<PAGE> 1
Transamerica Income Shares, Inc.
SEMI-ANNUAL REPORT
SEPTEMBER 30, 1997
LOGO
===================================================================
<PAGE> 2
REPORT TO SHAREHOLDERS:
Steady growth with low inflation continues to be the theme for the U.S.
economy. While the economy grew at a 3.5% annual rate in the third quarter,
productivity enhancements resulted in minimal unit labor cost increases.
Consequently, long-term U.S. Treasury interest rates have remained in the 6.00%
to 6.50% range during the last several months.
The economic situation in the rest of the world is not as sanguine.
Contractionary economic policies undertaken by the governments of Japan and
other Southeast Asian countries have dampened prospects for global growth.
Competitive currency devaluations allowed by these governments have altered the
outlook for inflation on a worldwide basis. In addition, European countries are
adopting austerity measures in order to shrink budget deficits to levels
mandated by the future European Monetary Union.
While U.S. economic growth remains stable, the slowing of global economic
growth will take its toll here, probably causing a .25% to .50% decline in GDP
next year. The bigger impact will be felt in the overall level of interest
rates. Deflation may well be the fear next year, replacing the Federal Reserve's
long standing concern over runaway inflation.
In this environment, interest rates should decline. Transamerica Income
Share's portfolio of fixed income securities issued by well-managed companies
with low-cost products and services should perform well under this scenario.
At September 30, 1997, the Company's total net assets were $158,439,158 or
$25.07 per share compared to $151,196,455 or $23.93 per share on March 31, 1997.
Unaudited net investment income for the six months ended September 30, 1997 was
$6,127,181 or $0.97 per share compared to $0.94 per share for the comparable
period in 1996. The dividend which is payable monthly, remains at $0.16 per
share for a current annual rate of $1.92.
Highlights: For the six months ended September 30:
<TABLE>
<CAPTION>
Per Share: 1997 1996
<S> <C> <C>
Net investment income................. $ 0.97 $ 0.94
Income dividends paid................. 0.96 0.93
Capital gain distribution............. -- 0.03
Net asset value....................... $25.07 $24.17
</TABLE>
<PAGE> 3
Distributions (for fiscal years ended March 31):
<TABLE>
<S> <C>
1997..................................... $1.93*
1996..................................... $1.93
1995..................................... $1.99*
1994..................................... $2.01*
1993..................................... $2.01
</TABLE>
* Includes a distribution of $0.03, $0.06 and $0.07 from realized gains in 1997,
1995 and 1994, respectively.
Quality: Ratings used are the highest by Moody's or Standard & Poor's for
bonds owned on September 30, 1997:
<TABLE>
<S> <C>
AAA...................................... 1.23%
AA....................................... 10.02%
A........................................ 24.33%
BBB...................................... 47.15%
Lower or non-rated....................... 17.27%
</TABLE>
DECEMBER DISTRIBUTION DECLARED
On November 17, 1997, the Board of Directors declared a distribution of
$0.20 per share payable December 15, 1997 to shareholders of record on November
28, 1997. The distribution includes a long-term capital gains distribution of
approximately $0.04 per share, with the remaining $0.16 from net investment
income. Tax information for 1997 will be furnished to shareholders in January
1998.
<PAGE> 4
TRANSAMERICA INCOME SHARES, INC.
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ---------- -------------
<C> <S> <C>
BONDS & DEBENTURES -- 98.4%
DOMESTIC & FOREIGN GOVERNMENTS -- 4.2%
4,000,000 Commonwealth of Australia
9.625%, 02/01/06 $ 4,747,840
1,500,000 US Treasury Bond, 10.75%, 08/15/05 1,923,285
ELECTRIC & GAS UTILITIES -- 15.2%
2,250,000 Arizona Public Service Company
10.25%, 05/15/20 2,505,893
88,000 Arkansas Power & Light Company
10.00%, 02/01/20 94,091
2,200,000 Boston Edison, 9.375%, 08/15/21 2,415,358
2,000,000 Cleveland Electric Illumination
Company 9.50%, 05/15/05 2,198,800
2,000,000 Colorado Interstate Gas Co.
10.00%, 06/15/05 2,389,880
2,000,000 Commonwealth Edison
9.875%, 06/15/20 2,324,560
1,000,000 Connecticut Light & Power Co.
