<PAGE>
- -------------------------------------------------------------------------------
DEAR SHAREHOLDERS: 1
We are pleased to provide this report for CIGNA High Income Shares (the
"Fund"), covering the quarter ended March 31, 1997.
FED TIGHTENING SPURS MARKET ABOUT-FACE IN FIRST QUARTER
The market enjoyed favorable conditions during the first two months of 1997. A
high level of cash flow poured into mutual funds, and with the influx of new
cash into the market, the volume of new issues could not keep pace with demand.
As a result, quality spreads narrowed. High yield outperformed other sectors of
the fixed income market.
The broad market then dropped in March, as investors reacted to a move by the
Federal Reserve (Fed) to a more restrictive monetary policy. Market timers
withdrew from the high yield market, and investors turned cautious, causing
lower prices.
FUND PERFORMANCE
CIGNA High Income Shares performed well in the first quarter, returning 1.75%
on a net asset value basis, including reinvestment of dividends. The Fund re-
turned 5.56%, based on the per share market value of its shares listed on the
NYSE. Performance compares favorably with the Fund's benchmark, the Lehman
Brothers High Yield Bond Index, which returned 1.12%. The Fund's superior per-
formance to its benchmark was due to a larger than market weighting of "B" is-
sues, a higher average yield, and the Fund's leverage position.
FUND ACTIVITY
During the first quarter, we focused on maintaining the Fund's favorable yield.
We did this despite a very strong market environment which offered little in
the way of "yield enhancement" opportunities. We accomplished our goal by tak-
ing profits in holdings which had traded up and no longer offered adequate re-
turns. We selectively purchased new issues when such issues met our risk/return
criteria and improved the Fund's yield. Following the March market correction,
we adopted a more cautious approach. We renewed our emphasis on shorter dura-
tion, high coupon, better quality "B" rated issues.
The Fund is currently invested in 91 issues. As of March 31, top industry hold-
ings included Telecommunications (17.9%), Broadcasting and Media (16.7%), Food
and Beverages (11.7%), Containers and Paper (11.2%), and Entertainment (10.2%).
Average maturity is eight years and average quality is B.
Borrowing under the Fund's line of credit has been maintained below the allowed
33% of assets during the reporting period. On March 31, borrowings stood at ap-
proximately 25% of assets.
OUTLOOK
We do not believe one interest rate hike will be sufficient to slow the economy
to its target growth rate. Hence, we anticipate that the Fed will further in-
crease short-term rates over the course of 1997. However, we do not expect 1997
will be a repeat of 1994, when the Fed raised rates seven times. The current
round of tightening is not expected to cause the economy to move into reces-
sion. We believe the high yield market will experience increased volatility
over the near term, as investors cope with the new environment of higher inter-
est rates, slower growth and less liquidity. Therefore, we believe the appro-
priate strategy is to minimize exposure to interest rate volatility, while
maintaining the Fund's current credit profile.
Sincerely,
/s/ R. Bruce Albro
R. Bruce Albro, Chairman of the Board and President
CIGNA High Income Shares
<PAGE>
- -------------------------------------------------------------------------------
CIGNA HIGH INCOME SHARES INVESTMENTS IN SECURITIES March 31, 1997 (Unaudited) 2
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE
(000) (000)
- ------------------------------------------------------------------------------
<S> <C> <C>
BONDS AND NOTES - 127.2%
AUTO AND TRUCK - 3.1%
A.P.S., Inc., 11.875%, 2006 $3,500 $ 3,517
