SCHEDULE 14A
(Rule 14a-101)
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CIGNA HIGH INCOME SHARES
------------------------
(Name of Registrant as Specified In Its Charter)
Not Applicable
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
CIGNA HIGH INCOME SHARES
Worcester, Massachusetts
March 20, 2003
To Our Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders of
CIGNA High Income Shares (the "Fund"), to be held at The Colony Club, Baystate
West, 1500 Main Street, Springfield, Massachusetts 01115 on Tuesday, April 29,
2003 at 11:30 a.m., Eastern Time. Formal notice of the meeting appears on the
next page and is followed by the proxy statement.
Shareholders are being asked to consider and approve the election of
trustees, and to approve Shenkman Capital Management, Inc. as sub-adviser to the
Fund.
The Board of Trustees' recommendation of Shenkman Capital Management, Inc.
as sub-adviser to the Fund is based upon a number of factors, including Shenkman
Capital Management's record of superior investment performance in managing high
yield bonds. Please note that the Fund's adviser, TimesSquare Capital
Management, Inc., not the Fund, will pay Shenkman Capital Management's advisory
fees. The Fund's investment management fees will not change as a result of
hiring Shenkman Capital Management as sub-adviser to the Fund.
We hope you will find it convenient to attend the meeting, but we urge you
in any event to complete and return the enclosed proxy card in the envelope
provided. It is very important that your proxy card be received as soon as
possible so that the necessary quorum will be represented at the meeting. If you
do attend, you may vote in person if you so desire.
The Annual Report of CIGNA High Income Shares for the year ended December
31, 2002 has previously been mailed to you.
Sincerely,
/s/ Richard H. Forde
--------------------
RICHARD H. FORDE
Chairman of the Board
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
SHAREHOLDERS ARE URGED TO INDICATE THEIR VOTING INSTRUCTIONS ON THE
ENCLOSED PROXY CARD, DATE AND SIGN IT, AND RETURN IT IN THE ACCOMPANYING
ENVELOPE. YOUR PROMPT ATTENTION IS APPRECIATED.
- --------------------------------------------------------------------------------
CIGNA HIGH INCOME SHARES
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Shareholders of CIGNA High Income Shares:
The Annual Meeting of Shareholders of CIGNA High Income Shares (the "Fund")
will be held at The Colony Club, Baystate West, 1500 Main Street, Springfield,
Massachusetts 01115 on Tuesday, April 29, 2003 at 11:30 a.m., Eastern Time, for
the following purposes:
(1) To approve a sub-advisory agreement between TimesSquare Capital
Management, Inc. ("TimesSquare") and Shenkman Capital Management, Inc.
(2) To elect six Trustees to serve until the next Annual Meeting of
Shareholders or until the election and qualification of their
successors.
(3) To transact such other business as may properly come before the
meeting or any postponement or adjournment thereof.
Holders of record of the shares of the Fund at the close of business on
March 10, 2003 are entitled to vote at the meeting.
Your vote is important, even if you don't own many shares. Please complete,
sign and return the enclosed proxy /voting instruction card.
/s/ Jeffrey S. Winer
--------------------
Jeffrey S. Winer
Secretary
Worcester, Massachusetts
March 20, 2003
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS OF
CIGNA HIGH INCOME SHARES
This proxy statement is furnished in connection with the solicitation of
proxies by the Trustees of CIGNA High Income Shares (the "Fund") for use at the
Annual Meeting of Shareholders of the Fund to be held at The Colony Club, 1500
Main Street, Springfield, Massachusetts 01115 on Tuesday, April 29, 2003 at
11:30 a.m., Eastern Time, and at any postponement or adjournment thereof.
Any person executing a proxy may revoke it at any time prior to its use by
executing a new proxy or by registering with the Secretary of the Fund at the
meeting and requesting a revocation. Executed proxies received by the Fund will
be voted in accordance with the directions specified in the proxy. A majority of
the outstanding shares of the Fund must be present at the meeting in person or
by proxy to constitute a quorum for the transaction of business.
For purposes of determining the presence of a quorum for transacting
business at the meeting and determining whether sufficient votes have been cast
FOR the proposals, abstentions (that is, votes that are marked "withheld") and
broker "non-votes" (that is, proxies from brokers or nominees indicating that
such persons have not received instructions from the beneficial owner or other
persons entitled to vote the shares on a particular matter with respect to which
the brokers or nominees do not have discretionary power) will be treated as
shares which are present and entitled to vote, but which have not voted on such
matter. For this reason, abstentions and broker non-votes will assist the Fund
in obtaining a quorum. Abstentions and broker non-votes will have no effect on
the election of Trustees, but will have the same effect as a vote "against" the
proposal to approve the sub-advisory agreement.
The Board of Trustees recommends a vote FOR the approval of the
sub-advisory agreement with Shenkman Capital Management, Inc. and FOR the
election of Trustees. If no specification is made, the proxy will be voted FOR
the approval of the sub-advisory agreement, FOR the election of Trustees as
listed, and at the discretion of the proxy holders, on any other matters which
may properly come before the meeting or at any postponement or adjournment. The
Board of Trustees does not know of any actions to be considered at the meeting
other than those referred to above.
Costs of soliciting proxies will be borne by the Fund. In addition to
solicitation of proxies by use of the mails, some of the officers of the Fund
and persons affiliated with CIGNA Corporation ("CIGNA") and its affiliated
companies may, without remuneration, solicit proxies in person or by telephone.
The Fund has also retained a proxy solicitor, The Altman Group, Inc., to assist
in the solicitation of proxies. The costs of retaining this firm, which will be
fully borne by the Fund, are not expected to exceed $60,000.
The Fund has agreed to indemnify and hold the solicitation firm harmless
against any liability incurred in connection with the solicitation of proxies,
unless the liability results
2
from the firm's negligence or misconduct. The agreement between the Fund and the
solicitation firm will terminate upon conclusion of the shareholder meeting or
any adjournments of the meeting.
In the event a quorum is not present at the meeting, or in the event
sufficient votes to approve any of the proposals are not received, even though a
quorum is present at the meeting, the persons named as proxies may propose one
or more adjournments of the meeting to permit further solicitation of proxies,
provided that such persons determine such an adjournment and additional
solicitation are reasonable and in the interests of shareholders of the Fund. A
shareholder vote may be taken on any proposal in this Proxy Statement prior to
such adjournment if sufficient votes have been received and such vote is
otherwise appropriate. Any such adjournment will require the affirmative vote of
a majority of those shares present at the meeting in person or by proxy.
At the close of business on March 10, 2003, the record date for the
determination of shareholders entitled to vote at the meeting, there were
[53,664,345] outstanding shares. Each share is entitled to one vote. This proxy
statement and the accompanying Notice of Annual Meeting of Shareholders and form
of proxy are being mailed on or about March 20, 2003 to shareholders of record
on the record date.
The principal executive offices of the Fund are located at (and its mailing
address is) 100 Front Street, Suite 300, Worcester, Massachusetts 01608.
The Fund will furnish to a shareholder upon request, without charge, a copy
of the annual report. Requests may be made by writing to the Fund c/o
TimesSquare Capital Management, Inc., 280 Trumbull Street, H18E, Hartford, CT
06103, Attn: Alfred A. Bingham III, or by calling 1-800-426-5523.
PROPOSAL ONE
APPROVAL OF THE INVESTMENT SUB-ADVISORY AGREEMENT
The shareholders of the Fund are being asked to approve an investment
sub-advisory agreement between TimesSquare and Shenkman Capital Management, Inc.
("Shenkman Capital Management"). The sub-advisory agreement is attached as
Appendix A to this Proxy Statement. At a meeting of the Board of Trustees held
on March 4, 2003, the Trustees of the Fund unanimously voted to approve
TimesSquare entering into the sub-advisory agreement, subject to shareholder
approval.
BACKGROUND
To date, TimesSquare has not utilized a sub-adviser to assist it in
managing the Fund's investments. In late 2002, the Trustees and Fund management
concluded that, because the Fund's performance had not met expectations, it
would be in the best interests of Fund shareholders for TimesSquare to engage a
sub-adviser.
