-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SvEYHElxfmH3uHwzKQgGmQm95iSZvPjbapvBdHXUjMHdu1zxCksnBu/fffSvdDHB koX2/wxt9eB/xbX5AWOuZQ== 0000049975-99-000004.txt : 19990302 0000049975-99-000004.hdr.sgml : 19990302 ACCESSION NUMBER: 0000049975-99-000004 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990301 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INA INVESTMENT SECURITIES INC CENTRAL INDEX KEY: 0000049975 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 231886274 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-02299 FILM NUMBER: 99553853 BUSINESS ADDRESS: STREET 1: 950 WINTER STREET STREET 2: SUITE 1200 CITY: WALTHAM STATE: MA ZIP: 02154 BUSINESS PHONE: 860.726.3700 MAIL ADDRESS: STREET 1: S 217 900 COTTAGE GROVE ROAD CITY: HARTFORD STATE: CT ZIP: 06152-2217 FORMER COMPANY: FORMER CONFORMED NAME: INA INCOME & CONVERTIBLE FUND DATE OF NAME CHANGE: 19730426 N-30D 1 INA INVESTMENT SECURITIES, INC. - -------------------------------------------------------------------------------- 1 DEAR SHAREHOLDER: We are pleased to provide this report for INA Investment Securities, Inc. (the "Company") covering the year ended December 31, 1998. MARKET ACTIVITY The fourth quarter of 1998 saw a reversal of the remarkable "flight to quality" which took center stage during the third quarter. At the close of the third quarter, world capital markets were still in turmoil. The Federal Reserve, in a pivotal change of focus to look beyond the U.S. economy, eased monetary conditions in quick succession at the end of September and mid-October, and a third time at its November meeting for a cumulative 75 basis points of accommodation. All G-7 central banks have since followed, and combinations of IMF, World Bank, and G-7 support have been extended to financially troubled countries. The fixed income markets' immediate response to these moves was to move out of Treasuries and back into risk assets, such as corporate bonds. The price performance for most Treasuries was in fact negative for the quarter, while assets such as corporate bonds and mortgage-backed securities had positive returns. The high yield market posted the highest returns, rebounding from being one of the worst in the preceding quarter. Equity markets also reacted to the injection of liquidity by rallying quickly and dramatically, making this one of the shortest bear markets in U.S. stock market history. While Treasury yields increased modestly over the quarter, the bond market as a whole managed to hold on to a slight gain. As measured by the Lehman Government/Corporate Bond Index, the market returned 0.13% for the fourth quarter, while the return for the full year was 9.47%. 20+ year Treasuries provided the worst total return at -1.02% for the quarter. This is in stark contrast to the third quarter and full-year 1998, where long Treasuries were in fact the star performers. FUND ACTIVITY The portfolio remains fully invested. On December 31, 1998, domestic corporate bonds were approximately 55.1% of portfolio holdings, taxable municipal bonds 17.0%, foreign bonds 8.6%, U.S. Government 15.8%, short-term obligations 2.3% and cash and other assets 3.5%. Per share net asset value was $19.24, down from $19.50 on September 30. An income dividend of $.29 and a long-term capital gain distribution of $.0575 were declared during the quarter. PERFORMANCE After deducting expenses and allowing for the reinvestment of dividends, based on the net asset value of its underlying assets, the Company returned 0.47% during the fourth quarter and 7.22% for the year-to-date. The Company returned 0.17% and 6.95%, respectively, for the quarter and year-to-date based on the market value of its shares listed on the New York Stock Exchange. Full-year performance relative to the Index was adversely affected primarily by its high yield investments, which included a modest exposure to emerging markets. The Lehman Brothers Government/Corporate Bond Index, from which no deduction for expenses is made, contains only investment-grade credits, which fared better in the turbulent and unique investment environment of 1998. Sincerely, /s/ Richard H. Forde Richard H. Forde CHAIRMAN OF THE BOARD AND PRESIDENT INA INVESTMENT SECURITIES, INC. - -------------------------------------------------------------------------------- INA INVESTMENT SECURITIES, INC. MANAGEMENT DISCUSSION AND ANALYSIS (UNAUDITED) 2 1998 marked a watershed year for the U.S. economy and financial markets, as well as many world markets. The U.S. was enjoying its eighth year of economic expansion, low inflation, declining interest rates, and strong corporate profit growth. World economic output in the past