UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-02281
THE HARTFORD INCOME SHARES FUND, INC.
(Exact name of registrant as specified in charter)
P. O. Box 2999, Hartford, Connecticut 06104 2999
(Address of Principal Executive Offices)
Kevin J. Carr, Esquire
Investment Law Unit
The Hartford Financial Services Group, Inc.
55 Farmington Avenue
Hartford, Connecticut 06105
(Name and Address of Agent for Service)
Registrant's telephone number, including area code: (860) 297-6443
Date of fiscal year end: July 31, 2003
Date of reporting period: August 1, 2002 to July 31, 2003
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. REPORTS TO STOCKHOLDERS.
[THE HARTFORD FUND GRAPHIC]
JULY 31, 2003
THE HARTFORD
INCOME SHARES FUND, INC.
----------------------------------------
Annual Report
[THE HARTFORD LOGO]
THE HARTFORD INCOME SHARES FUND, INC. ANNUAL REPORT
CONTENTS
LETTER TO SHAREHOLDERS 1
SCHEDULE OF INVESTMENTS 2
STATEMENT OF ASSETS AND
LIABILITIES 7
STATEMENT OF OPERATIONS 7
STATEMENTS OF CHANGES IN NET
ASSETS 8
NOTES TO FINANCIAL STATEMENTS 9
INDEPENDENT AUDITORS' REPORT 11
DIRECTORS AND OFFICERS 12
- - TOLL-FREE PERSONAL ASSISTANCE
-Customer Service
-(888) 843-7824
- 7:00 a.m. to 6:00 p.m. CT,
Monday thru Thursday
7 a.m. - 5 p.m. Friday CT
- - TOLL-FREE INFORMATION LINE
- For daily account balances, transaction activity or net asset value
information
-(888) 843-7824 x14344
-24 hours a day
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling 888-843-7824 and (2) on the Securities and
Exchange Commission's website at http:www.sec.gov.
HOW TO USE THIS REPORT
For a quick overview of the fund's performance during the past twelve months,
refer to the Highlights box below. The letter from the portfolio manager
provides a more detailed analysis of the fund and financial markets.
The charts alongside the letter are useful because they provide more information
about your investments. The top holdings chart shows the types of securities in
which the fund invests, and the pie chart shows a breakdown of the fund's assets
by sector. Additional information concerning fund performance and policies can
be found in the Notes to Financial Statements.
This report is just one of several tools you can use to learn more about your
investment in The Hartford Income Shares Fund, Inc. Your investment
representative, who understands your personal financial situation, can best
explain the features of your investment and how it's designed to help you meet
your financial goals.
HIGHLIGHTS
<Table>
<Caption>
THE HARTFORD
INCOME SHARES FUND,
INC.
-------------------
JULY 31, 2003
TOTAL NET ASSETS (000'S OMITTED)................... $99,045
MARKET PRICE PER SHARE............................. $ 6.99
SHARES OUTSTANDING (000'S OMITTED)................. 12,979
FOR THE YEAR ENDED JULY 31, 2003:
NET ASSET VALUE PER SHARE:
Beginning of year................................ $ 6.66
End of year...................................... $ 7.63
DISTRIBUTIONS FROM NET INVESTMENT INCOME:
Total dividends paid (000's Omitted)............. $ 7,751
Dividends per share.............................. $ 0.60
</Table>
MONTHLY DIVIDENDS PAID
<Table>
<Caption>
DATE AMOUNT
---- ------
August 2002........................................... 0.053 Income
September 2002........................................ 0.053 Income
October 2002.......................................... 0.050 Income
November 2002......................................... 0.050 Income
December 2002......................................... 0.050 Income
January 2003.......................................... 0.050 Income
February 2003......................................... 0.050 Income
March 2003............................................ 0.050 Income
April 2003............................................ 0.050 Income
May 2003.............................................. 0.050 Income
June 2003............................................. 0.046 Income
July 2003............................................. 0.046 Income
</Table>
PORTFOLIO COMPOSITION BY SECTOR AS
OF 7/31/2003
[PORTFOLIO COMPOSITION PIE CHART]
<Table>
<Caption>
CASH U.S. GOVERNMENT CORPORATE BONDS -
CORPORATE BONDS - NON-INVESTMENT GRADE EQUIVALENTS/RECEIVABLES AGENCIES COMMON STOCKS INVESTMENT GRADE
- -------------------------------------- ----------------------- --------------- ------------- -----------------
28.4 1.70 1.40 0.40 68.10
</Table>
TOP 10 HOLDINGS AS OF 7/31/2003
Percent of
Bonds Net Assets
- --------------------------------------------------------------------------------
1. Ford Motor Co. (7.45%) 2031 2.6%
2. General Motors Acceptance Corp.
(8.00%) 2031 2.5%
3. Time Warner Entertainment Co.
(8.375%) 2033 2.1%
4. Tele-Communications, Inc.
(9.80%) 2012 1.9%
5. AT&T Corp. (8.50%) 2031 1.9%
6. News America Holdings, Inc.
(8.875%) 2023 1.8%
7. AT&T Wireless Services, Inc.
(8.75%) 2031 1.7%
8. Farmers Exchange Capital
(7.20%) 2048 1.6%
9. Columbia Energy Group
(7.62%) 2025 1.6%
10. TXU Corp. (6.375%) 2006 1.4%
HOW DID THE FUND PERFORM?
The Hartford Income Shares Fund, Inc. placed in the 6th percentile of its Lipper
peer group for the one year ended July 31, 2003, producing a net return of
11.63% at market and 24.36% at net asset value versus the 11.96% net return of
the Lipper BBB-Rated Corporate Debt Closed-End Funds Universe.
WHY DID THE FUND PERFORM THIS WAY?
In recent months there has been a considerable amount of volatility in the
Treasury market. In May and early June, speculation over the possibility of the
Federal Reserve purchasing Treasuries combined with talk of deflation on the
part of the Fed, pushed yields on 10-year Treasuries down to roughly 3.1%.
However, signs of a rebound in the economy (and Mr. Greenspan's comments
downplaying the prospects for both deflation and market intervention) caused
this mini bubble to burst, with 10-year Treasuries falling by almost 9% between
mid-June and the end of July, as the yield rose to nearly 4.5%. This correction
was worse than any comparable period during the Treasury market rout of 1994 and
one would have to go back to 1980 to find a sharper sell-off in Treasuries.
While the Fund is not invested in Treasuries at this point, the volatility in
that market has important implications for the corporate and high yield bonds
that the Fund does own. Through June 2003, the investment grade and high yield
markets experienced their best nine-month excess total return performance
(relative to Treasuries) in recent history. The Fund's strong performance over
the past year can be attributed to its significant holdings in the investment
grade and high yield segments of the corporate bond market. The Fund's
concentration in the telecommunications, media and cable industries have been
among the best performers.
The crisis of confidence sparked by Enron, Adelphia, WorldCom and others,
gradually faded as the Sarbanes-Oxley Act certification procedure instilled some
confidence in the numbers reported by corporations. In addition, a general trend
toward more prudent financial management led to an improvement in credit quality
in the form of companies focusing on cash flow generation, debt reduction and
liquidity management. As yield spreads to Treasuries tightened in investment
grade and high yield bonds, total return performance further accelerated as a
result of the aforementioned May to mid-June rally in Treasuries. The negative
implication of this low yield environment was the fact that reinvesting
principal proceeds generated by sales and maturities resulted in a lower
portfolio yield.
