-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FDUh8hIagytZX1HYIbKwVx8ihJE+kuX3Dr0PBotR4IiDhlzTzPLFuOZVnPC9sdIX PCGfdw25nDsxlGkjvTsglA== 0001145443-05-000432.txt : 20050309 0001145443-05-000432.hdr.sgml : 20050309 20050309135811 ACCESSION NUMBER: 0001145443-05-000432 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050309 DATE AS OF CHANGE: 20050309 EFFECTIVENESS DATE: 20050309 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIGNA VARIABLE PRODUCTS GROUP CENTRAL INDEX KEY: 0000830035 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-05480 FILM NUMBER: 05668907 BUSINESS ADDRESS: STREET 1: 2223 WASHINGTON STREET STREET 2: 3 NEWTON EXECUTIVE PARK, SUITE 200 CITY: NEWTON STATE: MA ZIP: 02462 BUSINESS PHONE: 860.534.4700 MAIL ADDRESS: STREET 1: C/O TIMESSQUARE CAPITAL MANAGEMENT, INC. STREET 2: 280 TRUMBULL STREET, H16C CITY: HARTFORD STATE: CT ZIP: 06103 N-CSR 1 d16183.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES 811-5480 -------- (Investment Company Act file number) CIGNA Variable Products Group ----------------------------- (Exact name of registrant as specified in charter) 2223 Washington Street 3 Newton Executive Park Suite 200 Newton, MA 02462 (Address of principal executive offices) Mark Butler, 2223 Washington Street, 3 Newton Executive Park Suite 200, Newton, MA 02462 (Name and address of agent for service) (860) 757-7276 --------------- Registrants' telephone number, including area code Date of fiscal year end: December 31, 2004 Date of reporting period: December 31, 2004 Item 1. Reports to Stockholders. TimesSquare VP Core Plus Bond Fund - -------------------------------------------------------------------------------- Annual Report December 31, 2004 CIGNA [Logo] - -------------------------------------------------------------------------------- 1 Dear Shareholders: Our commentary for TimesSquare VP Core Plus Bond Fund (the "Fund") covering the year ended December 31, 2004 follows. Management's Discussion of Fund Performance Market Summary Bonds gained ground in the first quarter of 2004 as concerns about the durability of the U.S. economic recovery pushed low interest rates even lower. Demand for relatively safe assets such as bonds rose amid renewed fears of terrorist attacks after the Madrid bombing. Lifted by the tailwind of falling interest rates, every fixed income sector was in positive territory for the quarter. Rising interest rates, inflation concerns, and ongoing geopolitical tensions adversely affected fixed income market performance in the second quarter. The representative U.S. Lehman Brothers Aggregate Bond Index, benchmark for the Fund, returned -2.44%, almost completely erasing the 2.66% gains posted in the first quarter. For the second and first quarters, the Fund returned -2.22% and 2.37%, respectively. On June 30, 2004, the Federal Reserve (Fed) increased the federal funds rate 25 basis points for the first time in four years. This widely expected action was preceded by rising Treasury yields across the maturity spectrum over the second quarter with the bellwether 10-year Treasury note rising from a low of 3.65% in late March to a peak of nearly 5% in June before leveling off. In the third quarter in an environment of softer-than-expected economic news, record crude oil prices and persistent geopolitical concerns, the benchmark Index rallied, returning 3.20% for the period. The Fund returned 3.15% for the third quarter. The rally of the third quarter continued into the last three months of the year, when all major fixed income sectors posted gains, capping a year in which bonds showed unexpected strength, despite 125 basis points of federal funds rate increases. The central bank raised the federal funds rate five times during the year. Investors understood that the Fed was lifting rates from unusually low levels that had been set to ward off deflation. The benchmark Index returned 0.95% compared with a 1.14% return for the Fund in the fourth quarter. New Interim Adviser The Board of Trustees of the Fund approved an interim investment advisory agreement with Pacific Investment Management Company LLC (PIMCO) effective November 23, 2004, pursuant to which PIMCO now serves as investment adviser to the Fund, responsible for management of the Fund's portfolio. William H. Gross leads a team that manages the Fund. He is a Managing Director, Chief Investment Officer and a founding partner of PIMCO. He has been with PIMCO since 1971. He has 35 years of investment experience. There has been no change to the investment objective of the Fund as a result of the appointment of PIMCO as adviser to the Fund. In addition, PIMCO and CIGNA Investment Advisors, Inc., formerly known as TimesSquare Capital Management, Inc., have agreed to waive fees and reimburse expenses if total Fund operating expenses (excluding extraordinary items) exceed 0.50% per annum of the Fund's average net assets. During the term of the interim advisory agreement, CIGNA Investment Advisors, Inc. will provide administrative services to the Core Plus Bond Fund. Proposed Merger of the Fund The Board of Trustees of the Fund has approved, subject to shareholder approval, a reorganization pursuant to which the Fund would transfer - -------------------------------------------------------------------------------- 2 substantially all of its assets and liabilities to the Total Return Fund of PIMCO Variable Insurance Trust (PVIT) in exchange for Institutional Class shares of the PVIT fund having a net asset value equal to the net asset value of the assets and liabilities so transferred. The PVIT shares would then be distributed pro rata to shareholders of the Fund. The Fund expects to hold a special meeting of shareholders in March 2005 to seek shareholder approval of the merger. You will receive additional information about the proposed merger, along with a proxy soliciting your approval, prior to the meeting. Please be sure to vote. Proxy Voting Information A description of the Fund's proxy voting policies and procedures is available without charge, upon request, by calling the Fund at 1-800-528-6718 and on the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2004 is available on the SEC website. Quarterly Portfolio Securities The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Forms N-Q will be available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Performance Returns for the Fund (which do not reflect expenses associated with variable products through which the Fund may be offered and which would have been lower if such expenses were reflected) were:
Year-to- date Fund 4.43% Lipper Corporate Debt Funds - "A" Rated Average 4.09 Lehman Brothers Aggregate Bond Index 4.34
In the first half of the year, the Fund's performance benefited primarily from its modest short-of-Index duration bias and yield curve positioning as interest rates rose and the yield curve flattened. In addition, gains from corporate bond and high yield bond selection helped offset less favorable results from longer-duration prepayment penalty bonds and structured securities in the MBS sector. To a lesser extent, performance was also favorably impacted by our allocation to high yield and investment-grade credits where we reduced our exposure during the second quarter. The primary drivers of the Fund's performance for the third quarter were sector allocations to and security selections in corporate bonds and high yield. Even though the bifurcation of performance among issuers and sectors was not significant in the third quarter, higher beta and lower quality debt did perform best. Our allocation to emerging market debt and our international (non dollar) exposure were also positive contributors to results. In the fourth quarter, holdings in short and intermediate Treasury Inflation Protected Securities (TIPS) contributed positively to performance as they outperformed their nominal counterparts. Lastly, holdings in emerging market bonds added to performance. Information about Your Fund's Expenses As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees and other Fund expenses. Examples of transaction costs include sales charges (loads), redemption fees and account maintenance fees, which are not - -------------------------------------------------------------------------------- 3 shown in this section and which would result in higher total expenses (although this Fund does not charge transaction fees). The following table, which you are seeing for the first time, represents a new SEC requirement and is intended to help you understand your ongoing expenses of investing in the Fund and to help you compare these expenses (which do not reflect any expenses associated with variable products through which the Fund may be offered) with the ongoing expenses of investing in other mutual funds. The table is based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2004. The table illustrates your Fund's expenses in two ways: Actual Expenses. The first line of the table below provides information about actual account values and actual expenses. This helps you estimate the actual dollar amount of ongoing expenses paid on a $1,000 investment in the Fund using the Fund's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period." Hypothetical Example for Comparison Purposes. The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare your Fund's ongoing expenses with those of other mutual funds. To do so, compare this 5% hypothetical Fund return with the 5% hypothetical return examples that appear in the shareholder reports of other mutual funds. Please note that the expenses shown in the table are meant to highlight your ongoing expenses only and do not reflect any transaction costs, such as sales charges (loads) or redemption fees. If these transaction costs had been included, your costs would have been higher. The "Expenses Paid During Period" line of the table is useful in comparing ongoing expenses only and will not help you determine the relative total expenses of owning different funds. Expenses and value of a $1,000 investment for the six-month period ended December 31, 2004
Beginning Ending Expenses Paid Account Account During Period* Value Value 07/01/04 to 07/01/04 12/31/04 12/31/04 -------------- -------------- --------------- Actual $ 1,000.00 $ 1,043.30 $ 2.57 Hypothetical (5% return before expenses) $ 1,000.00 $ 1,022.62 $ 2.54
* Expenses are equal to the Fund's annualized expense ratio of 0.50%, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year period, then divided by 366. The "Expenses Paid During Period" and the annualized expense ratio are based on actual expenses paid by the Fund during the period, net of fee waivers and/or expense reimbursements. If those fee waivers and/or expense reimbursements had not been in effect, the Fund's actual expenses would have been higher. For more information, please refer to the Fund's prospectus. Outlook Our new manager's view is that global growth will likely slow over the next year as the U.S. recovery cools and Europe and Japan prove unable to pick up the slack. Higher unit labor costs and a weaker dollar will create some inflationary pressure, but lingering overcapacity worldwide will limit this effect over a cyclical time frame. Slack in the U.S. - -------------------------------------------------------------------------------- 4 economy is closing but growth may be constrained by a removal of accommodative monetary and fiscal policy, as the Federal Reserve tightens and fiscal stimulus fades. Also, with its low savings rate, the U.S. is relying on foreign lenders, mainly Asian central banks, to finance its prodigious consumption and the trade deficit that accompanies it. PIMCO is skeptical that China and Japan will continue to provide this "vendor financing" on agreeable terms over the long run. In the short run, however, the game will go on, since it keeps interest rates low for U.S. borrowers and mitigates appreciation of the Chinese and Japanese currencies versus the dollar, which would hurt export-led growth in those countries. Sincerely, /s/ Richard H. Forde Richard H. Forde Chairman of the Board and President CIGNA Variable Products Group - -------------------------------------------------------------------------------- 5 [THE FOLLOWING WAS REPRESENTED AS A GRAPH IN THE PRINTED MATERIAL] GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (Unaudited) 5/3/99* - 12/31/04 - -------------------------------------------------------------------------------- AVERAGE ANNUAL RETURN 1 Year Life of Fund Inception Date Fund 4.43% 6.47% 5/3/99 Lehman Brothers 4.34% 6.39% Aggregate Bond Index - -------------------------------------------------------------------------------- Fund Lehman Brothers Aggregate Bond Index 5/3/99 10,000 10,000 12/31/99 9,852 9,797 12/31/00 10,772 10,936 12/31/01 11,748 11,860 12/31/02 12,765 13,076 12/31/03 13,655 13,613 12/31/04 14,260 14,203 CIGNA Variable Products Core Plus Fund (the "Fund") performance figures are historical and reflect reinvestment of all dividends. The Fund's investment return and principal value will fluctuate so taht an investor's shares, when sold may be worth more or less than their original cost. Past performance does not predict future performance. The Fund's return has been compared with the total return performance of Lehman Brothers Aggregate Bond Index. This index is a group of unmanaged securities widely regarded by investors to be representative of the bond market in general. An investment cannot be made in the index. Index results do not reflect brokerage changes or other investment expenses. * Commencement of operations - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Investments in Securities 6 December 31, 2004
PRINCIPAL VALUE (000) (000) - ------------------------------------------------------------------------------------ LONG-TERM BONDS - 96.5% COMMUNICATIONS & MEDIA - 0.2% TPSA Finance BV, 7.75%, 2008 (144A security acquired July & Aug. 2003 for $137) (a) $ 120 $ 132 ------ CONSUMER & RETAIL - 0.5% VFB LLC, 10.25%, 2009 (b) 2,044 470 ------ FINANCIAL - 11.5% Bank of America Commercial Mortgage, Inc., 4.88%, 2039 590 607 4.13%, 2042 395 395 Citifinancial Mortgage Securities, Inc., 3.08, 2033 100 100 3.22%, 2033 100 99 Countrywide Alternative Loan Trust, 4.67%, 2034 520 520 Countrywide Asset-Backed Certificates, 3.32%, 2022 250 248 3.32%, 2023 365 362 Credit Suisse First Boston Mortgage Securities Corp., Interest Only 7.50%, 2032 (c) 700 - Interest Only 8.00%, 2032 (c) 765 - General Motors Acceptance Corp., 6.75%, 2006 1,700 1,744 Greenwich Capital Commercial Funding Corp., 5.32%, 2036 915 951 GS Mortgage Securities Corp. II, 5.40%, 2038 905 944 HVB Funding Trust I, 8.74%, 2031 (144A security acquired May & June 2003 for $174) (a) 170 219 Merrill Lynch Mortgage Trust, 4.35%, 2042 515 520 Morgan Stanley Capital I, 4.05%, 2041 530 526 Residential Asset Mortgage Products, Inc., Interest Only, 5.75%, 2005 (c) 720 9 3.81%, 2026 220 220 4.45%, 2028 1,145 1,157 4.23%, 2029 165 166 4.00%, 2030 275 276 Santander Financial Issuances, 6.80%, 2005 95 97 Sanwa Finance Aruba AEC, 8.35%, 2009 205 239 Structured Asset Securities Corp., 4.37%, 2034 525 521 Union Planters Corp., 6.75%, 2005 240 247 ------ 10,167 ------
PRINCIPAL VALUE (000) (000) - ------------------------------------------------------------------------------------ FOREIGN GOVERNMENT - 2.8% Brazil (Federal Republic of), 9.25%, 2010 $ 85 $ 95 11.00%, 2012 80 97 10.50%, 2014 240 284 8.88%, 2024 90 93 Export-Import Bank of Korea, 4.13%, 2009 (144A security acquired Feb. 2004 for $139) (a) 140 140 Germany (Federal Republic of), 2.00%, 2005 150 (d) 203 Quebec (Province of Canada), 5.50%, 2006 630 649 Russian Federation, Step Coupon (5.00% to 3/31/07), 2030 (144A security acquired Sep. & Oct. 2002, July & Oct. 2003 & April & Aug. 2004 for $499) (a) 545 561 United Mexican States, 8.30%, 2031 335 393 ------ 2,515 ------ OIL & GAS - 0.2% Morgan Stanley Bank AG for Gazprom OAO, 9.63%, 2013, (144A security acquired Sep. 2004 for $110) (a) 100 118 Petroleos Mexicanos, 9.50%, 2027 55 69 ------ 187 ------ U.S. GOVERNMENT & AGENCIES (e) - 81.2% Fannie Mae, 2.50%, 2008 3,480 3,357 4.38%, 2013 1,155 1,152 4.00%, 2018 585 572 4.50%, 2019 1,131 1,128 5.50%, 2019 2,399 2,481 6.50%, 2032 803 843 7.00%, 2032 1,330 1,409 5.00%, 2033 799 795 5.50%, 2033 682 693 6.50%, 2033 814 855 5.00%, 2034 1,552 1,541 5.50%, 2034 5,837 5,929 6.00%, 2034 2,352 2,434 TBA 5.50%, 2019 1,500 1,550 Federal Home Loan Banks, 4.13%, 2005 $ 1,375 $1,376
The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Investments in Securities 7 December 31, 2004 (Continued)
PRINCIPAL VALUE (000) (000) - ------------------------------------------------------------------------------------ U.S. GOVERNMENT & AGENCIES (continued) Financing Corp., Principal Strips from 8.60%, 2019 830 389 9.70%, 2019 840 405 Freddie Mac, 2.61%, 2011 1,226 1,212 6.50%, 2013 106 112 6.50%, 2016 557 589 6.00%, 2017 637 668 6.50%, 2017 85 90 4.50%, 2018 3,302 3,299 5.00%, 2018 2,938 2,986 6.00%, 2032 926 958 7.50%, 2032 531 569 5.00%, 2033 3,578 3,560 5.50%, 2033 1,686 1,714 6.00%, 2033 711 735 6.50%, 2034 436 458 Ginnie Mae, 6.50%, 2031 295 311 6.50%, 2032 279 294 5.50%, 2033 1,001 1,023 U.S. Treasury Bonds, 8.75%, 2017 200 280 6.00%, 2026 5,193 5,949 6.13%, 2029 40 47 U.S. Treasury Inflation Indexed Note, 2.00%, 2014 2,067 2,132 U.S. Treasury Notes, 3.38%, 2008 1,430 1,425 3.50%, 2009 6,800 6,781 3.88%, 2009 1,800 1,826 6.00%. 2009 540 596 5.00%. 2011 535 569 4.38%, 2012 5,800 5,938 4.88%, 2012 1,000 1,057 ----- 72,087 ------
PRINCIPAL VALUE (000) (000) - ------------------------------------------------------------------------------------ UTILITIES - 0.1% Korea Electric Power Corp., 5.13%, 2034 (144A security acquired April 2004 for $89) (a) $ 90 $ 90 ------- TOTAL LONG-TERM BONDS (Cost - $84,635) 85,648 ------- NUMBER OF SHARES ----------- PREFERRED STOCK - 0.9% FINANCIAL - 0.8% IBJ Preferred Capital Co. LLC, Step Coupon (8.79% to 6/30/08) (144A security acquired Aug., Oct., & Dec. 2003 & Jan. 2004 for $497) (a) 460 521 Natexis AMBS Co. LLC, Step Coupon (8.44% to 6/30/08) (144A security acquired May 2002 for $174) (a) 160 180 ------- 701 ------- U.S. GOVERNMENT AGENCIES (e) - 0.1% Fannie Mae, 7.00% (f) 1,600 91 ------- TOTAL PREFERRED STOCK (Cost - $751) 792 ------- PRINCIPAL (000) ---------- SHORT-TERM OBLIGATIONS - 8.3% COMMERCIAL PAPER - 3.4% Barclays U.S. Funding LLC, 2.50%, 4/20/05 $ 3,100 3,076 NUMBER OF SHARES --------- MONEY MARKET FUND - 4.8% TimesSquare VP Money Market Fund (g) 4,239,544 4,240
The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Investments in Securities 8 December 31, 2004 (Continued)
PRINCIPAL VALUE (000) (000) - -------------------------------------------------------------------------------- U.S. GOVERNMENT - 0.1% U.S. Treasury Bills, 1.96%, 3/31/05 $ 75 $ 75 TOTAL SHORT-TERM OBLIGATIONS (Cost - $7,391) 7,391 ------- TOTAL INVESTMENTS IN SECURITIES - 105.7% (Total Cost - $92,777) (i) 93,831 Liabilities Less Cash and Other Assets - (5.7)% (5,041) ------- NET ASSETS - 100.0% $88,790 =======
NOTES TO INVESTMENTS IN SECURITIES (a) Indicates restricted security; the aggregate value of restricted securities is $1,961,667 (aggregate cost $1,818,807), which is approximately 2.2% of net assets. Valuations have been furnished by brokers trading in the securities or a pricing service for all restricted securities. (b) This is a fair valued security which is in default due to bankruptcy. The principal amount represents beneficial ownership interest for future cash receipts under the bankruptcy filings. (c) Illiquid security. (d) Principal is denominated in Euros. (e) Agency obligations are not guaranteed by the U.S. Government. (f) Floating rate security. (g) This Fund is a separate series of the CIGNA Variable Products Group. (h) A summary of outstanding forward currency contracts, as of December 31, 2004, is as follows:
