DEAR FELLOW SHAREHOLDERS:
Our annual report for EIS Fund, Inc., formerly Excelsior Income Shares,
Inc., covering the year 2001 follows. Net investment income for the year was
$1,138,302 or $0.52 per share. On November 21, 2001, the Fund announced that
there would be no distributable income to make its customary fourth quarter
distribution. This was due primarily to the extraordinarily high level of
expenses incurred during the first ten months of the calendar year by the Fund
under the leadership of its prior Board of Directors.
Decisions made at the end of year 2001 marked a new direction for our Fund.
U.S. Trust Company of New York, which established the Fund in 1973 and has been
associated ever since, decided to surrender its duties as both administrator and
adviser. Following this, shareholders were given a choice and signaled their
desire for change by successively rejecting liquidation, replacing the entire
Board of Directors, redefining the investment focus of the Fund from income to
capital appreciation and income, and approving Cornerstone Advisors, Inc. as the
new investment manager.
What can shareholders expect under this new direction? Let me assure you
that your Board of Directors, the investment manager, and the officers and
service providers of our Fund have heard our shareholders and are committed to
utilizing the Fund's closed-end structure to enhance shareholder value.
Following the special meeting of shareholders on December 27, 2001, the
Board authorized several monthly distributions of $0.165 per share, which is
substantially above the previous quarterly rate of $0.25 per share. It is our
current intention to maintain this high level of distributions and to enhance
the dividend reinvestment plan to give shareholders the option to more easily
reinvest them in the Fund.
It is our belief that this is a good time to have expanded the Fund's
investment options in order to benefit from opportunities in both fixed-income
and equity markets. For years, the Fund has profited from a long bull market in
fixed-income securities. With the U.S. in recession, the Federal Reserve's
benchmark interest rate dropped to a 40 year low of 1.75%. By the end of 2001,
however, signs of consumer confidence and economic recovery may presage a coming
period of accelerating growth and rising interest rates. This expansion of the
investment focus allows broader diversification of the Fund's assets.
We believe that we are positioning EIS Fund, Inc. to produce excellent
total returns for the long-term investor. We know you have a choice, we
appreciate your support, and we look forward to serving you in the future.
Sincerely,
/s/ Ralph W. Bradshaw
Ralph W. Bradshaw
Chairman and President
December 31, 2001
EIS Fund, Inc.
SCHEDULE OF INVESTMENTS
December 31, 2001 (Note 1)
U.S. GOVERNMENT and FEDERAL Moody's
AGENCIES OBLIGATIONS--39.42% Rating** Face Amount Cost* Value
--------------------------------------------------------------------------------------------------------
Fannie Mae, Deb.,
6.00%, 5/1/28 (1) $ 2,229,567 $ 2,192,988 $ 2,182,356
Government National Mortgage Assn.,
6.00%, 7/20/27 (1) 136,971 137,635 140,159
6.00%, 11/20/28 (1) 2,282,505 2,248,624 2,228,352
7.00%, 5/15/22 (1) 176,939 176,717 180,964
7.00%, 4/15/23 (1) 1,653,472 1,654,511 1,691,094
7.00%, 5/15/23 (1) 347,104 346,073 355,000
7.00%, 3/15/24 (1) 754,124 746,111 771,280
7.00%, 7/20/29 (1) 2,659,382 2,622,920 2,714,299
7.50%, 12/15/25 (1) 358,905 358,344 371,242
8.00%, 8/15/24 (1) 439,012 436,611 459,069
8.00%, 1/15/25 (1) 335,868 324,739 351,210
8.00%, I, 4/15/30 (1) 368,163 370,234 384,983
8.00%, II, 3/20/30 (1) 929,907 936,591 969,231
8.00%, II, 4/20/30 (1) 845,349 849,310 881,097
8.50%, 7/15/17 (1) 242,367 248,539 256,531
8.50%, 5/15/21 (1) 119,380 122,420 126,356
10.00%, 1/15/18 (1) 316,673 343,640 345,605
U.S. Treasury Bond,
7.25%, 5/15/16 (1) 1,000,000 982,950 1,156,133
----------- -----------
15,098,957 15,564,961
----------- -----------
BONDS AND NOTES--16.19%
--------------------------------------------------------------------------------------------------------
Commercial Mortgage Asset Trust,
6.64%, 9/17/10 Aaa 1,000,000 1,009,556 1,038,612
KFW International Finance Inc., Notes,
7.20%, 3/15/14 Aaa 2,000,000 1,986,885 2,199,420
Nationslink Funding Corp.,
6.476%, 7/20/08 Aaa 1,000,000 1,010,148 1,035,085
Wisconsin Elec. Power Co.,
7.25%, 8/1/04 Aa2 2,000,000 1,997,536 2,119,686
----------- -----------
6,004,125 6,392,803
----------- -----------
SHORT-TERM HOLDINGS--44.39%
--------------------------------------------------------------------------------------------------------
Fannie Mae, Disc. Note 1/3/02 15,000,000 14,998,633 14,998,633
Shares
-----------
Dreyfus Government Cash Management Fund 1,800,000 1,800,000 1,800,000
Fidelity Treasury Cash Portfolio 728,320 728,320 728,320
----------- -----------
17,526,953 17,526,953
----------- -----------
TOTAL INVESTMENTS IN SECURITIES $38,630,035 $39,484,717
=========== ===========
---------------
Percentages are based on total investments.