Our primary focus remains on delivering a relatively high yield, while keeping a
close eye on the total return of the Fund. We have been focused mainly on
opportunities in the auto and communications sectors, as these sectors still
offer relatively high yields with some potential for price appreciation. We have
been actively searching for alternatives and, in fact, we recently made our
first purchase of an asset-backed structure in years. We are looking for
opportunities to further diversify our risk profile, while maintaining the
portfolio's yield.
THE HARTFORD INCOME SHARES FUND, INC.
Schedule of Investments
July 31, 2003
(000's Omitted)
CORPORATE BONDS - INVESTMENT GRADE - 68.1%
- --------------------------------------------------------------------------------
<Table>
<Caption>
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Value(c)
- --------- ----------- --------
BASIC MATERIALS - 3.7%
$ 250 Ferro Corp., 9.125%, 1-1-2009............................... BBB- $ 282
500 Newmont Mining Corp., 8.625%, 5-15-2011..................... BBB 591
250 Noranda, Inc., 8.375%, 2-15-2011 (d)........................ BBB- 266
300 Olin Corp., 9.125%, 12-15-2011.............................. BBB- 344
685 Phelps Dodge Corp., 8.75%, 6-1-2011......................... BBB- 774
250 Phelps Dodge Corp., 9.50%, 6-1-2031......................... BBB- 279
1,000 Westvaco Corp., 8.20%, 1-15-2030............................ BBB 1,123
-------
3,659
-------
CAPITAL GOODS - 1.2%
1,250 Tyco International Group S.A., 7.00%, 6-15-2028............. BBB- 1,162
-------
CONSUMER CYCLICAL - 7.7%
1,000 Albertson's, Inc., 8.70%, 5-1-2030.......................... BBB 1,185
1,000 Federated Department Stores, Inc., 8.50%, 6-1-2010.......... BBB+ 1,180
3,000 Ford Motor Co., 7.45%, 7-16-2031............................ BBB 2,562
1,000 General Motors Corp., 8.25%, 7-15-2023...................... BBB 948
500 May Department Stores Co., 8.50%, 6-1-2019.................. BBB+ 582
1,000 TRW, Inc., 7.75%, 6-1-2029.................................. BBB- 1,148
-------
7,605
-------
ENERGY - 7.0%
850 Burlington Resources, Inc., 9.125%, 10-1-2021............... BBB+ 1,074
1,500 Columbia Energy Group, 7.62%, Ser G 11-28-2025.............. BBB 1,553
1,000 Conoco, Inc., 6.95%, 4-15-2029.............................. A- 1,081
750 Halliburton Co., 5.625%, 12-1-2008.......................... BBB 765
1,000 Occidental Petroleum Corp., 8.45%, 2-15-2029................ BBB+ 1,258
1,000 Valero Energy Corp., 8.75%, 6-15-2030....................... BBB 1,158
-------
6,889
-------
FINANCE - 15.1%
200 Aon Capital Trust, 8.205%, 1-1-2027......................... BBB 216
500 AQ Finance CEB Trust Notes, 6.01%, Series 2003-CE1 8-26-2034
(f)......................................................... NR 490
500 Bombardier Capital, Inc., 6.125%, 6-29-2006 (g)............. BBB- 515
500 Bombardier Capital, Inc., 7.50%, 8-15-2004 (g).............. BBB- 515
500 Capital One Bank, 6.50%, 7-30-2004.......................... BBB- 520
500 Capital One Bank, 8.25%, 6-15-2005.......................... BBB- 545
1,000 EOP Operating L.P., 7.50%, 4-19-2029........................ BBB+ 1,055
1,000 ERAC USA Finance Co., 8.00%, 1-15-2011 (g).................. BBB+ 1,130
2,000 Farmers Exchange Capital, 7.20%, 7-15-2048 (g).............. BBB+ 1,557
2,650 General Motors Acceptance Corp., 8.00%, 11-1-2031........... BBB 2,445
500 Household Finance Corp., 7.00%, 5-15-2012................... A 555
1,000 Mony Group, Inc., 8.35%, 3-15-2010.......................... BBB+ 1,055
1,000 ReliaStar Financial Corp., 8.00%, 10-30-2006................ A+ 1,140
1,000 Sears Roebuck Acceptance Corp., 6.25%, 5-1-2009............. BBB 1,069
1,000 Spieker Properties, Inc., 7.50%, 10-1-2027.................. BBB+ 1,000
1,000 Travelers Property Casualty Corp., 7.75%, 4-15-2026......... A- 1,125
-------
14,932
-------
SERVICES - 13.3%
1,000 Belo Corp., 7.25%, 9-15-2027................................ BBB- 1,026
750 Clear Channel Communications, Inc., 7.65%, 9-15-2010........ BBB- 858
1,000 Comcast Cable Communications, Inc., 8.50%, 5-1-2027......... BBB 1,163
1,000 Cox Enterprises, Inc., 8.00%, 2-15-2007 (g)................. BBB 1,139
750 Electronic Data Systems Corp., 7.45%, 10-15-2029............ BBB 727
1,000 FedEx Corp., 7.84%, Ser 1996-B2 1-30-2018................... BBB+ 1,031
1,000 Hearst-Argyle Television, Inc., 7.00%, 1-15-2018............ BBB- 1,068
750 Hilton Hotels Corp., 8.25%, 2-15-2011....................... BBB- 817
</Table>
The accompanying notes are an integral part of this financial statement.
2
CORPORATE BONDS - INVESTMENT GRADE - CONTINUED
- --------------------------------------------------------------------------------
<Table>
<Caption>
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Value(c)
- --------- ----------- --------
$1,000 MGM Mirage, Inc., 8.50%, 9-15-2010.......................... BBB- $ 1,115
1,500 News America Holdings, Inc., 8.875%, 4-26-2023.............. BBB- 1,812
1,250 Park Place Entertainment Corp., 8.50%, 11-15-2006........... BBB- 1,356
500 USA Networks, Inc., 6.75%, 11-15-2005....................... BBB- 537
500 USA Waste Management, Inc., 7.125%, 12-15-2017.............. BBB 542
-------
13,191
-------
TECHNOLOGY - 14.0%
1,750 AT&T Corp., 8.50%, 11-15-2031............................... BBB+ 1,851
1,500 AT&T Wireless Services, Inc., 8.75%, 3-1-2031............... BBB 1,729
500 Citizens Communications Co., 9.00%, 8-15-2031............... BBB 609
1,130 Computer Associates International, Inc., 6.375%, Ser B
4-15-2005................................................... BBB+ 1,198
500 Cox Communications, Inc., 6.80%, 8-1-2028................... BBB 494
1,000 Raytheon Co., 7.20%, 8-15-2027.............................. BBB- 1,054
270 Rogers Cable, Inc., 6.25%, 6-15-2013 (d)(g)................. BBB- 259
250 Sprint Capital Corp., 6.00%, 1-15-2007...................... BBB- 262
1,500 Sprint Capital Corp., 6.875%, 11-15-2028.................... BBB- 1,346
1,500 Tele-Communications, Inc., 9.80%, 2-1-2012.................. BBB 1,889
400 Telus Corp., 8.00%, 6-1-2011 (d)............................ BBB 447
1,800 Time Warner Entertainment Co., 8.375%, 7-15-2033............ BBB+ 2,091
700 Time Warner, Inc., 6.625%, 5-15-2029........................ BBB+ 649
# VoiceStream Wireless Corp., 10.375%, 11-15-2009............. BBB+ #
# VoiceStream Wireless Corp., (Baby Bonds) 10.375%,
11-15-2009.................................................. BBB+ #
-------
13,878
-------
TRANSPORTATION - 1.2%
1,000 Norfolk Southern Corp., 8.625%, 5-15-2010................... BBB 1,194
-------
UTILITIES - 4.9%
750 Alliant Energy Resources, Inc., 9.75%, 1-15-2013............ BBB 906
1,000 American Electric Power Co., Inc., 6.125%, 5-15-2006........ BBB 1,079
1,000 CMS Panhandle Holding Co., 7.00%, 7-15-2029................. BBB 999
500 FirstEnergy Corp., 6.45%, Ser B 11-15-2011.................. BBB- 510
1,400 TXU Corp., 6.375%, Ser J 6-15-2006.......................... BBB- 1,432
-------
4,926
-------
TOTAL CORPORATE BONDS - INVESTMENT GRADE (COST $59,299)..... $67,436
=======
</Table>
CORPORATE BONDS - NON-INVESTMENT GRADE - 28.4%
- --------------------------------------------------------------------------------
<Table>
<Caption>
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Value(c)
- --------- ----------- --------
BASIC MATERIALS 4.2%
$1,000 Abitibi-Consolidated, Inc., 8.85%, 8-1-2030 (d)............. BB+ $ 976
750 Equistar Chemicals L.P., 10.125%, 9-1-2008.................. BB 742
1,150 Georgia-Pacific Corp., 9.625%, 3-15-2022.................... BB+ 1,092
500 Hercules, Inc., 11.125%, 11-15-2007......................... BB- 580
235 Nova Chemicals Corp., 7.00%, 5-15-2006 (d).................. BB+ 249
250 Stone Container Corp., 9.75%, 2-1-2011...................... B 265
250 United States Steel LLC, 10.75%, 8-1-2008................... BB- 249
-------
4,153
-------
CAPITAL GOODS - 0.4%
170 Briggs & Stratton Corp., 8.875%, 3-15-2011.................. BB+ 194
200 Jorgensen (Earle M.) Co., 9.75%, 6-1-2012................... B- 210
-------
404
-------
</Table>
3
THE HARTFORD INCOME SHARES FUND, INC.
