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) 534-5576
Registrants' telephone number, including area code
Date of fiscal year end: December 31, 2004
Date of reporting period: June 30, 2004
Item 1. Reports to Stockholders.
[GRAPHIC]
CIGNA INVESTMENT
SECURITIES
-----------------
Semiannual Report
June 30, 2004
[LOGO](R)
CIGNA
================================================================================
[LOGO](R) ------------------
CIGNA PRESORTED STANDARD
U.S. POSTAGE
CIGNA Investment Securities PAID
3 Newton Executive Park SO. HACKENSACK, NJ
Suite 200 PERMIT 750
Newton, MA 02462 ------------------
Printed on recycled paper
542775 6/04
INACM-SAR-04
- --------------------------------------------------------------------------------
1
Dear Shareholders:
Our report for CIGNA Investment Securities (the "Fund") covering the six months
ended June 30, 2004 follows.
Market Summary
Rising interest rates, inflation concerns, and ongoing geopolitical tensions
adversely affected fixed income market performance in the second quarter. The
representative Lehman Brothers Aggregate Bond Index returned -2.44%, almost
erasing the 2.66% gains posted in the first quarter.
On June 30, 2004, the Federal Reserve (Fed) increased the federal funds rate 25
basis points for the first time in four years. This widely expected action was
preceded by rising Treasury yields across the maturity spectrum over the second
quarter, with the bellwether 10-year Treasury note rising from a low of 3.65%
in late March to a peak of nearly 5% in June before leveling off.
Steadily improving credit and liquidity profiles of many issuers continued to
benefit investment-grade corporate bond valuations. Nevertheless, the sector,
represented by the Lehman Brothers U.S. Credit Index, returned -3.43% for the
second quarter, surrendering most of the 3.27% gained in the first quarter.
During the first quarter in the Mortgage Backed Securities (MBS) market, banks
and foreign investors were attracted to the high yield from MBS and absorbed
some of the supply, strong technicals helped valuations remain at high levels,
and the recent wave of refinancing slowed to keep volatility low. In this
environment, the Lehman Brothers MBS Index generated a return of 1.92%. MBS
started the second quarter under pressure, as investors faced extending
durations and declining prices. By mid-quarter, MBS had recovered modestly, and
then registered strong gains in June to end the second quarter as the best
performer in the Aggregate Bond Index.
High yield sector performance moderated from its strong recovery in 2003, as
the Lehman Brothers U.S. High Yield Index generated a 1.35% return for the six
months ended June 30, 2004. Risk aversion creeping back into the market and
issuer-specific weaknesses contributed to the performance slump.
Emerging debt markets tumbled in the second quarter, with the JP Morgan
Emerging Markets Bond Index Plus registering a return of -5.89%, down from
3.26% in the first quarter.
Performance
The Fund returned -0.01% for the year-to-date based on its net asset value,
underperforming the Lehman Brothers Aggregate Bond Index return of 0.16% by 17
bps. The Fund's return, based on the market value of its shares traded on the
New York Stock Exchange, was -5.57% for the year-to-date.
The Fund's performance benefited primarily from its modest short-of-Index
duration bias and yield curve positioning as interest rates rose and the yield
curve flattened. In addition, gains from corporate bond and high yield bond
selection helped offset less favorable results from longer-duration prepayment
penalty bonds and structured securities in the MBS sector. To a lesser extent,
performance was also favorably impacted by our allocation to high yield and
investment-grade credits, where we reduced our exposure during the second
quarter.
Outlook
With the economy on track to steadily improve, barring any political or
geopolitical setbacks, Treasury yields should continue to rise. We remain
constructive on investment-grade corporate bonds as valuations and break-even
spreads continue to offer value and positive excess return potential. We will
also remain vigilant in our sector allocation and security selection and
monitor various risk factors that could impede improvement in credit spreads.
Sincerely,
/s/ Richard H. Forde
Richard H. Forde
Chairman of the Board and President
CIGNA Investment Securities
Note: This commentary is not part of the Semi-Annual Report to Shareholders.