3
Before deciding to recommend Shenkman Capital Management as the Fund's
sub-adviser, Fund management reviewed numerous investment advisory organizations
with experience investing in high-yield fixed income securities. Following that
review, Fund management interviewed two advisory firms (one of which was
Shenkman Capital Management) that it considered well qualified to serve as
sub-adviser to the Fund. At a meeting held on February 21, 2003, these two
investment advisory firms made in-person presentations to the Trustees. At the
meeting, representatives of each advisory firm presented detailed information to
the Trustees, including background information on their firm and its resources,
their investment philosophy and process, portfolio construction methodology,
default rates in high yield portfolios managed by the advisers, historical
performance, special considerations entailed in managing a portfolio that uses
leverage such as the Fund, client service capabilities, the manner in which they
would manage the transition of the Fund's portfolio of bonds if they were
managing the Fund's assets, and biographical data on portfolio managers and
analysts.
In reaching a decision to recommend Shenkman Capital Management as the
Fund's investment sub-adviser, the Trustees concluded that (a) Shenkman Capital
Management has a long-term record of superior performance in the high-yield
asset class, with extremely low default rates and an excellent security
selection and monitoring process; (b) Shenkman Capital Management has
substantial research and portfolio management resources and personnel focused
exclusively on management of high yield bonds; (c) Shenkman Capital Management's
disciplined investment approach focusing on capital preservation and current
income is appropriate for the Fund and (d) Shenkman Capital Management
demonstrated an appropriate awareness of the special requirements associated
with the Fund's status as a leveraged closed-end investment company. None of the
Fund's Trustees and officers are employed by or otherwise affiliated with
Shenkman Capital Management.
At the meeting on March 4, 2003, the Trustees further deliberated and
selected Shenkman Capital Management as the Fund's sub-adviser. In addition,
the Board of Trustees reviewed and discussed the terms and provisions of the
sub-advisory agreement.
SHENKMAN CAPITAL MANAGEMENT -- PORTFOLIO MANAGEMENT
If the sub-advisory agreement is approved, the following individuals will
have day to day portfolio management responsibility for the assets of the Fund
managed by Shenkman Capital Management:
Mark Shenkman -- Chief Investment Officer and Portfolio Manager, Shenkman
Capital Management, since 1985.
Frank Whitley -- Executive Vice President and Portfolio Manager, Shenkman
Capital Management. Mr. Whitely joined the firm in 1988 and became a Portfolio
Manager in 1995.
Mark Flanagan -- Senior Vice President and Portfolio Manager, Shenkman
Capital Management, since 2002. Previously, Director of Credit Research of
Shenkman Capital Management from 1996 to 2002.
4
SHENKMAN CAPITAL MANAGEMENT -- PERFORMANCE
Shown below are performance figures for the Shenkman Capital High Yield
Bond Composite, which is an aggregation of high yield bond accounts managed by
Shenkman Capital Management whose investment objectives, policies and strategies
are substantially similar to the Fund's. Not all accounts in the Composite were
subject to the limitations and diversification requirements of the Investment
Company Act of 1940 and the Internal Revenue Code and had they been, their
performance could have been lower. Moreover, the performance of these accounts
does not reflect the impact of leverage. The performance of the Composite is
shown net of the Fund's fees and expenses, except that interest paid by the Fund
on borrowed funds has not been deducted. Performance of the Composite does not
represent past or future performance of the Fund. For comparative purposes, also
shown below are the performance of indices designed to be representative of the
high yield debt market as a whole.
Shenkman Capital Management -- Composite Total Return
For periods ending December 31, 2002
One Three Five Ten
Year Years Years Years
---------- ---------- ---------- ----------
SHENKMAN CAPITAL HIGH YIELD BOND
COMPOSITE(1) ............................ 4.05% 3.61% 3.59% 7.84%
CSFB High Yield Index(2) .................. 3.10% 1.11% 1.44% 6.51%
Merrill Lynch High Yield Index(2) ......... -1.84% -0.91% 0.53% 6.06%
Salomon Smith Barney HY Index(2) .......... -1.52% -0.69% 0.64% 6.08%
- ------
(1) The Shenkman Capital High Yield Bond Composite consists of high yield bond
accounts that represent a substantial portion of the total high yield bond
assets under management by Shenkman Capital Management (98% to 99% for 1993
to 1997; 74% for 1998; 52% for 1999; 64% for 2000; 80% for 2001 and 2002),
and excludes multi-sector and structured funds, and non-discretionary
accounts. The performance results include reinvestment of dividends and
other income and are net of the Fund's fees and expenses (except interest
expense).
(2) The CSFB, Merrill Lynch, and Salomon Brothers High Yield Indices are
unmanaged and not available for direct investments.
INFORMATION ABOUT THE PROPOSED SUB-ADVISORY AGREEMENT.
If approved by shareholders, the sub-advisory agreement will remain in full
force and effect until April 28, 2005, and, unless terminated in accordance with
its terms, will continue in full force and effect indefinitely thereafter, but
only so long as such continuance is specifically approved at least annually by
both (1) the Board of Trustees of the Fund or by a vote of the majority of the
outstanding voting securities (as defined in the Investment Company Act of 1940
(the "1940 Act") of the Fund, and (2) the vote of a majority of those Trustees
of the Fund who are not parties to the sub-advisory agreement or interested
persons of such party, cast in person at a meeting called for the purpose of
voting on such approval. TimesSquare will pay Shenkman Capital
5
Management a fee for serving as sub-adviser to the Fund equal to the annual rate
of 0.35% of the average weekly total asset value of the Fund for the first $100
million of total Fund assets managed by Shenkman Capital Management, and 0.325%
for all Fund assets in excess of $100 million managed by Shenkman Capital
Management, payable quarterly in arrears.
INFORMATION ON SHENKMAN CAPITAL MANAGEMENT.
Shenkman Capital Management is a privately owned New York corporation with
a principal place of business at 461 Fifth Avenue, New York, New York. The firm
was founded in 1985 and is a registered investment adviser under the Investment
Advisers Act of 1940. As of December 31, 2002 it had total assets under
management of $6.5 billion, virtually all of which were high yield fixed income
assets.
The name and principal occupation of the principal executive officers and
each director of Shenkman Capital Management are as follows:
Mark Shenkman -- President, Chief Investment Officer, Portfolio Manager and
Director
Albert Fuss -- Director; Chairman, International Asset Management, London,
England
Victor Rosenzweig -- Director; Partner, Olshan Grundman Frome Rosenzweig &
Wolosky LLP, New York, New York
Frank Whitely -- Executive Vice President and Portfolio Manager
Mark Flanagan -- Senior Vice President and Portfolio Manager
Richard Weinstein -- Senior Vice President and General Counsel
Robert Stricker -- Senior Vice President and Director of Credit Research
The address of each of these persons is 461 Fifth Avenue, New York, New
York.
Shenkman Capital Management currently serves as sub-adviser to four
open-end mutual funds having similar investment objectives as the Fund: SEI
Institutional Managed Trust-High Yield Bond Fund; SEI Insurance Products
Trust-SEI VP High Yield Bond Fund; Harbor High Yield Bond Fund; and Dreyfus
Premier High Income Fund. Shenkman Capital Management does not currently manage
a closed-end fund similar to the Fund.
IMPACT ON EXISTING ADVISORY AGREEMENT WITH TIMESSQUARE CAPITAL MANAGEMENT.
No changes are being made to the Fund's investment advisory agreement with
TimesSquare. TimesSquare will continue to provide all back office and
administrative support to the Fund, such as preparation of shareholder reports
and other filings, and
6
communicating with the Fund's Board of Trustees, custodian, lender and auditors.
Although Shenkman Capital Management will assume day-to-day responsibility for
managing a substantial majority of the Fund's investments, in the future
TimesSquare may manage directly a portion of the Fund's investments. TimesSquare
will oversee Shenkman Capital Management's management of Fund assets and
determine the portion of Fund assets to be managed by Shenkman Capital
Management. As noted earlier, TimesSquare Capital Management, not the Fund, will
pay the sub-advisory fees under the proposed sub-advisory agreement, so approval
of the sub-advisory agreement will not change the amount of advisory fees the
Fund pays. The investment advisory agreement between the Fund and TimesSquare is
dated April 5, 1988. It was approved by Fund shareholders in May 1989. During
2002, the Fund paid TimesSquare $1,607,000 for services provided under the
investment advisory agreement. TimesSquare's principal business address is Four
Times Square, New York, New York, 10036.
