UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES 811-05480 (Investment Company Act file number) CIGNA VARIABLE PRODUCTS GROUP ----------------------------- (Exact name of registrant as specified in charter) 2223 Washington Street 3 Newton Executive Park Suite 200 Newton, MA 02462 (Address of principal executive offices) Mark Butler, 2223 Washington Street, 3 Newton Executive Park Suite 200, Newton, MA 02462 (Name and address of agent for service) (860) 534-4700 -------------- Registrants' telephone number, including area code Date of fiscal year end: December 31, 2003 Date of reporting period: December 31, 2003 Item 1. Reports to Stockholders. [graphic of leaves] TIMESSQUARE VP CORE PLUS BOND FUND - ----------------------------------------------- Annual Report December 31, 2003 [Cigna logo] - -------------------------------------------------------------------------------- 1 Dear Shareholders: Our commentary for TimesSquare VP Core Plus Bond Fund (the "Fund") covering the year ended December 31, 2003 follows. Management's Discussion of Fund Performance Market Summary During the first six months of 2003, the total return on the S&P 500[RegTM] Index was 11.77%, compared with a total return of 3.93% for the Lehman Brothers Aggregate Bond Index (the "Index") and a 7.32% total return on investment-grade corporate bonds (Lehman Brothers U.S. Credit Index). The Fund returned 5.43% during this period. Within the global fixed income markets, emerging market debt (J.P. Morgan Emerging Market Bonds Plus Index) and high-yield corporate bonds (Lehman Brothers High Yield Bond Index) produced the best total returns by far for the first six months, with total returns from each market in excess of 18%. At the beginning of May, the Federal Reserve (Fed) and Chairman Greenspan announced that any necessary action would be taken to combat deflationary pressures. Bond holders took this as a sign that the Fed would keep short-term rates low. The 10-year Treasury yield plunged to an inter-generational low of 3.13% on June 13, the lowest level since June 1958, before recovering to end the second quarter at 3.53%. In the third quarter, fixed income markets notched their first quarterly decline since the fourth quarter of 1999, returning -0.15%, as represented by the Index. The Fund returned 0.56% for the same period. A combination of concerns about the impact of an economic recovery on interest rates, the lack of demand for relatively low-yielding Treasuries, and the strength of the equity markets resulted in a sharp rise in yields at the beginning of the quarter, before they drifted lower in August and September. In the fourth quarter, fixed income markets edged back into positive territory, posting a 0.32% total return for the Index, as spread narrowing offset a modest overall rise in bond yields. This compared with a 0.90% return for the Fund during the same period. For the full year, the Index returned 4.10% to lag the S&P 500 Index (+28.68%), the first time in three years. Performance Returns for the year ended December 31, 2003 (which do not reflect expenses associated with variable products through which the Fund may be offered and which would have been lower if such expenses were reflected), were: Fund 6.98% Lipper Corporate Debt Funds - "A" Rated Average 5.03 The Fund's performance throughout the year benefited from strong security selection in investment-grade corporate bonds and mortgage backed securities (MBS). In addition, our overweight allocation to investment-grade corporate bonds, where spreads tightened approximately 80 basis points for the year and our allocation decisions relative to high yield and MBS also contributed to the Fund's positive results. Outlook With economic fundamentals gradually improving and signs for a sustainable recovery encouraging, Treasury yields are likely to trend upward. We also expect the supply of Treasuries to increase substantially as we embark on an era of increased government cost vis-a-vis areas such as defense and security enforcement, corporate regulations, and immigration. Thus, we believe the credit quality of U.S. Government securities will be slightly diminished relative to corporate bonds. Improving corporate profitability and balance sheet repair, along with a better economic environment and investors' increasingly positive - -------------------------------------------------------------------------------- 2 appetite for risk, is the backdrop in the investment-grade credit market. Our current outlook calls for additional positive excess returns, but at a more moderate pace than the record set in 2003. Prudent industry and security selection will remain paramount. High yield continued its strong recovery during the year and the default rate has trended downward. We currently believe the relative value of this sector has diminished. High yield performance in 2004 will be more dependent on individual security selection. In the MBS sector, it appears the prepayment wave has crested, volatility is stabilizing, and the supply of government-sponsored entity securities is expected to be reduced. With short-term interest rates still very low, the positive carry of mortgages (borrowing at low-term rates to buy longer-term instruments with higher yields) is still appealing, especially to banks. Sincerely, /s/ Richard H. Forde Richard H. Forde Chairman of the Board and President CIGNA Variable Products Group - -------------------------------------------------------------------------------- 3 [the following information was represented as a line chart in the printed material.] GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (Unaudited) 5/3/99 - 12/31/03 - -------------------------------------------------------------------------------- AVERAGE ANNUAL RETURN 1 Year Life of Fund Inception Date Fund 6.98% 6.91% 5/3/99 Lehman Brothers 4.10% 6.84% Aggregate Bond Index - -------------------------------------------------------------------------------- Lehman Brothers Fund Aggregate Bond Index 05/03/1999 $10,000 $10,000 12/31/1999 $ 9,852 $ 9,797 12/31/2000 $10,772 $10,936 12/31/2001 $11,748 $11,860 12/31/2002 $12,765 $13,076 12/31/2003 $13,655 $13,613 TimesSquare VP Core Plus Bond 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 to 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 4 December 31, 2003 PRINCIPAL VALUE (000) (000) ------------ ----------- LONG-TERM BONDS - 89.5% BASIC MATERIALS - 0.4% International Paper Co., 5.50%, 2014 $ 305 $ 306 Stora Enso Oyj, 7.38%, 2011 205 237 Weyerhaeuser Co., 5.25%, 2009 165 171 -------- 714 -------- COMMUNICATIONS & MEDIA - 10.4% AOL Time Warner, Inc., 6.75%, 2011 495 553 AT&T Corp., 7.30%, 2011 60 69 8.75% (coupon change based on rating), 2031 80 94 AT&T Wireless Services, Inc., 8.13%, 2012 275 323 British Sky Broadcasting PLC, 8.20%, 2009 490 583 British Telecommunications PLC, 8.88% (coupon change based on rating), 2030 175 229 Comcast Cable Communications, 8.38%, 2007 65 75 Comcast Corp., 5.85%, 2010 140 150 Deutsche Telekom International Finance BV, 8.50%, (coupon change based on rating), 2010 410 496 8.75%, (coupon change based on rating), 2030 370 473 France Telecom SA, 8.45%, (coupon change based on rating), 2006 90 101 9.00%, (coupon change based on rating), 2011 1,360 1,633 9.75%, (coupon change based on rating), 2031 135 179 Kyivstar GSM, 12.75%, 2005 (144A security acquired Nov. 2002 & Jan. 2003 for $279) (a) 275 303 Koninklijke KPN, NV, 8.00%, 2010 670 801 Liberty Media Corp., 3.50%, 2006 1,105 1,111 5.70%, 2013 80 81 News America Holdings, 7.75%, 2045 245 290 7.90%, 2095 185 211 8.25%, 2096 75 89 PTC International Finance II SA, 11.25%, 2009 600 660 Shaw Communications, Inc., 8.25%, 2010 320 362 7.20%, 2011 105 114 PRINCIPAL VALUE (000) (000) ------------ ----------- COMMUNICATIONS & MEDIA (continued) Sprint Capital Corp., 6.13%, 2008 $ 100 $ 107 8.38%, 2012 165 193 6.88%, 2028 425 415 8.75%, 2032 220 260 Tele Communications, Inc., 9.80%, 2012 890 1,161 7.88%, 2013 220 260 Telecom Italia Capital SA, 5.25%, 2013 (144A security acquired Oct. 2003 for $499) (a) 500 501 6.38%, 2033 (144A security acquired Oct. 2003 for $274) (a) 275 277 TELUS Corp., 7.50%, 2007 405 453 8.00%, 2011 990 1,158 Time Warner, Inc., 8.18%, 2007 640 741 9.13%, 2013 215 273 8.05%, 2016 590 700 TPSA Finance BV, 7.75%, 2008 (144A security acquired Aug. & Oct. 2002, Mar., June, July & Aug. 2003 for $591) (a) 560 594 Univision Communications, Inc., 7.85%, 2011 525 624 Verizon Florida, Inc., 6.13%, 2013 185 198 -------- 16,895 -------- CONSUMER & RETAIL - 2.9% Bunge Ltd. Finance Corp., 4.38%, 2008 (144A security acquired Dec. 2003 for $330) (a) 330 332 Campbell Soup Co., 5.88%, 2008 195 214 Heinz (H.J.) Co., 6.38%, 2028 70 74 Heinz (H.J.) Finance Co., 6.75%, 2032 130 145 Kellogg Co., 6.60%, 2011 810 908 Kraft Foods, Inc., 5.25%, 2007 140 149 5.63%, 2011 370 390 5.25%, 2013 455 459 Kroger Co., 7.50%, 2031 60 69 The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Investments in Securities 5 December 31, 2003 (Continued) PRINCIPAL VALUE (000) (000) ------------ ----------- CONSUMER & RETAIL (continued) Michaels Stores, Inc., 9.25%, 2009 $ 370 $ 408 Miller Brewing Co., 5.50%, 2013 (144A security acquired Aug. 2003 for $283) (a) 285 291 Safeway, Inc., 7.25%, 2031 55 60 Schuler Homes, Inc., 9.38%, 2009 470 529 Toll Corp., 8.25%, 2011 185 204 VFB LLC, 10.25%, 2009 (b) 2,044 463 -------- 4,695 -------- DIVERSIFIED - 0.6% General Electric Co., 5.00%, 2013 755 764 ITT Industries, Inc., 7.40%, 2025 235 269 -------- 1,033 -------- FINANCIAL - 11.5% American Express Credit, Ser. 1999-1A, 5.60%, 2006 1,200 1,215 BankBoston Corp., 8.25%, 2026 170 196 Bank of America Corp., 7.80%, 2010 100 119 Boeing Capital Corp., 6.10%, 2011 150 162 CIT Group, Inc., 6.50%, 2006 265 287 6.88%, 2009 125 140 Citigroup, Inc., 3.50%, 2008 1,510 1,516 7.25%, 2010 260 303 Countrywide Home Loans., 5.50%, 2007 110 118 Credit Suisse First Boston Mortgage Securities Corp., 4.63%, 2008 165 172 5.50%, 2013 100 103 Interest Only 7.50%, 2032 700 42 Interest Only 8.00%, 2032 1,200 75 Dresdner Funding Trust I, 8.15%, 2031 (144A (security acquired Apr., June & Sep. 2003 for $795) (a) 750 856 First Union Capital One, 7.94%, 2027 105 120 Ford Motor Credit Co., 6.88%, 2006 300 320 7.38%, 2009 700 769 7.38%, 2011 615 670 PRINCIPAL VALUE (000) (000) ------------ ----------- FINANCIAL (continued) General Motors Acceptance Corp., 6.88%, 2011 $ 1,060 $ 1,142 7.00%, 2012 145 156 Golden West Financial Corp., 4.13%, 2007 200 208 Goldman Sachs Group, Inc., 6.88%, 2011 580 659 Household Finance Corp., 4.13%, 2008 640 646 6.38%, 2012 250 274 HVB Funding Trust I, 8.74%, 2031 (144A security acquired May & June 2003 for $459) (a) 465 548 HVB Funding Trust III, 9.00%, 2031 (144A security acquired June 2003 for $191) (a) 185 223 International Lease Finance Corp., 6.38%, 2009 275 303 Korea Development Bank, 4.25%, 2007 160 163 Lehman Brothers Holdings, Inc., 6.63%, 2012 325 367 Manufacturers & Traders Trust, 8.00%, 2010 150 180 Midland Funding II, 13.25%, 2006 95 111 Mississippi Business Finance Corp., 7.81%, 2024 500 478 Morgan (J.P.) Chase & Co., 6.75%, 2011 50 56 Morgan (J.P.) Co., 6.00%, 2009 205 224 Morgan Stanley Group, Inc., 6.75%, 2011 405 458 National Rural Utilities Cooperative Finance Corp., 5.75%, 2009 120 130 NB Capital Trust IV, 8.25%, 2027 155 179 Old Kent Bank, Step Coupon (7.75% to 8/15/05), 2010 300 324 Prudential Funding LLC, 6.60%, 2008 (144A security acquired Aug. 2002 & Apr. 2003 for $204) (a) 190 212 Residential Asset Mortgage Products, Inc., Interest Only, 5.75%, 2005 (c) 1,467 62 Santander Central Hispano Issuance, 7.63%, 2010 225 267 Santander Financial Issuances, 6.80%, 2005 95 102 6.38%, 2011 100 111 Sanwa Finance Aruba AEC, 8.35%, 2009 295 346 Sovereign Bancorp., Inc., 10.50%, 2006 1,875 2,217 Standard Chartered Bank, 8.00%, 2031 (144A security acquired Aug. 2002, Jan. & Apr. 2003 for $239) (a) 215 260 The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Investments in Securities 6 December 31, 2003 (Continued) PRINCIPAL VALUE (000) (000) ------------ ------------ FINANCIAL (continued) Takefuji Corp., 9.20%, 2011 (144A security acquired Dec. 2003 for $134) (a) $ 120 $ 133 UFJ Finance Aruba AEC, 6.75%, 2013 420 448 Union Planters Corp., 6.75%, 2005 240 260 U.S. West Capital Funding, Inc., 6.50%, 2018 75 66 Wells Fargo & Co., 4.95%, 2013 225 225 -------- 18,721 -------- FOREIGN GOVERNMENT - 2.3% Argentina (Republic of), 11.38%, 2017 610 171 Brazil (Federal Republic of), 9.25%, 2010 120 129 Bulgaria (Republic of), Floating Rate, 1.94%, 2024 380 375 Quebec (Province of Canada), 5.50%, 2006 630 677 5.00%, 2009 680 719 7.50%, 2023 490 601 Russian Federation, Step Coupon (5.00% to 3/31/07), 2030 (144A security acquired Sep. & Oct. 2002, July & Oct. 2003 for $667) (a) 805 775 United Mexican States, 8.30%, 2031 340 383 -------- 3,830 -------- HEALTH CARE - 0.2% HCA, Inc., 5.25%, 2008 155 158 7.50%, 2033 85 89 Tenet Healthcare Corp., 7.38%, 2013 120 121 -------- 368 -------- INDUSTRIAL - 2.2% Arrow Electronics, Inc., 6.88%, 2013 95 101 Avnet, Inc., 9.75%, 2008 85 99 BAE Systems Holdings, 6.40%, 2011 (144A security acquired Dec. 2001, July & Nov. 2002 & Apr. 2003 for $904) (a) 890 957 Inco Limited, 5.70%, 2015 195 197 Lockheed Martin Corp., 8.20%, 2009 1,110 1,348 8.50%, 2029 255 334 PRINCIPAL VALUE (000) (000) ------------ ------------ INDUSTRIAL (continued) Noranda, Inc., 6.00%, 2015 $ 165 $ 168 Systems 2001 Asset Trust LLC, 7.16%, 2011 (144A security acquired Mar. 2002 for $291) (a) 283 309 -------- 3,513 -------- INSURANCE - 1.4% American Re Corp., 7.45%, 2026 545 607 AXA SA, 8.60%, 2030 195 246 Monumental Global Funding II, 3.85%, 2008 (144A security acquired Feb. & Apr. 2003 for $345) (a) 345 348 Travelers Property Casualty Corp., 5.00%, 2013 190 190 Zurich Capital Trust I, 8.38%, 2037 (144A security acquired Jan., June, & Oct. 2003 for $718) (a) 745 855 -------- 2,246 -------- OIL & GAS - 1.7% Amerada Hess Corp., 7.30%, 2031 355 367 Conoco Funding Co., 6.35%, 2011 830 931 Devon Financing Corp. ULC, 6.88%, 2011 230 261 Duke Capital Corp., 6.25%, 2013 80 84 Duke Energy Field Services LLC, 5.75%, 2006 60 64 6.88%, 2011 40 