<PAGE>
- ------------------------------------------------------
LOGO
Excelsior
Income Shares,
Inc.
Quarterly Report
March 31, 1997
- ------------------------------------------------------
<PAGE>
DEAR FELLOW SHAREHOLDERS:
Net investment income for the first quarter was $597,214 or $.27 per share.
A dividend of $.28 was declared on April 9, 1997 payable April 25, 1997, to
holders of record April 18, 1997.
Shareholders approved the four business items before them at the annual
meeting on April 9. Subsequently, the directors elected the corporate officers
indicated on the back page of this report.
Given the considerable volatility present in both stock and bond markets,
we are comfortable with our conservative, liquid portfolio and reaffirm our
belief that Excelsior shareholders want safe income derived from quality bonds
rather than trying through speculation to achieve maximum capital gains.
At the present time, closed-end bond funds of our quality are both few in
number and are unfashionable investments. As a result, our market price is at a
substantial discount to net asset value. This fact often attracts "bargain
hunters," hoping to turn a fast dollar by seeing the fund either partially
liquidate or go open-ended.
We believe that Excelsior serves its owners best by providing the
individual with inexpensive access to a managed portfolio of impeccable quality.
Indeed, the discount from net asset value may well make our fund even more
attractive to the long term investor looking for safe income. We have never
pretended to be a suitable investment for an individual's total portfolio, and
we are certainly not a medium designed for capital gains. We do note that on a
ten, five, three and one year basis, Excelsior has out-performed the Lehman
Government-Corporate Bond Index.
There is a need for our fund which we believe we best fill as we are
presently structured.
And that is how we plan to continue.
Sincerely,
Townsend Brown II
Chairman
April 10, 1997
1
<PAGE>
Excelsior Income Shares, Inc.
SCHEDULE OF INVESTMENTS
March 31, 1997 (Note 1)
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND FEDERAL Moody's
AGENCIES OBLIGATIONS--57.09% 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 $ 2,486,025
7.50%, 7/25/20 (1) 4,000,000 3,959,687 4,017,640
Federal National Mortgage Assn., Global
Bond,
8.50, 2/1/05 1,600,000 1,600,000 1,652,742
Government National Mortgage Assn.,
7%, 5/15/22 (1) 280,000 279,650 266,878
7%, 4/15/23 (1) 3,852,362 3,854,770 3,671,814
7%, 5/15/23 (1) 835,720 833,239 796,552
7%, 3/15/24 (1) 1,726,489 1,708,145 1,645,574
7.50%, 12/15/25 (1) 1,011,021 1,009,442 990,492
8%, 8/15/24 (1) 1,640,876 1,631,903 1,648,569
8%, 1/15/25 (1) 1,541,889 1,490,814 1,549,118
8.50%, 7/15/17 (1) 1,043,784 1,070,368 1,070,531
8.50%, 5/15/21 (1) 639,478 655,765 655,865
10%, 1/15/18 (1) 946,116 1,026,683 1,037,180
U.S. Treasury Bond,
7.25%, 5/15/16 (1) 1,000,000 975,000 1,003,436
----------- ----------- -----------
22,617,735 22,519,411 22,492,416
----------- ----------- -----------
BONDS AND NOTES--27.81%
- ---------------------------------------------------------------------------------------------------
DuPont (EI) de Nemours & Co., Notes,
8.25%, 9/15/06 Aa2 1,500,000 1,495,875 1,596,539
Ford Motor Credit
6.125, 1/9/06 A1 2,000,000 1,989,980 1,824,886
KFW International Finance Inc., Notes,
7.20%, 3/15/14 Aaa 2,000,000 1,978,500 1,922,510
Republic N.Y. Corp., Notes,
7.75%, 5/15/09 A1 1,800,000 1,806,138 1,818,599
Wachovia Corp. Sub. Notes,
6.375%, 2/1/09 A1 2,000,000 1,997,400 1,804,884
Wisconsin Elec. Power Co.,
7.25%, 8/1/04 Aa2 2,000,000 1,988,600 1,991,664
----------- ----------- -----------
11,300,000 11,256,493 10,959,082
----------- ----------- -----------
SHORT-TERM HOLDINGS--15.10%
- ---------------------------------------------------------------------------------------------------
Federal Farm Credit Bank Disc. Note
4/2/97 5,950,000 5,949,099 5,949,099
----------- ----------- -----------
TOTAL INVESTMENTS IN SECURITIES $39,867,735 $39,725,003 $39,400,597
----------- ----------- -----------
----------- ----------- -----------
<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)
March 31, 1997 (Note 1)
The aggregate market value at March 31, 1997 for the long-term holdings in terms
of Quality Ratings is as follows:
<TABLE>
<CAPTION>
Rating** Value Percent
--------------- ----------- -------
<S> <C> <C>
Aaa (1) 24,414,926 72.99
A1 5,448,369 16.29
Aa2 3,588,203 10.72
----------- -------
Total $33,451,498 100.00
----------- -------
----------- -------
</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 $ 403,130
Aggregate gross unrealized
depreciation (727,536)
-----------
Net unrealized depreciation ($ 324,406)
-----------
-----------
Cost for Federal Income Tax
Purposes $39,725,003
-----------
-----------
</TABLE>
**Credit ratings are unaudited.
The accompanying notes are an integral part of this schedule.