few years had expanded at a rapid clip, inflation was under control, and trade flourished. The severe economic and financial dislocations which hit full-force in 1998, however, and spread though Asia and to other parts of the world had far-reaching effects which will continue to shape the course of events for years. The official growth in global GDP fell from approximately 4% in both 1996 and 1997 to roughly 2% during 1998, and is likely to weaken further in 1999. Powerful deflationary forces spread around the globe, with world commodity prices hitting 21-year lows. For world financial markets, 1998 was a year of extreme volatility. Financial markets experienced several massive swings in investor psychology and market sentiment, as bonds and equities alternated between periods of risk-aversion, and even panic, on one hand, and complacency and greed on the other. It was also a year of almost unprecedented volatility across the entire spectrum of investment markets: domestic and foreign, debt and equity, and high-grade and low-grade quality market sectors. Some of the excesses experienced in the "flight to quality" in 1998 have already begun to be reversed. While markets in fixed-income products may remain choppy in 1999, we are comfortable that the overweighting in the portfolio relative to the Lehman Brothers Index in corporate and high-yield sectors, as well as selective investments in Mortgage-backed and Asset-backed securities will provide longer-term positive returns for the Company. As long as the Asian crisis continues to provide a positive backdrop for interest rates and fixed-income assets, we will also continue to maintain a portfolio duration modestly longer than the Index. Looking forward, our outlook for the U.S. economy for 1999 is one of moderating growth from 1998's nearly 4% pace. Should the economy falter, or global economic strains increase, the Federal Reserve has shown its willingness to intervene. Volatility will remain in the markets, although we expect nothing like last year's financial shocks and ensuing panic. Investors are now much better compensated for bearing risk, and we see 1999 to be a year of unusual opportunity for non-Treasury or "spread" investors who are able to target the right sectors and names. [THE FOLLOWING APPEARS AS A BAR CHART GRAPHIC] GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (UNAUDITED) 1/1/89 - 12/31/98 |------------------------------------------------------| | AVERAGE ANNUAL RETURN | | | | 1 Year 3 Year 5 Year 10 Year | |Market Value 6.95% 7.58% 7.03% 8.99% | |Net Asset Value 7.22% 6.43% 6.83% 9.07% | |------------------------------------------------------| IIS UNIT VALUE LEHMAN GC IIS LEHMAN GC MARKET VALUE UNIT VALUE INVESTMENT INVESTMENT 12/88 31.56196 4.48439 $10,000 $10,000 12/89 34.98041 5.12300 $11,083 $11,424 12/90 33.90912 5.54826 $10,744 $12,372 12/91 44.15157 6.44357 $13,989 $14,369 12/92 46.52982 6.93006 $14,742 $15,454 12/93 53.14012 7.69490 $16,837 $17,159 12/94 48.71064 7.42572 $15,433 $16,559 12/95 59.94863 8.85480 $18,994 $19,746 12/96 60.11794 9.11079 $19,048 $20,317 12/97 69.78255 10.00000 $22,110 $22,300 12/98 74.63514 10.94700 $23,647 $24,411 IIS = INA Investment Securities, Inc. - Total return based on market value of common shares LEHMAN GC = Lehman Brothers Government/Corporate Bond Index INA Investment Securities' (the "Company") performance figures are historical and reflect reinvestment of all dividends and capital gains distributions and changes in the market value of its stock, or as shown separately in the box, changes in its underlying net asset value. The Company is a closed-end management investment company which trades over the New York Stock Exchange under the ticker symbol "IIS." Company performance does not reflect exchange commissions payable upon the purchase or sale of the Company's stock. The Company's investment return and principal value will fluctuate so that an investor's shares, when sold, may be worth more or less than their original cost. Past performance cannot guarantee comparable future results. The Company's return has been compared with the total return performance of Lehman Brothers Government/Corporate Bond Index. This index is a group of unmanaged securities widely regarded by investors to be representative of the bond market in general. An investment cannot be made in the index. Index results do not reflect brokerage charges or other investment expenses. - -------------------------------------------------------------------------------- INA INVESTMENT SECURITIES, INC. INVESTMENTS IN SECURITIES December 31, 1998 3 MARKET PRINCIPAL VALUE (000) (000) - ----------------------------------------------------------------- LONG-TERM