLC, Step Coupon (8.79% to 6/30/08) (144A security acquired Aug., Oct. & Dec. 2003 & Jan. 2004 for $517) (b) 480 526 Number of Value Shares 000s ---------- ------ Natexis AMBS Co. LLC., Step Coupon (8.44% to 6/30/08) (144A security acquired May 2002 for $228) (b) 210 $ 240 RBS Capital Trust I, Step Coupon (4.71% to 7/01/13) 360 332 ------ 1,797 ------ INDUSTRIAL - 0.2% RC Trust I, 7.00% 4,100 217 ------ TOTAL PREFERRED STOCK (Cost - $2,273) 2,307 ------ SHORT-TERM OBLIGATIONS - 6.5% MONEY MARKET FUND - 6.3% TimesSquare VP Money Market Fund (e) 6,443,816 6,444 ------ Principal (000) --------- U.S. GOVERNMENT - 0.2% U.S. Treasury Bills, 1.00%, 9/2/04 (f) $ 50 50 0.98%, 9/30/04 (f) 200 199 -------- 249 -------- TOTAL SHORT-TERM OBLIGATIONS (Cost - $6,693) 6,693 -------- TOTAL INVESTMENTS IN SECURITIES - 94.2% (Total Cost - $96,119) (h) 96,518 Cash and Other Assets Less Liabilities - 5.8% 5,916 -------- NET ASSETS - 100.0% $102,434 ========
The Notes to Financial Statements are an integral part of these statements. -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Investments in Securities 8 June 30, 2004 (Unaudited) (Continued) --------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES (a) This is a fair valued security which is in default due to bankruptcy. The principal amount represents beneficial ownership interest for future cash receipts under the bankruptcy filings. (b) Indicates restricted security; the aggregate value of restricted securities is $6,235,674 (aggregate cost $6,070,387), which is approximately 6.1% of net assets. Valuations have been furnished by brokers trading in the securities or a pricing service for all restricted securities. (c) Illiquid security. (d) Agency obligations are not guaranteed by the U.S. Government. (e) TimesSquare Capital Management, Inc., the fund's Investment Adviser, is also the Adviser to the TimesSquare VP Money Market Fund. (f) Pledged as collateral for financial futures contracts. At June 30, 2004, the Fund was long 83, 2-year U.S. Treasury Notes, 19, 30-year U.S. Treasury Bonds and 12, 10-year U.S. Treasury Notes, and was short 92, 5-year U.S. Treasury Notes futures contracts, all expiring in September 2004. Net unrealized gain amounted to $9,562. Underlying face values of the long and short positions were $20,731,694 and ($9,932,053), respectively, and underlying market values were $20,808,453 and ($9,999,250), respectively. (g) A summary of outstanding forward currency contracts, as of June 30, 2004, is as follows: Net Unrealized Settlement Forward Foreign Contract Appreciation Date Contract Currency Value (Depreciation) ----------------------------------------------------------------------- Buys 7/26/04 Euro 2,670,000 3,235,264 17,062 12/10/04 Euro 850,000 1,028,832 6,860 Sells 7/26/04 Euro 2,670,000 3,161,013 (89,597) -------------------------------------------------------------------------------- Tax Information (h) At June 30, 2004, the net unrealized depreciation of investments, based on cost for federal income tax purposes of $96,667,520, was as follows: Aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost $ 976,666 Aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value (1,126,034) ------------ Unrealized depreciation-net $ (149,368) ============ -------------------------------------------------------------------------------- Quality Ratings* of Long-Term Bonds (Unaudited) June 30, 2004 Value % of (000) Value ----------------------------------------------------------------------- Aaa/AAA $ 51,788 59.2% Aa/AA 3,722 4.3 A/A 9,824 11.2 Baa/BBB 20,038 22.9 Ba/BB 1,044 1.2 B/B 549 0.6 Below B 124 0.1 Not Rated 429 0.5 -------- ----- $ 87,518 100.0% ======== ===== * The higher of Moody's or Standard & Poor's Ratings.
The Notes to Financial Statements are an integral part of these statements. -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund 9 Statement of Assets and Liabilities June 30, 2004 (Unaudited) (In Thousands)
Assets: Investments in securities at value $ 96,518 Cash 21 Receivable for investments sold 5,907 Interest and dividends receivable 939 Receivable for forward currency contracts 24 Futures variation margin receivable 19 Investments for Trustees' deferred compensation plan 3 Swap contracts receivable 1 -------- Total assets 103,432 -------- Liabilities: Payable for investments purchased 812 Payable for forward currency contracts 90 Advisory fees payable 37 Audit and legal fees payable 16 Administrative fees payable 15 Insurance expenses payable 12 Custody fees payable 7 Shareholder reports payable 5 Deferred Trustees' fees payable 3 Other 1 -------- Total liabilities 998 -------- Net Assets $102,434 ======== Components of Net Assets: Paid in capital $ 98,972 Undistributed net investment income 2,225 Accumulated net realized gain 894 Net unrealized appreciation of investments, futures, forward contracts and swaps 343 -------- Net Assets $102,434 ======== Shares Outstanding 10,092 ======== Net Asset Value and Redemption Price per Share $ 10.15 ======== Cost of Investments $ 96,119 ========
Statement of Operations For the Six Months Ended June 30, 2004 (Unaudited) (In Thousands)
Investment Income: Income: Interest income $ 3,118 Dividends 44 ------- 3,162 Expenses: Investment advisory fees $ 322 Custodian fees 66 Administrative services fees 34 Audit and legal fees 16 Shareholder reports 3 Transfer agent fees 3 Trustees' fees 2 Insurance expenses 1 Other 1 ----- Total expenses 448 Less expenses waived by Adviser (110) ----- Net expenses $ 338 ----- Net Investment Income 2,824 ------- Realized and Unrealized Gain (Loss) on Investments: Net realized gain (loss) from: Forward currency contracts 246 Futures contracts (622) Swap contracts 20 Investments 2,523 ------- 2,167 ------- Net change in unrealized appreciation: Forward currency contracts (221) Futures contracts (26) Swap contracts -- Investments (4,023) ------- (4,270) ------- Net Realized and Unrealized Loss on Investments (2,103) ------- Net Increase in Net Assets Resulting from Operations $ 721 =======
The Notes to Financial Statements are an integral part of these statements. -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund 10 Statements of Changes in Net Assets (In Thousands)
For the Six For the Months Ended Year Ended June 30, 2004 December 31, (Unaudited) 2003 ------------- ------------ Operations: Net investment income $ 2,824 $ 6,119 Net realized gain on investments 2,167 3,852 Net unrealized appreciation (depreciation) on investments (4,270) 467 -------- -------- Net increase in net assets from operations 721 10,438 -------- -------- Dividends and Distributions: From net investment income -- (9,988) -------- -------- Total dividends and distributions -- (9,988) -------- -------- Capital Share Transactions: Net proceeds from shares sold 848 63,896 Net asset value of shares issued to shareholders in reinvestment of dividends and distributions -- 9,988 -------- -------- 848 73,884 Cost of shares redeemed (61,596) (61,600) -------- -------- Net increase (decrease) from Fund share transactions (60,748) 12,284 -------- -------- Net Increase (Decrease) in Net Assets (60,027) 12,734 Net Assets: Beginning of period 162,461 149,727 -------- -------- End of period * $102,434 $162,461 ======== ======== * includes (overdistributed) & undistributed net investment income of: $ 2,225 $ (599) ======== ======== For the Six For the Months Ended Year Ended June 30, 2004 December 31, (Unaudited) 2003 ------------- ------------ Transactions in Capital Stock: Shares sold 83 6,103 Shares issued in reinvestment of dividends and distributions -- 988 ------ ------ 83 7,091 Shares redeemed (6,019) (5,838) ------ ------ Net increase (decrease) in shares outstanding (5,936) 1,253 ====== ======
The Notes to Financial Statements are an integral part of these statements. -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund 11 Financial Highlights --------------------------------------------------------------------------------
For the Six From May 3, Months Ended For the Year Ended December 31, 1999* to June 30, 2004 ----------------------------------------------- December 31, (Unaudited) 2003 2002 2001(e) 2000 1999 ------------------------------------------------------------------------------------------------------------------------------------ Per Share Operating Performance: Net asset value, beginning of period $ 10.14 $ 10.13 $ 9.70 $ 9.87 $ 9.53 $ 10.00 -------- ------- ------- ------- ------- ------- Income from investment operations Net investment income (a) 0.26 0.45 0.42 0.45 0.54 0.33 Net realized and unrealized gain (loss) (0.25) 0.25 0.42 0.44 0.35 (0.48) -------- ------- ------- ------- ------- ------- Total from investment operations 0.01 0.70 0.84 0.89 0.89 (0.15) -------- ------- ------- ------- ------- ------- Less dividends and distributions: Dividends from net investment income -- (0.69) (0.41) (0.94) (0.55) (0.32) Distributions from net realized capital gains -- -- -- ( 0.04) -- -- Return of capital dividends -- -- -- ( 0.08) -- -- -------- -------- -------- ------- -------- ------- Total dividends and distributions -- (0.69) (0.41) (1.06) (0.55) (0.32) -------- -------- -------- ------- -------- ------- Net asset value, end of period $ 10.15 $ 10.14 $ 10.13 $ 9.70 $ 9.87 $ 9.53 ======== ======== ======== ======= ======== ======= Total Investment Return (b) 0.10%(c) 6.98% 8.66% 9.06% 9.34% (1.48)%(c) Ratios to Average Net Assets: Gross expenses 0.66%(d) 0.65% 0.62% 0.60% 0.70% 0.79%(d) Fees and expenses waived or borne by the Adviser 0.16%(d) 0.15% 0.12% 0.10% 0.20% 0.29%(d) Net expenses 0.50%(d) 0.50% 0.50% 0.50% 0.50% 0.50%(d) Net investment income 4.17%(d) 3.91% 4.24% 5.39%(e) 6.66% 6.09%(d) Portfolio Turnover 34%(c) 182% 518% 396% 320% 303%(c) Net assets, End of Period (000 omitted) $102,434 $162,461 $149,727 $151,090 $84,014 $39,261
(a) Net investment income per share has been calculated in accordance with SEC requirements, with the exception that end of the year accumulated undistributed/(overdistributed) net investment income has not been adjusted to reflect current year permanent differences between financial and tax accounting. (b) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced. (c) Not annualized. (d) Annualized. (e) Effective January 1, 2001, the Fund was required to start amortizing premium and discount on all debt securities. The effect of this change on net investment income per share was a decrease of $0.02 per share. The effect to the ratio of net investment income to average net assets was a decrease of 0.19%. Per share, ratios, and supplemental data for periods prior to January 1, 2001, have not been restated to reflect this change in accounting principle. * Commencement of operations The Notes to Financial Statements are an integral part of these statements. -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 12 (Unaudited) 1. Significant Accounting Policies. TimesSquare VP Core Plus Bond Fund (the "Fund") is a separate series of CIGNA Variable Products Group, a Massachusetts business trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The Fund seeks to provide the highest current income attainable, consistent with reasonable risk, as determined by the Fund's investment adviser, through investment in a professionally managed, diversified portfolio of fixed income securities. