UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
811-02299
(Investment Company Act file number)
CIGNA Investment Securities
---------------------------
(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]
CIGNA INVESTMENT
SECURITIES
- ------------------------------------------------------
Annual Report
December 31, 2003
[LOGO] CIGNA
- --------------------------------------------------------------------------------
1
Dear Shareholders:
Our report for CIGNA Investment Securities (the "Fund") covering the year ended
December 31, 2003 follows.
Management's Discussion and Analysis
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 5.71%
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 0.50% 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 0.78% return for the Fund
during the same period. For the full year, the Index returned 4.10% to lag the
S&P 500[RegTM] Index (+28.68%), the first time in three years.
Performance
The Fund returned 0.78% for the fourth quarter and 7.07% for the year based on
its net asset value, outperforming the Lehman Brothers Aggregate Bond Index by
46 bps and 297 basis points, respectively. The Fund's return, based on the
market value of its shares traded on the New York Stock Exchange, was 4.28% for
the fourth quarter and 8.75% for the year.
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 bps 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 appetite for risk, is
the backdrop in the investment-grade credit
- --------------------------------------------------------------------------------
2
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 that yield more) are still appealing, especially to banks.
Sincerely,
/s/ Richard H. Forde
Richard H. Forde
Chairman of the Board and President
CIGNA Investment Securities
- --------------------------------------------------------------------------------
3
- --------------------------------------------------------------------------------
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (Unaudited)
12/31/93 - 12/31/03
----------------------------------------------
AVERAGE ANNUAL RETURN
1 Year 5 Year 10 Year
Market Value 8.75% 7.01% 7.02%
Net Asset Value 7.07% 6.12% 6.48%
Lehman Brothers 4.10% 6.62% 6.95%
Aggregate Bond Index
----------------------------------------------
[The following data was represented as a line chart in the printed material]
Lehman Brothers
Fund Aggregate Bond Index
12/31/1993 $10,000 $10,000
12/31/1994 $ 9,166 $ 9,708
12/31/1995 $11,281 $11,502
12/31/1996 $11,313 $11,920
12/31/1997 $13,132 $13,070
12/31/1998 $14,046 $14,206
12/31/1999 $12,443 $14,089
12/31/2000 $15,221 $15,727
12/31/2001 $16,753 $17,055
12/31/2002 $18,127 $18,804
12/31/2003 $19,712 $19,576
CIGNA Investment Securities Inc. (the "Fund") 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 Fund is a closed-end management
investment company which trades over the New York Stock Exchange under the
ticker symbol "IIS." Fund performance does not reflect exchange commissions
payable upon the purchase or sale of the Fund's stock. 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 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 charges or other investment
expenses.
- --------------------------------------------------------------------------------
CIGNA Investment Securities Investments in Securities 4
December 31, 2003
Principal Value
(000) (000)
- ----------------------------------------------------------------------------------