Net Unrealized Settlement Forward Foreign Contract Appreciation Date Contract Currency Value (Depreciation) - ------------- ---------- ---------- ------------- --------------- Buys 1/10/05 Euro 850,000 $1,130,334 $ 20,388 Sells 1/10/05 Euro 882,000 $1,184,080 $ (9,964)
- --------------------------------------------------------------------------------
Tax Information (i) At December 31, 2004, the net unrealized appreciation of investments, based on cost for federal income tax purposes of $92,987,874, was as follows: Aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost $ 1,093,054 Aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value (250,199) ----------- Unrealized appreciation-net $ 842,855 =========== (j) As of December 31, 2004, the components of distributable earnings (excluding unrealized appreciation/(depreciation) disclosed above) on a tax basis consisted of the following: Undistributed ordinary income $ -- Undistributed capital gains $ 587,085
- ---------------------------------------------------- Quality Ratings* of Long-Term Bonds (Unaudited) December 31, 2004 Value % of (000) Value - ---------------------------------------------------- Aaa/AAA $ 79,911 93.3% Aa/AA 1,461 1.7 A/A 3,118 3.6 Ba/BB 688 0.8 Not Rated 470 0.6 -------- ----- $ 85,648 100.0% ======== ===== - ----------------------------------------------------
The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund 9 Statement of Assets and Liabilities December 31, 2004 (In Thousands)
Assets: Investments in securities at value $ 93,831 Receivable for fund shares sold 2,231 Interest and dividends receivable 776 Receivable for investments sold 84 Swap premium received 39 Receivable for forward currency contracts 20 Investments for Trustees' deferred compensation plan 4 Unrealized appreciation on swap agreements 4 Prepaid Insurance 4 -------- Total assets 96,993 -------- Liabilities: Payable for investments purchased 8,070 Custody fees payable 42 Advisory fees payable 29 Audit and legal fees payable 27 Administrative fees payable 13 Payable for forward currency contracts 10 Shareholder reports payable 5 Deferred Trustees' fees payable 4 Other 3 -------- Total liabilities 8,203 -------- Net Assets $ 88,790 ======== Components of Net Assets: Paid in capital $ 87,512 Overdistributed net investment income (192) Accumulated net realized gain 401 Net unrealized appreciation of investments, futures, forward contracts and swaps 1,069 -------- Net Assets $ 88,790 ======== Shares Outstanding 8,904 ======== Net Asset Value and Redemption Price per Share $ 9.97 ======== Cost of Investments $ 92,777 ========
Statement of Operations For the Year Ended December 31, 2004 (In Thousands)
Investment Income: Income: Interest income $ 5,549 Dividends 99 ------- 5,648 Expenses: Investment advisory fees $ 580 Custodian fees 135 Administrative services fees 67 Audit and legal fees 35 Shareholder reports 7 Transfer agent fees 6 Trustees' fees 5 Other 3 ----- Total expenses 838 Less expenses waived by Adviser (228) ----- Net expenses 610 ----- Net Investment Income 5,038 ------- Realized and Unrealized Gain (Loss) on Investments: Net realized gain (loss) from: Forward currency contracts 262 Futures contracts (737) Swap contracts 25 Investments 4,140 ------- 3,690 ------- Net change in unrealized appreciation: Forward currency contracts (144) Futures contracts (36) Swap contracts 4 Investments (3,368) ------- (3,544) ------- Net Realized and Unrealized Gain on Investments 146 ------- Net Increase in Net Assets Resulting from Operations $5,184 =======
The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund 10 Statements of Changes in Net Assets (In Thousands)
For the Year Ended December 31, ------------------------- 2004 2003 --------- --------- Operations: Net investment income $ 5,038 $ 6,119 Net realized gain on investments 3,690 3,852 Net unrealized appreciation (depreciation) on investments (3,544) 467 --------- --------- Net increase in net assets from operations 5,184 10,438 --------- --------- Dividends and Distributions: From net investment income (6,060) (9,988) From capital gains (518) -- --------- --------- Total dividends and distributions (6,578) (9,988) --------- --------- Capital Share Transactions: Net proceeds from shares sold 10,688 63,896 Net asset value of shares issued to shareholders in reinvestment of dividends and distributions 6,578 9,988 --------- --------- 17,266 73,884 Cost of shares redeemed (89,543) (61,600) --------- --------- Net increase (decrease) from Fund share transactions (72,277) 12,284 --------- --------- Net Increase (Decrease) in Net Assets (73,671) 12,734 Net Assets: Beginning of period 162,461 149,727 --------- --------- End of period * $ 88,790 $ 162,461 ========= ========= * includes overdistributed net investment income of: $ (192) $ (599) ========= =========
For the Year Ended December 31, --------------------- 2004 2003 ------ ------ Transactions in Capital Stock: Shares sold 1,033 6,103 Shares issued in reinvestment of dividends and distributions 662 988 ------ ------ 1,695 7,091 Shares redeemed (8,819) (5,838) ------ ------ Net increase (decrease) in shares outstanding (7,124) 1,253 ====== ======
The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund 11 Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------------ For the Year Ended December 31, ------------------------------------------------------------------------------ 2004 2003 2002 2001 (c) 2000 - ------------------------------------------------------------------------------------------------------------------------------------ Per Share Operating Performance: Net asset value, beginning of period $ 10.14 $ 10.13 $ 9.70 $ 9.87 $ 9.53 -------- -------- -------- -------- ------- Income from investment operations Net investment income (a) 0.42 0.45 0.42 0.45 0.54 Net realized and unrealized gain 0.03 0.25 0.42 0.44 0.35 -------- -------- -------- -------- ------- Total from investment operations 0.45 0.70 0.84 0.89 0.89 -------- -------- -------- -------- ------- Less dividends and distributions: Dividends from net investment income (0.57) (0.69) (0.41) (0.94) (0.55) Distributions from net realized capital gains (0.05) -- -- (0.04) - Return of capital dividends - - - (0.08) - -------- --------- --------- -------- -------- Total dividends and distributions (0.62) (0.69) (0.41) (1.06) (0.55) -------- --------- --------- -------- -------- Net asset value, end of period $ 9.97 $ 10.14 $ 10.13 $ 9.70 $ 9.87 -------- --------- --------- -------- -------- Total Investment Return (b) 4.43% 6.98% 8.66% 9.06% 9.34% Ratios to Average Net Assets: Gross expenses 0.69% 0.65% 0.62% 0.60% 0.70% Fees and expenses waived or borne by the Adviser 0.19% 0.15% 0.12% 0.10% 0.20% Net expenses 0.50% 0.50% 0.50% 0.50% 0.50% Net investment income 4.13% 3.91% 4.24% 5.39%(c) 6.66% Portfolio Turnover 130% 182% 518% 396% 320% Net assets, End of Period (000 omitted) $ 88,790 $162,461 $ 49,727 $151,090 $ 84,014
(a) Net investment income per share has been calcul ated in accor dance with SE C requirements, with the exception that end of the year accumulated undistributed/(overdistributed) net investment income has not been adjusted to reflect current year permanent differences between financial and tax accounting. (b) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced. (c) Effective January 1, 2001, the Fund was required to start amortizing premium and discount on all debt securities. The effect of this change on net investment income per share was a decrease of $0.02 per share. The effect to the ratio of net investment income to average net assets was a decrease of 0.19%. Per share, ratios, and supplemental data for periods prior to January 1, 2001, have not been restated to reflect this change in accounting principle. The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 12 1. Significant Accounting Policies. TimesSquare VP Core Plus Bond Fund (the "Fund") is a separate series of CIGNA Variable Products Group, a Massachusetts business trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The Fund seeks to provide the highest current income attainable, consistent with reasonable risk, as determined by the Fund's investment adviser, through investment in a professionally managed, diversified portfolio of fixed income securities. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. A. Security Valuation -- Debt securities traded in the over-the-counter market, including listed securities whose primary markets are believed to be over-the-counter, are valued on the basis of valuations furnished by brokers trading in the securities or a pricing service, which determines valuations for normal, institutional-size trading units of such securities using market information, transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. Short-term investments with remaining maturities of up to and including 60 days are valued at amortized cost, which approximates market. Short-term investments that mature in more than 60 days are valued at current market quotations. Other securities and assets of the Fund are appraised at fair value, as determined in good faith by, or under the authority of, the Fund's Board of Trustees. The Funds' Board of Trustees has designated the Pricing Committee of CIGNA Investment Advisors, Inc. (formerly, TimesSquare Capital Management, Inc.) to make, pursuant to procedures approved by the Board and under the Board's supervision, all necessary determinations of fair value for the portfolio securities for which market quotations are not readily available. When fair valuing securities, the Pricing Committee takes into account factors such as fundamental and analytical information about the security, the nature and duration of any restrictions on disposition of the security, market information (including, for example, factors such as historical price relationships and valuations for securities with similar characteristics), and evaluation of significant market events. If events occurring after the close of the principal market in which securities are traded (but before the close of regular trading on the NYSE) are believed to materially affect the value of those securities, such securities are valued at their fair value, taking such events into account. B. Delayed Delivery Commitments -- The Fund may enter into commitment agreements -- i.e., TBA's -- for the purchase of securities at an agreed-upon price on a specified future date. Since the delivery and payment for such securities can be scheduled to take place up to three months after the transaction date, they are subject to market fluctuations. The Fund does not begin to earn interest on such purchase commitments until settlement date. The Fund may sell a purchase commitment prior to settlement for the purpose of enhancing its total return. The Fund segregates assets with a market value equal to the amount of its purchase commitments. To the extent securities are segregated, they may not be available for new investments or to meet redemptions. Delayed delivery commitments may increase the Fund's exposure to market fluctuations and may increase the possibility that the Fund may realize a short-term gain (subject to taxation) or loss if the Fund must engage in portfolio transactions in order to - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 13 (Continued) honor its commitments. Due to the longer settlement period, there may be an increased risk of failure of the other party to honor the transaction. The Fund records changes in market value of the securities underlying unsettled commitments in unrealized gains and losses. Gains and losses are realized upon sale of the commitment. C. Foreign Currency Translations -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of investment securities, other assets and liabilities at the daily rates of exchange, and (ii) purchases and sales of investment securities, dividend and interest income and certain expenses at the rates of exchange prevailing on the respective dates of such transactions. The Fund does not isolate that portion of gains and losses on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices of the investments. Such fluctuations are included with the net realized and unrealized gains and losses from investments. Net realized and unrealized gains (losses) from foreign currency-related transactions include gains and losses between trade and settlement dates on securities transactions, gains and losses arising from the sales of foreign currency, and gains and losses between the ex-dividend and payment dates on dividends, interest, and foreign withholding taxes. D. Foreign Investments -- The Fund may invest in securities of foreign countries and governments, which involve certain risks in addition to those inherent in domestic investments. Such risks generally include, among others, currency risk (fluctuations in currency exchange rates), information risk (key information may be inaccurate or unavailable) and political risk (expropriation, nationalization or the imposition of capital or currency controls or punitive taxes). Other risks of investing in foreign securities include inadequate accounting controls, liquidity and valuation risks. E. Forward Currency Transactions -- The Fund is authorized to enter into forward exchange contracts for the purpose of hedging against foreign exchange risk arising from the Fund's investment or anticipated investment in securities denominated in foreign currencies. The Fund may also enter into these contracts for purposes of increasing exposure to a foreign currency or to shift exposure to foreign currency fluctuations from one country to another. All commitments are marked to market daily at the applicable translation rates and any resulting unrealized gains or losses are recorded. Realized gains or losses are recorded at the time the forward contract matures or by delivery of the currency. Due to market fluctuations, the Fund maintains, in a segregated account with its custodian, assets with a market value equal to the amount of its purchase commitments. Risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. F. Futures Contracts -- The Fund is authorized to enter into futures contracts. The Fund may use futures contracts for reasons such as managing its exposure to the markets or movements in interest rates and currency values. Upon entering into a futures contract, the Fund is required to pledge to the broker an amount of cash and/or securities equal to the initial margin requirements. During the period a futures contract is open, changes in the value of a contract are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Daily - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 14 (Continued) variation margin payments are received or made, depending on whether there were unrealized gains or losses. When a contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Futures contracts include the risk that a change in the value of the contract may not correlate with the value of the underlying securities and the possibility of an illiquid market. G. High Yield Bonds -- The Fund may invest in high yield bonds; i.e., fixed income securities rated below investment grade. While the market values of these securities tend to react less to fluctuations in interest rate levels than do those of investment-grade securities, the market values of certain of these securities also tend to be more sensitive to individual corporate developments and changes in economic conditions than investment-grade securities. In addition, the issuers of these securities are often highly leveraged and may not have more traditional methods of financing available to them so that their ability to service their debt obligations during an economic downturn or during sustained periods of rising interest rates may be impaired. H. Swap Agreements -- The Fund may enter into swap agreements for investment, liquidity, hedging and risk management purposes. For example, the Fund may enter into swap agreements to preserve a return on a particular investment or a portion of its portfolio and as a technique for managing duration (i.e., price sensitivity to changes in interest rates). Swaps involve the exchange of commitments to pay or receive -- e.g., an exchange of floating-rate payments for fixed-rate payments and/or payments of the appreciation or depreciation of a security or an index. If forecasts of interest rates and other market factors, including those that may impact the indexes of the total return swaps, are incorrect, investment performance will differ compared to what performance would have been if these investment techniques were not used. Even if the forecasts are correct, there are risks that the positions may correlate imperfectly with the asset or liability being hedged, a liquid secondary market may not always exist, or the counterparty to a transaction may default. As of December 31, 2004, the Fund had the following outstanding swap agreements:
Notional Effective Termination Unrealized Counterparty Terms Amount Date Date Appreciation - ----------------- ----------------- ------------- ----------- ------------- ------------- Bank of America Receive a fixed rate equal to 6.0% and pay floating rate based on 3-month USD-LIBOR $3,800,000 12/16/14 12/16/19 $ 366 Bank of America Receive floating rate based on 3-month USD- LIBOR and pay a fixed rate equal to 5.0% $3,000,000 12/16/09 12/16/14 $3,928
