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
Date of reporting period: August 1, 2003 to January 31, 2004
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. Section 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
(BACKGROUND GRAPHIC)
JANUARY 31, 2004
THE HARTFORD
INCOME SHARES FUND, INC.
Semi-Annual Report
(THE HARTFORD MUTUAL FUNDS LOGO)
THE HARTFORD INCOME SHARES FUND, INC. SEMIANNUAL 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
DIRECTORS AND OFFICERS 12
SHAREHOLDER MEETING RESULTS 16
- - 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. CT, Friday
- - 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 six 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.
-------------------
JANUARY 31, 2004
TOTAL NET ASSETS (000'S OMITTED)................... $107,905
MARKET PRICE PER SHARE............................. $ 7.78
SHARES OUTSTANDING (000'S OMITTED)................. 12,982
FOR THE SIX-MONTH PERIOD ENDED JANUARY 31, 2004:
NET ASSET VALUE PER SHARE:
Beginning of period.............................. $ 7.63
End of period.................................... $ 8.31
DISTRIBUTIONS FROM NET INVESTMENT INCOME:
Total dividends paid (000's Omitted)............. $ 3,585
Dividends per share.............................. $ 0.28
</Table>
MONTHLY DIVIDENDS PAID
<Table>
<Caption>
DATE AMOUNT
---- ------------
August 2003............................................... 0.046 Income
September 2003............................................ 0.046 Income
October 2003.............................................. 0.046 Income
November 2003............................................. 0.046 Income
December 2003............................................. 0.046 Income
January 2004.............................................. 0.046 Income
</Table>
PORTFOLIO COMPOSITION BY SECTOR AS
OF 1/31/2004
[PORTFOLIO COMPOSITION PIE CHART]
<Table>
Corporate Bonds - Investment Grade 65.60
Corporate Bonds - Non-Investment Grade 29.60
Cash Equivalents/Receivables 3.00
U.S. Government Agencies 1.00
Asset Backed and Commerical Mortgage 0.40
Common Stock 0.40
</Table>
TOP 10 HOLDINGS AS OF 1/31/2004
Percent of
Bonds Net Assets
- --------------------------------------------------------------------------------
1. Ford Motor Co. (7.45%) 2031 2.8%
2. General Motors Acceptance Corp.
(8.00%) 2031 2.7%
3. Farmers Exchange Capital (7.20%) 2048 2.6%
4. Time Warner Entertainment Co.
(8.375%) 2033 2.1%
5. AT&T Corp. (8.50%) 2031 1.9%
6. Tele-Communications, Inc.
(9.80%) 2012 1.8%
7. News America Holdings, Inc.
(8.875%) 2023 1.8%
8. AT&T Wireless Services, Inc.
(8.75%) 2031 1.8%
9. Columbia Energy Group (7.62%) 2025 1.5%
10. Sprint Capital Corp. (6.875%) 2028 1.4%
HOW DID THE FUND PERFORM?
The Hartford Income Shares Fund, Inc. placed in the 16th percentile of its
Lipper peer group (at NAV) for the six-month period ended January 31, 2004,
producing a net return of 12.83% at net asset value and 15.35% at market versus
the 8.72% return at net asset value of the Lipper BBB-Rated Corporate Debt
Closed-End Funds Universe.
WHY DID THE FUND PERFORM THIS WAY?
The Fund has clearly benefited from the significant rally in the credit markets
over the last 18 months. In relative terms, this past year was the best year in
history for investment grade corporate bonds and the second best for the high
yield sector. The Fund has been highly concentrated in these two sectors. Over
95% of the Fund's assets are in corporate credit related securities, with the
high yield component having grown to roughly 30% of the total, due to market
value appreciation. The high yield component of the Fund in particular,
contributed to its performance in the last six months. The total return on
Lehman's Broad High Yield Index was 12.16% for the six months ended January 31,
2004. Within the Fund's investment grade holdings, the 11.84% six month total
return posted by the automotive sector, which represents just under 8% of the
Fund's assets, was a key driver of its overall performance.
The Fund has remained heavily weighted in investment grade and speculative grade
corporate debt. These two components of the fixed income universe have stood out
as providing higher yields than other fixed income alternatives. In this effort,
our focus has been on securities that trade at above market yields with an
enterprise value that at least supports our cash commitment to the position.
With yield spreads tightening and enterprise values rising, our holdings
appreciated markedly, particularly in the technology and telecommunications
sectors, which represents 20% of the Fund.
WHAT IS YOUR OUTLOOK?
As we look forward, among our chief concerns is whether the rally in the credit
markets has come too far, too fast. The rally has brought valuations to levels
not seen in many years. This is diminishing, but not eliminating, the relative
incremental yield advantage over other fixed income alternatives. As long as
corporate managers keep a healthy focus on free cash flow, we are comfortable
that corporate credit will perform better than most other fixed income
alternatives. If there is an unexpected general decline in credit quality,
spreads would widen, liquidity would suffer and defaults would increase. Our
research team is watching for any developments on this front.
We anticipate that the upswing in the economy may lead to higher interest rates.
However, as mentioned above, we expect that corporate debt will perform better
than most fixed income alternatives in this type of environment. The ongoing
recovery in corporate profitability that is boosting expectations for the
overall economy has served to improve credit quality.
We will look for opportunities in floating rate securities, as well as the
potential to upgrade the credit quality of the portfolio.
THE HARTFORD INCOME SHARES FUND, INC.