LONG-TERM BONDS - 92.0%
Basic Materials - 0.4%
International Paper Co., 5.50%, 2014 $ 180 $ 181
Stora Enso Oyj, 7.38%, 2011 115 133
Weyerhaeuser Co., 5.25%, 2009 90 93
-------
407
-------
Communications & Media - 10.7%
AT&T Corp., 8.75% (coupon change based on
rating), 2031 70 82
AT&T Wireless Services, Inc., 8.13%, 2012 165 194
British Sky Broadcasting PLC, 8.20%, 2009 295 351
British Telecommunications PLC, 8.88% (coupon
change based on rating), 2030 105 137
Comcast Corp., 5.85%, 2010 90 96
Deutsche Telekom International Finance BV,
8.50%, (coupon change based on rating), 2010 200 242
8.75%, (coupon change based on rating), 2030 205 262
France Telecom SA,
8.45%, (coupon change based on rating), 2006 60 67
9.00%, (coupon change based on rating), 2011 820 985
9.75%, (coupon change based on rating), 2031 75 100
Kyivstar GSM, 12.75%, 2005 (144A security
acquired Nov. 2002 & Jan. 2003 for $182) (b) 180 198
Koninklijke KPN, NV, 8.00%, 2010 395 473
Liberty Media Corp.,
3.50%, 2006 650 653
5.70%, 2013 45 46
News America Holdings,
7.75%, 2045 120 142
7.90%, 2095 120 137
8.25%, 2096 45 53
News America, Inc., 6.75%, 2038 30 33
PTC International Finance II SA, 11.25%, 2009 335 369
Qwest Capital Funding Inc., 7.00%, 2009 30 30
Shaw Communications, Inc.,
8.25%, 2010 190 215
7.20%, 2011 65 70
Principal Value
(000) (000)
- -----------------------------------------------------------------------------------
Communications & Media (continued)
Sprint Capital Corp.,
6.13%, 2008 $ 70 $ 75
8.38%, 2012 80 93
6.88%, 2028 260 254
8.75%, 2032 135 159
Telecom Italia Capital SA,
5.25%, 2013 (144A security acquired
Oct. 2003 for $294) (b) 295 296
6.38%, 2033 (144A security acquired
Oct. 2003 for $159) (b) 160 161
Tele Communications, Inc.,
9.80%, 2012 260 339
7.88%, 2013 385 456
TELUS Corp.,
7.50%, 2007 240 269
8.00%, 2011 595 696
Time Warner, Inc.,
6.75%, 2011 135 151
9.13%, 2013 615 781
8.05%, 2016 170 202
TPSA Finance BV, 7.75%, 2008 (144A security
acquired Aug & Oct. 2002, Mar., Apr., June,
July & Aug. 2003 for $348) (b) 330 350
Univision Communications, Inc., 7.85%, 2011 315 374
Verizon Florida, Inc., 6.13%, 2013 110 118
-------
9,709
-------
Consumer & Retail - 3.3%
Bunge Ltd. Finance Corp., 4.38%, 2008
(144A security acquired Dec. 2003 for $195) (b) 195 196
Campbell Soup Co., 5.88%, 2008 110 121
Heinz (H.J.) Co., 6.38%, 2028 10 11
Heinz (H.J.) Finance Co., 6.75%, 2032 105 117
Kellogg Co., 6.60%, 2011 490 549
Kraft Foods, Inc.,
5.25%, 2007 80 85
5.63%, 2011 200 211
5.25%, 2013 265 267
The Notes to Financial Statements are an integral part of these statements.
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CIGNA Investment Securities Investments in Securities 5
December 31, 2003 (Continued)
Principal Value
(000) (000)
- ------------------------------------------------------------------------------------
Consumer & Retail (continued)
Kroger Co., 7.50%, 2031 $ 35 $ 40
Michaels Stores, Inc., 9.25%, 2009 225 248
Miller Brewing Co., 5.50%, 2013 (144A security
acquired Aug. 2003 for $169) (b) 170 174
Safeway, Inc., 7.25%, 2031 30 33
Schuler Homes, Inc., 9.38%, 2009 280 315
Toll Corp., 8.25%, 2011 110 121
VFB LLC, 10.25%, 2009 (a) 2,129 482
-------
2,970
-------
Diversified - 0.6%
General Electric Co., 5.00%, 2013 420 425
ITT Industries, Inc., 7.40%, 2025 140 160
-------
585
-------
Financial - 13.2%
American Express Credit, Ser.1999-1A, 5.60%, 2006 900 911