45 Occidental Petroleum Corp., 7.65%, 2006 420 460 6.75%, 2012 175 197 Petroleos Mexicanos, 9.50%, 2027 240 283 -------- 2,692 -------- PHARMACEUTICALS - 0.7% Lilly (Eli) & Co., 6.77%, 2036 555 633 Wyeth, 5.25%, 2013 80 81 5.50%, 2014 340 344 -------- 1,058 -------- TRANSPORTATION - 1.6% American Airlines, 7.38%, 2016 580 413 Burlington Northern Santa Fe, 6.75%, 2029 85 92 The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Investments in Securities 7 December 31, 2003 (Continued) PRINCIPAL VALUE (000) (000) ------------ ----------- TRANSPORTATION (continued) Continental Airlines, Inc., 6.90%, 2017 $ 723 $ 605 Federal Express Corp., 7.60%, 2097 165 185 Norfolk Southern Corp., 7.70%, 2017 115 139 7.90%, 2097 385 455 Union Pacific Corp., 6.13%, 2012 620 672 -------- 2,561 -------- U.S. GOVERNMENT & AGENCIES (g) - 50.9% Fannie Mae, 2.50%, 2008 6,755 6,527 4.38%, 2013 1,155 1,134 5.50%, 2017 1,945 2,017 7.00%, 2031 588 626 8.00%, 2031 237 256 6.50%, 2032 3,198 3,345 7.00%, 2032 4,247 4,520 5.50%, 2033 4,305 4,363 6.00%, 2033 1,175 1,215 6.50%, 2033 2,022 2,115 Interest Only 7.30%, 2042 (c) 10,577 269 Federal Home Loan Banks, 4.13%, 2005 1,375 1,414 Financing Corp., Principal Strips from 8.60%, 2019 830 342 9.70%, 2019 1,260 537 Freddie Mac, 2.75%, 2008 1,080 1,063 6.00%, 2017 949 996 4.50%, 2018 4,723 4,728 5.00%, 2018 5,283 5,389 6.00%, 2032 4,631 4,788 7.50%, 2032 1,075 1,154 5.00%, 2033 6,802 6,718 5.50%, 2033 5,493 5,562 Interest Only 9.75%, 2043 (c) 8,874 233 PRINCIPAL VALUE (000) (000) ------------ ----------- U.S. GOVERNMENT & AGENCIES (continued) Ginnie Mae, 6.50%, 2031 $ 596 $ 629 6.50%, 2032 524 552 5.50%, 2033 1,315 1,339 6.00%, 2033 1,345 1,399 U.S. Treasury Bonds, 8.75%, 2017 2,180 3,055 6.00%, 2026 5,225 5,794 U.S. Treasury Inflation Indexed Note, 3.00%, 2012 1,389 1,514 U.S. Treasury Notes, 7.88%, 2004 910 962 4.63%, 2006 3,635 3,853 4.38%, 2007 1,950 2,065 6.00%, 2009 600 680 5.00%, 2011 1,485 1,595 -------- 82,748 -------- UTILITIES - 2.7% American Electric Power, Inc., 5.38%, 2010 90 94 Carolina Power & Light Co., 6.50%, 2012 95 105 CenterPoint Energy, 5.70%, 2013 (144A security acquired Mar. & June 2003 for $228) (a) 225 235 7.88%, 2013 (144A security acquired June, July & Dec. 2003 for $283) (a) 245 277 Cleveland Electric Illuminating Co., 7.88%, 2017 200 234 Columbus Southern Power Co., 5.50%, 2013 75 78 Detroit Edison Co., 6.13%, 2010 270 296 6.35%, 2032 60 64 Dominion Resources Inc., 6.25%, 2012 100 108 DPL, Inc., 8.25%, 2007 270 294 First Energy Corp., 5.50%, 2006 50 52 6.45%, 2011 670 694 The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Investments in Securities 8 December 31, 2003 (Continued) PRINCIPAL VALUE (000) (000) ------------ ----------- UTILITIES (continued) Nisource Finance Corp., 7.88%, 2010 $ 425 $ 505 Ohio Power Co., 5.50%, 2013 45 46 Oncor Electric Delivery Co., 7.25%, 2033 260 296 Pinnacle Partners LP, 8.83%, 2004 (144A security (acquired Mar. 2002 for $200) (a) 200 207 Progress Energy, Inc., 7.10%, 2011 110 124 7.00%, 2031 205 219 Tenaska Alabama II Partners LP, 6.13%, 2023 (144A security acquired Oct. 2003 for $270) (a) 270 279 TXU Australia Holdings LP, 6.15%, 2013 (144A security acquired Dec. 2003 for $140) (a) 140 143 -------- 4,350 -------- TOTAL LONG-TERM BONDS (Cost - $141,226) 145,424 -------- NUMBER OF SHARES PREFERRED STOCK - 2.7% COMMUNICATIONS & MEDIA - 0.3% Centaur Funding Corp., 9.08% (144A security acquired Jan., Aug. & Nov. 2001 for $453) (a) 410 503 -------- FINANCIAL - 2.4% BCI US Funding Trust, Step Coupon (8.01% to 7/15/08) (144A security acquired Jan., Mar. & Apr. 2003 for $714) (a) 650 747 DBS Capital Funding Corp., Step Coupon (7.66% to 3/21/2011) (144A security acquired Oct. 2003 for $671) (a) 595 685 IBJ Preferred Capital Co. LLC, Step Coupon (8.79% to 6/30/08) (144A security acquired Jan., July, Aug., Oct. & Dec. 2003 for $1,365) (a) 1,375 1,499 NUMBER OF VALUE SHARES (000) ------------------ ----------- FINANCIAL (continued) Natexis AMBS Co. LLC., Step Coupon (8.44% to 6/30/08) (144A security acquired May 2002 for $228) (a) 210 $ 247 RBS Capital Trust I, Step Coupon (4.71% to 7/01/13) 735 703 --------- 3,881 --------- TOTAL PREFERRED STOCK (Cost - $4,159) 4,384 --------- SHORT-TERM OBLIGATIONS - 6.6% MONEY MARKET FUND - 6.4% TimesSquare VP Money Market Fund (d) 10,364,000 10,364 --------- PRINCIPAL (000) ---------- U.S. GOVERNMENT - 0.2% U.S. Treasury Bills, 0.99%, 3/4/04 (e) $ 100 100 0.97%, 4/1/04 (e) 200 200 --------- 300 --------- TOTAL SHORT-TERM OBLIGATIONS (Cost - $10,664) 10,664 --------- TOTAL INVESTMENTS IN SECURITIES - 98.8% (Total Cost - $156,049) (h) 160,472 Cash and Other Assets Less Liabilities - 1.2% 1,989 --------- NET ASSETS - 100.0% $ 162,461 ========= The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Investments in Securities 9 December 31, 2003 (Continued) - -------------------------------------------------------------------------------- NOTES TO INVESTMENTS IN SECURITIES (a) Indicates restricted security; the aggregate value of restricted securities is $12,596,084 (aggregate cost $11,752,933), which is approximately 7.8% of net assets. Valuations have been furnished by brokers trading in the securities or a pricing service for all restricted securities. These are liquid 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) TimesSquare Capital Management, Inc., the fund's Investment Adviser, is also the Adviser to the TimesSquare VP Money Market Fund. (e) Pledged as collateral for financial futures contracts. At December 31, 2003, the Fund was long 57, 2-year U.S. Treasury Notes and was short 22, 30-year U.S. Treasury Bonds and 124, 5-year and 46, 10-year U.S. Treasury Notes, futures contracts, all expiring in March 2004. Net unrealized gain amounted to $36,180. Underlying face values of the long and short positions were $12,170,391 and ($21,416,492), respectively, and underlying market values were $12,200,673 and ($21,410,594), respectively. (f) A summary of outstanding forward currency contracts, as of December 31, 2003, is as follows: Net Unrealized Settlement Forward Foreign Contract Appreciation Date Contract Currency Value (Depreciation) - ------------- ---------- ----------- ------------- --------------- Buys 3/12/04 Euro 2,070,000 $2,279,865 $ 323,099 Sells 3/12/04 Euro 2,070,000 $2,434,816 $(168,148) (g) Agency obligations are not guaranteed by the U.S. Government. Tax Information (h) At December 31, 2003, the net unrealized appreciation of investments, based on cost for federal income tax purposes of $156,719,068, was as follows: Aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost $4,496,681 Aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value (744,138) ---------- Unrealized appreciation-net $3,752,543 ========== - -------------------------------------------------------------------------------- (i) As of December 31, 2003, the components of distributable earnings (excluding unrealized appreciation/(depreciation) disclosed above) on a tax basis consisted of the following: Undistributed ordinary income $ 69,858 Capital loss carryforward Expiring 2010 $567,501 - ------------------------------------------------------ Quality Ratings* of Long-Term Bonds (Unaudited) 12/31/2003 Value % of (000) Value ----------- ---------- Aaa/AAA $ 84,906 58.4% Aa/AA 5,341 3.7 A/A 15,986 11.0 Baa/BBB 33,655 23.1 Ba/BB 3,991 2.7 B/B 845 0.6 Below B 237 0.2 Not Rated 463 0.3 --------- ----- $ 145,424 100.0% ========= ===== *The higher of Moody's or Standard & Poor's Ratings. - ------------------------------------------------------ The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund 10 Statement of Assets and Liabilities December 31, 2003 (In Thousands) Assets: Investments in securities at value $ 160,472 Cash 1 Receivable for fund shares sold 8,317 Interest and dividend receivable 1,575 Receivable for forward currency contracts 323 Swap contracts receivable 60 Investments for Trustees' deferred compensation plan 3 --------- Total assets 170,751 --------- Liabilities: Payable for investments purchased 6,381 Payable for fund shares repurchased 1,564 Payable for forward currency contracts 168 Custody fees payable 45 Advisory fees payable 44 Futures variation margin payable 25 Audit and legal fees payable 21 Insurance expenses payable 18 Administrative fees payable 15 Deferred Trustees' fees payable 3 Other 6 --------- Total liabilities 8,290 --------- Net Assets $ 162,461 ========= Components of Net Assets: Paid in capital $ 159,720 Overdistributed net investment income (599) Accumulated net realized loss (1,273) Net unrealized appreciation of investments, futures, forward contracts and swaps 4,613 --------- Net Assets $ 162,461 ========= Shares Outstanding 16,028 ========= Net Asset Value and Redemption Price per Share $ 10.14 ========= Cost of Investments $ 156,049 ========= Statement of Operations For the Year Ended December 31, 2003 (In Thousands) Investment Income: Income: Interest income $ 6,733 Dividends 168 ------- 6,901 Expenses: Investment advisory fees $ 732 Custodian fees 137 Administrative services fees 74 Audit and legal fees 33 Insurance expenses 19 Transfer agent fees 6 Trustees' fees 4 Shareholder reports 4 Other 1 ----- Total expenses 1,010 Less expenses waived by Adviser (228) ----- Net expenses $782 ----- Net Investment Income 6,119 ------- Realized and Unrealized Gain (Loss) on Investments: Net realized gain (loss) from: Forward currency contracts 91 Futures contracts (596) Swap contracts 1,037 Investments 3,320 -------- 3,852 -------- Net change in unrealized appreciation: Forward currency contracts 152 Futures contracts 141 Swap contracts (1) Investments 175 -------- 467 -------- Net Realized and Unrealized Gain on Investments 4,319 -------- Net Increase in Net Assets Resulting from Operations $10,438 ======== The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund 11 Statements of Changes in Net Assets (In Thousands) For the Year Ended December 31, ----------------------------- 2003 2002 ------------- ------------- Operations: Net investment income $ 6,119 $ 5,673 Net realized gain (loss) on investments 3,852 (412) Net unrealized appreciation on investments 467 5,418 --------- ---------- Net increase in net assets from operations 10,438 10,679 --------- ---------- Dividends and Distributions: From net investment income (9,988) (5,821) --------- ---------- Total dividends and distributions (9,988) (5,821) --------- ---------- Capital Share Transactions: Net proceeds from shares sold 63,896 108,118 Net asset value of shares issued to shareholders in reinvestment of dividends and distributions 9,988 5,821 --------- ---------- 73,884 113,939 Cost of shares redeemed (61,600) (120,160) --------- ---------- Net increase (decrease) from Fund share transactions 12,284 (6,221) --------- ---------- Net Increase (Decrease) in Net Assets 12,734 (1,363) Net Assets: Beginning of period 149,727 151,090 --------- ---------- End of period * $ 162,461 $ 149,727 ========= ========== * includes (overdistributed) & undistributed net investment income of: $ (599) $ 716 ========= ========== For the Year Ended December 31, ----------------------------- 2003 2002 ------------- ------------- Transactions in Capital Stock: Shares sold 6,103 10,641 Shares issued in reinvestment of dividends and distributions 988 575 --------- ---------- 7,091 11,216 Shares redeemed (5,838) (12,020) --------- ---------- Net increase (decrease) in shares outstanding 1,253 (804) ========= ========== The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund 12 Financial Highlights From May 3, For the Year Ended December 31, 1999* to ------------------------------------------------------- December 31, 2003 2002 2001(e) 2000 1999 ------------ ------------- ---------------- ----------- ------------------- Per Share Operating Performance: Net asset value, beginning of period $ 10.13 $ 9.70 $ 9.87 $ 9.53 $ 10.00 --------- -------- -------- ------- ---------- Income from investment operations Net investment income (a) 0.45 0.42 0.45 0.54 0.33 Net realized and unrealized gain (loss) 0.25 0.42 0.44 0.35 (0.48) --------- -------- -------- ------- ---------- Total from investment operations 0.70 0.84 0.89 0.89 (0.15) --------- -------- -------- ------- ---------- Less dividends and distributions: Dividends from net investment income (0.69) (0.41) (0.94) (0.55) (0.32) Distributions from net realized capital gains -- -- (0.04) -- -- Return of capital dividends -- -- (0.08) -- -- --------- --------- -------- -------- ---------- Total dividends and distributions (0.69) (0.41) (1.06) (0.55) (0.32) --------- --------- -------- -------- ---------- Net asset value, end of period $ 10.14 $ 10.13 $ 9.70 $ 9.87 $ 9.53 ========= ========= ======== ======== ========== Total Investment Return (b) 6.98% 8.66% 9.06% 9.34% (1.48)%(c) Ratios to Average Net Assets: Gross expenses 0.65% 0.62% 0.60% 0.70% 0.79%(d) Fees and expenses waived or borne by the Adviser 0.15% 0.12% 0.10% 0.20% 0.29%(d) Net expenses 0.50% 0.50% 0.50% 0.50% 0.50%(d) Net investment income 3.91% 4.24% 5.39%(e) 6.66% 6.09%(d) Portfolio Turnover 182% 518% 396% 320% 303%(c) Net assets, End of Period (000 omitted) $ 162,461 $ 149,727 $ 151,090 $ 84,014 $ 39,261 (a) Net investment income per share has been calculated in accordance with SEC requirements, with the exception that end of the year accumulated undistributed/(overdistributed) net investment income has not been adjusted to reflect current year permanent differences between financial and tax accounting. (b) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced. (c) Not annualized. (d) Annualized. (e) Effective January 1, 2001, the Fund was required to start amortizing premium and discount on all debt securities. The effect of this change on net investment income per share was a decrease of $0.02 per share. The effect to the ratio of net investment income to average net assets was a decrease of 0.19%. Per share, ratios, and supplemental data for periods prior to January 1, 2001, have not been restated to reflect this change in accounting principle. * Commencement of operations The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 13 1. Significant Accounting Policies. TimesSquare VP Core Plus Bond Fund (the "Fund") is a separate series of CIGNA Variable Products Group, a Massachusetts business trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The Fund seeks to provide the highest current income attainable, consistent with reasonable risk, as determined by the Fund's investment adviser, through investment in a professionally managed, diversified portfolio of fixed income securities. