<PAGE>
________________________________________________________________________________
1
DEAR SHAREHOLDERS:
We are pleased to provide this report for CIGNA High Income Shares (the "Fund"),
covering the quarter ended March 31,2000.
HIGH YIELD MARKET
High yield bonds suffered their worst quarterly performance since the global
financial crisis of the third quarter of 1998. The sector, as represented by the
Lehman Brothers High Yield Bond Index (the "Index"), declined 2.3%, while
investment-grade corporates and Treasuries returned 1.4% and 3.8%, respectively,
as measured by their respective Lehman Brothers Bond Indexes. The poor
performance was due to weak demand conditions caused by mutual fund outflows,
recent default rates, and an ongoing supply of new issues.
High yield mutual funds experienced outflows of $2.8 billion in the first
quarter, compared with inflows of $4.9 billion for the same period a year ago, a
swing of $7.7 billion. While difficult to track, high yield market outflows
appeared to be shifting into higher return vehicles, such as technology stock
funds. High yield bond new issuance, which was down to $21 billion from $29
billion a year ago, proved challenging for the market to absorb. Telecom and
media companies continued to dominate new issues, accounting for 77% of total
volume. These conditions resulted in a lack of trading liquidity and higher
volatility in market prices.
Domestic default rates remained high at 4.5% on a latest 12-month basis,
contributing to investor reluctance to commit new money to the market. Despite a
40 basis point decline in 10-year Treasury yields to 6.02%, high yield bond
yields increased 90 basis points to about 11.90%. Quality spreads widened by 130
basis points over Treasuries to nearly 590 basis points, approaching their
widest levels since the summer of 1998.
STRATEGY
Portfolio strategy focused on upgrading overall quality and liquidity through
the purchase and ownership of bonds issued by companies with the following
characteristics: major equity market capitalizations; large issues outstanding;
and significant market presence in their respective industries. Portfolio
additions included credits in cable TV, telecommunications, technology, and food
sectors.
Positions in short maturity issues and issues likely to be refinanced in the
near future were increased to limit downside volatility and create future
liquidity. Our overweight in emerging market corporates was reduced somewhat to
about 12.0% to take advantage of that market's relative strength. We maintained
our overweight in gaming, technology and transportation industries and increased
our weightings in cable TV and telecommunications companies. Holdings were
reduced in some distressed credits, small size issues, and foreign corporates.
We continued our underweight in the energy, health care, and retailing sectors.
Finally, we kept our overweight positions in middle-tier credits (Single Bs) at
72%, compared with a 55% market weighting.
The Fund remains broadly diversified and was invested in the issues of 113
companies at quarter-end. The top three industry categories as a percentage of
net assets were: telecommunications (21.4%), containers and paper (11.4%), and
entertainment (11.1%).
The Fund's average maturity was kept at about 7.4 years and the average quality
was maintained at Single B. The Fund's leverage during the quarter remained
below 33% of assets and was 28% at quarter-end.
PERFORMANCE
Despite the overall poor performance of the high yield sector in the first
quarter, CIGNA High Income Shares outperformed its benchmark by 32 basis points.
The Fund generated a negative net total return of 2.02% based on net asset
value, compared with a negative 2.34% return for the Index. The Fund's
performance was positively impacted by its overweighting in technology issues
and emerging market corporates, as those sectors outperformed the market.
Quarterly return based on the market value of the Fund's shares traded over the
New York Stock Exchange was a positive 5.80%.
The portfolio also benefited from a slew of positive corporate events. Four
issuers received attractive takeover bids from large, financially strong
companies; three cred-
<PAGE>
________________________________________________________________________________
2
its successfully completed IPOs ("Initial Public Offerings), and one telecom
company closed on a large refinancing. In most of these cases, the bonds traded
up substantially in price. Nevertheless, performance was hindered during the
period as BB bond returns exceeded Single Bs, the gaming sector underperformed,
and the Fund's leverage reduced returns due to negative market conditions.
In March, the Fund's monthly dividend was reduced to 6 cents per share. More
information on the rate change may be found on page11.
OUTLOOK
Due to very difficult market conditions, high yield bond spreads during the
quarter approached values not seen since the global financial crisis of the
summer of 1998. Barring a recession, which is not predicted, or a macro "big
bang" event, such as a collapse in stock prices, we do not expect a scenario
where spreads will widen significantly from current levels. Experience has shown
when an asset class becomes relatively cheap, new investors get involved and bid
prices higher. However, liquidity (or lack thereof) drives markets. To provide
forward momentum for the balance of the year, the market needs an event that
will have a positive impact on trading liquidity. Absent that, 2000 could be the
third year in a row of below-average returns for the high yield market.