BankBoston Corp., 8.25%, 2026 110 127
Boeing Capital Corp., 6.10%, 2011 85 92
CIT Group, Inc.,
6.50%, 2006 175 190
6.88%, 2009 55 62
Citigroup, Inc.,
3.50%, 2008 780 783
7.25%, 2010 195 227
Countrywide Home Loans, 5.50%, 2007 60 64
Credit Suisse First Boston Mortgage Securities Corp.,
4.63%, 2008 95 99
5.50%, 2013 60 62
Interest Only 7.50%, 2032 (c) 700 42
Interest Only 8.00%, 2032 (c) 850 53
Dresdner Funding Trust I, 8.15%, 2031
(144A security acquired Apr., June & Sep. 2003
for $466) (b) 440 502
First Union Capital One, 7.94%, 2027 85 97
Ford Motor Credit Co.,
6.88%, 2006 420 448
7.38%, 2009 310 340
7.38%, 2011 190 207
Principal Value
(000) (000)
- ------------------------------------------------------------------------------------
Financial (continued)
General Motors Acceptance Corp.,
6.88%, 2011 $ 560 $ 603
7.25%, 2011 70 77
7.00%, 2012 55 59
Golden West Financial Corp., 4.13%, 2007 160 166
Goldman Sachs Group, Inc., 6.88%, 2011 330 375
Household Finance Corp.,
4.13%, 2008 340 343
6.38%, 2012 170 187
HVB Funding Trust I, 8.74%, 2031 (144A security
acquired May & June 2003 for $298) (b) 300 354
HVB Funding Trust III, 9.00%, 2031 (144A security
acquired June 2003 for $87) (b) 85 103
International Lease Finance Corp., 6.38%, 2009 165 182
Korea Development Bank,
4.25%, 2007 70 71
5.50%, 2012 15 16
Lehman Brothers Holdings, Inc., 6.63%, 2012 195 220
Manufacturers & Traders Trust, 8.00%, 2010 105 126
Middletown Trust, 11.75%, 2010 763 763
Midland Funding II, 13.25%, 2006 55 64
Morgan (J.P.) Co., 6.00%, 2009 170 186
Morgan Stanley Group, Inc., 6.75%, 2011 230 260
National Rural Utilities Cooperative Finance Corp.,
5.75%, 2009 90 98
NB Capital Trust IV, 8.25%, 2027 125 145
Old Kent Bank, Step Coupon
(7.75% to 8/15/05), 2010 315 340
Prudential Funding LLC, 6.60%, 2008 (144A
security acquired Aug. 2002 for $112) (b) 105 117
Residential Asset Mortgage Products, Inc., Interest
Only, 5.75%, 2005 (c) 1,060 45
Santander Central Hispano Issuance, 7.63%, 2010 15 18
Santander Financial Issuances,
6.80%, 2005 75 80
6.38%, 2011 160 177
Sanwa Finance Aruba AEC, 8.35%, 2009 175 205
Sovereign Bancorp., Inc., 10.50%, 2006 1,115 1,319
The Notes to Financial Statements are an integral part of these statements.
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CIGNA Investment Securities Investments in Securities 6
December 31, 2003 (Continued)
Principal Value
(000) (000)
- ---------------------------------------------------------------------------------------
Financial (continued)
Standard Chartered Bank, 8.00%, 2031
(144A security acquired Mar. & Aug. 2002
for $126) (b) $ 120 $ 145
Takefuji Corp., 9.20%, 2011 (144A security
acquired Dec. 2003 for $84) (b) 75 83
UFJ Finance Aruba AEC, 6.75%, 2013 280 299
Union Planters Corp., 6.75%, 2005 220 238
U.S. West Capital Funding, Inc., 6.50%, 2018 25 22
Wells Fargo & Co., 4.95%, 2013 130 130
-------
11,922
-------
Foreign Government - 2.3%
Argentina (Republic of), 11.38%, 2017 355 99
Brazil (Federal Republic of), 9.25%, 2010 70 75
Bulgaria (Republic of), Floating Rate, 1.94%, 2024 220 217
Quebec (Province of Canada),
5.50%, 2006 475 511
7.50%, 2023 420 515
Russian Federation,
Step Coupon (5.00% to 3/31/07), 2030
(144A security acquired July, Sept., Oct. 2002
& Oct. 2003 for $381) (b) 475 457
United Mexican States, 8.30%, 2031 190 214
-------
2,088
-------
Health Care - 0.2%
HCA, Inc.,
5.25%, 2008 90 92
7.50%, 2033 50 52
Tenet Healthcare Corp., 7.38%, 2013 70 70
