[LOGO]
Excelsior
Income Shares, Inc.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 9, 2000
The Annual Meeting of Shareholders of Excelsior Income
Shares, Inc. (the "Company") will be held in Conference Room 14B, at 114 West
47th Street, New York, N.Y. 10036, on Tuesday, May 9, 2000, at 11:00 a.m., New
York City time, for the following purposes:
(1) To elect five directors to hold office until the
next Annual Meeting and until their respective successors shall have been
duly elected and qualified;
(2) To consider and act upon approving a new
Investment Advisory Agreement between the Company and United States Trust
Company of New York;
(3) To consider and act upon the selection by the
Board of Directors of PricewaterhouseCoopers LLP as the independent
certified public accountants of the Company for the fiscal year ending
December 31, 2000;
(4) To transact such other business as may properly
come before the Meeting or any adjournments thereof.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT YOU
VOTE IN FAVOR OF ALL ITEMS.
Shareholders of record as of the close of business on March
15, 2000, are entitled to vote at the Meeting or any adjournment thereof.
ROBERT D. CUMMINGS
Secretary
New York, New York
April 5, 2000
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU INTEND TO ATTEND THE MEETING, PLEASE
FILL IN, DATE, SIGN AND RETURN THE ENCLOSED FORM OF PROXY IN THE ENCLOSED
PREPAID ENVELOPE. YOU MAY ALSO VOTE BY PHONE BY CALLING 1-800-840-1208.
<PAGE>
EXCELSIOR INCOME SHARES, INC.
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
PROXY STATEMENT
GENERAL
This Proxy Statement and Notice of Annual Meeting with
accompanying form of proxy are being furnished by the Board of Directors of
Excelsior Income Shares, Inc. (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company for use at the
Annual Meeting of its shareholders, or any adjournment thereof, to be held in
Conference Room 14B, at 114 West 47th Street, New York, N.Y. 10036, on Tuesday,
May 9, 2000, at 11:00 a.m., New York City time. The proxy statement and proxy
are being mailed to shareholders on approximately April 5, 2000.
The Company is a registered investment company organized as
a corporation under the Business Corporation Law of the State of New York
pursuant to a Certificate of Incorporation dated March 14, 1973. The mailing
address of the Company is 114 West 47th Street, New York, New York 10036.
The Fund commenced operations on May 15, 1973. The Annual
Report for the Fund for the year ended December 31, 1999, including audited
financial statements is enclosed.
MANNER OF VOTING PROXIES AND VOTE REQUIRED
If the accompanying form of proxy is executed properly and
returned, shares represented by it will be voted at the Annual Meeting in
accordance with the instructions on the proxy. If no instructions are specified,
shares will be voted for proposed Items 1, 2 and 3. If the enclosed form of
proxy is executed and returned, it may nevertheless be revoked prior to its
exercise by a signed writing delivered at the Annual Meeting or filed with the
Secretary of the Company.
If sufficient votes to approve the proposed Items 1, 2 and 3
are not received, the persons named as proxies may propose one or more
adjournments of the Annual Meeting to permit further solicitation of proxies.
Any such adjournment will require the affirmative vote of a majority of those
shares voted at the Annual Meeting. When voting on a proposed adjournment, the
persons named as proxies will vote all shares that they are entitled to vote
with respect to each Item for the proposed adjournment, unless directed to
disapprove the Item, in which case such shares will be voted against the
proposed adjournment.
The cost of solicitation will be borne by United States
Trust Company of New York. The solicitation is to be made primarily by mail. The
Company's officers and investment adviser and administrators may also solicit
proxies by telephone, telegraph, facsimile or personal interview. Any
shareholder giving a proxy may revoke it at any time before it is exercised by
submitting to the Company a written notice of revocation or a subsequently
executed proxy or by attending the shareholder meeting and electing to vote in
person.
As of the close of business on March 15, 2000, the record
date for the determination of shareholders entitled to notice of and to vote at
the Annual Meeting or any adjournment thereof, 2,169,091 shares of Common Stock,
par value $.01 per share, of the Company were outstanding. Each share is
entitled to one vote at the Annual Meeting. To the knowledge of the Company, no
person is the beneficial owner of more than 5% of the Company's outstanding
shares, except as follows: Karpus Management Inc. d/b/a Karpus Investment
Management.
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ITEM 1--TO ELECT FIVE DIRECTORS TO HOLD OFFICE UNTIL THE NEXT ANNUAL MEETING AND
UNTIL THEIR RESPECTIVE SUCCESSORS SHALL HAVE BEEN DULY ELECTED AND QUALIFIED.
It is the intention of the persons named as proxies in the
accompanying form of proxy to vote at the Annual Meeting for the election of the
nominees named below as directors of the Company to serve until the next Annual
Meeting and until their successors are duly elected and qualified. If any such
nominee should be unable to serve, an event not now anticipated, the persons
named as proxies will vote for such other nominee as may be proposed by
management. Each of the nominees was previously elected as Director of the
Company by the Company's shareholders at the meeting of shareholders held on
April 5, 1999.
INFORMATION CONCERNING NOMINEES
The following table sets forth the ages, positions and
offices with the Company, principal occupation or employment during the past
five years and other directorships, if any, of each nominee.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES PRINCIPAL OCCUPATION
NAME AGE WITH THE COMPANY OR EMPLOYMENT; OTHER DIRECTORSHIPS
- ----------------------- --- --------------------- ----------------------------------------
<S> <C> <C> <C>
TOWNSEND BROWN, II*.... 69 Chairman since 1992 President and CEO of the Company since
1992. Attorney. Senior Vice President of
United States Trust Company of New York
1978 to 1992.
GEOFFREY J. O'CONNOR... 53 Director since 1999 Attorney. Private Practice.