Schedule of Investments
July 31, 2003
(000's Omitted)
CORPORATE BONDS - NON-INVESTMENT GRADE - CONTINUED
- --------------------------------------------------------------------------------
<Table>
<Caption>
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Value(c)
- --------- ----------- --------
CONSUMER CYCLICAL - 0.9%
$ 500 Delhaize America, Inc., 9.00%, 4-15-2031.................... BB+ $ 521
120 Dillard's, Inc., 6.625%, 1-15-2018.......................... BB+ 98
85 Dillard's, Inc., 7.13%, 8-1-2018............................ BB+ 72
225 Navistar International Corp., 9.375%, Ser B 6-1-2006........ BB- 246
-------
937
-------
ENERGY - 1.6%
200 Swift Energy Co., 10.25%, 8-1-2009.......................... B 210
500 Williams Companies, Inc., 7.125%, 9-1-2011.................. B+ 460
1,000 Williams Companies, Inc., 7.625%, 7-15-2019................. B+ 890
-------
1,560
-------
FINANCE - 2.0%
300 Brazil (Republic of), 11.625%, 4-15-2004 (d)................ B+ 318
100 IPC Acquisition Corp., 11.50%, 12-15-2009................... B- 104
750 Qwest Capital Funding, Inc., 6.50%, 11-15-2018.............. CCC+ 488
25 Sandia Mortgage Corp., 9.14% 1991-A Variable Rate Pass Thru
Certificate Class B 8-1-2018................................ NR 19
115 Western Financial Bank, 9.625%, 5-15-2012................... BB- 124
890 Xerox Credit Corp., 6.10%, 12-16-2003....................... B+ 893
-------
1,946
-------
HEALTH CARE - 1.8%
155 IASIS Healthcare Corp., 13.00%, 10-15-2009.................. CCC+ 172
540 Select Medical Corp., 9.50%, 6-15-2009...................... B 580
925 Tenet Healthcare Corp., 5.00%, 7-1-2007..................... BB 856
150 United Surgical Partners International, Inc., 10.00%,
12-15-2011.................................................. B- 162
-------
1,770
-------
SERVICES - 2.5%
250 Mandalay Resort Group, 7.625%, 7-15-2013.................... BB- 252
750 Service Corp. International, 6.50%, 3-15-2008............... BB- 728
650 Six Flags, Inc., 9.50%, 2-1-2009............................ B 601
750 Starwood Hotels & Resorts Worldwide, Inc., 7.375%,
5-1-2007.................................................... BB+ 776
150 Stewart Enterprises, Inc., 10.75%, 7-1-2008................. B+ 167
-------
2,524
-------
TECHNOLOGY - 9.5%
675 Charter Communications Holdings, 10.00%, 5-15-2011.......... CCC- 506
260 Charter Communications Holdings, 8.25%, 4-1-2007............ CCC- 207
750 Dobson Communications Corp., 10.875%, 7-1-2010.............. CCC 788
500 EchoStar DBS Corp., 10.375%, 10-1-2007...................... BB- 544
750 Global Crossing Holdings Ltd., 9.50%, 11-15-2009
(a)(d)(e)................................................... NR 26
375 Hyperion Telecommunications, 12.25%, Ser B 9-1-2004 (a)..... NR 79
250 Level 3 Communications, Inc., 11.00%, 3-15-2008............. CC 222
595 Level 3 Communications, Inc., 11.25%, 3-15-2010............. CC 524
145 Level 3 Communications, Inc., 9.125%, 5-1-2008.............. CC 122
1,500 Lucent Technologies, Inc., 6.45%, 3-15-2029................. B- 968
77 Marconi Corp. plc, 10.00%, 10-31-2008 (d)................... NR 77
113 Marconi Corp. plc, 8.00%, 4-30-2008 (d)..................... NR 105
130 Metromedia Fiber Network, Inc., 10.00%, 12-15-2009 (a)(e)... NR 10
1,205 Metromedia Fiber Network, Inc., 10.00%, Ser B 11-15-2008
(a)(e)...................................................... NR 90
175 Nextel Communications, Inc., 10.65%, 9-15-2007.............. B+ 180
310 Nextel Communications, Inc., 9.375%, 11-15-2009............. B+ 329
325 Nextel Communications, Inc., 9.75%, 10-31-2007.............. B+ 335
650 Nortel Networks Corp., 6.125%, 2-15-2006 (d)................ B 621
650 Nortel Networks Corp., 6.875%, 9-1-2023 (d)................. B 569
500 PanAmSat Corp., 6.875%, 1-15-2028........................... BB- 475
650 Qwest Capital Funding, Inc., 5.875%, 8-3-2004............... CCC+ 611
</Table>
The accompanying notes are an integral part of this financial statement.