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 March 31, 2000 (Unaudited) 3
MARKET
PRINCIPAL VALUE
(000) (000)
- -------------------------------------------------------------------
BONDS AND NOTES - 133.9%
AEROSPACE AND DEFENSE - 2.9%
BE Aerospace, Inc.,
9.875%, 2006 $ 4,000 $ 3,570
9.5%, 2008 500 430
Hexcel Corp., 9.75%, 2009 5,050 4,292
-------------
8,292
-------------
AUTO AND TRUCK - 2.3%
Collins & Aikmann Products Co.,
11.5%, 2006 3,000 2,865
Tenneco Automotive, Inc.,
11.625%, 2009 4,000 3,890
-------------
6,755
-------------
BROADCASTING AND MEDIA - 4.9%
American Lawyer Media, Inc.,
9.75%, 2007 4,500 4,151
Echostar DBS Corp., 9.375%, 2009 3,000 2,895
Innova S DE R.L., 12.875%, 2007 4,600 4,324
Lodgenet Entertainment Corp.,
10.25%, 2006 3,000 2,910
-------------
14,280
-------------
CABLE TV - 5.5%
Cablevision S.A., 13.75%, 2007 3,500 3,460
Charter Communications, Inc.,
10.25%, 2010 (144A security
acquired Jan. 2000 for
$5,000,000)** 5,000 4,800
Multicanal, S.A.,
13.125%, 2009 Series E 2,450 2,536
United Pan Europe Communications N.V.
11.25%, 2010 (144A security
acquired Jan. 2000 for
$5,480,785)** 5,500 5,280
-------------
16,076
-------------
CHEMICALS - 2.3%
Brunner Mond Group PLC,
11%, 2008 3,000 1,500
Great Lakes Carbon Corp.,
10.25%, 2008 1,665 1,515
Huntsman ICI Chemicals, Inc.,
10.125%, 2009 4,000 3,800
-------------
6,815
-------------
CONSUMER PRODUCTS AND SERVICES - 5.8%
Anchor Advanced Products, Inc.,
11.75%, 2004 2,250 1,569
Carson, Inc., 10.375%, 2007 3,250 3,445
Desa International, Inc., 9.875%, 2007 2,750 1,980
Drypers Corp., 10.25%, 2007 4,000 2,880
Moll Industries, Inc., 10.5%, 2008 3,260 1,222
Samsonite Corp., 10.75%, 2008 4,350 3,676
United Industries Corp., 9.875%, 2009 3,050 2,143
-------------
16,915
-------------
MARKET
PRINCIPAL VALUE
(000) (000)
- -------------------------------------------------------------------
CONTAINERS AND PAPER - 11.4%
Gaylord Container Corp.,
9.875%, 2008 $ 6,000 $ 5,040
Grupo Industrial Durango, S.A.,
12.625%, 2003 4,500 4,556
Indah Kiat Finance Mauritius Ltd.,
10%, 2007 8,000 5,600
Packaging Corp., 9.625%, 2009 5,000 4,875
Pindo Deli Finance Mauritius Ltd.,
10.75%, 2007 4,800 3,312
Riverwood International Corp.,
10.625%, 2007 4,000 3,940
10.875%, 2008 2,000 1,920
Tjiwi Kimia Finance Mauritius Ltd.,
10%, 2004 4,950 3,737
-------------
32,980
-------------
ELECTRONICS AND ELECTRICAL EQUIPMENT - 8.4%
Amkor Technology, Inc.,
9.25%, 2006 1,500 1,448
10.5%, 2009 4,400 4,334
Dictaphone Corp., 11.75%, 2005 2,465 2,416
Fairchild Semiconductor Corp.,
10.125%, 2007 2,625 2,553
10.375%, 2007 2,500 2,456
International Wire Group, Inc.,
11.75%, 2005, 3,425 3,459
MCMS, Inc.,
9.75%, 2008 3,000 1,455
Viasystems, Inc.,
9.75%, 2007 5,500 4,620
9.75%, 2007, Series B 2,000 1,680
-------------
24,421
-------------
ENTERTAINMENT - 11.1%
American Skiing Co., 12%, 2006 5,250 4,463
Booth Creek Ski Holdings, Inc.,
12.5%, 2007 4,250 2,975
Boyd Gaming Corp.
