<PAGE>
As filed with the SEC on July 31, 1996
Excelsior Funds, Inc. - Registration Nos. 2-92665; 811-4088
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Excelsior Funds, Inc.: Post-Effective Amendment No. 23 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY [x]
ACT OF 1940
Excelsior Funds, Inc.: Amendment No. 25 [x]
(Exact Name of Registrant as Specified in Charter)
73 Tremont Street
Boston, Massachusetts 02108-3913
(Address of Principal Executive Offices)
Registrant's Telephone Number: (800) 446-1012
W. Bruce McConnel, III
Drinker Biddle & Reath
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
(Name and Address of Agent for Service)
It is proposed that this post-effective amendment will become effective (check
appropriate box)
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
--------------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Title of Amount of Proposed Proposed Amount of
Securities Shares Maximum Maximum Registration
Being Being Offering Aggregate Fee (1)
Registered Registered Price/Share Offering Price
Shares of
Common Stock 615,496,616 NAV $391,680,667 $100
(1) Registrant had actual aggregate redemptions of $12,939,812,101 for its
fiscal year ended March 31, 1996; has used $12,548,421,431 for reductions
pursuant to Rule 24f-2(c) under the 1940 Act and has previously used no
available redemptions for reductions pursuant to Rule 24e-2(a) of the 1940 Act
during the current year. Registrant elects to use redemptions in the aggregate
amount of $391,390,670 (615,463,700 shares of Common Stock) for reductions in
its current amendment. While no fee is required to register the 615,463,700
shares of Common Stock, the Registrant has elected to register, for $100, an
additional $289,997 of shares of Common Stock (32,916 shares of Common Stock at
$8.81 per share (the net asset value per share on July 23, 1996 calculated in
accordance with Rule 457(d))).
The Registrant has registered an indefinite number of securities under the
Securities Act of 1933 pursuant to Rule 24f-2. The Rule 24f-2 Notice for the
Registrant's fiscal year ended March 31, 1996 was filed on May 30, 1996.
<PAGE>
[LOGO OF EXCELSIOR
FUNDS INC.]
A Management Investment Company
- --------------------------------------------------------------------------------
Equity Funds For initial purchase information, current
prices, performance information and existing
73 Tremont Street account information, call (800) 446-1012.
Boston, MA 02108-3913 (From overseas, call (617) 557-8280.)
- --------------------------------------------------------------------------------
This Prospectus describes a series of shares ("Shares") offered by several sep-
arate portfolios offered to investors by Excelsior Funds, Inc. ("Excelsior
Fund") (formerly UST Master Funds, Inc.), an open-end, management investment
company. Excelsior Fund also issues an additional series of shares in certain
of the portfolios ("Trust Shares") which are offered under a separate prospec-
tus. Each portfolio (individually, a "Fund" and collectively, the "Funds") has
its own investment objective and policies as follows:
EQUITY FUND seeks long-term capital appreciation by investing in companies be-
lieved by the Investment Adviser to represent good long-term values not cur-
rently recognized in the market prices of their securities.
INCOME AND GROWTH FUND seeks moderate current income with capital appreciation
as a secondary goal by investing in common stock, preferred stock and securi-
ties convertible into common stock.
LONG-TERM SUPPLY OF ENERGY FUND seeks long-term capital appreciation by in-
vesting in companies which the Investment Adviser believes will benefit from
the availability, development and delivery of secure hydrocarbon and other en-
ergy sources.
PRODUCTIVITY ENHANCERS FUND seeks long-term capital appreciation by investing
in companies which the Investment Adviser believes will benefit from their
roles as innovators, developers and suppliers of goods and services which en-
hance service and manufacturing productivity or companies that are most effec-
tive at obtaining and applying productivity enhancement developments.
ENVIRONMENTALLY-RELATED PRODUCTS AND SERVICES FUND seeks long-term capital ap-
preciation by investing in companies which the Investment Adviser believes will
benefit from their provision of products, technologies and services related to
conservation, protection and restoration of the environment.
AGING OF AMERICA FUND seeks long-term capital appreciation by investing in
companies which the Investment Adviser believes will benefit from the changes
occurring in the demographic structure of the U.S. population, particularly its
growing population of individuals over the age of 40.
COMMUNICATION AND ENTERTAINMENT FUND seeks long-term capital appreciation by
investing in companies which the Investment Adviser believes will benefit from
the technological and international transformation of the communications and
entertainment industries, particularly the convergence of information, communi-
cation and entertainment media.
BUSINESS AND INDUSTRIAL RESTRUCTURING FUND seeks long-term capital apprecia-
tion by investing in companies which the Investment Adviser believes will bene-
fit from their restructuring or redeployment of assets and operations in order
to become more competitive or profitable.
GLOBAL COMPETITORS FUND seeks long-term capital appreciation by investing pri-
marily in U.S.-based companies which the Investment Adviser believes will bene-
fit from their position as effective and strong competitors on a global basis.
EARLY LIFE CYCLE FUND seeks long-term capital appreciation by investing in
smaller companies in the earlier stages of their development or larger or more
mature companies engaged in new and higher growth potential operations.
Each of the Funds is sponsored and distributed by Edgewood Services, Inc. and
advised by United States Trust Company of New York (the "Investment Adviser" or
"U.S. Trust").
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated August 1, 1996 and containing additional information about
the Funds has been filed with the Securities and Exchange Commission. The cur-
rent Statement of Additional Information is available to investors without
charge by writing to Excelsior Fund at its address shown above or by calling
(800) 446-1012. The Statement of Additional Information, as it may be supple-
mented from time to time, is incorporated by reference in its entirety into
this Prospectus.
SHARES IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR EN-
DORSED BY, UNITED STATES TRUST COMPANY OF NEW YORK, ITS PARENT OR AFFILIATES
AND THE SHARES ARE NOT FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR
OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE COR-
PORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
August 1, 1996
<PAGE>
PROSPECTUS SUMMARY
EXCELSIOR FUNDS, INC. is an investment company offering various diversified
investment portfolios with differing objectives and policies. Founded in 1984,
Excelsior Fund currently offers 20 Funds with combined assets of approximately
$2.4 billion. See "Description of Capital Stock."
INVESTMENT ADVISER: United States Trust Company of New York ("U.S. Trust")
serves as the Funds' investment adviser. U.S. Trust offers a variety of spe-
cialized financial and fiduciary services to high-net worth individuals, in-
stitutions and corporations. Excelsior Fund offers investors access to U.S.
Trust's services. See "Management of the Funds--Investment Adviser."
INVESTMENT OBJECTIVES AND POLICIES: Generally, each Fund is a diversified
investment portfolio which invests in equity securities. The Income and Growth
Fund also may invest significantly in bonds. The Funds' investment objectives
and policies are summarized on the cover and explained in greater detail later
in this Prospectus. See "Investment Objectives and Policies," "Portfolio In-
struments and Other Investment Information," and "Investment Limitations."
HOW TO INVEST: The Funds' Shares are offered at their public offering price,
i.e., their net asset value plus a sales load which is subject to substantial
reductions for large purchases and programs for accumulation. The sales load
is not applicable to investors making their investments through a variety of
institutions, such as U.S. Trust, other banks and trust companies. See "How to
Purchase and Redeem Shares."
The minimum to start an account is $500 per Fund, with a minimum of $50 per
Fund for subsequent investments. The easiest way to invest is to complete the
account application which accompanies this Prospectus and to send it with a
check to the address noted on the application. Investors may also invest by
wire and through investment dealers or institutional investors with appropri-
ate sales agreements with Excelsior Fund. See "How to Purchase and Redeem
Shares."
HOW TO REDEEM: Redemptions may be requested directly from Excelsior Fund by
mail, wire or telephone. Investors investing through another institution
should request redemptions through their Shareholder Organization. See "How to
Purchase and Redeem Shares."
INVESTMENT RISKS AND CHARACTERISTICS: Generally, each Fund is subject to
market and industry risk. Market risk is the possibility that stock prices
will decline over short or even extended periods. The stock markets tend to be
cyclical, with periods of generally rising prices and periods of generally de-
clining prices. These cycles will affect the values of each Fund. In addition,
the Long-Term Supply of Energy Fund will normally concentrate its investments
in the crude oil, petroleum and natural gas industry. This Fund will be sus-
ceptible to industry risk, the possibility that a particular group of stocks
will decline in price due to industry-specific developments. Because the Funds
may invest in securities of foreign issuers, they are subject to the risks of
fluctuations of the value of foreign currency relative to the U.S. dollar and
other risks associated with such investments. Because the Income and Growth
Fund also invests in bonds and other fixed-income securities, it will also be
affected directly by fluctuations in interest rates and the credit markets.
Investments in non-investment grade obligations may subject the Income and
Growth Fund to increased risk of loss upon default. Such securities are gener-
ally unsecured, are often subordinated debt and are often issued by entities
with high levels of indebtedness and that are more sensitive to adverse eco-
nomic conditions. Although each Fund generally seeks to invest for the long
term, each Fund may engage in short-term trading of portfolio securities. A
high rate of portfolio turnover may involve correspondingly greater transac-
tion costs which must be borne directly by a Fund and ultimately by its share-
holders. Investment in the Funds should not be considered a complete invest-
ment program. See "Investment Objectives and Policies."
2
<PAGE>
EXPENSE SUMMARY
The following table summarizes the expenses borne by the Shares offered un-
der this Prospectus.
<TABLE>
<CAPTION>
LONG-TERM PRODUCTIVITY ENVIRONMENTALLY-
EQUITY INCOME AND SUPPLY OF ENHANCERS RELATED PRODUCTS
FUND GROWTH FUND ENERGY FUND FUND AND SERVICES FUND
-------- ----------------- -------------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Load (as a
percentage of offering
price)................. 4.50% 4.50% 4.50% 4.50% 4.50%
Sales Load on Reinvested
Dividends.............. None None None None None
Deferred Sales Load..... None None None None None
Redemption Fees/1/...... None None None None None
Exchange Fees........... None None None None None
ANNUAL FUND OPERATING
EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Advisory Fees (after fee
waivers)/2/............ .68% .69% .55% .55% 0%
12b-1 Fees.............. None None None None None
Other Operating Expenses
Administrative Servic-
ing Fee/2/............ .07% .06% .05% .04% .10%
Other Expenses/2/ (af-
ter fee waivers)...... .30% .30% .36% .39% .89%
----- ----- ----- ----- -----
Total Operating Expenses
(after fee waivers)/2/
....................... 1.05% 1.05% .96% .98% .99%
===== ===== ===== ===== =====
<CAPTION>
BUSINESS
AGING OF COMMUNICATION AND INDUSTRIAL GLOBAL
AMERICA AND ENTERTAINMENT RESTRUCTURING COMPETITORS EARLY LIFE
FUND FUND FUND FUND CYCLE FUND
-------- ----------------- -------------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Load (as a
percentage of offering
price)................. 4.50% 4.50% 4.50% 4.50% 4.50%
Sales Load on Reinvested
Dividends.............. None None None None None
Deferred Sales Load..... None None None None None
Redemption Fees/1/ ..... None None None None None
Exchange Fees........... None None None None None
ANNUAL FUND OPERATING
EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Advisory Fees (after fee
waivers)/2/ ........... .56% .55% .56% .56% .52%
12b-1 Fees.............. None None None None None
Other Operating Expenses
Administrative Servic-
ing Fee/2/............ .04% .05% .04% .04% .08%
Other Expenses/2/ (af-
ter fee waivers)...... .33% .32% .31% .29% .30%
----- ----- ----- ----- -----
Total Operating Expenses
(after fee waivers)/2/
....................... .93% .92% .91% .89% .90%
===== ===== ===== ===== =====
</TABLE>
- -------
1. The Fund's transfer agent imposes a direct $8.00 charge on each wire re-
demption by noninstitutional (i.e. individual) investors which is not re-
flected in the expense ratios presented herein. Shareholder organizations
may charge their customers transaction fees in connection with redemptions.
See "Redemption Procedures."
2. The Investment Adviser and Administrators may, from time to time, voluntar-
ily waive part of their respective fees, which waivers may be terminated at
any time. Until further notice, the Investment Adviser and/or Administra-
tors intend to voluntarily waive fees in an amount equal to the Administra-
tive Servicing Fee; and to further waive fees and reimburse expenses to the
extent necessary for Shares of each of the Long-Term Supply of Energy, Pro-
ductivity Enhancers, Environmentally-Related Products and Services, Aging
of America, Communication and Entertainment, Business and Industrial Re-
structuring, Global Competitors and Early Life Cycle Funds (collectively,
the "Theme Funds"), respectively, to maintain an annual expense ratio of
not more than .99%. Without such fee waivers, "Advisory Fees" would be
.75%, .75%, .60%, .60%, .60%, .60%, .60%, .60%, .60% and .60%, and "Total
Operating Expenses" would be 1.12%, 1.11%, 1.09%, 1.06%, 2.46%, 0.97%,
0.97%, 0.95%, 0.93% and 0.98% for the Equity, Income and Growth, Long-Term
Supply of Energy, Productivity Enhancers, Environmentally-Related Products
and Services, Aging of America, Communication and Entertainment, Business
and Industrial Restructuring, Global Competitors and Early Life Cycle
Funds, respectively, and "Other Expenses" would be 0.44%, 0.42% and 1.76%
for the Long-Term Supply of Energy, Productivity Enhancers and Environmen-
tally-Related Products Funds, respectively.
3
<PAGE>
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual returns and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity Fund.................................... $55 $77 $100 $167
Income and Growth Fund......................... 55 77 100 167
Long-Term Supply of Energy Fund................ 54 74 96 158
Productivity Enhancers Fund.................... 55 75 97 160
Environmentally-Related Products and Services
Fund.......................................... 55 75 97 161
Aging of America Fund.......................... 54 73 94 154
Communication and Entertainment Fund........... 54 73 94 153
Business and Industrial Restructuring Fund..... 54 73 93 152
Global Competitors Fund........................ 54 72 92 150
Early Life Cycle Fund.......................... 54 72 93 151
</TABLE>
The foregoing expense summary and example (based on the maximum sales load
payable on the Shares) are intended to assist investors in understanding the
costs and expenses that an investor in Shares of the Funds will bear directly
or indirectly. The expense summary sets forth advisory and other expenses pay-
able with respect to Shares of the Funds for the fiscal year ended March 31,
1996. For more complete descriptions of the Funds' operating expenses, see
"Management of the Funds" and "Description of Capital Stock" in this Prospectus
and the financial statements and notes incorporated by reference in the State-
ment of Additional Information.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES AND RATE OF RETURN MAY BE
GREATER OR LOWER THAN THOSE SHOWN IN THE EXPENSE SUMMARY AND EXAMPLE.
4
<PAGE>
FINANCIAL HIGHLIGHTS
Prior to the date of this Prospectus, each Fund offered the Shares under
this Prospectus. As of the date of this Prospectus, the Funds began offering a
separate series of shares in the Equity, Aging of America, Communication and
Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds designated as Trust Shares. Trust Shares and the Shares
offered under this Prospectus represent equal pro rata interests in each such
Fund, except that Trust Shares bear the additional expense of distribution
fees. See "Description of Capital Stock."
The following tables include selected data for a Share outstanding
throughout each period and other performance information derived from the
financial statements included in Excelsior Fund's Annual Report to
Shareholders for the year ended March 31, 1996 (the "Financial Statements").
The information contained in the Financial Highlights for each period has been
audited by Ernst & Young LLP, Excelsior Fund's independent auditors. The
following tables should be read in conjunction with the Financial Statements
and notes thereto. More information about the performance of each Fund is also
contained in the Annual Report to Shareholders which may be obtained from
Excelsior Fund without charge by calling the number on the front cover of this
Prospectus.
EQUITY FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------ ------ ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $21.40 $ 19.17 $ 18.77 $ 16.28 $14.13 $13.87 $13.22 $11.32 $ 13.56 $12.35
------- ------- ------- ------- ------ ------ ------ ------ -------- ------
Income From Investment
Operations
Net Investment Income.. 0.12 0.07 0.05 0.08 0.13 0.28 0.34 0.19 0.15 0.18
Net Gains or (Losses)
on Securities
(both realized and
unrealized)........... 5.21 2.67 1.16 3.01 2.23 0.39 1.26 1.88 (1.63) 1.86
------- ------- ------- ------- ------ ------ ------ ------ -------- ------
Total From Investment
Operations............ 5.33 2.74 1.21 3.09 2.36 0.67 1.60 2.07 (1.48) 2.04
------- ------- ------- ------- ------ ------ ------ ------ -------- ------
Less Distributions
Dividends From Net
Investment Income..... (0.11) (0.04) (0.08) (0.09) (0.21) (0.23) (0.34) (0.17) (0.14) (0.18)
Dividends in Excess of
Net Investment Income. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Gain on
Investments and
Options............... (2.19) (0.47) (0.39) (0.51) 0.00 (0.18) (0.61) 0.00 (0.62) (0.65)
Distributions in Excess
of Net Realized Gain
on Investments and
Options............... 0.00 0.00 (0.34) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------ ------ ------ ------ -------- ------
Total Distributions.... (2.30) (0.51) (0.81) (0.60) (0.21) (0.41) (0.95) (0.17) (0.76) (0.83)
------- ------- ------- ------- ------ ------ ------ ------ -------- ------
Net Asset Value, End of
Period................. $24.43 $ 21.40 $ 19.17 $ 18.77 $16.28 $14.13 $13.87 $13.22 $ 11.32 $13.56
======= ======= ======= ======= ====== ====== ====== ====== ======== ======
Total Return/1/ ........ 26.45% 14.65% 6.54% 19.26% 16.87% 5.11% 11.98% 18.52% (11.24)% 17.61%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions).. $188.57 $137.42 $122.26 $106.14 $71.62 $29.87 $25.98 $17.61 $ 13.58 $13.40
Ratio of Net Operating
Expenses to Average
Net Assets............ 1.05% 1.05% 1.14% 1.08% 1.15% 1.23% 1.22% 1.16% 1.16% 1.21%
Ratio of Gross
Operating Expenses to
Average
Net Assets/2/ ........ 1.12% 1.08% 1.14% 1.08% 1.15% 1.23% 1.22% 1.16% 1.16% 1.30%
Ratio of Net Investment
Income to Average
Net Assets............ 0.55% 0.36% 0.25% 0.51% 0.87% 2.21% 2.45% 1.62% 1.26% 1.53%
Portfolio Turnover
Rate.................. 27.0% 23.0% 17.0% 24.0% 20.0% 41.0% 53.0% 46.0% 67.0% 86.0%
</TABLE>
- -------
NOTES:
1. Total return data does not reflect the sales load payable on purchases of
Shares.
2. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
5
<PAGE>
INCOME AND GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987/1/
------- ------ ------ ------ ------ ------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 11.82 $11.94 $11.45 $ 9.10 $ 8.36 $ 8.84 $ 9.09 $ 8.12 $ 8.95 $ 8.00
------- ------ ------ ------ ------ ------- ------ ------ ------- ------
Income From Investment
Operations
Net Investment Income.. 0.39 0.38 0.31 0.27 0.30 0.29 0.40 0.28 0.44 0.06
Net Gains or (Losses)
on Securities
(both realized and
unrealized)........... 2.61 0.26 0.46 2.43 0.72 (0.43) 0.19 1.15 (0.93) 0.89
------- ------ ------ ------ ------ ------- ------ ------ ------- ------
Total From Investment
Operations............ 3.00 0.64 0.77 2.70 1.02 (0.14) 0.59 1.43 (0.49) 0.95
------- ------ ------ ------ ------ ------- ------ ------ ------- ------
Less Distributions
Dividends From Net
Investment Income..... (0.31) (0.35) (0.27) (0.35) (0.28) (0.34) (0.39) (0.46) (0.21) 0.00
Dividends in Excess of
Net Investment Income. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Gain on
Investments and
Options............... (0.06) (0.41) (0.01) 0.00 0.00 0.00 (0.45) 0.00 (0.13) 0.00
Distributions in Excess
of Net Realized Gain
on Investments and
Options............... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------- ------ ------ ------ ------ ------- ------ ------ ------- ------
Total Distributions.... (0.37) (0.76) (0.28) (0.35) (0.28) (0.34) (0.84) (0.46) (0.34) 0.00
------- ------ ------ ------ ------ ------- ------ ------ ------- ------
Net Asset Value, End of
Period................. $ 14.45 $11.82 $11.94 $11.45 $ 9.10 $ 8.36 $ 8.84 $ 9.09 $ 8.12 $ 8.95
======= ====== ====== ====== ====== ======= ====== ====== ======= ======
Total Return/2/......... 25.83% 5.74% 6.69% 30.45% 12.42% (1.30%) 6.14% 18.36% (5.43%) 11.88%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions).. $127.50 $99.93 $96.68 $51.30 $23.25 $ 19.59 $23.66 $14.62 $ 6.66 $ 3.71
Ratio of Net Operating
Expenses to Average
Net Assets............ 1.05% 1.06% 1.17% 1.15% 1.23% 1.28% 1.24% 1.22% 1.27% 1.13%/3/
Ratio of Gross
Operating Expenses to
Average
Net Assets/4/......... 1.11% 1.09% 1.17% 1.15% 1.23% 1.28% 1.24% 1.22% 1.27% 1.84%/3/
Ratio of Net Investment
Income to Average
Net Assets............ 2.95% 3.31% 2.77% 2.76% 3.52% 3.64% 4.47% 4.09% 6.20% 4.25%/3/
Portfolio Turnover
Rate.................. 22.0% 36.0% 28.0% 28.0% 81.0% 148.0% 29.0% 24.0% 27.0% 7.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was January 6, 1987.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
6
<PAGE>
LONG-TERM SUPPLY OF ENERGY FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------- PERIOD ENDED
1996 1995 1994 MARCH 31, 1993/1/
------ ------ ------- -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................. $ 7.92 $ 7.70 $ 7.81 $ 7.00
------ ------ ------- ------
Income From Investment Operations
Net Investment Income............. 0.07 0.09 0.08 0.01
Net Gains or (Losses) on
Securities (both realized and
unrealized)...................... 1.63 0.24 (0.12) 0.80
------ ------ ------- ------
Total From Investment Operations.. 1.70 0.33 (0.04) 0.81
------ ------ ------- ------
Less Distributions
Dividends From Net Investment
Income........................... (0.07) (0.10) (0.07) 0.00
Dividends in Excess of Net
Investment Income................ 0.00 0.00 0.00 0.00
Distributions From Net Realized
Gain on Investments and Options.. 0.00 (0.01) 0.00 0.00
Distributions in Excess of Net
Realized Gain on Investments
and Options...................... 0.00 0.00 0.00 0.00
------ ------ ------- ------
Total Distributions............... (0.07) (0.11) (0.07) 0.00
------ ------ ------- ------
Net Asset Value, End of Period...... $ 9.55 $ 7.92 $ 7.70 $ 7.81
====== ====== ======= ======
Total Return/2/..................... 21.60% 4.28% (0.57)% 11.57%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)........................ $23.29 $15.81 $ 6.83 $ 1.46
Ratio Net Operating of Expenses to
Average Net Assets............... 0.96% 0.98% 0.99% 0.99%/3/
Ratio of Gross Operating Expenses
to Average Net Assets/4/......... 1.09% 1.35% 2.03% 7.03%/3/
Ratio of Net Investment Income to
Average Net Assets............... 0.88% 1.18% 1.21% 1.69%/3/
Portfolio Turnover Rate........... 43.0% 31.0% 6.0% 0.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
7
<PAGE>
PRODUCTIVITY ENHANCERS FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------- PERIOD ENDED
1996 1995 1994 MARCH 31, 1993/1/
------ ------- ------ -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................. $ 8.12 $ 7.88 $ 6.94 $ 7.00
------ ------- ------ -------
Income From Investment Operations
Net Investment Income............. 0.02 (0.01) 0.00 0.01
Net Gains or (Losses) on
Securities (both realized and
unrealized)...................... 2.12 0.35 0.96 (0.07)
------ ------- ------ -------
Total From Investment Operations.. 2.14 0.34 0.96 (0.06)
------ ------- ------ -------
Less Distributions
Dividends From Net Investment
Income........................... (0.02) 0.00 0.00 0.00
Dividends in Excess of Net
Investment Income................ (0.01) 0.00 (0.02) 0.00
Distributions From Net Realized
Gain on Investments and Options.. (1.40) (0.10) 0.00 0.00
Distributions in Excess of Net
Realized Gain on Investments and
Options.......................... 0.00 0.00 0.00 0.00
------ ------- ------ -------
Total Distributions............... (1.43) (0.10) (0.02) 0.00
------ ------- ------ -------
Net Asset Value, End of Period...... $ 8.83 $ 8.12 $ 7.88 $ 6.94
====== ======= ====== =======
Total Return/2/..................... 26.97% 4.45% 13.81% (0.86)%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)........................ $29.07 $ 18.27 $15.70 $ 3.37
Ratio of Net Operating Expenses to
Average Net Assets............... 0.98% 0.99% 0.99% 0.99%/3/
Ratio of Gross Operating Expenses
to Average Net Assets/4/......... 1.06% 1.21% 1.49% 4.23%/3/
Ratio of Net Investment
Income/(Loss) to Average Net
Assets........................... 0.20% (0.10)% 0.01% 1.29%/3/
Portfolio Turnover Rate........... 472.0% 276.0% 198.0% 183.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
8
<PAGE>
ENVIRONMENTALLY-RELATED PRODUCTS AND SERVICES FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------- PERIOD ENDED
1996 1995 1994 MARCH 31, 1993/1/
------- ------- -------- -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.......................... $ 6.21 $ 6.24 $ 6.95 $ 7.00
------- ------- -------- -------
Income From Investment Operations
Net Investment Loss............ (0.02) (0.01) 0.00 0.00
Net Gains or (Losses) on
Securities (both realized and
unrealized)................... 1.54 (0.01) (0.71) (0.05)
------- ------- -------- -------
Total From Investment
Operations.................... 1.52 (0.02) (0.71) (0.05)
------- ------- -------- -------
Less Distributions
Dividends From Net Investment
Income........................ 0.00 0.00 0.00 0.00
Dividends in Excess of Net
Investment Income............. 0.00 (0.01) 0.00 0.00
Distributions From Net Realized
Gain on Investments and
Options....................... 0.00 0.00 0.00 0.00
Distributions in Excess of Net
Realized Gain on Investments
and Options................... 0.00 0.00 0.00 0.00
------- ------- -------- -------
Total Distributions............ 0.00 (0.01) 0.00 0.00
------- ------- -------- -------
Net Asset Value, End of Period... $ 7.73 $ 6.21 $ 6.24 $ 6.95
======= ======= ======== =======
Total Return/2/.................. 24.48% (0.27)% (10.15)% (0.71)%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)..................... $ 3.95 $ 4.36 $ 4.53 $ 2.45
Ratio of Net Operating Expenses
to Average Net Assets......... 0.99% 0.99% 0.99% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets/4/..................... 2.46% 2.42% 2.20% 2.83%/3/
Ratio of Net Investment
Income/(Loss) to Average Net
Assets........................ (0.18)% (0.10)% (0.07)% 0.32%/3/
Portfolio Turnover Rate........ 64.0% 61.0% 28.0% 0.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
9
<PAGE>
AGING OF AMERICA FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------- PERIOD ENDED
1996 1995 1994 MARCH 31, 1993/1/
------- ------ ------ -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................. $ 7.84 $ 6.99 $ 7.01 $7.00
------- ------ ------ -----
Income From Investment Operations
Net Investment Income............. 0.05 0.04 0.03 0.01
Net Gains or (Losses) on
Securities (both realized and
unrealized)...................... 1.97 0.85 (0.02) 0.00
------- ------ ------ -----
Total From Investment Operations.. 2.02 0.89 0.01 0.01
------- ------ ------ -----
Less Distributions
Dividends From Net Investment
Income........................... (0.05) (0.04) (0.03) 0.00
Dividends in Excess of Net
Investment Income................ 0.00 0.00 0.00 0.00
Distributions From Net Realized
Gain on Investments and Options.. 0.00 0.00 0.00 0.00
Distributions in Excess of Net
Realized Gain on Investments
and Options...................... 0.00 0.00 0.00 0.00
------- ------ ------ -----
Total Distributions............... (0.05) (0.04) (0.03) 0.00
------- ------ ------ -----
Net Asset Value, End of Period...... $ 9.81 $ 7.84 $ 6.99 $7.01
======= ====== ====== =====
Total Return/2/..................... 25.80% 12.80% 0.13% 0.14%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)........................ $ 44.79 $22.17 $10.58 $2.39
Ratio of Net Operating Expenses to
Average Net Assets............... 0.93% 0.99% 0.99% 0.99%/3/
Ratio of Gross Operating Expenses
to Average Net Assets/4/......... 0.97% 1.26% 1.82% 3.87%/3/
Ratio of Net Investment Income to
Average Net Assets............... 0.54% 0.63% 0.59% 0.77%/3/
Portfolio Turnover Rate........... 34.0% 14.0% 24.0% 14.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
10
<PAGE>
COMMUNICATION AND ENTERTAINMENT FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------- PERIOD ENDED
1996 1995 1994 MARCH 31, 1993/1/
------ ------ ------ -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period. $ 9.64 $ 8.75 $ 7.61 $7.00
------ ------ ------ -----
Income From Investment Operations
Net Investment Income.............. 0.03 0.04 0.02 0.01
Net Gains or (Losses) on Securities
(both realized and unrealized).... 1.30 1.06 1.52 0.60
------ ------ ------ -----
Total From Investment Operations... 1.33 1.10 1.54 0.61
------ ------ ------ -----
Less Distributions
Dividends From Net Investment
Income............................ (0.03) (0.04) (0.03) 0.00
Dividends in Excess of Net
Investment Income................. 0.00 0.00 0.00 0.00
Distributions From Net Realized
Gain on Investments and Options... (0.62) (0.17) (0.37) 0.00
Distributions in Excess of Net
Realized Gain on Investments
and Options....................... 0.00 0.00 0.00 0.00
------ ------ ------ -----
Total Distributions................ (0.65) (0.21) (0.40) 0.00
------ ------ ------ -----
Net Asset Value, End of Period....... $10.32 $ 9.64 $ 8.75 $7.61
====== ====== ====== =====
Total Return/2/...................... 13.48% 12.87% 20.07% 8.71%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)......................... $46.95 $29.91 $21.02 $5.79
Ratio of Net Operating Expenses to
Average Net Assets................ 0.92% 0.98% 0.98% 0.99%/3/
Ratio of Gross Operating Expenses
to Average Net Assets/4/.......... 0.97% 1.06% 1.16% 2.20%/3/
Ratio of Net Investment Income to
Average Net Assets................ 0.28% 0.46% 0.29% 1.06%/3/
Portfolio Turnover Rate............ 65.0% 56.0% 60.0% 25.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
11
<PAGE>
BUSINESS AND INDUSTRIAL RESTRUCTURING FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------- PERIOD ENDED
1996 1995 1994 MARCH 31, 1993/1/
------ ------ ------ -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period. $10.55 $ 9.64 $ 7.71 $ 7.00
------ ------ ------ ------
Income From Investment Operations
Net Investment Income.............. 0.10 0.07 0.06 0.02
Net Gains or (Losses) on Securities
(both realized and unrealized).... 3.71 1.02 1.96 0.69
------ ------ ------ ------
Total From Investment Operations... 3.81 1.09 2.02 0.71
------ ------ ------ ------
Less Distributions
Dividends From Net Investment
Income............................ (0.09) (0.06) (0.07) 0.00
Dividends in Excess of Net
Investment Income................. 0.00 0.00 0.00 0.00
Distributions From Net Realized
Gain on Investments and Options... (0.24) (0.12) (0.02) 0.00
Distributions in Excess of Net
Realized Gain on Investments
and Options....................... 0.00 0.00 0.00 0.00
------ ------ ------ ------
Total Distributions................ (0.33) (0.18) (0.09) 0.00
------ ------ ------ ------
Net Asset Value, End of Period....... $14.03 $10.55 $ 9.64 $ 7.71
====== ====== ====== ======
Total Return/2/...................... 36.48% 11.49% 26.40% 10.14%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)......................... $74.05 $30.18 $14.44 $ 1.94
Ratio of Net Operating Expenses to
Average Net Assets................ 0.91% 0.98% 0.99% 0.99%/3/
Ratio of Gross Operating Expenses
to Average Net Assets/4/.......... 0.95% 1.08% 1.73% 5.85%3
Ratio of Net Investment Income to
Average Net Assets................ 0.88% 0.83% 0.77% 2.48%/3/
Portfolio Turnover Rate............ 56.0% 82.0% 75.0% 9.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
12
<PAGE>
GLOBAL COMPETITORS FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------- PERIOD ENDED
1996 1995 1994 MARCH 31, 1993/1/
------ ------ ------ -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period. $ 8.59 $ 7.69 $ 7.28 $7.00
------ ------ ------ -----
Income From Investment Operations
Net Investment Income.............. 0.07 0.07 0.05 0.01
Net Gains or (Losses) on Securities
(both realized and unrealized).... 2.27 0.90 0.41 0.27
------ ------ ------ -----
Total From Investment Operations... 2.34 0.97 0.46 0.28
------ ------ ------ -----
Less Distributions
Dividends from Net Investment
Income............................ (0.06) (0.07) (0.05) 0.00
Dividends in Excess of Net
Investment Income................. 0.00 0.00 0.00 0.00
Distributions from Net Realized
Gain on Investments and Options... (0.02) 0.00 0.00 0.00
Distributions in Excess of Net
Realized Gain on Investments
and Options....................... (0.02) 0.00 0.00 0.00
------ ------ ------ -----
Total Distributions................ (0.10) (0.07) (0.05) 0.00
------ ------ ------ -----
Net Asset Value, End of Period....... $10.83 $ 8.59 $ 7.69 $7.28
====== ====== ====== =====
Total Return/2/...................... 27.39% 12.73% 6.29% 4.00%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)......................... $71.30 $25.50 $10.06 $2.04
Ratio of Net Operating Expenses to
Average Net Assets................ 0.89% 0.97% 0.99% 0.99%/3/
Ratio of Gross Operating Expenses
to Average Net Assets/4/.......... 0.93% 1.18% 1.72% 3.97%/3/
Ratio of Net Investment Income to
Average Net Assets................ 0.73% 1.04% 0.81% 0.82%/3/
Portfolio Turnover Rate............ 17.0% 29.0% 19.0% 0.0%
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
13
<PAGE>
EARLY LIFE CYCLE FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------- PERIOD ENDED
1996 1995 1994 MARCH 31, 1993/1/
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $ 9.77 $ 8.66 $ 7.40 $7.00
------- ------- ------- -----
Income From Investment Operations
Net Investment Income........... (0.02) (0.02) (0.01) 0.00
Net Gains or (Losses) on
Securities (both realized and
unrealized).................... 1.72 1.31 1.36 0.40
------- ------- ------- -----
Total From Investment
Operations..................... 1.70 1.29 1.35 0.40
------- ------- ------- -----
Less Distributions
Dividends From Net Investment
Income......................... 0.00 0.00 0.00 0.00
Dividends in Excess of Net
Investment Income.............. 0.00 0.00 0.00 0.00
Distributions From Net Realized
Gain on Investments and
Options........................ (0.69) (0.18) (0.09) 0.00
Distributions in Excess of Net
Realized Gain on Investments
and Options.................... 0.00 0.00 0.00 0.00
------- ------- ------- -----
Total Distributions............. (0.69) (0.18) (0.09) 0.00
------- ------- ------- -----
Net Asset Value, End of Period.... $ 10.78 $ 9.77 $ 8.66 $7.40
======= ======= ======= =====
Total Return/2/................... 18.29% 15.16% 18.27% 5.71%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)...................... $ 78.06 $ 47.78 $ 24.95 $5.51
Ratio of Net Operating Expenses
to Average Net Assets.......... 0.90% 0.96% 0.95% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets/4/...................... 0.98% 1.04% 1.15% 2.70%/3/
Ratio of Net Investment
Income/(Loss) to Average Net
Assets......................... (0.17)% (0.23)% (0.25)% 0.12%/3/
Portfolio Turnover Rate......... 38.0% 42.0% 20.0% 4.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
14
<PAGE>
U.S. TRUST'S INVESTMENT PHILOSOPHY AND STRATEGIES
U.S. Trust offers a variety of specialized fiduciary and financial services
to high-net worth individuals, institutions and corporations. As one of the
largest institutions of its type, U.S. Trust prides itself in offering an at-
tentive and high level of service to each of its clients. The Excelsior Funds
offer individual investors access to U.S. Trust's services.