Schedule of Investments
January 31, 2004 (Unaudited)
(000's Omitted)
ASSET BACKED AND COMMERCIAL MORTGAGE SECURITIES - 0.4%
- --------------------------------------------------------------------------------
<Table>
<Caption>
Standard
Principal & Poor's Market
Amount Rating Value(c)
- --------- -------- --------
FINANCE - 0.4%
$ 415 AQ Finance CEB Trust, 6.12%, Ser 2003-CE1A 8-25-2033
(f)(h)...................................................... Baa2* $ 406
-------
TOTAL ASSET BACKED AND COMMERCIAL MORTGAGE SECURITIES (COST
$406)....................................................... $ 406
=======
</Table>
CORPORATE BONDS: INVESTMENT GRADE - 65.6%
- --------------------------------------------------------------------------------
<Table>
<Caption>
Standard
Principal & Poor's Market
Amount Rating Value(c)
- --------- -------- --------
BASIC MATERIALS - 3.4%
$ 500 Newmont Mining Corp., 8.625%, 5-15-2011..................... BBB $ 613
250 Noranda, Inc., 8.375%, 2-15-2011............................ BBB- 303
300 Olin Corp., 9.125%, 12-15-2011.............................. BBB- 361
685 Phelps Dodge Corp., 8.75%, 6-1-2011......................... BBB- 848
250 Phelps Dodge Corp., 9.50%, 6-1-2031......................... BBB- 366
1,000 Westvaco Corp., 8.20%, 1-15-2030............................ BBB 1,183
-------
3,674
-------
CAPITAL GOODS - 1.2%
1,250 Tyco International Group S.A., 7.00%, 6-15-2028............. BBB- 1,319
-------
CONSUMER CYCLICAL - 9.7%
1,000 Albertson's, Inc., 8.70%, 5-1-2030.......................... BBB 1,269
1,000 Federated Department Stores, Inc., 8.50%, 6-1-2010.......... BBB+ 1,240
3,000 Ford Motor Co., 7.45%, 7-16-2031............................ BBB- 3,046
1,000 Ford Motor Co., 7.70%, 5-15-2097............................ BBB- 973
1,000 General Motors Corp., 8.25%, 7-15-2023...................... BBB 1,119
500 May Department Stores Co., 8.50%, 6-1-2019.................. BBB+ 639
1,000 Toys R Us, 7.375%, 10-15-2018............................... Baa+ 1,003
1,000 TRW, Inc., 7.75%, 6-1-2029.................................. BBB 1,221
-------
10,510
-------
ENERGY - 6.8%
850 Burlington Resources, Inc., 9.125%, 10-1-2021............... BBB+ 1,140
1,500 Columbia Energy Group, 7.62%, Ser G 11-28-2025.............. BBB 1,623
1,000 Conoco, Inc., 6.95%, 4-15-2029.............................. A- 1,156
750 Halliburton Co., 5.625%, 12-1-2008.......................... BBB 796
1,000 Occidental Petroleum Corp., 8.45%, 2-15-2029................ BBB+ 1,329
1,000 Valero Energy Corp., 8.75%, 6-15-2030....................... BBB 1,273
-------
7,317
-------
FINANCE - 14.5%
200 Aon Capital Trust, 8.205%, 1-1-2027......................... BBB 228
500 Bombardier Capital, Inc., 6.125%, 6-29-2006 (f)............. BBB- 532
500 Bombardier Capital, Inc., 7.50%, 8-15-2004 (f).............. BBB- 517
500 Capital One Bank, 6.50%, 7-30-2004.......................... BBB- 512
500 Capital One Bank, 8.25%, 6-15-2005.......................... BBB- 541
1,000 EOP Operating LP, 7.50%, 4-19-2029.......................... BBB+ 1,139
1,000 ERAC USA Finance Co., 8.00%, 1-15-2011 (f).................. BBB+ 1,196
3,000 Farmers Exchange Capital, 7.20%, 7-15-2048 (f).............. BBB+ 2,815
2,650 General Motors Acceptance Corp., 8.00%, 11-1-2031........... BBB 2,906
500 Household Finance Corp., 7.00%, 5-15-2012................... A 576
1,000 Mony Group, Inc., 8.35%, 3-15-2010.......................... BBB+ 1,205
1,000 ReliaStar Financial Corp., 8.00%, 10-30-2006................ A+ 1,136
1,000 Spieker Properties, Inc., 7.50%, 10-1-2027.................. BBB+ 1,110
1,000 Travelers Property Casualty Corp., 7.75%, 4-15-2026......... A- 1,220
-------
15,633
-------
SERVICES - 10.5%
1,000 Belo Corp., 7.25%, 9-15-2027................................ BBB- 1,107
750 Clear Channel Communications, Inc., 7.65%, 9-15-2010........ BBB- 883
</Table>
2
The accompanying notes are an integral part of this financial statement.