Approval of the sub-advisory agreement will, to the extent that the
sub-advisory agreement constitutes an amendment or assignment of TimesSquare's
investment advisory agreement with the Fund under the 1940 Act, also represent
approval of the amendment or assignment of the investment advisory agreement.
RECOMMENDATION OF THE BOARD OF TRUSTEES
Based on its review, the Board of Trustees unanimously approved the
selection of Shenkman Capital Management to serve as sub-adviser to the Fund,
and the proposed sub-advisory agreement. The Board then directed that the
selection of Shenkman Capital Management and the proposed sub-advisory agreement
be submitted to shareholders for approval with the Board's recommendation that
shareholders of the Fund vote to approve the selection of Shenkman Capital
Management as sub-adviser and the proposed sub-advisory agreement.
Approval of the sub-advisory agreement requires an affirmative vote of a
majority of the outstanding voting securities of the Fund (within the meaning of
the 1940 Act) to be approved. Under the 1940 Act, a "majority of the outstanding
voting securities of a registered investment company means the affirmative vote
by holders of the lesser of either (a) 67% or more of the outstanding voting
securities of such company present at a meeting, if the holders of more than 50%
of the outstanding voting securities of such company are present in person or
represented by proxy or (b) more than 50% of the outstanding voting securities
of such company. If the proposal does not receive the requisite shareholder
approval, then the Trustees will meet to consider possible alternatives, which
might include resubmission of the proposal for shareholder approval.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE "FOR" PROPOSAL ONE
7
PROPOSAL TWO
ELECTION OF TRUSTEES
At the meeting, six Trustees are to be elected by the shareholders of the
Fund. The Board of Trustees has nominated and recommends the election of Ms.
Marnie Wagstaff Mueller, Ms. Carol Ann Hayes and Messrs. Richard H. Forde,
Russell H. Jones, David P. Marks and Paul J. McDonald. Each of the nominees
other than Ms. Hayes is currently serving on the Board of Trustees. Shareholders
are asked to elect Ms. Mueller, Ms. Hayes and Messrs. Forde, Jones, Marks and
McDonald as Trustees of the Fund, each to hold office until the next Annual
Meeting of Shareholders or until the election and qualification of his or her
successor.
Each of the Trustees of the Fund other than Ms. Hayes also serves as a
Trustee of CIGNA Investment Securities ("CIS"). TimesSquare, an indirect, wholly
owned subsidiary of CIGNA, serves as investment adviser to both the Fund and
CIS. CIS will hold an annual meeting on April 29, 2003, at which shareholders
will be asked to elect Ms. Mueller, Ms. Hayes and Messrs. Forde, Jones, Marks
and McDonald as Trustees.
All shares represented by valid proxies will be voted in the election of
Trustees for the nominees unless authority to vote for a particular nominee is
withheld. Proxies cannot be voted for a greater number of persons than the
nominees named in the proxy statement. If any nominee should be unable to serve,
an event not now anticipated, proxies will be voted for such other person as
shall be designated by the Board of Trustees of the Fund, or the Board of
Trustees may reduce the number of Trustees, as authorized by the Declaration of
Trust. All of the nominees have agreed to serve if elected.
Messrs. Jones and McDonald were first elected to the Board in 1995. Mr.
Forde was appointed to the Board in 1998. Ms. Mueller was appointed to the Board
in 2001. Mr. Marks was appointed to the Board in 2002. Ms. Mueller and Messrs.
Forde, Jones and McDonald were last elected by shareholders on April 30, 2002.
The following table sets forth the number of shares of the Fund and shares
of all mutual funds in the CIGNA family of mutual funds beneficially owned by
the nominees and by the Fund's Trustees and officers as a group. The information
provided is as of December 31, 2002. As of December 31, 2002, neither the
Trustees as a group nor the Trustees and officers as a group owned beneficially
more than 1% of the outstanding shares of the Fund.
Nominees who are not Dollar Range of Aggregate Dollar Range of Equity Securities
"interested persons" Equity Securities in All Funds Overseen or to be Overseen by
of the Fund in the Fund Trustee in Family of Investment Companies
- ------------------------- ------------------- --------------------------------------------
Russell H. Jones $1-$10,000 $10,001--$50,000
Paul J. McDonald $1-$10,000 $10,001--$50,000
Marnie Wagstaff Mueller None None
Carol Ann Hayes None None
8
Nominees who are Dollar Range of Aggregate Dollar Range of Equity Securities
"interested persons" Equity Securities in All Funds Overseen or to be Overseen by
of the Fund in the Fund Trustee in Family of Investment Companies
- ---------------------- ------------------- ---------------------------------------------
Richard H. Forde $1-$10,000 $1-$10,000
David P. Marks None None
Based on information furnished by each independent Trustee as of December
31, 2002, neither Russell Jones, Paul McDonald, Carol Ann Hayes, Marnie Mueller
nor any of their immediate family members owned any securities issued by
TimesSquare, CIGNA Corporation or their affiliates as of that date.
Section 16(a) Beneficial Owner Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Fund's Trustees and executive officers, and
persons who own more than 10% of a registered class of the Fund's equity
securities ("10% shareholders"), to file with the Securities and Exchange
Commission ("SEC") and the New York Stock Exchange reports of ownership and
reports of changes in ownership of common stock and other equity securities of
the Fund. Officers, Trustees and 10% shareholders are required by SEC
regulations to furnish the Fund with copies of all Section 16(a) forms they
file. Based solely on review of the copies of such reports received by the Fund,
or written representations from certain persons that no such reports were
required to be filed for those persons, the Fund believes all Section 16(a)
filing requirements applicable to officers, Trustees and 10% shareholders were
satisfied, except that a Form 5 filing for Mr. Jones covering a purchase of 500
shares of the Fund was filed late.
The following tables show information for each nominee, including age,
present position, principal occupation or employment during the last five years,
principal affiliations, including any Trusteeships presently held in companies
that have issued publicly-held securities and any material interest in or
relationship with TimesSquare and any of its affiliated persons presently and
during the preceding five years. The Fund does not have a principal underwriter
or administrator. Each nominee currently serves as a Trustee of the Fund, CIGNA
Funds Group, CIGNA Variable Products Group, and of CIGNA Investment Securities,
except that Ms. Mueller is not a Trustee of CIGNA Variable Products Group, Mr.
Marks is not a Trustee of CIGNA Variable Products Group or CIGNA Funds Group,
and Ms. Hayes is not presently a Trustee of any of these funds.
9
Nominees who are not "interested persons" of the Fund
Number of Other
Term of Portfolios Directorships
Name, Position Office** and Principal In Fund Held by
Address* Held with Length of Occupation(s) Complex Trustee or
And Age Fund Time Served During Past 5 Years Overseen Nominee
- ------------------------------------------------------------------------------------------------
Russell H. Trustee Trustee Vice President (Investor 14 None
Jones since 1995 Relations, Public
58 Relations) and Treasurer,
Kaman Corporation
(helicopters and aircraft
components, industrial
distribution)
- ------------------------------------------------------------------------------------------------
Carol Ann Nominee N/A Director and Head of 0 Reed &
Hayes Audit Committee, Reed Barton
58 & Barton Corporation Corporation
(silversmith company);
previously, certified
public accountant and
Manager of Marketing,
Coopers & Lybrand
(accounting firm)
- ------------------------------------------------------------------------------------------------
Paul J. Trustee Trustee Special Advisor to Board 14 Western
McDonald since 1995 of Directors, Friendly Ice Massachusetts
59 Cream Corporation Electric
(family restaurants and Company
dairy products);
previously, Senior
Executive Vice president
and Chief Financial
Officer, Friendly Ice
Cream Corporation
- ------------------------------------------------------------------------------------------------
Marnie Trustee Trustee Diocesan Consultant, 11 None
Wagstaff since 2001 Episcopal Diocese of
Mueller Connecticut; previously,
66 visiting Professor of
Health Economics,
Wesleyan University
10
Nominees who are "interested persons" of the Fund, and Fund Officers
Number of Other
Term of Portfolios Directorships
Name, Position Office** and Principal In Fund Held by
Address* Held with Length of Occupation(s) Complex Trustee or
And Age Fund Time Served During Past 5 Years Overseen Nominee
- ------------ ----------- -------------- --------------------------- ------------ --------------
David P. Trustee Trustee Chief Investment 2 Director of
Marks since 2002 Officer, CIGNA Various
56 Retirement & Investment Subsidiaries
Services and President, of CIGNA
TimesSquare Capital Corporation
Management, Inc.;
previously, Partner, Green
Mountain Partners
(Buyout Firm); President
and Chief Investment
Officer, Allianz of
America, Inc. (Investment
Advisory Firm)
- -----------------------------------------------------------------------------------------------
Richard H. Chairman Trustee, Managing Director, 14 Director of
Forde of the Chairman CIGNA Retirement & various
49 Board of and Investment Services, Inc. subsidiaries
Trustees, President and TimesSquare Capital of CIGNA
President since 1998 Management, Inc. Corporation
- -----------------------------------------------------------------------------------------------
Alfred A. Vice Officer CIGNA Funds Treasurer; 14 --
Bingham President since 1979 Assistant Vice President,
III 58 and TimesSquare Capital
Treasurer Management, Inc.
