Dear Fellow Shareholders:
Net Investment Income for the full year and for the fourth quarter were
$2,484,734 and $624,325, respectively. A dividend of $0.33 was declared on
December 7, 1995, payable January 26, 1996, to shareholders of record December
22, 1995. For your information, 6.21% of 1995 dividend income is deemed to be
interest earned on Federal obligations.
This is the time of year when predictions bloom. Luckily, a high-quality
closed-end bond fund attracts investors who are looking for a safe dividend
rather than maximum total return. It just might be that 1996 proves to be a good
year for our shareholders simply because Excelsior is a stodgy, low-risk
investment.
It is difficult to look at the world situation and not be apprehensive. High
on most "worry-lists" is Bosnia; Russia, the Middle East and Islamic
Fundamentalists could each provide plenty of additional copy for reporters.
Closer to home is the November Presidential election and widespread doubt about
tax and economic policies.
In short, uncertainty and confusion abound. They should. We seem divided as
a nation, with noise substituting for thought. Governing by poll results is an
embarassing alternative to leadership. But both parties appear to be so keen on
winning that they are afraid to stand for anything substantive.
Unfortunately, we face many problems which cannot simply be wished away. The
growing number of single issue voting blocs is unfortunate. While polite
discourse died some time ago, both reason and compromise are on the critical
list. That is a pretty bleak background.
The bright side, however, is that down deep, Americans have a sense of
decency. We have gotten through worse times with the Republic intact; we shall
survive once more.
In that spirit, the officers and directors of Excelsior wish you a good
year.
Sincerely,
Townsend Brown II
December 31, 1995 President
1
<PAGE>
Excelsior Income Shares, Inc.
Schedule of Investments
December 31, 1995 (Note 1)
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND FEDERAL Moody's
AGENCIES OBLIGATIONS-59.37% 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 $ 2,608,430
7.50%, 7/25/20 (1) 4,000,000 3,959,687 4,096,720
Federal National Mortgage Assn., Global Bond,
8.50%, 2/1/05 1,600,000 1,600,000 1,743,963
Government National Mortgage Assn.,
7%, 5/15/22 (1) 427,659 427,124 432,604
7%, 4/15/23 (1) 4,283,761 4,286,438 4,333,294
7%, 5/15/23 (1) 954,469 951,635 965,505
7%, 3/15/24 (1) 1,925,758 1,905,297 1,948,026
8%, 8/15/24 (1) 1,881,847 1,871,556 1,959,473
8%, 1/15/25 (1) 1,896,002 1,833,197 1,974,212
8.50%, 7/15/17 (1) 1,258,210 1,290,256 1,320,335
8.50%, 5/15/21 (1) 772,117 791,782 810,240
10%, 1/15/18 (1) 1,381,189 1,498,806 1,516,718
U.S. Treasury Bond,
7.25%, 5/15/16 (1) 1,000,000 975,000 1,141,875
----------- ----------- -----------
23,881,012 23,814,723 24,851,395
----------- ----------- -----------
BONDS and NOTES-24.17%
- -------------------------------------------------------------------------------------------------------------
DuPont EI de Nemours & Co., Notes,
8.25%, 9/15/06 Aa2 1,500,000 1,495,875 1,758,186
KFW International Finance Inc., Notes,
7.20%, 3/15/14 Aaa 2,000,000 1,978,500 2,183,894
Republic N.Y. Corp., Notes,
7.75%, 5/15/09 A1 1,800,000 1,806,138 2,023,000
Wachovia Corp. Sub. Notes,
6.375%, 2/1/09 A1 2,000,000 1,997,400 2,012,046
Wisconsin Elec. Power Co.,
7.25%, 8/1/04 Aa2 2,000,000 1,988,600 2,138,518
----------- ----------- -----------
9,300,000 9,266,513 10,115,644
----------- ----------- -----------
SHORT-TERM HOLDINGS-16.46%
- -------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Discount Note, 1/4/96 1,500,000 1,499,300 1,499,300
Fidelity Cash Portfolio-U.S. Treasury 434,037 434,037 434,037
Provident Institutional Treasury Fund 633 633 633
U.S. Treasury Bill, 3/14/96 5,000,000 4,948,799 4,950,700
----------- ----------- -----------
6,934,670 6,882,769 6,884,670
----------- ----------- -----------
TOTAL INVESTMENTS IN SECURITIES $40,115,682 $39,964,005 $41,851,709
=========== =========== ===========
- ---------------
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)
December 31, 1995 (Note 1)
The aggregate market value at December 31, 1995 for the
long-term holdings in terms of Quality Ratings is as
follows:
Rating Value Percent
------ ----- -------
Aaa (1) $27,035,289 77.32
A1 4,035,046 11.54
Aa2 3,896,704 11.14
----------- ------
Total $34,967,039 100.00
=========== ======
(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 $ 1,887,704
===========
Cost for Federal Income Tax Purposes $39,964,005
===========
**Credit ratings are unaudited.
The accompanying notes are an integral part of this schedule.
