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LOGO
Excelsior
Income Shares,
Inc.
Semi-Annual Report
June 30, 1997
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<PAGE>
DEAR FELLOW SHAREHOLDERS:
Results for the second quarter were as follows: Net Investment income was
$588,830 or $.27 per share. A dividend of $.26 was declared on July 1, payable
July 25 to owners of record July 18.
The remarkable action of the stock market has amazed most analysts. Lots of
investors are happy; some have seen sudden declines because of a shortfall in
expected earnings. The "bulls" seem to have won the day for now.
Excelsior continues to provide investors with a security blanket. Ours is
a dull holding which offers decent yield, high quality and relatively little
"action." That is exactly what we intend to continue to offer.
The discount from net asset value at which our fund sells provides a
further safety net; the assets are available at a discount from their market
price. We believe that Excelsior is a comfortable harbor for that part of an
investor's portfolio which is meant for relative safety.
A shareholder recently asked if we intended to sacrifice quality by going
after high yielding "junk." The answer was a loud "no." This is not a
speculative fund. It was started more than a generation ago to provide a safe
yield from a portfolio of high quality and good liquidity; we are not going to
change. There are plenty of alternative investments available to supplement our
purposely conservative approach. We believe that there are few other funds which
follow our consistent and rigorously observed standards.
Sincerely,
Townsend Brown II
Chairman
July 2, 1997
1
<PAGE>
Excelsior Income Shares, Inc.
SCHEDULE OF INVESTMENTS
June 30, 1997 (Note 1)
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND FEDERAL Moody's
AGENCIES OBLIGATIONS--55.85% 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 $ 2,522,230
7.50%, 7/25/20 (1) 4,000,000 3,959,687 4,043,068
Federal National Mortgage Assn., Global
Bond,
8.50, 2/1/05 1,600,000 1,600,000 1,665,794
Government National Mortgage Assn.,
7%, 5/15/22 (1) 278,722 278,374 273,584
7%, 4/15/23 (1) 3,658,571 3,660,857 3,591,125
7%, 5/15/23 (1) 810,071 807,666 795,137
7%, 3/15/24 (1) 1,678,264 1,660,433 1,647,325
7.50%, 12/15/25 (1) 995,293 993,738 997,785
8%, 8/15/24 (1) 1,614,917 1,606,086 1,649,740
8%, 1/15/25 (1) 1,489,634 1,440,290 1,521,755
8.50%, 7/15/17 (1) 959,980 984,429 996,879
8.50%, 5/15/21 (1) 582,958 597,805 605,366
10%, 1/15/18 (1) 885,548 960,958 969,952
U.S. Treasury Bond,
7.25%, 5/15/16 (1) 1,000,000 975,000 1,042,813
----------- ----------- -----------
22,053,958 21,949,268 22,322,553
----------- ----------- -----------
<CAPTION>
BONDS AND NOTES--28.28%
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<S> <C> <C> <C> <C>
DuPont (EI) de Nemours & Co., Notes,
8.25%, 9/15/06 Aa2 1,500,000 1,495,875 1,641,332
Ford Motor Credit
6.125, 1/9/06 A1 2,000,000 1,989,980 1,872,406
KFW International Finance Inc., Notes,
7.20%, 3/15/14 Aaa 2,000,000 1,978,500 2,001,620
Republic N.Y. Corp., Notes,
7.75%, 5/15/09 A1 1,800,000 1,806,138 1,875,165
Wachovia Corp. Sub. Notes,
6.375%, 2/1/09 A1 2,000,000 1,997,400 1,880,404
Wisconsin Elec. Power Co.,
7.25%, 8/1/04 Aa2 2,000,000 1,988,600 2,032,306
----------- ----------- -----------
11,300,000 11,256,493 11,303,233
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<CAPTION>
SHORT-TERM HOLDINGS--15.87%
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<S> <C> <C> <C> <C>
Dreyfus Government Cash Management Fund 1,900,000 1,900,000 1,900,000
Federal Home Loan Bank Disc. Note 7/1/97 100,000 100,000 100,000
Federal National Mortgage Assn. Disc. Note
7/1/97 2,520,000 2,520,000 2,520,000
Fidelity U.S. Treasury Cash Management
Fund 1,825,851 1,825,851 1,825,851
----------- ----------- -----------
6,345,851 6,345,851 6,345,851
----------- ----------- -----------
TOTAL INVESTMENTS IN SECURITIES $39,699,809 $39,551,612 $39,971,637
----------- ----------- -----------
----------- ----------- -----------
<FN>
- ---------------
Percentages are based on total investments.