Philosophy. In managing investments for the Funds, U.S. Trust follows a long-
term investment philosophy which generally does not change with the short-term
variability of financial markets or fundamental conditions. U.S. Trust's ap-
proach begins with the conviction that all worthwhile investments are grounded
in value. The Investment Adviser believes that an investor can identify funda-
mental values that eventually should be reflected in market prices. U.S. Trust
believes that over time, a disciplined search for fundamental value will
achieve better results than attempting to take advantage of short-term price
movements.
Implementation of this long-term value philosophy consists of searching for,
identifying and obtaining the benefits of present or future investment values.
For example, such values may be found in a company's future earnings potential
or in its existing resources and assets. Accordingly, U.S. Trust in managing
investments for the Funds is constantly engaged in assessing, comparing and
judging the worth of companies, particularly in comparison to the price the
markets place on such companies' shares.
Strategies. In order to translate its investment philosophy into more spe-
cific guidance for selection of investments, the Investment Adviser uses three
specific strategies. These strategies, while identified separately, may over-
lap so that more than one may be applied in an investment decision.
U.S. Trust's "PROBLEM/OPPORTUNITY STRATEGY" seeks to identify industries and
companies with the capabilities to provide solutions to or benefit from com-
plex problems such as the changing demographics and aging of the U.S. popula-
tion or the need to enhance industrial productivity. U.S. Trust's second
strategy is a "TRANSACTION VALUE" comparison of a company's real underlying
asset value with the market price of its shares and with the sale prices for
similar assets changing ownership in public market transactions. Differences
between a company's real asset value and the price of its shares often are
corrected over time by restructuring of the assets or by market recognition of
their value. U.S. Trust's third strategy involves identifying "EARLY LIFE CY-
CLE" companies whose products are in their earlier stages of development or
that seek to exploit new markets. Frequently such companies are smaller compa-
nies, but early life cycle companies may also include larger established com-
panies with new products or markets for existing products. The Investment Ad-
viser believes that over time the value of such companies should be recognized
in the market.
Themes. To complete U.S. Trust's investment philosophy, the three portfolio
strategies discussed above are applied in concert with several "longer-term
investment themes" to identify investment opportunities. The Investment Ad-
viser believes these longer-term themes represent strong and inexorable
trends. The Investment Adviser also believes that understanding the instiga-
tion, catalysts and effects of these longer-term trends should help to iden-
tify companies that are beneficiaries of these trends.
INVESTMENT OBJECTIVES AND POLICIES
The Investment Adviser will use its best efforts to achieve the investment
objective of each Fund, although their achievement cannot be assured. The in-
vestment objective of each Fund is "fundamental," meaning that it may not be
changed without a vote of the holders of a majority of the particular Fund's
outstanding shares (as defined under "Miscellaneous"). Except as noted below
in "Investment Limitations," the investment policies of each Fund may be
changed without a vote of the holders of a majority of the outstanding shares
of such Fund.
15
<PAGE>
EQUITY FUND
The Equity Fund's investment objective is to seek long-term capital apprecia-
tion. The Equity Fund invests in companies which the Investment Adviser be-
lieves have value currently not recognized in the market prices of the compa-
nies' securities. The Investment Adviser uses the investment philosophy,
strategies and themes discussed above to identify such investment values and
to diversify the Fund's investments over a variety of industries and types of
companies. See "Investment Policies Common to the Equity Fund and the Theme
Funds" for a discussion of various investment policies applicable to the Eq-
uity Fund.
THEME FUNDS
Eight Theme Funds are offered having the common investment objective of long-
term capital appreciation. As noted above, these Theme Funds are based on
themes identified and followed by the Investment Adviser. Each Theme Fund's
key policies are discussed below. Additional policies common to all Theme
Funds are discussed after this section.
LONG-TERM SUPPLY OF ENERGY FUND--invests in companies which the Investment
Adviser believes will benefit from the availability, development and delivery
of secure hydrocarbon and other energy sources. Such companies include those
engaged in the following types of activities: the production, transmission,
marketing, control or measurement of energy or fuels; providing products or
services to companies engaged in such activities; energy-related research, ex-
perimentation and consulting; and environmental activities such as pollution
control and energy conservation. Included in such companies are oil and gas
production and pipeline companies; drilling and drilling service companies;
electric and gas utilities; and other energy resource companies such as coal
producers and newer resources such as geothermal and solar energy producers.
Normally, at least 25% of the Fund's assets will be invested in the crude oil,
petroleum and natural gas industry. However, less than that amount may be so
invested if there have been changes in governmental regulations, world eco-
nomic and political events, exploration or production spending; or supply, de-
mand or prices of crude oil, petroleum, natural gas or other energy sources,
and in the Investment Adviser's opinion, such changes would have an adverse
affect on the securities of companies in that industry. Under normal condi-
tions, at least 65% of the Fund's total assets will be invested in companies
of the type described in this paragraph.
Among the characteristics the Investment Adviser currently looks for in en-
ergy and energy-related investments are companies or energy sources which the
Investment Adviser believes are:
- - dedicated to producing supplies of energy at economically acceptable cost;
- - located in politically and economically stable or "secure" areas, i.e, sub-
ject only to minimal risk of disruption for political or ideological rea-
sons, or by economic "warfare" or systemic economic weakness;
- - available in continuous, sufficient quantity to be reliable and economically
significant;
- - involved in energy which is easily and economically transportable and dis-
tributable to where it is consumed.
PRODUCTIVITY ENHANCERS FUND--invests in companies which the Investment Ad-
viser believes will benefit from their roles as innovators, developers and
suppliers of goods and services which enhance service and manufacturing pro-
ductivity or companies that are most effective at obtaining and applying pro-
ductivity enhancement developments. The essential criteria for such products
and services is that they have the ability to increase a user's productivity,
e.g., enable the user to generate equal or greater economic value at lower to-
tal unit cost than alternatives or provide measurable improvement of produc-
tivity by the provider or the user. Such companies may include but are not
limited to production automation manufacturers, computer hardware and software
producers and distributors, communications and mobile telephone providers, and
companies involved with cost control, asset redeployment and downsizing activ-
ities and enhancing the
16
<PAGE>
utilization of technology. Under normal conditions, at least 65% of the Fund's
total assets will be invested in companies of the type described in this para-
graph.
ENVIRONMENTALLY-RELATED PRODUCTS AND SERVICES FUND--invests in companies
which the Investment Adviser believes will benefit from their provision of
products, technologies and services related to conservation, protection and
restoration of the environment. Such companies may include but are not limited
to companies engaged in waste management and pollution control, prevention and
cleanup activities. The Fund is not intended to be an "environmentally cor-
rect" fund and may invest in companies without regard to whether they are en-
gaged in operations harmful to the environment. Under normal conditions, at
least 65% of the Fund's total assets will be invested in companies of the type
described in this paragraph.
The Fund may also invest a portion of its assets in securities of companies
that offer products and services used by individuals in response to ecological
concerns and concerns relating to their social environment. Such investments
may include, without limitation, securities of companies that produce protec-
tive clothing, sunscreens and personal security products.
AGING OF AMERICA FUND--invests in companies which the Investment Adviser be-
lieves will benefit from the changes occurring in the demographic structure of
the U.S. population, particularly its growing proportion of individuals over
the age of 40. In analyzing companies for this Fund, the Investment Adviser
considers carefully the ongoing changes in the mean and median ages of the
U.S. population and the resulting effects on the lifestyles and day-to-day
economic actions of the population as a whole. Companies currently positioned
to benefit from such changes include health care, pharmaceutical, biotechnol-
ogy and similar health-related firms. In addition, certain clothing, financial
services, entertainment, real estate and housing, food and beverage and other
types of companies may be positioned to benefit from the demographic changes.
Under normal conditions, at least 65% of the Fund's total assets will be in-
vested in companies of the type described in this paragraph.
COMMUNICATION AND ENTERTAINMENT FUND--invests in companies which the Invest-
ment Adviser believes will benefit from the technological and international
transformation of the communications and entertainment industries, particu-
larly the convergence of information, communication and entertainment media.
Such companies may include those engaged in the development, production, sale
and distribution of products or services in the broadcast, radio and televi-
sion, leisure, entertainment, amusement, publishing, telecommunications serv-
ices and equipment, and telephone utilities industries. In analyzing companies
for investment, the Investment Adviser may focus on firms which the Investment
Adviser believes are innovators of or will benefit from the melding of comput-
er, communications and entertainment technologies. Under normal conditions, at
least 65% of the Fund's total assets will be invested in companies of the type
described in this paragraph.
BUSINESS AND INDUSTRIAL RESTRUCTURING FUND--invests in companies which the
Investment Adviser believes will benefit from their restructuring or redeploy-
ment of assets and operations in order to become more competitive or profit-
able. Such companies may include those involved in prospective mergers, con-
solidations, liquidations, spin-offs, financial restructurings and reorganiza-
tions. The business activities of such companies are not limited in any way.
Under normal conditions, at least 65% of the Fund's total assets will be in-
vested in companies of the type described in this paragraph. The Investment
Adviser's focus is to find companies whose restructuring activities offer sig-
nificant value and investment potential. For the past several years, leveraged
buy-outs and mergers have been prominent trends. Currently, a great deal of
value is being created as companies deleverage, recapitalize, and rationalize
their operations in order to increase profitability. There is risk in these
types of investments. For example, should a company be unsuccessful in reduc-
ing its debt, it may be forced into default on its debt, increasing its debt
or bankruptcy.
17
<PAGE>
GLOBAL COMPETITORS FUND--invests primarily in U.S.-based companies which the
Investment Adviser believes will benefit from their position as effective and
strong competitors on a global basis. Such companies are characterized by their
ability to supply something unique or of greater value, or to deliver goods and
services more efficiently or reliably. These companies develop and implement
international marketing strategies for their goods and services. The range of
businesses encompassed by this policy is broad and, by way of example, may in-
clude companies engaged in soft drink production and sales, clothing manufac-
turers, tobacco product producers, precision instrument and aerospace provid-
ers, and a variety of communications systems, biotechnology and high technology
suppliers. While the Fund will invest primarily in U.S.-based companies with
such features, up to 20% of the Fund's assets may be invested in non-U.S.-based
global competitors. The Fund will not engage in currency hedging in an attempt
to anticipate currency fluctuations with respect to any such foreign invest-
ments. Under normal conditions, the Fund will invest in securities of issuers
from at least three countries and at least 65% of the Fund's total assets will
be invested in companies of the type described in this paragraph.
EARLY LIFE CYCLE FUND--invests primarily in smaller companies which are in the
earlier stages of their development or larger or more mature companies engaged
in new and higher growth potential operations. An early life cycle company is
one which is early in its development as a company, yet has demonstrated or is
expected to achieve substantial long-term earnings growth. More mature or larg-
er, established companies may also be positioned for accelerating earnings be-
cause of rejuvenated management, new products, new markets for existing prod-
ucts or structural changes in the economy. In selecting companies for invest-
ment, the Investment Adviser looks for innovative companies whose potential has
not yet been fully recognized by the securities markets. Under normal condi-
tions, at least 65% of the Fund's total assets will be invested in companies
with capitalization of $1 billion or less. The risk and venture oriented nature
of such companies naturally entails greater risk for investors when contrasted
with investing in more established companies.
INVESTMENT POLICIES COMMON TO THE EQUITY FUND AND THE THEME FUNDS
Under normal market and economic conditions, the Equity and each Theme Fund
will invest at least 65% of its total assets in common stock, preferred stock
and securities convertible into common stock. Normally, up to 35% of each such
Fund's total assets may be invested in other securities and instruments includ-
ing, e.g., other investment-grade debt securities, warrants, options, and
futures instruments as described in more detail below. During temporary defen-
sive periods or when the Investment Adviser believes that suitable stocks or
convertible securities are unavailable, each Fund may hold cash or invest some
or all of its assets in U.S. Government securities, high-quality money market
instruments and repurchase agreements collateralized by the foregoing obliga-
tions.
In managing the Equity and Theme Funds, the Investment Adviser seeks to pur-
chase securities having value currently not recognized in the market price of a
security, consistent with the strategies discussed above.
Portfolio holdings will include common stocks of companies having capitaliza-
tions of varying amounts, and all Funds will invest in the securities of high
growth, small companies where the Investment Adviser expects earnings and the
price of the securities to grow at an above-average rate. As discussed above,
the Early Life Cycle Fund emphasizes such companies. Certain securities owned
by the Equity and Theme Funds may be traded only in the over-the-counter market
or on a regional securities exchange, may be listed only in the quotation serv-
ice commonly known as the "pink sheets," and may not be traded every day or in
the volume typical of trading on a national securities exchange. As a result,
there may be a greater fluctuation in the value of a Fund's Shares, and a Fund
may be required, in order to meet redemptions or for other
18
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reasons, to sell these securities at a discount from market prices, to sell
during periods when such disposition is not desirable, or to make many small
sales over a period of time.
The Equity and Theme Funds may invest in the securities of foreign issuers.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored and unsponsored American Depository Receipts ("ADRs"). ADRs represent
receipts typically issued by a U.S. bank or trust company which evidence owner-
ship of underlying securities of foreign issuers. Investments in unsponsored
ADRs involve additional risk because financial information based on generally
accepted accounting principles ("GAAP") may not be available for the foreign
issuers of the underlying securities. ADRs may not necessarily be denominated
in the same currency as the underlying securities into which they may be con-
verted.
INCOME AND GROWTH FUND
The Income and Growth Fund has two investment objectives. Its primary invest-
ment objective is to seek to provide moderate current income and then, as a
secondary objective, to achieve capital appreciation from its investments. In
attempting to achieve these two objectives, the Income and Growth Fund invests,
during normal market and economic conditions, a substantial portion of its as-
sets in common stock, preferred stock and securities convertible into common
stock. The Fund's investments in equity securities will be income-oriented, and
it is expected that a portion of its assets will be invested on a regular basis
in debt obligations.
The Fund may invest in the securities of foreign issuers. The Fund may also
invest indirectly in the securities of foreign issuers through sponsored and
unsponsored ADRs. For information on ADRs, see "Investment Policies Common to
the Equity Fund and the Theme Funds."
In managing the equity portion of the Income and Growth Fund, the Investment
Adviser will generally select securities that are expected to pay dividends and
other distributions which will result in moderate current income when added to
the income from the Fund's non-equity investments. As a general matter, the In-
vestment Adviser will use the three strategies described above in "U.S. Trust's
Investment Philosophy and Strategies"--problem/opportunity, transaction value,
and early life cycle. In applying these strategies, however, the Investment Ad-
viser will place greater emphasis on the current and anticipated income of par-
ticular securities and lesser emphasis on the potential for capital apprecia-
tion. As a result, the Income and Growth Fund can be expected to have a rela-
tively smaller proportion of its assets invested in common shares of early life
cycle companies than the Equity Fund or other Theme Funds. The Investment Ad-
viser may also purchase equity securities for the Income and Growth Fund from
time to time without regard to the strategies outlined above if it determines
that the purchase is in furtherance of the Fund's investment objectives.
Debt obligations may be acquired by the Income and Growth Fund to produce in-
come and (under certain conditions) capital appreciation, and may include both
convertible and non-convertible corporate and government bonds, debentures,
money market instruments, repurchase agreements collateralized by U.S. Govern-
ment obligations, and other types of instruments listed in the next paragraph.
Except as stated below, investments in debt obligations will be limited to
those that are considered to be investment grade-i.e., debt obligations classi-
fied within the four highest ratings of Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Group ("S&P") or, if unrated, which
are determined by the Investment Adviser to be of comparable quality. However,
the Investment Adviser may at any time acquire other, non-investment grade ob-
ligations when it believes that their investment characteristics make them de-
sirable acquisitions for the Income and Growth Fund in light of its investment
objectives and current portfolio mix, so long as, under normal market and eco-
nomic conditions, no more than 5% of the Fund's total assets are invested in
non-investment grade debt obligations.
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Notwithstanding the foregoing, the Fund may invest up to 35% of its total as-
sets in non-investment grade convertible debt obligations. Non-investment grade
obligations (those that are rated "Ba" or lower by Moody's and, at the same
time, "BB" or lower by S&P or unrated obligations), commonly referred to as
"junk bonds", have speculative characteristics. Risks associated with lower-
rated debt securities are (a) the relative youth and growth of the market for
such securities, (b) the sensitivity of such securities to interest rate and
economic changes, (c) the lower degree of protection of principal and interest
payments, (d) the relatively low trading market liquidity for the securities,
(e) the impact that legislation may have on the high yield bond market (and, in
turn, on the Fund's net asset value and investment practices), and (f) the
creditworthiness of the issuers of such securities. During an economic downturn
or substantial period of rising interest rates, highly leveraged issuers may
experience financial stress which would adversely effect their ability to serv-
ice their principal and interest payment obligations, to meet projected busi-
ness goals and to obtain additional financing. An economic downturn could also
disrupt the market for lower-rated bonds and adversely effect the value of out-
standing bonds and the ability of the issuers to repay principal and interest.
If the issuer of a debt obligation held by the Fund defaulted, the Fund could
incur additional expenses to seek recovery. Adverse publicity and investor per-
ceptions, whether or not based on fundamental analysis, may also decrease the
values and liquidity of lower-rated securities held by the Fund, especially in
a thinly traded market.
Debt obligations rated "BB," "B" or "CCC" by S&P are regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" represents the
lowest degree of speculation and "CCC" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse condi-
tions. The rating "CC" is typically applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating. The rating "C" is typically
applied to debt subordinated to senior debt which is assigned an actual or im-
plied "CCC-" debt rating, and may be used to cover a situation where a bank-
ruptcy petition has been filed, but debt service payments are continued. The
rating "CI" is reserved for income bonds on which no interest is being paid.
Debt obligations rated "D" are in default, and payments of interest and/or re-
payment of principal is in arrears. The ratings from "AA" through "CCC" are
sometimes modified by the addition of a plus or minus sign to show relative
standing within the major rating categories. Moody's has a similar classifica-
tion scheme for non-investment grade debt obligations. Debt obligations rated
"Ba," "B," "Caa," "Ca" and "C" provide questionable protection of interest and
principal. The rating "Ba" indicates that a debt obligation has some specula-
tive characteristics. The rating "B" indicates a general lack of characteris-
tics of desirable investment. Debt obligations rated "Caa" are of poor quality,
while debt obligations rated "Ca" are considered highly speculative. "C" repre-
sents the lowest rated class of debt obligations. Moody's applies numerical
modifiers 1, 2 and 3 in each generic classification from "Aa" to "B" in its
bond rating system. The modifier "1" indicates that a security ranks in the
higher end of its rating category; the modifier "2" reflects a mid-range rank-
ing; and the modifier "3" indicates that the security ranks at the lower end of
its generic rating category.
In addition, the Income and Growth Fund may invest up to 10% of its total as-
sets in other types of instruments, including warrants, options and other
rights to purchase securities; liquidating trust receipts; limited partnership
interests; certificates of beneficial ownership; creditor claims; and loan par-
ticipations. Such instruments may represent ownership or creditor interests in
a wide range of assets or businesses, and may be acquired by the Income and
Growth Fund for either income purposes (as would normally be the case with in-
struments such as liquidating trust receipts) or capital appreciation (as would
be the case with warrants and options). In certain instances, there may be
20
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no established market for such instruments. The Income and Growth Fund will,
however, at no time invest more than 10% of the value of its net assets in se-
curities that are illiquid or for which market quotations are not readily
available. Further, certain of these instruments may have speculative charac-
teristics. For example, certain instruments may be issued by companies that
are insolvent or have otherwise defaulted on their debt obligations. Such com-
panies may be involved in bankruptcy reorganization proceedings. Warrants and
options acquired by the Income and Growth Fund are subject to the possible
loss of the entire premium paid by the Fund if the market price of the under-
lying security falls below the exercise price. The Investment Adviser will
purchase such obligations only when it determines that the potential return
justifies the attendant risks. The investment features of the foregoing in-
struments and investment risks involving their acquisition are described fur-
ther in the Statement of Additional Information. Additionally, some of the
instruments described above may not be "securities" or may not produce quali-
fying income for purposes of the provisions of the Internal Revenue Code of
1986, as amended, applicable to investment companies. See "Taxes--Federal" be-
low for a discussion of such provisions.
RISK FACTORS
Each Fund is subject to market risk, interest rate risk and in some cases in-
dustry risk. Market risk is the possibility that stock prices will decline
over short or even extended periods. The stock markets tend to be cyclical,
with periods of generally rising prices and periods of generally declining
prices. These cycles will affect the values of each Fund. In addition, the
prices of bonds and other debt instruments generally fluctuate inversely with
interest rate changes. Factors affecting debt securities will affect all of
the Funds' debt holdings.
The Long-Term Supply of Energy Fund will normally concentrate its investments
in the crude oil, petroleum and natural gas industry. Accordingly, it will be
susceptible to industry risk, the possibility that a particular group of
stocks will decline in price due to industry-specific developments.
Energy-related investments are affected generally by supply, demand, and
other competitive factors for the companies' specific products and services.
They are also affected by unpredictable factors such as the supply and demand
for oil, gas, electricity and other energy sources, prices of such energy
sources, exploration and production spending, governmental regulation, and
world economic and political events. In addition, utilities firms in the en-
ergy field are subject to a variety of factors affecting the public utilities
industries, including: difficulty obtaining adequate returns on invested capi-
tal which are typically subject to the control and scrutiny of public service
commissions; restrictions on operations and increased costs and delays as a
result of environmental considerations; costs of and ability to secure financ-
ing for large construction and development projects; difficulties in obtaining
secure energy resources; the uncertain effects of conservation efforts; and a
variety of issues concerning financing, governmental approval and environmen-
tal aspects of nuclear power facilities.
Environmentally-related investments are affected generally by issues and un-
certainties impacting the specialty chemicals, engineering and construction,
machinery and pollution control industries. Such factors include the supply,
demand, and other normal competitive factors for the various portfolio compa-
nies' products and services. The environmental products and services industry
generally has been affected positively by legislation resulting in stricter
governmental regulations and enforcement policies for both commercial and gov-
ernmental generators of waste, as well as by specific expenditures for cleanup
efforts. Chemical products are affected, for example, by product obsolescence
and competition; the handling of hazardous chemicals and products; and the po-
tential for calamitous accidents. In addition to supply and demand factors,
engineering, construction and machinery companies are affected by changes in
interest rates and
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<PAGE>
governmental spending and financing of public works and cleanup projects. Fi-
nally, all of these types of companies are heavily affected by regulation of
various governments, including the federal Environmental Protection Agency and
its state counterparts. As regulations are developed and enforced, such compa-
nies may be required to alter or cease production of a product or service or
to agree to restrictions on their operations.
Companies in the various communications and entertainment industries encoun-
ter intense competition, short product life cycles and rapidly changing con-
sumer tastes. In addition, companies in the telecommunications and utilities
industries are subject to heavy governmental regulation.
Small companies may have limited product lines, markets, or financial re-
sources, or may be dependent upon a small management group, and their securi-
ties may be subject to more abrupt or erratic market movements than larger,
more established companies, both because their securities typically are traded
in lower volume and because the issuers typically are subject to a greater de-
gree to changes in their earnings and prospects.
All Funds may invest in the securities of foreign issuers. Investments in
foreign securities involve certain risks not ordinarily associated with in-
vestments in domestic securities. Such risks include fluctuations in foreign
exchange rates, future political and economic developments, and the possible
imposition of exchange controls or other foreign governmental laws or restric-
tions. In addition, with respect to certain countries there is the possibility
of expropriation of assets, confiscatory taxation, political or social insta-
bility or diplomatic developments which could adversely affect investments in
those countries. There may be less publicly available information about a for-
eign company than about a U.S. company, and foreign companies may not be sub-
ject to accounting, auditing and financial reporting standards and require-
ments comparable to or as uniform as those of U.S.-based companies. Foreign
securities markets, while growing in volume, have, for the most part, substan-
tially less volume than U.S. markets, and securities of many foreign companies
are less liquid and their prices more volatile than securities of comparable
U.S.-based companies. Transaction costs on foreign securities markets are gen-
erally higher than in the United States. There is generally less government
supervision and regulation of foreign exchanges, brokers and issuers than
there is in the United States and a Fund might have greater difficulty taking
appropriate legal action in a foreign court. Dividends and interest payable on
a Fund's foreign portfolio securities may be subject to foreign withholding
taxes. To the extent such taxes are not offset by credits or deductions al-
lowed to investors under the Federal income tax provisions, they may reduce
the net return to the shareholders.
The Funds should not be considered a complete investment program. In view of
the specialized nature of their investment activities, investment in the Eq-
uity and Theme Funds' shares may be suitable only for those investors who can
invest without concern for current income and are financially able to assume
risk in search of long-term capital gains.
Securities of companies discussed in this section may be more volatile than
the overall market.
PORTFOLIO INSTRUMENTS AND OTHER
INVESTMENT INFORMATION
MONEY MARKET INSTRUMENTS
All Funds may invest in "money market instruments," which include, among
other things, bank obligations, commercial paper and corporate bonds with re-
maining maturities of 13 months or less.
Bank obligations include bankers' acceptances, negotiable certificates of de-
posit, and non-negotiable time deposits earning a specified return and issued
by a U.S. bank which is a member of the Federal Reserve System or insured by
the Bank Insurance Fund of the
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Federal Deposit Insurance Corporation ("FDIC"), or by a savings and loan asso-
ciation or savings bank which is insured by the Savings Association Insurance
Fund of the FDIC. Bank obligations also include U.S. dollar-denominated obli-
gations of foreign branches of U.S. banks and obligations of domestic branches
of foreign banks. Investments in bank obligations of foreign branches of do-
mestic financial institutions or of domestic branches of foreign banks are
limited so that no more than 5% of the value of a Fund's total assets may be
invested in any one branch, and no more than 20% of a particular Fund's total
assets at the time of purchase may be invested in the aggregate in such obli-
gations (see investment limitation No. 5 below under "Investment Limita-
tions"). Investments in time deposits are limited to no more than 5% of the
value of a Fund's total assets at the time of purchase.
Investments by the Funds in commercial paper will consist of issues that are
rated "A-2" or better by S&P or "Prime-2" or better by Moody's. In addition,
each Fund may acquire unrated commercial paper that is determined by the In-
vestment Adviser at the time of purchase to be of comparable quality to rated
instruments that may be acquired by the particular Fund.
Commercial paper may include variable and floating rate instruments. While
there may be no active secondary market with respect to a particular instru-
ment purchased by a Fund, the Fund may, from time to time as specified in the
instrument, demand payment of the principal of the instrument or may resell
the instrument to a third party. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if
the issuer defaulted on its payment obligation or during periods that the Fund
is not entitled to exercise its demand rights, and the Fund could, for this or
other reasons, suffer a loss with respect to such instrument. Any security
which cannot be disposed of within seven days without taking a reduced price
will be considered an illiquid security subject to the 10% limitation dis-
cussed below under "Investment Limitations."
GOVERNMENT OBLIGATIONS
All Funds may invest in U.S. Government obligations, including U.S. Treasury
Bills and the obligations of Federal Home Loan Banks, Federal Farm Credit
Banks, Federal Land Banks, the Federal Housing Administration, the Farmers
Home Administration, the Export-Import Bank of the United States, the Small
Business Administration, the Government National Mortgage Association, the
Federal National Mortgage Association, the General Services Administration,
the Student Loan Marketing Association, the Central Bank for Cooperatives, the
Federal Home Loan Mortgage Corporation, the Federal Intermediate Credit Banks
and the Maritime Administration.
REPURCHASE AGREEMENTS
In order to effectively manage their cash holdings, the Funds may enter into
repurchase agreements. Each Fund will enter into repurchase agreements only
with financial institutions that are deemed to be creditworthy by the Invest-
ment Adviser, pursuant to guidelines established by Excelsior Fund's Board of
Directors. No Fund will enter into repurchase agreements with the Investment
Adviser or any of its affiliates. Repurchase agreements with remaining maturi-
ties in excess of seven days will be considered illiquid securities and will
be subject to the 10% limit described in Investment Limitation No. 6 below.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund
at not less than the repurchase price. Default or bankruptcy of the seller
would, however, expose a Fund to possible delay in connection with the dispo-
sition of the underlying securities or loss to the extent that proceeds from a
sale of the underlying securities were less than the repurchase price under
the agreement.
SECURITIES LENDING
To increase return on its portfolio securities, each Fund may lend its port-
folio securities to broker/ dealers pursuant to agreements requiring the loans
to
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be continuously secured by collateral equal at all times in value to at least
the market value of the securities loaned. Collateral for such loans may in-
clude cash, securities of the U.S. Government, its agencies or instrumentali-
ties, or an irrevocable letter of credit issued by a bank, or any combination
thereof. Such loans will not be made if, as a result, the aggregate of all
outstanding loans of a Fund exceeds 30% of the value of its total assets.
There may be risks of delay in receiving additional collateral or in recover-
ing the securities loaned or even a loss of rights in the collateral should
the borrower of the securities fail financially. However, loans are made only
to borrowers deemed by the Investment Adviser to be of good standing and when,
in the Investment Adviser's judgment, the income to be earned from the loan
justifies the attendant risks.
OPTIONS
To further increase return on their portfolio securities in accordance with
their respective investment objectives and policies, the Funds may enter into
option transactions as described below.
The Income and Growth and Theme Funds may purchase put and call options
listed on a national securities exchange and issued by the Options Clearing
Corporation in an amount not exceeding 5% of a Fund's net assets, as described
further in the Statement of Additional Information. Such options may relate to
particular securities or to various stock or bond indices. Purchasing options
is a specialized investment technique which entails a substantial risk of a
complete loss of the amounts paid as premiums to the writer of the options.
In addition, each Fund may engage in writing covered call options (options on
securities owned by the particular Fund) and enter into closing purchase
transactions with respect to such options. Such options must be listed on a
national securities exchange and issued by the Options Clearing Corporation.
The aggregate value of the securities subject to options written by each Fund
may not exceed 25% of the value of its net assets. By writing a covered call
option, a Fund forgoes the opportunity to profit from an increase in the mar-
ket price of the underlying security above the exercise price except insofar
as the premium represents such a profit, and it will not be able to sell the
underlying security until the option expires or is exercised or the Fund ef-
fects a closing purchase transaction by purchasing an option of the same se-
ries. The use of covered call options is not a primary investment technique of
the Funds and such options will normally be written on underlying securities
as to which the Investment Adviser does not anticipate significant short-term
capital appreciation. Additional information on option practices, including
particular risks thereof, is provided in the Funds' Statement of Additional
Information.
FUTURES CONTRACTS
The Theme Funds may also enter into interest rate futures contracts, other
types of financial futures contracts and related futures options, as well as
any index or foreign market futures which are available on recognized ex-
changes or in other established financial markets.
The Theme Funds will not engage in futures transactions for speculation, but
only as a hedge against changes in market values of securities which a Fund
holds or intends to purchase. The Theme Funds will engage in futures transac-
tions only to the extent permitted by the Commodity Futures Trading Commission
("CFTC") and the Securities and Exchange Commission ("SEC"). When investing in
futures contracts, the Funds must satisfy certain asset segregation require-
ments to ensure that the use of futures is unleveraged. When a Fund takes a
long position in a futures contract, it must maintain a segregated account
containing cash and/or certain liquid assets equal to the purchase price of
the contract, less any margin or deposit. When a Fund takes a short position
in a futures contract, the Fund must maintain a segregated account containing
cash and/or certain liquid assets in
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<PAGE>
an amount equal to the market value of the securities underlying such contract
(less any margin or deposit), which amount must be at least equal to the market
price at which the short position was established. Asset segregation require-
ments are not applicable when a Fund "covers" an options or futures position
generally by entering into an offsetting position. Each Fund will limit its
hedging transactions in futures contracts and related options so that, immedi-
ately after any such transaction, the aggregate initial margin that is required
to be posted by the Fund under the rules of the exchange on which the futures
contract (or futures option) is traded, plus any premiums paid by the Fund on
its open futures options positions, does not exceed 5% of the Fund's total as-
sets, after taking into account any unrealized profits and unrealized losses on
the Fund's open contracts (and excluding the amount that a futures option is
"in-the-money" at the time of purchase). An option to buy a futures contract is
"in-the-money" if the then-current purchase price of the underlying futures
contract exceeds the exercise or strike price; an option to sell a futures con-
tract is "in-the-money" if the exercise or strike price exceeds the then-cur-
rent purchase price of the contract that is the subject of the option. In addi-
tion, the use of futures contracts is further restricted to the extent that no
more than 10% of a Fund's total assets may be hedged.
