As filed with the SEC on December 2, 2004.
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.
--------------------------------
(Exact Name of Registrant as Specified in Charter)
570 Carillon Parkway, St. Petersburg, Florida 33716
---------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (727) 299-1800
John K. Carter, Esq. P.O. Box 5068, Clearwater, Florida 33758-5068
------------------------------------------------------------------
(Name and Address of Agent for Service)
Date of fiscal year end: March 31
Date of reporting period: April 1, 2004 - September 30, 2004
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. Section 3507.
Item 1: Report(s) to Shareholders. The Semi-Annual Report is attached.
Transamerica Income Shares, Inc.
SEMI-ANNUAL REPORT
SEPTEMBER 30, 2004
(TRANSAMERICA INVESTMENT MANAGEMENT, LLC LOGO)
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
SCHEDULE OF INVESTMENTS
AT SEPTEMBER 30, 2004
(ALL AMOUNTS EXCEPT SHARE AMOUNTS IN THOUSANDS)
(UNAUDITED)
PRINCIPAL VALUE
-------------------------------------------------------
MORTGAGE-BACKED SECURITIES (1.7%)
Countrywide Home Loans, Inc.
5.50%, due 08/01/2006 $ 2,500 $ 2,607
--------
TOTAL MORTGAGED-BACKED
SECURITIES (COST: $2,635) 2,607
--------
CORPORATE DEBT SECURITIES (91.5%)
Aerospace (1.8%)
Boeing Company (The) 2,000 2,655
Amusement & Recreation Services (1.4%)
Speedway Motorsports, Inc.
6.75%, due 06/01/2013 1,000 1,043
6.75%, due 06/01/2013 - 144A 1,000 1,043
Automotive (2.9%)
General Motors Corporation
9.40%, due 07/15/2021 3,750 4,298
Beverages (2.3%)
Cia Brasileira de Bebidas
8.75%, due 09/15/2013 3,000 3,390
Business Services (1.9%)
Clear Channel Communications, Inc.
8.00%, due 11/01/2008 2,500 2,835
Commercial Banks (3.0%)
HSBC Capital Funding LP - 144A(c)
10.18%, due 12/31/2049 3,000 4,582
The notes to the financial statements are an integral part of this report.
2
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
SCHEDULE OF INVESTMENTS
AT SEPTEMBER 30, 2004
(ALL AMOUNTS EXCEPT SHARE AMOUNTS IN THOUSANDS)
(UNAUDITED)
PRINCIPAL VALUE
-------------------------------------------------------
Communication (4.4%)
Echostar DBS Corporation
6.38%, due 10/01/2011 $ 1,000 $ 1,013
Liberty Media Corporation
5.70%, due 05/15/2013 2,500 2,472
Viacom Inc.
7.75%, due 06/01/2005 3,000 3,107
Electric Services (4.3%)
AES Gener S.A. - 144A
7.50%, due 03/25/2014 3,000 3,015
Duke Energy Corporation
4.20%, due 10/01/2008 3,400 3,434
Food & Kindred Products (5.3%)
ConAgra Foods, Inc.
9.75%, due 03/01/2021 1,375 1,910
Michael Foods, Inc.
8.00%, due 11/15/2013 500 524
Smithfield Foods Inc.
7.00%, due 08/01/2011 1,000 1,045
Tyson Foods, Inc.
8.25%, due 10/01/2011 2,000 2,370
Unilever Capital Corporation
6.88%, due 11/01/2005 2,000 2,091
Food Stores (1.0%)
Stater Bros. Holdings Inc. - 144A
8.13%, due 06/15/2012 1,500 1,571
Furniture & Fixtures (0.7%)
Lear Corporation
7.96%, due 05/15/2005 1,000 1,031
The notes to the financial statements are an integral part of this report.
3
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
SCHEDULE OF INVESTMENTS
AT SEPTEMBER 30, 2004
(ALL AMOUNTS EXCEPT SHARE AMOUNTS IN THOUSANDS)
(UNAUDITED)
PRINCIPAL VALUE
-------------------------------------------------------
Gas Production & Distribution (0.8%)
Northwest Pipeline Corporation
9.00%, due 08/01/2022 $ 1,087 $ 1,139
Holding & Other Investment Offices (2.1%)
EOP Operating Limited Partnership
8.38%, due 03/15/2006 3,000 3,223
Hotels & Other Lodging Places (2.5%)
Host Marriott, L.P.
7.13%, due 11/01/2013 2,000 2,100
Park Place Entertainment Corporation
7.00%, due 04/15/2013 1,500 1,669
Industrial Machinery & Equipment (0.9%)
Caterpillar, Inc.
9.38%, due 03/15/2021 1,000 1,390
Instruments & Related Products (1.3%)
RC Trust I
3.50%, due 05/15/2006 3,700 1,953
Insurance (1.8%)
ACE Capital Trust II
9.70%, due 04/01/2030 2,000 2,750
Lumber & Wood Products (2.2%)
Ainsworth Lumber Co., Ltd. - 144A(d)
5.67%, due 10/01/2010 1,000 1,010
Weyerhaeuser Company
7.38%, due 03/15/2032 2,000 2,295
Metal Mining (3.8%)
Barrick Gold Finance, Inc.
7.50%, due 05/01/2007 2,000 2,199
Falconbridge Limited
7.35%, due 11/01/2006 3,200 3,450
The notes to the financial statements are an integral part of this report.
4
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
SCHEDULE OF INVESTMENTS
AT SEPTEMBER 30, 2004
(ALL AMOUNTS EXCEPT SHARE AMOUNTS IN THOUSANDS)
(UNAUDITED)
PRINCIPAL VALUE
-------------------------------------------------------
Motion Pictures (3.7%)
Time Warner Inc.
