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)
Edward P. Macdonald, Esquire
Life Law Unit
The Hartford Financial Services Group, Inc.
200 Hopmeadow Street
Simsbury, Connecticut 06089
(Name and Address of Agent for Service)
Registrant's telephone number, including area code: (860) 843-9934
Date of fiscal year end: July 31st
Date of reporting period: August 1, 2005 - January 31, 2006
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.
[DEER AND FLAG GRAPHIC]
JANUARY 31, 2006
The Hartford
Income Shares Fund, Inc.
Semi-Annual Report
[HARTFORD LOGO]
THE HARTFORD
MUTUAL FUNDS
ITEM 1. REPORTS TO STOCKHOLDERS.
THE HARTFORD INCOME SHARES FUND, INC. SEMIANNUAL REPORT
CONTENTS
MANAGER DISCUSSION 1
SCHEDULE OF INVESTMENTS 3
STATEMENT OF ASSETS AND
LIABILITIES 7
STATEMENT OF OPERATIONS 7
STATEMENTS OF CHANGES IN NET
ASSETS 8
NOTES TO FINANCIAL STATEMENTS 9
FINANCIAL HIGHLIGHTS 12
DIRECTORS AND OFFICERS 13
SHAREHOLDER MEETING RESULTS 15
IMPORTANT TAX INFORMATION 15
PRIVACY POLICY 16
- - TOLL-FREE PERSONAL ASSISTANCE
-Customer Service
-(888) 843-7824
- 7:00 a.m. to 6:00 p.m. CT,
Monday through Thursday
8:15 a.m. to 5:00 p.m. CT, Friday
- - TOLL-FREE INFORMATION LINE
- For daily account balances, transaction activity or net asset value
information
-(888) 843-7824
-24 hours a day
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, 2006
TOTAL NET ASSETS (000'S OMITTED)................... $102,527
MARKET PRICE PER SHARE............................. $ 7.65
SHARES OUTSTANDING (000'S OMITTED)................. 12,990
FOR THE SIX-MONTH PERIOD ENDED JANUARY 31, 2006:
NET ASSET VALUE PER SHARE:
Beginning of period.............................. $ 8.16
End of period.................................... $ 7.89
DISTRIBUTIONS FROM NET INVESTMENT INCOME:
Total dividends paid (000's Omitted)............. $ 3,572
Dividends per share.............................. $ 0.28
</Table>
CERTIFICATIONS
In February 2006, the fund's principal executive officer submitted his annual
certification as to compliance with the New York Stock Exchange (NYSE) Corporate
Governance Listing Standards pursuant to Section 303A.12(a) of the NYSE Listed
Company Manual. The fund's principal executive and principal financial officer
certifications pursuant to Rule 30a-2 under the Investment Company Act of 1940
are filed with the fund's Form N-CSR filings and are available on the SEC's Web
site at http://www.sec.gov.
HOW TO OBTAIN A COPY OF THE FUND'S PROXY VOTING POLICIES AND PROXY VOTING RECORD
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities, and a record of how the fund
voted any proxies for the twelve month period ended June 30, 2005, is available
(1) without charge, upon request, by calling 1-888-843-7824 and (2) on the
Securities and Exchange Commission's website at http://www.sec.gov.
QUARTERLY PORTFOLIO HOLDINGS INFORMATION
The fund files a complete schedule of portfolio holdings with the Securities and
Exchange Commission for the first and third quarters of each fiscal year on Form
N-Q. The fund's Form N-Q will be available (1) without charge, upon request, by
calling 1-888-843-7824 and (2) on the Securities and Exchange Commission's
website at http://www.sec.gov. The Form N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
HARTFORD INCOME SHARES FUND, INC.
(Subadvised by Hartford Investment Management Company)
Portfolio Manager
Mark Niland
PORTFOLIO COMPOSITION BY SECTOR AS
OF 1/31/2006
(PORTFOLIO COMPOSITION PIE CHART)
<Table>
Corporate Bonds - Investment Grade 60.0
Corporate Bonds - Non-Investment Grade 33.4
Asset Backed and Commercial Mortgage 3.3
Cash Equivalents/Receivables 2.2
Common Stock 0.6
U.S. Government Agencies 0.5
</Table>
TOP 10 HOLDINGS AS OF 1/31/06
Percent of
Bonds Net Assets
- --------------------------------------------------------------------------------
1. General Motors Acceptance Corp.
(8.00%) 2031 5.6%
2. Ford Motor Co.
(6.375%) 2029 4.1%
3. Farmers Exchange Capital
(7.20%) 2048 3.0%
4. American Airlines, Inc.
(7.86%) 2011 2.6%
5. AT&T Corp.
(9.75%) 2031 2.1%
6. Union Carbide Corp.
(7.75%) 2096 2.1%
7. Time Warner Entertainment Co. L.P.
(8.375%) 2033 2.1%
8. Cingular Wireless Services, Inc.
(8.75%) 2031 1.9%
9. News America Holdings, Inc.
(8.875%) 2023 1.8%
10. Tele-Communications, Inc.
(9.80%) 2012 1.7%
HOW DID THE FUND PERFORM?
For the six-month period ended January 31, 2006, the Fund returned 0.18% at NAV
and 0.60% at market price.
WHY DID THE FUND PERFORM THIS WAY?
The year ending December 31, 2005 was one in which short-term interest rates
rose throughout the year, while long-term rates stayed relatively constant
resulting in a flatter yield curve. During 2005, short-term rates were driven
upward as the Federal Reserve (the Fed) raised the Federal Funds Target Rate
eight times to a level of 4.25%. The most recent monetary tightening in January
2006 was the 14th consecutive time that the Fed has raised interest rates since
this tightening cycle began in 2004. The result has been that, despite concerns
about record high fuel prices, rising commodity costs, and continued economic
expansion, the markets remain confident in the Fed's ability to keep inflation
in check. These benign long-term inflation expectations, coupled with what
incoming Federal Reserve Chairman Ben Bernanke termed the global savings glut,
were the impetus for long rates not rising.
The major fixed income sectors finished the sixth month period ending January
31, 2006, with positive nominal returns. However, on an excess return basis
(return relative to treasury bonds of a comparable duration), the investment
grade corporate sector (which constitutes 60% of the fund) posted negative
returns of -0.22% according to Lehman Brother's data, for a net total return of
+0.29%. Of particular note, the long dated investment grade corporate bonds (a
major focus for this fund given its yield orientation) lagged considerably,
generating a total return of -0.87% during this six-month period. Weighing
heavily on the corporate bond market markets were the well-publicized problems
plaguing the auto industry. Most of the firms in this industry started the year
as investment grade credits and subsequently fell to speculative grade. This
fundamental deterioration (sufficient in and of itself to cause the sector to
underperform) was subsequently compounded, as the technical pressures of "forced
selling" on the part of investment grade investors was met with a hesitant high
yield market that did not view its role as one of a forced buyer (despite the
fact that the auto segment constitutes roughly 12% of Lehman's Broad High Yield
Index). To a lesser extent, "event risk" in the form of leveraged buy-outs
("LBOs") and recapitalizations also pressured certain segments of the corporate
bond market, as a few companies that were targeted by LBO sponsors experienced a
sharp deterioration in the secondary market value of their debt securities.