9.5%, 2007 2,100 1,932
Casino Magic of Louisiana Corp.,
13%, 2003 4,750 5,106
Hollywood Park, Inc., 9.25%, 2007 4,075 4,014
Isle Capri Casinos, Inc., 8.75%, 2009 3,650 3,185
Players International, Inc.,
10.875%, 2005 2,775 2,872
Premier Parks, Inc., 9.75%, 2007 3,500 3,299
SFX Entertainment, Inc.,
9.125%, 2008 1,500 1,500
9.125%, 2008 3,000 2,970
-------------
32,316
-------------
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
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CIGNA HIGH INCOME SHARES INVESTMENTS IN SECURITIES March 31, 2000 (Unaudited) 4
(Continued)
MARKET
PRINCIPAL VALUE
(000) (000)
- -------------------------------------------------------------------
FINANCIAL - 2.8%
Dollar Financial Group, Inc.,
10.875%, 2006 $ 4,150 $ 4,088
Labranche & Co., Inc., 12%, 2007
(144A security acquired Feb. 2000
for $4,093,363)** 4,150 4,067
-------------
8,155
-------------
FOOD AND BEVERAGES - 10.4%
Agrilink Foods, Inc., 11.875%, 2008 4,000 3,640
Chiquita Brands International, Inc.,
10.25%, 2006 2,895 2,244
10%, 2009 1,230 947
Compania de Alimentos Fargo,
13.25%, 2008 2,750 2,420
Di Giorgio Corp., 10%, 2007 4,000 3,560
Fleming Cos., Inc.,
10.625%, 2001 4,500 4,444
Grupo Azucarero Mexico S.A.,
11.5%, 2005 2,175 816
Imperial Holly Corp., 9.75%, 2007 5,000 1,250
Mastellone Hermonos S.A.,
11.75%, 2008 3,250 2,730
Premier International Foods PLC,
12%, 2009 (144A security acquired
Aug. 1999 for $4,500,000)** 4,500 4,185
Stater Brothers Holdings, Inc.,
10.75%, 2006 4,100 4,110
-------------
30,346
-------------
HEALTH CARE - 2.2%
Express Scripts, Inc., 9.625%, 2009 3,000 2,850
King Pharmaceutical, Inc.,
10.75%, 2009 2,800 2,772
Mediq, Inc., 11%, 2008 6,500 650
-------------
6,272
-------------
INDUSTRIAL - 8.7%
Blount, Inc., 13%, 2009 5,150 5,330
Bucyrus International, Inc.,
9.75%, 2007 5,000 2,000
Foamex Capital Corp., 13.5%, 2005 5,500 4,950
Goss Graphics Systems, Inc.,
12.25%, 2005 2,313 786
Grove Worldwide L.L.C.,
9.25%, 2008 4,400 1,881
High Voltage Energy Corp.,
10.5%, 2004 2,000 1,620
ICF International Inc., 13%, 2003*** 5,000 2,250
Neenah Corp.,
11.125%, 2007, Series B 2,650 2,279
11.125%, 2007, Series E (144A
security acquired Nov. 1998 for
$1,552,500)** 1,500 1,290
Outsourcing Services Group, Inc.,
10.875%, 2006 3,500 2,940
-------------
25,326
-------------
MARKET
PRINCIPAL VALUE
(000) (000)
- -------------------------------------------------------------------
METALS - 2.7%
Doe Run Resource Corp.,
11.25%, 2005 $ 4,000 $ 1,920
Gulf States Steel, Inc., 13.5%, 2003+ 3,765 541
Renco Steel Holdings, Inc.,
10.875%, 2005 5,850 5,265
-------------
7,726
-------------
MISCELLANEOUS - 8.1% AES Corp.,
9.5%, 2009 3,900 3,744
Allied Waste North America, Inc.,
10%, 2009 6,500 4,875
Buhrmann U.S., Inc., 12.25%, 2009 4,800 4,824
Sullivan Graphics, Inc., 12.75%, 2005 5,500 5,693
United Rentals, Inc.,
9%, 2009 3,750 3,272
9.25%, 2009 1,350 1,188
-------------
23,596
-------------
RETAIL - 1.2%
Jo Ann Stores, Inc., 10.375%, 2007 4,000 3,480
-------------
TECHNOLOGY - 5.5%
Exodus Communications, Inc.,
11.25%, 2008 4,800 4,800
Orbital Imaging Corp., 11.625%, 2005 4,250 2,677
PSI Net, Inc., 11%, 2009 5,850 5,675
Verio, Inc., 11.25%, 2008 2,765 2,737
-------------
15,889
-------------
TELECOMMUNICATIONS - 21.4%
Alestra S DE R.L., 12.125%, 2006 6,000 6,015
AMSC Acquisition, Inc.,
12.25%, 2008 4,325 3,417
Caprock Communications Corp.,
12.%, 2008 3,430 3,361
11.5%, 2009 1,000 970
Energis PLC., 9.75%, 2009 2,500 2,512
