<PAGE>
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS:
We are pleased to provide this report for CIGNA High Income Shares (the "Fund"),
covering the quarter ended June 30, 1999.
THE MARKET ENVIRONMENT
High yield bonds outperformed most other fixed income markets during the June
quarter and year-to-date. In the second quarter, the Lehman Brothers High Yield
Bond Index (the "Index") returned +0.34% compared to -0.88% for the Lehman
Brothers Aggregate Bond Index. For the first six months, high yield returns were
+2.20% versus -1.37% for the Lehman Brothers Aggregate Bond Index. Treasury
yields increased 57 basis points in the second quarter over concerns the Federal
Reserve Board (the "Fed") would raise interest rates. These fears negatively
impacted double-B's and longer duration issues. Yields on high yield bonds rose
15 basis points to about 10.50%, however, spreads tightened by 40 basis points,
contributing to the strong relative performance. New issuances increased sharply
($34 billion in the second quarter versus $28 billion in the first quarter)
while mutual fund inflows dropped dramatically ($200 million in the second
quarter versus $3.4 billion in the first quarter).
The best-performing industry sectors were energy, financial and basic industries
while the utilities and telecommunications sectors were the laggards. Single B's
outperformed double B's, triple C's outperformed Single B's and deferred coupon
issues modestly outperformed cash pay coupon issues.
FUND ACTIVITY
Portfolio activity in the June quarter centered on enhancing the fund's
liquidity by increasing holdings in large issues of big capitalization companies
and reducing exposure to small, less liquid credits. For example, we purchased
new issues in AES Corp., AVIS Rent-A-Car, Jo-Ann Stores and Premier Parks. Fund
positions in small size issues of Bell Sports, Diamond Brands, Statia Terminals
and Windmere Durable were sold. We added selectively to our foreign corporate
bond holdings such as Alestra, Multicanal and Indah Kiat, to increase the Fund's
participation in the ongoing recovery in emerging markets. Finally, we
maintained the overweighting in single B and lower quality credits as that
sector showed good relative performance in the first half.
Overall, the Fund remains broadly diversified and is invested in the issues of
122 companies at quarter-end. The top three industry categories as a percentage
of net assets are: Telecommunications (25.5%), Entertainment (15.0%), and
Containers & Paper (14.2%). The average maturity of the Fund's holdings is 7.7
years; its average credit quality is still B.
Borrowing under the Fund's line of credit has been maintained below 33% of
assets during this reporting period. On June 30, 1999 borrowings were at
approximately 27% of assets.
FUND PERFORMANCE
CIGNA High Income Shares' performance was ahead of its benchmark in the second
quarter and first half of 1999. Based on net asset value, the Fund returned
2.41% in the June quarter and 4.39% year-to-date. These returns exceeded the
Lehman Brothers High Yield Bond Index returns of 0.34% and 2.20%, respectively.
For the trailing twelve months, the Fund's return lagged its benchmark, -8.44%
versus -0.38%. Returns based on the market value of the Fund's shares traded on
the New York Stock Exchange were 2.89%, 7.70% and 1.24% for the quarter,
year-to-date and the last 12 months, respectively. (Fund returns assume
reinvestment of all dividends and are net of all expenses; the Index returns do
not include expenses.) The Fund's performance continued to benefit from the
ongoing price recovery in emerging market debt, driven by the improving
international outlook. The Fund's overweighting in single B and lower rated
issues also helped performance as those sectors exceeded the returns in the
higher quality sectors. Finally, the Fund's large weighting in the gaming, basic
industries and technology sectors also contributed to the positive results.
OUTLOOK
The current outlook for the high yield market is cautious. The U.S. economy is
maintaining its strength, inflation is staying low and corporate profit growth
is exceeding earlier estimates, all of which is positive for the high yield
market. However, despite the Fed's recent announcement rescinding its "bias to
tighten" stance, interest rates could still rise later this year if the economic
data indicate inflationary pressures are building. As year-end approaches, Y2K
concerns may prompt an acceleration of new issuance volume from the fourth
quarter into the third. Cash flows into the high yield market have slowed
recently, which in combination with Y2K concerns may lead to higher yields and a
widening in quality spreads during the summer months. Trading liquidity still
remains an issue and is not expected to improve in the near future.
