<PAGE>
- --------------------------------------------------------------------------------
1
DEAR SHAREHOLDER:
We are pleased to provide this annual report for CIGNA High Income Shares,
covering the year ended December 31, 1995.
THE MARKET TAKES A TURN FOR THE BETTER
1995 turned out to be an excellent year for high yield investors. Early fears
that the Federal Reserve Bank's (Fed) restrictive monetary policy might cause a
recession in 1995 were allayed, as it became increasingly apparent that the
"soft landing" scenario for the economy was occurring. The Fed, in fact,
reversed course and actually eased policy, and interest rates declined.
Inflation remained subdued, corporate profits gained momentum, U.S. stock moved
significantly higher and the economy displayed moderate, although uneven,
growth. This favorable environment resulted in high levels of new cash flowing
into open-end mutual funds (the primary buyer of high yield securities) and
growing participation by the pension funds and so-called "cross-over" buyers.
The new issue calendar was very active, led by media and communications
companies. Several foreign corporate issuers also accessed the market in 1995,
as the U.S. high yield market's stature as a global capital market continued to
grow. As measured by the CS First Boston High Yield Index, the high yield
market gained 17.38% for the year and 2.88% in the fourth quarter, a
substantial improvement over 1994's results.
OUR STRATEGY
Your Fund's strategy during the year was to gradually rotate out of
economically sensitive cyclical industries, such as forest products, autos,
chemicals and metals. As 1996 begins, we are substantially underweighted in
these industry sectors. Conversely, we increased our portfolio holdings of
growth (e.g., Wireless Communications, Cable TV Broadcasting and Media) and
"defensive" companies (Supermarkets, Food and Energy). These businesses are
less susceptible to a slow growth, low inflation economy, in which it is more
difficult to demonstrate revenue growth and improving profits. We also
maintained our focus on "classic" high yield credits. These companies typically
have long-term competitive advantages, because they dominate their market
niche, have free cash flow for debt paydown and have skilled management/owners
operating the business. Lastly, your Fund also benefited from a number of
holdings of companies which either financed initial public offerings of their
stock or were acquired by larger, higher quality companies.
FUND PERFORMANCE
Your Fund performed extremely well in 1995, both on an absolute and relative
basis. For 1995, CIGNA High Income Shares earned 22.93%, based on net asset
value of the Fund. In the process, the Fund outperformed its benchmark index by
555 basis points. The Fund returned 26.24% based on the per-share market value
as reported by The New York Stock Exchange.
FUND ACTIVITY
Portfolio activity was heavy during the fourth quarter, with 11 new issues
added and 12 eliminated. To deal with current market conditions, we have
stressed broad diversification for the portfolio, as well as high credit
quality and industries benefiting from the stronger-than anticipated economy.
Borrowing under the Fund's line of credit was maintained below 33% of assets
during this reporting period. On December 31, borrowings were approximately 26%
of assets. The portfolio is currently invested in 76 companies. As of December
31, top industry holdings were Industrial and Miscellaneous 23.3%, Food and
Beverages 16.6%, Broadcasting and Media 11.4%, and Telecommunications 8.4%.
Average maturity was 8.1 years and average credit quality was B.
OUTLOOK
Assuming the economy grows moderately, inflation stays low and interest rates
decline further--at least for the first half of the year--we anticipate an
excellent 1996. We would expect the Fed to gradually lower short-term interest
rates until either economic growth exceeds 2.5% or inflation accelerates over
3%. Neither of these outcomes is projected over the near-term. The high yield
market should enjoy another good year under this scenario, as cash and
investors are drawn to the market's higher yields and attractive total returns.
Sincerely,
/s/ R. Bruce Albro
R. Bruce Albro, Chairman CIGNA High Income Shares
<PAGE>
- -------------------------------------------------------------------------------
CIGNA HIGH INCOME SHARES MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) 2
1995 was a reasonably good year for the economy. Growth continued at an
above-potential rate, inflation remained under control with a downward bias
and, despite ongoing waves of corporate restructuring, employment growth con-
tinued at an adequate pace. Thanks to low inflation, subdued credit demands
and renewed confidence in dollar investments, bonds performed spectacularly in
1995.
From yield peak levels for U.S. Treasuries in excess of 8% in late 1994,
yields dropped every month with two exceptions. The Fed eased short-term rates
by 75 basis points during the year, and long bond rates dropped by about 200
basis points. The year ended with a relatively flat yield curve, with real
short rates still somewhat high in historic terms.
