<PAGE>
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1
DEAR SHAREHOLDERS:
We are pleased to provide this report for CIGNA High Income Shares (the "Fund"),
covering the quarter ended March 31, 1998.
THE MARKET ENVIRONMENT
During the first quarter, high yield outperformed most sectors of the domestic
fixed income markets, returning 3.36%. This compares to the 1.56% return for the
rest of the fixed income markets, according to the Lehman Brothers Aggregate
Bond Index. Quality spreads narrowed about 15 basis points on average, while
Treasury yields were unchanged. High yield benefited from a steady interest rate
environment, a strong economy and low inflation rates. The upheaval in Southeast
Asia, which was expected to impact the cyclical and commodity-based sectors,
actually had a minimal effect on domestic or the high yield markets. New
issuance continued at a very heavy pace, doubling 1997's record level for the
year-over-year period. The telecommunications and media industries dominated the
calendar for new issues, accounting for 40% of the total. Finally, triple C's
outperformed single B's, which outperformed double B's - not an uncommon
occurrence in an ebullient market environment.
FUND ACTIVITY
Our strategy so far this year is similar to the one pursued in 1997. The Fund
remained overweighted in the single B credit quality category in order to take
advantage of the higher yields offered. The exposure to the telecommunications
industry was maintained at a high level to participate in the historic
developing opportunities in that sector. The weighting in emerging market
corporate credits was raised, due to the attractive valuations resulting from
market concerns over the Asian situation.
Overall, the Fund remains broadly diversified and is invested in the issues of
111 companies at quarter-end. The top three industry categories are:
Telecommunications (24.0%), Containers and Paper (16.4%), and Entertainment
(13.2%). The average maturity of the Fund's holdings is 8.2 years; its average
credit quality is still B.
Finally, proceeds from the Rights Offering in late January were invested rapidly
in a combination of new issues and additions to existing holdings at very
attractive yields.
FUND PERFORMANCE
CIGNA High Income Shares had another strong quarter of performance. Based on net
asset value, the Fund returned 4.90% for the three months and 22.25% for the
trailing 12 months ended March 31. This return exceeded its benchmark (the
Lehman Brothers High Yield Bond Index), which returned 3.36% for the quarter and
15.26% for the 12 months. Returns based on the market value of the Fund's shares
traded on the New York Stock Exchange after reinvesting dividends were 1.76% and
7.63%, respectively, for the quarter and twelve months.
OUTLOOK
The robust environment of the first quarter is expected to continue for the
foreseeable future. The macro-economic environment remains favorable, with
reasonable gross domestic product growth, a strong dollar, low inflation and a
quiet Federal Reserve Bank. The Asian upheaval appears to be stabilizing and has
not yet had a discernible effect on the underlying creditworthiness of the
market. Demand for high yield is very strong, driven by the higher yields
offered and good relative performance. The record pace of new issues should
continue and could cause some brief periods of indigestion.
Overall, we have been pleased by the market's ongoing ebullience year-to-date
and expect future good news as 1998 plays out.
Sincerely,
/s/ R. Bruce Albro
R. Bruce Albro,
CHAIRMAN OF THE BOARD AND PRESIDENT
CIGNA HIGH INCOME SHARES
<PAGE>