CORPORATE BONDS: INVESTMENT GRADE - CONTINUED
- --------------------------------------------------------------------------------
<Table>
<Caption>
Standard
Principal & Poor's Market
Amount Rating Value(c)
- --------- -------- --------
$1,000 Comcast Cable Communications, Inc., 8.50%, 5-1-2027......... BBB $ 1,294
1,000 Cox Enterprises, Inc., 8.00%, 2-15-2007 (f)................. BBB 1,144
750 Electronic Data Systems Corp., 7.45%, 10-15-2029............ BBB 781
1,000 FedEx Corp., 7.84%, Ser 1996-B2 1-30-2018................... BBB+ 1,110
1,000 Hearst-Argyle Television, Inc., 7.00%, 1-15-2018............ BBB- 1,115
750 Hilton Hotels Corp., 8.25%, 2-15-2011....................... BBB- 863
1,500 News America Holdings, Inc., 8.875%, 4-26-2023.............. BBB- 1,943
500 USA Networks, Inc., 6.75%, 11-15-2005....................... BBB- 532
500 USA Waste Management, Inc., 7.125%, 12-15-2017.............. BBB 563
-------
11,335
-------
TECHNOLOGY - 13.8%
1,750 AT&T Corp., 8.50%, 11-15-2031............................... Baa2* 2,046
1,500 AT&T Wireless Services, Inc., 8.75%, 3-1-2031............... BBB 1,901
500 Citizens Communications Co., 9.00%, 8-15-2031............... BBB 590
1,130 Computer Associates International, Inc., 6.375%, Ser B
4-15-2005................................................... BBB+ 1,182
500 Cox Communications, Inc., 6.80%, 8-1-2028................... BBB 548
1,000 Raytheon Co., 7.20%, 8-15-2027.............................. BBB- 1,120
270 Rogers Cable, Inc., 6.25%, 6-15-2013........................ BBB- 279
250 Sprint Capital Corp., 6.00%, 1-15-2007...................... BBB- 267
1,500 Sprint Capital Corp., 6.875%, 11-15-2028.................... BBB- 1,505
1,500 Tele-Communications, Inc., 9.80%, 2-1-2012.................. BBB 1,965
400 Telus Corp., 8.00%, 6-1-2011................................ BBB 472
700 Time Warner Companies, Inc., 6.625%, 5-15-2029.............. BBB+ 720
1,800 Time Warner Entertainment Co., 8.375%, 7-15-2033............ BBB+ 2,281
16 VoiceStream Wireless Corp., 10.375%, 11-15-2009 (e)......... NR @@
-------
14,876
-------
TRANSPORTATION - 1.6%
500 Delta Air Lines, Inc., 7.57%, 5-18-2012..................... A- 514
1,000 Norfolk Southern Corp., 8.625%, 5-15-2010................... BBB 1,220
-------
1,734
-------
UTILITIES - 4.1%
1,000 American Electric Power Co., Inc., 6.125%, Ser A
5-15-2006................................................... BBB 1,078
1,000 CMS Panhandle Holding Co., 7.00%, 7-15-2029................. BBB 1,085
750 FirstEnergy Corp., 6.45%, Ser B 11-15-2011.................. Baa+ 786
1,400 TXU Corp., 6.375%, Ser J 6-15-2006.......................... BBB- 1,502
-------
4,451
-------
TOTAL CORPORATE BONDS: INVESTMENT GRADE (COST $58,377)...... $70,849
=======
</Table>
CORPORATE BONDS: NON-INVESTMENT GRADE - 29.6%
- --------------------------------------------------------------------------------
<Table>
<Caption>
Standard
Principal & Poor's Market
Amount Rating Value(c)
- --------- -------- --------
BASIC MATERIALS 4.2%
$1,000 Abitibi-Consolidated, Inc., 8.85%, 8-1-2030................. BB+ $ 1,091
750 Equistar Chemicals LP, 10.125%, 9-1-2008.................... BB- 814
1,150 Georgia-Pacific Corp., 9.625%, 3-15-2022.................... BB+ 1,194
500 Hercules, Inc., 11.125%, 11-15-2007......................... BB- 605
235 Nova Chemicals Corp., 7.00%, 5-15-2006...................... BB+ 249
250 Stone Container Corp., 9.75%, 2-1-2011...................... B 276
250 United States Steel LLC., 10.75%, 8-1-2008.................. BB- 293
-------
4,522
-------
CAPITAL GOODS - 0.4%
170 Briggs & Stratton Corp., 8.875%, 3-15-2011.................. BB+ 203
200 Jorgensen (Earle M.) Co., 9.75%, 6-1-2012................... B- 224
-------
427
-------
</Table>
3
THE HARTFORD INCOME SHARES FUND, INC.
Schedule of Investments
January 31, 2004 (Unaudited)
(000's Omitted)
CORPORATE BONDS: NON-INVESTMENT GRADE - CONTINUED
- --------------------------------------------------------------------------------
<Table>
<Caption>
Standard
Principal & Poor's Market
Amount Rating Value(c)
- --------- -------- --------
CONSUMER CYCLICAL - 1.0%
$ 500 Delhaize America, Inc., 9.00%, 4-15-2031.................... BB+ $ 618
120 Dillard's, Inc., 6.625%, 1-15-2018.......................... BB 116
85 Dillard's, Inc., 7.13%, 8-1-2018............................ BB 84
225 Navistar International Corp., 9.375%, Ser B 6-1-2006........ BB- 248
-------
1,066
-------
ENERGY - 1.6%
200 Swift Energy Co., 10.25%, 8-1-2009.......................... B 215
500 Williams Companies, Inc., 7.125%, 9-1-2011.................. B+ 520
1,000 Williams Companies, Inc., 7.625%, 7-15-2019................. B+ 1,015
-------
1,750
-------
FINANCE - 0.5%
300 Brazil (Republic of), 11.625%, 4-15-2004.................... B+ 305
100 IPC Acquisition Corp., 11.50%, 12-15-2009................... B- 107
115 Western Financial Bank, 9.625%, 5-15-2012................... BB- 132
-------
544
-------
HEALTH CARE - 1.7%
155 IASIS Healthcare Corp., 13.00%, 10-15-2009.................. B- 174
540 Select Medical Corp., 9.50%, 6-15-2009...................... B 589
925 Tenet Healthcare Corp., 5.00%, 7-1-2007..................... B+ 860
150 United Surgical Partners International, Inc., 10.00%,
12-15-2011.................................................. B 170
-------
1,793
-------
SERVICES - 4.9%
250 Mandalay Resort Group, 7.625%, 7-15-2013.................... BB- 268
1,000 MGM Mirage, Inc., 8.50%, 9-15-2010.......................... BB+ 1,160
1,250 Park Place Entertainment Corp., 8.50%, 11-15-2006........... BB+ 1,384
750 Service Corp. International, 6.50%, 3-15-2008............... BB- 765
650 Six Flags, Inc., 9.50%, 2-1-2009............................ B- 681
750 Starwood Hotels & Resorts Worldwide, Inc., 7.375%,
5-1-2007.................................................... BB+ 804
150 Stewart Enterprises, Inc., 10.75%, 7-1-2008................. B+ 167
-------
5,229
-------
TECHNOLOGY - 9.9%
675 Charter Communications Holdings, 10.00%, 5-15-2011.......... CCC- 606