7.875%, 10/01/24 1,025,640
1,000,000 Detroit Edison, 8.21%, 08/01/22 1,067,970
2,500,000 Gulf States Utilities,
8.94%, 01/01/22 2,736,025
2,000,000 Hydro-Quebec, 8.00%, 02/01/13 2,175,180
Long Island Lighting
1,500,000 9.00%, 11/01/22 1,670,700
2,300,000 9.625%, 07/01/24 2,380,431
1,000,000 Virginia Electric & Power,
8.625%, 10/01/24 1,094,810
FINANCIAL -- 6.1%
3,000,000 Barclays North American
10.50%, 12/15/17 3,174,270
2,000,000 Fleet Financial Group, Inc.
8.125%, 07/01/04 2,152,460
3,000,000 GMAC, 8.50%, 01/01/03 3,261,060
1,000,000 Lehman Brothers Holding
8.875%, 03/01/02 1,077,120
</TABLE>
<PAGE> 5
TRANSAMERICA INCOME SHARES, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ---------- -------------
<C> <S> <C>
FOREST & PAPER PRODUCTS -- 4.9%
Georgia Pacific
3,000,000 9.625%, 03/15/22 $ 3,359,640
3,000,000 8.25%, 03/01/23 3,129,240
1,000,000 James River Corp.,
9.25%, 11/15/21 1,197,990
INDUSTRIALS -- 14.4%
1,000,000 Carpenter Tech., 9.00%, 03/15/22 1,081,860
Caterpillar Corp.,
2,500,000 9.75%, 06/01/19 2,722,800
1,000,000 9.375%, 03/15/21 1,251,830
2,000,000 Cincinnati Milacron, Inc.
8.375%, 03/15/04 2,050,000
3,000,000 ConAgra, Inc., 9.75%, 03/01/21 3,770,700
3,750,000 General Motors A,
9.40%, 07/15/21 4,684,313
1,000,000 Lear Corporation, 9.50%, 07/15/06 1,095,000
4,000,000 McDonnell Douglas,
9.25%, 04/01/02 4,441,520
575,000 National Steel, 8.375%, 08/01/06 577,875
1,000,000 Textron, Inc., 8.75%, 07/01/22 1,060,440
MEDIA -- 10.0%
1,000,000 CF Cable TV, 9.125%, 07/15/07 1,087,500
1,000,000 Continental Cable,
9.50%, 08/01/13 1,162,070
3,500,000 News America Holdings, Inc.
9.25%, 02/01/13 4,008,200
2,000,000 Roger Cable Sys.,
10.00%, 03/15/05 2,195,000
Tele-Communications, Inc.
2,500,000 9.80%, 02/01/12 2,965,700
2,000,000 9.25%, 01/15/23 2,138,020
2,000,000 Time Warner, Inc.,
9.125%, 01/15/13 2,295,180
OTHER -- 1.3%
2,000,000 Station Casinos,
10.125%, 03/15/06 2,035,000
</TABLE>
<PAGE> 6
TRANSAMERICA INCOME SHARES, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ---------- -------------
<C> <S> <C>
PETROLEUM -- 5.3%
1,000,000 Noble Affiliates, 8.00%, 04/01/27 $ 1,068,270
Occidental Petroleum
500,000 10.125%, 09/15/09 630,085
1,100,000 9.25%, 08/01/19 1,352,296
4,000,000 Phillips Petroleum,
8.49%, 01/01/23 4,336,840
1,000,000 Triton Energy, 9.25%, 04/15/05 1,052,500
PIPELINES -- 5.1%
1,000,000 Arkla, Inc., 8.90%, 12/15/06 1,142,220
2,000,000 Northwest Pipeline Corp.
9.00%, 08/01/22 2,139,560
2,000,000 TransCanada Pipeline, Ltd.
