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[LOGO]
Excelsior
Income Shares,
Inc.
Quarterly Report
March 31, 1999
--------------------------------
<PAGE>
DEAR FELLOW SHAREHOLDERS:
Income for the first quarter was $564,567 or $.26 per share. A dividend of
$.25 was declared on April 5, 1999, payable April 30, 1999, to holders of record
April 23, 1999.
The sight of tulips in blossom has gladdened a number of us who are tired
of winter. A frequently asked question about the stock market also has to do
with tulips--more appropriately with "tulip-mania". Some interesting
observations were made relating to that unhappy condition at our recent
shareholder's meeting.
One speaker predicted a sharp correction in the market caused by investor
flight from stratospheric multiples of earnings. The disparity between favorite
stocks and the broad averages caused this person considerable concern and
persuaded him to head for the bomb shelter.
Another participant was more sanguine. He found reassurance in the number
of good companies selling at reasonable multiples of healthy earnings. He also
took comfort from the undoubted fact that the "baby boomers" are saving for
retirement and represent a large and growing source of investment dollars.
The last word was had by a shareholder who brought us back to questions
which concern Excelsior. She said that as a retiree she was interested in a
safe, assured income stream which would continue regardless of what happened to
the stock market.
We do not envy the experts who have to make equity investment decisions.
Our task was stated exactly by the retiree; We are concerned with income and
safety. Both seem pretty well assured by our portfolio. We see no evidence of
inflation pushing interest rates violently higher, and a benign effect of the
likely federal budget surplus is that there will be fewer trips to the money
well by the Treasury.
As always, there is a wild card, which might undo this cheerful prediction.
The Balkan mess could produce unintended consequences of a truly frightful
nature. As of now it does appear as though our country may have achieved a
historic first--bombing the enemy results in his attaining his objective.
However, back to those lovely tulips. We leave the quandry of war and stock
markets to others. We will continue to follow our stodgy course, and we have a
hunch that all our shareholders will take comfort from that decision.
Sincerely,
/s/ Townsend Brown II
Townsend Brown II
Chairman and President
April 6, 1999
1
<PAGE>
Excelsior Income Shares, Inc.
SCHEDULE OF INVESTMENTS
March 31, 1999 (Note 1)
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND FEDERAL Moody's
AGENCIES OBLIGATIONS--52.10% 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 $ 2,512,375
7.50%, 7/25/20 (1) 569,865 564,121 570,406
6%, 4/1/28 (1) 2,966,998 2,918,321 2,883,655
Federal National Mortgage Assn., Global Bond,
8.50%, 2/1/05 1,600,000 1,600,000 1,642,925
Government National Mortgage Assn.,
6%, 7/20/27 (1) 597,216 600,109 604,605
6%, 11/20/28 (1) 2,999,179 2,954,660 2,899,012
7%, 5/15/22 (1) 229,961 229,674 233,474
7%, 4/15/23 (1) 2,502,565 2,504,129 2,540,787
7%, 5/15/23 (1) 607,156 605,354 616,430
7%, 3/15/24 (1) 1,324,376 1,310,305 1,344,603
7.50%, 12/15/25 (1) 681,917 680,851 701,842
8%, 8/15/24 (1) 867,827 863,081 903,659
8%, 1/15/25 (1) 765,067 739,724 796,656
8.50%, 7/15/17 (1) 726,950 745,464 767,784
8.50%, 5/15/21 (1) 298,038 305,629 314,779
10%, 1/15/18 (1) 645,290 700,240 706,383
U.S. Treasury Bond,
7.25%, 5/15/16 (1) 1,000,000 975,000 1,147,500
----------- ----------- -----------
20,882,405 20,720,607 21,186,875
----------- ----------- -----------
<CAPTION>
BONDS AND NOTES--34.35%
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial Mortgage Asset Trust
6.64%, 4/17/10 Aaa 1,000,000 1,012,969 1,009,375
DuPont (EI) de Nemours & Co., Notes,
8.25%, 9/15/06 Aa2 1,500,000 1,495,875 1,696,770
Ford Motor Credit
6.125, 1/9/06 A1 2,000,000 1,989,980 1,987,896
KFW International Finance Inc., Notes,
7.20%, 3/15/14 Aaa 2,000,000 1,978,500 2,147,952
Nationslink Funding Corp.
