UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-02273
--------------------------------------------
Transamerica Income Shares, Inc.
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(Exact name of registrant as specified in charter
570 Carillon Parkway, St. Petersburg, Florida 33716
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(Address of principal executive office) (Zip code)
John K. Carter, Esq., P.O. Box 5068, Clearwater, Florida 33758-5068
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(Name and address of agent for service)
Registrant's telephone number, including area code: (727) 299-1800
-----------------
Date of fiscal year end: 03/31/03
-----------
Date of reporting period: 04/1/03 - 09/30/03
-------------------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1 (REPORT TO SHAREHOLDERS): The Semi-Annual Report is attached.
FORM N-CSR (2 of 3)
ITEM 2 (CODE OF ETHICS): Not applicable to this filing.
ITEM 3 (AUDIT COMMITTEE FINANCIAL EXPERT): Not applicable to this filing.
ITEM 4 (PRINCIPAL ACCOUNTANT FEES AND SERVICES): Not applicable to this filing.
ITEM 5 (RESERVED)
ITEM 6 (RESERVED)
ITEM 7 (DISCLOSURE OF PROXY VOTING POLICIES & PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES): Not applicable to this filing.
ITEM 8 (RESERVED)
ITEM 9 (CONTROLS AND PROCEDURES):
(a) Based on their evaluation of registrant's disclosure controls and
procedures (as defined in rule 30a-2(c) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(c)) as of June 30, 2003, registrant's
principal executive officer and principal financial officer found
registrant's disclosure controls and procedures to be appropriately
designed to ensure that information required to be disclosed by
registrant in the reports that it files under the Securities
Exchange Act of 1934 (a) is accumulated and communicated to
registrant's management, including its principal executive officer
and principal financial officer, to allow timely decisions
regarding required disclosure, and (b) is recorded, processed,
summarized and reported, within the time periods specified in the
rules and forms adopted by the U.S. Securities and Exchange
Commission.
(b) There have been no significant changes in registrant's internal
controls or in other factors that could significantly affect
registrant's internal controls subsequent to the date of the most
recent evaluation as indicated, including no significant deficiencies
or material weaknesses that required corrective action.
ITEM 10 (EXHIBITS):
SUB-ITEM 10a - Not applicable to this filing.
SUB-ITEM 10b - Included with this filing.
TRANSAMERICA INCOME SHARES, INC.
FOR THE PERIOD ENDING SEPTEMBER 30, 2003
FORM N-CSR 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.
Transamerica Income Shares, Inc.
By: /S/ Brian C. Scott
---------------------------------------------------------------
Brian C. Scott
President and Chief Executive Officer
Date: 12/01/03
--------------------------------------------------------------
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.
By: /S/ Brian C. Scott
---------------------------------------------------------------
Brian C. Scott
President and Chief Executive Officer
Date: 12/01/03
--------------------------------------------------------------
By: /S/ Kim D. Day
---------------------------------------------------------------
Kim D. Day
Vice President, Treasurer and Principal Financial Officer
Date: 12/01/03
--------------------------------------------------------------
Transamerica Income Shares, Inc.
SEMI-ANNUAL REPORT
SEPTEMBER 30, 2003
(TRANSAMERICA INVESTMENT MANAGEMENT, LLC LOGO)
REPORT TO SHAREHOLDERS
In the six months ended September 30, 2003, the U.S. corporate bond market
offered superior returns compared to Treasury securities as the spread between
corporate and Treasury yields narrowed, fostering considerable price
appreciation in the corporate sector during the spring and early summer. We
believe that bond yields rose, pushing prices down, as investors sensed that
faster economic growth could lead to higher interest rates down the road.
The performance of the fund was driven by three factors. Chief among them was
our emphasis on three of the top-performing industries within the corporate
sector: telecommunications, utilities and media. For several quarters now, we
have emphasized these industries because they offer a wide choice of companies
focused on paying down debt and improving their credit quality. It is our belief
that the gains in these sectors may have run their course. That, combined with
our constructive outlook on the economy, prompted us late in the period to
initiate or add to investments in cyclical industries which we believe may gain
pricing power from the economic upswing. These include companies in the paper
and forest products and metals and mining sectors.