- -----------------------------------------------------------------------------------------------
Jeffrey S. Vice Officer Senior Counsel, 14 --
Winer President since 1994 CIGNA Corporation
45 and
Secretary
- -----------------------------------------------------------------------------------------------
* All Trustees and officers have a mailing address c/o TimesSquare Capital
Management, Inc., 280 Trumbull Street, H16C, Hartford, CT 06103.
** Each Trustee's term of office will be until the next annual meeting of
shareholders or until the election of the Trustee's successor.
No officer or Trustee of the Fund who received any remuneration from the
Fund during 2002 was serving as a director, officer or employee of CIGNA,
TimesSquare or any of their affiliates or subsidiaries. The other current
Trustees, taken as a group, were paid or accrued Trustee fees for 2002 from the
Fund in the aggregate amount of $30,000. Under current compensation
arrangements, these Trustees will be entitled to receive from the Fund an annual
retainer of $7,100 plus a fee of $400 for each Board meeting attended and $400
for each Committee meeting attended. These Trustees will also be entitled to
receive, as compensation for their services as Trustees, an annual retainer of
$2,000, a $400 Board meeting fee, and a $400 Committee meeting fee from CIGNA
Variable
11
Products Group, an annual retainer of $4,000, a $800 Board meeting fee and $800
Committee meeting fee from CIGNA Funds Group, and an annual retainer of $5,100,
a $400 Board meeting fee, and a $400 Committee meeting fee from CIGNA Investment
Securities. All Trustees are entitled to receive reimbursements for expenses
incurred in connection with each Board and Committee meeting attended. These
reimbursements of expenses are allocated among the Fund, each series of CIGNA
Funds Group and CIGNA Variable Products Group, and CIGNA Investment Securities
so that each entity pays an amount based on its net assets as a percentage of
the aggregate net assets of such entities.
The following table sets forth the compensation paid by the Fund and by the
CIGNA Fund complex to Trustees in 2002:
Total
Compensation
from Fund
and CIGNA
Fund
Aggregate Complex
Name of Person, Compensation Paid to
Position with Fund from Fund trustees (e)
------------------ --------- ------------
Richard H. Forde, President, Chairman and Trustee ......... $ 0 $ 0
Russell H. Jones, Trustee (a) ............................. 10,000 32,700
David P. Marks, Trustee (b) ............................... 0 0
Paul J. McDonald, Trustee (c) ............................. 10,000 32,700
Marnie Wagstaff Mueller, Trustee .......................... 10,000 32,700
Farhan Sharaff, Trustee (d) ............................... 0 0
------- -------
Totals .................................................... $30,000 $98,100
======= =======
- ------
(a) All but $24,241 of Mr. Jones' 2002 compensation was deferred under a plan
for all CIGNA funds in which he had an aggregate balance of $43,730 as of
December 31, 2002.
(b) Mr. Marks was appointed to the Board in 2002.
(c) Mr. McDonald's balance in the CIGNA funds deferred compensation plan was
$94,122 as of December 31, 2002.
(d) Mr. Sharaff resigned from CIGNA and the Board in 2002.
(e) There were three investment companies other than the Fund in the CIGNA fund
complex.
The Board of Trustees held five Board meetings during 2002. Each Trustee
attended more than 75% of the aggregate meetings of the Board and Committees on
which such Trustee served during the year. The Board of Trustees has three
standing committees as follows:
Audit Committee
The Audit Committee makes recommendations to the full Board as to the firm
of independent accountants to be selected, reviews the methods, scope and
results of audits and fees charged by such independent accountants, and reviews
the Fund's internal accounting procedures and controls. The Committee held two
meetings in 2002.
12
The Fund has an Audit Committee comprised of only "Independent Trustees"
(as defined in the regulations of the New York Stock Exchange ("NYSE") of the
Fund, who are also not "interested persons" (as defined in the Investment
Company Act of 1940) of the Fund. The Audit Committee reviews the process for
preparing and reviewing financial statements and other audit-related matters as
they arise throughout the year. The Audit Committee makes recommendations to the
full Board as to the firm of independent accountants to be selected. In making
its recommendations, the Audit Committee reviews the nature and scope of the
services to be provided.
In discharging its oversight responsibility as to the audit process, the
Audit Committee discussed with management the process for preparation and review
of the audited financial statements for the last fiscal year. The Audit
Committee also reviewed the non-audit services to be provided by the independent
accountants of the Fund. The independent accountants, PricewaterhouseCoopers LLP
(PWC), discussed with the Board the matters required to be discussed by
Statement on Auditing Standards No. 61. In addition, the Audit Committee
obtained from the independent accountants a formal written statement consistent
with Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees," describing all relationships between the independent
accountants and the Fund that might bear on the independent accountants'
independence. The Audit Committee also discussed with the independent
accountants any relationships that may impact their objectivity and independence
and satisfied itself as to the independent accountants' independence. The Board
also reviewed the fees charged by such independent accountants for the various
services provided and reviewed the Fund's internal accounting procedures and
controls.
For the fiscal year ended December 31, 2002 PWC performed both audit and
non-audit services for the Fund. Audit services consisted of examinations of the
Fund's financial statements and review and consultation in connection with
filings with the SEC. Non-audit services included reviewing tax returns of the
Fund and providing tax planning advice.
PWC also serves as independent accountants for CIGNA Investment Securities
and for each of the series of shares of CIGNA Funds Group and CIGNA Variable
Products Group and performs services for all such entities similar to the
services performed for the Fund. PWC also serves as independent accountants for
CIGNA.
Representatives of PWC may attend the meeting and be provided an
opportunity to make a statement and to respond to questions from shareholders.
FEES PAID TO INDEPENDENT ACCOUNTANTS FOR AUDIT SERVICES
For the audit of the Fund's annual financial statements for the fiscal year
ended December 31, 2002, included in the Fund's annual report to shareholders
for that fiscal year, the Fund paid or accrued [$35,000] to PWC.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
For the fiscal year ended December 31, 2002, the Fund, TimesSquare, and
entities controlling, controlled by or under common control with TimesSquare
which provide
13
services to the Fund did not pay or accrue any fees for financial information
systems design and implementation services by PWC.
OTHER NON/AUDIT, NON/SYSTEMS SERVICES
For the fiscal year ended December 31, 2002, the Fund, TimesSquare, and
entities controlling, controlled by or under common control with TimesSquare
which provide services to the Fund paid or accrued aggregate fees of
approximately [$189,400] in audit fees, and [$132,750] for other services
provided by PWC. The Audit Committee determined that the provision of the
services described above is compatible with maintaining the independence of PWC.
The Board of Trustees has adopted a written charter which sets forth the Audit
Committee's structure, duties and powers, and methods of operation which is
attached hereto as Appendix B. Each member of the Audit Committee must be
financially literate and at least one member must have prior accounting
experience or related financial management expertise. The Board of Trustees has
determined, in accordance with applicable regulations of the NYSE, that each
member of the Audit Committee is financially literate and that Mr. McDonald has
prior accounting experience or related financial management expertise. The
current members of the Audit Committee are Ms. Mueller and Messrs. Jones and
McDonald (Chairperson). All members of the Audit Committee meet the independence
standards of the NYSE listing standards.