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. A. Security Valuation -- Debt securities traded in the over-the-counter market, including listed securities whose primary markets are believed to be over-the-counter, are valued on the basis of valuations furnished by brokers trading in the securities or a pricing service, which determines valuations for normal, institutional-size trading units of such securities using market information, transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. Short-term investments with remaining maturities of up to and including 60 days are valued at amortized cost, which approximates market. Short-term investments that mature in more than 60 days are valued at current market quotations. Other securities and assets of the Fund are appraised at fair value, as determined in good faith by, or under the authority of, the Fund's Board of Trustees. The Funds' Board of Trustees has designated the Pricing Committee of TimesSquare Capital Management, Inc. to make, pursuant to procedures approved by the Board and under the Board's supervision, all necessary determinations of fair value for the portfolio securities for which market quotations are not readily available. When fair valuing securities, the Pricing Committee takes into account factors such as fundamental and analytical information about the security, the nature and duration of any restrictions on disposition of the security, market information (including, for example, factors such as historical price relationships and valuations for securities with similar characteristics), and evaluation of significant market events. If events occurring after the close of the principal market in which securities are traded (but before the close of regular trading on the NYSE) are believed to materially affect the value of those securities, such securities are valued at their fair value, taking such events into account. B. Delayed Delivery Commitments -- The Fund may enter into commitment agreements -- i.e., TBA's -- for the purchase of securities at an agreed-upon price on a specified future date. Since the delivery and payment for such securities can be scheduled to take place up to three months after the transaction date, they are subject to market fluctuations. The Fund does not begin to earn interest on such purchase commitments until due settlement date. The Fund may sell a purchase commitment prior to settlement for the purpose of enhancing its total return. The Fund segregates assets with a market value equal to the amount of its purchase commitments. To the extent securities are segregated, they may not be available for new investments or to meet redemptions. Delayed delivery commitments may increase the Fund's exposure to market fluctuations and may increase the possibility that the Fund may realize a short-term gain (subject to taxation) or loss if the Fund must engage in portfolio transactions in order to honor its commitments. Due to the longer settlement period, there may be an increased risk of - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 14 (Continued) failure of the other party to honor the transaction. The Fund records changes in market value of the securities underlying unsettled commitments in unrealized gains and losses. Gains and losses are realized upon sale of the commitment. C. Foreign Currency Translations -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of investment securities, other assets and liabilities at the daily rates of exchange, and (ii) purchases and sales of investment securities, dividend and interest income and certain expenses at the rates of exchange prevailing on the respective dates of such transactions. The Fund does not isolate that portion of gains and losses on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices of the investments. Such fluctuations are included with the net realized and unrealized gains and losses from investments. Net realized and unrealized gains (losses) from foreign currency-related transactions include gains and losses between trade and settlement dates on securities transactions, gains and losses arising from the sales of foreign currency, and gains and losses between the ex-dividend and payment dates on dividends, interest, and foreign withholding taxes. D. Foreign Investments -- The Fund may invest in securities of foreign countries and governments, which involve certain risks in addition to those inherent in domestic investments. Such risks generally include, among others, currency risk (fluctuations in currency exchange rates), information risk (key information may be inaccurate or unavailable) and political risk (expropriation, nationalization or the imposition of capital or currency controls or punitive taxes). Other risks of investing in foreign securities include inadequate accounting controls, liquidity and valuation risks. E. Forward Currency Transactions -- The Fund is authorized to enter into forward exchange contracts for the purpose of hedging against foreign exchange risk arising from the Fund's investment or anticipated investment in securities denominated in foreign currencies. The Fund may also enter into these contracts for purposes of increasing exposure to a foreign currency or to shift exposure to foreign currency fluctuations from one country to another. All commitments are marked to market daily at the applicable translation rates and any resulting unrealized gains or losses are recorded. Realized gains or losses are recorded at the time the forward contract matures or by delivery of the currency. Due to market fluctuations, the Fund maintains, in a segregated account with its custodian, assets with a market value equal to the amount of its purchase commitments. Risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. F. Futures Contracts -- The Fund is authorized to enter into futures contracts. The Fund may use futures contracts for reasons such as managing its exposure to the markets or movements in interest rates and currency values. Upon entering into a futures contract, the Fund is required to pledge to the broker an amount of cash and/or securities equal to the initial margin requirements. During the period a futures contract is open, changes in the value of a contract are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Daily variation margin payments are received or made, 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 - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 15 (Continued) 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, 2003, the Fund had the following outstanding swap agreements: Spread Unrealized Notional (Basis Termination Appreciation/ Counterparty Index Amount Points) Date (Depreciation) - -------------- ------------------ ------------- --------- ------------- --------------- Lehman Lehman US High Brothers Yield Index $ 300,000 (40) 03/01/04 $ 204 Bear Stearns Bear Stearns High Yield Index $ 390,000 0 04/01/04 $ 0 Bear Stearns Bear Stearns High Yield Index $ 830,000 0 05/01/04 $ 0 Bear Stearns Bear Stearns High Yield Index $1,160,000 10 06/01/04 $ (487) The terms of the agreement require the Fund to pay LIBOR (which is set monthly) plus the spread and to receive the monthly total return on the Index, both based on the notional amount. The Fund records the net amount receivable/payable on a daily basis. The net receivable/payable is settled in cash monthly and recorded as realized gain/loss. I. Security Transactions and Related Investment Income -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Dividend income is recorded on the ex-dividend date and interest income, which includes amortization of premium and accrual of discount, is recorded on an accrual basis. Securities gains and losses are determined on the basis of identified cost. J. Federal Taxes -- It is the Fund's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and capital gains to its shareholders. Therefore, no federal income or excise taxes on realized income or net capital gains have been accrued. Distributions reported in the Statement of Changes in Net Assets from net investment income, including short-term gains, and capital gains are treated as ordinary income and long-term capital gains, respectively, for federal income tax purposes. - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 16 (Continued) At December 31, 2003 the Fund had a Post-October loss of $1,327 and a Post-October currency loss of $51,181. Under current tax law, capital losses realized after October 31 may be deferred and treated as occurring on the first day of the following year. K. Dividends and Distributions to Shareholders -- Dividends from net investment income and distributions from net capital gains, to the extent such gains would otherwise be taxable to the Fund, are declared and distributed at least annually. Dividends and distributions are recorded by the Fund on the ex-dividend date. The timing and characterization of certain income and capital gains distributions are determined in accordance with federal tax regulations, which may differ from generally accepted accounting principles. To the extent that such differences are permanent, a reclassification to the Components of Net Assets may be required. As a result, at December 31, 2003, the Fund decreased its accumulated net realized gain by $2,622,808 and decreased overdistributed net investment income by the same amount. 2. Investment Advisory Fees and Other Transactions with Affiliates. Investment advisory fees are paid or accrued to TimesSquare Capital Management, Inc. ("TimesSquare"), certain officers and directors of which are affiliated with the Fund. Such advisory fees are based on an annual rate of 0.50% of the Fund's average daily net assets. TimesSquare has contractually agreed to reimburse the Fund for any amount by which its expenses (including the advisory fee, but excluding interest, taxes, transaction costs incurred in acquiring and disposing of portfolio securities, and extraordinary expenses) exceed, on an annual basis, 0.50% of average daily net assets until April 30, 2004, and thereafter to the extent described in the Fund's then current prospectus. TimesSquare retains the right to be repaid by the Fund if the Fund's expenses fall below the percentage specified above prior to the end of the fiscal year or within three years after TimesSquare waives advisory fees or reimburses a Fund's operating expenses. The Fund's remaining contingent liability and expiration dates are as shown below: Remaining Contingent Expires Expires Expires Liability during 2004 during 2005 during 2006 (000's) (000's) (000's) (000's) - ------------ ------------- ------------- ------------ $509 $127 $154 $228 Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund may invest its excess cash, up to 25% of the Fund's total assets, in the affiliated TimesSquare VP Money Market Fund ("TSVPMM") managed by TimesSquare. TimesSquare will waive the amount of its advisory fee for the Fund in an amount that offsets the amount of the advisory fees incurred in the affiliated Fund. For the year ended December 31, 2003, TimesSquare waived $50,027 of its advisory fee payable by the Fund. Income distributions from TSVPMM, which amounted to $112,894 for the year ended December 31, 2003, are recorded as dividend income in the Statement of Operations. TimesSquare is an indirect, wholly-owned subsidiary of CIGNA Corporation. For administrative services, the Fund reimburses TimesSquare for a portion of the compensation and related expenses of the Fund's Treasurer and Secretary and certain persons who assist in carrying out the responsibilities of those offices. For the year ended December 31, 2003, the Fund paid or accrued $73,487. 