JOHN H. REILLY......... 72 Director since 1996 Attorney. Member of Dickerson & Reilly.
PERRY W. SKJELBRED..... 52 Director since 1993 Founder, CEO, Enterprise Capital Inc.
1993. Founder, CEO, American
Infrastructure, Inc. 1989 to 1993.
Senior Vice President and Chief
Investment Officer NATIONAR, Inc. 1986
to 1989. Director: Enterprise Capital,
Inc., Medical Marketing Group, Inc.
PHILIP J. TILEARCIO.... 46 Director since 1993 Investor.
</TABLE>
- ----------
*Such director is an "interested person" of the Company within the meaning
of the Investment Company Act of 1940.
For purposes of describing the business experience of Mr.
Townsend Brown II, United States Trust Company of New York and U.S. Trust
Corporation may be deemed to be "affiliates" of the Company by virtue of the
contractual relationships with the Company. See "Advisory Agreement."
The Board of Directors has a standing Audit Committee
consisting of Mr. Geoffrey J. O'Connor, Mr. John H. Reilly, Mr. Perry W.
Skjelbred and Mr. Philip J. Tilearcio, none of whom is an "interested person" of
the Company within the meaning of the Investment Company Act of 1940. The Audit
Committee held one meeting during the year ended December 31, 1999. The
functions performed by the Audit Committee include making recommendations with
respect to engaging and discharging the Company's independent auditors,
reviewing with the Company's independent auditors the plan and results of the
annual examination of the Company's financial statements, reviewing the scope
and results of the Company's procedures for internal auditing, reviewing the
independence of the Company's auditors, considering the range of audit fees and
reviewing the adequacy of the Company's system of internal accounting controls.
The Company's Board of Directors held five meetings during
the year ended December 31, 1999.
The By-Laws of the Company provide that the Company will
indemnify its officers and directors on the terms, to the extent and subject to
the conditions prescribed by the Business Corporation Law of the State of New
York, the
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<PAGE>
Investment Company Act of 1940, and the rules and regulations thereunder, and
subject to such other conditions as the Board of Directors may in its discretion
impose.
To the extent permitted by the Business Corporation Law of
the State of New York, the Investment Company Act of 1940, and the rules and
regulations thereunder, the Company may purchase and maintain on behalf of any
person who may be indemnified under the By-Laws, insurance covering any risks in
respect of which he may be indemnified by the Company.
INFORMATION CONCERNING EXECUTIVE OFFICERS
The following table sets forth the ages, positions and
offices with the Company and principal occupation or employment during the past
five years of each of the Company's executive officers.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES PRINCIPAL OCCUPATION
NAME AGE WITH THE COMPANY OR EMPLOYMENT
- ----------------------- --- --------------------- ----------------------------------------
<S> <C> <C> <C>
Townsend Brown, II..... 69 Chairman, President Chairman, President and Chief Executive
and Chief Executive Officer of the Company.
Officer since April
9, 1992
Robert D. Cummings..... 55 Secretary and Treas- Manager of the Common Trust Funds
urer since April 9, Department of United States Trust
1992 Company of New York since 1980, Vice
President since April 1987.
</TABLE>
For purposes of describing the business experience of Mr.
Cummings, United States Trust Company of New York may be deemed to be an
"affiliate" of the Company by virtue of the contractual relationships with the
Company described below. See "Advisory Agreement."
The Company's executive officers were re-elected by the
Board of Directors on April 5, 1999, to serve until the meeting of the Board of
Directors scheduled to take place immediately after the Annual Meeting of the
Company's shareholders on May 9, 2000, and until their successors are duly
elected and qualified.
COMPENSATION OF AND TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS
The following table describes the compensation paid during
the last fiscal year to each Director and nominee.
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
BENEFITS
TOTAL ACCRUED AS PART ESTIMATED
COMPENSATION OF COMPANY ANNUAL BENEFIT
NAME OF PERSON FROM COMPANY EXPENSES UPON RETIREMENT
- ------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Townsend Brown, II................... $48,638 None None
Edwin A. Heard**..................... $7,000 None None
Geoffrey J. O'Connor................. $-0- None None
James J. O'Leary*.................... $5,450 None None
John H. Reilly....................... $7,000 None None
Perry W. Skjelbred................... $7,000 None None
Philip J. Tilearcio.................. $7,000 None None
Kenneth G. Walsh**................... $-0- None None
</TABLE>
* Mr. O'Leary served as a Director through Oct. 13, 1999.
** Edwin A. Heard and Kenneth G. Walsh are not standing for
reelection as directors. This will allow United States Trust Company of New
York, to comply with the requirement under Section 15(f) of the Investment
Company Act of 1940 that at least 75% of the Company's directors not be
"interested persons" for three years after a change of control of an investment
adviser.
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<PAGE>
Townsend Brown II has an employment agreement (the
"Employment Agreement") with the Company which took effect on May 4, 1994,
continuing through May 3, 2004. Pursuant to the Employment Agreement, Mr. Brown
acts as President and Chief Executive Officer of the Company, and has such
duties as are assigned to him by the Company. The Employment Agreement provides
that Mr. Brown is not required to spend any specific amount of time on the
business of the Company, subject to the performance of his duties to the
Company.
The Employment Agreement provides Mr. Brown with an annual
base salary, payable in equal monthly installments at an annual rate of not less
than $40,000, subject to adjustments on each January 1 to reflect increases in
the Urban Consumer Price Index for the New York Metropolitan Area from the prior
January 1. The Employment Agreement may be terminated by the Company or Brown
upon proper notice, pursuant to the terms of the Employment Agreement.