4
CORPORATE BONDS - NON-INVESTMENT GRADE - CONTINUED
- --------------------------------------------------------------------------------
<Table>
<Caption>
Standard
& Poor's
Principal Rating Market
Amount (Unaudited) Value(c)
- --------- ----------- --------
$ 100 Qwest Corp., 6.875%, 9-15-2033.............................. B- $ 83
125 RCN Corp., 11.125%, 10-15-2007.............................. CCC- 52
584 RCN Corp., 9.80%, Ser B 2-15-2008........................... CCC- 239
1,000 Rogers Cantel, Inc., 9.75%, 6-1-2016 (d).................... BB+ 1,139
1,500 WorldCom, Inc. -- WorldCom Group, 8.25%, 5-15-2010 (a)...... NR 396
250 WorldCom, Inc. -- WorldCom Group, 8.25%, 5-15-2031 (a)...... NR 66
-------
9,363
-------
TRANSPORTATION - 1.5%
170 CP Ships Ltd., 10.375%, 7-15-2012 (d)....................... BB+ 185
1,200 Delta Air Lines, Inc., 10.50%, 4-30-2016 (e)................ BB+ 963
500 Northwest Airlines Trust, 13.875%, Ser D 6-21-2008.......... Ba3* 360
-------
1,508
-------
UTILITIES - 4.0%
190 Calpine Corp., 7.875%, 4-1-2008............................. CCC+ 140
310 Calpine Corp., 8.50%, 2-15-2011............................. CCC+ 225
1,000 El Paso Corp., 8.05%, 10-15-2030............................ Caa1* 720
500 Kansas Gas & Electric Co., 7.60%, 12-15-2003................ BB+ 496
1,285 Mission Energy Holding Co., 13.50%, 7-15-2008............... B- 642
720 Sierra Pacific Power Co., 8.00%, Ser A 6-1-2008............. BB 742
1,000 TECO Energy, Inc., 7.20%, 5-1-2011.......................... BB+ 950
-------
3,915
-------
TOTAL CORPORATE BONDS - NON-INVESTMENT GRADE (COST
$31,488).................................................... $28,080
=======
</Table>
U.S. GOVERNMENT AGENCIES - 1.4%
- --------------------------------------------------------------------------------
<Table>
<Caption>
Principal Market
Amount Value(c)
- --------- --------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.3%
$ 29 9.00% 2022.................................................. $ 33
91 10.50% 2017................................................. 102
50 11.25% 2010................................................. 56
42 11.50% 2015................................................. 48
60 11.75% 2010................................................. 68
-------
307
-------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.8%
270 8.0% 2024-2025.............................................. 292
177 10.50% 2014-2020............................................ 199
150 11.00% 2011-2018............................................ 170
2 11.25% 2011................................................. 2
18 12.00% 2014................................................. 21
35 12.50% 2015................................................. 40
-------
724
-------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.3%
194 9.00% 2021.................................................. 216
84 9.50% 2020.................................................. 93
-------
309
-------
TOTAL U.S. GOVERNMENT AGENCIES (COST $1,244)................ $ 1,340
=======
</Table>
5
THE HARTFORD INCOME SHARES FUND, INC.
Schedule of Investments
July 31, 2003
(000's Omitted)
COMMON STOCKS - 0.4%
- --------------------------------------------------------------------------------
<Table>
<Caption>
Market
Shares Value(c)
- ------ --------
CONSUMER CYCLICAL - 0.0%
1 Hosiery Corp. of America, Inc. Class A (a)(e)............... #
-------
TECHNOLOGY - 0.4%
16 Marconi Corp. plc (a)(d).................................... 184
7 McLeod USA, Inc. (Warrants) (a)............................. 2
1 Minorplanet Systems USA, Inc. (Warrants) (a)(e)(h).......... #
5 NTL, Inc. (a)............................................... 210
1 RSL (Warrants) (a)(e)....................................... #
# WilTel Communications, Inc. (a)............................. 5
1 XO Communications, Inc. (a)................................. 4
1 XO Communications, Inc. Class A (Warrants) (a).............. 4
1 XO Communications, Inc. Class B (Warrants) (a).............. 3
1 XO Communications, Inc. Class C (Warrants) (a).............. 2
-------
TOTAL COMMON STOCKS (COST $297)............................. $ 414
=======
</Table>
PREFERRED STOCKS - 0.0%
- --------------------------------------------------------------------------------
<Table>
<Caption>
Market
Shares Value (c)
- ------ ---------
TECHNOLOGY - 0.0%
3 McLeod USA, Inc. Conv. Pfd., 2.50% Ser A 4-18-2012.......... 15
-------
TOTAL PREFERRED STOCKS (COST $21)........................... $ 15
-------
TOTAL INVESTMENTS IN SECURITIES (COST $92,349)(b)........... $97,285
=======
</Table>
- --------------------------------------------------------------------------------
(a) Presently non-income producing. For long-term debt securities, items
identified are in default as to payment of interest and/or principal.
(b) At July 31, 2003, the cost of securities for federal income tax purposes was
$92,537 and the aggregate gross unrealized appreciation and depreciation
based on that cost were:
<Table>
Unrealized appreciation..................................... $ 10,710
Unrealized depreciation..................................... (5,962)
--------
Net unrealized appreciation................................. $ 4,748
--------
</Table>
(c) See Note 2b of accompanying Notes to Financial Statements regarding
valuation of securities.
(d) Note: Percentage of investments as shown is the ratio of the total market
value to total net assets. Market value of investments in foreign securities
represents 5.47% of total net assets as of July 31, 2003.
(e) Securities issued within terms of a private placement memorandum, exempt
from registration under Section 144A of the Securities Act of 1933, as
amended, and may be sold only to dealers in that program or to other
"accredited investors". These investments have been identified by portfolio
management as illiquid securities:
<Table>
<Caption>
YEAR ACQUIRED SHARES/PAR SECURITY COST BASIS
- ------------- ---------- -------- ----------
1996 1,200 Delta Air Lines, Inc. due 2016.............................. $1,415
2000 750 Global Crossing Holdings Ltd. due 2009...................... 723
1994 1 Hosiery Corp. of America, Inc. Class A - 144A............... 8
2001 130 Metromedia Fiber Network, Inc. due 2009..................... 96
2001 1,205 Metromedia Fiber Network, Inc. due 2008..................... 865
1998 1 Minorplanet Systems USA, Inc. (Warrants) - 144A............. 5
1996 1 RSL (Warrants) - 144A....................................... 1
</Table>
The aggregate value of these securities at July 31, 2003, was $1,089 which
represents 1.10% of total net assets.
(f) The cost of securities purchased on a when-issued basis at July 31, 2003,
was $490.
(g) Securities issued within terms of a private placement memorandum, exempt
from registration under Section 144A of the Securities Act of 1933, as
amended, and may be sold only to dealers in that program or to other
"accredited investors". Pursuant to guidelines adopted by the Board of
Directors, these issues are determined to be liquid. The aggregate value of
these securities at July 31, 2003, was $5,115, which represents 5.16% of
total net assets.
(h) Securities are valued at fair value under guidelines established and
approved by the Board of Directors. Total fair value securities had a value
of $0, which represents 0.0% of total net assets at July 31, 2003. See Note
2b of accompanying Notes to Financial Statements.
# Due to the presentation of the financial statements in thousands, the number
of shares and/or dollars round to zero.
* Moody's Rating.
The accompanying notes are an integral part of this financial statement.
6
THE HARTFORD INCOME SHARES FUND, INC.
Statement of Assets and Liabilities
July 31, 2003
(000's Omitted)
- --------------------------------------------------------------------------------
<Table>
ASSETS
Investments in securities, as detailed in the accompanying
schedule, at market (cost $92,349) (Note 2)............. $ 97,285
Cash on deposit with custodian............................ 1,106
Receivables:
Investment securities sold.............................. 2
Interest and dividends.................................. 1,823
--------
TOTAL ASSETS................................................ 100,216
--------
LIABILITIES
Dividend payable ($0.046 per share)....................... 597
Payable for investment securities purchased............... 490
Payable for investment advisory and management fees (Note
3)...................................................... 53
Accounts payable and accrued expenses..................... 31
--------
TOTAL LIABILITIES........................................... 1,171
--------
NET ASSETS.................................................. $ 99,045
========
COMPOSITION OF NET ASSETS
Net proceeds of capital stock, par value $.01 per
share-authorized 15,000 shares; 12,979 shares
outstanding............................................. $124,949
Unrealized appreciation of investments.................... 4,936
Distributions in excess of net investment income.......... (314)
Accumulated net realized loss from sale of investments.... (30,526)
--------
TOTAL NET ASSETS............................................ $ 99,045
--------
NET ASSET VALUE PER SHARE................................... $ 7.63
========
</Table>
THE HARTFORD INCOME SHARES FUND, INC.