Like the U.S. bond market, the domestic equity market moved steadily upward
last year. Corporate profits were much better than expected, helped by high
operating rates, subdued labor cost inflation, restructuring and translation
gains on foreign earnings. The S&P 500 Index rose by 38%, a reflection of the
same strong economic factors that drove the bond market's excellent perfor-
mance. The Index's profits jumped by an estimated 20%, and P/E multiples ex-
panded.
Strong profitability, low inflation, declining interest rates and a strong
stock market helped the high yield market achieve its second best year of the
1990's, with the highest absolute returns since 1991. New high yield issuance
exceeded $40 billion, the second best year of all time. High yield corporates
benefited from a 20%+ growth in mutual fund flows. This steady infusion of new
capital was buttressed by increased participation of life insurance companies,
along with the first-time arrival of total return money managers and some pub-
lic pension funds. The cumulative effect was that the market easily absorbed
the 1995 jump in new supply. The only blemish was a rebound in defaults from
the cyclical trough in 1994. Even so, 1995's rate was still substantially be-
low that of the late 1980's.
Strategically, your Fund responded to 1995 economic conditions by gradually
rotating out of vulnerable cyclical industries, and increasing portfolio hold-
ings of growth businesses (such as Wireless Communications, Cable TV Broad-
casting and Media) and "defensive" companies (Supermarkets, Food and Energy).
Such businesses are less susceptible to a slow growth, low inflation economy,
in which it is more difficult to demonstrate revenue growth and improving
profits. We also continued to focus on "classic" high yield credits. These are
companies that enjoy long-term comparative advantages, because they dominate
their market niches, have free cash flow for debt paydown and have skilled
management/ owners operating the business. Lastly, your Fund also benefited
from a number of holdings of companies which either financed initial public
offering of their stock or were acquired by larger, higher quality companies.
High-yield bonds returned 2.88% in the fourth quarter and 17.38% for all of
1995, according to the CS First Boston High Yield Index. CIGNA High Income
Shares gained 22.93% on underlying net assets for the year and 4.59% in the
final quarter. This performance compares with returns of 20.45% for High Yield
leveraged funds and 21.99% for all closed-end bond funds in 1995.
- -------------------------------------------------------------------------------
[PERFORMANCE GRAPH APPEARS HERE]
- --------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
Inception
1 Year 5 Year (8/11/88)
<S> <C> <C> <C>
Market Value 26.24% 30.44% 11.17%
Net Asset Value 22.93% 74.59% 11.37%
- --------------------------------------------------
</TABLE>
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (Unaudited)
8/11/88 - 12/31/95
<TABLE>
<CAPTION>
CIGNA High CS First Boston
Point of Income High Yield
Measurement Shares Index
<S> <C> <C>
08/11/88 10000 10000
Dec-88 9837.01 10241.404535479
Dec-89 9346.77 10281.638624726
Dec-90 5789.52 9625.4572055596
Dec-91 12234.02 13837.600585223
Dec-92 15213.76 16141.916605706
Dec-93 18198.82 19194.586686174
Dec-94 17320.74 19007.315288954
Dec-95 21865.83 22310.786686174
</TABLE>
CIGNA High Income Shares performance figures are historical and reflect rein-
vestment 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
"HIS". Fund performance does not reflect exchange commissions payable upon the
purchase or sale of the Fund's stock, but does reflect the original underwrit-
ing discount included in the Fund's initial offering price at its inception in
August 1988. 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 cannot guarantee comparable future results.