The accompanying notes are an integral part of this schedule.
2
EIS Fund, Inc.
SCHEDULE OF INVESTMENTS (continued)
December 31, 2001 (Note 1)
The aggregate market value at December 31, 2001 for the long-term holdings in
terms of Quality Ratings is as follows:
Rating** Value Percent
-------- ----- -------
Aaa (1) $19,838,078 90.35
Aa2 2,119,686 9.65
----------- ------
Total $21,957,764 100.00
=========== ======
(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 $ 903,178
Aggregate gross unrealized
depreciation (30,904)
-----------
Net unrealized appreciation $ 872,274
===========
Cost for Federal Income Tax
Purposes $38,612,443
===========
**Credit ratings are unaudited.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2001
ASSETS:
------------------------------
Investments (Note 1) in securities
at value (identified
cost $38,630,035):
U.S. Government and
Federal Agencies
Obligations $15,564,961
Bonds and notes 6,392,803
Short-term holdings 17,526,953
-----------
Total Investments $39,484,717
Cash 1,180
Interest receivable 206,984
Prepaid expenses 13,719
-----------
Total Assets 39,706,600
-----------
LIABILITIES:
------------------------------
Advisory fee (Note 3) 50,703
Operating expenses 108,417
-----------
Total Liabilities 159,120
-----------
Net Assets $39,547,480
===========
NET ASSETS consist of:
Undistributed net investment
income $ 17,592
Accumulated net realized losses
from investment transactions (91,132)
Unrealized appreciation on
investments 854,682
Capital shares (Note 5) 21,611
Additional paid-in capital 38,744,727
-----------
$39,547,480
===========
Net Asset Value per share
($39,547,480 / 2,161,091 shares) $18.30
===========
The accompanying notes are an integral part of this statement.
3
EIS Fund, Inc.
STATEMENT OF OPERATIONS
for the year ended December 31, 2001
(Note 1)
INVESTMENT INCOME:
------------------------------
INCOME--Interest $ 2,348,734
EXPENSES:
Investment advisory fee $200,002
Legal 379,041
Officer's salary 226,874
Shareholders' meetings
expense 153,109
Postage and printing 65,629
Directors' fees and expenses 60,559
The New York Stock
Exchange, Inc.--annual fee 23,451
Insurance 22,989
Audit 19,998
Transfer agent and
registrar fees 11,595
Miscellaneous 47,185
----------
Total expenses 1,210,432
-----------
Net Investment Income 1,138,302
-----------
REALIZED GAIN AND UNREALIZED APPRECIATION
(DEPRECIATION) ON INVESTMENTS--NET:
------------------------------
Realized gain from security
transactions
(excluding short-term securities):
Proceeds from sales $13,769,123
Cost of sales 13,457,520
-----------
Net realized gain 311,603
Unrealized
appreciation/(depreciation)
on investment securities:
Beginning of year 633,466
End of year 854,682
----------
Change in unrealized
appreciation--net 221,216
-----------
Net realized gain and change
in unrealized appreciation
on investments 532,819
-----------
Net increase in Net Assets
Resulting from Operations $ 1,671,121
===========
STATEMENT OF CHANGES IN NET ASSETS
For the year For the year
ended ended
Dec. 31, 2001 Dec. 31, 2000
------------- -------------
INCREASE (DECREASE)
IN NET ASSETS:
-----------------------
Operations:
Investment income--
net (Note 1) $ 1,138,302 $ 2,316,836
Realized gain/(loss)
on investments--net
(Note 2) 311,603 (139,067)
Change in unrealized
appreciation--net 221,216 1,516,089
----------- -----------
Net increase
in net assets
resulting from
operations 1,671,121 3,693,858
----------- -----------
Dividends and
distributions to
shareholders from:
Net Investment income (1,444,190) (2,279,870)
Return of Capital (182,628) --
Cost of shares
purchased pursuant to
Section 23 of the
Investment Company
Act of 1940 (Note 5) (136,980) (56,530)
----------- -----------
Total increase/(decrease)
in net assets (92,677) 1,357,458
----------- -----------
NET ASSETS:
-----------------------
Beginning of year 39,640,157 38,282,699
----------- -----------
End of year (including
undistributed net
investment income of
$17,592 and $11,877
in 2001 and 2000,
respectively) $39,547,480 $39,640,157
=========== ===========
The accompanying notes are an integral part of these statements.