Sincerely,
/s/ Richard H. Forde
Richard H. Forde,
CHAIRMAN OF THE BOARD AND PRESIDENT
CIGNA HIGH INCOME SHARES
<PAGE>
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CIGNA HIGH INCOME SHARES INVESTMENTS IN SECURITIES June 30, 1999 (Unaudited) 2
MARKET
PRINCIPAL VALUE
(000) (000)
- -------------------------------------------------------------------
BONDS AND NOTES - 133.1%
AUTO AND TRUCK - 2.2%
Advanced Accessory System L.L.C.,
9.75%, 2007 $ 1,700 $ 1,539
Collins & Aikman Products Co.,
11.50%, 2006 5,500 5,555
-------------
7,094
-------------
BROADCASTING & MEDIA - 5.9%
American Lawyer Media, Inc.,
9.75%, 2007 2,000 2,000
American Media Operations,
10.25%, 2009 (144A security acquired
April 1999 for $1,375,000)** 1,375 1,389
Echostar DBS Corp., 9.375%, 2009
(144A security acquired Jan &
Feb 1999 for $4,057,500)** 4,000 4,080
Grupo Televisa, S.A., 11.875%, 2006 1,500 1,508
Innova S DE R.L., 12.875%, 2007 8,000 6,400
Lodgenet Entertainment Corp.,
10.25%, 2006 3,500 3,544
-------------
18,921
-------------
CABLE TV - 2.6%
Multicanal, S.A.,
10.5%, 2007 4,000 3,240
13.125%, 2009 Series E (144A
security acquired April 1999
for $2,452,981)** 2,450 2,272
Supercanal Holdings S.A., 11.5%, 2005
(144A security acquired May 1998
for $5,515,375)** + 5,500 2,860
-------------
8,372
-------------
CHEMICALS - 2.4%
Brunner Mond Group PLC,
11%, 2008 $ 3,000 $ 1,800
Great Lakes Carbon Corp.,
10.25%, 2008 2,500 2,463
Huntsman ICI Chemicals, Inc.,
10.125%, 2009 (144A security
acquired June 1999 for
$3,000,000)** 3,500 3,531
-------------
7,794
-------------
CONSUMER PRODUCTS & SERVICES - 7.9%
Anchor Advanced Products, Inc.,
11.75%, 2004 2,250 2,306
Carson, Inc., 10.375%, 2007 3,250 2,437
Desa International, Inc., 9.875%, 2007 2,750 2,145
Drypers Corp., 10.25%, 2007 4,000 3,160
Moll Industries, Inc., 10.5%, 2008 3,260 2,901
Revlon Consumer Products Corp.,
9%, 2006 3,000 2,963
Samsonite Corp., 10.75%, 2008 3,850 3,099
MARKET
PRINCIPAL VALUE
(000) (000)
- -------------------------------------------------------------------
CONSUMER PRODUCTS & SERVICES - (CONTINUED)
Sealy Mattress Co., 9.875%, 2007 3,500 3,430
United Industries Corp.,
9.875%, 2009 (144A security acquired
March 1999 for $3,093,500)** 3,050 2,753
-------------
25,194
-------------
CONTAINERS AND PAPER - 14.2%
Gaylord Container Corp.,
9.875%, 2008 6,000 5,340
Grupo Industrial Durango, S.A.,
12.625%, 2003 4,500 4,275
Indah Kiat Finance Mauritius Ltd.,
10%, 2007 8,000 5,520
Indesco International, Inc.,
9.75%, 2008 3,900 2,847
CONTAINERS AND PAPER (CONTINUED)
Millar Western Forest Products, Inc.,
9.875%, 2008 $ 5,000 $ 4,837
Packaging Corp., 9.625%, 2009
(144A security acquired April
1999 for $5,107,094)** 5,000 5,075
Pindo Deli Finance Mauritius Ltd.,
10.75%, 2007 5,300 3,631
Riverwood International Corp.,
10.625%, 2007 5,500 4,850
10.875%, 2008 5,000 5,637
Tjiwi Kimia Finance Mauritius Ltd.,