Under the Employment Agreement, in the event of a
termination of Mr. Brown by the Company without "Cause," or by Mr. Brown for
"Good Reason" (as each such term is defined in the Employment Agreement), the
Company must pay Mr. Brown a lump sum payment equal to his current salary for
the remainder of the employment term and an annualized 3% compound interest on
such amount. In the event of a termination of Mr. Brown's employment by reason
of his death or disability, or termination by the Company for Cause or voluntary
termination by Mr. Brown without Good Reason, the Company must pay Mr. Brown
(or, in the case of his death, to his estate), all accrued but unpaid salary as
of the termination date. The Employment Agreement provides that the Company will
make Mr. Brown whole for any excise taxes imposed upon him under Section 4999 of
the Internal Revenue Code due to payments made to him in connection with his
termination.
SECURITY OWNERSHIP OF OFFICERS AND DIRECTORS AND NOMINEES
The following table sets forth information as of December
31, 1999, with respect to beneficial ownership of the Company's Common Stock,
par value $.01 per share, by directors individually and officers and directors
as a group.
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF SHARES OF TOTAL
NAME OF INDIVIDUAL AND NATURE OF OUTSTANDING
OR NUMBER OF BENEFICIAL SHARES OF
PERSONS IN GROUP OWNERSHIP COMMON STOCK
- ------------------------------------- -------------------- --------------------
<S> <C> <C>
Townsend Brown, II................... 1,100(1)(2) (3)
Edwin A. Heard....................... 1,800(1)(2) (3)
Geoffrey J. O'Connor................. 100(1)(2) (3)
John H. Reilly....................... 100(1)(2) (3)
Perry W. Skjelbred................... 1,000(1)(2) (3)
Philip J. Tilearcio.................. 100(1)(2) (3)
Kenneth G. Walsh..................... 100(1)(2) (3)
Robert D. Cummings................... -0- (3)
All Officers and Directors of the
Company as a group (eight)......... 4,300(of record)(1) (3)
</TABLE>
- ---------------
(1) None of these shares is beneficially owned based upon a right to
acquire beneficial ownership within 60 days.
(2) Sole voting and sole investment power.
(3) Amount does not exceed 1%.
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<PAGE>
Election of each nominee as a Director of the Company will
require the vote of a majority of the outstanding voting securities of the
Company present in person or represented by proxy at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ELECTION
OF THE NOMINEES AS DIRECTORS OF THE COMPANY.
ITEM 2--TO CONSIDER AND ACT UPON APPROVING A NEW INVESTMENT ADVISORY AGREEMENT
BETWEEN THE COMPANY AND UNITED STATES TRUST COMPANY OF NEW YORK.
BACKGROUND
United States Trust Company of New York (the "Adviser") has
provided investment advisory and administrative services to the Company since
the Company's commencement of operations on May 15, 1973. The Advisory Agreement
has been approved by the Directors and shareholders of the Company. Upon review
of the Company's records regarding these approvals, and to avoid any doubt as to
such approvals, Board of Directors of the Company, including a majority of the
directors who are not "interested persons" (as defined in the Investment Company
Act of 1940) of the Company, at a meeting held on March 14, 2000, approved
renewing the Investment Advisory agreement in the form identical to the
Investment Advisory Agreement which the shareholders of the Company last renewed
for an additional year at the Annual Shareholder's meeting held on April 5,
1999.
On January 12, 2000, The Charles Schwab Corporation
("Schwab") and U.S. Trust Corporation entered into a definitive agreement to
merge (the "Merger"). After the Merger, U.S. Trust Corporation will be a
wholly-owned subsidiary of Schwab. The Merger is anticipated to close by July
2000, however, it is subject to a number of conditions, including certain
regulatory and shareholder approvals.
The Adviser, a subsidiary of U.S. Trust Corporation, will
continue to serve as investment adviser to the Company after the Merger. The
Merger, however, represents a change in ownership of the parent corporation of
the Adviser and, as such, may have the effect under the Investment Company Act
of 1940 (the "1940 Act") of terminating the existing Investment Advisory
Agreement between the Company and the Adviser at the date of the consummation of
the Merger.
As a consequence of the Merger and in order to provide
continuity of investment advisory services, the Board of Directors of the
Company has proposed for the approval of the Company's shareholders a new
Investment Advisory Agreement with the Adviser. THE TERMS OF THE NEW INVESTMENT
ADVISORY AGREEMENT (INCLUDING THE INVESTMENT ADVISORY FEE) ARE IDENTICAL TO
THOSE IN THE EXISTING AGREEMENT, EXCEPT AS FOLLOWS:
THE NEW INVESTMENT ADVISORY AGREEMENT:
* WILL BE DATED AS OF THE DATE OF THE MERGER IF THE MERGER
IS COMPLETED, OR UPON TERMINATION OF THE DEFINITIVE
MERGER AGREEMENT IF THE MERGER IS NOT COMPLETED;
* ALLOWS THE ADVISER TO PROVIDE ADVISORY SERVICES THROUGH
ITS OWN EMPLOYEES OR THE EMPLOYEES OF AN AFFILIATED
COMPANY AS LONG AS SUCH EMPLOYEES FUNCTION AS PART OF AN
ORGANIZED GROUP OF PERSONS, THE USE OF SUCH EMPLOYEES
DOES NOT RESULT IN A CHANGE OF ACTUAL CONTROL OR
MANAGEMENT OF THE ADVISER UNDER THE 1940 ACT AND THE USE
OF SUCH EMPLOYEES HAS BEEN APPROVED BY THE BOARD OF THE
DIRECTORS OF THE COMPANY:
* ALLOWS AN AFFILIATE OF THE ADVISER TO ASSUME THE
OBLIGATIONS OF THE ADVISER UNDER THE ADVISORY AGREEMENT,
SO LONG AS:
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* THE AFFILIATE IS QUALIFIED TO ACT AS AN INVESTMENT
ADVISER TO THE COMPANY UNDER APPLICABLE LAW;
* THE ASSUMPTION WILL NOT RESULT IN A CHANGE OF ACTUAL
CONTROL OR MANAGEMENT OF THE ADVISER, UNDER THE 1940
ACT; AND
* THE ASSUMPTION OF THE ADVISER'S OBLIGATIONS HAS BEEN
APPROVED BY THE BOARD OF DIRECTORS OF THE COMPANY.