Contracts Committee
The Contracts Committee reviews the performance of the investment adviser
and any sub-adviser for the Fund, and makes recommendations to the Board of
Trustees concerning the renewal of the investment advisory agreement. In
performing its function, the Committee obtains from TimesSquare information it
deems necessary to evaluate the terms of the investment advisory agreement and
any changes or amendments to or replacements of the agreement. The Committee
held one meeting in 2002. The current members of the Committee are Ms. Mueller
and Jones (Chairperson) and McDonald, none of whom are interested persons of the
Fund.
Nominating Committee
The Nominating Committee manages the development and maintenance of the
Board's membership, organization and compensation and it identifies and
recommends to the Board individuals to be nominated for election as Trustees. No
policy or procedure has been established as to the recommendation of Trustee
nominees by shareholders. The Committee held six meetings in 2002. The current
members of the Committee are Ms. Mueller (Chairperson) and Messrs. Jones and
McDonald, none of whom are interested persons of the Fund.
Required Vote
Each nominee for Trustee must be elected by a plurality of the shares of
the Fund voted at the meeting.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" EACH OF THE
NOMINEES.
14
MANAGEMENT OF THE FUND
Information concerning the names, positions held with the Fund, principal
occupation or employment during the last five years, and current affiliations of
the executive officers of the Fund, other than for Mr. Forde, Chairman of the
Board and President of the Fund, is set out below. Information concerning Mr.
Forde is set out in the Proposal under the caption "Nominees". The executive
officers are elected annually by the Board of Trustees. As of December 31, 2002,
executive officers of the Fund owned beneficially less than 1% of the shares of
the Fund and of CIGNA.
ALFRED A. BINGHAM III, 58, Vice President and Treasurer, CIGNA Funds Group,
CIGNA Variable Products Group, CIGNA High Income Shares and CIGNA Investment
Securities, Inc.; Assistant Vice President, TimesSquare.
JEFFREY S. WINER, 45, Vice President and Secretary, CIGNA Funds Group,
CIGNA Variable Products Group, CIGNA High Income Shares and CIGNA Investment
Securities, Inc.; Senior Counsel, CIGNA.
OTHER BUSINESS
Shareholder Proposals for 2004
Shareholders may propose matters for inclusion in the proxy statement and
action at next year's annual meeting, subject to certain conditions. Any such
shareholder proposals intended to be presented at the 2004 annual meeting must
be received by management of the Fund prior to November 28, 2003. Shareholder
proposals not included in the proxy material may be presented from the floor at
the annual meeting only if the shareholder notifies the Fund as to the
proposal's nature and certain additional information by February 11, 2004.
The management of the Fund does not know of any other matters to be brought
before the meeting. If any other matters are properly brought before the
meeting, proxies not limited to the contrary will be voted in accordance with
the best judgment of the person or persons acting under the proxies.
/s/ Jeffrey S. Winer
--------------------
Jeffrey S. Winer
Secretary
Worcester, Massachusetts
March 20, 2003
15
APPENDIX A INVESTMENT SUB-ADVISORY AGREEMENT
CIGNA HIGH INCOME SHARES
AGREEMENT made as of this 29TH day of April 2003, between TimesSquare
Capital Management, Inc. (the "Adviser") and Shenkman Capital Management, Inc.,
a New York corporation (the "Sub-Adviser")
WHEREAS, CIGNA High Income Shares, a Massachusetts business trust (the
"Fund") is registered as a closed-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser has entered into an Investment Advisory Agreement
dated April 5, 1988 (the "Advisory Agreement") with the Fund, pursuant to which
the Adviser acts as investment adviser to the Fund; and
WHEREAS, the Adviser, with the approval of the Fund, desires to retain the
Sub-Adviser to provide investment advisory services to the Adviser in connection
with the management of the Fund, and the Sub-Adviser is willing to render such
investment advisory services.
NOW, THEREFORE, the parties hereto agree as follows:
1. DUTIES OF THE SUB-ADVISER. Subject to supervision by the Adviser and
the Fund's Board of Trustees, the Sub-Adviser shall manage such
portion of securities and other assets of the Fund entrusted to it
hereunder (the "Assets"), including the purchase, retention and
disposition of the Assets, in accordance with the Fund's investment
objectives, policies and restrictions as stated in the Fund's
prospectus and statement of additional information, as currently in
effect and as amended or supplemented from time to time (referred to
collectively as the "Prospectus"), and subject to the following:
(a) The Sub-Adviser shall determine from time to time what Assets
will be purchased, retained or sold by the Fund, and what portion
of the Assets will be invested or held uninvested in cash.
(b) In the performance of its duties and obligations under this
Agreement, the Sub-Adviser shall act in conformity with the
Fund's Prospectus and with the instructions and directions of the
Adviser and of the Board of Trustees of the Fund and will conform
to and comply with the requirements of the 1940 Act, the Internal
Revenue Code of 1986, and all other applicable federal and state
laws and regulations, as each is amended from time to time.
(c) The Sub-Adviser shall determine the Assets to be purchased or
sold by the Fund as provided in subparagraph (a) and will place
orders with or through such persons, brokers or dealers to carry
out the policy with respect to brokerage set forth in the
Prospectus or as the Board of Trustees or the Adviser may direct
from time to time, in conformity with federal securities laws. In
executing Fund transactions and selecting brokers or dealers, the
Sub-Adviser will use its best
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efforts to seek on behalf of the Fund the best overall terms
available. In assessing the best overall terms available for any
transaction, the Sub-Adviser shall consider all factors that it
deems relevant, including the breadth of the market in the
security, the price of the security, the financial condition and
execution and operational capability of the broker or dealer, and
the reasonableness of the commission, if any, both for the
specific transaction and on a continuing basis. In evaluating the
best overall terms available, and in selecting the broker-dealer
to execute a particular transaction, the Sub-Adviser may also
consider the brokerage and research services provided (as those
terms are defined in Section 28(e) of the Securities Exchange Act
of 1934). Consistent with any guidelines established by the Board
of Trustees of the Fund, the Sub-Adviser is authorized to pay to
a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for
the Fund which is in excess of the amount of commission another
broker or dealer would have charged for effecting that
transaction if, but only if, the Sub-Adviser determines in good
faith that such commission was reasonable in relation to the
value of the brokerage and research services provided by such
broker or dealer -- viewed in terms of that particular
transaction or terms of the overall responsibilities of the
Sub-Adviser to the Fund and its other clients. In no instance,
however, will the Fund's Assets be purchased from or sold to the
Adviser, Sub-Adviser, or any affiliated person of either the
Fund, Adviser or the Sub-Adviser, acting as principal in the
transaction, except to the extent permitted by the Securities and
Exchange Commission ("SEC") and the 1940 Act.
(d) The Sub-Adviser shall maintain all books and records with respect
to transactions involving the Assets required by subparagraphs
(b)(5), (6), (7), (9), (10) and (11) and paragraph (f) of Rule
31a-1 under the 1940 Act, including, without limitation, the
information specified in Schedule A attached hereto and made a
part of this Agreement. The Sub-Adviser shall provide to the
Adviser or the Board of Trustees such periodic and special
reports, balance sheets or financial information, and such other
information with regard to its affairs as the Adviser or Board of
Trustees may reasonably request.
The Sub-Adviser shall keep the books and records relating to the
Assets required to be maintained by the Sub-Adviser under this
Agreement and shall timely furnish to the Adviser all information
relating to the Sub-Adviser's services under this Agreement
needed by the Adviser to keep the other books and records of the
Fund required by Rule 31a-1 under the 1940 Act. The Sub-Adviser
shall also furnish to the Adviser any other information relating
to the Assets that is required to be filed by the Adviser or the
Fund with the SEC or sent to shareholders under the 1940 Act
(including the rules adopted thereunder) or any exemptive or
other relief that the Adviser or the Fund obtains from the SEC.