Swaps are marked to market daily based upon quotations from market makers and the change in value, if any, is recorded as unrealized gain or (loss) in the Statement of Operations. Payments received or made at the beginning of the measurement period are reflected as such on the Statement of Assets and Liabilities. Such payments amounted to $38,610 as of December 31, 2004. A liquidation payment received or made at the termination of the swap is recorded as realized gain or (loss) on the Statement of Operations. Net periodic payments, if any, received by the Fund are included as part of realized gain or (loss) on the Statement of Operations. I. Security Transactions and Related Investment Income -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Dividend income is recorded on the ex-dividend date and interest income, which includes amortization of premium and accrual of discount, is recorded on an accrual basis. Securities gains and losses are determined on the basis of identified cost. - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 15 (Continued) J. Federal Taxes -- It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no federal income or excise taxes on realized income or net capital gains have been accrued. The tax character of distributions paid to shareholders during 2004 was $5,930,414 of Ordinary Income Dividends and $647,582 of Long-term Capital Gains. At December 31, 2004, the Fund had no post-October loss. Under current tax law, capital losses realized after October 31 may be deferred and treated as occurring on the first day of the following year. K. Dividends and Distributions to Shareholders -- Dividends from net investment income and distributions from net capital gains, to the extent such gains would otherwise be taxable to the Fund, are declared and distributed at least annually. Dividends and distributions are recorded by the Fund on the ex-dividend date. The timing and characterization of certain income and capital gains distributions are determined in accordance with federal tax regulations, which may differ from generally accepted accounting principles. To the extent that such differences are permanent, a reclassification to the Components of Net Assets may be required. As a result, at December 31, 2004, the Fund decreased its accumulated net realized gain by $1,498,150, decreased overdistributed net investment income by $1,429,135, and increased Paid in capital by $69,015. 2. Investment Advisory Fees and Other Transactions with Affiliates. Through November 22, 2004, investment advisory fees, in the amount of $315,444 (net of waivers), were paid or accrued to CIGNA Investment Advisors, Inc. ("CIAI") (formerly, TimesSquare Capital Management, Inc.), certain officers and directors of which were affiliated with the Fund. Such advisory fees were based on an annual rate of 0.50% of the Fund's average daily net assets. CIAI contractually agreed to reimburse the Fund for any amount by which its expenses (including the advisory fee, but excluding interest, taxes, transaction costs incurred in acquiring and disposing of portfolio securities, and extraordinary expenses) exceeded, on an annual basis, 0.50% of average daily net assets. Effective November 23, 2004, the Board of Trustees approved an interim investment advisory agreement with Pacific Investment Management Company LLC ("PIMCO"), pursuant to which PIMCO now serves as Investment Adviser to the Fund. Advisory fees, in the amount of $36,733 (net of waivers), paid or accrued to PIMCO are based on an annual rate of 0.50% of the Fund's average daily net assets. According to an expense limitation agreement between PIMCO, CIAI and the Fund, to the extent that the ordinary operating expenses incurred by the Fund in any fiscal year, including but not limited to investment management fees of the Investment Adviser, but excluding interest, taxes, brokerage commissions, extraordinary expenses such as litigation and other expenses not incurred in the ordinary course of the Fund's business ("Fund Operating Expenses"), exceed the operating expenses limit of 0.50%, such excess amount ("Excess Amount") shall be the liability of the Investment Adviser, provided that in no event shall the liability of the Investment Adviser exceed 0.25%. In the event the Excess Amount exceeds 0.25%, such amount shall be the liability of CIAI, the Administrator. While the interim investment advisory agreement is in effect, PIMCO and CIAI retain the right to be - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 16 (Continued) repaid by the Fund if the Fund's expenses fall below the operating expenses limit of 0.50%, with PIMCO being repaid all amounts waived before CIAI. As of December 31, 2004, the Fund had a contingent liability of $23,324. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund may invest its excess cash, up to 25% of the Fund's total assets, in the affiliated TimesSquare VP Money Market Fund ("TSVPMM") managed by CIAI. CIAI has contractually agreed to waive the amount of its advisory fee for the Fund in an amount that offsets the amount of the advisory fees incurred in the affiliated Fund. For the year ended December 31, 2004, CIAI waived $30,089 of its advisory fee payable by the Fund. Income distributions from TSVPMM, which amounted to $79,054 for the year ended December 31, 2004, are recorded as dividend income in the Statement of Operations. CIAI is an indirect, wholly-owned subsidiary of CIGNA Corporation. For administrative services, the Fund reimburses CIAI for a portion of the compensation and related expenses of the Fund's Treasurer and Secretary and certain persons who assist in carrying out the responsibilities of those offices. Effective November 23, 2004, CIAI entered into an administrative services agreement with the Fund under which CIAI receives 0.05% of the Fund's average daily net asset. For the year ended December 31, 2004, the Fund paid or accrued $67,398. 3. Trustees' Fees. Trustees' fees represent remuneration paid or accrued to Trustees who are not employees of CIGNA Corporation or any of its affiliates. Trustees may elect to defer receipt of all or a portion of their fees, which are invested in mutual fund shares in accordance with a deferred compensation plan. 4. Purchases and Sales of Securities. Purchases and sales of securities, excluding short-term obligations, for the year ended December 31, 2004, were $120,665,761 and $121,534,665, respectively, for U.S. Government and Agency Obligations and $26,102,698 and $88,981,116, respectively, for all other securities. 5. Capital Stock. The Fund offers an unlimited number of shares of beneficial interest without par value. All of the shares outstanding at December 31, 2004, were held by Connecticut General Life Insurance Company ("CG Life"). CG Life is an indirect, wholly-owned subsidiary of CIGNA Corporation. 6. Proposed Merger of the Fund. The Board of Trustees of the Fund has approved, subject to shareholder approval, a reorganization pursuant to which the Fund would transfer substantially all of its assets and liabilities to the Total Return Fund of PIMCO Variable Insurance Trust (PVIT) in exchange for Institutional Class shares of the PVIT fund having a net asset value equal to the net asset value of the assets and liabilities so transferred. The PVIT shares would then be distributed pro rata to shareholders of the Fund. The Fund expects to hold a special meeting of shareholders in March 2005 to seek shareholder approval of the merger. - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund 17 Report of Independent Registered Public Accounting Firm To the Trustees and Shareholders of TimesSquare VP Core Plus Bond Fund In our opinion, the accompanying statement of assets and liabilities, including the investments in securities, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of TimesSquareVP Core Plus Bond Fund ("Fund") at December 31, 2004, and the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Boston, Massachusetts February 16, 2005 - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund 18 (Unaudited) Trustees and Officers Shareholders elect a Board that oversees the Fund's operations. The Board appoints officers who are responsible for day-to-day business decisions based on policies set by the Board. The following is a list of the Fund's Board of Trustees and officers. Each Trustee's term of office will be until the next annual meeting of shareholders or until the election of the Trustee's successor.
Number of Name, Position Length Portfolios in Other Address* Held with of Time Principal Occupation(s) During Fund Complex Directorships and Age Fund Served Past 5 Years Overseen Held by Trustee - ------------------------------------------------------------------------------------------------------------------------------------ Independent Trustees Russell H. Trustee Trustee since Senior Vice President (Investor 7 -- Jones 1995 Relations, Public Relations), Chief 60 Investment Officer and Treasurer, Kaman Corporation (helicopters and aircraft components, industrial distribution) Paul J. Trustee Trustee since Special Advisor to the Board of 7 Western McDonald 1995 Directors, Friendly Ice Cream Massachusetts 61 Corporation (family restaurants Electric Company and dairy products) Marnie Trustee Trustee since Diocesan Consultant, Episcopal 7 Boston Mutual Life Wagstaff 2001 Diocese of Connecticut; Insurance Company Mueller Previously, Visiting Professor of 65 Health Economics, Wesleyan University Carol Ann Trustee Trustee since Director and Chair of Audit 7 Reed & Barton Hayes 2003 Committee, Reed and Barton Corporation 60 Corporation Affiliated Trustees and Fund Officers Richard H. Trustee, Trustee, Chief Investment Officer, CIGNA 7 Director of various Forde Chairman of Chairman and Investment Management subsidiaries of 51 the Board and President since CIGNA Corporation President 1998 Alfred A. Vice President Officer CIGNA Funds Treasurer; 7 -- Bingham III and Treasurer Since 1982 Assistant Vice President, CIGNA 60 Investment Management Jeffrey S. Vice President Officer Senior Counsel, 7 -- Winer and Secretary Since 1993 CIGNA Corporation 47 - ------------------------------------------------------------------------------------------------------------------------------------ * All Trustees and officers have an address c/o CIGNA Investment Advisors, Inc. (formerly, TimesSquare Capital Management, Inc.), 280 Trumbull Street, H16C, Hartford, CT 06103. - ------------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund is an open-end, diversified management investment company that invests primarily in fixed income securities. The investment adviser is Pacific Investment Management Company LLC, 840 Newport Center Drive, Newport Beach, CA 92660. - -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund - -------------------------------------------------------------------------------- Annual Report December 31, 2004 CIGNA [LOGO} - -------------------------------------------------------------------------------- 1 Dear Shareholders: Our report for CIGNA Variable Products Money Market Fund (the "Fund") covering the year ended December 31, 2004 follows. Market Environment The Federal Reserve ("Fed") met four times during first six months of 2004. In the first three meetings, the Fed funds rate was left unchanged at 1%. However, after a year of keeping rates on hold, at the June 30, 2004 meeting the Fed funds rate was raised 25 basis points to 1.25%. The Fed also announced that it was willing to move more aggressively in raising rates in the future if inflation data warranted. The Fed met four more times during the second half of the year, raising the Fed funds rate 25 basis points each time. The Fed has confirmed their plan to continue this trend with further increases at a "measured" pace. Market economists continue to believe the Fed is "staying the course" to keep policy accommodative by moving at a measured pace that will support growth and prevent inflation from accelerating. Portfolio Composition and Performance On December 31, 2004, the portfolio contained: top-tier domestic commercial paper, 58.1%; top-tier foreign commercial paper, 12.6%; and U.S. Government and Agencies, 29.3%. The Fund is well diversified. Total returns for the year ended December, 2004 (which do not reflect expenses associated with variable products through which the Fund may be offered and which would have been lower if such expenses were reflected) were: Fund 0.97% Lipper Money Market Funds Average 0.60 3-month U.S. Treasury Bill 1.24
As of December 31, 2004, the Fund's weighted average portfolio maturity was 13 days, and the annualized 7-day yield was 1.81%. Information about Your Fund's Expenses As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees and other Fund expenses. Examples of transaction costs include sales charges (loads), redemption fees and account maintenance fees, which are not shown in this section and which would result in higher total expenses (although this Fund does not charge transaction fees). The following table, which you are seeing for the first time, represents a new SEC requirement and is intended to help you understand your ongoing expenses of investing in the Fund and to help you compare these expenses (which do not reflect any expenses associated with variable products through which the Fund may be offered) with the ongoing expenses of investing in other mutual funds. The table is based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2004. The table illustrates your Fund's expenses in two ways: Actual Expenses. The first line of the table below provides information about actual account values and actual expenses. This helps you estimate the actual dollar amount of ongoing expenses paid on a $1,000 investment in the Fund using the Fund's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period." - -------------------------------------------------------------------------------- 2 Hypothetical Example for Comparison Purposes. The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare your Fund's ongoing expenses with those of other mutual funds. To do so, compare this 5% hypothetical Fund return with the 5% hypothetical return examples that appear in the shareholder reports of other mutual funds. Please note that the expenses shown in the table are meant to highlight your ongoing expenses only and do not reflect any transaction costs, such as sales charges (loads) or redemption fees. If these transaction costs had been included, your costs would have been higher. The "Expenses Paid During Period" line of the table is useful in comparing ongoing expenses only and will not help you determine the relative total expenses of owning different funds. Expenses and value of a $1,000 investment for the six-month period ended December 31, 2004
Beginning Ending Expenses Paid Account Account During Period* Value Value 07/01/04 to 07/01/04 12/31/04 12/31/04 Actual $ 1,000.00 $ 1,006.50 $ 2.05 Hypothetical (5% return before expenses) $ 1,000.00 $ 1,023.09 $ 2.07
* Expenses are equal to the Fund's annualized expense ratio of 0.41%, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year period, then divided by 366. For more information, please refer to the Fund's prospectus. Proposed Merger of the Fund The Board of Trustees of CIGNA Variable Product Group (CVPG) has approved, subject to Fund shareholder approval, a reorganization pursuant to which the TimesSquare VP Money Market Fund would transfer substantially all of its assets and liabilities to the Money Market Fund of PIMCO Variable Insurance Trust (PVIT) in exchange for Institutional Class shares of the PVIT fund having a net asset value equal to the net asset value of the assets and liabilities so transferred. The PVIT shares would then be distributed pro rata to shareholders of the Fund. The Fund has scheduled a special meeting of shareholders on March 29, 2005 to seek shareholder approval of the merger. Proxy Voting Information A description of the Fund's proxy voting policies and procedures is available without charge, upon request, by calling the Fund at 1-800-528-6718 and on the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2004 is available on the SEC website. Quarterly Portfolio Securities The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Forms N-Q will be available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Outlook Economic data continues to show signs of strength, and we expect Fed policy makers to maintain their "measured" approach and continue tightening into - -------------------------------------------------------------------------------- 3 the first half of 2005. Economic data is expected to reflect an economy which is firmly established and resilient in the face of inflation and rising oil prices. With this in mind, we will continue to focus on the developing trends in both the U.S. and global economy as keys to further Federal Reserve action, and adjust our portfolio strategy accordingly. Sincerely, /s/ Richard H. Forde Richard H. Forde Chairman of the Board and President CIGNA Variable Products Group - -------------------------------------------------------------------------------- 4 [THE FOLLOWING WAS REPRESENTED AS A GRAPH IN THE PRINTED MATERIAL] GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (Unaudited) 3/1/96* - 12/31/04 - -------------------------------------------------------------------------------- AVERAGE ANNUAL RETURN 1 Year 5 Year Life of Fund Inception Date Fund 0.97% 2.56% 3.63% 3/1/96 3 Month U.S. 1.24% 2.79% 3.77% Treasury Bill - -------------------------------------------------------------------------------- Date Fund 3 Month U.S. Treasury Bill 3/96 10,000 10,000 12/96 10,418 10,435 12/97 10,959 10,983 12/98 11,523 11,537 12/99 12,079 12,084 12/00 12,809 12,804 12/01 13,286 13,327 12/02 13,473 13,554 12/03 13,576 13,700 12/04 13,708 13,870 CIGNA Variable Products Money Market Fund (the "Fund") performance figures are historical and reflect reinvestment of all dividends. The annualized yield for the seven days ended December 31, 2004 as 1.81%, and the Fund's average maturity was 13 days. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. Past performance does not predict future performance. The Fund's return has been compared with the total return performance of the three month U.S. Treasury Bill, which does not reflect brokerage charges or other investment expenses. The principal value of the U.S. Treasury Bill is guaranteed by the full faith and credit of the United States. * Commencement of operations - -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund Investments in Securities 5 December 31, 2004
Principal Value (000) (000) ---------- --------- COMMERCIAL PAPER - 70.7% Domestic - 58.1% Abbott Laboratories, 2.24%, 1/11/05 $ 1,201 $ 1,200 Barton Capital Corp., 2.28%, 1/5/05 7,465 7,463 2.30%, 1/5/05 12,000 11,997 Bemis Company, Inc., 2.25%, 1/10/05 15,000 14,992 CAFCO LLC, 2.27%, 1/4/05 1,001 1,001 ChevronTexaco Funding Corp., 2.26%, 1/6/05 19,510 19,504 Exxon Asset Management Co., 2.24%, 1/12/05 20,053 20,039 Gannett, Inc., 2.19%, 1/3/05 6,367 6,366 2.24%, 1/3/05 11,862 11,861 Gillette Co., 2.24%, 1/18/05 21,000 20,978 Hershey Foods Corp., 2.18%, 1/18/05 2,500 2,497 International Business Machines Corp., 2.26%, 1/12/05 20,000 19,986 Kimberly Clark Corp., 2.25%, 1/18/05 17,606 17,587 2.15%, 1/20/05 1,037 1,036 Minnesota Mining & Manufacturing Co., 2.17%, 1/6/05 10,000 9,997 Morgan Stanley, Dean Witter, Discover & Co., 2.34%, 1/4/05 21,000 20,996 Nestle Capital Corp., 2.25%, 1/10/05 15,844 15,835 Old Line Funding Corp., 2.32%, 1/5/05 21,401 21,395 Paccar Financial Corp., 2.30%, 1/4/05 9,246 9,244 2.28%, 1/6/05 10,000 9,997 PepsiCo, Inc., 2.25%, 1/13/05 11,369 11,360 Pfizer, Inc., 2.28%, 1/24/05 21,309 21,278 Procter & Gamble Co., 2.26%, 1/10/05 21,000 20,988 State Street Boston Corp., 2.26%, 1/18/05 20,000 19,979 Windmill Funding Corp., 2.33%, 1/13/05 10,000 9,992 -------- 327,568 -------- Foreign - 12.6% BNP Paribas Finance, Inc., 2.32%, 1/13/05 10,000 9,992 B P Capital Markets PLC, 2.24%, 1/7/05 21,500 21,492 Caisse D' Amortissement, 2.23%, 1/31/05 1,463 1,460 KFW International Finance, Inc., 2.25%, 1/7/05 12,634 12,629
Principal Value (000) (000) ---------- --------- Novartis Finance Corp., 2.24%, 1/3/05 $ 3,343 $ 3,343 2.15%, 1/4/05 9,892 9,890 Royal Bank of Scotland, 2.29%, 1/11/05 11,498 11,491 UBS Finance LLC, 2.36%, 1/5/05 1,038 1,038 -------- 71,335 -------- Total Commercial Paper 398,903 -------- U.S. GOVERNMENT AGENCIES (b) - 29.3% Fannie Mae, 2.24%, 1/3/05 25,000 24,997 2.24%, 1/5/05 7,480 7,478 2.25%, 1/7/05 11,262 11,258 2.33%, 1/28/05 (a) 11,500 11,500 1.65%, 5/16/05 2,500 2,500 2.42%, 10/7/05 (a) 20,000 19,998 Federal Farm Credit Bank, 2.33%, 3/24/05 (a) 15,000 15,000 2.36%, 6/23/05 (a) 2,500 2,500 2.39%, 3/1/06 (a) 15,000 15,000 Federal Home Loan Bank, 4.37%, 2/15/05 2,000 2,007 1.30%, 2/23/05 4,000 4,000 2.48%, 3/30/05 (a) 7,500 7,500 2.02%, 6/8/05 2,500 2,500 1.91%, 10/5/05 (a) 7,500 7,497 Freddie Mac, 2.22%, 1/4/05 12,612 12,610 1.23%, 1/11/05 1,500 1,500 1.30%, 1/11/05 7,500 7,497 1.40%, 1/19/05 2,224 2,222 2.00%, 10/7/05 (a) 7,500 7,500 -------- 165,064 -------- TOTAL INVESTMENTS IN SECURITIES - 100.0% (Total Cost - $563,967) (c) 563,967 Cash and Other Assets, Less Liabilities - 0.0% 13 -------- NET ASSETS - 100.0% $563,980 ========
The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund Investments in Securities 6 December 31, 2004 (Continued) - -------------------------------------------------------------------------------- NOTES TO INVESTMENTS IN SECURITIES (a) Variable rate security. Rate is as of December 31, 2004. (b) Agency obligations are not guaranteed by the U.S. Government. Tax Information (c) As of December 31, 2004, the cost for federal tax purposes on a tax basis is the same as on a book basis.
