UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
811-05495
(Investment Company Act file number)
CIGNA HIGH INCOME SHARES
------------------------
(Exact name of registrant as specified in charter)
2223 Washington Street
3 Newton Executive Park
Suite 200
Newton, MA 02462
(Address of principal executive offices)
Mark Butler, 2223 Washington Street, 3 Newton Executive Park
Suite 200, Newton, MA 02462
(Name and address of agent for service)
(860) 534-4700
--------------
Registrants' telephone number, including area code
Date of fiscal year end: December 31, 2003
Date of reporting period: December 31, 2003
Item 1. Reports to Stockholders.
[GRAPHIC]
CIGNA HIGH
INCOME SHARES
- -------------------------------------------
Annual Report
December 31, 2003
[CIGNA LOGO](R)
- --------------------------------------------------------------------------------
1
Dear Shareholders:
Our commentary for CIGNA High Income Shares (the "Fund") covering the year
ended December 31, 2003 follows.
Management's Discussion and Analysis
Market Summary
The financial markets overcame war, mutual fund and NYSE scandals, a
deteriorating dollar, and terrorist alerts to post their first winning year
since 1999. Consequently, stocks avoided suffering a four-year losing streak, a
phenomenon not witnessed since the Great Depression. Investors began 2003 with
trepidation, stung by three years of sharp declines that followed the bursting
of the technology bubble in March 2000. Moreover, the prospect of war with Iraq
cast a cloud of uncertainty over the economy. By early April, however, the
combination of low interest rates and tax cuts had bolstered investor
sentiment. At year-end, the economy was operating on nearly all cylinders, the
exception being still-sputtering job creation. The high yield bond market
posted its best performance since 1991. Total return as measured by the Lehman
Brothers High Yield Bond Index ("the Index") was 28.97%. Moreover, the spread
versus Treasuries of the Credit Suisse First Boston High Yield Index contracted
by 460 basis points (bps), the biggest one-year change since the index's
inception in January 1986. The year's extraordinary performance was highly
concentrated in the lowest rated issues.
Market dynamics showed a departure from 1998-2002, when credit fundamentals
drove the market. In 2003, demand drove the rally as technicals overrode credit
analysis. High yield mutual funds reported a record $30.2 billion inflow, and
pension funds also allocated huge amounts of new capital to this asset class.
New issue volume, at $149.1 billion, nearly matched 1998's all-time high of
$150.8 billion, but 77.2% of it represented refinancing of existing bonds or
bank debt. As a result, demand steadily outstripped supply.
As the table below illustrates, the most speculative credits showed excellent
returns in 2003.
2003 Market Performance by Rating (1)
BB 19.45%
B 26.01
CC & Lower 60.99
(1) Source: Merrill Lynch High Yield Index
In April 2003, shareholders voted to appoint Shenkman Capital Management, Inc.
as the Fund's investment sub-adviser. Our new adviser has actively repositioned
the Fund, using a three pronged approach. First, divesting securities believed
to be marginal credits with poor near term prospects. Second, selling old
securities that were either investment grade or traded at very low yields.
Third, attempting to sell most of the non-income producing securities (i.e.,
defaults, equities). The repositioning of the portfolio is now complete with an
upgrading of the credit quality without a material reduction in the portfolio's
yield. The strategy has been to selectively purchase new names and better
quality bonds at a moderate discount to provide both high current income and
some capital appreciation potential.
At December 31, 2003, the average maturity of the Fund was 7.7 years, shorter
than the benchmark maturity of 8.2 years. The Fund's average coupon was 9.05%,
versus 8.60% for the benchmark.
The Fund remains broadly diversified, with holdings in 160 issuers. The Fund's
leverage during the quarter remained below 33% of assets and was 31% at
December 31, 2003.
Fund Performance
The Fund returned 31.25% for the year (based on its net asset value),
outperforming the Lehman Brothers High Yield Bond Index, its benchmark,
- --------------------------------------------------------------------------------
2
by 228 bps. On a quarterly basis, the Fund returned 8.30%, 9.44%, 3.34% and
7.16% over the year, compared with the benchmark Index which returned 7.61%,
10.11%, 2.77% and 5.91%, respectively. The Fund outperformed the Index in the
first, third and fourth quarters by 69 bps, 57 bps, and 125 bps, respectively.
The Fund underperformed the Index by 67 bps during the second quarter. The
Fund's return for the year, based on the market value of its shares traded on
the New York Stock Exchange, was 37.23%.
Outlook
The high yield sector should be cushioned to some extent by an improving credit
environment. In the first three quarters of 2003, Moody's downgraded 1.86 high
yield companies for each one it upgraded, down from a ratio of 4.02-to-1 in
2002. Moody's default rate fell from 8.4% to 5.2% during 2003, and we currently
project a 2.0% rate by the end of 2004. In Shenkman Capital Management's
opinion, seven of the eight key high yield market drivers are currently in the
positive column. The one exception is interest rate trends, which Shenkman
ranks as neutral. Accordingly, we currently expect a year of respectable
returns. However, unforeseen events could easily change that outcome.
Sincerely,
/s/ Richard H. Forde
- --------------------
Richard H. Forde
Chairman of the Board and President
CIGNA High Income Shares
- --------------------------------------------------------------------------------
3
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT (Unaudited)
12/31/93 - 12/31/03
AVERAGE ANNUAL RETURN
1 Year 5 Year 10 Year
Market Value 37.23% -5.36% 1.55%
Net Asset Value 31.25% -2.37% 3.22%
Lehman Brothers 28.97% 5.23% 6.89%
High Yield Bond Index
[TABULAR REPRESENTATION OF LINE CHART]
Lehman Brothers
Fund High Yield Bond Index
12/31/1993 $10,000 $10,000
12/31/1994 $ 9,455 $ 9,899
12/31/1995 $11,937 $11,797
12/31/1996 $14,235 $13,136
12/31/1997 $15,893 $14,813
12/31/1998 $15,361 $15,089
12/31/1999 $12,875 $15,450
12/31/2000 $11,581 $14,545
12/31/2001 $10,788 $15,313
12/31/2002 $ 8,497 $15,097
12/31/2003 $11,661 $19,471
CIGNA High Income Shares (the "Fund") performance figures are historical and
reflect reinvestment of all dividends and capital gains distributions and
changes in the market value of its stock, or as shown separately in the box,
changes in its underlying net asset value. The Fund is a closed-end management
investment company which trades over the New York Stock Exchange under the
ticker symbol "HIS." Fund performance does not reflect exchange commissions
payable upon the purchase or sale of the Fund's stock. The Fund's investment
return and principal value will fluctuate so that an investor's shares, when
sold, may be worth more or less than their original cost. Past performance does
not predict future performance. The Fund's return has been compared with the
total return performance of Lehman Brothers High Yield Bond Index. This index is
a group of unmanaged securities widely regarded by investors to be
representative of the high-yield bond market in general. An investment cannot be
made in the index. Index results do not reflect brokerage charges or other
investment expenses.
