<PAGE>
Transamerica Income Shares, Inc.
ANNUAL REPORT
MARCH 31, 1995
[GRAPHIC]
-Registered Trademark-
<PAGE>
THE ECONOMY...
We are beginning to see multiple signs of slower growth in the economy. Both
demand and output statistics have weakened considerably in the last few months.
The bond and stock market prices reflect a belief that the Federal Reserve has
successfully engineered a soft landing, i.e., a gradual slowdown in economic
growth. The fears of runaway growth that were rampant in 1994 have all but
disappeared.
Inflation statistics tend to lag economic trends. Therefore, it is likely
that prices may show small increases at the producer and consumer levels during
the next quarter. Overall, we believe inflation will remain subdued and will
probably peak at a 3.2% to 3.5% rate during this cycle. We expect long-term
treasury yields to remain in the 7.0% to 7.5% range for the remainder of the
year.
THE YEAR IN REVIEW...
The Company's net asset value increased from $22.47 per share on December
31, 1994 to $23.37 at March 31, 1995. Net asset value on March 31, 1994, was
$24.17 per share. Net investment income for the fiscal year ended March 31,
1995, was $12,231,721 or $1.93 per share compared to $1.95 per share for the
prior fiscal year. The current annual dividend rate is $1.92, payable in monthly
dividends of 16 cents per share. The 16 cent monthly rate was first paid in May
1993 and dividends in that amount have been paid each month since except for
December 1993 and 1994 when a 24 and a 23 cent per share dividend, which
included a 7 1/4 and a 5.88235 cent capital gain distribution, respectively,
were paid to shareholders.
PORTFOLIO MANAGEMENT...
Management of the Company's portfolio and portfolio decisions on a
day-to-day basis are made by the senior portfolio managers of Transamerica
Investment Services, Inc., the Company's investment adviser (the "Adviser").
They are: Richard N. Latzer, President of the Adviser and Vice President,
Investments of Transamerica Corporation, the Adviser's parent; Gary U. Rolle,
Executive Vice President and Chief Investment Officer of the Adviser; Susan A.
Silbert, Senior Vice President and Director of Fixed Income of the Adviser; and
Sharon K. Kilmer, Vice President of the Adviser. All of the above senior
portfolio managers have held the same or similar positions with the Adviser for
more than five years. Each also serves the Company as a director or officer.
<TABLE>
<S> <C> <C>
HIGHLIGHTS: For the fiscal years ended March 31:
PER SHARE: 1995 1994
Net investment income......... $ 1.93 $ 1.95
Income dividends paid......... 1.93 1.94
Capital gain distribution..... 0.06 0.07
Net asset value at year end... 23.37 24.17
</TABLE>
DIVIDENDS: For the fiscal years ended March 31:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C>
$1.99* $2.01* $2.01 $2.16 $2.16
</TABLE>
* Includes a 5.88235 and a 7 1/4 cent capital gain distribution in 1995 and
1994, respectively.
QUALITY: Ratings used are the highest by Moody's or
Standard & Poor's for bonds owned on March 31, 1995:
<TABLE>
<S> <C> <C> <C> <C>
LOWER OR
AAA AA A BBB NON-RATED
1.3% 9.7% 23.8% 56.3% 8.9%
</TABLE>
<PAGE>
INVESTMENT PORTFOLIO
MARCH 31, 1995
<TABLE>
<CAPTION>
COUPON %
& PAR MARKET
MATURITY VALUE VALUE
--------------------- ----------- -------------
<S> <C> <C> <C> <C>
BONDS &
DEBENTURES (97.8%)
DOMESTIC & FOREIGN
GOVERNMENT (4.3%)
Commonwealth of
Australia........ 9 5/8s, '06 $ 4,000,000 $ 4,505,400
U.S. Treasury
Bond............. 10 3/4s, '05 1,500,000 1,868,205
ELECTRIC & GAS
UTILITIES (22.4%)
Arizona Public
Service.......... 10 1/4s, '20 2,250,000 2,361,577
Arkansas Power &
Light............ 10s, '20 3,250,000 3,366,317
Boston Edison..... 9 3/8s, '21 2,200,000 2,198,064
CTC Mansfield..... 11 1/8s, '16 1,000,000 989,990
Columbus Southern
Power............ 8.4s, '22 2,000,000 1,966,480
Commonwealth
Edison........... 9 7/8s, '20 2,000,000 2,158,000
8s, '23 900,000 821,205
Detroit Edison.... 8.21s, '22 1,000,000 1,019,070
8.24s, '23 2,000,000 1,973,700
Gulf States
Utilities........ 8.94s, '22 2,500,000 2,504,600
Hydro-Quebec...... 8s, '13 3,000,000 2,872,380
Long Island
Lighting......... 8.9s, '19 1,200,000 1,009,452
9 5/8s, '24 2,300,000 2,172,672