260 Charter Communications Holdings, 8.25%, 4-1-2007............ CCC- 244
750 Dobson Communications Corp., 10.875%, 7-1-2010.............. CCC+ 818
500 EchoStar DBS Corp., 10.375%, 10-1-2007...................... BB- 545
375 Hyperion Telecommunications, 12.25%, Ser B 9-1-2004 (a)..... NR 222
250 Level 3 Communications, Inc., 11.00%, 3-15-2008............. CC 253
595 Level 3 Communications, Inc., 11.25%, 3-15-2010............. CC 598
145 Level 3 Communications, Inc., 9.125%, 5-1-2008.............. CC 138
1,500 Lucent Technologies, Inc., 6.45%, 3-15-2029................. B- 1,260
33 Marconi Corp. plc, 10.00%, 10-31-2008 (e)................... NR 37
113 Marconi Corp. plc, 8.00%, 4-30-2008 (e)..................... NR 122
310 Nextel Communications, Inc., 9.375%, 11-15-2009............. B+ 335
650 Nortel Networks Corp., 6.125%, 2-15-2006.................... B 678
650 Nortel Networks Corp., 6.875%, 9-1-2023..................... B 650
500 PanAmSat Corp., 6.875%, 1-15-2028........................... BB 510
650 Qwest Capital Funding, Inc., 5.875%, 8-3-2004............... CCC+ 662
750 Qwest Capital Funding, Inc., 6.50%, 11-15-2018.............. CCC+ 660
100 Qwest Corp., 6.875%, 9-15-2033.............................. B- 95
125 RCN Corp., 11.125%, 10-15-2007 (a).......................... Ca* 71
584 RCN Corp., 9.80%, Ser B 2-15-2008 (a)....................... Ca* 336
1,000 Rogers Cantel, Inc., 9.75%, 6-1-2016........................ BB+ 1,220
1,500 WorldCom, Inc. - WorldCom Group, 8.25%, 5-15-2010 (a)....... NR 540
175 WorldCom, Inc. - WorldCom Group, 8.25%, 5-15-2031 (a)....... NR 63
-------
10,663
-------
</Table>
4
The accompanying notes are an integral part of this financial statement.
CORPORATE BONDS: NON-INVESTMENT GRADE - CONTINUED
- --------------------------------------------------------------------------------
<Table>
<Caption>
Standard
Principal & Poor's Market
Amount Rating Value(c)
- --------- -------- --------
TRANSPORTATION - 1.5%
$ 170 CP Ships Ltd., 10.375%, 7-15-2012........................... BB+ $ 197
1,200 Delta Air Lines, Inc., 10.50%, 4-30-2016 (e)................ BB- 947
500 Northwest Airlines Trust, 13.875%, Ser D 6-21-2008.......... Ba3* 425
-------
1,569
-------
UTILITIES - 3.9%
190 Calpine Corp., 7.875%, 4-1-2008............................. CCC+ 153
310 Calpine Corp., 8.50%, 2-15-2011............................. CCC+ 254
1,000 El Paso Corp., 8.05%, 10-15-2030............................ Caa1* 863
1,035 Mission Energy Holding Co., 13.50%, 7-15-2008............... CCC 1,097
720 Sierra Pacific Power Co., 8.00%, Ser A 6-1-2008............. BB 778
1,000 TECO Energy, Inc., 7.20%, 5-1-2011.......................... BB+ 1,045
-------
4,190
-------
TOTAL CORPORATE BONDS: NON-INVESTMENT GRADE (COST
$30,004).................................................... $31,753
=======
</Table>
U.S. GOVERNMENT AGENCIES - 1.0%
- --------------------------------------------------------------------------------
<Table>
<Caption>
PRINCIPAL Market
AMOUNT Value(c)
- --------- --------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.2%
$ 61 10.50% 2017................................................. $ 68
33 11.25% 2010................................................. 37
30 11.50% 2015................................................. 34
57 11.75% 2010................................................. 64
26 9.00% 2022.................................................. 29
-------
232
-------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.5%
115 10.50% 2017-2020............................................ 130
118 11.00% 2011-2018............................................ 134
1 11.25% 2011................................................. 1
18 12.00% 2014................................................. 20
33 12.50% 2015................................................. 38
207 8.00% 2024-2025............................................. 225
-------
548
-------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.3%
158 9.00% 2021.................................................. 177
82 9.50% 2020.................................................. 92
-------
269
-------
TOTAL U.S. GOVERNMENT AGENCIES (COST $969).................. $ 1,049
=======
</Table>
5
THE HARTFORD INCOME SHARES FUND, INC.
Schedule of Investments
January 31, 2004 (Unaudited)
(000's Omitted)
COMMON STOCK - 0.4%
- --------------------------------------------------------------------------------
<Table>
<Caption>
Market
Shares Value(c)
- ------ --------
CONSUMER CYCLICAL - 0.0%
1 Hosiery Corp. of America, Inc. Class A (a)(e)(g)............ $ --
--------
TECHNOLOGY - 0.4%
1 AboveNet, Inc. Warrants (a)(g).............................. --
1 AboveNet, Inc. Warrants (a)(g).............................. --
1 AboveNet, Inc.(a)........................................... 64
2 Global Crossing Ltd. (a).................................... 56
7 McLeod USA, Inc. (Warrants) (a)............................. 6
1 Minorplanet Systems USA, Inc. (Warrants) (a)(e)(g).......... --
5 NTL, Inc. (with rights)(a).................................. 334
--------
460
--------
TOTAL COMMON STOCK (COST $224).............................. $ 460
========
</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........... $ 30
--------
TOTAL PREFERRED STOCKS (COST $21)........................... $ 30
--------
TOTAL INVESTMENTS IN SECURITIES (COST $90,001) (b).......... $104,547
========
</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 January 31, 2004, the cost of securities for federal income tax purposes
was $90,059 and the aggregate gross unrealized appreciation and depreciation
based on that cost was:
<Table>
Unrealized appreciation..................................... $16,419
Unrealized depreciation..................................... (1,931)
-------
Net unrealized appreciation................................. $14,488
-------
</Table>
(c) See Note 2b of accompanying Notes of 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 5.24% of total net assets as of January 31, 2004.
