<PAGE>
________________________________________________________________________________
1
DEAR SHAREHOLDERS:
We are pleased to provide this report for CIGNA High Income Shares (the "Fund"),
covering the nine months ended September 30, 2000.
HIGH YIELD MARKET
The fixed income markets outperformed stocks for the quarter and year to date,
as measured by the Lehman Brothers Aggregate Bond Index returns of 3.01% and
7.12% versus the Wilshire 5000 Stock Index returns of -0.04% and -1.44% for the
respective periods.
High yield bonds, as measured by the Lehman Brothers High Yield Bond Index (the
"Index"), returned a positive 0.57% for the third quarter. This lagged other
fixed income sectors, including investment grade corporates and Treasuries which
posted 3.04% and 2.59% quarterly returns, as measured by their respective Lehman
Brothers Bond Indexes. For the year-to-date period, the high yield sector
returned -0.65% compared with 5.80% for investment grade corporates and 8.10%
for Treasuries.
Ten-year Treasury yields declined 23 basis points during the period to 5.80%,
however, average yields on high yield bonds, as represented by the Index, rose
32 basis points to 12.60%. Thus the quality spread for the Index widened 55
basis points during the quarter, and is now at a spread of 680 basis points,
surpassing the levels of the 1998 financial crisis and is at its widest point
since 1991.
The high yield market continues to suffer from rising interest rates, higher
default rates and weak demand conditions. Additionally, the economy has entered
a period of inventory correction. The Fed's effort to slow down the economy by
increasing interest rates six times since June 1999 has put pressure on stock
prices, making it difficult to generate investor interest in fixed income
assets. Bond rating downgrades continue to outpace upgrades by a wide margin.
Domestic default rates, while down slightly to about 3.8% on a latest 12-month
basis, are still at historically high levels. This level of downgrades and
defaults heightened credit concerns among investors during the quarter,
especially as the number of corporate issuers pre-announcing negative earnings
surprises increased significantly in September. The high default rate can be
attributed to a significant extent to the tremendous volume of new issues in
1997 and 1998 having performed below expectations combined with the ongoing lack
of pricing power in many product categories.
Finally, demand for high yield has remained low. Weaker demand resulted in a
lower volume of new issuance, which so far in 2000 is approximately $43 billion,
about one-half the volume of the first nine months in 1999.
STRATEGY
In order to improve overall portfolio yield and liquidity we utilized a strategy
of selling low coupon, lower yielding issues that we deemed to be undervalued.
We re-invested the proceeds in higher yielding securities that we judged to be
undervalued. This strategy enabled us to increase the portfolio's current income
without giving up much in terms of credit quality. Issues sold yielded in the
range of 8.50% to 9.75%. Credits eliminated from the portfolio were in the
telecommunications, gaming, utilities and semi-conductor segments. Issues
yielding in the 10.90% to 16.50% range were purchased in the lodging,
industrial, services and wireless telecommunications sectors. We plan to extend
this strategy into the fourth quarter.
As a result of other strategy decisions, we maintained our sector overweights in
emerging markets, industrials, technology, and transportation services.
Underweighted industries relative to the Index were telecom, wireless
communications, cable TV, broadcast and media, electric utilities, energy, and
healthcare. Our weighting in mid-tier credits (Bs) was kept at about 83%, still
above the Index weighting of 56%.
As a consequence of our current income enhancement strategy, the overall credit
quality of the portfolio was unchanged at an average mid single B rating, while
the current yield increased about 90 basis points. The Fund's average duration
was also shortened from 4.3 years at June 30 to 4.2 years at September 30
compared with the Index duration of 4.6 years. The Fund remains broadly
diversified in 104 companies at quarter-end. The Fund's leverage during the
quarter remained below 33% of assets and was 29% at quarter-end.
<PAGE>
________________________________________________________________________________
2
PERFORMANCE
CIGNA High Income Shares had disappointing performance in the third quarter and
year to date. Based on net asset value, the Fund's total returns were -5.66% and
-9.69%, respectively, for the quarter and first nine months of the year compared
with the Index, which returned 0.57% and -0.65%, respectively, for the same
periods.
The Fund's weak performance was primarily due to credit problems in the CLEC
(Competitive Local Exchange Carriers), internet/data, and international wireline
sectors. Several bond issuers experienced severe price drops as various
companies in these sectors announced that they would not meet analysts' revenue
and cash flow projections, lowering expectations for future key results.
