EX-99.B 3 d15335-b.txt -------------------------------------------------------------------------------- 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. --------------------------------------------------------------------------------