<PAGE>
- --------------------------------------------------------------------------------
1
DEAR SHAREHOLDER:
We are pleased to provide this report for INA Investment Securities, Inc. (the
"Company") covering the year ended December 31, 1998.
MARKET ACTIVITY
The fourth quarter of 1998 saw a reversal of the remarkable "flight to quality"
which took center stage during the third quarter. At the close of the third
quarter, world capital markets were still in turmoil. The Federal Reserve, in a
pivotal change of focus to look beyond the U.S. economy, eased monetary
conditions in quick succession at the end of September and mid-October, and a
third time at its November meeting for a cumulative 75 basis points of
accommodation. All G-7 central banks have since followed, and combinations of
IMF, World Bank, and G-7 support have been extended to financially troubled
countries.
The fixed income markets' immediate response to these moves was to move out of
Treasuries and back into risk assets, such as corporate bonds. The price
performance for most Treasuries was in fact negative for the quarter, while
assets such as corporate bonds and mortgage-backed securities had positive
returns. The high yield market posted the highest returns, rebounding from being
one of the worst in the preceding quarter. Equity markets also reacted to the
injection of liquidity by rallying quickly and dramatically, making this one of
the shortest bear markets in U.S. stock market history.
While Treasury yields increased modestly over the quarter, the bond market as a
whole managed to hold on to a slight gain. As measured by the Lehman
Government/Corporate Bond Index, the market returned 0.13% for the fourth
quarter, while the return for the full year was 9.47%. 20+ year Treasuries
provided the worst total return at -1.02% for the quarter. This is in stark
contrast to the third quarter and full-year 1998, where long Treasuries were in
fact the star performers.
FUND ACTIVITY
The portfolio remains fully invested. On December 31, 1998, domestic corporate
bonds were approximately 55.1% of portfolio holdings, taxable municipal bonds
17.0%, foreign bonds 8.6%, U.S. Government 15.8%, short-term obligations 2.3%
and cash and other assets 3.5%. Per share net asset value was $19.24, down from
$19.50 on September 30. An income dividend of $.29 and a long-term capital gain
distribution of $.0575 were declared during the quarter.
PERFORMANCE
After deducting expenses and allowing for the reinvestment of dividends, based
on the net asset value of its underlying assets, the Company returned 0.47%
during the fourth quarter and 7.22% for the year-to-date. The Company returned
0.17% and 6.95%, respectively, for the quarter and year-to-date based on the
market value of its shares listed on the New York Stock Exchange. Full-year
performance relative to the Index was adversely affected primarily by its high
yield investments, which included a modest exposure to emerging markets. The
Lehman Brothers Government/Corporate Bond Index, from which no deduction for
expenses is made, contains only investment-grade credits, which fared better in
the turbulent and unique investment environment of 1998.
Sincerely,
/s/ Richard H. Forde
Richard H. Forde
CHAIRMAN OF THE BOARD AND PRESIDENT
INA INVESTMENT SECURITIES, INC.
<PAGE>
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INA INVESTMENT SECURITIES, INC. MANAGEMENT DISCUSSION AND ANALYSIS (UNAUDITED) 2
1998 marked a watershed year for the U.S. economy and financial markets, as
well as many world markets. The U.S. was enjoying its eighth year of economic
expansion, low inflation, declining interest rates, and strong corporate profit
growth. World economic output in the past few years had expanded at a rapid
clip, inflation was under control, and trade flourished. The severe economic and
financial dislocations which hit full-force in 1998, however, and spread though
Asia and to other parts of the world had far-reaching effects which will
continue to shape the course of events for years. The official growth in global
GDP fell from approximately 4% in both 1996 and 1997 to roughly 2% during 1998,
and is likely to weaken further in 1999. Powerful deflationary forces spread
around the globe, with world commodity prices hitting 21-year lows.
For world financial markets, 1998 was a year of extreme volatility. Financial
markets experienced several massive swings in investor psychology and market
sentiment, as bonds and equities alternated between periods of risk-aversion,
and even panic, on one hand, and complacency and greed on the other. It was also
a year of almost unprecedented volatility across the entire spectrum of
investment markets: domestic and foreign, debt and equity, and high-grade and
low-grade quality market sectors.