Growing concerns about management quality and companies' abilities to raise
needed capital to complete their business plans also contributed to the weakness
in security prices. These severe price losses were only partially offset by
favorable performance in the gaming, aerospace and textile sectors, and two
positive takeover events. Returns for the quarter and year-to-date based on the
market value of the Fund's shares traded on the New York Stock Exchange were
-10.12% and 1.72%, respectively
OUTLOOK
The outlook for the high yield market is uncertain. The asset class remains
cheap on a historical valuation basis, but has been attractively valued for some
time. Corporate earnings, Fed policy, default trends, and technical market
conditions will drive near-term performance.
Recent economic data have shown that the economy is slowing and that an
inventory correction is underway at wholesale and retail levels. This
environment has caused cyclical sectors such as steels, autos, and chemicals,
along with retail and consumer products to underperform. Sectors such as energy,
gaming, and utilities have been in favor, as have higher quality high yield
bonds (BBs). If final demand remains robust enough to support 3 to 4% GDP (Gross
Domestic Product) growth for the foreseeable future, we anticipate a reversal of
these trends and an improvement in the high yield market's performance,
providing it becomes clear that the inventory correction has run its course.
This scenario assumes that the Fed does not raise interest rates any further.
Default rates have shown a slightly downward trend in recent months but remain
at historically high levels. Absent significant future defaults among
telecommunications issuers and a significant change in the economic environment,
it is likely that we have seen the peak in default rates for this credit cycle.
Because an improvement in the market's technical conditions is unlikely in the
near future, any market rally is expected to be limited in scope. Additionally,
there is a large calendar of new issues ready to be brought to market that will
limit upside potential, and liquidity provided by Wall Street broker/dealers
will continue to decline due to announced mergers. Other factors affecting the
high yield market outlook include individual investors, who are still enamored
with stocks despite their lackluster performance so far in 2000 and the
hesitancy of pension consultants to recommend the high yield asset class.
Sincerely,
/s/ Richard H. Forde
Richard H. Forde
CHAIRMAN OF THE BOARD AND PRESIDENT
CIGNA HIGH INCOME SHARES
<PAGE>
________________________________________________________________________________
CIGNA HIGH INCOME SHARES INVESTMENTS IN SECURITIES September 30, 2000 3
(Unaudited)
MARKET
PRINCIPAL VALUE
(000) (000)
-------------------------------------------------------------------
BONDS AND NOTES - 134.9%
AEROSPACE AND DEFENSE - 3.4%
BE Aerospace, Inc., 9.875%, 2006 $ 4,000 $ 3,960
Hexcel Corp., 9.75%, 2009 5,050 4,697
-------------
8,657
-------------
AUTO AND TRUCK - 2.8%
Collins & Aikman Products Co.,
11.5%, 2006 4,000 3,880
Federal Mogul Corp., 7.5%, 2004 1,375 578
Tenneco Automotive, Inc.,
11.625%, 2009 4,000 2,560
-------------
7,018
-------------
BROADCASTING AND MEDIA - 7.6%
American Lawyer Media, Inc.,
9.75%, 2007 4,500 4,264
Innova S DE R.L., 12.875%, 2007 4,600 4,370
Lodgenet Entertainment Corp.,
10.25%, 2006 3,000 2,940
Lodgian Fing Corp., 12.25%, 2009 4,200 3,570
Ziff Davis Media, Inc., 12%, 2010
(144A security acquired July & Sep.
2000 for $4,051)** 4,000 3,960
-------------
19,104
-------------
CABLE TV - 6.7%
Cablevision S.A., 13.75%, 2007 3,500 3,159
Charter Communications, Inc.,
10.25%, 2010 4,000 3,910
International Cabletel, Inc.,
12.75%, 2005*** 2,750 2,812
Multicanal, S.A.,
13.125%, 2009 Series E 2,450 2,181
United Pan Europe Communications N.V.