(right column)
Statement of Assets and Liabilities
December 31, 1995
ASSETS:
- ----------------------------------
Investments (Note 1) in securities
at value (identified
cost $39,964,005):
U.S. Government and
Federal Agencies
obligations $24,851,395
Bonds and notes 10,115,644
Short-term holdings 6,884,670
-----------
Total Investments $41,851,709
Cash 3,089
Interest receivable 415,627
Prepaid expenses 13,920
-----------
Total Assets 42,284,345
-----------
LIABILITIES:
- ----------------------------------
Dividends payable 722,169
Accrued advisory fee (Note 3) 54,491
Accrued operating expenses 55,521
-----------
Total Liabilities 832,181
-----------
Net Assets $41,452,164
===========
NET ASSETS consist of:
Undistributed net investment income $ 97,923
Accumulated net realized losses
from investment transactions (369,733)
Unrealized appreciation on investments 1,887,704
Capital shares (Note 5) 21,884
Additional paid-in capital 39,814,386
-----------
$41,452,164
===========
Net Asset Value per share
($41,452,164 d/b 2,188,391 shares) $18.94
======
The accompanying notes are an integral part of this statement.
3
<PAGE>
(left column)
Excelsior Income Shares, Inc.
Statement of Operations
for the year ended December 31, 1995
(Note 1)
INVESTMENT INCOME:
- --------------------------
INCOME-Interest $2,913,642
EXPENSES:
Investment advisory fee $204,538
Directors' fees and expenses 45,858
Officer's salary 41,249
Postage and printing 34,140
Professional fees 27,233
Insurance 19,999
Transfer agent and
registrar fees 19,707
The New York Stock
Exchange, Inc.-annual fee 15,706
Miscellaneous 20,478
--------
Total expenses 428,908
----------
Investment Income-Net 2,484,734
----------
REALIZED LOSS AND UNREALIZED DEPRECIATION/
APPRECIATION ON INVESTMENTS-NET:
- --------------------------
Realized loss from security transactions
(excluding short-term securities):
Proceeds from sales $13,288,980
Cost of sales 13,566,270
-----------
Net realized loss (277,290)
Unrealized (depreciation)/
appreciation on
investment securities:
Beginning of year (2,879,832)
End of year 1,887,704
-----------
Change in unrealized
appreciation-net 4,767,536
----------
Net realized loss and change
in unrealized appreciation
(depreciation) on investments 4,490,246
----------
Net Increase in Net Assets
Resulting from Operations $6,974,980
==========
(right column)
Statement of Changes in Net Assets
For the year For the year
ended ended
Dec. 31, 1995 Dec. 31, 1994
------------- -------------
INCREASE (DECREASE)
IN NET ASSETS
- ------------------------
Operations:
Investment income-
net (Note 1) $ 2,484,734 $ 2,342,482
Realized (loss) on
investments-net
(Note 2) (277,290) (112,217)
Change in unrealized
appreciation
(depreciation)-net 4,767,536 (4,322,768)
----------- -----------
Net increase (decrease)
in net assets
resulting from
operations 6,974,980 (2,092,503)
Dividends to share-
holders from:
Investment income-
net (2,450,998) (2,278,295)
Net realized gains
on investments - (355,342)
Cost of Shares purchased
pursuant to Section 23
of the Investment Com-
pany Act of 1940
(Note 5) - (475,737)
----------- -----------
Total increase (decrease)
in net assets 4,523,982 (5,201,877)
NET ASSETS:
- ------------------------
Beginning of year 36,928,182 42,130,059
----------- -----------
End of year (including
undistributed net invest-
ment income of $97,923
in 1995 and $64,187 in
1994, respectively) $41,452,164 $36,928,182
=========== ===========
The accompanying notes are an integral part of these statements.