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. A. Security Valuation -- Debt securities traded in the over-the-counter market, including listed securities whose primary markets are believed to be over-the-counter, are valued on the basis of valuations furnished by brokers trading in the securities or a pricing service, which determines valuations for normal, institutional-size trading units of such securities using market information, transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. Short-term investments with remaining maturities of up to and including 60 days are valued at amortized cost, which approximates market. Short-term investments that mature in more than 60 days are valued at current market quotations. Other securities and assets of the Fund are appraised at fair value, as determined in good faith by, or under the authority of, the Fund's Board of Trustees. The Funds' Board of Trustees has designated the Pricing Committee of TimesSquare Capital Management, Inc. to make, pursuant to procedures approved by the Board and under the Board's supervision, all necessary determinations of fair value for the portfolio securities for which market quotations are not readily available. When fair valuing securities, the Pricing Committee takes into account factors such as fundamental and analytical information about the security, the nature and duration of any restrictions on disposition of the security, market information (including, for example, factors such as historical price relationships and valuations for securities with similar characteristics), and evaluation of significant market events. If events occurring after the close of the principal market in which securities are traded (but before the close of regular trading on the NYSE) are believed to materially affect the value of those securities, such securities are valued at their fair value, taking such events into account. B. Delayed Delivery Commitments -- The Fund may enter into commitment agreements -- i.e., TBA's -- for the purchase of securities at an agreed-upon price on a specified future date. Since the delivery and payment for such securities can be scheduled to take place up to three months after the transaction date, they are subject to market fluctuations. The Fund does not begin to earn interest on such purchase commitments until settlement date. The Fund may sell a purchase commitment prior to settlement for the purpose of enhancing its total return. The Fund segregates assets with a market value equal to the amount of its purchase commitments. To the extent securities are segregated, they may not be available for new investments or to meet redemptions. Delayed delivery commitments may increase the Fund's exposure to market fluctuations and may increase the possibility that the Fund may realize a short-term gain (subject to taxation) or loss if the Fund must engage in portfolio transactions in order to honor its commitments. Due to the longer -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 13 (Unaudited) (Continued) settlement period, there may be an increased risk of failure of the other party to honor the transaction. The Fund records changes in market value of the securities underlying unsettled commitments in unrealized gains and losses. Gains and losses are realized upon sale of the commitment. C. Foreign Currency Translations -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of investment securities, other assets and liabilities at the daily rates of exchange, and (ii) purchases and sales of investment securities, dividend and interest income and certain expenses at the rates of exchange prevailing on the respective dates of such transactions. The Fund does not isolate that portion of gains and losses on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices of the investments. Such fluctuations are included with the net realized and unrealized gains and losses from investments. Net realized and unrealized gains (losses) from foreign currency-related transactions include gains and losses between trade and settlement dates on securities transactions, gains and losses arising from the sales of foreign currency, and gains and losses between the ex-dividend and payment dates on dividends, interest, and foreign withholding taxes. D. Foreign Investments -- The Fund may invest in securities of foreign countries and governments, which involve certain risks in addition to those inherent in domestic investments. Such risks generally include, among others, currency risk (fluctuations in currency exchange rates), information risk (key information may be inaccurate or unavailable) and political risk (expropriation, nationalization or the imposition of capital or currency controls or punitive taxes). Other risks of investing in foreign securities include inadequate accounting controls, liquidity and valuation risks. E. Forward Currency Transactions -- The Fund is authorized to enter into forward exchange contracts for the purpose of hedging against foreign exchange risk arising from the Fund's investment or anticipated investment in securities denominated in foreign currencies. The Fund may also enter into these contracts for purposes of increasing exposure to a foreign currency or to shift exposure to foreign currency fluctuations from one country to another. All commitments are marked to market daily at the applicable translation rates and any resulting unrealized gains or losses are recorded. Realized gains or losses are recorded at the time the forward contract matures or by delivery of the currency. Due to market fluctuations, the Fund maintains, in a segregated account with its custodian, assets with a market value equal to the amount of its purchase commitments. Risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. F. Futures Contracts -- The Fund is authorized to enter into futures contracts. The Fund may use futures contracts for reasons such as managing its exposure to the markets or movements in interest rates and currency values. Upon entering into a futures contract, the Fund is required to pledge to the broker an amount of cash and/or securities equal to the initial margin requirements. During the period a futures contract is open, changes in the value of a contract are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Daily variation margin payments are received or made, -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 14 (Unaudited) (Continued) depending on whether there were unrealized gains or losses. When a contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Futures contracts include the risk that a change in the value of the contract may not correlate with the value of the underlying securities and the possibility of an illiquid market. G. High Yield Bonds -- The Fund may invest in high yield bonds; i.e., fixed income securities rated below investment grade. While the market values of these securities tend to react less to fluctuations in interest rate levels than do those of investment-grade securities, the market values of certain of these securities also tend to be more sensitive to individual corporate developments and changes in economic conditions than investment-grade securities. In addition, the issuers of these securities are often highly leveraged and may not have more traditional methods of financing available to them so that their ability to service their debt obligations during an economic downturn or during sustained periods of rising interest rates may be impaired. H. Swap Agreements -- The Fund may enter into swap agreements for investment, liquidity, hedging and risk management purposes. For example, the Fund may enter into swap agreements to preserve a return on a particular investment or a portion of its portfolio and as a technique for managing duration (i.e., price sensitivity to changes in interest rates). Swaps involve the exchange of commitments to pay or receive -- e.g., an exchange of floating-rate payments for fixed-rate payments and/or payments of the appreciation or depreciation of a security or an index. If forecasts of interest rates and other market factors, including those that may impact the indexes of the total return swaps, are incorrect, investment performance will differ compared to what performance would have been if these investment techniques were not used. Even if the forecasts are correct, there are risks that the positions may correlate imperfectly with the asset or liability being hedged, a liquid secondary market may not always exist, or the counterparty to a transaction may default. As of June 30, 2004, the Fund had the following outstanding swap agreements:
Spread Unrealized Notional (Basis Termination Appreciation/ Counterparty Index Amount Points) Date (Depreciation) --------------------------------------------------------------------------------- Lehman Lehman US High Brothers Yield Index $60,000 (30) 12/01/04 $0
The terms of the agreement require the Fund to pay LIBOR (which is set monthly) plus the spread and to receive the monthly total return on the Index, both based on the notional amount. The Fund records the net amount receivable/payable on a daily basis. The net receivable/payable is settled in cash monthly and recorded as realized gain/loss. I. Security Transactions and Related Investment Income -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Dividend income is recorded on the ex-dividend date and interest income, which includes amortization of premium and accrual of discount, is recorded on an accrual basis. Securities gains and losses are determined on the basis of identified cost. J. Federal Taxes -- It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no federal income or excise taxes on realized income or net capital gains have been accrued. Distributions reported in the Statement of Changes in Net Assets from net investment income, including short-term gains, and capital gains are treated as ordinary income and long-term capital gains, respectively, for federal income tax purposes. -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 15 (Unaudited) (Continued) At December 31, 2003 the Fund had a Post-October loss of $1,327 and a Post-October currency loss of $51,181. Under current tax law, capital losses realized after October 31 may be deferred and treated as occurring on the first day of the following year. K. Dividends and Distributions to Shareholders -- Dividends from net investment income and distributions from net capital gains, to the extent such gains would otherwise be taxable to the Fund, are declared and distributed at least annually. Dividends and distributions are recorded by the Fund on the ex-dividend date. The timing and characterization of certain income and capital gains distributions are determined in accordance with federal tax regulations, which may differ from generally accepted accounting principles. To the extent that such differences are permanent, a reclassification to the Components of Net Assets may be required. As a result, at December 31, 2003, the Fund decreased its accumulated net realized gain by $2,622,808, and decreased overdistributed net investment income by the same amount. 2. Investment Advisory Fees and Other Transactions with Affiliates. Investment advisory fees are paid or accrued to TimesSquare Capital Management, Inc. ("TimesSquare"), certain officers and directors of which are affiliated with the Fund. Such advisory fees are based on an annual rate of 0.50% of the Fund's average daily net assets. TimesSquare has contractually agreed to reimburse the Fund for any amount by which its expenses (including the advisory fee, but excluding interest, taxes, transaction costs incurred in acquiring and disposing of portfolio securities, and extraordinary expenses) exceed, on an annual basis, 0.50% of average daily net assets until April 30, 2004, and thereafter to the extent described in the Fund's then current prospectus. TimesSquare retains the right to be repaid by the Fund if the Fund's expenses fall below the percentage specified above prior to the end of the fiscal year or within three years after TimesSquare waives advisory fees or reimburses a Fund's operating expenses. The Fund's remaining contingent liability and expiration dates are as shown below:
Remaining Contingent Expires Expires Expires Expires Liability during 2004 during 2005 during 2006 during 2007 (000's) (000's) (000's) (000's) (000's) ------------ ------------- ------------- ------------- ------------ $619 $127 $154 $228 $110