9.13%, due 01/15/2013 $ 4,500 $ 5,634
Oil & Gas Extraction (12.6%)
Chesapeake Energy Corporation
6.88%, due 01/15/2016 2,500 2,613
Comstock Resources, Inc.
6.88%, due 03/01/2012 2,000 2,050
Enterprise Products Operating L.P.
5.60%, due 10/15/2014 1,000 1,008
Evergreen Resources, Inc.
5.88%, due 03/15/2012 3,000 3,090
Gaz Capital SA (Gazprom)
8.90%, due 08/15/2028 1,370 1,586
Kerr-McGee Corporation
6.95%, due 07/01/2024 2,000 2,131
Occidental Petroleum Corporation
10.13%, due 09/15/2009 500 628
Pemex Finance Ltd.
9.03%, due 02/15/2011 4,900 5,720
Paper & Allied Products (3.8%)
International Paper Company
5.50%, due 01/15/2014 3,750 3,840
Westvaco Corporation
7.95%, due 02/15/2031 1,600 1,897
Personal Credit Institutions (5.9%)
Capital One Bank
6.88%, due 02/01/2006 4,000 4,206
ERAC USA Finance Company - 144A
8.25%, due 05/01/2005 4,500 4,639
The notes to the financial statements are an integral part of this report.
5
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
SCHEDULE OF INVESTMENTS
AT SEPTEMBER 30, 2004
(ALL AMOUNTS EXCEPT SHARE AMOUNTS IN THOUSANDS)
(UNAUDITED)
PRINCIPAL VALUE
-------------------------------------------------------
Petroleum Refining (1.2%)
Amerada Hess Corporation
7.13%, due 03/15/2033 $ 1,750 $ 1,879
Primary Metal Industries (3.3%)
Noranda Inc.
6.00%, due 10/15/2015 1,500 1,600
Phelps Dodge Corporation
8.75%, due 06/01/2011 2,725 3,318
Printing & Publishing (3.4%)
News America Holdings Incorporated
9.25%, due 02/01/2013 3,985 5,120
Railroads (0.7%)
Burlington Northern Santa Fe Corporation
9.25%, due 10/01/2006 1,000 1,102
Security & Commodity Brokers (1.0%)
E*TRADE Financial Corporation - 144A(a)
8.00%, due 06/15/2011 1,500 1,560
Stone, Clay & Glass Products (2.6%)
Cemex, SA de CV
9.63%, due 10/01/2009 3,250 3,933
Telecommunications (5.1%)
Cincinnati Bell Inc. (a)
8.38%, due 01/15/2014 1,000 913
Millicom International Cellular - 144A
10.00%, due 12/01/2013 1,000 1,005
Sprint Capital Corporation
7.90%, due 03/15/2005 3,000 3,073
7.13%, due 01/30/2006 2,500 2,636
The notes to the financial statements are an integral part of this report.
6
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
SCHEDULE OF INVESTMENTS
AT SEPTEMBER 30, 2004
(ALL AMOUNTS EXCEPT SHARE AMOUNTS IN THOUSANDS)
(UNAUDITED)
PRINCIPAL VALUE
-------------------------------------------------------
Transportation & Public Utilities (2.3%)
Magellan Midstream Partners, L.P.
6.45%, due 06/01/2014 $ 3,300 $ 3,468
Transportation Equipment (0.7%)
Bombardier Recreational Products - 144A(a)
8.38%, due 12/15/2013 1,000 1,053
Wholesale Trade Nondurable Goods (0.8%)
Domino's, Inc.
8.25%, due 07/01/2011 1,094 1,184
--------
TOTAL CORPORATE DEBT SECURITIES
(COST: $132,224) 137,493
--------
SHARES VALUE
-------------------------------------------------------
PREFERRED STOCKS (3.2%)
Telecommunications (3.2%)
Centaur Funding Corp. - 144A 3,750 $ 4,843
--------
TOTAL PREFERRED STOCKS
(COST: $3,786) 4,843
--------
PRINCIPAL VALUE
-------------------------------------------------------
SECURITY LENDING COLLATERAL (4.3%)
DEBT (4.0%)
Euro Dollar Terms (2.6%)
Bank of Montreal
1.76%, due 10/25/2004 $ 1,947 $ 1,947
Calyon
1.61%, due 10/22/2004 2,000 2,000
The notes to the financial statements are an integral part of this report.
7
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
SCHEDULE OF INVESTMENTS
AT SEPTEMBER 30, 2004
(ALL AMOUNTS EXCEPT SHARE AMOUNTS IN THOUSANDS)
(UNAUDITED)
PRINCIPAL VALUE
-------------------------------------------------------
Repurchase Agreements (1.4%)(b)
Goldman Sachs Group Inc. (The)
1.91% Repurchase Agreement
dated 09/30/2004 to be
repurchased at $100 on
10/01/2004 $ 100 $ 100
1.94% Repurchase Agreement
dated 09/30/2004 to be
repurchased at $2,000 on
10/18/2004 2,000 2,000
SHARES VALUE
-------------------------------------------------------
INVESTMENT COMPANIES (0.3%)
Money Market Funds (0.3%)
Merrimac Cash Series
Fund-Premium Class
1-day yield of 1.47% 400,000 $ 400
--------
TOTAL SECURITY LENDING
COLLATERAL
(COST: $6,447) 6,447
--------
TOTAL INVESTMENT SECURITIES
(COST: $142,457) $151,390
========
SUMMARY:
INVESTMENTS, AT VALUE 100.7 % $151,390
LIABILITIES IN EXCESS OF OTHER
ASSETS (0.7)% (1,051)
-------- --------
NET ASSETS 100.0 % $150,339
-------- --------
-------- --------
The notes to the financial statements are an integral part of this report.