* MAY BE AMENDED BY A VOTE OF THE BOARD OF DIRECTORS OF
THE COMPANY IF THE AMENDMENT DOES NOT REQUIRE
SHAREHOLDER APPROVAL UNDER THE 1940 ACT.
Through its principal subsidiary Charles Schwab & Co., Inc.,
Schwab is the nation's fourth largest financial services firm and the nation's
largest electronic brokerage firm, in each case measured by customer assets. At
December 31, 1999, Schwab served 6.6 million active accounts with $725 billion
in customer assets through 340 branch offices, four regional customer telephone
service centers and automated telephonic and online channels. Approximately 30%
of Schwab's customer assets and approximately 13% of its customer accounts are
managed by the 5,800 independent, fee-based investment advisors served by
Schwab's institutional investor segment.
The Merger is subject to Federal Reserve Board and other
regulatory approvals and to approval by U.S. Trust Corporation's shareholders.
The transaction is expected to close by July 2000.
As required by the 1940 Act, the existing Investment
Advisory Agreement provides for its automatic termination upon "assignment."
Consummation of the Merger may be deemed to be an assignment (as defined in the
1940 Act) of the existing Investment Advisory Agreement resulting in the
termination of the existing Investment Advisory Agreement in accordance with its
terms. In anticipation of the consummation of the Merger, and to provide
continuity in investment advisory services, the Board of Directors of the
Company, including a majority of the Board members who are not "interested
persons" (as defined in the 1940 Act), at a meeting held on March 14, 2000,
approved and directed that there be submitted to the shareholders of the
Company, for approval, a new Investment Advisory Agreement between the Company
and the Adviser.
If the Merger is not completed but the proposed new
Investment Advisory Agreement is approved by the shareholders, the Adviser will
operate under the new Investment Advisory Agreement. If the Merger is not
completed, the new Investment Advisory Agreement will become effective upon
termination of the definitive merger Agreement. In the event the proposed new
Investment Advisory agreement is not approved by shareholders and the Merger is
completed, the Board of Directors of the Company will promptly seek to enter
into new investment advisory arrangements for the Company, subject to any
required approval by the shareholders. If the new Investment Advisory Agreement
is not approved and the Merger is not completed, the Company will continue to
operate under the current Investment Advisory Agreement in the form approved by
the Board of Directors on March 14, 2000.
COMPLIANCE WITH SECTION 15(F) OF THE 1940 ACT
Section 15(f) of the 1940 Act provides that when a change in
the control of an investment adviser occurs, the investment adviser or any of
its affiliated persons may receive any amount or benefit in connection therewith
as long as two conditions are satisfied. First, no "unfair burden" may be
imposed on the investment company as a result of the transaction relating to the
change of control, or any express or implied terms, conditions or understandings
applicable thereto. Second, during the three-year period immediately following
consummation of the transaction, at least 75% of the investment company's board
of directors must not be "interested persons" of the investment adviser within
the meaning of the 1940 Act.
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With respect to the first condition, the term "unfair
burden," as defined in the 1940 Act, includes any arrangement during the
two-year period after the change in control whereby the investment adviser (or
predecessor or successor adviser), or any interested person of any such adviser,
receives or is entitled to receive any compensation, directly or indirectly,
from the investment company or its security holders (other than fees for bona
fide investment advisory or other services) or from any person in connection
with the purchase or sale of securities or other property to, from, or on behalf
of the investment company (other than fees for bona fide principal underwriting
services). The Company is not aware of any such compensation arrangements.
With respect to the second condition, one of the Company's
Directors standing for reelection might be considered an interested person of
U.S. Trust Corporation and might become an interested person of Schwab upon
consummation of the Merger. Since at least 75% of the Company's Directors will
not be interested persons of Schwab upon consummation of the Merger, the Company
expects to comply with this condition of Section 15(f).
DESCRIPTION OF THE NEW INVESTMENT ADVISORY AGREEMENT
A copy of the new Investment Advisory Agreement is attached
to the Proxy Statement as Appendix A. The description of the new Investment
Advisory Agreement that follows is qualified in its entirety by reference to
Appendix A.
Under the Investment Advisory Agreement, the Adviser would
formulate a continuing program for the management of the assets and resources of
the Company, provide a full range of advice and recommendations, including
recommendations regarding specific securities to be purchased or sold by the
Company, and obtain and evaluate statistical, economic and other research
information with respect to the economy, business, securities markets and types
of securities, all in conformity with the Company's investment objectives and
policies. In addition to providing investment advisory services, the Adviser, at
its own expense, would provide portfolio trading facilities and make available
to the Company appropriate executive, investment, clerical and other personnel
as well as computer and other services for the conduct of its investment
business and the administration of its affairs. The Adviser would compensate all
Company personnel and officers (other than the President) and those Company
directors who are officers or employees of the Adviser. The Adviser at its
expense would also provide the Company with office space and facilities and
business equipment and pay the cost of keeping the Company's books and records.
For the services rendered and the expenses assumed by the
Adviser under the Investment Advisory Agreement, the Company would pay the
Adviser an annual fee at the rate of 0.5% of the Company's net asset value up to
and including $100,000,000, 0.4% of such net asset value over $100,000,000 up to
and including $200,000,000 and 0.3% of such asset value over $200,000,000. The
investment advisory fee would be computed quarterly on the basis of the net
asset value as of last day of each quarter. During the year ended December 31,
1999, the Company paid investment advisory fees in the total amount of $199,478
to the Adviser. The Company's net asset value as of December 31, 1999, was
$38,262,699.
