<PAGE>
- --------------------------------------------------------------------------------
1
DEAR SHAREHOLDERS:
We are pleased to provide this report for CIGNA High Income Shares (the "Fund"),
covering the year ended December 31, 1998.
THE MARKET ENVIRONMENT
The high yield market substantially underperformed other sectors of the fixed
income markets in 1998. The market return was only 1.87%, as measured by the
Lehman Brothers High Yield Bond Index, while the total returns for U.S.
Government securities and investment-grade corporates were 10.03% and 8.57%,
respectively. The worldwide financial crisis, which hit in earnest in the third
quarter, caused a sharp sell-off in high yield, as investors fled to higher
quality, "safer" investments. Single-B rated corporates, which represent about
one-half of the high yield market, began the year yielding about 9.00% for a
spread of 325 basis points over U.S. Treasuries. By year's end, the yield had
increased to 10.60%, while Treasury yields declined from 5.75% to 4.65%,
resulting in a spread widening of 270 basis points. Yield levels for double-B
rated corporates, about one-third of the market, increased by 50 basis points,
to close at approximately an 8.00% yield on average. Investors were not rewarded
for taking credit risk, as double-B's outperformed single-B's (5.90% total
return versus 1.28%), single-B's outperformed CCC's (1.28% versus -7.00% total
return) and cash-pay securities outperformed their zero coupon counterparts
(1.65% total return compared to -4.95%). While the high yield market did recover
during the fourth quarter, it was not enough to offset the lackluster
performance of the previous nine months.
FUND ACTIVITY
Portfolio activity in 1998 focused on overweighting single-B rated credits to
take advantage of attractive yield opportunities. The Fund's exposure averaged
about 70% during the year, versus a market weighting of 50%. Favored industry
sectors were telecommunications, entertainment, consumer and capital goods. The
portfolio maintained its underweighting in energy, financial companies and
health care, due to unattractive industry fundamentals and valuations. The
Fund's holdings in emerging market corporates ranged from 10% to 15% during the
year and were focused primarily in Argentinean and Mexican telecommunications,
broadcasting and forest products companies. In the fourth quarter, we took a
more defensive posture in the market through the purchase of some liquid issues
of large capitalization companies.
Overall, the Fund remains broadly diversified and is invested in the issues of
121 companies at year-end. The top three industry categories as a percentage of
net assets are: Telecommunications (24.6%), Entertainment (17.6%), and Food and
Beverages (11.0%). The average maturity of the Fund's holdings is 8 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 December 31, 1998 borrowings were at
approximately 26% of assets.
FUND PERFORMANCE
CIGNA High Income Shares had a disappointing year in which its performance
trailed its benchmark. Based on net asset value, CIGNA High Income Shares
returned 6.05% in the fourth quarter and -8.31% for the full year. This
performance lagged the Lehman Brothers High Yield Bond Index, which returned
2.13% for the quarter, and 1.87% for the full year. Returns based on the market
value of the Fund's shares traded on the New York Stock Exchange were 6.62% and
- -3.35%, respectively, for the quarter and the year. (Fund returns assume
reinvestment of all dividends and are net of all expenses; the Index returns do
not include expenses.)
The Fund did not match the Index return for all of 1998 due to the
underweighting in double-B rated credits (double-B's outperformed single-B's).
The Fund's leverage, discussed above, added to its underperformance. The Fund's
holdings of emerging market corporates, which are not represented in the Index,
experienced steep price declines caused by the crisis in international financial
markets. Our holdings of commodity producers and cyclical companies were also
negatively impacted by the recessionary conditions in many Asian economies. The
Fund's performance rebounded in the final quarter, however, as market prices
<PAGE>
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2
snapped back in several oversold names and emerging market holdings.
OUTLOOK
We remain very cautious on the macro-environment outlook for 1999. GDP (gross
domestic product) growth in the U.S. is expected to slow, although no recession
is anticipated. Inflation should be very low again (under 2%), as worldwide
deflationary trends are well established. While Federal Reserve ("Fed") Bank
policy has done a superb job in managing the U.S. economy and intervening in the
international financial crisis, we expect the Fed to stay "on hold" pending
future developments. Corporate profit growth is expected to be anemic and
possibly negative, which may result in lower stock market returns and
valuations. The international situation is still unsettled, as Asian economies
are mired in recession and events in Brazil could negatively impact the rest of
Latin America.
The outlook for the higher yield market in this macro environment is
circumspect. Investor caution is expected to favor conservative strategies,
such as investing in higher quality credits (double-B's) and defensive industry
sectors (e.g., health care, cable television, cellular telecommunications,
etc.). We will look for opportunities to benefit from this. The volume of new
issues will be high, with media and telecommunications companies expected to
dominate once again. One distinct positive in the outlook, however, is that
since yields and quality spreads backed up so much in 1998, the high yield
market now represents very compelling value compared to other sectors of the
fixed income market -- and could attract substantial investor attention in 1999.