The Sub-Adviser agrees that all records that it maintains on
behalf of the Fund are property of the Fund and the Sub-Adviser
will surrender promptly to the Fund any of such records upon the
Fund's request; provided, however, that the Sub-Adviser (i) shall
not be required to provide any material that is not legally
required to be maintained by or on behalf of the Fund and that
constitutes proprietary information or analyses of the
Sub-Adviser, except as may be required by law or legal process;
and (ii) may
A-2
retain a copy of such records. In addition, for the duration of
this Agreement, the Sub-Adviser shall preserve for the period
prescribed by Rule 31a-2 under the 1940 Act any such records as
are required to be maintained by it pursuant to this Agreement,
and shall transfer said records to any successor sub-adviser upon
the termination of this Agreement (or, if there is no successor
sub-adviser, to the Adviser); provided, however, that the
Sub-Adviser (i) shall not be required to provide any material
that is not legally required to be maintained by or on behalf of
the Fund and that constitutes proprietary information or analyses
of the Sub-Adviser, except as may be required by law or legal
process; and (ii) may retain a copy of such records.
(e) The Sub-Adviser shall provide the Fund's custodian on each
business day with information relating to all transactions
concerning the Fund's Assets in accordance with the requirements
set forth on Schedule B attached hereto and made a part of this
Agreement, and such other information as may reasonably be
requested by Adviser.
(f) The investment management services provided by the Sub-Adviser
under this Agreement are not to be deemed exclusive and the
Sub-Adviser and its employees and affiliates shall be free to
render similar services to others and effect transactions for
their account and the account of other clients, as long as such
services do not impair the services rendered to the Adviser or
the Fund. The Adviser and the Fund understand and agree that
nothing contained in this Agreement shall be deemed to impose
upon the Sub-Adviser any obligation to purchase or sell, or to
recommend for purchase or sale, for the Fund any security or
other asset that the Sub-Adviser or its employees or affiliates
may purchase or sell for their own account or for the account of
any other client, if in the sole discretion of the Sub-Adviser it
is for any reason undesirable or impracticable to take such
action or make such recommendation for the Fund.
(g) The Sub-Adviser shall promptly notify the Adviser of any
financial condition that is likely to impair the Sub-Adviser's
ability to fulfill its commitment under this Agreement.
(h) The Sub-Adviser shall review all proxy solicitation materials and
be responsible for voting and handling all proxies in relation to
the securities held in the Fund. The Adviser shall instruct the
custodian and other parties providing services to the Fund to
promptly forward misdirected proxies to the Sub-Adviser.
(i) Services to be furnished by the Sub-Adviser under this Agreement
may be furnished through the medium of any of the Sub-Adviser's
partners, officers, or employees.
(j) The sub-adviser shall not, on behalf of the Fund, purchase
securities of CIGNA Corporation or of any other entity identified
by Adviser to Sub-Adviser in writing.
(k) Sub-Adviser will maintain a written code of ethics complying with
the requirements of Rule 17j-1 under the 1940 Act, will provide
to the Fund a copy of the code of ethics and evidence of its
adoption, and will make such reports to the Fund as required by
Rule 17j-1 under the Act.
A-3
2. DUTIES OF THE ADVISER. The Adviser shall continue to have
responsibility for all services to be provided to the Fund pursuant to
the Advisory Agreement (including, without limitation, management of
those Fund securities and assets that are not given to Sub-Adviser to
manage) and shall oversee and review the Sub-Adviser's performance of
its duties under this Agreement; provided, however, that in connection
with its management of the Assets, nothing herein shall be construed
to relieve the Sub-Adviser of responsibility for compliance with the
Prospectus, the instructions and directions of the Adviser and the
Board of Trustees of the Fund, the requirements of the 1940 Act, the
Internal Revenue Code of 1986, and all other applicable federal and
state laws and regulations, as each is amended from time to time.
3. DELIVERY OF DOCUMENTS. The Adviser has furnished the Sub-Adviser with
Prospectus(es) of the Fund. The Adviser will promptly furnish to the
Sub-Adviser any and all amendments or other changes to the Prospectus,
and the Sub-Adviser shall not be charged with complying with any such
amendment not so delivered to the Sub-Adviser.
4. COMPENSATION TO THE SUB-ADVISER. For the services to be provided by
the Sub-Adviser pursuant to this Agreement, the Adviser will pay the
Sub-Adviser, and the Sub-Adviser agrees to accept as full compensation
therefor, a sub-advisory fee at the rate and in the manner specified
in Schedule C which is attached hereto and made part of this
Agreement. Except as may otherwise be prohibited by law or regulation
(including any then current SEC staff interpretation), the Sub-Adviser
may, in its discretion and from time to time, waive a portion of its
fee.
5. LIMIT OF LIABILITY; INDEMNIFICATION. Unless otherwise required by the
1940 Act or other applicable law, (a) in the absence of willful
misfeasance, bad faith, gross negligence, or reckless disregard of its
obligations or duties hereunder ("Disabling Conduct") on the part of
Sub-Adviser (and its officers, managers, agents, employees,
controlling persons, shareholders and any other person or entity
affiliated with Sub-Adviser), Sub-Adviser shall not be subject to
liability to the Adviser or the Fund (or their officers, managers,
agents, employees, controlling persons, shareholders and any other
person or entity affiliated with the Fund or the Adviser) for any act
or omission in the course of, or connected with, rendering services
hereunder, including, without limitation, any error of judgment or
mistake of law or for any loss suffered by any of them in connection
with the matters to which this agreement relates. Except for such
Disabling Conduct, the Adviser shall indemnify and hold harmless
Sub-Adviser (and its officers, directors, agents, employees,
controlling persons, shareholders and any other person or entity
affiliated with Sub-Adviser) (collectively, the "Indemnified Parties")
from and against all losses, claims, damages, liabilities or
litigation (including reasonable legal and other expenses) arising
from Sub-Adviser's conduct under this Agreement.
(b) Sub-Adviser agrees to indemnify and hold harmless Fund and the
Adviser (and their officers, managers, agents, employees,
controlling persons, shareholders and any other person or entity
affiliated with the Fund or the Adviser) against any and all
losses, claims damages, liabilities or litigation (including
reasonable legal
A-4
and other expenses), to which the Fund, the Adviser or their
affiliates or such officers, directors, agents, employees,
controlling persons or shareholders may become subject under the
1940 Act, under other statutes, at common law or otherwise, which
may be based upon such Disabling Conduct by Sub-Adviser;
provided, however, that in no case is Sub-Adviser's indemnity in
favor of any person deemed to protect or apply to such person
against any liability to which such person would otherwise be
subject by reasons of willful misfeasance, bad faith, or gross
negligence in the performance of his, or her or its duties or by
reason of his, her or its reckless disregard of such person's
obligations and duties under this Agreement.
(c) Sub-Adviser shall not be liable to the Adviser or the Fund for
acts of Sub-Adviser which result from acts or omissions of the
Adviser or Fund, including, but not limited to, a failure by the
Adviser to provide accurate and current information with respect
to any records maintained by the Adviser or Fund, which records
are not also maintained by Sub-Adviser, and the Adviser shall
indemnify and hold harmless the Indemnified Parties from and
against any and all losses, claims, damages, liabilities or
litigation (including reasonable legal and other expenses)
arising from such acts or omissions.
6. DURATION AND TERMINATION. This Agreement shall become effective upon
its approval by the Fund's Board of Trustees and by the vote of a
majority of the outstanding voting securities of the Fund. This
Agreement shall continue in effect for a period of more than two years
from the date hereof only so long as continuance is specifically
approved at least annually in conformance with the 1940 Act; provided,
however, that this Agreement may be terminated with respect to the
Fund (a) by the Fund at any time, without the payment of any penalty,
by the vote of a majority of Trustees of the Fund or by the vote of a
majority of the outstanding voting securities of the Fund, (b) by the
Adviser at any time, without the payment of any penalty, on not more
than 60 days' nor less than 30 days' written notice to the
Sub-Adviser, or (c) by the Sub-Adviser at any time, without the
payment of any penalty, on 90 days' written notice to the Adviser.
This Agreement shall terminate automatically and immediately in the
event of its assignment, or in the event of a termination of the
Adviser's agreement with the Fund. As used in this Section 6, the
terms "assignment" and "vote of a majority of the outstanding voting
securities" shall have the respective meanings set forth in the 1940
Act and the rules and regulations thereunder, subject to such
exceptions as may be granted by the SEC under the 1940 Act.