The Company would be responsible for the payment of all its
expenses which are not specifically assumed by the Adviser under the Investment
Advisory Agreement. However, in the event in any year the sum of the Company's
expenses (including the Adviser's investment advisory fee but excluding
interest, taxes and brokerage commissions relating to the purchase or sale of
portfolio securities, the Company's expenses of future public offerings of its
shares and extraordinary expenses beyond the control of the Adviser) were to
exceed 1 1/2% of the average value of the Company's net assets during such year
up to $30,000,000, plus 1% of the average value of the Company's net assets
during such year in excess of $30,000,000, the Adviser would be obligated to
reimburse the Company promptly for such excess expenses. In addition, under the
Investment Advisory Agreement, the Adviser
7
<PAGE>
would not be responsible for any mistake in judgment or in any event whatsoever
except for lack of good faith or for any conduct on the part of the Adviser
constituting a breach of fiduciary duty involving personal misconduct in respect
of the Company, so long as such judgment or other event does not constitute
wilful malfeasance, bad faith, gross negligence in the performance of the
Adviser's duties or reckless disregard of its obligations and duties under the
Investment Advisory Agreement.
The new Investment Advisory Agreement will be dated as of
the date of the Merger. The Investment Advisory Agreement would continue in
effect for two years from the date of the Merger and thereafter would continue
from year to year provided such continuance is specifically approved at least
annually (i) by the vote of a majority of the Company's outstanding voting
securities, as defined in the Investment Company Act of 1940, entitled to vote
at the Annual Meeting or by its Board of Directors or (ii) by the vote of a
majority of the directors of the Company who are not parties to the contract or
"interested persons" (as defined in the Investment Company Act of 1940) of the
Company, or the Adviser. The Investment Advisory Agreement is terminable on 60
days' written notice by any party thereto and will terminate automatically if
assigned.
The Investment Advisory Agreement would reserve to the
Adviser all rights to the use of the term "Excelsior" and the symbol used by the
Company, which appears on the Notice of Annual Meeting. The Investment Advisory
Agreement further provides that if the Adviser (or an organization which has
succeeded to the business of the Adviser) ceases to be the investment adviser to
the Company, the Company will cease to use in its name the term `Excelsior,' or
any name suggesting that the Company is or has been advised by the Adviser, and
the use of such symbol.
The foregoing description of the Investment Advisory
Agreement does not purport to be complete but contains a summary of the material
provisions thereof. The complete Investment Advisory Agreement is attached as
Appendix A.
INFORMATION REGARDING INVESTMENT ADVISER
The Adviser, which has its principal offices at 114 West
47th Street, New York, New York 10036, is a New York State-chartered bank and
trust company and a member bank of the Federal Reserve System. The Adviser is a
wholly owned subsidiary of the U.S. Trust Corporation, a registered bank holding
company, which has its principal offices at 114 West 47th Street, New York, New
York 10036. The Adviser provides wealth management, fiduciary and banking
services to individuals, corporations and institutions, both nationally and
internationally, including investment management and consulting, trust and
estate services, financial and estate planning, corporate trust and agency
services, custodial services and personal and corporate banking. On
December 31, 1999, the Adviser had approximately $51.2 billion in aggregate
assets under management. The trustees of the Adviser, who are also Board members
of U.S. Trust Corporation, and their principal occupations are as follows:
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION
- ----------------------- --------------------------------------------------------------------
<S> <C>
Eleanor Baum........... Dean of Engineering at The Cooper Union for the Advancement of
Science & Art.
Samuel C. Butler....... Partner in Cravath, Swaine & Moore.
Peter O. Crisp......... Retired Chairman of Venrock, Inc.
Philippe de Director of the Metropolitan Museum of Art.
Montebello.............
Robert E. Denham....... Partner in Munger, Tolles & Olson LLP.
Antonia M. Grumbach.... Partner in Patterson, Belknap, Webb & Tyler, LLP.
Peter L. Malkin........ Chairman of Wien & Malkin LLP.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION
- ----------------------- --------------------------------------------------------------------
<S> <C>
Jeffrey S. Maurer...... President and Chief Operating Officer of the Adviser.
David A. Olsen......... Retired Chairman of the Board of Johnson & Higgins.
Carl H. Pforzheimer Managing Partner in Carl H. Pforzheimer & Co.
III....................
Maribeth S. Rahe....... Vice Chairman of the Adviser.
H. Marshall Schwarz.... Chairman of the Board and Chief Executive Officer of the Adviser.
Philip L. Smith........ Corporate Director and Trustee.
John H. Stookey........ Chairman of Suburban Propane Pts.
Frederick B. Taylor.... Vice Chairman and Chief Investment Officer of the Adviser.
Robert N. Wilson....... Vice Chairman of the Board of Johnson & Johnson.
Ruth A. Wooden......... President and Chief Executive Officer of The Advertising Council,
Inc.
</TABLE>
The address of the Adviser and all its directors is 114 West
47th Street, New York, NY 10036. Robert D. Cummings, Secretary and Treasurer of
the Company, and Robert R. Johnson, Assistant Secretary and Assistant Treasurer
of the Company, are each officers of the Adviser. No other officer or Director
of the Company is an officer, employee or shareholder of the Adviser or owns
securities or has any other material direct or indirect interest in the Adviser
or any other person controlling, controlled by or under common control with the
Adviser. The Adviser renders investment advisory and related services to clients
other than the Company, including other investment companies, with similar or
different investment objectives and policies.
