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CIGNA Investment Securities, Inc.
P.O. Box 13856 [CIGNA TREE LOGO GRAPHIC APPEARS HERE]
Philadelphia, PA 19101
CIGNA 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, 1999
[CIGNA TREE LEAVES GRAPHIC APPEARS IN BACKGROUND OF COVER]
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DEAR SHAREHOLDERS:
We are pleased to provide this report for CIGNA Investment Securities, Inc. (the
"Fund") (formerly INA Investment Securities, Inc.), covering the quarter ended
September 30, 1999.
MARKET ACTIVITY
The third quarter proved to be a challenging period for world financial markets.
Tightening monetary conditions, rising commodity prices, and a weaker U.S.
dollar put downward pressure on most stock and bond markets worldwide. The U.S.
Federal Reserve (the "Fed") raised the discount rate and federal funds rate,
while long-term bond yields trended higher in most markets. Most notably,
"credit spreads" ended the quarter wider, a reflection of decreased liquidity
and rising defaults.
PORTFOLIO ACTIVITY
We believe that the level and slope of the yield curve is consistent with
current economic conditions and with expectations about inflation and monetary
policy. Accordingly, we have restructured the portfolio to be approximately
duration neutral to the Index.
The market is offering a very attractive yield premium on agency securities,
which have AAA ratings, low credit risk, and acceptable liquidity. The yield
premium on corporate and high yield bonds also has increased, but the increase
is not commensurate with the deteriorating liquidity conditions and the greater
risk at this stage in the business cycle. We correspondingly increased our
allocation to the agency sector in the third quarter.
In the domestic sector, negative corporate announcements no longer can be
dismissed as "isolated events". As news of disappointments in performance has
increased in frequency--a pattern that often occurs in the late stages of a
business cycle--we have become more cautious. The Yankee sector, which consists
of foreign bonds denominated in U.S. dollars, continues to be the strongest
performer in the corporate index this year, reflecting the fact that the
business cycles in Europe and Asia are in the early stages of recovery. We
believe the Yankee sector will continue to outperform going forward, and
therefore, have increased the weight in Yankees. Finally, we have substituted a
number of high quality municipal bonds for corporates in the portfolio.
Portfolio performance was favorably impacted by our overweight to higher
quality, top tier credit card issuers. This sector performed well relative to
other asset-backed securities sectors reflecting its higher liquidity and
investors' general flight to quality. We expect to continue to emphasize credit
cards during the fourth quarter of 1999.
Domestic high yield bonds lagged the performance of other sectors of the fixed
income markets during the quarter, though they have outperformed year-to-date.
Yield spreads widened by 35 basis points, driven by investor concerns over
higher default rates and the weak technical position of the market. Our exposure
to the high yield sector was the primary reason for the portfolio's
underformance relative to the Index this quarter.
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CIGNA INVESTMENT SECURITIES, INC.
FINANCIAL SUMMARY
For the Nine Months Ended September 30 (Unaudited)
(In Thousands)
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1999 1998
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Net investment income $4,228 $4,316
Net realized and unrealized gain (loss) (5,441) 1,662
Per share:
Net investment income $0.88 $0.90
Dividends from net investment income $0.84 $0.91
Net asset value at end of period $18.15 $19.50
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NET INVESTMENT INCOME PER SHARE
For the Nine Months Ended September 30 (Unaudited)
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1999 1998 1997 1996 1995
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$0.88 $0.90 $0.93 $0.96 $0.99
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STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999 (Unaudited)
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(IN THOUSANDS)
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ASSETS:
Investments at market value
(Cost - $88,350,607) $86,813
Receivable for investments sold 205
Interest receivable 1,483
Investment for Directors' deferred compensation plan 197
Other 2
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Total assets 88,700
LIABILITIES:
Payable for investments purchased 1,121
Deferred Directors' fees payable 197
Distribution payable 287
Accrued advisory fees payable 40
Other accrued expenses (including $10,765 due to affiliate) 89
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Total liabilities 1,734
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NET ASSETS $86,966
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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) $18.15
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CIGNA INVESTMENT SECURITIES, INC.
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
For the Nine Months Ended September 30, 1999
(Unaudited)
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(IN THOUSANDS)
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INVESTMENT INCOME:
Interest $4,816
EXPENSES:
Investment advisory fees $352
Custodian fees 52
Transfer agent fees 51
Administrative services 40
Auditing and legal fees 30
Other 25
Directors' fees 19
State taxes 19 588
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Net Investment Income 4,228
Net realized loss on investments (1,655)
Unrealized depreciation of investments (3,786)
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Net Decrease in Net Assets from Operations (1,213)
Distributions to shareholders from net investment
income (4,023)
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Net Decrease in Net Assets (5,236)
NET ASSETS:
Beginning of period 92,202
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End of period (includes undistributed
net investment income of $150,702) $86,966
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FUND PERFORMANCE
After deducting expenses and allowing for the reinvestment of dividends, based
on the net asset value of its underlying assets, the Fund returned 0.17% for the
third quarter of 1999 and -1.30% year-to-date. The Lehman Brothers
Government/Corporate Bond Index, which does not deduct expenses from
performance, returned 0.54% for the quarter and -1.75% year-to-date. The Fund
returned -0.63% and -7.19%, respectively, based on the underlying value of the
shares listed on the New York Stock Exchange, assuming reinvestment of
dividends.
OUTLOOK
At some point during the next three to six months, the Fed should be successful
in its endeavor to slow the domestic economy, which would likely contribute to
an easing in financial market pressures worldwide. High-grade U.S. fixed income
markets appear to be best positioned for an environment of slower domestic
economic growth, low inflation, and reduced credit demands from both the public
and private sectors.
SPECIAL MEETING OF SHAREHOLDERS
The Fund is currently soliciting shareholder approval to make some changes to
its investment objective and restrictions. We will update you on the results of
this vote in our annual report.
Sincerely,
/s/ Richard H. Forde
Richard H. Forde
CHAIRMAN OF THE BOARD AND PRESIDENT
CIGNA INVESTMENT SECURITIES, INC.
CIGNA Investment Securities, Inc. is a closed-end, diversified management
investment company that invests primarily in debt securities. The investment
adviser is CIGNA Investments, Inc. ("CII"), 900 Cottage Grove Road, Hartford,
Connecticut 06152.
Shareholders may elect to have dividends automatically invested in additional
shares of CIGNA 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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