Hyperion Telecommunications, Inc.,
12.%, 2007 5,920 5,950
KMC Telecom Holdings, Inc.,
13.5%, 2009 3,400 3,383
Poland Telecom Finance B.V.,
14%, 2007 3,000 900
Primus Telecommunications, Inc.,
11.75%, 2004 5,250 5,040
RSL Communications PLC.,
12.25%, 2006 1,375 1,361
10.5%, 2008 4,750 3,990
Spectrasite Holdings, Inc.,
10.75%, 2010 (144A security acquired
Mar. 2000 for $4,087,063)** 4,200 4,032
Talton Holdings, Inc., 11%, 2007 2,800 2,520
Transtel Pass-Thru Trust,
12.5%, 2007 4,250 2,465
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
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CIGNA HIGH INCOME SHARES INVESTMENTS IN SECURITIES March 31, 2000 (Unaudited) 5
(Continued)
MARKET
PRINCIPAL VALUE
(000) (000)
- -------------------------------------------------------------------
TELECOMMUNICATIONS - (CONTINUED)
Versatel Telecom B.V.,
13.25%, 2008 $ 5,550 $ 5,689
Williams Communications, Inc.,
10.875%, 2009 6,000 5,910
World Access, Inc., 13.25%, 2008 5,200 4,524
-------------
62,039
-------------
TEXTILES - 2.7%
Cluett American Corp.,
10.125%, 2008 5,000 3,300
Delta Mills, Inc., 9.625%, 2007 2,750 1,987
Norton McNaughton, Inc.,
12.5%, 2005 3,000 2,640
-------------
7,927
-------------
TRANSPORTATION - 6.0%
American Commercial Lines L.L.C.,
10.25%, 2008 4,300 3,569
Atlas Air, Inc., 10.75%, 2005 5,385 5,385
Avis Rent A Car, Inc., 11%, 2009 4,725 4,654
Kitty Hawk, Inc., 9.95%, 2004 4,000 3,680
-------------
17,288
-------------
WIRELESS COMMUNICATIONS - 7.6%
Centennial Cellular, Inc.,
10.75%, 2008 4,000 3,920
Metrocall, Inc., 9.75%, 2007 5,000 3,825
Price Communications Wireless, Inc.,
11.75%, 2007 5,500 5,899
Nuevo Grupo Isuacell S.A.,
14.25%, 2006 (144A security
acquired Dec. 1999 for
$3,259,688)** 3,250 3,510
Winstar Communications, Inc.,
12.5%, 2008 (144A security acquired
March 2000 for $5,037,500)** 5,000 4,900
-------------
22,054
-------------
TOTAL BONDS AND NOTES
(Cost - $455,346,892) 388,948
-------------
SHARES
(000)
------
COMMON STOCKS - 0.1%
Goss Graphic Systems Inc., Class B 64 129
World Access, Inc. 16 312
-------------
TOTAL STOCKS
(Cost - $329,263) 441
-------------
MARKET
SHARES VALUE
(000) (000)
- -------------------------------------------------------------------
WARRANTS - 1.8%
American Mobile Satellite Corp.,
Exp. 2008* $ 3 $ 382
Convergent Communications, Inc.,
Exp. 2008* 30 441
NS Group, Inc., Exp. 2003* 4 39
Orbital Imaging Corp., Exp. 2005* 4 85
Poland Telecom. Finance B.V.,
Exp. 2007* 3 -
Primus Telecommunications, Inc.,
Exp. 2004* 4 264
Versatel Telecom B.V., Exp 2008* 7 3,930
Wireless One, Inc., Exp. 2000* 15 -
-------------
TOTAL WARRANTS (Cost - $355,627) 5,141
-------------
TOTAL INVESTMENTS IN SECURITIES - 135.8%
(Total Cost - $456,031,782) 394,530
Liabilities, Less Cash and Other Assets - (35.8%) (104,053)
-------------
NET ASSETS - 100%
(equivalent to $5.61 per share based on
51,819,564 shares outstanding) $ 290,477
=============
-----------------------------------------------------------------
PORTFOLIO COMPOSITION (UNAUDITED)
March 31, 2000
MARKET % OF
QUALITY RATINGS* OF VALUE MARKET
LONG-TERM BONDS (000) VALUE
----------------------------------------------------------------
Ba/BB $54,252 14.0%
B/B 280,129 72.0%
Below B 54,567 14.0%
------------ ------------
$388,948 100.0%
============ ============
*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 $32,064,000 (aggregate cost $33,010,899) which is
approximately 11% of net assets.
