DEAR FELLOW SHAREHOLDERS:
Net income for the quarter was $574,575 or $.26 per share. A dividend of
$.25 was declared on October 16, 2000, payable October 27, 2000, to holders of
record October 20, 2000.
As a relief from the noise of political rallies, it is helpful to think
ahead to a special American holiday -- Thanksgiving. We are a most fortunate
people to be living in this country at this time. No matter who wins the
election, that joyous fact is going to persist, and is hard to imagine that
either candidate can kill our golden goose.
Sure, there are problems, and it is sobering to list them. But we should
also keep them in perspective. They tend to be long-term in nature and relate to
the general health of our society.
Oil is and will growingly be a challenge. We need it, we will go on needing
it for years, and we will have to rely on imports for the foreseeable future.
That is reality; any combination of drilling and conservation is a species of
"feel good" fiction.
Our balance of payments is out of whack. Coupled with a miserly savings
rate, there could be trouble ahead if the growth economy we have enjoyed begins
to sputter. Let's hope that future fiscal guardians are sensible and a bit
lucky.
The top dogs are being overpaid. It is absurd to reward some corporate
chieftain at a rate four hundred times more than the pay of the worker who makes
the corporate wheels spin. It is obscene to celebrate rotten performance by
giant option and salary gifts. Why should the CEO of some corporate loser be
treated differently from a failing football coach?
Nasty dictators pose threats on local levels; those threats have to be met
and contained. If we don't take the lead and maintain global sanity, there is
going to be trouble ahead. That means two things:
(1) We have to accept worldwide responsibility;
(2) Our military must be structured for the new reality.
That seems like enough to put on the national plate. Somehow all these
problems are more relevant than abortion, gay marriage and the Polar Ice Cap.
They also suggest that while the present is generally wonderful, the future will
need intelligent leadership, not just sound-bite slogans.
"We are comforted by the fact that Excelsior shareholders can watch the
future play out with the knowledge that their dividend is very safe -- not a bad
feeling!"
Sincerely,
/s/ Townsend Brown II
Townsend Brown II
Chairman and President
October 6, 2000
<PAGE>
Excelsior Income Shares, Inc.
SCHEDULE OF INVESTMENTS
September 30, 2000 (Note 1)
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND FEDERAL Moody's
AGENCIES OBLIGATIONS--55.34% Rating** Face Amount Cost* Value
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Deb.,
6%, 4/1/28 (1) $ 2,620,130 $ 2,577,143 $ 2,448,676
Government National Mortgage Assn.,
6%, 7/20/27 (1) 331,676 333,282 335,141
6%, 11/20/28 (1) 2,762,343 2,721,340 2,579,858
7%, 5/15/22 (1) 183,111 182,882 180,433
7%, 4/15/23 (1) 2,262,010 2,263,424 2,228,928
7%, 5/15/23 (1) 469,497 468,103 462,630
7%, 3/15/24 (1) 1,023,276 1,012,404 1,008,311
7%, 7/20/29 (1) 3,774,510 3,722,758 3,698,077
7.50%, 12/15/25 (1) 525,378 524,557 527,151
8%, 8/15/24 (1) 609,464 606,131 620,777
8%, 1/15/25 (1) 487,201 471,062 496,244
8%, I, 4/15/30 (1) 996,539 1,002,144 1,015,036
8%, II, 3/20/30 (1) 1,951,317 1,965,342 1,977,172
8%, II, 4/20/30 (1) 1,960,858 1,970,050 1,986,840
8.50%, 7/15/17 (1) 420,933 431,653 433,087
8.50%, 5/15/21 (1) 178,242 182,781 183,389
10%, 1/15/18 (1) 376,209 408,246 395,137
U.S. Treasury Bond,
7.25%, 5/15/16 (1) 1,000,000 975,000 1,112,813
----------- ----------- -----------
21,932,694 21,818,302 21,689,700
----------- ----------- -----------
<CAPTION>
BONDS AND NOTES--33.41%
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial Mortgage Asset Trust,
6.64%, 4/17/10 Aaa 1,000,000 1,012,969 963,847
DuPont (EI) de Nemours & Co., Notes,
8.25%, 9/15/06 Aa2 1,500,000 1,495,875 1,596,713
Ford Motor Credit,
6.125, 1/9/06 A1 2,000,000 1,989,980 1,889,626
KFW International Finance Inc., Notes,
7.20%, 3/15/14 Aaa 2,000,000 1,978,500 1,979,730
Nationslink Funding Corp.,
6.476%, 7/20/08 Aaa 1,000,000 1,014,414 966,027
Republic N.Y. Corp., Notes,
7.75%, 5/15/09 A1 1,800,000 1,806,138 1,808,449
Wachovia Corp. Sub. Notes,
6.375%, 2/1/09 A1 2,000,000 1,997,400 1,878,824
Wisconsin Elec. Power Co.,
7.25%, 8/1/04 Aa2 2,000,000 1,988,600 2,009,956
----------- ----------- -----------
13,300,000 13,283,876 13,093,172
----------- ----------- -----------
<CAPTION>
SHORT-TERM HOLDINGS--11.25%
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dreyfus Government Cash Management Fund 1,800,000 1,800,000 1,800,000
Federal Home Loan Banks, Disc. Note 10/6/00 2,000,000 1,998,495 1,998,495
Fidelity Treasury Cash Portfolio 611,173 611,173 611,173
----------- ----------- -----------
4,411,173 4,409,668 4,409,668
----------- ----------- -----------
TOTAL INVESTMENTS IN SECURITIES $39,643,867 $39,511,846 $39,192,540
=========== =========== ===========
</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)
September 30, 2000 (Note 1)
The aggregate market value at September 30, 2000 for the long-term holdings in
terms of Quality Ratings is as follows:
<TABLE>
<CAPTION>
Rating** Value Percent
-------- ----- -------
<S> <C> <C>
Aaa (1) $25,599,304 73.60
Aa2 3,606,669 10.37
A1 5,576,899 16.03
----------- ------
Total $34,782,872 100.00
=========== ======
</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 $ 351,382
Aggregate gross unrealized
depreciation (670,688)
-----------
Net unrealized depreciation ($ 319,306)