Transactions in futures as a hedging device may subject a Fund to a number of
risks. Successful use of futures by a Fund is subject to the ability of the In-
vestment Adviser to correctly anticipate movements in the direction of the mar-
ket. In addition, there may be an imperfect correlation, or no correlation at
all, between movements in the price of the futures contracts (or options) and
movements in the price of the instruments being hedged. Further, there is no
assurance that a liquid market will exist for any particular futures contract
(or option) at any particular time. Consequently, a Fund may realize a loss on
a futures transaction that is not offset by a favorable movement in the price
of securities which it holds or intends to purchase or may be unable to close a
futures position in the event of adverse price movements.
INVESTMENT COMPANY SECURITIES
In connection with the management of its daily cash positions, each Fund may
invest in securities issued by other investment companies which invest in high-
quality, short-term debt securities and which determine their net asset value
per share based on the amortized cost or penny-rounding method. The Income and
Growth Fund may also purchase securities of unit investment trusts registered
with the SEC as investment companies. In addition to the advisory fees and
other expenses a Fund bears directly in connection with its own operations, as
a shareholder of another investment company, a Fund would bear its pro rata
portion of the other investment company's advisory fees and other expenses. As
such, the Fund's shareholders would indirectly bear the expenses of the Fund
and the other investment company, some or all of which would be duplicative.
Such securities will be acquired by each Fund within the limits prescribed by
the Investment Company Act of 1940 (the "1940 Act") which include, subject to
certain exceptions, a prohibition against a Fund investing more than 10% of the
value of its total assets in such securities.
WHEN-ISSUED AND FORWARD TRANSACTIONS
Each Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. These transactions
involve a commitment by a Fund to purchase or sell particular securities with
payment and delivery taking place in the future, beyond the normal settlement
date, at a stated price and yield. Securities purchased on a "forward commit-
ment" or "when-issued" basis are recorded as an asset and are subject to
changes in value based upon changes in the general level of interest rates. It
is expected that forward commitments and "when-issued" purchases will not ex-
ceed 25% of the value of a Fund's total assets absent unusual market condi-
tions, and that the length of such commitments will not exceed 45 days. The
Funds do not intend to engage in "when-issued" purchases and forward commit-
ments for speculative purposes, but only in furtherance of their investment ob-
jectives.
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ILLIQUID SECURITIES
No Fund will knowingly invest more than 10% of the value of its net assets in
securities that are illiquid. Each Fund may purchase securities which are not
registered under the Securities Act of 1933 (the "Act") but which can be sold
to "qualified institutional buyers" in accordance with Rule 144A under the Act.
Any such security will not be considered illiquid so long as it is determined
by the Investment Adviser, acting under guidelines approved and monitored by
the Board, that an adequate trading market exists for that security. This in-
vestment practice could have the effect of increasing the level of illiquidity
in a Fund during any period that qualified institutional buyers become uninter-
ested in purchasing these restricted securities.
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment immediately after its acquisition if
the Investment Adviser believes that such a disposition is consistent with the
investment objective of the particular Fund. Portfolio investments may be sold
for a variety of reasons, such as a more favorable investment opportunity or
other circumstances bearing on the desirability of continuing to hold such in-
vestments. A high rate of portfolio turnover may involve correspondingly
greater brokerage commission expenses and other transaction costs, which must
be borne directly by a Fund and ultimately by its shareholders. High portfolio
turnover may result in the realization of substantial net capital gains. To the
extent net short-term capital gains are realized, any distributions resulting
from such gains are considered ordinary income for Federal income tax purposes.
(See "Financial Highlights" and "Taxes--Federal.")
INVESTMENT LIMITATIONS
The investment limitations enumerated below are matters of fundamental policy
and may not be changed with respect to a Fund without the vote of the holders
of a majority of a Fund's outstanding shares (as defined under "Miscellane-
ous").
A Fund may not:
1. Purchase securities of any one issuer, other than U.S. Government obliga-
tions, if immediately after such purchase more than 5% of the value of its
total assets would be invested in the securities of such issuer, except that
up to 25% of the value of its total assets may be invested without regard to
this 5% limitation;
2. Borrow money except from banks for temporary purposes, and then in
amounts not in excess of 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any assets except in con-
nection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed and 10% of the value of its total assets at the
time of such borrowing. (This borrowing provision is included solely to fa-
cilitate the orderly sale of portfolio securities to accommodate abnormally
heavy redemption requests and is not for leverage purposes.) A Fund will not
purchase portfolio securities while borrowings in excess of 5% of its total
assets are outstanding. Optioned stock held in escrow is not deemed to be a
pledge; and
3. Make loans, except that (i) each Fund may purchase or hold debt securi-
ties in accordance with its investment objective and policies, and may enter
into repurchase agreements with respect to obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, (ii) each Fund may
lend portfolio securities in an amount not exceeding 30% of its total assets,
and (iii) the Income and Growth Fund may purchase or hold creditor claims,
loan participations and other instruments in accordance with its investment
objectives and policies.
Each Fund other than the Long-Term Supply of Energy Fund may not:
4. Purchase any securities which would cause more than 25% of the value of
its total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry, provided that
26
<PAGE>
(a) with respect to the Equity and Income and Growth Funds, there is no limi-
tation with respect to securities issued or guaranteed by the U.S. Government
or domestic bank obligations, (b) with respect to each Theme Fund, there is
no limitation with respect to securities issued or guaranteed by the U.S.
Government, and (c) neither all finance companies, as a group, nor all util-
ity companies, as a group, are considered a single industry for purposes of
this policy.
Each of the Equity and Income and Growth Funds may not:
5. Invest in obligations of foreign branches of financial institutions or in
domestic branches of foreign banks, if immediately after such purchase
(i) more than 5% of the value of its total assets would be invested in obli-
gations of any one foreign branch of the financial institution or domestic
branch of a foreign bank; or (ii) more than 20% of its total assets would be
invested in foreign branches of financial institutions or in domestic
branches of foreign banks; and
6. Knowingly invest more than 10% of the value of its total assets in illiq-
uid securities, including repurchase agreements with remaining maturities in
excess of seven days, restricted securities, and other securities for which
market quotations are not readily available.
* * *
In addition to the investment limitations described above, no Fund may invest
in the securities of any single issuer if, as a result, the Fund holds more
than 10% of the outstanding voting securities of such issuer.
The Theme Funds may not invest in obligations of foreign branches of financial
institutions or in domestic branches of foreign banks if immediately after such
purchase (i) more than 5% of the value of their respective total assets would
be invested in obligations of any one foreign branch of the financial institu-
tion or domestic branch of a foreign bank; or (ii) more than 20% of their re-
spective total assets would be invested in foreign branches of financial insti-
tutions or in domestic branches of foreign banks. The Theme Funds may not know-
ingly invest more than 10% of the value of their respective total assets in il-
liquid securities, including repurchase agreements with remaining maturities in
excess of seven days, restricted securities and other securities for which mar-
ket quotations are not readily available. These investment policies may be
changed by Excelsior Fund's Board of Directors upon reasonable notice to share-
holders.
The Equity and Income and Growth Funds will not invest more than 25% of the
value of their respective total assets in domestic bank obligations.
With respect to all investment policies, if a percentage limitation is satis-
fied at the time of investment, a later increase or decrease in such percentage
resulting from a change in value of a Fund's portfolio securities will not con-
stitute a violation of such limitation.
PRICING OF SHARES
The net asset value of each Fund is determined and the Shares of each Fund are
priced at the close of regular trading hours on the New York Stock Exchange
(the "Exchange"), currently 4:00 p.m. (Eastern Time). Net asset value and pric-
ing for each Fund are determined on each day the Exchange and the Investment
Adviser are open for trading ("Business Day"). Currently, the holidays which
the Funds observe are New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Vet-
erans Day, Thanksgiving Day and Christmas. A Fund's net asset value per Share
for purposes of pricing sales and redemptions is calculated by dividing the
value of all securities and other assets allocable to its Shares, less the lia-
bilities allocable to its Shares, by the number of its outstanding Shares.
Assets in the Funds which are traded on a recognized domestic stock exchange
are valued at the last sale price on the securities exchange on which such se-
curities are primarily traded or at the last sale price
27
<PAGE>
on the national securities market. Securities traded only on over-the-counter
markets are valued on the basis of closing over-the-counter bid prices. Secu-
rities for which there were no transactions are valued at the average of the
most recent bid and asked prices. An option or futures contract is valued at
the last sales price quoted on the principal exchange or board of trade on
which such option or contract is traded, or in the absence of a sale, the mean
between the last bid and asked prices. Restricted securities, securities for
which market quotations are not readily available, and other assets are valued
at fair value, pursuant to guidelines adopted by Excelsior Fund's Board of Di-
rectors.
Portfolio securities which are primarily traded on foreign securities ex-
changes are generally valued at the preceding closing values of such securi-
ties on their respective exchanges, except that when an event subsequent to
the time where value was so established is likely to have changed such value,
then the fair value of those securities will be determined by consideration of
other factors under the direction of the Board of Directors. A security which
is listed or traded on more than one exchange is valued at the quotation on
the exchange determined to be the primary market for such security. Invest-
ments in debt securities having a maturity of 60 days or less are valued based
upon the amortized cost method. All other foreign securities are valued at the
last current bid quotation if market quotations are available, or at fair
value as determined in accordance with guidelines adopted by the Board of Di-
rectors. For valuation purposes, quotations of foreign securities in foreign
currency are converted to U.S. dollars equivalent at the prevailing market
rate on the day of conversion. Some of the securities acquired by the Funds
may be traded on foreign exchanges or over-the-counter markets on days which
are not Business Days. In such cases, the net asset value of the Shares may be
significantly affected on days when investors can neither purchase nor redeem
a Fund's Shares. Excelsior Fund's administrators have undertaken to price the
securities in the Funds' portfolios, and may use one or more independent pric-
ing services in connection with this service.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in each Fund are continuously offered for sale by Excelsior Fund's
sponsor and distributor, Edgewood Services, Inc. (the "Distributor"), a whol-
ly-owned subsidiary of Federated Investors. The Distributor is a registered
broker/dealer. Its principal business address is Clearing Operations, P.O. Box
897, Pittsburgh, PA 15230-0897.
PURCHASE OF SHARES
The Distributor has established several procedures for purchasing Shares in
order to accommodate different types of investors.
Shares may be purchased directly by individuals ("Direct Investors") or by
institutions ("Institutional Investors" and, collectively with Direct Invest-
ors, "Investors"). Shares may also be purchased by customers ("Customers") of
the Investment Adviser, its affiliates and correspondent banks, and other in-
stitutions ("Shareholder Organizations") that have entered into shareholder
servicing agreements with Excelsior Fund. A Shareholder Organization may elect
to hold of record Shares for its Customers and to record beneficial ownership
of Shares on the account statements provided by it to its Customers. If it
does so, it is the Shareholder Organization's responsibility to transmit to
the Distributor all purchase orders for its Customers and to transmit, on a
timely basis, payment for such orders to Chase Global Funds Services Company
("CGFSC"), the Funds' sub-transfer agent, in accordance with the procedures
agreed to by the Shareholder Organization and the Distributor. Confirmations
of all such Customer purchases and redemptions will be sent by CGFSC to the
particular Shareholder Organization. As an alternative, a Shareholder Organi-
zation may elect to establish its Customers' accounts of record with CGFSC. In
this event, even if the Shareholder Organization continues to place its Cus-
tomers' purchase and redemption orders with the Funds, CGFSC will send confir-
mations of such transactions and periodic
28
<PAGE>
account statements directly to Customers. A Shareholder Organization may also
elect to establish its Customers as record holders.
Excelsior Fund enters into shareholder servicing agreements with Shareholder
Organizations which agree to provide their Customers various shareholder ad-
ministrative services with respect to their Shares (hereinafter referred to as
"Service Organizations"). Shares in the Funds bear the expense of fees payable
to Service Organizations for such services. See "Management of the Funds--
Service Organizations."
Customers wishing to purchase Shares through their Shareholder Organization
should contact such entity directly for appropriate instructions. (For a list
of Shareholder Organizations in your area, call (800) 446-1012.) An investor
purchasing Shares through a registered investment adviser or certified
financial planner may incur transaction charges in connection with such pur-
chases. Such investors should contact their registered investment adviser or
certified financial planner for further information on transaction fees. In-
vestors may also purchase Shares directly in accordance with procedures de-
scribed below under "Purchase Procedures."
PUBLIC OFFERING PRICE
The public offering price for Shares of each Fund is the sum of the net asset
value of the Shares purchased plus a sales load according to the table below:
<TABLE>
<CAPTION>
TOTAL SALES CHARGES REALLOWANCE TO DEALERS
------------------------------ ----------------------
AS A % OF AS A % OF AS A % OF
OFFERING PRICE NET ASSET OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE VALUE PER SHARE PER SHARE
- --------------------- -------------- --------------- ----------------------
<S> <C> <C> <C>
Less than $50,000....... 4.50% 4.71% 4.00%
$50,000 to $99,999...... 4.00 4.17 3.50
$100,000 to $249,999.... 3.50 3.63 3.00
$250,000 to $499,999.... 3.00 3.09 2.50
$500,000 to $999,999.... 2.00 2.05 1.50
$1,000,000 to
$1,999,999............. 1.00 1.00 .50
$2,000,000 and over..... .50 .50 .25
</TABLE>
The reallowance to dealers may be changed from time to time but will remain
the same for all such dealers.
At various times the Distributor may implement programs under which a deal-
er's sales force may be eligible to win nominal awards for certain sales ef-
forts or under which the Distributor will reallow to any dealer that sponsors
sales contests or recognition programs conforming to criteria established by
the Distributor, or participates in sales programs sponsored by the Distribu-
tor, an amount not exceeding the total applicable sales charges on the sales
generated by the dealer at the public offering price during such programs. Al-
so, the Distributor in its discretion may from time to time, pursuant to ob-
jective criteria established by the Distributor, pay fees to qualifying deal-
ers for certain services or activities which are primarily intended to result
in sales of Shares of the Funds. If any such program is made available to any
dealer, it will be made available to all dealers on the same terms and condi-
tions. Payments made under such programs will be made by the Distributor out
of its own assets and not out of the assets of the Funds. These programs will
not change the price of Shares or the amount that the Funds will receive from
such sales.
The sales load described above will not be applicable to: (a) purchases of
Shares by customers of the Investment Adviser or its affiliates; (b) trust,
agency or custodial accounts opened through the trust department of a bank,
trust company or thrift institution, provided that appropriate notification of
such status is given at the time of investment; (c) companies, corporations
and partnerships (excluding full service broker/ dealers and financial plan-
ners, registered investment advisers and depository institutions not covered
by the exemptions in (d) and (e) below); (d) financial planners and registered
investment advisers not affiliated with or clearing purchases through full
service broker/dealers; (e) purchases of Shares by depository institutions for
their own account as principal; (f) exchange transactions (described below un-
der "Investor Programs--Exchange Privilege") where the Shares being exchanged
were acquired in connection with the distribution of assets held in trust,
agency or custodial accounts maintained with the trust department of a bank;
(g) corporate/business retirement plans (such
29
<PAGE>
as 401(k), 403(b)(7), 457 and Keogh accounts) sponsored by the Distributor and
IRA accounts sponsored by the Investment Adviser; (h) company-sponsored em-
ployee pension or retirement plans making direct investments in the Funds; (i)
purchases of Shares by officers, trustees, directors, employees, former em-
ployees and retirees of Excelsior Fund, Excelsior Tax-Exempt Funds, Inc. ("Ex-
celsior Tax-Exempt Fund"), Excelsior Institutional Trust or Excelsior Funds,
the Investment Adviser, the Distributor or of any direct or indirect affiliate
of any of them; (j) purchases of Shares by all beneficial shareholders of Ex-
celsior Fund or Excelsior Tax-Exempt Fund as of May 22, 1989; (k) purchases of
Shares by investment advisers registered under the Investment Advisers Act of
1940 for their customers through an omnibus account established with United
States Trust Company of New York; (l) purchases of Shares by directors, offi-
cers and employees of brokers and dealers selling shares pursuant to a selling
agreement with Excelsior Fund, Excelsior Tax-Exempt Fund; (m) purchases of
shares by investors who are members of affinity groups serviced by USAffinity
Investments Limited Partnership; and (n) customers of certain financial insti-
tutions who purchase Shares through a registered representative of UST Finan-
cial Services Corp. on the premises of their financial institutions. In addi-
tion, no sales load is charged on the reinvestment of dividends or distribu-
tions or in connection with certain share exchange transactions. Investors who
have previously redeemed shares in an "Eligible Fund" (as defined below) on
which a sales load has been paid also have a one-time privilege of purchasing
shares of another "Eligible Fund" at net asset value without a sales charge,
provided that such privilege will apply only to purchases made within 30 cal-
endar days from the date of redemption and only with respect to the amount of
the redemption. These exemptions to the imposition of a sales load are due to
the nature of the investors and/or reduced sales effort that will be needed in
obtaining investments.
QUANTITY DISCOUNTS
An investor in the Funds may be entitled to reduced sales charges through
Rights of Accumulation, a Letter of Intent or a combination of investments, as
described below, even if the investor does not wish to make an investment of a
size that would normally qualify for a quantity discount.
In order to obtain quantity discount benefits, an investor must notify CGFSC
at the time of purchase that he or she would like to take advantage of any of
the discount plans described below. Upon such notification, the investor will
receive the lowest applicable sales charge. Quantity discounts may be modified
or terminated at any time and are subject to confirmation of an investor's
holdings through a check of appropriate records. For more information about
quantity discounts, please call (800) 446-1012 or contact your Shareholder Or-
ganization.
Rights of Accumulation. A reduced sales load applies to any purchase of
shares of any portfolio of Excelsior Fund, Excelsior Tax-Exempt Fund that is
sold with a sales load ("Eligible Fund") where an investor's then current ag-
gregate investment is $50,000 or more. "Aggregate investment" means the total
of: (a) the dollar amount of the then current purchase of shares of an Eligi-
ble Fund and (b) the value (based on current net asset value) of previously
purchased and beneficially owned shares of any Eligible Fund on which a sales
load has been paid. If, for example, an investor beneficially owns shares of
one or more Eligible Funds with an aggregate current value of $49,000 on which
a sales load has been paid and subsequently purchases shares of an Eligible
Fund having a current value of $1,000, the load applicable to the subsequent
purchase would be reduced to 4.00% of the offering price. Similarly, with re-
spect to each subsequent investment, all shares of Eligible Funds that are
beneficially owned by the investor at the time of investment may be combined
to determine the applicable sales load.
Letter of Intent. By completing the Letter of Intent included as part of the
New Account Application, an investor becomes eligible for the reduced sales
load applicable to the total number of Eligible Fund shares purchased in a 13-
month period pursuant to the terms
30
<PAGE>
and under the conditions set forth below and in the Letter of Intent. To com-
pute the applicable sales load, the offering price of shares of an Eligible
Fund on which a sales load has been paid, beneficially owned by an investor on
the date of submission of the Letter of Intent, may be used as a credit toward
completion of the Letter of Intent. However, the reduced sales load will be
applied only to new purchases.
CGFSC will hold in escrow shares equal to 5% of the amount indicated in the
Letter of Intent for payment of a higher sales load if an investor does not
purchase the full amount indicated in the Letter of Intent. The escrow will be
released when an investor fulfills the terms of the Letter of Intent by pur-
chasing the specified amount. If purchases qualify for a further sales load
reduction, the sales load will be adjusted to reflect an investor's total pur-
chases. If total purchases are less than the amount specified, an investor
will be requested to remit an amount equal to the difference between the sales
load actually paid and the sales load applicable to the total purchases. If
such remittance is not received within 20 days, CGFSC, as attorney-in-fact
pursuant to the terms of the Letter of Intent and at the Distributor's direc-
tion, will redeem an appropriate number of shares held in escrow to realize
the difference. Signing a Letter of Intent does not bind an investor to pur-
chase the full amount indicated at the sales load in effect at the time of
signing, but an investor must complete the intended purchase in accordance
with the terms of the Letter of Intent to obtain the reduced sales load. To
apply, an investor must indicate his or her intention to do so under a Letter
of Intent at the time of purchase.
Qualification for Discounts. For purposes of applying the Rights of Accumula-
tion and Letter of Intent privileges described above, the scale of sales loads
applies to the combined purchases made by any individual and/or spouse pur-
chasing securities for his, her or their own account or for the account of any
minor children, or the aggregate investments of a trustee or custodian of any
qualified pension or profit sharing plan or IRA established (or the aggregate
investment of a trustee or other fiduciary) for the benefit of the persons
listed above.
PURCHASE PROCEDURES
General
Direct Investors may purchase Shares by completing the Application for pur-
chase of Shares accompanying this Prospectus and mailing it, together with a
check payable to Excelsior Funds, to:
Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
Subsequent investments in an existing account in any Fund may be made at any
time by sending to the above address a check payable to Excelsior Funds along
with: (a) the detachable form that regularly accompanies the confirmation of a
prior transaction; (b) a subsequent order form which may be obtained from
CGFSC; or (c) a letter stating the amount of the investment, the name of the
Fund and the account number in which the investment is to be made. Institu-
tional Investors may purchase Shares by transmitting their purchase orders to
CGFSC by telephone at (800) 446-1012 or by terminal access. Institutional In-
vestors must pay for Shares with Federal funds or funds immediately available
to CGFSC.
Purchases by Wire
Investors may also purchase Shares by wiring Federal funds to CGFSC. Prior to
making an initial investment by wire, an Investor must telephone CGFSC at
(800) 446-1012 (from overseas, call (617) 557-8280) for instructions. Federal
funds and registration instructions should be wired through the Federal Re-
serve System to:
The Chase Manhattan Bank, N.A.
ABA #021000021
Excelsior Funds, Account No. 9102732915
For further credit to:
Excelsior Funds
Wire Control Number
Account Registration (including account number)
31
<PAGE>
Investors making initial investments by wire must promptly complete the Appli-
cation accompanying this Prospectus and forward it to CGFSC. Redemptions by In-
vestors will not be processed until the completed Application for purchase of
Shares has been received by CGFSC and accepted by the Distributor. Investors
making subsequent investments by wire should follow the above instructions.
OTHER PURCHASE INFORMATION
Except as provided in "Investor Programs" below, the minimum initial invest-
ment by an Investor or initial aggregate investment by a Shareholder Organiza-
tion investing on behalf of its Customers is $500 per Fund. The minimum subse-
quent investment for both types of investors is $50 per Fund. Customers may
agree with a particular Shareholder Organization to make a minimum purchase
with respect to their accounts. Depending upon the terms of the particular ac-
count, Shareholder Organizations may charge a Customer's account fees for auto-
matic investment and other cash management services provided. Excelsior Fund
reserves the right to reject any purchase order, in whole or in part, or to
waive any minimum investment requirements.
REDEMPTION PROCEDURES
Customers of Shareholder Organizations holding Shares of record may redeem all
or part of their investments in the Funds in accordance with procedures gov-
erning their accounts at the Shareholder Organizations. It is the responsibil-
ity of the Shareholder Organizations to transmit redemption orders to CGFSC and
credit such Customer accounts with the redemption proceeds on a timely basis.
Redemption orders for Institutional Investors must be transmitted to CGFSC by
telephone at (800) 446-1012 or by terminal access. No charge for wiring redemp-
tion payments to Shareholder Organizations or Institutional Investors is im-
posed by Excelsior Fund, although Shareholder Organizations may charge a Cus-
tomer's account for wiring redemption proceeds. Information relating to such
redemption services and charges, if any, is available from the Shareholder Or-
ganizations. An investor redeeming Shares through a registered investment ad-
viser or certified financial planner may incur transaction charges in connec-
tion with such redemptions. Such investors should contact their registered in-
vestment adviser or certified financial planner for further information on
transaction fees. Investors may redeem all or part of their Shares in accor-
dance with any of the procedures described below (these procedures also apply
to Customers of Shareholder Organizations for whom individual accounts have
been established with CGFSC).
REDEMPTION BY MAIL
Shares may be redeemed by a Direct Investor by submitting a written request
for redemption to:
Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798 Boston, MA 02208-2798
A written redemption request to CGFSC must (i) state the number of Shares to
be redeemed, (ii) identify the shareholder account number and tax identifica-
tion number, and (iii) be signed by each registered owner exactly as the Shares
are registered. If the Shares to be redeemed were issued in certificate form,
the certificates must be endorsed for transfer (or accompanied by a duly exe-
cuted stock power) and must be submitted to CGFSC together with the redemption
request. A redemption request for an amount in excess of $50,000 per account,
or for any amount if the proceeds are to be sent elsewhere than the address of
record, must be accompanied by signature guarantees from any eligible guarantor
institution approved by CGFSC in accordance with its Standards, Procedures and
Guidelines for the Acceptance of Signature Guarantees ("Signature Guarantee
Guidelines"). Eligible guarantor institutions generally include banks,
broker/dealers, credit unions, national securities exchanges, registered secu-
rities associations, clearing agencies and savings associations. All eligible
guarantor institutions must participate in the Securities Transfer Agents Me-
dallion Program ("STAMP")
32
<PAGE>
in order to be approved by CGFSC pursuant to the Signature Guarantee Guide-
lines. Copies of the Signature Guarantee Guidelines and information on STAMP
can be obtained from CGFSC at (800) 446-1012 or at the address given above.
CGFSC may require additional supporting documents for redemptions made by cor-
porations, executors, administrators, trustees and guardians. A redemption re-
quest will not be deemed to be properly received until CGFSC receives all re-
quired documents in proper form. Payment for Shares redeemed will ordinarily
be made by mail within five Business Days after proper receipt by CGFSC of the
redemption request. Questions with respect to the proper form for redemption
requests should be directed to CGFSC at (800) 446-1012 (from overseas, call
(617) 557-8280).
REDEMPTION BY WIRE OR TELEPHONE
Direct Investors who have so indicated on the Application, or have subse-
quently arranged in writing to do so, may redeem Shares by instructing CGFSC
by wire or telephone to wire the redemption proceeds directly to the Direct
Investor's account at any commercial bank in the United States. Direct Invest-
ors who are shareholders of record may also redeem Shares by instructing CGFSC
by telephone to mail a check for redemption proceeds of $500 or more to the
shareholder of record at his or her address of record. Institutional Investors
may also redeem Shares by instructing CGFSC by telephone at (800) 446-1012 or
by terminal access. Only redemptions of $500 or more will be wired to a Direct
Investor's account. An $8.00 fee for each wire redemption by a Direct Investor
is deducted by CGFSC from the proceeds of the redemption. The redemption pro-
ceeds for Direct Investors must be paid to the same bank and account as desig-
nated on the Application or in written instructions subsequently received by
CGFSC.
In order to arrange for redemption by wire or telephone after an account has
been opened or to change the bank or account designated to receive redemption
proceeds, a Direct Investor must send a written request to Excelsior Fund, c/o
CGFSC, at the address listed above under "Redemption by Mail." Such requests
must be signed by the Direct Investor, with signatures guaranteed (see "Re-
demption by Mail" above, for details regarding signature guarantees). Further
documentation may be requested.
CGFSC and the Distributor reserve the right to refuse a wire or telephone
redemption if it is believed advisable to do so. Procedures for redeeming
Shares by wire or telephone may be modified or terminated at any time by Ex-
celsior Fund, CGFSC or the Distributor. EXCELSIOR FUND, CGFSC, AND THE DIS-
TRIBUTOR WILL NOT BE LIABLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR ACT-
ING UPON TELEPHONE INSTRUCTIONS THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN
ATTEMPTING TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, EXCELSIOR FUND
WILL USE SUCH PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING
THOSE INSTRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION.
If any portion of the Shares to be redeemed represents an investment made by
personal check, Excelsior Fund and CGFSC reserve the right not to honor the
redemption until CGFSC is reasonably satisfied that the check has been col-
lected in accordance with the applicable banking regulations which may take up
to 15 days. A Direct Investor who anticipates the need for more immediate ac-
cess to his or her investment should purchase Shares by Federal funds or bank
wire or by certified or cashier's check. Banks normally impose a charge in
connection with the use of bank wires, as well as certified checks, cashier's
checks and Federal funds. If a Direct Investor's purchase check is not col-
lected, the purchase will be cancelled and CGFSC will charge a fee of $25.00
to the Direct Investor's account.
During periods of substantial economic or market change, telephone redemp-
tions may be difficult to complete. If an Investor is unable to contact CGFSC
by telephone, the Investor may also deliver the redemption request to CGFSC in
writing at the address noted above under "How to Purchase and Redeem Shares--
Redemption by Mail."
33
<PAGE>
OTHER REDEMPTION INFORMATION
Except as described in "Investor Programs" below, Investors may be required to
redeem Shares in a Fund after 60 days' written notice if due to investor re-
demptions the balance in the particular account with respect to the Fund re-
mains below $500. If a Customer has agreed with a particular Shareholder Organ-
ization to maintain a minimum balance in his or her account at the institution
with respect to Shares of a Fund, and the balance in such account falls below
that minimum, the Customer may be obliged by the Shareholder Organization to
redeem all or part of his or her Shares to the extent necessary to maintain the
required minimum balance.
GENERAL
Purchase and redemption orders for Shares which are received and accepted
prior to the close of regular trading hours on the Exchange (currently 4:00
p.m., Eastern Time) on any Business Day are priced according to the net asset
value determined on that day. Purchase orders received and accepted after the
close of regular trading hours on the Exchange are priced at the net asset
value per Share determined on the next Business Day.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Investors and Customers of Shareholder Organizations may, after appropriate
prior authorization and without an exchange fee imposed by Excelsior Fund, ex-
change Shares in a Fund having a value of at least $500 for shares of the same
series of any other portfolio offered by Excelsior Fund or Excelsior Tax-Exempt
Fund, or for Trust Shares of Excelsior Institutional Trust, provided that such
other shares may legally be sold in the state of the Investor's residence.
Excelsior Fund currently offers, in addition to the Equity, Theme and Income
and Growth Funds, several additional portfolios as follows:
Money Fund, a money market fund seeking as high a level of current income as
is consistent with liquidity and stability of principal through investments
in high-quality money market investments maturing within 13 months;
Government Money Fund, a money market fund seeking as high a level of cur-
rent income as is consistent with liquidity and stability of principal
through investments in obligations issued or guaranteed by the U.S. Govern-
ment, its agencies or instrumentalities and repurchase agreements collateral-
ized by such obligations;
Treasury Money Fund, a money market fund seeking current income generally
exempt from state and local income taxes through investments in direct short-
term obligations issued by the U.S. Treasury and certain agencies or instru-
mentalities of the U.S. Government;
Short-Term Government Securities Fund, a fund seeking a high level of cur-
rent income by investing principally in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase agree-
ments collateralized by such obligations, and having a dollar-weighted aver-
age portfolio maturity of 1 to 3 years;
Intermediate-Term Managed Income Fund, a fund seeking a high level of cur-
rent interest income by investing principally in investment grade or better
debt obligations and money market instruments, and having a dollar-weighted
average portfolio maturity of 3 to 10 years;
Managed Income Fund, a fund seeking higher current income through invest-
ments in investment grade debt obligations, U.S. Government obligations and
money market instruments;
International Fund, a fund seeking total return derived primarily from in-
vestments in foreign equity securities;
Emerging Americas Fund, a fund seeking long-term capital appreciation
through investments in companies and securities of governments based in all
countries in the Western Hemisphere, except the U.S.;
Pacific/Asia Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and
34
<PAGE>
securities of governments based in Asia and on the Asian side of the Pacific
Ocean; and
Pan European Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments located in Europe.
Excelsior Tax-Exempt Fund currently offers five portfolios as follows:
Tax-Exempt Money Fund, a diversified tax-exempt money market fund seeking a
moderate level of current interest income exempt from Federal income taxes
through investing primarily in high-quality municipal obligations maturing
within 13 months;
Short-Term Tax-Exempt Securities Fund, a diversified fund seeking a high
level of current interest income exempt from Federal income taxes through in-
vestments in municipal obligations and having a dollar-weighted average port-
folio maturity of 1 to 3 years;
Intermediate-Term Tax-Exempt Fund, a diversified fund seeking a high level
of current income exempt from Federal income taxes through investments in mu-
nicipal obligations and having a dollar-weighted average portfolio maturity
of 3 to 10 years;
Long-Term Tax-Exempt Fund, a diversified fund seeking to maximize over time
current income exempt from Federal income taxes, investing primarily in mu-
nicipal obligations and having a dollar-weighted average maturity of 10 to 30
years; and
New York Intermediate-Term Tax-Exempt Fund, a non- diversified fund designed
to provide New York investors with a high level of current income exempt from
Federal and, to the extent possible, New York state and New York City income
taxes; this fund invests primarily in New York municipal obligations and has
a dollar-weighted average portfolio maturity of three to ten years.
Excelsior Institutional Trust currently offers Trust Shares in two investment
portfolios:
Optimum Growth Fund, a fund seeking superior, risk-adjusted total return
through investments in a diversified portfolio of equity securities whose
growth prospects, in the opinion of its investment adviser, appear to exceed
that of the overall market; and
Value Equity Fund, a fund seeking long-term capital appreciation through in-
vestments in a diversified portfolio of equity securities whose market value,
in the opinion of its investment adviser, appears to be undervalued relative
to the marketplace.
An exchange involves a redemption of all or a portion of the Shares in a Fund
and the investment of the redemption proceeds in shares of another portfolio
of Excelsior Fund, Excelsior Tax-Exempt Fund or Excelsior Institutional Trust.
The redemption will be made at the per Share net asset value of the Shares be-
ing redeemed next determined after the exchange request is received. The
shares of the portfolio to be acquired will be purchased at the per share net
asset value of those shares (plus any applicable sales load) next determined
after acceptance of the exchange request. No sales load will be payable on
shares to be acquired through an exchange to the extent that a sales load was
previously paid on the Shares being exchanged.