3. Trustees' Fees. Trustees' fees represent remuneration paid or accrued to Trustees who are not employees of CIGNA Corporation or any of its affiliates. Trustees may elect to defer receipt of all or a portion of their fees, which are invested in mutual fund shares in accordance with a deferred compensation plan. - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund Notes to Financial Statements 17 (Continued) 4. Purchases and Sales of Securities. Purchases and sales of securities, excluding short-term obligations, for the year ended December 31, 2003, were $212,857,320 and $210,012,515, respectively, for U.S. Government and Agency Obligations and $66,429,588 and $42,856,720, 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, 2003, were held by Connecticut General Life Insurance Company ("CG Life") life insurance contracts issued by that company. CG Life is an indirect, wholly-owned subsidiary of CIGNA Corporation. - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund 18 Report of Independent Auditors 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 TimesSquare VP Core Plus Bond Fund (the "Fund") at December 31, 2003, the results of its operations, and 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 auditing standards generally accepted in the United States of America, which 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, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Boston, Massachusetts February 16, 2004 - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund 19 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 Vice President (Investor Relations, 14 -- Jones since 1995 Public Relations) and Treasurer, 59 Kaman Corporation (helicopters and aircraft components, industrial distribution) Paul J. Trustee Trustee Special Advisor to Board of 14 Western McDonald since 1995 Directors, Friendly Ice Cream Massachusetts 60 Corporation (family restaurants Electric Company and dairy products) Marnie Trustee Trustee Diocesan Consultant, Episcopal 14 Boston Mutual Life Wagstaff since 2003 Diocese of Connecticut; Previously, Insurance Company Mueller Visiting Professor of Health 64 Economics, Wesleyan University Carol Ann Trustee Trustee Director and Chair of Audit 14 Reed & Barton Hayes since 2003 Committee, Reed and Barton Corporation 59 Corporation Affiliated Trustees and Fund Officers Richard H. Trustee, Trustee and Managing Director, CIGNA 14 Director of Forde Chairman of Chairman Retirement & Investment Services various 50 the Board and since 2002, and TimesSquare Capital subsidiaries of President President Management, Inc. CIGNA Corporation since 1998 David P. Trustee Trustee Chief Investment Officer, CIGNA 14 Director of Marks since 2003 Retirement & Investment Services various 57 subsidiaries of CIGNA Corporation Alfred A. Vice President Officer CIGNA Funds Treasurer; Assistant 14 -- Bingham III and Treasurer Since 1982 Vice President, TimesSquare Capital 59 Management, Inc. Jeffrey S. Vice President Officer Senior Counsel, 14 -- Winer and Secretary Since 1993 CIGNA Corporation 46 - -------------------------------------------------------------------------------- * All Trustees and officers have an address c/o TimesSquare Capital Management, Inc., 280 Trumbull Street, H16C, Hartford, CT 06103 - -------------------------------------------------------------------------------- TimesSquare VP Core Plus Bond Fund is an open-end, diversified management investment company that invests primarily in fixed income securities. The investment adviser is TimesSquare Capital Management, Inc., 280 Trumbull Street, Hartford, Connecticut 06103. - -------------------------------------------------------------------------------- TIMESSQUARE VP MONEY MARKET FUND - -------------------------------------------------------------------------------- Annual Report December 31, 2003 [LOGO] CIGNA - -------------------------------------------------------------------------------- 1 Dear Shareholders: We are pleased to provide this report for TimesSquare VP Money Market Fund (the "Fund") covering the year ended December 31, 2003. Management's Discussion of Fund Performance Market Environment The Federal Reserve (Fed) met four times during the first half of 2003, but waited until the fourth meeting to cut interest rates. At the June 25 Open Market Committee meeting, the Fed cut the federal funds rate by 25 basis points to a 45-year low of 1%. This was the thirteenth interest rate cut since the easing cycle began in January 2001. The Fed statement noted recent firming in spending as well as stabilization in labor and "markedly improved financial conditions." During the second half of 2003, the Fed met four times without changing interest rates, but at the fourth meeting decided to adjust their bias from "balanced/disinflation" to "balanced." The market interpreted this as setting the stage for possible rate increases later on in 2004. As the year came to a close, the general tone of the markets appeared to be improving, the consumer remained strong and corporate profits were exceeding expectations. Economists continued to search for signs of inflation and strengthening of employment. The Fed was openly signaling its willingness to support growth, and the markets were focused on trying to find strength in the economy. Portfolio Composition and Performance On December 31, 2003, the portfolio contained: top-tier asset-backed securities, 2.7%; top-tier domestic commercial paper, 42.8%; top-tier foreign commercial paper, 9.6%; and U.S. Government and Agencies, 44.9%. The Fund is well diversified. Total returns for the year ended December 31, 2003 (which do not reflect expenses associated with variable products through which the Fund may be offered and which would have been lower if such expenses were reflected), were: Fund 0.77% Lipper Money Market Funds Average 0.44 3-month U.S. Treasury Bill 1.07 As of December 31, 2003, the Fund's weighted average portfolio maturity was 40 days, and the annualized 7-day yield was 0.59%. Outlook Economic data continues to show signs of improvement. Fourth quarter Gross Domestic Product (GDP) is estimated to be 4%. However, we expect Fed policy and interest rates to remain on hold for the first half of 2004. Expectations are that the Fed will be extremely patient, looking for signs of inflation. Since inflation is currently below the desired level, consensus speculation is that monetary policy no longer needs to be preemptive and that the Fed will need to see improvement in the labor sector and pricing power before tightening. With this in mind, we will continue to focus on the developing trends in both the U.S. and global economies as keys to further Fed 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 - -------------------------------------------------------------------------------- 2 GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (Unaudited) 3/1/96 - 12/31/03 AVERAGE ANNUAL RETURN 1 Year 5 Year Life of Fund Inception Date Fund 0.77% 3.33% 3.98% 3/1/96 3 Month U.S. 1.07% 3.50% 4.10% Treasury Bill [The following data was represented as a line chart in the printed material.] Fund 3 Month U.S. Treasury Bill 03/01/1996 $10,000 $10,000 12/31/1996 $10,418 $10,435 12/31/1997 $10,959 $10,983 12/31/1998 $11,523 $11,537 12/31/1999 $12,079 $12,084 12/31/2000 $12,809 $12,804 12/31/2001 $13,286 $13,327 12/31/2002 $13,473 $13,554 12/31/2003 $13,576 $13,700 TimesSquare VP 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, 2003 was 0.59%, and the Fund's average maturity was 40 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. - -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund Investments in Securities 3 December 31, 2003 Principal Value (000) (000) - ----------------------------------------------------------------------------------- ASSET BACKED SECURITY - 2.7% Chase Manhattan Auto Owner Trust, 1.14%, 4/10/04 $ 5,000 $ 5,000 Honda Auto Receivables, 1.11%, 9/13/04 5,378 5,378 -------- 10,378 -------- COMMERCIAL PAPER - 52.4% Domestic - 42.8% Abbott Laboratories, 1.00%, 1/6/04 14,300 14,298 Bear Stearns Co., Inc., 1.04%, 1/12/04 14,000 13,996 BellSouth Corp., 1.01%, 1/9/04 12,624 12,621 Citicorp, 1.04%, 1/20/04 3,748 3,746 Gannett, Inc., 1.03%, 1/5/04 14,523 14,521 General Electric Capital Corp., 1.14%, 1/28/04 (a) 7,500 7,500 Gillette Co., 0.83%, 1/2/04 7,442 7,442 Goldman Sachs Group, Inc., 1.07%, 1/8/04 11,513 11,511 International Business Machines Corp., 1.02%, 1/6/04 7,373 7,372 Merrill, Lynch & Co., Inc., 1.05%, 1/5/04 5,286 5,285 1.05%, 1/7/04 8,925 8,923 Minnesota Mining & Mfg. Co., 1.05%, 1/12/04 10,204 10,201 New York Times (The) Co., 1.05%, 1/2/04 9,100 9,100 Morgan Stanley, Dean Witter, Discover & Co., 1.08%, 1/7/04 14,590 14,587 State Street Corp., 1.03%, 1/13/04 14,433 14,428 Wells Fargo & Co., 1.10%, 1/14/04 (a) 5,000 5,000 Windmill Funding Corp., 1.08%, 1/12/04 4,355 4,354 -------- 164,885 -------- Foreign - 9.6% Novartis Finance Corp., 1.05%, 1/2/04 14,550 14,550 Shell Finance, 0.95%, 1/2/04 10,000 10,000 Toyota Motor Credit Corp., 1.07%, 12/23/04 (a) 12,500 12,509 -------- 37,059 -------- Total Commercial Paper 201,944 -------- Principal Value (000) (000) - ----------------------------------------------------------------------------------- U.S. GOVERNMENT & AGENCIES (b) - 44.9% Fannie Mae, 1.32%, 1/9/04 $ 2,500 $ 2,499 1.08%, 3/5/04 2,500 2,495 1.08%, 4/2/04 4,000 3,989 1.10%, 4/2/04 3,955 3,944 1.01%, 5/27/04 (a) 12,500 12,497 1.36%, 9/10/04 7,500 7,500 1.29%, 10/18/04 7,500 7,500 1.06%, 1/28/05 (a) 11,500 11,497 1.05%, 10/7/05 (a) 20,000 19,996 Federal Farm Credit Bank, 1.25%, 8/18/04 4,588 4,551 1.05%, 3/24/05 (a) 15,000 14,998 1.09%, 6/23/05 (a) 2,500 2,500 Federal Home Loan Bank, 1.10%, 2/20/04 (a) 5,000 5,001 1.07%, 3/24/04 5,104 5,091 1.25%, 4/15/04 2,500 2,500 1.08%, 4/19/04 3,114 3,104 1.00%, 10/6/04 (a) 10,000 10,000 Freddie Mac, 1.02%, 1/5/04 4,000 3,999 1.02%, 1/8/04 7,937 7,935 1.02%, 1/14/04 10,102 10,098 1.08%, 1/15/04 5,334 5,332 5.00%, 1/15/04 4,000 4,005 1.29%, 1/29/04 2,000 1,998 5.25%, 2/15/04 2,350 2,361 1.28%, 3/25/04 2,500 2,492 1.11%, 10/7/05 (a) 7,500 7,500 Sallie Mae, 0.99%, 1/15/04 (a) 1,750 1,750 4.75%, 4/23/04 5,500 5,558 -------- 172,690 -------- TOTAL INVESTMENTS IN SECURITIES - 100.0% (Total Cost - $385,012) (c) 385,012 Cash and Other Assets, Less Liabilities - 0.0% 104 -------- NET ASSETS - 100.0% $385,116 ======== The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund Investments in Securities 4 December 31, 2003 (Continued) - -------------------------------------------------------------------------------- NOTES TO INVESTMENTS IN SECURITIES (a) Variable rate security. Rate is as of December 31, 2003. (b) Agency obligations are not guaranteed by the U.S. Government. Tax Information (c) As of December 31, 2003, 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 $71,917 18.7% Freddie Mac 45,720 11.9 Federal Home Loan Bank 25,696 6.7 Federal Farm Credit Bank 22,049 5.7 Morgan Stanley, Dean Witter, Discover & Co. 14,587 3.8 Novartis Finance Corp. 14,550 3.8 Gannett, Inc. 14,521 3.8 State Street Corp. 14,428 3.7 Abbott Laboratories 14,298 3.7 Merrill, Lynch & Co., Inc. 14,208 3.7 - -------------------------------------------------------------------------------- The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund 5 Statement of Assets and Liabilities December 31, 2003 (In Thousands) Assets: Investments in securities at value $ 385,012 Interest receivable 387 Investment for Trustees' deferred compensation plan 1 --------- Total assets 385,400 --------- Liabilities: Investment advisory fees payable 122 Cash overdraft 47 Custodian fees payable 35 Administrative services fees payable 32 Audit and legal fees payable 25 Insurance payable 12 Shareholder reports 5 Deferred Trustees' fees payable 1 Other accrued expenses 5 --------- Total liabilities 284 --------- Net Assets $ 385,116 ========= Components of Net Assets: Paid in capital $ 385,116 --------- Net Assets $ 385,116 ========= Shares Outstanding 385,114 ========= Net Asset Value and Redemption Price per Share $ 1.00 ========= Cost of Investments $ 385,012 ========= Statement of Operations For the Year Ended December 31, 2003 (In Thousands) Investment Income: Income: Interest $4,597 ------ Expenses: Investment advisory fees $1,320 Administrative services fees 155 Custodian fees and expenses 102 Auditing and legal fees 42 Insurance expense 13 Trustees' fees 9 Shareholder reports 8 Transfer agent fees 6 Other 3 ------ Total expenses $1,658 ------ Net Investment Income 2,939 ------ Realized and Unrealized Gain on Investments: Net realized gain from investments -- ------ Net Realized and Unrealized Gain on Investments -- ------ Net Increase in Net Assets Resulting From Operations $2,939 ====== The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund 6 Statements of Changes in Net Assets (In Thousands) For the Year Ended December 31, ------------------------ 2003 2002 -------- -------- Operations: Net investment income $ 2,939 $ 4,356 Net realized gain on investments -- 2 -------- -------- Net increase in net assets from operations 2,939 4,358 -------- -------- Dividends and Distributions: From net investment income (2,872) (4,423) -------- -------- Total dividends and distributions (2,872) (4,423) -------- -------- Capital Share Transactions: Net proceeds from sales of shares 546,426 612,437 Net asset value of shares issued to shareholders in reinvestment of dividends and distributions 2,883 4,420 -------- -------- 549,309 616,857 Cost of shares redeemed (529,819) (468,538) -------- -------- Net increase (decrease) in net assets from Fund share transactions 19,490 148,319 -------- -------- Net Increase (Decrease) in Net Assets 19,557 148,254 Net Assets: Beginning of period 365,559 217,305 -------- -------- End of period $385,116 $365,559 ======== ======== For the Year Ended December 31, ------------------------ 2003 2002 -------- -------- Transactions in Capital Stock Shares sold 546,426 612,437 Shares issued in reinvestment of dividends and distributions 2,883 4,420 -------- -------- 549,309 616,857 Shares redeemed (529,819) (468,538) -------- -------- Net increase (decrease) in shares outstanding 19,490 148,319 ======== ======== The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund 7 Financial Highlights - ------------------------------------------------------------------------------------------------------------------- For the Year Ended December 31, ------------------------------------------------------------------------- 2003 2002 2001 2000 1999 ------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Income from investment operations: Net investment income (a) 0.01 0.01 0.04 0.06 0.05 -------- -------- -------- -------- ------- Total from investment operations 0.01 0.01 0.04 0.06 0.05 -------- -------- -------- -------- ------- Less dividends and distributions: Dividends from net investment income (0.01) (0.01) (0.04) (0.06) (0.05) -------- -------- -------- -------- ------- Total dividends and distributions (0.01) (0.01) (0.04) (0.06) (0.05) -------- -------- -------- -------- ------- Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======== ======== ======== ======== ======== Total Return 0.77% 1.41% 3.73% 6.06%(b) 4.83%(b) Ratios to Average Net Assets: Gross expenses 0.44% 0.43% 0.48% 0.54% 0.64% Fees and expenses waived by the Adviser 0.00% 0.00% 0.00% 0.04% 0.14% Net expenses 0.44% 0.43% 0.48% 0.50% 0.50% Net investment income 0.78% 1.37% 3.53% 6.01% 4.72% Net Assets, End of Period (000 omitted) $385,116 $365,559 $217,305 $160,905 $31,345 (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 8 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, 2003, 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, 2003 the total tax distributions were $2,882,607. 