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CIGNA HIGH INCOME SHARES INVESTMENTS IN SECURITIES March 31, 1998 (Unaudited) 2
MARKET
PRINCIPAL VALUE
(000) (000)
- ------------------------------------------------------------------
BONDS AND NOTES - 128.3%
AUTO AND TRUCK - 2.4%
Advanced Accessory System L.L.C.,
9.75%, 2007 (144A security acquired
Sep & Oct 1997 for $3,522,500)** $ 3,500 $ 3,588
Johnstown American Industries, Inc.,
11.75%, 2005 5,500 6,146
------------
9,734
------------
BROADCASTING & MEDIA - 9.8%
American Lawyer Media, Inc.,
9.75%, 2007 (144A security
acquired Dec 1997 for $3,518,125)** 3,500 3,684
Grupo Televisa, S.A., 11.875%, 2006 5,000 5,769
Innova S.A., 12.875%, 2007 7,000 7,490
Lodgenet Entertainment Corp.,
10.25%, 2006 3,500 3,658
MDC Communications Corp.,
10.5%, 2006 2,500 2,709
Satellite Mexicanos S.A., 10.125%,
2004 (144A security acquired
Jan 1998 for $3,042,500)** 3,000 3,090
TCI Satellite Entertainment, Inc.,
10.875%, 2007 7,500 7,931
TV Azteca, S.A.,
10.5%, 2007 5,000 5,325
------------
39,656
------------
CABLE TV - 6.0%
Frontiervision Operating Partners, L.P.,
11%, 2006 6,000 6,690
Galaxy Telecom, L.P., 12.375%, 2005 7,000 7,840
Multicanal, S.A., 10.5%, 2007 4,000 4,240
Rifkin Acquisition Partners, L.P.,
11.125%, 2006 4,000 5,538
------------
24,308
------------
CHEMICALS - 1.3%
Trans Resource, Inc., 10.75%, 2008
(144A security acquired Mar 1998
for $2,500,000)** 2,500 2,569
Tri Polyta Finance BV,
11.375%, 2003 4,000 2,840
------------
5,409
------------
CONSUMER PRODUCTS & SERVICES - 7.2%
Anchor Advanced Products, Inc.,
11.75%, 2004 1,250 1,369
Carson, Inc., 10.375%, 2007 2,750 2,832
Desa International, Inc., 9.875%, 2007
(144A security acquired Nov 1997
for $2,751,875)** 2,750 2,846
Drypers Corp., 10.25%, 2007 4,000 4,180
Hines Horticulture, Inc., 11.75%, 2005 5,000 5,500
Scoville Fasteners, Inc., 11.25%, 2007 5,000 5,225
MARKET
PRINCIPAL VALUE
(000) (000)
- ------------------------------------------------------------------
CONSUMER PRODUCTS & SERVICES - (CONTINUTED)
Sealy Mattress Co., 9.875%, 2007
(144A security acquired Dec 1997
for $3,500,000)** $ 3,500 $ 3,710
Werner Holdings Co., Inc., 10%, 2007
(144A security acquired Nov 1997
for $3,176,000)** 3,150 3,327
------------
28,989
------------
CONTAINERS AND PAPER - 16.4%
A.P.P., International Finance Co., BV,
11.75%, 2005 1,500 1,410
Calmar, Inc., 11.5%, 2005 7,500 8,025
Crown Paper Co., 11%, 2005 8,500 9,095
Gaylord Container Corp., 9.875%
2008 (144A security acquired
Feb 1998 for $5,906,880)** 6,000 5,955
Grupo Industrial Durango, S.A.,
12.625%, 2003 3,000 3,409
Impac Group, Inc., 10.125%, 2008
(144A security acquired Mar 1998
for $2,500,000)** 2,500 2,544
Indah Kiat Finance Mauritius Ltd.,
10%, 2007 3,250 2,689
Norampac, Inc., 9.5%, 2008 (144A
security acquired Jan 1998 for
$6,558,750)** 6,500 6,760
Packaging Resources, Inc.,
11.625%, 2003 3,775 3,699
Pindo Deli Finance Mauritius Ltd.,
10.75%, 2007 4,000 3,280
Printpak, Inc., 10.625%, 2006 5,000 5,363
Riverwood International Corp.,
10.625%, 2007 5,500 5,802
10.875%, 2008 5,000 5,038
Tjiwi Kimia Finance Mauritius Ltd.,
10%, 2004 3,950 3,120
------------
66,189
------------
ELECTRONICS AND ELECTRICAL EQUIPMENT - 6.7%
Dictaphone Corp., 11.75%, 2005 3,800 3,914
International Wire Group, Inc.,
11.75%, 2005, Series A 4,500 4,995
11.75%, 2005, Series B 1,000 1,110
MCMS, Inc., 9.75%, 2008 (144A
security acquired Feb 1998 for 3,000 3,000
$3,000,000)**
Telex Communications, Inc.,
10.5%, 2007 6,000 5,520
Viasystems, Inc., 9.75%, 2007 8,000 8,360
------------
26,899
------------
ENERGY - 1.3%
Statia Terminals International,
11.75%, 2003 4,900 5,170