11.25%, 2010 5,500 4,840
-------------
16,902
-------------
CHEMICALS - 2.1%
Brunner Mond Group PLC,
11%, 2008 3,000 780
Great Lakes Carbon Corp.,
10.25%, 2008 1,350 608
Huntsman ICI Chemicals, Inc.,
10.125%, 2009 4,000 3,920
-------------
5,308
-------------
CONSUMER PRODUCTS AND SERVICES - 4.8%
Desa International, Inc., 9.875%, 2007 2,750 2,008
Jostens, Inc., 12.75%, 2010 4,350 4,481
Samsonite Corp., 10.75%, 2008 5,350 4,227
United Industries Corp.,
9.875%, 2009 3,050 1,411
-------------
12,127
-------------
MARKET
PRINCIPAL VALUE
(000) (000)
-------------------------------------------------------------------
CONTAINERS AND PAPER - 9.9%
Gaylord Container Corp.,
9.875%, 2008 $ 6,000 $ 2,700
Huntsman Packaging Corp.,
13%, 2010 (144A security acquired
May 2000 for $3,465)** 3,700 3,312
Indah Kiat Finance Mauritius Ltd.,
10%, 2007 8,000 3,920
Packaging Corp., 9.625%, 2009 4,000 4,040
Pindo Deli Finance Mauritius Ltd.,
10.75%, 2007 4,800 2,448
Riverwood International Corp.,
10.625%, 2007 4,000 3,803
10.875%, 2008 2,000 1,860
Tjiwi Kimia Finance Mauritius Ltd.,
10%, 2004 4,950 2,871
-------------
24,954
-------------
ELECTRONICS AND ELECTRICAL EQUIPMENT - 9.8%
Amkor Technology, Inc.,
10.5%, 2009 4,400 4,444
Dictaphone Corp., 11.75%, 2005 2,465 2,483
Fairchild Semiconductor Corp.,
10.125%, 2007 2,625 2,625
10.375%, 2007 2,500 2,525
International Wire Group, Inc.,
11.75%, 2005, 5,800 5,844
Viasystems, Inc.,
9.75%, 2007 5,500 5,115
9.75%, 2007, Series B 1,700 1,581
-------------
24,617
-------------
ENTERTAINMENT - 7.5%
American Skiing Co., 12%, 2006 5,250 4,305
Booth Creek Ski Holdings, Inc.,
12.5%, 2007 4,250 3,188
Hollywood Park, Inc., 9.25%, 2007 4,075 4,157
Premier Parks, Inc., 9.75%, 2007 3,500 3,290
Station Casinos, Inc.,
10.125%, 2006 1,000 1,006
9.875%, 2010 (144A security
acquired June 2000 for $2,988)** 3,000 3,004
-------------
18,950
-------------
FINANCIAL - 3.4%
Dollar Financial Group, Inc.,
10.875%, 2006 4,150 4,026
Labranche & Co., Inc., 12%, 2007 4,150 4,420
-------------
8,446
-------------
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
________________________________________________________________________________
CIGNA HIGH INCOME SHARES INVESTMENTS IN SECURITIES September 30, 2000 4
(Unaudited) (Continued)
MARKET
PRINCIPAL VALUE
(000) (000)
-------------------------------------------------------------------
FOOD AND BEVERAGES - 10.8%
Agrilink Foods, Inc., 11.875%, 2008 $ 4,000 $ 3,040
Chiquita Brands International, Inc.,
10.25%, 2006 2,895 2,099
9.625%, 2004 1,240 905
Di Giorgio Corp., 10%, 2007 4,000 3,520
Fleming Cos., Inc.,
10.625%, 2001 4,500 4,472
Grupo Azucarero Mexico S.A.,
11.5%, 2005+ 2,175 870
Imperial Holly Corp., 9.75%, 2007 5,000 900
Mastellone Hermonos S.A.,
11.75%, 2008 3,250 2,470
Premier International Foods PLC,
12%, 2009 4,500 3,735
Stater Brothers Holdings, Inc.,
10.75%, 2006 4,100 3,444
Vlasic, Inc., 10.25%, 2009 3,050 1,678
-------------
27,133
-------------
HEALTH CARE - 1.3%
Express Scripts, Inc., 9.625%, 2009 3,000 3,000
Mediq, Inc., 11%, 2008+ 6,500 195
-------------
3,195
-------------
INDUSTRIAL - 8.8%
Blount, Inc., 13%, 2009 6,150 6,319
Foamex Capital Corp., 13.5%, 2005 5,500 4,510
Flowserve Corp., 12.25%, 2010
(144A security acquired Aug. 2000
for $986)** 1,000 1,025
Goss Graphics Systems, Inc.,
12.25%, 2005 2,454 810
Grove Worldwide L.L.C.,
9.25%, 2008 4,400 440
High Voltage Energy Corp.,
10.5%, 2004 2,000 1,300
ICF International Inc., 13%, 2003***+ 5,000 1,750
Neenah Corp.,
11.125%, 2007, Series B 2,650 2,054
11.125%, 2007, Series E (144A
security acquired Nov. 1998 for
$1,553)** 1,500 1,162
Outsourcing Services Group, Inc.,
10.875%, 2006 3,500 2,870
-------------
22,240