10%, 2004 4,950 3,539
-------------
45,551
-------------
ELECTRONICS AND ELECTRICAL EQUIPMENT - 8.6%
Amkor Technology, Inc.,
9.25%, 2006 (144A security acquired
May 1999 for $1,493,125)** 1,500 1,470
10.5%, 2009 (144A security acquired
May 1999 for $3,400,000)** 3,400 3,264
Dictaphone Corp., 11.75%, 2005 4,530 2,492
Fairchild Semiconductor Corp.,
10.125%, 2007 2,625 2,553
10.375%, 2007 (144A security acquired
March 1999 for $2,000,000)** 2,000 1,960
International Wire Group, Inc.,
11.75%, 2005, 2,500 2,600
MCMS, Inc.,
9.75%, 2008 3,000 1,650
Telex Communications, Inc.,
10.5%, 2007 6,000 4,560
Viasystems, Inc.,
9.75%, 2007 6,000 5,250
9.75%, 2007, Series B 2,000 1,750
-------------
27,549
-------------
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
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CIGNA HIGH INCOME SHARES INVESTMENTS IN SECURITIES June 30, 1999 (Unaudited)
(Continued) 3
MARKET
PRINCIPAL VALUE
(000) (000)
- -------------------------------------------------------------------
ENTERTAINMENT - 15.0%
Alliance Gaming Corp., 10%, 2007 $ 5,000 $ 3,550
American Skiing Co., 12%, 2006 5,250 4,043
Booth Creek Ski Holdings, Inc.,
12.5%, 2007 4,250 3,740
Boyd Gaming Corp.
9.50%, 2007 4,000 3,960
Casino Magic of Louisiana Corp.,
13%, 2003 4,750 5,445
Hollywood Park, Inc., 9.25%, 2007 3,325 3,267
Isle Capri Casinos, Inc., 8.75%, 2009
(144A security acquired April 1999
for $2,649,062)** 2,650 2,484
Mohegan Tribal Gaming Authority,
8.75%, 2009 3,000 2,955
Premier Parks, Inc.,
9.75%, 2007 3,500 3,517
SFX Entertainment, Inc.,
9.125%, 2008 3,000 2,925
9.125%, 2008 3,000 2,933
Station Casinos, Inc.,
10.125%, 2006 1,000 1,030
8.875%, 2008 2,000 1,950
Trump Atlantic City Funding, Inc.,
11.25%, 2006 7,000 6,265
-------------
48,064
-------------
FINANCIAL - 2.4%
Dollar Financial Group, Inc.,
10.875%, 2006 4,150 4,109
Nationwide Credit, Inc., 10.25%, 2008 5,250 3,517
-------------
7,626
-------------
FOOD AND BEVERAGES - 7.1%
Agrilink Foods, Inc., 11.875%, 2008 $ 4,000 $ 4,130
Compania de Alimentos Fargo,
13.25%, 2008 2,750 2,338
Di Giorgio Corp., 10%, 2007 3,000 2,955
Grupo Azucarero Mexico S.A.,
11.5%, 2005 4,690 2,017
Imperial Holly Corp., 9.75%, 2007 5,000 4,825
Mastellone Hermonos S.A.,
11.75%, 2008 3,250 2,291
Star Markets Co., Inc., 13%, 2004 4,000 4,340
-------------
22,896
-------------
HEALTH CARE - 3.3%
Express Scripts, Inc., 9.625%, 2009
(144A security acquired June 1999
for $3,009,128)** 3,000 3,030
King Pharmaceutical, Inc.,
10.75%, 2009 (144A security acquired
March 1999 for $2,806,563)** 2,800 2,884
Mediq, Inc., 11%, 2008 6,000 4,680
-------------
10,594
-------------
MARKET
PRINCIPAL VALUE
(000) (000)
- -------------------------------------------------------------------
INDUSTRIAL - 13.5%
Bucyrus International, Inc.,
9.75%, 2007 5,000 4,550
CEX Holdings, Inc.,
9.625%, 2008 5,000 4,700