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1997
ASSETS:
- ------------------------------
<TABLE>
<S> <C> <C>
Investments (Note 1)
in securities
at value (identified
cost $39,725,003):
U.S. Government and
Federal Agencies
obligations $22,492,416
Bonds and notes 10,959,082
Short-term holdings 5,949,099
-----------
Total Investments $39,400,597
Cash 26,336
Interest receivable 352,524
Prepaid expenses 15,852
-----------
Total Assets 39,795,309
-----------
</TABLE>
LIABILITIES:
- ------------------------------
<TABLE>
<S> <C>
Accrued advisory fee (Note 3) 49,570
Accrued operating expenses 90,123
-----------
Total Liabilities 139,693
-----------
Net Assets $39,655,616
-----------
-----------
NET ASSETS consist of:
Undistributed net investment
income $ 692,384
Accumulated net realized losses
from investment transactions (392,392)
Unrealized depreciation on
investments (324,406)
Capital shares (Note 5) 21,884
Additional paid-in capital 39,658,146
-----------
$39,655,616
-----------
-----------
Net Asset Value per share
(39,655,616 / 2,188,391 shares) $18.12
------
------
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE>
Excelsior Income Shares, Inc.
STATEMENT OF OPERATIONS
for the three months ended March 31, 1997
(Note 1)
INVESTMENT INCOME:
- ------------------------------
<TABLE>
<S> <C> <C>
INCOME--Interest $ 704,248
EXPENSES:
Investment advisory fee $51,781
Directors' fees and expenses 11,343
Officer's salary 10,130
Postage and printing 8,383
Professional fees 5,424
Insurance 5,462
Transfer agent and
registrar fees 4,931
The New York Stock
Exchange, Inc.--annual fee 3,873
Miscellaneous 5,707
-------
Total expenses 107,034
---------
Investment Income--Net 597,214
---------
</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 $4,826,819
Cost of sales 4,829,684
----------
Net realized loss (2,865)
Unrealized appreciation
(depreciation) on
investment securities:
Beginning of period 501,362
End of period (324,406)
----------
Change in unrealized
appreciation--net (825,768)
---------
Net realized loss and change
in unrealized appreciation
(depreciation) on investments (828,633)
---------
Net decrease in Net Assets
Resulting from Operations ($231,419)
---------
---------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the
three For the
months year
ended ended
Mar. 31, Dec. 31,
1997 1996
----------- -----------
<S> <C> <C>
INCREASE (DECREASE)
IN NET ASSETS:
- -----------------------
Operations:
Investment income--
net (Note 1) $ 597,214 $ 2,430,355
Realized (loss) on
investments--net
(Note 2) (2,865) (26,841)
Change in unrealized
appreciation
(depreciation)--net (825,768) (1,386,342)
----------- -----------
Net increase
in net assets
resulting from
operations (231,419) 1,017,172
Dividends to share-
holders from:
Investment income--
net -- (2,582,301)
----------- -----------
Total increase
(decrease)
in net assets (231,419) (1,565,129)
NET ASSETS:
- -----------------------
Beginning of period 39,887,035 41,452,164
----------- -----------
End of period
(including
undistributed net
investment income of
$692,384 in 1997 and
$95,170 in 1996,
respectively) $39,655,616 $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
three For the year ended
months ended ---------------------------------------------------------------
3/31/97 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 .27 1.11 1.14 1.06 1.17
Net gain (loss) on securities
(realized and unrealized) (.38) (.64) 2.05 (2.00) .71
------------ ------------ ------------ ------------ ------------
Total from investment
operations (.11) .47 3.19 (.94) 1.88
------------ ------------ ------------ ------------ ------------
Less Dividends and
Distributions:
Dividends from net investment
income -- (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 -- (1.18) (1.12) (1.19) (1.45)
------------ ------------ ------------ ------------ ------------
Treasury Stock Transaction -- -- -- .03 --
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $18.12 $18.23 $18.94 $16.87 $18.97
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Market value per share, end of
period $15.63 $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 1.64% 5.68% 17.04% (8.64%) 5.98%
Ratios To Average Net Assets:
Expenses .27% 1.07% 1.08% 1.15% 1.08%
Net investment income 1.50% 6.02% 6.26% 5.92% 6.07%
Supplemental Data:
Net assets at end of period
(000 omitted) $ 39,656 $ 39,887 $ 41,452 $ 36,928 $ 42,130
Portfolio turnover rate 0.00% 5.50% 25.07% 95.53% 81.23%
</TABLE>
*Based on average shares outstanding.
The accompanying notes are an integral part of this schedule.
5
<PAGE>
Excelsior Income Shares, Inc.
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
- --------------------------------------------------------------------------------
(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, 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 $92,433, $297,084 and 2,865 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)
March 31, 1997
- --------------------------------------------------------------------------------
(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 March 31, 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 $4,805,863, respectively.
(5) CAPITAL STOCK:
At March 31, 1997, 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.
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
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.