BONDS - 96.5% CONSUMER AND RETAIL - 2.8% Dayton Hudson Corp., 9.75%, 2002 $ 500 $ 565 Herff Jones, Inc., 11.0%, 2005 ( 144A security acquired August, 1995 for $300,000)* 300 326 May Department Stores Co., 10.625%, 2010 435 604 Penney (J.C.), Inc., 7.4%, 2037 1,000 1,087 ---------- 2,582 ---------- CONSUMER NON-CYCLICAL - 2.0% MedPartners, Inc., 6.875%, 2000 1,000 861 Tenet Healthcare Corp., 7.875%, 2003 1,000 1,020 ---------- 1,881 ---------- ENTERTAINMENT AND COMMUNICATIONS - 10.4% Casino America, Inc., 12.5%, 2003 500 553 Century Communications Corp., 9.5%, 2005 500 565 Disney (Walt) Co., 1.5%, 1999 2,000 1,950 Grupo Iusacell, S.A. de C.V., 10%, 2004 (144A security acquired July, 1997 for $500,000)* 500 425 IXC Communications, Inc., 9.0%, 2008 250 252 Mirage Resorts, Inc., 6.75%, 2007 400 387 Price Communications Wireless, Inc., 11.75%, 2007 500 535 Southwestern Bell Telephone Co., 7.375%, 2027 1,000 1,105 TKR Cable, Inc., 10.5%, 2007 500 545 Tele-Communications, Inc., 9.25%, 2002 500 556 Time Warner Entertainment Co., 10.15%, 2012 1,750 2,351 Total Access Communications Public Co., Ltd., 7.625%, 2001 (144A security acquired Oct., 1996 for $499,855)* 500 340 ---------- 9,564 ---------- FINANCIAL - 15.0% Abbey National PLC, 7.35%, 2049 750 806 American General Fin. Corp., 5.9%, 2003 900 907 Banco Nacional de Comercio Exterior, S.N.C., 7.25%, 2004 500 456 Case Credit Corp., 6.0%, 2001 800 796 Corporacion Andina De Fome, 7.1%, 2003 200 194 First Union National Bank of Florida, 6.18%, 2036 1,000 991 General Motors Acceptance Corp., 6.75%, 2002 1,000 1,026 MARKET PRINCIPAL VALUE (000) (000) - --------------------------------------------------------------- Heller Financial, Inc., 6.56%, 1999 $ 1,000 $ 1,003 9.125%, 1999 500 509 Inter-American Development Bank, 8.875%, 2009 2,000 2,529 Merrill Lynch and Co., Inc., 7.26%, 2002 800 836 Middletown Trust, 11.75%, 2010 848 935 United Post Office Investments, 7.75%, 1999 1,000 1,004 Western National Corp., 7.125%, 2004 1,000 1,061 World Financial Properties Tower, 6.95%, 2013 (144A security acquired Nov, 1996 for $750,000)* 750 765 --------- 13,818 --------- FOOD AND BEVERAGE - 3.2% Bass America, Inc., 8.125%, 2002 1,500 1,599 ConAgra, Inc., 9.75%, 2021 1,000 1,336 --------- 2,935 --------- FOREIGN GOVERNMENT - .8% Panama, (Republic of), 7.875%, 2002 (144A security acquired Feb., 1997 for $754,725)* 750 718 --------- INDUSTRIAL -7.2% Air Products & Chems., Inc., 8.5%, 2006 1,500 1,685 Beckman Instruments, Inc., 7.1%, 2003 500 503 Domtar, Inc., 8.75%, 2006 400 424 Fisher Scientific International, Inc., 7.125%, 2005 500 458 ICF Kaiser International, Inc., 13.0%, 2003 500 250 IMC Global , 7.4%, 2002 500 506 Laidlaw, Inc., 6.65%, 2004 1,300 1,290 Pindo Deli Finance Mauritius Ltd., 10.75%, 2007 500 265 Smurfit Capital Funding PLC, 6.75%, 2005 1,000 993 Tjiwi Kimia International Finance, 13.25%, 2001 500 310 ---------- 6,684 ---------- OIL & GAS - 5.4% Coastal Corp., 6.5%, 2008 1,000 1,025 Gulf Canada Resources Ltd., 8.35%, 2006 1,000 1,035 Imexsa Export Trust, 10.125%, 2003 (144A security acquired May, 1996 for $690,723)* 691 608 Louis Dreyfus National Gas Corp., 9.25%, 2004 1,000 1,033 The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- INA INVESTMENT SECURITIES, INC. INVESTMENTS IN SECURITIES December 31, 1998 (Continued) 4 MARKET PRINCIPAL VALUE (000) (000) - ----------------------------------------------------------------- Sonat, Inc., 9.5%, 1999 $ 1,000 $ 1,025 9.0%, 2001 250 267 ---------- 4,993 ---------- STRUCTURED SECURITIES - 7.0% CitiCorp. Mtg. Securities, Inc., 6.75%, 2028 1,000 987 Countrywide Home Loans, Inc., 6.75%, 2028 1,300 1,309 General Electric Capital Mtg. Services, Inc., 6.5%, 2023 750 750 6.75%, 2028 1,000 1,016 Iroquois Trust, 6.752%, 2007 (144A security Mar, 1998 for $730,891)* 725 735 Morgan (J.P.) Commercial Mortgage Finance Co., 6.533%, 2030 600 620 Residential Asset Securitization Trust, 6.75%, 2028 1,000 997 ---------- 6,414 ---------- TAXABLE MUNICIPALS - 17.0% Dallas Texas Revenue, 6.625%, 2027 1,000 1,021 Elmhurst Ill Sales Tax Revenue, 6.75%, 2006 465 497 Energy Acquisition Corp., 6.19%, 2002 900 919 Huntsville Solid Waste, 5.85%, 2002 1,000 1,010 Mendocino Cty. CA Pension Oblig., 6.89%, 2006 2,070 2,188 Norfolk VA Redevelopment & Housing Authority, 8.0%, 2015 500 551 Oakland CA Pension Oblig., 6.38%, 2000 500 510 Oklahoma City Oklahoma Airport Trust, 6.55%, 2006 1,000 1,047 Orange County CA Pension Obligations, Zero Coupon, 2014 4,000 1,491 Phoenix AZ Civic Imp. Corp., 6.15%, 2005 500 512 Phoenix AZ Civic Plaza Bldg., 6.75%, 2006 700 738 Residential Funding Mortgage Securities, Inc., 