-----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, VhTNevlJCoXdjhiqSxyO05+yWisUZHtnyjblsM7LxVFydAXFIIwGEnVOePNyw4Qj EJH5tfDH1mpEQIUmTfeDAg== 0001145443-04-000241.txt : 20040309 0001145443-04-000241.hdr.sgml : 20040309 20040309115313 ACCESSION NUMBER: 0001145443-04-000241 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040309 EFFECTIVENESS DATE: 20040309 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIGNA INVESTMENT SECURITIES CENTRAL INDEX KEY: 0000049975 IRS NUMBER: 231886274 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-02299 FILM NUMBER: 04656514 BUSINESS ADDRESS: STREET 1: 2223 WASHINGTON STREET STREET 2: 3 NEWTON EXECUTIVE PARK, SUITE 200 CITY: NEWTON STATE: MA ZIP: 02462 BUSINESS PHONE: 860.534.4700 MAIL ADDRESS: STREET 1: C\O TIMESSQUARE CAPITAL MANAGEMENT, INC. STREET 2: 280 TRUMBULL STREET, H16C CITY: HARTFORD STATE: CT ZIP: 06103 FORMER COMPANY: FORMER CONFORMED NAME: CIGNA INVESTMENT SECURITIES INC DATE OF NAME CHANGE: 19990819 FORMER COMPANY: FORMER CONFORMED NAME: INA INCOME & CONVERTIBLE FUND DATE OF NAME CHANGE: 19730426 N-CSR 1 d13907.txt 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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: --------------------------------------------------- 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)* ------------------------------------------------------ Richard H. Forde, Chairman of the Board and President Date: March 5, 2004. Alfred A. Bingham III By (Signature and Title)* ------------------------------------------------------ Alfred A. Bingham III, Vice President and Treasurer Date: March 5, 2004.
EX-99.(A)(1) 3 ex99_a1.txt Exhibit (a)(1) CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR CIGNA FUNDS OFFICERS I. Covered Officers/Purpose of the Code CIGNA Funds' code of ethics (this "Code") for the investment companies within the complex (collectively, "Funds" and each, "Fund") applies to the Funds' Principal Executive Officer, Principal Financial Officer and Principal Legal Officer (the "Covered Officers", each of whom are set forth in Exhibit A) for the purpose of promoting: o honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; o full, fair, accurate, timely and understandable disclosure in reports and documents that a Fund files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Fund; o compliance with applicable laws and governmental rules and regulations; o the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and o accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. II. Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest Overview. A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his service to, the Fund. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of his position with the Fund. Certain conflicts of interest arise out of the relationships between Covered Officers and the Fund and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Fund because of their status as "affiliated persons" of the Fund. The Fund's and the investment adviser's compliance programs 1 Exhibit (a)(1) and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the Funds and the investment adviser. The Covered Officers are officers or employees of an affiliate of the investment adviser. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the Funds or for the adviser, or for both), be involved in establishing policies and implementing decisions that will have different effects on the adviser and the Funds. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Funds and the adviser and is consistent with the performance by the Covered Officers of their duties as officers of the Funds. Other conflicts of interest are covered by this Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Fund. Each Covered Officer must: o not use his personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Company whereby the Covered Officer would benefit personally to the detriment of the Company; o not cause the Fund to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit the Company; o not use material non-public knowledge of portfolio transactions made or contemplated for the Company to trade personally or cause others to trade personally in contemplation of the market effect of such transactions; o report at least annually on affiliations or other relationships related to conflicts of interest that the Fund's Trustees and Officers Questionnaire covers. There are some conflict of interest situations that should always be approved by the Chief Counsel to the investment adviser to the Funds if material. Examples of these include: 2 Exhibit (a)(1) o any ownership interest in, or any consulting or employment relationship with, any of the Company's service providers, other than its investment adviser, principal underwriter, administrator or any affiliated person thereof; o a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Company for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. There are some conflicts of interest (e.g. receipt of gifts and entertainment by Covered Officers, and service by Covered Officers as a director of a company) that are covered by the code of ethics of CIGNA Corporation, the adviser's parent. Each Covered Officer is subject to the CIGNA Corporation code of ethics. III. Disclosure and Compliance o Each Covered Officer should familiarize himself with the disclosure requirements generally applicable to the Funds; o