Some of the excesses experienced in the "flight to quality" in 1998 have
already begun to be reversed. While markets in fixed-income products may remain
choppy in 1999, we are comfortable that the overweighting in the portfolio
relative to the Lehman Brothers Index in corporate and high-yield sectors, as
well as selective investments in Mortgage-backed and Asset-backed securities
will provide longer-term positive returns for the Company. As long as the Asian
crisis continues to provide a positive backdrop for interest rates and
fixed-income assets, we will also continue to maintain a portfolio duration
modestly longer than the Index.
Looking forward, our outlook for the U.S. economy for 1999 is one of
moderating growth from 1998's nearly 4% pace. Should the economy falter, or
global economic strains increase, the Federal Reserve has shown its willingness
to intervene. Volatility will remain in the markets, although we expect nothing
like last year's financial shocks and ensuing panic. Investors are now much
better compensated for bearing risk, and we see 1999 to be a year of unusual
opportunity for non-Treasury or "spread" investors who are able to target the
right sectors and names.
[THE FOLLOWING APPEARS AS A BAR CHART GRAPHIC]
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (UNAUDITED)
1/1/89 - 12/31/98
|------------------------------------------------------|
| AVERAGE ANNUAL RETURN |
| |
| 1 Year 3 Year 5 Year 10 Year |
|Market Value 6.95% 7.58% 7.03% 8.99% |
|Net Asset Value 7.22% 6.43% 6.83% 9.07% |
|------------------------------------------------------|
IIS
UNIT VALUE LEHMAN GC IIS LEHMAN GC
MARKET VALUE UNIT VALUE INVESTMENT INVESTMENT
12/88 31.56196 4.48439 $10,000 $10,000
12/89 34.98041 5.12300 $11,083 $11,424
12/90 33.90912 5.54826 $10,744 $12,372
12/91 44.15157 6.44357 $13,989 $14,369
12/92 46.52982 6.93006 $14,742 $15,454
12/93 53.14012 7.69490 $16,837 $17,159
12/94 48.71064 7.42572 $15,433 $16,559
12/95 59.94863 8.85480 $18,994 $19,746
12/96 60.11794 9.11079 $19,048 $20,317
12/97 69.78255 10.00000 $22,110 $22,300
12/98 74.63514 10.94700 $23,647 $24,411
IIS = INA Investment Securities, Inc. - Total return based on market value of
common shares
LEHMAN GC = Lehman Brothers Government/Corporate Bond Index
INA Investment Securities' (the "Company") performance figures are historical
and reflect reinvestment of all dividends and capital gains distributions and
changes in the market value of its stock, or as shown separately in the box,
changes in its underlying net asset value. The Company is a closed-end
management investment company which trades over the New York Stock Exchange
under the ticker symbol "IIS." Company performance does not reflect exchange
commissions payable upon the purchase or sale of the Company's stock. The
Company'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 cannot guarantee comparable future results. The
Company's return has been compared with the total return performance of Lehman
Brothers Government/Corporate 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 charges or other investment expenses.
<PAGE>
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INA INVESTMENT SECURITIES, INC. INVESTMENTS IN SECURITIES December 31, 1998 3
MARKET
PRINCIPAL VALUE
(000) (000)
- -----------------------------------------------------------------
LONG-TERM BONDS - 96.5%
CONSUMER AND RETAIL - 2.8%
Dayton Hudson Corp., 9.75%, 2002 $ 500 $ 565
Herff Jones, Inc., 11.0%, 2005 ( 144A
security acquired August, 1995 for