-------
214
-------
Industrial - 2.2%
Arrow Electronics, Inc., 6.88%, 2013 55 59
Avnet, Inc., 9.75%, 2008 50 58
BAE Systems Holdings, 6.40%, 2011 (144A security
acquired Dec. 2001 & Nov. 2002 for $509) (b) 505 543
Inco Limited, 5.70%, 2015 115 116
Principal Value
(000) (000)
- ---------------------------------------------------------------------------------------
Industrial (continued)
Lockheed Martin Corp.,
8.20%, 2009 $ 575 $ 698
8.50%, 2029 180 236
Noranda, Inc., 6.00%, 2015 100 102
Systems 2001 Asset Trust LLC, 7.16%, 2011 (144A
security acquired June 2001 for $186) (b) 186 203
-------
2,015
-------
Insurance - 1.5%
American Re Corp., 7.45%, 2026 320 356
AXA SA, 8.60%, 2030 115 145
Monumental Global Funding II, 3.85%, 2008 (144A
security acquired Feb. 2003 for $210) (b) 210 212
Travelers Property Casualty Corp., 5.00%, 2013 110 110
Zurich Capital Trust I, 8.38%, 2037 (144A security
acquired Jan., June, Aug. & Oct. 2003 for
$422) (b) 440 505
-------
1,328
-------
Oil & Gas - 1.9%
Amerada Hess Corp., 7.30%, 2031 200 207
Conoco Funding Co., 6.35%, 2011 515 577
Devon Financing Corp. ULC, 6.88%, 2011 135 153
Duke Capital Corp., 6.25%, 2013 35 37
Duke Energy Field Services LLC,
5.75%, 2006 40 43
6.88%, 2011 30 33
Occidental Petroleum Corp.,
7.65%, 2006 480 526
Petroleos Mexicanos, 9.50%, 2027 140 165
-------
1,741
-------
Pharmaceuticals - 0.7%
Lilly (Eli) & Co., 6.77%, 2036 330 376
Wyeth,
5.25%, 2013 50 51
5.50%, 2014 200 202
-------
629
-------
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
CIGNA Investment Securities Investments in Securities 7
December 31, 2003 (Continued)
Principal Value
(000) (000)
- ---------------------------------------------------------------------------
Transportation - 2.2%
American Airlines, 7.38%, 2016 $ 340 $ 242
Burlington Northern Santa Fe, 6.75%, 2029 45 49
Continental Airlines, Inc., 6.90%, 2017 428 358
Federal Express Corp., 7.60%, 2097 95 106
Ford Motor Co., 6.38%, 2029 110 98
Norfolk Southern Corp.,
7.70%, 2017 130 157
7.90%, 2097 185 219
Union Pacific Corp.,
7.60%, 2005 285 305
5.75%, 2007 210 227
6.13%, 2012 200 217
------
1,978
------
U.S. Government & Agencies (g) - 49.2%
Fannie Mae,
2.50%, 2008 3,970 3,836
4.38%, 2013 685 673
5.50%, 2017 1,121 1,163
7.00%, 2031 221 235
8.00%, 2031 189 204
6.50%, 2032 2,188 2,288
7.00%, 2032 1,624 1,723
5.50%, 2033 2,621 2,656
6.00%, 2033 699 723
6.50%, 2033 891 932
Interest Only 7.30%, 2042 (c) 5,378 137
Financing Corp., Principal Strips from
8.60%, 2019 450 186
9.65%, 2019 5 2
9.70%, 2019 675 288
Principal Value
(000) (000)
- ---------------------------------------------------------------------------
U.S. Government & Agencies (continued)
Freddie Mac,
2.75%, 2008 $ 645 $ 635
6.00%, 2017 851 893
4.50%, 2018 2,808 2,811
5.00%, 2018 3,127 3,189
6.00%, 2032 2,703 2,794
7.50%, 2032 732 786
5.00%, 2033 4,027 3,977
5.50%, 2033 3,188 3,228
Interest Only 9.75%, 2043 (c) 5,027 132
Ginnie Mae,
6.50%, 2031 460 486
6.50%, 2032 282 297
5.50%, 2033 773 787
6.00%, 2033 756 786
U.S. Treasury Bonds,
8.75%, 2017 1,160 1,626
6.00%, 2026 2,315 2,567
U.S. Treasury Inflation Indexed Note,
3.00%, 2012 813 886
U.S. Treasury Notes,
7.88%, 2004 2,095 2,215
4.63%, 2006 435 461
4.38%, 2007 490 519
6.00%, 2009 460 521
------
44,642
------
Utilities - 3.6%
American Electric Power, Inc., 5.38%, 2010 40 42
Carolina Power & Light Co., 6.50%, 2012 105 116
CenterPoint Energy,
5.70%, 2013 (144A security acquired Mar.