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CIGNA Investment Securities Investments in Securities 2
June 30, 2004 (Unaudited)
Principal Value
(000) (000)
- -----------------------------------------------------------------------------------------
LONG-TERM BONDS - 83.4%
Basic Materials - 0.4%
International Paper Co., 5.50%, 2014 $ 170 $ 166
Stora Enso Oyj, 7.38%, 2011 100 111
Weyerhaeuser Co., 6.75%, 2012 70 76
-------
353
-------
Communications & Media - 8.8%
AOL Time Warner, 6.75%, 2011 95 102
AT&T Corp., 8.75% (coupon change based on
rating) 2031 70 68
British Sky Broadcasting PLC, 8.20%, 2009 295 340
British Telecommunications PLC,
8.88% (coupon change based on rating), 2030 50 62
Comcast Corp., 5.85%, 2010 90 94
Deutsche Telekom International Finance BV,
8.50% (coupon change based on rating), 2010 200 234
8.75% (coupon change based on rating), 2030 205 250
France Telecom SA,
8.20%, (coupon change based on rating), 2006 60 64
8.75%, (coupon change based on rating), 2011 600 695
9.50%, (coupon change based on rating), 2031 75 94
Intelsat, Ltd, 6.50%, 2013 260 230
Kyivstar GSM, 12.75%, 2005
(144A security acquired Nov. 2002 & Jan. 2003
for $182) (b) 180 195
Koninklijke KPN, NV, 8.00%, 2010 370 428
Liberty Media Corp.,
3.50%, 2006 575 574
5.70%, 2013 45 44
News America Holdings, Inc., 7.75%, 2045
7.75%, 2045 110 125
7.90%, 2095 120 134
8.25%, 2096 45 52
News America, Inc., 6.75%, 2038 30 33
PTC International Finance II SA, 11.25%, 2009 200 217
Qwest Capital Funding, Inc., 7.00%, 2009 30 26
Qwest Services Corp., 13.50%, 2010 40 47
(144A security acquired Mar. 2004 for $47) (b)
Principal Value
(000) (000)
- -----------------------------------------------------------------------------------------
Communications & Media (continued)
Shaw Communications, Inc.,
8.25%, 2010 $ 145 $ 158
7.20%, 2011 65 67
Sprint Capital Corp.,
6.13%, 2008 70 74
8.38%, 2012 55 63
6.88%, 2028 210 202
8.75%, 2032 135 157
Tele Communications, Inc.,
9.80%, 2012 260 326
7.88%, 2013 315 359
Telecom Italia Capital SA,
5.25%, 2013
(144A security acquired Oct. 2003 for $284) (b) 285 276
6.38%, 2033
(144A security acquired Oct. 2003 for $100) (b) 100 97
TELUS Corp.,
7.50%, 2007 240 261
8.00%, 2011 415 472
Time Warner, Inc.,
9.13%, 2013 605 738
8.05%, 2016 70 80
TPSA Finance BV, 7.75%, 2008
(144A security acquired July & Aug. 2003 for
$126) (b) 110 122
Univision Communications, Inc., 7.85%, 2011 115 133
Verizon Florida, Inc., 6.13%, 2013 110 113
-------
7,806
-------
Consumer & Retail - 2.4%
Campbell Soup Co., 5.88%, 2008 110 117
Heinz (H.J.) Co., 6.38%, 2028 10 10
Heinz (H.J.) Finance Co.,
6.75% (coupon change based on rating), 2032 90 97
Kellogg Co., 6.60%, 2011 435 477
Kraft Foods, Inc.,
5.25%, 2007 80 83
5.63%, 2011 200 203
5.25%, 2013 255 248
The Notes to Financial Statements are an integral part of these statements.