In anticipation of rising yields, we reduced the duration, or interest rate
sensitivity of the portfolio and invested a modest portion of net assets in
high-yield securities, which added to the fund's yield.
At this juncture, we are seeing signs of economic expansion and willingness by
businesses to take risk. In light of that, we expect that interest rates may
rise slightly and therefore will maintain the fund's shorter duration. We will
also continue our search for corporate bonds that may benefit disproportionately
from a more robust U.S. economy.
/s/ Heidi Y. Hu
Heidi Y. Hu
Portfolio Manager
1
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
SCHEDULE OF INVESTMENTS
AT SEPTEMBER 30, 2003
(UNAUDITED)
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------------
CORPORATE DEBT SECURITIES (93.2%)
Air Transportation (0.9%)
Delta Air Lines, Inc.
9.75%, due
05/15/2021 $ 2,000,000 $ 1,330,000
Amusement & Recreation Services (3.0%)
MGM MIRAGE
6.00%, due
10/01/2009 3,500,000 3,517,500
Speedway Motorsports, Inc. - 144A
6.75%, due
06/01/2013 1,000,000 1,012,500
Automotive (2.7%)
General Motors Corporation
9.40%, due
07/15/2021 3,750,000 4,125,379
Beverages (2.0%)
Cia Brasileira de Bebidas - 144A
8.75%, due
09/15/2013 3,000,000 3,030,000
Business Services (2.3%)
Clear Channel Communications, Inc.
7.88%, due
06/15/2005 3,200,000 3,514,016
Commercial Banks (4.0%)
HSBC Capital Funding LP - 144A (b)
10.18%, due
12/31/2049 4,000,000 5,986,680
Communication (4.3%)
Echostar DBS Corporation - 144A
6.38%, due
10/01/2011 4,000,000 4,000,000
Liberty Media Corporation
5.70%, due
05/15/2013 2,500,000 2,496,160
Department Stores (2.2%)
J.C. Penney Company, Inc.
8.00%, due
03/01/2010 3,000,000 3,292,500
Drug Stores & Proprietary Stores (2.5%)
Medco Health Solutions, Inc.
7.25%, due
08/15/2013 3,500,000 3,730,559
The notes to the financial statements are an integral part of this report.
2
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
AT SEPTEMBER 30, 2003
(UNAUDITED)
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------------
Electric Services (6.0%)
AEP Texas Central Co. - 144A
6.65%, due
02/15/2033 $ 2,000,000 $ 2,095,040
FirstEnergy Corp.
6.45%, due
11/15/2011 3,500,000 3,652,250
TXU Energy Company LLC - 144A
7.00%, due
03/15/2013 3,000,000 3,261,234
Environmental Services (2.1%)
Allied Waste North America, Inc.
7.88%, due
01/01/2009 3,000,000 3,112,500
Food Stores (1.8%)
Stater Bros. Holdings Inc.
10.75%, due
08/15/2006 2,550,000 2,671,125
Gas Production & Distribution (1.0%)
Northwest Pipeline Corporation
9.00%, due
08/01/2022 1,544,000 1,574,880
Holding & Other Investment Offices (2.3%)
EOP Operating Limited Partnership
8.38%, due
03/15/2006 3,000,000 3,396,861
Hotels & Other Lodging Places (2.1%)
Park Place Entertainment Corporation (a)
7.00%, due
04/15/2013 3,000,000 3,101,250
Industrial Machinery & Equipment (0.9%)
Caterpillar, Inc.
9.38%, due
03/15/2021 1,000,000 1,397,323
The notes to the financial statements are an integral part of this report.
3
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
AT SEPTEMBER 30, 2003
(UNAUDITED)
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------------
Insurance (4.9%)
ACE Capital Trust II
9.70%, due
04/01/2030 $ 4,000,000 $ 5,212,344
WellPoint Health Networks Inc.
6.38%, due
06/15/2006 2,000,000 2,208,552
Lumber & Wood Products (3.8%)
Nexfor Inc.
8.13%, due
03/20/2008 3,000,000 3,471,780
Weyerhaeuser Company
7.38%, due
03/15/2032 2,000,000 2,232,646
Motion Pictures (3.8%)
AOL Time Warner Inc.
9.13%, due
01/15/2013 4,500,000 5,675,625
Oil & Gas Extraction (6.5%)
Nexen Inc.