------------
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
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CIGNA HIGH INCOME SHARES INVESTMENTS IN SECURITIES March 31, 1998 (Unaudited)
(Continued) 3
MARKET
PRINCIPAL VALUE
(000) (000)
- ------------------------------------------------------------------
ENTERTAINMENT - 13.2%
Alliance Gaming Corp., 10%, 2007 $ 5,000 $ 5,175
American Skiing Co., 12%, 2006 5,250 5,880
Booth Creek Ski Holdings, Inc.,
12.5%, 2007 4,250 4,399
Casino America, Inc., 12.5%, 2003 5,500 6,105
Casino Magic of Louisiana Corp.,
13%, 2003 5,000 5,800
Majestic Star Casino L.L.C.,
12.75%, 2003 3,500 3,797
SFX Entertainment, Inc., 9.125%
2008 (144A security acquired
Feb 1998 for $2,500,000)** 2,500 2,463
Trump Atlantic City Funding, Inc.,
11.25%, 2006 9,000 9,248
Venetian Casino Resort L.L.C., 12.25%,
2004 (144A security acquired Nov
1997 & Jan 1998 for $10,151,250)** 10,000 10,350
------------
53,217
------------
FINANCIAL - 2.9%
Affinity Group Holding, Inc.,
11%, 2007 1,500 1,624
Dollar Financial Group, Inc.,
10.875%, 2003 4,150 4,544
Nationwide Credit, Inc., 10.25%
2008 (144A security acquired
Jan 1998 for $5,353,125)** 5,250 5,408
------------
11,576
------------
FOOD AND BEVERAGES - 11.1%
Archibald Candy Corp., 10.25%, 2004 1,750 1,868
CFP Holdings, Inc., 11.625%, 2004 2,400 2,382
Del Monte Corp., 12.25%, 2007 5,250 5,985
Di Giorgio Corp., 10%, 2007 3,000 3,000
Grupo Azucarero Mexico S.A.,
11.5%, 2005 (144A security acquired
Jan 1998 for $6,367,015)** 6,500 6,468
Imperial Holly Corp., 9.75%, 2007 5,000 5,150
Mastellone Hermonos S.A., 11.75%
2008 (144A security acquired Mar
1998 for $5,500,000)** 5,500 5,500
North Atlantic Trading, Inc., 11%, 2004 6,500 6,744
Star Markets Co., Inc., 13%, 2004 4,000 4,560
Van de Kamps, Inc., 12%, 2005 3,000 3,345
------------
45,002
------------
INDUSTRIAL - 10.7%
Alvey Systems, Inc., 11.375%, 2003 4,270 4,590
Bucyrus International, Inc.,
9.75%, 2007 5,000 5,050
Carpenter W.R. North America, Inc.,
10.625%, 2007 6,500 6,955
MARKET
PRINCIPAL VALUE
(000) (000)
- ------------------------------------------------------------------
INDUSTRIAL - (CONTINUED)
Foamex Capital Corp., 13.5%, 2005
(144A security acquired Dec 1997
for $5,563,750)** $ 5,500 $ 6,380
Goss Graphic Systems, Inc.,
12%, 2006 4,625 5,249
High Voltage Energy Corp.,
10.5%, 2004 4,500 4,657
Neenah Corp., 11.125%, 2007 2,250 2,497
Outsourcing Services Group, 10.875%
2006 (144A security acquired
Feb 1998 for (3,525,000)** 3,500 3,561
Vicap, S.A., 11.375%, 2007
(144A security acquired May 1997
for $4,037,450)** 4,000 4,410
------------
43,349
------------
METALS - 5.0%
Doe Run Resource Corp., 11.25%
2005 (144A security acquired
Mar 1998 for $4,000,000)** 4,000 4,140
Euramax International PLC,
11.25%, 2006 6,000 6,465
Gulf States Steel, Inc., 13.5%, 2003 5,000 5,163
Renco Steel Holdings, Inc., 10.875%
2005 (144A security acquired
Jan & Feb 1998 for $4,545,820)** 4,500 4,657
------------
20,425
------------
MISCELLANEOUS - 2.4%
Climachem, Inc., 10.75%, 2007
(144A security acquired Nov 1997
& Jan, Feb 1998 for $3,867,500)** 3,750 3,956
Sullivan Graphics, Inc., 12.75%, 2005 5,500 5,775
------------
9,731
------------
RETAIL - 2.6%
Central Tractor Farm & Country, Inc.,
10.625%, 2007 5,000 5,325
Pantry, Inc., 10.25%, 2007 5,000 5,219
------------
10,544
------------
TECHNOLOGY - 1.1%
Orbital Imaging Corp., 11.625%,
2005 (144A security acquired Feb
and Mar 1998 for $4,369,688)** 4,250 4,643
------------
TELECOMMUNICATIONS - 24.0%
Dobson Communications Corp.,
11.75%, 2007 5,400 5,940
The Notes to Financial Statements are an integral part of these statements.