4
EIS Fund, Inc.
FINANCIAL HIGHLIGHTS
For the years ended December 31,
-----------------------------------------------
2001 2000 1999 1998 1997
------- ------- ------- ------- -------
Per Share Operating Performance:
Net asset value, beginning of year $ 18.28 $ 17.62 $ 18.78 $ 18.52 $ 18.23
------- ------- ------- ------- -------
Net investment income 0.52 1.07 1.03 1.06 1.08
Net gain/(loss) on securities
(realized and unrealized) 0.24 0.63 (1.20) 0.23 0.38
------- ------- ------- ------- -------
Total from investment operations 0.76 1.70 (0.17) 1.29 1.46
------- ------- ------- ------- -------
Less Dividends and Distributions:
Dividends from net investment income (0.66) (1.05) (1.01) (1.03) (1.17)
Return of capital (0.09) -- -- -- --
------- ------- ------- ------- -------
Total dividends and distributions (0.75) (1.05) (1.01) (1.03) (1.17)
------- ------- ------- ------- -------
Treasury stock transactions 0.01 0.01 0.02 -- --
------- ------- ------- ------- -------
Net asset value, end of year $ 18.30 $ 18.28 $ 17.62 $ 18.78 $ 18.52
======= ======= ======= ======= =======
Market value per share, end of year $ 16.29 $15.875 $ 14.25 $ 16.56 $ 16.75
======= ======= ======= ======= =======
Total Investment Return:
Based on market value per share (a) 8.91% 19.02% (8.39)% 5.55% 14.51%
======= ======= ======= ======= =======
Ratios To Average Net Assets:
Expenses 3.01% 1.06% 1.05% 0.97% 1.08%
Net investment income 2.77% 5.97% 5.60% 5.62% 5.89%
Supplemental Data:
Net assets at end of year
(000 omitted) $39,547 $39,640 $38,283 $41,069 $40,490
Portfolio turnover rate 0.00% 15.87% 16.09% 15.88% 2.91%
---------------
(a) Total investment return at market value is based on the changes in market
price of a share during the year and assumes reinvestment of dividends and
distributions, if any, at actual prices pursuant to the Fund's dividend
reinvestment plan.
The accompanying notes are an integral part of this schedule.
5
EIS Fund, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
EIS Fund, Inc. (the "Fund") was incorporated on March 16, 1973 and
commenced investment operations on May 15, 1973. As a result of a Special
Meeting of Stockholders held on December 27, 2001 (the "Meeting"), the Fund,
formerly known as the Excelsior Income Shares, Inc. (d/b/a/ EIS Fund, Inc.),
changed its name. The Fund is registered under the Investment Company Act of
1940, as amended, as a closed-end, diversified management investment company.
At the Meeting held on December 27, 2001, the stockholders approved a
proposal to change the investment objective of the Fund to seek total return,
consisting of capital appreciation and current income by investing primarily all
of its assets in equity securities of U.S. and non-U.S. issuers whose securities
trade on a U.S. securities exchange or over the counter or as American
Depositary Receipts or other forms of depositary receipts such as International
Depositary Receipts which trade in the United States. Current income will then
be a secondary investment objective through investment in U.S. debt securities.
The significant accounting policies of the Fund, 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 December 31, 2001, are reflected in the accompanying
financial statements at value. Valuations of the Fund'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
amortized cost, which approximates value.
The difference between cost and value is reflected separately as unrealized
appreciation (depreciation) of investments.
Beginning January 1, 2001, the revised AICPA Audit and Accounting Guide,
Audits of Investment Companies (the "Guide"), requires funds to begin to
amortize all premiums and accrete all discounts on fixed income securities. Upon
initial adoption on January 1, 2001, the cumulative net amount of accretion that
would have been recognized had amortization/accretion been in effect from the
purchase date of each holding through December 31, 2000 was immaterial. The
impact of the change was also immaterial to the Fund's net investment income,
net unrealized appreciation of investments and net realized gain on investments
for the year ended December 31, 2001.
The revised Guide also requires funds to classify gains and losses realized
on the paydown of mortgage-backed securities as an adjustment to interest income
on its statement of operations. Such net paydown gains, which had been
previously included as a part of realized gain/loss from security transactions,
amounted to $7,348 in 2001.