& June 2003 for $131) (b) 130 136
7.88%, 2013 (144A security acquired June,
July & Dec. 2003 for $167) (b) 145 164
Columbus Southern Power Co., 5.50%, 2013 55 57
Detroit Edison Co.,
6.13%, 2010 255 280
6.35%, 2032 5 5
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
CIGNA Investment Securities Investments in Securities 8
December 31, 2003 (Continued)
Principal Value
(000) (000)
- -------------------------------------------------------------------------------
Utilities (continued)
Dominion Resources Inc., 6.25%, 2012 $ 60 $ 65
DPL, Inc., 8.25%, 2007 160 174
First Energy Corp.,
5.50%, 2006 415 430
6.45%, 2011 215 223
7.38%, 2031 90 92
Niagara Mohawk Power Co., 7.63%, 2005 378 410
Nisource Finance Corp., 7.88%, 2010 240 285
Ohio Power Co., 5.50%, 2013 25 26
Oncor Electric Delivery Co., 7.25%, 2033 150 171
Pinnacle Partners LP, 8.83%, 2004 (144A security
acquired Mar. & Oct. 2002 for $132) (b) 145 150
Progress Energy, Inc.,
7.10%, 2011 90 101
7.00%, 2031 85 91
Tenaska Alabama II Partners LP, 6.13%, 2023
(144A security acquired Oct. 2003 for $155) (b) 155 160
TXU Australia Holdings LP, 6.15%, 2013
(144A security acquired Dec. 2003 for $80) (b) 80 82
------
3,260
------
Total Long-Term Bonds
(Cost - $80,587) 83,488
------
Number of
Shares
------
PREFERRED STOCK - 2.9%
Communications & Media - 0.3%
Centaur Funding Corp., 9.08% (144A security
acquired Jan., Aug. & Nov. 2001 for $253) (b) 240 295
------
Financial - 2.6%
BCI US Funding Trust, Step Coupon (8.01% to
7/15/08) (144A security acquired Jan. 2003
for $371) (b) 340 391
DBS Capital Funding Corp., Step Coupon (7.66% to
3/21/2011) (144A security acquired Oct. 2003
for $395) (b) 350 403
Number of Value
Shares (000)
- ----------------------------------------------------------------------------
Financial (continued)
IBJ Preferred Capital Co. LLC, Step Coupon
(8.79% to 6/30/08) (144A security acquired
Jan., July, Aug., Oct & Dec. 2003 for $837) (b) 835 $ 910
Natexis AMBS Co. LLC., Step Coupon
(8.44% to 6/30/08) (144A security acquired
May 2002 for $218) 200 235
RBS Capital Trust I, Step Coupon (4.71% to
7/01/13) 430 411
-------
2,350
-------
Total Preferred Stock
(Cost $2,499) 2,645
-------
SHORT-TERM OBLIGATIONS - 5.2%
Money Market Fund - 5.0%
CIGNA Funds Group - Money Market Fund (d) 4,568,159 4,568
-------
Principal
(000)
---------
U.S. GOVERNMENT - 0.2%
U.S. Treasury Bills,
0.99%, 3/04/04 (e) $ 25 25
0.97%, 4/01/04 (e) 150 150
-------
175
-------
Total Short-Term Obligations
(Cost - $4,743) 4,743
-------
Total Investments in Securities - 100.1%
(Total Cost - $87,829) (h) 90,876
Liabilities in excess of Cash and Other Assets - (0.1%) (164)
-------
NET ASSETS - 100.0% $90,712
=======
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
CIGNA Investment Securities Investments in Securities 9
December 31, 2003 (Continued)
- --------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES
(a) 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.
(b) Indicates restricted security; the aggregate value of restricted securities
is $7,523,546 (aggregate cost $6,964,833), which is approximately 8.3% of
net assets. Valuations have been furnished by brokers trading in the
securities or a pricing service for all restricted securities.
(c) Illiquid security.
(d) TimesSquare Capital Management, Inc., the fund's investment adviser, is
also the adviser to the CIGNA Funds Group - Money Market Fund.
(e) Pledged as collateral for financial futures contracts. At December 31,
2003, the Fund was long 29, 2-year U.S. Treasury Notes and was short 6,
30-year Treasury Bonds, 28 10-year and 69, 5-year U.S. Treasury Notes,
futures contracts, all expiring in March 2004. Net unrealized gain amounted
to $13,720. Underlying face values of the long and short positions were
$6,191,953 and ($11,499,750), respectively, and underlying market values
were $6,207,360 and ($11,501,437), 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 1,230,000 1,354,702 191,987
Sells
3/12/04 Euro 1,230,000 1,446,719 (99,565)
(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
$88,237,012, was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value
over tax cost $3,135,272
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value (496,226)
----------
Unrealized appreciation - net $2,639,046
==========
(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:
Capital loss carryforward
Expiring 2010 $1,218,017
- --------------------------------------------------------------------------------
Quality Ratings* of Long-Term Bonds (Unaudited)
December 31, 2002
Value % of
(000) Value
- ---------------------------------
Aaa/AAA $46,118 55.2%
Aa/AA 3,190 3.8%
A/A 10,636 12.7%
Baa/BBB 20,022 24.0%
Ba/BB 2,374 2.9%
B/B 516 0.6%
Below B 150 0.2%
Not Rated 482 0.6%
------- -----
$83,488 100.0%
======= =====
*The higher of Moody's or Standard & Poor's Ratings.