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund may invest its excess cash, up to 25% of the Fund's total assets, in the affiliated TimesSquare VP Money Market Fund ("TSVPMM") managed by TimesSquare. TimesSquare will waive the amount of its advisory fee for the Fund in an amount that offsets the amount of the advisory fees incurred in the affiliated Fund. For the six months ended June 30, 2004, TimesSquare waived $15,783 of its advisory fee payable by the Fund. Income distributions from TSVPMM, which amounted to $29,149 for the six months ended June 30, 2004, are recorded as dividend income in the Statement of Operations. TimesSquare is an indirect, wholly-owned subsidiary of CIGNA Corporation. For administrative services, the Fund reimburses TimesSquare for a portion of the compensation and related expenses of the Fund's Treasurer and Secretary and certain persons who assist in carrying out the responsibilities of those offices. For the six months ended June 30, 2004, the Fund paid or accrued $34,332. 3. Trustees' Fees. Trustees' fees represent remuneration paid or accrued to Trustees who are not employees of CIGNA Corporation or any of its affiliates. Trustees may elect to defer receipt of all or a portion of their fees, which are invested in mutual fund shares in accordance with a deferred compensation plan. -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 16 (Unaudited) (Continued) 4. Purchases and Sales of Securities. Purchases and sales of securities, excluding short-term obligations, for the six months ended June 30, 2004, were $28,748,350 and $61,738,990, respectively, for U.S. Government and Agency Obligations and $14,868,245 and $39,954,241 respectively, for all other securities. 5. Capital Stock. The Fund offers an unlimited number of shares of beneficial interest without par value. All of the shares outstanding at June 30, 2004, were held by Connecticut General Life Insurance Company ("CG Life"). CG Life is an indirect, wholly-owned subsidiary of CIGNA Corporation. -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund 17 (Unaudited) Trustees Officers Russell H. Jones Marnie Wagstaff Mueller Richard H. Forde Senior Vice President, Diocesan Consultant, Episcopal Chairman of the Board Chief Investment Officer, and Diocese of Connecticut and President Treasurer, Kaman Corporation Paul J. McDonald Carol Ann Hayes Alfred A. Bingham III Special Advisor to the Board of Director and Chair of Audit Vice President and Directors, Friendly Ice Cream Committee, Reed and Barton Treasurer Corporation Corporation Richard H. Forde Jeffrey S. Winer Chief Investment Officer, CIGNA Vice President and Investment Management Secretary
-------------------------------------------------------------------------------- * All Trustees and officers have an address c/o TimesSquare Capital Management, Inc., 280 Trumbull Street, H16C, Hartford, CT 06103. TimesSquare VP Core Plus Bond Fund is an open-end, diversified management investment company that invests primarily in fixed income securities. The investment adviser is TimesSquare Capital Management, Inc., 280 Trumbull Street, Hartford, Connecticut 06103. [GRAPHIC OF LEAVES] TIMESSQUARE VP MONEY MARKET FUND ----------------------------------------------------------------- Semiannual Report June 30, 2004 [CIGNA LOGO](R) -------------------------------------------------------------------------------- 1 Dear Shareholders: Our report for CIGNA Variable Products Money Market Fund (the "Fund") covering the six months ended June 30, 2004 follows. Market Environment The Federal Reserve ("Fed") met four times during the first six months of 2004. In the first three meetings, the Fed funds rate was left unchanged at 1%. However at the June 30, 2004 meeting, the Fed funds rate was raised 25 basis points to 1.25%, after a year of keeping rates on hold. The Fed also announced that it was willing to move more aggressively in raising rates in the future if inflation data warranted. The U.S. economy is currently firing on all cylinders, with prospects for continued solid economic growth over the next several quarters. The business sector has become the new "engine" of economic growth. Corporate sector fundamentals continued to improve, reflected in record levels of earnings, dividends, and cash flow as well as significantly improved balance sheets. Portfolio Composition and Performance On June 30, 2004, the portfolio contained: 55% top-tier commercial paper and 45% U.S. Government Agencies. The Fund is well diversified. Total returns for the six months ended June 30, 2004 (which do not reflect expenses associated with variable products through which the Fund may be offered and which would have been lower if such expenses were reflected) were: Fund 0.32% Lipper Money Market Funds Average 0.17 3-month U.S. Treasury Bill 0.47
As of June 30, 2004, the Fund's weighted average portfolio maturity was 33 days, and the annualized 7-day yield was 0.79%. Outlook The Fed's current monetary tightening is not expected to seriously impact the rate of economic growth until the middle of next year. Economic and investment risks are likely to increase as 2005 unfolds. Sincerely, /s/ Richard H. Forde Richard H. Forde Chairman of the Board and President CIGNA Variable Products Group Note: This commentary is not part of the Semiannual Report to Shareholders. -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund Investments in Securities 2 June 30, 2004 (Unaudited)
Principal Value (000) (000) ---------- ------ ASSET BACKED SECURITY - 0.2% Chase Manhattan Auto Owner Trust, 1.14%, 12/15/04 $ 912 $ 912 -------- COMMERCIAL PAPER - 54.5% Domestic - 50.4% American Express Credit Corp., 1.17%, 7/9/04 17,228 17,224 Barton Capital Corp., 1.15%, 7/7/04 12,000 11,998 1.15%, 7/8/04 10,000 9,998 Bear Stearns Co., Inc., 1.16%, 7/8/04 10,000 9,998 Bemis Company, Inc., 1.10%, 7/7/04 5,288 5,287 Citicorp, 1.02%, 7/1/04 9,790 9,790 1.15%, 7/8/04 12,000 11,997 Fortune Brands, Inc., 1.05%, 7/6/04 10,021 10,020 Gannett, Inc., 1.23%, 7/14/04 20,000 19,991 Goldman Sachs Group, Inc., 1.08%, 7/2/04 21,000 20,999 Household Finance Corp., 1.12%, 7/12/04 20,000 19,993 Kimberly Clark Worldwide, Inc., 1.08%, 7/7/04 5,123 5,122 Morgan Stanley, Dean Witter, Discover & Co., 1.20%, 7/13/04 9,000 8,996 Nestle Capital Corp., 1.27%, 7/22/04 20,278 20,263 Old Line Funding Corp., 1.21%, 7/15/04 11,860 11,854 1.20%, 7/16/04 11,500 11,494 PepsiCo, Inc., 1.25%, 7/12/04 12,007 12,002 1.28%, 7/19/04 9,000 8,994 United Parcel Service of America, Inc., 1.01%, 7/1/04 20,000 20,000 Verizon Network Funding, 1.24%, 7/7/04 10,000 9,998 1.30%, 7/13/04 440 440 Wal-Mart Stores, Inc., 1.12%, 7/13/04 20,000 19,993 Windmill Funding Corp., 1.08%, 7/6/04 16,000 15,998 -------- 292,449 -------- Foreign - 4.1% Novartis Finance Corp., 1.30%, 7/9/04 11,600 11,597 Toyota Motor Credit Corp., 1.27%, 12/23/04 (a) 12,500 12,504 -------- 24,101 -------- Total Commercial Paper 316,550 -------- Principal Value (000) (000) ---------- ------ U.S. GOVERNMENT AGENCIES (b) - 45.3% Fannie Mae, 1.04%, 7/14/04 $ 6,469 $ 6,467 1.15%, 7/14/04 2,938 2,937 1.25%, 7/16/04 12,154 12,148 1.05%, 7/20/04 3,050 3,048 1.05%, 7/21/04 3,805 3,803 1.06%, 7/21/04 2,000 1,999 1.26%, 7/21/04 9,138 9,132 1.08%, 8/9/04 5,523 5,517 1.06%, 8/20/04 1,160 1,158 1.15%, 8/20/04 2,335 2,331 1.18%, 9/1/04 2,040 2,036 1.11%, 10/15/04 1,500 1,495 1.24%, 11/12/04 2,976 2,962 1.26%, 11/12/04 1,655 1,647 1.24%, 1/28/05 (a) 11,500 11,498 1.65%, 5/16/05 2,500 2,500 1.53%, 10/7/05 (a) 20,000 19,997 Federal Farm Credit Bank, 1.25%, 8/18/04 4,588 4,580 1.10%, 10/15/04 1,484 1,479 1.14%, 10/18/04 5,000 4,983 1.22%, 10/18/04 8,500 8,469 1.20%, 3/24/05 (a) 15,000 14,999 1.23%, 6/23/05 (a) 2,500 2,500 1.50%, 3/1/06 (a) 15,000 15,000 1.22%, 6/2/06 (a) 12,500 12,500 Federal Home Loan Bank, 1.04%, 7/16/04 7,500 7,497 1.50%, 10/6/04 (a) 10,000 10,000 4.37%, 2/15/05 2,000 2,038 1.30%, 2/23/05 4,000 3,999 1.51%, 3/30/05 (a) 7,500 7,500 2.02%, 6/8/05 2,500 2,500 0.99%, 10/5/05 (a) 7,500 7,495 Freddie Mac, 1.15%, 7/15/04 11,998 11,993 1.22%, 9/9/04 2,000 1,995 1.13%, 9/14/04 5,000 4,988 1.15%, 9/14/04 5,000 4,988
The Notes to Financial Statements are an integral part of these statements. -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund Investments in Securities 3 June 30, 2004 (Unaudited) (Continued)
Principal Value (000) (000) --------- -------- U.S. GOVERNMENT AGENCIES (continued) Freddie Mac (continued), 1.25%, 9/28/04 $2,061 $ 2,055 1.20%, 10/19/04 7,500 7,472 1.25%, 11/4/04 7,500 7,467 1.27%, 12/6/04 5,646 5,614 1.19%, 12/30/04 1,500 1,491 1.23%, 1/11/05 1,500 1,490 1.30%, 1/11/05 7,500 7,447 1.40%, 1/19/05 2,224 2,206 1.10%, 10/7/05 (a) 7,500 7,500 -------- 262,920 -------- TOTAL INVESTMENTS IN SECURITIES - 100.0% (Total Cost - $580,382) (c) 580,382 Cash and Other Assets, Less Liabilities - 0.0% 74 -------- NET ASSETS - 100.0% $580,456 ========
NOTES TO INVESTMENTS IN SECURITIES (a) Variable rate security. Rate is as of June 30, 2004. (b) Agency obligations are not guaranteed by the U.S. Government. Tax Information (c) As of June 30, 2004, the cost for federal tax purposes on a tax basis is the same as on a book basis.
-------------------------------------------------------------------------------- TimesSquare VP Money Market Fund Value % of Ten Largest Positions (Unaudited) (000) Net Assets ---------------------------------------------------------------------------- Fannie Mae $90,675 15.6% Freddie Mac 66,706 11.5 Federal Farm Credit Bank 64,510 11.1 Federal Home Loan Bank 41,029 7.1 Old Line Funding Corp. 23,348 4.0 Barton Capital Corp. 21,996 3.8 Citicorp 21,787 3.8 Goldman Sachs Group, Inc. 20,999 3.6 PepsiCo, Inc. 20,996 3.6 Nestle Capital Corp. 20,263 3.5 --------------------------------------------------------------------------------
The Notes to Financial Statements are an integral part of these statements. -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund 4 Statement of Assets and Liabilities June 30, 2004 (Unaudited) (In Thousands)
Assets: Investments in securities at value $580,382 Cash 101 Interest receivable 232 Investment for Trustees' deferred compensation plan 1 -------- Total assets 580,716 -------- Liabilities: Investment advisory fees payable 170 Administrative services fees payable 28 Custodian fees payable 21 Audit and legal fees payable 20 Insurance payable 10 Shareholder reports 10 Deferred Trustees' fees payable 1 -------- Total liabilities 260 -------- Net Assets $580,456 ======== Components of Net Assets: Paid in capital $580,456 -------- Net Assets $580,456 ======== Shares Outstanding 580,454 ======== Net Asset Value and Redemption Price per Share $ 1.00 ======== Cost of Investments $580,382 ========
Statement of Operations For the Six Months Ended June 30, 2004 (Unaudited) (In Thousands)
Investment Income: Income: Interest $2,579 ------ Expenses: Investment advisory fees $ 835 Administrative services fees 70 Custodian fees and expenses 62 Auditing and legal fees 24 Shareholder reports 10 Trustees' fees 5 Insurance expense 3 Transfer agent fees 3 Other 1 ------ Total expenses 1,013 ------ Net Investment Income 1,566 ------ Realized and Unrealized Gain (Loss) on Investments: Net realized gain from investments -- ------ Net Realized and Unrealized Gain (Loss) on Investments -- ------ Net Increase in Net Assets Resulting From Operations $1,566 ======
The Notes to Financial Statements are an integral part of these statements. -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund 5 Statements of Changes in Net Assets (In Thousands)
For the Six For the Months Ended Year Ended June 30, 2004 December 31, (Unaudited) 2003 ---------- -------- Operations: Net investment income $ 1,566 $ 2,939 --------- --------- Net increase in net assets from operations 1,566 2,939 --------- --------- Dividends and Distributions: From net investment income (1,566) (2,872) --------- --------- Total dividends and distributions (1,566) (2,872) --------- --------- Capital Share Transactions: Net proceeds from sales of shares 381,483 546,426 Net asset value of shares issued to shareholders in reinvestment of dividends and distributions 1,566 2,883 --------- --------- 383,049 549,309 Cost of shares redeemed (187,709) (529,819) --------- --------- Net increase in net assets from Fund share transactions 195,340 19,490 --------- --------- Net Increase in Net Assets 195,340 19,557 Net Assets: Beginning of period 385,116 365,559 --------- --------- End of period $ 580,456 $385,116 ========= ========= For the Six For the Months Ended Year Ended June 30, 2004 December 31, (Unaudited) 2003 ---------- -------- Transactions in Capital Stock Shares sold 381,483 546,426 Shares issued in reinvestment of dividends and distributions 1,566 2,883 ---------- -------- 383,049 549,309 Shares redeemed (187,709) (529,819) ---------- -------- Net increase in shares outstanding 195,340 19,490 ========== ========