$300,000)* 300 326
May Department Stores Co.,
10.625%, 2010 435 604
Penney (J.C.), Inc., 7.4%, 2037 1,000 1,087
----------
2,582
----------
CONSUMER NON-CYCLICAL - 2.0%
MedPartners, Inc., 6.875%, 2000 1,000 861
Tenet Healthcare Corp., 7.875%, 2003 1,000 1,020
----------
1,881
----------
ENTERTAINMENT AND COMMUNICATIONS - 10.4%
Casino America, Inc., 12.5%, 2003 500 553
Century Communications Corp., 9.5%, 2005 500 565
Disney (Walt) Co., 1.5%, 1999 2,000 1,950
Grupo Iusacell, S.A. de C.V., 10%, 2004
(144A security acquired July, 1997 for
$500,000)* 500 425
IXC Communications, Inc., 9.0%, 2008 250 252
Mirage Resorts, Inc., 6.75%, 2007 400 387
Price Communications Wireless, Inc.,
11.75%, 2007 500 535
Southwestern Bell Telephone Co.,
7.375%, 2027 1,000 1,105
TKR Cable, Inc., 10.5%, 2007 500 545
Tele-Communications, Inc., 9.25%, 2002 500 556
Time Warner Entertainment Co.,
10.15%, 2012 1,750 2,351
Total Access Communications Public Co., Ltd.,
7.625%, 2001 (144A security acquired
Oct., 1996 for $499,855)* 500 340
----------
9,564
----------
FINANCIAL - 15.0%
Abbey National PLC, 7.35%, 2049 750 806
American General Fin. Corp., 5.9%, 2003 900 907
Banco Nacional de Comercio Exterior, S.N.C.,
7.25%, 2004 500 456
Case Credit Corp., 6.0%, 2001 800 796
Corporacion Andina De Fome,
7.1%, 2003 200 194
First Union National Bank of Florida,
6.18%, 2036 1,000 991
General Motors Acceptance Corp.,
6.75%, 2002 1,000 1,026
MARKET
PRINCIPAL VALUE
(000) (000)
- ---------------------------------------------------------------
Heller Financial, Inc.,
6.56%, 1999 $ 1,000 $ 1,003
9.125%, 1999 500 509
Inter-American Development Bank,
8.875%, 2009 2,000 2,529
Merrill Lynch and Co., Inc., 7.26%, 2002 800 836
Middletown Trust, 11.75%, 2010 848 935
United Post Office Investments,
7.75%, 1999 1,000 1,004
Western National Corp., 7.125%, 2004 1,000 1,061
World Financial Properties Tower,
6.95%, 2013 (144A security acquired
Nov, 1996 for $750,000)* 750 765
---------
13,818
---------
FOOD AND BEVERAGE - 3.2%
Bass America, Inc., 8.125%, 2002 1,500 1,599
ConAgra, Inc., 9.75%, 2021 1,000 1,336
---------
2,935
---------
FOREIGN GOVERNMENT - .8%
Panama, (Republic of), 7.875%, 2002
(144A security acquired Feb., 1997 for
$754,725)* 750 718
---------
INDUSTRIAL -7.2%
Air Products & Chems., Inc., 8.5%, 2006 1,500 1,685
Beckman Instruments, Inc., 7.1%, 2003 500 503
Domtar, Inc., 8.75%, 2006 400 424
Fisher Scientific International, Inc.,
7.125%, 2005 500 458
ICF Kaiser International, Inc., 13.0%, 2003 500 250
IMC Global , 7.4%, 2002 500 506
Laidlaw, Inc., 6.65%, 2004 1,300 1,290
Pindo Deli Finance Mauritius Ltd.,
10.75%, 2007 500 265
Smurfit Capital Funding PLC, 6.75%, 2005 1,000 993
Tjiwi Kimia International Finance,
13.25%, 2001 500 310
----------
6,684
----------
OIL & GAS - 5.4%
Coastal Corp., 6.5%, 2008 1,000 1,025
Gulf Canada Resources Ltd., 8.35%, 2006 1,000 1,035
Imexsa Export Trust, 10.125%, 2003
(144A security acquired May, 1996
for $690,723)* 691 608
Louis Dreyfus National Gas Corp.,
9.25%, 2004 1,000 1,033
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
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INA INVESTMENT SECURITIES, INC. INVESTMENTS IN SECURITIES December 31, 1998
(Continued) 4
MARKET
PRINCIPAL VALUE
(000) (000)
- -----------------------------------------------------------------
Sonat, Inc.,
9.5%, 1999 $ 1,000 $ 1,025
9.0%, 2001 250 267
----------
4,993
----------
STRUCTURED SECURITIES - 7.0%
CitiCorp. Mtg. Securities, Inc., 6.75%,
2028 1,000 987