- --------------------------------------------------------------------------------
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
CIGNA Investment Securities 10
Statement of Assets and Liabilities
December 31, 2003
(In Thousands)
Assets:
Investments at value $90,876
Cash 20
Interest and dividends receivable 939
Investments for Trustees' deferred compensation plan 198
Receivable for forward currency contracts 192
Swap contracts receivable 30
-------
Total assets 92,255
-------
Liabilities:
Income distribution payable 854
Payable for investments purchased 210
Deferred Trustees' fees payable 198
Payable for forward currency contracts 100
Advisory fees payable 40
Custodian fees payable 40
Audit and legal fees payable 32
Shareholder reports payable 23
Insurance expense payable 15
Futures variation margin payable 14
Administrative services fees payable 10
Transfer agent fees payable 6
Other accrued expenses 1
-------
Total liabilities 1,543
-------
Net Assets (equivalent to $18.93 per share based on
4,792,215 shares outstanding; 12,000,000 shares of
$0.10 par value authorized) $90,712
=======
Components of Net Assets:
Paid-in capital $89,742
Overdistributed net investment income (587)
Accumulated net realized loss (1,596)
Unrealized appreciation of investments, futures and
forward contracts and swaps 3,153
-------
Net Assets $90,712
=======
Cost of Investments $87,829
=======
Statement of Operations
For the Year Ended December 31, 2003
(In Thousands)
Investment Income:
Income:
Interest income $4,286
Dividend Income 84
------
4,370
Expenses:
Investment advisory fees 457
Custodian fees 120
Shareholder reports 55
Administrative services fees 50
Auditing and legal fees 47
Transfer agent fees 39
Trustees' fees 29
Stock exchange fees 25
Insurance expense 15
Other 18
----
Total expenses $855
----
Net Investment Income 3,515
------
Realized and Unrealized Gain (Loss) on
Investments:
Net realized gain from:
Forward currency contracts 55
Futures contracts (479)
Swap contracts 571
Investments 2,224
------
2,371
------
Net change in unrealized appreciation
(depreciation) of:
Forward currency contracts 90
Futures contracts 185
Swap contracts (1)
Investments 72
------
346
------
Net Realized and Unrealized Gain on
Investments 2,717
------
Net Increase in Net Assets Resulting from
Operations $6,232
======
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
CIGNA Investment Securities 11
Statements of Changes in Net Assets
(In Thousands)
For the Year Ended
December 31,
-----------------------
2003 2002
-----------------------
Operations:
Net investment income $ 3,515 $ 3,812
Net realized gain (loss) on investments 2,371 (850)
Net unrealized appreciation on investments 346 4,121
------- -------
Net increase in net assets from operations 6,232 7,083
------- -------
Dividends and Distributions:
From net investment income (5,310) (4,792)
------- -------
Total dividends and distributions (5,310) (4,792)
------- -------
Net Increase in Net Assets 922 2,291
Net Assets:
Beginning of period 89,790 87,499
------- -------
End of period* $90,712 $89,790
======= =======
* includes overdistributed net
investment income of: $ (587) $ (317)
======= =======
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
CIGNA Investment Securities 12
Financial Highlights
- --------------------------------------------------------------------------------------------------------------------
For the Year Ended December 31,
------------------------------------------------------------------
2003 2002 2001(c) 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value, beginning of period $ 18.74 $ 18.26 $ 18.11 $ 17.79 $ 19.24
Income from investment operations
Net investment income (a) 0.73 0.80 1.00 1.15 1.18
Net realized and unrealized gain (loss) on
investments 0.57 0.68 0.39 0.37 (1.42)
------- ------- ------- ------- -------
Total from investment operations 1.30 1.48 1.39 1.52 (.24)
------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income (1.11) (1.00) (1.24) (1.20) (1.18)
Distributions from net realized capital gains -- -- -- -- (0.03)
------- ------- ------- ------- -------
Total dividends and distributions (1.11) (1.00) (1.24) (1.20) (1.21)
------- ------- ------- ------- -------
Net asset value, end of period $ 18.93 $ 18.74 $ 18.26 $ 18.11 $ 17.79
------- ------- ------- ------- -------
Market value, end of period $ 17.09 $ 16.75 $ 16.42 $ 16.06 $ 14.19
======= ======= ======= ======= =======
Total Investment Return:
Per share market value 8.75% 8.20% 10.10% 22.33% (11.41)%
Per share net asset value (b) 7.07% 8.39% 7.81% 8.92% (1.23)%
Ratios to Average Net Assets
Expenses 0.94% 1.04% 0.97% 0.94% 0.91%
Net investment income 3.86% 4.35% 5.39% 6.58% 6.36%
Portfolio Turnover 153% 393% 336% 319% 110%
Net Assets, End of Period (000 omitted) $90,712 $89,790 $87,499 $86,789 $85,230
(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) Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund during
each period, and assumes distributions were reinvested at net asset value.