(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.............................. $1,410
1994 1 Hosiery Corp. of America, Inc. Class A - 144A............... 8
2003 33 Marconi Corp. plc, due 2008................................. 31
2003 113 Marconi Corp. plc, due 2008................................. 103
1998 1 Minorplanet Systems USA, Inc. (Warrants) - 144A............. 5
2001 16 Voicestream Wireless Corp., due 2009........................ @@
</Table>
The aggregate value of these securities at January 31, 2004, was $1,106 which
represents 1.03% of total net assets.
(f) 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 January 31, 2004, was $6,610, which represents 6.13% of
total net assets.
(g) 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 January 31, 2004. See
Note 2b of accompanying Notes to Financial Statements.
(h) Variable Rate Securities; the yield reported is the rate in effect as of
January 31, 2004.
@@ Due to the presentation of the financial statements in thousands, the
number of shares and/or dollars round to zero.
* Moody's Rating.
6
The accompanying notes are an integral part of this financial statement.
THE HARTFORD INCOME SHARES FUND, INC.
Statement of Assets and Liabilities
January 31, 2004 (Unaudited)
(000's Omitted)
- --------------------------------------------------------------------------------
<Table>
ASSETS
Investments in securities, as detailed in the accompanying
schedule, at market (cost $90,001) (Note 2)............. $104,547
Cash on deposit with custodian............................ 2,183
Receivables:
Investment securities sold.............................. 3
Interest and dividends.................................. 1,854
Other assets.............................................. 36
--------
TOTAL ASSETS................................................ 108,623
--------
LIABILITIES
Dividend payable ($0.046 per share)....................... 597
Payable for investment advisory and management fees (Note
3)...................................................... 55
Accounts payable and accrued expenses..................... 66
--------
TOTAL LIABILITIES........................................... 718
--------
NET ASSETS.................................................. $107,905
========
COMPOSITION OF NET ASSETS
Net proceeds of capital stock, par value $.001 per
share-authorized 1 billion shares; 12,982 shares
outstanding............................................. $124,976
Unrealized appreciation of investments.................... 14,546
Distributions in excess of net investment income.......... (217)
Accumulated net realized loss from sale of investments.... (31,400)
--------
TOTAL NET ASSETS............................................ $107,905
========
NET ASSET VALUE PER SHARE................................... $ 8.31
========
</Table>
THE HARTFORD INCOME SHARES FUND, INC.
Statement of Operations
For the year six-month period ended January 31, 2004 (Unaudited)
(000's Omitted)
- --------------------------------------------------------------------------------
<Table>
NET INVESTMENT INCOME:
Interest income........................................... $ 4,102
-------
EXPENSES:
Investment advisory and management fees (Note 3).......... 319
Legal and auditing fees................................... 43
Custodian fees (gross).................................... 3
Shareholders' notices and reports......................... 31
Directors' fees and expenses.............................. 1
Exchange listing fees..................................... 19
Other..................................................... 6
-------
Total expenses............................................ 422
-------
Custodian fee offset (Note 3)............................. (2)
-------
Total expenses net........................................ 420
-------
NET INVESTMENT INCOME....................................... 3,682
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments.......................... (874)
Net change in unrealized appreciation (depreciation) of
investments............................................. 9,610
-------
NET GAIN ON INVESTMENTS..................................... 8,736
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $12,418
=======
</Table>
The accompanying notes are an integral part of this financial statement.
7
THE HARTFORD INCOME SHARES FUND, INC.
Statement of Changes in Net Assets
(000's Omitted)
- --------------------------------------------------------------------------------
<Table>
<Caption>
For the Six-Month
Period Ended For the Year
January 31, 2004 Ended
(Unaudited) July 31, 2003
----------------- -------------
OPERATIONS:
Net investment income..................................... $ 3,682 $ 7,519
Net realized loss on investments.......................... (874) (6,297)
Net change in unrealized appreciation (depreciation) of
investments............................................. 9,610 19,151
-------- -------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS................................................ 12,418 20,373
-------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income................................ (3,585) (7,751)
-------- -------
CAPITAL SHARE TRANSACTIONS:
Proceeds from 3 and 92 shares issued as a result of
reinvested dividends, respectively...................... 27 651
-------- -------
TOTAL INCREASE (DECREASE) IN NET ASSETS..................... 8,860 13,273
NET ASSETS:
Beginning of period....................................... 99,045 85,772
-------- -------
End of period............................................. $107,905 $99,045
======== =======
Distributions in excess of net investment income............ $ (217) $ (314)
======== =======
</Table>
The accompanying notes are an integral part of this financial statement.
8
THE HARTFORD INCOME SHARES FUND, INC.
Notes to Financial Statements
January 31, 2004 (Unaudited)
($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 six-month period ended January 31, 2004, the cost of
purchases and proceeds from sales of securities (other than short-term
securities) aggregated $3,997 and $5,471, 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. For securities traded on the
NASDAQ National Market System, the fund utilizes the NASDAQ Official Closing
Price, which compares the last trade to the bid/ask range of a security. If
the last trade falls within the bid/ask range, then that price will be the
closing price. If the last trade is outside the bid/ask range and falls above
the ask, the ask will be the closing price. If the last price is below the
bid, the bid will be the closing price. The difference between cost and market
value for debt and equity securities is recorded in the Statement of
Operations and accumulated in net assets.
The fund uses market prices in valuing portfolio securities, but may use fair
value estimates, as determined under procedures established by the Board of
Directors, if reliable market prices are unavailable. Fair value pricing may
be used by a fund when current market values are unavailable or when an event
occurs after the close of the exchange on which the fund's portfolio
securities are principally traded that is likely to have changed the value of
the securities. Price movements in futures contracts and ADRs, and various
other indices, may be reviewed in the course of making a good faith
determination of a security's fair value. The use of fair value pricing by a
fund may cause the net asset value of its shares to differ significantly from
the net asset value that would be calculated using current market values.