Countrywide Home Loans, Inc.,
6.75%, 2028 1,300 1,309
General Electric Capital Mtg. Services, Inc.,
6.5%, 2023 750 750
6.75%, 2028 1,000 1,016
Iroquois Trust, 6.752%, 2007 (144A security
Mar, 1998 for $730,891)* 725 735
Morgan (J.P.) Commercial Mortgage
Finance Co., 6.533%, 2030 600 620
Residential Asset Securitization Trust,
6.75%, 2028 1,000 997
----------
6,414
----------
TAXABLE MUNICIPALS - 17.0%
Dallas Texas Revenue, 6.625%, 2027 1,000 1,021
Elmhurst Ill Sales Tax Revenue, 6.75%, 2006 465 497
Energy Acquisition Corp., 6.19%, 2002 900 919
Huntsville Solid Waste, 5.85%, 2002 1,000 1,010
Mendocino Cty. CA Pension Oblig.,
6.89%, 2006 2,070 2,188
Norfolk VA Redevelopment & Housing
Authority, 8.0%, 2015 500 551
Oakland CA Pension Oblig., 6.38%, 2000 500 510
Oklahoma City Oklahoma Airport
Trust, 6.55%, 2006 1,000 1,047
Orange County CA Pension Obligations,
Zero Coupon, 2014 4,000 1,491
Phoenix AZ Civic Imp. Corp., 6.15%, 2005 500 512
Phoenix AZ Civic Plaza Bldg., 6.75%, 2006 700 738
Residential Funding Mortgage Securities, Inc.,
6.75%, 2028 1,250 1,330
St. Louis MO Municipal Finance Corp.,
6.45%, 2007 800 830
Shreveport LA Certificate of Indebtedness,
6.23%, 2002 500 510
Trinity County Calif. Pension Oblig.,
6.35%, 2011 1,000 1,014
Wilkes Barre, PA, 6.4%, 2009 1,500 1,543
---------
15,711
---------
MARKET
PRINCIPAL VALUE
(000) (000)
- ---------------------------------------------------------------
TRANSPORTATION - 5.8%
AMR Corp., 9.2%, 2012 $ 505 $ 606
CSX Corp., 7.25%, 2027 800 855
Delta Air Lines, Inc.,
9.45%, 2006 946 1,065
10.14%, 2012 (144A security acquired
July, 1995 for $1,112,260)* 1,000 1,276
Hertz Corp., 7.0%, 2003 500 522
Kitty Hawk, Inc., 9.95%, 2004 500 488
Norfolk Southern Corp., 7.05%, 2037 500 541
---------
5,353
---------
UTILITIES - 4.1%
Cajun Electric Power Co-op.,
8.92%, 2019 500 530
El Paso Electric Co., 7.25%, 1999 500 500
Endesa-Chile Overseas Co., 7.2%, 2006 1,000 919
Hyder PLC, 6.75%, 2004 (144A security
acquired Dec., 1997 for $749,205)* 750 769
Niagara Mohawk Power Co., 7.625%, 2005 500 527
Public Service Company of Colorado,
8.125%, 2004 290 321
Salton Sea Funding Corp., 7.02%, 2000 174 176
---------
3,742
---------
U.S. GOVERNMENT & AGENCIES - 15.8%
Federal National Mortgage Assoc.,
Zero Coupon, 2019 500 149
6.5%, 2028 790 795
6.5%, 2028 975 980
United States Treasury Bonds,
12.0%, 2013 775 1,183
6.5%, 2026 5,615 6,529
United States Treasury Bonds
Stripped-Principal Only,
Zero Coupon, 2008 500 316
Zero Coupon, 2016 10,525 4,041
United States Treasury Notes,
6.625%, 2007 525 590
----------
14,583
----------
TOTAL LONG-TERM BONDS
(Cost - $86,729,071) 88,978
----------
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
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INA INVESTMENT SECURITIES, INC. INVESTMENTS IN SECURITIES December 31, 1998
(Continued) 5
MARKET
PRINCIPAL VALUE
(000) (000)
- ---------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 2.3%
COMMERCIAL PAPER - 2.3%
(Total Cost $2,102,000)
American Express Co., 4.85%, 1/4/99 $ 2,102 $2,102
---------
TOTAL INVESTMENTS IN SECURITIES - 98.8%
(Total Cost - $88,831,071) 91,080
Cash and Other Assets Less Liabilities - 1.2% 1,122
---------
NET ASSETS - 100.0% $92,202
=========
* Indicates restricted security; the aggregate value of restricted securities
is $5,961,109 (aggregate cost $6,087,659) which is approximately 6.5% of net
assets. Valuations have been furnished by brokers trading in the securities
or a pricing service for all restricted securities.