-------------
METALS - 3.1%
Doe Run Resource Corp.,
11.25%, 2005 4,000 2,000
Kaiser Aluminium & Chemicals Corp.,
10.875%, 2006 940 926
MARKET
PRINCIPAL VALUE
(000) (000)
-------------------------------------------------------------------
METALS - (CONTINUED)
Murin Murin Holdings Ltd.,
9.375%, 2007 $ 1,325 $ 1,140
Renco Steel Holdings, Inc.,
10.875%, 2005 5,850 3,803
-------------
7,869
-------------
MISCELLANEOUS - 9.6%
Allied Waste North America, Inc.,
10%, 2009 6,500 5,655
American Color Graphics, Inc.,
12.75%, 2005 5,500 5,455
Buhrmann U.S., Inc., 12.25%, 2009 4,800 4,968
United Rentals, Inc.,
9%, 2009 3,750 3,300
9.25%, 2009 1,350 1,201
Williams Scottman, Inc.,
9.875%, 2007 4,000 3,510
-------------
24,089
-------------
RETAIL - 1.3%
Jo Ann Stores, Inc., 10.375%, 2007 4,000 3,300
-------------
TECHNOLOGY - 4.2%
Exodus Communications, Inc.,
11.25%, 2008 4,800 4,728
10.75%, 2009 500 484
Orbital Imaging Corp., 11.625%, 2005 4,250 1,487
PSI Net, Inc.,
10.5%, 2006 2,360 1,558
11%, 2009 3,490 2,269
-------------
10,526
-------------
TELECOMMUNICATIONS - 20.9%
Alestra S DE R.L., 12.125%, 2006 6,000 5,835
Caprock Communications Corp.,
12.%, 2008 3,430 2,161
11.5%, 2009 1,000 620
Dobson Communications Corp.,
10.875%, 2010 5,000 4,850
Energis PLC., 9.75%, 2009 2,500 2,400
Hyperion Telecommunications, Inc.,
12.%, 2007 5,920 3,848
KMC Telecom Holdings, Inc.,
13.5%, 2009 3,400 2,346
Nextlink Communications, Inc.,
10.75%, 2008 1,500 1,380
10.5%, 2009 2,450 2,229
Poland Telecom Finance B.V.,
14%, 2007 + 3,000 -
Primus Telecommunications, Inc.,
11.75%, 2004 5,250 2,730
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
________________________________________________________________________________
CIGNA HIGH INCOME SHARES INVESTMENTS IN SECURITIES September 30, 2000 5
(Unaudited) (Continued)
MARKET
PRINCIPAL VALUE
(000) (000)
-------------------------------------------------------------------
RSL Communications PLC.,
12.25%, 2006 $ 1,375 $ 413
10.5%, 2008 4,750 1,187
Spectrasite Holdings, Inc.,
10.75%, 2010 4,200 3,969
Talton Holdings, Inc., 11%, 2007 2,800 2,324
Transtel Pass-Thru Trust,
12.5%, 2007 4,250 1,700
Versatel Telecom B.V.,
13.25%, 2008 5,550 4,995
Williams Communications, Inc.,
10.875%, 2009 6,000 5,475
World Access, Inc., 13.25%, 2008 5,200 4,056
-------------
52,518
-------------
TEXTILES - 3.0%
Cluett American Corp.,
10.125%, 2008 5,000 4,000
Delta Mills, Inc., 9.625%, 2007 740 668
Norton McNaughton, Inc.,
12.5%, 2005 3,000 2,730
-------------
7,398
-------------
TRANSPORTATION - 6.8%
American Commercial Lines L.L.C.,
10.25%, 2008 4,300 3,655
Atlas Air, Inc., 10.75%, 2005 5,885 6,054
Avis Rent A Car, Inc., 11%, 2009 4,725 5,318
Budget Group, Inc., 9.125%, 2006 3,035 2,155
-------------
17,182
-------------
WIRELESS COMMUNICATIONS - 7.1%
Centennial Cellular, Inc.,
10.75%, 2008 3,835 3,739
Crown Castle International Corp.,
10.75%, 2011 2,000 2,040
Grupo Isuacell S.A.,
14.25%, 2006 3,250 3,445
Metrocall, Inc., 9.75%, 2007 5,000 3,200
Telecorp PCS, Inc., 10.625%, 2010
(144A security acquired July 2000
for $1,800)** 1,800 1,818
Winstar Communications, Inc.,
12.5%, 2008 (144A security acquired
March 2000 for $5,038)** 5,000 3,550
-------------
17,792
-------------
TOTAL BONDS AND NOTES
(Cost - $424,392) 339,325
-------------
MARKET
SHARES VALUE
(000) (000)
-------------------------------------------------------------------
COMMON STOCKS - 0.1%
Goss Graphic Systems Inc., Class B $ 64 $ 129
World Access, Inc. 16 88
-------------
TOTAL STOCKS
(Cost - $329) 217
-------------
WARRANTS - 0.9%
Convergent Communications, Inc., Exp. 2008* 30 127
Huntsman Packaging Corp., Exp. 2010* 4 -
Orbital Imaging Corp., Exp. 2005* 4 85