Johnstown American Industries, Inc., 11.75%, 2005 5,000 4,888
--------
8,405
--------
BROADCASTING & MEDIA - 16.7%
All American Communications, Inc., 10.875%, 2001 5,000 5,031
American Media Operations, Inc., 11.625%, 2004 4,500 4,860
Garden State Newspapers, Inc., 12%, 2004 5,000 5,300
Grupo Televisa, S.A., 11.875%, 2006 5,000 5,387
Katz Media Corp., 10.5%, 2007 (144A security acquired Dec
1996 for $3,435,500)** 3,400 3,502
Lodgenet Entertainment Corp., 10.25%, 2006 (144A security
acquired Dec 1996 for $3,500,000)** 3,500 3,430
MDC Communications Corp., 10.5%, 2006 2,500 2,588
Newsquest Capital PLC, 11%, 2006 3,500 3,605
Petersen Publishing Co., L.L.C., 11.125%, 2006 2,000 2,140
Sullivan Broadcasting, Inc., 10.25%, 2005 2,000 1,975
TCI Satellite Entertainment, Inc., 10.875%, 2007 (144A
security acquired Feb 1997 for $5,520,000)** 5,500 4,785
TV Azteca, S.A. de C.V., 10.5%, 2007 (144A security
acquired Jan & Feb 1997 for $3,058,750)** 3,000 2,923
--------
45,526
--------
CABLE TV - 8.0%
Frontiervision Operating Partners, L.P., 11%, 2006 4,000 3,950
Galaxy Telecom, L.P., 12.375%, 2005 5,000 5,150
Marcus Cable Co., L.P., 11.875%, 2005 5,500 5,720
Multicanal S.A., 10.5%, 2007 (144A security acquired Jan &
Feb 1997 for $3,046,593)** 3,000 2,985
Rifkin Acquisition Partners, L.L.L.P., 11.125%, 2006 4,000 4,000
--------
21,805
--------
</TABLE>
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE
(000) (000)
- ----------------------------------------------------------------------------
<S> <C> <C>
CHEMICALS - 5.1%
Harris Chemical North America, Inc., 10.75%, 2003 $4,500 $ 4,455
LaRoche Industries, Inc., 13%, 2004 5,000 5,400
Polymer Group, Inc., 12.25%, 2002 3,800 4,133
--------
13,988
--------
CONSUMER PRODUCTS & SERVICES - 8.3%
AMF Group, Inc., 10.875%, 2006 3,000 3,180
Anchor Advanced Products, Inc., 11.75%, 2004 1,250 1,244
Hines Horticulture, Inc., 11.75%, 2005 5,000 5,375
Lifestyle Furnishings International Ltd., 10.875%, 2006 4,000 4,400
Remington Products Co., L.L.C., 11%, 2006 3,000 2,490
Renaissance Cosmetics, Inc., 11.75%, 2004 (144A security
acquired Feb 1997 for $4,500,000)** 4,500 4,522
Simmons Co., 10.75%, 2006 1,500 1,504
--------
22,715
--------
CONTAINERS AND PAPER - 11.2%
Berry Plastics Corp., 12.25%, 2004 3,500 3,780
Calmar, Inc., 11.5%, 2005 5,000 5,175
Crown Paper Co. 11%, 2005 5,500 5,060
Four M Corp., 12%, 2006 3,000 3,060
Grupo International Durango, S.A. 12.625%, 2003 3,000 3,225
Packaging Resources, Inc., 11.625%, 2003 4,775 4,990
Printpak, Inc., 10.625%, 2006 5,000 5,125
--------
30,415
--------
ELECTRONICS AND ELECTRICAL EQUIPMENT - 4.9%
Dictaphone Corp., 11.75%, 2005 5,000 4,550
Exide Electronics Group, Inc., 11.5%, 2006 4,000 4,120
International Wire Group, Inc., 11.75%, 2005 4,500 4,759
--------
13,429
--------
ENERGY - 1.8%
Statia Terminals International, 11.75%, 2003 4,900 4,998
--------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
- -------------------------------------------------------------------------------
CIGNA HIGH INCOME SHARES INVESTMENTS IN SECURITIES March 31, 1997 (Unaudited)
(Continued) 3
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE
(000) (000)
- ------------------------------------------------------------------------------
<S> <C> <C>
ENTERTAINMENT - 10.2%
Alliance Gaming Corp., 12.875%, 2003 $4,750 $ 5,177
American Skiing Co., 12%, 2006 5,250 5,276
Booth Creek Ski Holdings, Inc., 12.5%, 2007 (144A security
acquired Mar 1997 for $3,250,000)** 3,250 3,185
Casino America, Inc., 12.5%, 2003 5,500 5,280
Casino Magic of Louisiana Corp., 13%, 2003 4,500 4,354
Trump Atlantic City Funding, Inc., 11.25%, 2006 5,000 4,550
--------
27,822
--------
FINANCIAL - 3.2%
Affinity Group, Inc., 11.5%, 2003 3,000 3,150
Affinity Group Holding, Inc., 11%, 2007 (144A security
acquired Mar 1997 for $1,500,000)** 1,500 1,500