---------------------------------------------------------------
PORTFOLIO COMPOSITION (UNAUDITED)
December 31, 1998
MARKET % OF
QUALITY RATINGS* OF VALUE MARKET
LONG-TERM BONDS (000) VALUE
------------------------------------------------------------
Aaa/AAA $ 37,711 42.4%
Aa/AA 6,630 7.5%
A/A 17,376 19.5%
Baa/BBB 13,806 15.5%
Ba/BB 7,389 8.3%
B/B 4,502 5.1%
Below B 560 0.6%
Not Rated 1,004 1.1%
---------- ----------
88,978 100.0%
========== ==========
*The higher of Moody's or Standard & Poor Ratings.
------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
(IN THOUSANDS)
--------------
ASSETS:
Investments at market value
(Cost $88,831,071) $ 91,080
Cash 40
Interest receivable 1,548
Investment for directors' deferred
compensation plan 211
-------------
TOTAL ASSETS 92,879
-------------
LIABILITIES:
Capital gain distribution payable 276
Deferred directors' fees payable 211
Shareholder reports payable 59
Accrued advisory fees payable 43
Audit fees payable 35
Other accrued expenses (including $23,610
due to affiliate) 53
-------------
TOTAL LIABILITIES 677
-------------
NET ASSETS (equivalent to $19.24 per share
based on 4,792,215 shares outstanding;
12,000,000 shares of $.10 par value
authorized) $ 92,202
=============
COMPONENTS OF NET ASSETS:
Paid-in capital $ 89,877
Overdistributed net investment income (54)
Unrealized appreciation of investments 2,248
Accumulated net realized loss 131
-------------
NET ASSETS $ 92,202
=============
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
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INA INVESTMENT SECURITIES, INC. 6
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
--------------
INVESTMENT INCOME
INCOME:
Interest $ 6,567
EXPENSES:
Investment advisory fees $481
Custodian fees 77
Transfer agent fees 70
Administrative services 59
Shareholder reports 47
Auditing and legal fees 42
State taxes 25
Directors' fees 24
Other 20 845
--------- -----------
NET INVESTMENT INCOME 5,722
-----------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net realized gain from investments 1,826
Unrealized depreciation of investments (1,145)
-----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS 681
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 6,403
===========
- -----------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
1998 1997
------------- -------------
(IN THOUSANDS)
-----------------------------
OPERATIONS:
Net investment income $ 5,722 $ 5,850
Net realized gain from investments 1,826 692
Unrealized appreciation (depreciation)
on investments (1,145) 1,360
------------- -------------
Net increase in net assets
from operations 6,403 7,902
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ($1.20
and $1.24 per share, respectively) (5,750) (5,942)
From net realized gain (.0575 per share) (276) -
------------- -------------
Total distributions to shareholders (6,026) (5,942)
------------- -------------
NET INCREASE IN NET ASSETS 377 1,960
NET ASSETS:
Beginning of period 91,825 89,865
------------- -------------
End of period (including overdistributed
net investment income of $53,990
and $35,191, respectively) $ 92,202 $ 91,825
============= =============
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
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INA INVESTMENT SECURITIES, INC. NOTES TO FINANCIAL STATEMENTS 7
1. SIGNIFICANT ACCOUNTING POLICIES. INA Investment Securities, Inc. (the
"Company") is registered under the Investment Company Act of 1940, as amended,
as a diversified, closed-end management investment company. The Company's
objective is to generate income and obtain capital appreciation by investing at
least 85% of its total assets in investment grade debt securities and preferred
stocks. The preparation of financial statements in accordance with generally
accepted accounting principles 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 Company
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 Company are appraised at fair value as determined
in good faith by, or under the authority of, the Company's Board of Directors.
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).
Dividend income is recorded on the ex-dividend date, and interest income is
recorded on the accrual basis. The Company does not amortize premiums or
discounts for book purposes, except for original issue discounts which are
amortized over the life of the respective securities. Securities gains or losses
are determined on the basis of identified cost.