Foamex Capital Corp., 13.5%, 2005 5,500 4,950
Goss Graphic Systems, Inc.,
12%, 2006 4,625 1,573
Grove Worldwide L.L.C.,
9.25%, 2008 4,400 3,960
Hexcel Corp., 9.75%, 2009 (144A
security acquired Jan 1999 for
$3,500,000)** 4,000 3,920
High Voltage Energy Corp.,
10.5%, 2004 3,500 3,255
ICF International Inc., 13%, 2003***+ $ 5,000 $ 3,350
Morris Material Handling, Inc.,
9.5%, 2008 2,350 940
Neenah Corp.,
11.125%, 2007, Series B 2,000 1,970
11.125%, 2007, Series E (144A
security acquired Nov 1998 for
$1,552,500)** 1,500 1,478
Outsourcing Services Group,
10.875%, 2006 3,500 3,325
Vicap, S.A.,
11.375%, 2007 5,750 5,233
-------------
43,204
-------------
METALS - 4.5%
Doe Run Resource Corp.,
11.25%, 2005 4,000 3,600
Euramax International PLC,
11.25%, 2006 6,000 6,015
Gulf States Steel, Inc., 13.5%, 2003+ 5,000 900
Renco Steel Holdings, Inc.,
10.875%, 2005 4,500 3,892
-------------
14,407
-------------
MISCELLANEOUS - 4.4%
AES Corp.,
8.5%, 2007 2,000 1,885
9.5%, 2009 1,900 1,952
Sullivan Graphics, Inc., 12.75%, 2005 5,500 5,665
United Rentals, Inc., 9%, 2009 (144A
security acquired March 1999
for $4,750,000)** 4,750 4,655
-------------
14,157
-------------
RETAIL - 1.7%
Jo Ann Stores, Inc., 10.375%, 2007
(144A security acquired April
1999 for $1,970,000)** 2,000 1,970
Pantry, Inc., 10.25%, 2007 3,500 3,570
-------------
5,540
-------------
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
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CIGNA HIGH INCOME SHARES INVESTMENTS IN SECURITIES June 30, 1999 (Unaudited)
(Continued) 4
MARKET
PRINCIPAL VALUE
(000) (000)
- -------------------------------------------------------------------
TECHNOLOGY - 2.2%
Exodus Communications, Inc.,
11.25%, 2008 $ 3,000 $ 3,157
Orbital Imaging Corp., 11.625%, 2005 4,250 3,910
-------------
7,067
-------------
TELECOMMUNICATIONS - 25.5%
Alestra S DE., 12.125%, 2006 (144A
security acquired May 1999 for
$6,000,000)** 6,000 5,790
AMSC Acquisition, Inc.,
12.25%, 2008 4,325 3,309
Centennial Cellular, Inc., 10.75%, 2008
(144A security acquired Dec. 1998
for $3,523,750)** 4,000 4,140
Dobson Communications Corp.,
11.75%, 2007 4,400 4,620
Energis PLC., 9.75%, 2009 (144A
security acquired June 1999 for
$2,498,079)** 2,500 2,531
Facilicom International, Inc.,
10.5%, 2008 5,200 4,056
Grupo Iusacell S.A., 10%, 2004 2,000 1,830
Impsat Corp., 12.125%, 2003 3,500 3,255
Metrocall, Inc., 9.75%, 2007 5,000 3,700
Nextel Communications, Inc.,
9.75%, 2004 5,000 5,075
Poland Telecom Finance B.V.,
14%, 2007 3,000 2,730
Price Communications Wireless, Inc.,
11.75%, 2007 8,000 8,780
Primus Telecommunications, Inc.,
11.75%, 2004 5,250 5,329
RSL Communications PLC.,
12.25%, 2006 1,000 1,045
10.5%, 2008 4,500 4,421
Talton Holdings, Inc., 11%, 2007 3,500 3,307
Transtel Pass-Thru Trust, 12.5%,
2007 (144A security acquired Oct
and Nov 1997 for $4,170,000)** 4,250 2,252
Versatel Telecom B.V.,