7. GOVERNING LAW. This Agreement shall be governed by the internal laws
of the Commonwealth of Massachusetts, without regard to conflict of
law principles; provided, however, that nothing herein shall be
construed as being inconsistent with the 1940 Act.
8. SEVERABILITY. Should any part of this Agreement be held invalid by a
court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and
their respective successors.
A-5
9. NOTICE. Any notice, advice or report to be given pursuant to this
Agreement shall be deemed sufficient if delivered or mailed by
certified or overnight mail, postage prepaid, addressed by the party
giving notice to the other party at the last address furnished by the
other party:
To the Adviser at: c/o CIGNA Corporation
280 Trumbull Street
Hartford, CT 06103
H-16C
Attention: Mutual Fund Counsel
To the Sub-Adviser at: 461 Fifth Avenue, 22nd Floor
New York, NY 10017-6283
Attn: Mark R. Shenkman, President
With a copy to: Richard H. Weinstein, Esq.
at the same address
10. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior
agreements and understanding relating to this Agreement's subject
matter. This Agreement shall not be amended, nor shall any provision
of this Agreement be modified or waived, unless evidenced by the
written consent of the parties hereto. This Agreement may be executed
in any number of counterparts, each of which shall be deemed to be an
original, but such counterparts shall, together constitute only one
instrument.
A copy of the Declaration of Trust of the Fund is on file with the
Secretary of State of the Commonwealth of Massachusetts, and notice is hereby
given that the obligations of this instrument are not binding upon any of the
Trustees, officers or shareholders of the Fund or the Trust.
Where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is altered by a rule, regulation or order of the
SEC, whether of special or general application, such provision shall be deemed
to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers.
TimesSquare Capital Management, Inc. Shenkman Capital Management, Inc.
By: By:
------------------------------- -------------------------------
Name: Richard H. Forde Name: Mark R. Shenkman
------------------------------- -------------------------------
Title: Managing Director Title: President
------------------------------ ------------------------------
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Schedule A
Records To Be Maintained By Sub-Adviser
*1. A record of each brokerage order, and all other Fund purchases and sales,
given by Sub-Adviser or on behalf of the Fund for, or in connection with,
the purchase or sale of securities, whether executed or unexecuted. Such
records shall include:
A. The name of the broker,
B. The terms and conditions of the order, and of any modification or
cancellation thereof,
C. The time of entry of cancellation,
D. The price at which executed,
E. The time of receipt of report of execution, and
F. The name of the person who placed the order on behalf of the Fund
(1940 Act Rule, 31a-1(b) (5) and (6)).
*2. A record for each fiscal quarter, completed within ten (10) days after the
end of the quarter, showing specifically the basis or bases upon which the
allocation of orders for the purchase and sale of Fund securities to
brokers or dealers, and the division of brokerage commissions or other
compensation on such purchase and sale orders were made. The record:
A. Shall include the consideration given to:
(i) the sale of shares of the Fund
(ii) the supplying of services or benefits by brokers or dealers
to: (a) the Fund, (b) Adviser, (c) Sub-Adviser, and (d) any
person other than the foregoing
(iii) Any other considerations other than the technical
qualifications of the brokers and dealers as such
B. Shall show the nature of the services or benefits made available.
C. Shall describe in detail the application of any general or specific
formula or other determinant used in arriving at such allocation of
purchase and sale orders and such division of brokerage commissions or
other compensation.
D. The identities of the persons responsible for making the determination
of such allocation and such division of brokerage commissions or other
compensation (1940 Act, Rule 31a-1(b) (9)).
*3. A record in the form of an appropriate memorandum identifying the person or
persons, committees, or groups authorizing the purchase or sale of Fund
securities. Where an authorization is made by a committee or group, a
record shall be kept of the names of its members who participate in the
authorization. There shall be retained as part of this record any
memorandum, recommendation, or instruction supporting or authorizing the
purchase or sale of Fund securities and such other information as is
appropriate to support the authorization. Notwithstanding anything to the
contrary in this Schedule A or the Agreement, the Sub-Adviser shall
A-7
not be required to disclose any material that constitutes or is based upon
the Sub-Adviser's proprietary information or analyses.** (1940 Act, Rule
31a-1(b) (10))
*4. Such accounts, books and other documents as are required to be maintained
by registered investment advisers by rule adopted under Section 204 of the
Investment Advisers Act of 1940, to the extent such records are necessary
or appropriate to record Sub-Adviser's transactions with the Fund. (1940
Act, Rule 31a-1(f)).
* Maintained as property of the Fund pursuant to 1940 Act Rule 31a-3(a).
** Such information might include: the current Form 10-K, annual and quarterly
reports, press releases, reports by analysts and from brokerage firms
(including their recommendations, i.e., buy, sell, hold), and any internal
reports or Fund manager reviews.
A-8
SCHEDULE B
Communications With Custodian
Sub-Adviser should abide by certain rules and procedures in order to minimize
operational problems. Sub-Adviser will be required to have various records and
files (as required by regulatory agencies) at their offices. Sub-Adviser will
have to maintain a certain flow of information to State Street Bank & Trust
Company ("SSB"), the custodial bank for the Fund. Sub-Adviser will be required
to furnish SSB with daily information as to executed trades. SSB should receive
this data no later than the morning following the day of the trade. The
necessary information should be transmitted to SSB (1) via facsimile machine
(the direct line to the facsimile machine is 617-537-5375) or (2) via an
electronic communication system ("System") approved by SSB that meets the
following criteria:
o The System must provide a method by which State Street can reasonably
ensure that each communication received by it though the System actually
originated from the Sub-Adviser.
o Only persons properly authorized by Sub-Adviser's senior operations office
shall be authorized to access the System and enter information, and
Sub-Adviser must employ reasonably procedures to permit only authorized
persons to have access to the System.
o Sub-Adviser will create separate System files containing the daily-executed
securities trade information with respect to the Fund it manages, or
Sub-Adviser will transmit separately the trades for such Fund.
o SSB, through System or otherwise, will provide to Sub-Adviser prompt
certification or acknowledgment of SSB's receipt of each transmission by
Sub-Adviser of executed trade information.
o If the System malfunctions, Sub-Adviser will transmit all trade information
via facsimile transmission.
Upon receipt of brokers' confirmations, Sub-Adviser or SSB will be required to
notify the other party if any differences exist. The reporting of trades by the
Sub-Adviser to SSB must include the following:
o Purchase or Sale
o Security name
o Number of Shares or principal amount
o Price per share or bond
o Commission rate per share or bond, or if a net trade
o Executing broker
o Trade date
o Settlement date
o If security is not eligible for DTC
o This information can be reported using your forms, if applicable
A-9
When opening accounts with brokers for the Fund, the account should be a cash
account. No margin accounts are to be maintained. The broker should be advised
to use SSB IDC's ID system number (N. 20997) to facilitate the receipt of
information by SSB. If this procedure is followed, DK problems will be held down
to a minimum and additional costs of security trades will not become an
important factor in doing business. Delivery and receipt instructions are
attached as Schedule 1. Sub-Adviser will be required to submit to SSB a daily
trade authorization report, either through a System or, if a facsimile
transmission is used, on a form signed by two authorized individuals prior to
settlement date and a list of authorized persons with specimen signatures must
have previously been sent to SSB (see Schedule 2). The daily trade authorization
report will contain information on which SSB can rely to either accept delivery
or deliver out of the account, securities as per Sub-Adviser trades. If
facsimile transmission is used, Sub-Adviser will use a form acceptable to SSB.
A-10
Schedule 1
Mailing Instructions and Delivery Instructions:
Confirmation Instructions (copy of Broker Advice):
State Street Bank and Trust Company
Mutual Fund Services
1776 Heritage Drive (A4E)
North Quincy, MA 02171
For the account of CIGNA High Income Shares
Delivery Instructions:
All DTC Eligible Securities:
Depository Trust Company (DTC) #997 Custodian Services
#20997 Agent Bank
All Ineligible DTC Securities (i.e., Commercial Paper)
State Street Bank and Trust Company
State Street Boston-Securities Corp.