Statement of Operations
For the year ended July 31, 2003
(000's Omitted)
- --------------------------------------------------------------------------------
<Table>
NET INVESTMENT INCOME:
Interest income........................................... $ 8,333
-------
EXPENSES:
Investment advisory and management fees (Note 3).......... 593
Legal and auditing fees................................... 85
Custodian fees............................................ 7
Shareholders' notices and reports......................... 65
Directors' fees and expenses.............................. 2
Exchange listing fees..................................... 44
Other..................................................... 18
-------
Total expenses............................................ 814
-------
NET INVESTMENT INCOME....................................... 7,519
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments.......................... (6,297)
Net change in unrealized appreciation of investments...... 19,151
-------
NET GAIN ON INVESTMENTS..................................... 12,854
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $20,373
=======
</Table>
The accompanying notes are an integral part of this financial statement.
7
THE HARTFORD INCOME SHARES FUND, INC.
Statements of Changes in Net Assets
(000's Omitted)
- --------------------------------------------------------------------------------
<Table>
<Caption>
For the For the
Year Ended Year Ended
July 31, 2003 July 31, 2002
------------- -------------
OPERATIONS:
Net investment income..................................... $ 7,519 $ 8,160
Net realized loss on investments.......................... (6,297) (715)
Net change in unrealized appreciation (depreciation) of
investments............................................. 19,151 (15,873)
------- --------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS................................................ 20,373 (8,428)
------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income................................ (7,751) (8,195)
------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from 92 and 142 shares issued as a result of
reinvested dividends, respectively...................... 651 1,076
------- --------
TOTAL INCREASE (DECREASE) IN NET ASSETS..................... 13,273 (15,547)
NET ASSETS:
Beginning of year......................................... 85,772 101,319
------- --------
End of year............................................... $99,045 $ 85,772
======= ========
DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME............ $ (314) $ (82)
======= ========
</Table>
The accompanying notes are an integral part of this financial statement.
8
THE HARTFORD INCOME SHARES FUND, INC.
Notes to Financial Statements
July 31, 2003
($000's Omitted)
- --------------------------------------------------------------------------------
1. ORGANIZATION: The Hartford Income Shares Fund, Inc., (formerly Fortis
Securities, Inc.) ("the fund") is a closed-end diversified management
investment company. The primary investment objective of the fund is to seek a
high level of current income through investment in a diversified portfolio of
debt securities, some of which may be privately placed and some of which may
have equity features. Capital appreciation is a secondary objective.
2. SIGNIFICANT ACCOUNTING POLICIES: The following is a summary of significant
accounting policies of the fund, which are in accordance with accounting
principles generally accepted in the United States in the investment company
industry:
(a) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME: Security transactions
are accounted for on the trade date. Interest income including level-yield
amortization of premium and discount is recorded on the accrual basis.
Realized security gains and losses are determined using the identified cost
method. For the year ended July 31, 2003, the cost of purchases and proceeds
from sales of securities (other than short-term securities) aggregated $32,418
and $31,372, respectively.
(b) SECURITY VALUATION: Debt securities (other than short-term obligations)
are valued on the basis of valuations furnished by an unaffiliated pricing
service, which determines valuations for normal institutional size trading
units of debt securities. Mortgage securities are valued at the bid price.
Short-term investments with a maturity of 60 days or less when purchased are
valued at amortized cost, which approximates market value. Short-term
investments purchased with a maturity of more than 60 days when purchased are
valued based on market quotations until the remaining days to maturity becomes
less than 61 days. From such time until maturity, the investments are valued
at amortized cost.
Equity securities are valued at the last sales price reported on the principal
securities exchange on which such securities are traded (domestic or foreign)
or on the principal over-the counter market on which such securities are
traded, as of the close of business on the day the securities are being
valued. If no sale took place on a particular day then securities are valued
at the mean between the bid and asked prices.
Securities for which market quotations are not readily available and all other
assets are valued in good faith at fair value by, or under the direction of,
the fund's Board of Directors.
(c) REPURCHASE AGREEMENTS: A repurchase agreement is an agreement by which the
seller of a security agrees to repurchase the security sold at a mutually
agreed upon time and price. At the time the fund enters into a repurchase
agreement, the value of the underlying collateral security(ies), including
accrued interest, will be equal to or exceed the value of the repurchase
agreement. Securities which serve to collateralize the repurchase agreement
are held by the fund's custodian in book entry form in the custodial account
of the fund. Repurchase agreements are valued at cost plus accrued interest
receivable. All repurchase agreements are executed through the fund's
custodian, State Street Bank. As of July 31, 2003, there were no outstanding
repurchase agreements.
(d) CREDIT DEFAULT SWAPS: The fund may enter into credit default swaps, which
are carried at market value. The credit default swap market allows the fund to
manage credit risk through buying and selling credit protection on specific
companies or a basket of companies. A buyer agrees to pay a counterparty to
assume the credit risk of an issuer upon the occurrence of certain events. The
seller of the protection receives a premium and agrees to assume the credit
risk of an issuer upon the occurrence of certain events. The fund will limit
credit default swap transactions to five percent (5%) of the fund's net assets
at the time of purchase. As of July 31, 2003, there were no outstanding credit
default swaps.
(e) SECURITIES PURCHASED ON A WHEN-ISSUED BASIS: Delivery and payment for
securities that have been purchased by the fund on a forward commitment or
when-issued basis can take place a month or more after the transaction date.
During this period, such securities are subject to market fluctuations and the
fund maintains, in a segregated account with its custodian, assets with a
market value equal to the amount of its purchase commitments. As of July 31,
2003, the fund had entered into outstanding when-issued or forward commitments
of $490, for which cash has been segregated.
(f) FEDERAL INCOME TAXES: For federal income tax purposes, the fund intends to
continue to qualify as a regulated investment company under Subchapter M of
the Internal Revenue Code by distributing substantially all of its taxable net
investment income and net realized capital gains to its shareholders or
otherwise complying with the requirements of regulated investment companies.
On a calendar year basis, the fund is subject to a 4% federal excise tax to
the extent it does not distribute substantially all of its net investment
income and realized gains, if any. Accordingly, no provision for federal
income taxes has been made in the accompanying financial statements.
Net investment income and net realized gains differ for financial statement
and tax purposes. The character of distributions made during the year from net
investment income or net realized gains may therefore differ from their
ultimate characterization for federal income tax purposes. Also, due to the
timing of dividend distributions, the fiscal year in which amounts are
distributed may differ from the year that the income or realized gains
(losses) were recorded by the fund.
On the Statement of Assets and Liabilities, as a result of permanent
book-to-tax differences, paid-in-capital has been decreased by $4,462 and
accumulated net realized loss was decreased by $4,462.
The tax character of distributions paid for the years ended July 31, 2003 and
2002,was ordinary income in the amount of $7,751 and $8,195, respectively.
