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DEAR SHAREHOLDERS:
We are pleased to provide this report for INA Investment Securities, Inc. (the
"Company"), covering the quarter ended September 30, 1998.
MARKET ACTIVITY
World events continued to dominate the financial markets in the third quarter,
as an unprecedented "flight to quality" made U.S. Treasuries one of the few safe
havens. Continued deterioration in Pacific Rim countries spilled over into
Russia, which experienced massive currency devaluation and debt default in
August. Emerging market spreads reached new widths, and risk aversion overtook
domestic markets. The much-publicized hedge fund deleveraging -- in essence, a
global margin call -- also exerted pressure on many market makers' ability
and/or willingness to provide liquidity. Emerging market fixed income and
equities, domestic equities and domestic high yield all reported negative total
returns for the quarter. Within investment-grade fixed income categories, all
spread sectors -- even Agencies -- meaningfully underperformed U.S. Treasuries.
Investment-grade corporate bonds experienced the weakest relative performance,
followed by mortgage-backed securities and asset-backed securities. The
performance divergence between higher-rated and lower-rated credits became even
more pronounced than in the prior quarter, further evidence of the growing
aversion toward risk assets.
Interest rates moved sharply lower during the quarter; the benchmark 30-year
Treasury yield fell 65 basis points, while the 10-year yield dropped 100 basis
points. By September, Federal Reserve ("Fed") Chairman Greenspan made it clear
that inflation was no longer an overriding concern, but that the risk of a
weakening U.S. economy due to global economic stresses was equally important.
This opened the door for a policy shift at the final FOMC (Federal Open Market
Committee) meeting of the quarter. On September 29th, the Fed lowered the
federal funds target rate from 5.50% to 5.25%.
The Lehman Brothers Government/Corporate Bond Index, which is a high quality
index comprised of 70% Treasuries, returned 4.95% for the quarter.
INVESTMENTS
The portfolio remains fully invested. On September 30, corporate and foreign
bonds were approximately 84.5% of portfolio holdings, U.S. government/agency
securities 13.4%, and cash and other assets 2.1%. Per share net asset value was
$19.50, up from $19.16 at December 31, 1997. A dividend of $0.29 per share was
declared during the third quarter.
(continued on panel 4)
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INA INVESTMENT SECURITIES, INC.
FINANCIAL SUMMARY
For the Nine Months Ended September 30 (Unaudited)
(In Thousands)
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1998 1997
---- ----
Net investment income $4,316 $4,451
Net realized and unrealized gain 1,662 1,058
Per share:
Net investment income $ 0.90 $ 0.93
Dividends from net investment income $ 0.91 $ 0.93
Net asset value at end of period $19.50 $18.97
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NET INVESTMENT INCOME PER SHARE
For the Nine Months Ended September 30 (Unaudited)
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1998 1997 1996 1995 1994
- ---- ---- ---- ---- ----
$0.90 $0.93 $0.96 $0.99 $1.05
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STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998 (Unaudited)
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(IN THOUSANDS)
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ASSETS:
Investments at market value (Cost - $88,747,607) $92,097
Interest receivable 1,490
Investment for directors' deferred compensation plan
(Cost - $110,473) 152
Other 8
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Total assets 93,747
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LIABILITIES:
Deferred directors' fees payable 152
Accrued advisory fees payable 42
Other accrued expenses (including $13,288 due to affiliate) 111
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Total liabilities 305
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NET ASSETS $93,442
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NET ASSET VALUE PER SHARE
Applicable to 4,792,215 shares of $.10 par value capital
stock outstanding (12,000,000 shares authorized) $19.50
===========
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INA INVESTMENT SECURITIES, INC.
STATEMENT OF OPERATIONS AND CHANGE IN NET ASSETS
For the Nine Months Ended September 30, 1998
(Unaudited)
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(IN THOUSANDS)
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INVESTMENT INCOME:
Interest $4,951
EXPENSES:
Investment advisory fees $360
Custodian fees 58
Transfer agent fees 47
Administrative services 44
Shareholder reports 43
Auditing and legal fees 32
State taxes 19
Directors' fees 18
Other 14 635
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NET INVESTMENT INCOME 4,316
NET REALIZED GAIN ON INVESTMENTS 1,707
UNREALIZED DEPRECIATION OF INVESTMENTS (45)
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NET INCREASE IN NET ASSETS FROM OPERATIONS 5,978
DISTRIBUTIONS TO SHAREHOLDERS FROM NET
INVESTMENT INCOME (4,361)
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NET INCREASE IN NET ASSETS 1,617
NET ASSETS:
Beginning of period 91,825
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End of period (includes overdistributed net
investment income of $80,373 $93,442
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PERFORMANCE
Based on the net asset value of its underlying assets, the Company returned
2.79% for the third quarter and 6.71% for the year to date, after deducting
expenses and allowing for the reinvestment of dividends. Fund performance was
negatively affected by its low percentage of holdings in U.S. Treasuries. Its
limited exposure (11%) in High Yield and emerging market debt also had a
disproportionately negative impact. Based on the stock price of the shares
listed on the New York Stock Exchange and assuming reinvestment of dividends,
the Company returned 2.72% and 6.77%, respectively, for the quarter and
year-to-date.
OUTLOOK
While the risk of a U.S. economic recession is significantly greater than it
once was, the more probable outcome is a meaningful slowdown in the growth rate
from the domestic economic momentum the U.S. has been experiencing. With the
Federal Reserve entering a phase of monetary ease, and with many economies in
the world actually contracting, the environment for high quality fixed income
instruments should remain favorable for the foreseeable future. As a result, we
remain constructive on U.S. fixed income assets and will maintain a longer than
benchmark duration strategy. We will also upgrade quality where it is possible
to do so without undue penalty in an illiquid market; otherwise, we generally
maintain current positions in anticipation of more orderly markets in the
future.
Sincerely,
/s/ Richard H. Forde
CHAIRMAN OF THE BOARD AND PRESIDENT
INA INVESTMENT SECURITIES, INC.
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INA Investment Securities, Inc. is a closed-end, diversified management
investment company that invests primarily in debt securities. The investment
adviser is CIGNA Investments, Inc., 900 Cottage Grove Road, Hartford,
Connecticut 06152.
Shareholders may elect to have dividends automatically invested in additional
shares of INA Investment Securities, Inc. by participating in the Automatic
Dividend Investment Plan (the "Plan"). For a brochure describing this Plan or
general inquiries about your account contact State Street Bank and Trust
Company, Stock Transfer Department, P.O. Box 8200, Boston, Massachusetts,
02266-8200, or call 1.800.426.5523.
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[CIGNA TREE LOGO GRAPHIC APPEARS HERE]
INA Investment Securities, Inc.
P.O. Box 13856 [CIGNA TREE LOGO GRAPHIC APPEARS HERE]
Philadelphia, PA 19101
INA INVESTMENT SECURITIES, INC.
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BULK RATE
U.S. POSTAGE
PAID
SO. HACKENSACK, NJ THIRD QUARTER REPORT
PERMIT 750
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SEPTEMBER 30, 1998
[CIGNA TREE LEAVES GRAPHIC APPEARS IN BACKGROUND OF COVER]