Niagara Mohawk
Power............ 7 7/8s, '24 2,000,000 1,738,940
Texas Utilities
Electric......... 9 7/8s, '19 500,000 534,290
10 5/8s, '20 4,000,000 4,379,920
Virginia Electric
& Power.......... 8 5/8s, '24 1,000,000 1,022,650
<CAPTION>
COUPON %
& PAR MARKET
MATURITY VALUE VALUE
--------------------- ----------- -------------
<S> <C> <C> <C> <C>
FINANCIAL (6.4%)
Barclays North
American......... 10 1/2s, '17 $ 3,000,000 $ 3,323,250
Citicorp.......... 8s, '03 1,000,000 999,670
Fleet Financial
Group............ 8 1/8s, '04 2,000,000 1,999,620
General Motors
Acceptance....... 8 1/2s, '03 3,000,000 3,079,170
FOREST & PAPER
PRODUCTS (4.8%)
Georgia-Pacific... 9 5/8s, '22 3,000,000 3,168,990
8 1/4s, '23 3,000,000 2,854,320
James River....... 9 1/4s, '21 1,000,000 1,053,070
HOTELS (1.4%)
Host Marriott
Hospitality...... 11 1/4s, '05 1,235,000 1,241,175
11s, '07 803,000 803,000
INDUSTRIALS (15.1%)
Anheuser-Busch.... 10s, '18 358,000 377,690
Bethlehem Steel... 9s, '00 262,000 262,655
Carpenter
Technology....... 9s, '22 1,000,000 1,014,930
Caterpillar....... 9 3/4s, '19 2,500,000 2,748,500
9 3/8s, '21 1,000,000 1,129,410
Cincinnati
Milacron......... 8 3/8s, '04 2,000,000 1,900,700
Conagra........... 9 3/4s, '21 3,000,000 3,367,020
General Motors
Ser A............ 9.4s, '21 3,750,000 4,156,275
McDonnell
Douglas.......... 9 1/4s, '02 4,000,000 4,264,400
National Steel.... 8 3/8s, '06 575,000 541,938
Textron........... 8 3/4s, '22 1,000,000 1,012,090
USG Corp. ........ 10 1/4s, '02 1,500,000 1,515,000
</TABLE>
<PAGE>
INVESTMENT PORTFOLIO (CONTINUED)
MARCH 31, 1995
<TABLE>
<CAPTION>
COUPON %
& PAR MARKET
MATURITY VALUE VALUE
--------------------- ----------- -------------
MEDIA (8.5%)
<S> <C> <C> <C> <C>
News America
Holdings......... 8 1/2s, '05 $ 1,000,000 $ 1,009,290
9 1/4s, '13 2,500,000 2,568,250
Tele-
Communications... 9.8s, '12 2,500,000 2,579,925
9 1/4s, '23 3,000,000 2,886,060
Time Warner
Entertainment.... 8 3/8s, '33 4,000,000 3,513,600
PETROLEUM (8.0%)
Occidental
Petroleum........ 10 1/8s, '09 500,000 566,365
11 3/4s, '11 5,000,000 5,425,150
Phillips
Petroleum........ 8.49s, '23 4,000,000 3,928,800
7.92s, '23 1,000,000 935,150
Union Oil of
California....... 8 3/4s, '01 1,000,000 1,031,880
PIPELINES (5.3%)
Northwest
Pipeline......... 9s, '22 2,000,000 2,083,860
Texas Gas
Transmission..... 8 5/8s, '04 1,000,000 1,050,140
Transcanada
Pipelines........ 8 1/2s, '23 2,000,000 1,965,260
Transco Energy.... 9 3/8s, '01 2,500,000 2,675,275
RETAIL (5.4%)
Dayton Hudson..... 10s, '11 1,000,000 1,152,190
9 1/4s, '11 2,800,000 3,047,912
8 1/2s, '22 1,000,000 993,030
May Department
Stores........... 9 3/4s, '21 750,000 845,055
8 3/8s, '22 2,000,000 1,981,520
<CAPTION>
COUPON %
& PAR MARKET
MATURITY VALUE VALUE
--------------------- ----------- -------------
<S> <C> <C> <C> <C>
TELECOMMUNICATIONS (4.2%)
General Telephone
& Electronics.... 10 3/4s, '17 $ 3,000,000 $ 3,278,670
Pacific Bell...... 8 1/2s, '31 3,000,000 2,988,810
TRANSPORTATION (12.0%)
Burlington
Northern......... 9 1/4s, '06 1,000,000 1,063,570
Delta Air Lines... 10 3/8s, '11 2,000,000 2,131,360
9 3/4s, '21 2,000,000 2,026,580
Federal Express... 9 5/8s, '19 2,500,000 2,627,325
Kansas City
Southern
Industries....... 6 5/8s, '05 3,000,000 2,710,410
8.8s, '22 2,250,000 2,253,690
Sea Containers.... 9 1/2s, '03 1,000,000 942,500
United Air Lines.. 9 3/4s, '21 4,000,000 3,895,160
-------------
144,432,572
-------------
CONVERTIBLE
DEBENTURE (0.6%)
Alexander &
Alexander
Services......... 11s, '07 897,000 914,940
-------------
TOTAL SECURITIES (98.4%)................................ 145,347,512
SHORT-TERM
INVESTMENTS (0.7%)
State Street Bank
Eurodollar Time
Deposit.......... 5 1/2s, 4-3-95 1,036,304 1,036,462
-------------
TOTAL INVESTMENT PORTFOLIO (99.1%)...................... 146,383,974
Receivables and other assets,
less liabilities (0.9%)............................... 1,285,598
-------------
TOTAL NET ASSETS (100.0%)............................... $ 147,669,572
-------------
-------------
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1995
A S S E T S
<TABLE>
<S> <C>
Investment portfolio:
Securities at market value
(Identified cost $142,019,692).......... $ 145,347,512
Short-term investments at cost plus