The Adviser is a wholly-owned subsidiary of U.S. Trust
Corporation which was incorporated on December 5, 1977 and which is located at
114 West 47th Street, New York, N.Y. 10036.
THE EVALUATION BY THE BOARD OF DIRECTORS
At a meeting on March 14, 2000, the Directors of the Company
considered information with respect to whether the new Advisory Agreement with
the Adviser was in the best interests of the Company and its shareholders. The
Board of Directors of the Company considered, as they have in the past, the
nature and quality of services expected to be provided by the Adviser and
information regarding fees, expense ratios and performance. In evaluating the
Adviser's ability to provide services to the Company, the Directors considered
the Merger and other information as to the Adviser's business organization,
financial resources and personnel. The directors noted that the new Advisory
Agreement is substantially the same as the current Advisory Agreement (except as
noted above) and that the contractual advisory fee rate payable by the Company
under the new Advisory Agreement would be identical to that payable under the
current Advisory Agreement. With respect to the provisions of the new Advisory
Agreement regarding use of employees and affiliates of the Adviser, the
directors considered that such provisions would allow the Adviser to use the
best talent within its organization to provide services to the Company. Finally,
the directors considered that the provision permitting them to approve an
amendment to the new Advisory Agreement unless shareholder approval was required
under the 1940 Act was permitted by current law and would provide the Company
with the flexibility to make non-material changes to the agreement without the
expense of a shareholder vote.
Based upon its review, the Board of Directors of the Company
concluded that the new Advisory Agreement with the Adviser is reasonable, fair
and in the best interests of the Company and its shareholders, and that the fees
provided in the new Advisory Agreement are fair and reasonable in light of the
usual and customary charges made by others for services of the same nature and
quality.
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Shareholder approval of the Investment Advisory Agreement
requires the affirmative vote of the holders of (i) 67% of the Company's voting
securities, as defined in the Investment Company Act of 1940, present and
entitled to vote at the Annual Meeting, if the holders of more than 50% of the
Company's outstanding voting securities are present or represented by proxy at
the Annual Meeting or (ii) a majority of the Company's outstanding voting
securities, whichever is less.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT YOU
VOTE FOR APPROVAL OF THE NEW INVESTMENT ADVISORY AGREEMENT.
ITEM 3--TO CONSIDER AND ACT UPON THE SELECTION BY THE BOARD OF DIRECTORS OF
PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS OF
THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.
The Audit Committee of the Board of Directors has
recommended and the Board of Directors of the Company, including a majority of
those directors who are not "interested persons" of the Company, has selected
PricewaterhouseCoopers LLP to act as the independent certified public
accountants of the Company for the fiscal year ending December 31, 2000.
PricewaterhouseCoopers LLP has no material direct or indirect financial interest
in the Company. This selection is subject to the ratification by the
shareholders of the Company at the Annual Meeting. Management expects that
representatives of PricewaterhouseCoopers LLP will be present at the Annual
Meeting with the opportunity to make a statement if they desire to do so and to
respond to appropriate questions.
During the year ended December 31, 1999
PricewaterhouseCoopers LLP was engaged by the Company: (1) to examine its
financial statements as of December 31, 1999; (2) to assist and consult with the
Company in connection with the preparation of the Company's reports on Forms
N-SAR and N-2 for filing with the Securities and Exchange Commission; and (3) to
assist and consult with the Company on tax matters.
The ratification of PricewaterhouseCoopers LLP as auditors
of the Company requires the affirmative vote of the holders of (i) 67% of the
Company's voting securities, as defined in the Investment Company Act of 1940,
present and entitled to vote at the Annual Meeting, if the holders of more than
50% of the Company's outstanding voting securities are present or represented by
proxy at the Annual Meeting or (ii) a majority of the Company's outstanding
voting securities, whichever is less.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS OF THE COMPANY.
OTHER MATTERS
The management knows of no business to be brought before the
Annual Meeting except as mentioned above. If, however, any other matters
properly come before the Annual Meeting, the persons named in the enclosed form
of proxy intend to vote on such matters in accordance with their best judgment.
ADDITIONAL INFORMATION
BROKERAGE COMMISSIONS ON PORTFOLIO TRANSACTIONS
In accordance with the Company's investment policies, its
investments are in debt securities, which are generally traded through dealers
acting for their own account as principals and not as brokers; no brokerage
commissions are payable in such transactions. During 1999, all portfolio
transactions were with principals. During 1999 the Company's portfolio turnover
rate was 16.09%.
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DEADLINE FOR SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the
Company's Annual Meeting of Shareholders to be held in April 2001, must be
received by the Company, at its principal executive offices, by January 5, 2001,
for inclusion in the Company's Proxy Statement and form of proxy relating to
that meeting.
YOU ARE URGED TO FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY.
YOU MAY ALSO VOTE BY PHONE BY CALLING 1-800-840-1208.
By Order of the Board of Directors,
Robert D. Cummings, Secretary
April 5, 2000
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APPENDIX A
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this day of
, by and between EXCELSIOR INCOME SHARES,
INC., a New York corporation (the "Company"),
and UNITED STATES TRUST COMPANY OF NEW YORK, a
New York corporation (the "Adviser").
In consideration of the mutual promises hereinafter set
forth, the parties hereto agree as follows:
1. The Adviser shall act as investment adviser for and
provide personnel and corporate administrative services for the Company and
shall make available trading desk facilities to the Company, subject to and upon
the terms and conditions set forth in this Agreement. The Adviser may, in its
discretion, provide such services through its own employees or the employees of
one or more affiliated companies that are qualified to act as investment adviser
to the Company under applicable law provided (i) that all persons, when
providing services hereunder, are functioning as part of an organized group of
persons; (ii) the use of an affiliate's employees does not result in a change in
control or management of the Adviser under the Investment Company Act of 1940
(the "1940 Act"); and (iii) the use of an affiliate's employees has been
approved by the board of directors of the Company.