Investors may find the exchange privilege useful if their investment objec-
tives or market outlook should change after they invest in a Fund. For further
information regarding exchange privileges, shareholders should call (800) 446-
1012 (from overseas, call (617) 557-8280). Investors exercising the exchange
privilege with the other portfolios of Excelsior Fund, Excelsior Tax-Exempt
Fund or Excelsior Institutional Trust should request and review the prospec-
tuses of such funds. Such prospectuses may be obtained by calling the numbers
listed above. In order to prevent abuse of this privilege to the disadvantage
of other shareholders, Excelsior Fund, Excelsior Tax-Exempt Fund and Excelsior
Institutional Trust reserve the right to limit the number of exchange requests
of Investors and Customers of Shareholder Organizations to no more than six
per year. Excelsior Fund may modify or terminate the exchange program at any
time upon 60 days' written notice to shareholders, and may reject any exchange
request. EXCELSIOR FUND, EXCELSIOR TAX-EXEMPT
35
<PAGE>
FUND, EXCELSIOR INSTITUTIONAL TRUST, CGFSC AND THE DISTRIBUTOR ARE NOT RESPON-
SIBLE FOR THE AUTHENTICITY OF EXCHANGE REQUESTS RECEIVED BY TELEPHONE THAT ARE
REASONABLY BELIEVED TO BE GENUINE. IN ATTEMPTING TO CONFIRM THAT TELEPHONE IN-
STRUCTIONS ARE GENUINE, EXCELSIOR FUND, EXCELSIOR TAX-EXEMPT FUND AND EXCEL-
SIOR INSTITUTIONAL TRUST WILL USE SUCH PROCEDURES AS ARE CONSIDERED REASON-
ABLE, INCLUDING RECORDING THOSE INSTRUCTIONS AND REQUESTING INFORMATION AS TO
ACCOUNT REGISTRATION.
For Federal income tax purposes, an exchange of Shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Be-
fore making an exchange, an investor should consult a tax or other financial
adviser to determine tax consequences.
SYSTEMATIC WITHDRAWAL PLAN
An Investor who owns Shares of a Fund with a value of $10,000 or more may es-
tablish a Systematic Withdrawal Plan. The Investor may request a declining-
balance withdrawal, a fixed-dollar withdrawal, a fixed-share withdrawal, or a
fixed-percentage withdrawal (based on the current value of Shares in the ac-
count) on a monthly, quarterly, semi-annual or annual basis. To initiate the
Systematic Withdrawal Plan, an investor must complete the Supplemental Appli-
cation contained in this Prospectus and mail it to CGFSC at the address given
above. Further information on establishing a Systematic Withdrawal Plan may be
obtained by calling (800) 446-1012 (from overseas, call (617) 557-8280.)
Shareholder Organizations may, at their discretion, establish similar system-
atic withdrawal plans with respect to the Shares held by their Customers. In-
formation about such plans and the applicable procedures may be obtained by
Customers directly from their institutions.
RETIREMENT PLANS
Shares are available for purchase by Investors in connection with the follow-
ing tax-deferred prototype retirement plans offered by United States Trust
Company of New York:
IRAs (including "rollovers" from existing retirement plans) for individuals
and their spouses;
Profit Sharing and Money-Purchase Plans for corporations and self-employed
individuals and their partners to benefit themselves and their employees; and
Keogh Plans for self-employed individuals.
Investors investing in the Funds pursuant to Profit Sharing and Money-Pur-
chase Plans and Keogh Plans are not subject to the minimum investment and
forced redemption provisions described above. The minimum initial investment
for IRAs is $250 per Fund and the minimum subsequent investment is $50 per
Fund. Detailed information concerning eligibility, service fees and other mat-
ters related to these plans can be obtained by calling (800) 446-1012 (from
overseas, call (617) 557-8280). Customers of Shareholder Organizations may
purchase Shares of the Funds pursuant to retirement plans if such plans are
offered by their Shareholder Organizations.
AUTOMATIC INVESTMENT PROGRAM
The Automatic Investment Program permits Investors to purchase Shares (mini-
mum of $50 per Fund per transaction) at regular intervals selected by the In-
vestor. The minimum initial investment for an Automatic Investment Program ac-
count is $50 per Fund. Provided the Investor's financial institution allows
automatic withdrawals, Shares are purchased by transferring funds from an In-
vestor's checking, bank money market or NOW account designated by the Invest-
or. At the Investor's option, the account designated will be debited in the
specified amount, and Shares will be purchased, once a month, on either the
first or fifteenth day, or twice a month, on both days.
The Automatic Investment Program is one means by which an Investor may use
"Dollar Cost Averaging" in making investments. Instead of trying to time mar-
ket performance, a fixed dollar amount is invested in
36
<PAGE>
Shares at predetermined intervals. This may help Investors to reduce their av-
erage cost per share because the agreed upon fixed investment amount allows
more Shares to be purchased during periods of lower share prices and fewer
Shares during periods of higher prices. In order to be effective, Dollar Cost
Averaging should usually be followed on a sustained, consistent basis. Invest-
ors should be aware, however, that Shares bought using Dollar Cost Averaging
are purchased without regard to their price on the day of investment or to
market trends. In addition, while Investors may find Dollar Cost Averaging to
be beneficial, it will not prevent a loss if an Investor ultimately redeems
his Shares at a price which is lower than their purchase price.
To establish an Automatic Investment account permitting Investors to use the
Dollar Cost Averaging investment method described above, an Investor must com-
plete the Supplemental Application contained in this Prospectus and mail it to
CGFSC. An Investor may cancel his participation in this Program or change the
amount of purchase at any time by mailing written notification to CGFSC, P.O.
Box 2798, Boston, MA 02208-2798 and notification will be effective three Busi-
ness Days following receipt. Excelsior Fund may modify or terminate this priv-
ilege at any time or charge a service fee, although no such fee currently is
contemplated. An Investor may also implement the Dollar Cost Averaging method
on his own initiative or through other entities.
DIVIDENDS AND DISTRIBUTIONS
Dividends from the net investment income of the Funds are declared and paid
quarterly. For dividend purposes, a Fund's investment income is reduced by ac-
crued expenses directly attributable to that Fund and the general expenses of
Excelsior Fund prorated to that Fund on the basis of its relative net assets.
A Fund's net investment income available for distribution to the holders of
Shares will be reduced by the amount of other expenses allocated to such se-
ries. Net realized capital gains are distributed at least annually. Dividends
and distributions will reduce the net asset value of each of the Funds by the
amount of the dividend or distribution. All dividends and distributions paid
on Shares held of record by the Investment Adviser and its affiliates or cor-
respondent banks will be paid in cash. Direct and Institutional Investors and
Customers of other Shareholder Organizations will receive dividends and dis-
tributions in additional Shares of the Fund on which the dividend or distribu-
tion is paid (as determined on the payable date), unless they have requested
in writing (received by CGFSC at Excelsior Fund's address prior to the payment
date) to receive dividends and distributions in cash. Reinvested dividends and
distributions receive the same tax treatment as those paid in cash.
TAXES
FEDERAL
Each of the Funds qualified for its last taxable year as a "regulated invest-
ment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Each Fund expects to so qualify in future years. Such qualification
generally relieves a Fund of liability for Federal income taxes to the extent
its earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code requires,
among other things, that a Fund distribute to its shareholders an amount equal
to at least 90% of its investment company taxable income for each taxable
year. In general, a Fund's investment company taxable income will be its in-
come (including dividends and interest), subject to certain adjustments and
excluding the excess of any net long-term capital gain for the taxable year
over the net short-term capital loss, if any, for such year. Each Fund intends
to distribute substantially all of its investment company taxable income each
year. Such dividends will be taxable as ordinary income to Fund shareholders
who are not currently exempt from Federal income taxes, whether such income is
received in cash or reinvested
37
<PAGE>
in additional Shares. (Federal income taxes for distributions to IRAs and
qualified pension plans are deferred under the Code.) The dividends received
deduction for corporations will apply to such ordinary income distributions to
the extent of the total qualifying dividends received by a Fund from domestic
corporations for the taxable year.
Distribution by a Fund of the excess of its net long- term capital gain over
its net short-term capital loss is taxable to shareholders as long-term capi-
tal gain, regardless of how long the shareholders have held their Shares and
whether such gains are received in cash or reinvested in additional Shares.
Such distributions are not eligible for the dividends received deduction.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to
have been received by shareholders and paid by a Fund on December 31 of such
year in the event such dividends are actually paid during January of the fol-
lowing year.
An investor considering buying Shares of a Fund on or just before the record
date of a dividend should be aware that the amount of the forthcoming dividend
payment, although in effect a return of capital, will be taxable to him.
A taxable gain or loss may be realized by a shareholder upon his redemption,
transfer or exchange of Shares depending upon the tax basis of such Shares and
their price at the time of redemption, transfer or exchange. If a shareholder
holds Shares for six months or less and during that time receives a capital
gain dividend on those Shares, any loss recognized on the sale or exchange of
those Shares will be treated as a long-term capital loss to the extent of the
capital gain dividend. Generally, a shareholder may include sales charges in-
curred upon the purchase of Shares in his tax basis for such Shares for the
purpose of determining gain or loss on a redemption, transfer or exchange of
such Shares. However, if the shareholder effects an exchange of such Shares
for Shares of another Fund within 90 days of the purchase and is able to re-
duce the sales charges applicable to the new Shares (by virtue of the exchange
privilege), the amount equal to such reduction may not be included in the tax
basis of the shareholder's exchanged Shares for the purpose of determining
gain or loss, but may be included (subject to the same limitation) in the tax
basis of the new Shares.
Qualification as a regulated investment company under the Code also requires
that each Fund satisfy certain requirements with respect to the source of its
income for a taxable year. At least 90% of the gross income of each Fund must
be derived from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities or for-
eign currencies, and other income (including, but not limited to, gains from
options, futures, or forward contracts) derived with respect to the Fund's
business of investing in such stock, securities or currencies. The Treasury
Department may by regulation exclude from qualifying income foreign currency
gains which are not directly related to a Fund's principal business of invest-
ing in stock or securities, or options and futures with respect to stock or
securities. Any income derived by a Fund from a partnership or trust is
treated for this purpose as derived with respect to the Fund's business of in-
vesting in stock, securities or currencies only to the extent that such income
is attributable to items of income which would have been qualifying income if
realized by the Fund in the same manner as by the partnership or trust. Some
of the investments that the Income and Growth Fund may make (such as liquidat-
ing trust receipts and creditor claims) may not be securities or may not pro-
duce qualifying income. Therefore, it may be necessary for the Investment Ad-
viser to restrict the investments of that Fund to ensure that non-qualifying
income does not exceed 10% of that Fund's total gross income for a taxable
year.
The foregoing summarizes some of the important tax considerations generally
affecting the Funds and their shareholders and is not intended as a substitute
38
<PAGE>
for careful tax planning. Accordingly, potential investors in the Funds should
consult their tax advisers with specific reference to their own tax situations.
Shareholders will be advised annually as to the Federal income tax consequences
of distributions made each year.
STATE AND LOCAL
Purchasers are advised to consult their tax advisers concerning the applica-
tion of state and local taxes, which may have different consequences from those
of the Federal income tax law described above.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of Ex-
celsior Fund's Board of Directors. The Statement of Additional Information con-
tains the names of and general background information concerning Excelsior
Fund's directors.
INVESTMENT ADVISER
United States Trust Company of New York serves as the Investment Adviser to
each Fund. U.S. Trust is a state-chartered bank and trust company. The Invest-
ment Adviser provides trust and banking services to individuals, corporations,
and institutions both nationally and internationally, including investment man-
agement, estate and trust administration, financial planning, corporate trust
and agency banking, and personal and corporate banking. The Investment Adviser
is a member bank of the Federal Reserve System and the Federal Deposit Insur-
ance Corporation and is one of the twelve members of the New York Clearing
House Association.
On December 31, 1995, the Investment Adviser's Asset Management Group had ap-
proximately $47 billion in assets under management. The Investment Adviser,
which has its principal offices at 114 W. 47th Street, New York, New York
10036, is a subsidiary of U.S. Trust Corporation, a registered bank holding
company.
The Investment Adviser manages each Fund, makes decisions with respect to and
places orders for all purchases and sales of its portfolio securities, and
maintains records relating to such purchases and sales.
The Equity Fund's portfolio manager, David A. Tillson, is the person primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Mr. Tillson, a Senior Vice President and Senior Portfolio Manager, has been
with U.S. Trust since 1993, and has been the Fund's portfolio manager since De-
cember 1994. Prior to joining U.S. Trust, Mr. Tillson was the founder and Pres-
ident of TDA Capital Management Company, and a Senior Vice President of Matrix
Asset Advisors until 1993. He was also a Vice President and Senior Portfolio
Manager with V C S & O Asset Management until 1990.
The Income and Growth Fund portfolio manager, Richard L. Bayles, is the person
primarily responsible for the day-to-day management of the investment portfo-
lio. Mr. Bayles, a Senior Vice President and Senior Portfolio Manager of U.S.
Trust, has been with U.S. Trust since 1990 and has been the Income and Growth
Fund's portfolio manager since 1990. Prior to his reassociation with U.S.
Trust, Mr. Bayles was a Managing Director at John W. Bristol and Company, an
investment advisory firm, from 1987 to 1990.
The Long-Term Supply of Energy Fund portfolio manager, Michael E. Hoover, is
the person primarily responsible for the day-to-day management of the Fund's
investment portfolio. Mr. Hoover, Vice President and Senior Analyst, has been
with U.S. Trust since 1989 and has been the Fund's Portfolio Manager since De-
cember, 1995.
The Productivity Enhancers Fund's portfolio manager, Ronald C. Steele, is the
person primarily responsible for the day-to-day management of the Fund's in-
vestment portfolio. Mr. Steele, a Senior Vice President and Senior Portfolio
Manager of U.S. Trust, has been the Fund's portfolio manager since its incep-
tion.
39
<PAGE>
The Environmentally-Related Products and Services Fund's portfolio manager,
Maria L. Brisbane, is the person primarily responsible for the day-to-day man-
agement of the Fund's investment portfolio. Ms. Brisbane, Vice President of
the Personal Equity and Balanced Investment Division of U.S. Trust, has been
with U.S. Trust since 1994 and has been the Fund's portfolio manager since De-
cember 1995. Prior to her association with U.S. Trust, Ms. Brisbane was an In-
stitutional Portfolio Manager at Brown Brothers Harriman & Company.
The Aging of America Fund's portfolio manager, Jonathan L. Stanley, is the
person primarily responsible for the day-to-day management of the Fund's in-
vestment portfolio. Mr. Stanley, a Senior Vice President and Senior Portfolio
Manager of U.S. Trust, has been with U.S. Trust since 1993 and has been the
Fund's portfolio manager since December, 1995. Prior to his association with
U.S. Trust, Mr. Stanley was Investment Manager with Deutsche Bank Capital Cor-
poration.
The Communication and Entertainment Fund's portfolio manager, John J.
Apruzzese, is the person primarily responsible for the day-to-day management
of the Fund's investment portfolio. Mr. Apruzzese, a Senior Vice President,
Department Manager and Senior Portfolio Manager of U.S. Trust, has been with
U.S. Trust since 1984 and has been the Fund's portfolio manager since its in-
ception.
The Business and Industrial Restructuring Fund's portfolio manager, David J.
Williams, is the person primarily responsible for the day-to-day management of
the Fund's investment portfolio. Mr. Williams, Senior Vice President, Depart-
ment Manager and Senior Portfolio Manager of the Personal Equity and Balanced
Investment Division of U.S. Trust, has been with U.S. Trust since 1987 and has
been the Fund's portfolio manager since its inception.
The Global Competitors Fund's portfolio manager, Wendy S. Popowich, is the
person primarily responsible for the day-to-day management of the Fund's
investment portfolio. Ms. Popowich, a Senior Vice President and Portfolio Man-
ager of the Personal Investment Division of U.S. Trust, has been with U.S.
Trust since 1983 and has been the Fund's portfolio manager since its incep-
tion.
The Early Life Cycle Fund's portfolio manager, Timothy W. Evnin, is the per-
son primarily responsible for the day-to-day management of the Fund's invest-
ment portfolio. Mr. Evnin, a Vice President and Portfolio Manager of U.S.
Trust, has been with U.S. Trust since 1987 and has been the Fund's portfolio
manager since its inception.
For the services provided and expenses assumed pursuant to its Investment Ad-
visory Agreements, the Investment Adviser is entitled to be paid a fee, com-
puted daily and paid monthly, at the annual rate of: .75% of the average daily
net assets of the Equity and the Income and Growth Funds; and .60% of the av-
erage daily net assets of each Theme Fund. The advisory fee rates payable by
the Equity and Income and Growth Funds are higher than the rates payable by
most mutual funds. The Board of Directors believes, based on information sup-
plied to it by the Investment Adviser, that this fee is comparable to the rate
paid by many other funds with similar investment objectives and policies and
is appropriate for the Funds in light of their investment objectives and poli-
cies. For the fiscal year ended March 31, 1996, the Investment Adviser re-
ceived an advisory fee at the effective annual rates of .68%, .69%, .55%,
.55%, 0%, .56%, .55%, .56%, .56% and .52% of the average daily net assets of
the Equity, Income and Growth, Long-Term Supply of Energy, Productivity
Enhancers, Environmentally-Related Products and Services, Aging of America,
Communication and Entertainment, Business and Industrial Restructuring, Global
Competitors and Early Life Cycle Funds, respectively. For the same period, the
Investment Adviser waived advisory fees at the effective annual rates of .07%,
.06%, .05%, .05%, .60%, .04%, .05%, .04%, .04% and .08% of the average daily
net assets of the Equity, Income and Growth, Long-Term Supply of Energy, Pro-
ductivity Enhancers, Environmentally-Related Products and Services, Aging of
40
<PAGE>
America, Communication and Entertainment, Business and Industrial Restructur-
ing, Global Competitors and Early Life Cycle Funds, respectively.
From time to time, the Investment Adviser may waive (either voluntarily or
pursuant to applicable state expense limitations) all or a portion of the ad-
visory fees payable to it by a Fund, which waiver may be terminated at any
time. See "Management of the Funds--Service Organizations" for additional in-
formation on fee waivers.
ADMINISTRATORS
CGFSC, Federated Administrative Services and U.S. Trust serve as the Funds'
administrators (the "Administrators") and provide them with general adminis-
trative and operational assistance. The Administrators also serve as adminis-
trators of the other portfolios of Excelsior Fund and Excelsior Tax-Exempt
Fund and of Excelsior Institutional Trust, which are also advised by the In-
vestment Adviser and distributed by the Distributor. For the services provided
to all portfolios of Excelsior Fund (except the International, Emerging Ameri-
cas, Pacific/Asia and Pan European Funds) and Excelsior Tax-Exempt Fund and to
Excelsior Institutional Trust, the Administrators are entitled jointly to an-
nual fees, computed daily and paid monthly, based on the combined aggregate
average daily net assets of the three companies (excluding the International,
Emerging Americas, Pacific/Asia and Pan European Funds) as follows:
<TABLE>
<CAPTION>
COMBINED AGGREGATE AVERAGE DAILY
NET ASSETS OF EXCELSIOR FUND
(EXCLUDING THE INTERNATIONAL, EMERGING AMERICAS,
PACIFIC/ASIA AND PAN EUROPEAN FUNDS),
EXCELSIOR TAX-EXEMPT FUND ANNUAL
AND EXCELSIOR INSTITUTIONAL TRUST FEE
------------------------------------------------ ------
<S> <C>
first $200 million....................................................... .200%
next $200 million........................................................ .175%
over $400 million........................................................ .150%
</TABLE>
Administration fees payable to the Administrators by each portfolio of the
three investment companies are determined in proportion to their relative av-
erage daily net assets at the time of determination. From time to time, the
Administrators may waive (either voluntarily or pursuant to applicable state
expense limitations) all or a portion of the administration fee payable to
them by a Fund, which waivers may be terminated at any time. See "Management
of the Funds--Service Organizations" for additional information on fee waiv-
ers. For the period from April 1, 1995 through July 31, 1995, CGFSC and the
former administrator received an administration fee at the effective annual
rate of .151%, .152%, .154%, .148%, .409%, .154%, .154%, .154%, .154% and
.154% of the average daily net assets of each of the Equity, Income and
Growth, Long-Term Supply of Energy, Productivity Enhancers, Environmentally-
Related Products and Services, Aging of Americas, Communication and
Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds, respectively. For the same period, CGFSC and the for-
mer administrator waived administration fees at the effective annual rate of
.003%, .002%, 0%, 0%, 0%, 0%, 0%, 0%, 0% and 0% of the average daily net as-
sets of the Equity, Income and Growth, Long-Term Supply of Energy, Productiv-
ity Enhancers, Environmentally-Related Products and Services, Aging of Ameri-
cas, Communication and Entertainment, Business and Industrial Restructuring,
Global Competitors and Early Life Cycle Funds, respectively. From August 1,
1995 through March 31, 1996, the Administrators received an aggregate adminis-
tration fee (under the same compensation arrangements noted above) at the ef-
fective annual rate of .150%, .152%, 154%, .154%, .230%, .154%, .154%, .154%,
.154%, and .154% of the average daily net assets of each of the Equity, Income
and Growth, Long-Term Supply of Energy, Productivity Enhancers, Environmental-
ly-Related Products and Services, Aging of Americas, Communication and
Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds, respectively. For the same period, the Administrators
waived administration fees at the effective annual rate of .004%, .002%,
.119%, .047%, 1.325%, 0%, 0%, 0%, 0% and 0% of the average daily net assets of
the Equity, Income and
41
<PAGE>
Growth, Long-Term Supply of Energy, Productivity Enhancers, Environmentally-
Related Products and Services, Aging of Americas, Communication and
Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds, respectively.
SERVICE ORGANIZATIONS
Excelsior Fund will enter into an agreement ("Servicing Agreement") with each
Service Organization requiring it to provide administrative support services
to its Customers beneficially owning Shares. As a consideration for the admin-
istrative services provided to Customers, a Fund will pay the Service Organi-
zation an administrative service fee at the annual rate of up to .40% of the
average daily net asset value of its Shares held by the Service Organization's
Customers. Such services, which are described more fully in the Statement of
Additional Information under "Management of the Funds--Service Organizations,"
may include assisting in processing purchase, exchange and redemption re-
quests; transmitting and receiving funds in connection with Customer orders to
purchase, exchange or redeem Shares; and providing periodic statements. Under
the terms of the Servicing Agreement, Service Organizations will be required
to provide to Customers a schedule of any fees that they may charge in connec-
tion with a Customer's investment. Until further notice, the Investment Ad-
viser and Administrators have voluntarily agreed to waive fees payable by a
Fund in an amount equal to administrative service fees payable by that Fund.
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company regis-
tered under the Federal Bank Holding Company Act of 1956 or any bank or non-
bank affiliate thereof from sponsoring, organizing or controlling a regis-
tered, open-end investment company continuously engaged in the issuance of its
shares, and prohibit banks generally from issuing, underwriting, selling or
distributing securities such as Shares of the Funds, but such banking laws and
regulations do not prohibit such a holding company or affiliate or banks gen-
erally from acting as investment adviser, transfer agent, or custodian to such
an investment company, or from purchasing shares of such company for and upon
the order of customers. The Investment Adviser, CGFSC and certain Shareholder
Organizations may be subject to such banking laws and regulations. State secu-
rities laws may differ from the interpretations of Federal law discussed in
this paragraph and banks and financial institutions may be required to regis-
ter as dealers pursuant to state law.
Should legislative, judicial, or administrative action prohibit or restrict
the activities of the Investment Adviser or other Shareholder Organizations in
connection with purchases of Fund Shares, the Investment Adviser and such
Shareholder Organizations might be required to alter materially or discontinue
the investment services offered by them to Customers. It is not anticipated,
however, that any resulting change in the Funds' method of operations would
affect their net asset values per Share or result in financial loss to any
shareholder.
DESCRIPTION OF CAPITAL STOCK
Excelsior Funds, Inc. (formerly UST Master Funds, Inc.) was organized as a
Maryland corporation on August 2, 1984. Currently, Excelsior Fund has autho-
rized capital of 35 billion shares of Common Stock, $.001 par value per share,
classified into 40 series of shares representing interests in 20 investment
portfolios. This Prospectus describes the Equity, Income and Growth, Early
Life Cycle, Long-Term Supply of Energy, Productivity Enhancers, Environmental-
ly-Related Products and Services, Aging of America, Communication and Enter-
tainment, Business and Industrial Restructuring and Global Competitors Funds.
In addition to the Shares offered under this Prospectus, Excelsior Fund offers
a separate series of shares designated as Trust Shares representing interests
in
42
<PAGE>
the Equity, Aging of America, Communication and Entertainment, Business and In-
dustrial Restructuring, Global Competitors and Early Life Cycle Funds. Trust
Shares have different expenses than the Shares offered under this Prospectus,
which may affect performance. Call (800) 446-1012 for information regarding
each of those Fund's Trust Shares, which are offered under a separate prospec-
tus.
Each share (irrespective of series designation) in a Fund represents an equal
proportionate interest in the particular Fund with other shares of the same
class, and is entitled to such dividends and distributions out of the income
earned on the assets belonging to such Fund as are declared in the discretion
of Excelsior Fund's Board of Directors. Excelsior Fund's Charter authorizes the
Board of Directors to classify or reclassify any class of shares into one or
more additional classes or series.
Excelsior Fund's shareholders are entitled to one vote for each full share
held and fractional votes for fractional shares held and will vote in the ag-
gregate and not by class or series, except as otherwise expressly required by
law.
Certificates for Shares will not be issued unless expressly requested in writ-
ing to CGFSC and will not be issued for fractional Shares.
As of July 15, 1996, U.S. Trust held of record substantially all of the Shares
in the Funds as agent or custodian for its customers, but did not own such
Shares beneficially because it did not have voting or investment discretion
with respect to such Shares. U.S. Trust is a wholly-owned subsidiary of U.S.
Trust Corporation.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, N.A. ("Chase"), a wholly-owned subsidiary of The
Chase Manhattan Corporation, serves as the custodian of the Funds' assets. Com-
munications to the custodian should be directed to Chase, Mutual Funds Service
Division, 770 Broadway, New York, New York 10003-9598.
Chase may enter into an international sub-custodian agreement with a third
party providing for the custody of foreign securities held by the Funds.
U.S. Trust serves as the Funds' transfer and dividend disbursing agent. U.S.
Trust has also entered into a sub-transfer agency arrangement with CGFSC, 73
Tremont Street, Boston, Massachusetts 02108-3913, pursuant to which CGFSC pro-
vides certain transfer agent, dividend disbursement and registrar services to
the Funds.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to shareholders, the per-
formance of the Shares of the Funds may be quoted and compared to that of other
mutual funds with similar investment objectives and to stock or other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For exam-
ple, the performance of a Fund may be compared to data prepared by Lipper Ana-
lytical Services, Inc., a widely recognized independent service which monitors
the performance of mutual funds. The performance of the Equity and Theme Funds
may be also compared to the Standard & Poor's 500 Stock Index ("S&P 500"), an
index of unmanaged groups of common stocks, the Consumer Price Index, or the
Dow Jones Industrial Average, a recognized unmanaged index of common stocks of
30 industrial companies listed on the New York Stock Exchange.
Performance data as reported in national financial publications, including but
not limited to Money Magazine, Forbes, Barron's, The Wall Street Journal and
The New York Times, or in publications of a local or regional nature, may also
be used in comparing the performance of the Funds.
From time to time, each Fund may advertise its performance by using "average
annual total return" over various periods of time. Such total return figure re-
flects the average percentage change in the value of an investment in a Fund
from the beginning date of the measuring period to the end of the measuring pe-
riod.
43
<PAGE>
Average total return figures will be given for the most recent one-year period,
and may be given for other periods as well (such as from the commencement of a
Fund's operations, or on a year-by-year basis). Each Fund may also use aggre-
gate total return figures for various periods, representing the cumulative
change in the value of an investment in the Fund for the specific period. Both
methods of calculating total return assume that dividends and capital gain dis-
tributions made by a Fund during the period are reinvested in Fund Shares and
also reflect the maximum sales load charged by the Fund.
Performance will fluctuate and any quotation of performance should not be con-
sidered as representative of a Fund's future performance. Shareholders should
remember that performance is generally a function of the kind and quality of
the instruments held in a portfolio, operating expenses, and market conditions.
Any fees charged by Shareholder Organizations with respect to accounts of Cus-
tomers that have invested in Shares will not be included in calculations of
performance.
MISCELLANEOUS
Shareholders will receive unaudited semiannual reports describing the Funds'
investment operations and annual financial statements audited by the Funds' in-
dependent auditors.
As used in this Prospectus, a "vote of the holders of a majority of the out-
standing shares" of Excelsior Fund or a particular Fund means, with respect to
the approval of an investment advisory agreement or a change in a fundamental
investment policy, the affirmative vote of the lesser of (a) more than 50% of
the outstanding shares of Excelsior Fund or such Fund, or (b) 67% or more of
the shares of Excelsior Fund or such Fund present at a meeting if more than 50%
of the outstanding shares of Excelsior Fund or such Fund are represented at the
meeting in person or by proxy.
Inquiries regarding any of the Funds may be directed to the Distributor at the
address listed under "Distributor."
44
<PAGE>
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION
OPENING YOUR ACCOUNT:
Complete the Application(s) and mail to:
FOR OVERNIGHT DELIVERY: send to:
Excelsior Funds Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798 c/o Chase Global Funds Services
Boston, MA 02208-2798 Company-- Transfer Agent
73 Tremont Street
Boston, MA 02108-3913
Please enclose with the Application(s) your check made payable to the "Ex-
celsior Funds" in the amount of your investment.
For direct wire purchases please refer to the section of the Prospectus en-
titled "How to Purchase and Redeem Shares--Purchase Procedures."
MINIMUM INVESTMENTS:
Except as provided in the Prospectus, the minimum initial investment is $500
per Fund; subsequent investments must be in the minimum amount of $50 per
Fund. Investments may be made in excess of these minimums.
REDEMPTIONS:
Shares can be redeemed in any amount and at any time in accordance with pro-
cedures described in the Prospectus. In the case of shares recently purchased
by check, redemption proceeds will not be made available until the transfer
agent is reasonably assured that the check has been collected in accordance
with applicable banking regulations.
Certain legal documents will be required from corporations or other organi-
zations, executors and trustees, or if redemption is requested by anyone other
than the shareholder of record. Written redemption requests in excess of
$50,000 per account must be accompanied by signature guarantees.
SIGNATURES: Please be sure to sign the Application(s).
If the shares are registered in the name of:
- an individual, the individual should sign.
- joint tenants, both tenants should sign.
- a custodian for a minor, the custodian should sign.
- a corporation or other organization, an authorized officer should sign
(please indicate corporate office or title).*
- a trustee or other fiduciary, the fiduciary or fiduciaries should sign
(please indicate capacity).*
* A corporate resolution or appropriate certificate may be required.
QUESTIONS:
If you have any questions regarding the Application or redemption require-
ments, please contact the transfer agent at (800) 446-1012 between 9:00 a.m.
and 5:00 p.m. (Eastern Time).
45
<PAGE>
[LOGO OF EXCELSIOR CHASE GLOBAL FUNDS SERVICES COMPANY
FUNDS INC.] CLIENT SERVICES
P.O. Box 2798 NEW
Boston, MA 02208-2798 ACCOUNT
(800) 446-1012 APPLICATION
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION
-----------------------------------------------------------------------------
[_] Individual [_] Joint Tenants [_] Trust [_] Gift/Transfer to Minor
[_] Other________________________
Note: Joint tenant registration will be as "joint tenants
with right of survivorship" unless otherwise specified. Trust
registrations should specify name of the trust, trustee(s),
beneficiary(ies), and the date of the trust instrument.
Registration for Uniform Gifts/Transfers to Minors should be
in the name of one custodian and one minor and include the
state under which the custodianship is created (using the
minor's Social Security Number ("SSN")). For IRA accounts a
different application is required.
------------------------------ -----------------------------
Name(s) (please print) Social Security # or Taxpayer
------------------------------ Identification #
Name ( )
------------------------------ -----------------------------
Address Telephone #
------------------------------ [_] U.S. Citizen [_] Other
City/State/Zip Code (specify)____________________
-----------------------------------------------------------------------------
FUND SELECTION (THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT IS $500 PER
FUND AND $50 PER FUND, RESPECTIVELY. MAKE CHECKS PAYABLE TO "EXCELSIOR
FUNDS.")
-----------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
FUND INITIAL INVESTMENT FUND INITIAL INVESTMENT
[_] Communication & Entertainment
[_] Equity Fund $ ____________ 800 Fund $ ____________ 817
[_] Income and Growth [_] Business & Industrial
Fund $ ____________ 801 Restructuring Fund $ ____________ 818
[_] Long-Term Energy
Fund $ ____________ 813 [_] Global Competitors Fund $ ____________ 819
[_] Productivity
Enhancers Fund $ ____________ 814 [_] Early Life Cycle Fund $ ____________ 812
[_] Environmental Fund $ ____________ 815 [_] Other $ ____________
[_] Aging of America
Fund $ ____________ 816
TOTAL INITIAL INVESTMENT: $ ____________
</TABLE>
NOTE: If investing A. BY MAIL: Enclosed is a check in the
by wire, you must amount of $ _____ payable to "Excelsior
obtain a Bank Wire Funds."
Control Number. To B. BY WIRE: A bank wire in the amount
do so, please call of $ has been sent to the Fund from
(800) 446-1012 and ------------------ ---------------
ask for the Wire Name of Bank Wire Control
Desk. Number
CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and
dividend distributions will be reinvested in additional
shares unless appropriate boxes below are checked:
All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash
-----------------------------------------------------------------------------
ACCOUNT PRIVILEGES
-----------------------------------------------------------------------------
TELEPHONE EXCHANGE AND
REDEMPTION
[_] I/We appoint CGFSC as
my/our agent to act upon
instructions received by
telephone in order to effect
the telephone exchange and
redemption privileges. I/We
hereby ratify any
instructions given pursuant
to this authorization and
agree that Excelsior Fund,
Excelsior Tax-Exempt Fund,
Excelsior Institutional
Trust, CGFSC and their
directors, officers and
employees will not be liable
for any loss, liability,
cost or expense for acting
upon instructions believed
to be genuine and in
accordance with the
procedures described in the
then current Prospectus. To
the extent that Excelsior
Fund, Excelsior Tax-Exempt
Fund and Excelsior
Institutional Trust fail to
use reasonable procedures as
a basis for their belief,
they or their service
contractors may be liable
for instructions that prove
to be fraudulent or
unauthorized.