As of July 31, 2003, the components of distributable earnings on a tax basis
are as follows:
<Table>
<Caption>
July 31,
2003
----------
Undistributed ordinary income................ $ 495
Accumulated loss............................. (30,468)
Unrealized appreciation...................... 4,666
--------
Total accumulated earnings................... $(25,307)
--------
</Table>
The difference between book-basis and tax-basis unrealized appreciation is
attributable primarily to the tax deferral of wash sales and differing
treatments for the interest accrual on defaulted securities.
For federal income tax purposes, the fund had capital loss carryover of
$25,188 at July 31, 2003, which, if not offset by subsequent capital gains,
will expire in 2004 through 2011. The fund will elect to defer its realized
capital losses for the period subsequent to October 31 in the amount of
$5,280. These losses will be recognized on the first day of the next fiscal
year.
(g) RESTRICTED SECURITIES: At July 31, 2003, investments in securities for the
fund included issues that are illiquid. The fund currently limits investments
in illiquid securities to 15% of net assets, at market value, at the date of
purchase. The aggregate value of such securities at July 31, 2003, was $1,089,
which represents 1.10% of net assets. Pursuant to guidelines adopted by the
Board of Directors, certain unregistered securities are determined to be
liquid and are not included in the 15% limitation specified above.
9
THE HARTFORD INCOME SHARES FUND, INC.
Notes to Financial Statements
July 31, 2003
($000's Omitted)
- --------------------------------------------------------------------------------
(h) DIVIDEND REINVESTMENT PLAN: A shareholder may choose to have his or her
dividends and capital gains distributions reinvested in additional whole or
fractional shares. Although reinvested, this distribution will still be
taxable. Under this plan, when the market price is greater than the net asset
value, the reinvestment price will be the greater of 95 percent of the
month-end market price (plus brokerage commissions) or the month-end net asset
value. When the market price is less than the net asset value, the
reinvestment price will be the market price (plus brokerage commissions) to
the extent that shares can be purchased in the open market.
Shareholders will automatically receive their dividends and capital gains
distributions in cash, unless they inform the fund in writing that they desire
to have their distributions reinvested in additional shares. This may be done
by contacting Hartford Administrative Services Company (See page 15). Notice
to initiate or to terminate this plan must be received by Hartford
Administrative Services 15 days prior to the dividend date for which it is to
become effective.
(i) USE OF ESTIMATES: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the financial statements and the
reported amounts of income and expenses during the period. Operating results
in the future could vary from the amounts derived from management's estimates.
3. PAYMENTS TO RELATED PARTIES: Hartford Investment Financial Services Company
("HIFSCO") is the investment adviser for the fund. Investment advisory and
management fees are computed at the annual rate of .45% for the first $100
million of average monthly net assets and at the annual rate of .40% of
average monthly net assets over $100 million, plus 2% of investment income.
As adviser for the fund, HIFSCO has retained Hartford Investment Management
Company ("HIMCO") to provide investment advice and, in general, to conduct the
management investment program of the fund, subject to the general control of
HIFSCO and the Board of Directors of The Hartford Income Shares Fund, Inc.
Pursuant to the sub-advisory agreement, HIMCO will regularly provide the fund
with investment research, advice and supervision and furnish an investment
program consistent with the fund's investment objectives and policies,
including the purchase, retention and disposition of securities.
The Hartford Financial Services Group, Inc. ("The Hartford") and its
subsidiaries provide facilities and office equipment and perform certain
services for the fund, including fund accounting and financial reporting.
Certain officers of the fund are directors and/or officers of HIFSCO, HIMCO
and/or The Hartford or its subsidiaries. No officer of the fund receives any
compensation directly from the fund.
4. FUND NAME CHANGE: On July 24, 2002, the name of Fortis Securities, Inc. was
changed to The Hartford Income Shares Fund, Inc.
5. CHANGE OF AUDITORS: On January 29, 2003, the shareholders of the fund
ratified the selection of Ernst & Young LLP as auditors for the fiscal year
ending July 31, 2003. During the most recent past fiscal year ended July 31,
2002, the audit report of KPMG LLP, contained no adverse opinion or
disclaimer of opinion; nor was the report qualified or modified as to
uncertainty, audit scope, or accounting principles. Further, there were no
disagreements with KPMG LLP on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of KPMG LLP would
have caused them to make reference to the subject matter of the disagreements
in connection with their reports on the financial statements for such year,
and there were no "reportable events" of the kind described in Item
304(a)(1)(v) of Regulation S-K under the Securities Exchange Act of 1934, as
amended.
6. FINANCIAL HIGHLIGHTS: Selected per share historical data was as follows:
(000's omitted on table identified on specific line items)
<Table>
<Caption>
Year Ended July 31,
----------------------------------------------------------
2003 2002 2001* 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year.......................... $ 6.66 $ 7.95 $ 8.17 $ 8.60 $ 9.55
Operations:
Investment income - net................................... .58 .64 .67 .70 .70
Net realized and unrealized gain (loss) on investments.... .99 (1.29) (.20) (.44) (.93)
------- ------- -------- -------- --------
Total from operations....................................... 1.57 (.65) .47 .26 (.23)
------- ------- -------- -------- --------
Distributions to shareholders:
From investment income - net.............................. (.60) (.64) (.69) (.69) (.72)
------- ------- -------- -------- --------
Net asset value, end of year................................ $ 7.63 $ 6.66 $ 7.95 $ 8.17 $ 8.60
------- ------- -------- -------- --------
Per-share market value, end of year......................... $ 6.99 $ 6.80 $ 7.94 $ 7.63 $ 8.50
Total investment return, market value @..................... 11.63% (6.72%) 13.55% (1.59%) 2.34%
Total investment return, net asset value @@................. 24.36% (8.75%) 6.18% 4.10% (2.43%)
Net Assets, end of year (000s omitted)...................... $99,045 $85,772 $101,319 $103,464 $108,951
Ratio of expenses to average monthly net assets............. .86% .80% .77% .77% .73%
Ratio of net investment income to average monthly net
assets.................................................... 7.93% 8.45% 8.38% 8.42% 7.65%
Portfolio turnover rate..................................... 34% 23% 57% 65% 33%
</Table>
@ Total investment return, market value, is based on the change in market price
of a share during the year and assumes reinvestment of distributions at
actual prices pursuant to the fund's dividend reinvestment plan.
@@ Total investment return, net asset value, is based on the change in net
asset value of a share during the year and assumes reinvestment of
distributions at actual prices pursuant to the fund's dividend reinvestment
plan.
* Effective April 2, 2001, the advisor was changed from Fortis Advisers, Inc.
to Hartford Investment Financial Services Company.
10
THE HARTFORD INCOME SHARES FUND, INC.
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF THE HARTFORD INCOME SHARES FUND,
INC.
We have audited the accompanying statement of assets and liabilities of The
Hartford Income Shares Fund, Inc. (the Fund), including the schedule of
investments, as of July 31, 2003, and the related statements of operations and
changes in net assets and financial highlights for the year then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The statement
of changes in net assets and financial highlights for the periods presented
through July 31, 2002, were audited by other auditors whose report dated
September 6, 2002, expressed an unqualified opinion on that financial statement
and financial highlights.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free from material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of July 31, 2003, by correspondence with the
custodian and brokers or by other appropriate auditing procedures where replies
from brokers were not received. 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
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights audited by us
as referred to above present fairly, in all material respects, the financial
position of The Hartford Income Shares Fund, Inc. at July 31, 2003, the results
of its operations, the changes in its net assets, and its financial highlights
for the year then ended, in conformity with accounting principles generally
accepted in the United States.
