DEAR FELLOW SHAREHOLDERS:
Net income for the quarter was $578,862 or $.26 per share. A dividend of
$.25 was declared on July 10, 2000, payable July 28, 2000, to holders of record
July 21, 2000.
It is a good time of year for us to celebrate both our nation's birthday
and its generally triumphant health. We are indeed the envy of the world, and it
seems appropriate to remind ourselves of how very fortunate we are before
getting too involved in the upcoming elections.
The so-called "negative" advertisements which will be both denounced and
uniformly used by all candidates are going to generate predictable heat. They
are hardly new and really attest to the strength of our system of government.
How many other countries can dispute ways to spend surplus receipts, while
fretting about an economy that may be too strong?
That said, it is sensible for investors to remember that earnings really do
matter. We wonder how long the celebrated "New Economy" can exist by its own
rules; there are creditors who want to be paid, and no boom lasts forever.
Therein lies the case for Excelsior. We have never pretended to be anything
other than a source of income derived from very high quality bonds which are
both liquid and generally bought at a price below their face value. It would be
hard to define a duller investment; perhaps this is a good time for safety for
at least part of every portfolio, and we intend to remain safe.
Sincerely,
/s/ Townsend Brown II
Townsend Brown II
Chairman and President
June 30, 2000
<PAGE>
Excelsior Income Shares, Inc.
SCHEDULE OF INVESTMENTS
June 30, 2000 (Note 1)
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND FEDERAL Moody's
AGENCIES OBLIGATIONS--56.94% Rating** Face Amount Cost* Value
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Deb.,
6%, 4/1/28 (1) $ 2,714,485 $ 2,669,951 $ 2,483,019
Government National Mortgage Assn.,
6%, 7/20/27 (1) 358,309 360,044 359,934
6%, 11/20/28 (1) 2,816,680 2,774,870 2,580,901
7%, 5/15/22 (1) 184,348 184,117 179,293
7%, 4/15/23 (1) 2,275,713 2,277,135 2,213,320
7%, 5/15/23 (1) 490,575 489,118 477,125
7%, 3/15/24 (1) 1,063,001 1,051,707 1,033,857
7%, 7/20/29 (1) 3,847,928 3,795,170 3,720,786
7.50%, 12/15/25 (1) 540,768 539,923 537,286
8%, 8/15/24 (1) 623,920 620,508 630,906
8%, 1/15/25 (1) 510,620 493,706 516,338
8%, I, 4/15/30 (1) 998,587 1,004,204 1,009,769
8%, II, 3/20/30 (1) 1,989,429 2,003,728 2,001,137
8%, II, 4/20/30 (1) 1,994,630 2,003,979 2,006,368
8.50%, 7/15/17 (1) 424,855 435,676 435,132
8.50%, 5/15/21 (1) 190,088 194,930 194,686
10%, 1/15/18 (1) 419,180 454,876 443,021
U.S. Treasury Bond,
7.25%, 5/15/16 (1) 1,000,000 975,000 1,100,313
----------- ----------- -----------
22,443,116 22,328,642 21,923,191
----------- ----------- -----------
<CAPTION>
BONDS AND NOTES--33.48%
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------
Commercial Mortgage Asset Trust,
6.64%, 4/17/10 Aaa 1,000,000 1,012,969 943,256
DuPont (EI) de Nemours & Co., Notes,
8.25%, 9/15/06 Aa2 1,500,000 1,495,875 1,572,358
Ford Motor Credit,
6.125, 1/9/06 A1 2,000,000 1,989,980 1,857,980
KFW International Finance Inc., Notes,
7.20%, 3/15/14 Aaa 2,000,000 1,978,500 1,971,360
Nationslink Funding Corp.,
6.476%, 7/20/08 Aaa 1,000,000 1,014,414 941,296
Republic N.Y. Corp., Notes,
7.75%, 5/15/09 A1 1,800,000 1,806,138 1,779,674
Wachovia Corp. Sub. Notes,
6.375%, 2/1/09 A1 2,000,000 1,997,400 1,812,360
Wisconsin Elec. Power Co.,
7.25%, 8/1/04 Aa2 2,000,000 1,988,600 2,014,614
----------- ----------- -----------
13,300,000 13,283,876 12,892,898
----------- ----------- -----------
<CAPTION>
SHORT-TERM HOLDINGS--9.58%
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------
Dreyfus Government Cash Management Fund 1,726,681 1,726,681 1,726,681
Federal Home Loan Banks, Disc. Note 7/5/00 2,000,000 1,999,157 1,999,157
----------- ----------- -----------
3,726,681 3,725,838 3,725,838
----------- ----------- -----------
TOTAL INVESTMENTS IN SECURITIES $39,469,797 $39,338,356 $38,541,927
=========== =========== ===========
<FN>
---------------
Percentages are based on total investments.
</FN>
</TABLE>
The accompanying notes are an integral part of this schedule.
2
<PAGE>
Excelsior Income Shares, Inc.