===========
Cost for Federal Income Tax
Purposes $39,511,846
===========
</TABLE>
**Credit ratings are unaudited.
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2000
<TABLE>
<S> <C> <C>
ASSETS:
--------------------------
Investments (Note 1) in securities
at value (identified
cost $39,511,846):
U.S. Government and
Federal Agencies
obligations $21,689,700
Bonds and notes 13,093,172
Short-term holdings 4,409,668
-----------
Total Investments $39,192,540
Cash 1,096
Interest receivable 315,449
Prepaid expenses 4,049
-----------
Total Assets 39,513,134
-----------
LIABILITIES:
--------------------------
Accrued advisory fee (Note 3) 49,297
Accrued operating expenses 34,924
-----------
Total Liabilities 84,221
-----------
Net Assets $39,428,913
===========
NET ASSETS consist of:
Undistributed net investment
income $ 610,761
Accumulated net realized losses
from investment transactions (255,116)
Unrealized appreciation on
investments (319,306)
Capital shares (Note 5) 21,691
Additional paid-in capital 39,370,883
-----------
$39,428,913
===========
Net Asset Value per share
($39,428,913 / 2,169,091 shares) $18.18
===========
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE>
Excelsior Income Shares, Inc.
STATEMENT OF OPERATIONS
for the nine months ended September 30, 2000
(Note 1)
INVESTMENT INCOME:
------------------------------
<TABLE>
<S> <C> <C>
INCOME--Interest $ 2,040,820
EXPENSES:
Investment advisory fee $140,986
Directors' fees and
expenses 27,835
Officer's salary 34,161
Postage and printing 38,553
Professional fees 15,067
Insurance 29,559
Transfer agent and
registrar fees 7,535
The New York Stock
Exchange, Inc.--
annual fee 12,183
Miscellaneous 13,573
---------
Total expenses 319,452
-----------
Investment Income--Net 1,721,368
-----------
</TABLE>
REALIZED GAIN AND UNREALIZED APPRECIATION
(DEPRECIATION) ON INVESTMENTS--NET:
------------------------------
<TABLE>
<S> <C> <C>
Realized gain from security
transactions
(excluding short-term securities):
Proceeds from sales $2,955,307
Cost of sales 2,950,377
----------
Net realized gain 4,930
Unrealized appreciation
(depreciation)
on investment securities:
Beginning of period (882,623)
End of period (319,306)
----------
Change in unrealized
depreciation--net 563,317
-----------
Net realized gain and change
in unrealized appreciation
(depreciation) on investments 568,247
-----------
Net increase in Net Assets
Resulting from Operations $ 2,289,615
===========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the nine For the year
months ended ended
Sept. 30, 2000 Dec. 31, 1999
-------------- -------------
<S> <C> <C>
INCREASE (DECREASE)
IN NET ASSETS:
-----------------------
Operations:
Investment income--
net (Note 1) $ 1,721,368 $ 2,234,226
Realized gain on
investments--net
(Note 2) 4,930 86,337
Change in unrealized
appreciation--net 563,317 (2,707,187)
----------- -----------
Net increase
(decrease)
in net assets
resulting from
operations 2,289,615 (386,624)
Dividends to share-
holders from:
Investment income--
net (1,086,871) (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 1,146,214 (2,786,399)
NET ASSETS:
-----------------------
Beginning of period 38,282,699 41,069,098
----------- -----------
End of period
(including
undistributed
(overdistributed) net
investment income of
$610,761 and
($23,736) in 2000 and
1999, respectively) $39,428,913 $38,282,699
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
Excelsior Income Shares, Inc.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the
nine
months For the year ended
ended -------------------------------------
9/30/00 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 .78 1.03 1.06 1.08 1.11
Net gain (loss) on securities
(realized and unrealized) .26 (1.20) .23 .38 (.64)
------- ------- ------- ------- -------
Total from investment operations 1.04 (.17) 1.29 1.46 .47
------- ------- ------- ------- -------
Less Dividends and Distributions:
Dividends from net investment income (.50) (1.01) (1.03) (1.17) (1.18)
------- ------- ------- ------- -------
Total dividends and distributions (.50) (1.01) (1.03) (1.17) (1.18)
------- ------- ------- ------- -------
Treasury stock transaction .02 .02 -- .00 --
------- ------- ------- ------- -------
Net asset value, end of period $ 18.18 $ 17.62 $ 18.78 $ 18.52 $ 18.23
======= ======= ======= ======= =======
Market value per share, end of period $ 15.50 $ 14.25 $ 16.56 $ 16.75 $ 15.75
======= ======= ======= ======= =======
Total Investment Return:
Based on market value per share 14.55% (8.39%) 5.55% 14.51% 5.68%
Ratios To Average Net Assets:
Expenses .83% 1.05% 0.97% 1.08% 1.07%
Net investment income 4.46% 5.60% 5.62% 5.89% 6.02%
Supplemental Data:
Net assets at end of period
(000 omitted) $39,429 $38,283 $41,069 $40,490 $39,887
Portfolio turnover rate 8.76% 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
September 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 September 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 $255,116 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)
September 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 September 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 $2,955,307, respectively.
(5) CAPITAL STOCK:
At September 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 September 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.
------------------------------------------------------
Excelsior
Income Shares,
Inc.
Quarterly Report
September 30, 2000
------------------------------------------------------