C. FEDERAL TAXES - It is the Company'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 or capital gains, if any,
to its shareholders.
Therefore, no Federal income or excise taxes on realized income have been
accrued.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions are
recorded by the Company on the ex-dividend date. Payments in excess of financial
accounting income due to differences between financial and tax accounting, to
meet the distribution requirements for tax basis income, are deducted from
paid-in capital when such differences are determined to be permanent.
2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES. Investment
advisory fees were paid or accrued to CIGNA Investments, Inc. ("CII"), certain
officers and directors of which are affiliated with the Company. Such advisory
fees are based on an annual rate of 0.55% of the first $75 million of average
weekly net asset value and 0.4% thereafter.
The Company reimburses CII for a portion of the compensation and related
expenses of the Company's Treasurer and Secretary and certain persons who assist
in carrying out the responsibilities of those offices. For the year ended
December 31, 1998, the Company paid or accrued $58,647.
CII is an indirect, wholly-owned subsidiary of CIGNA Corporation.
3. DIRECTORS' FEES. Directors' fees represent remuneration paid or accrued to
directors who are
<PAGE>
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INA INVESTMENT SECURITIES, INC. NOTES TO FINANCIAL STATEMENTS (Continued)
not employees of CIGNA Corporation or any of its affiliates. Directors may
elect to defer receipt of all or a portion of their fees which are invested in
mutual fund shares in accordance with a deferred compensation plan.
4. PURCHASES AND SALES OF SECURITIES. Purchases and sales of securities for the
year ended December 31, 1998 were as follows (excluding short-term obligations):
PROCEEDS
COST OF FROM
SECURITIES SECURITIES
PURCHASED SOLD
---------------------- -----------------------
Bonds $ 30,631,248 $ 22,743,142
U.S. Government Obligations 41,898,102 51,213,540
---------------------- -----------------------
$ 72,529,350 $ 73,956,682
====================== ======================
As of December 31, 1998, the cost of securities for Federal Income tax purposes
was $88,831,071. At December 31, 1998, unrealized appreciation for Federal
income tax purposes aggregated $2,248,494 of which $3,751,293 related to
appreciated securities and $1,502,799 related to depreciated securities.
<PAGE>
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INA INVESTMENT SECURITIES, INC. NOTES TO FINANCIAL STATEMENTS (Continued) 9
5. FINANCIAL HIGHLIGHTS. The following table includes data, ratios and
supplemental data for a share outstanding throughout each period and other
performance information:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD $ 19.16 $ 18.75 $ 19.50 $ 17.56 $ 19.72
INCOME FROM INVESTMENT OPERATIONS
Net investment income (1) 1.18 1.22 1.27 1.32 1.39
Net realized and unrealized gain (loss) 0.16 0.43 (0.73) 1.94 (2.00)
------ ------ ------ ------ -------
TOTAL FROM INVESTMENT OPERATIONS 1.34 1.65 0.54 3.26 (0.61)
------ ------ ------ ------ -------
LESS DISTRIBUTIONS:
From net investment income (1.20) (1.24) (1.29) (1.32) (1.35)
From capital gains (0.06) - - - (0.20)
------ ------ ------ ------ -------
TOTAL DISTRIBUTIONS (1.26) (1.24) (1.29) (1.32) (1.55)
------ ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $19.24 $19.16 $18.75 $19.50 $17.56
======= ======= ======= ======= =======
MARKET VALUE, END OF PERIOD $17.31 $17.38 $16.13 $17.38 $15.25
======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN:
Per share market value 6.95% 16.08% 0.28% 23.07% (8.34)%
Per share net asset value (2) 7.22% 9.16% 3.01% 19.17% (3.13)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $92,202 $91,825 $89,865 $93,444 $84,131
Ratio of operating expenses to average net assets 0.92% 0.99% 0.91% 1.00% 0.96%
Ratio of net investment income to average net
assets 6.20% 6.49% 6.80% 7.10% 7.42%
Portfolio turnover 81% 80% 89% 158% 86%
</TABLE>
(1) 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.
(2) Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Company
during each period, and assumes distributions were reinvested at net asset
value. These percentages do not correspond with the performance of a
shareholder's investment in the Company based on market value since the
relationship between the market price of the stock and net asset value
varied during each period.