8
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
SCHEDULE OF INVESTMENTS
AT SEPTEMBER 30, 2004
(ALL AMOUNTS EXCEPT SHARE AMOUNTS IN THOUSANDS)
(UNAUDITED)
NOTES TO SCHEDULE OF INVESTMENTS:
(a) At September 30, 2004, all or a portion of this security is on loan (see
Note 1). The value at September 30, 2004, of all securities on loan is $
6,302.
(b) Cash collateral for the Repurchase Agreements, valued at $2,142, that serve
as collateral for securities lending are invested in corporate bonds with
interest rates and maturity dates ranging from 4.75%-7.75% and 05/15/2009-
12/15/2032, respectively.
(c) HSBC Capital Funding LP - 144A is a variable rate note and has a coupon rate
of 10.18% until 06/30/2030, thereafter, the coupon rate will become the
3-month USD LIBOR plus 498 BP.
(d) Ainsworth Lumber Co., Ltd - 144A is a variable rate note and has a coupon
rate of 5.67%. The coupon rate changes quarterly based on LIBOR plus 375 BP.
DEFINITIONS:
144A Securities are registered pursuant to Rule
144A of the Securities Act of 1933. These
securities may be resold as transactions
exempt from registration, normally to
qualified institutional buyers. At September
30, 2004, these securities aggregated
$24,321 or 16.18% of the net assets of the
Fund.
LIBOR London Interbank Offer Rate
The notes to the financial statements are an integral part of this report.
9
TRANSAMERICA INCOME SHARES, INC.
GRAPHIC PRESENTATION OF PORTFOLIO HOLDINGS
(UNAUDITED)
---------------------------------------------------------
LOGO
A1 Upper medium grade obligations. Superior
ability for repayments of senior short-term
debt obligations.
A2 Upper medium grade obligations. Strong
ability for repayments of senior short-term
debt obligations.
A3 Upper medium grade obligations. Acceptable
ability for repayments of senior short-term
debt obligations.
Baa1 Medium grade obligations. Interest payments
and principal security are adequate for the
present but certain protective elements may
be lacking or may be characteristically
unreliable over great length of time.
Baa2 Medium grade obligations. Interest payments
and principal security appear adequate for
the present but certain protective elements
may be lacking or may be characteristically
unreliable over great length of time.
10
Baa3 Medium grade obligations. Interest payments
and principal security are not as adequate
for the present but certain protective
elements may be lacking or may be
characteristically unreliable over great
length of time.
Ba1 Moderate vulnerability in the near-term but
faces major ongoing uncertainties in the
event of adverse business, financial and
economic conditions.
Ba2 Vulnerable in the near-term but faces major
ongoing uncertainties in the event of
adverse business, financial and economic
conditions.
Ba3 More vulnerable in the near-term but faces
major ongoing uncertainties in the event of
adverse business, financial and economic
conditions.
B1 Moderate vulnerability to adverse business,
financial and economic conditions but
currently has the capacity to meet
financial commitments.
B2 More vulnerable to adverse business,
financial and economic conditions but
currently has the capacity to meet
financial commitments.
B3 Assurance of interest and principal
payments or of maintenance of other terms
of the contract over any long period of
time may be small.
11
TRANSAMERICA INCOME SHARES, INC.
UNDERSTANDING YOUR FUNDS EXPENSES
(UNAUDITED)
---------------------------------------------------------
SHAREHOLDER EXPENSES
The following Example is intended to help you understand your ongoing costs (in
dollars and cents) of investing in a Fund and to compare these costs with the
ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from April 1, 2004 to September 30, 2004.
ACTUAL EXPENSES
The first line in the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line for your Fund under the heading entitled "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR
COMPARISON PURPOSES
The second line in the table below provides information about hypothetical
account values and hypothetical expenses based on each Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in your Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
12
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges, redemption fees, brokerage commissions paid on purchases and sales of
fund shares. Therefore, the second line under each Fund in the table is useful
in comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, note that the expenses shown
in the table are meant to highlight your ongoing costs and do not reflect any
transactions costs.
BEGINNING EXPENSES PAID
ACCOUNT ENDING ACCOUNT DURING PERIOD*
VALUE VALUE ANNUALIZED (APRIL 1, TO
(APRIL 1, (SEPTEMBER 30, EXPENSE SEPTEMBER 30,
TRANSAMERICA INCOME SHARES, INC. 2004) 2004) RATIO 2004)
-------------------------------- --------- -------------- ---------- --------------
Actual $1,000.00 $ 942.60 0.68% $3.30
Hypothetical (5% return per year
before expenses) 1,000.00 1,021.60 0.68 3.40
* Expenses are calculated using each Fund's annualized expense ratio (as
disclosed in the table), multiplied by the average account value for the
period, multiplied by the number of days in the period (183 days), and divided
by the number of days in the year (365 days).
The Fund's performance of calculation is based on the market price of the Fund's
shares and includes the reinvestment of dividends and distributions at prices
obtained by the Fund's dividend reinvestment plan.