(ERNST & YOUNG LLP LOGO)
Minneapolis, Minnesota
August 26, 2003
11
DIRECTOR AND OFFICER INFORMATION (UNAUDITED)
The Board of Directors ("Board") is responsible for overall management of the
Fund. The Board may exercise all powers of the Fund, except those powers that
are conferred solely upon or reserved to the shareholders. The following table
provides information about the Fund's directors and officers. The business
address for all directors and officers is c/o The Hartford Income Shares Fund,
Inc., P.O. Box 2999, Hartford, CT 06104-2999, except for Tamara L. Fagely and
Robert W. Beltz, Jr., whose business address is 500 Bielenberg Dr., Woodbury, MN
55125.
NON-INTERESTED DIRECTORS
<Table>
<Caption>
Number of
Position Term of Portfolios in
Held with Office* and Fund Complex
the Has Served Principal Occupation(s) Overseen by
Name and Age Company Since: During Past 5 Years Director
- ------------ --------- ------------- ---------------------------------- -------------
LYNN S. BIRDSONG(1) (age 56) Director 2003 From 1979 to 2002, Mr. Birdsong 70
was a managing director of Zurich
Scudder Investments, an investment
management firm. In 2003, Mr.
Birdsong became an independent
director of the Atlantic Whitehall
Funds and The Japan Fund; during
his employment with Scudder, he
was an interested director of The
Japan Fund. Since 1981, Mr.
Birdsong has been a partner in
Birdsong Company, an advertising
specialty firm.
WINIFRED E. COLEMAN (age 70) Director 2002 Ms. Coleman has served as 70
President of Saint Joseph College
since 1991 and President of Cashel
House, Ltd. (retail) since 1985.
DR. ROBERT M. GAVIN (age 62) Director 1986 Dr. Gavin is an educational 70
consultant. Prior to September 1,
2001, he was President of
Cranbrook Education Community; and
prior to July 1996, he was
President of Macalester College,
St. Paul Minnesota.
DUANE E. HILL (age 57) Director 2002 Mr. Hill is Partner Emeritus and a 70
founding partner of TSG Capital
Group, a private equity investment
firm that serves as sponsor and
lead investor in leveraged buyouts
of middle market companies. Mr.
Hill is also a Partner of TSG
Ventures L.P., a private equity
investment company that invests
primarily in minority-owned small
businesses.
PHILLIP O. PETERSON (age 58) Director 2000 Mr. Peterson is a mutual fund 70
industry consultant. He was a
partner of KPMG LLP until July
1999.
MILLARD H. PRYOR, JR. (age 70) Director 2002 Mr. Pryor has served as Managing 70
Director of Pryor & Clark Company
(real estate investment),
Hartford, Connecticut, since June
1992.
JOHN K. SPRINGER(2) (age 72) Director 2002 Mr. Springer served as Chairman of 70
Medspan, Inc. (health maintenance
organization) until March 2002.
<Caption>
Other
Directorships
Name and Age Held by Director
- ------------ -------------------------------------
LYNN S. BIRDSONG(1) (age 56) N/A
WINIFRED E. COLEMAN (age 70) N/A
DR. ROBERT M. GAVIN (age 62) Dr. Gavin is a Director of Systems &
Computer Technology Corporation.
DUANE E. HILL (age 57) N/A
PHILLIP O. PETERSON (age 58) N/A
MILLARD H. PRYOR, JR. (age 70) Mr. Pryor is a Director of Infodata
Systems, Inc. (software company) and
CompuDyne Corporation (security
products and services) and August
Financial Holding Company (advisory
services)
JOHN K. SPRINGER(2) (age 72) N/A
</Table>
12
INTERESTED DIRECTORS AND OFFICERS
<Table>
<Caption>
Number of
Position Term of Portfolios in
Held with Office* and Fund Complex
the Has Served Principal Occupation(s) Overseen by
Name and Age Company Since: During Past 5 Years Director
- ------------ --------- ----------- ---------------------------------- -------------
THOMAS M. MARRA(3) (age 45) Director 2002 Mr. Marra is President and Chief 70
and Operating Officer of Hartford
Chairman Life, Inc. He is also a member of
of the the Board of Directors and a
Board member of the Office of the
Chairman for The Hartford
Financial Services Group, Inc.
("The Hartford"), the parent
company of Hartford Life. Mr.
Marra was named President of
Hartford Life in 2001 and COO in
2000, and served as Director of
Hartford Life's Investment
Products Division from 1998 to
2000. He was head of the company's
Individual Life and Annuities
Division from 1994 to 1998 after
being promoted to Senior Vice
President in 1994 and to Executive
Vice President in 1996. Mr. Marra
is also a Managing Member and
President of Hartford Investment
Financial Services, LLC ("HIFSCO")
and HL Investment Advisors, LLC
("HL Advisors").
LOWNDES A. SMITH(3) (age 63) Director 2002 Mr. Smith served as Vice Chairman 70
of Hartford Financial Services
Group, Inc. from February 1997 to
January 2002, as President and
Chief Executive Officer of
Hartford Life, Inc. from February
1997 to January 2002, and as
President and Chief Operating
Officer of The Hartford Life
Insurance Companies from January
1989 to January 2002.
DAVID M. ZNAMIEROWSKI(3) (age President 2001 Mr. Znamierowski currently serves N/A
42) as President of Hartford
Investment Management Company
("HIMCO"), Senior Vice President
for Hartford Life, Inc., and
Senior Vice President and Chief
Investment Officer for Hartford
Life Insurance Company. Mr.
Znamierowski is also a Managing
Member and Senior Vice President
of HIFSCO and HL Advisors. Mr.
Znamierowski is Group Senior Vice
President and Chief Investment
Officer for The Hartford.
ROBERT W. BELTZ, JR. (age 53) Vice 1993 Mr. Beltz currently serves as Vice N/A
President President Securities Operations of
Hartford Administrative Services
Company ("HASCO"). Since December
2001, he has served as Assistant
Vice President of Hartford Life
Insurance Company.
KEVIN J. CARR (age 48) Vice 2001 Mr. Carr has served as The N/A
President Hartford's Assistant General
and Counsel since 1999, Counsel since
Secretary November 1996 and Associate
Counsel since November 1995. Mr.
Carr is also Vice President and
Assistant Secretary of HL Advisors
and HIFSCO and Assistant Secretary
of HIMCO.
WILLIAM H. DAVISON, JR. (age Vice 2002 Mr. Davison is a Managing Director N/A
46) President and Director of the Funds
Management Group of HIMCO. Mr.
Davison is also a Senior Vice
President of HIFSCO and HL
Advisors.
<Caption>
Other
Directorships
Name and Age Held by Director
- ------------ ----------------------------------
THOMAS M. MARRA(3) (age 45) Mr. Marra is a member of the Board
of Directors of The Hartford
Financial Services Group, Inc.
LOWNDES A. SMITH(3) (age 63) N/A
DAVID M. ZNAMIEROWSKI(3) (age N/A
42)
ROBERT W. BELTZ, JR. (age 53) N/A
KEVIN J. CARR (age 48) N/A
WILLIAM H. DAVISON, JR. (age N/A
46)
</Table>
13
<Table>
<Caption>
Number of
Position Term of Portfolios in
Held with Office* and Fund Complex
the Has Served Principal Occupation(s) Overseen by
Name and Age Company Since: During Past 5 Years Director
- ------------ --------- ----------- ---------------------------------- -------------
TAMARA L. FAGELY (age 45) Vice 1993 Ms. Fagely has been Vice President N/A
President, of HASCO since 1998. Prior to
Controller 1998, she was Second Vice
and President of HASCO. Ms. Fagely is
Treasurer also Controller for HIFSCO, Vice
President, Controller and
Treasurer of Hartford Mutual
Funds, Inc. and Hartford Mutual
Funds II, Inc. She has also served
as Assistant Vice President of
Hartford Life Insurance Company
since December 2001.