6.75%, 2028 1,250 1,330 St. Louis MO Municipal Finance Corp., 6.45%, 2007 800 830 Shreveport LA Certificate of Indebtedness, 6.23%, 2002 500 510 Trinity County Calif. Pension Oblig., 6.35%, 2011 1,000 1,014 Wilkes Barre, PA, 6.4%, 2009 1,500 1,543 --------- 15,711 --------- MARKET PRINCIPAL VALUE (000) (000) - --------------------------------------------------------------- TRANSPORTATION - 5.8% AMR Corp., 9.2%, 2012 $ 505 $ 606 CSX Corp., 7.25%, 2027 800 855 Delta Air Lines, Inc., 9.45%, 2006 946 1,065 10.14%, 2012 (144A security acquired July, 1995 for $1,112,260)* 1,000 1,276 Hertz Corp., 7.0%, 2003 500 522 Kitty Hawk, Inc., 9.95%, 2004 500 488 Norfolk Southern Corp., 7.05%, 2037 500 541 --------- 5,353 --------- UTILITIES - 4.1% Cajun Electric Power Co-op., 8.92%, 2019 500 530 El Paso Electric Co., 7.25%, 1999 500 500 Endesa-Chile Overseas Co., 7.2%, 2006 1,000 919 Hyder PLC, 6.75%, 2004 (144A security acquired Dec., 1997 for $749,205)* 750 769 Niagara Mohawk Power Co., 7.625%, 2005 500 527 Public Service Company of Colorado, 8.125%, 2004 290 321 Salton Sea Funding Corp., 7.02%, 2000 174 176 --------- 3,742 --------- U.S. GOVERNMENT & AGENCIES - 15.8% Federal National Mortgage Assoc., Zero Coupon, 2019 500 149 6.5%, 2028 790 795 6.5%, 2028 975 980 United States Treasury Bonds, 12.0%, 2013 775 1,183 6.5%, 2026 5,615 6,529 United States Treasury Bonds Stripped-Principal Only, Zero Coupon, 2008 500 316 Zero Coupon, 2016 10,525 4,041 United States Treasury Notes, 6.625%, 2007 525 590 ---------- 14,583 ---------- TOTAL LONG-TERM BONDS (Cost - $86,729,071) 88,978 ---------- The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- INA INVESTMENT SECURITIES, INC. INVESTMENTS IN SECURITIES December 31, 1998 (Continued) 5 MARKET PRINCIPAL VALUE (000) (000) - --------------------------------------------------------------- SHORT-TERM OBLIGATIONS - 2.3% COMMERCIAL PAPER - 2.3% (Total Cost $2,102,000) American Express Co., 4.85%, 1/4/99 $ 2,102 $2,102 --------- TOTAL INVESTMENTS IN SECURITIES - 98.8% (Total Cost - $88,831,071) 91,080 Cash and Other Assets Less Liabilities - 1.2% 1,122 --------- NET ASSETS - 100.0% $92,202 ========= * Indicates restricted security; the aggregate value of restricted securities is $5,961,109 (aggregate cost $6,087,659) which is approximately 6.5% of net assets. Valuations have been furnished by brokers trading in the securities or a pricing service for all restricted securities. --------------------------------------------------------------- PORTFOLIO COMPOSITION (UNAUDITED) December 31, 1998 MARKET % OF QUALITY RATINGS* OF VALUE MARKET LONG-TERM BONDS (000) VALUE ------------------------------------------------------------ Aaa/AAA $ 37,711 42.4% Aa/AA 6,630 7.5% A/A 17,376 19.5% Baa/BBB 13,806 15.5% Ba/BB 7,389 8.3% B/B 4,502 5.1% Below B 560 0.6% Not Rated 1,004 1.1% ---------- ---------- 88,978 100.0% ========== ========== *The higher of Moody's or Standard & Poor Ratings. ------------------------------------------------------------ STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998 (IN THOUSANDS) -------------- ASSETS: Investments at market value (Cost $88,831,071) $ 91,080 Cash 40 Interest receivable 1,548 Investment for directors' deferred compensation plan 211 ------------- TOTAL ASSETS 92,879 ------------- LIABILITIES: Capital gain distribution payable 276 Deferred directors' fees payable 211 Shareholder reports payable 59 Accrued advisory fees payable 43 Audit fees payable 35 Other accrued expenses (including $23,610 due to affiliate) 53 ------------- TOTAL LIABILITIES 677 ------------- NET ASSETS (equivalent to $19.24 per share based on 4,792,215 shares outstanding; 12,000,000 shares of $.10 par value authorized) $ 92,202 ============= COMPONENTS OF NET ASSETS: Paid-in capital $ 89,877 Overdistributed net investment income (54) Unrealized appreciation of investments 2,248 Accumulated net realized loss 131 ------------- NET ASSETS $ 92,202 ============= The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- INA INVESTMENT SECURITIES, INC. 6 STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS) -------------- INVESTMENT INCOME INCOME: Interest $ 6,567 EXPENSES: Investment advisory fees $481 Custodian fees 77 Transfer agent fees 70 Administrative services 59 Shareholder reports 47 Auditing and legal fees 42 State taxes 25 Directors' fees 24 Other 20 845 --------- ----------- NET INVESTMENT INCOME 5,722 ----------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized gain from investments 1,826 Unrealized depreciation of investments (1,145) ----------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 681 ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 