Sincerely,
/s/ Richard H. Forde
Richard H. Forde,
CHAIRMAN OF THE BOARD AND PRESIDENT
CIGNA HIGH INCOME SHARES
- --------------------------------------------------------------------------------
CIGNA HIGH INCOME SHARES MANAGEMENT DISCUSSION AND ANALYSIS (Unaudited)
As an asset class, high yield underperformed most other kinds of fixed income
investments in 1998. After recovering in the fourth quarter (2.13% return) from
a very weak third quarter (-4.55% return), the high yield market finished the
year with a 1.87% total return. This result was substantially below the returns
for high-grade corporates (8.57%) and U.S. Treasuries (10.03%), but exceeded the
return of the emerging markets debt class (-11.60%). High yield underperformed
due to the global financial crisis that intensified in August with the Russian
default and devaluation and peaked in October with the unexpected cuts in the
fed funds and discount rates by the Federal Reserve Bank. As investors sought
safer havens, the ensuing "flight to quality" led to forced selling in the high
yield market, resulting in higher yields and wider credit quality spreads versus
Treasuries. Finally, stocks outperformed bonds, with the S&P 500 Index returning
28.57% and OTC stocks rising 39.63% for the year.
Within the high yield market, higher credit quality and defensive industry
sectors were the best performers. Double-B rated credits returned 5.90%, while
single-B rated credits returned only 1.28%. CCC-rated issues actually had a
negative return of -7.00%. The relative performance of these sectors reflected
investors' caution concerning credit risk and the smaller supply of higher
quality issues relative to the demand. Industry sector performance was also
driven by investors' caution toward risk in general. The best-performing
industry sectors were those in stable demand, predictable cash flow businesses,
such as entertainment, media, beverage and electric utilities. Industry sectors
faring the worst were commodity producers and cyclical businesses adversely
affected by the Asian recession that caused a worldwide slump in many commodity
prices and over-capacity conditions in some industries. These sectors were
primarily metals producers and energy companies. Financial companies also
underperformed, as did telecommunications firms because of the huge ongoing
supply of new issues.
<PAGE>
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CIGNA HIGH INCOME SHARES MANAGEMENT DISCUSSION AND ANALYSIS (Unaudited)
(Continued) 3
The volume of new issues set a record in 1998 at over $150 billion and the size
of the high yield market now exceeds one-half trillion dollars.
Telecommunications, media and entertainment issues continued to dominate the new
issue calendar. However, the U.S. high yield market has developed into a truly
global market. Both sovereign and corporate issuers from the United Kingdom,
Latin America and Asia floated debt into the market. In addition, with the
advent of the new euro currency and the European economic community, new
issuance of debt from European companies is expected to grow substantially in
the future.
Your Fund's activity during 1998 focused on maintaining its yield advantage in
the single-B quality sector where higher yields were available. The Fund is
normally overweighted in this quality sector compared to the market, since
attractive risk versus return situations are more prevalent. However, highly
unusual market conditions in 1998 (where safer credits earned higher returns
than riskier credits) prevailed for most of the year, resulting in a lower total
return than expected. Our investments in issues of foreign corporate borrowers,
while also providing beneficial diversification and yield enhancements to the
Fund, were adversely affected by market conditions. The global financial crisis
triggered massive selling in sovereign and foreign corporate debt and caused a
dramatic decline in the market value of some holdings during the July through
October period. When the crisis subsided, global financial markets rallied and
your Fund's holdings participated in the partial recovery. While 1998's results
were clearly disappointing, the Fund's management believes the high yield
market's current valuation allows for potentially attractive returns in the
future.
[THE FOLLOWING APPEARS AS A BAR CHART GRAPHIC]
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (UNAUDITED)
1/1/89 - 12/31/98
|------------------------------------------------------|
| AVERAGE ANNUAL RETURN |
| |
| 1 Year 3 Year 5 Year 10 Year |
|Market Value -3.35% 8.77% 8.96% 11.08% |
|Net Asset Value -8.31% 8.26% 9.13% 10.53% |
|------------------------------------------------------|
HIS
UNIT VALUE LEHMAN HY HIS LEHMAN HY
MARKET BASIS UNIT VALUE INVESTMENT INVESTMENT
12/88 9.83701 10.00000 $10,000 $10,000
12/89 9.34472 10.08300 $ 9,500 $10,083
12/90 5.78826 9.21687 $ 5,884 $ 9,217
12/91 12.23135 13.47414 $12,434 $13,474
12/92 15.21044 15.59632 $15,464 $15,596
12/93 18.31826 18.26845 $18,622 $18,265
12/94 17.32074 18.08038 $17,608 $18,080
12/95 21.86583 21.54638 $22,228 $21,546
12/96 26.07551 23.99190 $26,508 $23,992
12/97 29.11352 27.05326 $29,596 $27,053
12/98 28.13860 27.55916 $28,605 $27,559
HIS = CIGNA High Income Shares - Total return based on market value of
common shares
LEHMAN HY = Lehman Brothers High Yield Index
CIGNA High Income Shares performance figures are historical and reflect
reinvestment of all dividends and capital gains distributions and changes in the
market value of its stock, or as shown separately in the box, changes in its
underlying net asset value. The Fund is a closed-end management investment
company which trades over the New York Stock Exchange under the ticker symbol
"HIS." Fund performance does not reflect exchange commissions payable upon the
purchase or sale of the Fund's stock. The Fund's investment return and principal
value will fluctuate so that an investor's shares, when sold, may be worth more
or less than their original cost. Past performance cannot guarantee comparable
future results. The Company's return has been compared with the total return
performance of Lehman Brothers High Yield Index. This index is a group of
unmanaged securities widely regarded by investors to be representative of the
high-yield bond market in general. An investment cannot be made in the index.