13.25%, 2008 6,550 6,844
Winstar Communications, Inc.,
10%, 2008 5,000 4,450
Winstar Equipment Corp.,
12.5%, 2004 4,000 4,200
-------------
81,664
-------------
MARKET
PRINCIPAL VALUE
(000) (000)
- -------------------------------------------------------------------
TEXTILES - 4.0%
Anvil Knitwear, Inc., 10.875%, 2007 $ 4,400 $ 2,860
Cluett American Corp.,
10.125%, 2008 5,000 3,750
Delta Mills, Inc., 9.625%, 2007 1,000 950
Fruit of the Loom, Inc., 8.875%, 2006
(144A security acquired March 1999
for $2,821,256)** 2,825 2,585
Norton McNaughton, Inc.,
12.5%, 2005 3,000 2,700
-------------
12,845
-------------
TRANSPORTATION - 5.7%
American Commercial Lines L.L.C.,
10.25%, 2008 4,300 4,321
Atlas Air, Inc., 10.75%, 2005 5,385 5,668
Avis Rent A Car, Inc., 11%, 2009
(144A security acquired June 1999
for $4,461,000)** 4,450 4,511
Kitty Hawk, Inc., 9.95%, 2004 4,000 3,940
-------------
18,440
-------------
TOTAL BONDS AND NOTES (Cost - $479,504,826) 426,979
-------------
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA HIGH INCOME SHARES INVESTMENTS IN SECURITIES June 30, 1999 (Unaudited)
(Continued) 5
MARKET
NUMBER VALUE
OF SHARES (000)
- -------------------------------------------------------------------
SHARE APPRECIATION RIGHTS - 0.2%
(Cost - $763,374)
Primestar, Inc. 58,592 $ 703
-------------
WARRANTS - 0.3%
American Mobile Satellite Corp.,
Exp. 2008* 3,325 133
Convergent Communications, Inc.,
Exp. 2008* 30,000 -
IHF Capital, Inc., Class A & L,
Exp. 1999* 5,000 2
NS Group, Inc., Exp. 2003* 4,080 37
Orbital Imaging Corp., Exp. 2005* 4,250 128
Poland Telecom Finance B.V.,
Exp. 2007* 2,500 150
Primus Telecommunications, Inc.,
Exp. 2004* 4,250 85
Versatel Telecom B.V., Exp 2008* 6,550 327
Wireless One, Inc., Exp. 2000* 15,000 -
-------------
TOTAL WARRANTS (Cost - $453,249) 862
-------------
TOTAL INVESTMENTS IN SECURITIES - 133.6%
(Total Cost - $480,721,449) 428,544
Liabilities, Less Cash and Other Assets - (33.6%) (107,771)
-------------
NET ASSETS - 100% (equivalent to $6.26 per
share based on 51,226,447 shares outstanding) $ 320,773
=============
-----------------------------------------------------------------
PORTFOLIO COMPOSITION (UNAUDITED)
June 30, 1999
MARKET % OF
QUALITY RATINGS* OF VALUE MARKET
LONG-TERM BONDS (000) VALUE
--------------------------------------------------------------
Ba/BB $37,739 8.8%
B/B 314,902 73.8%
Below B 74,338 17.4%
------------ ------------
$426,979 100.0%
============ ============
*The higher of Moody's or Standard & Poor Ratings.
-----------------------------------------------------------------
* Non-income producing securities.
** Indicates restricted security; the aggregate fair value of
restricted securities is $70,884,062 (aggregate cost
$77,210,565) which is approximately 22% of net assets.
*** Variable rate security. Rate disclosed is as of June 30, 1999.
+ Defaulted securities.