The Fund's return has been compared with the total return performance of CS
First Boston High Yield Index. This index is a group of unmanaged securities
widely regarded by investors to be representative of the high-yield bond mar-
ket in general. An investment cannot be made in the index. Index results do
not reflect brokerage charges or other investment expenses.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA HIGH INCOME SHARES INVESTMENTS IN SECURITIES December 31, 1995 3
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE
(000) (000)
- ------------------------------------------------------------------------------
<S> <C> <C>
BONDS AND NOTES - 126.7%
AUTO AND TRUCK - 3.6%
Aftermarket Technology Corp., 12%, 2004 $5,000 $ 5,275
Foamex L.P., 11.875%, 2004 4,250 4,165
--------
9,440
--------
CABLE TV - 5.8%
Adelphia Communications Corp., 12.5%, 2002 3,000 2,940
CAI Wireless Systems, Inc., 12.25%, 2002 5,750 6,138
Marcus Cable Co., L.P., 11.875%, 2005 5,500 5,912
--------
14,990
--------
CHEMICALS - 6.2%
Harris Chemical North America, Inc., 10.75%, 2003 4,500 4,118
LaRoche Industries, Inc., 13%, 2004 5,000 5,312
Polymer Group, Inc., 12.25%, 2002 6,500 6,728
--------
16,158
--------
BROADCASTING & MEDIA - 11.4%
Ackerly Communication, Inc., 10.75%, 2003 2,500 2,669
Act III Broadcasting, Inc., 10.25%, 2005 2,000 2,040
American Media Operations, Inc., 11.625%, 2004 5,500 5,555
Chancellor Broadcasting Co., 12.5%, 2004 4,000 4,270
Garden State Newspapers, Inc., 12%, 2004 6,000 6,030
Katz Corp., 12.75%, 2002 5,000 5,350
Lamar Advertising Co., 11%, 2003 3,395 3,531
--------
29,445
--------
CONSUMER PRODUCTS - 6.5%
Hines Horticulture, Inc., 11.75%, 2005 (144A security
acquired Oct. and Nov. 1995 for $5,062,500)** 5,000 5,187
Icon Health & Fitness, Inc., 13%, 2002 5,000 5,400
Samsonite Corp., 11.125%, 2005 2,520 2,419
TAG Heuer International SA, 12%, 2005 (144A security
acquired Dec. 1995 for $4,000,000)** 4,000 4,005
--------
17,011
--------
CONTAINERS AND PAPER - 8.1%
Applied Extrusions Technologies, Inc., 11.5%, 2002 3,462 3,722
Calmar, Inc., 11.5%, 2005 (144A security acquired Aug. and
Nov. 1995 for $5,022,500)** 5,000 5,062
Ivex Packaging Corp., 12.5%, 2002 1,350 1,431
Silgan Corp., 11.75%, 2002 5,000 5,350
Tjiwi Kimia International Finance Co., 13.25%, 2001 5,000 5,362
--------
20,927
--------
</TABLE>
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE
(000) (000)
- -----------------------------------------------------------------------------
<S> <C> <C>
ENERGY - 3.9%
Energy Ventures, Inc., 10.25%, 2004 $3,250 $ 3,429
Trans Texas Gas Corp., 11.5%, 2002 5,000 5,163
United Meridian Corp., 10.375%, 2005 1,500 1,586
--------
10,178
--------
ENTERTAINMENT - 5.0%
Bally's Grand, Inc., 10.375%, 2003 5,000 5,100
GNF Corp., 10.625%, 2003 5,500 5,129
Grand Casino, Inc., 10.125%, 2003 2,600 2,727
--------
12,956
--------
ENVIRONMENTAL - 2.2%
Mid-American Waste Systems, Inc., 12.25%, 2003 6,000 5,700
--------
FINANCIAL - 8.2%
Affinity Group, Inc., 11.5%, 2003 5,000 5,150
American Life Holding Co., 11.25%, 2004 5,500 5,775
GPA Delaware, Inc., 8.75%, 1998 5,100 4,794
Olympic Financial Ltd., 13%, 2000 5,000 5,463
--------
21,182
--------
FOOD AND BEVERAGES - 16.6%
Americold Corp.,
11.5%, 2005 1,750 1,737
15%, 2007 5,850 5,762
Brunos, Inc., 10.5%, 2005 5,000 4,950
Curtice Burns Foods, Inc., 12.25%, 2005 4,750 4,892
Pathmark Stores, Inc.,
11.625%, 2002 3,750 3,759
12.625%, 2002 2,800 2,884
Ralphs Grocery Co., 10.45%, 2004 5,000 5,075
Specialty Foods Corp., 11.25%, 2003 5,000 4,500
Star Markets Co., Inc., 13%, 2004 4,000 4,080
Van de Kamps, Inc., 12%, 2005 5,250 5,434
--------
43,073
--------
HEALTH CARE - 5.9%
Dade International Inc., 13%, 2005 5,000 5,612
General Medical Corp., 10.875%, 2003 4,000 3,920
Thrifty Payless, Inc., 12.25%, 2004 5,500 5,858
--------
15,390
--------
INDUSTRIAL AND MISCELLANEOUS - 23.3%
Cabot Safety Acquisition Corp., 12.5%, 2005 4,000 4,240
Coinmach Corp., 11.75%, 2005 (144A security acquired June