Partially offsetting the weak performance of the investment grade market during
this period, was the relative strength exhibited by the high yield sector. For
the six months ending January 2006, the high yield corporate sector generated a
positive total return of 1.46%. Within the high yield sector, fears of LBO risk
are much less pronounced for the simple reason that these companies are already
levered. This sector is the other major focus for the fund, accounting for just
under 35% of its assets.
From an interest rate duration and curve positioning standpoint, the fund was
positioned to take advantage of higher interest rates and a flatter yield curve.
While this structure generally benefited fund shareholders, it was offset by the
widening of credit risk spreads in the investment grade corporate sector
triggered by the aforementioned "event risk" concerns, volatility around the
auto sector (which represents 9.5% of the fund's assets) and a general
steepening of credit curves to compensate for the flat treasury curve. Specific
holdings affected by event risk considerations were the fund's exposure to
Albertson's, Inc. (which became the target of an LBO offer) and Time Warner
(which is being pressured by activist shareholders to boost the performance of
its equity). Within the high yield allocation, two specific equipment trust
certificates issued by Delta Air Lines and Northwest Air experienced some
turbulence in the wake of each company filing for bankruptcy. While we have
experienced a market value decline on our Northwest structure, we are still
receiving coupon payments, as the company has not rejected the leases on the
planes that represent the collateral for our bonds. In our Delta
position, coupon payments have been interrupted. However, the value of the
underlying collateral has been appreciating in value, lending support to the
valuation of our bond. The two issues represent 0.8% of the fund's assets. The
Fund's general underweight to the mortgage-backed sector adversely affected
total returns, as this sector posted total returns of 1.28% over the last six
months. However, given by the fact that this sector does not provide yield
levels necessary to support the fund's current dividend policy, we currently
expect that this underweight will persist for the near-term.
WHAT IS THE OUTLOOK?
We believe the Federal Reserve is nearing an end to the tightening cycle and
will stop at a 4.50% or 4.75% Fed Funds rate. The flat yield curve and upcoming
change in Federal Reserve monetary policy suggest that most of the curve
flattening is behind us. We will continue to monitor market and economic data
for signs of a curve steepening trend and will position the Fund accordingly
should those signs emerge. In anticipation of this development, credit curves
for corporate issuers that had steepened in order to compensate for the flat
interest rate curve, should normalize and generate positive excess returns
relative to treasuries.
Although corporate cash flows are healthy, event risk and shareholder friendly
activity have been a concern of ours over the course of that last year and a
half. Our credit research effort is focused on highlighting specific issuers
that may prove vulnerable to event risk and we are working to cull the issuers'
whose securities valuations do not adequately reflect this risk from the
portfolio. We remain constructive on the high yield sector as overall default
rates remain at relatively muted levels (for 2005 1.9% of issuers defaulted,
well below the 5% historical average). Nevertheless, we are very much concerned
about the lowest end of this credit spectrum (low "B" and "Caa" rated
securities) as underwriting standards have eased, as indicated by the large
amount of issuance over the last two years emanating from companies rated this
far down the rating spectrum. As these issues "season", we are expecting default
to rise in the back half of 2006, with the bulk of the default concentrated at
the low end of the credit spectrum.
Low current inflation and moderate inflation expectations for the future have
been reflected in the marketplace since late in the third quarter of 2005.
Combined with poor seasonal factors in unadjusted CPI we have taken our U.S.
TIPS exposure down to 0% in the Fund. We would consider reintroducing exposure
to the asset class when seasonal factors and future inflation expectations
become more constructive.
2
THE HARTFORD INCOME SHARES FUND, INC.
Schedule of Investments
January 31, 2006 (Unaudited)
(000's Omitted)
ASSET & COMMERCIAL MORTGAGE BACKED SECURITIES - 3.3%
- --------------------------------------------------------------------------------
<Table>
<Caption>
Principal Market
Amount Value #
- --------- --------
TRANSPORTATION - 3.3%
$1,564 Continental Airlines, Inc., 7.71%, 10-2-2022................ $ 1,594
1,485 Continental Airlines, Inc., 8.05%, 5-1-2022................. 1,532
275 Northwest Airlines, Inc., 6.81%, 2-1-2020 X................. 264
--------
TOTAL ASSET & COMMERCIAL MORTGAGE BACKED SECURITIES (COST
$3,328)..................................................... $ 3,390
========
</Table>
CORPORATE BONDS: INVESTMENT GRADE - 60.0%
- --------------------------------------------------------------------------------
<Table>
<Caption>
Principal Market
Amount Value #
- --------- --------
BASIC MATERIALS - 5.2%
$ 500 Newmont Mining Corp., 8.625%, 5-15-2011..................... $ 574
300 Olin Corp., 9.125%, 12-15-2011.............................. 349
685 Phelps Dodge Corp., 8.75%, 6-1-2011......................... 786
250 Phelps Dodge Corp., 9.50%, 6-1-2031......................... 338
2,000 Union Carbide Corp., 7.75%, 10-1-2096....................... 2,147
1,000 Westvaco Corp., 8.20%, 1-15-2030............................ 1,146
--------
5,340
--------
CAPITAL GOODS - 1.5%
170 Briggs & Stratton Corp., 8.875%, 3-15-2011.................. 190
1,250 Tyco International Group S.A., 7.00%, 6-15-2028............. 1,385
--------
1,575
--------
CONSUMER CYCLICAL - 3.9%
1,000 Albertson's, Inc., 8.70%, 5-1-2030.......................... 991
1,000 Federated Department Stores, Inc., 8.50%, 6-1-2010.......... 1,122
500 May Department Stores Co., 8.50%, 6-1-2019.................. 600
1,000 TRW, Inc., 7.75%, 6-1-2029.................................. 1,241
--------
3,954
--------
ENERGY - 5.7%
850 Burlington Resources, Inc., 9.125%, 10-1-2021............... 1,172
1,000 Conoco Phillips Holding Co., 6.95%, 4-15-2029............... 1,186
750 Halliburton Co., 5.625%, 12-1-2008.......................... 762
1,000 Occidental Petroleum Corp., 8.45%, 2-15-2029................ 1,363
1,000 Valero Energy Corp., 8.75%, 6-15-2030....................... 1,320
--------
5,803
--------
FINANCE - 11.4%
1,000 CNA Financial Corp., 7.25%, 11-15-2023...................... 1,086
1,000 EOP Operating L.P., 7.50%, 4-19-2029........................ 1,110
1,000 ERAC USA Finance Co., 8.00%, 1-15-2011 M.................... 1,111
3,000 Farmers Exchange Capital, 7.20%, 7-15-2048 M................ 3,064
500 Household Finance Corp., 7.00%, 5-15-2012................... 542
250 Liberty Mutual Group, 7.00%, 3-15-2034 M.................... 260
1,000 MONY Group, Inc., 8.35%, 3-15-2010.......................... 1,110
1,000 ReliaStar Financial Corp., 8.00%, 10-30-2006................ 1,020
1,000 Spieker Properties, Inc., 7.50%, 10-1-2027.................. 1,152
1,000 Travelers Property Casualty Corp., 7.75%, 4-15-2026......... 1,196
--------
11,651
--------
SERVICES - 11.7%
1,500 Belo Corp., 7.25%, 9-15-2027................................ 1,493
750 Clear Channel Communications, Inc., 7.65%, 9-15-2010........ 798
1,000 Comcast Cable Communications, Inc., 8.50%, 5-1-2027......... 1,207
1,000 Cox Enterprises, Inc., 8.00%, 2-15-2007 M................... 1,022
750 Electronic Data Systems Corp., 7.45%, 10-15-2029............ 794
1,000 FedEx Corp., 7.84%, 1-30-2018............................... 1,153
1,000 Hearst-Argyle Television, Inc., 7.00%, 1-15-2018............ 1,030
750 Hilton Hotels Corp., 8.25%, 2-15-2011....................... 821
1,500 News America Holdings, Inc., 8.875%, 4-26-2023.............. 1,847
1,250 Park Place Entertainment Corp., 8.50%, 11-15-2006........... 1,279
500 USA Waste Management, Inc., 7.125%, 12-15-2017.............. 548
--------
11,992
--------
TECHNOLOGY - 13.7%
1,750 AT&T Corp., 9.75%, 11-15-2031............................... 2,164
1,500 Cingular Wireless Services, Inc., 8.75%, 3-1-2031........... 1,966
1,500 Cox Communications, Inc., 6.80%, 8-1-2028................... 1,524
99 MCI, Inc., 6.91%, 5-1-2007.................................. 100
99 MCI, Inc., 7.69%, 5-1-2009.................................. 102
85 MCI, Inc., 8.74%, 5-1-2014.................................. 96
1,000 Raytheon Co., 7.20%, 8-15-2027.............................. 1,167
250 Sprint Capital Corp., 6.00%, 1-15-2007...................... 252
1,500 Sprint Capital Corp., 6.875%, 11-15-2028.................... 1,625
1,500 Tele-Communications, Inc., 9.80%, 2-1-2012.................. 1,792
</Table>
3
The accompanying notes are an integral part of this financial statement.