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CIGNA Investment Securities Investments in Securities 3
June 30, 2004 (Unaudited) (Continued)
Principal Value
(000) (000)
- -----------------------------------------------------------------------------------------
Consumer & Retail (continued)
Kroger Co., 7.50%, 2031 $ 35 $ 39
Miller Brewing Co., 5.50%, 2013
(144A security acquired Aug. 2003 for $144) (b) 145 146
Safeway, Inc., 7.25%, 2031 30 32
Tyson Foods, Inc., 8.25%, 2011 75 86
VFB LLC, 10.25%, 2009 (a) 2,129 447
Yum! Brands, Inc., 8.88%, 2011 140 169
-------
2,154
-------
Diversified - 0.6%
General Electric Co., 5.00%, 2013 395 389
ITT Industries, Inc., 7.40%, 2025 125 138
-------
527
-------
Financial - 9.2%
BankBoston Corp., 8.25%, 2026 110 122
Boeing Capital Corp., 6.10%, 2011 85 90
CIT Group, Inc.,
5.75%, 2007 110 116
6.88%, 2009 55 60
Citigroup, Inc.,
3.50%, 2008 780 769
7.25%, 2010 195 220
Countrywide Home Loans., 5.50%, 2007 60 63
Credit Suisse First Boston Mortgage Securities Corp.,
4.63%, 2008 95 97
5.50%, 2013 60 60
Interest Only 7.50%, 2032 (c) 700 17
Interest Only 8.00%, 2032 (c) 835 21
Dresdner Funding Trust I, 8.15%, 2031
(144A security acquired June & Sep. 2003 for
$226) (b) 205 228
Ford Motor Credit Co.,
7.38%, 2009 310 331
7.88%, 2010 270 294
7.38%, 2011 140 148
General Motors Acceptance Corp.,
6.88%, 2011 530 543
7.25%, 2011 70 73
7.00%, 2012 55 57
Principal Value
(000) (000)
- -----------------------------------------------------------------------------------------
Financial (continued)
Glencore Funding LLC, 6.00%, 2014
(144A security acquired May 2004 for $68) (b) $ 75 $ 70
Golden West Financial Corp., 4.13%, 2007 160 162
Goldman Sachs Group, Inc., 6.88%, 2011 300 329
Household Finance Corp.,
4.75%, 2009 260 261
6.38%, 2012 165 175
HVB Funding Trust III, 8.74%, 2031
(144A security acquired May, June 2003 &
Feb. 2004 for $191) (b 185 213
International Lease Finance Corp., 6.38%, 2009 165 177
Korea Development Bank, 4.25%, 2007 70 70
Lehman Brothers Holdings, Inc., 6.63%, 2012 180 195
Manufacturers & Traders Trust, 8.00%, 2010 105 123
Midland Funding II, 13.25%, 2006 55 63
Mizuho Financial Group Cayman Ltd., 5.79%, 2014
(144A security acquired Feb. 2004 for $165) (b) 165 162
Morgan (J.P.) Co., 6.00%, 2009 150 159
Morgan Stanley Group, Inc., 6.75%, 2011 215 236
National Rural Utilities Cooperative Finance Corp.,
5.75%, 2009 90 95
NB Capital Trust IV, 8.25%, 2027 125 139
Old Kent Bank,
Step Coupon (7.75% to 8/15/05), 2010 270 283
Residential Asset Mortgage Products, Inc.,
Interest Only, 5.75%, 2005 (c) 740 22
Santander Financial Issuances,
6.80%, 2005 75 78
6.38%, 2011 145 156
Sanwa Finance Aruba AEC, 8.35%, 2009 175 199
Sovereign Bancorp., Inc., 10.50%, 2006 985 1,129
Union Planters Corp., 6.75%, 2005 220 231
U.S. West Capital Funding, Inc., 6.50%, 2018 25 19
Wells Fargo & Co., 4.95%, 2013 120 116
-------
8,171
-------
The Notes to Financial Statements are an integral part of these statements.