- -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund Value % of Ten Largest Positions (Unaudited) (000) Net Assets - ----------------------------------------------------------- -------- ---------- Fannie Mae $77,731 13.8% Federal Farm Credit Bank 32,500 5.8 Freddie Mac 31,329 5.6 Federal Home Loan Bank 23,504 4.2 B P Capital Markets PLC 21,492 3.8 Old Line Funding Corp. 21,395 3.8 Pfizer, Inc. 21,278 3.8 Morgan Stanley, Dean Witter, Discover & Co. 20,996 3.7 Procter & Gamble Co. 20,988 3.7 Gillette Co. 20,978 3.7 - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund Portfolio by Type of Short Term Security Value % of (Unaudited) (000) Net Assets - ------------------------------------------------------- --------- ---------- Domestic Commercial Paper $ 327,568 58.1% Foreign Commercial Paper 71,335 12.6 U.S. Government Agencies 165,064 29.3 --------- ----- $ 563,967 100.0% - --------------------------------------------------------------------------------
The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund 7 Statement of Assets and Liabilities December 31, 2004 (In Thousands)
Assets: Investments in securities at value $ 563,967 Interest receivable 286 Prepaid insurance 5 --------- Total assets 564,258 --------- Liabilities: Investment advisory fees payable 168 Custodian fees payable 39 Audit and legal fees payable 29 Administrative services fees payable 28 Registration fees payable 8 Transfer agent fees payable 3 Shareholder reports 3 --------- Total liabilities 278 --------- Net Assets $ 563,980 ========= Components of Net Assets: Paid in capital $ 563,980 --------- Net Assets $ 563,980 ========= Shares Outstanding 563,978 ========= Net Asset Value and Redemption Price per Share $ 1.00 ========= Cost of Investments $ 563,967 =========
Statement of Operations For the Year Ended December 31, 2004 (In Thousands)
Investment Income: Income: Interest $ 7,451 ------- Expenses: Investment advisory fees $ 1,844 Administrative services fees 139 Custodian fees and expenses 112 Auditing and legal fees 45 Trustees' fees 16 Registration fees 9 Shareholder reports 9 Transfer agent fees 6 Insurance expense 5 ------- Total expenses 2,185 ------- Net Investment Income 5,266 ------- Realized and Unrealized Gain (Loss) on Investments: Net realized gain from investments -- ------- Net Realized and Unrealized Gain (Loss) on Investments -- ------- Net Increase in Net Assets Resulting From Operations $ 5,266 =======
The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund 8 Statements of Changes in Net Assets (In Thousands)
For the Year Ended December 31, ------------------------- 2004 2003 --------- --------- Operations: Net investment income $ 5,266 $ 2,939 --------- --------- Net increase in net assets from operations 5,266 2,939 --------- --------- Dividends and Distributions: From net investment income (5,266) (2,872) --------- --------- Total dividends and distributions (5,266) (2,872) --------- --------- Capital Share Transactions: Net proceeds from sales of shares 457,778 546,426 Net asset value of shares issued to shareholders in reinvestment of dividends and distributions 5,266 2,883 --------- --------- 463,044 549,309 Cost of shares redeemed (284,180) (529,819) --------- --------- Net increase in net assets from Fund share transactions 178,864 19,490 --------- --------- Net Increase in Net Assets 178,864 19,557 Net Assets: Beginning of period 385,116 365,559 --------- --------- End of period $ 563,980 $ 385,116 ========= =========
For the Year Ended December 31, ------------------------- 2004 2003 -------- -------- Transactions in Capital Stock Shares sold 457,778 546,426 Shares issued in reinvestment of dividends and distributions 5,266 2,883 -------- -------- 463,044 549,309 Shares redeemed (284,180) (529,819) -------- -------- Net increase in shares outstanding 178,864 19,490 ======== ========
The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund 9 Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------------ For the Year Ended December 31, ---------------------------------------------------------------------------------------- 2004 2003 2002 2001 2000 ---------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Income from investment operations: Net investment income (a) 0.01 0.01 0.01 0.04 0.06 -------- -------- -------- ------- -------- Total from investment operations 0.01 0.01 0.01 0.04 0.06 -------- -------- -------- ------- -------- Less dividends and distributions: Dividends from net investment income (0.01) (0.01) (0.01) (0.04) (0.06) --------- --------- --------- -------- -------- Total dividends and distributions (0.01) (0.01) (0.01) (0.04) (0.06) --------- --------- --------- -------- -------- Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ========= ========= ========= ======== ======== Total Return 0.97% 0.77% 1.41% 3.73% 6.06%(b) Ratios to Average Net Assets: Gross expenses 0.41% 0.44% 0.43% 0.48% 0.54% Fees and expenses waived by the Adviser 0.00% 0.00% 0.00% 0.00% 0.04% Net expenses 0.41% 0.44% 0.43% 0.48% 0.50% Net investment income 1.00% 0.78% 1.37% 3.53% 6.01% Net Assets, End of Period (000 omitted) $563,980 $385,116 $365,559 $217,305 $160,905
(a) Net investment income per share has been calculated in accordance with SEC requirements, with the exception that end of year accumulated undistributed/(overdistributed) net investment income has not been adjusted to reflect current year permanent differences between financial and tax accounting. (b) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced. The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund Notes To Financial Statements 10 1. Significant Accounting Policies. TimesSquare VP Money Market Fund (the "Fund") is a separate series of CIGNA Variable Products Group, a Massachusetts business trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The objective of the Fund is to provide as high a level of current income as is consistent with the preservation of capital and liquidity and the maintenance of a stable $1.00 per share net asset value by investing in short-term money market instruments. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. A. Security Valuation -- The Fund's investments are valued at amortized cost, which the Board of Trustees has determined constitutes fair value, and which, at December 31, 2004, approximated cost for federal income tax purposes. B. Security Transactions and Related Investment Income -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Interest income, which includes amortization of premium and accretion of discount, is recorded on the accrual basis. Securities gains and losses are recognized on the basis of identified cost. C. Federal Taxes -- It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains, if any, to its shareholders. Therefore, no federal income or excise taxes on realized income have been accrued. Distributions reported in the Statement of Changes in Net Assets from net investment income, including short-term capital gains, and capital gains are treated as ordinary income and long-term capital gains, respectively, for federal income tax purposes. D. Dividends and Distributions to Shareholders -- Dividends from net investment income are declared and reinvested daily. Dividends and distributions are recorded by the Fund on the ex-dividend date. The timing and characterization of certain income and capital gains distributions are determined in accordance with federal tax regulations, which may differ from generally accepted accounting principles. To the extent that such differences are permanent, a reclassification to paid-in capital may be required. For the year ended December 31, 2004, the total tax distributions were $5,266,395. 2. Investment Advisory Fees and Other Transactions with Affiliates. Investment advisory fees are paid or accrued to CIGNA Investment Advisors, Inc. ("CIAI") (formerly, TimesSquare Capital Management, Inc.), certain officers and directors of which are affiliated with the Fund. Such advisory fees are based on an annual rate of 0.35% applied to the average daily net assets of the Fund. CIAI has contractually agreed to reimburse the Fund for any amount by which its expenses (including the advisory fee, but excluding interest, taxes, transaction costs incurred in acquiring and disposing of portfolio securities, and extraordinary expenses) exceed, on an annual basis, 0.50% of average daily net assets. Effective May 1, 2002, CIAI retains the right to be repaid by the Fund if the Fund's expenses fall below the percentage specified above prior to the end of the fiscal year or within three years after - -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund Notes To Financial Statements 11 (Continued) CIAI waives advisory fees or reimburses the Fund's operating expenses. As of December 31, 2004, the Fund has no such liability. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, other affiliated CIGNA Variable Products Group Funds may invest in the Fund. CIAI will waive the amount of its advisory fee for the affiliated Funds in an amount that offsets the amount of the advisory fees incurred in the TimesSquare VP Money Market Fund. For administrative services, the Fund reimburses CIAI for a portion of the compensation and related expenses of the Trust's Treasurer and Secretary and certain persons who assist in carrying out the responsibilities of those offices. For the year ended December 31, 2004, the Fund paid or accrued $139,102. CIAI is an indirect, wholly-owned subsidiary of CIGNA Corporation. 3. Trustees' Fees. Trustees' fees represent remuneration paid or accrued to Trustees who are not employees of CIGNA Corporation or any of its affiliates. Trustees may elect to defer all or a portion of their fees, which are invested in mutual fund shares in accordance with a deferred compensation plan. 4. Capital Stock. The Fund offers an unlimited number of shares of beneficial interest, without par value. Connecticut General Life Insurance Company, an indirect, wholly-owned subsidiary of CIGNA Corporation, TimesSquare VP Core Plus Bond Fund and TimesSquare VP S&P 500[RegTM] Index Fund are the shareholders of the Fund, with ownership of 98.6%, 0.8%, and 0.6%, respectively, as of December 31, 2004. 5. Proposed Merger of the Fund. The Board of Trustees of CIGNA Variable Product Group (CVPG) has approved, subject to Fund shareholder approval, a reorganization pursuant to which the TimesSquare VP Money Market Fund would transfer substantially all of its assets and liabilities to the Money Market Fund of PIMCO Variable Insurance Trust (PVIT) in exchange for Institutional Class shares of the PVIT fund having a net asset value equal to the net asset value of the assets and liabilities so transferred. The PVIT shares would then be distributed pro rata to shareholders of the Fund. The Fund has scheduled a special meeting of shareholders on March 29, 2005 to seek shareholder approval of the merger. - -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund 12 Report of Independent Registered Public Accounting Firm To the Trustees and Shareholders of TimesSquare VP Money Market Fund In our opinion, the accompanying statement of assets and liabilities, including the investments in securities, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of TimesSquare VP Money Market Fund ("Fund") at December 31, 2004, and the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2004 by correspondence with the custodian, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Boston, Massachusetts February 16, 2005 - -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund 13 (Unaudited) Trustees and Officers Shareholders elect a Board that oversees the Fund's operations. The Board appoints officers who are responsible for day-to-day business decisions based on policies set by the Board. The following is a list of the Fund's Board of Trustees and officers. Each Trustee's term of office will be until the next annual meeting of shareholders or until the election of the Trustee's successor.