2. In acting as investment adviser to the Company, the
Adviser shall (a) formulate a continuing program to provide advice and
recommendations for the management of the assets and resources of the Company in
a manner consistent with the Company's investment objectives, policies and
restrictions and the provisions of the 1940 Act and other applicable laws, and
in this connection make specific recommendations and furnish advice to the
Company regarding securities proposed for purchase and sale by the Company and
the portion of its assets to be held in cash or cash equivalents in order to
carry out such program; (b) obtain and evaluate such research information
relating to the economy, industries, businesses, securities markets and types of
securities as it may deem necessary or useful in the discharge of its
obligations hereunder or as may be reasonably requested by the Company;
(c) generally take such other steps as the Adviser may deem necessary or
appropriate in assisting in the implementation by the Company of such program,
recommendations, advice and research information; and (d) make available to the
Company, upon reasonable notice, officers or investment personnel of the Adviser
for consultation with the officers and directors of the Company in connection
with the Company's investment objectives and policies and also furnish to or
place at the disposal of the Company such of the information, reports,
evaluations, analyses and opinions formulated or obtained by the Adviser in the
discharge of its duties hereunder as the Company may, at any time or from time
to time, reasonably request or as the Adviser may deem helpful to the Company.
3. In making available trading-desk facilities to the
Company for the placement of purchase and sale orders to carry out portfolio
transactions of the Company or for the clearance of transactions placed on
behalf of the Company, orders will be placed through such facilities consistent
with the statements set forth under "Brokerage Commissions on Portfolio
Transactions" in the Company's proxy statement dated April 5, 2000 (the "Proxy
Statement"), receipt of a copy of which is hereby acknowledged by the Adviser.
4. The Adviser, at its expense, shall furnish to the
Company such officers and such executive, investment, administrative and other
office personnel (other than the president and chief executive officer), as well
as such clerical, book and record-keeping, computer and other administrative
services (exclusive of and in addition to any such services provided or
furnished by any custodian, transfer agent or to other institutional agent
retained by the
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Company) as the Company may reasonably require in the conduct of its business,
including the maintenance of the Company's accounts and records, the preparation
of all requisite reports, tax returns and other documents for the Company and
the performance of all other functions necessary for the maintenance of its
corporate existence and its shareholder relations. The Adviser shall pay the
compensation of all such officers and other personnel and agrees that if any
such persons, or any officer, director, employee or other interested person1 of
the Adviser shall be, or be elected as, officers or directors of the Company,
they shall serve as such without additional compensation from the Company. The
compensation of the president and chief executive officer of the Company,
including any director's fees to which he may be entitled, shall be paid by the
Company. The Adviser shall also, at its expense, provide the Company with
adequate office space and all necessary office equipment, and shall pay the cost
of telephone, heat, air-conditioning and utilities services for the Company.
5. The Company shall pay or provide for the payment for
its own account of all its expenses not specifically assumed by the Adviser as
hereinbefore provided, which expenses shall include, without limitation,
interest, taxes, brokerage commissions, compensation and expenses of directors
who are not interested persons2 of the Company, out-of-pocket expenses of
officers of the Company in connection with any travel or other activities
carried out on behalf of the Company other than in its office, legal and
auditing expenses, fees and expenses of the custodian, transfer agent or other
institutional agents, all expenses in connection with maintaining the
registration of the Company under the 1940 Act and making reports thereunder and
registering and qualifying the shares of Common Stock of the Company for
issuance and sale under the Securities Act of 1933 and under "Blue-Sky" laws of
the various states, costs of engraving or printing the Company's stock
certificates, the expenses of stockholders' meetings and of printing and mailing
proxy materials, reports and notices to its shareholders, corporate filing fees,
dues, fees and expenses relative to stock-exchange listings and for membership
in trade associations and costs of fidelity bonds and other bonding or insurance
coverage requisite to the operations of the Company.
6. For the services rendered and expenses assumed by the
Adviser for the Company pursuant to this Agreement, the Company shall pay to the
Adviser an annual fee at the rate of (a) 0.5% of the Company's net assets up to
and including $100,000,000; plus (b) 0.4% of the Company's net assets over
$100,000,000 up to and including $200,000,000; plus (c) 0.3% of the Company's
net assets over and above $200,000,000. This fee shall be computed by the
Company, with the assistance of the Adviser, quarterly on the basis of the net
asset value as of the last day of each quarter, provided, however, that for the
initial quarterly period and upon any termination of this Agreement before the
end of any quarter the amount of the annual fee which shall be accrued by the
Company for payment to the Adviser at the end of the initial quarter or date of
termination shall be prorated according to the proportion such period bears to
the full quarterly period. For the purpose of computing the annual fee, the
Adviser shall determine the value of the Company's net assets on the same basis
as such net assets are determined for the Company's Annual Report to the
Securities and Exchange Commission.
7. If, in any calendar year, the sum of the expenses to be
paid by the Company as provided in Section 5 hereof (other than interest,
taxes and brokerage commissions relating to the purchase or sale of portfolio
securities, expenses of any public offerings of the Company's Common Stock and
extraordinary expenses beyond the control of the Adviser) plus the Adviser's fee
as provided under Section 6 hereof shall exceed 1 1/2% of the average of the
closing values of the Company's net assets, computed each week on the last day
on which the New York Stock Exchange is open, during such year (or portion
thereof, if applicable, as to the years during which the Agreement is commenced
and terminated) up to and including $30,000,000 plus 1% of the average of the
closing values of the Company's net assets (computed on the same basis) over
$30,000,000, the Adviser shall promptly reimburse the
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1 As such term is used in the 1940 Act and the rules and regulations
thereunder.
2 As such term is used in the 1940 Act and the rules and regulations
thereunder.
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<PAGE>
Company for the amount of such excess expenses prior to the publication of the
Company's annual report to shareholders in the next succeeding calendar year.