2. Investment Advisory Fees and Other Transactions with Affiliates. Investment advisory fees are paid or accrued to TimesSquare Capital Management, Inc. ("TimesSquare"), certain officers and directors of which are affiliated with the Fund. Such advisory fees are based on an annual rate of 0.35% applied to the average daily net assets of the Fund. TimesSquare has contractually agreed to reimburse the Fund for any amount by which its expenses (including the advisory fee, but excluding interest, taxes, transaction costs incurred in acquiring and disposing of portfolio securities, and extraordinary expenses) exceed, on an annual basis, 0.50% of average daily net assets until April 30, 2004, and thereafter, to the extent described in the Fund's then current prospectus. Effective May 1, 2002, TimesSquare retains the right to be repaid by the Fund if the Fund's expenses fall below the - -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund Notes To Financial Statements 9 (Continued) percentage specified above prior to the end of the fiscal year or within three years after TimesSquare waives advisory fees or reimburses the Fund's operating expenses. As of December 31, 2003, the Fund has no such liability. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, other affiliated CIGNA Variable Products Group Funds may invest in the Fund. TimesSquare will waive the amount of its advisory fee for the affiliated Funds in an amount that offsets the amount of the advisory fees incurred in the TimesSquare VP Money Market Fund. For administrative services, the Fund reimburses TimesSquare for a portion of the compensation and related expenses of the Trust's Treasurer and Secretary and certain persons who assist in carrying out the responsibilities of those offices. For the year ended December 31, 2003, the Fund paid or accrued $155,055. TimesSquare is an indirect, wholly-owned subsidiary of CIGNA Corporation. 3. Trustees' Fees. Trustees' fees represent remuneration paid or accrued to Trustees who are not employees of CIGNA Corporation or any of its affiliates. Trustees may elect to defer all or a portion of their fees, which are invested in mutual fund shares in accordance with a deferred compensation plan. 4. Capital Stock. The Fund offers an unlimited number of shares of beneficial interest, without par value. Connecticut General Life Insurance Company, an indirect, wholly-owned subsidiary of CIGNA Corporation, TimesSquare VP Core Plus Bond Fund and TimesSquare VP S&P 500[RegTM] Index Fund are the shareholders of the Fund, with ownership of 90.6%, 2.7%, and 6.7%, respectively. - -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund 10 Report of Independent Auditors 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 (the "Fund") at December 31, 2003, the results of its operations, and 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 auditing standards generally accepted in the United States of America, which 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, 2003 by correspondence with the custodian, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Boston, Massachusetts February 16, 2004 - -------------------------------------------------------------------------------- TimesSquare VP Money Market Fund 11 (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 Vice President (Investor Relations, 14 -- Jones 1995 Public Relations) and Treasurer, 59 Kaman Corporation (helicopters and aircraft components, industrial distribution) Paul J. Trustee Trustee since Special Advisor to Board of Directors, 14 Western McDonald 1995 Friendly Ice Cream Corporation Massachusetts 60 (family restaurants and dairy products) Electric Company Marnie Trustee Trustee since Diocesan Consultant, Episcopal 14 Boston Mutual Wagstaff 2003 Diocese of Connecticut; Previously, Life Insurance Mueller Visiting Professor of Health Company 64 Economics, Wesleyan University Carol Ann Trustee Trustee since Director and Chair of Audit 14 Reed & Barton Hayes 2003 Committee, Reed and Barton Corporation 59 Corporation Affiliated Trustees and Fund Officers Richard H. Trustee, Trustee and Managing Director, CIGNA Retirement 14 Director of Forde Chairman of Chairman & Investment Services and various 50 the Board and since 2002, TimesSquare Capital Management, subsidiaries of President President Inc. CIGNA since 1998 Corporation David P. Marks Trustee Trustee since Chief Investment Officer, CIGNA 14 Director of 57 2003 Retirement & Investment Services various subsidiaries of CIGNA Corporation Alfred A. Vice President Officer CIGNA Funds Treasurer; Assistant Vice 14 -- Bingham III and Treasurer Since 1982 President, TimesSquare Capital 59 Management, Inc. Jeffrey S. Vice President Officer Senior Counsel, 14 -- Winer and Secretary Since 1993 CIGNA Corporation 46 - ----------------------------------------------------------------------------------------------------------------------------- * 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 TimesSquare Capital Management, Inc., 280 Trumbull Street, Hartford, Connecticut 06103. - -------------------------------------------------------------------------------- TIMESSQUARE VP S&P 500(R) INDEX FUND - -------------------------------------------------------------------------------- Annual Report December 31, 2003 [Logo] CIGNA - -------------------------------------------------------------------------------- 1 Dear Shareholders: Our commentary for TimesSquare VP S&P 500[RegTM] Index Fund (the "Fund") covering the year ended December 31, 2003 follows. Management's Discussion of Fund Performance Economy Economic touchstones which had provided hope of an improving recovery at the end of 2002 grew decidedly weaker over the first three months of the year. Financial markets closely followed the course of Operation Iraqi Freedom. Uncertainties were compounded by the deterioration of the western alliance and the realization that the U.S./U.K. "coalition of the willing" would have to act in defiance of France, Germany, Russia and the U.N. The promotion of a shock and awe campaign by coalition forces promising early resolution to the conflict left investors relieved when war finally commenced in mid-March. However, by the quarter's end, Turkey's broken promise to provide a northern access route to Iraq and the inflammatory nature of real-time network war coverage had instead generated expectations for a messy and prolonged engagement. Financial markets received psychological boosts from a number of directions in the second quarter. U.S. and coalition forces achieved a decisive victory in Iraq and turned their attention to instituting a provisional civil authority to oversee the transition. President Bush declared an end to "major" hostilities, although a clean end to the conflict has been elusive. Congress passed the president's 2003 tax cut initiative. The SARS epidemic, which had been perceived as a world threat earlier in the year, received unprecedented international coordinated attention and was brought under control. In an unusual step, Federal Reserve (Fed) chairman Alan Greenspan acknowledged the threat of deflation, declared formal steps to guard against it, and suggested that the Fed would tolerate and even welcome moderate inflation. The financial markets were subjected to mixed influences during the third quarter. The Fed on two separate occasions renewed its commitment to low interest rates in response to nine-year record unemployment levels. Investor confidence was rocked by both the de facto forced retirement of NYSE CEO Richard Grasso on compensation issues, and evidence of mutual fund industry improprieties regarding late trading, market timing and use of brokerage commissions. Increased estimated costs of the Iraqi reconstruction and the consequent domestic economic implications eroded presidential support despite news of the deaths of Saddam Hussein's sons. The Northeast economic region experienced an energy blackout of historic scope. Second quarter Gross Domestic Product (GDP) was determined to be 3.3%, surpassing expectations. Economic growth accelerated in the fourth quarter, capping a year that confounded consensus views at the end of the previous year. Forecasts of double- dip recession, deflation, and a protracted period of uninspiring returns were laid waste by revised third quarter GDP figures of 8.2% and expectations of 4% full-year growth. Also influencing markets were record construction spending and a 20-year high in the ISM Purchasing Managers Index. Saddam Hussein finally was captured, the U.S. dollar hit record lows against the Euro and the country experienced fear of an outbreak of Mad Cow disease. Equity Markets Equity markets retreated, intermediate rates fell and the dollar weakened through mid-March, as the lack of U.N. resolve left questionable the U.S. course of action related to Iraq. These trends reversed dramatically during the first two weeks of engagement in anticipation of an early success, - -------------------------------------------------------------------------------- 2 and then reversed again during the final week of March on concerns of a longer U.S. presence in Iraq. By quarter's end, total return for the S&P 500[RegTM] Index was -3.15% (the Fund returned -3.22%). In the second quarter, equity market participants, buoyed by improving confidence indicators and better-than-expected reported earnings announcements, drove stock indexes to their best quarterly return in three and a half years. AMG Data Services (an independent provider of mutual fund data) reported that investors, anticipating a second-half acceleration in earnings, poured nearly $33 billion into stock mutual funds in the second quarter. The S&P 500[RegTM] Index returned 15.40% for the period (the Fund returned 15.35%). The average diversified U.S. stock fund returned 16.8% during the second quarter according to Lipper Analytics. Among large capitalization companies, value (+18.8%) outperformed growth (+12.17%), as measured by representative S&P/Barra indexes. The best-performing industries for the three months included employment services, computer & electronics, tobacco and utilities, which all returned more than 48%. Health care facilities, the principal loser, gave back 19%. Equity markets traded in a range throughout most of July and August. An increase in jobless claims and low retail sales figures counteracted the impact of evidence of increased M&A (merger and acquisition) activity and a growing list of companies reporting earnings meeting optimistic expectations. The major indexes rose somewhat in late August and the first half of September as a result of strong sales reports from major retailers and an uneventful anniversary of the 9/11 tragedy, but retreated thereafter on concerns that excessive dollar weakness might cause foreign liquidation of U.S. stocks as well as Treasuries. Announced OPEC output cuts and a six-month low in consumer confidence posed additional setbacks to further growth. By September 30, returns to the S&P 500[RegTM] Index for the quarter had fallen to 2.65% (the Fund returned 2.54%). Continuing a trend, small cap (S&P SmallCap Index, 7.08%) and mid cap (S&P MidCap Index, 6.59%) stocks dominated their large capitalization counterparts. Among large cap companies, value (+2.54%) and growth (+2.75) produced somewhat comparable results, as measured by their respective S&P/Barra Indexes. Equity markets had a strong start in October. Improvements in business capital spending, consumer confidence and payrolls, in addition to increased merger activity and better than expected reported operating earnings, produced a 5.6% return for the month. The market paused in November with renewed domestic terrorist threats, attacks on our forces in Iraq and fears of trade wars prompted by new U.S. quotas on Chinese textiles. A renewed pledge by the Fed to keep rates low until inflation, employment and capacity utilization rates rose, combined with Hussein's capture, lifted the S&P 500[RegTM] Index through the holidays to finish the quarter up 12.18% (the Fund returned 12.06% for the fourth quarter). Continuing a year-long trend, smaller capitalization segments outperformed the larger segments. The S&P Mid Cap Index was up 13.19% for the quarter and 35.62% for the year, while the S&P Small Cap Index generated returns of 14.78% and 38.79% for the corresponding periods. Among large capitalization companies, value (14.45% for the quarter, 31.79% for the year) beat growth (9.93% for the quarter, 25.66% for the year), based on S&P/Barra indexes. All ten S&P sectors were positive for the year, as were 90% of all companies in the Index -- a new record. Technology performed best (+47.2%) while Telecommunications was worst (+7.1%). As might be expected, the equal weighted Index beat the cap-weighted Index by 13% for the year. - -------------------------------------------------------------------------------- 3 Performance Summary Returns for the year ended December 31, 2003 (which do not reflect expenses associated with variable products through which the Fund may be offered and which would have been lower if such expenses were reflected), were: Fund 28.27% Lipper S&P 500 Funds Average 27.78 S&P 500[RegTM] Index 28.68 Outlook Near term, we expect that the Fed's pledge to remain accommodative and the benefits of improved productivity will support additional, though less robust, increases in corporate earnings, allowing the market to move higher. We continue to believe that, as the year progresses, sustainability of market advances will be dependent on both the orderly retracing of the dollar (sufficient to produce improvements in the trade deficit) as well as continued improvement in business investment to generate job growth. World central banks probably will ensure the first, but evidence of pending job growth has thus far been lacking. Sincerely, /s/ Richard H. Forde Richard H. Forde Chairman of the Board and President CIGNA Variable Products Group - -------------------------------------------------------------------------------- 4 - -------------------------------------------------------------------------------- GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (Unaudited) 12/31/93 - 12/31/03 AVERAGE ANNUAL RETURN 1 Year 5 Year 10 Year Fund 28.27% -0.91% 10.70% S&P 500 Index 28.68% -0.57% 11.06% [The following data was represented as a line chart in the printed material] Fund S&P 500(R)Index 12/31/1993 $10,000 $10,000 12/31/1994 $10,067 $10,132 12/31/1995 $13,773 $13,940 12/31/1996 $16,869 $17,140 12/31/1997 $22,495 $22,859 12/31/1998 $28,930 $29,390 12/31/1999 $34,937 $35,574 12/31/2000 $31,663 $32,335 12/31/2001 $27,806 $28,493 12/31/2002 $21,547 $22,194 12/31/2003 $27,640 $28,561 TimesSquare VP 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[RegTM] Index Fund Investments in Securities 5 December 31, 2003 Number of Value Shares (000) - ------------------------------------------------------------------------- COMMON STOCKS - 87.1% General Electric Co. 198,800 $ 6,159 Microsoft Corp. 214,100 5,896 Exxon Mobil Corp. 130,824 5,364 Pfizer, Inc. 151,032 5,336 Citigroup, Inc. 102,072 4,955 Wal-Mart Stores, Inc. 85,700 4,546 Intel Corp. 129,300 4,163 American International Group 51,684 3,426 Cisco Systems, Inc. (a) 136,600 3,318 International Business Machine Corp. 34,100 3,160 Johnson & Johnson 58,784 3,037 Procter & Gamble Co. 25,700 2,567 Coca-Cola (The) Co. 48,500 2,461 Bank of America Corp. 29,418 2,366 Altria Group, Inc. 40,200 2,188 Merck & Co., Inc. 44,000 2,033 Wells Fargo & Co. 33,460 1,970 Verizon Communications, Inc. 54,626 1,916 ChevronTexaco Corp. 21,134 1,826 Dell, Inc. (a) 50,700 1,722 SBC Communications, Inc. 65,494 1,707 United Parcel Service, Inc., Class B 22,300 1,662 Time Warner, Inc. (a) 89,400 1,608 Home Depot, Inc. 45,050 1,599 PepsiCo., Inc. 33,960 1,583 Amgen, Inc. (a) 25,568 1,580 Eli Lilly & Co. 22,200 1,561 Viacom, Inc., Class B 34,633 1,537 Morgan (J.P.) Chase & Co. 40,306 1,480 Comcast Corp., Class A (a) 44,662 1,468 Fannie Mae 19,200 1,441 Abbott Laboratories 30,900 1,440 Hewlett-Packard Co. 60,424 1,388 Oracle Corp. (a) 103,672 1,368 3M Co. 15,500 1,318 Morgan Stanley Dean Witter & Co. 21,440 1,241 American Express Co. 25,500 1,230 Wachovia Corp. 26,228 1,222 Number of Value Shares (000) - ------------------------------------------------------------------------- Medtronic, Inc. 24,000 $ 1,167 US Bancorp 38,151 1,136 Wyeth 26,400 1,121 Bristol-Myers Squibb Co. 38,400 1,098 Merrill Lynch & Co., Inc. 18,700 1,097 Tyco International Ltd. 39,565 1,048 BellSouth Corp. 36,600 1,036 Bank One Corp. 22,119 1,008 Texas Instruments, Inc. 34,200 1,005 Disney (Walt) Co. 40,400 943 Goldman Sachs Group, Inc. 9,400 928 Fleet Boston Financial Corp. 20,887 912 du Pont (E.I.) de Nemours & Co. 19,678 903 ConocoPhillips 13,468 883 United Technologies Corp. 9,300 881 Lowe's Companies, Inc. 15,500 859 Qualcomm, Inc. 15,800 852 Anheuser-Busch Cos., Inc. 16,100 848 eBay, Inc. (a) 12,800 827 Freddie Mac 13,800 805 Dow (The) Chemical Co. 18,210 757 Applied Materials, Inc. (a) 32,900 739 Walgreen Co. 20,300 739 Gillette (The), Co. 20,000 735 Washington Mutual, Inc. 17,807 714 Boeing (The) Co. 16,576 699 Target Corp. 18,000 691 UnitedHealth Group, Inc. 11,600 675 Fifth Third Bancorp 11,258 665 Alcoa, Inc. 17,168 652 Motorola, Inc. 46,091 649 Schlumberger Ltd. 11,600 635 MBNA Corp. 25,252 628 McDonald's Corp. 25,200 626 EMC Corp. (a) 47,524 614 Nextel Communications, Inc., Class A (a) 21,800 612 Allstate (The) Corp. 13,896 598 Boston Scientific Corp. (a) 16,200 596 Kimberly-Clark Corp. 10,032 593 The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500[RegTM] Index Fund Investments in Securities 6 December 31, 2003 (Continued) Number of Value Shares (000) - ------------------------------------------------------------------------- General Motors Corp. 11,100 $ 593 First Data Corp. 14,400 592 Yahoo, Inc. (a) 13,000 587 Ford Motor Co. 36,297 581 Caterpillar, Inc. 6,900 573 Honeywell International, Inc. 16,987 568 Clear Channel Communications, Inc. 12,100 567 Exelon Corp. 8,325 552 Emerson Electric Co. 8,300 537 Colgate-Palmolive Co. 10,700 536 Cardinal Health, Inc. 8,575 524 Illinois Tool Works, Inc. 6,100 512 MetLife, Inc. 15,100 508 Schering-Plough Corp. 29,000 504 Bank (The) of New York Co., Inc. 15,200 503 Marsh & McLennan Cos., Inc. 10,500 503 Carnival Corp. 12,500 497 Gannett Co., Inc. 5,400 481 Sysco Corp. 12,900 480 Automatic Data Processing 11,800 467 Lockheed Martin Corp. 8,960 461 Cendant Corp. (a) 20,104 448 Prudential Financial, Inc. 10,700 447 Forest Laboratories, Inc. (a) 7,200 445 Southern (The) Co. 14,400 436 AT&T Wireless Services, Inc. (a) 53,439 427 HCA, Inc. 9,900 425 BB&T Corp. 10,800 417 Lehman Brothers Holdings, Inc. 5,380 415 Newmont Mining Corp. 8,535 415 National City Corp. 12,100 411 Gap (The), Inc. 17,662 410 Dominion Resources, Inc. 6,399 408 International Paper Co. 9,451 407 SunTrust Banks, Inc. 5,600 400 FedEx Corp. 5,900 398 Baxter International, Inc. 12,100 369 Aflac, Inc. 10,200 369 Guidant Corp. 6,100 367 Number of Value Shares (000) - ------------------------------------------------------------------------- Duke Energy Corp. 17,924 $ 367 Progressive (The) Corp. 4,300 359 Nike, Inc., Class B 5,200 356 General Dynamics Corp. 3,900 353 Northrop Grumman Corp. 3,639 348 Union Pacific Corp. 5,000 347 State Street Corp. 6,600 344 Waste Management, Inc. 11,532 341 SLM Corp. 9,000 339 Zimmer Holdings, Inc. (a) 4,780 337 Sara Lee Corp. 15,500 337 Travelers Property Casualty Co., Class B 19,796 336 General Mills, Inc. 7,400 335 Costco Wholesale Corp. (a) 9,000 335 Best Buy Co., Inc. 6,400 334 Omnicom Group 3,800 332 Stryker Corp. 3,900 332 Hartford Financial Services Group 5,600 331 Analog Devices, Inc. 7,200 329 Maxim Integrated Products 6,500 324 Occidental Petroleum Corp. 7,600 321 Tribune Co. 6,200 320 Avon Products, Inc. 4,700 317 AT&T Corp. 15,585 316 Schwab, (The) Charles Corp. 26,625 315 Veritas Software Corp. (a) 8,400 312 Computer Associates International, Inc. 11,412 312 Golden West Financial Corp. 3,000 310 Kellogg Co. 8,100 308 Deere & Co. 4,700 306 Kohl's Corp. (a) 6,700 301 PNC Financial Services Group, Inc. 5,500 301 Entergy Corp. 5,200 297 Sprint Corp. (FON Group) 17,900 294 WellPoint Health Networks (a) 3,000 291 Sun Microsystems, Inc. (a) 64,700 291 Alltel Corp. 6,200 289 Harley-Davidson, Inc. 6,000 285 Capital One Financial Corp. 4,600 282 The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500[RegTM] Index Fund Investments in Securities 7 December 31, 2003 (Continued) Number of Value Shares (000) - ---------------------------------------------------------------------------- Electronic Arts, Inc. (a) 5,900 $ 282 CVS Corp. 7,800 282 ConAgra Foods, Inc. 10,600 280 Mellon Financial Corp. 8,600 276 Kroger Co. (a) 14,900 276 Paychex, Inc. 7,400 275 Danaher Corp. 3,000 275 Weyerhaeuser Co. 4,300 275 Corning, Inc. (a) 26,300 274 Countrywide Financial Corp. 3,600 273 Agilent Technologies, Inc. (a) 9,328 273 Staples, Inc. (a) 9,750 266 McGraw-Hill (The) Cos., Inc. 3,800 266 Devon Energy Corp. 4,600 263 Linear Technology Corp. 6,200 261 Franklin Resources, Inc. 5,000 260 Xilinx, Inc. (a) 6,700 260 Apache Corp. 3,161 256 Masco Corp. 9,300 255 Starbucks Corp. (a) 7,700 255 Univision Communications, Inc., Class A (a) 6,400 254 Wrigley (Wm.) Jr. Co. 4,500 253 Chubb Corp. 3,700 252 Anadarko Petroleum Corp. 4,933 252 Bed Bath & Beyond, Inc. (a) 5,800 251 Heinz (H.J) Co. 6,900 251 Southwest Airlines Co. 15,487 250 Keycorp 8,416 247 Raytheon Co. 8,200 246 Praxair, Inc. 6,400 244 International Game Technology 6,800 243 Burlington Northern Santa Fe Corp. 7,467 242 Apollo Group, Inc., Class A (a) 3,500 238 Air Products & Chemicals, Inc. 4,500 238 Biogen Idec, Inc. (a) 6,435 237 FPL Group, Inc. 3,600 236 American Electric Power Co., Inc. 7,700 235 Lucent Technologies, Inc. (a) 82,436 234 Electronic Data Systems Corp. 9,500 233 Number of Value Shares (000) - ---------------------------------------------------------------------------- Ingersoll-Rand Co., Class A 3,400 $ 231 FirstEnergy Corp. 6,500 229 ACE Ltd. 5,500 228 Sears Roebuck and Co. 5,000 227 Equity Office Properties Trust 7,900 226 PG&E Corp. (a) 8,100 225 Halliburton Co. 8,600 224 Kla-Tencor Corp. (a) 3,800 223 TJX Cos., Inc. 10,100 223 PPG Industries, Inc. 3,400 218 Progress Energy, Inc. 4,800 217 Genzyme Corp. (General Division) (a) 4,400 217 Campbell Soup Co. 8,100 217 Xerox Corp. (a) 15,700 217 Burlington Resources, Inc. 3,910 217 SouthTrust Corp. 6,600 216 Baker Hughes, Inc. 6,690 215 John Hancock Financial Services 5,700 214 Marriott International, Inc., Class A 4,600 213 Chiron Corp. (a) 3,700 211 Becton Dickinson & Co. 5,100 210 XL Capital Ltd., Class A 2,700 209 Johnson Controls, Inc. 1,800 209 St. Jude Medical, Inc. (a) 3,400 209 Principal Financial Group 6,300 208 Symantec Corp. (a) 6,000 208 Fortune Brands, Inc. 2,900 207 Intuit, Inc. (a) 3,900 206 Public Service Enterprise Group 4,700 206 Aetna, Inc. 3,042 206 Northern Trust Corp. 4,400 204 Clorox Co. 4,200 204 Anthem, Inc. (a) 2,700 203 Yum! Brands, Inc. (a) 5,880 202 Marathon Oil Corp. 6,100 202 Broadcom Corp., Class A (a) 5,900 201 Hershey Foods Corp. 2,600 200 Allergan, Inc. 2,600 200 Paccar, Inc. 2,325 197 The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500[RegTM] Index Fund Investments in Securities 8 December 31, 2003 (Continued) Number of Value Shares (000) - -------------------------------------------------------------------------- Lexmark International, Inc., Class A (a) 2,500 $ 197 Archer-Daniels-Midland Co. 12,887 196 Coca-Cola Enterprises, Inc. 8,900 195 Block (H&R), Inc. 3,500 194 Comerica, Inc. 3,450 193 Pitney Bowes, Inc. 4,700 191 Safeway, Inc. (a) 8,700 191 Consolidated Edison, Inc. 4,400 189 Unocal Corp. 5,100 188 Rohm & Haas Co. 4,385 187 Limited Brands, Inc. 10,300 186 Biomet, Inc. 5,100 186 McKesson Corp. 5,723 184 Loews Corp. 3,700 183 Medco Health Solutions, Inc. (a) 5,366 182 Norfolk Southern Corp. 7,700 182 Moody's Corp. 3,000 182 Adobe Systems, Inc. 4,600 181 Simon Property Group, Inc. 3,800 176 St. Paul Companies 4,432 176 Synovus Financial Corp. 6,050 175 AmSouth Bancorp 7,100 174 Marshall & Ilsley Corp. 4,500 172 MBIA, Inc. 2,900 172 Cintas Corp. 3,400 170 Altera Corp. (a) 7,500 170 Federated Department Stores 3,600 170 PeopleSoft, Inc. (a) 7,430 169 Mattel, Inc. 8,645 167 Albertson's, Inc. 7,313 166 May (The) Department Stores Co. 5,650 164 Regions Financial Corp. 4,400 164 Computer Sciences Corp. (a) 3,700 164 Eaton Corp. 1,500 162 CIGNA Corp. (b) 2,800 161 Micron Technology, Inc. (a) 11,900 160 Equity Residential 5,400 159 Dover Corp. 4,000 159 Charter One Financial, Inc. 4,524 156 Number of Value Shares (000) - -------------------------------------------------------------------------- Sungard Data Systems, Inc. (a) 5,600 $ 155 Textron, Inc. 2,700 154 Bear Stearns (The) Cos., Inc. 1,925 154 Quest Diagnostics (a) 2,100 154 Autozone, Inc. (a) 1,800 153 PPL Corp. 3,500 153 TXU Corp. 6,400 152 Apple Computer, Inc. (a) 7,100 152 Freeport-McMoRan Copper & Gold, Class B 3,600 152 Qwest Communications International (a) 35,001 151 CSX Corp. 4,200 151 Georgia-Pacific Corp. 4,916 151 Transocean, Inc. (a) 6,271 151 Fiserv, Inc. (a) 3,800 150 Tenet Healthcare Corp. (a) 9,350 150 AMBAC Financial Group, Inc. 2,150 149 Eastman Kodak Co. 5,800 149 Monsanto Co. 5,135 148 Ameren Corp. 3,200 147 AON Corp. 6,125 147 New York Times Co., Class A 3,000 143 Jefferson-Pilot Corp. 2,812 142 Ecolab, Inc. 5,200 142 National Semiconductor Corp. (a) 3,600 142 Kinder Morgan, Inc. 2,400 142 Lincoln National Corp. 3,500 141 American Standard Cos., Inc. (a) 1,400 141 Edison International 6,400 140 Starwood Hotels & Resorts Worldwide, Inc. 3,900 140 Network Appliance, Inc. (a) 6,800 140 Penney (J.C.) Co., Inc. 5,300 139 Parker Hannifin Corp. 2,325 138 Phelps Dodge Corp. (a) 1,816 138 Dollar General Corp. 6,547 137 Cinergy Corp. 3,520 137 Concord EFS, Inc. (a) 9,200 137 Siebel Systems, Inc. (a) 9,800 136 Cincinnati Financial Corp. 3,200 134 Sempra Energy 4,454 134 The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500[RegTM] Index Fund Investments in Securities 9 December 31, 2003 (Continued) Number of Value Shares (000) - ---------------------------------------------------------------------- ITT Industries, Inc. 1,800 $ 134 Xcel Energy, Inc. 7,820 133 Rockwell Automation, Inc. 3,700 132 Molex, Inc. 3,775 132 Sanmina-SCI Corp. (a) 10,400 131 Tiffany & Co. 2,900 131 DTE Energy Co. 3,300 130 Constellation Energy Group, Inc. 3,300 129 Centex Corp. 1,200 129 Pepsi Bottling Group, Inc. 5,300 128 Interpublic Group Cos., Inc. (a) 8,200 128 Medimmune, Inc. (a) 5,000 127 Hilton Hotels Corp. 7,400 127 Novellus Systems, Inc. (a) 3,000 126 Knight-Ridder, Inc. 1,600 124 AmerisourceBergen Corp. 2,200 124 Avery Dennison Corp. 2,200 123 Family Dollar Stores 3,400 122 North Fork Bancorporation, Inc. 3,000 121 Newell Rubbermaid, Inc. 5,307 121 Nabors Industries Ltd. (a) 2,900 120 IMS Health, Inc. 4,800 119 MeadWestvaco Corp. 3,976 118 Union Planters Corp. 3,750 118 UST, Inc. 3,300 118 Prologis 3,600 116 Sprint Corp. (PCS Group) (a) 20,500 115 AES (The) Corp. (a) 12,200 115 Genuine Parts Co. 3,450 115 NiSource, Inc. 5,200 114 KeySpan Corp. 3,100 114 MGIC Investment Corp. 2,000 114 T. Price Rowe Group, Inc. 2,400 114 Health Management Associates, Class A 4,700 113 Plum Creek Timber Co., Inc. 3,700 113 Delphi Corp. 11,026 113 Pulte Homes, Inc. 1,200 112 Brown-Forman Corp., Class B 1,200 112 Harrah's Entertainment, Inc. 2,250 112 Number of Value Shares (000) - ---------------------------------------------------------------------- BJ Services Co. (a) 3,100 $ 111 Zions Bancorporation 1,800 110 Jabil Circuit, Inc. (a) 3,900 110 First Tennessee National Corp. 2,500 110 Rockwell Collins, Inc. 3,600 108 Express Scripts, Inc. (a) 1,600 106 EOG Resources, Inc. 2,300 106 Safeco Corp. 2,700 105 Torchmark Corp. 2,300 105 Cooper Industries Ltd., Class A 1,800 104 Sherwin-Williams (The) Co. 3,000 104 Avaya, Inc. (a) 8,028 104 Huntington Bancshares, Inc. 4,566 103 JDS Uniphase Corp. (a) 28,000 102 Office Depot, Inc. (a) 6,100 102 Whirlpool Corp. 1,400 102 Advanced Micro Devices, Inc. (a) 6,800 101 Williams Cos., Inc. 10,200 100 Autonation, Inc. (a) 5,400 99 Reynolds (RJ) Tobacco Holdings, Inc. 1,700 99 RadioShack Corp. 3,200 98 Teradyne, Inc. (a) 3,800 97 Noble Corp. (a) 2,700 97 Watson Pharmaceuticals, Inc. (a) 2,100 97 Solectron Corp. (a) 16,300 96 Amerada Hess Corp. 1,800 96 American Power Conversion 3,900 95 Vulcan Materials Co. 2,000 95 VF Corp. 2,200 95 Unisys Corp. (a) 6,400 95 EL Paso Corp. 11,543 95 CenturyTel, Inc. 2,850 93 QLogic Corp. (a) 1,800 93 Nordstrom, Inc. 2,700 93 UnumProvident