October 3, 1996
Dear Fellow Shareholders:
Net investment income for the third quarter was $607,753, or $.27 per share.
A dividend of $.26 was declared on October 3rd, payable October 25th to holders
of record October 18th.
A shareholder recently asked what Excelsior's investment rationale is. The
question is particularly appropriate during a time when everything seems to be
going well with the economy and prosperity appears to be a consistent state of
affairs.
Without attempting to predict either political or economic events, a safe
bet is that changes will come and they will not always be benign.
Russia is an enigma. Islamic fundamentalism continues to spread. The Balkans
are an accident waiting to happen again. Peace between Israel and its neighbors
remains fragile. Domestic economic tranquillity marks giant problems of class
and philosophical differences.
In short, although the market seems to be celebrating a kind of Golden Age,
historically such periods are to be relished and do not last very long. Equally,
bull stock markets always end and speculators always get too greedy.
That is our argument for owning Excelsior. Some part of every portfolio
ought to be committed to dull, stodgy, highquality, liquid investments. All
these words characterize your Fund . . . and there are plenty of scarier places
to be!
Sincerely,
Townsend Brown II
President
October 3, 1996
1
<PAGE>
Excelsior Income Shares, Inc.
Schedule of Investments
September 30, 1996 (Note 1)
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND FEDERAL Moody's
AGENCIES OBLIGATIONS-59.06% 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 $ 2,516,698
7.50%, 7/25/20 (1) 4,000,000 3,959,687 4,038,040
Federal National Mortgage Assn., Global Bond,
8.50%, 2/1/05 1,600,000 1,600,000 1,665,286
Government National Mortgage Assn.,
7%, 5/15/22 (1) 343,676 343,246 330,896
7%, 4/15/23 (1) 4,108,530 4,111,098 3,955,747
7%, 5/15/23 (1) 881,417 878,800 848,640
7%, 3/15/24 (1) 1,813,415 1,794,147 1,745,979
7.50%, 12/15/25 (1) 1,041,082 1,039,455 1,028,394
8%, 8/15/24 (1) 1,727,147 1,717,702 1,744,419
8%, 1/15/25 (1) 1,637,346 1,583,109 1,653,720
8.50%, 7/15/17 (1) 1,186,025 1,216,231 1,220,123
8.50%, 5/15/21 (1) 666,036 682,999 685,184
10%, 1/15/18 (1) 1,027,227 1,114,703 1,120,961
U.S. Treasury Bond,
7.25%, 5/15/16 (1) 1,000,000 975,000 1,020,935
----------- ----------- -----------
23,531,901 23,440,122 23,575,022
----------- ----------- -----------
BONDS and NOTES-27.88%
- ----------------------------------------------------------------------------------------------------
DuPont EI de Nemours & Co., Notes,
8.25%, 9/15/06 Aa2 1,500,000 1,495,875 1,616,451
Ford Motor Credit
6.125%, 1/9/06 A1 2,000,000 1,989,980 1,831,808
KFW International Finance Inc., Notes,
7.20%, 3/15/14 Aaa 2,000,000 1,978,500 1,978,386
Republic N.Y. Corp., Notes,
7.75%, 5/15/09 A1 1,800,000 1,806,138 1,849,648
Wachovia Corp. Sub. Notes,
6.375%, 2/1/09 A1 2,000,000 1,997,400 1,837,726
Wisconsin Elec. Power Co.,
7.25%, 8/1/04 Aa2 2,000,000 1,988,600 2,013,624
----------- ----------- -----------
11,300,000 11,256,493 11,127,643
----------- ----------- -----------
SHORT-TERM HOLDINGS-13.06%
- ----------------------------------------------------------------------------------------------------
F.H.L.M.C. Disc. Note 10/10/96 4,000,000 3,994,820 3,994,820
F.N.M.A. Disc. Note 10/11/96 1,195,000 1,193,277 1,193,277
U.S.A. Treas. Bill 10/10/96 25,000 24,970 24,970
----------- ----------- -----------
5,220,000 5,213,067 5,213,067
----------- ----------- -----------
TOTAL INVESTMENTS IN SECURITIES $40,051,901 $39,909,682 $39,915,732
=========== =========== ===========
<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)
September 30, 1996 (Note 1)
The aggregate market value at September 30, 1996 for
the long-term holdings in terms of Quality Ratings is as
follows:
Rating Value Percent
------ ----- -------
Aaa (1) $25,553,408 73.64
A1 5,519,182 15.90
Aa2 3,630,075 10.46
----------- ------
Total $34,702,665 100.00
=========== ======
(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 $ 581,102
Aggregate gross unrealized
depreciation (575,052)
-----------
Net unrealized depreciation $ 6,050
===========
Cost for Federal Income Tax Purposes $39,909,682
===========
**Credit ratings are unaudited.
The accompanying notes are an integral part of this schedule.