The Notes to Financial Statements are an integral part of these statements. -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund 6 Financial Highlights
For the Six Months Ended For the Year Ended December 31, June 30, 2004 ------------------------------------------------------------- (Unaudited) 2003 2002 2001 2000 1999 ---------------- ----------- ----------- ----------- ------------- ----------- Per Share Operating Performance: Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Income from investment operations: Net investment income (a) (A) 0.01 0.01 0.04 0.06 0.05 -------- ------- ------- ------- -------- ------- Total from investment operations (A) 0.01 0.01 0.04 0.06 0.05 -------- ------- ------- ------- -------- ------- Less dividends and distributions: Dividends from net investment income (A) (0.01) (0.01) (0.04) (0.06) (0.05) -------- -------- -------- -------- -------- ------- Total dividends and distributions (A) (0.01) (0.01) (0.04) (0.06) (0.05) -------- -------- -------- -------- -------- ------- Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======== ======== ======== ======== ======== ======= Total Return 0.32%(c) 0.77% 1.41% 3.73% 6.06%(b) 4.83%(b) Ratios to Average Net Assets: Gross expenses 0.42%(d) 0.44% 0.43% 0.48% 0.54% 0.64% Fees and expenses waived by the Adviser 0.00% 0.00% 0.00% 0.00% 0.04% 0.14% Net expenses 0.42%(d) 0.44% 0.43% 0.48% 0.50% 0.50% Net investment income 0.66%(d) 0.78% 1.37% 3.53% 6.01% 4.72% Net Assets, End of Period (000 omitted) $580,456 $385,116 $365,559 $217,305 $160,905 $31,345
(A) Less than $0.01 per share. (a) Net investment income per share has been calculated in accordance with SEC requirements, with the exception that end of year accumulated undistributed/(overdistributed) net investment income has not been adjusted to reflect current year permanent differences between financial and tax accountings. (b) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced. (c) Not annualized. (d) Annualized The Notes to Financial Statements are an integral part of these statements. -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund Notes To Financial Statements (Unaudited) 7 1. Significant Accounting Policies. TimesSquare VP Money Market Fund (the "Fund") is a separate series of CIGNA Variable Products Group, a Massachusetts business trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The objective of the Fund is to provide as high a level of current income as is consistent with the preservation of capital and liquidity and the maintenance of a stable $1.00 per share net asset value by investing in short-term money market instruments. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. A. Security Valuation -- The Fund's investments are valued at amortized cost, which the Board of Trustees has determined constitutes fair value, and which, at June 30, 2004, approximated cost for federal income tax purposes. B. Security Transactions and Related Investment Income -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Interest income, which includes amortization of premium and accretion of discount, is recorded on the accrual basis. Securities gains and losses are recognized on the basis of identified cost. C. Federal Taxes -- It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains, if any, to its shareholders. Therefore, no federal income or excise taxes on realized income have been accrued. Distributions reported in the Statement of Changes in Net Assets from net investment income, including short-term capital gains, and capital gains are treated as ordinary income and long-term capital gains, respectively, for federal income tax purposes. D. Dividends and Distributions to Shareholders -- Dividends from net investment income are declared and reinvested daily. Dividends and distributions are recorded by the Fund on the ex-dividend date. The timing and characterization of certain income and capital gains distributions are determined in accordance with federal tax regulations, which may differ from generally accepted accounting principles. To the extent that such differences are permanent, a reclassification to paid-in capital may be required. For the six months ended June 30, 2004 the total tax distributions were $1,566,016. 2. Investment Advisory Fees and Other Transactions with Affiliates. Investment advisory fees are paid or accrued to TimesSquare Capital Management, Inc. ("TimesSquare"), certain officers and directors of which are affiliated with the Fund. Such advisory fees are based on an annual rate of 0.35% applied to the average daily net assets of the Fund. TimesSquare has contractually agreed to reimburse the Fund for any amount by which its expenses (including the advisory fee, but excluding interest, taxes, transaction costs incurred in acquiring and disposing of portfolio securities, and extraordinary expenses) exceed, on an annual basis, 0.50% of average daily net assets until April 30, 2005, and thereafter, to the extent described in the Fund's then current prospectus. Effective May 1, 2002, TimesSquare retains the right to be repaid by the Fund if the Fund's expenses fall below the -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund Notes To Financial Statements (Unaudited) 8 (Continued) percentage specified above prior to the end of the fiscal year or within three years after TimesSquare waives advisory fees or reimburses the Fund's operating expenses. As of June 30, 2004, the Fund has no such liability. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, other affiliated CIGNA Variable Products Group Funds may invest in the Fund. TimesSquare will waive the amount of its advisory fee for the affiliated Funds in an amount that offsets the amount of the advisory fees incurred in the TimesSquare VP Money Market Fund. For administrative services, the Fund reimburses TimesSquare for a portion of the compensation and related expenses of the Trust's Treasurer and Secretary and certain persons who assist in carrying out the responsibilities of those offices. For the six months ended June 30, 2004, the Fund paid or accrued $69,551. TimesSquare is an indirect, wholly-owned subsidiary of CIGNA Corporation. 3. Trustees' Fees. Trustees' fees represent remuneration paid or accrued to Trustees who are not employees of CIGNA Corporation or any of its affiliates. Trustees may elect to defer all or a portion of their fees, which are invested in mutual fund shares in accordance with a deferred compensation plan. 4. Capital Stock. The Fund offers an unlimited number of shares of beneficial interest, without par value. Connecticut General Life Insurance Company, an indirect, wholly-owned subsidiary of CIGNA Corporation, TimesSquare VP Core Plus Bond Fund and TimesSquare VP S&P 500(RegTM) Index Fund are the shareholders of the Fund, with ownership of 97.4%, 1.7%, and 0.9%, respectively. -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund 9 Trustees Officers Russell H. Jones Marnie Wagstaff Mueller Richard H. Forde Senior Vice President, Diocesan Consultant, Episcopal Chairman of the Board Chief Investment Officer, and Diocese of Connecticut and President Treasurer, Kaman Corporation Paul J. McDonald Carol Ann Hayes Alfred A. Bingham III Special Advisor to the Board of Director and Chair of Audit Vice President and Directors, Friendly Ice Cream Committee, Reed and Barton Treasurer Corporation Corporation Richard H. Forde Jeffrey S. Winer Chief Investment Officer, CIGNA Vice President and Investment Management Secretary
-------------------------------------------------------------------------------- TimesSquare VP Money Market Fund is an open-end, diversified management investment company that invests in short-term money market instruments. The investment adviser is TimesSquare Capital Management, Inc., 280 Trumbull Street, Hartford, Connecticut 06103. -------------------------------------------------------------------------------- [GRAPHIC OF LEAVES] TIMESSQUARE VP S&P 500(R) INDEX FUND ----------------------------------------------------------------- Semiannual Report June 30, 2004 [CIGNA LOGO](R) -------------------------------------------------------------------------------- 1 Dear Shareholders: Our commentary for TimesSquare VP S&P 500(RegTM) Index Fund (the "Fund") covering the six months ended June 30, 2004 follows. Economy The U.S. economic expansion continues to gather steam. The consensus is that real Gross Domestic Product will grow at a 4%+ rate in the second half of 2004. The manufacturing sector has been expanding for the past 13 months, and consumer confidence is improving. In the second quarter, companies began hiring new workers at a pace of around 250,000 jobs a month. The unemployment rate has fallen to 5.6%. Inflation, fueled by increasing food and energy prices, has become a concern. The year-over-year rate of increase of the Consumer Price Index was 3.0% in May, up from 1.7% at the end of March. Responding to the signs of inflation, the Federal Reserve raised the Fed Funds interest rate 0.25% to 1.25% on June 30 and announced that it was willing to move more aggressively in raising rates in the future if inflation data warranted. Equity Markets Equity markets were up nearly 4% through the first few weeks of the year, propelled by record revenues from Intel and good news in the auto and construction industries. After a brief period of profit-taking, a positive earnings surprise from CISCO, the highest non-manufacturing Institute for Supply Management Index number in seven years, and a two-year low in unemployment, the S&P 500(RegTM) Index reached its highest level since March 2002. Despite the strong durable goods report in late February, the market gave back much of its gains over the remainder of the quarter. A decrease in consumer confidence, increased terrorist threats and the unfavorable Microsoft ruling all took a toll and left the S&P 500(RegTM) Index up 1.69% for the first quarter. Also in the first quarter, both the S&P MidCap Index (+5.06%) and the S&P Small Cap Index (+6.22%) outperformed the large capitalization index during the period. Within the large capitalization segment, value (+3.35%) outpaced growth (+0.02%), as measured by the respective S&P/Barra Indexes. In the second quarter, the stock market, as measured by the S&P 500(RegTM) Index, returned 1.72%, as equity declines in April were offset by gains in May and June. Corporate earnings continued to surprise on the upside, but concerns over rising interest rates continued to dissuade buyers. For the second quarter, growth stocks (+2.69%) outperformed value stocks (+0.79%), as measured by the respective S&P/Barra Indexes. The S&P Small Cap Index (+3.60%) continued to outperform large cap stocks. Performance Summary Returns for the year ended December 31, 2003 (which do not reflect expenses associated with variable products through which the Fund may be offered and which would have been lower if such expenses were reflected) were:
Second Quarter Year-to-date Fund 1.68% 3.35% Lipper S&P 500 Funds Average 1.56 3.13 S&P 500 Index 1.72 3.44