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CIGNA HIGH INCOME SHARES INVESTMENTS IN SECURITIES March 31, 1998 (Unaudited)
(Continued) 4
MARKET
PRINCIPAL VALUE
(000) (000)
- ------------------------------------------------------------------
TELECOMMUNICATIONS - (CONTINUED)
Facilicom International, Inc.,
10.5%, 2008 (144A security
acquired Jan 1998 for
$6,148,750)** $ 6,000 $ 6,270
Grupo Iusacell S.A., 10%, 2004 3,000 3,135
Hermes Europe Railtel BV,
11.5%, 2007 4,500 5,096
Impsat Corp., 12.125%, 2003 1,750 1,862
Iridium L.L.C., 11.25%, 2005 (144A
security acquired Oct, Nov, Dec
1997 & Jan 1998 for $10,519,375)** 10,500 11,130
Metrocall, Inc., 9.75%, 2007 5,000 5,088
Metronet Communications Co.,
12%, 2007 4,500 5,197
Phonetel Technologies, Inc.,
12%, 2006 2,125 2,130
Price Communications Wireless, Inc.,
11.75%, 2007 7,600 8,531
Pricellular Wireless, Inc., 10.75%,
2004 2,000 2,250
Primus Telecommunications, Inc.,
11.75%, 2004 4,250 4,739
RCN Corp., 10%, 2007 3,000 3,202
Sygnet Wireless Inc., 11.5%, 2006 5,000 5,600
Teligent, Inc., 11.5%, 2007 9,500 9,975
Transtel Pass-Thru Trust, 12.5%,
2007 (144A security acquired Oct
and Nov 1997 for $4,170,000)** 4,250 4,080
Talton Holdings, Inc., 11%, 2007 4,000 4,420
Winstar Communications, Inc.,
10%, 2008 (144A security acquired
Mar 1998 for $5,000,000)** 5,000 5,075
WinStar Equipment Corp.,
12.5%, 2004 3,000 3,435
------------
97,155
------------
TEXTILES - 1.5%
Anvil Knitwear, Inc., 10.875%, 2007 4,500 4,646
------------
TRANSPORTATION - 3.0%
Atlas Air, Inc., 10.75%, 2005 5,385 5,816
Kitty Hawk, Inc., 9.95%, 2004 6,000 6,210
------------
12,026
------------
TOTAL BONDS AND NOTES (Cost - $496,580,287) 518,668
------------
UNITS - 5.0%
American Mobile Satellite Corp.,
12.25%, 2008 (each $1,000 unit
includes 1 warrant for Common Stock
(144A security acquired
Mar 1998 for $3,389,313)** 3,325 3,372
MARKET
PRINCIPAL VALUE
(000) (000)
- ------------------------------------------------------------------
UNITS - (CONTINUED)
Convergent Communications, Inc.,
13%, 2008 (each $1,000 unit
includes 1 warrant for common stock)
(144A security acquired Mar 1998
for $7,500,000)** $ 7,500 $ 7,500
ICF Kaiser International, Inc., 13%, ***
2003 (each $1,000 unit includes
4.8 warrants for Common Stock) 5,000 5,200
Poland Telecom Finance BV,
14%, 2007 ($1,000 unit includes
1 warrant for Common Stock)
(144A security acquired Nov 1997
for $4,000,000)** 4,000 4,340
------------
TOTAL UNITS (Cost - $19,569,560) 20,412
------------
NUMBER
OF SHARES
------------
WARRANTS - 0.2%
IHF Capital, Inc., Class A & L,
Exp. 1999* 5,000 300
Metronet Communications Co.,
Class B, Exp. 2007* 4,500 180
NS Group, Inc., Exp. 2003* 4,080 57
Primus Telecommunications, Inc.,
Exp. 2004* 4,250 149
Wireless One, Inc., Exp. 2000* 15,000 -
------------
TOTAL WARRANTS (Cost - $331,131) 686
------------
SHORT-TERM OBLIGATIONS - 0.3%
(Cost - $1,121,000)
COMMERCIAL PAPER - 0.3%
Morgan (J.P.) & Co.,
6%, 4/1/98 1,121 1,121
------------
TOTAL INVESTMENTS IN SECURITIES - 133.8%
(Total Cost - $517,601,978) 540,887
Liabilities, Less Cash and Other Assets - (33.8%) (136,722)
------------
NET ASSETS - 100% (equivalent to $8.06 per
share based on 50,138,221 shares outstanding) $ 404,165
============
* Non-income producing securities.