THE HARTFORD INCOME SHARES FUND, INC.
Schedule of Investments
January 31, 2006 (Unaudited)
(000's Omitted)
CORPORATE BONDS: INVESTMENT GRADE - CONTINUED
- --------------------------------------------------------------------------------
<Table>
<Caption>
Principal Market
Amount Value #
- --------- --------
$ 400 TELUS Corp., 8.00%, 6-1-2011................................ $ 447
700 Time Warner Companies, Inc., 6.625%, 5-15-2029.............. 701
1,800 Time Warner Entertainment Co. L.P., 8.375%, 7-15-2033....... 2,128
--------
14,064
--------
TRANSPORTATION - 4.7%
2,500 American Airlines, Inc., 7.86%, 10-1-2011................... 2,659
1,000 Continental Airlines, Inc., 7.92%, 5-1-2010................. 1,019
1,000 Norfolk Southern Corp., 8.625%, 5-15-2010................... 1,131
--------
4,809
--------
UTILITIES - 2.2%
419 American Electric Power Co., Inc., 6.125%, 5-15-2006........ 420
1,000 CMS Panhandle Holding Co., 7.00%, 7-15-2029................. 1,074
750 FirstEnergy Corp., 6.45%, 11-15-2011........................ 788
--------
2,282
--------
TOTAL CORPORATE BONDS: INVESTMENT GRADE (COST $51,949)...... $ 61,470
========
</Table>
CORPORATE BONDS: NON-INVESTMENT GRADE - 33.4%
- --------------------------------------------------------------------------------
<Table>
<Caption>
Principal Market
Amount Value #
- --------- --------
BASIC MATERIALS - 2.8%
$1,000 Abitibi-Consolidated, Inc., 8.85%, 8-1-2030................. $ 855
750 Equistar Chemicals L.P., 10.125%, 9-1-2008.................. 817
500 Hercules, Inc., 11.125%, 11-15-2007......................... 551
235 Nova Chemicals Corp., 7.00%, 5-15-2006...................... 236
250 Smurfit-Stone Container Enterprises, Inc., 9.75%,
2-1-2011.................................................... 253
163 United States Steel Corp., 10.75%, 8-1-2008................. 181
--------
2,893
--------
CAPITAL GOODS - 1.7%
525 Bombardier, Inc., 6.75%, 5-1-2012 M......................... 489
1,250 Bombardier, Inc., 7.45%, 5-1-2034 M......................... 1,066
200 Jorgensen (Earle M.) Co., 9.75%, 6-1-2012................... 217
--------
1,772
--------
CONSUMER CYCLICAL - 5.8%
500 Delhaize America, Inc., 9.00%, 4-15-2031.................... 587
120 Dillard's, Inc., 6.625%, 1-15-2018.......................... 111
85 Dillard's, Inc., 7.13%, 8-1-2018............................ 81
6,250 Ford Motor Co., 6.375%, 2-1-2029............................ 4,250
225 Navistar International Corp., 9.375%, 6-1-2006.............. 227
1,000 Toys R Us, Inc., 7.375%, 10-15-2018......................... 733
--------
5,989
--------
ENERGY - 0.5%
500 Williams Companies, Inc., 7.125%, 9-1-2011.................. 521
--------
FINANCE - 6.4%
5,650 General Motors Acceptance Corp., 8.00%, 11-1-2031........... 5,761
750 Qwest Capital Funding, Inc., 6.50%, 11-15-2018.............. 684
115 Western Financial Bank, 9.625%, 5-15-2012................... 129
--------
6,574
--------
HEALTH CARE - 0.2%
150 United Surgical Partners International, Inc., 10.00%,
12-15-2011.................................................. 161
--------
SERVICES - 3.8%
1,000 Liberty Media Corp., 8.50%, 7-15-2029....................... 1,003
250 Mandalay Resort Group, 7.625%, 7-15-2013.................... 263
1,000 MGM Mirage, Inc., 8.50%, 9-15-2010.......................... 1,085
750 Service Corp. International, 6.50%, 3-15-2008............... 760
750 Starwood Hotels & Resorts Worldwide, Inc., 7.375%,
5-1-2007.................................................... 768
--------
3,879
--------
TECHNOLOGY - 6.6%
260 Charter Communications Holdings LLC, 8.25%, 4-1-2007........ 258
675 Charter Communications Holdings LLC, 10.00%, 5-15-2011...... 341
500 Citizens Communications Co., 9.00%, 8-15-2031............... 515
145 Level 3 Communications, Inc., 9.125%, 5-1-2008.............. 138
250 Level 3 Communications, Inc., 11.00%, 3-15-2008............. 249
595 Level 3 Communications, Inc., 11.25%, 3-15-2010............. 531
1,500 Lucent Technologies, Inc., 6.45%, 3-15-2029................. 1,260
650 Nortel Networks Ltd., 6.125%, 2-15-2006..................... 650
</Table>
4
The accompanying notes are an integral part of this financial statement.
THE HARTFORD INCOME SHARES FUND, INC.