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA HIGH INCOME SHARES 6
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
(IN THOUSANDS)
--------------
ASSETS:
Investments at market value
(Cost - $480,721,449) $ 428,544
Cash on deposit with custodian 13
Receivable for investments sold 464
Interest receivable 13,992
Investment for Trustees' deferred
compensation plan 261
------------
TOTAL ASSETS 443,274
------------
LIABILITIES:
Loan payable 118,000
Dividend payable July 9, 1999 at
$.0675 per share 3,458
Accrued interest payable 412
Accrued advisory fees payable 214
Deferred Trustees' fees payable 261
Other accrued expenses (including $53,948
due to affiliate) 156
------------
TOTAL LIABILITIES 122,501
------------
NET ASSETS (Equivalent to $6.26 per share
based on 51,226,447 shares of
beneficial interest outstanding;
unlimited number of shares authorized)
$ 320,773
============
COMPONENTS OF NET ASSETS:
Paid in capital $ 429,517
Undistributed net investment income 1,903
Unrealized depreciation of investments (52,178)
Accumulated net realized loss (58,469)
------------
NET ASSETS $ 320,773
============
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
(IN THOUSANDS)
--------------
INVESTMENT INCOME
INCOME:
Interest $27,360
EXPENSES:
Interest expense $3,701
Investment advisory fees 1,356
Administrative services 72
Custodian fees and expenses 64
Transfer agent fees and expenses 33
Auditing and legal fees 24
Trustees' fees 17
Shareholder reports 17
Other 28 5,312
-------- -----------
NET INVESTMENT INCOME 22,048
-----------
REALIZED AND UNREALIZED GAIN/LOSS ON
INVESTMENTS
Net realized loss from
investments (22,697)
Unrealized appreciation of investments 12,665
-----------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS (10,032)
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $12,016
===========
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)
SIX MONTHS YEAR ENDED
ENDED DECEMBER, 31
JUNE 30, 1999 1998
---------------------------------
(IN THOUSANDS)
---------------------------------
OPERATIONS:
Net investment income $ 22,048 $ 43,808
Net realized gain (loss) from
investments (22,697) 6,022
Unrealized appreciation
(depreciation) on investments 12,665 (81,422)
----------------- --------------
Net increase (decrease) in net assets
from operations 12,016 (31,592)
----------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ($0.405
per share and $0.8825 per share,
respectively) (20,676) (43,630)
----------------- --------------
Total distributions to shareholders (20,676) (43,630)
----------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from 0 and 12,452,266 capital
shares issued pursuant to rights
offering (net of related expenses
of $237,401), respectively - 98,260
Capital contribution by Adviser 1,615 -
Net increase from 495,184 and
792,574 capital shares issued to
shareholders in reinvestment of
distributions, respectively 3,529 5,995
----------------- --------------
Net increase from capital share
transactions 5,144 104,255
----------------- --------------
NET INCREASE (DECREASE) IN
NET ASSETS (3,516) 29,033
NET ASSETS:
Beginning of period 324,289 295,256
----------------- --------------
End of period (including undistributed
net investment income of $1,903,654
and $531,609, respectively) $ 320,773 $ 324,289
================= ==============
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
(IN THOUSANDS)
--------------
CASH PROVIDED BY FINANCING ACTIVITIES:
Cash provided by borrowing $ 2,000
Capital contribution by Adviser 1,615
Dividends paid in cash (20,791)
---------------
(17,176)
CASH USED BY OPERATIONS:
Purchases of portfolio securities (123,973)
Proceeds from sales of portfolio securities 118,795
---------------
(5,178)
---------------
Net Investment Income 22,048
Net change in receivables/payables
related to operations 304
---------------
22,352
---------------
17,174
---------------
NET DECREASE IN CASH (2)
CASH, BEGINNING OF PERIOD 15
---------------
CASH, END OF PERIOD $ 13
===============
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
- --------------------------------------------------------------------------------
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>
- --------------------------------------------------------------------------------
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 six months ended June 30, 1999 were $121,547,100 at an
average interest rate of approximately 6.14%. As of June 30, 1999, the Fund was
paying interest at an average annual rate of 6.14% 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 six months ended June 30,
1999, the Fund paid or accrued $71,580. On February 24, 1999, the Fund received
a capital contribution of $1,615,306 from CII as reimbursement for inaccurate
execution of a corporate action.
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 six months ended June 30, 1999 were
$123,973,142 and $118,794,872, respectively.
As of June 30, 1999, the cost of securities for Federal income tax purposes was
$480,721,449. At June 30, 1999, net unrealized depreciation for Federal income
tax purposes aggregated $52,177,918 of which $5,191,056 related to appreciated
securities and $57,368,974 related to depreciated securities.
6. CAPITAL LOSS CARRYOVER. At December 31, 1998, the Fund had a capital loss
carryover for Federal income tax purposes of $35,528,808 of which $30,071,289,
$3,704,377 and $1,753,142 expire in 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>
- --------------------------------------------------------------------------------
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)