Securities for which prices are not available from an independent pricing
service, but where an active market exists, are valued using market quotations
obtained from one or more dealers that make markets in the securities or from
an approved quotation system.
(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 that 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 January 31, 2004, there were no
outstanding repurchase agreements.
(d) CREDIT DEFAULT SWAPS -- The fund may enter into credit default swaps. 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 January 31, 2004, 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 January
31, 2004, there were no outstanding when-issued or forward commitments.
(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.
Accordingly, no provision for federal income taxes has been made in the
accompanying financial statements. 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.
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.
The tax character of distributions paid for the year ended July 31, 2003 was
ordinary income in the amount of $7,751.
As of July 31, 2003, the components of distributable earnings on a tax basis
are as follows:
<Table>
Undistributed ordinary income................. $ 495
Accumulated gain(loss)........................ (30,468)
Unrealized appreciation (depreciation)........ 4,666
--------
Total accumulated earnings.................... $(25,307)
--------
</Table>
9
THE HARTFORD INCOME SHARES FUND, INC.
Notes to Financial Statements
January 31, 2004 (Unaudited)
($000's Omitted)
- --------------------------------------------------------------------------------
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 elected 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 January 31, 2004, 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 January 31,
2004, was $1,106, which represents 1.03% 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.
(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 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. EXPENSES:
(a) 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 ("Hartford Investment") 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 fund's Board of Directors. Pursuant to the
sub-advisory agreement, Hartford Investment 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, Hartford
Investment and/or The Hartford or its subsidiaries. No officer of the fund
receives any compensation directly from the fund.
(b) EXPENSE OFFSET -- The Fund's custodian bank has agreed to reduce its fees
when the Fund maintains cash on deposit in the non-interest-bearing custody
account. For the six-month period ended January 31, 2004, the custodian fee
offset arrangement reduced expenses by $2. The total expense reduction
represents an effective annual rate of 0.00% of the funds average total net
assets.
10
THE HARTFORD INCOME SHARES FUND, INC.
Notes to Financial Statements
January 31, 2004 (Unaudited)
($000's Omitted)
- --------------------------------------------------------------------------------
4. FINANCIAL HIGHLIGHTS: Selected per share historical data was as follows:
<Table>
<Caption>
Year Ended July 31,
-------- -----------------------------------------------------------
2004** 2003 2002 2001@@ 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period................ $ 7.63 $ 6.66 $ 7.95 $ 8.17 $ 8.60 $ 9.55
-------- ------- -------- -------- -------- --------
Operations:
Investment income - net........................... .29 .58 .64 .67 .70 .70
Net realized and unrealized gain (loss) on
investments..................................... .67 .99 (1.29) (.20) (.44) (.93)
-------- ------- -------- -------- -------- --------
Total from operations............................... .96 1.57 (.65) .47 .26 (.23)
-------- ------- -------- -------- -------- --------
Distributions to shareholders:
From investment income - net...................... (.28) (.60) (.64) (.69) (.69) (.72)
-------- ------- -------- -------- -------- --------
Net assets value, end of period..................... $ 8.31 $ 7.63 $ 6.66 $ 7.95 $ 8.17 $ 8.60
-------- ------- -------- -------- -------- --------
Per-share market value, end of period............... $ 7.78 $ 6.99 $ 6.80 $ 7.94 $ 7.63 $ 8.50
Total investment return, market value @............. 15.35% 11.63% (6.72%) 13.55% (1.59%) 2.34%
Total investment return, net asset value @@......... 12.83% 24.36% (8.75%) 6.18% 4.10% (2.43%)
Net Assets end of year (000s omitted)............... $107,905 $99,045 $ 85,772 $101,319 $103,464 $108,951
Ratio of expenses to average monthly net assets..... .81%* .86% .80% .77% .77% .73%
Ratio of net investment income to average monthly
net assets........................................ 7.20%* 7.93% 8.45% 8.38% 8.42% 7.65%
Portfolio turnover rate............................. 4% 34% 23% 57% 65% 33%
</Table>
* Annualized.
** For the six-month period ended January 31, 2004.
@ 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 adviser was changed from Fortis Advisers, Inc.
to Hartford Investment Financial Services Company, LLC.
11
DIRECTOR AND OFFICER INFORMATION (UNAUDITED)
The Board of Directors 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 (age 57) Director 2003 From 1979 to 2002, Mr. Birdsong 72
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. He is also a
Director of The Hartford Mutual
Funds, Inc., The Hartford Mutual
Funds II, Inc., Hartford Series
Fund, Inc. and Hartford HLS Series
Fund II, Inc.
WINIFRED E. COLEMAN (age 71) Director 2002 Ms. Coleman has served as 72
President of Saint Joseph College
since 1991 and President of Cashel
House, Ltd. (retail) since 1985.
She is also a Director of The
Hartford Mutual Funds, Inc., The
Hartford Mutual Funds II, Inc.,
Hartford Series Fund, Inc. and
Hartford HLS Series Fund II, Inc.
ROBERT M. GAVIN, JR. (age 63) Director 1986 Dr. Gavin is an educational 72
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. Dr. Gavin is
also a Director of The Hartford
Mutual Funds, Inc., The Hartford
Mutual Funds II, Inc., Hartford
Series Fund, Inc. and Hartford HLS
Series Fund II, Inc.
DUANE E. HILL (age 58) Director 2002 Mr. Hill is Partner Emeritus and a 72
and founding partner of TSG Capital
Chairman Group, a private equity investment
of the firm that serves as sponsor and
Nominating lead investor in leveraged buyouts
Committee 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. He is also a Director
of The Hartford Mutual Funds,
Inc., The Hartford Mutual Funds
II, Inc., Hartford Series Fund,
Inc. and Hartford HLS Series Fund
II, Inc.
