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DEAR SHAREHOLDERS:
We are pleased to provide this report for CIGNA Investment Securities, Inc. (the
"Fund") covering the quarter ended March 31, 2000.
THE ECONOMY
The U.S. economy continued to expand at a robust pace during the first quarter,
with all regions of the country and all economic sectors participating in the
prosperity. Despite the steady rise in both short and long-term interest rates
during the past 12 to 18 months, the domestic economy shows very little evidence
that a slowdown in business activity is imminent. The practical significance of
this persistently robust pace of economic expansion is that the level of real
interest rates is too low and must rise further in order to choke off the boom
in domestic demand.
The Federal Reserve (the "Fed") has signaled its intention to continue to
tighten monetary conditions and raise interest rates until the rate of growth of
domestic spending slows to a more sustainable and non-inflationary pace. During
the first quarter, the Fed raised its official interest rate target twice to the
highest level in five years, and more increases appear likely during the next
several months.
MARKET REVIEW
Financial markets exhibited extraordinary volatility and turbulence during the
first quarter. The prices of financial assets were driven primarily by wild
swings in investor psychology, rather than fundamental factors. Within the
domestic bond market, Treasuries outperformed all other sectors. Conversely,
yields on long-term corporate bonds trended higher during the quarter, a result
of persistent strength in business credit demands.
STRATEGY
During the latter part of March, we took advantage of the opportunity to add
more mortgage-backed securities ("MBS") at substantially wider yield spreads. We
finished the quarter modestly overweighted in MBS relative to the Lehman
Brothers Aggregate Bond Index. We are bullish on the outlook for MBS for the
balance of the year, as liquidity remains excellent and prepayment concerns are
muted. We also look to our MBS overweight as the source of funding for future
sector allocation changes.
We believe that corporate bonds offer compelling value at current valuation
levels. However, we remain somewhat cautious, considering the increase in
negative corporate announcements, the equity market's intolerance for earnings
disappointments, and the Fed tightening. In addition, as long duration U.S.
Treasury securities
(CONTINUED ON PANEL 4)
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CIGNA INVESTMENT SECURITIES, INC.
FINANCIAL SUMMARY
For the Three Months Ended March 31, 2000 (Unaudited)
(In Thousands)
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2000 1999
---- ----
Net investment income $1,346 $1,389
Net realized and unrealized gain (loss) (389) (1,983)
Per share:
Net investment income $0.28 $0.29
Dividends from net investment income $0.28 $0.28
Net asset value at end of
period $17.70 $18.84
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NET INVESTMENT INCOME PER SHARE
For the Three Months Ended March 31, 2000 (Unaudited)
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2000 1999 1998 1997 1996
- ---- ---- ---- ---- ----
$0.28 $0.29 $0.31 $0.31 $0.33
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STATEMENT OF ASSETS AND LIABILITIES
March 31, 2000 (Unaudited)
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(IN THOUSANDS)
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ASSETS:
Investments at market value
(Cost - $86,915,960) $ 86,006
Cash 283
Receivable for investments sold 5,120
Interest receivable 1,220
Investment for Directors' deferred compensation plan 166
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Total assets 92,795
LIABILITIES:
Payable for investments purchased 7,648
Deferred Directors' fees payable 166
Accrued advisory fees payable 41
Other accrued expenses (including $10,477 due to affiliate) 93
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Total liabilities 7,949
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NET ASSETS $ 84,846
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NET ASSET VALUE PER SHARE
Applicable to 4,792,215 shares of $0.10 par value capital
stock outstanding (12,000,000 shares authorized) $ 17.70
============
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CIGNA INVESTMENT SECURITIES, INC.
STATEMENT OF OPERATIONS AND CHANGE IN NET ASSETS
For the Three Months Ended March 31, 2000
(Unaudited)
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(IN THOUSANDS)
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INVESTMENT INCOME:
Interest $1,589
EXPENSES:
Investment advisory fees $112
Custodian fees 30
Shareholder reports 24
Transfer agent 23
Administrative services 15
Auditing and legal fees 13
Directors' fees 9
State taxes 7
Other 10 243
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Net Investment Income 1,346
Net realized loss on investments (2,028)
Unrealized appreciation of investments 1,639
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Net Increase in Net Assets From Operations 957
Distributions to shareholders from net
investment income (1,341)
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Net Decrease in Net Assets (384)
NET ASSETS:
Beginning of period 85,230
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End of period (includes undistributed net
investment income of $109,576) $84,846
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become more scarce with increased government debt buybacks, we believe that
investors will be forced to find long duration elsewhere, which would include
high quality corporate issuers.
PERFORMANCE
The Fund returned 1.07% for the first quarter of 2000 (based on its underlying
net asset value), which trailed the Lehman Brothers Aggregate Bond Index return
of 2.21%. However, the Fund's share price returned 5.51% for the quarter,
assuming reinvestment of dividends.
OUTLOOK
There is minimal evidence that higher interest rates have begun to impact
economic growth. Domestic demand continues to exhibit very strong momentum, and
key fundamental factors suggest that robust economic growth will persist for
much of the year.
The financial markets face a period of considerable turbulence, instability, and
risk over a 3-6 month period, a consequence of a major confrontation between the
booming domestic economy and the Federal Reserve. As the Fed continues to
tighten monetary conditions during the next several months, liquidity conditions
will likely deteriorate and short-term interest rates will remain on an upward
path. In this financial environment, both the equity and bond markets will
remain at risk. However, beyond the near term, once the rate of economic growth
finally begins to slow sufficiently to allow the Fed to begin to ease policy, we
anticipate a period where high-grade bonds are likely to outperform equities.
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 TimesSquare Capital Management, Inc., 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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[CIGNA TREE LOGO GRAPHIC APPEARS HERE /R/]
CIGNA Investment Securities, Inc. [CIGNA TREE LEAVES GRAPHIC APPEARS HERE]
P.O. Box 13856
Philadelphia, PA 19101
CIGNA INVESTMENT
SECURITIES, INC.
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BULK RATE
U.S. POSTAGE FIRST QUARTER REPORT
PAID MARCH 31, 2000
SO. HACKENSACK, NJ
PERMIT 750
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[CIGNA TREE LOGO GRAPHIC APPEARS HERE /R/]