- --------------------------------------------------------------------------------
CIGNA High Income Shares Investments in Securities 4
December 31, 2003
Principal Value
(000) (000)
- ---------------------------------------------------------------------------------------
BONDS AND NOTES - 138.2%
Aerospace - 5.3%
Aviall, Inc., 7.63%, 2011 $ 1,750 $ 1,824
BE Aerospace, Inc.,
8.00%, 2008 1,500 1,406
9.50%, 2008 1,000 973
Hexcel Corp., 9.75%, 2009 1,750 1,833
Sequa Corp., 8.88%, 2008 1,500 1,627
Titan Corp., 8.00%, 2011 (144A security acquired
May 2003 for $506) (a) 500 570
--------
8,233
--------
Auto/Trucks - 6.5%
Accuride Corp., 9.25%, 2008 1,625 1,670
Dana Credit Corp., 8.38%, 2007 (144A security
acquired May, July & Dec. 2002 for $1,770) (a) 1,850 1,989
Delco Remy International, Inc.,
10.63%, 2006 750 754
11.00%, 2009 500 518
Goodyear Tire & Rubber Co., 7.86%, 2011 500 436
Tenneco Automotive, Inc., 11.63%, 2009 2,500 2,712
TRW Automotive, Inc.,
9.38%, 2013 1,240 1,417
11.00%, 2013 420 495
--------
9,991
--------
Beverages/Food - 5.3%
American Seafoods Group LLC, 10.13%, 2010 640 762
Del Monte Corp., 8.63%, 2012 610 674
Dole Food, Inc.,
7.25%, 2010 750 773
8.88%, 2011 1,000 1,098
Land O' Lakes, Inc., 8.75%, 2011 500 443
Michael Foods, Inc., 8.00%, 2013 (144A security
acquired Nov. 2003 for $600) (a) 600 625
Premier International Foods PLC, 12.00%, 2009 2,100 2,300
Pinnacle Foods Holding Corp., 8.25%, 2013
(144A security acquired Nov. & Dec. 2003 for
$1,015) (a) 1,000 1,035
Principal Value
(000) (000)
- ---------------------------------------------------------------------------------------
Beverages/Food (continued)
Seminis, Inc., 10.25%, 2013 (144A security
acquired Oct. 2003 for $538) (a) $ 500 $ 537
--------
8,247
--------
Broadcasting & Media - 2.8%
Allbritton Communications Co., 7.75%, 2012 1,370 1,421
Corus Entertainment, Inc., 8.75%, 2012 550 608
Panamsat Corp., 8.50%, 2012 420 466
Sinclair Broadcast Group,
8.75%, 2011 1,200 1,332
8.00%, 2012 500 540
--------
4,367
--------
Building Materials - 2.5%
Interface, Inc.,
7.30%, 2008 800 764
10.38%, 2010 350 370
Jacuzzi Brands, Inc., 9.63%, 2010 (144A security
acquired June 2003 for $253) (a) 250 275
Nortek Holdings, Inc.,
8.88%, 2008 1,350 1,404
Step Coupon (0% to 11/15/07), 2011 (144A
security acquired Nov. 2003 for $1,049) (a) 1,500 1,084
--------
3,897
--------
Cable TV - 5.8%
Charter Communications Holdings LLC,
8.63%, 2009 1,000 872
10.25%, 2010 (144A security acquired
Nov. 2003 for $1,276) (a) 1,250 1,313
CSC Holdings, Inc., 10.50%, 2016 2,550 2,913
DirecTV Holdings LLC, 8.38%, 2013 1,210 1,404
Mediacom Broadband LLC, 11.00%, 2013 590 661
Mediacom LLC, 8.50%, 2008 1,750 1,776
--------
8,939
--------
Chemicals/Plastics - 4.7%
Equistar Chemicals LP, 10.13%, 2008 930 1,018
Huntsman ICI Chemicals, Inc., 10.13%, 2009 2,105 2,168
ISP Holdings, Inc., 10.63%, 2009 770 847
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
CIGNA High Income Shares Investments in Securities 5
December 31, 2003 (Continued)
Principal Value
(000) (000)
- -------------------------------------------------------------------------------------
Chemicals/Plastics (continued)
Koppers Industry, Inc., 9.88%, 2013 (144A security
acquired Oct. 2003 for $525) (a) $ 500 $ 551
Kraton Polymers LLC, 8.13%, 2014 (144A security
acquired Dec. 2003 for $506) (a) 500 520
Lyondell Chemical Co.,
10.88%, 2009 500 513
10.50%, 2013 1,500 1,635
--------
7,252
--------
Consumer Products - 5.7%
Jafra Cosmetics International, Inc., 10.75%, 2011 2,000 2,195
Jarden Corp., 9.75%, 2012 500 550
Jostens, Inc., 12.75%, 2010 1,130 1,284
Playtex Products, Inc., 9.38%, 2011 1,500 1,515
Samsonite Corp., 10.75%, 2008 2,000 2,070
United Industries Corp., 9.88%, 2009 1,085 1,137
--------
8,751
--------
Containers & Packaging - 6.7%
Crown Euro Holdings S.A., 9.50%, 2011 1,430 1,616
Graham Packaging Co., Inc.,
8.75%, 2008 500 511
Step Coupon (10.75% to 1/15/09), 2009 910 940
Graphic Packaging International, Inc., 9.50%, 2013
(144A security acquired Aug. 2003 for $1,000) (a) 1,000 1,105
Greif Brothers Corp., 8.88%, 2012 940 1,034
Owens-Brockway,
8.75%, 2012 1,850 2,058
8.25%, 2013 1,750 1,879
Pliant Corp., 13.00%, 2010 500 462
U.S. Can Corp., 10.88%, 2010 (144A security
acquired July 2003 for $751) (a) 750 785
--------
10,390
--------
Principal Value
(000) (000)
- -------------------------------------------------------------------------------------
Environmental - 1.3%
Allied Waste North America, Inc.,
7.88%, 2009 $ 990 $ 1,032
10.00%, 2009 590 637
IESI Corp., 10.25%, 2012 250 278
--------
1,947
--------
Gaming - 5.7%
Boyd Gaming Corp., 7.75%, 2012 1,000 1,070
Hard Rock Hotel, Inc., 8.88%, 2013 (144A security
acquired May 2003 for $1,020) (a) 1,000 1,065
Inn of the Mountain Gods Resort & Casino,
12.00%, 2010 (144A security acquired
Oct. 2003 for $1,000) (a) 1,000 1,063
Isle of Capri Casinos, Inc., 8.75%, 2009 1,570 1,649
Jacobs Entertainment, Inc., 11.88%, 2009 900 1,008
Pinnacle Entertainment, Inc., 9.25%, 2007 2,250 2,329
Poster Financial Group, Inc., 8.75%, 2011 (144A
security acquired Nov. 2003 for $504) (a) 500 529
--------
8,713
--------
General Industrial - 2.8%
Blount, Inc., 13.00%, 2009 1,500 1,616
Norcross Safety Products LLC, 9.88%, 2011 (144A
security acquired Aug. 2003 for $896) (a) 900 988