Index results do not reflect brokerage charges or other investment expenses.
<PAGE>
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CIGNA HIGH INCOME SHARES INVESTMENTS IN SECURITIES December 31, 1998 4
MARKET
PRINCIPAL VALUE
(000) (000)
- -------------------------------------------------------------------
BONDS AND NOTES - 133.4%
AUTO AND TRUCK - 2.6%
Advanced Accessory System L.L.C.,
9.75%, 2007 $ 2,700 $ 2,687
Collins & Aikman Products Co.,
11.50%, 2006 5,500 5,720
-------------
8,407
-------------
BROADCASTING & MEDIA - 5.5%
American Lawyer Media, Inc.,
9.75%, 2007 2,000 2,070
Grupo Televisa, S.A., 11.875%, 2006 1,500 1,478
Innova S DE R.L., 12.875%, 2007 8,000 5,200
Lodgenet Entertainment Corp.,
10.25%, 2006 3,500 3,430
TCI Satellite Entertainment, Inc.,
10.875%, 2007 7,500 2,400
TV Azteca, S.A.,
10.5%, 2007 4,000 3,260
-------------
17,838
-------------
CABLE TV - 6.0%
Classic Cable, Inc., 9.875%, 2008
(144A security acquired July &
Sep 1998 for $1,999,760)** 2,000 2,090
Galaxy Telecom, L.P., 12.375%, 2005 4,700 5,229
Multicanal, S.A., 10.5%, 2007 4,000 3,600
Rifkin Acquisition Partners, L.P.,
11.125%, 2006 5,000 5,500
Supercanal Holdings S.A., 11.5%, 2005
(144A security acquired May 1998
for $5,515,375)** 5,500 3,135
-------------
19,554
-------------
CHEMICALS - 3.2%
Brunner Mond Group PLC,
11%, 2008 (144A security acquired
July 1998 for $3,000,000)** 3,000 2,760
MARKET
PRINCIPAL VALUE
(000) (000)
- -------------------------------------------------------------------
GEO Specialty Chemicals, Inc.,
10.125%, 2008 (144A security
acquired July 1998 for
$3,000,000)** $ 3,000 $ 2,910
Great Lakes Carbon Corp.,
10.25%, 2008 2,250 2,272
Trans Resource, Inc., 10.75%, 2008 2,500 2,488
-------------
10,430
-------------
CONSUMER PRODUCTS & SERVICES - 9.0%
Anchor Advanced Products, Inc.,
11.75%, 2004 1,250 1,362
Bell Sports, Inc., 11%, 2008
(144A security acquired Aug 1998
for $3,500,000)** 3,500 3,535
Carson, Inc., 10.375%, 2007 3,000 2,325
Desa International, Inc., 9.875%, 2007 2,750 2,063
Diamond Brands Operation Corp.,
10.125%, 2008 2,000 1,840
Drypers Corp., 10.25%, 2007 4,000 3,880
Moll Industries, Inc., 10.5%, 2008
(144A security acquired June 1998
for $2,262,500)** 2,250 2,194
Samsonite Corp., 10.75%, 2008 2,700 2,322
Scoville Fasteners, Inc., 11.25%, 2007 5,000 4,300
Sealy Mattress Co., 9.875%, 2007 3,500 3,378
Windmere Durable Holdings, Inc.,
10%, 2008 2,000 1,870
-------------
29,069
-------------
CONTAINERS AND PAPER - 10.5%
Crown Paper Co., 11%, 2005 3,500 3,115
Gaylord Container Corp.,
9.875%, 2008 6,000 4,350
Grupo Industrial Durango, S.A.,
12.625%, 2003 4,000 3,500
Indah Kiat Finance Mauritius Ltd.,
10%, 2007 3,250 1,722
Indesco International, Inc.,
9.75%, 2008 3,900 3,627
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
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CIGNA HIGH INCOME SHARES INVESTMENTS IN SECURITIES December 31, 1998 5
(Continued)
MARKET
PRINCIPAL VALUE
(000) (000)
- -------------------------------------------------------------------
Millar Western Forest Products, Inc.,
9.875%, 2008 $ 5,000 $ 3,750
Pindo Deli Finance Mauritius Ltd.,
10.75%, 2007 4,000 2,120
Riverwood International Corp.,
10.625%, 2007 5,500 5,445
10.875%, 2008 5,000 4,550
Tjiwi Kimia Finance Mauritius Ltd.,
10%, 2004 3,950 2,093
-------------
34,272
-------------
ELECTRONICS AND ELECTRICAL EQUIPMENT - 6.6%
Dictaphone Corp., 11.75%, 2005 4,530 3,216
International Wire Group, Inc.,
11.75%, 2005, 2,500 2,631
MCMS, Inc.,
9.75%, 2008 3,000 2,460
Telex Communications, Inc.,
10.5%, 2007 6,000 5,280
Viasystems, Inc.,
9.75%, 2007 6,000 5,970
9.75%, 2007, Series B 2,000 1,860
-------------
21,417
-------------
ENERGY - 2.7%
Gothic Productions Corp.,
11.125%, 2005 5,000 3,800
Statia Terminals International,
11.75%, 2003 4,900 4,900
-------------
8,700
-------------
ENTERTAINMENT - 17.6%
Alliance Gaming Corp., 10%, 2007 5,000 4,500
American Skiing Co., 12%, 2006 5,250 5,460
Booth Creek Ski Holdings, Inc.,
12.5%, 2007 4,250 4,208
Boyd Gaming Corp.