each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about the Fund to others, whether within or outside the Fund, including to the Fund trustees and auditors, and to governmental regulators and self-regulatory organizations; o each Covered Officer should, to the extent appropriate within his area of responsibility, consult with other officers and employees of the Funds and the adviser with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and o it is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. IV. Reporting and Accountability Each Covered Officer must: o upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Board that he has received, read, and understands the Code; 3 Exhibit (a)(1) o annually thereafter affirm to the Board that he has complied with the requirements of the Code; o not retaliate against any other Covered Officer or any employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; and o notify Chief Counsel of the investment adviser to the Funds promptly if he knows any violation of this Code. Failure to do so is itself a violation of this Code. The Chief Counsel of the investment adviser or other designated senior legal officer of the Fund's investment adviser is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. However, any approvals or waivers sought by a Covered Officer will be considered by the Audit Committee (the "Committee"). The Funds will follow these procedures in investigating and enforcing this Code: o the Chief Counsel or other designated senior legal officer will take all appropriate action to investigate any potential violations reported to him; o if, after such investigation, the Chief Counsel believes that no violation has occurred, the Chief Counsel is not required to take any further action; o any matter that could reasonably be deemed to be a violation will be reported to the Committee; o if the Committee concurs that a violation has occurred, it will inform and make a recommendation to the Board, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer; o The Committee will be responsible for granting waivers, as appropriate; and o any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. V. Other Policies and Procedures This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to 4 Exhibit (a)(1) registered investment companies thereunder. Insofar as other policies or procedures of CIGNA Corporation, the Funds, the Funds' adviser, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The Funds' and their investment adviser's codes of ethics under Rule 17j-1 under the Investment Company Act contain separate requirements applying to the Covered Officers and others, and are not part of this Code. VI. Amendments Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of the Board, including a majority of independent directors. VII. Confidentiality All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Board and its counsel. The foregoing shall not limit the ability of the Board of Trustees of the Funds or the Committee to respond to matters arising under this Code as they shall deem appropriate. VIII. Internal Use The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Fund, as to any fact, circumstance, or legal conclusion. Date: December 10, 2003 Exhibit (a)(1) Exhibit A Persons covered by this Code of Ethics: Richard H. Forde - Chairman of the Board and President Alfred A. Bingham III - Vice President and Treasurer Jeffrey S. Winer - Vice President and Secretary EX-99.(A)(2) 4 ex99_a2.txt Exhibit (a)(2) CIGNA Investment Securities ("Fund") - Proxy Voting Procedures Responsibility: 1. Compliance Department 2. Proxy Voting Committee 3. Analysts and Portfolio Managers Discussion: 1. Compliance identifies those Clients for which TimesSquare Capital Management, Inc. and its affiliates (together "TSCM") have been instructed to vote proxies. While it will be very unusual for the Fund to own voting securities, these procedures have been developed to provide guidance relative to the voting of proxies by the Fund. 2. Working with the key proxy voting decision makers, that is, analysts and portfolio managers, Compliance develops guidelines for voting on management and shareholder proposals. The proxy voting guidelines are reviewed and approved annually by the Proxy Voting Committee. The Proxy Voting Committee is composed of the CR&IS Chief Investment Officer, TSCM President, President of the CIGNA Funds Group, and TSCM Chief Counsel. 3. To address potential material conflicts of interest between the interests of the adviser and its affiliates and interests of the adviser's clients, the adviser has: a. Established a firewall around the portfolio managers and analysts. There are no communications between portfolio managers/analysts and associates of CIGNA Healthcare, Group, International or CR&IS (Retirement) (together referred to as "CIGNA") with respect to proxy voting issues. The purpose of the firewall is to prevent even the appearance that CIGNA's existing and potential client relationships influence proxy votes. b. Developed pre-determined proxy voting guidelines that are approved by the Proxy Voting Committee. Proposals to vote in a manner inconsistent with the pre-determined guidelines must be approved by the Proxy Voting Committee. 