Sensus Metering Systems, Inc., 8.63%, 2013 (144A
security acquired Dec. 2003 for $1,012) (a) 1,000 1,026
Trimas Corp., 9.88%, 2012 730 763
--------
4,393
--------
Grocery - 2.0%
Couche-Tard U.S. LP, 7.50%, 2013 (144A security
acquired Dec. 2003 for $759) (a) 750 786
Pathmark Stores, Inc.,
8.75%, 2012 500 523
8.75%, 2012 (144A security acquired
Dec. 2003 for $515) (a) 500 522
Stater Brothers Holdings, Inc., 10.75%, 2006 1,230 1,298
--------
3,129
--------
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
CIGNA High Income Shares Investments in Securities 6
December 31, 2003 (Continued)
Principal Value
(000) (000)
- --------------------------------------------------------------------------------
Health Care - 4.9%
Alliance Imaging, Inc., 10.38%, 2011 $ 172 $ 182
Beverly Enterprises, Inc., 9.63%, 2009 375 413
Extendicare Health Services, Inc.,
9.50%, 2010 1,100 1,221
Iasis Healthcare Corp., 13.00%, 2009 1,930 2,171
Medex, Inc., 8.88%, 2013 (144A security acquired
July 2003 for $1,040) (a) 1,000 1,075
NeighborCare, Inc., 6.88%, 2013 (144A security
acquired Oct. 2003 for $750) (a) 750 763
Province Healthcare Co., 7.50%, 2013 1,000 1,000
Select Medical Corp., 7.50%, 2013 500 530
Sybron Dental Specialties, Inc., 8.13%, 2012 250 272
--------
7,627
--------
Home Construction - 1.0%
K. Hovnanian Enterprises, Inc., 7.75%, 2013 1,500 1,584
--------
Leasing - 3.1%
United Rentals, Inc.,
10.75%, 2008 380 427
9.25%, 2009 1,710 1,795
7.75%, 2013 (144A security acquired
Oct. 2003 for $1,000) (a) 1,000 1,021
Williams Scotsman, Inc., 9.88%, 2007 1,520 1,539
--------
4,782
--------
Leisure/Entertainment - 6.9%
AMC Entertainment, Inc., 9.50%, 2011 1,950 2,048
Bally Total Fitness Holding Corp.,
9.88%, 2007 500 455
10.50%, 2011 (144A security acquired
July 2003 For $505) (a) 500 503
Imax Corp., 9.63%, 2010 (144A security acquired
Nov. 2003 for $1,271) (a) 1,250 1,314
Intrawest Corp.,
10.50%, 2010 980 1,083
7.50%, 2013 (144A security acquired
Oct. 2003 for $999) (a) 1,000 1,040
Royal Caribbean Cruises Ltd., 7.25%, 2018 1,250 1,219
Six Flags, Inc., 8.88%, 2010 1,100 1,129
Principal Value
(000) (000)
- --------------------------------------------------------------------------------
Leisure/Entertainment (continued)
Town Sports International, Inc., 9.63%, 2011 $ 1,750 $ 1,872
--------
10,663
--------
Lodging/Hotels - 3.6%
Felcor Lodging LP,
10.00% (Coupon change based on rating), 2008 620 670
9.00% (Coupon change based on rating), 2011 570 618
Host Marriott Corp.,
9.25%, 2007 780 872
7.88%, 2008 1,250 1,298
7.13%, 2013 (144A security acquired
Oct. 2003 for $1,000) (a) 1,000 1,020
La Quinta Properties, Inc., 8.88%, 2011 1,000 1,106
--------
5,584
--------
Oil & Gas - 5.1%
Chesapeake Energy Corp., 7.75%, 2015 1,000 1,090
Ferrellgas Partners LP, 8.75%, 2012 810 891
Premcor Refining Group, Inc., 9.50%, 2013 830 946
Transmontaigne, Inc., 9.13%, 2010 (144A security
acquired May & June 2003 for $1,780) (a) 1,750 1,872
Universal Compression, Inc., 7.25%, 2010 2,000 2,080
Western Resources, Inc., 9.75%, 2007 870 989
--------
7,868
--------
Paper - 3.5%
Georgia-Pacific Corp.,
8.00%, 2014 1,000 1,085
8.00%, 2024 (144A security acquired
Dec. 2003 for $1,000) (a) 1,000 1,020
Jefferson Smurfit Corp., 7.50%, 2013 1,000 1,045
MDP Acquisitions PLC, 9.63%, 2012 1,100 1,232
Smurfit Capital Funding PLC, 7.50%, 2025 1,050 1,022
--------
5,404
--------
Printing & Publishing - 9.3%
American Media Operation, Inc.,
10.25%, 2009 500 533
8.88%, 2011 210 228
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
CIGNA High Income Shares Investments in Securities 7
December 31, 2003 (Continued)
Principal Value
(000) (000)
- ----------------------------------------------------------------------------------------
Printing & Publishing (continued)
Dex Media East/West LLC,
9.88%, 2009 $ 500 $ 573
12.13%, 2012 980 1,205
8.00%, 2013 (144A security acquired
Nov. 2003 for $750) (a) 750 788
9.88%, 2013 (144A security acquired
Aug. 2003 for $500) (a) 500 581
Goss Holdings, Inc., 12.25%, 2005 (b) (c) (e) 2,764 --
Houghton Mifflin Co.,
8.25%, 2011 820 877
9.88%, 2013 410 451
Liberty Group, Inc., 9.38%, 2008 825 833
Mail Well I Corp., 8.75%, 2008 500 499
Primedia, Inc.,
8.88%, 2011 1,595 1,683
8.00%, 2013 (144A security acquired
May 2003 for $746) (a) 750 765
Quebecor Media Inc., 11.13%, 2011 1,485 1,719
RH Donnelley Finance Corp., I 10.88%, 2012
(144A security acquired Nov. 2002 for $760) (a) 760 902
Vertis, Inc.,
9.75%, 2009 1,000 1,086
10.88%, 2009 1,000 1,062
Von Hoffman Corp., 10.25%, 2009 (144A security
acquired Oct. 2003 for $524) (a) 500 532
--------
14,317
--------
Restaurants - 0.5%
Buffets, Inc., 11.25%, 2010 400 431
Dominos, Inc., 8.25%, 2011 (144A security
acquired July 2003 for $261) (a) 250 268
--------
699
--------
Retail - 5.7%
General Nutrition Centers, Inc., 8.50% 2010 (144A
security acquired Nov. 2003 for $1,008) (a) 1,000 1,025
Rent-A-Center, Inc., 7.50%, 2010 2,250 2,385
Principal Value
(000) (000)
- ----------------------------------------------------------------------------------------
Retail (continued)
Rite Aid Corp.,
8.13%, 2010 $ 250 $ 269
7.70%, 2027 2,750 2,516
Saks, Inc., 7.38%, 2019 2,500 2,550
--------
8,745
--------
Service - 8.6%
Alderwoods Group, Inc., 12.25%, 2009 2,075 2,334
Corrections Corp. of America, 7.50%, 2011 1,000 1,050