7.88%, due
03/15/2032 2,750,000 3,325,088
Occidental Petroleum Corporation
10.13%, due
09/15/2009 500,000 658,016
Pemex Finance Ltd.
9.03%, due
02/15/2011 4,900,000 5,929,098
Paper & Allied Products (1.4%)
Abitibi-Consolidated Inc.
8.85%, due
08/01/2030 2,000,000 2,086,826
Paperboard Containers & Boxes (2.4%)
Packaging Corporation of America - 144A
5.75%, due
08/01/2013 3,500,000 3,554,719
Personal Credit Institutions (3.2%)
ERAC USA Finance Company - 144A
8.25%, due
05/01/2005 4,500,000 4,913,100
The notes to the financial statements are an integral part of this report.
4
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
AT SEPTEMBER 30, 2003
(UNAUDITED)
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------------
Printing & Publishing (5.4%)
Belo Corp.
8.00%, due
11/01/2008 $ 2,500,000 $ 2,978,823
News America Holdings
9.25%, due
02/01/2013 3,985,000 5,213,623
Railroads (0.8%)
Burlington Northern Santa Fe Corporation
9.25%, due
10/01/2006 1,000,000 1,140,000
Real Estate (2.0%)
Simon Property Group, L.P. - 144A
6.75%, due
11/15/2003 3,000,000 3,017,292
Restaurants (5.4%)
Domino's, Inc. - 144A (a)
8.25%, due
07/01/2011 3,500,000 3,696,875
YUM! Brands, Inc.
7.70%, due
07/01/2012 4,000,000 4,430,000
Stone, Clay & Glass Products (3.4%)
Cemex, SA de CV
9.63%, due
10/01/2009 4,250,000 5,131,875
Telecommunications (10.1%)
AT&T Broadband Corp.
8.38%, due
03/15/2013 3,725,000 4,577,094
AT&T Corp. (c)
7.00%, due
11/15/2006 4,000,000 4,507,112
AT&T Wireless Services, Inc.
8.13%, due
05/01/2012 2,500,000 2,968,310
Sprint Capital Corporation
7.90%, due
03/15/2005 3,000,000 3,240,243
------------
TOTAL CORPORATE DEBT SECURITIES
(COST: $128,555,193) 140,466,798
------------
The notes to the financial statements are an integral part of this report.
5
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
AT SEPTEMBER 30, 2003
(UNAUDITED)
NUMBER OF
SHARES VALUE
--------------------------------------------------------
PREFERRED STOCKS (5.4%)
Telecommunications (5.4%)
Centaur Funding
Corp. - 144A 6,750 $ 8,153,568
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TOTAL PREFERRED STOCKS
(COST: $6,844,145) 8,153,568
-------------
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------
SECURITY LENDING COLLATERAL (1.2%)
DEBT (0.5%)
Euro Dollar Terms (0.5%)
Bank of Montreal
1.04%, due
10/14/2003 $ 807,050 $ 807,050
INVESTMENT COMPANIES
(0.7%)
Money Market Funds
(0.7%)
Merrimac Cash Series Fund - Premium Class
1-day yield of 0.97% 1,000,000 1,000,000
-------------
TOTAL SECURITY LENDING
COLLATERAL
(COST: $1,807,050) 1,807,050
-------------
TOTAL INVESTMENT
SECURITIES
(COST: $137,206,388) $ 150,427,416
=============
SUMMARY:
INVESTMENTS, AT VALUE 99.8% $ 150,427,416
OTHER ASSETS IN EXCESS
OF LIABILITIES 0.2% 299,656
NET ASSETS 100.0% $ 150,727,072
----- -------------
----- -------------
The notes to the financial statements are an integral part of this report.
6
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
AT SEPTEMBER 30, 2003
(UNAUDITED)
NOTES TO SCHEDULE OF INVESTMENTS:
(a) At September 30, 2003, all or a portion of this security is on loan (see
Note 1). The market value at September 30, 2003 of all securities on loan is
$1,766,491.
(b) Floating or variable rate note. Rate is listed as of September 30, 2003.
(c) Securities are stepbonds. Coupon steps up by 25 BP for each rating downgrade
by Standard and Poor's or Moody's for each notch below BBB+/A3. Coupon steps
down by 25 BP for each rating upgrade.