Corp. 5,725 90 Wendy's International, Inc. 2,300 90 Kerr-McGee Corp. 1,938 90 Sealed Air Corp. (a) 1,661 90 Jones Apparel Group Inc. 2,500 88 The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500[RegTM] Index Fund Investments in Securities 10 December 31, 2003 (Continued) Number of Value Shares (000) - -------------------------------------------------------------------- Allied Waste Industries, Inc. (a) 6,300 $ 87 Applera Corp. (Applied Biosystem) 4,200 87 BMC Software, Inc. (a) 4,600 86 Grainger (W.W.), Inc. 1,800 85 Leggett & Platt, Inc. 3,900 84 McCormick & Co., Inc. 2,800 84 Nucor Corp. 1,500 84 Thermo Electron Corp. (a) 3,300 83 Mercury Interactive Corp. (a) 1,700 83 Scientific-Atlanta, Inc. 3,000 82 Robert Half International, Inc. (a) 3,500 82 Bard (C.R.), Inc. 1,000 81 Sigma-Aldrich Corp. 1,400 80 Dow Jones & Co., Inc. 1,600 80 Waters Corp. (a) 2,400 80 Black & Decker Corp. 1,600 79 Janus Capital Group, Inc. 4,800 79 Sunoco, Inc. 1,500 77 Engelhard Corp. 2,550 76 Symbol Technologies, Inc. 4,500 76 Novell, Inc. (a) 7,200 76 Alberto-Culver Co., Class B 1,200 76 Humana, Inc. (a) 3,300 75 Liz Claiborne, Inc. 2,100 74 Nvidia Corp. (a) 3,200 74 Supervalu, Inc. 2,600 74 Pactiv Corp. (a) 3,100 74 NCR Corp. (a) 1,900 74 King Pharmaceuticals, Inc. (a) 4,766 73 Pinnacle West Capital Corp. 1,800 72 Hasbro, Inc. 3,375 72 Darden Restaurants, Inc. 3,350 70 United States Steel Corp. 2,000 70 Citrix Systems, Inc. (a) 3,300 70 Citizens Communications Co. (a) 5,600 70 Temple-Inland, Inc. 1,100 69 Equifax, Inc. 2,800 69 Goodrich Corp. 2,300 68 Tellabs, Inc. (a) 8,100 68 Number of Value Shares (000) - -------------------------------------------------------------------- Navistar International Corp. (a) 1,400 $ 67 PMC-Sierra, Inc. (a) 3,300 66 International Flavors & Fragrances, Inc. 1,900 66 Providian Financial Corp. (a) 5,700 66 Donnelley (RR) & Sons Co. 2,200 66 Apartment Investment & Mgt. Co., Class A 1,900 66 Ball Corp. 1,100 66 KB Home 900 65 Comverse Technology, Inc. (a) 3,700 65 LSI Logic Corp. (a) 7,300 65 Federated Investors, Inc., Class B 2,200 65 Pall Corp. 2,400 64 Stanley (The) Works 1,700 64 Fluor Corp. 1,600 63 Manor Care, Inc. 1,800 62 CIENA Corp. (a) 9,300 62 Ashland, Inc. 1,400 62 Sabre Holdings Corp., Class A 2,840 61 Eastman Chemical Co. 1,500 59 Centerpoint Energy, Inc. 6,107 59 Brunswick Corp. 1,800 57 Bausch & Lomb, Inc. 1,100 57 Tektronix, Inc. 1,800 57 Autodesk, Inc. 2,300 57 Boise Cascade Corp. 1,700 56 Dana Corp. 2,943 54 Toys R US, Inc. (a) 4,200 53 TECO Energy, Inc. 3,500 50 Bemis Co. 1,000 50 Convergys Corp. (a) 2,800 49 Meredith Corp. 1,000 49 Monster Worldwide, Inc. (a) 2,200 48 Reebok International Ltd. 1,200 47 ADC Telecommunications, Inc. (a) 15,700 47 PerkinElmer, Inc. 2,700 46 Carmax, Inc. (a) 1,475 46 Compuware Corp. (a) 7,400 45 Rowan Cos., Inc. (a) 1,900 44 Millipore Corp. (a) 1,000 43 The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500[RegTM] Index Fund Investments in Securities 11 December 31, 2003 (Continued) Number of Value Shares (000) - ---------------------------------------------------------------------- Maytag Corp. 1,500 $ 42 Circuit City Stores, Inc. 4,100 42 Deluxe Corp. 1,000 41 Ryder System, Inc. 1,200 41 Coors (Adolph) Co., Class B 700 39 Cummins, Inc. 800 39 Reliant Resources, Inc. (a) 5,210 38 Louisiana-Pacific Corp. (a) 2,100 38 Snap-On, Inc. 1,150 37 Calpine Corp. (a) 7,700 37 Crane Co. 1,200 37 Applied Micro Circuits Corp. (a) 5,900 35 Andrew Corp. (a) 2,993 34 Dynegy, Inc., Class A (a) 7,800 33 Big Lots, Inc. (a) 2,300 33 Cooper Tire & Rubber Co. 1,500 32 Del Monte Foods Co. (a) 3,081 32 Allegheny Energy, Inc. (a) 2,500 32 Worthington Industries 1,700 31 Nicor, Inc. 900 31 Gateway, Inc. (a) 6,400 29 Peoples Energy Corp. 700 29 American Greetings Corp., Class A (a) 1,300 28 Delta Air Lines, Inc. (a) 2,400 28 Dillard's, Inc., Class A 1,700 28 Winn-Dixie Stores, Inc. 2,800 28 Thomas & Betts Corp. (a) 1,200 27 Great Lakes Chemical Corp. 1,000 27 Hercules, Inc. (a) 2,200 27 Visteon Corp. 2,551 27 Smucker (J.M.) Co. 578 26 CMS Energy Corp. (a) 3,000 26 Goodyear (The) Tire & Rubber Co. (a) 3,200 25 Allegheny Technologies, Inc. 1,770 23 Parametric Technology Corp. (a) 5,800 23 Tupperware Corp. 1,200 21 Power-One, Inc. (a) 1,900 21 Advanced Medical Optics, Inc. (a) 644 13 Texas Genco Holdings, Inc. 300 10 Number of Value Shares (000) - ----------------------------------------------------------------------- EnPro Industries, Inc. (a) 460 $ 6 Hudson Highland Group, Inc. (a) 165 4 Mirant Corp. (a) 7,960 3 Agere Systems, Inc., Class A (a) 823 2 Cavco Industries, Inc. (a) 60 1 Unilever NV 1 -- Kadant, Inc. (a) 1 -- WorldCom, Inc. (MCI Group) (a) 12 -- WorldCom, Inc. (WorldCom Group) (a) 1 -- ------- Total Common Stocks (Cost - $191,729) 203,871 -------- SHORT-TERM OBLIGATIONS - 12.2% Money Market Fund - 11.0% TimesSquare VP Money Market Fund (c) 25,800,000 25,800 -------- Principal (000) ---------- U.S. Government - 1.2% U.S. Treasury Bills, 0.98%, 1/29/04 (d) $ 375 375 0.97%, 4/1/04 (d) 1,500 1,496 0.95%, 5/13/04 (d) 1,000 997 -------- 2,868 -------- Total Short-Term Obligations (Cost - $28,668) 28,668 -------- TOTAL INVESTMENTS IN SECURITIES - 99.3% (Total Cost - $220,397) (e) 232,539 Cash and Other Assets Less Liabilities - 0.7% 1,550 -------- NET ASSETS - 100.0% $234,089 ======== The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500[RegTM] Index Fund Investments in Securities 12 December 31, 2003 (Continued) - -------------------------------------------------------------------------------- NOTES TO INVESTMENTS IN SECURITIES (a) Non-income producing securities. (b) TimesSquare Capital Management, Inc., the fund's Investment Advisor, is an indirect wholly owned subsidiary of CIGNA Corp. (c) TimesSquare Capital Management, Inc., the fund's investment adviser, is also adviser to the TimesSquare VP Money Market Fund. (d) This security, or a portion thereof, was pledged as collateral for Stock Index Futures Contracts. At December 31, 2003, the Fund was long 81 S&P 500[RegTM] Futures Contracts expiring in March 2004. Unrealized gains amounted to $543,713. Underlying face value was $21,945,937 and underlying market value was $22,489,650. Tax Information (e) At December 31, 2003, the net unrealized appreciation of investments, based on cost for federal income tax purposes of $221,280,923, was as follows: Aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost $40,962,052 Aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value (29,704,039) ----------- Unrealized appreciation - net $11,258,013 =========== (f) As of December 31, 2003, the components of distributable earnings (excluding unrealized appreciation/(depreciation) disclosed above) on a tax basis consisted of the following: Undistributed ordinary income $ 923,062 Undistributed capital gains $ 1,316,339 - -------------------------------------------------------------------------------- TimesSquare Variable Products S&P 500[RegTM] Index Fund Market % of Value Net Ten Largest Positions (Unaudited) (000) Assets - ------------------------------------------------------------- General Electric Co. $6,159 2.6% Microsoft Corp. 5,896 2.5 Exxon Mobil Corp. 5,364 2.3 Pfizer, Inc. 5,336 2.3 Citigroup, Inc. 4,955 2.1 Wal-Mart Stores, Inc. 4,546 1.9 Intel Corp. 4,163 1.8 American International Group 3,426 1.5 Cisco Systems, Inc. 3,318 1.4 International Business Machine Corp. 3,160 1.3 - -------------------------------------------------------------------------------- The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500[RegTM] Index Fund 13 Statement of Assets and Liabilities December 31, 2003 (In Thousands) Assets: Investments in securities at value $232,539 Cash 1 Receivable for Fund shares sold 1638 Receivable for investments sold 601 Interest and dividends receivable, net of withholding taxes 275 Investment for Trustees' deferred compensation plan 130 Futures variation margin receivable 59 -------- Total assets 235,243 -------- Liabilities: Payable for investments purchased 687 Payable for Fund shares redeemed 182 Deferred Trustees' fees payable 130 Custodian fees payable 54 Insurance expenses payable 21 Audit and legal fees payable 28 Administrative services fees payable 18 Advisory fees payable 17 Shareholder reports payable 15 Other accrued expenses 2 -------- Total liabilities 1,154 -------- Net Assets $234,089 ======== Components of Net Assets: Paid in capital $220,660 Undistributed net investment income 871 Accumulated net realized loss (128) Net unrealized appreciation of investments and futures 12,686 -------- Net Assets $234,089 ======== Shares Outstanding 14,786 ======== Net Asset Value and Redemption Price per Share $ 15.83 ======== Cost of Investments $220,397 ======== Statement of Operations For the Year Ended December 31, 2003 (In Thousands) Investment Income: Income: Dividends $ 3,383 Interest 26 ------- 3,409 ------- Expenses: Investment advisory fees $422 Custodian fees and expenses 159 Administrative services fees 88 Auditing and legal fees 43 Insurance expenses 22 Shareholder reports 16 Trustees' fees 5 Other 8 ---- Total expenses 763 Less expenses waived by Adviser (252) ---- Net expenses 511 ---- Net Investment Income 2,898 ------- Realized and Unrealized Gain on Investments: Net realized gain from: Futures contracts 4,844 Investments 454 ------- 5,298 ------- Net change in unrealized appreciation of: Futures contracts 953 Investments 42,127 ------- 43,080 ------- Net Realized and Unrealized Gain on Investments 48,378 ------- Net Increase in Net Assets Resulting from Operations $51,276 ======= The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500[RegTM] Index Fund 14 Statements of Changes in Net Assets (In Thousands) For the Year Ended December 31, --------------------- 2003 2002 --------------------- Operations: Net investment income $ 2,898 $ 3,172 Net realized gain on investments 5,298 14,399 Net unrealized appreciation (depreciation) on investments 43,080 (76,909) -------- -------- Net increase (decrease) in net assets from operations 51,276 (59,338) -------- -------- Dividends and Distributions: From net investment income (4,276) (3,122) From net realized gain (2,574) (6,528) -------- -------- Total dividends and distributions (6,850) (9,650) -------- -------- Capital Share Transactions: Net proceeds from shares sold 66,928 70,188 Net asset value of shares issued to shareholders in reinvestment of dividends and distributions 6,850 9,650 -------- -------- 73,778 79,838 Cost of shares redeemed (71,408) (126,359) -------- -------- Net increase (decrease) in net assets from Fund share transactions 2,370 (46,521) -------- -------- Net Increase (Decrease) in Net Assets 46,796 (115,509) Net Assets: Beginning of period 187,293 302,802 -------- -------- End of period* $234,089 $187,293 ======== ======== * includes undistributed net investment income of: $ 871 $ 127 ======== ======== For the Year Ended December 31, --------------------- 2003 2002 --------------------- Transactions in Capital Stock: Shares sold 4,884 4,601 Shares issued in reinvestment of dividends and distributions 439 763 -------- -------- 5,323 5,364 Shares redeemed (5,261) (8,131) -------- -------- Net increase (decrease) in shares outstanding 62 (2,767) ======== ======== The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500[RegTM] Index Fund 15 Financial Highlights - -------------------------------------------------------------------------------------------------------------------- For the Year Ended December 31, ----------------------------------------------------------------- 2003 2002 2001 2000 1999 - -------------------------------------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 12.72 $ 17.31 $ 19.95 $ 22.83 $ 19.73 -------- -------- -------- -------- -------- Income from investment operations: Net investment income (a) 0.21 0.23 0.23 0.35 0.32 Net realized and unrealized gain (loss) 3.38 (4.13) (2.66) (2.49) 3.75 -------- -------- -------- -------- -------- Total from investment operations 3.59 (3.90) (2.43) (2.14) 4.07 -------- -------- -------- -------- -------- Less dividends and distributions: From net investment income (0.30) (0.22) (0.21) (0.44) (0.51) From capital gains (0.18) (0.47) -- (0.30) (0.46) -------- -------- -------- -------- -------- Total dividends and distributions (0.48) (0.69) (0.21) (0.74) (0.97) -------- -------- -------- -------- -------- Net asset value, end of period $ 15.83 $ 12.72 $ 17.31 $ 19.95 $ 22.83 ======== ======== ======== ======== ======== Total Return (b) 28.27% (22.51)% (12.18)% (9.37)% 20.77% Ratios to Average Net Assets: Gross expenses 0.37% 0.37% 0.35% 0.36% 0.38% Fees and expenses waived or borne by the Adviser 0.12% 0.12% 0.10% 0.11% 0.13% Net expenses 0.25% 0.25% 0.25% 0.25% 0.25% Net investment income 1.42% 1.32% 1.38% 1.64% 1.57% Portfolio Turnover 2% 7% 2% 4% 3% Net assets, End of Period (000 omitted) $234,089 $187,293 $302,802 $292,739 $282,781 (a) Net investment income per share has been calculated in accordance with SEC requirements, with the exception that end of the year accumulated undistributed/(overdistributed) net investment income has not been adjusted to reflect current year permanent differences between financial and tax accounting. (b) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced. The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500[RegTM] Index Fund Notes to Financial Statements 16 1. Utilization of Indexation Approach. TimesSquare VP S&P 500[RegTM] Index Fund (the "Fund") seeks to achieve its long-term growth objective by attempting to replicate the total return performance, reduced by Fund expenses, of the Standard & Poor's 500[RegTM] Composite Stock Price Index. 