Number of Name, Position Length Portfolios in Other Address* Held with of Time Principal Occupation(s) During Fund Complex Directorships and Age Fund Served Past 5 Years Overseen Held by Trustee - ------------- ---------------- ----------------- -------------------------------------- --------------- ----------------- Independent Trustees Russell H. Trustee Trustee since Senior Vice President (Investor 7 -- Jones 1995 Relations, Public Relations), 60 Chief Investment Officer and Treasurer, Kaman Corporation (helicopters and aircraft components, industrial distribution) Paul J. Trustee Trustee since Special Advisor to the Board of 7 Western McDonald 1995 Directors, Friendly Ice Cream Massachusetts 61 Corporation (family restaurants and Electric Company dairy products) Marnie Trustee Trustee since Diocesan Consultant, Episcopal 7 Boston Mutual Wagstaff 2001 Diocese of Connecticut; Previously, Life Insurance Mueller Visiting Professor of Health Company 65 Economics, Wesleyan University Carol Ann Trustee Trustee since Director and Chair of Audit 7 Reed & Barton Hayes 2003 Committee, Reed and Barton Corporation 60 Corporation Affiliated Trustees and Fund Officers Richard H. Trustee, Trustee, Chief Investment Officer, CIGNA 7 Director of Forde Chairman of Chairman and Investment Management various 51 the Board and President since subsidiaries of President 1998 CIGNA Corporation Alfred A. Vice President Officer CIGNA Funds Treasurer; 7 -- Bingham III and Treasurer Since 1982 Assistant Vice President, CIGNA 60 Investment Management Jeffrey S. Vice President Officer Senior Counsel, 7 -- Winer and Secretary Since 1993 CIGNA Corporation 47 - -------------------------------------------------------------------------------------------------------------------------- * All Trustees and officers have an address c/o TimesSquare Capital Management, Inc., 280 Trumbull Street, H16C, Hartford, CT 06103. - --------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund is an open-end, diversified management investment company that invests in short-term money market instruments. The investment adviser is CIGNA Investment Advisors, Inc., 280 Trumbull Street, Hartford, Connecticut 06103. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500(R) Index Fund - ------------------------------------------------------- Annual Report December 31, 2004 [CIGNA LOGO] - -------------------------------------------------------------------------------- 1 Dear Shareholders: Our commentary for TimesSquare VP S&P 500(R) Index Fund (the "Fund") covering the year ended December 31, 2004 follows. Management's Discussion of Fund Performance Market Equity markets were up nearly 4% through the first few weeks of 2004, propelled by record revenues from Intel and good news in the auto and construction industries. After a brief period of profit-taking, a positive earnings surprise from CISCO, the highest non-manufacturing ISM index number in seven years, and a two-year low in unemployment, the S&P 500(R) reached its highest level since March 2002. Despite the strong durable goods report in late February, the market gave back much of its gains over the remainder of the quarter. A decrease in consumer confidence, increased terrorist threats and the unfavorable Microsoft ruling all took a toll and left the S&P 500(R) up 1.69% for the first quarter. The Fund returned 1.64% for the first quarter. In the second quarter, the stock market, as measured by the S&P 500(R), returned 1.72% as equity declines in April were offset by gains in May and June. The Fund returned 1.68% for the second quarter. Corporate earnings continued to surprise on the upside, but concerns over rising interest rates continued to dissuade buyers. During the third quarter, the U.S. economy softened, a victim of rising oil prices and declining consumer confidence. Job growth slowed to a monthly increase of 125,000 new jobs in August from 308,000 new jobs in March; however, the unemployment rate ratcheted downward in 2004 to 5.4% in August versus 5.7% at the end of 2003. In spite of increasing earnings, U.S. stocks turned in negative returns in the third quarter, with the S&P 500(R) Index and the Fund returning -1.87% and - -1.96%, respectively. Value stocks outperformed growth issues. As has been the case each quarter since the first quarter of 2003, small cap stocks outperformed their large cap counterparts. During the fourth quarter of 2004, stocks again posted positive performance, with the S&P 500(R) Index and the Fund up 9.23% and 9.18%, respectively. The equity markets rebounded, as such positive factors as improving corporate earnings and the decisive resolution of the U.S. presidential election offset various headwinds. Oil prices receded from record levels as the Organization of Petroleum Exporting Countries increased production. Inflation remained low, in large part due to the Federal Reserve Board's continued measured approach to raising the federal funds target rate. However, slower-than-anticipated economic, productivity and jobs growth continued to be a drag on the market. All sectors finished in positive territory for the quarter, with the information technology, consumer discretionary, utilities and industrial sectors performing best. In contrast, the materials, telecommunications, consumer staples, financial, health care and energy sectors lagged the overall market. Interim Adviser Effective October 1, 2004 the Board of Trustees of the Fund appointed Merrill Lynch Investment Managers, L.P. (MLIM(R)) as investment adviser to the Fund under an interim investment advisory agreement. The Fund agreed to pay MLIM an advisory fee at an annual rate of 0.10% of the Fund's average net assets. The former adviser to the Fund, CIGNA Investment Advisors, Inc. (CIGNA Advisors) (formerly known as TimesSquare Capital Management, Inc.) continues to provide - -------------------------------------------------------------------------------- 2 administrative services to the Fund, such as preparation of prospectuses and shareholder reports and bookkeeping and accounting services. These arrangements resulted in no change to the investment objective or strategy of the Fund. In addition, CIGNA Advisors continues to reimburse the Fund if total Fund operating expenses (excluding extraordinary items) exceed 0.25% per annum of the Fund's average net assets. Proposed Merger of the Fund The Board of Trustees of the Fund expects to approve a reorganization pursuant to which the Fund would transfer substantially all of its assets and liabilities to the Dreyfus Stock Index Fund, Inc. ("Dreyfus Fund") in exchange for Initial Class shares of the Dreyfus Fund having a net asset value equal to the net asset value of the assets and liabilities so transferred. The Dreyfus Fund shares would then be distributed pro rata to shareholders of the Fund. The Dreyfus Fund has the same investment strategy as the Fund -- it seeks to match the total return of the S&P 500(R) by investing in all 500 stocks in the index. The Fund expects to hold a special meeting of shareholders in April 2005 to seek shareholder approval of the merger. You will receive additional information about the proposed merger, along with a proxy, before the meeting. Please be sure to vote. The CVPG Board of Trustees also expects to approve Mellon Equity Associates, LLP (an affiliate of Dreyfus) to serve as interim manager of the Fund in February 2005. Mellon Equity Associates would manage the Fund until it merges with the Dreyfus Fund. There will be no change to the investment objective of the Fund as a result of the appointment of Mellon Equity Associates as adviser to the Fund. In addition, CIGNA Advisors will, during the term of the interim advisory agreement, continue to waive fees and reimburse expenses if total Fund operating expenses (excluding extraordinary items) exceed 0.25% per annum of the Fund's average net assets. During the term of the new interim advisory agreement, CIGNA Advisors will continue to provide administrative services to the S&P 500(R) Index Fund. Proxy Voting Information A description of the Fund's proxy voting policies and procedures is available without charge, upon request, by calling the Fund at 1-800-528-6718 and on the Securities and Exchange Commission's website at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2004 is available on the SEC website. Quarterly Portfolio Securities The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Forms N-Q will be available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Performance Summary Returns for the twelve months ended December 31, 2004 (which do not reflect expenses associated with variable products through which the Fund may be offered and which would have been lower if such expenses were reflected) were:
Year-to-date Fund 10.63% Lipper S&P 500(R) Funds Average 10.21 S&P 500(R) Index 10.88
Information about Your Fund's Expenses As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees and - -------------------------------------------------------------------------------- 3 other Fund expenses. Examples of transaction costs include sales charges (loads), redemption fees and account maintenance fees, which are not shown in this section and which would result in higher total expenses (although this Fund does not charge transaction fees). The following table, which you are seeing for the first time, represents a new SEC requirement and is intended to help you understand your ongoing expenses of investing in the Fund and to help you compare these expenses (which do not reflect any expenses associated with variable products through which the Fund may be offered) with the ongoing expenses of investing in other mutual funds. The table is based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2004. The table illustrates your Fund's expenses in two ways: Actual Expenses. The first line of the table below provides information about actual account values and actual expenses. This helps you estimate the actual dollar amount of ongoing expenses paid on a $1,000 investment in the Fund using the Fund's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period." Hypothetical Example for Comparison Purposes. The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare your Fund's ongoing expenses with those of other mutual funds. To do so, compare this 5% hypothetical Fund return with the 5% hypothetical return examples that appear in the shareholder reports of other mutual funds. Please note that the expenses shown in the table are meant to highlight your ongoing expenses only and do not reflect any transaction costs, such as sales charges (loads) or redemption fees. If these transaction costs had been included, your costs would have been higher. The "Expenses Paid During Period" line of the table is useful in comparing ongoing expenses only and will not help you determine the relative total expenses of owning different funds. Expenses and value of a $1,000 investment for the six-month period ended December 31, 2004
Beginning Ending Expenses Paid Account Account During Period* Value Value 07/01/04 to 07/01/04 12/31/04 12/31/04 Actual $1,000.00 $1,070.40 $1.30 Hypothetical (5% return before expenses) $1,000.00 $1,023.88 $1.27
* Expenses are equal to the Fund's annualized expense ratio of 0.25%, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year period, then divided by 366. The "Expenses Paid During Period" and the annualized expense ratio are based on actual expenses paid by the Fund during the period, net of fee waivers and/or expense reimbursements. If those fee waivers and/or expense reimbursements had not been in effect, the Fund's actual expenses would have been higher. - -------------------------------------------------------------------------------- 4 For more information, please refer to the Fund's prospectus. Outlook The 2005 outlook for financial markets appears more challenging than that of the year just ended, as a consequence of both fundamental economic as well as valuation considerations. The combination of a progressive tightening in liquidity and monetary conditions, an upward trend in bond market yields, higher inflation, and a sharp slowdown in the growth of corporate profits could create a challenging environment for common stocks. Sincerely, /s/ Richard H. Forde Richard H. Forde Chairman of the Board and President CIGNA Variable Products Group - -------------------------------------------------------------------------------- 5 GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (Unaudited) 12/31/93 - 12/31/04 [TABULAR REPRESENTATION OF LINE CHART]
S&P Fund 500(R) Index ------ ------------- 12/94 10,000 10,000 12/95 13,682 13,758 12/96 16,757 16,917 12/97 22,346 22,560 12/98 28,738 29,007 12/99 34,705 35,110 12/00 31,453 31,913 12/01 27,621 28,121 12/02 21,404 21,905 12/03 27,456 28,188 12/04 30,374 31,256
AVERAGE ANNUAL RETURN
1 Year 5 Year 10 Year Fund 10.63% -2.63% 11.75% S&P 500 Index 10.88% -2.30% 12.07%
CIGNA Variable Products S&P 500(R) Index Fund (the "Fund") performance figures are historical and reflect reinvestment of all dividends. The Fund's investment return and principal value will fluctuate so that an investor's shares, when sold may be worth more or less than their original cost. Past performance does not predict future performance. The Fund's return has been compared with the total return performance of S&P 500(R) Index. This index is a group of unmanaged securities widely regarded by investors to be representative of the stock market in general. An investment cannot be made in the index. Index results do not reflect brokerage changes or other investment expenses. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500(R) Index Fund Investments in Securities 6 December 31, 2004
Number of Value Shares (000) - -------------------------------------------------------------------------------- COMMON STOCKS - 96.1% AEROSPACE/DEFENSE - 1.7% Boeing (The) Co. 12,876 $ 667 General Dynamics Corp. 3,100 324 Goodrich Corp. 1,800 59 L-3 Communications Holdings, Inc. 1,802 132 Lockheed Martin Corp. 6,860 381 Northrop Grumman Corp. 5,478 298 Raytheon Co. 6,900 268 Rockwell Collins, Inc. 2,800 110 United Technologies Corp. 7,900 816 ------ 3,055 ------ AGRICULTURE - 1.5% Altria Group, Inc. 31,600 1,931 Archer-Daniels-Midland Co. 9,987 223 Monsanto Co. 4,135 230 Reynolds American, Inc. 2,300 181 UST, Inc. 2,600 125 ------ 2,690 ------ AUTO MANUFACTURERS & PARTS - 0.8% Cooper Tire & Rubber Co. 1,100 24 Dana Corp. 2,343 41 Delphi Corp. 8,626 78 Ford Motor Co. 28,297 414 General Motors Corp. 8,700 349 Goodyear (The) Tire & Rubber Co. (a) 2,700 40 Johnson Controls, Inc. 2,900 184 Navistar International Corp. (a) 1,100 48 Paccar, Inc. 2,687 216 Visteon Corp. 2,051 20 ------ 1,414 ------ BIOTECHNOLOGY - 1.1% Amgen, Inc. (a) 19,568 1,255 Biogen Idec, Inc. (a) 5,235 349 Chiron Corp. (a) 2,900 97 Genzyme Corp. (General Division) (a) 3,500 203 Number of Value Shares (000) - -------------------------------------------------------------------------------- BIOTECHNOLOGY (continued) Medimmune, Inc. (a) 3,800 $ 103 Millipore Corp. (a) 800 40 ------ 2,047 ------ CHEMICALS - 1.6% Air Products & Chemicals, Inc. 3,500 203 Ashland, Inc. 1,100 64 Dow (The) Chemical Co. 14,410 713 du Pont (E.I.) de Nemours & Co. 15,378 754 Eastman Chemical Co. 1,200 69 Ecolab, Inc. 4,000 141 Engelhard Corp. 1,950 60 Great Lakes Chemical Corp. 800 23 Hercules, Inc. (a) 1,700 25 International Flavors & Fragrances, Inc. 1,400 60 PPG Industries, Inc. 2,600 177 Praxair, Inc. 5,000 221 Rohm & Haas Co. 3,485 154 Sherwin-Williams (The) Co. 2,300 103 Sigma-Aldrich Corp. 1,100 67 ------ 2,834 ------ COMMERCIAL SERVICES - 0.9% Apollo Group, Inc., Class A (a) 3,000 242 Block (H&R), Inc. 2,500 123 Cendant Corp. 16,204 379 Convergys Corp. (a) 2,200 33 Donnelley (RR) & Sons Co. 3,300 116 Equifax, Inc. 2,200 62 McKesson Corp. 4,523 142 Moody's Corp. 2,300 200 Paychex, Inc. 5,800 198 Robert Half International, Inc. 2,600 77 ------ 1,572 ------
The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500(R) Index Fund Investments in Securities 7 December 31, 2004 (Continued)
Number of Value Shares (000) - -------------------------------------------------------------------------------- COMMUNICATIONS - 1.4% eBay, Inc. (a) 10,200 $ 1,186 Interpublic (The) Group of Cos., Inc. (a) 6,400 86 Monster Worldwide, Inc. (a) 1,700 57 Omnicom Group 2,900 245 Symantec Corp. (a) 9,600 247 Yahoo, Inc. (a) 20,900 788 -------- 2,609 -------- COMPUTERS - 4.1% Affiliated Computer Services, Inc., Class A (a) 2,000 120 Apple Computer, Inc. (a) 6,000 386 Computer Sciences Corp. (a) 2,900 163 Dell, Inc. (a) 38,400 1,618 Electronic Data Systems Corp. 7,900 182 EMC Corp. (a) 37,424 556 Gateway, Inc. (a) 5,800 35 Hewlett-Packard Co. 46,524 976 International Business Machine Corp. 25,600 2,524 Lexmark International, Inc., Class A (a) 2,000 170 NCR Corp. (a) 1,500 104 Network Appliance, Inc. (a) 5,300 176 Sun Microsystems, Inc. (a) 50,900 274 Sungard Data Systems, Inc. (a) 4,400 125 Unisys Corp. (a) 5,100 52 -------- 7,461 -------- CONSUMER PRODUCTS & SERVICES - 2.7% Alberto-Culver Co. 1,400 68 Avery Dennison Corp. 1,700 102 Avon Products, Inc. 7,200 279 Clorox Co. 2,400 141 Colgate-Palmolive Co. 8,200 420 Fortune Brands, Inc. 2,200 170 Genuine Parts Co. 2,650 117 Gillette (The), Co. 15,400 690 Grainger (W.W.), Inc. 1,400 93 Kimberly-Clark Corp. 7,632 502 Number of Value Shares (000) - -------------------------------------------------------------------------------- CONSUMER PRODUCTS & SERVICES (continued) Newell Rubbermaid, Inc. 4,207 $ 102 Procter & Gamble Co. 39,100 2,154 -------- 4,838 -------- ELECTRICAL COMPONENTS & EQUIPMENT - 0.3% American Power Conversion 3,100 66 Emerson Electric Co. 6,500 456 Molex, Inc. 2,975 89 Power-One, Inc. (a) 1,300 12 -------- 623 -------- ELECTRONICS - 0.5% Agilent Technologies, Inc. (a) 7,328 177 Applera Corp. - Applied Biosystems Group 3,200 67 Fisher Scientific International, Inc. (a) 1,700 106 Jabil Circuit, Inc. (a) 3,100 79 PerkinElmer, Inc. 2,000 45 Sanmina-SCI Corp. (a) 8,000 68 Solectron Corp. (a) 14,800 79 Symbol Technologies, Inc. 3,600 62 Tektronix, Inc. 1,300 39 Thermo Electron Corp. (a) 2,600 78 Waters Corp. (a) 1,900 89 -------- 889 -------- FINANCIAL - 14.8% American Express Co. 19,500 1,099 AmSouth Bancorp 5,400 140 Bank (The) of New York Co., Inc. 12,000 401 Bank of America Corp. 62,032 2,915 BB&T Corp. 8,500 357 Bear Stearns (The) Cos., Inc. 1,625 166 Capital One Financial Corp. 3,700 312 CIT Group, Inc. 3,500 160 Citigroup, Inc. 79,672 3,839 Comerica, Inc. 2,650 162 Compass Bancshares, Inc. 1,994 97 Countrywide Financial Corp. 8,700 322 E*Trade Financial Corp. (a) 5,700 85