8.50%, 03/20/23 2,124,100
2,500,000 Transco Energy, 9.375%, 08/15/01 2,742,800
RETAIL -- 11.9%
Dayton Hudson
1,000,000 10.00%, 01/01/11 1,251,760
2,800,000 9.25%, 08/15/11 3,340,932
1,000,000 8.50%, 12/01/22 1,053,070
May Dept. Stores,
750,000 9.75%, 02/15/21 920,445
2,000,000 8.375%, 10/01/22 2,113,080
3,000,000 Pathmark Stores, 9.625%, 05/01/03 2,970,000
3,500,000 Ralphs Grocery,
11.00%, 06/15/05* 3,832,500
3,050,000 Stater Brothers, 11.00%, 03/01/01 3,355,000
TELECOMMUNICATIONS -- 6.5%
3,000,000 General Telephone & Electronics
10.75%, 09/15/17 3,153,900
3,000,000 Pacific Bell, 8.50%, 08/15/31 3,249,870
3,500,000 Valassis Communications
9.55%, 12/01/03 3,893,575
</TABLE>
<PAGE> 7
TRANSAMERICA INCOME SHARES, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ---------- -------------
<C> <S> <C>
TRANSPORTATION -- 13.5%
1,000,000 Burlington Northern,
9.25%, 10/01/06 $ 1,161,880
3,000,000 CSX, 9.00%, 08/15/06 3,412,770
Delta Air Lines
2,000,000 10.375%, 02/01/11 2,534,480
2,000,000 9.75%, 05/15/21 2,497,140
2,500,000 Federal Express, 9.625%, 10/15/19 2,728,775
Kansas City Southern Industries, Inc.
2,250,000 8.80%, 07/01/22 2,386,012
1,800,000 6.625%, 03/01/25 1,771,398
4,000,000 United Airlines, Inc.,
9.75%, 08/15/21 4,956,200
-------------
TOTAL BONDS & DEBENTURES
(cost $142,378,057) 155,896,709
SHORT-TERM INVESTMENT -- .5%
State Street Bank Eurodollar Time Deposit
4.75%, 10/01/97 780,495
-------------
TOTAL INVESTMENTS (cost $143,158,552) 156,677,204
Other assets, less liabilities -- 1.1% 1,761,954
-------------
NET ASSETS -- 100.0% $ 158,439,158
=============
</TABLE>
*Rule 144A security
Aggregate cost of investments, other than short-term investments, for Federal
income tax purposes at September 30, 1997 was $142,378,057. The aggregate gross
unrealized appreciation and depreciation, respectively, for all securities were
as follows: excess of value over tax cost $13,731,252; excess of tax cost over
value $(212,600). Net unrealized appreciation for tax purposes is $13,518,652.
See notes to financial statements
<PAGE> 8
TRANSAMERICA INCOME SHARES, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost
$143,158,552) $ 156,677,204
Interest receivable 2,889,017
Other assets 28,363
-------------
159,594,584
-------------
LIABILITIES
Payable for:
Income dividends declared 1,011,003
Management fee 64,926
Other accrued expenses 79,497
-------------
1,155,426
-------------
NET ASSETS applicable to 6,318,771
capital shares outstanding, $1.00
par value (authorized 20,000,000
shares) $ 158,439,158
=============
NET ASSET VALUE PER SHARE $ 25.07
=============
NET ASSETS CONSIST OF:
Paid-in capital $ 143,783,428
Capital gains retained 405,455
Undistributed net investment income 275,292
Accumulated net realized gain on
investments 456,331
Net unrealized appreciation of
investments 13,518,652
-------------
NET ASSETS $ 158,439,158
=============
</TABLE>
See notes to financial statements
<PAGE> 9
TRANSAMERICA INCOME SHARES, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest income $ 6,611,050
-----------
EXPENSES
Management fee 390,206
Transfer agent fees and
expenses 23,931
Postage 14,550
Audit 18,032
Insurance 7,992
Custodian fees 8,535
Directors' fees and
expenses 5,847
Other 14,776
-----------
483,869
-----------
NET INVESTMENT INCOME 6,127,181
-----------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Realized gain from security
transactions (excluding
short-term securities):
Proceeds from sales 13,477,928
Cost of securities sold 12,867,835 610,093
-----------
Increase in unrealized
appreciation of
investments:
Beginning of period 6,947,203
End of period 13,518,652 6,571,449
----------- -----------
Net realized and unrealized
gain on investments 7,181,542
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $13,308,723
===========
</TABLE>
See notes to financial statements
<PAGE> 10
TRANSAMERICA INCOME SHARES, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six months Year
ended ended
9-30-97* 3-31-97
------------ ------------
<S> <C> <C>
Increase (decrease) in Net
Assets:
Operations:
Net investment income $ 6,127,181 $ 11,941,720
Net realized gain (loss)
on investment
transactions 610,093 (153,986)
Increase (decrease) in
unrealized
appreciation of
investments 6,571,449 (3,690,385)
------------ ------------
Net increase in net assets
resulting from operations 13,308,723 8,097,349
------------ ------------
Dividends/distributions to
shareholders:
From net investment
income ($0.96 and
$1.90, respectively) (6,066,020) (11,979,126)
From capital gains
($0.03 per share) (216,102)
------------ ------------
(6,066,020) (12,195,228)
------------ ------------
Increase (decrease) in Net
Assets 7,242,703 (4,097,879)
Net Assets:
Beginning of period 151,196,455 155,294,334
------------ ------------
End of period (including
undistributed net
investment income of
$275,292 and $214,131,
respectively) $158,439,158 $151,196,455
============ ============
</TABLE>
*Unaudited
See notes to financial statements
<PAGE> 11
TRANSAMERICA INCOME SHARES, INC.