6,403 =========== - ----------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 1998 1997 ------------- ------------- (IN THOUSANDS) ----------------------------- OPERATIONS: Net investment income $ 5,722 $ 5,850 Net realized gain from investments 1,826 692 Unrealized appreciation (depreciation) on investments (1,145) 1,360 ------------- ------------- Net increase in net assets from operations 6,403 7,902 ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income ($1.20 and $1.24 per share, respectively) (5,750) (5,942) From net realized gain (.0575 per share) (276) - ------------- ------------- Total distributions to shareholders (6,026) (5,942) ------------- ------------- NET INCREASE IN NET ASSETS 377 1,960 NET ASSETS: Beginning of period 91,825 89,865 ------------- ------------- End of period (including overdistributed net investment income of $53,990 and $35,191, respectively) $ 92,202 $ 91,825 ============= ============= The Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- INA INVESTMENT SECURITIES, INC. NOTES TO FINANCIAL STATEMENTS 7 1. SIGNIFICANT ACCOUNTING POLICIES. INA Investment Securities, Inc. (the "Company") is registered under the Investment Company Act of 1940, as amended, as a diversified, closed-end management investment company. The Company's objective is to generate income and obtain capital appreciation by investing at least 85% of its total assets in investment grade debt securities and preferred stocks. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Company in the preparation of its financial statements. A. SECURITY VALUATION - Debt securities traded in the over-the-counter market, including listed securities whose primary markets are believed to be over-the-counter, are valued on the basis of valuations furnished by brokers trading in the securities or a pricing service, which determines valuations for normal, institutional-size trading units of such securities using market information, transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. Short-term investments with remaining maturities of up to and including 60 days are valued at amortized cost, which approximates market. Short-term investments that mature in more than 60 days are valued at current market quotations. Other securities and assets of the Company are appraised at fair value as determined in good faith by, or under the authority of, the Company's Board of Directors. B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Dividend income is recorded on the ex-dividend date, and interest income is recorded on the accrual basis. The Company does not amortize premiums or discounts for book purposes, except for original issue discounts which are amortized over the life of the respective securities. Securities gains or losses are determined on the basis of identified cost. C. FEDERAL TAXES - It is the Company's policy to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income or capital gains, if any, to its shareholders. Therefore, no Federal income or excise taxes on realized income have been accrued. D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions are recorded by the Company on the ex-dividend date. Payments in excess of financial accounting income due to differences between financial and tax accounting, to meet the distribution requirements for tax basis income, are deducted from paid-in capital when such differences are determined to be permanent. 2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES. Investment advisory fees were paid or accrued to CIGNA Investments, Inc. ("CII"), certain officers and directors of which are affiliated with the Company. Such advisory fees are based on an annual rate of 0.55% of the first $75 million of average weekly net asset value and 0.4% thereafter. The Company reimburses CII for a portion of the compensation and related expenses of the Company's Treasurer and Secretary and certain persons who assist in carrying out the responsibilities of those offices. For the year ended December 31, 1998, the Company paid or accrued $58,647. CII is an indirect, wholly-owned subsidiary of CIGNA Corporation. 