6.476%, 7/20/08 Aaa 1,000,000 1,014,414 1,013,335
Republic N.Y. Corp., Notes,
7.75%, 5/15/09 A1 1,800,000 1,806,138 1,978,267
Wachovia Corp. Sub. Notes,
6.375%, 2/1/09 A1 2,000,000 1,997,400 2,010,508
Wisconsin Elec. Power Co.,
7.25%, 8/1/04 Aa2 2,000,000 1,988,600 2,122,512
----------- ----------- -----------
13,300,000 13,283,876 13,966,615
----------- ----------- -----------
<CAPTION>
SHORT-TERM HOLDINGS--13.55%
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dreyfus Government Cash Management Fund 1,518,536 1,518,536 1,518,536
Federal Farm Credit Disc. Note 4/16/99 3,000,000 1,995,927 1,995,927
Federal National Mortgage Assn., Disc. Note 4/16/99 2,000,000 1,996,075 1,996,075
----------- ----------- -----------
5,518,536 5,510,538 5,510,538
----------- ----------- -----------
TOTAL INVESTMENTS IN SECURITIES $39,700,941 $39,515,021 $40,664,028
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- ---------------
Percentages are based on total investments.
The accompanying notes are an integral part of this schedule.
2
<PAGE>
Excelsior Income Shares, Inc.
SCHEDULE OF INVESTMENTS (continued)
March 31, 1999 (Note 1)
The aggregate market value at March 31, 1999 for the long-term holdings in terms
of Quality Ratings is as follows:
Rating** Value Percent
--------------- ----------- -------
Aaa (1) $25,357,537 72.13
A1 3,819,282 10.86
Aa2 5,976,669 17.01
----------- -------
Total $35,153,490 100.00
----------- -------
----------- -------
(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 $ 1,246,078
Aggregate gross unrealized
depreciation (97,071)
-----------
Net unrealized appreciation $ 1,149,007
-----------
-----------
Cost for Federal Income Tax
Purposes $39,515,021
-----------
-----------
**Credit ratings are unaudited.
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999
ASSETS:
- ------------------------------
Investments (Note 1)
in securities
at value (identified
cost $39,515,021):
U.S. Government and
Federal Agencies
obligations $21,186,875
Bonds and notes 13,966,615
Short-term holdings 5,510,538
-----------
Total Investments $40,664,028
Cash 10,551
Interest receivable 365,800
Prepaid expenses 18,876
-----------
Total Assets 41,059,255
-----------
LIABILITIES:
- ------------------------------
Accrued advisory fee (Note 3) 60,062
Accrued operating expenses 32,989
-----------
Total Liabilities 93,051
-----------
Net Assets $40,966,204
-----------
-----------
NET ASSETS consist of:
Undistributed net investment
income $ 507,282
Accumulated net realized losses
from investment transactions (338,287)
Unrealized appreciation on
investments 1,149,007
Capital shares (Note 5) 21,864
Additional paid-in capital 39,626,338
-----------
$40,966,204
-----------
-----------
Net Asset Value per share
($40,966,204 / 2,186,391 shares) $18.74
-----------
-----------
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, 1999
(Note 1)
INVESTMENT INCOME:
- ------------------------------
INCOME--Interest $ 671,601
EXPENSES:
Investment advisory fee $51,781
Directors' fees and
expenses 11,343
Officer's salary 10,906
Postage and printing 8,384
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 4,930
----------
Total expenses 107,034
----------
Investment Income--Net 564,567
----------
REALIZED GAIN AND UNREALIZED APPRECIATION
(DEPRECIATION) ON INVESTMENTS--NET:
- ------------------------------
Realized gain from security
transactions (excluding
short-term securities):
Proceeds from sales $1,585,208
Cost of sales 1,577,112
----------
Net realized gain 8,096
Unrealized appreciation
(depreciation) on
investment securities:
Beginning of period 1,824,564
End of period 1,149,007
----------
Change in unrealized
appreciation--net (675,557)
----------
Net realized gain and change
in unrealized appreciation
(depreciation) on investments (667,461)
----------
Net decrease in Net Assets
Resulting from Operations ($ 102,894)
----------
----------
STATEMENT OF CHANGES IN NET ASSETS
For the
three For the
months year
ended ended
Mar. 31, Dec. 31,
1999 1998
----------- -----------
INCREASE (DECREASE)
IN NET ASSETS:
- -----------------------
Operations:
Investment income--
net (Note 1) $ 564,567 $ 2,314,162
Realized gain on
investments--net
(Note 2) 8,096 29,104
Change in unrealized
appreciation--net (675,557) 487,983
----------- -----------
Net increase
(decrease)
in net assets
resulting from
operations (102,894) 2,831,249
Dividends to share-
holders from:
Investment income--
net -- (2,251,982)
Cost of shares
purchased pursuant to
Section 23 of the
Investment Company
Act of 1940 (Note 5) -- --
----------- -----------
Total increase
(decrease) in net
assets (102,894) 579,267
NET ASSETS:
- -----------------------
Beginning of period 41,069,098 40,489,831
----------- -----------
End of period
(including
undistributed
(overdistributed) net
investment income of
$507,282 and
($57,285) in 1999 and
1998, respectively) $40,966,204 $41,069,098
----------- -----------
----------- -----------
The accompanying notes are an integral part of these statements.