7
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
AT SEPTEMBER 30, 2003
(UNAUDITED)
ASSETS:
Investment securities, at value (cost
$137,206,388) (including $1,766,491 of
securities loaned) $150,427,416
Cash 4,806,273
Interest 2,289,417
Other 3,441
------------
157,526,547
------------
LIABILITIES:
Investment securities purchased 4,000,000
Account payables and accrued liabilities:
Management and advisory fees 119,362
Income dividends declared 821,440
Payable for securities on loan 1,807,050
Other 51,623
------------
6,799,475
------------
NET ASSETS applicable to 6,318,771 capital
shares outstanding, $1.00 par value
(authorized 20,000,000 shares) $150,727,072
============
NET ASSET VALUE PER SHARE $ 23.85
============
NET ASSETS CONSIST OF:
Paid-in-capital $142,200,593
Undistributed net investment income (loss) 371,467
Accumulated net realized gain (loss) from
investment securities (5,066,016)
Net unrealized appreciation (depreciation)
on investment securities 13,221,028
------------
NET ASSETS $150,727,072
============
The notes to the financial statements are an integral part of this report.
8
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED SEPTEMBER 30, 2003
(UNAUDITED)
INVESTMENT INCOME:
Interest $ 4,734,127
Dividends 306,450
Income from loaned securities - net 5,459
-----------
5,046,036
-----------
EXPENSES:
Management and advisor fees 373,975
Transfer agent fees 38,982
Custody fees 9,150
Administration fees 16,408
Directors' fees 20,288
Professional fees 42,488
Other 31,476
-----------
532,767
-----------
NET INVESTMENT INCOME 4,513,269
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Realized gain (loss) from investment
securities 2,497,832
Increase (decrease) in unrealized
appreciation (depreciation) on investment
securities 3,495,351
-----------
NET GAIN (LOSS) ON INVESTMENTS: 5,993,183
-----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $10,506,452
===========
The notes to the financial statements are an integral part of this report.
9
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED
SEPTEMBER 30,
2003 MARCH 31,
(UNAUDITED) 2003
-------------- ------------
INCREASE (DECREASE) IN NET
ASSETS FROM:
OPERATIONS:
Net investment income (loss) $ 4,513,269 $ 10,233,277
Net realized gain (loss) from
investment securities 2,497,832 (7,503,800)
Net unrealized appreciation
(depreciation) on
investment securities 3,495,351 7,877,937
------------ ------------
10,506,452 10,607,414
------------ ------------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment income (4,928,641) (11,373,788)
From net realized gains -- (570,901)
Shares of beneficial interest
transactions -- --
------------ ------------
(4,928,641) (11,944,689)
------------ ------------
Net increase (decrease) in
net assets 5,577,811 (1,337,275)
------------ ------------
NET ASSETS:
Beginning of period 145,149,261 146,486,536
------------ ------------
End of period $150,727,072 $145,149,261
============ ============
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)
$ 371,467 $ 786,839
============ ============
The notes to the financial statements are an integral part of this report.
10
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each period:
FOR PERIOD
ENDED YEAR ENDED MARCH 31,
9/30/03 ----------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
-----------------------------------------------------------------------------------------
NET ASSET VALUE
Beginning of period $ 22.97 $ 23.18 $ 24.18 $ 23.54 $ 25.01 $ 25.31
OPERATIONS
Net investment income 0.71 1.62 1.73 1.88 1.93 1.89
Net realized and
unrealized gain
(loss) 0.95 0.06 (0.39) 0.65 (1.48) (0.19)
-------- -------- -------- -------- -------- --------
Total from investment
operations 1.66 1.68 1.34 2.53 0.45 1.70
-------- -------- -------- -------- -------- --------
DISTRIBUTIONS TO
SHAREHOLDERS
Net investment income (0.78) (1.80) (1.80) (1.89) (1.91) (1.88)
Net realized gains -- (0.09) (0.54) -- (0.01) (0.12)
-------- -------- -------- -------- -------- --------
Total dividends/
distributions (0.78) (1.89) (2.34) (1.89) (1.92) (2.00)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE
End of period $ 23.85 $ 22.97 $ 23.18 $ 24.18 $ 23.54 $ 25.01
======== ======== ======== ======== ======== ========
MARKET VALUE PER
SHARE
End of period $ 22.410 $ 24.120 $ 25.700 $ 24.900 $ 21.563 $ 25.188
======== ======== ======== ======== ======== ========
TOTAL RETURN(a) (4.02)% 1.27% 12.86% 25.03% (7.0)% 4.44%
RATIOS AND
SUPPLEMENTAL DATA:
Expenses to average
net assets 0.71%(b) 0.73% 0.65% 0.64% 0.64% 0.63%
Net investment income 5.98%(b) 7.25% 7.19% 8.04% 8.02% 7.45%
Portfolio turnover 38%(c) 76% 54% 122% 64% 33%
Net assets, end of
period (in
thousands) $150,727 $145,149 $146,487 $152,766 $148,772 $158,031
======== ======== ======== ======== ======== ========
The number of shares outstanding at the end of each period was 6,318,771.