4. Proxy voting guidelines have been developed to protect/improve shareholder value through protection of shareholder rights, and prevention of excessive and unwarranted compensation for companies' directors, management, and employees. The Fund's objectives only, to the extent known, shall be considered. 5. Compliance is responsible to ensure all proxy ballots are voted, and are voted in accordance with policies and procedures described in this policy. Exhibit (a)(2) 6. After consulting with analysts and portfolio managers, Compliance presents voting recommendations on ballots to the Proxy Voting Committee, which reviews and approves/disapproves recommendations. 7. Compliance is responsible for reporting exceptions and/or non-routine or new matters to the Proxy Voting Committee. Compliance also provides the Committee with reports that provide an overview of voting results. EX-99.(A)(3) 5 ex99_a3.txt Exhibit (a)(3) CIGNA FUNDS NOMINATING COMMITTEE CHARTER 1. The Nominating Committee (the "Committee") shall be composed entirely of those Trustees of CIGNA Funds Group, CIGNA Variable Products Group, CIGNA High Income Shares and CIGNA Investment Securities (the "Funds" and individually a "Fund") who are not "interested persons" of the Funds within the meaning of Section 2(a)(19) of the Investment Company Act of 1940, as amended (each an "Independent Trustee"). As long as shares of a Fund are listed on any national securities exchange or national securities association (generally, a "Listing Entity"), the composition of the Committee shall also meet such requirements as may be imposed from time to time by that Listing Entity. No member of the Committee shall receive any compensation from a Fund except compensation for service as a member of the Board of Trustees (the "Board") or a committee thereof. 2. The purpose of the Committee is to foster the effective development and maintenance of the membership and organization of the Board and its committees. 3. The Committee shall have the following duties and powers: (a) to nominate, for consideration by the shareholders or the Board in accordance with Section 16(a) of the Investment Company Act of 1940, as amended (the "1940 Act"), candidates to serve as Trustees of one or more Funds; (b) to supervise the nomination of Trustees of one or more Funds and establish and maintain policies regarding the selection of nominees for election to the Board, the current procedures being set forth in Appendix A; (c) to review periodically the size and composition of the Board and its governance procedures and to recommend any such changes to the full Board as the Committee shall deem appropriate; (d) to review periodically the compensation of Trustees paid by each Fund and to recommend to the Board such adjustments therein as the Committee shall deem appropriate; and (e) to review, as necessary, the responsibilities, size and composition of committees of the Board, to consider whether there is a continuing need for each committee, whether there is a need for additional committees of the Board, and whether committees should be combined or reorganized, and to make such recommendations to the full Board as the Committee shall deem appropriate. Exhibit (a)(3) The Committee shall have such other duties and powers as it shall deem appropriate in order to represent the interests of each Fund and its respective shareholders in matters in which their interests are different from those of the Fund's investment adviser(s) and principal underwriter(s) and their affiliates. 4. The Committee shall meet at least annually at such times and locations as the Committee may determine and is empowered to hold special meetings as circumstances require. 5. The Committee shall have the resources and authority appropriate to discharge its responsibilities, including the authority to retain special counsel and other experts or consultants at the expense of one or more Funds. The Committee shall have the right of direct access to such officers of and service providers to the Funds as it deems desirable. 6. The Committee shall review this Charter at least annually and recommend any changes to the full Board. Exhibit (a)(3) Appendix A POLICY REGARDING SELECTION OF TRUSTEE NOMINEES The Committee will, when a vacancy on the Board exists or is anticipated, consider any Trustee candidate recommended by security holders. The current procedures to be followed by security holders are set forth below: 1. All security holder recommendations for Trustee candidates must be submitted to the Secretary of the applicable Fund who will forward all recommendations to the Committee. 2. All security holder recommendations for Trustee candidates must be submitted to the applicable Fund not less than one hundred twenty (120) calendar days prior to the date on which the Fund's proxy statement was released to shareholders in connection with the previous year's annual meeting. 