Dollar Financial Group, Inc., 10.875%, 2006 (144A security
acquired Nov & Dec 1996 for $4,200,750)** 4,150 4,191
--------
8,841
--------
FOOD AND BEVERAGES - 11.7%
Americold Corp., 12.875%, 2008 5,000 5,200
CFP Holdings, Inc., 11.625%, 2004 3,650 3,723
Grand Union Co., 12%, 2004 5,000 4,913
Pathmark Stores, Inc.,
11.625%, 2002 4,250 4,388
12.625%, 2002 1,300 1,352
Specialty Foods Corp., 10.25%, 2001 4,600 4,496
Star Markets Co., Inc., 13%, 2004 4,000 4,480
Van de Kamps, Inc., 12%, 2005 3,000 3,270
--------
31,822
--------
HEALTH CARE - 1.2%
Owens & Minor, Inc., 10.875%, 2006 3,000 3,233
--------
INDUSTRIAL - 7.9%
Alvey Systems, Inc., 11.375%, 2003 1,000 1,040
Crain Industries, Inc., 13.5%, 2005 5,500 6,242
Goss Graphic Systems, Inc., 12%, 2006 4,250 4,452
IMO Industries, Inc., 11.75%, 2006 4,500 4,545
Interlake Corp., 12.125%, 2002 5,025 5,151
--------
21,430
--------
</TABLE>
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE
(000) (000)
- ------------------------------------------------------------------------------
<S> <C> <C>
METALS - 6.2%
Acindar Industria Argentina de Aceros S.A., 11.25%, 2004 $2,500 $ 2,512
Euramax International PLC 11.25%, 2006 4,000 4,022
GS Technologies Operating Co., Inc., 12%, 2004 3,150 3,276
Gulf States Steel, Inc., 13.5%, 2003 2,500 2,375
Kaiser Aluminum & Chemical Corp., 12.75%, 2003 4,500 4,838
--------
17,023
--------
MISCELLANEOUS - 6.0%
Central Tractor Farm & Country, Inc., 10.625%, 2007 3,000 3,075
Michaels Stores, Inc., 10.875%, 2006 4,000 4,110
Sullivan Graphics, Inc., 12.75%, 2005 5,500 5,720
United Stationers Supply Co., 12.75%, 2005 3,000 3,330
--------
16,235
--------
TELECOMMUNICATIONS - 17.9%
CCPR Services, Inc., 10%, 2007 (144A security acquired Jan
& Feb 1997 for $3,510,000)** 3,500 3,272
Comnet Cellular, Inc., 11.25%, 2005 4,000 4,140
Dobson Communications Corp., 11.75%, 2007 (144A security
acquired Feb 1997 for $3,185,875)** 3,150 3,024
Fonorola, Inc., 12.5%, 2002 4,450 4,973
IXC Communications, Inc., 12.5%***, 2005 5,500 6,022
Metrocall, Inc., 10.375%, 2007 (144A security acquired Jan
& Feb 1997 for $3,433,125)** 4,000 3,200
Phonetel Technologies, Inc., 12%, 2006 4,375 4,386
Pricellular Wireless, Inc., 10.75%, 2004 2,000 1,960
Pronet, Inc., 11.875%, 2005 4,450 4,139
Qwest Communications International, Inc., 10.875%, 2007
(144A security acquired Mar 1997 for $1,500,000)** 1,500 1,500
Sprint Spectrum, L.P., 11%, 2006 4,000 4,200
Sygnet Wireless Inc., 11.5%, 2006 5,000 5,050
WinStar Equipment Corp., 12.5%, 2004 (144A security
acquired Mar 1997 for $3,000,000)** 3,000 2,932
--------
48,798
--------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
- -------------------------------------------------------------------------------
CIGNA HIGH INCOME SHARES INVESTMENTS IN SECURITIES March 31, 1997 (Unaudited)
(Continued) 4
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE
(000) (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
TEXTILES - 3.8%
Anvil Knitwear, Inc., 10.875%, 2007 (144A security
acquired Mar 1997 for $3,027,500)** $3,000 $ 2,895
Avondale Mills, Inc., 10.25%, 2006 3,500 3,640
Dan River, Inc., 10.125%, 2003 3,750 3,788
--------
10,323
--------
TOTAL BONDS AND NOTES (Cost - $340,101,043) 346,808
--------
UNITS - 4.7%
ICF Kaiser International, Inc., 13%, *** 2003 (each $1,000
unit includes 4.8 warrants for Common Stock) 5,000 4,725
NS Group, Inc., 13.5%, 2003 (each $1,000 unit includes one
warrant for Common Stock) 4,080 4,468
Optel, Inc., 13%, 2005 (144A security acquired Feb 1997
for $4,000,000)** 4,000 3,700
--------
TOTAL UNITS (Cost - $12,707,109) 12,893
--------
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C> <C>
WARRANTS - 0.2%
Exide, Inc., Exp. 2006* 4,000 160
IHF Capital, Inc., Class A & L* 5,000 275
Wireless One, Inc., Exp. 2000* 15,000 15
--------