Poland Telecom. Finance B.V., Exp. 2007* 3 -
Primus Telecommunications, Inc., Exp. 2004* 4 23
Versatel Telecom B.V., Exp 2008* 7 2,030
Wireless One, Inc., Exp. 2000* 15 -
-------------
TOTAL WARRANTS
(Cost - $377) 2,265
-------------
TOTAL INVESTMENTS IN SECURITIES - 135.9%
(Total Cost - $425,098) 341,807
Liabilities, Less Cash and Other Assets - (35.9%) (90,300)
-------------
NET ASSETS - 100%
(equivalent to $4.83 per Share based on 52,109
shares outstanding) $ 251,507
=============
--------------------------------------------------------------
PORTFOLIO COMPOSITION (UNAUDITED)
September 30, 2000
MARKET % OF
QUALITY RATINGS* OF VALUE MARKET
LONG-TERM BONDS (000) VALUE
--------------------------------------------------------------
Ba/BB $30,342 8.9%
B/B 280,616 82.7%
Below B 28,367 8.4%
------------ ------------
$339,325 100.0%
============ ============
*The higher of Moody's or Standard & Poor's Ratings.
-----------------------------------------------------------------
* Non-income producing securities.
** Indicates restricted security; the aggregate fair value of restricted
securities is $17,830,750 (aggregate cost $19,880,675) which is
approximately 7% of net assets.
*** Variable rate security. Rate disclosed is as of September 30, 2000.
+ 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
SEPTEMBER 30, 2000 (UNAUDITED)
(IN THOUSANDS)
--------------
ASSETS:
Investments at market value
(Cost - $425,098) $ 341,807
Cash on deposit with Custodian 37
Interest receivable 14,562
Receivable for investments sold 4,761
Investment for Trustees' deferred
compensation plan 305
------------
TOTAL ASSETS 361,472
------------
LIABILITIES:
Payable for investments purchased 4,828
Loan payable 100,400
Dividend payable October 10, 2000 at
$0.0575 per share 2,996
Accrued interest payable 1,160
Deferred Trustees' fees payable 305
Accrued advisory fees payable 179
Other accrued expenses (including $14
due to affiliate) 97
------------
TOTAL LIABILITIES 109,965
------------
NET ASSETS (Equivalent to $4.83 per share
based on 52,109 shares of beneficial
interest outstanding; unlimited number
of shares authorized) $ 251,507
============
COMPONENTS OF NET ASSETS:
Paid in capital $ 404,739
Overdistributed net investment income (359)
Unrealized depreciation of investments (83,291)
Accumulated net realized loss (69,582)
------------
NET ASSETS $ 251,507
============
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
(IN THOUSANDS)
---------------------
INVESTMENT INCOME
INCOME:
Interest $36,280
EXPENSES:
Interest expense $6,262
Investment advisory fees 1,849
Administrative services 99
Custodian fees and expenses 77
Shareholder reports 68
Auditing and legal fees 45
Transfer agent fees and expenses 38
Trustees' fees 24
Other 45 8,507
-------- -----------
NET INVESTMENT INCOME 27,773
-----------
REALIZED AND UNREALIZED GAIN/LOSS ON
INVESTMENTS
Net realized loss from investments (23,507)
Unrealized depreciation of investments (33,025)
-----------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS (56,532)
-----------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ (28,759)
===========
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
________________________________________________________________________________
CIGNA HIGH INCOME SHARES 7
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
2000 1999
---------------- ---------------
(IN THOUSANDS)
----------------------------------
OPERATIONS:
Net investment income $ 27,773 $ 41,408
Net realized loss from investments (23,507) (40,375)
Unrealized appreciation (depreciation)
on investments (33,025) 14,578
---------------- ---------------
Net increase (decrease) in net
assets from operations (28,759) 15,611