The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500(R) Index Fund Investments in Securities 8 December 31, 2004 (Continued)
Number of Value Shares (000) - -------------------------------------------------------------------------------- FINANCIAL (continued) Fannie Mae 14,900 $ 1,061 Federated Investors, Inc., Class B 1,700 52 Fifth Third Bancorp 8,758 414 First Horizon National Corp. 1,900 82 Franklin Resources, Inc. 3,900 272 Freddie Mac 10,600 781 Golden West Financial Corp. 4,800 295 Goldman Sachs Group, Inc. 7,500 780 Huntington Bancshares, Inc. 3,566 88 Janus Capital Group, Inc. 3,700 62 Keycorp 6,216 211 Lehman Brothers Holdings, Inc. 4,180 366 M&T Bank Corp 1,800 194 Marshall & Ilsley Corp. 3,500 155 MBNA Corp. 19,752 557 Mellon Financial Corp. 6,500 202 Merrill Lynch & Co., Inc. 14,500 867 Morgan (J.P.) Chase & Co. 54,867 2,140 Morgan Stanley Dean Witter & Co. 16,940 941 National City Corp. 10,200 383 North Fork Bancorporation, Inc. 4,050 117 Northern Trust Corp. 3,400 165 PNC Financial Services Group, Inc. 4,300 247 Providian Financial Corp. (a) 4,500 74 Regions Financial Corp. 7,147 254 Schwab, (The) Charles Corp. 21,025 251 SLM Corp. 6,700 358 Sovereign Bancorp, Inc. 5,300 120 State Street Corp. 5,200 255 SunTrust Banks, Inc. 4,400 325 Synovus Financial Corp. 4,650 133 T. Price Rowe Group, Inc. 1,900 118 US Bancorp 28,951 907 Wachovia Corp. 24,667 1,297 Washington Mutual, Inc. 13,407 567 Wells Fargo & Co. 25,960 1,613 Zions Bancorporation 1,400 95 -------- 26,854 -------- Number of Value Shares (000) - -------------------------------------------------------------------------------- FOOD & BEVERAGES - 3.8% Albertson's, Inc. 5,713 $ 136 Anheuser-Busch Cos., Inc. 12,300 624 Brown-Forman Corp., Class B 1,900 92 Campbell Soup Co. 6,400 191 Coca-Cola (The) Co. 37,300 1,553 Coca-Cola Enterprises, Inc. 7,100 148 ConAgra Foods, Inc. 8,300 244 Coors (Adolph) Co., Class B 600 45 General Mills, Inc. 5,800 288 Heinz (H.J) Co. 5,400 211 Hershey Foods Corp. 3,800 211 Kellogg Co. 6,400 286 Kroger Co. (a) 11,500 202 McCormick & Co., Inc. 2,100 81 Pepsi Bottling Group, Inc. 4,000 108 PepsiCo., Inc. 26,060 1,360 Safeway, Inc. (a) 6,800 134 Sara Lee Corp. 12,200 295 Supervalu, Inc. 2,100 73 Sysco Corp. 9,800 374 Wrigley (Wm) Jr. Co. 3,500 242 -------- 6,898 -------- FOREST PRODUCTS & PAPER - 0.6% Georgia-Pacific Corp. 3,916 147 International Paper Co. 7,451 313 Louisiana-Pacific Corp. 1,600 43 MeadWestvaco Corp. 3,076 104 Plum Creek Timber Co., Inc. 2,800 108 Temple-Inland, Inc. 800 55 Weyerhaeuser Co. 3,700 249 -------- 1,019 -------- HEALTHCARE PRODUCTS & SERVICES - 4.9% Aetna, Inc. 2,342 292 Bard (C.R.), Inc. 1,600 102 Bausch & Lomb, Inc. 800 52 Baxter International, Inc. 9,400 325 Becton Dickinson & Co. 3,900 222
The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500(R) Index Fund Investments in Securities 9 December 31, 2004 (Continued)
Number of Value Shares (000) - -------------------------------------------------------------------------------- HEALTHCARE PRODUCTS & SERVICES (continued) Biomet, Inc. 4,000 $ 174 Boston Scientific Corp. (a) 13,000 462 Guidant Corp. 4,800 346 HCA, Inc. 6,420 257 Health Management Associates, Class A 3,800 86 Humana, Inc. (a) 2,500 74 Johnson & Johnson 45,684 2,897 Laboratory Corp. of America Holdings (a) 2,200 110 Manor Care, Inc. 1,400 50 Medtronic, Inc. 18,600 924 Quest Diagnostics 1,600 153 St. Jude Medical, Inc. (a) 5,400 226 Stryker Corp. 6,200 299 Tenet Healthcare Corp. (a) 7,150 79 UnitedHealth Group, Inc. 10,100 889 WellPoint, Inc. (a) 4,500 518 Zimmer Holdings, Inc. (a) 3,780 303 -------- 8,840 -------- HOME BUILDERS & FURNISHINGS - 0.2% Centex Corp. 1,900 113 KB Home 700 73 Maytag Corp. 1,200 25 Pulte Homes, Inc. 1,900 121 Whirlpool Corp. 1,100 76 -------- 408 -------- INDUSTRIAL - 7.0% 3M Co. 12,100 993 Allied Waste Industries, Inc. (a) 5,000 46 American Standard Cos., Inc. (a) 3,300 136 Black & Decker Corp. 1,200 106 Caterpillar, Inc. 5,300 517 Cooper Industries Ltd., Class A 1,400 95 Cummins, Inc. 700 59 Danaher Corp. 4,800 276 Deere & Co. 3,800 283 Dover Corp. 3,100 130 Eastman Kodak Co. 4,400 142 Number of Value Shares (000) - -------------------------------------------------------------------------------- INDUSTRIAL (continued) Eaton Corp. 2,400 $ 174 Fluor Corp. 1,300 71 General Electric Co. 162,500 5,931 Honeywell International, Inc. 13,287 470 Illinois Tool Works, Inc. 4,700 436 Ingersoll-Rand Co., Class A 2,700 217 ITT Industries, Inc. 1,400 118 Leggett & Platt, Inc. 3,000 85 Masco Corp. 6,700 245 Pall Corp. 1,900 55 Parker Hannifin Corp. 1,825 138 Rockwell Automation, Inc. 2,900 144 Snap-On, Inc. 950 33 Stanley (The) Works 1,300 64 Textron, Inc. 2,100 155 Tyco International Ltd. 30,965 1,107 Vulcan Materials Co. 1,600 87 Waste Management, Inc. 8,932 267 -------- 12,580 -------- INSURANCE - 4.4% ACE Ltd. 4,300 184 Aflac, Inc. 7,900 315 Allstate (The) Corp. 10,696 553 AMBAC Financial Group, Inc. 1,650 136 American International Group 40,084 2,632 AON Corp. 4,825 115 Chubb Corp. 2,900 223 CIGNA Corp. (b) 2,100 171 Cincinnati Financial Corp. 2,625 116 Hartford Financial Services Group 4,500 312 Jefferson-Pilot Corp. 2,112 110 Lincoln National Corp. 2,800 131 Loews Corp. 2,900 204 Marsh & McLennan Cos., Inc. 8,000 263 MBIA, Inc. 2,200 139 Metlife, Inc. 11,600 470 MGIC Investment Corp. 1,500 103 Principal Financial Group 4,800 197
The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500(R) Index Fund Investments in Securities 10 December 31, 2004 (Continued)
Number of Value Shares (000) - -------------------------------------------------------------------------------- INSURANCE (continued) Progressive (The) Corp. 3,200 $ 271 Prudential Financial, Inc. 8,000 440 Safeco Corp. 2,100 110 St. Paul (The) Travelers Companies, Inc. 10,291 381 Torchmark Corp. 1,700 97 UnumProvident Corp. 4,625 83 XL Capital Ltd., Class A 2,100 163 -------- 7,919 -------- IRON/STEEL & MINING - 0.7% Alcoa, Inc. 13,468 423 Allegheny Technologies, Inc. 1,270 28 Freeport-McMoRan Copper & Gold, Class B 2,700 103 Newmont Mining Corp. 6,735 299 Nucor Corp. 2,400 126 Phelps Dodge Corp. 1,416 140 United States Steel Corp. 1,800 92 -------- 1,211 -------- LEISURE & ENTERTAINMENT - 0.7% Brunswick Corp. 1,400 69 Carnival Corp. 9,700 559 Harley-Davidson, Inc. 4,500 273 Hasbro, Inc. 2,675 52 International Game Technology 5,400 186 Mattel, Inc. 6,345 124 Sabre Holdings Corp., Class A 2,140 47 -------- 1,310 -------- LODGING - 0.4% Harrah's Entertainment, Inc. 1,750 117 Hilton Hotels Corp. 5,900 134 Marriott International, Inc., Class A 3,600 227 Starwood Hotels & Resorts Worldwide, Inc. 3,200 187 -------- 665 -------- MEDIA - 3.7% Clear Channel Communications, Inc. 9,100 305 Comcast Corp., Class A (a) 34,362 1,144 Disney (Walt) Co. 31,700 881 Number of Value Shares (000) - -------------------------------------------------------------------------------- MEDIA (continued) Dow Jones & Co., Inc. 1,300 $ 56 Gannett Co., Inc. 4,100 335 Knight-Ridder, Inc. 1,200 80 McGraw-Hill (The) Cos., Inc. 2,900 265 Meredith Corp. 800 43 New York Times Co., Class A 2,300 94 News Corp. 38,800 724 Time Warner, Inc. (a) 70,400 1,369 Tribune Co. 4,900 206 Univision Communications, Inc., Class A (a) 5,000 146 Viacom, Inc., Class B 26,233 955 -------- 6,603 -------- OFFICE/BUSINESS EQUIPMENT - 0.2% Pitney Bowes, Inc. 3,600 167 Xerox Corp. (a) 14,600 248 -------- 415 -------- OIL & GAS - 6.9% Amerada Hess Corp. 1,400 115 Anadarko Petroleum Corp. 3,833 248 Apache Corp. 5,022 254 Baker Hughes, Inc. 5,190 221 BJ Services Co. 2,500 116 Burlington Resources, Inc. 6,120 266 ChevronTexaco Corp. 32,768 1,721 ConocoPhillips 10,568 918 Devon Energy Corp. 7,400 288 Dynegy, Inc., Class A (a) 5,800 27 EL Paso Corp. 9,943 103 EOG Resources, Inc. 1,800 128 Exxon Mobil Corp. 99,024 5,076 Halliburton Co. 6,800 267 Kerr-McGee Corp. 2,338 135 Kinder Morgan, Inc. 1,900 139 Marathon Oil Corp. 5,300 199 Nabors Industries Ltd. (a) 2,300 118 Noble Corp. (a) 2,100 104 Occidental Petroleum Corp. 6,000 350
The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500(R) Index Fund Investments in Securities 11 December 31, 2004 (Continued)
Number of Value Shares (000) - -------------------------------------------------------------------------------- OIL & GAS (continued) Rowan Cos., Inc. (a) 1,600 $ 41 Schlumberger Ltd. 9,100 609 Sunoco, Inc. 1,200 98 Transocean, Inc. (a) 4,971 211 Unocal Corp. 4,000 173 Valero Energy Corp. 4,000 182 Williams Companies, Inc. 8,000 130 XTO Energy, Inc. 4,400 156 -------- 12,393 -------- PACKAGING & CONTAINERS - 0.1% Ball Corp. 1,800 79 Bemis Co. 1,600 47 Pactiv Corp. (a) 2,400 61 Sealed Air Corp. (a) 1,361 73 -------- 260 -------- PHARMACEUTICALS - 5.7% Abbott Laboratories 24,000 1,120 Allergan, Inc. 2,000 162 AmerisourceBergen Corp. 1,700 100 Bristol-Myers Squibb Co. 30,000 769 Cardinal Health, Inc. 6,575 382 Caremark Rx, Inc. (a) 7,200 284 Eli Lilly & Co. 17,400 987 Express Scripts, Inc. (a) 1,200 92 Forest Laboratories, Inc. (a) 5,700 256 Gilead Sciences, Inc. (a) 6,600 231 Hospira, Inc. (a) 2,420 81 King Pharmaceuticals, Inc. (a) 3,766 47 Medco Health Solutions, Inc. (a) 4,166 173 Merck & Co., Inc. 34,100 1,096 Mylan Laboratories 4,100 72 Pfizer, Inc. 115,632 3,109 Schering-Plough Corp. 22,800 476 Watson Pharmaceuticals, Inc. (a) 1,700 56 Wyeth 20,600 877 -------- 10,370 -------- Number of Value Shares (000) - -------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS - 0.5% Apartment Investment & Mgt. Co., Class A 1,400 $ 54 Archstone-Smith Trust 2,900 111 Equity Office Properties Trust 6,200 181 Equity Residential 4,300 156 Prologis 2,800 121 Simon Property Group, Inc. 3,200 207 -------- 830 -------- RETAIL - 7.2% Autonation, Inc. (a) 4,300 83 Autozone, Inc. (a) 1,300 119 Bed Bath & Beyond, Inc. (a) 4,600 183 Best Buy Co., Inc. 5,000 297 Big Lots, Inc. (a) 1,800 22 Cintas Corp. 2,600 114 Circuit City Stores, Inc. 3,300 52 Coach, Inc. (a) 2,900 164 Costco Wholesale Corp. 7,100 344 CVS Corp. 6,100 275 Darden Restaurants, Inc. 2,550 71 Dillard's, Inc., Class A 1,300 35 Dollar General Corp. 5,247 109 Family Dollar Stores, Inc. 2,700 84 Federated Department Stores 2,800 162 Gap (The), Inc. 13,862 293 Home Depot, Inc. 33,750 1,442 Jones Apparel Group, Inc. 2,000 73 Kohl's Corp. (a) 5,300 261 Limited Brands, Inc. 6,200 143 Liz Claiborne, Inc. 1,700 72 Lowe's Companies, Inc. 12,000 691 May (The) Department Stores Co. 4,450 131 McDonald's Corp. 19,500 625 Nike, Inc., Class B 4,100 372 Nordstrom, Inc. 2,100 98 Office Depot, Inc. (a) 4,800 83 OfficeMax, Inc. 1,300 41 Penney (J.C.) Co., Inc. 4,400 182 RadioShack Corp. 2,500 82
The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500(R) Index Fund Investments in Securities 12 December 31, 2004 (Continued)
Number of Value Shares (000) - -------------------------------------------------------------------------------- RETAIL (continued) Reebok International Ltd. 900 $ 40 Sears Roebuck and Co. 3,300 168 Staples, Inc. 7,750 261 Starbucks Corp. (a) 6,100 380 Target Corp. 13,900 722 Tiffany & Co. 2,300 74 TJX Cos., Inc. 7,500 188 Toys R US, Inc. (a) 3,300 68 VF Corp. 1,700 94 Walgreen Co. 15,800 606 Wal-Mart Stores, Inc. 65,300 3,449 Wendy's International, Inc. 1,800 71 Yum! Brands, Inc. 4,580 216 -------- 13,040 -------- SEMICONDUCTORS - 2.9% Advanced Micro Devices, Inc. (a) 5,400 119 Altera Corp. (a) 5,900 122 Analog Devices, Inc. 5,800 214 Applied Materials, Inc. (a) 26,000 445 Applied Micro Circuits Corp. (a) 4,800 20 Broadcom Corp., Class A (a) 5,000 161 Freescale Semiconductor, Inc. (a) 5,596 103 Intel Corp. 97,100 2,271 Kla-Tencor Corp. (a) 3,000 140 Linear Technology Corp. 4,800 186 LSI Logic Corp. (a) 5,900 32 Maxim Integrated Products 5,100 216 Micron Technology, Inc. (a) 9,400 116 National Semiconductor Corp. 5,600 101 Novellus Systems, Inc. (a) 2,200 61 Nvidia Corp. (a) 2,500 59 PMC--Sierra, Inc. (a) 2,700 30 QLogic Corp. (a) 1,500 55 Teradyne, Inc. (a) 3,000 51 Texas Instruments, Inc. 26,800 660 Xilinx, Inc. 5,300 157 -------- 5,319 -------- Number of Value Shares (000) - -------------------------------------------------------------------------------- SOFTWARE - 4.6% Adobe Systems, Inc. 3,700 $ 232 Autodesk, Inc. 3,400 129 Automatic Data Processing, Inc. 9,100 404 BMC Software, Inc. (a) 3,500 65 Citrix Systems, Inc. (a) 2,500 61 Computer Associates International, Inc. 9,012 280 Compuware Corp. (a) 5,900 38 Electronic Arts, Inc. (a) 4,600 284 First Data Corp. 12,758 543 Fiserv, Inc. (a) 3,000 121 IMS Health, Inc. 3,700 86 Intuit, Inc. (a) 2,900 128 Mercury Interactive Corp. (a) 1,400 64 Microsoft Corp. 167,300 4,469 Novell, Inc. (a) 5,800 39 Oracle Corp. (a) 79,572 1,092 Parametric Technology Corp. (a) 4,100 24 Siebel Systems, Inc. (a) 7,700 81 Veritas Software Corp. (a) 6,600 188 -------- 8,328 -------- TELECOMMUNICATIONS - 5.7% ADC Telecommunications, Inc. (a) 12,500 34 Alltel Corp. 4,800 282 Andrew Corp. (a) 2,493 34 AT&T Corp. 12,285 234 Avaya, Inc. (a) 6,928 119 BellSouth Corp. 28,300 786 CenturyTel, Inc. 2,050 73 CIENA Corp. (a) 7,300 24 Cisco Systems, Inc. (a) 101,100 1,951 Citizens Communications Co. 5,100 70 Comverse Technology, Inc. (a) 3,000 73 Corning, Inc. (a) 21,400 252 JDS Uniphase Corp. (a) 22,200 70 Lucent Technologies, Inc. (a) 65,936 248 Motorola, Inc. 36,191 622 Nextel Communications, Inc., Class A (a) 17,000 510 Qualcomm, Inc. 25,000 1,060
The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500(R) Index Fund Investments in Securities 13 December 31, 2004 (Continued)
Number of Value Shares (000) - -------------------------------------------------------------------------------- TELECOMMUNICATIONS (continued) Qwest Communications International (a) 27,301 $ 121 SBC Communications, Inc. 50,994 1,314 Scientific-Atlanta, Inc. 2,400 79 Sprint Corp. (FON Group) 22,400 557 Tellabs, Inc. (a) 6,400 55 Verizon Communications, Inc. 42,726 1,731 -------- 10,299 -------- TRANSPORTATION - 1.7% Burlington Northern Santa Fe Corp. 5,767 273 CSX Corp. 3,300 132 Delta Air Lines, Inc. (a) 1,900 14 FedEx Corp. 4,600 453 Norfolk Southern Corp. 6,100 221 Ryder System, Inc. 1,000 48 Southwest Airlines Co. 12,187 198 Union Pacific Corp. 4,000 269 United Parcel Service, Inc., Class B 17,300 1,478 -------- 3,086 -------- UTILITIES - 2.8% AES (The) Corp. (a) 9,600 131 Allegheny Energy, Inc. (a) 2,000 39 Ameren Corp. 3,000 150 American Electric Power Co., Inc. 6,100 209 Calpine Corp. (a) 6,400 25 Centerpoint Energy, Inc. 4,707 53 Cinergy Corp. 2,720 113 CMS Energy Corp. (a) 2,500 26 Consolidated Edison, Inc. 3,700 162 Constellation Energy Group, Inc. 2,600 114 Dominion Resources, Inc. 5,099 345 DTE Energy Co. 2,600 112 Duke Energy Corp. 14,424 365 Edison International 5,000 160 Entergy Corp. 3,600 243 Exelon Corp. 10,250 452 FirstEnergy Corp. 5,100 202 FPL Group, Inc. 2,900 217 Number of Value Shares (000) - -------------------------------------------------------------------------------- UTILITIES (continued) KeySpan Corp. 2,500 $ 99 Nicor, Inc. 700 26 NiSource, Inc. 4,100 93 Peoples Energy Corp. 600 26 PG&E Corp. (a) 6,200 206 Pinnacle West Capital Corp. 1,400 62 PPL Corp. 2,900 155 Progress Energy, Inc. 3,800 172 Public Service Enterprise Group 3,700 192 Sempra Energy 3,554 130 Southern (The) Co. 11,300 379 TECO Energy, Inc. 2,900 44 TXU Corp. 3,900 252 Xcel Energy, Inc. 6,220 113 --------- 5,067 --------- Total Common Stocks (Cost - $164,623) 173,746 --------- SHORT-TERM OBLIGATIONS - 2.4% Money Market Fund - 2.0% TimesSquare VP Money Market Fund (c) 3,565,222 3,565 -------- Principal (000) ---------- U.S. Government - 0.4% U.S. Treasury Bills, 1.92%, 3/31/05 (d) $800 796 -------- Total Short-Term Obligations (Cost - $4,361) 4,361 -------- TOTAL INVESTMENTS IN SECURITIES - 98.5% (Total Cost - $168,984) (e) 178,107 Cash and Other Assets Less Liabilities - 1.5% 2,797 -------- NET ASSETS - 100.0% $180,904 ========
The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500(R) Index Fund Investments in Securities 14 December 31, 2004 (Continued) - -------------------------------------------------------------------------------- NOTES TO INVESTMENTS IN SECURITIES (a) Non-income producing securities. (b) CIGNA Investment Advisors, Inc., the fund's administrator, is a wholly owned subsidiary of CIGNA Corp. (c) This fund is a separate series of the CIGNA Variable Products Group. (d) This security, or a portion thereof, was pledged as collateral for Stock Index Futures Contracts. At Deceember 31, 2004, the Fund was long 16 S&P 500(R) Futures Contracts expiring in March 2005. Unrealized gains amounted to $76,275. Underlying face value was $4,778,525 and underlying market value was $4,854,800. Tax Information (e) At December 31, 2004, the net unrealized appreciation of investments, based on cost for federal income tax purposes of $169,778,332, was as follows: Aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost $ 35,655,996 Aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value (27,327,050) ------------ Unrealized appreciation - net $ 8,328,946 ============
(f) As of December 31, 2004, the components of distributable earnings (excluding unrealized appreciation/(depreciation) disclosed above) on a tax basis consisted of the following: Undistributed ordinary income $ -0- Undistributed capital gains $ -0-