1995 for $5,016,250)** 5,275 5,341
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
- -------------------------------------------------------------------------------
CIGNA HIGH INCOME SHARES INVESTMENTS IN SECURITIES December 31, 1995 4
(Continued)
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE
(000) (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
Crain Industries, Inc., 13.5%, 2005 (144A security acquired
Aug.-Nov. 1995 for $5,563,750)** $5,500 $ 5,555
Dictaphone Corp., 11.75%, 2005 5,000 4,950
Interlake Corp., 12.125%, 2002 5,025 4,774
International Wire Group, Inc., 11.75%, 2005 5,500 5,294
K & F Industries, Inc., 13.75%, 2001 5,143 5,336
Primeco, Inc., 12.75%, 2005 5,000 5,150
RBX Corp., 11.25%, 2005 (144A security acquired Oct. 1995
for $4,025,000)** 4,000 3,960
Sullivan Graphics, Inc., 12.75%, 2005 (144A security ac-
quired Aug. and Nov. 1995 for $4,985,000)** 5,000 5,100
Telex Communications, Inc., 12%, 2004 4,750 4,881
United Stationers Supply Co., 12.75%, 2005 5,500 6,022
--------
60,603
--------
METALS - 4.8%
GS Technologies Operating Co., Inc., 12%, 2004 3,150 3,118
Jorgensen (Earle M.) Co., 10.75%, 2000 3,750 3,441
Kaiser Aluminum & Chemical Corp., 12.75%, 2003 5,500 6,023
--------
12,582
--------
TEXTILES - 4.7%
Dan River, Inc., 10.125%, 2003 5,250 4,777
Synthetic Industries, Inc., 12.75%, 2002 4,500 4,410
Tultex Corp., 10.625%, 2005 3,000 3,075
--------
12,262
--------
TELECOMMUNICATIONS - 8.4%
Comnet Cellular, Inc., 11.25%, 2005 5,000 5,275
Fonorola, Inc., 12.5%, 2002 4,450 4,672
IXC Communications Corp., 12.5%***, 2005 (144A security ac-
quired Sep. 1995 for $4,862,250)** 5,000 5,362
Pronet, Inc., 11.875%, 2005 3,500 3,868
USA Mobile Communications, Inc. II, 9.5%, 2004 2,700 2,673
--------
21,850
--------
TRANSPORTATION - 2.1%
Sea Containers Ltd.,
Series A, 12.5%, 2004 3,500 3,780
Series B, 12.5%, 2004 1,500 1,567
--------
5,347
--------
TOTAL BONDS AND NOTES (Cost - $318,421,865) 329,094
--------
UNITS - 5.9%
Berry Plastics Corp., 12.25%, 2004
(each $1,000 unit includes one warrant for
Class A Common Stock) 5,500 5,954
</TABLE>
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE
(000) (000)
- ------------------------------------------------------------------------------
<S> <C> <C>
ICF Kaiser International, Inc., 12%, 2003
(each $1,000 unit includes 4.8 warrants for
Common Stock) $4,500 $ 4,230
Wireless One, Inc., 13%, 2003
(each $1,000 unit includes three warrants for
Common Stock) 5,000 5,275
--------
TOTAL UNITS (Cost - $14,844,845) 15,459
--------
</TABLE>
<TABLE>
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C> <C>
COMMON STOCK - 0.1%
(Cost - $266,665)
Thrifty Payless Holdings, Inc., Class C* 47,500 202
--------
WARRANTS - 0.1%
BPC Holdings Corp., Exp. 2004* 5,500 69
Foodmaker, Inc., Exp. 1998* 4,500 57
IHF Capital, Inc., Class A & L* 5,000 125
Payless Cashways, Inc., Exp. 1996* 3,000 1
--------
TOTAL WARRANTS (Cost - $348,527) 252
--------
TOTAL INVESTMENTS IN SECURITIES - 132.8%
(Total Cost - $333,881,902) 345,007
Liabilities, Less Cash and Other Assets - (32.8%) (85,234)
--------
NET ASSETS - 100% (equivalent to $7.19 per share based on
36,148,059 shares outstanding) $259,773
========
</TABLE>
* Non-income producing securities.
** Indicates restricted security; the aggregate fair value of restricted
securities is $39,573,437 (aggregate cost $38,537,250) which is
approximately 15% of net assets. Valuations have been furnished by brokers
trading in the securities or a pricing service for all restricted
securities.
*** Variable rate security. Rate disclosed is as of December 31, 1995.
PORTFOLIO COMPOSITION (UNAUDITED)
December 31, 1995
<TABLE>
<CAPTION>
MARKET % OF
QUALITY RATINGS* OF VALUE MARKET
LONG-TERM BONDS (000) VALUE
- ---------------------------------------
<S> <C> <C>
Ba/BB $ 52,708 15.3%
B/B 276,589 80.3
Below B 15,256 4.4
-------- -----
$344,553 100.0%
======== =====
</TABLE>
* The higher of Moody's or Standard & Poor Ratings.