Realized gains and losses on security transactions are determined on the
basis of identified cost.
6
EIS Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 2001
--------------------------------------------------------------------------------
b) Federal Income Taxes--No provision for Federal income taxes has been
made in the accompanying financial statements since the Fund 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 Fund
utilized capital loss carryforwards of $321,637 during 2001. At December 31,
2001, the Fund has remaining capital loss carryforwards of $91,132 expiring in
2008, available to offset future capital gains, if any.
c) Investment Income Recognition--The Fund records interest and expenses on
the accrual basis.
d) Dividend Distributions--The Fund 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 accounting
principles generally accepted in the United States 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:
At the Special Meeting of Stockholders of the Fund held on December 27,
2001, stockholders approved a new investment management agreement by and between
Cornerstone Advisors, Inc. ("Cornerstone") and the Fund. As a result,
Cornerstone commenced its performance of the investment management services with
respect to the Fund's portfolio securities on or about January 1, 2002.
As compensation for its management services, Cornerstone will receive from
the Fund an annual fee, calculated weekly and paid monthly, equal to 1.00% of
the Fund's average weekly net assets. Cornerstone has voluntarily agreed to
limit, until December 31, 2002, the Fund's annual operating expenses (excluding
interest, taxes, brokerage commissions, expenditures which are capitalized in
accordance with generally accepted accounting principles, and other
extraordinary expenses not incurred in the ordinary course of such Fund's
business) to 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.
For the year ended December 31, 2001, portfolio securities were managed
under an investment advisory agreement by United States Trust Company of New
York ("US Trust"). US Trust furnished investment advisory
7
EIS Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 2001
--------------------------------------------------------------------------------
services to and performed certain administrative functions for the Fund.
Quarterly fees for such services were based on the net assets of the Fund, 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 provided that US Trust would
reimburse the Fund for all expenses (excluding interest, taxes, brokerage
commissions and certain other expenses, if any) borne by the Fund 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. The
expenses incurred by the Fund for the year ended December 31, 2001 in excess of
the above formula were deemed by the Fund's prior Board of Directors to be
covered by the exclusion discussed above. Therefore, no waiver of the advisory
fee by US Trust was required.
For the period from July 1, 2001, to December 31, 2001, US Trust provided
custody services to the Fund at no additional charge.
Each director who is not an employee of the Investment Manager receives
from the Fund an annual fee of $5,000, an attendance fee of $300, and $100 for
each audit committee meeting attended.
Effective as of the close of business on April 2, 2001, Townsend Brown, II,
the President and Chief Executive Officer of the Fund who was paid an annual
salary of $48,104 for these services, terminated his employment agreement with
the Fund for Good Reason (as such term is defined in such employment agreement).
Pursuant to the terms of such employment agreement, the Fund made a lump sum
severance payment to Mr. Brown in the amount of $181,534. Effective as of April
3, 2001, Perry W. Skjelbred, a director of the Fund, agreed to serve as
President of the Fund on an at will basis at the discretion of the Board of
Directors. The Fund paid Mr. Skjelbred a fee of $1,000 per week in connection
with his services as President through October 30, 2001, at which point Ralph W.
Bradshaw became President of the Fund. Mr. Bradshaw elected not to receive
compensation from the Fund for his services in that capacity.
Two officers of the Fund during the year were also officers of US Trust.
They resigned effective December 31, 2001.
The Fund paid or accrued approximately $50,000 for the year ended December
31, 2001 for legal services to Spitzer & Feldman P.C., counsel to the Fund. Mr.
Westle, a partner of the firm, serves as a secretary of the Fund.
(4) PURCHASES AND PROCEEDS FROM SALES OF SECURITIES:
For the period ended December 31, 2001, purchases and proceeds from sales
of securities other than short-term and United States Government and Federal
Agencies obligations aggregated $-0- and $7,654,736, respectively.
8
EIS Fund, Inc.
NOTES TO FINANCIAL STATEMENTS (concluded)
December 31, 2001
--------------------------------------------------------------------------------
(5) CAPITAL STOCK:
At December 31, 2001, 2,161,091 shares of $.01 par value common stock
(15,000,000 shares authorized) were outstanding.
Pursuant to Section 23 of the Investment Fund Act of 1940, the Fund may in
the future purchase shares of its own Common Stock on the open market from time
to time, at such times, and in such amounts as may be deemed advantageous to the
Fund. Nothing herein shall be considered a commitment to purchase such shares.
For the year ended December 31, 2000, the Fund purchased 4,000 shares in the
open market at a cost of $56,530. For the year ended December 31, 2001, the Fund
purchased 8,000 shares in the open market at a cost of $136,980. These purchases
were made at a weighted average discount to net asset value of 19.59% and 7.85%
in 2000 and 2001, respectively.