TOTAL WARRANTS (Cost - $287,316) 450
--------
TOTAL INVESTMENTS IN SECURITIES - 132.1%
(Total Cost - $353,095,468) 360,151
Liabilities, Less Cash and Other Assets - (32.1%) (87,481)
--------
NET ASSETS - 100% (equivalent to $7.36 per share based on
37,048,234 shares outstanding) $272,670
========
</TABLE>
* Non-income producing securities.
** Indicates restricted security; the aggregate fair value of restricted
securities is $48,348,020 (aggregate cost $50,234,967) which is
approximately 18% 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 March 31, 1997.
- -----------------------------------------------------
PORTFOLIO COMPOSITION (UNAUDITED)
March 31, 1997
<TABLE>
<CAPTION>
MARKET % OF
QUALITY RATINGS* OF VALUE MARKET
LONG-TERM BONDS (000) VALUE
- -----------------------------------------
<S> <C> <C>
Ba/BB $ 17,273 4.8%
B/B 316,291 87.8%
Below B 26,587 7.4%
-------- -----
$360,151 100.0%
======== =====
</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
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
ASSETS:
Investments at market value
(Cost - $353,095,468) $360,151
Cash on deposit with custodian 2
Receivable for investments sold 3,267
Interest receivable 11,158
Investment for deferred compensation plan
(Cost - $94,046) 113
Other 6
--------
TOTAL ASSETS 374,697
--------
LIABILITIES:
Loan payable 95,500
Dividend payable April 10, 1997 at $.0675 per share 2,501
Payable for investments purchased 2,750
Accrued interest payable 840
Accrued advisory fees payable 201
Deferred trustees' fees payable 113
Other accrued expenses (including $38,091 due to affiliate) 122
--------
TOTAL LIABILITIES 102,027
--------
NET ASSETS (Equivalent to $7.36 per share based on 37,048,234
shares of beneficial interest outstanding; unlimited number of
shares authorized) $272,670
========
COMPONENTS OF NET ASSETS:
Paid in capital $321,487
Undistributed net investment income 539
Unrealized appreciation of investments 7,070
Accumulated net realized loss (56,426)
--------
NET ASSETS $272,670
========
</TABLE>
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C> <C>
INVESTMENT INCOME
INCOME:
Interest $10,260
EXPENSES:
Interest expense $1,553
Investment advisory fees 584
Administrative services 43
Custodian fees and expenses 27
Shareholder reports 26
Trustees' fees 20
Transfer agent fees and expenses 14
Auditing and legal fees 11
Other 12 2,290
------ -------
NET INVESTMENT INCOME 7,970
-------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from securities transactions 1,747
Unrealized depreciation of investments (4,842)
-------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (3,095)
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 4,875
=======
</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 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED DECEMBER 31,
MARCH 31, 1997 1996
-------------- ------------
(IN THOUSANDS)
---------------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 7,970 $ 31,218
Net realized gain from investments 1,747 9,364
Unrealized appreciation (depreciation) on
investments (4,842) 781
-------- --------
Net increase in net assets from operations 4,875 41,363
-------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ($.2025 per share and
$.87 per share, respectively) (7,492) (31,747)
In excess of net investment income ($.03 per
share) -- (1,159)
-------- --------
Total distributions to shareholders (7,492) (32,906)
-------- --------
CAPITAL SHARE TRANSACTIONS:
Net increase from 221,623 and 678,552 capital
shares issued to shareholders in reinvestment of
distributions, respectively 1,787 5,270
-------- --------
Net increase from capital share transactions 1,787 5,270
-------- --------
Net Increase (Decrease) in Net Assets (830) 13,727
NET ASSETS:
Beginning of period 273,500 259,773
-------- --------