9.50%, 2007 4,000 3,960
Casino America, Inc., 12.5%, 2003 5,500 6,077
Casino Magic of Louisiana Corp.,
13%, 2003 4,750 5,379
MARKET
PRINCIPAL VALUE
(000) (000)
- -------------------------------------------------------------------
Majestic Star Casino L.L.C.,
12.75%, 2003 $ 3,750 $ 3,938
SFX Entertainment, Inc.,
9.125%, 2008 3,000 3,015
9.125%, 2008 (144A security
acquired Nov 1998 for
$3,000,000)** 3,000 2,970
Station Casinos, Inc.,
10.125%, 2006 1,000 1,048
8.875%, 2008 (144A security acquired
Nov 1998 for $1,983,720)** 2,000 2,000
Trump Atlantic City Funding, Inc.,
11.25%, 2006 7,000 6,160
Venetian Casino Resort L.L.C.,
12.25%, 2004 9,000 8,415
-------------
57,130
-------------
FINANCIAL - 2.9%
Affinity Group Holding, Inc.,
11%, 2007 975 907
Dollar Financial Group, Inc.,
10.875%, 2006 4,150 4,192
Nationwide Credit, Inc., 10.25%, 2008 5,250 4,200
-------------
9,299
-------------
FOOD AND BEVERAGES - 11.0%
Agrilink Foods, Inc., 11.875%, 2008
(144A security acquired Nov. 1998
for $4,000,000)** 4,000 4,060
CFP Holdings, Inc., 11.625%, 2004 1,400 1,162
Compania de Alimentos Fargo,
13.25%, 2008 (144A security
acquired July 1998 for
$2,750,000)** 2,750 2,090
Del Monte Corp., 12.25%, 2007 5,250 5,959
Di Giorgio Corp., 10%, 2007 3,000 2,790
Favorite Brands International, Inc.,
10.75%, 2006 (144A security acquired
May 1998 for $4,259,375)** 4,250 3,485
Fresh Foods, Inc., 10.75%, 2006 2,000 1,840
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
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CIGNA HIGH INCOME SHARES INVESTMENTS IN SECURITIES December 31, 1998 6
(Continued)
MARKET
PRINCIPAL VALUE
(000) (000)
- -------------------------------------------------------------------
Grupo Azucarero Mexico S.A.,
11.5%, 2005 $ 6,500 $ 2,275
Imperial Holly Corp., 9.75%, 2007 5,000 4,925
Mastellone Hermonos S.A.,
11.75%, 2008 3,250 2,567
Star Markets Co., Inc., 13%, 2004 4,000 4,460
-------------
35,613
-------------
HEALTH CARE - 1.8%
Mediq, Inc., 11%, 2008 6,000 5,760
-------------
INDUSTRIAL - 9.5%
Bucyrus International, Inc.,
9.75%, 2007 5,000 3,650
Carpenter W.R. North America, Inc.,
10.625%, 2007 1,500 1,519
CEX Holdings, Inc.,
9.625%, 2008 3,000 2,640
Foamex Capital Corp., 13.5%, 2005 5,500 5,803
Goss Graphic Systems, Inc.,
12%, 2006 4,625 2,544
High Voltage Energy Corp.,
10.5%, 2004 3,500 3,307
Morris Material Handling, Inc.,
9.5%, 2008 3,250 2,405
Neenah Corp.,
11.125%, 2007, Series B 1,750 1,798
11.125%, 2007, Series E (144A
security acquired Nov 1998 for
$1,552,500)** 1,500 1,541
Outsourcing Services Group, 10.875%,
2006 (144A security acquired
Feb 1998 for 3,525,000)** 3,500 3,325
Vicap, S.A., 11.375%, 2007 2,500 2,162
-------------
30,694
-------------
METALS - 4.5%
Doe Run Resource Corp.,
11.25%, 2005 4,000 3,240
Euramax International PLC,
11.25%, 2006 6,000 6,000
- --------------------------------------------------------------------------------
MARKET
PRINCIPAL VALUE
(000) (000)
- -------------------------------------------------------------------
Gulf States Steel, Inc., 13.5%, 2003 $ 5,000 $ 1,500
Renco Steel Holdings, Inc.,
10.875%, 2005 4,500 4,005
-------------
14,745
-------------
MISCELLANEOUS - 1.7%
Sullivan Graphics, Inc., 12.75%, 2005 5,500 5,583
-------------
RETAIL - 1.1%
Pantry, Inc., 10.25%, 2007 3,500 3,640
-------------
TECHNOLOGY - 3.6%
Convergent Communications, Inc.,
13%, 2008 7,500 3,375
Exodus Communications, Inc.,
11.25%, 2008 2,000 2,010