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA HIGH INCOME SHARES 5
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
ASSETS:
Investments at market value
(Cost - $333,881,902) $345,007
Cash on deposit with custodian 11
Interest receivable 10,548
Investment for deferred compensation plan
(Cost - $59,642) 65
Other 7
--------
TOTAL ASSETS 355,638
--------
LIABILITIES:
Loan payable 91,600
Dividend payable January 10, 1996 at $.0975 per share 3,524
Accrued interest payable 304
Accrued advisory fees payable 185
Deferred trustees' fees payable 65
Other accrued expenses (including $43,361 due to affiliate) 187
--------
TOTAL LIABILITIES 95,865
--------
NET ASSETS (Equivalent to $7.19 per share based on 36,148,059
shares of beneficial interest outstanding; unlimited number of
shares authorized) $259,773
========
COMPONENTS OF NET ASSETS:
Paid in capital $314,420
Undistributed net investment income 467
Unrealized appreciation of investments 11,131
Accumulated net realized loss (66,245)
--------
NET ASSETS $259,773
========
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C> <C>
INVESTMENT INCOME
INCOME:
Interest $39,763
EXPENSES:
Interest expense $6,730
Investment advisory fee 2,215
Administrative services 172
Shareholder reports 126
Custodian fees and expenses 87
Auditing and legal fees 74
Transfer agent fees and expenses 57
Trustees' fees 32
Other 46 9,539
------ -------
NET INVESTMENT INCOME 30,224
-------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from securities transactions 1,507
Unrealized appreciation of investments 19,516
-------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 21,023
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $51,247
=======
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA HIGH INCOME SHARES 6
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994
------------ ------------
(IN THOUSANDS)
--------------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 30,224 $ 26,530
Net realized gain (loss) from investments 1,507 (1,621)
Unrealized appreciation (depreciation) on
investments 19,516 (26,147)
------------ ------------
Net increase (decrease) in net assets from
operations 51,247 (1,238)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ($.8400 per share and
$.8802 per share, respectively) (30,104) (27,039)
In excess of net investment income ($.0198 per
share) -- (607)
------------ ------------
Total distributions to shareholders (30,104) (27,646)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from 8,748,477 capital shares issued
pursuant to rights offering (excluding related
expenses of $334,529) -- 61,430
Net increase from 723,005 and 733,209 capital
shares issued to shareholders in reinvestment of
distributions, respectively 5,176 5,419
------------ ------------
Net increase from capital share transactions 5,176 66,849
------------ ------------
Net increase in net assets 26,319 37,965
NET ASSETS:
Beginning of year 233,454 195,489
------------ ------------
End of year (Including undistributed net
investment income of $466,865 and $187,175,
respectively) $ 259,773 $ 233,454
============ ============
</TABLE>
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
CASH FLOWS FROM INVESTING AND OPERATING ACTIVITIES:
Purchases of portfolio securities $(204,773)
Proceeds from sales of portfolio securities 199,854
Investment income received 38,290
Investment and administrative expenses paid (2,788)
Interest paid (7,413)
---------
Cash flows provided by investing and operating activities 23,170
---------
CASH FLOWS FROM SHAREHOLDER AND OTHER FINANCING ACTIVITIES:
Distributions to shareholders (net of reinvestment of
$5,175,775) (24,060)
Net borrowings 900
---------
Cash flows used by shareholder and other financing activities (23,160)
---------
Net increase in cash 10
Cash, beginning of year 1
---------
CASH, END OF YEAR $ 11
=========
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET INCREASE IN CASH PROVIDED BY INVESTING AND
OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 51,247
Increase in value of investments (25,954)
Change in receivables and liabilities exclusive of loan and
dividend payable (2,123)
---------
NET CASH PROVIDED BY INVESTING AND OPERATING ACTIVITIES $ 23,170
=========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
- -------------------------------------------------------------------------------
CIGNA HIGH INCOME SHARES NOTES TO FINANCIAL STATEMENTS 7
1. SIGNIFICANT ACCOUNTING POLICIES. CIGNA High Income Shares (the "Fund") is
registered under the Investment Company Act of 1940, as amended, as a diversi-
fied, closed-end management investment company. The Fund's primary objective
is to provide the highest current income attainable consistent with reasonable
risk as determined by the Fund's investment adviser, through investment in a
professionally managed, diversified portfolio of high yield, high risk fixed-
income securities (commonly referred to as "junk bonds"). As a secondary ob-
jective, the Fund seeks capital appreciation, but only when consistent with
its primary objective. The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make es-
timates 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 mar-
ket, 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 in-
vestments that mature in more than 60 days are valued at current market quota-
tions. 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.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security transac-
tions are accounted for on the trade date (date the order to buy or sell is
executed). Dividend income is recorded on the ex-dividend date, and interest
income is recorded on the accrual basis. The Fund does not amortize premiums
or discounts for book purposes, except for original issue discounts which are
amortized over the life of the respective securities. Securities gains and
losses are determined on the basis of identified cost. The cost for Federal
income tax purposes is substantially the same.