(a) Based on the market price of the Fund's shares and including the
reinvestment of dividends and distributions at prices obtained by the Fund's
dividend reinvestment plan.
(b) Annualized.
(c) Not annualized.
The notes to the financial statements are an integral part of this report.
11
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
AT SEPTEMBER 30, 2003
(UNAUDITED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Transamerica Income Shares, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a diversified, closed-end management investment company.
The Fund's investment objective is to seek as high a level of current income
consistent with prudent investment, with capital appreciation as only a
secondary objective.
In the normal course of business the Fund enters into contracts that contain a
variety of representations and warranties and which provide general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
and/or its affiliates that have not yet occurred. However, based on experience,
the Fund expects the risk of loss to be remote.
The following policies were consistently followed by the Fund, in accordance
with accounting principles generally accepted in the United States of America
("GAAP").
SECURITIES VALUATIONS: Debt securities are valued by commercial pricing
services or broker-dealer supplied quotations; however, those that mature in
sixty days or less are valued at amortized cost, which approximates market
value.
Other securities for which quotations are not readily available are valued at
fair value determined in good faith, in accordance with procedures established
by and, under the supervision of the Board of Directors and the Fund's Valuation
Committee. Centaur Funding Corp. is valued by an independent broker quote as per
procedures approved by the board of directors.
12
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AT SEPTEMBER 30, 2003
(UNAUDITED)
CASH: The Fund may leave cash overnight in its cash account with the custodian,
Investors Bank & Trust Company ("IBT"). IBT has been contracted on behalf of the
Fund to invest the excess cash into a savings account, which at September 30,
2003, was paying an interest rate 0.75%.
SECURITIES LENDING: The Fund may lend securities to enhance fund earnings from
investing cash collateral received in making such loans to qualified borrowers
(typically broker/dealers). The Fund has engaged its custodian bank, Investors
Bank & Trust Company ("IBT"), as lending agent to administer its securities
lending program. IBT earns a portion of program net income for its services.
When the Fund makes a security loan, it receives cash collateral as protection
against risk the borrower will default on the loan, and records an asset for the
cash invested collateral and a liability for the return of the collateral.
Securities on loan are included in investment securities at value on the
Statement of Assets and Liabilities and remain on the Schedule of Investments.
Loans of securities are required at all times to be secured by collateral at
least equal to 102% of the value of the securities at the inception of the loan,
and not less then 100% thereafter. The Fund may invest cash collateral in
short-term money market instruments including: U.S. Treasury Bills, U.S. agency
obligations, commercial paper, money market mutual funds, repurchase agreements
and other highly rated, liquid investments. During the life of securities loans,
the collateral and securities loaned remain subject to fluctuation in market
value. IBT marks to
13
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AT SEPTEMBER 30, 2003
(UNAUDITED)
market securities loaned and the collateral each business day. If additional
collateral is due (at least $1,000), IBT collects additional cash collateral
from the borrowers. Although securities loaned will be fully collateralized at
all times, IBT may experience delays in, or may be prevented from, recovering
the collateral on behalf of the Fund. The Fund may recall a loaned security
position at any time from the borrower through IBT. In the event the borrower
fails to timely return a recalled security, IBT indemnifies the Fund by
purchasing replacement securities for the Fund at its own expense and claiming
the collateral to fund such a purchase. IBT absorbs the loss if the collateral
value is not sufficient to cover the cost of the replacement securities. If
replacement securities are not available, IBT will credit the equivalent cash
value to the Fund.