6 MOS.
ENDED
JUNE 30 YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.39 $ 7.88 $ 7.43 $ 7.19 $ 6.59 $ 7.54
-------- -------- -------- -------- -------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (1) 0.43 0.88 0.87 0.85 0.84 0.86
Net realized and unrealized gains (losses) (0.15) (1.49) 0.44 0.29 0.60 (0.91)
-------- -------- -------- -------- -------- ---------
TOTAL FROM INVESTMENT OPERATIONS 0.28 (0.61) 1.31 1.14 1.44 (0.05)
-------- -------- -------- -------- -------- ---------
LESS DISTRIBUTIONS:
Distributions from net investment income (0.41) (0.88) (0.86) (0.90) (0.84) (0.88)
Distributions in excess of net investment
income - - - - - (0.02)
-------- -------- -------- -------- -------- ---------
TOTAL DISTRIBUTIONS (0.41) (0.88) (0.86) (0.90) (0.84) (0.90)
-------- -------- -------- -------- -------- ---------
NET ASSET VALUE, END OF PERIOD $ 6.26 $ 6.39 $ 7.88 $ 7.43 $ 7.19 $ 6.59
======== ======== ======== ======== ======== =========
MARKET VALUE, END OF PERIOD $ 7.38 $ 7.25 $ 8.44 $ 8.38 $ 7.88 $ 7.00
======== ======== ======== ======== ======== =========
TOTAL INVESTMENT RETURN:
Per share market value 7.70% (3.35)% 11.65% 19.25% 26.24% (5.43)%
Per share net asset value (2) 4.39% (8.31)% 18.58% 16.70% 22.93% (0.76)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $ 320,773 $ 324,289 $ 295,256 $ 273,500 $ 259,773 $ 233,454
Ratio of expenses to average net assets
(includes interest expense) 3.29%* 3.40% 3.28% 3.35% 3.80% 3.27%
Ratio of net expenses to average net assets
(excludes interest expense) 0.99%* 0.97% 1.06% 1.07% 1.12% 1.17%
Ratio of net investment income to average
net assets 13.65%* 12.05% 11.28% 11.60% 12.03% 12.33%
Portfolio turnover 27% 56% 74% 78% 60% 72%
</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.
* Annualized.
<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, 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
June 30, 1998 14,459 0.29 11,110 0.22 (12,703) (0.25) (10,327) (0.23)
September 30, 1998 14,432 0.29 11,120 0.22 (78,316) (1.55) (75,967) (1.54)
December 31, 1998 14,244 0.28 11,452 0.23 7,420 0.15 6,418 0.10
March 31, 1999 13,768 0.27 11,120 0.22 (6,608) (0.10) (2,150) (0.08)
June 30, 1999 13,592 0.27 10,928 0.21 (3,424) (0.05) (1,366) (0.05)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
MATTERS SUBMITTED TO A VOTE OF SHAREHOLDERS
The Annual Meeting of the Shareholders of CIGNA High Income Shares (the "Trust")
was held on Tuesday, April 27, 1999 at 1:00 p.m., Eastern Time.
Five Trustees were elected by a vote of shareholders to serve as members of the
Board of the Trust until the next Annual Meeting of Shareholders or until the
election and qualification of their successors. Shareholders of the Trust voted
to elect the following Trustees:
FOR VOTE WITHHELD
--- -------------
Hugh R. Beath 47,622,432.640 642,901.095
Richard H. Forde 47,623,139.121 642,194.614
Russell H. Jones 47,619,643.640 645,690.095
Thomas C. Jones 47,617,570.132 647,763.603
Paul J. McDonald 47,622,820.142 642,513.593
The appointment of PricewaterhouseCoopers LLP to serve as independent
accountants for the fiscal year ending December 31, 1999 was ratified by a vote
of shareholders of the Trust as follows:
FOR AGAINST ABSTAIN
--- ------- -------
47,753,570.802 239,310.827 272,450.106
There were no broker non-votes with respect to the matters submitted to a vote
of shareholders of the Trust.
No other business was transacted at the meeting.
<PAGE>
[CIGNA TREE LOGO GRAPHIC APPEARS HERE]
CIGNA High Income Shares
100 Front Street [CIGNA TREE LOGO GRAPHIC APPEARS HERE]
Suite 300
Worcester, MA 01601
CIGNA HIGH INCOME SHARES
- --------------------
BULK RATE
U.S. POSTAGE
PAID
SO. HACKENSACK, NJ SEMIANNUAL REPORT
PERMIT 750
- --------------------
JUNE 30, 1999
[CIGNA TREE LEAVES GRAPHIC APPEARS IN BACKGROUND OF COVER]