Iron Mountain, Inc.,
7.75%, 2015 1,000 1,053
6.63%, 2016 1,000 977
Johnsondiversey Holdings, Inc., Step Coupon
(0% to 5/15/07), 2013 (144A security acquired
Sep. & Nov. 2003 for $1,062) (a) 1,500 1,155
Lodgenet Entertainment Corp., 9.50%, 2013 1,500 1,650
NBC Acquisition Corp., Step Coupon
(10.75% to 2/15/09), 2009 (e) 1,920 1,999
Service Corp. International, 7.70%, 2009 1,382 1,475
URS Corp., 11.50%, 2009 1,030 1,170
Wesco Distribution, Inc., 9.13%, 2008 410 424
--------
13,287
--------
Technology - 0.5%
Lucent Technologies, Inc.,
5.50%, 2008 250 233
6.45%, 2029 750 590
--------
823
--------
Telecommunications - 18.3%
ACC Escrow Corp., 10.00%, 2011 (144A security
acquired July, Aug. & Oct. 2003 for $1,799) (a) 1,750 1,951
American Tower Corp., 9.38%, 2009 2,750 2,929
Centennial Communications Corp., 10.13%, 2013 1,000 1,098
Cincinnati Bell, Inc.,
7.25%, 2013 (144A security acquired
Sep. 2003 for $981) (a) 1,000 1,050
8.38%, 2014 (144A security Oct. 2003 for
$504) (a) 500 538
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
CIGNA High Income Shares Investments in Securities 8
December 31, 2003 (Continued)
Principal Value
(000) (000)
- ---------------------------------------------------------------------------------
Telecommunications (continued)
Crown Castle International Corp.,
9.00%, 2011 $ 500 $ 534
7.50%, 2013 (144A security acquired
Nov. & Dec. 2003 for $1,218) (a) 1,250 1,256
GCI, Inc., 9.75%, 2007 840 863
Level 3 Communications, Inc.,
9.13%, 2008 500 455
10.75%, 2011 (144A security acquired
Oct. & Nov. 2003 for $1,816) (a) 1,750 1,851
Nextel Communications, Inc., 9.38%, 2009 685 747
Nextel Partners, Inc., 8.13%, 2011 2,000 2,130
Poland Telecom Finance BV, 14.00%, 2007 (b) (e) 3,000 --
Qwest Communications International, Inc.,
7.00%, 2009 2,230 2,213
8.88%, 2012 (144A security acquired
Aug. & Oct. 2002 for $1,208) (a) 1,390 1,595
6.50%, 2018 1,450 1,276
Rogers Cantel, Inc., 8.80%, 2007 420 432
Rogers Wireless Communications, Inc. 9.63%, 2011 640 765
Rural Cellular Corp., 9.75%, 2010 250 244
SBA Communications Corp., 10.25%, 2009 2,150 2,112
Spectrasite, Inc., 8.25%, 2010 1,900 2,028
Triton PCS Corp., 8.75%, 2011 2,120 2,099
--------
28,166
--------
Textiles - 1.4%
Philips-Van Heusen Corp. 8.13%, 2013 2,000 2,120
--------
Utilities - 8.7%
Calpine Corp., 4.00%, 2006 (convertible to
55.3403 shares at $5.63 until 12/26/06) 1,000 977
Coastal Corp.,
7.50%, 2006 800 780
7.75%, 2010 1,500 1,416
El Paso Corp.
6.75%, 2009 800 766
7.88%, 2012 1,270 1,200
Midland Funding II, 11.75%, 2005 2,474 2,672
SESI LLC, 8.88%, 2011 840 916
Principal Value
(000) (000)
- ---------------------------------------------------------------------------------
Utilities (continued)
Tennessee Gas Pipeline Co.,
7.50%, 2017 $ 2,000 $ 2,065
8.38%, 2032 790 838
Williams Cos., Inc., 8.13%, 2012 1,550 1,728
--------
13,358
--------
Total Bonds and Notes
(Cost - $203,860) 213,276
--------
Number of
Shares
------
COMMON STOCK - 0.0%
Health Care - 0.0%
Mediq, Inc. (Cost - $6,197) (c) (d) (e) 11,973 --
--------
PREFERRED STOCK - 2.1%
Broadcasting & Media - 0.5%
Emmis Communications Corp., 6.25% 15,000 750
--------
Cable TV - 1.0%
CSC Holdings, Inc., 11.13% 14,963 1,571
--------
Telecommunications - 0.6%
Crown Castle International Corp., 6.25% 20,000 876
--------
Total Preferred Stock
(Cost - $2,728) 3,197
--------
WARRANTS - 0.0%
Doe Run Resources Corp., Exp. 2012 (c) 9 --
Pliant Corp., Exp. 2010 (144A security acquired
Sep. 2000 for $135) (a) (c) (e) 3,700 --
--------
Total Warrants
(Cost - $135) --
--------
SHORT-TERM OBLIGATION - 1.8%
Fannie Mae, 0.80%, 1/2/04 (Cost - $2,730) 2,730 2,730
--------
TOTAL INVESTMENTS IN SECURITIES - 142.1%
(Total Cost - $215,650) (f) 219,203
Liabilities in excess of Cash and Other Assets - (42.1%) (64,905)
--------
NET ASSETS - 100% $154,298
========
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
CIGNA High Income Shares Investments in Securities 9
December 31, 2003 (Continued)
- ----------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES
(a) Indicates restricted security; the aggregate value of restricted securities is
$40,252,013 (aggregate cost $38,110,713), which is approximately
26.1% of net assets. Valuations have been furnished by brokers trading
in the securities or a pricing service for all restricted securities.
(b) Defaulted security due to bankruptcy.
(c) Fair valued security.
(d) Non-income-producing security.
(e) Illiquid security.
Tax Information
(f) At December 31, 2003, the net unrealized appreciation of investments,
based on cost for federal income tax purposes of $215,349,966, was
as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost $17,516,141
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value (13,663,038)
-----------
Unrealized appreciation - net $ 3,853,103
===========
- --------------------------------------------------------------------------------
- ---------------------------------------------------------
Quality Ratings* of Long-Term Bonds and Notes (Unaudited)
December 31, 2003
Market % of
Value Market
(000) Value
- ---------------------------------------------------------
Ba/BB $ 42,677 20.0%
B/B 130,549 61.2
Below B 40,050 18.8
-------- -----
$213,276 100.0%
======== =====
*The higher of Moody's or Standard & Poor's Ratings.