61 Broadway
Main Concourse Level
New York, NY 10006
"VS Payment" (Federal Funds on Commercial Paper Only)
For the account of CIGNA High Income Shares
All Government Issues:
Delivered through Book Entry of Federal Reserve
Bank to: State St Bos/Spec/Fund Name/Fund #
(VS Payment Federal Funds)
Foreign Holdings:
Please confer with Brad Payne, State Street Bank,
(Phone: 617-985-5389) to obtain delivery instructions
of the State Street Global Custody Network
A-11
Schedule 2
Example of Authorized Signature Letter
(To Be Typed on Your Letterhead)
[DATE]
State Street Bank and Trust
Mutual Fund Services
1776 Heritage Drive (A4E)
North Quincy, MA 02171
Attention: CIGNA Charter Mutual Funds
RE: Persons Authorized To Executed Trades For CIGNA High Income Shares ("Fund")
The following list of individuals is authorized to execute and report trade
instructions on behalf of the Fund. Should there be any changes to the
authorized persons listed below, we will notify you immediately of those
changes.
NAME SIGNATURE
Sincerely yours,
A-12
Schedule C
Fees for Sub-Adviser Services
For investment management services provided to the Fund under this Agreement,
Adviser, as a fiduciary for the Fund, shall pay the Sub-Adviser a fee determined
by multiplying the average weekly total asset value of the Fund assets managed
by Sub-Adviser by the annual rate specified below. All fees shall be calculated
and paid quarterly in arrears. The Adviser shall provide a written statement
setting forth the amount of the sub-advisory fee as soon as practicable after
the close of the applicable quarter, and the amount thereof shall be payable
within ten (10) business days after quarter-end. Fees for partial periods shall
be prorated for the portion of the period for which services were rendered.
First $100 Million - 35 basis points
Thereafter - 32.5 basis points
In determining the fees payable to Sub-adviser, the average weekly total asset
value of Fund assets managed by Sub-adviser shall be based on valuations of the
assets furnished by the Fund's custodian.
A-13
APPENDIX B
CIGNA HIGH INCOME SHARES
AUDIT COMMITTEE CHARTER
1. The Audit Committee shall be composed entirely of Trustees who are not
"interested persons" of the Fund within the meaning of Section 2(a)(19) of
the Investment Company Act of 1940, as amended. In addition, so long as the
Fund's shares are listed on the New York Stock Exchange (the NYSE"), the
composition of the Audit Committee shall meet such other requirements as
shall be imposed from time to time by the NYSE.
2. The purposes of the Audit Committee are:
(a) to oversee the Fund's accounting and financial reporting policies and
practices, its internal controls and, as appropriate, the internal
controls of one or more service providers;
(b) to oversee the quality and objectivity of the Fund's financial
statements and the independent audit thereof; and
(c) to act as a liaison between the Fund's independent accountants and the
full Board of Trustees/Trustees (the "Board").
3. The function of the Audit Committee is to assure itself and the Board of
the integrity of financial information and controls maintained in
accordance with contracts, prospectuses and regulations. Management's
responsibility is to maintain appropriate systems for accounting and
internal control. The independent accountant's responsibility is to plan
and carry out a proper audit. The independent accountant's ultimate
accountability is to the Audit Committee and to the Board, which has the
ultimate authority and responsibility regarding the evaluation, appointment
and, when appropriate, the termination of the Fund's independent
accountants.
4. The Audit Committee shall have the following duties and powers:
(a) to recommend the selection, retention or termination of accountants
and, in connection therewith, to otherwise evaluate the independence
of the accountants, including whether the accountants provide any
consulting services to the manager and to request an annual
representation from the accountant of its independence from
management;
(b) to meet with the Fund's independent accountants, including private
meetings, as necessary (i) to review the arrangements for and scope of
the annual audit and any special audits; (ii) to discuss any matters
of concern relating to the Fund's financial statements, including any
adjustments to such statements recommended by the accountants, or
other results of said audit(s); (iii) to consider the accountants'
comments with respect to the Fund's financial policies, procedures and
internal accounting controls and management's responses thereto; and
(iv) to review the form of opinion the accountants propose to render
to the Board and shareholders;
B-1
(c) to consider the effect upon the Fund of any changes in accounting
principles or practices proposed by management or the accountants;
(d) to review the fees charged by the accountants for audit and non-audit
services;
(e) to investigate improprieties or suspected improprieties in fund
operations;
(f) to review any non-audit services to the Fund by its independent
accountants;
(g) to review the working relationship between the Fund's management and
the independent accountants;
(h) to review and discuss the Fund's audited financial statements with the
Fund's management;
(i) to report its activities to the Board on a regular basis, based on the
Committee's review and discussions with management and with the
independent accountants to make a recommendation to the Board as to
whether the Fund's audited financial statements should be included in
the Fund's annual report to shareholders and to make such other
recommendations with respect to the above and other matters as the
Committee may deem necessary or appropriate; and
(j) to prepare any audit committee report required to be included in a
Fund proxy statement.
5. The Committee shall meet at least annually and is empowered to hold special
meetings as circumstances require.
6. The Committee shall regularly meet with the Fund's Treasurer and internal
accountants for the management company and shall have the right of access
to the Fund's Treasurer, other officers and independent accountants.
7. The Committee shall require the independent accountants to provide the
Committee with an annual report regarding the independent accountants'
independence, which report shall include, but not be limited to, a formal
written statement setting forth all relationships between the independent
accountants and (a) the Fund or any of its officers or Trustees or (b) the
Fund's investment adviser(s). The Committee shall discuss such reports with
the independent accountants, and if necessary in the judgment of the
Committee, the Committee shall recommend that the Board take appropriate
action to ensure the independence of the independent accountants or replace
the independent accountants.
8. The Committee shall have the resources and authority appropriate to
discharge its responsibilities, including the authority to retain special
counsel and other experts or consultants at the Fund's expense.
The Committee shall review this Charter at least annually and recommend any
changes to the full Board.
B-2
[Logo]
CIGNA
|X| PLEASE MARK VOTES
AS IN THIS EXAMPLE
CIGNA HIGH INCOME SHARES
This proxy will be voted as specified. If you simply sign the proxy, it will be
voted for proposal 1 and proposal 2. In their discretion, the proxies will also
be authorized to vote upon such other matters that may properly come before the
meeting.
Mark box at right if an address change or comment has been noted on the reverse
side of this card. |_|
CONTROL NUMBER:
-----------------------------
Please be sure to sign and date this Proxy
- --------------------------------------------------------------------------------
Date
- --------------------------------------------------------------------------------
Shareholder sign here
Co-owner sign here
1. To approve the sub-advisory For Against Abstain
agreement between TimesSquare
Capital Management, Inc. and
Shenkman Capital Management, Inc. |_| |_| |_|
2. Election of Trustees. For With- For All
hold Nominees
Except
Ms. Mueller, Ms. Hays and Messrs.
Forde, Jones, Marks and McDonald. |_| |_| |_|
If you do not wish your shares
voted "For" a particular nominee,
mark the "For All Nominees
Except" box and strike a line
through the name(s) of the
nominee(s). Your shares will be
voted for the remaining
nominee(s).
3. In their discretion upon For Against Abstain
such other matters as may
properly come before the meeting.
|_| |_| |_|
RECORD DATE SHARES:
CIGNA HIGH INCOME SHARES
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES
The undersigned hereby appoints Richard H. Forde and Jeffrey S. Winer and either
one of them, proxies of the undersigned, with the power of substitution, to vote
the shares of the undersigned at the Annual Meeting of Shareholders of CIGNA
High Income Shares (the "Fund'), on Tuesday, April 29, 2003 at 11:30 a.m.,
Eastern Time, at The Colony Club, Baystate West, 1500 Main Street, Springfield,
Massachusetts, and at any adjournment thereof, in the manner directed herein on
the matters described in the notice and accompanying proxy statement for the
meeting. The Trustees recommend that you vote "FOR" each of the proposals. If no
direction is made, this proxy will be voted FOR all items described in the proxy
statement. As to any other matters that may properly come before the meeting,
the proxies shall vote in accordance with their best judgment.
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PLEASE VOTE, DATE, AND SIGN ON REVERSE SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please sign this proxy exactly as your name appears on the books of the Fund.
Joint owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign. If a corporation or partnership, this
signature should be that of an authorized officer who should state his or her
title.
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HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
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