At December 31, 2001, pursuant to regulatory filings, a single shareholder
and his affiliates owned approximately 34.1% of the outstanding shares of the
Fund, based on a Schedule 13G/A filing made with the Securities and Exchange
Commission on February 15, 2002.
(6) DIVIDENDS DECLARED:
At its meeting on December 27, 2001, the Board of Directors of the Fund
declared the following monthly dividends:
DIVIDENDS PER SHARE RECORD DATE PAYABLE DATE
------------------- ----------- ------------
$0.165 January 15, 2002 January 31, 2002
$0.165 February 15, 2002 February 28, 2002
$0.165 March 15, 2002 March 29, 2002
9
EIS Fund, Inc.
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
EIS FUND, INC.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of EIS Fund, Inc. (formerly, Excelsior
Income Shares, Inc; the "Fund"), at December 31, 2001, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States of America, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 2001 by correspondence with the custodian, provide
a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 8, 2002
10
EIS Fund, Inc.
ADDITIONAL INFORMATION ABOUT FUND DIRECTORS AND OFFICERS (unaudited)
--------------------------------------------------------------------------------
Position(s) Position
Held with the Principal Occupation
Name and Address (Age) with Fund Fund Since During Past Five Years
---------------------- ----------- ---------- ----------------------
Andrew A. Strauss (48) Director 2001; Attorney and senior member of Strauss &
77 Central Avenue current term Associates, P.A., Attorneys, Asheville and
Suite F ends at the Hendersonville, NC; previous President of
Asheville, NC 28801 2002 White Knight Healthcare, Inc. and LMV
Annual Leasing, Inc., a wholly owned subsidiary of
Meeting. Xerox Credit Corporation; Director of The
Cornerstone Strategic Return Fund, Inc.,
Cornerstone Strategic Value Fund, Inc.,
Progressive Return Fund, Inc., Memorial
Mission Hospital Foundation and Deerfield
of Episcopal Retirement Community.
Ralph W. Bradshaw* (51) Chairman of 2001; President, Director and Shareholder of
One West Pack Square the Board current term Cornerstone Advisors, Inc.; Financial
Suite 1650 of ends at the Consultant; Vice President, Deep Discount
Asheville, NC 28801 Directors 2002 Advisors, Inc. (1993- 1999); Director of
and Annual The Austria Fund, Inc., The SmallCap Fund;
President Meeting. The Cornerstone Strategic Return Fund,
Inc., Cornerstone Strategic Value Fund,
Inc. and Progressive Return Fund, Inc.
Glenn W. Wilcox, Sr. (70) Director 2001; Chairman of the Board and Chief Executive
One West Pack Square current term Officer of Wilcox Travel Agency; Director,
Suite 1700 ends at the Champion Industries, Inc.; Chairman of
Asheville, NC 28801 2002 Tower Associates, Inc. (a real estate
Annual venture); Member of the Board of Wachovia
Meeting. Corp.; Board Trustee and Chairman,
Appalachian State University; Board Trustee
and Director, Mars Hill College; Director
of The Cornerstone Strategic Return Fund,
Inc., Cornerstone Strategic Value Fund,
Inc. and Progressive Return Fund, Inc.
11
EIS Fund, Inc.
ADDITIONAL INFORMATION ABOUT FUND DIRECTORS AND OFFICERS (unaudited) (continued)
--------------------------------------------------------------------------------
Position(s) Position
Held with the Principal Occupation
Name and Address (Age) with Fund Fund Since During Past Five Years
---------------------- ----------- ---------- ----------------------
Scott B. Rogers (46) Director 2001; Chief Executive Officer, Asheville Buncombe
30 Cumberland Ave. current term Community Christian Ministry; President,
Asheville, NC 28801 ends at the ABCCM Doctor's Medical Clinic; Director,
2002 Southeastern Jurisdiction Urban Networkers;
Annual Director, A-B Vision Board; Appointee, NC
Meeting. Governor's Commission on Welfare to Work;
Chairman and Director Recycling Unlimited;
Director, Interdenominational Ministerial
Alliance; Director of The Cornerstone
Strategic Return Fund, Inc., Cornerstone
Strategic Value Fund, Inc. and Progressive
Return Fund, Inc.
Gary A. Bentz* (45) Director, 2001; Director and Shareholder of Cornerstone
One West Pack Square Vice current term Advisors, Inc.; Independent Financial,
Suite 1650 President ends at the Accounting, Investment Consultant and
Asheville, NC 28801 and 2002 Certified Public Accountant; Vice
Treasurer Annual President, Deep Discount Advisors, Inc.