** Indicates restricted security; the aggregate fair value of restricted
securities is $144,774,540 (aggregate cost $140,485,047) which is
approximately 36% 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, 1998.
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
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CIGNA HIGH INCOME SHARES INVESTMENTS IN SECURITIES March 31, 1998 (Unaudited)
(Continued) 5
- ------------------------------------------------------------------
PORTFOLIO COMPOSITION (UNAUDITED)
March 31, 1998
MARKET % OF
QUALITY RATINGS* OF VALUE MARKET
LONG-TERM BONDS (000) VALUE
- ------------------------------------------------------------------
Ba/BB $ 33,052 6.1%
B/B 430,582 79.9%
Below B 75,446 14.0%
------------ ------------
$ 539,080 100.0%
============ ============
*The higher of Moody's or Standard & Poor Ratings.
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The Notes to Financial Statements are an integral part of these statements.
<PAGE>
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CIGNA HIGH INCOME SHARES 6
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1998 (UNAUDITED)
(IN THOUSANDS)
----------------
ASSETS:
Investments at market value
(Cost - $517,601,978) $ 540,887
Cash on deposit with custodian 1
Receivable for investments sold 2,697
Interest receivable 14,934
Investment for Trustees' deferred compensation
plan (Cost - $122,607) 171
------------
TOTAL ASSETS 558,690
------------
LIABILITIES:
Loan payable 140,900
Dividend payable April 9, 1998 at
$.0675 per share 3,384
Payable for investments purchased 8,278
Accrued interest payable 1,350
Accrued advisory fees payable 266
Deferred Trustees' fees payable 171
Other accrued expenses (including $29,633
due to affiliate) 176
------------
TOTAL LIABILITIES 154,525
------------
NET ASSETS (Equivalent to $8.06 per share
based on 50,138,221 shares of
beneficial interest outstanding;
unlimited number of shares authorized) $ 404,165
============
COMPONENTS OF NET ASSETS:
Paid in capital $ 424,890
Undistributed net investment income 1,469
Unrealized appreciation of investments 23,332
Accumulated net realized loss (45,526)
------------
NET ASSETS $ 404,165
============
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
(IN THOUSANDS)
----------------------
INVESTMENT INCOME
INCOME:
Interest $ 13,024
EXPENSES:
Interest expense $2,027
Investment advisory fees 725
Administrative services 37
Shareholder reports 30
Custodian fees and expenses 30
Transfer agent fees and expenses 17
Auditing and legal fees 15
Trustees' fees 8
Other 9 2,898
-------- -----------
NET INVESTMENT INCOME 10,126
-----------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain from
investments 1,493
Unrealized appreciation of investments 6,706
-----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS 8,199
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 18,325
===========
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
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CIGNA HIGH INCOME SHARES 7
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)
THREE MONTHS YEAR ENDED
ENDED DECEMBER 31,
MAR 31, 1998 1997
------------ ------------
(IN THOUSANDS)
-------------------------
OPERATIONS:
Net investment income $ 10,126 $ 32,347
Net realized gain from investments 1,493 11,378
Unrealized appreciation on
investments 6,706 4,714
------------ -----------
Net increase in net assets
from operations 18,325 48,439
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ($0.2025
per share and $0.864 per share,
respectively) (9,301) (32,173)
------------ -----------
Total distributions to shareholders (9,301) (32,173)
------------ -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from 12,452,266 capital
shares issued pursuant to rights offering
(including related expenses
of $237,401) 98,260 -
Net increase from 199,532 and
659,812 capital shares issued to
shareholders in reinvestment of
distributions, respectively 1,625 5,490
------------ -----------
Net increase from capital share
transactions 99,885 5,490
------------ -----------
NET INCREASE IN
NET ASSETS 108,909 21,756
NET ASSETS:
Beginning of period 295,256 273,500
------------ -----------
End of period (Including undistributed
net investment income of $1,468,593
and $644,127, respectively) $ 404,165 $ 295,256
============ ===========
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
(IN THOUSANDS)
----------------
CASH FLOWS FROM INVESTING AND OPERATING
ACTIVITIES:
Purchases of portfolio securities $ (216,798)
Proceeds from sales of portfolio securities 79,780
Investment income received 7,774
Investment and administrative expenses paid (992)
Interest paid (1,893)
------------