13
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
AT SEPTEMBER 30, 2004
(ALL AMOUNTS EXCEPT PER SHARE AMOUNT IN THOUSANDS)
(UNAUDITED)
ASSETS:
Investment securities, at value (cost
$142,457) (including $6,302
securities loaned) $ 151,390
Cash 3,178
Receivables:
Investment securities sold 1,721
Interest 2,471
Other 13
---------
158,773
---------
LIABILITIES:
Investment securities purchased 1,007
Accounts payable and accrued
liabilities:
Management and advisory fees 62
Administration fees 13
Income dividends declared 821
Payable for collateral for securities
on loan 6,447
Other 84
---------
8,434
---------
NET ASSETS applicable to 6,319 capital
shares outstanding, $1.00 par value
(authorized 20,000 shares) $ 150,339
=========
NET ASSET VALUE PER SHARE $ 23.79
=========
NET ASSETS CONSIST OF:
Paid-in capital $ 142,200
Accumulated distributions in excess of
net investment income (950)
Accumulated net realized gain (loss)
from investment securities 156
Net unrealized appreciation
(depreciation) on investment
securities 8,933
---------
NET ASSETS $ 150,339
=========
The notes to the financial statements are an integral part of this report.
14
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED SEPTEMBER 30, 2004
(ALL AMOUNTS IN THOUSANDS)
(UNAUDITED)
INVESTMENT INCOME:
Interest $ 4,667
Dividends 216
Income from loaned securities -- net 4
--------
$ 4,887
--------
EXPENSES:
Management and advisory fees 372
Transfer agent fees 35
Printing and shareholder reports 22
Custody fees 6
Administration fees 11
Directors fees 26
Legal fees 11
Auditing and accounting fees 17
Other 7
--------
507
--------
NET INVESTMENT INCOME (LOSS) 4,380
--------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Realized gain (loss) from investment
securities 361
Increase (decrease) in unrealized
appreciation (depreciation) on
investment securities (3,289)
--------
NET GAIN (LOSS) ON INVESTMENT SECURITIES: (2,928)
--------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 1,452
========
The notes to the financial statements are an integral part of this report.
15
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD AND YEAR ENDED
(ALL AMOUNTS IN THOUSANDS)
SEPTEMBER 30, MARCH 31,
2004 2004
------------- ---------
(UNAUDITED)
INCREASE (DECREASE) IN NET
ASSETS FROM:
Operations:
Net investment income
(loss) $ 4,380 $ 8,997
Net realized gain (loss)
from investment
securities 361 7,663
Net unrealized
appreciation
(depreciation) on
investment securities (3,289) 2,496
--------- ---------
1,452 19,156
--------- ---------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income (4,929) (10,489)
From net realized gains -- --
--------- ---------
(4,929) (10,489)
--------- ---------
Net increase (decrease) in
net assets (3,477) 8,667
--------- ---------
NET ASSETS:
Beginning of year 153,816 145,149
--------- ---------
End of year $ 150,339 $ 153,816
========= =========
ACCUMULATED (DISTRIBUTIONS
IN EXCESS OF) NET
INVESTMENT INCOME $ (950) $ (401)
========= =========
The notes to the financial statements are an integral part of this report.
16
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
FOR PERIOD
ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, ----------------------------------------------------
2004 2004 2003 2002 2001 2000
------------- -------- -------- -------- -------- --------
(UNAUDITED)
NET ASSET VALUE
Beginning of period $ 24.34 $ 22.97 $ 23.18 $ 24.18 $ 23.54 $ 25.01
INVESTMENT OPERATIONS
Net investment income
(loss) 0.69 1.42 1.62 1.73 1.88 1.93
Net realized and
unrealized gain
(loss) (0.46) 1.61 0.06 (0.39) 0.65 (1.48)
-------- -------- -------- -------- -------- --------
Total from investment
operations 0.23 3.03 1.68 1.34 2.53 0.45
-------- -------- -------- -------- -------- --------
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment
income (0.78) (1.66) (1.80) (1.80) (1.89) (1.91)
From net realized
gains -- -- (0.09) (0.54) -- (0.01)
-------- -------- -------- -------- -------- --------
Total distributions (0.78) (1.66) (1.89) (2.34) (1.89) (1.92)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE
End of period $ 23.79 $ 24.34 $ 22.97 $ 23.18 $ 24.18 $ 23.54
======== ======== ======== ======== ======== ========
MARKET VALUE PER
SHARE
End of period $ 22.420 $ 24.620 $ 24.120 $ 25.700 $ 24.900 $ 21.563
======== ======== ======== ======== ======== ========
TOTAL RETURN (a) (5.74)% 9.40% 1.27% 12.86% 25.03% (7.01)%
RATIOS AND
SUPPLEMENTAL DATA:
Expenses to average
net assets 0.68%(b) 0.69% 0.73% 0.65% 0.64% 0.64%
Net investment income 5.90%(b) 5.97% 7.25% 7.19% 8.04% 8.02%
Portfolio turnover 29%(c) 90% 76% 54% 122% 64%
Net assets, end of
period
(in thousands) $150,339 $153,816 $145,149 $146,487 $152,766 $148,772
======== ======== ======== ======== ======== ========
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.
17
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
AT SEPTEMBER 30, 2004
(ALL AMOUNTS IN THOUSANDS)
(UNAUDITED)
NOTE 1. ORGANIZATION AND 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, 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.
In preparing the Fund's financial statements in accordance with accounting
principles generally accepted in the United States of America ("GAAP"),
estimates or assumptions (which could differ from actual results) may be used
that affect reported amounts and disclosures. The following policies were
consistently followed by the Fund, in accordance with GAAP.
SECURITIES VALUATIONS: Fund investments traded on an exchange are valued at the
closing price on the day of valuation on the exchange where the security is
principally traded. With respect to securities traded on the NASDAQ INMS, such
closing price may be the last reported sales price or the NASDAQ Official
Closing Price.