End of period (Including undistributed net
investment income of $538,857 and $60,782,
respectively) $272,670 $273,500
======== ========
</TABLE>
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
CASH FLOWS FROM INVESTING AND OPERATING ACTIVITIES:
Purchases of portfolio securities $(72,961)
Proceeds from sales of portfolio securities 75,606
Investment income received 8,772
Investment and administrative expenses paid (737)
Interest paid (1,187)
--------
Cash flows provided by investing and operating activities 9,493
--------
CASH FLOWS FROM SHAREHOLDER AND OTHER FINANCING ACTIVITIES:
Distributions to shareholders (net of reinvestment of
$1,787,490) (9,004)
Net borrowings (500)
--------
Cash flows used by shareholder and other financing activities (9,504)
--------
Net increase in cash (11)
Cash, beginning of period 13
--------
Cash, End of Period $ 2
========
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 $ 4,875
Decrease in value of investments 4,552
Change in receivables and liabilities exclusive of loan and
dividend payable 64
--------
Net Cash Provided by Investing and Operating Activities $ 9,493
========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
- -------------------------------------------------------------------------------
CIGNA HIGH INCOME SHARES NOTES TO FINANCIAL STATEMENTS (Unaudited) 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.
C. FEDERAL TAXES -- It is the Fund's policy to continue to comply with the re-
quirements 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 taxes on realized income
have been accrued.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions
are recorded by the Fund on the ex-dividend date. Payments in excess of finan-
cial accounting income due to differences between financial and tax account-
ing, to meet the minimum distribution requirements for tax basis income, are
deducted from paid in capital when such differences are determined to be per-
manent.
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 Fund is-
sues its shares, invests in securities, and distributes dividends from net in-
vestment income (which are either paid in cash or reinvested at the discretion
of shareholders). These activities are reported in the Statement of Changes in
Net Assets. Information on cash payments is presented in the Statement of Cash
Flows. Accounting practices that do not affect reporting activities 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 (Unaudited) (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, 1999. 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 average borrowings out-
standing during the three months ended March 31, 1997 were $95,293,333 at an
average interest rate of approximately 6.61%. As of March 31, 1997, the Fund
was paying interest at an average annual rate of 6.44% 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 three months ended
March 31, 1997, the Fund paid or accrued $42,939.
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 three months ended March 31, 1997 were
$70,197,618 and $71,643,261, respectively.
As of March 31, 1997, the cost of securities for federal income tax purposes
was $353,178,593. At March 31, 1997, unrealized appreciation for Federal in-
come tax purposes aggregated $7,003,840 of which $11,912,368 related to appre-
ciated securities and $4,908,528 related to depreciated securities.
6. CAPITAL LOSS CARRYOVER. At December 31, 1996, the Fund had a capital loss
carryover for Federal income tax purposes of $54,834,030 of which $19,305,222,
$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, 1996, the Fund has elected to defer
$3,307,368 of capital losses occurring between November 1, 1996 and December
31, 1996 under these rules. Such deferred losses are being treated as arising
on the first day of the year ended December 31, 1997.