-------------------------------------------------------------------------------- 2 Outlook Financial markets are likely to remain in a volatile trading pattern through year end, with equity markets expected to continue to outperform bonds. Fixed income markets remain in a cyclical bear market and, in an environment of rising inflation and tightening monetary conditions, further market declines are highly likely. Assuming the pace of Fed monetary tightening is moderate and cautious, equity markets should not be seriously impacted by the shift in policy until 2005. However, a more aggressive monetary tightening next year could result in a sharp, but brief and temporary, equity market correction. Sincerely, /s/ Richard H. Forde Richard H. Forde Chairman of the Board and President CIGNA Variable Products Group Note: This commentary is not part of the Semiannual Report to Shareholders. -------------------------------------------------------------------------------- TimesSquare VP S&P 500(RegTM) Index Fund Investments in Securities 3 June 30, 2004 (Unaudited)
Number of Value Shares (000) -------------------------------------------------------------------------- COMMON STOCKS - 92.2% General Electric Co. 157,800 $5,113 Microsoft Corp. 167,000 4,770 Exxon Mobil Corp. 101,424 4,504 Pfizer, Inc. 118,032 4,046 Citigroup, Inc. 79,672 3,705 Wal-Mart Stores, Inc. 67,000 3,535 American International Group 40,384 2,879 Intel Corp. 100,300 2,768 Bank of America Corp. 31,616 2,675 Johnson & Johnson 45,884 2,556 Cisco Systems, Inc. (a) 106,300 2,519 International Business Machine Corp. 26,300 2,318 Procter & Gamble Co. 40,000 2,178 Coca-Cola (The) Co. 37,800 1,908 Merck & Co., Inc. 34,400 1,634 Altria Group, Inc. 31,700 1,587 ChevronTexaco Corp. 16,534 1,556 Verizon Communications, Inc. 42,726 1,546 Wells Fargo & Co. 26,160 1,497 PepsiCo., Inc. 26,460 1,426 Dell, Inc. (a) 39,600 1,418 United Parcel Service, Inc., Class B 17,500 1,315 SBC Communications, Inc. 51,194 1,241 Home Depot, Inc. 35,250 1,241 Time Warner, Inc. (a) 70,400 1,238 Morgan (J.P.) Chase & Co. 31,806 1,233 Eli Lilly & Co. 17,400 1,216 Amgen, Inc. (a) 19,968 1,090 3M Co. 12,100 1,089 Fannie Mae 15,000 1,070 Tyco International Ltd. 30,965 1,026 American Express Co. 19,900 1,022 Hewlett-Packard Co. 47,224 996 Abbott Laboratories 24,200 986 Comcast Corp., Class A (a) 34,862 977 Viacom, Inc., Class B 27,033 966 Oracle Corp. (a) 80,872 965 eBay, Inc. (a) 10,000 920 Number of Value Shares (000) -------------------------------------------------------------------------- Medtronic, Inc. 18,800 $916 Qualcomm, Inc. 12,500 912 Wachovia Corp. 20,328 905 Morgan Stanley Dean Witter & Co. 16,940 894 Bank One Corp. 17,319 883 US Bancorp 29,751 820 Merrill Lynch & Co., Inc. 15,000 810 Disney (Walt) Co. 31,700 808 ConocoPhillips 10,568 806 Yahoo, Inc. (a) 20,600 748 Wyeth 20,600 745 BellSouth Corp. 28,300 742 Bristol-Myers Squibb Co. 30,000 735 United Technologies Corp. 8,000 732 Goldman Sachs Group, Inc. 7,500 706 du Pont (E.I.) de Nemours & Co. 15,478 688 Anheuser-Busch Cos., Inc. 12,600 680 Freddie Mac 10,700 677 Boeing (The) Co. 13,076 668 Gillette (The), Co. 15,600 661 Motorola, Inc. 36,191 660 Texas Instruments, Inc. 26,800 648 Lowe's Companies, Inc. 12,200 641 First Data Corp. 13,758 613 UnitedHealth Group, Inc. 9,700 604 AT&T Wireless Services, Inc. (a) 42,139 603 Target Corp. 14,100 599 Dow (The) Chemical Co. 14,410 586 Schlumberger Ltd. 9,100 578 Walgreen Co. 15,900 576 Boston Scientific Corp. (a) 12,700 544 Washington Mutual, Inc. 13,907 537 Applied Materials, Inc. (a) 26,000 510 MBNA Corp. 19,752 509 Kimberly-Clark Corp. 7,732 509 Allstate (The) Corp. 10,896 507 McDonald's Corp. 19,500 507 Honeywell International, Inc. 13,287 487 Colgate-Palmolive Co. 8,200 479
The Notes to Financial Statements are an integral part of these statements. -------------------------------------------------------------------------------- TimesSquare VP S&P 500(RegTM) Index Fund Investments in Securities 4 June 30, 2004 (Unaudited) (Continued)
Number of Value Shares (000) -------------------------------------------------------------------------- Cardinal Health, Inc. 6,775 $475 Fifth Third Bancorp 8,758 471 Illinois Tool Works, Inc. 4,800 460 Carnival Corp. 9,700 456 Nextel Communications, Inc., Class A (a) 17,000 453 Alcoa, Inc. 13,468 445 Ford Motor Co. 28,297 443 Caterpillar, Inc. 5,400 429 EMC Corp. (a) 37,424 427 Metlife, Inc. 11,800 423 Schering-Plough Corp. 22,800 421 St. Paul (The) Travelers Companies, Inc. 10,291 417 Emerson Electric Co. 6,500 413 General Motors Corp. 8,700 405 Prudential Financial, Inc. 8,400 390 Sprint Corp. (FON Group) 22,000 387 Cendant Corp. 15,604 382 Automatic Data Processing, Inc. 9,100 381 FedEx Corp. 4,600 376 Marsh & McLennan Cos., Inc. 8,200 372 Lockheed Martin Corp. 6,960 362 Sysco Corp. 10,000 359 Gannett Co., Inc. 4,200 356 Bank (The) of New York Co., Inc. 12,000 354 Clear Channel Communications, Inc. 9,500 351 Exelon Corp. 10,250 341 Stryker Corp. 6,200 341 Gap (The), Inc. 13,862 336 Zimmer Holdings, Inc. (a) 3,780 333 International Paper Co. 7,451 333 Avon Products, Inc. 7,200 332 Southern (The) Co. 11,300 329 National City Corp. 9,400 329 Baxter International, Inc. 9,400 324 Forest Laboratories, Inc. (a) 5,700 323 Aflac, Inc. 7,900 322 Lehman Brothers Holdings, Inc. 4,280 322 HCA, Inc. 7,700 320 Biogen Idec, Inc. (a) 5,035 318 Number of Value Shares (000) -------------------------------------------------------------------------- Dominion Resources, Inc. 4,999 $315 BB&T Corp. 8,500 314 Nike, Inc., Class B 4,100 311 Hartford Financial Services Group 4,500 309 General Dynamics Corp. 3,100 308 Northrop Grumman Corp. 5,678 305 Countrywide Financial Corp. 4,200 295 Costco Wholesale Corp. 7,100 292 Harley-Davidson, Inc. 4,700 291 Occidental Petroleum Corp. 6,000 290 Progressive (The) Corp. 3,400 290 SunTrust Banks, Inc. 4,400 286 Duke Energy Corp. 14,024 285 SLM Corp. 7,000 283 Sara Lee Corp. 12,200 280 General Mills, Inc. 5,800 276 Waste Management, Inc. 8,932 274 Analog Devices, Inc. 5,800 273 Corning, Inc. (a) 20,900 273 WellPoint Health Networks (a) 2,400 269 Guidant Corp. 4,800 268 Kellogg Co. 6,400 268 Maxim Integrated Products 5,100 267 Deere & Co. 3,800 267 Starbucks Corp. (a) 6,100 265 Newmont Mining Corp. 6,735 261 CVS Corp. 6,100 256 Golden West Financial Corp. 2,400 255 State Street Corp. 5,200 255 Best Buy Co., Inc. 5,000 254 Computer Associates International, Inc. 9,012 253 Electronic Arts, Inc. (a) 4,600 251 Lucent Technologies, Inc. (a) 65,936 249 Danaher Corp. 4,800 249 Capital One Financial Corp. 3,600 246 Alltel Corp. 4,800 243 Apollo Group, Inc., Class A (a) 2,700 238 Union Pacific Corp. 4,000 238 Devon Energy Corp. 3,600 238
The Notes to Financial Statements are an integral part of these statements. -------------------------------------------------------------------------------- TimesSquare VP S&P 500(RegTM) Index Fund Investments in Securities 5 June 30, 2004 (Unaudited) (Continued)
Number of Value Shares (000) ---------------------------------------------------------------------------- Tribune Co. 5,100 $232 Anadarko Petroleum Corp. 3,933 230 McGraw-Hill (The) Cos., Inc. 3,000 230 Raytheon Co. 6,400 229 PNC Financial Services Group, Inc. 4,300 228 Caremark Rx, Inc. (a) 6,900 227 Staples, Inc. 7,750 227 Burlington Resources, Inc. 6,220 225 ConAgra Foods, Inc. 8,300 225 Kohl's Corp. (a) 5,300 224 Sun Microsystems, Inc. (a) 50,900 221 Wrigley (Wm) Jr. Co. 3,500 221 Omnicom Group 2,900 220 Broadcom Corp., Class A (a) 4,700 220 Apache Corp. 5,022 219 Masco Corp. 7,000 218 ManuLife Financial Corp. 5,333 216 Weyerhaeuser Co. 3,400 215 Agilent Technologies, Inc. (a) 7,328 215 Heinz (H.J) Co. 5,400 212 Symantec Corp. (a) 4,800 210 Kroger Co. (a) 11,500 209 International Game Technology 5,400 208 Coca-Cola Enterprises, Inc. 7,100 206 Halliburton Co. 6,800 206 Southwest Airlines Co. 12,187 204 St. Jude Medical, Inc. (a) 2,700 204 TXU Corp. 5,000 203 Burlington Northern Santa Fe Corp. 5,767 202 Schwab, (The) Charles Corp. 21,025 202 Becton Dickinson & Co. 3,900 202 Entergy Corp. 3,600 202 Marathon Oil Corp. 5,300 201 Praxair, Inc. 5,000 200 Aetna, Inc. 2,342 199 SouthTrust Corp. 5,100 198 Chubb Corp. 2,900 198 Mellon Financial Corp. 6,700 197 Paychex, Inc. 5,800 197 Number of Value Shares (000) -------------------------------------------------------------------------- Baker Hughes, Inc. 5,190 $195 Franklin Resources, Inc. 3,900 195 American Electric Power Co., Inc. 6,100 195 Keycorp 6,516 195 Lexmark International, Inc., Class A (a) 2,000 193 FirstEnergy Corp. 5,100 191 Linear Technology Corp. 4,800 189 TJX Cos., Inc. 7,800 188 Anthem, Inc. (a) 2,100 188 Apple Computer, Inc. (a) 5,700 185 FPL Group, Inc. 2,900 185 Hershey Foods Corp. 4,000 185 Ingersoll-Rand Co., Class A 2,700 184 Air Products & Chemicals, Inc. 3,500 184 Veritas Software Corp. (a) 6,600 183 ACE Ltd. 4,300 182 PG&E Corp. (a) 6,500 182 AT&T Corp. 12,285 180 Marriott International, Inc., Class A 3,600 180 Allergan, Inc. 2,000 179 Xerox Corp. (a) 12,300 178 Biomet, Inc. 4,000 178 Clorox Co. 3,300 177 Bed Bath & Beyond, Inc. (a) 4,600 177 Xilinx, Inc. 5,300 177 Principal Financial Group 5,000 174 Loews Corp. 2,900 174 Fortune Brands, Inc. 2,300 173 Safeway, Inc. (a) 6,800 172 Adobe Systems, Inc. 3,700 172 Campbell Soup Co. 6,400 172 Yum! Brands, Inc. 4,580 170 Equity Office Properties Trust 6,200 169 Archer-Daniels-Midland Co. 9,987 168 Progress Energy, Inc. 3,800 167 Genzyme Corp. (General Division) (a) 3,500 166 PPG Industries, Inc. 2,600 162 Norfolk Southern Corp. 6,100 162 Univision Communications, Inc., Class A (a) 5,000 159
The Notes to Financial Statements are an integral part of these statements. -------------------------------------------------------------------------------- TimesSquare VP S&P 500(RegTM) Index Fund Investments in Securities 6 June 30, 2004 (Unaudited) (Continued)
Number of Value Shares (000) -------------------------------------------------------------------------- Pitney Bowes, Inc. 3,600 $159 Monsanto Co. 4,135 159 Penney (J.C.) Co., Inc. 4,200 159 XL Capital Ltd. 2,100 158 M&T Bank Corp 1,800 157 Medco Health Solutions, Inc. (a) 4,166 156 Paccar, Inc. 2,687 156 Eaton Corp. 2,400 155 McKesson Corp. 4,523 155 Johnson Controls, Inc. 2,900 155 Simon Property Group, Inc. 3,000 154 Unocal Corp. 4,000 152 Albertson's, Inc. 5,713 152 CIGNA Corp. (b) 2,200 151 Charter One Financial, Inc. 3,424 151 Comerica, Inc. 2,750 151 Moody's Corp. 2,300 149 Kla-Tencor Corp. (a) 3,000 148 Public Service Enterprise Group 3,700 148 Valero Energy Corp. 2,000 148 Rohm & Haas Co. 3,485 145 Georgia-Pacific Corp. 3,916 145 Micron Technology, Inc. (a) 9,400 144 Transocean, Inc. (a) 4,971 144 Northern Trust Corp. 3,400 144 Starwood Hotels & Resorts Worldwide, Inc. 3,200 144 Electronic Data Systems Corp. 7,400 142 Consolidated Edison, Inc. 3,500 139 AmSouth Bancorp 5,400 138 Federated Department Stores 2,800 137 AON Corp. 4,825 137 Bear Stearns (The) Cos., Inc. 1,625 137 Marshall & Ilsley Corp. 3,500 137 Quest Diagnostics 1,600 136 Computer Sciences Corp. (a) 2,900 135 Limited Brands, Inc. 7,200 135 Block (H&R), Inc. 2,800 134 American Standard Cos., Inc. (a) 3,300 133 Lincoln National Corp. 2,800 132 Number of Value Shares (000) -------------------------------------------------------------------------- Altera Corp. (a) 5,900 $131 Dover Corp. 3,100 131 Chiron Corp. (a) 2,900 129 Sears Roebuck and Co. 3,400 128 Edison International 5,000 128 Equity Residential 4,300 128 Ecolab, Inc. 4,000 127 MBIA, Inc. 2,200 126 Textron, Inc. 2,100 125 Regions Financial Corp. 3,400 124 Cintas Corp. 2,600 124 PPL Corp. 2,700 124 National Semiconductor Corp. (a) 5,600 123 Sempra Energy 3,554 122 May (The) Department Stores Co. 4,450 122 Pepsi Bottling Group, Inc. 4,000 122 Mattel, Inc. 6,645 121 AMBAC Financial Group, Inc. 1,650 121 Ameren Corp. 2,800 120 Intuit, Inc. (a) 3,100 120 Eastman Kodak Co. 4,400 119 Synovus Financial Corp. 4,650 118 Fiserv, Inc. (a) 3,000 117 ITT Industries, Inc. 1,400 116 BJ Services Co. (a) 2,500 115 Sungard Data Systems, Inc. (a) 4,400 114 Cincinnati Financial Corp. 2,625 114 Network Appliance, Inc. (a) 5,300 114 MGIC Investment Corp. 1,500 114 Kinder Morgan, Inc. 1,900 113 Jefferson-Pilot Corp. 2,212 112 Autozone, Inc. (a) 1,400 112 Affiliated Computer Services, Inc. (a) 2,100 111 Amerada Hess Corp. 1,400 111 Hilton Hotels Corp. 5,900 110 Phelps Dodge Corp. 1,416 110 Donnelley (RR) & Sons Co. 3,300 109 Avery Dennison Corp. 1,700 109 Rockwell Automation, Inc. 2,900 109