</TABLE>
The accompanying notes are an integral part of this schedule.
2
<PAGE>
Excelsior Income Shares, Inc.
SCHEDULE OF INVESTMENTS (continued)
June 30, 1997 (Note 1)
The aggregate market value at June 30, 1997 for the long-term holdings in terms
of Quality Ratings is as follows:
<TABLE>
<CAPTION>
Rating** Value Percent
--------------- ----------- -------
<S> <C> <C>
Aaa (1) 24,324,173 72.34
A1 5,627,975 16.74
Aa2 3,673,638 10.92
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Total $33,625,786 100.00
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</TABLE>
(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:
<TABLE>
<S> <C>
Aggregate gross unrealized
appreciation $ 754,753
Aggregate gross unrealized
depreciation (334,728)
-----------
Net unrealized appreciation $ 420,025
-----------
-----------
Cost for Federal Income Tax
Purposes $39,551,612
-----------
-----------
</TABLE>
**Credit ratings are unaudited.
The accompanying notes are an integral part of this schedule.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
ASSETS:
- ------------------------------
<TABLE>
<S> <C> <C>
Investments (Note 1)
in securities
at value (identified
cost $39,551,612):
U.S. Government and
Federal Agencies
obligations $22,322,553
Bonds and notes 11,303,233
Short-term holdings 6,345,851
-----------
Total Investments $39,971,637
Cash 3,525
Interest receivable 458,569
Prepaid expenses 8,421
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Total Assets 40,442,152
-----------
</TABLE>
LIABILITIES:
- ------------------------------
<TABLE>
<S> <C>
Accrued advisory fee (Note 3) 69,209
Accrued operating expenses 33,986
-----------
Total Liabilities 103,195
-----------
Net Assets $40,338,957
-----------
-----------
NET ASSETS consist of:
Undistributed net investment
income $ 668,465
Accumulated net realized losses
from investment transactions (398,758)
Unrealized appreciation on
investments 420,025
Capital shares (Note 5) 21,864
Additional paid-in capital 39,627,361
-----------
$40,338,957
-----------
-----------
Net Asset Value per share
($40,338,957 / 2,186,391 shares) $18.45
------
------
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE>
Excelsior Income Shares, Inc.
STATEMENT OF OPERATIONS
for the six months ended June 30, 1997
(Note 1)
INVESTMENT INCOME:
- ------------------------------
<TABLE>
<S> <C> <C>
INCOME--Interest $ 1,401,209
EXPENSES:
Investment advisory fee $103,561
Directors' fees and
expenses 22,685
Officer's salary 21,812
Postage and printing 16,767
Professional fees 10,849
Insurance 12,020
Transfer agent and
registrar fees 9,862
The New York Stock
Exchange, Inc.--
annual fee 7,746
Miscellaneous 9,863
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Total expenses 215,165
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Investment Income--Net 1,186,044
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</TABLE>
REALIZED LOSS AND UNREALIZED (DEPRECIATION)
APPRECIATION ON INVESTMENTS--NET:
- ------------------------------
<TABLE>
<S> <C> <C>
Realized loss from
security transactions
(excluding short-term
securities):
Proceeds from sales $5,390,596
Cost of sales 5,399,827
----------
Net realized loss (9,231)
Unrealized appreciation
(depreciation)
on investment securities:
Beginning of period 501,362
End of period 420,025
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Change in unrealized
appreciation--net (81,337)
-----------
Net realized loss and change
in unrealized appreciation
(depreciation) on investments (90,568)
-----------
Net increase in Net Assets
Resulting from Operations $ 1,095,476
-----------
-----------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the For the
six months year
ended ended
June 30, Dec. 31,
1997 1996
----------- -----------
<S> <C> <C>
INCREASE (DECREASE)
IN NET ASSETS:
- -----------------------
Operations:
Investment income--
net (Note 1) $ 1,186,044 $ 2,430,355
Realized (loss) on
investments--net
(Note 2) (9,231) (26,841)
Change in unrealized
appreciation
(depreciation)--net (81,337) (1,386,342)
----------- -----------
Net increase
in net assets
resulting from
operations 1,095,476 1,017,172
Dividends to share-
holders from:
Investment income--
net (612,749) (2,582,301)
Cost of shares
purchased pursuant to
Section 23 of the
Investment Company
Act of 1940 (Note 5) (30,805) --
----------- -----------
Total increase
(decrease)
in net assets 451,922 (1,565,129)
NET ASSETS:
- -----------------------
Beginning of period 39,887,035 41,452,164
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End of period
(including
undistributed net
investment income of
$668,465 in 1997 and