18
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AT SEPTEMBER 30, 2004
(ALL AMOUNTS IN THOUSANDS)
(UNAUDITED)
Debt securities are valued by independent pricing services; however, those that
mature in sixty days or less are valued at amortized cost, which approximates
market.
Other securities for which quotations are not readily available also are valued
at fair market value as determined in good faith using guidelines established by
and under the supervision of the Board of Directors, and the Fund's Valuation
Committee. These guidelines may include: the type of security; any restrictions
on its resale; financial or business news of the issuer; similar or related
securities that are actively trading; related corporate actions; and other
significant events occurring after the close of trading in the security.
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,
2004, was paying an interest rate of 1.30%.
REPURCHASE AGREEMENTS: The Fund is authorized to enter into repurchase
agreements. The Fund, through IBT, receives delivery of the underlying
securities, the value of which at the time of purchase is required to be an
amount equal to at least 100% of the resale price. Repurchase agreements involve
the risk that the seller will fail to repurchase the security, as agreed. In
that case, the Fund will bear the risk of value fluctuations until the security
can be sold and may encounter delays and incur costs in liquidating the
security. In the event of bankruptcy or insolvency of the seller, delays and
costs are incurred.
19
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AT SEPTEMBER 30, 2004
(ALL AMOUNTS IN THOUSANDS)
(UNAUDITED)
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, IBT, as
lending agent to administer its securities lending program. IBT earned $2 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.
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 value. IBT
marks to market securities loaned and the collateral each business day. If
additional collateral is due (at least $1), 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 may indemnify the
Fund by purchasing replacement securities for the
20
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AT SEPTEMBER 30, 2004
(ALL AMOUNTS IN THOUSANDS)
(UNAUDITED)
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.
While a security is on loan, the Fund does not have the right to vote that
security. However, if time permits, the Fund will attempt to recall a security
on loan and vote the proxy.
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. Dividend income is recorded on the ex-dividend
date. 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 25 for opportunity to reinvest
distributions in shares of the Fund's common stock.
21
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AT SEPTEMBER 30, 2004
(ALL AMOUNTS IN THOUSANDS)
(UNAUDITED)
NOTE 2. RELATED PARTY TRANSACTIONS
AEGON/Transamerica Fund Advisers, Inc. ("ATFA") is the Fund's investment
adviser. AEGON/Transamerica Fund Services, Inc. ("ATFS") is the Fund's
administrator. Mellon Investor Services ("Mellon") 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.
Certain officers and directors of the Fund are also officers and/or directors of
ATFA, ATFS, and WRL. No affiliated officer or director receives any compensation
directly from the Fund.
Transamerica Investment Management, LLC ("Transamerica") is both an affiliate of
the Fund and a sub-adviser to the Fund.
INVESTMENT ADVISORY FEES: The Fund pays management fees to ATFA based on
average daily net assets ("ANA") at the following rate:
0.50% of ANA
ATFA currently voluntarily waives its advisory fee and will reimburse the Fund
to the extent that operating expenses exceed the following stated limit:
1.50% of the first $30 million of ANA
1.00% of ANA over $30 million
There were no fees waived during the year ended September 30, 2004. As of
September 30, 2004, an affiliate of
22
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AT SEPTEMBER 30, 2004
(ALL AMOUNTS IN THOUSANDS)
(UNAUDITED)
Transamerica held 7.6% of the outstanding shares of the Fund.
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.
ADMINISTRATIVE SERVICES: The Fund has entered into an agreement with ATFS for
financial and legal fund administration services, which include such items as
compliance, expenses, financial statements and other reporting, distributions,
tax returns, prospectus preparation, board of trustees meeting support, and
other legal matters. The Legal fees on the Statement of Operations are for fees
paid to external legal counsel. For the period from October 1, 2003 to December
31, 2003 the Fund was charged for administrative services at cost. For the
period from January 1, 2004 to September 30, 2004 the Fund was charged 0.015
percent of average net assets for administrative service or $11.
NOTE 3. SECURITY TRANSACTIONS
The cost of securities purchased and proceeds from securities sold (excluding
short-term securities) for the year ended September 30, 2004, were as follows:
Purchases of securities:
Long-Term excluding U.S.
Government...................... $ 41,813
U.S. Government.................... 0
Proceeds from maturities and sales of
securities:
Long-Term excluding U.S.
Government...................... 43,924
U.S. Government.................... 0
23
TRANSAMERICA INCOME SHARES, INC.
---------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AT SEPTEMBER 30, 2004
(ALL AMOUNTS IN THOUSANDS)
(UNAUDITED)
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
Subchapter M of 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, 2004, are as
follows:
Federal Tax Cost Basis.............. $ 142,457
=========
Unrealized Appreciation............. 9,625
Unrealized (Depreciation)........... (692)
---------
Net Unrealized Appreciation
(Depreciation).................... $ 8,933
=========
The capital loss carryforwards are available to offset future realized capital
gains through the periods listed:
CAPITAL LOSS
CARRYFORWARD AVAILABLE THROUGH
------------ -----------------
$205 March 31, 2011
24
AUTOMATIC REINVESTMENT PLAN
(UNAUDITED)
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 (the "Plan"). Under the Plan, Mellon, as 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 (not in thousands) between $25 and $2,500 with Mellon 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 Mellon 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 (not in thousands) or more, registered in your name and currently
in your Plan account, and desire to periodically send additional contributions
(not in thousands) 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 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.