8. The Adviser shall at all times maintain a staff of
officers and other trained personnel in order to enable it to perform its
obligations under this Agreement. The Adviser agrees to use its best efforts to
achieve the Company's objectives in acting as investment adviser and to provide
trading-desk facilities and render administrative services to the Company as
provided in this Agreement; but nothing herein contained shall be deemed to
preclude the Adviser, at its expense and at no additional expense to the
Company, from employing, retaining or otherwise availing itself of the services
of other persons or organizations for the purpose of providing the Adviser or
the Company with such services, advice or assistance as the Adviser may deem
necessary, appropriate or convenient for the discharge of its obligations
hereunder or, in its opinion, otherwise helpful to the Company.
The services of the Adviser to the Company are not to be
deemed to be exclusive, and the Adviser shall be free to render
investment-advisory, management, administrative or other services to others,
including, without limitation, other investment companies with the same or
different investment objectives and policies and to engage in other activities
without limitation. It is understood and agreed that, to the extent permitted by
law, officers or directors of the Adviser may serve as officers or directors of
the Company, and that officers or directors of the Company may serve as officers
or directors of the Adviser, and that, to the extent permitted by law, the
officers and directors of the Adviser are not prohibited from engaging in any
other business activity or from rendering services to any other person, or from
serving as partners, officers or directors of any other firm or corporation,
including other investment companies with the same or different investment
objectives and policies.
9. The Adviser shall be held harmless by the Company and
shall not be subject to liability to the Company or to any stockholder of the
Company for any mistake in judgment or in any event whatsoever except for lack
of good faith on the part of the Adviser or for any conduct on the part of the
Adviser constituting a breach of fiduciary duty involving personal misconduct in
respect of the Company, provided that nothing herein shall be deemed to protect
or purport to protect the Adviser against any liability to the Company or to any
stockholder of the Company to which the Adviser would otherwise be subject by
reasons of an act or practice by the Adviser constituting willful malfeasance,
bad faith, gross negligence in the performance of its duties, or reckless
disregard to its obligations and duties hereunder.
No provisions of this Agreement shall be deemed to protect
any director or officer of the Company against any such liability to which he
might otherwise be subject by reason of any willful misfeasance, bad faith or
gross negligence in the performance of his duties or the reckless disregard of
the duties involved in the conduct of his affairs.
10. This Agreement (unless terminated as hereinafter
provided) shall continue in effect until the second anniversary of the date
hereof, and thereafter from year to year; provided, however, that this Agreement
shall be specifically approved at least annually by (a) a majority of the board
of directors of the Company or the vote of a majority of the outstanding voting
securities3 of the Company and (b) the vote of a majority of such directors who
are not interested persons4 of any party of this Agreement, cast in person at a
meeting called for the purpose of voting on such approval. If approval of the
continuation of this Agreement is not obtained pursuant to the foregoing, this
Agreement shall expire by its terms twelve (12) months after the date of the
last approval.
No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
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3 As such term is used in the 1940 Act and the rules and regulations
thereunder.
4 As such term is used in the 1940 Act and the rules and regulations
thereunder.
14
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termination is sought, and no amendment of this Agreement shall be effective
until approved by a majority of the Company's outstanding voting securities, if
such vote is required by the 1940 Act, or by a majority of the board of
directors of the Company who are not parties to this Agreement or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such amendment.
In each event that the stockholders of the Company are asked
to approve the continuation or amendment of this Agreement, the prior approval
of a majority of the board of directors who are not interested persons5 of any
party to this Agreement shall also be required.
11. This Agreement may be terminated at any time without
the payment of any penalty (a) by the Company, upon sixty (60) days' notice in
writing to the Adviser, provided such termination be authorized by resolution of
the board of directors of the Company or by a vote of a majority of the
outstanding voting securities6 of the Company; or (b) by the Adviser upon sixty
(60) days' notice in writing to the Company. (An affiliate of the Adviser may
assume the Adviser's obligations under this Agreement provided that (i) the
affiliate is qualified to act as an investment adviser to the Company under
applicable law; (ii) the assumption will not result in a change of actual
control or management of the Adviser under the 1940 Act; and (iii) the
assumption of the Adviser's obligations by the affiliate is approved by the
board of directors of the Company.)
12. This Agreement shall automatically and immediately
terminate in the event of its assignment.7
13. The Company hereby acknowledges that the Adviser has
full right, title and interest in and to the symbol appearing on the front and
back pages of the Company's definitive prospectus dated May 3, 1973 and the use
of the term "Excelsior" in connection with the name of or other designation for
any investment company or other activity, and that the Adviser may cause such
symbol and such term to be used in connection with the name of or other
designation for any other investment company or other entity with the same or
different investment objectives and policies. Accordingly, the Adviser consents
to the use by the Company of such symbol and the term "Excelsior" by itself or
in combination with any other term including "Shares" in its name so long as
this contract (or any contract with any organization which has succeeded to the
business of the Adviser) or any extension, renewal or amendment thereof remains
in effect. The Company agrees that if and when no such contract is in effect, it
will, if so required by the Adviser (a) cease the use of the symbol and the term
"Excelsior" by itself or in combination with any other term including "Shares"
in its name or any name indicating or suggesting that the Company is advised by
the Adviser, and (b) not thereafter refer to the former association between the
Adviser and the Company except as required by law.
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5 See footnote 4.
6 See footnote 3.
7 As such term is used in the 1940 Act and the rules and regulations
thereunder.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day and year first above written.
EXCELSIOR INCOME SHARES, INC.
by:
-----------------------------
Authorized Officer
{Seal}
ATTEST:
- ----------------------
UNITED STATES TRUST COMPANY
OF NEW YORK
by:
-----------------------------
Authorized Officer
{Seal}
ATTEST:
- ----------------------
16