<PAGE>
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INA INVESTMENT SECURITIES, INC. NOTES TO FINANCIAL STATEMENTS (Continued) 10
6. QUARTERLY RESULTS (UNAUDITED). The following is a summary of quarterly
results of operations (in thousands except for per share amounts):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
INCR. (DECR.) IN NET
INVESTMENT INCOME NET INVESTMENT INCOME ON INVESTMENTS ASSETS
PERIOD ENDED TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31, 1997 1,718 .36 1,507 .32 (2,188) (.46) (2,166) (.45)
June 30, 1997 1,666 .35 1,461 .30 1,811 .38 1,786 .37
September 30, 1997 1,689 .35 1,482 .31 1,435 .30 1,432 .30
December 31, 1997 1,665 .35 1,400 .29 994 .21 908 .19
March 31, 1998 1,658 .35 1,447 .31 4 .00 (35) (.01)
June 30, 1998 1,662 .35 1,454 .30 524 .11 493 .11
September 30, 1998 1,631 .34 1,414 .29 1,134 .24 1,159 .24
December 31, 1998 1,617 .34 1,353 .28 (927) (.19) (1,240) (.26)
</TABLE>
<PAGE>
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11
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of INA Investment Securities, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, 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 INA Investment Securities, Inc.
(the "Fund") at December 31, 1998, the results of its operations for the year
then ended, the changes in its net assets and the financial highlights for each
of the years indicated, in conformity with generally accepted accounting
principles. 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 generally accepted auditing standards 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, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 1999
<PAGE>
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12
1998 TAX INFORMATION (UNAUDITED)
During 1998, the Company declared ordinary income dividends of $1.20 per share
and $0.0575 from long-term capital gains. The $0.0575 distribution, which was
declared in December 1998, complied with a provision in the Internal Revenue
Code which requires the Company to satisfy certain distribution requirements for
a calendar year. Such distributions must be declared prior to December 31 and
paid prior to the following January 31. Please note that the December 1998
distribution is still considered 1998 taxable long-term capital gain, even
though received in 1999. Dividends reported to you on Form 1099, whether
received as stock or cash, must be included in your Federal income tax return
and must be reported by the Company to the Internal Revenue Service.
Approximately 13.4% of income for the year was derived from U.S. Government
Treasury obligations, and 0.6% from U.S. Government Agency obligations.
AUTOMATIC DIVIDEND AND DISTRIBUTION INVESTMENT PLAN
Shareholders may elect to have all distributions of dividends and capital gains
automatically reinvested by State Street Bank and Trust Company (the "Dividend
Paying Agent") as plan agent under the Automatic Dividend and Distribution
Investment Plan (the "Plan"). Shareholders who do not elect to participate in
the Plan will receive all distributions from the Company in cash paid by check
mailed directly to the shareholder by the Dividend Paying Agent. Shareholders
may elect to participate in the Plan and to have all distributions of dividends
and capital gains automatically reinvested by sending written instructions to
the Dividend Paying Agent at the address set forth below.
If the Directors of the Company declare a dividend or determine to make a
capital gains distribution payable either in shares of the Company or in cash,
as shareholders may have elected, non-participants in the Plan will receive cash
and participants in the Plan will receive the equivalent in shares. If the
market price of the shares as of the close of business on the payment date for
the dividend or distribution is equal to or exceeds their net asset value as
determined as of the close of business on the payment date, participants will be
issued shares of the Company at a value equal to the higher of net asset value
or 95% of the market price. If net asset value exceeds the market price of the
shares at such time, or if the Company declares a dividend or other distribution
payable only in cash, the Dividend Paying Agent will, as agent for Plan
participants, buy shares in the open market, on the New York Stock Exchange or
elsewhere, for the participants' accounts. If, before the Dividend Paying Agent
has completed its purchases, the market price exceeds the net asset value of the
shares, the average per share purchase price paid by the Dividend Paying Agent
may exceed the net asset value of the shares, resulting in the acquisition of
fewer shares than if the dividend or distribution had been paid in shares issued
by the Company.
Participants in the Plan may withdraw from the Plan upon written notice to the
Dividend Paying Agent. When a participant withdraws from the Plan or upon
termination of the Plan as provided below, certificates for the whole shares
credited to his account under the Plan will be issued and a cash payment will be
made for any fraction of a share credited to such account.