Meeting. (1993-2000); Director of The Austria Fund,
Inc.; Vice President and Treasurer of The
Cornerstone Strategic Return Fund, Inc.,
Cornerstone Strategic Value Fund, Inc. and
Progressive Return Fund, Inc.
Thomas R. Westle (48) Secretary 2001 Partner, Spitzer & Feldman P.C. (May 1998-
405 Park Avenue present) and prior thereto; a Partner at
New York, NY 10022 Battle Fowler LLP.
---------------
*Designates a director who is an "interested person" of the Fund as defined
under the Investment Company Act of 1940. As of January 1, 2002, Messrs.
Bradshaw and Bentz are interested persons of the Fund by virtue of their
current positions as Directors and Officers of the Fund and Investment Managers
to the Fund.
12
EIS Fund, Inc.
RESULTS OF ANNUAL AND SPECIAL MEETINGS OF STOCKHOLDERS (unaudited)
--------------------------------------------------------------------------------
On December 27, 2001, a Special Meeting of Stockholders of Excelsior Income
Shares, Inc. (the "Fund") was held and the following matters were voted upon:
(1) To amend the Fund's Prospectus and By-laws to effect changes in its
fundamental investment objectives and policies and fundamental
investment restrictions (Proposal No. 1);
FOR AGAINST ABSTAIN
--- ------- -------
1,101,234 170,521 23,712
(2) To approve a new investment management agreement between Cornerstone
Advisors, Inc. and the Fund which will have the effect of increasing
the investment management fee (Proposal No. 2);
FOR AGAINST ABSTAIN
--- ------- -------
1,093,840 177,496 24,131
(3) To amend the Certificate of Incorporation to change the name of the
Fund from "Excelsior Income Shares, Inc." to "EIS Fund, Inc." (Proposal
No. 3);
FOR AGAINST ABSTAIN
--- ------- -------
1,395,403 111,123 34,113
On October 8, 2001, the Annual Meeting of Stockholders of Excelsior Income
Shares, Inc. (the "Fund") was held and the following matters were voted upon, of
which only the proposals one and four passed:
(1) To elect the following Directors to hold office until the next Annual
Meeting and until their successors are duly elected and qualified.
NAME OF DIRECTOR FOR WITHHELD
---------------- --- --------
Ralph W. Bradshaw 789,177 4,549
Gary A. Bentz 788,637 5,089
Andrew Strauss 788,637 5,089
Glenn W. Wilcox, Sr. 788,677 5,049
Scott B. Rogers 785,379 8,347
Townsend Brown, II 730,653 31,152
Geoffrey J. O'Connor 733,481 28,324
John H. Reilly 733,361 28,444
Perry W. Skjelbred 731,834 29,971
Philip J. Tilearcio 733,481 28,324
13
EIS Fund, Inc.
RESULTS OF ANNUAL AND SPECIAL MEETINGS OF STOCKHOLDERS (unaudited) (continued)
--------------------------------------------------------------------------------
(2) To approve a new Investment Advisory Agreement between the Fund and
Rafferty Capital Markets, LLC.
FOR AGAINST ABSTAIN
--- ------- -------
791,689 707,366 56,476
(3) To approve the liquidation and dissolution of Excelsior Income Shares,
Inc. pursuant to the plan of liquidation described in the Fund's proxy
statement.
FOR AGAINST ABSTAIN
--- ------- -------
1,000,152 485,486 69,892
(4) To ratify the selection of PricewaterhouseCoopers LLP as the Fund's
independent public accountants for the fiscal year ended December 31,
2001.
FOR AGAINST ABSTAIN
--- ------- -------
1,513,183 11,916 30,431
(5) To ratify the change in name of Excelsior Income Shares, Inc. to EIS
Fund, Ltd.
FOR AGAINST ABSTAIN
--- ------- -------
796,477 710,608 48,446
(6) To approve a proposal that, if a majority favors liquidation, but it
fails to receive the super-majority, two-thirds vote required, the
shareholders recommend that the Board provide shareholders an option to
receive Net Asset Value.
FOR AGAINST ABSTAIN
--- ------- -------
126,377 195,986 471,363
(7) To approve a proposal that, if the liquidation proposal receives the
required two-thirds vote, the shareholders request that the first
liquidation payment be distributed within 30 days after the meeting,
rather than 90 days as described in the Fund's proxy.
FOR AGAINST ABSTAIN
--- ------- -------
122,979 195,986 474,761
14
EIS Fund, Inc.