Fairchild Semiconductor Corp.,
10.125%, 2007 2,000 1,980
Orbital Imaging Corp., 11.625%, 2005 4,250 4,207
-------------
11,572
-------------
TELECOMMUNICATIONS - 24.6%
AMSC Acquisition, Inc.,
12.25%, 2008 3,325 2,012
Centennial Cellular, Inc., 10.75%, 2008
(144A security acquired Dec. 1998
for $3,523,750)** 3,500 3,526
Dobson Communications Corp.,
11.75%, 2007 4,400 4,378
Facilicom International, Inc.,
10.5%, 2008 6,000 4,860
Grupo Iusacell S.A., 10%, 2004 2,000 1,700
Impsat Corp., 12.125%, 2003 3,500 3,080
Iridium L.L.C., 11.25%, 2005 10,500 9,030
Metrocall, Inc., 9.75%, 2007 5,000 4,800
Poland Telecom Finance B.V.,
14%, 2007 2,500 2,300
Price Communications Wireless, Inc.,
11.75%, 2007 8,000 8,560
Primus Telecommunications, Inc.,
11.75%, 2004 5,250 5,434
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
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CIGNA HIGH INCOME SHARES INVESTMENTS IN SECURITIES December 31, 1998 7
(Continued)
MARKET
PRINCIPAL VALUE
(000) (000)
- -------------------------------------------------------------------
RCN Corp., 10%, 2007 $ 3,000 $ 2,798
Talton Holdings, Inc., 11%, 2007 3,500 3,329
Teligent, Inc., 11.5%, 2007 9,500 8,882
Transtel Pass-Thru Trust, 12.5%,
2007 (144A security acquired Oct
and Nov 1997 for $4,170,000)** 4,250 1,828
Versatel Telecom B.V.,
13.25%, 2008 3,550 3,514
Viatel, Inc., 11.25%, 2008 3,000 2,805
Winstar Communications, Inc.,
10%, 2008 5,000 4,050
Winstar Equipment Corp.,
12.5%, 2004 3,000 3,060
-------------
79,946
-------------
TEXTILES - 3.0%
Anvil Knitwear, Inc., 10.875%, 2007 4,500 2,385
Cluett American Corp.,
10.125%, 2008 5,000 4,725
Norton McNaughton, Inc.,
12.5%, 2005 3,000 2,520
-------------
9,630
-------------
TRANSPORTATION - 4.3%
American Commercial Lines L.L.C.,
10.25%, 2008 (144A security
acquired June 1998 for
$4,314,000)** 4,300 4,364
Atlas Air, Inc., 10.75%, 2005 5,385 5,600
Kitty Hawk, Inc., 9.95%, 2004 4,000 3,900
-------------
13,864
-------------
TOTAL BONDS AND NOTES (Cost - $489,951,072) 427,163
-------------
UNITS - 1.7%
ICF Kaiser International, Inc., 13%, ***
2003 (each $1,000 unit includes 4.8
warrants to purchase 1 share of
Common Stock) 5,000 2,500
Versatel Telecom B.V., 13.25%, 2008
(each $1,000 unit includes 1
warrant
to purchase 6.667 shares of
Common Stock) 3,000 3,000
-------------
TOTAL UNITS (Cost - $7,596,195) 5,500
-------------
NUMBER MARKET
OF VALUE
SHARES (000)
- -------------------------------------------------------------------
PREFERRED STOCK - 0.0%
(Cost - $121,340)
Viatel, Inc., Series A 1,525 $ 145
-------------
WARRANTS - 0.2%
American Mobile Satellite Corp.,
Exp. 2008* 3,325 13
Convergent Communications, Inc.,
Exp. 2008* 30,000 -
IHF Capital, Inc., Class A & L,
Exp. 1999* 5,000 2
Metronet Communications Co.,
Class B, Exp. 2007* 4,500 197
NS Group, Inc., Exp. 2003* 4,080 19
Orbital Imaging Corp., Exp. 2005* 4,250 170
Poland Telecom Finance B.V.,
Exp. 2007* 2,500 100
Primus Telecommunications, Inc.,
Exp. 2004* 4,250 53
Versatel Telecom B.V., Exp 2008* 3,550 36
Wireless One, Inc., Exp. 2000* 15,000 -
-------------
TOTAL WARRANTS (Cost - $573,174) 590
-------------
TOTAL INVESTMENTS IN SECURITIES - 133.6%
(Total Cost - $498,241,781) 433,398
Liabilities, Less Cash and Other Assets - (33.6%) (109,109)
-------------
NET ASSETS - 100% (equivalent to $6.39 per
share based on 50,731,263 shares outstanding) $ 324,289
=============
* Non-income producing securities.