4
<PAGE>
Excelsior Income Shares, Inc.
Financial Highlights
<TABLE>
<CAPTION>
For the year ended
-----------------------------------------------------
1995 1994* 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of year $16.87 $18.97 $18.54 $18.74 $17.50
------ ------ ------ ------ ------
Net investment income 1.14 1.06 1.17 1.32 1.44
Net gain (loss) on securities
(realized and unrealized) 2.05 (2.00) 0.71 (0.08) 1.25
------ ------ ------ ------ ------
Total from investment operations 3.19 (.94) 1.88 1.24 2.69
------ ------ ------ ------ ------
Less Dividends and Distributions:
Dividends from net investment
income (1.12) (1.03) (1.17) (1.33) (1.45)
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) (1.45)
------ ------ ------ ------ ------
Treasury Stock Transaction - .03 - - -
------ ------ ------ ------ ------
Net asset value, end of year $18.94 $16.87 $18.97 $18.54 $18.74
====== ====== ====== ====== ======
Market value per share, end of year $16.00 $14.63 $17.50 $17.75 $18.00
====== ====== ====== ====== ======
Total Investment Return:
Based on market value per share 17.04% (8.64%) 5.98% 6.65% 20.29%
Ratios To Average Net Assets:
Expenses 1.08% 1.15% 1.08% .98% .98%
Net investment income 6.26% 5.92% 6.07% 7.14% 8.01%
Supplemental Data:
Net assets at end of year
(000 omitted) $41,452 $36,928 $42,130 $41,183 $41,620
Portfolio turnover rate 25.07% 95.53% 81.23% 155.60% 65.49%
*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
December 31, 1995
- --------------------------------------------------------------------------------
(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 December 31, 1995, 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 and $277,290 expiring on
December 31, 2002 and December 31, 2003, 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)
December 31, 1995
- --------------------------------------------------------------------------------
(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 year ended December 31, 1995, purchases and proceeds from sales of
securities other than United States Government and Federal Agencies obligations
aggregated $3,562,138 and $5,477,129, respectively. Purchases and proceeds from
sales of United States Government and Federal Agencies obligations aggregated
$5,505,780 and $7,811,851, respectively.
(5) CAPITAL STOCK:
At December 31, 1995, 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>
Excelsior Income Shares, Inc.
Notes to Financial Statements (continued)
December 31, 1995
- --------------------------------------------------------------------------------
(6) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
<TABLE>
<CAPTION>
Realized and Unrealized Net Increase (Decrease) In
Net Net Gain (Loss) Net Assets Resulting
Investment Income Investment Income on Investments from Operations
------------------ ------------------ ----------------------- ---------------------------
Per Per Per Per
Quarter Ended Total Share Total Share Total Share Total Share
- ------------- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31, 1994 $683,652 $.31 $561,253 $.25 ($2,031,400) ($.91) ($1,470,147) ($.66)
June 30, 1994 665,530 .31 547,321 .25 (1,251,821) (.57) (704,500) 1(.32)
September 30, 1994 720,536 .33 601,241 .27 (619,649) (.28) (18,408) 1(.01)
December 31, 1994 728,982 .33 632,667 .29 (532,115) (.24) 1,100,552 1.05
March 31, 1995 732,806 .33 618,373 .28 1,388,781 .64 2,007,154 1.92
June 30, 1995 713,489 .33 593,702 .27 1,992,418 .91 2,586,120 1.18
September 30, 1995 746,666 .34 648,334 .30 1,365,739 .03 2,714,073 1.33
December 31, 1995 720,681 .33 624,325 .29 1,043,308 .47 1,667,633 1.76
</TABLE>
8
<PAGE>
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Excelsior Income Shares, Inc.:
We have audited the accompanying statement of assets and liabilities of
Excelsior Income Shares, Inc., (the "Fund"), including the portfolio of
investments, as of December 31, 1995, and the related statements of operations
and changes in net assets and the financial highlights for the year then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The statement
of changes in net assets for the year ended December 31, 1994, and the financial
highlights for each of the four years in the period then ended were audited by
other auditors, whose report, dated January 24, 1995, expressed an unqualified
opinion thereon.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above presentfairly, in all material respects, the financial position of
Excelsior Income Shares, Inc. as of December 31, 1995, the results of its
operations, changes in its net assets and financial highlights for the year then
ended, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
January 25, 1996.
9
<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.
Annual Report
December 31, 1995
------------------