I/We further acknowledge
that it is my/our
responsibility to read the
Prospectus of any Fund into
which I/we exchange.
[_] I/We do not wish to have
the ability to exercise
telephone redemption and
exchange privileges. I/We
further understand that all
exchange and redemption
requests must be in writing.
SPECIAL PURCHASE AND
REDEMPTION PLANS
I/We have completed and
attached the Supplemental
Application for:
[_] Automatic Investment
Plan
[_] Systematic Withdrawal
Plan
AUTHORITY TO TRANSMIT
REDEMPTION PROCEEDS TO PRE-
DESIGNATED ACCOUNT.
I/We hereby authorize CGFSC to
act upon instructions received
by telephone to withdraw $500
or more from my/our account in
the Excelsior Funds and to
wire the amount withdrawn to
the following commercial bank
account. I/We understand that
CGFSC charges an $8.00 fee for
each wire redemption, which
will be deducted from the
proceeds of the redemption.
Title on Bank Account*_________
Name of Bank __________________
Bank A.B.A. Number Account
Number ________________________
Bank Address __________________
City/State/Zip Code____________
(attach voided check here)
A corporation, trust or
partnership must also submit a
"Corporate Resolution" (or
"Certificate of Partnership")
indicating the names and
titles of officers authorized
to act on its behalf.
* TITLE ON BANK AND FUND
ACCOUNT MUST BE IDENTICAL.
<PAGE>
- -----------------------------------------------------------------
RIGHTS OF ACCUMULATION
- -----------------------------------------------------------------
To qualify for Rights of Accumulation, you must complete this
section, listing all of your accounts including those in your
spouse's name, joint accounts and accounts held for your
minor children. If you need more space, please attach a
separate sheet.
[_] I/We qualify for the Rights of Accumulation sales charge
discount described in the Prospectus and Statement of
Additional Information.
[_] I/We own shares of more than one Fund distributed by
Edgewood Services, Inc. Listed below are the numbers of
each of my/our Shareholder Accounts.
[_] The registration of some of my/our shares differs from that
shown on this application. Listed below are the account
number(s) and full registration(s) in each case.
LIST OF OTHER EXCELSIOR FUND ACCOUNTS:
______________________ _______________________________________
______________________ _______________________________________
______________________ _______________________________________
ACCOUNT NUMBER ACCOUNT REGISTRATIONS
- -----------------------------------------------------------------
LETTER OF INTENT
- -----------------------------------------------------------------
[_] I agree to the Letter of Intent provisions set forth in
the Prospectus. Although I am not obligated to purchase, and
Excelsior Fund is not obligated to sell, I intend to invest,
over a 13-month period beginning on , 19 , an aggregate
amount in Eligible Funds of Excelsior Fund and Excelsior Tax-
Exempt Fund at least equal to (check appropriate box):
[_] $50,000[_] $100,000[_] $250,000[_] $500,000[_] $1,000,000[_] $2,000,000
By signing this application, I hereby authorize CGFSC to
redeem an appropriate number of shares held in escrow to pay
any additional sales loads payable in the event that I do not
fulfill the terms of this Letter of Intent.
- -----------------------------------------------------------------
AGREEMENT AND SIGNATURES
- -----------------------------------------------------------------
By signing this application, I/we hereby certify under
penalty of perjury that the information on this application
is complete and correct and that as required by Federal law:
[_] I/We certify that (1) the number(s) shown on this form
is/are the correct taxpayer identification number(s) and (2)
I/we are not subject to backup withholding either because
I/we have not been notified by the Internal Revenue Service
that I/we are subject to backup withholding, or the IRS has
notified me/us that I am/we are no longer subject to backup
withholding. (NOTE: IF ANY OR ALL OF PART 2 IS NOT TRUE,
PLEASE STRIKE OUT THAT PART BEFORE SIGNING.)
[_] If no taxpayer identification number ("TIN") or SSN has
been provided above, I/we have applied, or intend to apply,
to the IRS or the Social Security Administration for a TIN or
a SSN, and I/we understand that if I/we do not provide this
number to CGFSC within 60 days of the date of this
application, or if I/we fail to furnish my/our correct SSN or
TIN, I/we may be subject to a penalty and a 31% backup
withholding on distributions and redemption proceeds. (Please
provide this number on Form W-9. You may request the form by
calling CGFSC at the number listed above).
I/We represent that I am/we are of legal age and capacity to
purchase shares of the Excelsior Funds. I/We have received,
read and carefully reviewed a copy of the appropriate Fund's
current Prospectus and agree to its terms and by signing
below I/we acknowledge that neither the Fund nor the
Distributor is a bank and that Fund Shares are not deposits
or obligations of, or guaranteed or endorsed by, United
States Trust Company of New York, its parent and affiliates
and the Shares are not federally insured by, guaranteed by,
obligations of or otherwise supported by the U.S. Government,
the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other governmental agency; and that an
investment in the Funds involves investment risks, including
possible loss of principal amount invested.
X ___________________________ Date __________________________
Owner Signature
X ___________________________ Date __________________________
Co-Owner Signature
Sign exactly as name(s) of registered owner(s) appear(s) above
(including legal title if signing for a corporation, trust
custodial account, etc.).
- -----------------------------------------------------------------
FOR USE BY AUTHORIZED AGENT (BROKER/DEALER) ONLY
- -----------------------------------------------------------------
We hereby submit this application for the purchase of shares
in accordance with the terms of our selling agreement with
Edgewood Services, Inc., and with the Prospectus and
Statement of Additional Information of each Fund purchased.
We agree to notify CGFSC of any purchases made under the
Letter of Intent or Rights of Accumulation.
----------------------------- -------------------------------
Investment Dealer's Name Source of Business Code
----------------------------- -------------------------------
Main Office Address Branch Number
----------------------------- -------------------------------
Representative's Number Representative's Name
----------------------------- -------------------------------
Branch Address Telephone
----------------------------- -------------------------------
Investment Dealer's Title
Authorized Signature
<PAGE>
[LOGO OF EXCELSIOR CHASE GLOBAL FUNDS SERVICES COMPANY
FUNDS INC.] CLIENT SERVICES
P.O. Box 2798 SUPPLEMENTAL
Boston, MA 02208-2798 APPLICATION
(800) 446-1012 SPECIAL INVESTMENT AND
WITHDRAWAL OPTIONS
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION PLEASE SUPPLY THE FOLLOWING INFORMATION EXACTLY AS IT
APPEARS ON THE FUND'S RECORD.
-----------------------------------------------------------------------------
Fund Name __________________ Account Number _________________
Owner Name _________________ Social Security or Taxpayer ID
Street Address _____________ Number _________________________
Resident City, State, Zip Code __________
of [_] U.S. [_] Other ____ [_] Check here if this is a
change of address
-----------------------------------------------------------------------------
DISTRIBUTION OPTIONS (DIVIDENDS AND CAPITAL GAINS WILL BE REINVESTED
UNLESS OTHERWISE INDICATED)
-----------------------------------------------------------------------------
A. CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend
distributions will be reinvested in additional shares unless appropriate
boxes below are checked:
All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash
B. PAYMENT ORDER: Complete only if distribution checks are to be payable
to another party. Make distribution checks payable to:
Name of Your Bank ______________
Name _______________________ Bank Account Number ____________
Address ____________________ Address of Bank ________________
City, State, Zip Code ________________________________________
C. DISTRIBUTIONS REINVESTED-CROSS FUNDS: Permits all distributions from
one Fund to be automatically reinvested into another identically-
registered Excelsior Fund. (NOTE: You may NOT open a new Fund account with
this option.) Transfer all distributions earned:
From: ______________________ Account No. ____________________
(Fund)
To: ________________________ Account No. ____________________
(Fund)
-----------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN [_] YES [_] NO
-----------------------------------------------------------------------------
I/We hereby authorize CGFSC to debit my/our personal checking account on
the designated dates in order to purchase shares in the Fund indicated at
the top of this application at the applicable public offering price
determined on that day.
[_] Monthly on the 1st day
[_] Monthly on the 15th day
[_] Monthly on both the 1st and 15th days
Amount of each debit (minimum $50
per Fund) $ ________________________
NOTE: A Bank Authorization Form (below) and a voided personal check must
accompany the Automatic Investment Plan application.
-----------------------------------------------------------------------------
EXCELSIOR FUNDS
CLIENT SERVICES AUTOMATIC INVESTMENT PLAN
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
BANK AUTHORIZATION
-----------------------------------------------------------------------------
-------------------- ------------------------- ----------------------------
Bank Name Bank Address Bank Account Number
I/We authorize you, the above named bank, to debit my/our
account for amounts drawn by CGFSC, acting as my agent for
the purchase of Fund shares. I/We agree that your rights in
respect to each withdrawal shall be the same as if it were a
check drawn upon you and signed by me/us. This authority
shall remain in effect until revoked in writing and received
by you. I/We agree that you shall incur no liability when
honoring debits, except a loss due to payments drawn against
insufficient funds. I/We further agree that you will incur no
liability to me if you dishonor any such withdrawal. This
will be so even though such dishonor results in the
cancellation of that purchase.
---------------------------- --------------------------------
Account Holder's Name Joint Account Holder's Name
X ________________ _________ X __________________ ___________
Signature Date Signature Date
<PAGE>
- -------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN [_] YES [_] NO NOT AVAILABLE FOR IRA'S
- -------------------------------------------------------------------------
AVAILABLE TO SHAREHOLDERS WITH ACCOUNT BALANCES OF $10,000 OR
MORE.
I/We hereby authorize CGFSC to redeem the necessary number of
shares from my/our Excelsior Fund Account on the designated
dates in order to make the following periodic payments:
[_] Monthly on the 24th day
[_] Quarterly on the 24th day of January, April, July and October
[_] Other_____________________
(This request for participation in the Plan must be received
by the 18th day of the month in which you wish withdrawals to
begin.)
Amount of each check ($100 minimum)
$
Please make Recipient ________________________________
check payable Street Address ___________________________
to: (To be City, State, Zip Code ____________________
completed only
if redemption
proceeds to be
paid to other
than account
holder of record
or mailed to
address other
than address of
record)
NOTE: If recipient of checks is not the registered
shareholder, signature(s) below must be guaranteed. A
corporation, trust or partnership must also submit a
"Corporate Resolution" (or "Certification of Partnership")
indicating the names and titles of officers authorized to act
on its behalf.
- -----------------------------------------------------------------
AGREEMENT AND SIGNATURES
- -----------------------------------------------------------------
The investor(s) certifies and agrees that the certifications,
authorizations, directions and restrictions contained herein
will continue until CGFSC receives written notice of any
change or revocation. Any change in these instructions must
be in writing with all signatures guaranteed (if applicable).
Date ______________________
X X
------------------------------- -----------------------------
Signature Signature
------------------------------- -----------------------------
Signature Guarantee* (if applicable)
Signature Guarantee* (if applicable)
X X
------------------------------- -----------------------------
Signature Signature
------------------------------- -----------------------------
Signature Guarantee* (if applicable)
Signature Guarantee* (if applicable)
*ELIGIBLE GUARANTORS: An Eligible Guarantor institution is a
bank, trust company, broker, dealer, municipal or government
securities broker or dealer, credit union, national
securities exchange, registered securities association,
clearing agency or savings association, provided that such
institution is a participant in STAMP, the Securities
Transfer Agents Medallion Program.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY......................................................... 2
EXPENSE SUMMARY............................................................ 3
FINANCIAL HIGHLIGHTS....................................................... 5
U.S. TRUST'S INVESTMENT PHILOSOPHY AND STRATEGIES.......................... 15
INVESTMENT OBJECTIVES AND
POLICIES.................................................................. 15
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION..................... 22
INVESTMENT LIMITATIONS..................................................... 26
PRICING OF SHARES.......................................................... 27
HOW TO PURCHASE AND REDEEM SHARES.......................................... 28
INVESTOR PROGRAMS.......................................................... 34
DIVIDENDS AND DISTRIBUTIONS................................................ 37
TAXES...................................................................... 37
MANAGEMENT OF THE FUNDS.................................................... 39
DESCRIPTION OF CAPITAL STOCK............................................... 42
CUSTODIAN AND TRANSFER AGENT............................................... 43
PERFORMANCE INFORMATION.................................................... 43
MISCELLANEOUS.............................................................. 44
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION................................... 45
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' STATEMENT OF ADDI-
TIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OF-
FERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY EXCELSIOR
FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
EXCELSIOR FUND OR BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
USTEQP896
[LOGO OF EXCELSIOR FUNDS INC.]
EQUITY FUND
INCOME AND GROWTH FUND
LONG-TERM SUPPLY OF ENERGY FUND
PRODUCTIVITY ENHANCERS FUND
ENVIRONMENTALLY-RELATED PRODUCTS AND SERVICES FUND
AGING OF AMERICA FUND
COMMUNICATION AND ENTERTAINMENT FUND
BUSINESS AND INDUSTRIAL RESTRUCTURING FUND
GLOBAL COMPETITORS FUND
EARLY LIFE CYCLE FUND
Prospectus
August 1, 1996
<PAGE>
CROSS-REFERENCE SHEET
---------------------
EXCELSIOR TAX-EXEMPT FUNDS, INC.
(Short-Term Tax-Exempt Securities Fund,
Intermediate-Term Tax-Exempt Fund,
Long-Term Tax-Exempt Fund)
Form N-1A, Part A, Item Prospectus Caption
- ----------------------- ------------------
1. Cover Page ........................... Cover Page
2. Synopsis ............................. Expense Summary
3. Condensed Financial Information....... Performance and Yield
Information
4. General Description of Registrant .... Prospectus Summary Investment
Objectives and Policies;
Portfolio Instruments and Other
Investment Information;
Investment Limitations;
Description of Capital Stock
5. Management of the Fund ............... Management of the Funds;
Custodian and Transfer Agent
5A. Management's Discussion of Fund
Performance ....................... Not Applicable
6. Capital Stock and
Other Securities .................. How to Purchase and Redeem
Shares; Dividends and
Distributions; Taxes;
Description of Capital Stock;
Miscellaneous
7. Purchase of Securities
Being Offered ..................... Pricing of Shares; How to
Purchase and Redeem Shares;
Investor Programs
8. Redemption or Repurchase ............. How to Purchase and Redeem
Shares
9. Pending Legal Proceedings ............ Inapplicable
<PAGE>
[LOGO OF EXCELSIOR
F U N D S I N C .
TAX-EXEMPT FUNDS, INC.]
Management Investment Companies
- --------------------------------------------------------------------------------
Money Fund For initial purchase information, current
Government Money Fund prices, yield and performance information
Treasury Money Fund and existing account information,
Tax-Exempt Money Fund call (800) 446-1012.
73 Tremont Street (From overseas, call (617) 557-8280.)
Boston, Massachusetts 02108-3913
- --------------------------------------------------------------------------------
This Prospectus describes the Money Fund, Government Money Fund and Treasury
Money Fund, three separate diversified portfolios offered to investors by Ex-
celsior Funds, Inc. ("Excelsior Fund") (formerly UST Master Funds, Inc.) and
the Tax-Exempt Money Fund, a diversified portfolio offered by Excelsior Tax-Ex-
empt Funds, Inc. ("Excelsior Tax-Exempt Fund") (formerly UST Master Tax-Exempt
Funds, Inc.). Excelsior Fund and Excelsior Tax-Exempt Fund (collectively the
"Companies") are open-end, management investment companies. Each portfolio (in-
dividually, a "Fund" and collectively, the "Funds") has its own investment ob-
jective and policies:
MONEY FUND'S investment objective is to seek as high a level of current income
as is consistent with liquidity and stability of principal. The Fund will gen-
erally invest in money market instruments, including bank obligations, commer-
cial paper and U.S. Government obligations.
GOVERNMENT MONEY FUND'S investment objective is to seek as high a level of
current income as is consistent with liquidity and stability of principal. The
Fund will generally invest in short-term obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase agree-
ments collateralized by such obligations.
TREASURY MONEY FUND'S investment objective is to seek current income with li-
quidity and stability of principal. The Fund invests primarily in direct short-
term obligations of the U.S. Treasury and certain agencies or instrumentalities
of the U.S. Government with a view toward providing interest income that is
generally considered exempt from state and local income taxes. Under normal
market conditions, at least 65% of the Fund's total assets will be invested in
direct U.S. Treasury obligations. The Fund will not enter into repurchase
agreements.
TAX-EXEMPT MONEY FUND'S investment objective is to seek a moderate level of
current interest income exempt from Federal income taxes consistent with sta-
bility of principal. The Tax-Exempt Money Fund will invest substantially all of
its assets in high-quality short-term Municipal Securities.
Each of the Funds is sponsored and distributed by Edgewood Services, Inc. and
advised by United States Trust Company of New York ("Investment Adviser" or
"U.S. Trust").
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated August 1, 1996 and containing additional information about
the Funds has been filed with the Securities and Exchange Commission. The cur-
rent Statement of Additional Information is available to investors without
charge by writing to the address shown above or by calling (800) 446-1012. The
Statement of Additional Information, as it may be supplemented from time to
time, is incorporated by reference in its entirety into this Prospectus.
SHARES IN THE FUNDS ("SHARES") ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARAN-
TEED OR ENDORSED BY, UNITED STATES TRUST COMPANY OF NEW YORK, ITS PARENT OR AF-
FILIATES AND THE SHARES ARE NOT FEDERALLY INSURED BY, GUARANTEED BY OR OBLIGA-
TIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT IN-
SURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGEN-
CY. THE FUNDS SEEK TO MAINTAIN THEIR NET ASSET VALUE PER SHARE AT $1.00 FOR
PURPOSES OF PURCHASES AND REDEMPTIONS, ALTHOUGH THERE CAN BE NO ASSURANCE THAT
THEY WILL DO SO ON A CONTINUOUS BASIS. INVESTMENT IN THE FUNDS INVOLVES INVEST-
MENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
August 1, 1996
<PAGE>
EXPENSE SUMMARY
<TABLE>
<CAPTION>
GOVERNMENT TREASURY TAX-EXEMPT
MONEY MONEY MONEY MONEY
FUND FUND FUND FUND
----- ---------- -------- ----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load on Purchases
(as a percentage of offering price)...... None None None None
Sales Load on Reinvested Dividends........ None None None None
Deferred Sales Load....................... None None None None
Redemption Fees/1/........................ None None None None
Exchange Fees............................. None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fees (after fee waivers)/2/...... .22% .22% .28% .21%
12b-1 Fees................................ None None None None
Other Operating Expenses
Administrative Servicing Fee/2/.......... .03% .03% .02% .04%
Other Expenses........................... .25% .25% .25% .24%
---- ---- ---- ----
Total Operating Expenses (after fee
waivers)/2/.............................. .50% .50% .55% .49%
==== ==== ==== ====
</TABLE>
- -------
1. The Funds' transfer agent imposes a direct $8.00 charge on each wire redemp-
tion by noninstitutional (i.e. individual) investors which is not reflected
in the expense ratios presented herein. Shareholder organizations may charge
their customers transaction fees in connection with redemptions. See "Re-
demption Procedures."
2. The Investment Adviser and Administrators may from time to time voluntarily
waive part of their respective fees, which waivers may be terminated at any
time. Until further notice, the Investment Adviser and/or Administrators in-
tend to voluntarily waive fees in an amount equal to the Administrative Ser-
vicing Fee. Without such fee waivers, "Advisory Fees" would be .25%, .25%,
.30% and .25% and "Total Operating Expenses" would be 0.53%, 0.53%, 0.57%
and 0.53% for the Money, Government Money, Treasury Money and Tax-Exempt
Money Funds, respectively.
2
<PAGE>
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption of your investment at the end of the
following periods.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Fund...................................... $ 5 $16 $28 $63
Government Money Fund........................... 5 16 28 63
Treasury Money Fund............................. 6 18 31 69
Tax-Exempt Money Fund........................... 5 16 27 62
</TABLE>
The foregoing expense summary and example are intended to assist the investor
in understanding the costs and expenses that an investor in Shares of the Funds
will bear directly or indirectly. The expense summary sets forth advisory and
other expenses payable with respect to Shares of the Funds for the fiscal year
ended March 31, 1996. For more complete descriptions of the Funds' operating
expenses, see "Management of the Funds" in this Prospectus and the financial
statements and notes incorporated by reference in the Statement of Additional
Information.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES AND RATE OF RETURN MAY BE
GREATER OR LOWER THAN THOSE SHOWN IN THE EXPENSE SUMMARY AND EXAMPLE.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables include selected data for a Share outstanding throughout
each period and other performance information derived from the financial state-
ments included in Excelsior Fund's and Excelsior Tax-Exempt Fund's Annual Re-
ports to Shareholders for the fiscal year ended March 31, 1996 (the "Financial
Statements"). The information contained in the Financial Highlights for has
been audited by Ernst & Young LLP, Excelsior Fund's and Excelsior Tax-Exempt
Fund's independent auditors. The following tables should be read in conjunction
with the Financial Statements and notes thereto. More information about the
performance of each Fund is also contained in the Annual Report to Shareholders
which may be obtained from Excelsior Fund and Excelsior Tax-Exempt Fund without
charge by calling the number on the front cover of this Prospectus.
MONEY FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Income From
Investment
Operations
Net Investment
Income......... 0.05336 0.04494 0.02780 0.03234 0.05165 0.07589 0.08454 0.07698 0.06260 0.06123
Net Gains or
(Losses) on
Securities
(both realized
and
unrealized).... 0.00000 0.00002 0.00000 0.00000 0.00017 0.00001 0.00000 0.00000 0.00000 0.00000
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total From
Investment
Operations..... 0.05336 0.04496 0.02780 0.03234 0.05182 0.07590 0.08454 0.07698 0.06260 0.06123
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Less
Distributions
Dividends From
Net Investment
Income......... (0.05336) (0.04496) (0.02780) (0.03234) (0.05165) (0.07589) (0.08454) (0.07698) (0.06260) (0.06123)
Distributions
From Net
Realized Gain
on Investments. 0.00000 0.00000 0.00000 0.00000 (0.00019) 0.00000 0.00000 0.00000 0.00000 (0.00001)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total
Distributions.. (0.05336) (0.04496) (0.02780) (0.03234) (0.05184) (0.07589) (0.08454) (0.07698) (0.06260) (0.06124)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net Asset Value,
End of Period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Total Return..... 5.47% 4.59% 2.82% 3.25% 5.19% 7.64% 8.71% 7.76% 6.28% 6.30%
Ratios/Supplemental
Data
Net Assets, End
of Period
(in millions).. $ 394.29 $ 824.58 $ 736.08 $ 784.02 $ 574.27 $ 471.32 $ 432.37 $ 369.69 $ 321.27 $ 373.38
Ratio of Net
Operating
Expenses to
Average Net
Assets......... 0.50% 0.49% 0.51% 0.51% 0.51% 0.52% 0.55% 0.56% 0.55% 0.56%
Ratio of Gross
Operating
Expenses to
Average Net
Assets/1/...... 0.53% 0.52% 0.51% 0.51% 0.51% 0.52% 0.55% 0.56% 0.55% 0.56%
Ratio of Net
Income to
Average Net
Assets......... 5.40% 4.49% 2.78% 3.21% 5.11% 7.56% 8.42% 7.71% 6.25% 6.05%
</TABLE>
- -------
NOTES:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
4
<PAGE>
GOVERNMENT MONEY FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Income From
Investment
Operations
Net Investment
Income......... 0.05296 0.04397 0.02736 0.03205 0.05069 0.07379 0.08379 0.07498 0.06111 0.05941
Net Gains or
(Losses) on
Securities
(both realized
and
unrealized).... 0.00000 0.00000 0.00000 0.00000 0.00002 0.00008 0.00000 0.00000 (0.00002) 0.00000
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total From
Investment
Operations..... 0.05296 0.04397 0.02736 0.03205 0.05071 0.07387 0.08379 0.07498 0.06109 0.05941
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Less
Distributions
Dividends From
Net Investment
Income......... (0.05296) (0.04397) (0.02736) (0.03205) (0.05069) (0.07379) (0.08379) (0.07498) (0.06111) (0.05941)
Distributions
From Net
Realized Gain
on Investments. 0.00000 0.00000 0.00000 0.00000 (0.00005) (0.00005) (0.00001) 0.00000 (0.00023) (0.00016)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total
Distributions.. (0.05296) (0.04397) (0.02736) (0.03205) (0.05074) (0.07384) (0.08380) (0.07498) (0.06134) (0.05957)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net Asset Value,
End of Period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Total Return..... 5.43% 4.49% 2.77% 3.20% 5.09% 7.31% 8.30% 7.49% 6.44% 6.11%
Ratios/Supplemental
Data
Net Assets, End
of Period
(in millions).. $ 461.47 $ 725.77 $1,034.94 $ 710.49 $ 740.69 $ 700.22 $ 392.02 $ 241.13 $ 198.32 $ 191.51
Ratio of Net
Operating
Expenses to
Average Net
Assets......... 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.57% 0.57% 0.56% 0.56%
Ratio of Gross
Operating
Expenses to
Average Net
Assets/1/...... 0.53% 0.53% 0.50% 0.50% 0.50% 0.50% 0.57% 0.57% 0.56% 0.56%
Ratio of Net
Income to
Average Net
Assets......... 5.36% 4.38% 2.74% 3.20% 5.09% 7.31% 8.30% 7.49% 6.10% 5.81%
</TABLE>
- -------
NOTES:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
5
<PAGE>
TAX-EXEMPT MONEY FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Income From
Investment
Operations
Net Investment
Income......... 0.03362 0.02825 0.01938 0.02395 0.03849 0.05292 0.05808 0.05348 0.04572 0.04233
Net Gains or
(Losses) on
Securities
(both realized
and
unrealized).... 0.00000 0.00000 0.00000 0.00000 0.00000 (0.00001) 0.00000 0.00000 0.00000 0.00000
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total From
Investment
Operations..... 0.03362 0.02825 0.01938 0.02395 0.03849 0.05291 0.05808 0.05348 0.04572 0.04233
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Less
Distributions
Dividends From
Net Investment
Income......... (0.03362) (0.02825) (0.01938) (0.02395) (0.03849) (0.05292) (0.05808) (0.05348) (0.04572) (0.04233)
Distributions
From Net
Realized Gain
on Investments. 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total
Distributions.. (0.03362) (0.02825) (0.01938) (0.02395) (0.03849) (0.05292) (0.05808) (0.05348) (0.04572) (0.04233)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net Asset Value,
End of Period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Total Return..... 3.41% 2.86% 1.96% 2.42% 3.92% 5.42% 5.97% 5.48% 4.67% 4.32%
Ratios/Supplemental
Data
Net Assets, End
of Period
(in millions).. $ 966.71 $ 814.89 $ 694.58 $ 659.33 $ 666.35 $ 662.34 $ 600.06 $ 525.30 $ 580.98 $ 561.08
Ratio of Net
Operating
Expenses to
Average Net
Assets......... 0.49% 0.49% 0.52% 0.52% 0.52% 0.53% 0.55% 0.53% 0.52% 0.54%
Ratio of Gross
Operating
Expenses to
Average Net
Assets/1/...... 0.53% 0.52% 0.52% 0.52% 0.52% 0.53% 0.55% 0.53% 0.52% 0.54%
Ratio of Net
Income to
Average Net
Assets......... 3.35% 2.85% 1.94% 2.39% 3.84% 5.28% 5.79% 5.33% 4.58% 4.18%
</TABLE>
- -------
NOTES:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
6
<PAGE>
TREASURY MONEY FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------------------
1996 1995 1994 1993 1992 1991/1/
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- --------- ---------
Income From Investment
Operations
Net Investment Income. 0.05043 0.04165 0.02590 0.02987 0.04731 0.00782
Net Gains or (Losses)
on Securities
(both realized and
unrealized).......... 0.00000 0.00000 0.00000 0.00000 0.00036 0.00001
--------- --------- --------- --------- --------- ---------
Total From Investment
Operations........... 0.05043 0.04165 0.02590 0.02987 0.04767 0.00783
--------- --------- --------- --------- --------- ---------
Less Distributions
Dividends From Net
Investment Income.... (0.05043) (0.04165) (0.02590) (0.02987) (0.04731) (0.00782)
Distributions From Net
Realized Gain on
Investments.......... 0.00000 0.00000 0.00000 (0.00030) (0.00011) 0.00000
--------- --------- --------- --------- --------- ---------
Total Distributions... (0.05043) (0.04165) (0.02590) (0.03017) (0.04742) (0.00782)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= ========= =========
Total Return............ 5.16% 4.25% 2.62% 3.06% 4.85% 0.78%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions). $ 258.17 $ 196.93 $ 254.68 $ 227.79 $ 172.29 $ 110.37
Ratio of Net Operating
Expenses to Average
Net Assets........... 0.55% 0.55% 0.58% 0.58% 0.52% 0.09%/2/
Ratio of Gross
Operating Expenses to
Average Net
Assets/3/............ 0.57% 0.57% 0.58% 0.58% 0.57% 0.60%/2/
Ratio of Net Income to
Average Net Assets... 5.03% 4.09% 2.59% 2.97% 4.60% 5.98%/2/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was February 13, 1991.
2. Annualized.
3. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Investment Adviser uses its best efforts to achieve the investment objec-
tive of each Fund, although its achievement cannot be assured. The investment
objective of each Fund may not be changed without a vote of the holders of a
majority of the particular Fund's outstanding Shares (as defined under "Miscel-
laneous"). Except as noted below in "Investment Limitations," the investment
policies of each Fund may be changed without a vote of the holders of a major-
ity of the outstanding Shares of such Fund.
Each Fund uses the amortized cost method to value securities in its portfolio
and has a dollar-weighted average portfolio maturity not exceeding 90 days.
MONEY FUND
The Money Fund's investment objective is to seek as high a level of current
income as is consistent with liquidity and stability of principal. The Fund
will generally invest in money market instruments, such as bank certificates of
deposit, bankers' acceptances, commercial paper (including variable and float-
ing rate instruments) and corporate bonds with remaining maturities of 13
months or less, as well as obligations issued or guaranteed by the U.S. Govern-
ment, its agencies or instrumentalities and repurchase agreements collateral-
ized by such obligations. Additional information about the Fund's policies and
portfolio instruments is set forth below under "Portfolio Instruments and Other
Investment Information."
GOVERNMENT MONEY FUND
The Government Money Fund's investment objective is to seek as high a level of
current income as is consistent with liquidity and stability of principal. The
Fund will invest in obligations with remaining maturities of 13 months or less
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
and repurchase agreements collateralized by such obligations. See "Portfolio
Instruments and Other Investment Information" for information on other portfo-
lio instruments in which the Fund may invest.
TREASURY MONEY FUND
The Treasury Money Fund's investment objective is to seek current income with
liquidity and stability of principal. The Fund invests primarily in direct ob-
ligations of the U.S. Treasury with remaining maturities of 13 months or less,
such as Treasury bills and notes. Under normal market conditions, the Fund will
invest at least 65% of its total assets in direct U.S. Treasury obligations.
The Fund may also from time to time invest in obligations with remaining matu-
rities of 13 months or less issued or guaranteed as to principal and interest
by certain agencies or instrumentalities of the U.S. Government, such as the
Farm Credit System Financial Assistance Corporation, Federal Financing Bank,
General Services Administration, Federal Home Loan Banks, Farm Credit System,
Tennessee Valley Authority and the Student Loan Marketing Association. Income
on direct investments in U.S. Treasury securities and obligations of the afore-
mentioned agencies and instrumentalities is generally not subject to state and
local income taxes by reason of Federal law. In addition, the Fund's dividends
from income that is attributable to such investments will also be exempt in
most states from state and local income taxes. Shareholders in a particular
state should determine through consultation with their own tax advisors whether
and to what extent dividends payable by the Treasury Money Fund from its in-
vestments will be considered by the state to have retained exempt status, and
whether the Fund's capital gain and other income, if any, when distributed will
be subject to the state's income tax. See "Taxes--State and Local." The Trea-
sury Money Fund will not enter into repurchase agreements.
TAX-EXEMPT MONEY FUND
The Tax-Exempt Money Fund's investment objective is to seek a moderate level
of current interest income exempt from Federal income taxes consistent with
stability of principal. The Fund will invest substantially all of its assets in
high-quality debt obligations exempt from Federal income tax issued by or on
behalf of states, territories, and possessions of the United States, the Dis-
trict of Columbia, and their authorities, agen-
8
<PAGE>
cies, instrumentalities, and political subdivisions ("Municipal Securities").
Portfolio securities in the Fund will generally have remaining maturities of
not more than 13 months. (See "Portfolio Instruments and Other Investment In-
formation.")
The Tax-Exempt Money Fund is designed for investors in relatively high tax
brackets who are seeking a moderate amount of tax-free income with stability of
principal and less price volatility than would normally be associated with in-
termediate-term and long-term Municipal Securities.
The Tax-Exempt Money Fund invests in Municipal Securities which are determined
by the Investment Adviser to present minimal credit risks. As a matter of fun-
damental policy, except during temporary defensive periods, the Fund will main-
tain at least 80% of its assets in tax-exempt obligations. (This policy may not
be changed with respect to the Fund without the vote of the holders of a major-
ity of its outstanding Shares). However, from time to time on a temporary de-
fensive basis due to market conditions, the Tax-Exempt Money Fund may hold
uninvested cash reserves or invest in taxable obligations in such proportions
as, in the opinion of the Investment Adviser, prevailing market or economic
conditions may warrant. Uninvested cash reserves will not earn income. Should
the Fund invest in taxable obligations, it would purchase: (i) obligations of
the U.S. Treasury; (ii) obligations of agencies and instrumentalities of the
U.S. Government; (iii) money market instruments such as certificates of depos-
it, commercial paper, and bankers' acceptances; (iv) repurchase agreements col-
lateralized by U.S. Government obligations or other money market instruments;
or (v) securities issued by other investment companies that invest in high-
quality, short-term securities.