The Dividend Paying Agent will maintain all shareholders' accounts in the Plan
and will furnish written confirmation of all transactions in the account,
including information needed by shareholders for tax records. Shares in the
account of each Plan participant (other than participants whose shares are
registered
<PAGE>
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13
in the name of banks, brokers, nominees or other third parties) will be held by
the Dividend Paying Agent in the non-certificated form in the name of the
participant, and each shareholder's proxy will include those shares purchased
pursuant to the Plan. At no additional cost, shareholders of the Company may
send to the Dividend Paying Agent for deposit into their Plan account those
share certificates in their possession. Shareholders may also send share
certificates to the Dividend Paying Agent for the Dividend Paying Agent to hold
in a book-entry account outside of the Plan.
Whether or not shareholders participate in the Plan, they may elect by notice to
the Dividend Paying Agent to have the Dividend Paying Agent sell their
noncertificated book-entry shares. The Dividend Paying Agent will deduct from
the sale proceeds $2.50 per transaction plus $0.15 per share and remit the
balance of the sales proceeds to the shareholder. The Dividend Paying Agent will
sell the noncertificated shares on the first trading day of the week immediately
following receipt of written notification by the Dividend Paying Agent.
In the case of shareholders such as banks, brokers or nominees which hold shares
for others who are the beneficial owners, the Dividend Paying Agent will
administer the Plan on the basis of number of shares certified from time to time
by the record shareholders as representing the total amount registered in the
record shareholder's name and held for the account of beneficial owners who are
to participate in the Plan. Investors whose shares are held in the name of
banks, brokers or nominees should confirm with such entities that participation
in the Plan will be possible, and should be aware that they may be unable to
continue to participate in the Plan if their account is transferred to another
bank, broker or nominee. Those who do participate in the Plan may subsequently
elect not to participate by notifying such entities.
There is no charge to participants for reinvesting dividends or distributions,
except for certain brokerage commissions, as described below. The Dividend
Paying Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Company. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Dividend
Paying Agent's open market purchases in connection with the reinvestment of
dividends or distributions.
Participants in the Plan should be aware that they will realize capital gains
and income for tax purposes upon dividends and distributions although they will
not receive any payment of cash.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Company reserves the right to amend or terminate the Plan as applied to any
dividend or distribution paid subsequent to written notice of the change sent to
the participants in the Plan at least 90 days before the record date for such
dividend or distribution. The Plan also may be amended or terminated by the
Dividend Paying Agent on at least 90 days' written notice to participants in the
Plan. All correspondence concerning the Plan including requests for additional
information or an application brochure or general inquires about your account
should be directed to State Street Bank and Trust Company, Stock Transfer
Department, P.O. Box 8200, Boston, MA 02266-8200 or you may call toll-free
1-800-426-5523.
<PAGE>
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INA INVESTMENT SECURITIES, INC.
<TABLE>
<CAPTION>
<S> <C> <C>
TRUSTEES Thomas C. Jones OFFICERS
Hugh R. Beath PRESIDENT, CIGNA INVESTMENT Richard H. Forde
ADVISORY DIRECTOR, MANAGEMENT AND CIGNA CHAIRMAN OF THE BOARD
ADMEDIA CORPORATE ADVISORS, INC. INVESTMENTS, INC. AND PRESIDENT
Paul J. McDonald
Richard H. Forde SENIOR EXECUTIVE VICE PRESIDENT
SENIOR MANAGING DIRECTOR, AND CHIEF ADMINISTRATIVE OFFICER, Alfred A. Bingham III
CIGNA INVESTMENTS, INC. FRIENDLY ICE CREAM CORPORATION VICE PRESIDENT AND TREASURER
Russell H. Jones
VICE PRESIDENT AND TREASURER Jeffrey S. Winer
KAMAN CORPORATION VICE PRESIDENT AND SECRETARY
</TABLE>
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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.
<PAGE>
[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.
- --------------------
BULK RATE
U.S. POSTAGE
PAID
SO. HACKENSACK, NJ ANNUAL REPORT
PERMIT 750
- --------------------
DECEMBER 31, 1998
[CIGNA TREE LEAVES GRAPHIC APPEARS IN BACKGROUND OF COVER]