3. DIRECTORS' FEES. Directors' fees represent remuneration paid or accrued to directors who are - -------------------------------------------------------------------------------- INA INVESTMENT SECURITIES, INC. NOTES TO FINANCIAL STATEMENTS (Continued) not employees of CIGNA Corporation or any of its affiliates. Directors may elect to defer receipt of all or a portion of their fees which are invested in mutual fund shares in accordance with a deferred compensation plan. 4. PURCHASES AND SALES OF SECURITIES. Purchases and sales of securities for the year ended December 31, 1998 were as follows (excluding short-term obligations): PROCEEDS COST OF FROM SECURITIES SECURITIES PURCHASED SOLD ---------------------- ----------------------- Bonds $ 30,631,248 $ 22,743,142 U.S. Government Obligations 41,898,102 51,213,540 ---------------------- ----------------------- $ 72,529,350 $ 73,956,682 ====================== ====================== As of December 31, 1998, the cost of securities for Federal Income tax purposes was $88,831,071. At December 31, 1998, unrealized appreciation for Federal income tax purposes aggregated $2,248,494 of which $3,751,293 related to appreciated securities and $1,502,799 related to depreciated securities. - -------------------------------------------------------------------------------- INA INVESTMENT SECURITIES, INC. NOTES TO FINANCIAL STATEMENTS (Continued) 9 5. FINANCIAL HIGHLIGHTS. The following table includes data, ratios and supplemental data for a share outstanding throughout each period and other performance information:
- ----------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1998 1997 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: NET ASSET VALUE, BEGINNING OF PERIOD $ 19.16 $ 18.75 $ 19.50 $ 17.56 $ 19.72 INCOME FROM INVESTMENT OPERATIONS Net investment income (1) 1.18 1.22 1.27 1.32 1.39 Net realized and unrealized gain (loss) 0.16 0.43 (0.73) 1.94 (2.00) ------ ------ ------ ------ ------- TOTAL FROM INVESTMENT OPERATIONS 1.34 1.65 0.54 3.26 (0.61) ------ ------ ------ ------ ------- LESS DISTRIBUTIONS: From net investment income (1.20) (1.24) (1.29) (1.32) (1.35) From capital gains (0.06) - - - (0.20) ------ ------ ------ ------ ------- TOTAL DISTRIBUTIONS (1.26) (1.24) (1.29) (1.32) (1.55) ------ ------ ------ ------ ------- NET ASSET VALUE, END OF PERIOD $19.24 $19.16 $18.75 $19.50 $17.56 ======= ======= ======= ======= ======= MARKET VALUE, END OF PERIOD $17.31 $17.38 $16.13 $17.38 $15.25 ======= ======= ======= ======= ======= TOTAL INVESTMENT RETURN: Per share market value 6.95% 16.08% 0.28% 23.07% (8.34)% Per share net asset value (2) 7.22% 9.16% 3.01% 19.17% (3.13)% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $92,202 $91,825 $89,865 $93,444 $84,131 Ratio of operating expenses to average net assets 0.92% 0.99% 0.91% 1.00% 0.96% Ratio of net investment income to average net assets 6.20% 6.49% 6.80% 7.10% 7.42% Portfolio turnover 81% 80% 89% 158% 86%
(1) Net investment income per share has been calculated in accordance with SEC requirements, with the exception that end of year accumulated undistributed/(overdistributed) net investment income has not been adjusted to reflect current year permanent differences between financial and tax accounting. (2) Total investment return based on per share net asset value reflects the effects of changes in net asset value on the performance of the Company during each period, and assumes distributions were reinvested at net asset value. These percentages do not correspond with the performance of a shareholder's investment in the Company based on market value since the relationship between the market price of the stock and net asset value varied during each period. - -------------------------------------------------------------------------------- INA INVESTMENT SECURITIES, INC. NOTES TO FINANCIAL STATEMENTS (Continued) 10 6. QUARTERLY RESULTS (UNAUDITED). The following is a summary of quarterly results of operations (in thousands except for per share amounts):
- --------------------------------------------------------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) INCR. (DECR.) IN NET INVESTMENT INCOME NET INVESTMENT INCOME ON INVESTMENTS ASSETS PERIOD ENDED TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE - --------------------------------------------------------------------------------------------------------------------------------- March 31, 1997 1,718 .36 1,507 .32 (2,188) (.46) (2,166) (.45) June 30, 1997 1,666 .35 1,461 .30 1,811 .38 1,786 .37 September 30, 1997 1,689 .35 1,482 .31 1,435 .30 1,432 .30 December 31, 1997 1,665 .35 1,400 .29 994 .21 908 .19 March 31, 1998 1,658 .35 1,447 .31 4 .00 (35) (.01) June 30, 1998 1,662 .35 1,454 .30 524 .11 493 .11 September 30, 1998 1,631 .34 1,414 .29 1,134 .24 1,159 .24 December 31, 1998 1,617 .34 1,353 .28 (927) (.19) (1,240) (.26)