interest earned......................... 1,036,462
-------------
146,383,974
Interest receivable........................ 2,791,922
Other assets............................... 52,531
-------------
149,228,427
-------------
L I A B I L I T I E S
Payable for:
Income dividends declared................ 1,011,003
Management fee........................... 62,787
Accrued expenses and other liabilities..... 485,065
-------------
1,558,855
-------------
Total Net Assets -- equivalent to $23.37
per share................................ $ 147,669,572
-------------
-------------
SUMMARY OF SHAREHOLDERS' EQUITY
Common Stock -- 6,318,771 shares of
$1 par value outstanding,
20,000,000 shares authorized............. $ 6,318,771
Additional capital......................... 137,464,657
-------------
Capital paid in............................ 143,783,428
Capital gains retained..................... 405,455
Undistributed net investment income........ 207,323
Accumulated net realized losses............ (54,454)
Net unrealized appreciation of
securities............................... 3,327,820
-------------
Total Net Assets........................... $ 147,669,572
-------------
-------------
</TABLE>
See notes to financial statements.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1995
<TABLE>
<S> <C> <C>
Investment Income:
Income:
Interest.................... $ 13,225,405
Expenses:
Management fee (Note 2)..... $ 730,010
Transfer agent fee and
expenses................... 59,305
Postage..................... 36,855
Auditing fee................ 34,350
Reports to shareholders..... 30,295
Insurance................... 25,115
Custodian fee............... 19,770
Legal fees.................. 17,593
Directors fees and
expenses................... 11,418
Other....................... 28,973 993,684
------------ ------------
Net investment income........... 12,231,721
Net Realized and Unrealized Loss
on Securities:
Net realized loss from
security transactions
(excluding short-term
investments):
Proceeds from securities
sold....................... 22,011,293
Cost of securities sold..... 22,065,747
------------
Net realized loss on security
transactions (Note 3)........ (54,454)
------------
Unrealized appreciation of
securities:
Beginning of year........... 7,960,051
End of year................. 3,327,820
------------
Decrease in unrealized
appreciation of securities... (4,632,231)
------------
Net realized and unrealized loss
on securities.................. (4,686,685)
------------
Net increase in total net assets
resulting from operations...... $ 7,545,036
------------
------------
</TABLE>
See notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN TOTAL NET ASSETS
FOR THE YEARS ENDED MARCH 31
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Decrease In Total Net Assets:
Operations:
Net investment income....... $ 12,231,721 $ 12,318,632
Net realized gain (loss) on
securities transactions.... (54,454) 1,870,107
Decrease in unrealized
appreciation of
securities................. (4,632,231) (7,702,278)
------------- -------------
Increase in total net assets
resulting from operations... 7,545,036 6,486,461
Dividends to shareholders from
net investment income ($1.93
and $1.94 per share,
respectively)............... (12,202,662) (12,226,830)
Capital gain distributions
($0.06 and $0.07 per share,
respectively)............... (371,693) (458,111)
Capital Share transactions:
Adjustment to expenses
incurred in the Company's
December 1992 rights
offering to shareholders... -- (15,040)
------------- -------------
Decrease in total net
assets...................... (5,029,319) (6,213,520)
Total Net Assets:
Beginning of year (includes
undistributed net
investment income of
$178,264 and $86,462,
respectively).............. 152,698,891 158,912,411
------------- -------------
End of year (includes
undistributed net
investment income of
$207,323 and $178,264,
respectively).............. $ 147,669,572 $ 152,698,891
------------- -------------
------------- -------------
</TABLE>
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- The Company, which is registered under the Investment Company Act of
1940 as a diversified, closed-end management investment company, consistently