Cash flows used by investing and operating
activities (132,129)
------------
CASH FLOWS FROM SHAREHOLDER AND OTHER FINANCING
ACTIVITIES:
Net proceeds from shares issued pursuant to
rights offering 98,260
Net borrowings 42,700
Distributions to shareholders (net of reinvestment
of $1,624,754) (8,847)
------------
Cash flows provided by shareholder and other
financing activities 132,113
------------
Net decrease in cash (16)
Cash, beginning of period 17
------------
CASH, END OF PERIOD $ 1
============
RECONCILIATION OF NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS TO NET INCREASE IN
CASH USED BY INVESTING AND OPERATING
ACTIVITIES:
Net increase in net assets resulting from
operations $ 18,325
Increase in value of investments (152,261)
Change in receivables and liabilities
exclusive of loan and dividend payable 1,807
------------
Net Cash Used By Investing And Operating
Activities $ (132,129)
============
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
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CIGNA HIGH INCOME SHARES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 8
1. SIGNIFICANT ACCOUNTING POLICIES. CIGNA High Income Shares (the "Fund") is
registered under the Investment Company Act of 1940, as amended, as a
diversified, 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 objective, 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 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.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions
are accounted for on the trade date (date the order to buy or sell is executed).
Dividend income is recorded on the ex-dividend date, and interest income is
recorded on the accrual basis. The 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
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 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 financial
accounting income due to differences between financial and tax accounting, to
meet the minimum distribution requirements for tax basis income, are deducted
from paid in capital when such differences are determined to be permanent.
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 issues its
shares, invests in securities, and distributes dividends from net investment
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.
<PAGE>
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CIGNA HIGH INCOME SHARES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (Continued) 9
2. BANK LOANS. The Fund has a revolving credit agreement with unrelated third
party lenders which will generally enable the Fund to borrow up to the lesser of
(A) $151,300,000 or (B) one-third of the Fund's Eligible Assets. The agreement
matures on May 1, 2000. 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
outstanding during the three months ended March 31, 1998 were $134,428,018 at an
average interest rate of approximately 6.70%. As of March 31, 1998, the Fund was
paying interest at an average annual rate of 6.54% 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 carrying
out the responsibilities of those offices. For the three months ended March 31,
1998, the Fund paid or accrued $37,168.
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
(excluding short-term obligations) for the three months ended March 31, 1998
were $225,416,560 and $82,476,638, respectively.
As of March 31, 1998, the cost of securities for federal income tax purposes was
$516,480,978. At March 31, 1998, unrealized appreciation for Federal income tax
purposes aggregated $23,284,507 of which $26,538,275 related to appreciated
securities and $3,253,768 related to depreciated securities.
6. CAPITAL LOSS CARRYOVER. At December 31, 1997, the Fund had a capital loss
carryover for Federal income tax purposes of $47,019,138 of which $11,490,330,
$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.
7. RIGHTS OFFERING. During the fourth quarter of 1997, the Fund announced a
rights offering, whereby each shareholder on the record date received one
non-transferable right per common share. The terms of the rights offering
allowed shareholders to acquire one common share for each three rights held and
over-subscribe for additional shares (subject to availability and allotment).
The subscription price per share was the net asset value per share at the close
of business on January 23, 1998. The Fund received primary and over-subscription
requests totaling 12,452,266 shares from shareholders during the subscription
period from December 26, 1997 (the record date) to January 23, 1998 (the
expiration date). On the expiration date, the Fund's net asset value per share
was $7.91. Net proceeds to the Fund, received in January 1998, were
approximately $98 million.