$95,170 in 1996,
respectively) $40,338,957 $39,887,035
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
Excelsior Income Shares, Inc.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the six For the year ended
months ended ---------------------------------------------------------------
6/30/97 1996 1995 1994* 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value, beginning of
period $18.23 $18.94 $16.87 $18.97 $18.54
------------ ------------ ------------ ------------ ------------
Net investment income .54 1.11 1.14 1.06 1.17
Net gain (loss) on securities
(realized and unrealized) (.04) (.64) 2.05 (2.00) .71
------------ ------------ ------------ ------------ ------------
Total from investment
operations .50 .47 3.19 (.94) 1.88
------------ ------------ ------------ ------------ ------------
Less Dividends and
Distributions:
Dividends from net investment
income (.28) (1.18) (1.12) (1.03) (1.17)
Distribution from realized
gains on investments -- -- -- (.16) (.28)
Distribution in excess of
realized
gains on investments -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total dividends and
distributions (.28) (1.18) (1.12) (1.19) (1.45)
------------ ------------ ------------ ------------ ------------
Treasury Stock Transaction -- -- -- .03 --
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $18.45 $18.23 $18.94 $16.87 $18.97
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Market value per share, end of
period $15.88 $15.75 $16.00 $14.63 $17.50
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Total Investment Return:
Based on market value per share 5.07% 5.68% 17.04% (8.64%) 5.98%
Ratios To Average Net Assets:
Expenses .54% 1.07% 1.08% 1.15% 1.08%
Net investment income 2.97% 6.02% 6.26% 5.92% 6.07%
Supplemental Data:
Net assets at end of period
(000 omitted) $ 40,339 $ 39,887 $ 41,452 $ 36,928 $ 42,130
Portfolio turnover rate 13.15% 5.50% 25.07% 95.53% 81.23%
<FN>
*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
June 30, 1997
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(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 June 30, 1997, 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 $92,433, $297,084 and $9,231 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. The character of distributions made
during the year from net investment income or net realized gains may differ from
their ultimate characterization for federal income tax purposes due to
differences in the recognition of income and expense items for financial
statement and federal income tax purposes. The effect of these differences for
the year ended December 31, 1996 is an increase in undistributed net investment
income of $149,193, a decrease in accumulated net realize loss of $7,047, and a
decrease in additional paid-in capital of $156,240.
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 income and expenses
during the reporting period. Actual results could differ from these estimates.
6
<PAGE>
Excelsior Income Shares, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 1997
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(2) DISTRIBUTIONS:
Realized gains from security transactions to the extent they exceed accumulated
net realized losses are distributed to shareholders in the succeeding year.
(3) RELATED PARTY TRANSACTIONS:
Under an investment advisory agreement, United States Trust Company of New York
(the "Advisor") 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.
Each director who is not an employee of United States Trust Company of New
York, 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 June 30, 1997, purchases and proceeds from sales of
securities other than short-term United States Government and Federal Agencies
obligations aggregated $0 and $0, respectively. Purchases and proceeds from
sales of United States Government and Federal Agencies obligations aggregated
$4,461,228 and $5,390,596, respectively.
(5) CAPITAL STOCK:
At June 30, 1997, 2,186,391 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 period ended June 30, 1997 and for
the year ended December 31, 1994, the Company purchased 2,000 and 32,500 shares
in the open market at a cost of $30,805 and $475,737, respectively.
7
<PAGE>
EXCELSIOR INCOME SHARES, INC.
114 W. 47th Street, 8th Floor
New York, NY 10036-1532
(212) 852-3732
DIRECTORS
Townsend Brown II
Edwin A. Heard
James J. O'Leary
John H. Reilly
Perry W. Skjelbred
Philip J. Tilearcio
Kenneth G. Walsh
OFFICERS
Townsend Brown II, Chairman,
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
4 New York Plaza, 6th Floor
New York, NY 10043
(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.