<PAGE>
- -------------------------------------------------------------------------------
CIGNA HIGH INCOME SHARES NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued) 9
7. 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>
- --------------------------------------------------------------------------------------
3 MOS.
ENDED
MAR. 31, YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
NET ASSET VALUE,
BEGINNING OF PERIOD $ 7.43 $ 7.19 $ 6.59 $ 7.54 $ 6.99 $ 6.62
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income
(1) 0.21 0.85 0.84 0.86 0.97 0.98
Net realized and
unrealized gains
(losses) (0.08) 0.29 0.60 (0.91) 0.58 0.40
-------- -------- -------- -------- -------- --------
TOTAL FROM INVESTMENT
OPERATIONS 0.13 1.14 1.44 (0.05) 1.55 1.38
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.20) (0.90) (0.84) (0.88) (0.97) (0.98)
Distributions in excess
of net investment
income -- -- -- (0.02) (0.03) (0.03)
-------- -------- -------- -------- -------- --------
TOTAL DISTRIBUTIONS (0.20) (0.90) (0.84) (0.90) (1.00) (1.01)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 7.36 $ 7.43 $ 7.19 $ 6.59 $ 7.54 $ 6.99
======== ======== ======== ======== ======== ========
MARKET VALUE, END OF
PERIOD $ 8.63 $ 8.38 $ 7.88 $ 7.00 $ 8.38 $ 7.88
======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:
Per share market value 5.56% 19.25% 26.24% (5.43)% 19.62% 24.36%
Per share net asset
value (2) 1.75% 16.70% 22.93% (0.76)% 23.25% 21.65%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of
period (000 omitted) $272,670 $273,500 $259,773 $233,454 $195,489 $176,974
Ratio of operating
expenses to average net
assets 0.27% 1.07% 1.12% 1.17% 1.21% 1.20%
Ratio of interest
expense to average net
assets 0.56% 2.28% 2.68% 2.10% 1.66% 1.91%
Ratio of net investment
income to average net
assets 2.86% 11.60% 12.03% 12.33% 12.98% 13.81%
Portfolio turnover 19% 78% 60% 72% 48% 45%
</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 (Unaudited) (Continued)10
8. 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 INCR. (DECR.) PER SHARE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31, 1995 $ 9,853 $0.28 $7,424 $ 0.21 $ 8,614 $ 0.24 $10,141 $ 0.25
June 30, 1995 9,807 0.28 7,417 0.21 6,426 0.18 7,902 0.18
September 30, 1995 9,871 0.27 7,486 0.21 2,544 0.07 4,046 0.08
December 31, 1995 10,232 0.28 7,897 0.22 3,439 0.11 4,230 0.09
March 31, 1996 9,964 0.27 7,742 0.21 1,442 0.04 3,315 0.05
June 30, 1996 10,057 0.28 7,837 0.20 1,661 0.05 3,406 0.06
September 30, 1996 10,375 0.28 8,079 0.22 9,225 0.25 11,144 0.27
December 31, 1996 9,858 0.27 7,560 0.21 (2,183) (0.06) (4,138) (0.14)
March 31, 1997 10,260 0.28 7,970 0.21 (3,094) (0.08) (830) (0.07)
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
CIGNA HIGH INCOME SHARES
TRUSTEES OFFICERS
R. Bruce Albro Paul J. McDonald R. Bruce Albro
Senior Managing Senior Executive Vice Chairman of the Board and
Director, President and Chief President
CIGNA Investments, Administrative
Inc. Officer, Alfred A. Bingham III
Friendly Ice Cream Vice President and
Hugh R. Beath Corporation Treasurer
Advisory Director,
AdMedia Corporate Ad- Arthur C. Reeds, III Alan C. Petersen
visors, Inc. President, CIGNA In- Vice President
vestment Management
Russell H. Jones and CIGNA Investments, Jeffrey S. Winer
Vice President, Inc. Vice President and
Kaman Corporation 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.
Shareholders may elect to have dividends automatically reinvested in additional
shares of CIGNA High Income Shares by participating in the Automatic Dividend
Investment Plan. For a brochure describing this Plan or general inquiries about
your account, contact State Street Bank and Trust Company, Stock Transfer De-
partment, P.O. Box 8200, Boston, Massachusetts, 02266-8200, or call toll-free
1.800.426.5523.
<PAGE>
[LOGO OF CIGNA APPEARS HERE]
CIGNA High Income Shares
950 Winter Street [LOGO OF CIGNA APPEARS HERE]
Suite 1200
Waltham, MA 02154
CIGNA HIGH INCOME SHARES
- --------------------
BULK RATE
U.S. POSTAGE
PAID
SO. HACKENSACK, NJ First Quarter Report
PERMIT 750
- --------------------
March 31, 1997
