Dear Fellow Shareholders:
A dividend of $.28 was declared on April 4, payable April 26, to holders of
record April 19, 1996.
Volatility seems to be the norm for both the stock and bond markets. It is
somewhat comforting that "expert" opinion appears to be pretty well divided.
What is even more comforting is the fact that our economy continues to perform
quite well and that inflation is restrained.
Despite the likely increase in noise during an election year, the economy
appears to have made a soft landing which has running room. There are any number
of potential trouble spots which could damage today's placid outlook. But until
something erupts which requires action, the most likely position of the
government will be to avoid doing anything.
I am pleased to report that Excelsior has outperformed the relevant Lehman
Government/Corporate Bond index on a one, three and five year basis. Our
portfolio's average maturity is 8.5 years, with a duration of 5.4 years.
The concept of duration may be worth a word of explanation. A bond's
duration takes into account the present value of future coupon payments in order
to determine how long it takes an investor to get his money back.
The mathematical formula for calculating duration is fairly intimidating;
the point of the exercise is quite simple. Duration helps determine volatility.
For instance, if a bond's duration is five years and interest rates move one
percent, the bond will move five percent. Knowing the duration of a portfolio
gives an investor a handle on how risky an investment is.
By definition, very short bonds fluctuate less than long ones. Excelsior
seems reasonably positioned, balancing the uncertainties of the market against
an investor's need for a decent yield. We intend to stay pretty much as we are,
and we are pleased with the quality and liquidity of our holdings.
Sincerely,
Townsend Brown II
April 4, 1996 President
1
<PAGE>
Excelsior Income Shares, Inc.
Schedule of Investments
March 31, 1996 (Note 1)
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND FEDERAL Moody's
AGENCIES OBLIGATIONS-61.46% Rating** Face Amount Cost* Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal National Mortgage Assn., Deb.,
7.55%, 6/10/04 (1) $ 2,500,000 $ 2,423,945 $ 2,535,480
7.50%, 7/25/20 (1) 4,000,000 3,959,687 4,051,040
Federal National Mortgage Assn., Global Bond,
8.50%, 2/1/05 1,600,000 1,600,000 1,694,950
Government National Mortgage Assn.,
7%, 5/15/22 (1) 407,331 406,822 397,019
7%, 4/15/23 (1) 4,239,336 4,241,986 4,132,009
7%, 5/15/23 (1) 927,779 925,024 904,290
7%, 3/15/24 (1) 1,919,257 1,898,865 1,870,667
7.50%, 12/15/25 (1) 1,055,646 1,053,997 1,054,981
8%, 8/15/24 (1) 1,817,233 1,807,294 1,856,408
8%, 1/15/25 (1) 1,752,293 1,694,248 1,790,069
8.50%, 7/15/17 (1) 1,249,270 1,281,087 1,302,749
8.50%, 5/15/21 (1) 746,951 765,975 778,926
10%, 1/15/18 (1) 1,281,207 1,390,310 1,410,929
U.S. Treasury Bond,
7.25%, 5/15/16 (1) 1,000,000 975,000 1,044,375
----------- ----------- -----------
24,496,303 24,424,240 24,823,892
----------- ----------- -----------
BONDS and NOTES-28.14%
- -------------------------------------------------------------------------------------------------------------
DuPont EI de Nemours & Co., Notes,
8.25%, 9/15/06 Aa2 1,500,000 1,495,875 1,660,775
Ford Motor Credit
6.125%, 1/9/06 A1 2,000,000 1,989,980 1,868,480
KFW International Finance Inc., Notes,
7.20%, 3/15/14 Aaa 2,000,000 1,978,500 1,999,886
Republic N.Y. Corp., Notes,
7.75%, 5/15/09 A1 1,800,000 1,806,138 1,900,267
Wachovia Corp. Sub. Notes,
6.375%, 2/1/09 A1 2,000,000 1,997,400 1,890,622
Wisconsin Elec. Power Co.,
7.25%, 8/1/04 Aa2 2,000,000 1,988,600 2,043,380
----------- ----------- -----------
11,300,000 11,256,493 11,363,410
----------- ----------- -----------
SHORT-TERM HOLDINGS-10.40%
- -------------------------------------------------------------------------------------------------------------
Fidelity Cash Portfolio-U.S. Treasury 420,359 420,359 420,359
Fidelity Cash Institutional U.S. Government T-Fund 1,780,488 1,780,488 1,780,488
Shearson T-Fund 2,000,000 2,000,000 2,000,000
----------- ----------- -----------
4,200,847 4,200,847 4,200,847
----------- ----------- -----------
TOTAL INVESTMENTS IN SECURITIES $39,997,150 $39,881,580 $40,388,149
=========== =========== ===========
<FN>
- ---------------
Percentages are based on total investments.