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CIGNA Investment Securities Investments in Securities 4
June 30, 2004 (Unaudited) (Continued)
Principal Value
(000) (000)
- -----------------------------------------------------------------------------------------
Foreign Government - 2.0%
Argentina (Republic of),
11.38%, 2010 $ 95 $ 28
11.38%, 2017 240 70
Brazil (Federal Republic of), 9.25%, 2010 75 71
Export-Import Bank of Korea, 4.13%, 2009
4.25%, 2007 20 20
4.13%, 2009
(144A security acquired Feb. 2004 for $134) (b) 135 131
Quebec (Province of Canada),
5.5%, 2006 475 496
7.50%, 2023 185 222
Russian Federation,
Step Coupon (5.00% to 3/31/07), 2030
(144A security acquired Sept., Oct. 2002,
Oct. 2003 & Apr. 2004 for $379) (b) 445 406
United Mexican States, 8.30%, 2031 295 309
-------
1,753
-------
Health Care - 0.2%
HCA, Inc.,
5.25%, 2008 90 89
7.50%, 2033 50 49
-------
138
-------
Industrial - 1.8%
Arrow Electronics, Inc., 6.88%, 2013 165 172
BAE Systems Holdings, 6.40%, 2011
(144A security acquired Dec. 2001 & Nov. 2002
for $439) (b) 435 463
Bombardier, Inc., 6.30%, 2014
(144A security acquired May & June 2004 for
$91) (b) 100 85
Lockheed Martin Corp.,
8.20%, 2009 575 674
8.50%, 2029 5 6
Systems 2001 Asset Trust LLC, 7.16%, 2011 (144A
security acquired June 2001 for $181) (b) 181 193
-------
1,593
-------
Principal Value
(000) (000)
- -----------------------------------------------------------------------------------------
Insurance - 1.3%
American Re Corp., 7.45%, 2026 $ 300 $ 318
AXA SA, 8.60%, 2030 115 141
Monumental Global Funding II, 3.85%, 2008
(144A security acquired Feb. 2003 for $210) (b) 210 210
Travelers Property Casualty Corp., 5.00%, 2013 110 107
Zurich Capital Trust I, 8.38%, 2037
(144A security acquired Jan., June, Aug.
& Oct. 2003 for $300) (b) 310 342
-------
1,118
-------
Oil & Gas - 1.7%
Amerada Hess Corp., 7.30%, 2031 110 112
Conoco Funding Co., 6.35%, 2011 465 506
Devon Financing Corp. ULC, 6.88%, 2011 120 131
Duke Capital Corp., 4.30%, 2006 90 91
Duke Energy Field Services LLC,
5.75%, 2006 40 42
6.88%, 2011 30 33
Occidental Petroleum Corp., 7.65%, 2006 480 515
Petroleos Mexicanos, 9.50%, 2027 45 50
Salomon Bros. for OAO Gazprom, 10.50%, 2009 25 29
-------
1,509
-------
Pharmaceuticals - 0.6%
Lilly (Eli) & Co., 6.77%, 2036 300 329
Wyeth,
5.50% (coupon change based on rating), 2013 40 39
5.50%, 2014 200 191
-------
559
-------
Transportation - 1.4%
American Airlines, 7.86%, 2011 180 179
Burlington Northern Santa Fe, 6.75%, 2029 45 47
Federal Express Corp., 7.60%, 2097 85 93
Ford Motor Co., 6.38%, 2029 110 93
Norfolk Southern Corp.,
7.70%, 2017 130 151
7.90%, 2097 170 195
The Notes to Financial Statements are an integral part of these statements.
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CIGNA Investment Securities Investments in Securities 5
June 30, 2004 (Unaudited) (Continued)
Principal Value
(000) (000)
- ---------------------------------------------------------------------------------
Transportation (continued)
Union Pacific Corp.,
7.60%, 2005 $ 285 $ 297
6.13%, 2012 150 158
-------
1,213
-------
U.S. Government & Agencies (d) - 49.1%
Fannie Mae,
2.50%, 2008 3,970 3,771
4.38%, 2013 685 653
5.50%, 2017 920 944
4.00%, 2018 355 339
6.50%, 2032 1,521 1,585
7.00%, 2032 1,136 1,200
5.50%, 2033 2,483 2,478
6.50%, 2033 496 516
5.00%, 2034 664 642
5.50%, 2034 442 441
Interest Only 5.85%, 2042 (c) 4,320 78
Financing Corp.,
Principal Strips from
8.60%, 2019 450 186
9.65%, 2019 5 2
9.70%, 2019 675 288
Freddie Mac,
2.75%, 2008 645 622
6.50%, 2013 143 151
5.50%, 2017 570 584
6.00%, 2017 674 703
6.50%, 2017 376 397
4.50%, 2018 2,843 2,785
5.00%, 2018 2,771 2,780
6.00%, 2032 2,060 2,109
7.50%, 2032 498 536
5.00%, 2033 3,862 3,740
5.50%, 2033 2,721 2,717