PHILLIP O. PETERSON (age 59) Director 2000 Mr. Peterson is a mutual fund 72
and industry consultant. He was a
Chairman partner of KPMG LLP until July
of the 1999. In January 2004, Mr.
Audit Peterson was appointed independent
Committee president of the Strong Mutual
Funds. He is also a Director of
The Hartford Mutual Funds, Inc.,
The Hartford Mutual Funds II,
Inc., Hartford Series Fund, Inc.
and Hartford HLS Series Fund II,
Inc.
<Caption>
Other
Directorships
Name and Age Held by Director
- ------------ ------------------------------
LYNN S. BIRDSONG (age 57) N/A
WINIFRED E. COLEMAN (age 71) N/A
ROBERT M. GAVIN, JR. (age 63) N/A
DUANE E. HILL (age 58) N/A
PHILLIP O. PETERSON (age 59) N/A
</Table>
12
<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
- ------------ --------- ----------- ---------------------------------- -------------
MILLARD H. PRYOR, JR. (age 70) Lead 2002 Mr. Pryor has served as Managing 72
Director Director of Pryor & Clark Company
(real estate investment),
Hartford, Connecticut, since June
1992. He is also Lead Director of
The Hartford Mutual Funds, Inc.,
The Hartford Mutual Funds II,
Inc., Hartford Series Fund, Inc.
and Hartford HLS Series Fund II,
Inc.
<Caption>
Other
Directorships
Name and Age Held by Director
- ------------ ------------------------------
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)
</Table>
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(1) (age 45) Director 2002 Mr. Marra is President and Chief 72
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"). He is also a
Director and Chairman of the Board
of The Hartford Mutual Funds,
Inc., The Hartford Mutual Funds
II, Inc., Hartford Series Fund,
Inc. and Hartford HLS Series Fund
II, Inc.
LOWNDES A. SMITH(1) (age 64) Director 2002 Mr. Smith served as Vice Chairman 72
of The Hartford 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. Mr. Smith is
also a Director of The Hartford
Mutual Funds, Inc., The Hartford
Mutual Funds II, Inc., Hartford
Series Fund, Inc. and Hartford HLS
Series Fund II, Inc.
DAVID M. ZNAMIEROWSKI(1) (age 43) President 2001 Mr. Znamierowski currently serves N/A
as President of Hartford
Investment Management Company
("Hartford Investment"), 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. In addition, he serves
as President and Director of The
Hartford Mutual Funds, Inc. and
Hartford Series Fund, Inc. and as
President of The Hartford Mutual
Funds II, Inc. and Hartford HLS
Series Fund II, Inc.
<Caption>
Other
Directorships
Name and Age Held by Director
- ------------ ------------------------------
THOMAS M. MARRA(1) (age 45) Mr. Marra is a member of the
Board of Directors of The
Hartford.
LOWNDES A. SMITH(1) (age 64) N/A
DAVID M. ZNAMIEROWSKI(1) (age 43) N/A
</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
- ------------ --------- ----------- ---------------------------------- -------------
ROBERT W. BELTZ, JR. (age 54) 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.
In addition, Mr. Beltz is Vice
President of The Hartford Mutual
Funds, Inc., The Hartford Mutual
Funds II, Inc., Hartford Series
Fund, Inc. and Hartford HLS Series
Fund II, Inc.
KEVIN J. CARR (age 49) 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 Hartford Investment. He is also
Vice President and Secretary of
The Hartford Mutual Funds, Inc.,
The Hartford Mutual Funds II,
Inc., Hartford Series Fund, Inc.
and Hartford HLS Series Fund II,
Inc.
WILLIAM H. DAVISON, JR. (age 46) Vice 2002 Mr. Davison is a Managing Director N/A
President and Director of the Funds
Management Group of Hartford
Investment. Mr. Davison is also a
Senior Vice President of HIFSCO
and HL Advisors, and Vice
President of The Hartford Mutual
Funds, Inc., The Hartford Mutual
Funds II, Inc., Hartford Series
Fund, Inc. and Hartford HLS Series
Fund II, Inc.
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. Since December
Treasurer 2001, she has served as Assistant
Vice President of Hartford Life
Insurance Company. In addition,
she is Vice President, Controller
and Treasurer of The Hartford
Mutual Funds, Inc. and The
Hartford Mutual Funds II, Inc. and
Vice President of Hartford Series
Fund, Inc. and Hartford HLS Series
Fund II, Inc.
BRUCE FERRIS (age 48) Vice 2002 Mr. Ferris serves as Vice N/A
President President and a Director of Sales
and Marketing in the Investment
Products Division of Hartford Life
Insurance Company. He is also a
Managing Member of HL Advisors. In
addition, Mr. Ferris is Vice
President of The Hartford Mutual
Funds, Inc., The Hartford Mutual
Funds II, Inc., Hartford Series
Fund, Inc. and Hartford HLS Series
Fund II, Inc.
MARY JANE FORTIN (age 39) Vice 2003 Ms. Fortin is Senior Vice N/A
President President and Director of Mutual
Funds and 529 Programs for
Hartford Life. In addition, she is
Vice President of The Hartford
Mutual Funds, Inc., The Hartford
Mutual Funds II, Inc., Hartford
Series Fund, Inc. and Hartford HLS
Series Fund II, Inc. Previously,
Ms. Fortin served as Senior Vice
President and Chief Accounting
Officer of Hartford Life. She
joined Hartford Life in 1997.
<Caption>
Other
Directorships
Name and Age Held by Director
- ------------ ------------------------------
ROBERT W. BELTZ, JR. (age 54) N/A
KEVIN J. CARR (age 49) N/A
WILLIAM H. DAVISON, JR. (age 46) N/A
TAMARA L. FAGELY (age 45) N/A
BRUCE FERRIS (age 48) N/A
MARY JANE FORTIN (age 39) N/A
</Table>
14
<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
- ------------ --------- ----------- ---------------------------------- -------------
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. Mr. Jay also serves as
Vice President of The Hartford
Mutual Funds, Inc. and The
Hartford Mutual Funds II, Inc.