** Indicates restricted security; the aggregate fair value of
restricted securities is $45,813,250 (aggregate cost $52,355,980)
which is approximately 14% of net assets.
*** Variable rate security. Rate disclosed is as of December 31, 1998.
-----------------------------------------------------------------
PORTFOLIO COMPOSITION (UNAUDITED)
December 31, 1998
MARKET % OF
QUALITY RATINGS* OF VALUE MARKET
LONG-TERM BONDS (000) VALUE
---------------------------------------------------------------
Ba/BB $23,130 5.3%
B/B 337,519 78.0%
Below B 72,014 16.7%
----------- -------------
$432,663 100.0%
=========== =============
*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 8
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
(IN THOUSANDS)
--------------
ASSETS:
Investments at market value
(Cost - $498,241,781) $ 433,398
Cash on deposit with custodian 15
Interest receivable 14,806
Investment for Trustees' deferred
compensation plan 250
------------
TOTAL ASSETS 448,469
------------
LIABILITIES:
Loan payable 116,000
Dividend payable January 8, 1999 at
$.14 per share 7,102
Accrued interest payable 374
Accrued advisory fees payable 227
Deferred Trustees' fees payable 250
Other accrued expenses (including $62,763
due to affiliate) 227
------------
TOTAL LIABILITIES 124,180
------------
NET ASSETS (Equivalent to $6.39 per share
based on 50,731,263 shares of
beneficial interest outstanding;
unlimited number of shares authorized) $ 324,289
============
COMPONENTS OF NET ASSETS:
Paid in capital $ 424,373
Undistributed net investment income 532
Unrealized depreciation of investments (64,844)
Accumulated net realized loss (35,772)
------------
NET ASSETS $ 324,289
============
- ----------------------------------------------------------------
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
---------------------
INVESTMENT INCOME
INCOME:
Interest $56,159
EXPENSES:
Interest expense $8,814
Investment advisory fees 2,973
Administrative services 156
Custodian fees and expenses 125
Shareholder reports 95
Transfer agent fees and expenses 65
Auditing and legal fees 45
Trustees' fees 31
Other 47 12,351
-------- ------------
NET INVESTMENT INCOME 43,808
------------
REALIZED AND UNREALIZED GAIN/LOSS ON
INVESTMENTS
Net realized gain from
investments 6,022
Unrealized depreciation of investments (81,422)
------------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS (75,400)
------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ (31,592)
============
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA HIGH INCOME SHARES 9
STATEMENT OF CHANGES IN NET ASSETS
YEARS ENDED
DECEMBER 31,
---------------------------
1998 1997
------------ -------------
(IN THOUSANDS)
---------------------------
OPERATIONS:
Net investment income $ 43,808 $ 32,347
Net realized gain from investments 6,022 11,378
Unrealized appreciation
(depreciation) on investments (81,422) 4,714
------------ -------------
Net increase (decrease) in net
assets from operations (31,592) 48,439
------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ($0.8825
per share and $0.864 per share,
respectively) (43,630) (32,173)
------------ -------------
Total distributions to shareholders (43,630) (32,173)
------------ -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from 12,452,266 capital
shares issued pursuant to rights
offering (net of related
expenses of $237,401) 98,260 -
Net increase from 792,574 and
659,812 capital shares issued
to shareholders in reinvestment of
distributions, respectively 5,995 5,490
------------ -------------
Net increase from capital share
transactions 104,255 5,490
------------ -------------
NET INCREASE IN
NET ASSETS 29,033 21,756
NET ASSETS:
Beginning of period 295,256 273,500
------------ -------------
End of period (including undistributed
net investment income of $531,609
and $644,127, respectively) $ 324,289 $ 295,256
============ =============
- --------------------------------------------------------------------
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
------------------
CASH PROVIDED BY FINANCING ACTIVITIES:
Net proceeds from shares issued pursuant to
rights offering $ 98,260
Cash provided by borrowing 17,800
Dividends paid in cash (35,088)
----------------
80,972
CASH USED BY OPERATIONS:
Purchases of portfolio securities 389,526
Proceeds from sales of portfolio securities 269,354
----------------
120,172
----------------
Net Investment Income 43,808
Net change in receivables/payables
related to operations (4,610)
----------------
39,198
----------------
(80,974)
----------------
NET DECREASE IN CASH (2)
CASH, BEGINNING OF PERIOD 17
------------------
CASH, END OF PERIOD $ 15
==================
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA HIGH INCOME SHARES NOTES TO FINANCIAL STATEMENTS 10
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 (Continued) 11
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 year ended December 31, 1998 were $137,811,862 at an
average interest rate of approximately 6.40%. As of December 31, 1998, 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 carrying
out the responsibilities of those offices. For the year ended December 31, 1998,
the Fund paid or accrued $156,191.