The Notes to Financial Statements are an integral part of these statements. -------------------------------------------------------------------------------- TimesSquare VP S&P 500(RegTM) Index Fund Investments in Securities 7 June 30, 2004 (Unaudited) (Continued)
Number of Value Shares (000) -------------------------------------------------------------------------- Parker Hannifin Corp. 1,825 $109 CSX Corp. 3,300 108 EOG Resources, Inc. 1,800 107 DTE Energy Co. 2,600 105 Genuine Parts Co. 2,650 105 Peoplesoft, Inc. (a) 5,630 104 Nabors Industries Ltd. (a) 2,300 104 Xcel Energy, Inc. 6,220 104 Cinergy Corp. 2,720 103 Avaya, Inc. (a) 6,528 103 New York Times Co., Class A 2,300 103 Dollar General Corp. 5,247 103 AmerisourceBergen Corp. 1,700 102 Newell Rubbermaid, Inc. 4,207 99 Pulte Homes, Inc. 1,900 99 Constellation Energy Group, Inc. 2,600 99 Qwest Communications International (a) 27,301 98 Torchmark Corp. 1,800 97 Tenet Healthcare Corp. (a) 7,150 96 T. Price Rowe Group, Inc. 1,900 96 Sherwin-Williams (The) Co. 2,300 96 Molex, Inc. 2,975 95 AES (The) Corp. (a) 9,600 95 Williams Companies., Inc. 8,000 95 Express Scripts, Inc. (a) 1,200 95 Harrah's Entertainment, Inc. 1,750 95 UST, Inc. 2,600 94 Rockwell Collins, Inc. 2,800 93 Safeco Corp. 2,100 92 Prologis 2,800 92 Delphi Corp. 8,626 92 Nucor Corp. 1,200 92 KeySpan Corp. 2,500 92 Brown-Forman Corp., Class B 1,900 92 Plum Creek Timber Co., Inc. 2,800 91 Waters Corp. (a) 1,900 91 Bard (C.R.), Inc. 1,600 91 MeadWestvaco Corp. 3,076 90 Freeport-McMoRan Copper & Gold, Class B 2,700 90 Number of Value Shares (000) -------------------------------------------------------------------------- Nordstrom, Inc. 2,100 $89 Medimmune, Inc. (a) 3,800 89 Union Planters Corp. 2,950 88 Interpublic (The) Group of Cos., Inc. (a) 6,400 88 Reynolds (RJ) Tobacco Holdings, Inc. 1,300 88 North Fork Bancorporation, Inc. 2,300 88 Centex Corp. 1,900 87 IMS Health, Inc. 3,700 87 Knight-Ridder, Inc. 1,200 86 First Horizon National Corp. 1,900 86 Zions Bancorporation 1,400 86 Office Depot, Inc. (a) 4,800 86 Advanced Micro Devices, Inc. (a) 5,400 86 Health Management Associates, Class A 3,800 85 Tiffany & Co. 2,300 85 NiSource, Inc. 4,100 85 JDS Uniphase Corp. (a) 22,200 84 Solectron Corp. (a) 12,900 83 Cooper Industries Ltd., Class A 1,400 83 Mylan Laboratories 4,100 83 Scientific-Atlanta, Inc. 2,400 83 VF Corp. 1,700 83 Kerr-McGee Corp. 1,538 83 Siebel Systems, Inc. (a) 7,700 82 Family Dollar Stores, Inc. 2,700 82 Huntington Bancshares, Inc. 3,566 82 Grainger (W.W.), Inc. 1,400 81 Leggett & Platt, Inc. 3,000 80 Thermo Electron Corp. (a) 2,600 80 Noble Corp. (a) 2,100 80 Jones Apparel Group, Inc. 2,000 79 EL Paso Corp. 9,943 78 Jabil Circuit, Inc. (a) 3,100 78 Robert Half International, Inc. 2,600 77 Sunoco, Inc. 1,200 76 Vulcan Materials Co. 1,600 76 Whirlpool Corp. 1,100 75 Novellus Systems, Inc. (a) 2,400 75 Black & Decker Corp. 1,200 75
The Notes to Financial Statements are an integral part of these statements. -------------------------------------------------------------------------------- TimesSquare VP S&P 500(RegTM) Index Fund Investments in Securities 8 June 30, 2004 (Unaudited) (Continued)
Number of Value Shares (000) -------------------------------------------------------------------------- NCR Corp. (a) 1,500 $74 UnumProvident Corp. 4,625 74 Autonation, Inc. (a) 4,300 74 Sanmina-SCI Corp. (a) 8,000 73 Autodesk, Inc. 1,700 73 Sealed Air Corp. (a) 1,361 73 RadioShack Corp. 2,500 72 McCormick & Co., Inc. 2,100 71 Unisys Corp. (a) 5,100 71 Alberto-Culver Co. 1,400 70 Mercury Interactive Corp. (a) 1,400 70 Applera Corp.--Applied Biosystems Group 3,200 70 Teradyne, Inc. (a) 3,000 68 CenturyTel, Inc. 2,250 68 Hospira, Inc. (a) 2,420 67 Providian Financial Corp. (a) 4,500 66 Allied Waste Industries, Inc. (a) 5,000 66 Sigma-Aldrich Corp. 1,100 66 Ball Corp. 900 65 BMC Software, Inc. (a) 3,500 65 Supervalu, Inc. 2,100 64 E*Trade Financial Corp. (a) 5,700 64 United States Steel Corp. 1,800 63 Engelhard Corp. 1,950 63 Wendy's International, Inc. 1,800 63 Fluor Corp. 1,300 62 Liz Claiborne, Inc. 1,700 61 Janus Capital Group, Inc. 3,700 61 American Power Conversion 3,100 61 Pactiv Corp. (a) 2,400 60 Comverse Technology, Inc. (a) 3,000 60 Sabre Holdings Corp., Class A 2,140 59 Stanley (The) Works 1,300 59 Dow Jones & Co., Inc. 1,300 59 Goodrich Corp. 1,800 58 Ashland, Inc. 1,100 58 Brunswick Corp. 1,400 57 Pinnacle West Capital Corp. 1,400 57 Reliant Energy, Inc. (a) 5,210 56 Number of Value Shares (000) -------------------------------------------------------------------------- Tellabs, Inc. (a) 6,400 $56 Eastman Chemical Co. 1,200 55 Temple-Inland, Inc. 800 55 Equifax, Inc. 2,200 54 Centerpoint Energy, Inc. 4,707 54 Citizens Communications Co. (a) 4,400 53 Symbol Technologies, Inc. 3,600 53 Toys R US, Inc. (a) 3,300 53 Darden Restaurants, Inc. 2,550 52 International Flavors & Fragrances, Inc. 1,400 52 Bausch & Lomb, Inc. 800 52 Federated Investors, Inc., Class B 1,700 52 Nvidia Corp. (a) 2,500 51 Citrix Systems, Inc. (a) 2,500 51 Hasbro, Inc. 2,675 51 Andrew Corp. (a) 2,493 50 Pall Corp. 1,900 50 Boise Cascade Corp. 1,300 49 Novell, Inc. (a) 5,800 49 KB Home 700 48 Dana Corp. 2,343 46 Manor Care, Inc. 1,400 46 Watson Pharmaceuticals, Inc. (a) 1,700 46 Bemis Co. 1,600 45 Millipore Corp. (a) 800 45 LSI Logic Corp. (a) 5,900 45 Tektronix, Inc. 1,300 44 Meredith Corp. 800 44 Cummins, Inc. 700 44 Monster Worldwide, Inc. (a) 1,700 44 Apartment Investment & Mgt. Co., Class A 1,400 44 Coors (Adolph) Co., Class B 600 43 King Pharmaceuticals, Inc. (a) 3,766 43 Circuit City Stores, Inc. 3,300 43 Navistar International Corp. (a) 1,100 43 Humana, Inc. (a) 2,500 42 PerkinElmer, Inc. 2,000 40 Ryder System, Inc. 1,000 40 QLogic Corp. (a) 1,500 40
The Notes to Financial Statements are an integral part of these statements. -------------------------------------------------------------------------------- TimesSquare VP S&P 500(RegTM) Index Fund Investments in Securities 9 June 30, 2004 (Unaudited) (Continued)
Number of Value Shares (000) -------------------------------------------------------------------------- Compuware Corp. (a) 5,900 $39 Rowan Cos., Inc. (a) 1,600 39 PMC--Sierra, Inc. (a) 2,700 39 Louisiana-Pacific Corp. 1,600 38 ADC Telecommunications, Inc. (a) 12,500 35 Deluxe Corp. 800 35 TECO Energy, Inc. 2,900 35 Convergys Corp. (a) 2,200 34 Reebok International Ltd. 900 32 Carmax, Inc. (a) 1,475 32 Snap-On, Inc. 950 32 Del Monte Foods Co. (a) 3,081 31 Allegheny Energy, Inc. (a) 2,000 31 Maytag Corp. 1,200 29 Dillard's, Inc., Class A 1,300 29 Crane Co. 900 28 Calpine Corp. (a) 6,400 28 Advanced Medical Optics, Inc. (a) 644 27 Ciena Corp. (a) 7,300 27 Worthington Industries 1,300 27 Smucker (J.M.) Co. 578 27 Gateway, Inc. (a) 5,800 26 Big Lots, Inc. (a) 1,800 26 Applied Micro Circuits Corp. (a) 4,800 26 Cooper Tire & Rubber Co. 1,100 25 Peoples Energy Corp. 600 25 Dynegy, Inc., Class A (a) 5,800 25 Goodyear (The) Tire & Rubber Co. (a) 2,700 25 Thomas & Betts Corp. 900 25 Visteon Corp. 2,051 24 Nicor, Inc. 700 24 American Greetings, Class A (a) 1,000 23 Allegheny Technologies, Inc. 1,270 23 CMS Energy Corp. (a) 2,500 23 Great Lakes Chemical Corp. 800 22 Hercules, Inc. (a) 1,700 21 Parametric Technology Corp. (a) 4,100 21 Piper Jaffray Companies (a) 381 17 Winn-Dixie Stores, Inc. (a) 2,200 16 Number of Value Shares (000) -------------------------------------------------------------------------- Power-One, Inc. (a) 1,300 $ 14 Delta Air Lines, Inc. (a) 1,900 14 Texas Genco Holdings, Inc. 300 14 Eagle Materials, Inc. 178 12 EnPro Industries, Inc. (a) 460 11 Hudson Highland Group, Inc. (a) 165 5 Eagle Materials, Inc. 53 4 Mirant Corp. (a) 7,960 3 Cavco Industries, Inc. (a) 60 2 Agere Systems, Inc., Class A (a) 823 2 Unilever NV 1 -- Kadant, Inc. (a) 1 -- -------- Total Common Stocks (Cost - $164,358) 164,668 -------- SHORT-TERM OBLIGATIONS - 7.7% Money Market Fund - 5.5% TimesSquare VP Money Market Fund (c) 9,730,888 9,731 -------- Principal (000) ---------- U.S. Government - 2.2% U.S. Treasury Bills, 0.98%, 9/30/04 (d) $1,500 1,496 1.00%, 9/30/04 (d) 2,500 2,494 -------- 3,990 -------- Total Short-Term Obligations (Cost - $13,721) 13,721 -------- TOTAL INVESTMENTS IN SECURITIES - 99.9% (Total Cost - $178,079) (e) 178,389 Cash and Other Assets, Less Liabilities - 0.1% 121 -------- NET ASSETS - 100.0% $178,510 ========
The Notes to Financial Statements are an integral part of these statements. -------------------------------------------------------------------------------- TimesSquare VP S&P 500(RegTM) Index Fund Investments in Securities 10 June 30, 2004 (Unaudited) (Continued) -------------------------------------------------------------------------------- NOTES TO INVESTMENTS IN SECURITIES (a) Non-income producing securities. (b) TimesSquare Capital Management, Inc., the fund's Investment Adviser, is an indirect wholly owned subsidiary of CIGNA Corp. (c) TimesSquare Capital Management, Inc., the fund's Investment Adviser, is also the Adviser to the TimesSquare VP Money Market Fund. (d) This security, or a portion thereof, was pledged as collateral for Stock Index Futures Contracts. At June 30, 2004, the Fund was long 50 S&P 500(RegTM) Futures Contracts expiring in September 2004. Unrealized gains amounted to $211,875. Underlying face value was $14,043,125 and underlying market value was $14,255,000. Tax Information (e) At June 30, 2004, the net unrealized depreciation of investments, based on cost for federal income tax purposes of $178,950,080, was as follows: Aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost $27,339,124 Aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value (27,900,693) ----------- Unrealized depreciation - net $ (561,569) =========== --------------------------------------------------------------------------------
------------------------------------------------------------- CIGNA Variable Products S&P 500(RegTM) Index Fund Market % of Value Net Ten Largest Positions (Unaudited) (000) Assets ----------------------------------------------------------- General Electric Co. $5,113 2.9% Microsoft Corp. 4,770 2.7 Exxon Mobil Corp. 4,504 2.5 Pfizer, Inc. 4,046 2.3 Citigroup, Inc. 3,705 2.1 Wal-Mart Stores, Inc. 3,535 2.0 American International Group 2,879 1.6 Intel Corp. 2,768 1.6 Bank of America Corp. 2,675 1.5 Johnson & Johnson 2,556 1.4 -------------------------------------------------------------
The Notes to Financial Statements are an integral part of these statements. -------------------------------------------------------------------------------- TimesSquare VP S&P 500(RegTM) Index Fund 11 Statement of Assets and Liabilities June 30, 2004 (Unaudited) (In Thousands)
Assets: Investments in securities at value $178,389 Interest and dividends receivable, net of withholding taxes 184 Investment for Trustees' deferred compensation plan 88 Futures variation margin receivable 57 Receivable for fund shares sold 4 -------- Total assets 178,722 -------- Liabilities: Deferred Trustees' fees payable 88 Custodian fees payable 26 Audit and legal fees payable 21 Payable for Fund shares redeemed 19 Administrative services fees payable 19 Insurance expenses payable 14 Shareholder reports payable 13 Advisory fees payable 12 -------- Total liabilities 212 -------- Net Assets $178,510 ======== Components of Net Assets: Paid in capital $157,320 Undistributed net investment income 2,204 Accumulated net realized gain 18,464 Net unrealized appreciation of investments and futures 522 -------- Net Assets $178,510 ======== Shares Outstanding 10,914 ======== Net Asset Value and Redemption Price per Share $ 16.36 ======== Cost of Investments $178,079 ========
Statement of Operations For the Six Months Ended June 30, 2004 (Unaudited) (In Thousands)