6.00%, 2033 405 414
6.50%, 2034 260 271
Interest Only 7.60%, 2043 (c) 4,083 92
Principal Value
(000) (000)
- ---------------------------------------------------------------------------------
U.S. Government & Agencies (d) (continued)
Ginnie Mae,
6.50%, 2031 $ 350 $ 366
6.50%, 2032 204 213
5.50%, 2033 682 682
6.00%, 2033 1,669 1,713
U.S. Treasury Bonds,
8.75%, 2017 1,085 1,471
6.00%, 2026 3,210 3,459
U.S. Treasury Notes,
4.63%, 2006 1,275 1,320
4.38%, 2007 1,190 1,230
3.38%, 2008 420 415
6.00%, 2009 425 467
4.25%, 2013 1,015 991
4.75%, 2014 110 110
-------
43,461
-------
Utilities - 3.9%
American Electric Power, Inc., 5.38%, 2010 40 41
Carolina Power & Light Co., 6.50%, 2012 105 113
CenterPoint Energy,
5.70%, 2013 120 122
7.88%, 2013 205 229
Columbus Southern Power Co., 5.50%, 2013 55 55
Detroit Edison Co.,
6.13%, 2010 255 272
6.35%, 2032 5 5
Dominion Resources, Inc., 6.25%, 2012 60 63
DPL, Inc., 8.25%, 2007 160 170
First Energy Corp.,
5.50%, 2006 415 429
6.45%, 2011 215 223
7.38%, 2031 90 94
Korea Electric Power Corp., 5.13%, 2034 75 71
(144A security acquired Apr. 2004 for $74) (b)
Morgan Stanley Bank AG for Gazprom OAO,
9.63%, 2013, (144A security acquired Apr. &
June 2004 for $213) 200 206
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
CIGNA Investment Securities Investments in Securities 6
June 30, 2004 (Unaudited) (Continued)
Principal Value
(000) (000)
- ----------------------------------------------------------------------------
Utilities (continued)
Niagara Mohawk Power Co., 7.63%, 2005 $ 378 $ 397
Nisource Finance Corp., 7.88%, 2010 240 275
Ohio Power Co., 5.50%, 2013 25 25
Oncor Electric Delivery Co., 7.25%, 2033 140 155
Pacific Gas & Electric Co.,
3.60%, 2009 65 63
4.20%, 2011 60 57
6.05%, 2034 85 80
Progress Energy, Inc.,
7.10%, 2011 90 99
7.00%, 2031 85 87
Tenaska Alabama II Partners LP, 6.13%, 2023
(144A security acquired Oct. 2003 for $141) (b) 141 141
-------
3,472
-------
Total Long-Term Bonds
(Cost - $73,302) 73,827
-------
Number of
Shares
----------
PREFERRED STOCK - 2.1%
Communications & Media - 0.3%
Centaur Funding Corp., 9.08%
(144A security acquired Jan., Aug. & Nov. 2001
for $217) (b) 205 256
-------
Financial - 1.6%
BCI US Funding Trust,
Step Coupon (8.01% to 7/15/08)
(144A security acquired Jan. 2003 for $371) (b) 340 381
DBS Capital Funding Corp.,
Step Coupon (7.66% to 3/21/2011)
(144A security acquired Oct. 2003 for $192) (b) 170 190
IBJ Preferred Capital Co. LLC,
Step Coupon (8.79% to 6/30/08)
(144A security acquired Aug., Oct., & Dec. 2003
for $415) (b) 395 433
Number of Value
Shares (000)
----------- ----------
Natexis AMBS Co. LLC,
Step Coupon (8.44% to 6/30/08)
(144A security acquired May 2002 for $152) (b) 140 $ 160
RBS Capital Trust I,
Step Coupon (4.71% to 7/01/13) 300 277
-------
1,441
-------
Industrial - 0.2%
RC Trust I, 7.00%, 2006 3,400 180
-------
Total Preferred Stock
(Cost - $1,824) 1,877
-------
SHORT-TERM OBLIGATIONS - 9.4%
Money Market Fund - 9.2%
CIGNA Funds Group - Money Market Fund (e) 8,153,745 8,154
-------
Principal
(000)
------------
U.S. Government - 0.2%
U.S. Treasury Bills,
0.98%, 9/30/04 (f) $ 150 150
-------
Total Short-Term Obligations
(Cost - $8,304) 8,304
-------
TOTAL INVESTMENTS IN SECURITIES - 94.9%
(Total Cost - $83,430) (h) 84,008
Cash and Other Assets Less Liabilities - 5.1% 4,487
-------
NET ASSETS - 100.0% $88,495
=======
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
CIGNA Investment Securities Investments in Securities 7
June 30, 2004 (Unaudited) (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 $5,222,192 (aggregate cost $5,040,986), which is approximately 5.9% 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) Agency obligations are not guaranteed by the U.S. Government.