Schedule of Investments
January 31, 2006 (Unaudited)
(000's Omitted)
CORPORATE BONDS: NON-INVESTMENT GRADE - CONTINUED
- --------------------------------------------------------------------------------
<Table>
<Caption>
Principal Market
Amount Value #
- --------- --------
$ 650 Nortel Networks Corp., 6.875%, 9-1-2023..................... $ 582
100 PanAmSat Corp., 6.875%, 1-15-2028........................... 91
100 Qwest Corp., 6.875%, 9-15-2033.............................. 92
270 Rogers Cable, Inc., 6.25%, 6-15-2013........................ 267
500 Rogers Cable, Inc., 8.75%, 5-1-2032......................... 582
1,000 Rogers Wireless, Inc., 9.75%, 6-1-2016...................... 1,215
--------
6,771
--------
TRANSPORTATION - 1.4%
1,200 Delta Air Lines, Inc., 10.50%, 4-30-2016V -- ............... 817
500 Delta Air Lines, Inc., 7.57%, 5-18-2012 X................... 491
500 NWA Trust, 13.875%, 6-21-2008VX............................. 175
--------
1,483
--------
UTILITIES - 4.2%
1,000 El Paso Corp., 8.05%, 10-15-2030............................ 1,063
720 Sierra Pacific Power Co., 8.00%, 6-1-2008................... 756
1,000 TECO Energy, Inc., 7.20%, 5-1-2011.......................... 1,063
1,400 TXU Corp., 6.375%, 6-15-2006................................ 1,405
--------
4,287
--------
TOTAL CORPORATE BONDS: NON-INVESTMENT GRADE (COST
$34,138).................................................... $ 34,330
========
</Table>
U.S. GOVERNMENT AGENCIES - 0.5%
- --------------------------------------------------------------------------------
<Table>
<Caption>
Principal Market
Amount Value #
- --------- --------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.1%
$ 13 9.00% 2022.................................................. $ 14
30 10.50% 2017................................................. 35
14 11.25% 2010................................................. 15
10 11.50% 2015................................................. 11
28 11.75% 2010................................................. 31
--------
106
--------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.2%
93 8.00% 2024-2025............................................. 99
50 10.50% 2017-2020............................................ 56
63 11.00% 2011-2018............................................ 69
15 12.00% 2014................................................. 16
18 12.50% 2015................................................. 20
--------
260
--------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.2%
85 9.00% 2021.................................................. 93
75 9.50% 2020.................................................. 83
--------
176
--------
TOTAL U.S. GOVERNMENT AGENCIES (COST $510).................. $ 542
========
</Table>
COMMON STOCK - 0.6%
- --------------------------------------------------------------------------------
<Table>
<Caption>
Market
Shares Value #
- ------ --------
CONSUMER CYCLICAL - 0.0%
1 Hosiery Corp. of America, Inc. Class A -- VI............... $ --
--------
TECHNOLOGY - 0.6%
2 Global Crossing Ltd. -- ................................... 26
5 NTL, Inc. -- .............................................. 318
7 Verizon Communications, Inc................................. 235
--------
TOTAL COMMON STOCK (COST $349).............................. $ 579
--------
TOTAL INVESTMENTS IN SECURITIES (COST $90,274) O............ $100,311
========
</Table>
5
The accompanying notes are an integral part of this financial statement.
- --------------------------------------------------------------------------------
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 7.61% of total
net assets at January 31, 2006.
<Table>
I The aggregate value of securities valued in good faith at
fair value by, or under the direction of, the Fund's Board
of Directors at January 31, 2006, was $--, which represents
0.00% of total net assets.
-- Currently non-income producing. For long-term debt
securities, items identified are in default (companies are
in bankruptcy) as to payment of interest and/or principal.
X The company is in bankruptcy but is continuing to make
coupon payments.
O At January 31, 2006, the cost of securities for federal
income tax purposes is $90,332 and the aggregate gross
unrealized appreciation and depreciation based on that cost
was:
</Table>
<Table>
Unrealized appreciation..................................... $12,540
Unrealized depreciation..................................... (2,561)
-------
Net unrealized appreciation................................. $ 9,979
-------
</Table>
<Table>
V The following securities are considered illiquid. Illiquid
securities are often purchased in private placement
transactions, are not registered under the Securities Act of
1933 and may have contractual restrictions on resale. A
security may also be considered illiquid if it lacks a
readily available market or if its valuation has not changed
for a certain period of time.
</Table>
<Table>
<Caption>
PERIOD ACQUIRED SHARES/PAR SECURITY COST BASIS
- --------------- ---------- -------- ----------
10/1996 $1,200 Delta Air Lines, Inc. due 2016 $1,392
6/1995 1 Hosiery Corp. of America, Inc. Class A -- 144A 8
3/1995 $ 500 NWA Trust due 2008 500
</Table>
<Table>
The aggregate value of these securities at January 31, 2006
was $992, which represents 0.97% of total net assets.
M 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 qualified institutional
buyers. 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, 2006, was
$7,012, which represents 6.84% of total net assets.
# See Note 2b of accompanying Notes to Financial Statements
regarding valuation of securities.
</Table>
DISTRIBUTION BY CREDIT QUALITY
AS OF JANUARY 31, 2006
<Table>
<Caption>
RATING PERCENTAGE OF HOLDINGS*
- ---------------------------------------------------------
AAA 0.5%
A 15.1
BBB 49.7
BB 24.9
B 6.5
CCC 3.1
CC 0.2
- ---------------------------------------------------------
Total 100.0%
=========================================================
</Table>
* Per the prospectus, split rated bonds are categorized using the highest
rating.
<Table>
- -- Due to the presentation of the financial statements in
thousands, the number of shares and/or dollars round to
zero.
</Table>
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, 2006
(000's Omitted)
(Unaudited)
- --------------------------------------------------------------------------------
<Table>
ASSETS
Investments in securities, as detailed in the accompanying
schedule, at market (cost $90,274) (Note 2)............. $100,311
Cash on deposit with custodian............................ 736
Receivables:
Investment securities sold.............................. 3
Interest and dividends.................................. 2,141
Other receivables....................................... 4
Other assets.............................................. 14
--------
TOTAL ASSETS................................................ 103,209
--------
LIABILITIES
Dividend payable ($0.046 per share)....................... 598
Payable for investment advisory and management fees (Note
3)...................................................... 10
Accounts payable and accrued expenses..................... 74
--------
TOTAL LIABILITIES........................................... 682
--------
NET ASSETS.................................................. $102,527
========
COMPOSITION OF NET ASSETS
Net proceeds of capital stock, par value $.001 per
share-authorized 15,000 shares; 12,990 shares
outstanding............................................. 117,755
Unrealized appreciation of investments.................... 10,037
Accumulated undistributed net investment income........... 84
Accumulated net realized loss from sale of investments.... (25,349)
--------
TOTAL NET ASSETS............................................ $102,527
========
NET ASSET VALUE PER SHARE................................... $ 7.89
========
</Table>
THE HARTFORD INCOME SHARES FUND, INC.
Statement of Operations
For the Six-Month Period Ended January 31, 2006
(000's Omitted)
(Unaudited)
- --------------------------------------------------------------------------------
<Table>
NET INVESTMENT INCOME:
Interest income........................................... $ 4,071
-------
EXPENSES:
Investment advisory and management fees (Note 3).......... 315
Legal and auditing fees................................... 31
Custodian fees............................................ 3
Shareholders' notices and reports......................... 29
Directors' fees and expenses.............................. 1
Exchange listing fees..................................... 13
Other..................................................... 5
-------
Total expenses............................................ 397
-------
Fees paid indirectly (Note 3)............................. (3)
-------
Total net expenses........................................ 394
-------
NET INVESTMENT INCOME....................................... 3,677
-------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investments.......................... (37)
Net change in unrealized depreciation of investments...... (3,587)
-------
NET LOSS ON INVESTMENTS..................................... (3,624)
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 53
=======
</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 Six-Month
Period Ended
January 31, 2006 For the Year Ended
(Unaudited) July 31, 2005
----------------- ------------------
OPERATIONS:
Net investment income..................................... $ 3,677 $ 7,317
Net realized loss on investments.......................... (37) (396)
Net change in unrealized appreciation (depreciation) of
investments............................................. (3,587) 3,275
-------- --------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ 53 10,196
-------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income................................ (3,572) (7,178)
-------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from 1 and 3 shares issued as a result of
reinvested dividends, respectively...................... 12 23
-------- --------
TOTAL INCREASE (DECREASE) IN NET ASSETS..................... (3,507) 3,041
NET ASSETS:
Beginning of period....................................... 106,034 102,993
-------- --------
End of period............................................. $102,527 $106,034
======== ========
Accumulated undistributed (distributions in excess of) net
investment income......................................... $ 84 $ (21)
======== ========
</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, 2006
($000's Omitted)
(Unaudited)
- --------------------------------------------------------------------------------
1. ORGANIZATION: The Hartford Income Shares Fund, 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.
INDEMNIFICATIONS: Under the fund's organizational documents, its directors and
officers are indemnified against certain liabilities arising out of the
performance of their duties to the Fund.