FINANCIAL HIGHLIGHTS
For a share of the Fund outstanding throughout each period:
<TABLE>
<CAPTION>
Six months Year ended March 31
ended --------------------------------------------------------
9-30-97* 1997 1996 1995 1994 19931
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period $23.93 $24.58 $23.37 $24.17 $25.15 $24.00
Investment
Operations:
Net investment
income 0.97 1.89 1.94 1.93 1.95 2.03
Net realized and
unrealized gain
(loss) 1.13 (0.61) 1.20 (0.74) (0.92) 1.61
-------- -------- -------- -------- -------- --------
Total from
investment
operations 2.10 1.28 3.14 1.19 1.03 3.64
-------- -------- -------- -------- -------- --------
Dividends/Distributions
to Shareholders:
Net investment
income (0.96) (1.90) (1.93) (1.93) (1.94) (2.01)
Net realized gains - (0.03) - (0.06) (0.07) -
-------- -------- -------- -------- -------- --------
(0.96) (1.93) (1.93) (1.99) (2.01) (2.01)
-------- -------- -------- -------- -------- --------
Dilution resulting
from rights
offering - - - - - (0.48)
-------- -------- -------- -------- -------- --------
Net Asset Value,
End of period $25.07 $23.93 $24.58 $23.37 $24.17 $25.15
======== ======== ======== ======== ======== ========
Market Value per
share, end of
period $24.625 $24.375 $24.375 $22.500 $23.375 $26.375
======== ======== ======== ======== ======== ========
Total Return(2) 9.29% 8.22% 17.08% 5.07% -4.27% 11.81%
======== ======== ======== ======== ======== ========
RATIOS AND
SUPPLEMENTAL DATA
Expenses to average
net assets 0.62% 0.62% 0.62% 0.68% 0.69% 0.60%
Net investment
income to average
net assets 7.89% 7.77% 7.83% 8.35% 7.60% 8.27%
Portfolio turnover 9% 16% 14% 15% 15% 32%
Net assets, end of
period (in
thousands) $158,439 $151,196 $155,294 $147,670 $152,699 $158,912
======== ======== ======== ======== ======== ========
</TABLE>
- ---------------------------
1 Based on monthly average shares outstanding during the year.
2 Based on the market price of the Company's shares and including the
reinvestments of dividends and distributions at prices obtained by the
Company's dividend reinvestment plan.
* Unaudited.
See notes to financial statements
<PAGE> 12
TRANSAMERICA INCOME SHARES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1997
1. SIGNIFICANT ACCOUNTING POLICIES -- Transamerica Income Shares, Inc. (the
"Company") is registered under the Investment Company Act of 1940 as a
diversified, closed-end management investment company. The Company'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. The Company
consistently follows the following accounting policies in the preparation of its
financial statements:
(A) Valuation of Securities -- Debt securities with a maturity of 61 days or
more are valued on the basis of valuations obtained from a commercial pricing
service or dealer supplied quotations. Debt securities with a maturity of 60
days or less are valued at amortized cost, which approximates market value.
(B) Securities Transactions, Investment Income and Expenses -- Security
transactions are recorded on the trade date. Gains and losses on sales of
investments are determined on the identified cost basis for both financial
statement and Federal income tax purposes. Interest income and operating
expenses are recorded on an accrual basis. Distributions from net investment
income are determined and paid monthly.
(C) Federal Income Taxes -- It is the Company's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no Federal income or excise tax provision is required.
At March 31, 1997, the Company had a capital loss carryforward of $153,986
available which expires in 2005 and, to the extent provided by regulations, can
be used to offset future realized gains of the Company.