4
<PAGE>
Excelsior Income Shares, Inc.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the
three
months For the year ended
ended ---------------------------------------------------------------
3/31/99 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value, beginning of
period $ 18.78 $18.52 $18.23 $18.94 $16.87
-------- ------ ------ ------ ------
Net investment income .26 1.06 1.08 1.11 1.14
Net gain (loss) on securities
(realized and unrealized) (.30) .23 .38 (.64) 2.05
-------- ------ ------ ------ ------
Total from investment
operations (.04) 1.29 1.46 .47 3.19
-------- ------ ------ ------ ------
Less Dividends and
Distributions:
Dividends from net investment
income -- (1.03) (1.17) (1.18) (1.12)
Distribution from realized
gains on investments -- -- -- -- --
-------- ------ ------ ------ ------
Total dividends and
distributions -- (1.03) (1.17) (1.18) (1.12)
-------- ------ ------ ------ ------
Treasury stock transaction -- -- .00 -- --
-------- ------ ------ ------ ------
Net asset value, end of period $ 18.74 $18.78 $18.52 $18.23 $18.94
-------- ------ ------ ------ ------
-------- ------ ------ ------ ------
Market value per share, end of
period $ 16.375 $16.56 $16.75 $15.75 $16.00
-------- ------ ------ ------ ------
-------- ------ ------ ------ ------
Total Investment Return:
Based on market value per share 0.48% 5.55% 14.51% 5.68% 17.04%
Ratios To Average Net Assets:
Expenses 0.26% 0.97% 1.08% 1.07% 1.08%
Net investment income 1.38% 5.62% 5.89% 6.02% 6.26%
Supplemental Data:
Net assets at end of period
(000 omitted) $ 40,966 $ 41,069 $ 40,490 $ 39,887 $ 41,452
Portfolio turnover rate 4.56% 15.88% 2.91% 5.50% 25.07%
<FN>
*Based on average shares outstanding.
</FN>
</TABLE>
The accompanying notes are an integral part of this schedule.
5
<PAGE>
Excelsior Income Shares, Inc.
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
- --------------------------------------------------------------------------------
(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, 1999, 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 $60,969 and $277,318 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. 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, 1998 is an increase in undistributed net investment
income of $13,363, a decrease in accumulated net realized loss of $13,363.
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.
(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
6
<PAGE>
Excelsior Income Shares, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
March 31, 1999
- --------------------------------------------------------------------------------
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.
Two officers of the Company are officers of United States Trust Company of
New York.
Mr. Alexander R. Powers, has been principal Investment Advisor since August
1997. Mr. Powers has been a managing director of the Fixed Income Division of
United States Trust Company of New York since March 1998 and was Senior Vice
President from August 1997 to March 1998.
(4) PURCHASES AND PROCEEDS FROM SALES OF SECURITIES:
For the period ended March 31, 1999, purchases and proceeds from sales of
securities other than short-term United States Government and Federal Agencies
obligations aggregated $2,027,382 and $-0-, respectively. Purchases and proceeds
from sales of United States Government and Federal Agencies obligations
aggregated $-0- and $1,585,208, respectively.
(5) CAPITAL STOCK:
At March 31, 1999, 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 years ended December 31, 1997 and
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.
ADDITIONAL INFORMATION:
YEAR 2000:
Like other investment companies, financial and business organizations and
individuals around the world, the Company could be affected adversely if the
computer systems used by the Investment Adviser and the Company's other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Investment Adviser and the Company's other service providers have
informed the Company that they are taking steps to address the Year 2000 Problem
with respect to the computer systems that they use. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on the Company as a result of the Year 2000 Problem.
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
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
PricewaterhouseCoopers LLP
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.