C. FEDERAL TAXES -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and capital gains to its shareholders.
Therefore, no Federal income or excise tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions
are recorded by the Fund on the ex-dividend date. The timing and characteriza-
tion of certain income and capital gains distributions are determined in ac-
cordance with federal tax regulations which may differ from generally accepted
accounting principles. To the extent that such differences are permanent, a
reclass to paid in capital may be required.
E. CASH FLOW INFORMATION -- Cash, as used in the Statement of Cash Flows, is
the amount reported in the Statement of Assets and Liabilities. The Company
issues its shares, invests in securities, and distributes dividends from net
investment income (which are either paid in cash or reinvested at the discre-
tion of shareholders). These activities are reported in the Statement of
Changes in Net Assets. Information on cash payments is presented in the State-
ment of Cash Flows. Accounting practices that do not affect reporting activi-
ties on a cash basis include unrealized gain or loss on investment securities
and accretion income recognized on investment securities.
2. BANK LOANS. The Fund has a revolving credit agreement with unrelated third
party lend-
<PAGE>
- -------------------------------------------------------------------------------
CIGNA HIGH INCOME SHARES NOTES TO FINANCIAL STATEMENTS (Continued) 8
ers which will generally enable the Fund to borrow up to the lesser of (A)
$101,300,000 or (B) one-third of the Fund's Eligible Assets. The agreement ma-
tures on May 1, 1998. Prior to maturity, principal is repayable in whole or in
part at the option of the Fund. In connection with the agreement, the Fund has
granted the lenders a first lien on all of its investment securities and cash,
which will be enforceable in an amount of up to one-third of the aggregate
value of the investment securities and cash of the Fund. Borrowings under this
agreement bear interest at a variable rate tied to one of several short-term
rates that the Fund may select from time to time. The dollar weighted average
borrowings outstanding during the year ended December 31, 1995 were
$92,022,685 at an average interest rate of approximately 7.31%. As of December
31, 1995, the Fund was paying interest at an average annual rate of 6.93% on
its outstanding borrowings.
3. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES. Investment
advisory fees were paid or accrued to CIGNA Investments, Inc. (CII), certain
officers and directors of which are affiliated with the Fund. Such advisory
fees are based on an annual rate of 0.75% of the first $200 million of the
Fund's average weekly total asset value and 0.5% thereafter.
The Fund reimburses CII for a portion of the compensation and related expenses
of the Fund's Treasurer and Secretary and certain persons who assist in carry-
ing out the responsibilities of those offices. For the year ended December 31,
1995, the Fund paid $172,006.
4. TRUSTEES' FEES. Trustees' fees represent remuneration paid or accrued to
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 (ex-
cluding short-term obligations) for the year ended December 31, 1995 were
$204,772,708 and $199,853,820, respectively.
As of December 31, 1995, the cost of securities for Federal income tax pur-
poses was $333,913,152. At December 31, 1995, unrealized appreciation for Fed-
eral income tax purposes aggregated $11,094,173 of which $13,830,660 related
to appreciated securities and $2,736,487 related to depreciated securities.
6. CAPITAL LOSS CARRYOVER. At December 31, 1995, the Fund had a capital loss
carryover for Federal income tax purposes of $65,896,716 of which $30,367,908,
$30,071,289, $3,704,377 and $1,753,142 expire in 1998, 1999, 2000 and 2003,
respectively. 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. For the year ended December 31, 1995, the Fund has elected to defer
$325,347 of capital losses occurring between November 1, 1995 and December 31,
1995 under these rules. Such deferred losses will be treated as arising on the
first day of the year ended December 31, 1996.