The Tax-Exempt Money Fund may also invest from time to time in "private activ-
ity bonds" (see "Types of Municipal Securities" below), the interest on which
is treated as a specific tax preference item under the Federal alternative min-
imum tax. Investments in such securities, however, will not exceed under normal
market conditions 20% of the Fund's total assets when added together with any
taxable investments by the Fund.
Although the Tax-Exempt Money Fund does not presently intend to do so on a
regular basis, it may invest more than 25% of its assets in Municipal Securi-
ties the interest on which is paid solely from revenues of similar projects, if
such investment is deemed necessary or appropriate by the Investment Adviser.
To the extent that the Fund's assets are concentrated in Municipal Securities
payable from revenues on similar projects, the Fund will be subject to the pe-
culiar risks presented by such projects to a greater extent than it would be if
the Fund's assets were not so concentrated.
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION
GOVERNMENT OBLIGATIONS
Government obligations acquired by the Money, Government Money, Treasury Money
and Tax-Exempt Money Funds include obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities. Such investments may include
obligations issued by the Farm Credit System Financial Assistance Corporation,
the Federal Financing Bank, the General Services Administration, Federal Home
Loan Banks, the Tennessee Valley Authority and the Student Loan Marketing Asso-
ciation. Obligations of certain agencies and instrumentalities of the U.S. Gov-
ernment are supported by the full faith and credit of the U.S. Treasury; others
are supported by the right of the issuer to borrow from the Treasury; others
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; still others are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would pro-
vide financial support to U.S. Government-sponsored instrumentalities if it is
not obligated to do so by law. Obligations of such instrumentalities will be
purchased only when the Investment Adviser believes that the credit risk with
respect to the instrumentality is minimal.
9
<PAGE>
Securities issued or guaranteed by the U.S. Government have historically in-
volved little risk of loss of principal if held to maturity. However, due to
fluctuations in interest rates, the market value of such securities may vary
during the period a shareholder owns shares of a Fund.
As stated above, the Treasury Money Fund will purchase primarily direct obli-
gations of the U.S. Treasury and obligations of those agencies or instrumen-
talities of the U.S. Government interest income from which is generally not
subject to state and local income taxes.
MONEY MARKET INSTRUMENTS
"Money market instruments" that may be purchased by the Money, Government
Money, and Tax-Exempt Money Funds in accordance with their investment objec-
tives and policies stated above include, among other things, bank obligations,
commercial paper and corporate bonds with remaining maturities of 13 months or
less.
Bank obligations include bankers' acceptances, negotiable certificates of de-
posit, and non-negotiable time deposits earning a specified return and issued
by a U.S. bank which is a member of the Federal Reserve System or insured by
the Bank Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC"),
or by a savings and loan association or savings bank which is insured by the
Savings Association Insurance Fund of FDIC. Bank obligations acquired by the
Money Fund may also include U.S. dollar-denominated obligations of foreign
branches of U.S. banks and obligations of domestic branches of foreign banks.
Investments in bank obligations are limited to the obligations of financial
institutions having more than $2 billion in total assets at the time of pur-
chase. Investments in bank obligations of foreign branches of domestic finan-
cial institutions or of domestic branches of foreign banks are limited so that
no more than 5% of the value of the Fund's total assets may be invested in any
one branch, and that no more than 20% of the Fund's total assets at the time
of purchase may be invested in the aggregate in such obligations. Investments
in non-negotiable time deposits are limited to no more than 5% of the value of
a Fund's total assets at time of purchase, and are further subject to the
overall 10% limit on illiquid securities.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject the Money Fund to additional investment
risks, including future political and economic developments, the possible im-
position of withholding taxes on interest income, possible seizure or nation-
alization of foreign deposits, the possible establishment of exchange con-
trols, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on such obligations. In
addition, foreign branches of U.S. banks and U.S. branches of foreign banks
may be subject to less stringent reserve requirements and to different ac-
counting, auditing, reporting, and recordkeeping standards than those applica-
ble to domestic branches of U.S. banks. Investments in the obligations of U.S.
branches of foreign banks or foreign branches of U.S. banks will be made only
when the Investment Adviser believes that the credit risk with respect to the
instrument is minimal.
VARIABLE AND FLOATING RATE INSTRUMENTS
Commercial paper may include variable and floating rate instruments. While
there may be no active secondary market with respect to a particular instru-
ment purchased by a Fund, the Fund may, from time to time as specified in the
instrument, demand payment of the principal of the instrument or may resell
the instrument to a third party. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if
the issuer defaulted on its payment obligation or during periods that the Fund
is not entitled to exercise its demand rights, and the Fund could, for this or
other reasons, suffer a loss with respect to such instrument. While the Funds
will in general invest only in securities that mature within 13 months of date
of purchase, they may invest in variable and floating rate instruments which
have nominal ma-
10
<PAGE>
turities in excess of 13 months if such instruments have demand features that
comply with conditions established by the Securities and Exchange Commission
("SEC") (see "Additional Information on Portfolio Instruments--Variable and
Floating Rate Instruments" in the Statement of Additional Information).
Some of the instruments purchased by the Government Money and Treasury Money
Funds may also be issued as variable and floating rate instruments. However,
since they are issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, they may have a more active secondary market.
QUALITY OF INVESTMENTS
The Funds may only invest in: (i) securities in the two highest rating cate-
gories of an NRSRO, provided that if they are rated by more than one Nation-
ally Recognized Statistical Rating Organization ("NRSRO"), at least one other
NRSRO rates them in one of its two highest categories; and (ii) unrated secu-
rities determined to be of comparable quality at the time of purchase (collec-
tively, "Eligible Securities"). Except for the Tax-Exempt Money Fund, a Fund
may not invest more than 5% of its assets in Eligible Securities that are not
"First Tier Securities" (as defined below under "Diversification Require-
ments"). The rating symbols of the NRSROs which the Fund may use are de-
scribed in the Appendix to the Statement of Additional Information.
REPURCHASE AGREEMENTS
The Money, Government Money and Tax-Exempt Money Funds may agree to purchase
portfolio securities subject to the seller's agreement to repurchase them at a
mutually agreed upon date and price ("repurchase agreements"). A Fund will en-
ter into repurchase agreements only with financial institutions that are
deemed to be creditworthy by the Investment Adviser, pursuant to guidelines
established by the Boards of Directors. No Fund will enter into repurchase
agreements with the Investment Adviser or any of its affiliates. Repurchase
agreements with remaining maturities in excess of seven days will be consid-
ered illiquid securities and will be subject to the 10% limit applicable to
such securities (see "Investment Limitations" in the Statement of Additional
Information).
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund
at not less than the repurchase price. Default or bankruptcy of the seller
would, however, expose a Fund to possible delay in connection with the dispo-
sition of the underlying securities or loss to the extent that proceeds from a
sale of the underlying securities were less than the repurchase price under
the agreement. Income on the repurchase agreements will be taxable.
SECURITIES LENDING
To increase return on their portfolio securities, the Money Fund and Govern-
ment Money Fund may lend their portfolio securities to broker/dealers pursuant
to agreements requiring the loans to be continuously secured by collateral
equal at all times in value to at least the market value of the securities
loaned. Collateral for such loans may include cash, securities of the U.S.
Government, its agencies or instrumentalities, or an irrevocable letter of
credit issued by a bank which meets the investment standards of these Funds,
or any combination thereof. Such loans will not be made if, as a result, the
aggregate of all outstanding loans of a Fund exceeds 30% of the value of its
total assets. There may be risks of delay in receiving additional collateral
or in recovering the securities loaned or even a loss of rights in the collat-
eral should the borrower of the securities fail financially. However, loans
are made only to borrowers deemed by the Investment Adviser to be of good
standing and when, in the Investment Adviser's judgment, the income to be
earned from the loan justifies the attendant risks.
INVESTMENT COMPANY SECURITIES
In connection with the management of their daily cash positions, the Funds
may invest in securities issued by other investment companies which invest in
11
<PAGE>
high-quality, short-term securities and which determine their net asset value
per share based on the amortized cost or penny-rounding method. The Tax-Exempt
Money Fund will invest in securities of investment companies only if such com-
panies invest primarily in high-quality, short-term Municipal Securities. The
Government Money and Treasury Money Funds intend to limit their acquisition of
shares of other investment companies to those companies which are themselves
permitted to invest only in securities which may be acquired by the respective
Funds. Securities of other investment companies will be acquired by a Fund
within the limits prescribed by the Investment Company Act of 1940 (the "1940
Act"). Each Fund currently intends to limit its investments so that, as deter-
mined immediately after a securities purchase is made: (a) not more than 5% of
the value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of its total assets
will be invested in the aggregate in securities of investment companies as a
group; and (c) not more than 3% of the outstanding voting stock of any one in-
vestment company will be owned by the Fund. In addition to the advisory fees
and other expenses a Fund bears directly in connection with its own opera-
tions, as a shareholder of another investment company, a Fund would bear its
pro rata portion of the other investment company's advisory fees and other ex-
penses. As such, the Fund's shareholders would indirectly bear the expenses of
the Fund and the other investment company, some or all of which would be du-
plicative. Any change by the Funds in the future with respect to their poli-
cies concerning investments in securities issued by other investment companies
will be made only in accordance with the requirements of the 1940 Act.
TYPES OF MUNICIPAL SECURITIES
The two principal classifications of Municipal Securities which may be held
by the Tax-Exempt Money Fund are "general obligation" securities and "revenue"
securities. General obligation securities are secured by the issuer's pledge
of its full faith, credit, and taxing power for the payment of principal and
interest. Revenue securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the pro-
ceeds of a special excise tax or other specific revenue source such as the
user of the facility being financed. Private activity obligations are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of private activity revenue obli-
gations is usually directly related to the credit standing of the corporate
user of the facility involved.
The Tax-Exempt Money Fund's portfolio may also include "moral obligation" se-
curities, which are normally issued by special-purpose public authorities. If
the issuer of moral obligation securities is unable to meet its debt service
obligations from current revenues, it may draw on a reserve fund the restora-
tion of which is a moral commitment but not a legal obligation of the state or
municipality which created the issuer. There is no limitation on the amount of
moral obligation securities that may be held by the Fund.
The Tax-Exempt Money Fund may also purchase custodial receipts evidencing the
right to receive either the principal amount or the periodic interest payments
or both with respect to specific underlying Municipal Securities. In general,
such "stripped" Municipal Securities are offered at a substantial discount in
relation to the principal and/or interest payments which the holders of the
receipt will receive. To the extent that such discount does not produce a
yield to maturity for the investor that exceeds the original tax-exempt yield
on the underlying Municipal Security, such yield will be exempt from Federal
income tax for such investor to the same extent as interest on the underlying
Municipal Security. The Tax-Exempt Money Fund intends to purchase custodial
receipts and "stripped" Municipal Securities only when the yield thereon will
be, as described above, exempt from Federal income tax to the same extent as
interest on the underlying Municipal Securities. "Stripped" Municipal Securi-
ties are considered illiquid securities subject to the Fund's 10% restriction
on investments in illiquid securities.
12
<PAGE>
WHEN-ISSUED AND FORWARD TRANSACTIONS AND STAND-BY COMMITMENTS
The Funds may purchase eligible securities on a "when-issued" basis and may
purchase or sell such securities on a "forward commitment" basis. These trans-
actions involve a commitment by a Fund to purchase or sell particular securi-
ties with payment and delivery taking place in the future beyond the normal
settlement date at a stated price and yield. Securities purchased on a "for-
ward commitment" or "when-issued" basis are recorded as an asset and are sub-
ject to changes in value based upon changes in the general level of interest
rates. Absent unusual market conditions, "forward commitments" and "when-
issued" purchases will not exceed 25% of the value of a Fund's total assets,
and the length of such commitments will not exceed 45 days. The Funds do not
intend to engage in "when-issued" purchases or "forward commitments" for spec-
ulative purposes, but only in furtherance of their investment objectives.
In addition, the Tax-Exempt Money Fund may acquire "stand-by commitments"
with respect to Municipal Securities held by it. Under a "stand-by commit-
ment," a dealer agrees to purchase at the Fund's option specified Municipal
Securities at a specified price. The Tax-Exempt Money Fund will acquire
"stand-by commitments" solely to facilitate portfolio liquidity and does not
intend to exercise its rights thereunder for trading purposes. "Stand-by com-
mitments" acquired by the Tax-Exempt Money Fund would be valued at zero in de-
termining the Fund's net asset value. Further information concerning "stand-by
commitments" is contained in the Statement of Additional Information under
"Additional Information on Portfolio Instruments."
ILLIQUID SECURITIES
No fund will knowingly invest more than 10% of the value of its net assets in
securities that are illiquid. Each Fund may purchase securities which are not
registered under the Securities Act of 1933 (the "Act") but which can be sold
to "qualified institutional buyers" in accordance with Rule 144A under the
Act. Any such security will not be considered illiquid so long as it is deter-
mined by the Investment Adviser, acting under guidelines approved and moni-
tored by the Board, that an adequate trading market exists for that security.
This investment practice could have the effect of increasing the level of il-
liquidity in a Fund during any period that qualified institutional buyers be-
come uninterested in purchasing these restricted securities.
DIVERSIFICATION REQUIREMENTS
Each Fund other than the Tax-Exempt Money Fund will limit its purchases of
any one issuer's securities (other than U.S. Government obligations and cus-
tomary demand deposits) to 5% of the Fund's total assets, except that it may
invest more than 5% (but no more than 25%) of its total assets in "First Tier
Securities" of one issuer for a period of up to three business days. First
Tier Securities include: (i) securities in the highest rating category by the
only NRSRO rating them, (ii) securities in the highest rating category of at
least two NRSROs, if more than one NRSRO has rated them, (iii) securities that
have no short-term rating, but have been issued by an issuer that has other
outstanding short-term obligations that have been rated in accordance with (i)
or (ii) above and are comparable in priority and security to such securities,
and (iv) certain unrated securities that have been determined to be of compa-
rable quality to such securities. In addition, each Fund other than the Tax-
Exempt Money Fund will limit its purchases of "Second Tier Securities" (Eligi-
ble Securities that are not First Tier Securities) of one issuer to the
greater of 1% of its total assets or $1 million.
INVESTMENT LIMITATIONS
The investment limitations set forth below are matters of fundamental policy
and may not be changed with respect to a Fund without the vote of the holders
of a majority of the Fund's outstanding Shares (as defined under "Miscellane-
ous").
13
<PAGE>
No Fund may:
1. Purchase securities of any one issuer, other than U.S. Government obliga-
tions, if immediately after such purchase more than 5% of the value of its
total assets would be invested in the securities of such issuer, except that
up to 25% of the value of its total assets may be invested without regard to
this 5% limitation; and
2. Borrow money except from banks for temporary purposes, and then in
amounts not in excess of 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any assets except in con-
nection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed and 10% of the value of its total assets at the
time of such borrowing. (This borrowing provision is included solely to fa-
cilitate the orderly sale of portfolio securities to accommodate abnormally
heavy redemption requests and is not for leverage purposes.) A Fund will not
purchase portfolio securities while borrowings in excess of 5% of its total
assets are outstanding.
The Treasury Money Fund may not:
Purchase securities other than obligations issued or guaranteed by the U.S.
Treasury or an agency or instrumentality of the U.S. Government and securities
issued by investment companies that invest in such obligations.
* * *
If a percentage limitation is satisfied at the time of investment, a later in-
crease or decrease in such percentage resulting from a change in value of a
Fund's portfolio securities will not constitute a violation of such limitation.
In Investment Limitation No. 1 above: (a) a security is considered to be is-
sued by the governmental entity or entities whose assets and revenues back the
security, or, with respect to a private activity bond that is backed only by
the assets and revenues of a non-governmental user, such non-governmental user;
(b) in certain circumstances, the guarantor of a guaranteed security may also
be considered to be an issuer in connection with such guarantee; and (c) secu-
rities issued or guaranteed by the United States Government, its agencies or
instrumentalities (including securities backed by the full faith and credit of
the United States) are deemed to be U.S. Government obligations.
The Funds are subject to additional investment limitations which are deemed
matters of their fundamental policies and, as such, may not be changed without
a requisite shareholder vote. Among such limitations are a prohibition on con-
centrating investments in a particular industry or group of industries and a
policy of limiting investments in illiquid securities to 10% of a Fund's as-
sets. For a full description of the Funds' additional fundamental investment
limitations, see the Statement of Additional Information.
PRICING OF SHARES
The net asset value of each Fund is determined and the Shares of each Fund are
priced for purchases and redemptions as of 1:00 p.m. (Eastern Time) and the
close of regular trading hours on the New York Stock Exchange (the "Exchange"),
currently 4:00 p.m. (Eastern Time). Net asset value and pricing for each Fund
are determined on each day the Exchange and the Investment Adviser are open for
trading ("Business Day"). Currently, the holidays which the Funds observe are
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Me-
morial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiv-
ing Day and Christmas. Net asset value per Share for purposes of pricing sales
and redemptions is calculated by dividing the value of all securities and other
assets belonging to a Fund, less the liabilities charged to the Fund, by the
number of its outstanding Shares. The assets in each Fund are valued by the
Funds' administrators based upon the amortized cost method.
14
<PAGE>
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in each Fund are continuously offered for sale by the Companies' spon-
sor and distributor, Edgewood Services, Inc. (the "Distributor"), a wholly-
owned subsidiary of Federated Investors. The Distributor is a registered
broker/dealer. Its principal business address is Clearing Operations, P.O. Box
897, Pittsburgh, PA 15230-0897.
PURCHASE OF SHARES
Shares in each Fund are offered without any purchase or redemption charge im-
posed by the Companies. The Distributor has established several procedures for
purchasing Shares in order to accommodate different types of investors.
Shares may be purchased directly by individuals ("Direct Investors") or by
institutions ("Institutional Investors" and, collectively with Direct Invest-
ors, "Investors"). Shares may also be purchased by customers ("Customers") of
the Investment Adviser, its affiliates and correspondent banks, and other in-
stitutions ("Shareholder Organizations") that have entered into shareholder
servicing agreements with one of the Companies. A Shareholder Organization may
elect to hold of record Shares for its Customers and to record beneficial own-
ership of Shares on the account statements provided by it to its Customers. If
it does so, it is the Shareholder Organization's responsibility to transmit to
the Distributor all purchase orders for its Customers and to transmit, on a
timely basis, payment for such orders to Chase Global Funds Services Company
("CGFSC"), the Funds' sub-transfer agent, in accordance with the procedures
agreed to by the Shareholder Organization and the Distributor. Confirmations
of all such Customer purchases and redemptions will be sent by CGFSC to the
particular Shareholder Organization. As an alternative, a Shareholder Organi-
zation may elect to establish its Customers' accounts of record with CGFSC. In
this event, even if the Shareholder Organization continues to place its Cus-
tomers' purchase and redemption orders with the Funds, CGFSC will send confir-
mations of such transactions and periodic account statements directly to Cus-
tomers. A Shareholder Organization may also elect to establish its Customers
as record holders.
The Companies enter into shareholder servicing agreements with Shareholder
Organizations which agree to provide their Customers various shareholder ad-
ministrative services with respect to their Shares (hereinafter referred to as
"Service Organizations"). See "Management of the Funds--Service
Organizations."
Customers wishing to purchase Shares through their Shareholder Organization
should contact such entity directly for appropriate instructions. (For a list
of Shareholder Organizations in your area, call (800) 446-1012.) An investor
purchasing Shares through a registered investment adviser or certified finan-
cial planner may incur transaction charges in connection with such purchases.
Such investors should contact their registered investment adviser or certified
financial planner for further information on transaction fees. Investors may
also purchase Shares directly in accordance with procedures described below
under "Purchase Procedures."
PURCHASE PROCEDURES
General
Direct Investors may purchase Shares by completing the Application for pur-
chase of Shares accompanying this Prospectus and mailing it, together with a
check payable to Excelsior Funds, to:
Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
Subsequent investments in an existing account in any Fund may be made at any
time by sending to the above address a check payable to Excelsior Funds along
with: (a) the detachable form that regularly accompanies the confirmation of a
prior transaction; (b) a subsequent order form which may be obtained from
15
<PAGE>
CGFSC; or (c) a letter stating the amount of the investment, the name of the
Fund and the account number in which the investment is to be made. Institu-
tional Investors may purchase Shares by transmitting their purchase orders to
CGFSC by telephone at (800) 446-1012 or by terminal access. Institutional In-
vestors must pay for Shares with Federal funds or funds immediately available
to CGFSC.
Purchases by Wire
Investors may also purchase Shares by wiring Federal funds to CGFSC. Prior to
making an initial investment by wire, an Investor must telephone CGFSC at (800)
446-1012 (from overseas, call (617) 557-8280) for instructions. Federal funds
and registration instructions should be wired through the Federal Reserve Sys-
tem to:
The Chase Manhattan Bank, N.A.
ABA #021000021
Excelsior Funds, Account No. 9102732915
For further credit to:
Excelsior Funds
Wire Control Number
Account Registration (including account number)
Investors making initial investments by wire must promptly complete the Appli-
cation accompanying this Prospectus and forward it to CGFSC. Redemptions by In-
vestors will not be processed until the completed Application for purchase of
Shares has been received by CGFSC and accepted by the Distributor. Investors
making subsequent investments by wire should follow the above instructions.
Other Purchase Information
Except as provided in "Investor Programs" below, the minimum initial invest-
ment by an Investor or initial aggregate investment by a Shareholder Organiza-
tion investing on behalf of its Customers is $500 per Fund. The minimum subse-
quent investment for both types of investors is $50 per Fund. Customers may
agree with a particular Shareholder Organization to make a minimum purchase
with respect to their accounts. Depending upon the terms of the particular ac-
count, Shareholder Organizations may charge a Customer's account fees for auto-
matic investment and other cash management services provided. The Companies re-
serve the right to reject any purchase order, in whole or in part, or to waive
any minimum investment requirements.
REDEMPTION PROCEDURES
Customers of Shareholder Organizations holding Shares of record may redeem all
or part of their investments in the Funds in accordance with procedures gov-
erning their accounts at the Shareholder Organizations. It is the responsibil-
ity of the Shareholder Organizations to transmit redemption orders to CGFSC and
credit such Customer accounts with the redemption proceeds on a timely basis.
Redemption orders for Institutional Investors must be transmitted to CGFSC by
telephone at (800) 446-1012 or by terminal access. No charge for wiring redemp-
tion payments to Shareholder Organizations or Institutional Investors is im-
posed by the Companies, although Shareholder Organizations may charge a Custom-
er's account for wiring redemption proceeds. Information relating to such re-
demption services and charges, if any, is available from the Shareholder Orga-
nizations. An investor redeeming Shares through a registered investment adviser
or certified financial planner may incur transaction charges in connection with
such redemptions. Such investors should contact their registered investment ad-
viser or certified financial planner for further information on transaction
fees. Investors may redeem all or part of their Shares in accordance with any
of the procedures described below (these procedures also apply to Customers of
Shareholder Organizations for whom individual accounts have been established
with CGFSC).
Redemption by Mail
Shares may be redeemed by a Direct Investor by submitting a written request
for redemption to:
Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
16
<PAGE>
A written redemption request to CGFSC must (i) state the number of Shares to
be redeemed, (ii) identify the shareholder account number and tax identifica-
tion number, and (iii) be signed by each registered owner exactly as the Shares
are registered. If the Shares to be redeemed were issued in certificate form,
the certificates must be endorsed for transfer (or accompanied by a duly exe-
cuted stock power) and must be submitted to CGFSC together with the redemption
request. A redemption request for an amount in excess of $50,000 per account,
or for any amount if the proceeds are to be sent elsewhere than the address of
record, must be accompanied by signature guarantees from an eligible guarantor
institution approved by CGFSC in accordance with its Standards, Procedures and
Guidelines for the Acceptance of Signature Guarantees ("Signature Guarantee
Guidelines"). Eligible guarantor institutions generally include banks,
broker/dealers, credit unions, national securities exchanges, registered secu-
rities associations, clearing agencies and savings associations. All eligible
guarantor institutions must participate in the Securities Transfer Agents Me-
dallion Program ("STAMP") in order to be approved by CGFSC pursuant to the Sig-
nature Guarantee Guidelines. Copies of the Signature Guarantee Guidelines and
information on STAMP can be obtained from CGFSC at (800) 446-1012 or at the ad-
dress given above. CGFSC may require additional supporting documents for re-
demptions made by corporations, executors, administrators, trustees and guardi-
ans. A redemption request will not be deemed to be properly received until
CGFSC receives all required documents in proper form. Payment for Shares re-
deemed will ordinarily be made by mail within five Business Days after proper
receipt by CGFSC of the redemption request. Questions with respect to the
proper form for redemption requests should be directed to CGFSC at (800) 446-
1012 (from overseas, call (617) 557-8280).
Redemption by Wire or Telephone
Direct Investors who have so indicated on the Application, or have subse-
quently arranged in writing to do so, may redeem Shares by instructing CGFSC by
wire or telephone to wire the redemption proceeds directly to the Direct In-
vestor's account at any commercial bank in the United States. Direct Investors
who are shareholders of record may also redeem Shares by instructing CGFSC by
telephone to mail a check for redemption proceeds of $500 or more to the share-
holder of record at his or her address of record. Institutional Investors may
also have their Shares redeemed by wire by instructing CGFSC by telephone at
(800) 446-1012 or by terminal access. Only redemptions of $500 or more will be
wired to a Direct Investor's account. An $8.00 fee for each wire redemption by
a Direct Investor is deducted by CGFSC from the proceeds of the redemption. The
redemption proceeds for Direct Investors must be paid to the same bank and ac-
count as designated on the Application or in written instructions subsequently
received by CGFSC.
Investors may request that Shares be redeemed and redemption proceeds wired on
the same day if telephone redemption instructions are received by 1:00 p.m.
(Eastern Time) on the day of redemption. Shares redeemed and wired on the same
day will not receive the dividend declared on the day of redemption. Redemption
requests made after 1:00 p.m. (Eastern Time) will receive the dividend declared
on the day of redemption, and redemption proceeds will be wired the following
Business Day. To request redemption of Shares by wire, Direct Investors should
call CGFSC at (800) 446-1012 (from overseas, call (617) 557-8280).
In order to arrange for redemption by wire or telephone after an account has
been opened or to change the bank or account designated to receive redemption
proceeds, a Direct Investor must send a written request to the Companies, c/o
CGFSC, at the address listed above under "Redemption by Mail." Such request
must be signed by the Direct Investor, with signature guaranteed (see "Redemp-
tion by Mail" above, for details regarding signature guarantees). Further docu-
mentation may be requested.
CGFSC and the Distributor reserve the right to refuse a wire or telephone re-
demption if it is believed advisable to do so. Procedures for redeeming Shares
17
<PAGE>
by wire or telephone may be modified or terminated at any time by the Compa-
nies, CGFSC or the Distributor. THE COMPANIES, CGFSC AND THE DISTRIBUTOR WILL
NOT BE LIABLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR ACTING UPON TELE-
PHONE INSTRUCTIONS THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN ATTEMPTING
TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, THE COMPANIES WILL USE
SUCH PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING THOSE IN-
STRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION.
During periods of substantial economic or market change, telephone redemp-
tions may be difficult to complete. If an Investor is unable to contact CGFSC
by telephone, the Investor may also deliver the redemption request to CGFSC in
writing at the address noted above under "How to Purchase and Redeem Shares--
Redemption by Mail."
Redemption by Check
Except as described in "Investor Programs" below, Direct Investors in the
Funds may redeem Shares, without charge, by check drawn on the Direct Invest-
or's particular Fund account. Checks may be made payable to the order of any
person or organization designated by the Direct Investor and must be for
amounts of $500 or more. Direct Investors will continue to earn dividends on
the Shares to be redeemed until the check clears at United States Trust Com-
pany of New York.
Checks are supplied free of charge, and additional checks are sent to Direct
Investors upon request. Checks will be sent only to the registered owner at
the address of record. Direct Investors who want the option of redeeming
Shares by check must indicate this in the Application for purchase of Shares
and must submit a signature card with signatures guaranteed with such Applica-
tion. The signature card is included in the Application for the purchase of
Shares contained in this Prospectus. In order to arrange for redemption by
check after an account has been opened, a written request must be sent to the
Companies, c/o CGFSC, at the address listed above under "Redemption by Mail"
and must be accompanied by a signature card with signatures guaranteed (see
"Redemption by Mail" above, for details regarding signature guarantees).
Stop payment instructions with respect to checks may be given to the Compa-
nies by calling (800) 446-1012 (from overseas, call (617) 557-8280). If there
are insufficient Shares in the Direct Investor's account with the Fund to
cover the amount of the redemption check, the check will be returned marked
"insufficient funds," and CGFSC will charge a fee of $25.00 to the account.
Checks may not be used to close an account.
If any portion of the Shares to be redeemed represents an investment made by
personal check, the Companies and CGFSC reserve the right not to honor the re-
demption until CGFSC is reasonably satisfied that the check has been collected
in accordance with the applicable banking regulations which may take up to 15
days. A Direct Investor who anticipates the need for more immediate access to
his or her investment should purchase Shares by Federal funds or bank wire or
by certified or cashier's check. Banks normally impose a charge in connection
with the use of bank wires, as well as certified checks, cashier's checks and
Federal funds. If a Direct Investor's purchase check is not collected, the
purchase will be cancelled and CGFSC will charge a fee of $25.00 to the Direct
Investor's account.
Other Redemption Information
Except as provided in "Investor Programs" below, Investors may be required to
redeem Shares in a Fund upon 60 days' written notice if due to investor re-
demptions the balance in the particular account with respect to the Fund re-
mains below $500. If a Customer has agreed with a particular Shareholder Or-
ganization to maintain a minimum balance in his or her account at the institu-
tion with respect to Shares of a Fund, and the balance in such account falls
below that minimum, the Customer may be obliged by the Shareholder Organiza-
tion to redeem all or part of his or her Shares to the extent necessary to
maintain the required minimum balance.
The Companies may also redeem Shares involuntarily or make payment for re-
demption in securities if it
18
<PAGE>
appears appropriate to do so in light of the Companies' responsibilities under
the Investment Company Act of 1940.
EFFECTIVE TIME OF PURCHASES AND REDEMPTIONS
Purchase orders for Shares which are received and accepted no later than 1:00
p.m. (Eastern Time) on any Business Day will be effective as of 1:00 p.m. and
will receive the dividend declared on the day of purchase as long as CGFSC re-
ceives payment in Federal funds prior to the close of regular trading hours on
the Exchange (currently 4:00 p.m., Eastern Time). Purchase orders received and
accepted after 1:00 p.m. (Eastern Time) and prior to 4:00 p.m. (Eastern Time),
on any Business Day for which payment in Federal funds has been received by
4:00 p.m. (Eastern Time), will be effective as of 4:00 p.m., and will begin
receiving dividends the following day. Purchase orders for Shares made by Di-
rect Investors are not effective until the amount to be invested has been con-
verted to Federal funds. In those cases in which a Direct Investor pays for
Shares by check, Federal funds will generally become available two Business
Days after a purchase order is received. In certain circumstances, the Compa-
nies may not require that amounts invested by Shareholder Organizations on be-
half of their Customers or by Institutional Investors be converted into Fed-
eral funds. Redemption orders are executed at the net asset value per Share
next determined after receipt of the order.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Investors and Customers of Shareholder Organizations may, after appropriate
prior authorization and without an exchange fee imposed by the Companies, ex-
change Shares in a Fund having a value of at least $500 for shares of the same
series of any other portfolio offered by the Companies, or for Trust shares of
Excelsior Institutional Trust, provided that such other shares may legally be
sold in the state of the Investor's residence.
Excelsior Fund currently offers, in addition to the Money Fund, Government
Money Fund and Treasury Money Fund, Shares in 17 diversified portfolios:
Short-Term Government Securities Fund, a fund seeking a high level of cur-
rent income by investing principally in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase agree-
ments collateralized by such obligations, and having a dollar-weighted aver-
age portfolio maturity of 1 to 3 years;
Intermediate-Term Managed Income Fund, a fund seeking a high level of cur-
rent interest income by investing principally in investment grade or better
debt obligations and money market instruments, and having a dollar-weighted
average portfolio maturity of 3 to 10 years;
Managed Income Fund, a fund seeking higher current income through invest-
ments in investment grade debt obligations, U.S. Government obligations and
money market instruments;
Equity Fund, a fund seeking primarily long-term capital appreciation through
investments in a diversified portfolio of primarily equity securities;
Income and Growth Fund, a fund investing substantially in equity securities
in seeking to provide moderate current income and to achieve capital appreci-
ation as a secondary objective;
Long-Term Supply of Energy Fund, a fund seeking long-term capital apprecia-
tion by investing in companies benefitting from the availability, development
and delivery of secure hydrocarbon and other energy sources;
Productivity Enhancers Fund, a fund seeking long-term capital appreciation
by investing in companies benefitting from their roles as innovators, devel-
opers and suppliers of goods and services which enhance service and manufac-
turing productivity or companies that are most effective at obtaining and ap-
plying productivity enhancement developments;
Environmentally-Related Products and Services Fund, a fund seeking long-term
capital appreciation by in-
19
<PAGE>
vesting in companies benefitting from their provision of products, technolo-
gies and services related to conservation, protection and restoration of the
environment;
Aging of America Fund, a fund seeking long-term capital appreciation by in-
vesting in companies benefitting from the changes occurring in the demo-
graphic structure of the U.S. population, particularly of its growing popula-
tion of individuals over the age of 40;
Communication and Entertainment Fund, a fund seeking long-term capital ap-
preciation by investing in companies benefitting from the technological and
international transformation of the communications and entertainment indus-
tries, particularly the convergence of information, communication and enter-
tainment media;
Business and Industrial Restructuring Fund, a fund seeking long-term capital
appreciation by investing in companies benefitting from their restructuring
or redeployment of assets and operations in order to become more competitive
or profitable;
Global Competitors Fund, a fund seeking long-term capital appreciation by
investing in U.S.-based companies benefitting from their position as effec-
tive and strong competitors on a global basis;
Early Life Cycle Fund, a fund seeking long-term capital appreciation by in-
vesting in smaller companies in the earlier stages of their development or
larger or more mature companies engaged in new and higher growth potential
operations;
International Fund, a fund seeking total return derived primarily from in-
vestments in foreign equity securities;
Emerging Americas Fund, a fund seeking long-term capital appreciation
through investments in companies and securities of governments based in all
countries in the Western Hemisphere, except the U.S.;
Pacific/Asia Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments based in Asia and on the
Asian side of the Pacific Ocean; and
Pan European Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments located in Europe.