- -------------------------------------------------------------------------------- 11 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of INA Investment Securities, Inc. In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of INA Investment Securities, Inc. (the "Fund") at December 31, 1998, the results of its operations for the year then ended, the changes in its net assets and the financial highlights for each of the years indicated, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 1998 by correspondence with the custodian, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Boston, Massachusetts February 12, 1999 - -------------------------------------------------------------------------------- 12 1998 TAX INFORMATION (UNAUDITED) During 1998, the Company declared ordinary income dividends of $1.20 per share and $0.0575 from long-term capital gains. The $0.0575 distribution, which was declared in December 1998, complied with a provision in the Internal Revenue Code which requires the Company to satisfy certain distribution requirements for a calendar year. Such distributions must be declared prior to December 31 and paid prior to the following January 31. Please note that the December 1998 distribution is still considered 1998 taxable long-term capital gain, even though received in 1999. Dividends reported to you on Form 1099, whether received as stock or cash, must be included in your Federal income tax return and must be reported by the Company to the Internal Revenue Service. Approximately 13.4% of income for the year was derived from U.S. Government Treasury obligations, and 0.6% from U.S. Government Agency obligations. AUTOMATIC DIVIDEND AND DISTRIBUTION INVESTMENT PLAN Shareholders may elect to have all distributions of dividends and capital gains automatically reinvested by State Street Bank and Trust Company (the "Dividend Paying Agent") as plan agent under the Automatic Dividend and Distribution Investment Plan (the "Plan"). Shareholders who do not elect to participate in the Plan will receive all distributions from the Company in cash paid by check mailed directly to the shareholder by the Dividend Paying Agent. Shareholders may elect to participate in the Plan and to have all distributions of dividends and capital gains automatically reinvested by sending written instructions to the Dividend Paying Agent at the address set forth below. If the Directors of the Company declare a dividend or determine to make a capital gains distribution payable either in shares of the Company or in cash, as shareholders may have elected, non-participants in the Plan will receive cash and participants in the Plan will receive the equivalent in shares. If the market price of the shares as of the close of business on the payment date for the dividend or distribution is equal to or exceeds their net asset value as determined as of the close of business on the payment date, participants will be issued shares of the Company at a value equal to the higher of net asset value or 95% of the market price. If net asset value exceeds the market price of the shares at such time, or if the Company declares a dividend or other distribution payable only in cash, the Dividend Paying Agent will, as agent for Plan participants, buy shares in the open market, on the New York Stock Exchange or elsewhere, for the participants' accounts. If, before the Dividend Paying Agent has completed its purchases, the market price exceeds the net asset value of the shares, the average per share purchase price paid by the Dividend Paying Agent may exceed the net asset value of the shares, resulting in the acquisition of fewer shares than if the dividend or distribution had been paid in shares issued by the Company. Participants in the Plan may withdraw from the Plan upon written notice to the Dividend Paying Agent. When a participant withdraws from the Plan or upon termination of the Plan as provided below, certificates for the whole shares credited to his account under the Plan will be issued and a cash payment will be made for any fraction of a share credited to such account. The Dividend Paying Agent will maintain all shareholders' accounts in the Plan and will furnish written confirmation of all transactions in the account, including information needed by shareholders for tax records. Shares in the account of each Plan participant (other than participants whose shares are registered - -------------------------------------------------------------------------------- 13 in the name of banks, brokers, nominees or other third parties) will be held by the Dividend Paying Agent in the non-certificated form in the name of the participant, and each shareholder's proxy will include those shares purchased pursuant to the Plan. At no additional cost, shareholders of the Company may send to the Dividend Paying Agent for deposit into their Plan account those share certificates in their possession. Shareholders may also send share certificates to the Dividend Paying Agent for the Dividend Paying