DEAR FELLOW SHAREHOLDERS:
Net investment income for the first quarter was $567,931 or
$.26 per share. A dividend of $.25 payable April 28, 2000, to holders of record
April 21, 2000 has been declared.
What a difference a quarter makes! Not long after the year
began, the television "talking heads" were sagely referring to "DOW 36,000." Now
the new received wisdom quotes "The Coming Anarchy" and points to Messrs. Mobius
and Robertson as guides to the new, new era -- read "old economy".
This same confusion is alive and thrives in the bond market.
Treasuries are being snapped up by investors seeking quality at the same time as
supply is reduced by a national budget surplus and purchases by the Treasury. To
add to the dialogue, there is some possibility of changing the borrowing status
of FNMA.
Without betting on the outcome of that politically charged
action, we bought $5 million of GNMA bonds at about an eight percent yield. GNMA
is fully backed by the full faith and credit of the United States. The increase
in earnings seems compelling, and we are happy not to have to take stock market
risks in our portfolio. In fact we don't even have to choose between old and
new; spendable income remains just that.
The Annual Meeting is later than usual this year because of
the acquisition of our advisor by The Charles Schwab Corporation. The
transaction is spelled out in lawyerly manner by the proxy statement which you
should have by now. Clearing away the verbiage, the impact of this merger should
be minimal for our Fund. Schwab provides excellent administrative resources to
its host of brokerage accounts, and we have every reason to believe that the
transition will be a non-event. The same personnel on whom we now rely are going
to remain in place. Your Directors look forward to this merger with equanimity.
Sincerely,
/s/ Townsend Brown II
Townsend Brown II
Chairman and President
March 31, 2000
<PAGE>
Excelsior Income Shares, Inc.
SCHEDULE OF INVESTMENTS
March 31, 2000 (Note 1)
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND FEDERAL Moody's
AGENCIES OBLIGATIONS--51.19% Rating** Face Amount Cost* Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal National Mortgage Assn., Deb.,
6%, 4/1/28 (1) $ 2,778,464 $ 2,732,879 $ 2,528,071
Government National Mortgage Assn.,
6%, 7/20/27 (1) 386,005 387,875 385,175
6%, 11/20/28 (1) 2,869,522 2,826,927 2,612,714
7%, 5/15/22 (1) 185,546 185,315 179,704
7%, 4/15/23 (1) 2,325,411 2,326,864 2,252,191
7%, 5/15/23 (1) 512,401 510,880 496,267
7%, 3/15/24 (1) 1,119,314 1,107,422 1,084,071
7%, 7/20/29 (1) 3,908,280 3,854,694 3,763,334
7.50%, 12/15/25 (1) 570,989 570,097 565,968
8%, 8/15/24 (1) 636,447 632,966 643,641
8%, 1/15/25 (1) 530,870 513,285 536,871
8%, I, 4/15/30 (1) 1,000,000 1,005,625 1,011,563
8%, II, 4/15/30 (1) 4,000,000 4,023,750 4,027,500
8.50%, 7/15/17 (1) 505,431 518,303 518,361
8.50%, 5/15/21 (1) 190,992 195,857 195,878
10%, 1/15/18 (1) 421,527 457,423 450,552
U.S. Treasury Bond,
7.25%, 5/15/16 (1) 1,000,000 975,000 1,105,313
----------- ----------- -----------
22,941,199 22,825,162 22,357,174
----------- ----------- -----------
BONDS AND NOTES--29.61%
- --------------------------------------------------------------------------------------------------------
Commercial Mortgage Asset Trust,
6.64%, 4/17/10 Aaa 1,000,000 1,012,969 935,962
DuPont (EI) de Nemours & Co., Notes,
8.25%, 9/15/06 Aa2 1,500,000 1,495,875 1,565,625
Ford Motor Credit,
6.125, 1/9/06 A1 2,000,000 1,989,980 1,854,560
KFW International Finance Inc., Notes,
7.20%, 3/15/14 Aaa 2,000,000 1,978,500 2,019,338
Nationslink Funding Corp.,
6.476%, 7/20/08 Aaa 1,000,000 1,014,414 936,273
Republic N.Y. Corp., Notes,
7.75%, 5/15/09 A1 1,800,000 1,806,138 1,789,652
Wachovia Corp. Sub. Notes,
6.375%, 2/1/09 A1 2,000,000 1,997,400 1,837,554
Wisconsin Elec. Power Co.,
7.25%, 8/1/04 Aa2 2,000,000 1,988,600 1,992,560