Excelsior Tax-Exempt Fund currently offers, in addition to the Tax-Exempt
Money Fund, 4 other portfolios:
Short-Term Tax-Exempt Securities Fund, a diversified fund seeking a high
level of current interest income exempt from Federal income taxes through in-
vestments in municipal obligations and having a dollar-weighted average port-
folio maturity of 1 to 3 years;
Intermediate-Term Tax-Exempt Fund, a diversified fund seeking a high level
of current income exempt from Federal income taxes through investments in mu-
nicipal obligations and having a dollar-weighted average portfolio maturity
of three to ten years;
Long-Term Tax-Exempt Fund, a diversified fund attempting to maximize over
time current income exempt from Federal income taxes, investing primarily in
municipal obligations and having a dollar-weighted average portfolio maturity
of 10 to 30 years; and
New York Intermediate-Term Tax-Exempt Fund, a non-diversified fund designed
to provide New York investors with a high level of current income exempt from
Federal and, to the extent possible, New York state and New York City income
taxes; this fund invests primarily in New York municipal obligations and has
a dollar-weighted average portfolio maturity of three to ten years.
Excelsior Institutional Trust currently offers Trust Shares in two investment
portfolios:
Optimum Growth Fund, a fund seeking superior, risk-adjusted total return
through investments in a diversified portfolio of equity securities whose
growth prospects, in the opinion of its investment adviser, appear to exceed
that of the overall market; and
Value Equity Fund, a fund seeking long-term capital appreciation through in-
vestments in a diversified
20
<PAGE>
portfolio of equity securities whose market value, in the opinion of its in-
vestment adviser, appears to be undervalued relative to the marketplace.
An exchange involves a redemption of all or a portion of the Shares in a Fund
and the investment of the redemption proceeds in shares of another portfolio
of the Companies or Excelsior Institutional Trust. The redemption will be made
at the per Share net asset value of the Shares being redeemed next determined
after the exchange request is received. The Shares of the portfolio to be ac-
quired will be purchased at the per share net asset value of those shares
(plus any applicable sales load) next determined after acceptance of the ex-
change request.
Investors may find the exchange privilege useful if their investment objec-
tives or market outlook should change after they invest in a Fund. For further
information regarding exchange privileges, shareholders should call (800) 446-
1012 (from overseas, call (617) 557-8280). Investors exercising the exchange
privilege with the other portfolios of the Companies or Excelsior Institu-
tional Trust should request and review the prospectuses of such funds. Such
prospectuses may be obtained by calling the numbers listed above. In order to
prevent abuse of this privilege to the disadvantage of other shareholders, Ex-
celsior Fund, Excelsior Tax-Exempt Fund and Excelsior Institutional Trust re-
serve the right to limit the number of exchange requests of Investors and Cus-
tomers of Shareholder Organizations to no more than six per year. The Compa-
nies may modify or terminate the exchange program at any time upon 60 days'
written notice to shareholders, and may reject any exchange request in the
amount exceeding $100,000. THE COMPANIES, EXCELSIOR INSTITUTIONAL TRUST, CGFSC
AND THE DISTRIBUTOR ARE NOT RESPONSIBLE FOR THE AUTHENTICITY OF EXCHANGE RE-
QUESTS RECEIVED BY TELEPHONE THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN
ATTEMPTING TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, THE COMPANIES
AND EXCELSIOR INSTITUTIONAL TRUST WILL USE SUCH PROCEDURES AS ARE CONSIDERED
REASONABLE, INCLUDING RECORDING THOSE INSTRUCTIONS AND REQUESTING INFORMATION
AS TO ACCOUNT REGISTRATION.
SYSTEMATIC WITHDRAWAL PLAN
An Investor who owns Shares of a Fund with a value of $10,000 or more may es-
tablish a Systematic Withdrawal Plan. The Investor may request a declining-
balance withdrawal, a fixed-dollar withdrawal, a fixed-share withdrawal, or a
fixed-percentage withdrawal (based on the current value of Shares in the ac-
count) on a monthly, quarterly, semi-annual or annual basis. To initiate the
Systematic Withdrawal Plan, an investor must complete the Supplemental Appli-
cation contained in this Prospectus and mail it to CGFSC at the address given
above. Further information on establishing a Systematic Withdrawal Plan may be
obtained by calling (800) 446-1012 (from overseas, call (617) 557-8280).
Shareholder Organizations may, at their discretion, establish similar system-
atic withdrawal plans with respect to the Shares held by their Customers. In-
formation about such plans and the applicable procedures may be obtained by
Customers directly from their institutions.
RETIREMENT PLANS
Shares are available for purchase by Investors in connection with the follow-
ing tax-deferred prototype retirement plans offered by United States Trust
Company of New York:
IRAs (including "rollovers" from existing retirement plans) for individu-
als and their spouses;
Profit Sharing and Money-Purchase Plans for corporations and self-employed
individuals and their partners to benefit themselves and their employees;
and
Keogh Plans for self-employed individuals.
Investors investing in the Funds pursuant to Profit Sharing and Money-Pur-
chase Plans and Keogh Plans are not subject to the minimum investment and
forced redemption provisions described above. The minimum initial investment
for IRAs is $250 per Fund and the
21
<PAGE>
minimum subsequent investment is $50 per Fund. Detailed information concerning
eligibility, service fees and other matters related to these plans can be ob-
tained by calling (800) 446-1012 (from overseas, call (617) 557-8280). Custom-
ers of Shareholder Organizations may purchase Shares of the Funds pursuant to
retirement plans if such plans are offered by their Shareholder Organizations.
AUTOMATIC INVESTMENT PROGRAM
The Automatic Investment Program permits Investors to purchase Shares (mini-
mum of $50 per Fund per transaction) at regular intervals selected by the In-
vestor. The minimum initial investment for an Automatic Investment Program ac-
count is $50 per Fund. Provided the Investor's financial institution allows
automatic withdrawals, Shares are purchased by transferring funds from an In-
vestor's checking, bank money market or NOW account designated by the Invest-
or. At the Investor's option, the account designated will be debited in the
specified amount, and Shares will be purchased, once a month, on either the
first or fifteenth day, or twice a month, on both days.
To establish an Automatic Investment account, an Investor must complete the
Supplemental Application contained in this Prospectus and mail it to CGFSC. An
Investor may cancel his participation in this Program or change the amount of
purchase at any time by mailing written notification to CGFSC, P.O. Box 2798,
Boston, MA 02208-2798 and notification will be effective three Business Days
following receipt. The Companies may modify or terminate this privilege at any
time or charge a service fee, although no such fee currently is contemplated.
DIVIDENDS AND DISTRIBUTIONS
The net investment income of the Funds is declared daily as a dividend to the
persons who are shareholders of the respective Funds immediately after the
1:00 p.m. pricing of Shares on the day of declaration. All such dividends are
paid within ten days after the end of each month or within seven days after
the redemption of all of a shareholder's Shares of a Fund. For dividend pur-
poses, a Fund's investment income is reduced by accrued expenses directly at-
tributable to that Fund and the general expenses of the Companies prorated to
that Fund on the basis of its relative net assets. Net realized capital gains,
if any, are distributed at least annually.
All dividends and distributions paid on Shares held of record by the Invest-
ment Adviser and its affiliates or correspondent banks will be paid in cash.
Direct and Institutional Investors and Customers of other Shareholder Organi-
zations will receive dividends and distributions in additional Shares of the
Fund on which the dividend is paid or the distribution made (as determined on
the payable date), unless they have requested in writing (received by CGFSC at
the Companies' address prior to the payment date) to receive dividends and
distributions in cash. Reinvested dividends and distributions receive the same
tax treatment as those paid in cash.
TAXES
FEDERAL
Each of the Funds qualified for its last taxable year as a "regulated invest-
ment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Each Fund expects to so qualify in future years. Such qualification
generally relieves a Fund of liability for Federal income taxes to the extent
its earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code requires,
among other things, that a Fund distribute to its shareholders an amount equal
to at least the sum of 90% of its investment company taxable income and 90% of
its exempt-interest income (if any) net of certain deductions for each taxable
year. In general, a Fund's investment company taxable income will be its tax-
able income (including interest) subject to certain adjustments and excluding
the excess of any net long-term capital gain for the taxable year over the net
short-term capital loss, if any, for such year. The taxable Funds intend to
distribute substantially all of
22
<PAGE>
their investment company taxable income each year. Such dividends will be tax-
able as ordinary income to Fund shareholders who are not currently exempt from
Federal income taxes, whether such income is received in cash or reinvested in
additional Shares. (Federal income taxes for distributions to IRAs and qualify-
ing pension plans are deferred under the Code.) Because all of each Fund's net
investment income is expected to be derived from earned interest, it is antici-
pated that no part of any distributions will be eligible for the dividends re-
ceived deduction for corporations.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to
have been received by shareholders and paid by a Fund on December 31 of such
year in the event such dividends are actually paid during January of the fol-
lowing year.
The Tax-Exempt Money Fund: The Tax-Exempt Money Fund's policy is to pay divi-
dends each year equal to at least the sum of 90% of its net exempt-interest in-
come and 90% of its investment company taxable income, if any. Dividends de-
rived from exempt-interest income ("exempt-interest dividends") may be treated
by the Fund's shareholders as items of interest excludable from their gross in-
come under Section 103(a) of the Code, unless, under the circumstances applica-
ble to the particular shareholder, exclusion would be disallowed. (See State-
ment of Additional Information under "Additional Information Concerning Tax-
es.")
If the Tax-Exempt Money Fund should hold certain "private activity bonds" is-
sued after August 7, 1986, the portion of dividends paid by the Fund which is
attributable to interest on such bonds must be included in a shareholder's Fed-
eral alternative minimum taxable income, as an item of tax preference, for the
purpose of determining liability (if any) for the 26% to 28% alternative mini-
mum tax for individuals and the 20% alternative minimum tax and the environmen-
tal tax applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
Federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed at the rate of .12% on the excess of
the corporation's modified Federal alternative minimum taxable income over $2
million. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the tax-
ability of such benefits.
Dividends payable by the Tax-Exempt Money Fund which are derived from taxable
income or from long-term or short-term capital gains will be subject to Federal
income tax, whether such dividends are paid in the form of cash or additional
Shares.
If a shareholder holds Shares of the Tax-Exempt Money Fund for six months or
less and during that time receives an exempt-interest dividend on those Shares,
any loss recognized on the sale or exchange of those Shares will be disallowed
to the extent of the exempt-interest dividend.
STATE AND LOCAL
The Treasury Money Fund is structured to provide shareholders, to the extent
permissible by Federal and state law, with income that is exempt or excluded
from taxation at the state and local level. Most states--by statute, judicial
decision or administrative action--have taken the position that dividends of a
regulated investment company such as the Treasury Money Fund that are attribut-
able to interest on obligations of the U.S. Treasury and certain U.S. Govern-
ment agencies and instrumentalities (including those authorized for purchase by
the Fund) are the functional equivalent of interest from such obligations and
are, therefore, exempt from state and local income taxes. As a result, substan-
tially all dividends paid by the Treasury Money Fund to shareholders residing
in those states will be exempt or excluded from state income tax.
Nevertheless in some jurisdictions, exempt-interest dividends and other dis-
tributions paid by the Tax-Exempt Money Fund may be taxable to shareholders un-
der state or local law as dividend income, even though all or a portion of such
distributions is derived
23
<PAGE>
from interest on tax-exempt obligations which, if realized directly, would be
exempt from such income taxes.
MISCELLANEOUS
The foregoing summarizes some of the important tax considerations generally
affecting the Funds and their shareholders and is not intended as a substitute
for careful tax planning. Accordingly, potential investors in the Funds should
consult their tax advisers with specific reference to their own tax situa-
tions. Shareholders will be advised annually as to the Federal income tax con-
sequences of distributions made each year.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of the
Companies' Boards of Directors. The Statement of Additional Information con-
tains the names of and general background information concerning the Compa-
nies' directors.
INVESTMENT ADVISER
United States Trust Company of New York serves as the Investment Adviser to
each Fund. U.S. Trust is a state-chartered bank and trust company. The Invest-
ment Adviser provides trust and banking services to individuals, corporations,
and institutions both nationally and internationally, including investment
management, estate and trust administration, financial planning, corporate
trust and agency banking, and personal and corporate banking. The Investment
Adviser is a member bank of the Federal Reserve System and the Federal Deposit
Insurance Corporation and is one of the twelve members of the New York Clear-
ing House Association.
On December 31, 1995, the Investment Adviser's Asset Management Group had ap-
proximately $47 billion in assets under management. The Investment Adviser,
which has its principal offices at 114 W. 47th Street, New York, New York
10036, is a subsidiary of U.S. Trust Corporation, a registered bank holding
company.
The Investment Adviser manages each Fund, makes decisions with respect to and
places orders for all purchases and sales of its portfolio securities, and
maintains records relating to such purchases and sales. For the services pro-
vided and expenses assumed pursuant to its Investment Advisory Agreements, the
Investment Adviser is entitled to a fee, computed daily and paid monthly, at
the annual rate of .25% of the average daily net assets of each of the Money,
Government Money and Tax-Exempt Money Funds. For the services provided and ex-
penses assumed with respect to the Treasury Money Fund, the Investment Adviser
is entitled to a fee, computed daily and paid monthly, at the annual rate of
.30% of the Fund's average daily net assets. For the fiscal year ended March
31, 1996, the Investment Adviser received an advisory fee at the effective an-
nual rates of .22%, .22%, .28% and .21% of the average daily net assets of the
Money, Government Money, Tax-Exempt Money and Treasury Money Funds, respec-
tively. For the same period, the Investment Adviser waived advisory fees at
the effective annual rate of .03, .03%, .02% and .04% of the average daily net
assets of the Money, Government Money, Tax-Exempt Money and Treasury Money
Fund, respectively.
From time to time, the Investment Adviser may waive (either voluntarily or
pursuant to applicable state expense limitations) all or a portion of the ad-
visory fees payable to it by a Fund, which waiver may be terminated at any
time. See "Management of the Funds--Service Organizations" for additional in-
formation on fee waivers.
ADMINISTRATORS
CGFSC, Federated Administrative Services and U.S. Trust serve as the Funds'
administrators (the "Administrators") and provide them with general adminis-
trative and operational assistance. The Administrators also serve as adminis-
trators of the other portfolios of the Companies and of Excelsior Institu-
tional Trust, which are also advised by the Investment Adviser and
24
<PAGE>
distributed by the Distributor. For the services provided to all portfolios of
the Companies (except the International, Emerging Americas, Pacific/Asia and
Pan European Funds of Excelsior Fund), the Administrators are entitled jointly
to annual fees, computed daily and paid monthly, based on the combined aggre-
gate average daily net assets of the Companies (excluding the International,
Emerging Americas, Pacific/Asia and Pan European Funds) and of Excelsior In-
stitutional Trust as follows:
<TABLE>
<CAPTION>
COMBINED AGGREGATE AVERAGE DAILY
NET ASSETS OF BOTH COMPANIES (EXCLUDING THE
INTERNATIONAL, EMERGING AMERICAS, PACIFIC/ASIA
AND PAN EUROPEAN FUNDS) AND OF EXCELSIOR INSTITUTIONAL TRUST ANNUAL FEE
------------------------------------------------------------ ----------
<S> <C>
first $200 million................................................... .200%
next $200 million.................................................... .175%
over $400 million.................................................... .150%
</TABLE>
Administration fees payable to the Administrators by each portfolio of the
Companies and of Excelsior Institutional Trust are allocated in proportion to
their relative average daily net assets at the time of determination. From
time to time, the Administrators may waive (either voluntarily or pursuant to
applicable state expense limitations) all or a portion of the administration
fee payable to them by a Fund, which waivers may be terminated at any time.
See "Management of the Funds--Service Organizations" for additional informa-
tion on fee waivers. For the period from April 1, 1995 through July 31, 1995,
CGFSC and the former administrator received an administration fee at the ef-
fective annual rate of .154% of the average daily net assets of each of the
Funds, respectively. For the same period, CGFSC and the former administrator
waived administration fees at the effective annual rate of 0% of the average
daily net assets of each of the Funds, respectively. From August 1, 1995
through March 31, 1996, the Administrators received an aggregate administra-
tion fee (under the same compensation arrangements noted above) at the effec-
tive annual rate of .154% of the average daily net assets of each of the
Funds, respectively. For the same period, the Administrators waived adminis-
tration fees at the effective annual rate of 0% of the average daily net as-
sets of each of the Funds, respectively.
SERVICE ORGANIZATIONS
Each Company will enter into an agreement ("Servicing Agreement") with each
Service Organization requiring it to provide administrative support services
to its Customers beneficially owning Shares. As a consideration for the admin-
istrative services provided to Customers, a Fund will pay the Service Organi-
zation an administrative service fee at the annual rate of up to .40% of the
average daily net asset value of its Shares held by the Service Organization's
Customers. Such services, which are described more fully in the Statement of
Additional Information under "Management of the Funds--Service Organizations,"
may include assisting in processing purchase, exchange and redemption re-
quests; transmitting and receiving funds in connection with Customer orders to
purchase, exchange or redeem Shares; and providing periodic statements. Under
the terms of the Servicing Agreement, Service Organizations will be required
to provide to Customers a schedule of any fees that they may charge in connec-
tion with a Customer's investment. Until further notice, the Investment Ad-
viser and Administrators have voluntarily agreed to waive fees payable by a
Fund in an amount equal to administrative service fees payable by that Fund.
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company regis-
tered under the Federal Bank Holding Company Act of 1956 or any bank or non-
bank affiliate thereof from sponsoring, organizing or controlling a regis-
tered, open-end investment company continuously engaged in the issuance of its
shares, and prohibit banks generally from issuing, underwriting, selling or
distributing securities such as Shares of the Funds, but such banking laws and
regulations do not prohibit such a holding company or affiliate or banks gen-
erally from acting as investment adviser, transfer agent, or custodian to such
an investment company, or from purchasing shares of such company for and upon
the order of customers. The Investment Adviser, CGFSC and certain Shareholder
Organizations may be subject to such banking laws and
25
<PAGE>
regulations. State securities laws may differ from the interpretations of Fed-
eral law discussed in this paragraph and banks and financial institutions may
be required to register as dealers pursuant to state law.
Should legislative, judicial, or administrative action prohibit or restrict
the activities of the Investment Adviser or other Shareholder Organizations in
connection with purchases of Fund Shares, the Investment Adviser and such
Shareholder Organizations might be required to alter materially or discontinue
the investment services offered by them to Customers. It is not anticipated,
however, that any resulting change in the Funds' method of operations would af-
fect their net asset values per Share or result in financial loss to any share-
holder.
DESCRIPTION OF CAPITAL STOCK
Excelsior Fund (formerly UST Master Funds, Inc.) was organized as a Maryland
corporation on August 2, 1984. Currently, Excelsior Fund has authorized capital
of 35 billion shares of Common Stock, $.001 par value per share, classified
into 40 series of shares representing interests in 20 investment portfolios.
Excelsior Fund's Charter authorizes the Board of Directors to classify or re-
classify any class of shares of Excelsior Fund into one or more classes or se-
ries. Shares of Class A, Class B and Class G represent interests in the Money
Fund, Government Money Fund and Treasury Money Fund Funds, respectively.
Excelsior Tax-Exempt Fund (formerly UST Master Tax-Exempt Funds, Inc.) was or-
ganized as a Maryland corporation on August 8, 1984. Currently, Excelsior Tax-
Exempt Fund has authorized capital of 14 billion shares of Common Stock, $.001
par value per share, classified into 5 classes of shares representing 5 invest-
ment portfolios currently being offered. Excelsior Tax-Exempt Fund's Charter
authorizes the Board of Directors to classify or reclassify any class of shares
of Excelsior Tax-Exempt Fund into one or more classes or series. Shares of
Class A Common Stock represent interests in the Tax-Exempt Money Fund's Shares.
Each Share represents an equal proportionate interest in the particular Fund
with other shares of the same class, and is entitled to such dividends and dis-
tributions out of the income earned on the assets belonging to such Fund as are
declared in the discretion of the Companies' Boards of Directors.
Shareholders are entitled to one vote for each full share held, and fractional
votes for fractional shares held, and will vote in the aggregate and not by
class, except as otherwise expressly required by law.
Certificates for Shares will not be issued unless expressly requested in writ-
ing to CGFSC and will not be issued for fractional Shares.
As of July 15, 1996, U.S. Trust held of record substantially all of the Shares
in the Funds as agent or custodian for its customers, but did not own such
Shares beneficially because it did not have voting or investment discretion
with respect to such Shares. U.S. Trust is a wholly-owned subsidiary of U.S.
Trust Corporation.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, N.A. ("Chase"), a wholly-owned subsidiary of The
Chase Manhattan Corporation, serves as the custodian of the Funds' assets. Com-
munications to the custodian should be directed to Chase, Mutual Funds Service
Division, 770 Broadway, New York, New York 10003-9598.
U.S. Trust serves as the Funds' transfer and dividend disbursing agent. U.S.
Trust has also entered into a sub-transfer agency arrangement with CGFSC, 73
Tremont Street, Boston, Massachusetts 02108-3913, pursuant to which CGFSC pro-
vides certain transfer agent, dividend disbursement and registrar services to
the Funds.
YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders, the yields
of the Funds may be quoted and compared to those of other mutual funds with
similar investment objectives and to other relevant in-
26
<PAGE>
dexes or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For exam-
ple, the yields of the Funds may be compared to the applicable averages com-
piled by Donoghue's Money Fund Report, a widely recognized independent publi-
cation that monitors the performance of money market funds. The yields of the
taxable Funds may also be compared to the average yields reported by the Bank
Rate Monitor for money market deposit accounts offered by the 50 leading banks
and thrift institutions in the top five standard metropolitan statistical
areas.
Yield data as reported in national financial publications including, but not
limited to, Money Magazine, Forbes, Barron's, The Wall Street Journal and The
New York Times, or in publications of a local or regional nature, may also be
used in comparing the Funds' yields.
Each Fund may advertise its Shares' seven-day yield which refers to the in-
come generated over a particular seven-day period identified in the advertise-
ment by an investment in the Fund. This income is annualized, i.e., the income
during a particular week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The Funds may also ad-
vertise the "effective yields" of Shares which are calculated similarly but,
when annualized, income is assumed to be reinvested, thereby making the effec-
tive yields slightly higher because of the compounding effect of the assumed
reinvestment.
In addition, the Tax-Exempt Money Fund may from time to time advertise the
"tax-equivalent yields" of Shares to demonstrate the level of taxable yield
necessary to produce an after-tax yield equivalent to that achieved by the
Fund. This yield is computed by increasing the yields of the Fund's Shares
(calculated as above) by the amount necessary to reflect the payment of Fed-
eral income taxes at a stated tax rate.
Yields will fluctuate and any quotation of yield should not be considered as
representative of a Fund's future performance. Since yields fluctuate, yield
data cannot necessarily be used to compare an investment in the Funds with
bank deposits, savings accounts and similar investment alternatives which of-
ten provide an agreed or guaranteed fixed yield for a stated period of time.
Shareholders should remember that yield is generally a function of the kind
and quality of the instruments held in a portfolio, portfolio maturity, oper-
ating expenses, and market conditions. Any fees charged by Shareholder Organi-
zations with respect to accounts of Customers that have invested in Shares
will not be included in calculations of yield.
MISCELLANEOUS
Shareholders will receive unaudited semiannual reports describing the Funds'
investment operations and annual financial statements audited by the Funds'
independent auditors.
The staff of the SEC has expressed the view that the use of this combined
Prospectus for the Funds may subject the Funds to liability for losses arising
out of any statement or omission regarding a particular Fund. The Companies do
not believe, however, that such risk is significant under the circumstances.
As used in this Prospectus, a "vote of the holders of a majority of the out-
standing shares" of a Company or a particular Fund means, with respect to the
approval of an investment advisory agreement or a change in a fundamental in-
vestment policy, the affirmative vote of the lesser of (a) more than 50% of
the outstanding Shares of such Company or such Fund, or (b) 67% or more of the
Shares of such Company or such Fund present at a meeting if more than 50% of
the outstanding Shares of such Company or such Fund are represented at the
meeting in person or by proxy.
Inquiries regarding any of the Funds may be directed to the Distributor at
the address listed under "Distributor."
27
<PAGE>
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION
OPENING YOUR ACCOUNT:
Complete the Application(s) and mail to:
FOR OVERNIGHT DELIVERY: send to:
Excelsior Funds Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798 c/o Chase Global Funds Services Company--
Transfer Agent
Boston, MA 02208-2798 73 Tremont Street
Boston, MA 02108-3913
Please enclose with the Application(s) your check made payable to the "Ex-
celsior Funds" in the amount of your investment.
For direct wire purchases please refer to the section of the Prospectus en-
titled "How to Purchase and Redeem Shares--Purchase Procedures."
MINIMUM INVESTMENTS:
Except as provided in the Prospectus, the minimum initial investment is $500
per Fund; subsequent investments must be in the minimum amount of $50 per
Fund. Investments may be made in excess of these minimums.
REDEMPTIONS:
Shares can be redeemed in any amount and at any time in accordance with pro-
cedures described in the Prospectus. In the case of shares recently purchased
by check, redemption proceeds will not be made available until the transfer
agent is reasonably assured that the check has been collected in accordance
with applicable banking regulations.
Certain legal documents will be required from corporations or other organi-
zations, executors and trustees, or if redemption is requested by anyone other
than the shareholder of record. Written redemption requests in excess of
$50,000 per account must be accompanied by signature guarantees.
SIGNATURES: Please be sure to sign the Application(s).
If the shares are registered in the name of:
- an individual, the individual should sign.
- joint tenants, both tenants should sign.
- a custodian for a minor, the custodian should sign.
- a corporation or other organization, an authorized officer should sign
(please indicate corporate office or title).*
- a trustee or other fiduciary, the fiduciary or fiduciaries should sign
(please indicate capacity).*
* A corporate resolution or appropriate certificate may be required.
QUESTIONS:
If you have any questions regarding the Application or redemption require-
ments, please contact the transfer agent at (800) 446-1012 between 9:00 a.m.
and 5:00 p.m. (Eastern Time).
28
<PAGE>
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[LOGO OF EXCELSIOR
F U N D S I N C .
TAX-EXEMPT FUNDS, INC.]
CHASE GLOBAL FUNDS SERVICES COMPANY NEW
CLIENT SERVICES ACCOUNT
P.O. Box 2798 APPLICATION
Boston, MA 02208-2798
(800) 446-1012
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION
-----------------------------------------------------------------------------
[_] Individual [_] Joint Tenants [_] Trust [_] Gift/Transfer to Minor
[_] Other
Note: Joint tenant registration will be as "joint tenants
with right of survivorship" unless otherwise specified. Trust
registrations should specify name of the trust, trustee(s),
beneficiary(ies), and the date of the trust instrument.
Registration for Uniform Gifts/Transfers to Minors should be
in the name of one custodian and one minor and include the
state under which the custodianship is created (using the
minor's Social Security Number ("SSN")). For IRA accounts a
different application is required.
------------------------------ -----------------------------
Name(s) (please print) Social Security # or Taxpayer
Identification #
------------------------------
Name ( )
------------------------------ -----------------------------
Telephone #
Address
------------------------------ [_] U.S. Citizen [_] Other (specify)
City/State/Zip Code
-----------------------------------------------------------------------------
FUND SELECTION (THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT IS $500 PER
FUND AND $50 PER FUND, RESPECTIVELY. MAKE CHECKS PAYABLE TO "EXCELSIOR
FUNDS.")
-----------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
INITIAL INVESTMENT INITIAL INVESTMENT
[_] Money Fund $ ____________ 803 [_] Government Money Fund $ ____________ 804
[_] Tax-Exempt Money Fund $ ____________ 806 [_] Treasury Money Fund $ ____________ 811
TOTAL INITIAL INVESTMENT: $ __________________
</TABLE>
NOTE: If investing A. BY MAIL: Enclosed is a check in the
by wire, you must amount of $ _____ payable to "Excelsior
obtain a Bank Wire Funds."
Control Number. To B. BY WIRE: A bank wire in the amount
do so, please call of $ has been sent to the Fund from
(800) 446-1012 and ------------------ ---------------
ask for the Wire Name of Bank Wire Control
Desk. Number
CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and
dividend distributions will be reinvested in additional
shares unless appropriate boxes below are checked:
[_] All dividends are to be [_] reinvested [_] paid in cash
[_] All capital gains are to be [_] reinvested [_] paid in cash
-----------------------------------------------------------------------------
ACCOUNT PRIVILEGES
-----------------------------------------------------------------------------
TELEPHONE EXCHANGE AND AUTHORITY TO TRANSMIT
REDEMPTION REDEMPTION PROCEEDS TO PRE-
DESIGNATED ACCOUNT.
I/We hereby authorize CGFSC to
act upon instructions received
by telephone to withdraw $500
[_] I/We appoint CGFSC as or more from my/our account in
my/our agent to act upon the Excelsior Funds and to
instructions received by wire the amount withdrawn to
telephone in order to effect the following commercial bank
the telephone exchange and account. I/We understand that
redemption privileges. I/We CGFSC charges an $8.00 fee for
hereby ratify any each wire redemption, which
instructions given pursuant will be deducted from the
to this authorization and proceeds of the redemption.
agree that Excelsior Fund, Title on Bank Account*_________
Excelsior Tax-Exempt Fund, Name of Bank __________________
Excelsior Institutional Bank A.B.A. Number Account
Trust, CGFSC and their Number ________________________
directors, officers and Bank Address __________________
employees will not be liable City/State/Zip Code____________
for any loss, liability, (attach voided check here)
cost or expense for acting
upon instructions believed A corporation, trust or
to be genuine and in partnership must also submit a
accordance with the "Corporate Resolution" (or
procedures described in the "Certificate of Partnership")
then current Prospectus. To indicating the names and
the extent that Excelsior titles of officers authorized
Fund, Excelsior Tax-Exempt to act on its behalf.
Fund and Excelsior * TITLE ON BANK AND FUND
Institutional Trust, fail to ACCOUNT MUST BE IDENTICAL.
use reasonable procedures as
a basis for their belief,
they or their service
contractors may be liable
for instructions that prove
to be fraudulent or
unauthorized.
I/We further acknowledge
that it is my/our
responsibility to read the
Prospectus of any Fund into
which I/we exchange.
[_] I/We do not wish to have
the ability to exercise
telephone redemption and
exchange privileges. I/We
further understand that all
exchange and redemption
requests must be in writing.
SPECIAL PURCHASE AND
REDEMPTION PLANS
I/We have completed and
attached the Supplemental
Application for:
[_] Automatic Investment Plan
[_] Systematic Withdrawal Plan
<PAGE>
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
- --------------------------------------------------------------------------------
CHECK WRITING PRIVILEGE
- --------------------------------------------------------------------------------
[_] I/We wish to take advantage of the check writing privilege
and have signed and attached the Check Writing Signature
Card to this application.
[_] I/We do not wish to take advantage of the check writing
privilege at this time, but I/we may elect to do so at a
later date.
SIGNATURE CARD SIGNATURE REQUIREMENTS. If the shares are
registered in the name of:
. AN INDIVIDUAL, the individual must sign the Card.
. JOINT ACCOUNT, both individuals must sign the Card.
. INSTITUTIONAL ACCOUNT, an officer must sign the Card
indicating corporate, trust or partnership office or title.
. TRUST ACCOUNT, trustee or other fiduciary must sign the
Card indicating capacity.
. CUSTODIAN FOR MINOR, custodian must sign the Card.
- --------------------------------------------------------------------------------
AGREEMENTS AND SIGNATURES
- --------------------------------------------------------------------------------
By signing this application, I/we hereby certify under
penalty of perjury that the information on this application
is complete and correct and that as required by Federal law:
[_] I/We certify that (1) the number(s) shown on this form
is/are the correct taxpayer identification number(s) and (2)
I/we are not subject to backup withholding either because
I/we have not been notified by the Internal Revenue Service
that I/we are subject to backup withholding, or the IRS has
notified me/us that I am/we are no longer subject to backup
withholding. (NOTE: IF ANY OR ALL OF PART 2 IS NOT TRUE,
PLEASE STRIKE OUT THAT PART BEFORE SIGNING.)
[_] If no taxpayer identification number ("TIN") or SSN has
been provided above, I/we have applied, or intend to apply,
to the IRS or the Social Security Administration for a TIN or
a SSN, and I/we understand that if I/we do not provide this
number to CGFSC within 60 days of the date of this
application, or if I/we fail to furnish my/our correct SSN or
TIN, I/we may be subject to a penalty and a 31% backup
withholding on distributions and redemption proceeds. (Please
provide this number on Form W-9. You may request the form by
calling CGFSC at the number listed above).
I/We represent that I am/we are of legal age and capacity to
purchase shares of the Excelsior Funds. I/We have received,
read and carefully reviewed a copy of the appropriate Fund's
current Prospectus and agree to its terms and by signing
below I/we acknowledge that neither the Fund nor the
Distributor is a bank and that Fund shares are not deposits
or obligations of, or guaranteed or endorsed by, United
States Trust Company of New York, its parent or affiliates
and Fund Shares are not federally insured by, guaranteed by
or obligations of or otherwise supported by the U.S.
Government, the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other governmental agency; that
while the Funds seek to maintain their net asset value per
share at $1.00 for purposes of purchases and redemptions,
there can be no assurance that they will be able to do so on
a continuous basis; and investment in the Funds involves
investment risk, including the possible loss of the principal
amount invested.
X ___________________________ Date __________________________
Owner Signature
X ___________________________ Date __________________________
Co-Owner Signature
Sign exactly as name(s) of registered owner(s) appear(s) above
(including legal title if signing for a corporation, trust
custodial account, etc.)