</FN>
</TABLE>
The accompanying notes are an integral part of this schedule.
2
<PAGE>
(left column)
Excelsior Income Shares, Inc.
Schedule of Investments (continued)
March 31, 1996 (Note 1)
The aggregate market value at March 31, 1996 for the
long-term holdings in terms of Quality Ratings is as
follows:
Rating Value Percent
------ ----- -------
Aaa (1) $26,823,778 74.12
A1 5,659,369 15.64
Aa2 3,704,155 10.24
----------- ------
Total $36,187,302 100.00
=========== ======
(1) These securities which are issued and/or guaranteed
by the U.S. Government or Federal Agencies are not
rated but are deemed to be Aaa quality for purposes of
this report.
*Based on cost for Federal income tax purposes:
Aggregate gross unrealized
appreciation $ 506,569
===========
Cost for Federal Income Tax Purposes $39,881,580
===========
**Credit ratings are unaudited.
The accompanying notes are an integral part of this schedule.
(right column)
Statement of Assets and Liabilities
March 31, 1996 (Unaudited)
ASSETS:
- ----------------------------------
Investments (Note 1) in securities
at value (identified
cost $39,881,580):
U.S. Government and
Federal Agencies
obligations $24,823,892
Bonds and notes 11,363,410
Short-term holdings 4,200,847
-----------
Total Investments $40,388,149
Cash 21,697
Interest receivable 376,544
Prepaid expenses 20,440
-----------
Total Assets 40,806,830
-----------
LIABILITIES:
- ----------------------------------
Accrued advisory fee (Note 3) 55,031
Accrued operating expenses 74,714
-----------
Total Liabilities 129,745
-----------
Net Assets $40,667,085
===========
NET ASSETS consist of:
Undistributed net investment income $ 708,101
Accumulated net realized losses
from investment transactions (4,122)
Unrealized appreciation on investments 506,569
Capital shares (Note 5) 21,884
Additional paid-in capital 39,444,653
-----------
$40,677,085
===========
Net Asset Value per share
($40,677,085 d/b 2,188,391 shares) $18.59
======
The accompanying notes are an integral part of this statement.
3
<PAGE>
(left column)
Excelsior Income Shares, Inc.
Statement of Operations
for the three months ended March 31, 1996
(Note 1)
INVESTMENT INCOME:
- --------------------------
INCOME-Interest $ 718,613
EXPENSES:
Investment advisory fee $52,356
Directors' fees and expenses 11,469
Officer's salary 10,242
Postage and printing 8,477
Professional fees 5,485
Insurance 5,734
Transfer agent and
registrar fees 4,986
The New York Stock
Exchange, Inc.-annual fee 3,916
Miscellaneous 5,770
-------
Total expenses 108,435
---------
Investment Income-Net 610,178
---------
REALIZED LOSS AND UNREALIZED DEPRECIATION/
APPRECIATION ON INVESTMENTS-NET:
- --------------------------
Realized loss from security transactions
(excluding short-term securities):
Proceeds from sales $ 440,356
Cost of sales 444,478
----------
Net realized loss (4,122)
Unrealized appreciation on
investment securities:
Beginning of period 1,887,704
End of period 506,569
----------
Change in unrealized
appreciation-net (1,381,135)
----------
Net realized loss and change
in unrealized appreciation
(depreciation) on investments (1,385,257)
----------
Net Increase in Net Assets
Resulting from Operations ($ 775,079)
==========
(right column)
Statement of Changes in Net Assets
For the
three months For the year
ended ended
Mar. 31, 1996 Dec. 31, 1995
------------- -------------
INCREASE (DECREASE)
IN NET ASSETS
- ------------------------
Operations:
Investment income-
net (Note 1) $ 610,178 $ 2,484,734
Realized (loss) on
investments-net
(Note 2) (4,122) (277,290)
Change in unrealized
appreciation
(depreciation)-net (1,381,135) 4,767,536
----------- -----------
Net increase (decrease)
in net assets
resulting from
operations (775,079) 6,974,980
Dividends to share-
holders from:
Investment income-
net - (2,450,998)
Net realized gains
on investments - -
Cost of Shares purchased
pursuant to Section 23
of the Investment Com-
pany Act of 1940
(Note 5) - -
----------- -----------
Total increase (decrease)
in net assets (775,079) 4,523,982
NET ASSETS:
- ------------------------
Beginning of period 41,452,164 36,928,182
----------- -----------
End of period (including
undistributed net invest-
ment income of $708,101
in 1996 and $97,923 in
1995, respectively) $40,677,085 $41,452,164
=========== ===========
The accompanying notes are an integral part of these statements.