(e) TimesSquare Capital Management, Inc., the fund's Investment Adviser, is also
the Adviser to the CIGNA Funds Group - Money Market Fund.
(f) Pledged as collateral for financial futures contracts. At June 30, 2004, the
Fund was long 68, 2-year U.S. Treasury Notes, 1, 30-year U.S. Treasury Bond
and 7, 10-year U.S. Treasury Notes, and was short 56, 5-year U.S. Treasury
Notes futures contracts, all expiring in September 2004. Net unrealized loss
amounted to $2,972. Underlying face values of the long and short positions
were $15,152,412 and ($6,047,080), respectively, and underlying market
values were $15,188,860 and ($6,086,500), respectively.
(g) A summary of outstanding forward currency contracts, as of June 30, 2004, is
as follows:
Net Unrealized
Settlement Forward Foreign Contract Appreciation
Date Contract Currency Value (Depreciation)
- -------------------------------------------------------------------------
Buys
7/26/04 EURO 2,210,000 $2,677,879 $ 12,701
12/10/04 EURO 740,000 $ 895,689 $ 4,429
Sells
7/26/04 EURO 2,210,000 $2,616,419 $(74,161)
Tax Information
(h) At June 30, 2004, the net unrealized appreciation of investments,
based on cost for federal income tax purposes of $83,898,584, was
as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value
over tax cost $ 1,267,034
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value (1,157,456)
------------
Unrealized appreciation - net $ 109,578
============
- --------------------------------------------------------------------------------
Quality Ratings* of Long-Term Bonds (Unaudited)
June 30, 2004
Value % of
(000) Value
------- -----
Aaa/AAA $43,911 59.5%
Aa/AA 3,086 4.2
A/A 8,590 11.6
Baa/BBB 16,428 22.3
Ba/BB 881 1.2
B/B 386 0.5
Below B 98 0.1
Not Rated 447 0.6
------- -----
$73,827 100.0%
======= =====
*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 8
Statement of Assets and Liabilities
June 30, 2004 (Unaudited)
(In Thousands)
Assets:
Investments at value $ 84,008
Cash 17
Receivable for investments sold 4,095
Interest and dividends receivable 808
Investments for Trustees' deferred compensation plan 202
Prepaid expenses 54
Futures variation margin receivable 7
--------
Total assets 89,191
--------
Liabilities:
Payable for investments purchased 307
Deferred Trustees' fees payable 202
Payable for forward currency contracts 57
Advisory fees payable 36
Shareholder reports payable 27
Audit fees payable 24
Transfer agent fees payable 12
Custodian fees payable 10
Insurance expense payable 10
Administrative services fees payable 9
Other accrued expenses 2
--------
Total liabilities 696
--------
Net Assets (equivalent to $18.47 per share based on
4,792,215 shares outstanding; 12,000,000 shares of
$0.10 par value authorized) $ 88,495
========
Components of Net Assets:
Paid-in capital $ 89,742
Overdistributed net investment income (1,057)
Accumulated net realized loss (709)
Unrealized appreciation of investments, futures and
forward contracts 519
--------
Net Assets $ 88,495
========
Cost of Investments $ 83,430
========
Statement of Operations
For the Six Months Ended June 30, 2004 (Unaudited)
(In Thousands)
Investment Income:
Income:
Interest income $2,181
Dividend Income 25
------
2,206
Expenses:
Investment advisory fees 228
Auditing and legal fees 65
Custodian fees 61
Shareholder reports 35
Transfer agent fees 31
Administrative services fees 23
Trustees' fees 17
Stock exchange fees 12
---
Total expenses 472
---
Net Investment Income 1,734
------
Realized and Unrealized Gain (Loss)
on Investments:
Net realized gain from:
Forward currency contracts 167
Futures contracts 5
Swap contracts 11
Investments 704
------
887
------
Net change in unrealized appreciation (depreciation) of:
Forward currency contracts (149)
Futures contracts (17)
Swap contracts --
Investments (2,468)
------
(2,634)
------
Net Realized and Unrealized Gain
(Loss) on Investments (1,747)
------
Net Increase in Net Assets Resulting
from Operations $ (13)
======
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
CIGNA Investment Securities 9
Statements of Changes in Net Assets
(In Thousands)
For the Six For the
Months Ended Year Ended
June 30, 2004 December 31,
(Unaudited) 2003
------------- ------------
Operations:
Net investment income $ 1,734 $ 3,515