follows the following accounting policies:
A -- The Company primarily invests in debt securities such as bonds and
debentures. These securities, even though sometimes listed on a national
securities exchange, primarily trade in the over-the-counter market.
Accordingly, prices used are the current bid or similar ascertainable market
value when the over-the-counter market more accurately reflects value. U.S.
Government securities are valued at the bid price. In instances where securities
are listed and primarily trade on a national securities exchange, they are
valued at the last sale price on the last business day of the period. Prices are
provided by Merrill Lynch Securities Pricing Service, a non-affiliated
securities pricing service. Short-term investments with maturities of 60 days or
less are valued at cost plus interest earned, which approximates market value.
B -- It is the Company's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net investment income and net realized capital gains to
its shareholders in accordance with the minimum distribution requirements of the
Code.
C -- Security transactions are accounted for on the transaction date and
distributions to shareholders are recorded on the ex-dividend date.
NOTE 2 -- The management fee, computed on weekly total net assets at the annual
rate of 1/2 of 1%, was paid to Transamerica Investment Services, Inc.
NOTE 3 -- The cost of securities purchased and the proceeds of securities sold
(excluding short-term investments) were $22,040,252 and $22,011,293,
respectively, for the year ended March 31, 1995. Realized gains or losses are
based on the specific-certificate identification method. At March 31, 1995, the
gross unrealized appreciation of securities held in the investment portfolio was
$5,894,980 and the gross unrealized depreciation was $2,567,160. The cost of
securities held at March 31, 1995 was the same for federal income tax and
financial reporting purposes.
NOTE 4 -- During the year ended March 31, 1995, the Company reclassified
$177,368 of expired capital loss carryforwards from "Accumulated Net Realized
Gains (Losses)" to "Additional Capital."
<PAGE>
NOTE 5 -- Financial highlights for each share of Common Stock outstanding
throughout each year:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
-----------------------------------------------------
1995 1994 1993 + 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Per share operating
performance:
Net asset value,
beginning of year... $ 24.17 $ 25.15 $ 24.00 $ 23.13 $ 22.30
--------- --------- --------- --------- ---------
Net investment
income.............. 1.93 1.95 2.03 2.13 2.15
Net realized and
unrealized gain
(loss) on
securities.......... (0.74) (0.92) 1.61 0.90 0.84
--------- --------- --------- --------- ---------
Total from investment
operations.......... 1.19 1.03 3.64 3.03 2.99
--------- --------- --------- --------- ---------
Less distributions:
Dividends from net
investment income... (1.93) (1.94) (2.01) (2.16) (2.16)
Distributions from net
realized capital
gains............... (0.06) (0.07) -- -- --
--------- --------- --------- --------- ---------
Total distributions... (1.99) (2.01) (2.01) (2.16) (2.16)
--------- --------- --------- --------- ---------
Dilution resulting
from rights
offering............ -- -- (0.48) -- --
--------- --------- --------- --------- ---------
Net asset value, end
of year............. $ 23.37 $ 24.17 $ 25.15 $ 24.00 $ 23.13
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Per share market
value, end of
year............... $22.50 $23.375 $26.375 $25.50 $23.375
Total investment
return*............ 5.07% -4.27% 11.81% 18.78% 16.18%
Ratios/supplemental
data:
Total net assets, end
of year (000s)..... $ 147,670 $ 152,699 $ 158,912 $ 126,361 $ 121,798
Ratio of expenses to
average net
assets............. 0.68% 0.69% 0.60% 0.68% 0.69%
Ratio of net
investment income
to average net
assets............. 8.35% 7.60% 8.27% 8.98% 9.58%
Portfolio turnover
rate............... 15% 15% 32% 30% 17%
The number of shares outstanding at the end of the 1993, 1994 and 1995
fiscal years was 6,318,771; and for the fiscal years ending in 1991 and
1992 the number outstanding was 5,265,643 shares.