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 year ended December 31, 1998 were
$389,526,261 and $269,353,791, respectively.
As of December 31, 1998, the cost of securities for federal income tax purposes
was $498,478,391. At December 31, 1998, unrealized depreciation for Federal
income tax purposes aggregated $65,080,227 of which $5,185,612 related to
appreciated securities and $70,265,839 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 (Continued) 12
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>
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.88 $ 7.43 $ 7.19 $ 6.59 $ 7.54
INCOME FROM INVESTMENT OPERATIONS
Net investment income (1) 0.88 0.87 0.85 0.84 0.86
Net realized and unrealized gains (losses) (1.49) 0.44 0.29 0.60 (0.91)
------ ----- ----- ----- ------
TOTAL FROM INVESTMENT OPERATIONS (0.61) 1.31 1.14 1.44 (0.05)
------ ----- ----- ----- ------
LESS DISTRIBUTIONS:
Distributions from net investment income (0.88) (0.86) (0.90) (0.84) (0.88)
Distributions in excess of net investment income - - - - (0.02)
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (0.88) (0.86) (0.90) (0.84) (0.90)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 6.39 $ 7.88 $ 7.43 $ 7.19 $ 6.59
======== ======== ======== ======== =======
MARKET VALUE, END OF PERIOD $ 7.25 $ 8.44 $ 8.38 $ 7.88 $ 7.00
======== ======== ======== ======== =======
TOTAL INVESTMENT RETURN:
Per share market value (3.35)% 11.65% 19.25% 26.24% (5.43)%
Per share net asset value (2) (8.31)% 18.58% 16.70% 22.93% (0.76)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $ 324,289 $ 295,256 $ 273,500 $ 259,773 $ 233,454
Ratio of expenses to average net assets
(includes interest expense) 3.40% 3.28% 3.35% 3.80% 3.27%
Ratio of net expenses to average net assets
(excludes interest expense) 0.97% 1.06% 1.07% 1.12% 1.17%
Ratio of net investment income to average net assets 12.05% 11.28% 11.60% 12.03% 12.33%
Portfolio turnover 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.
<PAGE>
- --------------------------------------------------------------------------------
CIGNA HIGH INCOME SHARES NOTES TO FINANCIAL STATEMENTS (Continued) 13
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
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 14,245 0.28 11,388 0.22 7,484 0.15 6,418 0.10
</TABLE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of CIGNA High Income Shares
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations, of cash
flows and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of CIGNA High Income Shares
(the "Fund") at December 31, 1998, the results of its operations and cash flows
for the year then ended, the changes in its net assets and the financial
highlights for each of the years indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 1999
<PAGE>
- --------------------------------------------------------------------------------
14
1998 TAX INFORMATION (UNAUDITED)
During 1998, the Fund declared ordinary income dividends of $0.8825 per share.
There were no capital gain distributions. The $0.14 distribution which was
declared in December 1998 (which includes the regular monthly dividend of 6.75
cents and an extra year end amount of 7.25 cents) complied with a provision in
the Internal Revenue Code which requires the Company to satisfy certain
distribution requirements for a calendar year. Such distributions must be
declared prior to December 31 and paid prior to the following January 31. Please
note that the December 1998 distribution is still considered 1998 taxable
income, even though received in 1999, which is consistent with the treatment of
the December 1997 distribution (paid on January 9, 1998) that was considered
1997 taxable income. Dividends reported to you on Form 1099, whether received as
stock or cash, must be included in your Federal income tax return and must be
reported by the Fund to the Internal Revenue Service.
AUTOMATIC DIVIDEND AND DISTRIBUTION INVESTMENT PLAN
Shareholders may elect to have all distributions of dividends and capital gains
automatically reinvested by State Street Bank and Trust Company (the "Dividend
Paying Agent") as plan agent under the Automatic Dividend and Distribution
Investment Plan (the "Plan"). Shareholders who do not elect to participate in
the Plan will receive all distributions from the Fund in cash paid by check
mailed directly to the shareholder by the Dividend Paying Agent. Shareholders
may elect to participate in the Plan and to have all distributions of dividends
and capital gains automatically reinvested by sending written instructions to
the Dividend Paying Agent at the address set forth below.
If the Trustees of the Fund declare a dividend or determine to make a capital
gains distribution payable either in shares of the Fund or in cash, as
shareholders may have elected, non-participants in the Plan will receive cash
and participants in the Plan will receive the equivalent in shares. If the
market price of the shares as of the close of business on the payment date for
the dividend or distribution is equal to or exceeds their net asset value as
determined as of the close of business on the payment date, participants will be
issued shares of the Fund at a value equal to the higher of net asset value or
95% of the market price. If net asset value exceeds the market price of the
shares at such time, or if the Fund declares a dividend or other distribution
payable only in cash, the Dividend Paying Agent will, as agent for Plan
participants, buy shares in the open market, on the New York Stock Exchange or
elsewhere, for the participants' accounts. If, before the Dividend Paying Agent
has completed its purchases, the market price exceeds the net asset value of the
shares, the average per share purchase price paid by the Dividend Paying Agent
may exceed the net asset value of the shares, resulting in the acquisition of
fewer shares than if the dividend or distribution had been paid in shares issued
by the Fund.