- ---------------------------------------------------------
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
CIGNA High Income Shares 10
Statement of Assets and Liabilities
December 31, 2003
(In Thousands)
Assets:
Investments in securities at value $219,203
Cash 310
Interest and dividends receivable 4,739
Investment for Trustees' deferred
compensation plan 231
--------
Total assets 224,483
--------
Liabilities:
Loan payable 68,000
Dividend payable 1,511
Deferred Trustees' fees payable 231
Advisory fees payable 135
Accrued interest payable 134
Audit and legal fees payable 49
Shareholder reports payable 43
Custodian fees payable 34
Insurance expense payable 29
Administrative services fees payable 14
Other 5
--------
Total liabilities 70,185
--------
Net Assets (Equivalent to $2.86 per share based on
53,948 shares of beneficial interest outstanding;
unlimited number of shares authorized) $154,298
========
Components of Net Assets:
Paid in capital $401,289
Undistributed net investment income 630
Accumulated net realized loss (251,174)
Net unrealized appreciation of investments 3,553
--------
Net Assets $154,298
========
Cost of Investments $215,650
========
Statement of Operations
For the Year Ended December 31, 2003
(In Thousands)
Investment Income:
Income:
Interest $20,258
Dividends 82
-------
Total income 20,340
Expenses:
Investment advisory fees $1,519
Interest expense 1,078
Shareholder reports 143
Custodian fees 105
Audit and legal fees 89
Administrative services fees 66
Stock exchange fees 50
Transfer agent fees 46
Trustees' fees 38
Insurance expense 29
------
Total expenses 3,163
------
Net Investment Income 17,177
-------
Realized and Unrealized Gain (Loss) on
Investments:
Net realized loss from investments (21,529)
Net change in unrealized depreciation of
investments 43,218
-------
Net Realized and Unrealized Gain on
Investments 21,689
-------
Net Increase in Net Assets Resulting from
Operations $38,866
=======
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
CIGNA High Income Shares 11
Statements of Changes in Net Assets
(In Thousands)
For the Year Ended December 31,
-------------------------------
2003 2002
--------- --------
Operations:
Net investment income $ 17,177 $ 19,233
Net realized loss from investments (21,529) (110,705)
Net change in unrealized depreciation
on investments 43,218 77,483
--------- --------
Net increase (decrease) from operations 38,866 (13,989)
--------- --------
Dividends and Distributions:
From net investment income (15,126) (15,130)
From return of capital - (4,522)
--------- --------
Total dividends and distributions (15,126) (19,652)
--------- --------
Capital Share Transactions:
Net increase from 389 and 466 capital
shares issued to shareholders in
reinvestment of distributions, respectively 1,020 1,486
--------- --------
Net increase from Fund share transactions 1,020 1,486
--------- --------
Net Increase (Decrease) in Net Assets 24,760 (32,155)
Net Assets:
Beginning of period 129,538 161,693
--------- --------
End of period * $154,298 $129,538
========= ========
* includes undistributed and (overdistributed)
net investment income of: $ 630 $ (303)
========= ========
Statement of Cash Flows
For the Year Ended December 31, 2003
(In Thousands)
Cash Provided (Used) by Financing Activities:
Increase in borrowing $ 17,000
Dividends paid in cash (13,827)
--------
Total amount provided 3,173
--------
Cash Provided (Used) by Operations:
Purchases of portfolio securities (202,540)
Proceeds from sales of portfolio securities 186,915
--------
Total amount provided (15,625)
--------
Net Investment Income (excludes net amortized discount
and premium of $2,054) 15,123
Net change in receivables/payables related to operations (342)
Net purchase of short-term investment securities (2,030)
--------
Total other amounts 12,751
--------
Net increase in cash 299
Cash, beginning of period 11
--------
Cash, End of Period $ 310
========
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
CIGNA High Income Shares 12
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended December 31,
---------------------------------------------------------------------
2003 2002 2001(c) 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value, beginning of period $ 2.42 $ 3.05 $ 3.88 $ 5.92 $ 6.39
Income from investment operations
Net investment income (a) 0.32 0.36 0.55 0.68 0.81
Net realized and unrealized gain (loss) on
investments 0.40 (0.62) (0.81) (1.99) (0.46)
------- -------- ------- -------- --------
Total from investment operations 0.72 (0.26) (0.26) (1.31) 0.35
------- -------- ------- -------- --------
Less dividends and distributions:
Dividends from net investment income (0.28) (0.29) (0.57) (0.73) (0.82)
Distributions from capital -- (0.08) -- -- --
-------- -------- ------- -------- --------
Total dividends and distributions (0.28) (0.37) (0.57) (0.73) (0.82)
-------- -------- ------- -------- --------
Net asset value, end of period $ 2.86 $ 2.42 $ 3.05 $ 3.88 $ 5.92
======== ======== ======= ======== ========
Market value, end of period $ 2.87 $ 2.32 $ 3.36 $ 4.19 $ 5.38
======== ======== ======= ======== ========
Total Investment Return:
Per share market value 37.23% (21.23)% (6.85)% (10.05)% (16.18)%
Per share net asset value (b) 31.25% (9.07)% (7.31)% (24.21)% 5.78%
Ratios to Average Net Assets
Expenses (includes interest expense) 2.21% 2.53% 3.43% 4.16% 3.40%
Expenses (excludes interest expense) 1.46% 1.49% 1.26% 1.09% 1.02%
Net investment income 11.99% 13.29% 15.56% 13.13% 13.05%
Portfolio Turnover 93% 134% 82% 38% 49%
Net Assets, End of Period (000 omitted) $154,298 $129,538 $161,693 $202,401 $305,352
(a) Net investment income per share has been calculated in accordance with SEC
requirements, with the exception that end-of-the-year accumulated
undistributed/(overdistributed) net investment income has not been adjusted
to reflect current-year permanent differences between financial and tax
accounting.
(b) 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 may 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.
(c) Effective January 1, 2001, the Fund was required to start amortizing
premium and discount on all debt securities. The effect of this change on
net investment income per share was an increase of $0.03 per share. The
effect to the ratio of net investment income to average net assets was an
increase of 0.77%. Per share, ratios and supplemental data for periods
prior to January 1, 2001, have not been restated to reflect this change in
accounting principle.
The Notes to Financial Statements are an integral part of these statements.
- --------------------------------------------------------------------------------
CIGNA High Income Shares Notes To Financial Statements 13
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. Normally the Fund will invest at least
80% of its assets in high yield, below investment-grade bonds. The preparation
of financial statements in accordance with accounting principles generally
accepted in the United States of America 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. The
Fund's Board of Trustees has designated the Pricing Committee of TimesSquare
Capital Management, Inc. to make, pursuant to procedures approved by the Board
and under the Board's supervision, all necessary determinations of fair value
for the portfolio securities for which market quotations are not readily
available. When fair valuing securities, the Pricing Committee takes into
account factors such as fundamental and analytical information about the
security, the nature and duration of any restrictions on disposition of the
security, market information (including, for example, factors such as
historical price relationships and valuations for securities with similar
characteristics), and evaluation of significant market events. If events
occurring after the close of the principal market in which securities are
traded (but before the close of regular trading on the NYSE) are believed to
materially affect the value of those securities, such securities are valued at
their fair value, taking such events into account.