<FN>
- - ----------------
+Based on monthly average shares outstanding during the year.
*Based on the market price of the Company's shares.
</TABLE>
NOTE 6 -- The following is a summary of unaudited results of operations for the
quarters ended:
<TABLE>
<CAPTION>
3-31-95 12-31-94 9-30-94 6-30-94
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment income............ $ 3,302,357 $ 3,306,616 $ 3,307,391 $ 3,309,041
Expenses..................... 254,283 248,638 243,858 246,905
----------- ------------ ------------ ------------
Net investment income........ $ 3,048,074 $ 3,057,978 $ 3,063,533 $ 3,062,136
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
Net realized and unrealized
gain (loss) on
securities................. $ 5,681,218 $ (1,534,396) $ (2,065,859) $ (6,767,648)
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
Per Common Share:
Net investment income...... $ 0.48 $ 0.48 $ 0.49 $ 0.48
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
Net asset value............ $ 23.37 $ 22.47 $ 22.78 $ 23.10
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
</TABLE>
FEDERAL TAX INFORMATION ON DIVIDENDS PAID:
No portion of shareholder distributions paid during the fiscal year ended
March 31, 1995 qualified for the 70% dividend deduction for corporations.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Transamerica Income Shares, Inc.
We have audited the accompanying statement of assets and liabilities of
Transamerica Income Shares, Inc., including the investment portfolio, as of
March 31, 1995, and the related statement of operations for the year then ended
and the statement of changes in total net assets for each of the two years in
the period then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. Our procedures included
confirmation of securities owned on March 31, 1995, by correspondence with the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Transamerica Income Shares,
Inc. at March 31, 1995, the results of its operations for the year then ended,
and the changes in its total net assets for each of the two years in the period
then ended in conformity with generally accepted accounting principles.
[LOGO]
Los Angeles, California
April 28, 1995
AUTOMATIC REINVESTMENT PLAN
Holders of 50 or more shares of the Company's Common Stock are offered the
opportunity to reinvest dividends and other distributions in shares of the
Common Stock of the Company through participation in the Plan.
Under the Plan, Chemical Mellon Shareholder Services, as agent (the "Agent"),
automatically invests dividends and other distributions in shares of the
Company'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 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 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. In addition, each investment made by the Agent is subject to a
$1.75 service charge.
Your dividends and distributions, even though automatically reinvested, continue
to be taxable as though received in cash.
Shareholders interested in obtaining a copy of the Plan should contact the Plan
Agent:
Chemical Mellon Shareholder Services
Shareholder Investment Services
P.O. Box 750
Pittsburgh, PA 15230-0750
1-800-288-9541
<PAGE>
OFFICERS AND DIRECTORS
THOMAS M. ADAMS, SECRETARY
J. RICHARD ATWOOD, TREASURER
DONALD E. CANTLAY, DIRECTOR
SHARON K. KILMER, VICE PRESIDENT
RICHARD N. LATZER, DIRECTOR
DeWAYNE W. MOORE, DIRECTOR
GARY U. ROLLE, PRESIDENT & CHAIRMAN
SUSAN A. SILBERT, VICE PRESIDENT
PETER J. SODINI, DIRECTOR
--------------------------------------------
Manager
Transamerica Investment Services, Inc.
Box 2438, Los Angeles, CA 90051
Transfer Agent
Chemical Mellon Shareholder Services
111 Founders Plaza, Suite 1100
East Hartford, CT 06108
1-800-288-9541
For hearing and speech impaired (TDD)
1-800-231-5469
Listed
New York Stock Exchange
Symbol: TAI
--------------------------------------------
Transamerica Income Shares is a closed-end investment company which invests
primarily in debt securities. Its objective is to provide a high level of
current income.