*** Variable rate security. Rate disclosed is as of March 31, 2000.
+ Defaulted securities.
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
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CIGNA HIGH INCOME SHARES 6
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2000 (UNAUDITED)
(IN THOUSANDS)
--------------
ASSETS:
Investments at market value
(Cost - $456,031,782) $ 394,530
Cash on deposit with custodian 2
Receivable for investments sold 8,270
Interest receivable 13,861
Investment for Trustees' deferred
compensation plan 274
------------
TOTAL ASSETS 416,937
------------
LIABILITIES:
Payable for investments purchased 10,346
Loan payable 111,182
Dividend payable April 10, 2000 at
$0.06 per share 3,109
Accrued interest payable 1,253
Accrued advisory fees payable 210
Deferred Trustees' fees payable 274
Other accrued expenses (including $26,149
due to affiliate) 86
------------
TOTAL LIABILITIES 126,460
------------
NET ASSETS (Equivalent to $5.61 per share
based on 51,819,564 shares of beneficial
interest outstanding; unlimited number
of shares authorized) $ 290,477
============
COMPONENTS OF NET ASSETS:
Paid in capital $ 403,211
Overdistributed net investment income (166)
Unrealized depreciation of investments (61,502)
Accumulated net realized loss (51,066)
------------
NET ASSETS $ 290,477
============
- ---------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
(IN THOUSANDS)
---------------------
INVESTMENT INCOME
INCOME:
Interest $12,370
EXPENSES:
Interest expense $2,055
Investment advisory fees 643
Administrative services 33
Custodian fees and expenses 30
Shareholder reports 23
Auditing and legal fees 18
Transfer agent fees and expenses 18
Trustees' fees 10
Other 11 2,841
-------- -----------
NET INVESTMENT INCOME 9,529
-----------
REALIZED AND UNREALIZED GAIN/LOSS ON
INVESTMENTS
Net realized loss from investments (4,991)
Unrealized depreciation of investments (11,236)
-----------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS (16,227)
-----------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ (6,698)
===========
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
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CIGNA HIGH INCOME SHARES 7
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)
THREE MONTHS YEAR ENDED
ENDED DECEMBER 31,
MAR. 31, 2000 1999
----------------- ----------------
(IN THOUSANDS)
----------------------------------
OPERATIONS:
Net investment income $ 9,529 $ 41,408
Net realized loss from
investments (4,991) (40,375)
Unrealized appreciation
(depreciation)
on investments (11,236) 14,578
----------------- ----------------
Net increase (decrease) in net
assets from operations (6,698) 15,611
----------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ($0.195
per share and $0.82 per share,
respectively) (9,603) (42,033)
----------------- ----------------
Total distributions to
shareholders (9,603) (42,033)
----------------- ----------------
CAPITAL SHARE TRANSACTIONS:
Capital contribution by Adviser - 1,615
Net increase from 240,155 and
848,146 capital shares issued
to shareholders in reinvestment
of distributions, respectively 1,426 5,870
----------------- ----------------
Net increase from capital share
transactions 1,426 7,485
----------------- ----------------
NET DECREASE IN NET ASSETS (14,875) (18,937)
NET ASSETS:
Beginning of period 305,352 324,289
----------------- ----------------
End of period (including
overdistributed net investment
income of $165,737 and $91,725,
respectively) $ 290,358 $ 305,352
================= ================
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
(IN THOUSANDS)
---------------
CASH PROVIDED BY FINANCING ACTIVITIES:
Cash provided by borrowing $ 5,227
Dividends paid in cash (9,067)
------------
(3,840)
CASH USED BY OPERATIONS:
Purchases of portfolio securities (57,541)
Proceeds from sales of portfolio securities 49,767
------------
(7,774)
------------
Net Investment Income 9,529
Net change in receivables/payables
related to operations 2,086
------------
11,615
------------
3,841
------------
NET INCREASE IN CASH 1
CASH, BEGINNING OF PERIOD 1
-------------
CASH, END OF PERIOD $ 2
=============
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 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) (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 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 three months ended March 31, 2000 were $114,004,391 at an average
interest rate of approximately 6.60%. As of March 31, 2000, the Fund was paying
interest at an average annual rate of 7.15% 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.