25
Mellon charges a service fee (not in thousands) 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 Mellon:
Mellon Investor Services
Shareholder Investment Services
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
(800) 288-9541
26
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 22, 2004, 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 98.568% 1.432% 0.000%
Daniel Calabria 98.716% 1.284% 0.000%
Janice B. Case 98.770% 1.230% 0.000%
Charles C. Harris 98.668% 1.332% 0.000%
Leo J. Hill 98.772% 1.228% 0.000%
Brian C. Scott 98.751% 1.249% 0.000%
Russell A. Kimball,
Jr. 98.782% 1.218% 0.000%
Thomas P. O'Neill 98.768% 1.232% 0.000%
William W. Short, Jr. 98.749% 1.251% 0.000%
PROXY VOTING POLICIES AND PROCEDURES
A description of the Fund's proxy voting policies and procedures is available
upon request by calling 1-888-233-4339 (toll free) or can be located on the
Securities and Exchange Commission (SEC) website (www.sec.gov).
In addition, the Fund is required to file Form N-PX, with the complete proxy
voting records for the 12 months ended June 30th, no later than August 31st of
each year. The first filing of Form N-PX was made on or before August 31, 2004,
for the 12-month period ending June 30, 2004. Once filed, Form N-PX will be
available without charge from the Fund by calling 1-888-233-4339, and can also
be located on the SEC's website at www.sec.gov.
27
---------------------------------------------------------
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
200 Clarendon Street
Boston, MA 02116
1-617-937-6700
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.
Item 2: Code of Ethics.
Not applicable for semi-annual reports.
Item 3: Audit Committee Financial Expert.
Not applicable for semi-annual reports.
Item 4: Principal Accountant Fees and Services.
Not applicable for semi-annual reports.
Item 5: Audit Committee of Listed Registrant.
Not applicable for semi-annual reports.
Item 6: Schedule of Investments.
The schedule of investments is included in the semi-annual report to
shareholders filed under Item 1 of this Form N-CSR.
Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
TRANSAMERICA INCOME SHARES, INC. (THE "FUND")
PROXY VOTING POLICIES AND PROCEDURES
I. STATEMENT OF PRINCIPLE
The Funds seek to assure that proxies received by the Funds are voted in the
best interests of the Funds' stockholders and have accordingly adopted these
procedures.
II. DELEGATION OF PROXY VOTING/ADOPTION OF ADVISER AND SUB-ADVISER POLICIES
Each Fund delegates the authority to vote proxies related to portfolio
securities to AEGON/Transamerica Fund Advisers, Inc. (the "Adviser"), as
investment adviser to each Fund, which in turn delegates proxy voting authority
for most portfolios of the Fund to the Sub-Adviser retained to provide
day-to-day portfolio management for that portfolio. The Board of
Trustees/Directors/Managers of each Fund adopts the proxy voting policies and
procedures of the Adviser and Sub-Advisers as the proxy voting policies and
procedures that will be used by each of these respective entities when
exercising voting authority on behalf of the Fund. These policies and procedures
are attached hereto.
III. PROXY COMMITTEE
The Board of Trustees/Directors/Managers of each Fund has appointed a committee
of the Board (the "Proxy Committee") for the purpose of providing the Fund's
consent to vote in matters where the Adviser or Sub-Adviser seeks such consent
because of a conflict of interest that arises in connection with a
2
particular vote, or for other reasons. The Proxy Committee also may review the
Adviser's and each Sub-Adviser's proxy voting policies and procedures in lieu of
submission of the policies and procedures to the entire Board for approval.
IV. ANNUAL REVIEW OF PROXY VOTING POLICIES OF ADVISER AND SUB-ADVISERS
The Board of Directors/Trustees/Managers of each Fund or the Proxy Committee of
each Fund will review on an annual basis the proxy voting policies of the
Adviser and Sub-Advisers applicable to the Fund.
Attachments
Adopted effective June 10, 2003.
AEGON/TRANSAMERICA FUND ADVISERS, INC. ("ATFA")
PROXY VOTING POLICIES AND PROCEDURES ("ATFA PROXY POLICY")
I. PURPOSE
The ATFA Proxy Policy is adopted in accordance with Rule 206(4)-6 under the
Investment Advisers Act of 1940 (the "Advisers Act") and ATFA's fiduciary and
other duties to its clients. The purpose of the ATFA Proxy Policy is to ensure
that where ATFA exercises proxy voting authority with respect to client
securities it does so in the best interests of the client, and that
Sub-Advisers (as defined below) to ATFA clients exercise voting authority with
respect to ATFA client securities in accordance with policies and procedures
adopted by the Sub-Advisers under Rule 206(4)-6 and approved by the ATFA
client.
II. ATFA'S ADVISORY ACTIVITIES
ATFA acts as investment adviser to Transamerica IDEX Mutual Funds, Transamerica
Income Shares, Inc. and AEGON/Transamerica Series Fund, Inc. (collectively, the
"Funds"). For most of the investment portfolios comprising the Funds, ATFA has
delegated day-to-day management of the portfolio, including the authority to
buy, sell, or hold securities in the portfolio and to exercise proxy voting
authority with respect to those securities, to one or more investment
sub-advisers, pursuant to sub-advisory agreements entered into between ATFA and
each sub-adviser (each, a "Sub-Adviser" and collectively, the "Sub-Advisers")
and approved by the Board of Trustees/Directors of the client Fund (the
"Board"). ATFA serves as a "manager of managers" with respect to the
Sub-Advisers and monitors their activities in accordance with the terms of an
exemptive order granted by the Securities and Exchange Commission (Release No.
IC-23379, August 5, 1998).