Investment Income: Income: Dividends $ 1,581 Interest 17 ------- 1,598 Expenses: Investment advisory fees $ 225 Custodian fees and expenses 78 Administrative services fees 46 Auditing and legal fees 22 Shareholder reports 12 Transfer agent fees 3 Trustees' fees 3 Other 3 ------ Total expenses 392 Less expenses waived by Adviser (127) ------ Net expenses $ 265 ------ Net Investment Income 1,333 ------- Realized and Unrealized Gain on Investments: Net realized gain from: Futures contracts 1,747 Investments 16,845 ------- 18,592 ------- Net change in unrealized appreciation of: Futures contracts (332) Investments (11,832) ------- (12,164) ------- Net Realized and Unrealized Gain on Investments 6,428 ------- Net Increase in Net Assets Resulting from Operations $ 7,761 =======
The Notes to Financial Statements are an integral part of these statements. -------------------------------------------------------------------------------- TimesSquare VP S&P 500(RegTM) Index Fund 12 Statements of Changes in Net Assets (In Thousands)
For the Six For the Months Ended Year Ended June 30, 2004 December 31, (Unaudited) 2003 ------------- ------------ Operations: Net investment income $ 1,333 $ 2,898 Net realized gain on investments 18,592 5,298 Net unrealized appreciation (depreciation) on investments (12,164) 43,080 -------- -------- Net increase in net assets from operations 7,761 51,276 -------- -------- Dividends and Distributions: From net investment income -- (4,276) From net realized gain -- (2,574) -------- -------- Total dividends and distributions -- (6,850) -------- -------- Capital Share Transactions: Net proceeds from shares sold 4,866 66,928 Net asset value of shares issued to shareholders in reinvestment of dividends and distributions -- 6,850 -------- -------- 4,866 73,778 Cost of shares redeemed (68,206) (71,408) -------- -------- Net increase (decrease) in net assets from Fund share transactions (63,340) 2,370 -------- -------- Net Increase (Decrease) in Net Assets (55,579) 46,796 Net Assets: Beginning of period 234,089 187,293 -------- -------- End of period* $178,510 $234,089 ======== ======== * includes undistributed net investment income of: $ 2,204 $ 871 ======== ======== For the Six For the Months Ended Year Ended June 30, 2004 December 31, (Unaudited) 2003 ------------- ------------ Transactions in Capital Stock: Shares sold 300 4,884 Shares issued in reinvestment of dividends and distributions -- 439 ------ ------ 300 5,323 Shares redeemed (4,172) (5,261) ------ ------ Net increase (decrease) in shares outstanding (3,872) 62 ====== ======
The Notes to Financial Statements are an integral part of these statements. -------------------------------------------------------------------------------- TimesSquare VP S&P 500(RegTM) Index Fund 13 Financial Highlights --------------------------------------------------------------------------------
For the Six Months Ended For the Year Ended December 31, June 30, 2004 ------------------------------------------------------------------ (Unaudited) 2003 2002 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------------------------ Per Share Operating Performance: Net asset value, beginning of period $ 15.83 $ 12.72 $ 17.31 $ 19.95 $ 22.83 $ 19.73 -------- -------- -------- -------- -------- -------- Income from investment operations: Net investment income (a) 0.14 0.21 0.23 0.23 0.35 0.32 Net realized and unrealized gain (loss) 0.39 3.38 (4.13) (2.66) (2.49) 3.75 -------- -------- --------- -------- -------- -------- Total from investment operations 0.53 3.59 (3.90) (2.43) (2.14) 4.07 -------- -------- --------- -------- -------- -------- Less dividends and distributions: From net investment income -- (0.30) (0.22) (0.21) (0.44) (0.51) From capital gains -- (0.18) (0.47) -- (0.30) (0.46) -------- -------- -------- -------- -------- -------- Total dividends and distributions -- (0.48) (0.69) (0.21) (0.74) (0.97) -------- -------- -------- -------- -------- -------- Net asset value, end of period $ 16.36 $ 15.83 $ 12.72 $ 17.31 $ 19.95 $ 22.83 ======== ======== ======== ======== ======== ======== Total Return (b) 3.35%(c) 28.27% (22.51)% (12.18)% (9.37)% 20.77% Ratios to Average Net Assets: Gross expenses 0.37%(d) 0.37% 0.37% 0.35% 0.36% 0.38% Fees and expenses waived or borne by the Adviser 0.12%(d) 0.12% 0.12% 0.10% 0.11% 0.13% Net expenses 0.25%(d) 0.25% 0.25% 0.25% 0.25% 0.25% Net investment income 1.26%(d) 1.42% 1.32% 1.38% 1.64% 1.57% Portfolio Turnover 1%(c) 2% 7% 2% 4% 3% Net assets, End of Period (000 omitted) $178,510 $234,089 $187,293 $302,802 $292,739 $282,781
(a) Net investment income per share has been calculated in accordance with SEC requirements, with the exception that end of the year accumulated undistributed/(overdistributed) net investment income has not been adjusted to reflect current year permanent differences between financial and tax accounting. (b) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced. (c) Not annualized (d) Annualized The Notes to Financial Statements are an integral part of these statements. -------------------------------------------------------------------------------- TimesSquare VP S&P 500(RegTM) Index Fund Notes to Financial Statements 14 (Unaudited) 1. Utilization of Indexation Approach. TimesSquare VP S&P 500(RegTM) Index Fund (the "Fund") seeks to achieve its long-term growth objective by attempting to replicate the total return performance, reduced by Fund expenses, of the Standard & Poor's 500(RegTM) Composite Stock Price Index. 2. Significant Accounting Policies. The Fund is a separate series of CIGNA Variable Products Group, a Massachusetts business trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. A. Security Valuation -- Equity securities, including warrants, that are listed on a national securities exchange or are part of the NASDAQ National Market System are valued at the last sale price or, if there has been no sale that day, at the last bid price. Debt and other equity securities traded in the over-the-counter market, including listed securities whose primary markets are believed to be over-the-counter, are valued at the most recent bid price. Short-term investments with remaining maturities of up to and including 60 days are valued at amortized cost, which approximates market. Short-term investments that mature in more than 60 days are valued at current market quotations. Other securities and assets of the Fund are appraised at fair value, as determined in good faith by, or under the authority of, the Trust's Board of Trustees. The Fund's Board of Trustees has designated the Pricing Committee of TimesSquare Capital Management, Inc. to make, pursuant to procedures approved by the Board and under the Board's supervision, all necessary determinations of fair value for the portfolio securities for which market quotations are not readily available. When fair valuing securities, the Pricing Committee takes into account factors such as fundamental and analytical information about the security, the nature and duration of any restrictions on disposition of the security, market information (including, for example, factors such as historical price relationships and valuations for securities with similar characteristics), and evaluation of significant market events. If events occurring after the close of the principal market in which securities are traded (but before the close of regular trading on the NYSE) are believed to materially affect the value of those securities, such securities are valued at their fair value, taking such events into account. B. Futures Contracts -- The Fund is authorized to enter into S&P 500(RegTM) futures contracts. The Fund may use futures contracts with the objective of earning returns on its short-term investments equivalent to returns on the S&P 500(RegTM) Composite Stock Index. As a result, the purchase of futures contracts simulates a fully invested position in the underlying index, while maintaining liquidity. Upon entering into a futures contract, the Fund is required to pledge to the broker an amount of cash and/or securities equal to the initial margin requirements. During the period a futures contract is open, changes in the value of a contract are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Daily variation margin payments are received or made, depending on whether there were unrealized gains or losses. When a contract is closed, the Fund records a realized gain or loss equal to the -------------------------------------------------------------------------------- TimesSquare VP S&P 500(RegTM) Index Fund Notes to Financial Statements 15 (Unaudited) (Continued) difference between the value of the contract at the time it was opened and the value at the time it was closed. Futures contracts include the risk that a change in the value of the contract may not correlate with the value of the underlying securities and the possibility of an illiquid market. C. Security Transactions and Related Investment Income -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Dividend income is recorded on the ex-dividend date, and interest income is recorded on the accrual basis. Securities gains and losses are determined on the basis of identified cost. D. Federal Taxes -- It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no federal income or excise taxes on realized income or net capital gains have been accrued. E. Dividends and Distributions to Shareholders -- Dividends from net investment income and distributions from net capital gains, to the extent such gains would otherwise be taxable to the Fund, are declared and distributed at least annually. Dividends and distributions are recorded by the Fund on the ex-dividend date. The timing and characterization of certain income and capital gains distributions are determined in accordance with federal tax regulations, which may differ from generally accepted accounting principles. These differences are primarily due to differing book and tax treatment for wash sales, real estate investment trusts income and capital loss carryforwards. To the extent that such differences are permanent, a reclassification to Components of Net Assets may be required. As a result, at December 31, 2003, the Fund increased its undistributed net investment income by $2,123,183, decreased accumulated net realized gain by $2,124,450 and increased paid in capital by $1,267. 3. Investment Advisory Fees and Other Transactions with Affiliates. Investment advisory fees are paid or accrued to TimesSquare Capital Management, Inc. ("TimesSquare"), certain officers and directors of which are affiliated with the Fund. Such advisory fees are based on an annual rate of 0.25% applied to the daily average net assets of the Fund. TimesSquare has contractually agreed to reimburse the Fund for any amount by which its expenses (including the advisory fee, but excluding interest, taxes, amortized organization expenses, transaction costs incurred in acquiring and disposing of portfolio securities, and extraordinary expenses) exceed, on an annual basis, 0.25% of average daily net assets until April 30, 2004, and thereafter to the extent described in the Fund's then current prospectus. Effective May 1, 2002, TimesSquare retains the right to be repaid by the Fund if the Fund's expenses fall below the percentage specified above prior to the end of the fiscal year or within three years after TimesSquare waives advisory fees or reimburses a Fund's operating expenses. The Fund's remaining contingent liability and expiration dates are as shown below:
Remaining Contingent Liability Expires during Expires during Expires during (000's) 2005 (000's) 2006 (000's) 2007 (000's) ---------------------- ---------------- ---------------- --------------- $609 $230 $252 $127