Agent to hold in a book-entry account outside of the Plan. Whether or not shareholders participate in the Plan, they may elect by notice to the Dividend Paying Agent to have the Dividend Paying Agent sell their noncertificated book-entry shares. The Dividend Paying Agent will deduct from the sale proceeds $2.50 per transaction plus $0.15 per share and remit the balance of the sales proceeds to the shareholder. The Dividend Paying Agent will sell the noncertificated shares on the first trading day of the week immediately following receipt of written notification by the Dividend Paying Agent. In the case of shareholders such as banks, brokers or nominees which hold shares for others who are the beneficial owners, the Dividend Paying Agent will administer the Plan on the basis of number of shares certified from time to time by the record shareholders as representing the total amount registered in the record shareholder's name and held for the account of beneficial owners who are to participate in the Plan. Investors whose shares are held in the name of banks, brokers or nominees should confirm with such entities that participation in the Plan will be possible, and should be aware that they may be unable to continue to participate in the Plan if their account is transferred to another bank, broker or nominee. Those who do participate in the Plan may subsequently elect not to participate by notifying such entities. There is no charge to participants for reinvesting dividends or distributions, except for certain brokerage commissions, as described below. The Dividend Paying Agent's fees for the handling of the reinvestment of dividends and distributions will be paid by the Company. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Dividend Paying Agent's open market purchases in connection with the reinvestment of dividends or distributions. Participants in the Plan should be aware that they will realize capital gains and income for tax purposes upon dividends and distributions although they will not receive any payment of cash. Experience under the Plan may indicate that changes are desirable. Accordingly, the Company reserves the right to amend or terminate the Plan as applied to any dividend or distribution paid subsequent to written notice of the change sent to the participants in the Plan at least 90 days before the record date for such dividend or distribution. The Plan also may be amended or terminated by the Dividend Paying Agent on at least 90 days' written notice to participants in the Plan. All correspondence concerning the Plan including requests for additional information or an application brochure or general inquires about your account should be directed to State Street Bank and Trust Company, Stock Transfer Department, P.O. Box 8200, Boston, MA 02266-8200 or you may call toll-free 1-800-426-5523. - -------------------------------------------------------------------------------- INA INVESTMENT SECURITIES, INC.
TRUSTEES Thomas C. Jones OFFICERS Hugh R. Beath PRESIDENT, CIGNA INVESTMENT Richard H. Forde ADVISORY DIRECTOR, MANAGEMENT AND CIGNA CHAIRMAN OF THE BOARD ADMEDIA CORPORATE ADVISORS, INC. INVESTMENTS, INC. AND PRESIDENT Paul J. McDonald Richard H. Forde SENIOR EXECUTIVE VICE PRESIDENT SENIOR MANAGING DIRECTOR, AND CHIEF ADMINISTRATIVE OFFICER, Alfred A. Bingham III CIGNA INVESTMENTS, INC. FRIENDLY ICE CREAM CORPORATION VICE PRESIDENT AND TREASURER Russell H. Jones VICE PRESIDENT AND TREASURER Jeffrey S. Winer KAMAN CORPORATION VICE PRESIDENT AND SECRETARY
- -------------------------------------------------------------------------------- INA Investment Securities, Inc. is a closed-end, diversified management investment company that invests primarily in debt securities. The investment adviser is CIGNA Investments, Inc., 900 Cottage Grove Road, Hartford, Connecticut 06152. Shareholders may elect to have dividends automatically invested in additional shares of INA Investment Securities, Inc. by participating in the Automatic Dividend Investment Plan (the "Plan"). For a brochure describing this Plan or general inquiries about your account contact State Street Bank and Trust Company, Stock Transfer Department, P.O. Box 8200, Boston, Massachusetts, 02266-8200, or call 1.800.426.5523. [CIGNA TREE LOGO GRAPHIC APPEARS HERE] INA Investment Securities, Inc. P.O. Box 13856 [CIGNA TREE LOGO GRAPHIC APPEARS HERE] Philadelphia, PA 19101 INA INVESTMENT SECURITIES, INC. - -------------------- BULK RATE U.S. POSTAGE PAID SO. HACKENSACK, NJ ANNUAL REPORT PERMIT 750 - -------------------- DECEMBER 31, 1998 [CIGNA TREE LEAVES GRAPHIC APPEARS IN BACKGROUND OF COVER] -----END PRIVACY-ENHANCED MESSAGE-----