III. SUMMARY OF THE ATFA PROXY POLICY
ATFA delegates the responsibility to exercise voting authority with respect to
securities held in the Funds' portfolios for which one or more Sub-Advisers has
been retained to the Sub-Adviser(s) for each such portfolio, in accordance with
each applicable Sub-Adviser Proxy Policy (as defined below). ATFA will collect
and review each Sub-Adviser Proxy Policy, together with a certification from
the Sub-Adviser that the Sub-Adviser Proxy Policy complies with Rule 206(4)-6,
and submit these materials to the Board for approval. In the event that ATFA is
called upon to exercise voting authority with respect to client securities,
ATFA generally will vote in accordance with the recommendation of Institutional
Shareholder Services, Inc. ("ISS") or another qualified independent third
party, except that if ATFA believes the recommendation would not be in the best
interest of the relevant portfolio and its shareholders, ATFA will consult the
Board of the relevant Fund (or a Committee of the Board) and vote in accordance
with instructions from the Board or Committee.
IV. DELEGATION OF PROXY VOTING AUTHORITY TO SUB-ADVISERS
ATFA delegates to each Sub-Adviser the responsibility to exercise voting
authority with respect to securities held by the portfolio(s), or portion
thereof, managed by the Sub-Adviser. Each Sub-Adviser is responsible for
monitoring, evaluating and voting on all proxy matters with regard to
investments the Sub-Adviser manages for the Funds in accordance with the
Sub-Adviser's proxy voting policies and procedures adopted to comply with Rule
206(4)-6 (each, a "Sub-Adviser Proxy Policy" and collectively, the "Sub-Adviser
Proxy Policies").
3
V. ADMINISTRATION, REVIEW AND SUBMISSION TO BOARD OF SUB-ADVISER PROXY
POLICIES
APPOINTMENT OF PROXY ADMINISTRATOR
ATFA will appoint an officer to be responsible for collecting and
reviewing the Sub-Adviser Proxy Policies and carrying out the other duties set
forth herein (the "Proxy Administrator").
INITIAL REVIEW
On or before July 1, 2003, the Proxy Administrator will collect from
each Sub-Adviser:
its Sub-Adviser Proxy Policy;
a certification from the Sub-Adviser that (i) its Sub-Adviser
Proxy Policy is reasonably designed to ensure that the Sub-Adviser votes client
securities in the best interest of clients, and that the Sub-Adviser Proxy
Policy includes an explanation of how the Sub-Adviser addresses material
conflicts that may arise between the Sub-Adviser's interests and those of its
clients, (ii) the Sub-Adviser Proxy Policy has been adopted in accordance with
Rule 206(4)-6, and (iii) the Sub-Adviser Proxy Policy complies the terms of
Rule 206(4)-6; and
a summary of the Sub-Adviser Proxy Policy suitable for
inclusion in the client Fund's registration statement, in compliance with Item
13(f) of Form N-1A, and a certification to that effect.
The Proxy Administrator will review each Sub-Adviser Proxy Policy with
a view to ATFA making a recommendation to the Board. In conducting its review,
ATFA recognizes that the Securities and Exchange Commission has not adopted
specific policies or procedures for advisers, or provided a list of approved
procedures, but has left advisers the flexibility to craft policies and
procedures suitable to their business and the nature of the conflicts they may
face. As a consequence, Sub-Adviser Proxy Policies are likely to differ widely.
Accordingly, the Proxy Administrator's review of the Sub-Adviser Proxy Policies
will be limited to addressing the following matters:
whether the Sub-Adviser Proxy Policy provides that the
Sub-Adviser votes solely in the best interests of clients;
whether the Sub-Adviser Proxy Policy includes a description
of how the Sub-Adviser addresses material conflicts of interest that may arise
between the Sub-Adviser or its affiliates and its clients; and
whether the Sub-Adviser Proxy Policy includes both general
policies and procedures as well as policies with respect to specific types of
issues (for this purpose general policies include any delegation to a third
party, policies relating to matters that may substantially affect the rights or
privileges of security holders, and policies regarding the extent of weight
given to the view of the portfolio company management; specific issues include
corporate governance matters, changes to capital structure, stock option plans
and other management compensation issues, and social corporate responsibility
issues, among others).
The Proxy Administrator will review the certification provided
pursuant to paragraph 1(b) above for completeness, and will review the summary
provided pursuant to paragraph 1(c) above for compliance with the requirements
of Form N-1A.
4
ATFA will provide to the Board (or a Board Committee), the materials
referred to in Section V.B.1. and a recommendation pursuant to the Proxy
Administrator's review of the Sub-Adviser Proxy Policy provided for in Section
V.B.2.
ATFA will follow the same procedure in connection with the engagement
of any new Sub-Adviser.
SUBSEQUENT REVIEW
ATFA will request that each Sub-Adviser provide ATFA with prompt
notice of any material change in its Sub-Adviser Proxy Policy. ATFA will report
any such changes at the next quarterly Board meeting of the applicable Fund. No
less frequently than once each calendar year, ATFA will request that each
Sub-Adviser provide ATFA with its current Sub-Adviser Proxy Policy, or certify
that there have been no material changes to its Sub-Adviser Proxy Policy or
that all material changes have been previously provided for review by ATFA and
approval by the relevant Board(s), and that the Sub-Adviser Proxy Policy
continues to comply with Rule 206(4)-6.
RECORD OF PROXY VOTES EXERCISED BY SUB-ADVISER
The Proxy Administrator, or a third party as permitted by regulations
issued by the Securities and Exchange Commission (such as ISS), will maintain a
record of any proxy votes (including the information called for in Items 1(a)
through (i) of Form N-PX) exercised by the Sub-Adviser on behalf of a portfolio
of the Funds. The Proxy Administrator, or a third party as permitted by
regulations issued by the Securities and Exchange Commission (such as ISS),
will maintain a complete proxy voting record with respect to each Fund. If ATFA
utilizes the services of a third party for maintaining the records above
specified, ATFA shall obtain an undertaking from the third party that it will
provide the records promptly upon request.