Participants in the Plan may withdraw from the Plan upon written notice to the
Dividend Paying Agent. When a participant withdraws from the Plan or upon
termination of the Plan as provided below, certificates for the whole shares
credited to his account under the Plan will be issued and a cash payment will be
made for any fraction of a share credited to such account.
The Dividend Paying Agent will maintain all shareholders' accounts in the Plan
and will furnish written confirmation of all transactions in the account,
including information needed by shareholders for tax records. Shares in the
account of each Plan participant (other than participants whose shares are
registered in the name of banks, brokers, nominees or other third parties) will
be held by the Dividend Paying Agent in the non-certificated form in the name of
the participant, and each shareholder's proxy will include those shares
purchased pursuant to the Plan. At no additional cost, shareholders of the Fund
may send to the Dividend Paying Agent for deposit into their Plan account those
share certificates in their possession. Shareholders may also send share
certificates to the Dividend Paying Agent for the Dividend Paying Agent to hold
in a book-entry account outside of the Plan.
Whether or not shareholders participate in the Plan, they may elect by notice to
the Dividend Paying Agent to have the Dividend Paying Agent sell their
noncertificated book-entry shares. The Dividend Paying Agent will deduct from
the sale proceeds $2.50 per transaction plus $0.15 per share and remit the
balance of the sales proceeds to the share-
<PAGE>
- --------------------------------------------------------------------------------
CIGNA HIGH INCOME SHARES 15
holder. The Dividend Paying Agent will sell the noncertificated shares on the
first trading day of the week immediately following receipt of written
notification by the Dividend Paying Agent.
In the case of shareholders such as banks, brokers or nominees which hold shares
for others who are the beneficial owners, the Dividend Paying Agent will
administer the Plan on the basis of number of shares certified from time to time
by the record shareholders as representing the total amount registered in the
record shareholder's name and held for the account of beneficial owners who are
to participate in the Plan. Investors whose shares are held in the name of
banks, brokers or nominees should confirm with such entities that participation
in the Plan will be possible, and should be aware that they may be unable to
continue to participate in the Plan if their account is transferred to another
bank, broker or nominee. Those who do participate in the Plan may subsequently
elect not to participate by notifying such entities.
There is no charge to participants for reinvesting dividends or distributions,
except for certain brokerage commissions, as described below. The Dividend
Paying Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Fund. However, each participant will pay a pro
rata share of brokerage commissions incurred with respect to the Dividend Paying
Agent's open market purchases in connection with the reinvestment of dividends
or distributions.
Participants in the Plan should be aware that they will realize capital gains
and income for tax purposes upon dividends and distributions although they will
not receive any payment of cash.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan as applied to any
dividend or distribution paid subsequent to written notice of the change sent to
the participants in the Plan at least 90 days before the record date for such
dividend or distribution. The Plan also may be amended or terminated by the
Dividend Paying Agent on at least 90 days' written notice to participants in the
Plan. All correspondence concerning the Plan including requests for additional
information or an application brochure or general inquires about your account
should be directed to State Street Bank and Trust Company, Stock Transfer
Department, P.O. Box 8200, Boston, MA 02266-8200 or you may call toll-free
1-800-426-5523.
- --------------------------------------------------------------------------------
CIGNA HIGH INCOME SHARES
<TABLE>
<CAPTION>
<S> <C> <C>
TRUSTEES Thomas C. Jones OFFICERS
Hugh R. Beath PRESIDENT, CIGNA INVESTMENT Richard H. Forde
ADVISORY DIRECTOR, MANAGEMENT AND CIGNA CHAIRMAN OF THE BOARD
ADMEDIA CORPORATE ADVISORS, INC. INVESTMENTS, INC. AND PRESIDENT
Paul J. McDonald
Richard H. Forde SENIOR EXECUTIVE VICE PRESIDENT
SENIOR MANAGING DIRECTOR, AND CHIEF ADMINISTRATIVE OFFICER, Alfred A. Bingham III
CIGNA INVESTMENTS, INC. FRIENDLY ICE CREAM CORPORATION VICE PRESIDENT AND TREASURER
Russell H. Jones
VICE PRESIDENT AND TREASURER, Alan C. Petersen
KAMAN CORPORATION VICE PRESIDENT
Jeffrey S. Winer
VICE PRESIDENT AND SECRETARY
</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.
<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 ANNUAL REPORT
PERMIT 750
- --------------------
DECEMBER 31, 1998
[CIGNA TREE LEAVES GRAPHIC APPEARS IN BACKGROUND OF COVER]