Income from securities lending is included in the Statement of Operations. The
amount of collateral and value of securities on loan are included in the
Statement of Assets and Liabilities as well as in the Schedule of Investments.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Security transactions are
recorded on the trade date. Security gains and losses are calculated on the
specific identification basis. Interest income, including accretion of discounts
and amortization of premiums, is recorded on the accrual basis commencing on the
settlement date.
DIVIDEND DISTRIBUTIONS: Dividend distributions are declared monthly. Capital
gains distributions are declared annually. Distributions are generally paid in
the month following the ex-date, on or about the fifteenth calendar day. See
"Automatic Reinvestment Plan" on page 17 for
14
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AT SEPTEMBER 30, 2003
(UNAUDITED)
opportunity to reinvest distributions in shares of the Fund's common stock.
NOTE 2. FEES AND RELATED PARTY TRANSACTIONS
AEGON/Transamerica Fund Advisers, Inc. ("AFTA") is the Fund's investment
adviser. AEGON/Transamerica Fund Services, Inc. ("ATFS") is the Fund's
administrator. Mellon Investor Services is the Fund's transfer agent. ATFA is a
directly owned subsidiary of Western Reserve Life Assurance Co. of Ohio (78%)
("WRL") and AUSA Holding Company (22%) ("AUSA"). ATFS is a wholly owned
subsidiary of WRL. AUSA and WRL are wholly owned indirect subsidiaries of AEGON
NV, a Netherlands corporation. Transamerica Investment Management, LLC
("Transamerica") serves as sub-adviser to the Fund. Transamerica is an indirect
wholly owned subsidiary of AEGON NV.
For its services to the Fund, ATFA receives a fee of 0.50% of the average daily
net assets of the Fund. This fee is paid to ATFA monthly. ATFA has agreed to
reimburse the Fund if the Fund's total operating expenses (exclusive of
brokerage commissions, interest and taxes) exceed 1.50% of the average daily net
assets of the Fund up to $30 million and 1.00% of the average net assets of the
Fund in excess of $30 million. No such reimbursements were necessary during the
period ended September 30, 2003.
As of September 30, 2003, an affiliate of Transamerica Corporation held 7.6% of
the outstanding shares of the Company.
Officers and certain directors of ATFA or its affiliates are also officers and
directors of the Fund; however, they receive no compensation from the Fund.
15
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AT SEPTEMBER 30, 2003
(UNAUDITED)
NOTE 3. SECURITY TRANSACTIONS
The aggregate cost of securities purchased and the proceeds from securities sold
(excluding short-term investments) were $56,285,493 and $56,889,940,
respectively, for the period ended September 30, 2003.
NOTE 4. FEDERAL INCOME TAX MATTERS
The Fund has not made any provision for federal income or excise taxes due to
its policy to distribute all of its taxable income and capital gains to its
shareholders and otherwise qualify as a regulated investment company under the
Internal Revenue Code. Income and capital gain distributions are determined in
accordance with income tax regulations, which may differ from GAAP. These
differences are primarily due to differing treatments for items including, but
not limited to, bond premium amortization and capital loss carryforwards.
The aggregate cost of investments and composition of unrealized appreciation
(depreciation) for federal income tax purposes as of September 30, 2003, are as
follows:
Federal Tax Cost Basis...................... $137,619,110
============
Unrealized Appreciation..................... 13,512,375
Unrealized (Depreciation)................... (704,069)
------------
Net Unrealized Appreciation
(Depreciation)............................ $ 12,808,306
============
The capital loss carryforwards are available to offset future realized capital
gains through the periods listed:
CAPITAL LOSS
CARRYFORWARD AVAILABLE THROUGH
------------------------ ------------------------
$7,563,848 March 31, 2011
16
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AT SEPTEMBER 30, 2003
(UNAUDITED)
AUTOMATIC REINVESTMENT PLAN
Holders of 50 shares or more of the Fund's common stock are offered the
opportunity to reinvest dividends and other distributions in shares of the
common stock of the Fund through participation in the Automatic Reinvestment
Plan. Under the Plan, Mellon Investor services, as Transfer Agent (the "Transfer
Agent"), automatically invests dividends and other distributions in shares of
the Fund's common stock by making purchases in the open market. Plan
participants may also deposit cash in amounts between $25 and $2,500 with the
Transfer Agent for the purchase of additional shares. Dividends, distributions
and cash deposits are invested in, and each participant's account credited with,
full and fractional shares.