VI. ATFA EXERCISE OF PROXY VOTING AUTHORITY
USE OF INDEPENDENT THIRD PARTY
If ATFA is called upon to exercise voting authority on behalf of a
Fund client, ATFA will vote in accordance with the recommendations of ISS or
another qualified independent third party (the "Independent Third Party"),
provided that ATFA agrees that the voting recommendation issued by the
Independent Third Party reflects the best interests of the relevant portfolio
and its shareholders.
CONFLICT WITH VIEW OF INDEPENDENT THIRD PARTY
If, in its review of the Independent Third Party recommendation, ATFA
believes that the recommendation is not in the best interests of the Fund
client, ATFA will submit to the Board (or a Board Committee) its reasons for
disagreeing with the Independent Third Party, as well as full disclosure of any
conflict of interest between ATFA or its affiliates and the Fund in connection
with the vote, and seek consent of the Board (or Committee) with respect to
ATFA's proposed vote.
ASSET ALLOCATION PORTFOLIOS
For any asset allocation portfolio managed by ATFA and operated, in
whole or in part, as a "fund of funds", ATFA will vote proxies in accordance
with the recommendations of the Board(s) of the Fund(s). If any such asset
allocation portfolio holds shares of a registered investment company that is
not
5
a portfolio of a Fund, ATFA will seek Board (or Committee) consent with respect
to ATFA's proposed vote in accordance with the provisions of Section VI.B.
VII. CONFLICTS OF INTEREST BETWEEN ATFA OR ITS AFFILIATES AND THE FUNDS
The ATFA Proxy Voting Policy addresses material conflicts that may arise
between ATFA or its affiliates and the Funds by, in every case where ATFA
exercises voting discretion, either (i) providing for voting in accordance with
the recommendation of the Independent Third Party or Board(s); or (ii)
obtaining the consent of the Board (or a Board Committee) with full disclosure
of the conflict.
VIII. RECORDKEEPING
RECORDS GENERALLY MAINTAINED
In accordance with Rule 204-2(c)(2) under the Advisers Act, the Proxy
Administrator shall cause ATFA to maintain the following records:
the ATFA Proxy Voting Policy; and
records of Fund client requests for ATFA proxy voting
information.
RECORDS FOR ATFA EXERCISE OF PROXY VOTING AUTHORITY
In accordance with Rule 204-2(c)(2) under the Advisers Act, if ATFA
exercises proxy voting authority pursuant to Section VI above, ATFA, or a third
party as permitted by regulations issued by the Securities and Exchange
Commission (such as ISS), shall make and maintain the following records:
proxy statements received regarding matters it has voted on
behalf of Fund clients;
records of votes cast by ATFA; and
copies of any documents created by ATFA that were material to
deciding how to vote proxies on behalf of Fund clients or that memorialize the
basis for such a decision.
If ATFA utilizes the services of a third party for maintaining the
records above specified, ATFA shall obtain an undertaking from the third party
that it will provide the records promptly upon request.
RECORDS PERTAINING TO SUB-ADVISER PROXY POLICIES
The Proxy Administrator will cause ATFA and/or a third party as
permitted by regulations issued by the Securities and Exchange Commission (such
as ISS), to maintain the following records:
each Sub-Adviser Proxy Policy; and
the materials delineated in Article V above.
If ATFA utilizes the services of a third party for maintaining the
records above specified, ATFA shall obtain an undertaking from the third party
that it will provide the records promptly upon request.
6
TIME PERIODS FOR RECORD RETENTION
All books and records required to maintain under this Section VIII
will be maintained in an easily accessible place for a period of not less than
five years from the end of the fiscal year during which the last entry was made
on the record, the first two years in an appropriate office of ATFA.
IX. PROVISION OF ATFA PROXY POLICY TO FUND CLIENTS
The Proxy Administrator will provide each Fund's Board (or a Board
Committee) a copy of the ATFA Proxy Policy at least once each calendar year.
Item 8: Not applicable.
Item 9: Submission of Matters to a Vote of Security Holders
There has been no material change to the procedures by which shareholders may
recommend nominees to the registrant's Board of Directors: currently the
registrant does not have a policy with regard to the consideration of director
candidates recommended by shareholders as it does not currently contemplate
adding Board members or otherwise changing the Board's composition.
Item 10: 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 September 30, 2004, 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 11: Exhibits.
(a) (1) Not Applicable
(2) Separate certifications for Registrant's principal executive officer
and principal financial officer, as required by Rule 30a-2(a) under the
1940 Act, are attached.
(b) A certification for Registrant's principal executive officer and principal
financial officer, as required by Rule 30a-2(b) under the 1940 Act, is
attached. This certification is being furnished to the Securities and
Exchange Commission solely pursuant to 18 U.S.C. Section 1350 and is not
being filed as part of the Form N-CSR with the Commission.
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.
--------------------------------
(Registrant)
By: /s/ Brian C. Scott
------------------
Director, President and Chief Executive Officer
Date: December 1, 2004
7
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
------------------
Director, President and Chief Executive Officer
Date: December 1, 2004
By: /s/ Kim D. Day
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Senior Vice President, Treasurer and Chief Financial Officer
Date: December 1, 2004
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EXHIBIT INDEX
Exhibit No. Description of Exhibit
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11(a)(2) Section 302 N-CSR Certification of Principal Executive Officer
11(a)(2) Section 302 N-CSR Certification of Principal Financial Officer
11(b) Section 906 N-CSR Certification of Principal Executive Officer &
Principal Financial Officer
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