4
<PAGE>
Excelsior Income Shares, Inc.
Financial Highlights
<TABLE>
<CAPTION>
For the three For the year ended
months ended ------------------------------------------
3/31/96 1995 1994* 1993 1992
------- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of year $18.94 $16.87 $18.97 $18.54 $18.74
------ ------ ------ ------ ------
Net investment income .28 1.14 1.06 1.17 1.32
Net gain (loss) on securities
(realized and unrealized) (.63) 2.05 (2.00) 0.71 (0.08)
------ ------ ------ ------ ------
Total from investment operations (.35) 3.19 (.94) 1.88 1.24
------ ------ ------ ------ ------
Less Dividends and Distributions:
Dividends from net investment
income - (1.12) (1.03) (1.17) (1.33)
Distribution from realized gains on
investments - - (.16) (0.28) (0.09)
Distribution in excess of realized
gains on investments - - - - (0.02)
------ ------ ------ ------ ------
Total dividends and distributions - (1.12) (1.19) (1.45) (1.44)
------ ------ ------ ------ ------
Treasury Stock Transaction - - .03 - -
------ ------ ------ ------ ------
Net asset value, end of year $18.59 $18.94 $16.87 $18.97 $18.54
====== ====== ====== ====== ======
Market value per share, end of year $15.63 $16.00 $14.63 $17.50 $17.75
====== ====== ====== ====== ======
Total Investment Return:
Based on market value per share (2.31%) 14.92% (8.64%) 5.98% 6.65%
Ratios To Average Net Assets:
Expenses 0.26% 1.08% 1.15% 1.08% .98%
Net investment income 1.48% 6.23% 5.92% 6.07% 7.14%
Supplemental Data:
Net assets at end of period
(000 omitted) $40,677 $41,452 $36,928 $42,130 $41,183
Portfolio turnover rate 1.21% 23.43% 95.53% 81.23% 155.60%
*Based on average shares outstanding.
</TABLE>
The accompanying notes are an integral part of this schedule.
5
<PAGE>
Excelsior Income Shares, Inc.
Notes to Financial Statements
March 31, 1996
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Excelsior Income Shares, Inc. (the "Company") was incorporated on March 16, 1973
and commenced operations on May 15, 1973. The Company is registered under the
Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. The significant accounting policies of the
Company, which are in conformity with generally accepted accounting principles,
are as follows:
a) Investments-Security transactions are recorded as of the trade date.
Investments owned at March 31, 1996, are reflected in the accompanying financial
statements at value. Valuations of the Company's investments are supplied by a
pricing service approved by the Board of Directors or by dealers who regularly
trade in the security being valued. Short-term holdings are carried at cost plus
accrued interest, which approximates value.
The difference between cost and value is reflected separately as unrealized
appreciation (depreciation) of investments.
The cost basis of bonds is not adjusted for amortization of premiums or
accretion of discounts, except for original issue discount which is accreted.