- ----------------------------------------------------------------- Market % of Value Net Ten Largest Positions (Unaudited) (000) Assets - ------------------------------------------------------------------ General Electric Co. $ 5,931 3.3% Exxon Mobil Corp. 5,076 2.8 Microsoft Corp. 4,469 2.5 Citigroup, Inc. 3,839 2.1 Wal-Mart Stores, Inc. 3,449 1.9 Pfizer, Inc. 3,109 1.7 Bank of America Corp. 2,915 1.6 Johnson & Johnson 2,897 1.6 American International Group 2,632 1.5 International Business Machine Corp. 2,524 1.4 Aerospace/Defense $ 3,055 1.7% Agriculture 2,690 1.5 Auto Manufacturers & Parts 1,414 0.8 Biotechnology 2,047 1.1 Chemicals 2,834 1.6 Commercial Services 1,572 0.9 Communications 2,609 1.4 Computers 7,461 4.1 Consumer Products & Services 4,838 2.7 Electrical Components & Equipment 623 0.3 Electronics 889 0.5 Financial 26,854 14.8 Food & Beverages 6,898 3.8 Forest Products & Paper 1,019 0.6 Healthcare Products & Services 8,840 4.9 Home Builders & Furnishings 408 0.2 Industrial 12,580 7.0 Insurance 7,919 4.4 Iron/Steel & Mining 1,211 0.7 Leisure & Entertainment 1,310 0.7 Lodging 665 0.4 Media 6,603 3.7 Office/Business Equipment 415 0.2 Oil & Gas 12,393 6.9 Packaging & Containers 260 0.1 Pharmaceuticals 10,370 5.7 Real Estate Investment Trusts 830 0.5 Retail 13,040 7.2 Semiconductors 5,319 2.9 Software 8,328 4.6 Telecommunications 10,299 5.7 Transportation 3,086 1.7 Utilities 5,067 2.8 -------- ---- 173,746 96.1% - -----------------------------------------------------------------
The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500(R) Index Fund 15 Statement of Assets and Liabilities December 31, 2004 (In Thousands)
Assets: Investments in securities at value $ 178,107 Receivable for fund shares sold 2,727 Interest and dividends receivable 225 Investment for Trustees' deferred compensation plan 81 Prepaid insurance 5 --------- Total assets 181,145 --------- Liabilities: Deferred Trustees' fees payable 81 Custodian fees payable 52 Audit and legal fees payable 34 Payable for Fund shares redeemed 20 Shareholder reports payable 20 Administrative services fees payable 19 Advisory fees payable 7 Futures variation margin payable 4 Other accrued expenses 4 --------- Total liabilities 241 --------- Net Assets $ 180,904 ========= Components of Net Assets: Paid in capital $ 172,627 Undistributed net investment income 9 Overdistributed net realized gain (931) Net unrealized appreciation of investments and futures 9,199 --------- Net Assets $ 180,904 ========= Shares Outstanding 11,817 ========= Net Asset Value and Redemption Price per Share $ 15.31 ========= Cost of Investments $ 168,984 =========
Statement of Operations For the Year Ended December 31, 2004 (In Thousands)
Investment Income: Income: Dividends $ 3,618 Interest 31 ------- 3,649 Expenses: Investment advisory fees $ 363 Custodian fees and expenses 152 Administrative services fees 90 Auditing and legal fees 44 Shareholder reports 26 Trustees' fees 7 Transfer agent fees 6 Other 5 ---- Total expenses 693 Less expenses waived by Adviser (211) ---- Net expenses 482 ---- Net Investment Income 3,167 ------- Realized and Unrealized Gain on Investments: Net realized gain from: Futures contracts 2,144 Investments 17,709 ------- 19,853 ------- Net change in unrealized depreciation of: Futures contracts (468) Investments (3,019) ------- (3,487) ------- Net Realized and Unrealized Gain on Investments 16,366 ------- Net Increase in Net Assets Resulting from Operations $19,533 =======
The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500(R) Index Fund 16 Statements of Changes in Net Assets (In Thousands)
For the Year Ended December 31, ------------------------------- 2004 2003 ------------------------------- Operations: Net investment income $ 3,167 $ 2,898 Net realized gain on investments 19,853 5,298 Net unrealized appreciation (depreciation) on investments (3,487) 43,080 -------- -------- Net increase in net assets from operations 19,533 51,276 -------- -------- Dividends and Distributions: From net investment income (3,205) (4,276) From net realized gain (19,241) (2,574) From return of capital (240) -- -------- -------- Total dividends and distributions (22,686) (6,850) -------- -------- Capital Share Transactions: Net proceeds from shares sold 8,862 66,928 Net asset value of shares issued to shareholders in reinvestment of dividends and distributions 22,686 6,850 -------- -------- 31,548 73,778 Cost of shares redeemed (81,580) (71,408) -------- -------- Net increase (decrease) in net assets from Fund share transactions (50,032) 2,370 -------- -------- Net Increase (Decrease) in Net Assets (53,185) 46,796 Net Assets: Beginning of period 234,089 187,293 -------- -------- End of period* $180,904 $234,089 ======== ======== * includes undistributed net investment income of: $ 9 $ 871 ======== ======== For the Year Ended December 31, ------------------------------- 2004 2003 ------------------------------- Transactions in Capital Stock: Shares sold 556 4,884 Shares issued in reinvestment of dividends and distributions 1,480 439 -------- -------- 2,036 5,323 Shares redeemed (5,005) (5,261) -------- -------- Net increase (decrease) in shares outstanding (2,969) 62 ======== ========
The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500(R) Index Fund 17 Financial Highlights
For the Year Ended December 31, ----------------------------------------------------------------- 2004 2003 2002 2001 2000 -------- -------- -------- -------- -------- Per Share Operating Performance: Net asset value, beginning of period $ 15.83 $ 12.72 $ 17.31 $ 19.95 $ 22.83 -------- -------- -------- -------- -------- Income from investment operations: Net investment income (a) 0.32 0.21 0.23 0.23 0.35 Net realized and unrealized gain (loss) 1.36 3.38 (4.13) (2.66) (2.49) -------- -------- -------- -------- -------- Total from investment operations 1.68 3.59 (3.90) (2.43) (2.14) -------- -------- -------- -------- -------- Less dividends and distributions: From net investment income (0.31) (0.30) (0.22) (0.21) (0.44) From capital gains (1.87) (0.18) (0.47) -- (0.30) From return of capital (0.02) -- -- -- -- -------- -------- -------- -------- -------- Total dividends and distributions (2.20) (0.48) (0.69) (0.21) (0.74) -------- -------- -------- -------- -------- Net asset value, end of period $ 15.31 $ 15.83 $ 12.72 $ 17.31 $ 19.95 ======== ======== ======== ======== ======== Total Return (b) 10.63% 28.27% (22.51)% (12.18)% (9.37)% Ratios to Average Net Assets: Gross expenses 0.36% 0.37% 0.37% 0.35% 0.36% Fees and expenses waived or borne by the Adviser 0.11% 0.12% 0.12% 0.10% 0.11% Net expenses 0.25% 0.25% 0.25% 0.25% 0.25% Net investment income 1.64% 1.42% 1.32% 1.38% 1.64% Portfolio Turnover 3% 2% 7% 2% 4% Net assets, End of Period (000 omitted) $180,904 $234,089 $187,293 $302,802 $292,739
(a) Net investment income per share has been calculated in accordance with SEC requirements, with the exception that end of the year accumulated undistributed/(overdistributed) net investment income has not been adjusted to reflect current year permanent differences between financial and tax accounting. (b) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced. The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500(R) Index Fund Notes to Financial Statements 18 1. Utilization of Indexation Approach. TimesSquare VP S&P 500(R) Index Fund (the "Fund") seeks to achieve its long-term growth objective by attempting to replicate the total return performance, reduced by Fund expenses, of the Standard & Poor's 500(R) Composite Stock Price Index. 2. Significant Accounting Policies. The Fund is a separate series of CIGNA Variable Products Group, a Massachusetts business trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. A. Security Valuation -- Equity securities, including warrants, that are listed on a national securities exchange or are part of the NASDAQ National Market System are valued at the last sale price or, if there has been no sale that day, at the last bid price. Debt and other equity securities traded in the over-the-counter market, including listed securities whose primary markets are believed to be over-the-counter, are valued at the most recent bid price. Short-term investments with remaining maturities of up to and including 60 days are valued at amortized cost, which approximates market. Short-term investments that mature in more than 60 days are valued at current market quotations. Other securities and assets of the Fund are appraised at fair value, as determined in good faith by, or under the authority of, the Trust's Board of Trustees. The Fund's Board of Trustees has designated the Pricing Committee of CIGNA Investment Advisor's, Inc. (formerly, TimesSquare Capital Management, Inc.) to make, pursuant to procedures approved by the Board and under the Board's supervision, all necessary determinations of fair value for the portfolio securities for which market quotations are not readily available. When fair valuing securities, the Pricing Committee takes into account factors such as fundamental and analytical information about the security, the nature and duration of any restrictions on disposition of the security, market information (including, for example, factors such as historical price relationships and valuations for securities with similar characteristics), and evaluation of significant market events. If events occurring after the close of the principal market in which securities are traded (but before the close of regular trading on the NYSE) are believed to materially affect the value of those securities, such securities are valued at their fair value, taking such events into account. B. Futures Contracts -- The Fund is authorized to enter into S&P 500(R) futures contracts. The Fund may use futures contracts with the objective of earning returns on its short-term investments equivalent to returns on the S&P 500(R) Composite Stock Index. As a result, the purchase of futures contracts simulates a fully invested position in the underlying index, while maintaining liquidity. Upon entering into a futures contract, the Fund is required to pledge to the broker an amount of cash and/or securities equal to the initial margin requirements. During the period a futures contract is open, changes in the value of a contract are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Daily variation margin payments are received or made, depending on whether there were unrealized gains - -------------------------------------------------------------------------------- TimesSquare VP S&P 500(R) Index Fund Notes to Financial Statements 19 (Continued) or losses. When a contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Futures contracts include the risk that a change in the value of the contract may not correlate with the value of the underlying securities and the possibility of an illiquid market. C. Security Transactions and Related Investment Income -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Dividend income is recorded on the ex-dividend date, and interest income is recorded on the accrual basis. Securities gains and losses are determined on the basis of identified cost. D. Federal Taxes -- It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no federal income or excise taxes on realized income or net capital gains have been accrued. The tax character of distributions paid to shareholders during 2004 was $3,773,674 of Ordinary Income Dividends, $18,672,389 of Long-term Capital Gains, and $240,280 of Return of Capital. E. Dividends and Distributions to Shareholders -- Dividends from net investment income and distributions from net capital gains, to the extent such gains would otherwise be taxable to the Fund, are declared and distributed at least annually. Dividends and distributions are recorded by the Fund on the ex-dividend date. The timing and characterization of certain income and capital gains distributions are determined in accordance with federal tax regulations, which may differ from generally accepted accounting principles. These differences are primarily due to differing book and tax treatment for wash sales, real estate investment trusts income and deferred compensation. To the extent that such differences are permanent, a reclassification to Components of Net Assets may be required. As a result, at December 31, 2004, the Fund decreased its undistributed net investment income by $823,736, decreased accumulated net realized gain by $1,415,665 and increased paid in capital by $2,239,401. 3. Investment Advisory Fees and Other Transactions with Affiliates. Through September 30, 2004, investment advisory fees, in the amount of $108,560 (net of waivers), were paid or accrued to CIGNA Investment Advisors, Inc. ("CIAI") (formerly, TimesSquare Capital Management, Inc.), certain officers and directors of which were affiliated with the Fund. Such advisory fees were based on an annual rate of 0.25% of the Fund's average daily net assets. Though the Advisory Services Agreement with CIAI was terminated, the Expense Limitation Agreement remains in full force and CIAI agrees to reimburse the Fund for any amount by which its expenses (including the advisory fee, but excluding interest, taxes, transaction costs incurred in acquiring and disposing of portfolio securities, and extraordinary expenses) exceed, on an annual basis, 0.25% of average daily net assets. Effective October 1, 2004, the Board of Trustees approved an interim investment advisory agreement with Merrill Lynch Investment Managers, L.P. ("MLIM(R)"), pursuant to which MLIM(R) serves as investment adviser to the Fund. Advisory fees, in the amount of $43,748 (net of waivers), paid or accrued to MLIM(R) are based on an annual rate of 0.10% of the Fund's average daily net assets. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund may invest its excess cash in the affiliated TimesSquare VP Money Market Fund ("TSVPMM") - -------------------------------------------------------------------------------- TimesSquare VP S&P 500(R) Index Fund Notes to Financial Statements 20 (Continued) managed by CIAI. CIAI has contractually agreed to waive the amount of its advisory fee for the Fund in an amount that offsets the amount of the advisory fees incurred in the affiliated Fund. For the year ended December 31, 2004, CIAI waived $53,327 of its advisory fees payable by the Fund. Income distributions from TSVPMM, which amounted to $119,718 for the year ended December 31, 2004, are recorded as dividend income in the Statement of Operations. For administrative services, the Fund reimbursed CIAI a portion of the compensation and related expenses of the Fund's Treasurer and Secretary and certain persons who assist in carrying out the responsibilities of those offices. Effective October 1, 2004, CIAI continues to provide such administrative services to the Fund, for which it receives a fee at an annual rate of 0.05% of the Fund's average daily net assets. For the year ended December 31, 2004, the Fund paid or accrued $90,367. CIAI is an indirect, wholly-owned subsidiary of CIGNA Corporation. 4. Trustees' Fees. Trustees' fees represent remuneration paid or accrued to trustees who are not employees of CIGNA Corporation or any of its affiliates. Trustees may elect to defer receipt of all or a portion of their fees, which are invested in mutual fund shares in accordance with a deferred compensation plan. 5. Purchases and Sales of Securities. Purchases and sales of securities, excluding short-term obligations, for the year ended December 31, 2004, were $0 and $516,279 respectively, for U.S. Government and Agency Obligations and $4,889,176 and $49,169,011 respectively, for all other securities. 6. Capital Stock. The Fund offers an unlimited number of shares of beneficial interest without par value. All of the shares outstanding at December 31, 2004, were held by Connecticut General Life Insurance Company ("CG Life") relating to variable annuity and variable universal life insurance contracts issued by CG Life. CG Life is an indirect, wholly-owned subsidiary of CIGNA Corporation. 7. Proposed Merger of the Fund. The Board of Trustees of the Fund expects to approve a reorganization pursuant to which the Fund would transfer substantially all of its assets and liabilities to the Dreyfus Stock Index Fund, Inc. ("Dreyfus Fund") in exchange for Initial Class shares of the Dreyfus Fund having a net asset value equal to the net asset value of the assets and liabilities so transferred. The Dreyfus Fund shares would then be distributed pro rata to shareholders of the Fund. The Dreyfus Fund has the same investment strategy as the Fund -- it seeks to match the total return of the S&P 500(R) by investing in all 500 stocks in the index. The Fund expects to hold a special meeting of shareholders in April 2005 to seek shareholder approval of the merger. The CVPG Board of Trustees also expects to approve Mellon Equity Associates, LLP (an affiliate of Dreyfus) to serve as interim manager of the Fund in February 2005. Mellon Equity Associates would manage the Fund until it merges with the Dreyfus Fund. There will be no change to the investment objective of the Fund as a result of the appointment of Mellon Equity Associates as adviser to the Fund. In addition, CIGNA Advisors will, during the term of the interim advisory agreement, continue to waive fees and reimburse expenses if total Fund operating expenses (excluding extraordinary items) exceed 0.25% per annum of the Fund's average net assets. During the term of the new interim advisory agreement, CIGNA Advisors will continue to provide administrative services to the S&P 500(R) Index Fund. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500(R) Index Fund 21 Report of Independent Registered Public Accounting Firm To the Trustees and Shareholders of TimesSquare VP S&P 500(R) Index Fund In our opinion, the accompanying statement of assets and liabilities, including the investments in securities, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of TimesSquare VP S&P 500(R) Index Fund ("Fund") at December 31, 2004, and the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Boston, Massachusetts February 16, 2005 - -------------------------------------------------------------------------------- TimesSquare VP S&P 500(R) Index Fund 22 (Unaudited) Trustees and Officers Shareholders elect a Board that oversees the Fund's operations. The Board appoints officers who are responsible for day-to-day business decisions based on policies set by the Board. The following is a list of the Fund's Board of Trustees and officers. Each Trustee's term of office will be until the next annual meeting of shareholders or until the election of the Trustee's successor.