In addition, the fund enters into contracts that contain a variety of
indemnifications. The Fund's maximum exposure under these arrangements is
unknown. However, the fund has not had any prior claims or losses pursuant to
these contracts and expects the risk of loss to be remote.
2. SIGNIFICANT ACCOUNTING POLICIES: The following is a summary of significant
accounting policies of the Fund, which are in accordance with U.S. generally
accepted accounting principles:
(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, 2006, the cost of
purchases and proceeds from sales of securities (other than short-term
securities) were as follows:
<Table>
Cost of purchases excluding U.S. Government
obligations: $4,132
Sales proceeds excluding U.S. Government
obligations: $4,016
Cost of purchases for U.S. Government
obligations: $ 997
Sales proceeds for U.S. Government obligations: $1,069
</Table>
(B) SECURITY VALUATION -- Debt securities (other than short-term obligations)
held by a Fund 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. 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 in accordance with procedures established by that Fund's Board of
Directors. Short term investments with a maturity of more than 60 days when
purchased are valued based on market quotations until the remaining days to
maturity become less than 61 days. Short term investments with a maturity of
60 days or less, are valued at amortized cost.
Equity securities are valued at the last sales price or official closing 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
such 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 on
the Statement of Operations and accumulated in net assets.
The Fund generally uses market prices in valuing portfolio securities.
Securities of foreign issuers and non-dollar securities are valued on the
basis of quotations from the primary market in which they are traded, and are
translated from the local currency into U.S. dollars using prevailing exchange
rates. If market quotations are not readily available or are deemed
unreliable, the Fund will use the fair value of the security as determined in
good faith under policies and procedures established by and under the
supervision of the Fund's Board of Directors. Market prices may be deemed
unreliable, for example, if a security is thinly traded or if an event has
occurred after the close of the exchange on which a portfolio security is
principally traded but before the close of the NYSE that is expected to affect
the value of the portfolio security. The circumstances in which a fund may use
fair value pricing include, among others: (i) the occurrence of events that
are significant to a particular issuer, such as mergers, restructuring or
defaults; (ii) the occurrence of events that are significant to an entire
market, such as natural disasters in a particular region or governmental
actions; (iii) trading restrictions on securities; (iv) for thinly traded
securities; and (v) market events such as trading halts and early market
closings. In addition, with respect to the valuation of securities principally
traded on foreign markets, the Fund, uses a fair value pricing service
approved by the Fund's Board, which employs quantitative models to adjust for
"stale" prices caused by the movement of other markets and other factors
occurring after the close of the foreign exchanges but before the close of the
NYSE. Securities that are principally traded on foreign markets may trade on
days that are not business days of the Fund. Because the NAV of the Fund's
shares is determined only on business days of the Fund, the value of the
portfolio securities of the Fund that invests in foreign securities may change
on days when a shareholder will not be able to trade shares. Fair value
pricing is subjective in nature and the use of fair value pricing by the Fund
may cause the net asset value of its shares to differ significantly from the
net asset value that would be calculated using prevailing market values. There
can be no assurance that the Fund could obtain the fair value assigned to a
security if it were to sell the security at approximately the time at which
that Fund determines its NAV per share.
9
THE HARTFORD INCOME SHARES FUND, INC.
Notes to Financial Statements
January 31, 2006
($000's Omitted)
(Unaudited)
- --------------------------------------------------------------------------------
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 in accordance with procedures established by 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 that serve to collateralize the repurchase agreement are
held by the Fund's custodian in book entry or physical form in the custodial
account of the Fund. Repurchase agreements are valued at cost plus accrued
interest receivable. As of January 31, 2006, there were no outstanding
repurchase agreements.
(D) CREDIT RISK -- Credit risk depends largely on the perceived financial
health of bond issuers. In general, lower rated bonds have higher credit risk.
High yield bond prices can fall on bad news about the economy, an industry or
a company. Share price, yield and total return may fluctuate more with less
aggressive bond funds.
(E) SECURITIES PURCHASED ON A WHEN-ISSUED OR DELAYED-DELIVERY
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 will identify securities
segregated in its records with value at least equal to the amount of the
commitment. As of January 31, 2006, 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 and
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, 2005 and
2004, was ordinary income in the amounts of $7,178 and $7,173, respectively.
As of July 31, 2005 the components of distributable earnings on a tax basis
are as follows:
<Table>
<Caption>
July 31, 2005
-------------
Undistributed ordinary income............. $ 576
Accumulated loss.......................... (25,254)
Unrealized appreciation................... 13,566
--------
Total accumulated loss.................... $(11,112)
--------
</Table>
The difference between book-basis and tax-basis unrealized appreciation is
attributable to tax deferral of wash sales.
For federal income tax purposes, the Fund had capital loss carryovers of
$24,684 at July 31, 2005, which, if not offset by subsequent capital gains,
will expire in 2007 through 2013 as follows:
<Table>
<Caption>
Carryover Year Expires
--------- ------------
$ 993 ....................................... 2007
5,416 ....................................... 2008
5,061 ....................................... 2009
4,710 ....................................... 2010
1,710 ....................................... 2011
5,026 ....................................... 2012
1,768 ....................................... 2013
</Table>
For federal income tax purposes, the Fund elected to defer its realized
capital losses for the period subsequent to October 31 in the amount of $570.
These losses will be recognized on the first day of the next fiscal year.
(G) ILLIQUID AND RESTRICTED SECURITIES -- At January 31, 2006, 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, 2006, was $992, which represents 0.97% 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 -- The Fund intends to distribute income
dividends on a monthly basis and capital gains on an annual basis, if any. A
shareholder may choose to have his or her dividends and capital gains
distributions reinvested in additional whole or fractional shares of the Fund.
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
10
THE HARTFORD INCOME SHARES FUND, INC.
Notes to Financial Statements
January 31, 2006
($000's Omitted)
(Unaudited)
- --------------------------------------------------------------------------------
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 U.S. generally accepted accounting principles 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, LLC
("HIFSCO") is the investment adviser for the Fund. Investment advisory and
management fees are computed at the annual rate of 0.45% for the first $100
million of average monthly net assets and at the annual rate of 0.40% 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. Hartford Administrative
Services Company ("HASCO"), a wholly owned subsidiary of The Hartford,
provides transfer agent services to 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, 2006, the custodian fee
offset arrangement reduced expenses by $3. The total expense reduction
represents an effective annual rate of 0.006% of the funds average daily net
assets. This amount is included on the fees paid indirectly line of the
Statement of Operations.