----------- ----------- -----------
13,300,000 13,283,876 12,931,524
----------- ----------- -----------
SHORT-TERM HOLDINGS--19.20%
- --------------------------------------------------------------------------------------------------------
Dreyfus Government Cash Management Fund 1,900,000 1,900,000 1,900,000
Federal Home Loan Banks, Disc. Note 4/19/00 3,000,000 2,991,911 2,991,911
Federal Home Loan Banks, Disc. Note 4/20/00 2,500,000 2,492,924 2,492,924
Fidelity Cash Management Fund 1,000,615 1,000,615 1,000,615
----------- ----------- -----------
8,400,615 8,385,450 8,385,450
----------- ----------- -----------
TOTAL INVESTMENTS IN SECURITIES $44,641,814 $44,494,488 $43,674,148
=========== =========== ===========
</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, 2000 (Note 1)
The aggregate market value at March 31, 2000 for the long-term holdings in terms
of Quality Ratings is as follows:
Rating** Value Percent
--------------- ----------- -------
Aaa (1) $26,248,747 74.38
Aa2 3,558,185 10.08
A1 5,481,766 15.54
----------- -------
Total $35,288,698 100.00
=========== =======
(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 $ 279,201
Aggregate gross
unrealized depreciation (1,099,541)
-----------
Net unrealized depreciation ($ 820,340)
===========
Cost for Federal Income Tax
Purposes $44,494,488
===========
**Credit ratings are unaudited.
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2000
ASSETS:
- ------------------------------------
Investments (Note 1) in securities
at value (identified
cost $44,494,488):
U.S. Government and
Federal Agencies
obligations $22,357,174
Bonds and notes 12,931,524
Short-term holdings 8,385,450
-----------
Total Investments $43,674,148
Cash 2,701
Interest receivable 296,005
Prepaid expenses 14,259
-----------
Total Assets 43,987,113
-----------
LIABILITIES:
- ------------------------------------
Payable for Securities Purchased 5,029,375
Accrued advisory fee (Note 3) 55,502
Accrued operating expenses 42,572
-----------
Total Liabilities 5,127,449
-----------
Net Assets $38,859,664
===========
NET ASSETS consist of:
Undistributed net investment income $ 544,195
Accumulated net realized losses
from investment transactions (256,765)
Unrealized appreciation on
investments (820,340)
Capital shares (Note 5) 21,691
Additional paid-in capital 39,370,883
-----------
$38,859,664
===========
Net Asset Value per share
($38,859,664 / 2,169,091 shares) $17.92
======
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, 2000
(Note 1)
INVESTMENT INCOME:
- ----------------------------------
INCOME--Interest $ 672,919
EXPENSES:
Investment advisory fee $50,959
Directors' fees and
expenses 10,090
Officer's salary 11,553
Postage and printing 6,115
Professional fees 5,095
Insurance 8,241
Transfer agent and
registrar fees 2,548
The New York Stock
Exchange, Inc.--annual fee 4,120
Miscellaneous 6,267
-------
Total expenses 104,988
-----------
Investment Income--Net 567,931
-----------
REALIZED GAIN AND UNREALIZED APPRECIATION
(DEPRECIATION) ON INVESTMENTS--NET:
- -----------------------------------
Realized gain from security
transactions (excluding short-term
securities):
Proceeds from sales $1,947,101
Cost of sales 1,943,820
----------
Net realized gain 3,281
Unrealized appreciation
(depreciation) on investment
securities:
Beginning of period (882,623)
End of period (820,340)
----------
Change in unrealized
depreciation--net 62,283
-----------
Net realized gain and change
in unrealized appreciation
(depreciation) on investments 65,564
-----------
Net increase in Net Assets
Resulting from Operations $ 633,495
===========
STATEMENT OF CHANGES IN NET ASSETS
For the three For the year
months ended ended
March 31, 2000 Dec. 31, 1999
-------------- -------------
INCREASE (DECREASE)
IN NET ASSETS:
- -----------------------
Operations:
Investment income--
net (Note 1) $ 567,931 $ 2,234,226
Realized gain on