Net realized gain on investments 887 2,371
Net unrealized appreciation (depreciation)
on investments (2,634) 346
-------- --------
Net increase (decrease) in net assets from
operations (13) 6,232
-------- --------
Dividends and Distributions:
From net investment income (2,204) (5,310)
-------- --------
Total dividends and distributions (2,204) (5,310)
-------- --------
Net Increase (Decrease) in Net Assets (2,217) 922
Net Assets:
Beginning of period 90,712 89,790
-------- --------
End of period* $ 88,495 $ 90,712
======== ========
* includes overdistributed net investment
income of: $ (1,057) $ (587)
======== ========
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
CIGNA Investment Securities 10
Financial Highlights
- ---------------------------------------------------------------------------------------------------------------------------
For the Six
Months Ended For the Year Ended December 31,
June 30, 2004 --------------------------------------------------------
(Unaudited) 2003 2002 2001(c) 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value, beginning of period $ 18.93 $ 18.74 $ 18.26 $ 18.11 $ 17.79 $ 19.24
Income from investment operations
Net investment income (a) 0.36 0.73 0.80 1.00 1.15 1.18
Net realized and unrealized gain (loss)
on investments (0.36) 0.57 0.68 0.39 0.37 (1.42)
------- ------- ------- ------- ------- -------
Total from investment operations -- 1.30 1.48 1.39 1.52 (0.24)
------- ------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income (0.46) (1.11) (1.00) (1.24) (1.20) (1.18)
Distributions from net realized capital gains -- -- -- -- -- (0.03)
------- ------- ------- ------- ------- -------
Total dividends and distributions (0.46) (1.11) (1.00) (1.24) (1.20) (1.21)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 18.47 $ 18.93 $ 18.74 $ 18.26 $ 18.11 $ 17.79
======= ======= ======= ======= ======= =======
Market value, end of period $ 15.70 $ 17.09 $ 16.75 $ 16.42 $ 16.06 $ 14.19
======= ======= ======= ======= ======= =======
Total Investment Return:
Per share market value (5.57)%(d) 8.75% 8.20% 10.10% 22.33% (11.41)%
Per share net asset value (b) (0.01)%(d) 7.07% 8.39% 7.81% 8.92% (1.23)%
Ratios to Average Net Assets
Expenses 1.05%(e) 0.94% 1.04% 0.97% 0.94% 0.91%
Net investment income 3.86%(e) 3.86% 4.35% 5.39% 6.58% 6.36%
Portfolio Turnover 33%(d) 153% 393% 336% 319% 110%
Net Assets, End of Period (000 omitted) $88,495 $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.
(d) Not annualized.
(e) Annualized.
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
CIGNA Investment Securities Notes to Financial Statements 11
(Unaudited)
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 value of the securities
underlying unsettled
- --------------------------------------------------------------------------------
CIGNA Investment Securities Notes to Financial Statements 12
(Unaudited) (Continued)
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:
(i) market value of investment securities, other assets and liabilities at the
daily rates of exchange, and
(ii) 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 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
- --------------------------------------------------------------------------------
CIGNA Investment Securities Notes to Financial Statements 13
(Unaudited) (Continued)
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, the issuers of 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
June 30, 2004, the Fund had no outstanding swap agreements.
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 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
- --------------------------------------------------------------------------------
CIGNA Investment Securities Notes to Financial Statements 14
(Unaudited) (Continued)
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 gain 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 Funds 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 six months ended June 30, 2004,
TimesSquare waived $8,549 of its advisory fee payable by the Fund. Income
distributions from MMF, which amounted to $15,432 for the six months ended June
30, 2004, 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 six months ended June 30, 2004, the Fund paid or accrued
$22,983.