3. All security holder recommendations for Trustee candidates must include the following information: (a) The name and address of the security holder of record; (b) A representation that the security holder is a record holder of the applicable Fund's securities, or if the security holder is not a record holder, evidence of ownership in accordance with Rule 14a-8(b)(2) of the Securities Exchange Act of 1934, as amended; (c) The name, age, business and residential address, educational background, current principal occupation or employment, and principal occupation or employment for the preceding five (5) full fiscal years of the proposed Trustee candidate; (d) A description of the qualifications and background of the proposed Trustee candidate that addresses the minimum qualifications and other criteria for Board membership approved by the Board from time to time; (e) A description of all arrangements or understandings between the security holder and the proposed Trustee candidate; (f) The consent of the proposed Trustee candidate (i) to be named in the proxy statement relating to the applicable Fund's annual meeting of shareholders and (ii) to serve as a Trustee if elected at such annual meeting; and (g) Any other information regarding the proposed Trustee candidate that is required to be included in a proxy statement filed pursuant to the rules of the Securities and Exchange Commission. Exhibit (a)(3) The Committee has not established specific, minimum qualifications that must be met by an individual for the Committee to recommend that individual for nomination as a Trustee. In seeking candidates to consider for nomination to fill a vacancy on the Board, the Committee expects to seek referrals from a variety of sources, including current Trustees, management of the Funds and counsel to the Funds. The Committee may also engage a search firm to identify or evaluate or assist in identifying or evaluating candidates. In evaluating Trustee candidates, the Committee considers a variety of factors, including, as appropriate: (i) the candidate's knowledge in matters relating to investment companies; (ii) any experience possessed by the candidate as a director or senior officer of other public companies; (iii) the candidate's educational background; (iv) the candidate's reputation for high ethical standards and personal and professional integrity; (v) any specific financial, technical or other expertise possessed by the candidate, and the extent to which such expertise would complement the Board's existing mix of skills and qualifications; (vi) the candidate's perceived ability to contribute to the ongoing functions of the Board, including the candidate's ability and commitment to attend meetings regularly and work collaboratively with other members of the Board; (vii) the candidate's ability to qualify as an Independent Trustee for purposes of the 1940 Act, the candidate's independence from the Fund's service providers and the existence of any other relationships that might give rise to a conflict of interest or the appearance of a conflict of interest; (viii) the candidate's age relative to the Funds' retirement age for Trustees and (ix) such other factors as the Committee determines to be relevant in light of the existing composition of the Board and any anticipated vacancies or other transitions, e.g., whether or not a candidate is an "audit committee financial expert" under the federal securities laws. Prior to making a final recommendation to the Board, the Committee conducts personal interviews with the candidate(s) it concludes are the most qualified. Any candidates recommended by security holders will be evaluated in the same manner. EX-99.(A)(4) 6 ex99_a4.txt Exhibit (a)(4) CERTIFICATIONS I, Richard H. Forde, certify that: 1. I have reviewed this report on Form N-CSR of CIGNA Investment Securities; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal half-year (the Registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer(s) and I have disclosed to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): Exhibit (a)(4) (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: March 5, 2004. /s/ Richard H. Forde [Signature] --------------------------------------------- Richard H. Forde [Title] Chairman of the Board and President Exhibit (a)(4) CERTIFICATIONS I, Alfred A. Bingham III, certify that: 1. I have reviewed this report on Form N-CSR of CIGNA Investment Securities; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal half-year (the Registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer(s) and I have disclosed to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): Exhibit (a)(4) (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: March 5, 2004. /s/ Alfred A. Bingham III [Signature] --------------------------------------------------------------------- Alfred A. Bingham III [Title] Vice President and Treasurer Exhibit (a)(4) Certification Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) In connection with the attached Report of CIGNA Investment Securities (the "Registrant) on Form N-CSR to be filed with the Securities and Exchange Commission (the "Report"), each of the undersigned officers of the Trust does hereby certify that, to the best of such officer's knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respect, the financial condition and results of operations of the Trust as of, and for, the periods presented in the Report. Dated: March 5, 2004. /s/ Richard H. Forde --------------------------------------- [Print Name] Richard H. Forde Chairman of the Board and Treasurer Dated: March 5, 2004. /s/ Alfred A. Bingham III --------------------------------------- [Print Name] Alfred A. Bingham III Vice President and Treasurer A signed original of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request. This certification is being furnished solely pursuant to 18 U.S.C. section 1350 and is not being filed as part of the Report or as a separate disclosure document.
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