B. Foreign Investments -- The Fund may invest in securities of foreign
countries and governments, which involve certain risks in addition to those
inherent in domestic investments. Such risks generally include, among others,
currency risk (fluctuations in currency exchange rates), information risk (key
information may be inaccurate or unavailable) and political risk
(expropriation, nationalization or the imposition of capital or currency
controls or punitive taxes). Other risks of investing in foreign securities
include inadequate accounting controls, liquidity and valuation risks.
- --------------------------------------------------------------------------------
CIGNA High Income Shares Notes To Financial Statements 14
(Continued)
C. High Yield Bonds -- The Fund invests in high yield bonds--i.e., fixed income
securities rated below investment grade. While the market values of these
securities tend to react less to fluctuations in interest rate levels than do
those of investment-grade securities, the market values of certain of these
securities also tend to be more sensitive to individual corporate developments
and changes in economic conditions than investment-grade securities. In
addition, the issuers of these securities are often highly leveraged and may not
have more traditional methods of financing available to them so that their
ability to service their debt obligations during an economic downturn or during
sustained periods of rising interest rates may be impaired.
D. 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, which includes amortization of premium and accrual of discount, is
recorded on the accrual basis. Securities gains and losses are determined on
the basis of identified cost.
E. 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. Distributions reported in the Statement of Changes in Net
Assets from net investment income, including short-term gains and capital
gains, are treated as ordinary income and long-term capital gains,
respectively, for federal income tax purposes.
F. Dividends and Distributions to Shareholders -- Dividends from net investment
income are declared and distributed monthly and distributions from net capital
gains, to the extent such gains would otherwise be taxable to the Fund, are
declared and distributed at least annually. Dividends and distributions are
recorded by the Fund on the ex-dividend date. The timing and characterization
of certain income and capital gains distributions are determined in accordance
with federal tax regulations, which may differ from accounting principles
generally accepted in the United States of America. These differences are
primarily due to differing book and tax treatment of premium amortization,
deferred compensation, capital loss carryforwards, deferral losses due to wash
sales, interest on defaulted securities, and excise tax regulations. To the
extent that such differences are permanent, a reclassification to the
Components of Net Assets may be required. As a result, at December 31, 2003,
the Fund decreased undistributed net investment income by $1,118,056, decreased
accumulated net realized loss by $2,871,198 and decreased paid in capital by
$1,753,142.
G. 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 amortization of premium and discount.
2. Loan. The Fund has a revolving credit agreement (the "Agreement") with an
unrelated third party lender (the "Lender"), which will enable the Fund to
borrow up to the lesser of: (A) $80,000,000; or (B) one-third of the Fund's
total
- --------------------------------------------------------------------------------
CIGNA High Income Shares Notes To Financial Statements 15
(Continued)
assets; or (C) 100% of the borrowing base eligible assets, as determined under
the terms of the Agreement. The Agreement expires on October 31, 2006. Prior to
expiration of the Agreement, principal is repayable in whole or in part at the
option of the Fund. To secure the loan, the Fund has pledged investment
securities in accordance with the terms of the Agreement. Borrowings under this
Agreement bear interest at a variable rate tied to the lender's average daily
cost of funds or at fixed rates, as may be agreed to between the Fund and the
lender.
The average borrowings outstanding during the year ended December 31, 2003,
were $60,603,836, at an average annual interest rate of approximately 1.78%. As
of December 31, 2003, the Fund was paying interest at an annual rate of 1.62%
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 0.50%
thereafter. TimesSquare in turn pays Shenkman Capital Management, Inc. its
sub-advisory fee.
For administrative services, the Fund reimburses TimesSquare for a portion of
the compensation and related expenses of the Fund's Treasurer and Secretary and
certain persons who assist in carrying out the responsibilities of those
offices. For the year ended December 31, 2003, the Fund paid or accrued
$66,181.
TimesSquare is an indirect, wholly-owned subsidiary of CIGNA Corporation.
4. Trustees' Fees. Trustees' fees represent remuneration paid or accrued to
Trustees who are not employees of CIGNA Corporation or any of its affiliates.
Trustees may elect to defer receipt of all or a portion of their fees, which
are invested in mutual fund shares in accordance with a deferred compensation
plan.
5. Purchases and Sales of Securities.
Purchases and sales of securities (excluding short-term obligations) for the
year ended December 31, 2003, were $202,540,053 and $186,915,131 respectively.
6. Tax Information. As of December 31, 2003, the components of distributable
earnings (excluding unrealized appreciation/(depreciation) disclosed in the
Notes to Investment in Securities) on a tax basis consisted of undistributed
ordinary income of $315,596 and a capital loss carryover of $250,975,546, of
which $28,686,393, $35,363,213, $55,878,285, $102,576,339 and $28,471,316 will
expire in 2007, 2008, 2009, 2010 and 2011, respectively. For 2003, the Fund had
no post-October 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.
- --------------------------------------------------------------------------------
CIGNA High Income Shares 16
Report of Independent Auditors
To the Trustees and Shareholders of CIGNA High Income Shares
In our opinion, the accompanying statement of assets and liabilities, including
the investments in securities, and the related statements of operations, of
changes in net assets, and of cash flows and the financial highlights present
fairly, in all material respects, the financial position of CIGNA High Income
Shares (the "Fund") at December 31, 2003, the results of its operations, the
changes in its net assets, and cash flows and the financial highlights for the
periods indicated, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 2003 by correspondence with the custodian,
provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 16, 2004
- --------------------------------------------------------------------------------
CIGNA High Income Shares 17
(Unaudited)
2003 Tax Information
During 2003, the Fund declared dividends of $0.281 per share. For federal
income tax purposes, this included ordinary income dividends of $0.281 per
share. There were no capital gain distributions. A regular monthly distribution
of $0.028, which was declared in December 2003, complied with a provision in
the Internal Revenue Code which requires the Fund to satisfy certain
distribution requirements for a calendar year. Such distributions must be
declared prior to December 31 and paid prior to the following January 31.
Please note that the December 2003 distribution is still considered a 2003
dividend, even though it was received in January 2004. Dividends reported to
you as ordinary income dividends on Form 1099, whether received as stock or
cash, must be included in your federal income tax return and must be reported
by the Fund to the Internal Revenue Service.
The Fund hereby designates 0.54% or the maximum amount allowable of its net
taxable income as qualified dividends as provided in the Jobs and Growth Tax
Relief Reconciliation Tax Act of 2003. The 2003 Form 1099-DIV you receive will
show the tax status of all distributions paid to you during the year.