(C) OTHER RELATED PARTY TRANSACTIONS -- For the six-month period ended January
31, 2006, Hartford Fire Insurance was reimbursed $-- for legal expenses on
behalf of the Fund.
-- Due to the presentation of the financial statements in thousands, the
number rounds to zero.
11
THE HARTFORD INCOME SHARES FUND, INC.
Financial Highlights
- --------------------------------------------------------------------------------
<Table>
<Caption>
(UNAUDITED) YEAR ENDED JULY 31,
----------- ----------------------------------------------------------
2006** 2005 2004 2003 2002 2001 O
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period................. $ 8.16 $ 7.93 $ 7.63 $ 6.66 $ 7.95 $ 8.17
Operations:
Investment income.................................. .29 .56 .56 .58 .64 .67
Net realized and unrealized gain (loss) on
investments...................................... (.28) .22 .29 .99 (1.29) (.20)
----------- -------- -------- ------- ------- --------
Total from operations................................ .01 .78 .85 1.57 (.65) .47
----------- -------- -------- ------- ------- --------
Distributions to shareholders:
From investment income............................... (.28) (.55) (.55) (.60) (.64) (.69)
----------- -------- -------- ------- ------- --------
Net asset value, end of period....................... $ 7.89 $ 8.16 $ 7.93 $ 7.63 $ 6.66 $ 7.95
----------- -------- -------- ------- ------- --------
Per share market value, end of period................ $ 7.65 $ 7.88 $ 7.33 $ 6.99 $ 6.80 $ 7.94
Total investment return, market value @.............. 0.60% 15.42% 12.75% 11.63% (6.72%) 13.55%
Total investment return, net asset value @@.......... 0.18% 10.46% 11.69% 24.36% (8.75%) 6.18%
Net assets end of period (000s omitted).............. $ 102,527 $106,034 $102,993 $99,045 $85,772 $101,319
Ratio of gross expenses to average monthly net
assets............................................. .76%* .76% .82% .86% .80% .77%
Ratio of net expenses to average monthly net
assets............................................. .76%* .75% .82% .86% .80% .77%
Ratio of net investment income to average monthly net
assets............................................. 7.05%* 6.89% 7.05% 7.93% 8.45% 8.38%
Portfolio turnover rate.............................. 5% 17% 13% 34% 23% 57%
</Table>
* Annualized.
** For the six-month period ended January 31, 2006.
@ 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.
O Effective April 2, 2001, the adviser was changed from Fortis Advisers, Inc.
to Hartford Investment Financial Services, LLC.
12
DIRECTORS AND OFFICERS (UNAUDITED)
The Board of Directors elects officers who are responsible for the day-to-day
operations of the fund. Each Director serves until his or her death,
resignation, or retirement or until the next annual meeting of shareholders is
held or until his or her successor is elected and qualifies.
Directors and officers who are employed by or who have a substantial financial
interest in The Hartford are considered "interested" persons of the fund
pursuant to the Investment Company Act of 1940. Each officer and two of the
fund's directors, as noted in the chart below, are "interested" persons of the
fund. Each director serves as a director of The Hartford Mutual Funds, Inc., The
Hartford Mutual Funds II, Inc., The Hartford Income Shares Fund, Inc., Hartford
Series Fund, Inc. and Hartford HLS Series Fund II, Inc., which collectively
consist of 85 funds. Correspondence may be sent to directors and officers c/o
The Hartford Income Shares Fund, P.O. Box 2999, Hartford, Connecticut
06104-2999, except that correspondence to Ms. Fagely and Ms. Settimi may be sent
to 500 Bielenberg Dr., Woodbury, Minnesota 55125.
The table below sets forth, for each director and officer, his or her name, age,
current position with the fund and date first elected or appointed, principal
occupation, and, for directors, other directorships held.
NON-INTERESTED DIRECTORS
LYNN S. BIRDSONG (age 59) Director since 2003, Chairman of the Litigation
Committee; Co-Chairman of the Investment Committee
Since 1981, Mr. Birdsong has been a partner in Birdsong Company, an
advertising specialty firm. Since 2003, Mr. Birdsong has been an
independent director of The Japan Fund. From 2003 to March 2005, Mr.
Birdsong was an independent director of the Atlantic Whitehall Funds. From
1979 to 2002, Mr. Birdsong was a managing director of Zurich Scudder
Investments, an investment management firm. During his employment with
Scudder, Mr. Birdsong was an interested director of The Japan Fund.
ROBERT M. GAVIN, JR. (age 65) Director since 1986, Chairman of the Board since
2004
Dr. Gavin is an educational consultant. Prior to September 1, 2001, he was
President of Cranbrook Education Community. Prior to July 1996, he was
President of Macalester College, St. Paul, Minnesota.
DUANE E. HILL (age 60) Director since 2002, Chairman of the Nominating Committee
Mr. Hill is a Partner of TSG Ventures L.P., a private equity investment
company that invests primarily in minority-owned small businesses. Mr. Hill
is a former Partner of TSG Capital Group, a private equity investment firm
that serves as sponsor and lead investor in leveraged buyouts of middle
market companies.
SANDRA S. JAFFEE(1)(age 65) Director since 2005
Ms. Jaffee is Chief Executive Officer of Searchspace Group, a leading
provider of compliance/regulatory technology to financial institutions. Ms.
Jaffee served as an Entrepreneur in Residence with Warburg Pincus, a
private equity firm, from August 2004 to August 2005. From September 1995
to July 2004, Ms. Jaffee served as Executive Vice President at Citigroup,
where she was President and Chief Executive Officer of Citibank's Global
Securities from 1995 to 2003.
WILLIAM P. JOHNSTON (age 61) Director since 2005(2), Chairman of the Compliance
Committee
Mr. Johnston joined the Board of Directors of Renal Care Group, Inc. in
November 2002 and has served as Chairman of the Board since March 2003.
From August 2001 until December 2002, Mr. Johnston was Managing Director of
SunTrust Robinson Humphrey, the investment banking division of SunTrust
Banks, Inc. From 1998 through 2001, Mr. Johnston was Vice Chairman of the
investment banking affiliate of SunTrust Banks, Inc., where he also served
as Chief Executive Officer from 1998 through 2000.
PHILLIP O. PETERSON (age 61) Director since 2000, Chairman of the Audit
Committee
Mr. Peterson is a mutual fund industry consultant. From January 2004 to
April 2005, Mr. Peterson served as Independent President of the Strong
Mutual Funds. Mr. Peterson was a partner of KPMG LLP (an accounting firm)
until July 1999.
LEMMA W. SENBET (age 59) Director since 2005(2)
Since 1998, Dr. Senbet has been Chair of the Finance Department at the
University of Maryland, Robert H. Smith School of Business, where he has
been the William E. Mayer Chair Professor of Finance since 1990.
Previously, he was a chaired professor of finance at the University of
Wisconsin - Madison. In addition, Dr. Senbet served as an independent
director of the Fortis Funds from March 2000 until July 2002.
INTERESTED DIRECTORS AND OFFICERS
THOMAS M. MARRA (age 47) Director since 2002
Mr. Marra is President and Chief Operating Officer of Hartford Life, Inc.
He is also a member of the Board of Directors and a 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 Chief Operating Officer in 2000, and
served as Director of Hartford Life's Investment Products Division from
1998 to 2000. 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 (age 66) Director since 2002, Co-Chairman of the Investment
Committee
Mr. Smith served as Vice Chairman 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 has served as a Director of White Mountains
Insurance Group since November 2003.