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. Mr. Joyce is also Senior
Vice President of HL Advisors and
Vice President of The Hartford
Mutual Funds, Inc., The Hartford
Mutual Funds II, Inc., Hartford
Series Fund, Inc. and Hartford HLS
Series Fund II, Inc. Previously,
he served as Vice President
(1997-1999) and Assistant Vice
President (1994-1997) of Hartford
Life Insurance Company.
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. Mr.
Levenson is also a Senior Vice
President of HIFSCO and HL
Advisors and a Vice President of
The Hartford Mutual Funds, Inc.,
The Hartford Mutual Funds II,
Inc., Hartford Series Fund, Inc.
and Hartford HLS Series Fund II,
Inc. He joined The Hartford in
1995.
JOHN C. WALTERS (age 42) Vice 2001 Mr. Walters serves as Executive N/A
President Vice President and Director of the
Investment Products Division of
Hartford Life Insurance Company.
He is also a Managing Member and
Executive Vice President of HIFSCO
and HL Advisors and Vice President
of The Hartford Mutual Funds,
Inc., The Hartford Mutual Funds
II, Inc., Hartford Series Fund,
Inc. and Hartford HLS Series Fund
II, Inc. Previously, Mr. Walters
was with First Union Securities.
<Caption>
Other
Directorships
Name and Age Held by Director
- ------------ ------------------------------
GEORGE R. JAY (age 51) N/A
STEPHEN T. JOYCE (age 44) N/A
DAVID N. LEVENSON (age 37) N/A
JOHN C. WALTERS (age 42) N/A
</Table>
* Each director and officer may serve until his or her successor is elected and
qualifies.
(1) "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 The
Hartford or affiliated companies.
<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, MN 55164
REGISTRAR Wells Fargo Bank, 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 week's net
asset value, market price and the percentage
difference between net asset value and market price
for the fund under the name "HrtfrdIncoFd".
15
SHAREHOLDER MEETING RESULTS
Shareholders of The Hartford Income Shares Fund, Inc. (the "Company") addressed
and approved the following proposals at an annual meeting held on December 16,
2003.
1. To elect the following eight nominees:
<Table>
<Caption>
FOR WITHHOLD
---------- --------
Lynn S. Birdsong 7,745,732 424,728
Winifred E. Coleman 7,699,460 471,000
Robert M. Gavin, Jr. 7,718,869 451,590
Duane E. Hill 7,712,815 457,644
Phillip O. Peterson 7,736,412 434,047
Millard H. Pryor, Jr. 7,711,416 459,043
Thomas M. Marra 7,741,627 428,832
Lowndes A. Smith 7,747,319 423,141
</Table>
2. To ratify the selection by the Board of Directors of the Company of Ernst &
Young LLP as independent public accountants for the Company for the fiscal
year ending July 31, 2004.
<Table>
<Caption>
FOR AGAINST ABSTAIN
---------- -------- --------
7,658,095 266,216 246,148
</Table>
3. To revise the fundamental policy regarding:
<Table>
<Caption>
BROKER
FOR AGAINST ABSTAIN NON-VOTE
---------- --------- -------- --------
The issuing of senior securities. 6,026,668 755,681 480,573 907,537
The borrowing of money. 5,914,156 883,014 465,753 907,537
The pledging, mortgaging or hypothecating of the Company's
assets and to make the policy non-fundamental. 5,863,072 902,354 497,496 907,537
Underwriting securities. 6,078,324 724,232 460,367 907,537
Investments in real estate and interests therein. 6,108,510 724,315 430,097 907,537
Purchases and sales of commodities and commodities
contracts. 5,870,071 930,626 462,226 907,537
Diversification of investments. 6,227,346 624,581 410,996 907,537
Making the restricted securities policy non-fundamental. 5,924,148 827,318 511,456 907,537
Investment concentrations within a particular industry. 6,004,662 792,308 465,953 907,537
Eliminating the fundamental policy regarding securities of
or guaranteed by the Canadian government. 6,016,893 782,674 463,355 907,537
Eliminating the fundamental policy regarding purchasing or
retaining securities beneficially owned by the Company's
officers or directors. 5,775,844 1,005,950 481,129 907,537
Eliminating the fundamental policy regarding securities
trading accounts. 5,885,088 878,509 499,326 907,537
Eliminating the fundamental policy regarding investments in
puts, calls or combinations thereof. 5,792,012 994,309 476,601 907,537
The making of loans. 5,815,947 970,007 476,969 907,537
The purchasing of securities on margin and to make the
policy non-fundamental. 5,764,498 1,054,083 444,341 907,537
Short sales and to make the policy non-fundamental. 5,776,555 1,027,649 458,718 907,537
Interest rate futures contracts and to make the policy
non-fundamental. 5,881,510 924,501 456,912 907,537
</Table>
16
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.
P.O. Box 64387 PRESORTED
St. Paul, MN 55164-0387 STANDARD
U.S. POSTAGE PAID
FARMINGDALE, NY
PERMIT NO. 225
(The Hartford Mutual Funds Logo)
ITEM 2. CODE OF ETHICS.
Not applicable to this semi-annual filing.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to this semi-annual filing.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to this semi-annual filing.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to this semi-annual filing.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this semi-annual filing.
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) Section 302 certifications of the principal executive officer and
principal financial officer of Registrant.
99 Section 906 certification.
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: March 10, 2004 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: March 10, 2004 By: /s/ David M. Znamierowski
--------------------------------
David M. Znamierowski
Its: President
Date: March 10, 2004 By: /s/ Tamara L. Fagely
--------------------------------
Tamara L. Fagely
Its: Vice President, Controller
and Treasurer
EXHIBIT LIST
99.CERT 10(a) 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