Number of Name, Position Length Portfolios in Other Address* Held with of Time Principal Occupation(s) During Fund Complex Directorships and Age Fund Served Past 5 Years Overseen Held by Trustee - ---------------------------------------------------------------------------------------------------------------------------------- Independent Trustees Russell H. Trustee Trustee since Senior Vice President (Investor 7 -- Jones 1995 Relations, Public Relations), Chief 60 Investment Officer and Treasurer, Kaman Corporation (helicopters and aircraft components, industrial distribution) Paul J. Trustee Trustee since Special Advisor to the Board of 7 Western McDonald 1995 Directors, Friendly Ice Cream Massachusetts 61 Corporation (family restaurants Electric Company and dairy products) Marnie Trustee Trustee since Diocesan Consultant, Episcopal 7 Boston Mutual Life Wagstaff 2001 Diocese of Connecticut; Insurance Company Mueller Previously, Visiting Professor of 65 Health Economics, Wesleyan University Carol Ann Trustee Trustee since Director and Chair of Audit 7 Reed & Barton Hayes 2003 Committee, Reed and Barton Corporation 60 Corporation Affiliated Trustees and Fund Officers Richard H. Trustee, Trustee, Chief Investment Officer, CIGNA 7 Director of various Forde Chairman of Chairman and Investment Management subsidiaries of 51 the Board and President since CIGNA Corporation President 1998 Alfred A. Vice President Officer CIGNA Funds Treasurer; 7 -- Bingham III and Treasurer Since 1982 Assistant Vice President, CIGNA 60 Investment Management Jeffrey S. Vice President Officer Senior Counsel, 7 -- Winer and Secretary Since 1993 CIGNA Corporation 47
- -------------------------------------------------------------------------------- * All Trustees and officers have an address c/o CIGNA Investment Advisors, Inc. (formerly, TimesSquare Capital Management, Inc.), 280 Trumbull Street, H16C, Hartford, CT 06103. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500(R) Index Fund (Continued) 23 (Unaudited) - -------------------------------------------------------------------------------- "Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and "500" are trademarks of the Standard & Poor's Corporation (S&P) and have been licensed for use by CG Life. The TimesSquare VP S&P 500(R) Index Fund is not sponsored, endorsed, sold or promoted by S&P, and S&P makes no representation regarding the advisability of investing in the Fund. TimesSquare VP S&P 500(R) Index Fund is an open-end, diversified management investment company that seeks to achieve its long-term growth objective by attempting to replicate the total return performance, reduced by Fund expenses, of the Standard & Poor's 500(R) Composite Stock Price Index. The investment adviser is Merrill Lynch Investment Managers L.P., 800 Scudders Mill Road, Plainsboro, N.J. 08536. - -------------------------------------------------------------------------------- CIGNA Variable Products S&P 500(R) Index Fund was organized by Connecticut General Life Insurance Company in 1968. The name of the fund was changed in May 2002 from CIGNA Variable Products S&P 500(R) Index Fund to TimesSquare VP S&P 500(R) Index Fund. [CIGNA LOGO] Printed in U.S.A. 501370 12/04 Item 2. Code of Ethics. The Registrant has adopted a Code of Ethics that applies to its principal executive officer and principal financial officer. The Registrant undertakes to provide to any person without charge, upon request, a copy of the Code of Ethics. Such request can be made to the Secretary of the Registrant, c/o CIGNA Investment Advisors, Inc., 280 Trumbull Street, H16C, Hartford, CT 06103. Item 3. Audit Committee Financial Expert. The Registrant's Board of Trustees has determined that Carol Ann Hayes, Russell H. Jones and Paul J. McDonald are "audit committee financial experts", all of whom are "independent." Mr. Jones serves as Senior Vice President, Chief Investment Officer and Treasurer of Kaman Corporation. His responsibilities include communications with financial analysts concerning Kaman Corporation. Item 4. Principal Accountant Fees and Services. (a) Audit Fees For the audit of the Registrant's annual financial statements for the fiscal year ended December 31, 2003 and December 31, 2004, included in the Registrant's annual report to shareholders for those fiscal years, PricewaterhouseCoopers LLP ("PWC") billed the Registrant $59,900 and $96,850 respectively. (b) Audit-Related Fees For the fiscal years ended December 31, 2003 and December 31, 2004, PWC did not bill the Registrant any amounts for assurance or related services related to the audit of the Registrant's financial statements. (c) Tax Fees For the fiscal years ended December 31, 2003 and December 31, 2004, PWC billed the Registrant $14,675 and $16,000, respectively, for reviewing the Registrant's federal income tax and excise tax returns and reviewing excise distribution estimate calculations. (d) All Other Fees For the fiscal years ended December 31, 2003 and December 31, 2004, PWC did not bill the Registrant for any other products and services. (e)(1) The Audit Committee has not developed pre-approval policies and procedures relating to the provision of services to the Registrant by the Registrant's independent accountant. (e)(2) For the fiscal years ended December 31, 2003 and December 31, 2004, 100% of the PWC fees described above under the captions "Audit Related Fees", "Tax Fees" and "All Other Fees" were approved by the Registrant's Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2.01 of Regulation S-X. For the fiscal years ended December 31, 2003 and December 31, 2004, PWC did not bill any fees that were required to be approved by the Registrant's Audit Committee pursuant to paragraph (c)(7)(ii)(C) of Rule 2.01 of Regulation S-X. (f) Not applicable. (g) The aggregate non-audit fees billed by PWC for services rendered to CIGNA Investment Advisors, Inc. ("CIGNA Advisors"), Pacific Investment Management Company LLC ("PIMCO") and Merrill Lynch Investment Managers, L.P. ("MLIM"), the investment advisers to the Registrant, and other entities controlling, controlled by, under common control with CIGNA Advisors, PIMCO or MLIM that provide ongoing services to the Registrant for fiscal years ending December 31, 2003 and 2004, were $100,148 and $6,220,368, respectively. (h) In considering PWC's independence, the Audit Committee considered whether the provision of non-audit services rendered by PWC to CIGNA Advisors and other entities controlling, controlled by, under common control with CIGNA Advisors that provide ongoing services to the Registrant that were not pre-approved pursuant to paragraph (c)(7)(ii)(C) of Rule 2.01 of Regulation S-X was compatible with maintaining PWC's independence. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. Schedule of Investments. See reports to shareholders filed under Item 1 of this Form. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not applicable Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not Applicable. Item 10. Submission of Matters to a Vote of Security Holders. The Registrant has adopted a nominating committee charter that sets forth procedures by which shareholders may recommend nominees to the Registrant's Board of Trustees. The charter is attached as an exhibit hereto. Item 11. Controls and Procedures. (a) The Registrant's principal executive and principal financial officer have concluded that the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). (b) There was no change in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) (17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting. Item 12. Exhibits. (a)(1) Code of ethics attached hereto. (a)(2) Separate certifications by the registrant's principal executive officer and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940. (b) A certification by the registrant's chief executive officer and chief financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Nominating Committee Charter. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) CIGNA Variable Products Group By: /s/ Alfred A. Bingham III ----------------------------------------- Alfred A. Bingham III, Vice President and Treasurer Date: March 8, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By (Signature and Title) /s/ Richard H. Forde --------------------------------------------------- Richard H. Forde, Chairman of the Board and President Date: March 8, 2005 By (Signature and Title) /s/ Alfred A. Bingham III ------------------------------------------------------- Alfred A. Bingham III, Vice President and Treasurer Date: March 8, 2005 EX-99.A1 2 ex99a1.txt CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR CIGNA FUNDS OFFICERS I. COVERED OFFICERS/PURPOSE OF THE CODE CIGNA Funds' code of ethics (this "Code") for the investment companies within the complex (collectively, "Funds" and each, "Fund") applies to the Funds' Principal Executive Officer, Principal Financial Officer and Principal Legal Officer (the "Covered Officers", each of whom are set forth in Exhibit A) for the purpose of promoting: - honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; - full, fair, accurate, timely and understandable disclosure in reports and documents that a Fund files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Fund; - compliance with applicable laws and governmental rules and regulations; - the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and - accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. II. COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS OF INTEREST Overview. A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his service to, the Fund. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of his position with the Fund. Certain conflicts of interest arise out of the relationships between Covered Officers and the Fund and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Fund because of their status as "affiliated persons" of the Fund. The Fund's and the investment adviser's compliance programs 1 and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the Funds and the investment adviser. The Covered Officers are officers or employees of an affiliate of the investment adviser. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the Funds or for the adviser, or for both), be involved in establishing policies and implementing decisions that will have different effects on the adviser and the Funds. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Funds and the adviser and is consistent with the performance by the Covered Officers of their duties as officers of the Funds. Other conflicts of interest are covered by this Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Fund. Each Covered Officer must: - not use his personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Company whereby the Covered Officer would benefit personally to the detriment of the Company; - not cause the Fund to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit the Company; - not use material non-public knowledge of portfolio transactions made or contemplated for the Company to trade personally or cause others to trade personally in contemplation of the market effect of such transactions; - report at least annually on affiliations or other relationships related to conflicts of interest that the Fund's Trustees and Officers Questionnaire covers. There are some conflict of interest situations that should always be approved by the Chief Counsel to the investment adviser to the Funds if material. Examples of these include: 2 - any ownership interest in, or any consulting or employment relationship with, any of the Company's service providers, other than its investment adviser, principal underwriter, administrator or any affiliated person thereof; - a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Company for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. There are some conflicts of interest (e.g. receipt of gifts and entertainment by Covered Officers, and service by Covered Officers as a director of a company) that are covered by the code of ethics of CIGNA Corporation, the adviser's parent. Each Covered Officer is subject to the CIGNA Corporation code of ethics. III. DISCLOSURE AND COMPLIANCE - Each Covered Officer should familiarize himself with the disclosure requirements generally applicable to the Funds; - each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about the Fund to others, whether within or outside the Fund, including to the Fund trustees and auditors, and to governmental regulators and self-regulatory organizations; - each Covered Officer should, to the extent appropriate within his area of responsibility, consult with other officers and employees of the Funds and the adviser with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and - it is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. IV. REPORTING AND ACCOUNTABILITY Each Covered Officer must: - upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Board that he has received, read, and understands the Code; 3 - annually thereafter affirm to the Board that he has complied with the requirements of the Code; - not retaliate against any other Covered Officer or any employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; and - notify Chief Counsel of the investment adviser to the Funds promptly if he knows any violation of this Code. Failure to do so is itself a violation of this Code. The Chief Counsel of the investment adviser or other designated senior legal officer of the Fund's investment adviser is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. However, any approvals or waivers sought by a Covered Officer will be considered by the Audit Committee (the "Committee"). The Funds will follow these procedures in investigating and enforcing this Code: - the Chief Counsel or other designated senior legal officer will take all appropriate action to investigate any potential violations reported to him; - if, after such investigation, the Chief Counsel believes that no violation has occurred, the Chief Counsel is not required to take any further action; - any matter that could reasonably be deemed to be a violation will be reported to the Committee; - if the Committee concurs that a violation has occurred, it will inform and make a recommendation to the Board, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer; - The Committee will be responsible for granting waivers, as appropriate; and - any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. V. OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to 4 registered investment companies thereunder. Insofar as other policies or procedures of CIGNA Corporation, the Funds, the Funds' adviser, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The Funds' and their investment adviser's codes of ethics under Rule 17j-1 under the Investment Company Act contain separate requirements applying to the Covered Officers and others, and are not part of this Code. VI. AMENDMENTS Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of the Board, including a majority of independent directors. VII. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Board and its counsel. The foregoing shall not limit the ability of the Board of Trustees of the Funds or the Committee to respond to matters arising under this Code as they shall deem appropriate. VIII. INTERNAL USE The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Fund, as to any fact, circumstance, or legal conclusion. Date: December 10, 2003 EXHIBIT A Persons covered by this Code of Ethics: Richard H. Forde - Chairman of the Board and President Alfred A. Bingham III - Vice President and Treasurer Jeffrey S. Winer - Vice President and Secretary EX-99.CERTA2 3 ex99_certa2.txt 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): 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: March 8, 2005 /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 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): 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: March 8, 2005 /s/ Alfred A. Bingham III ---------------------------------- Vice President and Treasurer EX-99.906CERT 4 ex906_cert.txt 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: March 8, 2005 /s/ Richard H. Forde - ------------------------------------ Richard H. Forde Chairman of the Board and President Dated: March 8, 2005 /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. EX-99 5 ex99.txt CIGNA FUNDS NOMINATING COMMITTEE CHARTER 1. The Nominating Committee (the "Committee") shall be composed entirely of those Trustees of CIGNA Funds Group, CIGNA Variable Products Group, CIGNA High Income Shares and CIGNA Investment Securities (the "Funds" and individually a "Fund") who are not "interested persons" of the Funds within the meaning of Section 2(a)(19) of the Investment Company Act of 1940, as amended (each an "Independent Trustee"). As long as shares of a Fund are listed on any national securities exchange or national securities association (generally, a "Listing Entity"), the composition of the Committee shall also meet such requirements as may be imposed from time to time by that Listing Entity. No member of the Committee shall receive any compensation from a Fund except compensation for service as a member of the Board of Trustees (the "Board") or a committee thereof. 2. The purpose of the Committee is to foster the effective development and maintenance of the membership and organization of the Board and its committees. 3. The Committee shall have the following duties and powers: (a) to nominate, for consideration by the shareholders or the Board in accordance with Section 16(a) of the Investment Company Act of 1940, as amended (the "1940 Act"), candidates to serve as Trustees of one or more Funds; (b) to supervise the nomination of Trustees of one or more Funds and establish and maintain policies regarding the selection of nominees for election to the Board, the current procedures being set forth in Appendix A; (c) to review periodically the size and composition of the Board and its governance procedures and to recommend any such changes to the full Board as the Committee shall deem appropriate; (d) to review periodically the compensation of Trustees paid by each Fund and to recommend to the Board such adjustments therein as the Committee shall deem appropriate; and (e) to review, as necessary, the responsibilities, size and composition of committees of the Board, to consider whether there is a continuing need for each committee, whether there is a need for additional committees of the Board, and whether committees should be combined or reorganized, and to make such recommendations to the full Board as the Committee shall deem appropriate. The Committee shall have such other duties and powers as it shall deem appropriate in order to represent the interests of each Fund and its respective shareholders in matters in which their interests are different from those of the Fund's investment adviser(s) and principal underwriter(s) and their affiliates. 4. The Committee shall meet at least annually at such times and locations as the Committee may determine and is empowered to hold special meetings as circumstances require. 5. The Committee shall have the resources and authority appropriate to discharge its responsibilities, including the authority to retain special counsel and other experts or consultants at the expense of one or more Funds. The Committee shall have the right of direct access to such officers of and service providers to the Funds as it deems desirable. 6. The Committee shall review this Charter at least annually and recommend any changes to the full Board. APPENDIX A POLICY REGARDING SELECTION OF TRUSTEE NOMINEES The Committee 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 applicable Fund who will forward all recommendations to the Committee. 2. All security holder recommendations for Trustee candidates must be submitted to the applicable Fund not less than one hundred twenty (120) calendar days prior to the date on which the Fund'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 Funds and counsel to the Funds. 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 Fund'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 Funds' 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. -----END PRIVACY-ENHANCED MESSAGE-----