<PAGE>
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CIGNA HIGH INCOME SHARES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (Continued)
10
8. FINANCIAL HIGHLIGHTS. The following table includes data, ratios and
supplemental data for a share outstanding throughout each period and other
performance information:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
3 MOS.
ENDED
MAR. 31, YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD0 $ 7.88 $ 7.43 $ 7.19 $ 6.59 $ 7.54 $ 6.99
INCOME FROM INVESTMENT OPERATIONS
Net investment income (1) 0.22 0.87 0.85 0.84 0.86 0.97
Net realized and unrealized gains (losses) 0.16 0.44 0.29 0.60 (0.91) 0.58
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.38 1.31 1.14 1.44 (0.05) 1.55
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Distributions from net investment income (0.20) (0.86) (0.90) (0.84) (0.88) (0.97)
Distributions in excess of net investment income - - - - (0.02) (0.03)
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (0.20) (0.86) (0.90) (0.84) (0.90) (1.00)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 8.06 $ 7.88 $ 7.43 $ 7.19 $ 6.59 $ 7.54
====== ====== ====== ====== ====== ======
MARKET VALUE, END OF PERIOD $ 8.38 $ 8.44 $ 8.38 $ 7.88 $ 7.00 $ 8.38
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN:
Per share market value 1.76% 11.65% 19.25% 26.24% (5.43)% 19.62%
Per share net asset value (2) 4.90% 18.58% 16.70% 22.93% (0.76)% 23.25%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $ 404,165 $295,256 $273,500 $259,773 $233,454 $195,489
Ratio of expenses to average net assets
(includes interest expense) 0.79% 3.28% 3.35% 3.80% 3.27% 2.87%
Ratio of net expenses to average net assets
(excludes interest expense) 0.24% 1.06% 1.07% 1.12% 1.17% 1.21%
Ratio of net investment income to average net assets 2.74% 11.28% 11.60% 12.03% 12.33% 12.98%
Portfolio turnover 17% 74% 78% 60% 72% 48%
</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 period, and assumes distributions were reinvested at net asset value.
These percentages do not correspond with the performance of a shareholder's
investment in the 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)
11
9. QUARTERLY RESULTS (UNAUDITED). The following is a summary of quarterly
results of operations (in thousands except for per share amounts):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
INVESTMENT INCOME NET INVESTMENT INCOME ON INVESTMENTS INCR. (DECR.) IN NET ASSETS
PERIOD ENDED TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE TOTAL PER SHARE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)
June 30, 1997 10,294 0.28 8,000 0.22 11,995 0.32 13,707 0.34
September 30, 1997 10,467 0.28 8,082 0.22 8,588 0.23 10,349 0.25
December 31, 1997 10,704 0.29 8,295 0.22 (1,397) (0.03) (1,470) (0.07)
March 31, 1998 13,024 0.28 10,126 0.22 8,199 0.16 108,909 0.18
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CIGNA HIGH INCOME SHARES
<TABLE>
<CAPTION>
TRUSTEES OFFICERS
<S> <C> <C>
R. Bruce Albro Thomas C. Jones R. Bruce Albro
Senior Managing Director President, CIGNA Investment Chairman of the Board and
CIGNA Investments, Inc. Management and CIGNA President
Investments, Inc.
Hugh R. Beath Alfred A. Bingham III
Advisory Director, Paul J. McDonald Vice President and Treasurer
AdMedia Corporate Advisors, Inc. Senior Executive Vice President
and Chief Administrative Officer, Alan C. Petersen
Russell H. Jones Friendly Ice Cream Corporation Vice President
Vice President and Treasurer
Kaman Corporation Jeffrey S. Winer
Vice President and Secretary
</TABLE>
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CIGNA High Income Shares is a closed-end, diversified management investment
company that invests primarily in high yield fixed-income securities. The
investment adviser is CIGNA Investments, Inc., 900 Cottage Grove Road, Hartford,
Connecticut 06152.
Shareholders may elect to have dividends automatically invested in additional
shares of CIGNA High Income Shares by participating in the Automatic Dividend
Investment Plan (the "Plan"). For a brochure describing this Plan or general
inquiries about your account contact State Street Bank and Trust Company, Stock
Transfer Department, P.O. Box 8200, Boston, Massachusetts, 02266-8200, or call
1.800.426.5523.
<PAGE>
[CIGNA TREE LOGO APPEARS HERE]
CIGNA High Income Shares
950 Winter Street [CIGNA TREE LOGO 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, 1998