7. RIGHTS OFFERING. On June 24, 1994, the Fund received primary and over-sub-
scription requests totaling approximately 125% of the 8,748,477 shares offered
in a Rights Offering. The terms of the Rights Offering stated that the Sub-
scription Price per share would be the net asset value per share at the close
of business on June 24, 1994. On that day, the Fund's net asset value per
share, and therefore the Subscription Price, was $7.06.
Not all holders of record fully exercised their rights in the primary sub-
scription, and shares were available pursuant to the over-subscription privi-
lege. However, requests for such over-subscription shares exceeded the shares
available. Accordingly, after all primary subscription requests had been sat-
isfied, the remaining shares were allocated among the over-subscribers in pro-
portion to the total number of shares owned by these holders on May 25, 1994,
the Record Date.
<PAGE>
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CIGNA HIGH INCOME SHARES NOTES TO FINANCIAL STATEMENTS (Continued) 9
8. FINANCIAL HIGHLIGHTS. The following table includes data, ratios and supple-
mental data for a share outstanding throughout each period and other perfor-
mance information:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
NET ASSET VALUE, BEGINNING
OF YEAR $ 6.59 $ 7.54 $ 6.99 $ 6.62 $ 4.73
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (1) 0.84 0.86 0.97 0.98 0.94
Net realized and unrealized
gains (losses) 0.60 (0.91) 0.58 0.40 1.91
-------- -------- -------- -------- --------
TOTAL FROM INVESTMENT
OPERATIONS 1.44 (0.05) 1.55 1.38 2.85
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income (0.84) (0.88) (0.97) (0.98) (0.94)
In excess of net investment
income -- (0.02) (0.03) (0.03) (0.02)
-------- -------- -------- -------- --------
TOTAL DISTRIBUTIONS (0.84) (0.90) (1.00) (1.01) (0.96)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR $ 7.19 $ 6.59 $ 7.54 $ 6.99 $ 6.62
======== ======== ======== ======== ========
MARKET VALUE, END OF YEAR $ 7.88 $ 7.00 $ 8.38 $ 7.88 $ 7.25
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:
Per share market value 26.24% (5.43)% 19.62% 24.36% 111.31%
Per share net asset value
(2) 22.93% (0.76)% 23.25% 21.65% 64.13%
RATIOS AND SUPPLEMENTAL
DATA:
Net assets, end of period
(000 omitted) $259,773 $233,454 $195,489 $176,974 $163,173
Ratio of operating expenses
to average net assets 1.12% 1.17% 1.21% 1.20% 1.26%
Ratio of interest expense to
average net assets 2.68% 2.10% 1.66% 1.91% 2.79%
Ratio of net investment
income to average net
assets 12.03% 12.33% 12.98% 13.81% 15.49%
Portfolio turnover 60% 72% 48% 45% 35%
</TABLE>
(1) Net investment income per share has been calculated in accordance with SEC
requirements, with the exception that end of year accumulated
undistributed/(overdistributed) net investment income has not been
adjusted to reflect current year permanent differences between financial
and tax accounting.
(2) Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund
during each year, and assumes distributions were reinvested at net asset
value. These percentages do 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.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA HIGH INCOME SHARES NOTES TO FINANCIAL STATEMENTS (Continued) 10
9. QUARTERLY RESULTS (UNAUDITED). The following is a summary of quarterly re-
sults of operations (in thousands except for per share amounts):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET REALIZED AND
UNREALIZED
GAIN (LOSS)
PERIOD INVESTMENT INCOME NET INVESTMENT INCOME ON INVESTMENTS NET ASSETS
ENDED TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE INCREASE (DECREASE) PER SHARE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31, 1994 $ 7,437 $.28 $6,046 $.23 $(6,381) $(.25) $(4,533) $(.24)
June 30, 1994 7,366 .28 5,886 .23 (8,952) (.34) (7,825) (.34)
September 30, 1994 9,401 .27 7,444 .20 (3,486) (.07) 58,762 (.09)
December 31, 1994 9,361 .26 7,154 .20 (8,949) (.25) (8,439) (.28)
March 31, 1995 9,853 .28 7,424 .21 8,614 .24 10,141 .25
June 30, 1995 9,807 .28 7,417 .21 6,426 .18 7,902 .18
September 30, 1995 9,871 .27 7,486 .21 2,544 .07 4,046 .08
December 31, 1995 10,232 .28 7,897 .21 3,439 .11 4,230 .09
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS 11
To the Trustees and Shareholders of CIGNA High Income Shares
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations, of cash
flows and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of CIGNA High Income Shares at
December 31, 1995, the results of its operations and cash flows for the year
then ended, changes in its net assets and the financial highlights for each of
the years indicated, in conformity with generally accepted accounting princi-
ples. 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 accor-
dance with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presenta-
tion. We believe that our audits, which included confirmation of securities at
December 31, 1995 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 15, 1996
<PAGE>
- --------------------------------------------------------------------------------
1995 TAX INFORMATION (UNAUDITED) 12
During 1995, the Company declared ordinary income dividends of $.84 per share.