SCHEDULE OF INVESTMENTS (continued)
June 30, 2000 (Note 1)
The aggregate market value at June 30, 2000 for the long-term holdings in terms
of Quality Ratings is as follows:
Rating** Value Percent
--------------- ----------- -------
Aaa (1) $25,779,103 74.04
Aa2 3,586,972 10.30
A1 5,450,014 15.66
----------- -------
Total $34,816,089 100.00
=========== =======
(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 $ 268,795
Aggregate gross unrealized
depreciation (1,065,224)
-----------
Net unrealized depreciation ($ 796,429)
===========
Cost for Federal Income Tax
Purposes $39,338,356
===========
**Credit ratings are unaudited.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000
ASSETS:
------------------------------
Investments (Note 1) in securities
at value (identified
cost $39,338,356):
U.S. Government and
Federal Agencies
obligations $21,923,191
Bonds and notes 12,892,898
Short-term holdings 3,725,838
-----------
Total Investments $38,541,927
Cash 710
Interest receivable 455,916
Prepaid expenses 1,139
-----------
Total Assets 38,999,692
-----------
LIABILITIES:
------------------------------
Accrued advisory fee (Note 3) 57,336
Accrued operating expenses 22,951
-----------
Total Liabilities 80,287
-----------
Net Assets $38,919,405
===========
NET ASSETS consist of:
Undistributed net investment
income $ 578,459
Accumulated net realized losses
from investment transactions (255,199)
Unrealized appreciation on
investments (796,429)
Capital shares (Note 5) 21,691
Additional paid-in capital 39,370,883
-----------
$38,919,405
===========
Net Asset Value per share
($38,919,405 / 2,169,091 shares) $17.94
===========
The accompanying notes are an integral part of this statement.
3
<PAGE>
Excelsior Income Shares, Inc.
STATEMENT OF OPERATIONS
for the six months ended June 30, 2000
(Note 1)
INVESTMENT INCOME:
------------------------------
INCOME--Interest $ 1,357,106
EXPENSES:
Investment advisory fee $100,823
Directors' fees and expenses 19,962
Officer's salary 22,857
Postage and printing 12,098
Professional fees 10,081
Insurance 18,900
Transfer agent and
registrar fees 5,042
The New York Stock
Exchange, Inc.--annual fee 8,151
Miscellaneous 12,399
----------
Total expenses 210,313
-----------
Investment Income--Net 1,146,793
-----------
REALIZED GAIN AND UNREALIZED APPRECIATION
(DEPRECIATION) ON INVESTMENTS--NET:
------------------------------
Realized gain from security
transactions (excluding
short-term securities):
Proceeds from sales $2,444,884
Cost of sales 2,440,037
----------
Net realized gain 4,847
Unrealized appreciation
(depreciation)
on investment securities:
Beginning of period (882,623)
End of period (796,429)
----------
Change in unrealized
depreciation--net 86,194
-----------
Net realized gain and change
in unrealized appreciation
(depreciation) on investments 91,041
-----------
Net increase in Net Assets
Resulting from Operations $ 1,237,834
===========
STATEMENT OF CHANGES IN NET ASSETS
For the six For the
months year
ended ended
June 30, Dec. 31,
2000 1999
----------- -----------
INCREASE (DECREASE)
IN NET ASSETS:
-----------------------
Operations:
Investment income--
net (Note 1) $ 1,146,793 $ 2,234,226
Realized gain on
investments--net
(Note 2) 4,847 86,337
Change in unrealized
appreciation--net 86,194 (2,707,187)
----------- -----------
Net increase
(decrease)
in net assets
resulting from
operations 1,237,834 (386,624)
Dividends to share-
holders from:
Investment income--net (544,598) (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 636,706 (2,786,399)
NET ASSETS:
-----------------------
Beginning of period 38,282,699 41,069,098
----------- -----------
End of period
(including
undistributed
(overdistributed) net
investment income of
$578,459 and
($23,736) in 2000 and
1999, respectively) $38,919,405 $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
six
months For the year ended
ended -------------------------------------------
6/30/00 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 .52 1.03 1.06 1.08 1.11
Net gain (loss) on securities
(realized and unrealized) .03 (1.20) .23 .38 (.64)
------- ------- ------- ------- -------
Total from investment
operations .55 (.17) 1.29 1.46 .47
------- ------- ------- ------- -------
Less Dividends and
Distributions:
Dividends from net investment
income (.25) (1.01) (1.03) (1.17) (1.18)
------- ------- ------- ------- -------
Total dividends and
distributions (.25) (1.01) (1.03) (1.17) (1.18)
------- ------- ------- ------- -------
Treasury stock transaction .02 .02 -- .00 --
------- ------- ------- ------- -------
Net asset value, end of period $ 17.94 $ 17.62 $ 18.78 $ 18.52 $ 18.23
======= ======= ======= ======= =======
Market value per share, end of
period $ 15.00 $ 14.25 $ 16.56 $ 16.75 $ 15.75
======= ======= ======= ======= =======
Total Investment Return:
Based on market value per share 9.01% (8.39%) 5.55% 14.51% 5.68%
Ratios To Average Net Assets:
Expenses .55% 1.05% 0.97% 1.08% 1.07%
Net investment income 2.99% 5.60% 5.62% 5.89% 6.02%
Supplemental Data:
Net assets at end of period
(000 omitted) $38,919 $38,283 $41,069 $40,490 $39,887
Portfolio turnover rate 7.33% 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
June 30, 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 June 30, 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 $255,199 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.
6
<PAGE>
Excelsior Income Shares, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 2000
--------------------------------------------------------------------------------
(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.
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 June 30, 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
$5,029,074 and $2,444,884, respectively.
(5) CAPITAL STOCK:
At June 30, 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 June 30, 2000, the Company
purchased 4,000 shares in the open market at a cost of $56,530.
7
<PAGE>
EXCELSIOR INCOME SHARES, INC.
114 W. 47th Street, 14th 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.
------------------------------------------------------
[LOGO]
Excelsior
Income Shares,
Inc.
Semi-Annual Report
June 30, 2000
------------------------------------------------------