TAX INFORMATION (unaudited)
--------------------------------------------------------------------------------
EIS Fund, Inc. (the "Fund") is required by Subchapter M of the Internal Revenue
Code of 1986, as amended, to advise its shareholders within 60 days of the
Fund's year end (December 31, 2001) as to the U.S. federal tax status of
distributions received by the Fund's shareholders in respect of such fiscal
year. During the year ended December 31, 2001, the following dividends and
distributions per share were paid by the Fund:
Payment Date: 5/04/01 7/27/01 10/26/01
Net Investment Income: $0.22 $0.22 $0.22
Return of Capital: $0.03 $0.03 $0.03
Ordinary income dividends should be reported as dividend income on Form 1040.
Dividends from net investment income are taxable as ordinary income.
Notification for calendar year 2001 was mailed in January 2002. The notification
along with Form 1099-DIV reflects the amount to be used by calendar year
taxpayers on their U.S. federal income tax returns.
INCOME PERCENTAGES BY SECURITY TYPE FOR CALENDAR YEAR 2001
The extent to which dividends were derived from various security types are
presented below.
Corporate Obligations 31.34%
Freddie Mac 0.74%
Fannie Mae 6.81%
Federal Farm Credit Bank 0.30%
Federal Home Loan Bank 11.67%
Government National Mortgage Association 46.02%
U.S. Treasury Obligations 3.12%
-------
Total 100.00%
=======
Foreign shareholders will generally be subject to U.S. witholding tax on the
amount of their distribution. They will generally not be entitled to a foreign
tax credit or deduction for the witholding taxes paid by the Fund, if any.
In general, distributions received by tax exempt recipients (e.g., IRA's and
Keoghs) need not be reported as taxable income for U.S. federal income tax
purposes. However, some retirement trusts (e.g. corporate, Keogh and 403 (b) (7)
plans) may need this information for their annual information reporting.
Shareholders are advised to consult their own tax advisers with respect to the
tax consequences of their investment in the Fund.
15
EIS Fund, Inc.
--------------------------------------------------------------------------------
PRIVACY POLICY NOTICE
The following is a description of EIS Fund, Inc.'s (the "Fund") policies
regarding disclosure of nonpublic personal information that you provide to the
Fund or that the Fund collects from other sources. In the event that you hold
shares of the Fund through a broker-dealer or other financial intermediary, the
privacy policy of the financial intermediary would govern how your nonpublic
personal information would be shared with unaffiliated third parties.
CATEGORIES OF INFORMATION THE FUND COLLECTS. The Fund collects the
following nonpublic personal information about you:
1. Information from the Consumer: this category includes information the
Fund receives from you on or in applications or other forms,
correspondence, or conversations (such as your name, address, phone
number, social security number, assets, income and date of birth); and
2. Information about the Consumer's transactions: this category includes
information about your transactions with the Fund, its affiliates, or
others (such as your account number and balance, payment history,
parties to transactions, cost basis information, and other financial
information).
CATEGORIES OF INFORMATION THE FUND DISCLOSES. The Fund does not disclose
any nonpublic personal information about their current or former shareholders to
unaffiliated third parties, except as required or permitted by law. The Fund is
permitted by law to disclose all of the information it collects, as described
above, to its service providers (such as the Fund's custodian, administrator and
transfer agent) to process your transactions and otherwise provide services to
you.
CONFIDENTIALITY AND SECURITY. The Fund restricts access to your nonpublic
personal information to those persons who require such information to provide
products or services to you. The Fund maintains physical, electronic and
procedural safeguards that comply with federal standards to guard your nonpublic
personal information.
February 2002
16
EIS Fund, Inc.
DESCRIPTION OF DIVIDEND REINVESTMENT & CASH PURCHASE PLAN (unaudited)
--------------------------------------------------------------------------------
Shareholders who have Shares registered directly in their own names
automatically participate in the Fund's Dividend Reinvestment & Cash Purchase
Plan (the "Plan"), unless and until an election is made to withdraw from the
Plan on behalf of such participating shareholders. Shareholders who do not wish
to have distributions automatically reinvested should so notify U.S. Bank N.A.
(the "Agent") at 1555 North River Center Drive, Suite 301, Milwaukee, WI 53212.
Under the Plan, all of the Fund's dividends and other distributions to
shareholders are reinvested in full and fractional Shares as described below.
When the Fund declares an income dividend or a capital gain or other
distribution (each, a "Dividend" and collectively, "Dividends"), the Agent, on
the shareholders' behalf, will: (i) receive additional authorized shares from
the Fund either newly issued or repurchased from shareholders by the Fund and
held as treasury stock ("Newly Issued Shares") or, (ii) at the sole discretion
of the Board of Directors, be authorized to purchase outstanding shares on the
open market, on the NYSE or elsewhere, with cash allocated to it by the Fund
("Open Market Purchases").