Approximately 1% of ordinary income dividends would be eligible for the
dividend received deduction (available to corporate shareholders only).
Automatic Dividend and Distribution Investment Plan
Shareholders may elect to have all distributions of dividends and capital gains
automatically reinvested by EquiServe (the "Dividend Paying Agent") as plan
agent under the Automatic Dividend and Distribution Investment Plan (the
"Plan"). Shareholders who do not elect to participate in the Plan will receive
all distributions from the Fund in cash, paid by check mailed directly to the
shareholder by the Dividend Paying Agent. Shareholders may elect to participate
in the Plan and to have all distributions of dividends and capital gains
automatically reinvested by sending written instructions to the Dividend Paying
Agent at the address set forth below on the following page.
If the Trustees of the Fund declare a dividend or determine to make a capital
gains distribution payable either in shares of the Fund or in cash, as
shareholders may have elected, non-participants in the Plan will receive cash
and participants in the Plan will receive the equivalent in shares. If the
market price of the shares as of the close of business on the payment date for
the dividend or distribution is equal to or exceeds their net asset value as
determined as of the close of business on the payment date, participants will
be issued shares of the Fund at a value, equal to the higher of net asset value
or 95% of the market price. If net asset value exceeds the market price of the
shares at such time, or if the Fund declares a dividend or other distribution
payable only in cash, the Dividend Paying Agent will, as agent for Plan
participants, buy shares in the open market, on the New York Stock Exchange or
elsewhere, for the participants' accounts. If, before the Dividend Paying Agent
has completed its purchases, the market price exceeds the net asset value of
the shares, the average per share purchase price paid by the Dividend Paying
Agent may exceed the net asset value of the shares, resulting in the
acquisition of fewer shares than if the dividend or distribution had been paid
in shares issued by the Fund.
Participants in the Plan may withdraw from the Plan upon written notice to the
Dividend Paying Agent. When a participant withdraws from the Plan or upon
termination of the Plan as provided below,
- --------------------------------------------------------------------------------
CIGNA High Income Shares 18
(Unaudited)
certificates for the whole shares credited to his or her account under the Plan
will be issued and a cash payment will be made for any fraction of a share
credited to such account.
The Dividend Paying Agent will maintain all shareholders' accounts in the Plan
and will furnish written confirmation of all transactions in the account,
including information needed by shareholders for tax records. Shares in the
account of each Plan participant (other than participants whose shares are
registered in the name of banks, brokers, nominees or other third parties) will
be held by the Dividend Paying Agent in the non-certificated form in the name
of the participant, and each shareholder's proxy will include those shares
purchased pursuant to the Plan. At no additional cost, shareholders of the Fund
may send to the Dividend Paying Agent for deposit into their Plan account those
share certificates in their possession. Shareholders may also send share
certificates to the Dividend Paying Agent for the Dividend Paying Agent to hold
in a book-entry account outside of the Plan.
Whether or not shareholders participate in the Plan, they may elect by notice
to the Dividend Paying Agent to have the Dividend Paying Agent sell their
noncertificated book-entry shares. The Dividend Paying Agent will deduct from
the sale proceeds $2.50 per transaction plus $0.15 per share and remit the
balance of the sales proceeds to the shareholder. The Dividend Paying Agent
will sell the noncertificated shares on the first trading day of the week
immediately following receipt of written notification by the Dividend Paying
Agent.
In the case of shareholders, such as banks, brokers or nominees which hold
shares for others who are the beneficial owners, the Dividend Paying Agent will
administer the Plan on the basis of number of shares certified, from time to
time, by the record shareholders as representing the total amount registered in
the record shareholder's name and held for the account of beneficial owners who
are to participate in the Plan. Investors whose shares are held in the name of
banks, brokers or nominees should confirm with such entities that participation
in the Plan will be possible, and should be aware that they may be unable to
continue to participate in the Plan if their account is transferred to another
bank, broker or nominee. Those who do participate in the Plan may subsequently
elect not to participate by notifying such entities.
There is no charge to participants for reinvesting dividends or distributions,
except for certain brokerage commissions, as described below. The Dividend
Paying Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Fund. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Dividend
Paying Agent's open market purchases in connection with the reinvestment of
dividends or distributions.
Participants in the Plan should be aware that they will realize capital gains
and income for tax purposes upon dividends and distributions, although they
will not receive any payment of cash.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan as applied to any
dividend or distribution paid subsequent to written notice of the change sent
to the participants in the Plan at least 90 days before the record date for
such dividend or distribution. The Plan also may be amended or terminated by
the Dividend Paying Agent on at least 90 days' written notice to participants
in the Plan. All correspondence concerning the Plan, including requests for
additional information or an application brochure or general inquiries about
your account, should be directed to EquiServe, P.O. Box 43011, Providence, RI
02940-3011 or you may call toll free 1-800-426-5523.
- --------------------------------------------------------------------------------
CIGNA High Income Shares 19
(Unaudited)
Trustees and Officers
Shareholders elect a Board that oversees the Fund's operations. The Board
appoints officers who are responsible for day-to-day business decisions based
on policies set by the Board.
The following is a list of the Fund's Board of Trustees and officers. Each
Trustee's term of office will be until the next annual meeting of shareholders
or until the election of the Trustee's successor.
Number of
Name, Position Length Portfolios in Other
Address* Held with of Time Principal Occupation(s) During Fund Complex Directorships
And Age Fund Served Past 5 Years Overseen Held by Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Independent Trustees
Russell H. Trustee Trustee since Vice President (Investor Relations, 14 --
Jones 1995 Public Relations) and Treasurer,
59 Kaman Corporation (helicopters
and aircraft components, industrial
distribution)
Paul J. Trustee Trustee since Special Advisor to Board of 14 Western
McDonald 1995 Directors, Friendly Ice Cream Massachusetts
60 Corporation (family restaurants Electric Company
and dairy products)
Marnie Trustee Trustee since Diocesan Consultant, Episcopal 14 Boston Mutual Life
Wagstaff 2001 Diocese of Connecticut; Previously, Insurance Company
Mueller Visiting Professor of Health
64 Economics, Wesleyan University
Carol Ann Trustee Trustee since Director and Chair of Audit 14 Reed and Barton
Hayes 2003 Committee, Reed and Barton Corporation
59 Corporation
Affiliated Trustees and Fund Officers
Richard H. Trustee, Trustee, Managing Director, CIGNA 14 Director of various
Forde Chairman of Chairman and Retirement & Investment Services subsidiaries of
50 the Board and President since and TimesSquare Capital CIGNA Corporation
President 1998 Management, Inc.