There were no capital gain distributions. The distribution which was declared
in December 1995 (the dividend of 9.75 cents per share includes the regular
monthly dividend of 6.75 cents plus an extra year end distribution of 3 cents
per share) complied with a provision of the Internal Revenue Code, as amended,
that requires an investment company to distribute substantially all of its ac-
cumulated net investment income by the end of each calendar year. Such distri-
butions must be declared prior to December 31 and paid prior to the following
January 31. Please note that the December 1995 distribution is considered 1995
taxable income, even though received in 1996, which is consistent with the
treatment of the December 1994 distribution (paid on January 10, 1995) that was
considered 1994 taxable income. Dividends reported to you on Form 1099, whether
received as stock or cash, must be included in your Federal income tax return
and must be reported by the Company to the Internal Revenue Service.
AUTOMATIC DIVIDEND AND DISTRIBUTION INVESTMENT PLAN
Shareholders may elect to have all distributions of dividends and capital gains
automatically reinvested by State Street Bank and Trust Company (the "Dividend
Paying Agent") as plan agent under the Automatic State Street Bank and Trust
company (the "Plan"). Shareholders who do not elect to participate in the Plan
will receive all distributions from the Company in cash paid by check mailed
directly to the shareholder by the Dividend Paying Agent. Shareholders may
elect to participate in the Plan and to have all distributions of dividends and
capital gains automatically reinvested by sending written instructions to the
Dividend Paying Agent at the address set forth below.
If the Trustees of the Fund declare a dividend or determine to make a capital
gains distribution payable either in shares of the Company or in cash, as
shareholders may have elected, non-participants in the Plan will receive cash
and participants in the Plan will receive the equivalent in shares. If the mar-
ket 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 deter-
mined as of the close of business on the payment date, participants will be is-
sued 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 Company declares a dividend or other distribu-
tion 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 acquisi-
tion 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 ter-
mination of the Plan as provided below, certificates for the whole shares cred-
ited to his account under the Plan will be issued and a cash payment will be
made for any fraction of a share credited to such account. The Dividend Paying
Agent will maintain all shareholders' accounts in the Plan and will furnish
written confirmation of all transactions in the account, including information
needed by shareholders for tax records. Shares in the account of each Plan par-
ticipant (other than participants whose shares are registered in the name of
banks, brokers, nominees
<PAGE>
- --------------------------------------------------------------------------------
13
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.
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 Pay-
ing Agent's fees for the handling of the reinvestment of dividends and distri-
butions will be paid by the Fund. There will be no brokerage commissions
charged with respect to shares issued directly by the Fund. However, each par-
ticipant will pay a pro rata share of brokerage commissions incurred with re-
spect 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 inquires about your account should be directed to State Street Bank
and Trust Company, Stock Transfer Department, P.O. Box 8200, Boston, MA 02266-
8200 or you may call toll-free 1-800-426-5523.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA HIGH INCOME SHARES
TRUSTEES OFFICERS
R. Bruce Albro Paul J. McDonald R. Bruce Albro
Senior Managing Director Executive Vice President, Chairman of the
CIGNA Investments, Inc. Finance and Chief Board and President
Financial Officer,
Hugh R. Beath Friendly Ice Cream Alfred A. Bingham III
Managing Director, Corporation Vice President and
AdMedia Corporate Advisor, Treasurer
Inc. Arthur C. Reeds III
President, CIGNA Investment Lawrence S. Harris
Russell H. Jones Management and CIGNA Vice President
Vice President, Investments, Inc.
Kaman Corporation Alan C. Petersen
Vice President
Jeffrey S. Winer
Vice President and
Secretary
- --------------------------------------------------------------------------------
CIGNA High Income Shares is a closed-end, diversified management investment
company that invests primarily in high yield fixed-income securities. The in-
vestment adviser is CIGNA Investments, Inc., Hartford, Connecticut 06152.
<PAGE>
[LOGO OF CIGNA APPEARS HERE]
CIGNA High Income Shares
Annual Report
December 31, 1995