These percentages may not correspond with the performance of a
shareholder's investment in the Fund based on market value, since the
relationship between the market price of the stock and net asset value
varied during each period.
(c) 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 $0.01 per share. The
effect to the ratio of net investment income to average net assets was a
decrease of 0.07%. Per share, ratios, and supplemental data for periods
prior to January 1, 2001 have not been restated to reflect this change in
accounting principle.
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
CIGNA Investment Securities Notes to Financial Statements 13
1. Organization. CIGNA Investment Securities (the "Fund") is registered under
the Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. The Fund's objective is to generate income and
obtain capital appreciation by investing, under normal market conditions, at
least 65% of its total assets in investment-grade debt securities and preferred
stocks.
2. Significant Accounting Policies. 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
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. 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 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 failure of the other party to honor the transaction. The Fund
records changes in market
- --------------------------------------------------------------------------------
CIGNA Investment Securities Notes to Financial Statements (Continued) 14
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:
(1) market value of investment securities, other assets and liabilities at the
daily rates of exchange, and
(2) 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 segregates 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.
A 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
- --------------------------------------------------------------------------------
CIGNA Investment Securities Notes to Financial Statements (Continued) 15
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.
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, 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)
- ------------------------------------------------------------------------------------
Bear Stearns Bear Stearns High
Yield Index $870,000 0 05/01/04 $ 0
Bear Stearns Bear Stearns High
Yield Index $470,000 10 06/01/04 $(197)
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 the
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 or capital gains 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.
At December 31, 2003, the Fund had a post-October loss of $113,141, of which
$30,568 was a
- --------------------------------------------------------------------------------
CIGNA Investment Securities Notes to Financial Statements (Continued) 16
post-October currency loss. 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 are declared and distributed quarterly 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 of premium amortization, deferred compensation, interest on defaulted
securities, foreign currency transactions, capital loss carryforwards, deferred
losses due to wash sales, and excise tax regulations. 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
overdistributed net investment income by $1,582,540, increased accumulated net
realized loss by $1,521,666 and decreased paid in capital by $60,874.
3. Investment Advisory Fees and Other Transactions with Affiliates. Investment
advisory fees were 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 0.55% of the first $75
million of average weekly net asset value and 0.40% thereafter. TimesSquare is
an indirect, wholly-owned subsidiary of CIGNA Corporation.
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission,
and as approved by the shareholders at the shareholder meeting of April 30,
2002, the Fund may invest excess cash, up to 25% of the Fund's total assets, in
the affiliated CIGNA Fund's Group Money Market Fund (MMF) 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 Fund
as a result of its investment in MMF. For the year ended December 31, 2003,
TimesSquare waived $19,670 of its advisory fee payable by the Fund. Income
distributions from MMF, which amounted to $43,659 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 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 $50,648.
4. Trustees' Fees. Trustees' fees represent remuneration incurred for 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 for the
year ended December 31, 2003, were as follows (excluding short-term
obligations):
Cost of Proceeds From
Securities Securities
Purchased Sold
------------ -------------
Bonds $ 33,611,942 $ 44,205,855
U.S. Government Obligations 98,905,640 83,976,631
------------ ------------
$132,517,582 $128,182,486
============ ============
- --------------------------------------------------------------------------------
CIGNA Investment Securities 17
Report of Independent Auditors
To the Trustees and Shareholders of CIGNA Investment Securities
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 CIGNA Investment Securities (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
- --------------------------------------------------------------------------------
CIGNA Investment Securities 18
(Unaudited)
2003 Tax Information
During 2003, the Fund declared dividends of $1.11 per share. For federal income
tax purposes, this included ordinary income dividends of $1.11 per share. There
were no capital gain distributions. Dividends reported to you as ordinary income
dividends on Form 1099, whether received as stock or cash, must be included in
your federal income tax return and must be reported by the Fund to the Internal
Revenue Service.