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 three months ended
March 31, 2000, the Fund paid or accrued $32,512. 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 three months ended March 31, 2000
were $57,541,312 and $49,766,843, respectively.
As of March 31, 2000, the cost of securities for federal income tax purposes was
$456,031,782. At March 31, 2000, net unrealized depreciation for federal income
tax purposes aggregated $61,502,147 of which $6,984,507 related to appreciated
securities and $68,486,654 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>
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CIGNA HIGH INCOME SHARES NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
10
7. FINANCIAL HIGHLIGHTS. The following table includes data, ratios and
supplemental data for a share outstanding throughout each period and other
performance information:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
3 MOS.
ENDED
MARCH, 31 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 (1) 0.19 0.81 0.88 0.87 0.85 0.84
Net realized and unrealized gains (losses) (0.31) (0.46) (1.49) 0.44 0.29 0.60
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS (0.12) 0.35 (0.61) 1.31 1.14 1.44
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Distributions from net investment income (0.19) (0.82) (0.88) (0.86) (0.90) (0.84)
Distributions in excess of net investment income - - - - - -
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (0.19) (0.82) (0.88) (0.86) (0.90) (0.84)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 5.61 $ 5.92 $ 6.39 $ 7.88 $ 7.43 $ 7.19
======== ======== ======== ======== ======== =======
MARKET VALUE, END OF PERIOD $ 5.50 $ 5.38 $ 7.25 $ 8.44 $ 8.38 $ 7.88
======== ======== ======== ======== ======== =======
TOTAL INVESTMENT RETURN:
Per share market value 5.80% + (16.18)% (3.35)% 11.65% 19.25% 26.24%
Per share net asset value (2) (2.02)% + 5.78% (8.31)% 18.58% 16.70% 22.93%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $ 290,477 $ 305,352 $ 324,289 $ 295,256 $ 273,500 $ 259,773
Ratio of expenses to average net assets
(includes interest expense) 0.98% * 3.40% 3.40% 3.28% 3.35% 3.80%
Ratio of net expenses to average net assets
(excludes interest expense) 0.30% * 1.02% 0.97% 1.06% 1.07% 1.12%
Ratio of net investment income to average net
assets 3.12% * 13.05% 12.05% 11.28% 11.60% 12.03%
Portfolio turnover 12% + 49% 56% 74% 78% 60%
</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 period 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
+ Unannualized
<PAGE>
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CIGNA HIGH INCOME SHARES NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
11
8. 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) (0.31)
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CIGNA HIGH INCOME SHARES
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.
DIVIDEND RATE CHANGE
The monthly dividend of $0.06 per share, which the Fund declared on March 15,
2000 and was paid on April 10, 2000 to shareholders of record on March 28, 2000,
represents a new dividend rate. The new rate is a reduction from the 6.75 cents
per-share rate the Fund has paid since February 1995. Fund Management noted that
two principal market factors have caused the Fund's net investment income to
decline in recent years. First, the higher coupon bonds purchased for the Fund
in earlier years have gradually been replaced by lower coupon issues, as the
original bonds have either matured, been called, or sold for investment and
credit reasons. Second, the cost of the Fund's borrowing has increased. Interest
payable on the Fund's revolving credit agreement is tied to short-term interest
rates, which have risen faster than income from the Fund's invested assets. As a
result of this upward trend in short-term rates, the positive income spread
earned through leveraging has been reduced.
<PAGE>
[CIGNA TREE LOGO GRAPHIC APPEARS HERE /R/]
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 FIRST QUARTER REPORT
PAID MARCH 31, 2000
SO. HACKENSACK, NJ
PERMIT 750
- --------------------
[CIGNA TREE LOGO GRAPHIC APPEARS HERE /R/]