---------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ($0.55
per share and $0.82 per share,
respectively) (28,040) (42,033)
---------------- ---------------
Total distributions to shareholders (28,040) (42,033)
---------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Capital contribution by Adviser - 1,615
Net increase from 529,418 and
848,146 capital shares issued to
shareholders in reinvestment of
distributions, respectively 2,954 5,870
---------------- ---------------
Net increase from capital share
transactions 2,954 7,485
---------------- ---------------
NET DECREASE IN NET ASSETS (53,845) (18,937)
NET ASSETS:
Beginning of period 305,352 324,289
---------------- ---------------
End of period (including
overdistributed net investment
income of $359 and $92,
respectively) $ 251,507 $ 305,352
================ ===============
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
(IN THOUSANDS)
----------------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES:
Cash provided by borrowing $ (5,555)
Dividends paid in cash (26,089)
-------------
Total amount used (31,644)
-------------
CASH PROVIDED (USED) BY OPERATIONS:
Purchases of portfolio securities (123,575)
Proceeds from sales of portfolio securities 128,232
-------------
Total amount used 4,657
-------------
Net Investment Income 27,773
Net change in receivables/payables
related to operations (750)
-------------
Total other amounts 27,023
-------------
Net Increase in Cash 36
Cash, Beginning of Period 1
--------------
Cash, End of Period $ 37
==============
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
________________________________________________________________________________
CIGNA HIGH INCOME SHARES 8
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
9 MOS.
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
2000 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD $ 5.92 $ 6.39 $ 7.88 $ 7.43 $ 7.19 $ 6.59
INCOME FROM INVESTMENT OPERATIONS
Net investment income (3) 0.54 0.81 0.88 0.87 0.85 0.84
Net realized and unrealized gains (losses) (1.08) (0.46) (1.49) 0.44 0.29 0.60
------- ------- ------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS (0.54) 0.35 (0.61) 1.31 1.14 1.44
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Distributions from net investment income (0.55) (0.82) (0.88) (0.86) (0.90) (0.84)
TOTAL DISTRIBUTIONS (0.55) (0.82) (0.88) (0.86) (0.90) (0.84)
------- ------- ------- ------- ------- --------
NET ASSET VALUE, END OF PERIOD $ 4.83 $ 5.92 $ 6.39 $ 7.88 $ 7.43 $ 7.19
========= ========= ======== ========= ======== ========
MARKET VALUE, END OF PERIOD $ 4.94 $ 5.38 $ 7.25 $ 8.44 $ 8.38 $ 7.88
========= ========= ======== ======== ======== ========
TOTAL INVESTMENT RETURN:
Per share market value 1.72% (1) (16.18)% (3.35)% 11.65% 19.25% 26.24%
Per share net asset value (4) (9.69)%(1) 5.78% (8.31)% 18.58% 16.70% 22.93%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $ 251,507 $305,352 $324,289 $295,256 $273,500 $259,773
Ratio of expenses to average net assets
(includes interest expense) 4.02% (2) 3.40% 3.40% 3.28% 3.35% 3.80%
Ratio of expenses to average net assets
(excludes interest expense) 1.06% (2) 1.02% 0.97% 1.06% 1.07% 1.12%
Ratio of net investment income to average net
assets 13.12% (2) 13.05% 12.05% 11.28% 11.60% 12.03%
Portfolio turnover 32% (1) 49% 56% 74% 78% 60%
</TABLE>
(1) Not annualized.
(2) Annualized.
(3) Net investment income per share has been calculated in accordance with SEC
requirements, with the exception that end of the year Accumulated
undistributed/(overdistributed) net investment income has not been adjusted
to reflect current year permanent Differences between financial and tax
accounting.