Shares acquired by the Agent in Open Market Purchases will be allocated to
the reinvesting shareholders based on the average cost of such Open Market
Purchases. Alternatively, the Agent will allocate Newly Issued Shares to the
reinvesting shareholders at a price equal to the average closing price of the
Fund over the five trading days preceding the payment date of such dividend.
Registered shareholders who acquire their shares through Open Market
Purchases and who do not wish to have their Dividends automatically reinvested
should so notify the Fund in writing. If a Shareholder has not elected to
receive cash Dividends and the Agent does not receive notice of an election to
receive cash Dividends prior to the record date of any Dividend, the shareholder
will automatically receive such Dividends in additional Shares.
Participants in the Plan may withdraw from the Plan by providing written
notice to the Agent at least 30 days prior to the applicable Dividend payment
date. When a participant withdraws from the Plan, or upon termination of the
Plan as provided below, certificates for whole shares credited to his/her
account under the Plan will, upon request, be issued. Whether or not a
participant requests that certificates for whole shares be issued, a cash
payment will be made for any fraction of a Share credited to such account.
The Agent will maintain all shareholder accounts in the Plan and furnish
written confirmations of all transactions in the accounts, including information
needed by shareholders for personal and tax records. The Agent will hold shares
in the account of each Plan participant in non-certificated form in the name of
the participant, and each shareholder's proxy will include those shares
purchased pursuant to the Plan. Each participant, nevertheless, has the right to
receive certificates for whole shares owned. The Agent will distribute all proxy
solicitation materials to participating shareholders.
17
EIS Fund, Inc.
DESCRIPTION OF DIVIDEND REINVESTMENT & CASH PURCHASE PLAN (unaudited)
(continued)
--------------------------------------------------------------------------------
In the case of shareholders, such as banks, brokers or nominees, that hold
shares for others who are beneficial owners participating in the Plan, the Agent
will administer the Plan on the basis of the number of shares certified from
time to time by the record shareholder as representing the total amount of
shares registered in the Shareholder's name and held for the account of
beneficial owners participating in the Plan.
There will be no charge to participants for reinvesting Dividends other
than their share of brokerage commissions as discussed below. The Agent's fees
for administering the Plan and handling the reinvestment of Dividends will be
paid by the Fund. Each participant's account will be charged a pro-rata share of
brokerage commissions incurred with respect to the Agent's Open Market Purchases
in connection with the reinvestment of Dividends. Brokerage charges for
purchasing small amounts of shares for individual accounts through the Plan are
expected to be less than the usual brokerage charges for such transactions
because the Agent will be purchasing shares for all the participants in blocks
and pro-rating the lower commission that may be attainable.
The automatic reinvestment of Dividends will not relieve participants of
any income tax that may be payable on such Dividends. Participants who receive
shares pursuant to the Plan as described above will recognize taxable income in
the amount of the fair market value of those shares. In the case of non-U.S.
participants whose Dividends are subject to U.S. income tax withholding and in
the case of participants subject to 30% federal backup withholding, the Agent
will reinvest Dividends after deduction of the amount required to be withheld.
The Fund reserves the right to amend or terminate the Plan by written
notice to participants. All correspondence concerning the Plan should be
directed to the Agent at the address referred to in the first paragraph of this
section.
18
EIS FUND, INC.
383 Madison Avenue
New York, NY 10179
(212) 272-2093
DIRECTORS AND CORPORATE OFFICERS
Ralph W. Bradshaw
Chairman of the Board of Directors and President
Gary A. Bentz
Director, Vice President and Treasurer
Scott B. Rogers
Director
Andrew A. Strauss
Director
Glen W. Wilcox, Sr.
Director
Thomas R. Westle
Secretary
INVESTMENT MANAGER
Cornerstone Advisors, Inc.
One West Pack Square
Suite 1650
Asheville, NC 28801
LEGAL COUNSEL
Spitzer & Feldman P.C.
405 Park Avenue
New York, NY 10022
TRANSFER AGENT & REGISTRAR
U.S. Bank N.A.
Corporate Trust Services
1555 North River Center Drive
Suite 301
Milwaukee, WI 53212
(800) 637-7549
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Listed on N.Y. Stock Exchange--Symbol EIS
A "Closed-End Funds" table, which includes current data on EIS Fund, Inc., is
published weekly by The Wall Street Journal, The New York Times and Barron's.
This report, including the financial statements herein, is sent to the
shareholders of the Fund for their information. It is not a prospectus, circular
or representation intended for use in the purchase or sale of shares of the Fund
or of any securities mentioned in this report.
--------------------------------------------------
EIS
Fund,
Inc.
Annual Report
December 31, 2001
--------------------------------------------------