Realized gains and losses on security transactions are determined on the
basis of identified cost.
b) Federal Income Taxes-No provision for Federal income taxes has been made
in the accompanying financial statements since the Company intends to comply
with the provisions of Subchapter M of the Internal Revenue Code and to
distribute to its shareholders substantially all of its net investment income
and net realized capital gains, if any. For Federal income tax purposes the
Company has capital loss carryforwards of $92,443, $277,290 and $4,122 expiring
on December 31, 2002, December 31, 2003 and December 31, 2004, respectively,
available to offset future capital gains, if any.
c) Investment Income Recognition-The Company records interest and expenses
on the accrual basis.
d) Dividend Distributions-The Company records dividend distributions to
shareholders as of the ex-dividend date.
e) The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of expenses during the
reporting period. Actual results could differ from these estimates.
(2) DISTRIBUTIONS:
Realized gains from security transactions to the extent they exceed accumulated
net realized losses are distributed to shareholders in the succeeding year.
6
<PAGE>
Excelsior Income Shares, Inc.
Notes to Financial Statements (continued)
March 31, 1996
- --------------------------------------------------------------------------------
(3) RELATED PARTY TRANSACTIONS:
Under an investment advisory agreement, United States Trust Company of New York
furnishes investment advisory services to and performs certain administrative
functions for the Company. Quarterly fees for such services are based on the net
assets of the Company, as of the close of the last business day of each quarter,
at the annual rate of 0.5% of the first $100,000,000 of such net assets, and at
reduced rates thereafter.
The investment advisory agreement also provides that the Advisor will
reimburse the Company for all expenses (excluding interest, taxes, brokerage
commissions and certain other expenses, if any) borne by the Company in any
calendar year in excess of 1.5% of the first $30,000,000 of annual average net
assets, and 1% of annual average net assets, in excess of $30,000,000.
Effective September 1, 1995, United States Trust Company of New York sold
its custody, transfer agent and Fund administration businesses and now those
functions are performed by subsidiaries of The Chase Manhattan Bank N.A.
Each director who is not an affiliated person, as defined by the Investment
Company Act of 1940, receives from the Company an annual fee of $5,000, an
attendance fee of $300, and $100 for each audit committee meeting attended.
Three officers of the Company are officers of United States Trust Company of
New York.
(4) PURCHASES AND PROCEEDS FROM SALES OF SECURITIES:
For the period ended March 31, 1996, purchases and proceeds from sales of
securities other than short-term United States Government and Federal Agencies
obligations aggregated $1,989,980 and $-0-, respectively. Purchases and proceeds
from sales of United States Government and Federal Agencies obligations
aggregated $1,053,995 and $440,356, respectively.
(5) CAPITAL STOCK:
At March 31, 1996, 2,188,391 shares of $.01 par value common stock (15,000,000
shares authorized) were outstanding.
Pursuant to Section 23 of the Investment Company Act of 1940, the Company
may in the future purchase shares of Excelsior Income Shares, Inc. Common Stock
on the open market from time to time, at such times, and in such amounts as may
be deemed advantageous to the Company. Nothing herein shall be considered a
commitment to purchase such shares. For the year ended December 31, 1994, the
Company purchased 32,500 shares in the open market at a cost of $475,737.
7
<PAGE>
(left column)
Excelsior Income Shares, Inc.
114 W. 47th Street, 9th Floor
New York, NY 10036-1532
(212) 852-3732
DIRECTORS
Townsend Brown II
Manning E. Case
George T. Conklin, Jr.
Edwin A. Heard
James J. O'Leary
Perry W. Skjelbred
Philip J. Tilearcio
Kenneth G. Walsh
OFFICERS
Townsend Brown II
President, Chief Executive Officer
Henry M. Milkewicz
Vice President
Robert D. Cummings
Secretary and Treasurer
Robert R. Johnson
Assistant Treasurer
and Assistant Secretary
Investment Advisor
United States Trust Company
of New York
114 West 47th Street
New York, NY 10036-1532
Transfer Agent Registrar & Custodian
The Chase Manhattan Bank, N.A.
Customer Services
770 Broadway, 6th Floor
New York, NY 10003
(800) 257-2356
Independent Accountants
Coopers & Lybrand L.L.P.
1301 Avenue of the Americas
New York, NY 10019
Listed on N.Y. Stock Exchange- Symbol EIS
A "Closed-End Bond Funds" table, which includes
current data on Excelsior, is published weekly by
The Wall Street Journal and The New York Times.
(right column)
------------------
LOGO
Excelsior
Income Shares,
Inc.
Quarterly Report
March 31, 1996
------------------