The Fund hereby designates 0.77% or the maximum amount allowable of its net
taxable income as qualified dividends as provided in the Jobs and Growth Tax
Relief Reconciliation Tax Act of 2003. The 2003 Form 1099-DIV you receive will
show the tax status of all distributions paid to you during the year.
Approximately 1% of ordinary income dividends would be eligible for the dividend
received deduction (available to corporate shareholders only).
Approximately 11% of ordinary income dividends for the year were derived from
U.S. Government Treasury Obligations, and 31% from U.S. Government Agency
obligations.
At December 31, 2003, 49.4% of the net assets was invested in U.S. Government
and Agencies Obligations.
Automatic Dividend and Distribution Investment Plan
Shareholders may elect to have all distributions of dividends and capital gains
automatically reinvested by EquiServe (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 Fund 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 on the following page.
If the Trustees of the Fund declare a dividend or determine to make a capital
gains distribution payable either in shares of the Fund 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 Fund 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 Fund 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 Fund.
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 or her account under the Plan will be issued and a cash payment
will be made for any fraction of a share credited to such account.
- --------------------------------------------------------------------------------
CIGNA Investment Securities 19
(Unaudited)
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 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 Fund
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 Fund. 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 Fund 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 inquiries about your account,
should be directed to EquiServe, P.O. Box 43011, Providence, RI 02940-3011 or
you may call toll free 1-800-426-5523.
- --------------------------------------------------------------------------------
CIGNA Investment Securities 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 Fund's Board of Trustees. 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 Directors
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 2001 Diocese of Connecticut; Insurance Company
Mueller Previously, Visiting Professor of
64 Health Economics, Wesleyan
University
Carol Ann Trustee Trustee since Director and Chair of Audit 14 Reed and Barton
Hayes 2003 Committee, Reed and Barton Corporation
59 Corporation
Affiliated Trustees and Fund Officers
Richard H. Trustee, Trustee, Managing Director, CIGNA 14 Director of various
Forde Chairman of Chairman and Retirement & Investment Services subsidiaries of
50 the Board and President since and TimesSquare Capital CIGNA Corporation
President 1998 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; 14 --
Bingham III and Treasurer Since 1982 Assistant Vice President,
59 TimesSquare Capital
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.
- --------------------------------------------------------------------------------
CIGNA Investment Securities 21
- --------------------------------------------------------------------------------
CIGNA Investment Securities is a closed-end, diversified management investment
company that invests primarily in debt securities. The investment adviser is
TimesSquare Capital Management, Inc., 280 Trumbull Street, Hartford, Connecticut
06103.
Shareholders may elect to have dividends automatically invested in additional
shares of CIGNA Investment Securities by participating in the Automatic Dividend
Investment Plan ("the Plan"). For a brochure describing this Plan or general
inquiries about your account, contact EquiServe, P.O. Box 43011, Providence, RI
02940-3011 or you may call toll free 1-800-426-5523.
- --------------------------------------------------------------------------------
THIS PAGE INTENTIONALLY LEFT BLANK
[LOGO] CIGNA ------------------
PRESORTED STANDARD
CIGNA Investment Securities U.S. POSTAGE
3 Newton Executive Park PAID
Suite 200 SO. HACKENSACK, NJ
Newton, MA 02462 PERMIT 750
------------------
Printed on recycled paper
542775 12/03
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 $30,000 and $34,200, 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 $5,275 and $5,900, 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.
Registrant has a separately-designated standing audit committee designated in
accordance with section 3(a)(58)(A) of the Securities Exchange Act of 1934. The
committee members are Carol Ann Hayes, Russell H. Jones, Paul J. McDonald and
Marnie Wagstaff Mueller.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
The Registrant's policies and procedures that it uses to determine how to vote
proxies relating to portfolio securities are attached hereto.
Item 8. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
None.
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) Proxy voting policies referred to in Item 7, filed as an exhibit hereto.
(a)(3) Nominating committee charter referred to in Item 9, filed as an exhibit
hereto.
(a)(4) 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 Investment Securities
/s/ Jeffrey S. Winer
By:
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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)*
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Richard H. Forde, Chairman of the Board and President
Date: March 5, 2004.
Alfred A. Bingham III
By (Signature and Title)*
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Alfred A. Bingham III, Vice President and Treasurer
Date: March 5, 2004.