(right column)
Statement of Assets and Liabilities
September 30, 1996
ASSETS:
- ----------------------------------
Investments (Note 1) in securities
at value (identified
cost $39,909,682):
U.S. Government and
Federal Agencies
obligations $23,575,022
Bonds and notes 11,127,643
Short-term holdings 5,213,067
-----------
Total Investments $39,915,732
Cash 14,590
Interest receivable 368,651
Prepaid expenses 1,035
-----------
Total Assets 40,300,008
-----------
LIABILITIES:
- ----------------------------------
Accrued advisory fee (Note 3) 59,363
Accrued operating expenses 51,469
-----------
Total Liabilities 110,832
-----------
Net Assets $40,189,176
===========
NET ASSETS consist of:
Undistributed net investment income $ 740,361
Accumulated net realized losses
from investment transactions (23,772)
Unrealized appreciation on investments 6,050
Capital shares (Note 5) 21,884
Additional paid-in capital 39,444,653
-----------
$40,189,176
===========
Net Asset Value per share
($40,189,176 d/b 2,188,391 shares) $18.36
======
The accompanying notes are an integral part of this schedule.
3
<PAGE>
(left column)
Excelsior Income Shares, Inc.
Statement of Operations
for the nine months ended September 30, 1996
(Note 1)
INVESTMENT INCOME:
- ----------------------------------
INCOME-Interest $2,150,665
EXPENSES:
Investment advisory fee $157,643
Directors' fees and expenses 34,532
Officer's salary 30,839
Postage and printing 25,523
Professional fees 16,514
Insurance 17,265
Transfer agent and registrar fees 15,013
The New York Stock
Exchange, Inc.-annual fee 11,790
Miscellaneous 17,377
-------
Total expenses 326,496
----------
Investment Income-Net 1,824,169
----------
REALIZED LOSS AND UNREALIZED DEPRECIATION/
APPRECIATION ON INVESTMENTS-NET:
Realized loss from security transactions
(excluding short-term securities):
Proceeds from sales $1,404,825
Cost of sales 1,428,597
----------
Net realized loss (23,772)
Unrealized appreciation depreciation
on investment securities:
Beginning of period 1,887,704
End of period 6,050
----------
Change in unrealized
appreciation-net (1,881,654)
----------
Net realized loss and change
in unrealized appreciation
(depreciation) on investments (1,905,426)
----------
Net decrease in Net Assets
Resulting from Operations ($ 81,257)
==========
(right column)
Statement of Changes in Net Assets
For the
nine months For the year
ended ended
Sept. 30, 1996 Dec. 31, 1995
-------------- -------------
INCREASE (DECREASE)
IN NET ASSETS
- ----------------------------------
Operations:
Investment income-
net (Note 1) $ 1,824,169 $ 2,484,734
Realized (loss) on
investments-net
(Note 2) (23,772) (277,290)
Change in unrealized
appreciation
(depreciation)-net (1,881,654) 4,767,536
----------- -----------
Net increase (decrease)
in net assets
resulting from
operations (81,257) 6,974,980
Dividends to share-
holders from:
Investment income-
net (1,181,731) (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 (1,262,988) 4,523,982
NET ASSETS:
Beginning of period 41,452,164 36,928,182
----------- -----------
End of period (including
undistributed net invest-
ment income of $740,361
in 1996 and $97,923 in
1995, respectively) $40,189,176 $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 nine For the year ended
months ended -------------------------------
9/30/96 1995 1994* 1993 1992
------- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $18.94 $16.87 $18.97 $18.54 $18.74
------ ------ ------ ------ ------
Net investment income .83 1.14 1.06 1.17 1.32
Net gain (loss) on securities
(realized and unrealized) (.87) 2.05 (2.00) 0.71 (0.08)
------ ------ ------ ------ ------
Total from investment operations (.04) 3.19 (.94) 1.88 1.24
------ ------ ------ ------ ------
Less Dividends and Distributions:
Dividends from net investment
income (.54) (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 (.54) (1.12) (1.19) (1.45) (1.44)
------ ----- ------ ------ ------
Treasury Stock Transaction - - .03 - -
------ ------ ------ ------ ------
Net asset value, end of period $18.36 $18.94 16.87 $18.97 $18.54
====== ====== ====== ====== ======
Market value per share, end of period $15.625 $16.00 $14.63 $17.50 $17.75
====== ====== ====== ====== ======
Total Investment Return:
Based on market value per share 1.06% 14.92% (8.64%) 5.98% 6.65%
Ratios To Average Net Assets:
Expenses 0.81% 1.08% 1.15% 1.08% .98%
Net investment income 4.52% 6.23% 5.92% 6.07% 7.14%
Supplemental Data:
Net assets at end of period
(000 omitted) $40,189 $41,452 $36,928 $42,130 $41,183
Portfolio turnover rate 3.88% 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
September 30, 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 June 30, 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 $23,772 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)
September 30, 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 September 30, 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 $1,404,825, respectively.
(5) CAPITAL STOCK:
At September 30, 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, 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
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
September 30, 1996
- --------------------------------------------------------------------------------