(4) 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.
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
________________________________________________________________________________
CIGNA HIGH INCOME SHARES NOTES TO FINANCIAL STATEMENTS (Unaudited) 9
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 accounting principles generally accepted in the United States
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 accreted 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) 10
(Continued)
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 31, 2002. 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 or at fixed rates as may be
agreed to between the Fund and the lender. The average borrowings outstanding
during the nine months ended September 30, 2000 were $111,738,207 at an average
interest rate of approximately 7.49%. As of September 30, 2000, the Fund was
paying interest at an average annual rate of 7.64% on its outstanding
borrowings.
3. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES. Investment
advisory fees were paid or accrued to TimesSquare Capital Management, Inc.
("TimesSquare"), 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.
For administrative services, the Fund reimburses TimesSquare 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 nine months ended September 30, 2000, the Fund paid or accrued
$98,914. On February 24, 1999, the Fund received a capital contribution of
$1,615,306 from its Advisor 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 nine months ended September 30, 2000
were $123,574,783 and $128,232,052, respectively.
As of September 30, 2000, the cost of securities for federal income tax purposes
was $425,098,269. At September 30, 2000, net unrealized depreciation for federal
income tax purposes aggregated $83,290,877 of which $5,005,071 related to
appreciated securities and $88,295,948 related to depreciated securities.
6. CAPITAL LOSS CARRYOVER. At December 31, 1999, the Fund had a capital loss
carryover for federal income tax purposes of $34,135,912 of which $3,704,377,
$1,753,142 and $28,678,393 expire in 2000, 2003 and 2007, respectively. On
December 31, 1999, a capital loss carryover in the amount of $35,528,808 expired
resulting in a permanent adjustment between additional paid in capital and
accumulated net realized loss. 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.
<PAGE>
________________________________________________________________________________
CIGNA HIGH INCOME SHARES NOTES TO FINANCIAL STATEMENTS (Unaudited) 11
(Continued)
7. 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, 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 11,324 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)
September 30, 1999 12,995 0.25 10,353 0.20 (18,435) (0.36) (17,043) (0.36)
December 31, 1999 11,853 0.23 9,007 0.17 2,670 0.05 1,622 0.03
March 31, 2000 12,370 0.24 9,529 0.19 (16,227) (0.31) (14,875) (0.32)
June 30, 2000 12,297 0.24 9,647 0.19 (16,251) (0.31) (15,552) (0.30)
September 30, 2000 11,613 0.22 8,597 0.16 (24,054) (0.46) (23,418) (0.47)
_________________________________________________________________________________________________________________________
</TABLE>
CIGNA HIGH INCOME SHARES
<TABLE>
<CAPTION>
TRUSTEES OFFICERS
<S> <C> <C>
Thomas C. Jones
PRESIDENT, CIGNA RETIREMENT AND
Hugh R. Beath INVESTMENT SERVICES AND CHAIRMAN OF THE Richard H. Forde
ADVISORY DIRECTOR BOARD, TIMESSQUARE CAPITAL MANAGEMENT, CHAIRMAN OF THE BOARD
ADMEDIA CORPORATE ADVISORS, INC. INC. AND PRESIDENT
Richard H. Forde Paul J. McDonald
SENIOR MANAGING DIRECTOR SPECIAL ADVISOR TO THE BOARD OF DIRECTORS Alfred A. Bingham III
TIMESSQUARE CAPITAL MANAGEMENT, 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 TimesSquare Capital Management, 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, Stock Transfer
Department, P.O. Box 8200, Boston, MA, 02266-8200, or call 1.800.426.5523.
<PAGE>
[CIGNA TREE LOGO GRAPHIC APPEARS HERE/R/]
CIGNA
CIGNA High Income Shares [CIGNA TREE LEAVES GRAPHIC APPEARS HERE]
100 Front Street
Suite 300
Worcester, MA 01601
CIGNA HIGH
INCOME SHARES
-------------------- ________________________________________
BULK RATE
U.S. POSTAGE THIRD QUARTER REPORT
PAID SEPTEMBER 30, 2000
SO. HACKENSACK, NJ
PERMIT 750
--------------------
PRINTED ON RECYCLED PAPER
542776 9/00 CGACM Q3-9/00
[CIGNA TREE LOGO GRAPHIC APPEARS HERE /R/]
CIGNA