BRUCE FERRIS (age 47) Vice 2002 Mr. Ferris serves as Senior Vice N/A
President President and a Director of Sales
and Marketing in the Investment
Products Division of Hartford Life
Insurance Company. Mr. Ferris is
also a Managing Member of HL
Advisors.
MARY JANE FORTIN(1) (age 38) Vice 2003 Ms. Fortin is Senior Vice N/A
President President and Director of Mutual
Funds and 529 Programs for
Hartford Life. Previously, she
served as Senior Vice President
and Chief Accounting Officer of
Hartford Life. Ms. Fortin joined
Hartford Life in 1997.
GEORGE R. JAY (age 51) Vice 2001 Mr. Jay serves as Assistant Vice N/A
President President of Hartford Life
Insurance Company's Equity
Products Department. He is also
Controller of HL Advisors and Vice
President, Controller and
Treasurer of Hartford Series Fund,
Inc. and Hartford HLS Series Fund
II, Inc.
RYAN JOHNSON (age 42) Vice 2002 Mr. Johnson serves as Senior Vice N/A
President President and a Director of Sales
and Marketing in the Investment
Products Division of Hartford Life
Insurance Company since 1999. Mr.
Johnson is also a Managing Member
of HL Advisors. He was previously
with Guardian Insurance Company in
New York City.
STEPHEN T. JOYCE (age 44) Vice 2001 Mr. Joyce currently serves as N/A
President Senior Vice President and Director
of the Institutional Products
Group for Hartford Life Insurance
Company. Previously he served as
Vice President (1997-1999) and
Assistant Vice President
(1994-1997) of Hartford Life
Insurance Company. Mr. Joyce is
also Senior Vice President of HL
Advisors.
DAVID N. LEVENSON (age 37) Vice 2001 Mr. Levenson serves as Senior Vice N/A
President President of Hartford Life
Insurance Company's Retail Product
Management Group and is
responsible for all retail product
management and profitability. He
is also a Senior Vice President of
HIFSCO and HL Advisors. Mr.
Levenson joined The Hartford in
1995.
JOHN C. WALTERS (age 41) Vice 2001 Mr. Walters serves as Executive N/A
President Vice President and Director of the
Investment Products Division of
Hartford Life Insurance Company.
Previously, Mr. Walters was with
First Union Securities. He is also
a Managing Member and Executive
Vice President of HIFSCO and HL
Advisors.
<Caption>
Other
Directorships
Name and Age Held by Director
- ------------ ----------------------------------
TAMARA L. FAGELY (age 45) N/A
BRUCE FERRIS (age 47) N/A
MARY JANE FORTIN(1) (age 38) N/A
GEORGE R. JAY (age 51) N/A
RYAN JOHNSON (age 42) N/A
STEPHEN T. JOYCE (age 44) N/A
DAVID N. LEVENSON (age 37) N/A
JOHN C. WALTERS (age 41) N/A
</Table>
* Each director and officer may serve until his or her successor is elected and
qualifies.
(1) Elected May 13, 2003.
(2) Retired May 13, 2003.
(3) "Interested person" of the Company as defined in the Investment Company Act
of 1940 because of the person's affiliation with or equity ownership of
Hartford Investment Financial Services, LLC or affiliated companies.
14
<Table>
INVESTMENT ADVISER Hartford Investment Financial Services, LLC
P.O. Box 1744, Hartford, CT 06144-1744
DIVIDEND DISBURSING AGENT Hartford Administrative Services Company
P.O. Box 64387, St. Paul, Minnesota 55164
REGISTRAR Wells Fargo Bank
Minnesota, N.A.
Minneapolis, Minnesota
CUSTODIAN State Street Bank and Trust Company
Boston, Massachusetts
INDEPENDENT AUDITORS Ernst & Young LLP
Minneapolis, Minnesota
</Table>
MARKET PRICE The Hartford Income Shares Fund, Inc. is listed on
the New York Stock Exchange with the Ticker symbol
"HSF." The market price is carried daily in the
financial pages of most newspapers and carried on
Monday in the "Closed-End Funds" table which sets
forth on a per share basis the previous weeks' net
asset value, market price and the percentage
difference between net asset value and market price
for the fund under the name Hartford Income Shrsfd.
15
ITEM 2. CODE OF ETHICS.
Registrant has adopted a code of ethics which is attached as Exhibit
10(a).
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Directors of the Registrant has designated Phillip O.
Peterson as an Audit Committee Financial Expert. Mr. Peterson is considered
by the Board to be an independent director.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required by this item is incorporated by reference from
Registrant's definitive proxy statement which involves the election of directors
and which will be filed within 120 days after the end of Registrant's fiscal
year.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Registrant has an Audit Committee comprised of all independent directors
of the Board of Directors. The members of the Audit Committee are listed below.
Lynn S. Birdsong
Winifred E. Coleman
Robert M. Gavin
Duane E. Hill
Phillip O. Peterson
Millard H. Pryor. Jr.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Registrant has delegated the authority to vote proxies to Hartford
Investment Management Company, Registrant's sub-adviser. The policies of
Hartford Investment Management Company are attached.
ITEM 9. CONTROLS AND PROCEDURES.
(a) Based on an evaluation of the Registrant's Disclosure Controls and
Procedures as of a date within 90 days of the filing date of this report,
the Disclosure Controls and Procedures are effectively designed to ensure
that information required to be disclosed by the Registrant is recorded,
processed, summarized and reported by
the date of this report, including ensuring that information required to
be disclosed in the report is accumulated and communicated to the
Registrant's management, including the Registrant's officers, as
appropriate, to allow timely decisions regarding required disclosure.
(b) There were no significant changes in the Registrant's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
ITEM 10. EXHIBITS.
(a) Registrant's Code of Ethics in response to Item 2.
(b) Section 302 certifications of the principal executive officer and
principal financial officer of Registrant.
99 Section 906 certification.
99 Registrant's proxy voting polices in response to Item 7.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
THE HARTFORD INCOME SHARES FUND, INC.
Date: September 9, 2003 By: /s/ David M. Znamierowski
---------------------------------
David M. Znamierowski
Its: President
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.
Date: September 9, 2003 By: /s/ David M. Znamierowski
---------------------------------
David M. Znamierowski
Its: President
Date: September 9, 2003 By: /s/ Tamara L. Fagely
---------------------------------
Tamara L. Fagely
Its: Vice President, Controller and Treasurer
EXHIBIT LIST
10(a) Code of Ethics
99.CERT 10(b) Certifications
(i) Section 302 certification of principal executive
officer
(ii) Section 302 certification of principal financial
officer
99.906CERT 99 Section 906 certification of principal executive
officer and principal financial officer
99 Proxy voting policies
Underwritten and Distributed Through
Hartford Investment Financial Services, LLC
200 Hopmeadow Street
Simsbury, CT 06070
Investment Manager
Hartford Investment Financial Services, LLC
200 Hopmeadow Street
Simsbury, CT 06070
Investment Sub-Adviser
Hartford Investment Management Company
55 Farmington Avenue
Hartford, CT 06105
- --------------------------------------------------------------------------------
THE HARTFORD INCOME SHARES FUND, INC. PRESORTED
P.O. Box 64387 STANDARD
St. Paul, MN 55164-0387 U.S. POSTAGE
PAID
ATKINSON, NH 03811
PERMIT NO. 27
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