13
DAVID M. ZNAMIEROWSKI (age 45) President since 2001, Chief Executive Officer
since 2005
Mr. Znamierowski currently serves as President of Hartford Investment
Management Company ("Hartford Investment") and Executive Vice President and
Chief Investment Officer for The Hartford, Hartford Life, Inc. and Hartford
Life Insurance Company. Mr. Znamierowski is also a Managing Member,
Executive Vice President and Chief Investment Officer of HIFSCO and HL
Advisors.
ROBERT M. ARENA, JR. (age 37) Vice President since 2006(3)
Mr. Arena serves as Vice President of Hartford Life and heads its Retail
Product Management Group in the Investment Products Division. Prior to
joining The Hartford in 2004, he was Senior Vice President in charge of
Product Management for American Skandia/Prudential in the individual
annuities division. Mr. Arena joined American Skandia in 1996. Previously,
he was with Paul Revere Insurance Group in its group insurance division.
TAMARA L. FAGELY (age 47) Vice President since 1996, Controller since 2001 and
Treasurer since 1993
Ms. Fagely has been a Vice President of Hartford Administrative Services
Company (HASCO) since 1998. Currently, Ms. Fagely is a Vice President of
Hartford Life. She served as Assistant Vice President of Hartford Life from
December 2001 through March 2005. In addition, she is Controller of HIFSCO.
MARY JANE FORTIN (age 41) Vice President since 2003(4)
Ms. Fortin is Senior Vice President and Director of Mutual Funds and 529
Programs for Hartford Life. She also serves as Vice President of HL
Advisors and HIFSCO. Previously, Ms. Fortin served as Senior Vice President
and Chief Accounting Officer of Hartford Life.
GEORGE R. JAY (age 54) Vice President since 2001, Chief Compliance Officer since
2004(5)
Mr. Jay serves as Assistant Vice President of Hartford Life. He also serves
as Controller of HL Advisors and as Chief Broker-Dealer Compliance for
HIFSCO.
THOMAS D. JONES III (age 41) Vice President and Chief Compliance Officer since
2006(6)
Mr. Jones joined The Hartford in 2006 from SEI Investments, where he served
as Chief Compliance Officer for its mutual funds and investment advisers.
Prior to joining SEI, Mr. Jones was First Vice President and Compliance
Director for Merrill Lynch Investment Managers (Americas) ("MLIM"), where
he worked from 1992-2004. At MLIM, Mr. Jones was responsible for the
compliance oversight of various investment products, including mutual
funds, wrap accounts, institutional accounts and alternative investments.
EDWARD P. MACDONALD (age 39) Vice President, Secretary and Chief Legal Officer
since 2005
Mr. Macdonald serves as Assistant General Counsel of The Hartford. Prior to
joining The Hartford in 2005, Mr. Macdonald was Chief Counsel, Investment
Management for Prudential Financial (formerly American Skandia Investment
Services, Inc.). He joined Prudential in April 1999.
VERNON J. MEYER (age 41) Vice President since 2006(7)
Mr. Meyer serves as Vice President of Hartford Life and Director of its
Investment Advisory Group in the Investment Products Division. Prior to
joining The Hartford in 2004, Mr. Meyer was with MassMutual which he joined
in 1987.
DENISE A. SETTIMI (age 45) Vice President since 2005
Ms. Settimi currently serves as Operations Officer of HASCO. Previously,
Ms. Settimi was with American Express Financial Advisors, where she was
Director of Retirement Plan Services from 1997 to 2003.
JOHN C. WALTERS (age 44) Vice President since 2001
Mr. Walters serves as Executive Vice President and Director of the
Investment Products Division of Hartford Life. He is also a Managing Member
and Executive Vice President of HIFSCO and HL Advisors. Previously, Mr.
Walters was with First Union Securities.
(1) Ms. Jaffee is a consultant for a controlling shareholder of Institutional
Shareholder Services, Inc., an unaffiliated corporate governance research
service company ("ISS"), and serves as a Director of ISS and as a member of
the Executive Committee of the Board of Directors of ISS. From time to time,
ISS may provide in-depth analysis of shareholder meeting agendas, vote
recommendations, record-keeping or vote disclosure services to the Fund's
sub-adviser.
(2) Appointed by the Board on September 14, 2005 and elected by shareholders on
January 10, 2006.
(3) Elected February 1, 2006
(4) Resigned January 13, 2006
(5) Resigned as Chief Compliance Officer February 13, 2006
(6) Elected February 13, 2006
(7) Elected February 1, 2006
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, MN 55164
REGISTRAR Wells Fargo Bank, N.A.
Minneapolis, Minnesota
CUSTODIAN State Street Bank and Trust Company
Boston, Massachusetts
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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".
SHAREHOLDER MEETING RESULTS (UNAUDITED)
Shareholders of The Hartford Income Shares Fund, Inc. (the "Fund") addressed and
approved the following proposals at an annual meeting held on January 10, 2006.
1. To elect a Board of Directors consisting of the following nine nominees:
<Table>
<Caption>
For Withhold
-------------- -----------
Lynn S. Birdsong............................................ 10,713,705.494 231,073.713
Robert M. Gavin, Jr. ....................................... 10,701,679.791 243,099.416
Duane E. Hill............................................... 10,701,383.555 243,395.652
Sandra S. Jaffee............................................ 10,689,592.169 255,187.038
William P. Johnston......................................... 10,713,364.957 231,414.250
Phillip O. Peterson......................................... 10,714,055.494 230,723.713
Lemma W. Senbet............................................. 10,711,314.957 233,464.250
Thomas M. Marra............................................. 10,713,574.957 231,204.250
Lowndes A. Smith............................................ 10,710,186.715 234,592.492
</Table>
2. To ratify the selection by the Board of Directors of the Fund of Ernst &
Young LLP as the Fund's independent registered public accounting firm for the
fiscal year ending July 31, 2006.
<Table>
<Caption>
For Against Abstain
- ------------- ----------- ----------
10,758,311.842 118,025.931 68,441.434
</Table>
IMPORTANT TAX INFORMATION (UNAUDITED)
Shareholders will receive notification in January 2007 of the percentage
applicable to the preparation of their 2006 income tax returns.
MONTHLY DIVIDENDS PAID
<Table>
<Caption>
DATE AMOUNT
- ---- ------
August 2005................................................. $0.046 Income
September 2005.............................................. 0.046 Income
October 2005................................................ 0.046 Income
November 2005............................................... 0.046 Income
December 2005............................................... 0.046 Income
January 2006................................................ 0.046 Income
------
$0.276
======
</Table>
15
PRIVACY POLICY AND PRACTICES OF
THE HARTFORD FINANCIAL SERVICES GROUP, INC. AND ITS AFFILIATES
(HEREIN CALLED "WE, OUR, AND US")
This Privacy Policy applies to our United States Operations
We value your trust. We are committed to the responsible:
a) management;
b) use; and
c) protection;
of PERSONAL INFORMATION.
This notice describes how we collect, disclose, and protect PERSONAL
INFORMATION.
We collect PERSONAL INFORMATION to:
a) service your TRANSACTIONS with us; and
b) support our business functions.
We may obtain PERSONAL INFORMATION from:
a) YOU;
b) your TRANSACTIONS with us; and
c) third parties such as a consumer-reporting agency.