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund may invest its excess cash in the affiliated TimesSquare VP Money Market Fund ("TSVPMM") managed by TimesSquare. TimesSquare will waive the amount of its advisory fee for the Fund in an amount that offsets the amount of the advisory fees incurred in the affiliated Fund. For the six months ended June 30, 2004, TimesSquare waived -------------------------------------------------------------------------------- TimesSquare VP S&P 500(RegTM) Index Fund Notes to Financial Statements 16 (Unaudited) (Continued) $39,925 of its advisory fees payable by the Fund. Income distributions from TSVPMM, which amounted to $72,602 for the six months ended June 30, 2004, are recorded as dividend income in the Statement of Operations. For administrative services, the Fund reimburses TimesSquare for a portion of the compensation and related expenses of the Fund's Treasurer and Secretary and certain persons who assist in carrying out the responsibilities of those offices. For the six months ended June 30, 2004, the Fund paid or accrued $45,662. TimesSquare is an indirect, wholly-owned subsidiary of CIGNA Corporation. 4. Trustees' Fees. Trustees' fees represent remuneration paid or accrued to trustees who are not employees of CIGNA Corporation or any of its affiliates. Trustees may elect to defer receipt of all or a portion of their fees, which are invested in mutual fund shares in accordance with a deferred compensation plan. 5. Purchases and Sales of Securities. Purchases and sales of securities, excluding short-term obligations, for the six months ended June 30, 2004, were $0 and $501,847 respectively, for U.S. Government and Agency Obligations and $1,692,075 and $45,397,423 respectively, for all other securities. 6. Capital Stock. The Fund offers an unlimited number of shares of beneficial interest without par value. Of the 10,914,165 shares outstanding at June 30, 2004, 10,737,322 shares were held by Connecticut General Life Insurance Company ("CG Life") relating to variable annuity and variable universal life insurance contracts issued by CG Life. CG Life is an indirect, wholly-owned subsidiary of CIGNA Corporation. The remainder, representing 1.6% of the shares outstanding, was held by an employee benefit plan established by CG Life for certain of its employees. -------------------------------------------------------------------------------- TimesSquare VP S&P 500(RegTM) Index Fund 17 (Unaudited) Trustees Officers Russell H. Jones Marnie Wagstaff Mueller Richard H. Forde Senior Vice President, Diocesan Consultant, Episcopal Chairman of the Board Chief Investment Officer, and Diocese of Connecticut and President Treasurer, Kaman Corporation Paul J. McDonald Carol Ann Hayes Alfred A. Bingham III Special Advisor to the Board of Director and Chair of Audit Vice President and Directors, Friendly Ice Cream Committee, Reed and Barton Treasurer Corporation Corporation Richard H. Forde Jeffrey S. Winer Chief Investment Officer, CIGNA Vice President and Investment Management Secretary
-------------------------------------------------------------------------------- "Standard & Poor's(RegTM)," "S&P(RegTM)," "S&P 500(RegTM)," "Standard & Poor's 500," and "500" are trademarks of the Standard & Poor's Corporation (S&P) and have been licensed for use by CG Life. The TimesSquare VP S&P 500(RegTM) Index Fund is not sponsored, endorsed, sold or promoted by S&P, and S&P makes no representation regarding the advisability of investing in the Fund. TimesSquare VP S&P 500(RegTM) Index Fund is an open-end, diversified management investment company that seeks to achieve its long-term growth objective by attempting to replicate the total return performance, reduced by Fund expenses, of the Standard & Poor's 500(RegTM) Composite Stock Price Index. The investment adviser is TimesSquare Capital Management, Inc., 280 Trumbull Street, Hartford, Connecticut 06103. -------------------------------------------------------------------------------- Item 2. Code of Ethics. Not applicable Item 3. Audit Committee Financial Expert. Not applicable Item 4. Principal Accountant Fees and Services. Not applicable Item 5. Audit Committee Listed Registrants. Not applicable. Item 6. Schedule of Investments. See report to shareholders filed under Item 1 of this Form. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. Item 9. Submission of Matters to a Vote of Security Holders. The registrant has adopted procedures by which shareholders may recommend nominees to the registrant's board of trustees, as follows: The Nominating Committee or the registrant will, when a vacancy on the Board exists or is anticipated, consider any Trustee candidate recommended by security holders. The current procedures to be followed by security holders are set forth below: 1. All security holder recommendations for Trustee candidates must be submitted to the Secretary of the registrant who will forward all recommendations to the Committee. 2. All security holder recommendations for Trustee candidates must be submitted to the registrant not less than one hundred twenty (120) calendar days prior to the date on which the registrant's proxy statement was released to shareholders in connection with the previous year's annual meeting. 3. All security holder recommendations for Trustee candidates must include the following information: (a) The name and address of the security holder of record; (b) A representation that the security holder is a record holder of the applicable Fund's securities, or if the security holder is not a record holder, evidence of ownership in accordance with Rule 14a-8(b)(2) of the Securities Exchange Act of 1934, as amended; (c) The name, age, business and residential address, educational background, current principal occupation or employment, and principal occupation or employment for the preceding five (5) full fiscal years of the proposed Trustee candidate; (d) A description of the qualifications and background of the proposed Trustee candidate that addresses the minimum qualifications and other criteria for Board membership approved by the Board from time to time; (e) A description of all arrangements or understandings between the security holder and the proposed Trustee candidate; (f) The consent of the proposed Trustee candidate (i) to be named in the proxy statement relating to the applicable Fund's annual meeting of shareholders and (ii) to serve as a Trustee if elected at such annual meeting; and (g) Any other information regarding the proposed Trustee candidate that is required to be included in a proxy statement filed pursuant to the rules of the Securities and Exchange Commission. The Committee has not established specific, minimum qualifications that must be met by an individual for the Committee to recommend that individual for nomination as a Trustee. In seeking candidates to consider for nomination to fill a vacancy on the Board, the Committee expects to seek referrals from a variety of sources, including current Trustees, management of the registrant and counsel to the registrant. The Committee may also engage a search firm to identify or evaluate or assist in identifying or evaluating candidates. In evaluating Trustee candidates, the Committee considers a variety of factors, including, as appropriate: (i) the candidate's knowledge in matters relating to investment companies; (ii) any experience possessed by the candidate as a director or senior officer of other public companies; (iii) the candidate's educational background; (iv) the candidate's reputation for high ethical standards and personal and professional integrity; (v) any specific financial, technical or other expertise possessed by the candidate, and the extent to which such expertise would complement the Board's existing mix of skills and qualifications; (vi) the candidate's perceived ability to contribute to the ongoing functions of the Board, including the candidate's ability and commitment to attend meetings regularly and work collaboratively with other members of the Board; (vii) the candidate's ability to qualify as an Independent Trustee for purposes of the 1940 Act, the candidate's independence from the registrant's service providers and the existence of any other relationships that might give rise to a conflict of interest or the appearance of a conflict of interest; (viii) the candidate's age relative to the registrant's retirement age for Trustees and (ix) such other factors as the Committee determines to be relevant in light of the existing composition of the Board and any anticipated vacancies or other transitions, e.g., whether or not a candidate is an "audit committee financial expert" under the federal securities laws. Prior to making a final recommendation to the Board, the Committee conducts personal interviews with the candidate(s) it concludes are the most qualified. Any candidates recommended by security holders will be evaluated in the same manner. Item 10. Controls and Procedures. (a) Based on an evaluation of the registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this Form N-CSR, the registrant's principal executive officer and principal financial officer concluded that the disclosure controls and procedures are reasonably designed to ensure that the information required in filings on Forms N-CSR is recorded, processed, summarized, and reported on a timely basis. (b) There were no significant changes in the registrant's internal control over financial reporting that occurred during the registrant's last fiscal half-year that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 11. Exhibits. (a)(1) Not applicable (a)(2) Separate certifications by the registrant's principal executive officer and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940. (a)(3) Not applicable (b) A certification by the registrant's chief executive officer and chief financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) CIGNA Variable Products Group By: /s/ Alfred A. Bingham III ------------------------------ Alfred A. Bingham III, Vice President and Treasurer Date: August 30, 2004. Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By (Signature and Title) /s/ Richard H. Forde ------------------------------------------------- Richard H. Forde, Chairman of the Board and President Date: August 30, 2004. By (Signature and Title) /s/ Alfred A. Bingham III ------------------------------------------------- Alfred A. Bingham III, Vice President and Treasurer Date: August 30, 2004 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER I, Richard H. Forde, certify that: 1. I have reviewed this report on Form N-CSR of CIGNA Variable Products Group; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the period covered by this report us our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. Date: August 30, 2004 /s/ Richard H. Forde ----------------------------------- Chairman of the Board and President CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER I, Alfred A. Bingham III, certify that: 1. I have reviewed this report on Form N-CSR of CIGNA Variable Products Group; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the period covered by this report us our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. Date: August 30, 2004 /s/ Alfred A. Bingham III ------------------------------ Vice President and Treasurer Certification Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) In connection with the attached Report of CIGNA Variable Products Group (the "Trust") on Form N-CSR to be filed with the Securities and Exchange Commission (the "Report"), each of the undersigned officers of the Trust does hereby certify that, to the best of such officer's knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respect, the financial condition and results of operations of the Trust as of, and for, the periods presented in the Report. Dated: August 30, 2004 /s/ Richard H. Forde ------------------------------------ Richard H. Forde Chairman of the Board and President Dated: August 30, 2004 /s/ Alfred A. Bingham III ------------------------------------ Alfred A. Bingham III Vice President and Treasurer A signed original of this written statement required by Section 906 has been provided to the Trust and will be retained by the Trust and furnished to the Securities and Exchange Commission or its staff upon request. This certification is being furnished solely pursuant to 18 U.S.C. section 1350 and is not being filed as part of the Report or as a separate disclosure document.