David P. Trustee Trustee since Chief Investment Officer, CIGNA 14 Director of various
Marks 2003 Retirement & Investment Services subsidiaries of
57 CIGNA Corporation
Alfred A. Vice President Officer Since CIGNA Funds Treasurer; Assistant 14 --
Bingham III and Treasurer 1982 Vice President, TimesSquare Capital
59 Management, Inc.
Jeffrey S. Vice President Officer Since Senior Counsel, CIGNA 14 --
Winer and Secretary 1993 Corporation
46
- ------------------------------------------------------------------------------------------------------------------------------
* All Trustees and officers have an address c/o TimesSquare Capital Management, Inc., 280 Trumbull Street, H16C, Hartford,
CT 06103.
- --------------------------------------------------------------------------------
CIGNA High Income Shares 20
- --------------------------------------------------------------------------------
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., 280 Trumbull
Street, Hartford, Connecticut 06103. Shenkman Capital Management, Inc. is the
Fund's sub-adviser.
Shareholders may elect to have dividends automatically invested in additional
shares of CIGNA High Income Shares by participating in the Automatic Dividend
Investment Plan ("the Plan"). For a brochure describing this Plan or general
inquiries about your account, contact EquiServe, P.O. Box 43011, Providence, RI
02940-3011 or you may call toll free 1-800-426-5523.
- --------------------------------------------------------------------------------
[CIGNA LOGO](R) ------------------
PRESORTED STANDARD
CIGNA High Income Shares U.S. POSTAGE
3 Newton Executive Park PAID
Suite 200 SO. HACKENSACK, NJ
Newton, MA 02462 PERMIT 750
------------------
Printed on recycled paper
542776 12/03
Item 2. Code of Ethics.
The Registrant has adopted a Code of Ethics that applies to its principal
executive officer and principal financial officer. The Registrant undertakes to
provide to any person without charge, upon request, a copy of the Code of
Ethics. Such request can be made to the Secretary of the Registrant, c/o
TimesSquare Capital Management, Inc., 280 Trumbull Street, H16C, Hartford, CT
06103.
Item 3. Audit Committee Financial Expert.
The Registrant's Board of Trustees has determined that Carol Ann Hayes, Russell
H. Jones and Paul J. McDonald are "audit committee financial experts", all of
whom are "independent." Mr. Jones serves as Senior Vice President, Chief
Investment Officer and Treasurer of Kaman Corporation. His responsibilities
include communications with financial analysts concerning Kaman Corporation.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees
For the audit of the Registrant's annual financial statements for the fiscal
year ended December 31, 2002 and December 31, 2003, included in the Registrant's
annual report to shareholders for those fiscal years, PricewaterhouseCoopers LLP
("PWC") billed the Registrant $35,000 and $39,000, respectively.
(b) Audit-Related Fees
For the fiscal years ended December 31, 2002 and December 31, 2003, PWC billed
the Registrant $9,800 and $11,300, respectively, for assurance or related
services related to the audit of the Registrant's financial statements. These
services related to performing agreed upon procedures relating to Registrant's
revolving line of credit.
(c) Tax Fees
For the fiscal years ended December 31, 2002 and December 31, 2003, PWC billed
the Registrant $5,075 and $5,700, respectively, for reviewing the Registrant's
federal income tax and excise tax returns and reviewing excise distribution
estimate calculations.
(d) All Other Fees
For the fiscal years ended December 31, 2002 and December 31, 2003, PWC did not
bill the Registrant for any other products and services.
(e)(1) The Audit Committee has not developed pre-approval policies and
procedures relating to the provision of services to the Registrant by the
Registrant's independent accountant.
(e)(2) For the fiscal years ended December 31, 2002 and December 31, 2003, 100%
of the PWC fees described above under the captions "Audit Related Fees", "Tax
Fees" and "All Other Fees" were approved by the Registrant's Audit Committee
pursuant to paragraph (c)(7)(i)(C) of Rule 2.01 of Regulation S-X.
For the fiscal years ended December 31, 2002 and December 31, 2003, PWC did not
bill any fees that were required to be approved by the Registrant's Audit
Committee pursuant to paragraph (c)(7)(ii)(C) of Rule 2.01 of Regulation S-X.
(f) Not applicable.
(g) The aggregate non-audit fees billed by PWC for services rendered to
TimesSquare Capital Management, Inc. ("TimesSquare"), the investment adviser to
the Registrant, and other entities controlling, controlled by, under common
control with TimesSquare that provide ongoing services to the Registrant for
fiscal years ending December 31, 2002 and 2003, were $128,250 and $100,148,
respectively.
(h) In considering PWC's independence, the Audit Committee considered whether
the provision of non-audit services rendered by PWC to TimesSquare and other
entities controlling, controlled by, under common control with TimesSquare that
provide ongoing services to the Registrant that were not pre-approved pursuant
to paragraph (c)(7)(ii)(C) of Rule 2.01 of Regulation S-X was compatible with
maintaining PWC's independence.
Item 5. Audit Committee Listed Registrants.
Registrant has a separately-designated standing audit committee designated in
accordance with section 3(a)(58)(A) of the Securities Exchange Act of 1934. The
committee members are Carol Ann Hayes, Russell H. Jones, Paul J. McDonald and
Marnie Wagstaff Mueller.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
The Registrant's policies and procedures that it uses to determine how to vote
proxies relating to portfolio securities are attached hereto.
Item 8. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
None.
Item 9. Submission of Matters to a Vote of Security Holders.
The Registrant has adopted a nominating committee charter that sets forth
procedures by which shareholders may recommend nominees to the Registrant's
Board of Trustees. The charter is attached as an exhibit hereto.
Item 10. Controls and Procedures.
(a) The officers providing the certifications in this report in accordance with
Rule 30a-2 under the Investment Company Act of 1940 have concluded, based on
their evaluation of the Registrant's disclosure controls and procedures (as such
term is defined in such rule), that such
controls and procedures are adequate and reasonably designed to achieve the
purposes described in paragraph (c) of such rule.
(b) There were no changes in the Registrant's internal controls over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940)
that occurred during the Registrant's last fiscal half-year (the Registrant's
second fiscal half-year in the case of an annual report) that have materially
affected, or is reasonably likely to materially affect, the Registrant's
internal control over financial reporting.
Item 11. Exhibits.
(a)(1) Code of Ethics referred to in Item 2, filed as an exhibit hereto.
(a)(2) Proxy voting policies referred to in Item 7, filed as an exhibit hereto.
(a)(3) Nominating committee charter referred to in Item 9, filed as an exhibit
hereto.
(a)(4) The certifications required by Rule 30a-2 of the Investment Company Act
of 1940, as amended, and Sections 302 and 906 of the Sarbanes-Oxley Act of 2002,
filed as exhibits hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) CIGNA HIGH INCOME SHARES
/s/ Jeffrey S. Winer
By:
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Jeffrey S. Winer, Vice President and Secretary
Date: March 5, 2004.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
/s/ Richard H. Forde
By (Signature and Title)*
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Richard H. Forde, Chairman of the Board and President
Date: March 5, 2004.
/s/ Alfred A. Bingham III
By (Signature and Title)*
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Alfred A. Bingham III, Vice President and Treasurer
Date: March 5, 2004.