2. Significant Accounting Policies. The Fund is a separate series of CIGNA Variable Products Group, a Massachusetts business trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. A. Security Valuation -- Equity securities, including warrants, that are listed on a national securities exchange or are part of the NASDAQ National Market System are valued at the last sale price or, if there has been no sale that day, at the last bid price. Debt and other equity securities traded in the over-the-counter market, including listed securities whose primary markets are believed to be over-the-counter, are valued at the most recent bid price. Short-term investments with remaining maturities of up to and including 60 days are valued at amortized cost, which approximates market. Short-term investments that mature in more than 60 days are valued at current market quotations. Other securities and assets of the Fund are appraised at fair value, as determined in good faith by, or under the authority of, the Trust's Board of Trustees. The Fund's Board of Trustees has designated the Pricing Committee of TimesSquare Capital Management, Inc. to make, pursuant to procedures approved by the Board and under the Board's supervision, all necessary determinations of fair value for the portfolio securities for which market quotations are not readily available. When fair valuing securities, the Pricing Committee takes into account factors such as fundamental and analytical information about the security, the nature and duration of any restrictions on disposition of the security, market information (including, for example, factors such as historical price relationships and valuations for securities with similar characteristics), and evaluation of significant market events. If events occurring after the close of the principal market in which securities are traded (but before the close of regular trading on the NYSE) are believed to materially affect the value of those securities, such securities are valued at their fair value, taking such events into account. B. Futures Contracts -- The Fund is authorized to enter into S&P 500[RegTM] futures contracts. The Fund may use futures contracts with the objective of earning returns on its short-term investments equivalent to returns on the S&P 500[RegTM] Composite Stock Index. As a result, the purchase of futures contracts simulates a fully invested position in the underlying index, while maintaining liquidity. Upon entering into a futures contract, the Fund is required to pledge to the broker an amount of cash and/or securities equal to the initial margin requirements. During the period a futures contract is open, changes in the value of a contract are recognized as unrealized gains or losses by "marking to market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Daily variation margin payments are received or made, depending on whether there were unrealized gains or losses. When a contract is closed, the Fund - -------------------------------------------------------------------------------- TimesSquare VP S&P 500[RegTM] Index Fund Notes to Financial Statements 17 (Continued) 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 is as follows: For the Year Ended December 31, ------------------------------- Tax Character 2002 2003 ---- ---- Ordinary Dividends $3,368,021 $4,276,828 Long-term Capital Gains 6,281,979 2,573,544 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 and capital loss carryforwards. To the extent that such differences are permanent, a reclassification to Components of Net Assets may be required. As a result, at December 31, 2003, the Fund increased its undistributed net investment income by $2,123,183, decreased accumulated net realized gain by $2,124,450 and increased paid in capital by $1,267. 3. Investment Advisory Fees and Other Transactions with Affiliates. Investment advisory fees are paid or accrued to TimesSquare Capital Management, Inc. ("TimesSquare"), certain officers and directors of which are affiliated with the Fund. Such advisory fees are based on an annual rate of 0.25% applied to the daily average net assets of the Fund. TimesSquare has contractually agreed to reimburse the Fund for any amount by which its expenses (including the advisory fee, but excluding interest, taxes, amortized organization expenses, transaction costs incurred in acquiring and disposing of portfolio securities, and extraordinary expenses) exceed, on an annual basis, 0.25% of average daily net assets until April 30, 2004, and thereafter to the extent described in the Fund's then current prospectus. Effective May 1, 2002, TimesSquare retains the right to be repaid by the Fund if the Fund's expenses fall below the percentage specified above prior to the end of the fiscal year or within three years after TimesSquare waives advisory fees or reimburses a Fund's operating expenses. The Fund's remaining contingent liability and expiration dates are as shown below: Remaining Contingent Liability Expires during Expires during (000's) 2005 (000's) 2006 (000's) - -------------------- -------------- -------------- $482 $230 $252 Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund may invest its excess cash in the affiliated - -------------------------------------------------------------------------------- TimesSquare VP S&P 500[RegTM] Index Fund Notes to Financial Statements 18 (Continued) TimesSquare VP Money Market Fund ("TSVPMM") managed by TimesSquare. TimesSquare will waive the amount of its advisory fee for the Fund in an amount that offsets the amount of the advisory fees incurred in the affiliated Fund. For the year ended December 31, 2003, TimesSquare waived $88,887 of its advisory fees payable by the Fund. Income distributions from TSVPMM, which amounted to $195,549 for the year ended December 31, 2003, are recorded as dividend income in the Statement of Operations. For administrative services, the Fund reimburses TimesSquare for a portion of the compensation and related expenses of the Fund's Treasurer and Secretary and certain persons who assist in carrying out the responsibilities of those offices. For the year ended December 31, 2003, the Fund paid or accrued $87,850. TimesSquare is an indirect, wholly-owned subsidiary of CIGNA Corporation. 4. Trustees' Fees. Trustees' fees represent remuneration paid or accrued to trustees who are not employees of CIGNA Corporation or any of its affiliates. Trustees may elect to defer receipt of all or a portion of their fees, which are invested in mutual fund shares in accordance with a deferred compensation plan. 5. Purchases and Sales of Securities. Purchases and sales of securities, excluding short-term obligations, for the year ended December 31, 2003, were $19,109 and $41,732 respectively, for U.S. Government and Agency Obligations and $3,553,427 and $3,010,621 respectively, for all other securities. 6. Capital Stock. The Fund offers an unlimited number of shares of beneficial interest without par value. Of the 14,785,675 shares outstanding at December 31, 2003, 14,608,832 shares were held by Connecticut General Life Insurance Company ("CG Life") relating to variable annuity and variable universal life insurance contracts issued by CG Life. CG Life is an indirect, wholly-owned subsidiary of CIGNA Corporation. The remainder, representing 1.2% of the shares outstanding, was held by an employee benefit plan established by CG Life for certain of its employees. - -------------------------------------------------------------------------------- TimesSquare VP S&P 500[RegTM] Index Fund 19 Report of Independent Auditors To the Trustees and Shareholders of TimesSquare VP S&P 500[RegTM] 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[RegTM] Index Fund (the "Fund") at December 31, 2003, the results of its operations, and 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 auditing standards generally accepted in the United States of America, which 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, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Boston, Massachusetts February 16, 2004 - -------------------------------------------------------------------------------- TimesSquare VP S&P 500[RegTM] Index Fund 20 (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 Trust'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 Vice President (Investor Relations, 14 -- Jones 1995 Public Relations) and Treasurer, 59 Kaman Corporation (helicopters and aircraft components, industrial distribution) Paul J. Trustee Trustee since Special Advisor to Board of 14 Western McDonald 1995 Directors, Friendly Ice Cream Massachusetts 60 Corporation (family restaurants Electric Company and dairy products) Marnie Trustee Trustee since Diocesan Consultant, Episcopal 14 Boston Mutual Life Wagstaff 2003 Diocese of Connecticut; Previously, Insurance Company Mueller Visiting Professor of Health 64 Economics, Wesleyan University Carol Ann Trustee Trustee since Director and Chair of Audit 14 Reed & Barton Hayes 2003 Committee, Reed and Barton Corporation 59 Corporation Affiliated Trustees and Fund Officers Richard H. Trustee, Trustee and Managing Director, CIGNA 14 Director of various Forde Chairman of Chairman Retirement & Investment Services subsidiaries of 50 the Board and since 2002, and TimesSquare Capital CIGNA Corporation President President since Management, Inc. David P. Trustee Trustee since Chief Investment Officer, CIGNA 14 Director of various Marks 2003 Retirement & Investment Services subsidiaries of 57 CIGNA Corporation Alfred A. Vice President Officer CIGNA Funds Treasurer; Assistant 14 -- Bingham III and Treasurer Since 1982 Vice President, TimesSquare Capital 59 Management, Inc. Jeffrey S. Vice President Officer Senior Counsel, 14 -- Winer and Secretary Since 1993 CIGNA Corporation 46 - -------------------------------------------------------------------------------------------------------------------------------- * All Trustees and officers have an address c/o TimesSquare Capital Management, Inc., 280 Trumbull Street, H16C, Hartford, CT 06103 - -------------------------------------------------------------------------------- TimesSquare VP S&P 500[RegTM] Index Fund (Continued) 21 (Unaudited) - -------------------------------------------------------------------------------- "Standard & Poor's[RegTM]," "S&P[RegTM]," "S&P 500[RegTM]," "Standard & Poor's 500," and "500" are trademarks of the Standard & Poor's Corporation (S&P) and have been licensed for use by CG Life. The TimesSquare VP S&P 500[RegTM] Index Fund is not sponsored, endorsed, sold or promoted by S&P, and S&P makes no representation regarding the advisability of investing in the Fund. TimesSquare VP S&P 500[RegTM] Index Fund is an open-end, diversified management investment company that seeks to achieve its long-term growth objective by attempting to replicate the total return performance, reduced by Fund expenses, of the Standard & Poor's 500[RegTM] Composite Stock Price Index. The investment adviser is TimesSquare Capital Management, Inc., 280 Trumbull Street, Hartford, Connecticut 06103. - -------------------------------------------------------------------------------- Item 2. Code of Ethics. 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 TimesSquare Capital Management, 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, 2002 and December 31, 2003, included in the Registrant's annual report to shareholders for those fiscal years, PricewaterhouseCoopers LLP ("PWC") billed the Registrant $52,600 and $59,900, respectively. (b) Audit-Related Fees For the fiscal years ended December 31, 2002 and December 31, 2003, PWC did not bill the Registrant 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, 2002 and December 31, 2003, PWC billed the Registrant $13,275 and $14,675, 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, 2002 and December 31, 2003, 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, 2002 and December 31, 2003, 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, 2002 and December 31, 2003, 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 TimesSquare Capital Management, Inc. ("TimesSquare"), the investment adviser to the Registrant, and other entities controlling, controlled by, under common control with TimesSquare that provide ongoing services to the Registrant for fiscal years ending December 31, 2002 and 2003, were $128,250 and $100,148, respectively. (h) In considering PWC's independence, the Audit Committee considered whether the provision of non-audit services rendered by PWC to TimesSquare and other entities controlling, controlled by, under common control with TimesSquare 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 Listed Registrants. Not applicable. Item 6. [Reserved] Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. Item 9. Submission of Matters to a Vote of Security Holders. The Registrant has adopted 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 10. Controls and Procedures. (a) The officers providing the certifications in this report in accordance with Rule 30a-2 under the Investment Company Act of 1940 have concluded, based on their evaluation of the Registrant's disclosure controls and procedures (as such term is defined in such rule), that such controls and procedures are adequate and reasonably designed to achieve the purposes described in paragraph (c) of such rule. (b) There were no changes in the Registrant's internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the Registrant's last fiscal half-year (the Registrant's second fiscal half-year in the case of an annual report) that have materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting. Item 11. Exhibits. (a)(1) Code of Ethics referred to in Item 2, filed as an exhibit hereto. (a)(2) Nominating committee charter referred to in Item 9, filed as an exhibit hereto. (a)(3) The certifications required by Rule 30a-2 of the Investment Company Act of 1940, as amended, and Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, filed as exhibits hereto. 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 /s/ Jeffrey S. Winer By: --------------------------------------------------- Jeffrey S. Winer, Vice President and Secretary Date: March 5, 2004. Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Richard H. Forde By (Signature and Title)* ------------------------------------------------------ Richard H. Forde, Chairman of the Board and President Date: March 5, 2004. /s/ Alfred A. Bingham III By (Signature and Title)* ------------------------------------------------------ Alfred A. Bingham III, Vice President and Treasurer Date: March 5, 2004.