Based on the type of product or service YOU apply for or get from us, PERSONAL
INFORMATION such as:
a) your name;
b) your address;
c) your income;
d) your payment; or
e) your credit history;
may be gathered from sources such as applications, TRANSACTIONS, and consumer
reports.
To serve YOU and service our business, we may share certain PERSONAL
INFORMATION. We will share PERSONAL INFORMATION, only as allowed by law, with
affiliates such as:
a) our insurance companies;
b) our employee agents;
c) our brokerage firms; and
d) our administrators.
As allowed by law, we may share PERSONAL FINANCIAL INFORMATION with our
affiliates to:
a) market our products; or
b) market our services;
to YOU without providing YOU with an option to prevent these disclosures.
We may also share PERSONAL INFORMATION, only as allowed by law, with
unaffiliated third parties including:
a) independent agents;
b) brokerage firms;
c) insurance companies;
d) administrators; and
e) service providers;
who help us serve YOU and service our business.
When allowed by law, we may share certain PERSONAL FINANCIAL INFORMATION with
other unaffiliated third parties who assist us by performing services or
functions such as:
a) taking surveys;
b) marketing our products or services; or
c) offering financial products or services under a joint agreement between us
and one or more financial institutions.
We will not sell or share your PERSONAL FINANCIAL INFORMATION with anyone for
purposes unrelated to our business functions without offering YOU the
opportunity to:
a) "opt-out;" or
b) "opt-in;"
as required by law.
We only disclose PERSONAL HEALTH INFORMATION with:
a) your proper written authorization; or
b) as otherwise allowed or required by law.
Our employees have access to PERSONAL INFORMATION in the course of doing their
jobs, such as:
a) underwriting policies;
b) paying claims;
c) developing new products; or
d) advising customers of our products and services.
We use manual and electronic security procedures to maintain:
a) the confidentiality; and
b) the integrity of;
PERSONAL INFORMATION that we have. We use these procedures to guard against
unauthorized access.
16
Some techniques we use to protect PERSONAL INFORMATION include:
a) secured files;
b) user authentication;
c) encryption;
d) firewall technology; and
e) the use of detection software.
We are responsible for and must:
a) identify information to be protected;
b) provide an adequate level of protection for that data;
c) grant access to protected data only to those people who must use it in the
performance of their job-related duties.
Employees who violate our Privacy Policy will be subject to discipline, which
may include ending their employment with us.
At the start of our business relationship, we will give YOU a copy of our
current Privacy Policy.
We will also give YOU a copy of our current Privacy Policy once a year if YOU
maintain a continuing business relationship with us.
We will continue to follow our Privacy Policy regarding PERSONAL INFORMATION
even when a business relationship no longer exists between us.
As used in this Privacy Notice:
APPLICATION means your request for our product or service.
PERSONAL FINANCIAL INFORMATION means financial information such as:
a) credit history;
b) income;
c) financial benefits; or
d) policy or claim information.
PERSONAL HEALTH INFORMATION means health information such as:
a) your medical records; or
b) information about your illness, disability or injury.
PERSONAL INFORMATION means information that identifies YOU personally and is not
otherwise available to the public. It includes:
a) PERSONAL FINANCIAL INFORMATION; and
B) PERSONAL HEALTH INFORMATION.
TRANSACTION means your business dealings with us, such as:
a) your APPLICATION;
b) your request for us to pay a claim; and
c) your request for us to take an action on your account.
YOU means an individual who has given us PERSONAL INFORMATION in conjunction
with:
a) asking about;
b) applying for; or
c) obtaining;
a financial product or service from us if the product or service is used mainly
for personal, family, or household purposes.
This Privacy Policy is being provided on behalf of the following affiliates of
The Hartford Financial Services Group, Inc.:
American Maturity Life Insurance Company; First State Insurance Company; Hart
Life Insurance Company; Hartford Accident and Indemnity Company; Hartford
Administrative Services Company; Hartford Casualty Insurance Company; Hartford
Equity Sales Company, Inc.; Hartford Fire Insurance Company; Hartford HLS Series
Fund II, Inc.; Hartford Insurance Company of Illinois; Hartford Insurance
Company of the Midwest; Hartford Insurance Company of the Southeast; Hartford
International Life Reassurance Corporation; Hartford Investment Financial
Services, LLC; Hartford Investment Management Company; Hartford Life and
Accident Insurance Company; Hartford Life and Annuity Insurance Company;
Hartford Life Insurance Company; Hartford Life Group Insurance Company, Hartford
Lloyd's Insurance Company; Hartford Mezzanine Investors I, LLC; Hartford
Securities Distribution Company, Inc.; Hartford Series Fund, Inc.; Hartford
Specialty Company; Hartford Specialty Insurance Services of Texas, LLC; Hartford
Underwriters Insurance Company; Hartford-Comprehensive Employee Benefit Service
Company; HL Investment Advisors, LLC; Hartford Life Private Placement, LLC;
M-CAP Insurance Agency, LLC; New England Insurance Company; Nutmeg Insurance
Agency, Inc.; Nutmeg Insurance Company; Nutmeg Life Insurance Company; Omni
General Agency, Inc.; Omni Indemnity Company; Omni Insurance Company; Pacific
Insurance Company, Limited; Planco, LLC; Planco Financial Services, LLC;
Property and Casualty Insurance Company of Hartford; Sentinel Insurance Company,
Ltd.; Servus Life Insurance Company; Specialty Risk Services, LLC.; The Hartford
Income Shares Fund, Inc.; The Hartford Mutual Funds II, Inc.; The Hartford
Mutual Funds, Inc.; Trumbull Insurance Company; Trumbull Services, L.L.C.; Twin
City Fire Insurance Company; Woodbury Financial Services, Inc.
17
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
ATKINSON, NH 03811
PERMIT NO. 27
[HARTFORD LOGO]
THE HARTFORD
MUTUAL FUNDS
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 6. SCHEDULE OF INVESTMENTS
The Schedule of Investments is included as part of this semi-annual report
filed under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this semi-annual filing.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not applicable to this semi-annual filing.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
INCOME SHARES FUND
Total Average Shares purchased Maximum number of
Period SHARES Price Paid as part of public of shares that may
PURCHASED per share announced plan yet be purchased
- ------------------------------------------------------------------------------------------------------------------
8/1/2005 11,352 8.0161 0 0
9/1/2005 11,418 7.8817 0 0
10/3/2005 11,418 7.8522 0 0
11/1/2005 11,949 7.5017 0 0
12/1/2005 12,002 7.3850 0 0
1/3/2005 11,642 7.5285 0 0
------------------------ ----------------------- ------------------------
Total 69,781 0 0
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures of the Nominating
Committee policy since registrant's last disclosure in response to this
requirement.
ITEM 11. 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 was no change in the Registrant's internal control over
financial reporting that occurred during the Registrant's last
fiscal half year that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting.
ITEM 12. EXHIBITS.
12(a)(2) Section 302 certifications of the principal executive officer and
principal financial officer of Registrant.
(b) 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 9, 2006 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 9, 2006 By: /s/ David M. Znamierowski
-------------------------
David M. Znamierowski
Its: President
Date: March 9, 2006 By: /s/ Tamara L. Fagely
--------------------
Tamara L. Fagely
Its: Vice President,
Controller and Treasurer
EXHIBIT LIST
99.CERT 12(a)(2) Certifications
(i) Section 302 certification of principal executive
officer
(ii) Section 302 certification of principal financial
officer
99.906CERT 12(b) Section 906 certification of principal executive
officer and principal financial officer