<PAGE> 13
(D) Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
2. INVESTMENT ADVISORY FEES AND TRANSACTIONS WITH AFFILIATES -- The Company has
entered into a Management and Investment Advisory Agreement with Transamerica
Investment Services, Inc., (the "Adviser") a wholly owned subsidiary of
Transamerica Corporation. For its services to the Company, the Adviser receives
a fee of 0.50% of the average weekly net assets of the Company. This fee is paid
to the Adviser monthly. The Adviser has agreed to reimburse the Company if the
Company's total operating expenses (exclusive of brokerage commissions, interest
and taxes) exceed 1.50% of the average daily net assets of the Company up to $30
million and 1.00% of the average net assets of the Company in excess of $30
million. No such reimbursements were necessary during the six months ended
September 30, 1997.
Officers and certain directors of the Adviser or its affiliates are also
officers and directors of the Company; however, they receive no compensation
from the Company. An officer of the Company is also a partner of the legal
counsel for the Company.
As of September 30, 1997, an affiliate of Transamerica Corporation held 7.6%
of the outstanding shares of the Company.
3. SECURITY TRANSACTIONS -- The aggregate cost of securities purchased and the
proceeds from securities sold (excluding short-term investments) were
$13,406,905 and $13,477,928, respectively, for the six months ended September
30, 1997.
<PAGE> 14
RESULTS FROM ANNUAL SHAREHOLDER MEETING
At the shareholders' meeting held July 31, 1997, a total of 5,026,012 shares
were represented by proxy, 79.54% of all outstanding shares. The five current
directors were reelected. The votes for reelection of Donald E. Cantlay, Richard
N. Latzer, DeWayne W. Moore, Gary U. Rolle', and Peter J. Sodini were 4,945,591,
4,963,502, 4,937,239, 4,956,949 and 4,958,296, respectively, and the votes
withheld as to each were 80,421, 62,510, 88,773, 69,063 and 67,716,
respectively.
A proposal to continue the present Management and Investment Advisory
Agreement between the Company and Transamerica Investment Services, Inc. was
approved as follows: 4,900,480 votes for and 41,274 votes against, with 84,258
abstentions. A proposal to ratify the selection of Ernst & Young LLP as
independent auditors for the Company was also approved as follows: 4,930,412
votes for and 25,866 votes against, with 69,734 abstentions.
In certain circumstances, brokers and nominees can return a proxy as a
"non-vote"; however, no non-votes were received on any of the above matters.
DEWAYNE W. MOORE RETIRES AS DIRECTOR
On October 30, 1997, Mr. DeWayne W. Moore announced his decision to retire as a
Director of the Company. Mr. Moore served the Company and its shareholders as a
Director since 1980. For the past 11 years, he also served as Chairman of the
Company's Audit Committee, the Committee which monitors the operations of the
Company, its Adviser and its independent auditors. His energy and devotion to
the Company and unstinting effort as a Director will be missed, as will his wise
counsel and presence at the Board meetings.
JON C. STRAUSS ELECTED AS DIRECTOR
The Board is pleased to announce the election of Dr. Jon C. Strauss whom, upon
recommendation of the Company's Corporate Responsibility Committee, was
unanimously elected to fill the position on the Board of Directors vacated by
Mr. Moore. Dr. Strauss, a Ph.D. in electrical engineering, has a distinguished
career in both the academic and business communities. Dr. Strauss is President
of Harvey Mudd College in Claremont, California.
<PAGE> 15
OFFICERS AND DIRECTORS
THOMAS M. ADAMS, Secretary
DONALD E. CANTLAY, Director
SUSAN R. HUGHES, Treasurer
SHARON K. KILMER, Vice President
RICHARD N. LATZER, Director
GARY U. ROLLE, President & Chairman
SUSAN A. SILBERT, Vice President
PETER J. SODINI, Director
JON C. STRAUSS, Director
- ----------------------------------------------------------
INVESTMENT ADVISER
Transamerica Investment Services, Inc.
1150 S. Olive Street, 27th Floor
Los Angeles, CA 90015
TRANSFER AGENT
ChaseMellon Shareholder Services, L.L.C.
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
- ----------------------------------------------------------
A dividend reinvestment plan is available.
For information, contact the plan agent:
ChaseMellon Shareholder Services, L.L.C.
Shareholder Investment Services
1-800-288-9541
- ----------------------------------------------------------
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.