investments--net
(Note 2) 3,281 86,337
Change in unrealized
appreciation--net 62,283 (2,707,187)
----------- -----------
Net increase (decrease)
in net assets resulting
from operations 633,495 (386,624)
Dividends to share-
holders from:
Investment income--
net -- (2,200,677)
Cost of shares purchased
pursuant to Section 23 of
the Investment Company
Act of 1940 (Note 5) (56,530) (199,098)
----------- -----------
Total increase
(decrease) in
net assets 576,965 (2,786,399)
NET ASSETS:
- -----------------------
Beginning of period 38,282,699 41,069,098
----------- -----------
End of period
(including
undistributed
(overdistributed)
net investment
income of $544,195
and ($23,736) in
2000 and 1999,
respectively) $38,859,664 $38,282,699
=========== ===========
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 -------------------------------------------
3/31/00 1999 1998 1997 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value, beginning of
period $ 17.62 $ 18.78 $ 18.52 $ 18.23 $ 18.94
------- ------- ------- ------- -------
Net investment income .26 1.03 1.06 1.08 1.11
Net gain (loss) on
securities
(realized
and unrealized) .02 (1.20) .23 .38 (.64)
------- ------- ------- ------- -------
Total from investment
operations .28 (.17) 1.29 1.46 .47
------- ------- ------- ------- -------
Less Dividends and
Distributions:
Dividends from net investment
income -- (1.01) (1.03) (1.17) (1.18)
------- ------- ------- ------- -------
Total dividends and
distributions -- (1.01) (1.03) (1.17) (1.18)
------- ------- ------- ------- -------
Treasury stock
transaction .02 .02 -- .00 --
------- ------- ------- ------- -------
Net asset value, end of period $ 17.92 $ 17.62 $ 18.78 $ 18.52 $ 18.23
======= ======= ======= ======= =======
Market value per share, end of
period $ 14.56 $ 14.25 $ 16.56 $ 16.75 $ 15.75
======= ======= ======= ======= =======
Total Investment Return:
Based on market value per share 4.07% (8.39%) 5.55% 14.51% 5.68%
Ratios To Average Net Assets:
Expenses .27% 1.05% 0.97% 1.08% 1.07%
Net investment income 1.48% 5.60% 5.62% 5.89% 6.02%
Supplemental Data:
Net assets at end of period
(000 omitted) $38,860 $38,283 $41,069 $40,490 $39,887
Portfolio turnover rate 6.03% 16.09% 15.88% 2.91% 5.50%
</TABLE>
The accompanying notes are an integral part of this schedule.
5
<PAGE>
Excelsior Income Shares, Inc.
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
- --------------------------------------------------------------------------------
(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, 2000, 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 $256,765 expiring on
December 31, 2003, 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.
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
6
<PAGE>
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.
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, 2000, 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
$5,029,377 and $1,947,101, respectively.
(5) CAPITAL STOCK:
At March 31, 2000, 2,169,091 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, 1997 the Company purchased 2,000 shares in the open market at a cost of
$30,805. For the year ended December 31, 1999, the Company purchased 13,300
shares in the open market at a cost of $199,098. For the period ended March 31,
2000, the Company purchased 4,000 shares in the open market at a cost of
$56,530.
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
Geoffrey J. O'Connor
John H. Reilly
Perry W. Skjelbred
Philip J. Tilearcio
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
1177 Avenue of the Americas
New York, NY 10036
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.
- --------------------------------------------------------------------------------
Excelsior
Income Shares,
Inc.
Quarterly Report
March 31, 2000
- --------------------------------------------------------------------------------