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
six months ended June 30, 2004, were as follows (excluding short-term
obligations):
Cost of Proceeds From
Securities Securities
Purchased Sold
----------- -----------
Bonds $ 9,322,454 $20,081,325
U.S. Government Obligations 18,231,016 15,897,167
----------- -----------
$27,553,470 $35,978,492
=========== ===========
- --------------------------------------------------------------------------------
CIGNA Investment Securities 15
(Unaudited)
Trustees
Russell H. Jones
Senior Vice President,
Chief Investment
Officer, and Treasurer,
Kaman Corporation
Paul J. McDonald
Special Advisor to the Board of
Directors, Friendly Ice Cream
Corporation
Richard H. Forde
Chief Investment Officer,
CIGNA Investment Management
Marnie Wagstaff Mueller
Diocesan Consultant, Episcopal
Diocese of Connecticut
Carol Ann Hayes
Director and Chair of Audit
Committee, Reed and Barton
Corporation
Officers
Richard H. Forde
Chairman of the Board
and President
Alfred A. Bingham III
Vice President and
Treasurer
Jeffrey S. Winer
Vice President and
Secretary
- --------------------------------------------------------------------------------
Matters Submitted to a Vote of Shareholders
The Annual Meeting of the Shareholders of CIGNA Investment Securities (the
"Trust") was held on Tuesday, April 27, 2004 at 12:00 p.m., Eastern Time.
Six Trustees were elected by a vote of shareholders to serve as members of the
Board of the Trust until the next Annual Meeting of Shareholders or until the
election and qualification of their successors. Shareholders of the Trust voted
to elect the following Trustees:
For Vote Withheld
--- -------------
Richard H. Forde 3,945,863 108,509
Carol Ann Hayes 3,947,676 106,696
Russell H. Jones 3,951,963 102,409
David P. Marks 3,914,553 139,819
Paul J. McDonald 3,946,999 107,373
Marnie W. Mueller 3,945,076 109,296
There were no broker non-votes with respect to this matter submitted to a vote
of shareholders of the Trust.
No other business was transacted at the meeting.
- --------------------------------------------------------------------------------
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.
Dividend Rate Change
The quarterly income dividend of 22 cents per share, which the Fund declared on
August 17, 2004, is payable on September 10, 2004 to shareholders of record on
August 27, 2004. This new rate is a reduction from the 23 cents per-share rate
the Fund has paid since June 10, 2003.
This change takes into consideration both a reduction in the Fund's high yield
credit exposure, as we currently believe that the market has fully priced in
the improved risk profile of this sector, and the general trend that higher
coupon bonds purchased by the Fund in earlier years have gradually been
replaced by lower coupon issues, as the original bonds have either matured,
been called or sold for investment and credit reasons.
Item 2. Code of Ethics.
Not applicable
Item 3. Audit Committee Financial Expert.
Not applicable
Item 4. Principal Accountant Fees and Services.
Not applicable
Item 5. Audit Committee Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
See report to shareholders filed under Item 1 of this Form.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 9. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 10. Controls and Procedures.
(a) Based on an evaluation of the registrant's disclosure controls and
procedures as of a date within 90 days of the filing date of this Form
N-CSR, the registrant's principal executive officer and principal financial
officer concluded that the disclosure controls and procedures are
reasonably designed to ensure that the information required in filings on
Forms N-CSR is recorded, processed, summarized, and reported on a timely
basis.
(b) There were no significant changes in the registrant's internal control over
financial reporting that occurred during the registrant's last fiscal
half-year that have materially affected, or are reasonably likely to
materially affect, the registrant's internal control over financial
reporting.
Item 11. Exhibits.
(a)(1) Not applicable
(a)(2) Separate certifications by the registrant's principal executive officer
and principal financial officer, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment
Company Act of 1940.
(a)(3) Not applicable
(b) A certification by the registrant's chief executive officer and chief
financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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
By: /s/ Alfred A. Bingham III
------------------------------------------------
Alfred A. Bingham III, Vice President and
Treasurer
Date: August 30, 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.
By (Signature and Title) /s/ Richard H. Forde
-------------------------------------------------------
Richard H. Forde, Chairman of the Board and President
Date: August 30, 2004.
By (Signature and Title) /s/ Alfred A. Bingham III
-------------------------------------------------------
Alfred A. Bingham III, Vice President and Treasurer
Date: August 30, 2004