The price at which the Transfer Agent is deemed to have acquired shares for a
participant's account is the average price (including brokerage commissions and
any other costs of purchase) of all shares purchased by it for all participants
in the Plan.
Your dividends and distributions, even though automatically reinvested, continue
to be taxable as though received in cash.
Another feature of the Plan is the "Optional Cash Only" feature. You can make
additional investments only, without reinvesting your monthly dividend. If you
own 50 shares or more, registered in your name and currently in your Plan
account, and desire to periodically send additional contributions between $25
and $2,500 for investment, you may do so. The shares you own and the new shares
acquired through this feature will not participate in automatic reinvestment of
dividends and distributions. Rather, the shares you acquire if you participate
in
17
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AT SEPTEMBER 30, 2003
(UNAUDITED)
the "Optional Cash Only" feature of the Plan will be held for safekeeping in
your Plan account. Each investment will be made on or near the next dividend
payment date. All other procedures for the purchase and sale of shares described
above will apply.
The Transfer Agent charges a service fee of $1.75 for each investment, including
both dividend reinvestment and optional cash investment.
Shareholders interested in obtaining a copy of the Plan should contact the
Transfer Agent:
Mellon Investor Services
Shareholder Investment Services
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
(800) 288-9541
18
TRANSAMERICA INCOME SHARES, INC.
RESULTS OF SHAREHOLDER PROXY (UNAUDITED)
Section 270.30d-1 under the Investment Company Act of 1940, as amended, titled
"Reports to Stockholders of Management Companies," requires regulated investment
companies to report on all subject matters put to the vote of shareholders and
provide final results. Accordingly, the Board of Directors of the Fund solicited
a vote by the shareholders for the following items.
At a special meeting of shareholders held on JULY 3, 2003, the results of
Proposal 1 to re-elect the current Directors to the Board of Directors were as
follows:
ABSTENTIONS/
BROKER
FOR AGAINST NON-VOTES
-------------------------------------------------------------
Peter R. Brown.............. 98.406% 1.594% 0.000%
Daniel Calabria............. 98.586% 1.414% 0.000%
Janice B. Case.............. 98.693% 1.307% 0.000%
Charles C. Harris........... 98.389% 1.611% 0.000%
Leo J. Hill................. 98.674% 1.326% 0.000%
John R. Kenney.............. 98.674% 1.326% 0.000%
Russell A. Kimball, Jr...... 98.637% 1.363% 0.000%
Larry N. Norman............. 98.682% 1.318% 0.000%
William W. Short, Jr........ 98.648% 1.352% 0.000%
---------------------------------------------------------
INVESTMENT ADVISER
AEGON/Transamerica Fund Advisers, Inc.
570 Carillon Parkway
St. Petersburg, FL 33716-1202
SUB-ADVISER
Transamerica Investment Management, LLC
1150 S. Olive Street, 27th Floor
Los Angeles, CA 90015
TRANSFER AGENT
Mellon Investor Services
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
1-800-288-9541
For hearing and speech impaired (TDD)
1-800-231-5469
www.mellon-investor.com
CUSTODIAN
Investors Bank & Trust Company
LISTED
New York Stock Exchange
Symbol: TAI
NASDAQ SYMBOL: XTAIX
---------------------------------------------------------
Transamerica Income Shares, Inc. is a closed-end investment company which
invests primarily in debt securities. Its objective is to provide a high level
of current income.
EXHIBIT INDEX
Exhibit No. Description of Exhibit
----------- ----------------------
10(b)(1) Section 302 N-CSR Certification of Principal Executive Officer
10(b)(2) Section 302 N-CSR Certification of Principal Financial Officer
10(b)(3) Section 906 N-CSR Certification of Principal Executive Officer
10(b)(4) Section 906 N-CSR Certification of Principal Financial Officer
10(b)(5) Section 906 N-CSR Certification of Principal General Counsel