- --------------------------------------------------------------------------------
FOR USE BY AUTHORIZED AGENT (BROKER/DEALER) ONLY
- --------------------------------------------------------------------------------
We hereby submit this application for the purchase of shares
in accordance with the terms of our selling agreement with
Edgewood Services, Inc., and with the Prospectus and
Statement of Additional Information of each Fund purchased.
----------------------------- -------------------------------
Investment Dealer's Name Source of Business Code
----------------------------- -------------------------------
Main Office Address Branch Number
----------------------------- -------------------------------
Representative's Number Representative's Name
----------------------------- -------------------------------
Branch Address Telephone
----------------------------- -------------------------------
Investment Dealer's Title
Authorized Signature
<PAGE>
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
[LOGO OF EXCELSIOR
F U N D S I N C .
TAX-EXEMPT FUNDS, INC.]
CHASE GLOBAL FUNDS SERVICES COMPANY SUPPLEMENTAL
CLIENT SERVICES APPLICATION
P.O. Box 2798 SPECIAL INVESTMENT AND
Boston, MA 02208-2798 WITHDRAWAL OPTIONS
(800) 446-1012
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION PLEASE SUPPLY THE FOLLOWING INFORMATION EXACTLY AS IT
APPEARS ON THE FUND'S RECORD.
-----------------------------------------------------------------------------
Fund Name __________________ Account Number _________________
Owner Name _________________ Social Security or Taxpayer ID
Street Address _____________ Number _________________________
Resident City, State, Zip Code __________
of [_] U.S. [_] Other ____ [_] Check here if this is a change of address
-----------------------------------------------------------------------------
DISTRIBUTION OPTIONS (DIVIDENDS AND CAPITAL GAINS WILL BE REINVESTED
UNLESS OTHERWISE INDICATED)
-----------------------------------------------------------------------------
A. CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend
distributions will be reinvested in additional shares unless appropriate
boxes below are checked:
All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash
B. PAYMENT ORDER: Complete only if distribution checks are to be payable
to another party. Make distribution checks payable to:
Name of Your Bank ______________
Name _______________________ Bank Account Number ____________
Address ____________________ Address of Bank ________________
City, State, Zip Code ________________________________________
C. DISTRIBUTIONS REINVESTED-CROSS FUNDS: Permits all distributions from
one Fund to be automatically reinvested into another identically-
registered Excelsior Fund. (NOTE: You may NOT open a new Fund account with
this option.) Transfer all distributions earned:
From: ______________________ Account No. ____________________
(Fund)
To: ________________________ Account No. ____________________
(Fund)
-----------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN [_] YES [_] NO
-----------------------------------------------------------------------------
I/We hereby authorize CGFSC to debit my/our personal checking account on
the designated dates in order to purchase shares in the Fund indicated at
the top of this application at the applicable public offering price
determined on that day.
[_] Monthly on the 1st day[_] Monthly on the 15th day[_] Monthly on both
the 1st and 15th days
Amount of each debit (minimum $50 per Fund) $ ________________________
NOTE: A Bank Authorization Form (below) and a voided personal check must
accompany the Automatic Investment Plan application.
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
-----------------------------------------------------------------------------
EXCELSIOR FUNDS
CLIENT SERVICES AUTOMATIC INVESTMENT PLAN
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
BANK AUTHORIZATION
-----------------------------------------------------------------------------
-------------------- ----------------------------------------
Bank Name Bank Address Bank Account Number
I/We authorize you, the above named bank, to debit my/our
account for amounts drawn by CGFSC, acting as my agent for
the purchase of Fund shares. I/We agree that your rights in
respect to each withdrawal shall be the same as if it were a
check drawn upon you and signed by me/us. This authority
shall remain in effect until revoked in writing and received
by you. I/We agree that you shall incur no liability when
honoring debits, except a loss due to payments drawn against
insufficient funds. I/We further agree that you will incur no
liability to me if you dishonor any such withdrawal. This
will be so even though such dishonor results in the
cancellation of that purchase.
---------------------------- --------------------------------
Account Holder's Name Joint Account Holder's Name
X ________________ ________ X __________________ ___________
Signature Date Signature Date
<PAGE>
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
- --------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN [_] YES [_] NO NOT AVAILABLE FOR IRA'S
- --------------------------------------------------------------------------------
AVAILABLE TO SHAREHOLDERS WITH ACCOUNT BALANCES OF $10,000 OR
MORE.
I/We hereby authorize CGFSC to redeem the necessary number of
shares from my/our Excelsior Fund Account on the designated
dates in order to make the following periodic payments:
[_] Monthly on the 24th day
[_] Quarterly on the 24th day of January, April, July and October
[_] Other ____________________
(This request for participation in the Plan must be received
by the 18th day of the month in which you wish withdrawals to
begin.)
Amount of each check ($100 minimum)
$
Please make Recipient ________________________________
check payable Street Address ___________________________
to: (To be City, State, Zip Code ____________________
completed only
if redemption
proceeds to be
paid to other
than account
holder of record
or mailed to
address other
than address of
record)
NOTE: If recipient of checks is not the registered
shareholder, signature(s) below must be guaranteed. A
corporation, trust or partnership must also submit a
"Corporate Resolution" (or "Certification of Partnership")
indicating the names and titles of officers authorized to act
on its behalf.
- --------------------------------------------------------------------------------
AGREEMENT AND SIGNATURES
- --------------------------------------------------------------------------------
The investor(s) certifies and agrees that the certifications,
authorizations, directions and restrictions contained herein
will continue until CGFSC receives written notice of any
change or revocation. Any change in these instructions must
be in writing with all signatures guaranteed (if applicable).
Date ______________________
X X
------------------------------- -----------------------------
Signature Signature
------------------------------- -----------------------------
Signature Guarantee* Signature Guarantee*
(if applicable) (if applicable)
X X
------------------------------- -----------------------------
Signature Signature
------------------------------- -----------------------------
Signature Guarantee* Signature Guarantee*
(if applicable) (if applicable)
*ELIGIBLE GUARANTORS: An Eligible Guarantor institution is a
bank, trust company, broker, dealer, municipal or government
securities broker or dealer, credit union, national
securities exchange, registered securities association,
clearing agency or savings association, provided that such
institution is a participant in STAMP, the Securities
Transfer Agents Medallion Program.
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY........................................................... 2
FINANCIAL HIGHLIGHTS...................................................... 4
INVESTMENT OBJECTIVES AND POLICIES........................................ 8
Money Fund............................................................... 8
Government Money Fund.................................................... 8
Treasury Money Fund...................................................... 8
Tax-Exempt Money Fund.................................................... 8
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION.................... 9
Government Obligations................................................... 9
Money Market Instruments................................................. 10
Variable and Floating Rate Instruments................................... 10
Quality of Investments................................................... 11
Repurchase Agreements.................................................... 11
Securities Lending....................................................... 11
Investment Company Securities............................................ 11
Types of Municipal Securities............................................ 12
When-Issued and Forward Transactions and Stand-by Commitments............ 13
Illiquid Securities...................................................... 13
Diversification Requirements............................................. 13
INVESTMENT LIMITATIONS.................................................... 13
PRICING OF SHARES......................................................... 14
HOW TO PURCHASE AND REDEEM SHARES......................................... 15
Distributor.............................................................. 15
Purchase of Shares....................................................... 15
Purchase Procedures...................................................... 15
Redemption Procedures.................................................... 16
Effective Time of Purchases and Redemptions.............................. 19
INVESTOR PROGRAMS......................................................... 19
Exchange Privilege....................................................... 19
Systematic Withdrawal Plan............................................... 21
Retirement Plans......................................................... 21
Automatic Investment Program............................................. 22
DIVIDENDS AND DISTRIBUTIONS............................................... 22
TAXES..................................................................... 22
Federal.................................................................. 22
State and Local.......................................................... 23
Miscellaneous............................................................ 24
MANAGEMENT OF THE FUNDS................................................... 24
Investment Adviser....................................................... 24
Administrators........................................................... 24
Service Organizations.................................................... 25
Banking Laws............................................................. 25
DESCRIPTION OF CAPITAL STOCK.............................................. 26
CUSTODIAN AND TRANSFER AGENT.............................................. 26
YIELD INFORMATION......................................................... 26
MISCELLANEOUS............................................................. 27
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION.................................. 28
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' STATEMENT OF ADDI-
TIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OF-
FERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REP-
RESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANIES
OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
COMPANIES OR BY THEIR DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
USTMMP896
[LOGO OF EXCELSIOR
F U N D S I N C .
TAX-EXEMPT FUNDS, INC.]
MONEY FUND
GOVERNMENT MONEY FUND
TREASURY MONEY FUND
TAX-EXEMPT MONEY FUND
Prospectus
August 1, 1996
<PAGE>
[LOGO OF EXCELSIOR
FUNDS INC.]
A Management Investment Company
- -------------------------------------------------------------------------------
Equity Funds For initial purchase information, current
prices, performance information and ex-
isting account information, call (800)
73 Tremont Street 446-1012.
Boston, MA 02108-3913 (From overseas, call (617) 557-8280.)
- -------------------------------------------------------------------------------
This Prospectus describes a series of shares ("Shares") offered by several
separate portfolios offered to investors by Excelsior Funds, Inc. ("Excelsior
Fund") (formerly UST Master Funds, Inc.), an open-end, management investment
company. Excelsior Fund also issues an additional series of shares in the
portfolios ("Trust Shares") which are offered under a separate prospectus.
Each portfolio (individually, a "Fund" and collectively, the "Funds") has its
own investment objective and policies as follows:
EQUITY FUND seeks long-term capital appreciation by investing in companies
believed by the Investment Adviser to represent good long-term values not cur-
rently recognized in the market prices of their securities.
AGING OF AMERICA FUND seeks long-term capital appreciation by investing in
companies which the Investment Adviser believes will benefit from the changes
occurring in the demographic structure of the U.S. population, particularly
its growing population of individuals over the age of 40.
COMMUNICATION AND ENTERTAINMENT FUND seeks long-term capital appreciation by
investing in companies which the Investment Adviser believes will benefit from
the technological and international transformation of the communications and
entertainment industries, particularly the convergence of information, commu-
nication and entertainment media.
BUSINESS AND INDUSTRIAL RESTRUCTURING FUND seeks long-term capital apprecia-
tion by investing in companies which the Investment Adviser believes will ben-
efit from their restructuring or redeployment of assets and operations in or-
der to become more competitive or profitable.
GLOBAL COMPETITORS FUND seeks long-term capital appreciation by investing
primarily in U.S.-based companies which the Investment Adviser believes will
benefit from their position as effective and strong competitors on a global
basis.
EARLY LIFE CYCLE FUND seeks long-term capital appreciation by investing in
smaller companies in the earlier stages of their development or larger or more
mature companies engaged in new and higher growth potential operations.
Each of the Funds is sponsored and distributed by Edgewood Services, Inc. and
advised by United States Trust Company of New York (the "Investment Adviser"
or "U.S. Trust").
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated August 1, 1996 and containing additional information about
the Funds has been filed with the Securities and Exchange Commission. The cur-
rent Statement of Additional Information is available to investors without
charge by writing to Excelsior Fund at its address shown above or by calling
(800) 446-1012. The Statement of Additional Information, as it may be supple-
mented from time to time, is incorporated by reference in its entirety into
this Prospectus.
SHARES IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR EN-
DORSED BY, UNITED STATES TRUST COMPANY OF NEW YORK, ITS PARENT OR AFFILIATES
AND THE SHARES ARE NOT FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR
OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE COR-
PORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
August 1, 1996
<PAGE>
PROSPECTUS SUMMARY
EXCELSIOR FUNDS, INC. is an investment company offering various diversified
investment portfolios with differing objectives and policies. Founded in 1984,
Excelsior Fund currently offers 20 Funds with combined assets of approximately
$2.4 billion. See "Description of Capital Stock."
INVESTMENT ADVISER: United States Trust Company of New York ("U.S. Trust")
serves as the Funds' investment adviser. U.S. Trust offers a variety of spe-
cialized financial and fiduciary services to high-net worth individuals, in-
stitutions and corporations. Excelsior Fund offers investors access to U.S.
Trust's services. See "Management of the Funds--Investment Adviser."
INVESTMENT OBJECTIVES AND POLICIES: Generally, each Fund is a diversified
investment portfolio which invests in equity securities. The Funds' investment
objectives and policies are summarized on the cover and explained in greater
detail later in this Prospectus. See "Investment Objectives and Policies,"
"Portfolio Instruments and Other Investment Information," and "Investment Lim-
itations."
HOW TO INVEST: The Funds' Shares are offered at their public offering price,
i.e., their net asset value plus a sales load which is subject to substantial
reductions for large purchases and programs for accumulation. The sales load
is not applicable to investors making their investments through a variety of
institutions, such as U.S. Trust, other banks and trust companies. See "How to
Purchase and Redeem Shares."
The minimum to start an account is $500 per Fund, with a minimum of $50 per
Fund for subsequent investments. The easiest way to invest is to complete the
account application which accompanies this Prospectus and to send it with a
check to the address noted on the application. Investors may also invest by
wire and through investment dealers or institutional investors with appropri-
ate sales agreements with Excelsior Fund. See "How to Purchase and Redeem
Shares."
HOW TO REDEEM: Redemptions may be requested directly from Excelsior Fund by
mail, wire or telephone. Investors investing through another institution
should request redemptions through their Shareholder Organization. See "How to
Purchase and Redeem Shares."
INVESTMENT RISKS AND CHARACTERISTICS: Generally, each Fund is subject to
market and industry risk. Market risk is the possibility that stock prices
will decline over short or even extended periods. The stock markets tend to be
cyclical, with periods of generally rising prices and periods of generally de-
clining prices. These cycles will affect the values of each Fund. Because the
Funds may invest in securities of foreign issuers, they are subject to the
risks of fluctuations of the value of foreign currency relative to the U.S.
dollar and other risks associated with such investments. Although each Fund
generally seeks to invest for the long term, each Fund may engage in short-
term trading of portfolio securities. A high rate of portfolio turnover may
involve correspondingly greater transaction costs which must be borne directly
by a Fund and ultimately by its shareholders. Investment in the Funds should
not be considered a complete investment program. See "Investment Objectives
and Policies."
2
<PAGE>
EXPENSE SUMMARY
The following table summarizes the expenses borne by the Shares offered under
this Prospectus.
<TABLE>
<CAPTION>
BUSINESS
AGING OF COMMUNICATION AND INDUSTRIAL GLOBAL
EQUITY AMERICA AND ENTERTAINMENT RESTRUCTURING COMPETITORS EARLY LIFE
FUND FUND FUND FUND FUND CYCLE FUND
------ -------- ----------------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Load (as a
percentage of offering
price)................. 4.50% 4.50% 4.50% 4.50% 4.50% 4.50%
Sales Load on Reinvested
Dividends.............. None None None None None None
Deferred Sales Load..... None None None None None None
Redemption Fees/1/ ..... None None None None None None
Exchange Fees........... None None None None None None
ANNUAL FUND OPERATING
EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Advisory Fees (after fee
waivers)/2/ ........... .68% .56% .55% .56% .56% .52%
12b-1 Fees.............. None None None None None None
Other Operating Expenses
Administrative Servic-
ing Fee/2/............ .07% .04% .05% .04% .04% .08%
Other Expenses/2/ (af-
ter fee waivers)...... .30% .33% .32% .31% .29% .30%
----- ----- ----- ----- ----- -----
Total Operating Expenses
(after fee waivers)/2/
....................... 1.05% .93% .92% .91% .89% .90%
===== ===== ===== ===== ===== =====
</TABLE>
- -------
1. The Fund's transfer agent imposes a direct $8.00 charge on each wire redemp-
tion by noninstitutional (i.e. individual) investors which is not reflected
in the expense ratios presented herein. Shareholder organizations may charge
their customers transaction fees in connection with redemptions. See "Re-
demption Procedures."
2. The Investment Adviser and Administrators may, from time to time, voluntar-
ily waive part of their respective fees, which waivers may be terminated at
any time. Until further notice, the Investment Adviser and/or Administrators
intend to voluntarily waive fees in an amount equal to the Administrative
Servicing Fee; and to further waive fees and reimburse expenses to the ex-
tent necessary for Shares of each of the Aging of America, Communication and
Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds (collectively, the "Theme Funds"), respectively, to
maintain an annual expense ratio of not more than .99%. Without such fee
waivers, "Advisory Fees" would be .75%, .60%, .60%, .60%, .60% and .60%, and
"Total Operating Expenses" would be 1.12%, 0.97%, 0.97%, 0.95%, 0.93% and
0.98% for the Equity, Aging of America, Communication and Entertainment,
Business and Industrial Restructuring, Global Competitors and Early Life Cy-
cle Funds, respectively.
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual returns and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity Fund..................................... $55 $77 $100 $167
Aging of America Fund........................... 54 73 94 154
Communication and Entertainment Fund............ 54 73 94 153
Business and Industrial Restructuring Fund...... 54 73 93 152
Global Competitors Fund......................... 54 72 92 150
Early Life Cycle Fund........................... 54 72 93 151
</TABLE>
3
<PAGE>
The foregoing expense summary and example (based on the maximum sales load
payable on the Shares) are intended to assist investors in understanding the
costs and expenses that an investor in Shares of the Funds will bear directly
or indirectly. The expense summary sets forth advisory and other expenses pay-
able with respect to Shares of the Funds for the fiscal year ended March 31,
1996. For more complete descriptions of the Funds' operating expenses, see
"Management of the Funds" and "Description of Capital Stock" in this Prospectus
and the financial statements and notes incorporated by reference in the State-
ment of Additional Information.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES AND RATE OF RETURN MAY BE
GREATER OR LOWER THAN THOSE SHOWN IN THE EXPENSE SUMMARY AND EXAMPLE.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The Funds offer two separate series of shares, Trust Shares and shares of an-
other series offered under this Prospectus. Trust Shares and the Shares offered
by this Prospectus represent equal pro rata interests in each Fund, except that
Trust Shares bear the additional expense of distribution fees. See "Description
of Capital Stock."
The following tables include selected data for a Share outstanding throughout
each period and other performance information derived from the financial state-
ments included in Excelsior Fund's Annual Report to Shareholders for the year
ended March 31, 1996 (the "Financial Statements"). The information contained in
the Financial Highlights for each period has been audited by Ernst & Young LLP,
Excelsior Fund's independent auditors. The following tables should be read in
conjunction with the Financial Statements and notes thereto. More information
about the performance of each Fund is also contained in the Annual Report to
Shareholders which may be obtained from Excelsior Fund without charge by call-
ing the number on the front cover of this Prospectus.
EQUITY FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- ------ ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 21.40 $ 19.17 $ 18.77 $ 16.28 $ 14.13 $13.87 $ 13.22 $ 11.32 $ 13.56 $ 12.35
------- ------- ------- ------- ------- ------ ------- ------- --------- -------
Income From Investment
Operations
Net Investment Income.. 0.12 0.07 0.05 0.08 0.13 0.28 0.34 0.19 0.15 0.18
Net Gains or (Losses)
on Securities (both
realized and
unrealized)........... 5.21 2.67 1.16 3.01 2.23 0.39 1.26 1.88 (1.63) 1.86
------- ------- ------- ------- ------- ------ ------- ------- --------- -------
Total From Investment
Operations............ 5.33 2.74 1.21 3.09 2.36 0.67 1.60 2.07 (1.48) 2.04
------- ------- ------- ------- ------- ------ ------- ------- --------- -------
Less Distributions
Dividends From Net
Investment Income..... (0.11) (0.04) (0.08) (0.09) (0.21) (0.23) (0.34) (0.17) (0.14) (0.18)
Dividends in Excess of
Net Investment Income. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Gain on
Investments and
Options............... (2.19) (0.47) (0.39) (0.51) 0.00 (0.18) (0.61) 0.00 (0.62) (0.65)
Distributions in Excess
of Net Realized Gain
on Investments and
Options............... 0.00 0.00 (0.34) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------- ------ ------- ------- --------- -------
Total Distributions.... (2.30) (0.51) (0.81) (0.60) (0.21) (0.41) (0.95) (0.17) (0.76) (0.83)
------- ------- ------- ------- ------- ------ ------- ------- --------- -------
Net Asset Value, End of
Period................. $ 24.43 $ 21.40 $ 19.17 $ 18.77 $ 16.28 $14.13 $ 13.87 $ 13.22 $ 11.32 $ 13.56
======= ======= ======= ======= ======= ====== ======= ======= ========= =======
Total Return/1/ ........ 26.45% 14.65% 6.54% 19.26% 16.87% 5.11% 11.98% 18.52% (11.24)% 17.61%
Ratios/Supplemental Data
Net Assets, End of
Period
(in millions)......... $188.57 $137.42 $122.26 $106.14 $ 71.62 $29.87 $ 25.98 $ 17.61 $ 13.58 $ 13.40
Ratio of Net Operating
Expenses to Average
Net Assets............ 1.05% 1.05% 1.14% 1.08% 1.15% 1.23% 1.22% 1.16% 1.16% 1.21%
Ratio of Gross
Operating Expenses to
Average Net Assets/2/. 1.12% 1.08% 1.14% 1.08% 1.15% 1.23% 1.22% 1.16% 1.16% 1.30%
Ratio of Net Investment
Income to Average Net
Assets................ 0.55% 0.36% 0.25% 0.51% 0.87% 2.21% 2.45% 1.62% 1.26% 1.53%
Portfolio Turnover
Rate.................. 27.0% 23.0% 17.0% 24.0% 20.0% 41.0% 53.0% 46.0% 67.0% 86.0%
</TABLE>
- -------
NOTES:
1. Total return data does not reflect the sales load payable on purchases of
Shares.
2. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
5
<PAGE>
AGING OF AMERICA FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------- PERIOD ENDED
1996 1995 1994 MARCH 31, 1993/1/
------ ------ ------ -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period. $ 7.84 $ 6.99 $ 7.01 $7.00
------ ------ ------ -----
Income From Investment Operations
Net Investment Income.............. 0.05 0.04 0.03 0.01
Net Gains or (Losses) on Securities
(both realized and unrealized).... 1.97 0.85 (0.02) 0.00
------ ------ ------ -----
Total From Investment Operations... 2.02 0.89 0.01 0.01
------ ------ ------ -----
Less Distributions
Dividends From Net Investment
Income............................ (0.05) (0.04) (0.03) 0.00
Dividends in Excess of Net
Investment Income................. 0.00 0.00 0.00 0.00
Distributions From Net Realized
Gain on Investments and Options... 0.00 0.00 0.00 0.00
Distributions in Excess of Net
Realized Gain on Investments and
Options........................... 0.00 0.00 0.00 0.00
------ ------ ------ -----
Total Distributions................ (0.05) (0.04) (0.03) 0.00
------ ------ ------ -----
Net Asset Value, End of Period....... $ 9.81 $ 7.84 $ 6.99 $7.01
====== ====== ====== =====
Total Return/2/...................... 25.80% 12.80% 0.13% 0.14%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)......................... $44.79 $22.17 $10.58 $2.39
Ratio of Net Operating Expenses to
Average Net Assets................ 0.93% 0.99% 0.99% 0.99%/3/
Ratio of Gross Operating Expenses
to Average
Net Assets/4/..................... 0.97% 1.26% 1.82% 3.87%/3/
Ratio of Net Investment Income to
Average Net Assets................ 0.54% 0.63% 0.59% 0.77%/3/
Portfolio Turnover Rate............ 34.0% 14.0% 24.0% 14.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
6
<PAGE>
COMMUNICATION AND ENTERTAINMENT FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------- PERIOD ENDED
1996 1995 1994 MARCH 31, 1993/1/
------ ------ ------ -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period. $ 9.64 $ 8.75 $ 7.61 $7.00
------ ------ ------ -----
Income From Investment Operations
Net Investment Income.............. 0.03 0.04 0.02 0.01
Net Gains or (Losses) on Securities
(both realized and unrealized).... 1.30 1.06 1.52 0.60
------ ------ ------ -----
Total From Investment Operations... 1.33 1.10 1.54 0.61
------ ------ ------ -----
Less Distributions
Dividends From Net Investment
Income............................ (0.03) (0.04) (0.03) 0.00
Dividends in Excess of Net
Investment Income................. 0.00 0.00 0.00 0.00
Distributions From Net Realized
Gain on Investments and Options... (0.62) (0.17) (0.37) 0.00
Distributions in Excess of Net
Realized Gain on Investments and
Options........................... 0.00 0.00 0.00 0.00
------ ------ ------ -----
Total Distributions................ (0.65) (0.21) (0.40) 0.00
------ ------ ------ -----
Net Asset Value, End of Period....... $10.32 $ 9.64 $ 8.75 $7.61
====== ====== ====== =====
Total Return/2/...................... 13.48% 12.87% 20.07% 8.71%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)......................... $46.95 $29.91 $21.02 $5.79
Ratio of Net Operating Expenses to
Average Net Assets................ 0.92% 0.98% 0.98% 0.99%/3/
Ratio of Gross Operating Expenses
to Average Net Assets/4/.......... 0.97% 1.06% 1.16% 2.20%/3/
Ratio of Net Investment Income to
Average Net Assets................ 0.28% 0.46% 0.29% 1.06%/3/
Portfolio Turnover Rate............ 65.0% 56.0% 60.0% 25.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
4. Expenses ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
7
<PAGE>
BUSINESS AND INDUSTRIAL RESTRUCTURING FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------- PERIOD ENDED
1996 1995 1994 MARCH 31, 1993/1/
------ ------ ------ -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period. $10.55 $ 9.64 $ 7.71 $ 7.00
------ ------ ------ ------
Income From Investment Operations
Net Investment Income.............. 0.10 0.07 0.06 0.02
Net Gains or (Losses) on Securities
(both realized and unrealized).... 3.71 1.02 1.96 0.69
------ ------ ------ ------
Total From Investment Operations... 3.81 1.09 2.02 0.71
------ ------ ------ ------
Less Distributions
Dividends From Net Investment
Income............................ (0.09) (0.06) (0.07) 0.00
Dividends in Excess of Net
Investment Income................. 0.00 0.00 0.00 0.00
Distributions From Net Realized
Gain on Investments and Options... (0.24) (0.12) (0.02) 0.00
Distributions in Excess of Net
Realized Gain on Investments and
Options........................... 0.00 0.00 0.00 0.00
------ ------ ------ ------
Total Distributions................ (0.33) (0.18) (0.09) 0.00
------ ------ ------ ------
Net Asset Value, End of Period....... $14.03 $10.55 $ 9.64 $ 7.71
====== ====== ====== ======
Total Return/2/...................... 36.48% 11.49% 26.40% 10.14%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)......................... $74.05 $30.18 $14.44 $ 1.94
Ratio of Net Operating Expenses to
Average Net Assets................ 0.91% 0.98% 0.99% 0.99%/3/
Ratio of Gross Operating Expenses
to Average Net Assets/4/.......... 0.95% 1.08% 1.73% 5.85%/3/
Ratio of Net Investment Income to
Average Net Assets................ 0.88% 0.83% 0.77% 2.48%/3/
Portfolio Turnover Rate............ 56.0% 82.0% 75.0% 9.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
8
<PAGE>
GLOBAL COMPETITORS FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------- PERIOD ENDED
1996 1995 1994 MARCH 31, 1993/1/
------ ------ ------ -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period. $8.59 $7.69 $ 7.28 $7.00
------ ------ ------ -----
Income From Investment Operations
Net Investment Income.............. 0.07 0.07 0.05 0.01
Net Gains or (Losses) on Securities
(both realized and unrealized).... 2.27 0.90 0.41 0.27
------ ------ ------ -----
Total From Investment Operations... 2.34 0.97 0.46 0.28
------ ------ ------ -----
Less Distributions
Dividends from Net Investment
Income............................ (0.06) (0.07) (0.05) 0.00
Dividends in Excess of Net
Investment Income................. 0.00 0.00 0.00 0.00
Distributions from Net Realized
Gain on Investments and Options... (0.02) 0.00 0.00 0.00
Distributions in Excess of Net
Realized Gain on Investments and
Options........................... (0.02) 0.00 0.00 0.00
------ ------ ------ -----
Total Distributions................ (0.10) (0.07) (0.05) 0.00
------ ------ ------ -----
Net Asset Value, End of Period....... $10.83 $ 8.59 $ 7.69 $7.28
====== ====== ====== =====
Total Return/2/...................... 27.39% 12.73% 6.29% 4.00%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)......................... $71.30 $25.50 $10.06 $2.04
Ratio of Net Operating Expenses to
Average Net Assets................ 0.89% 0.97% 0.99% 0.99%/3/
Ratio of Gross Operating Expenses
to Average Net Assets/4/.......... 0.93% 1.18% 1.72% 3.97%/3/
Ratio of Net Investment Income to
Average Net Assets................ 0.73% 1.04% 0.81% 0.82%/3/
Portfolio Turnover Rate............ 17.0% 29.0% 19.0% 0.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
9
<PAGE>
EARLY LIFE CYCLE FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------- PERIOD ENDED
1996 1995 1994 MARCH 31, 1993/1/
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $ 9.77 $ 8.66 $ 7.40 $7.00
------- ------- ------- -----
Income From Investment Operations
Net Investment Income........... (0.02) (0.02) (0.01) 0.00
Net Gains or (Losses) on
Securities (both realized and
unrealized).................... 1.72 1.31 1.36 0.40
------- ------- ------- -----
Total From Investment
Operations..................... 1.70 1.29 1.35 0.40
------- ------- ------- -----
Less Distributions
Dividends From Net Investment
Income......................... 0.00 0.00 0.00 0.00
Dividends in Excess of Net
Investment Income.............. 0.00 0.00 0.00 0.00
Distributions From Net Realized
Gain on Investments and
Options........................ (0.69) (0.18) (0.09) 0.00
Distributions in Excess of Net
Realized Gain on Investments
and Options.................... 0.00 0.00 0.00 0.00
------- ------- ------- -----
Total Distributions............. (0.69) (0.18) (0.09) 0.00
------- ------- ------- -----
Net Asset Value, End of Period.... $ 10.78 $ 9.77 $ 8.66 $7.40
======= ======= ======= =====
Total Return/2/................... 18.29% 15.16% 18.27% 5.71%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)...................... $ 78.06 $ 47.78 $ 24.95 $5.51
Ratio of Net Operating Expenses
to Average Net Assets.......... 0.90% 0.96% 0.95% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets/4/...................... 0.98% 1.04% 1.15% 2.70%/3/
Ratio of Net Investment Income
to Average Net Assets.......... (0.17)% (0.23)% (0.25)% 0.12%/3/
Portfolio Turnover Rate......... 38.0% 42.0% 20.0% 4.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
10
<PAGE>
U.S. TRUST'S INVESTMENT PHILOSOPHY AND STRATEGIES
U.S. Trust offers a variety of specialized fiduciary and financial services
to high-net worth individuals, institutions and corporations. As one of the
largest institutions of its type, U.S. Trust prides itself in offering an at-
tentive and high level of service to each of its clients. The Excelsior Funds
offer individual investors access to U.S. Trust's services.
Philosophy. In managing investments for the Funds, U.S. Trust follows a long-
term investment philosophy which generally does not change with the short-term
variability of financial markets or fundamental conditions. U.S. Trust's ap-
proach begins with the conviction that all worthwhile investments are grounded
in value. The Investment Adviser believes that an investor can identify funda-
mental values that eventually should be reflected in market prices. U.S. Trust
believes that over time, a disciplined search for fundamental value will
achieve better results than attempting to take advantage of short-term price
movements.
Implementation of this long-term value philosophy consists of searching for,
identifying and obtaining the benefits of present or future investment values.
For example, such values may be found in a company's future earnings potential
or in its existing resources and assets. Accordingly, U.S. Trust in managing
investments for the Funds is constantly engaged in assessing, comparing and
judging the worth of companies, particularly in comparison to the price the
markets place on such companies' shares.
Strategies. In order to translate its investment philosophy into more spe-
cific guidance for selection of investments, the Investment Adviser uses three
specific strategies. These strategies, while identified separately, may over-
lap so that more than one may be applied in an investment decision.
U.S. Trust's "PROBLEM/OPPORTUNITY STRATEGY" seeks to identify industries and
companies with the capabilities to provide solutions to or benefit from com-
plex problems such as the changing demo-graphics and aging of the U.S. popula-
tion or the need to enhance industrial productivity. U.S. Trust's second
strategy is a "TRANSACTION VALUE" comparison of a company's real underlying
asset value with the market price of its shares and with the sale prices for
similar assets changing ownership in public market transactions. Differences
between a company's real asset value and the price of its shares often are
corrected over time by restructuring of the assets or by market recognition of
their value. U.S. Trust's third strategy involves identifying "EARLY LIFE CY-
CLE" companies whose products are in their earlier stages of development or
that seek to exploit new markets. Frequently such companies are smaller compa-
nies, but early life cycle companies may also include larger established com-
panies with new products or markets for existing products. The Investment Ad-
viser believes that over time the value of such companies should be recognized
in the market.
Themes. To complete U.S. Trust's investment philosophy, the three portfolio
strategies discussed above are applied in concert with several "longer-term
investment themes" to identify investment opportunities. The Investment Ad-
viser believes these longer-term themes represent strong and inexorable
trends. The Investment Adviser also believes that understanding the instiga-
tion, catalysts and effects of these longer-term trends should help to iden-
tify companies that are beneficiaries of these trends.
INVESTMENT OBJECTIVES AND POLICIES
The Investment Adviser will use its best efforts to achieve the investment
objective of each Fund, although their achievement cannot be assured. The in-
vestment objective of each Fund is "fundamental," meaning that it may not be
changed without a vote of the holders of a majority of the particular Fund's
outstanding shares (as defined under "Miscellaneous"). Except as noted below
in "Investment Limitations,"
11
<PAGE>
the investment policies of each Fund may be changed without a vote of the
holders of a majority of the outstanding shares of such Fund.
EQUITY FUND
The Equity Fund's investment objective is to seek long-term capital apprecia-
tion. The Equity Fund invests in companies which the Investment Adviser
believes have value currently not recognized in the market prices of the com-
panies' securities. The Investment Adviser uses the investment philosophy,
strategies and themes discussed above to identify such investment values and
to diversify the Fund's investments over a variety of industries and types of
companies. See "Investment Policies Common to the Equity Fund and the Theme
Funds" for a discussion of various investment policies applicable to the Eq-
uity Fund.
THEME FUNDS
Five Theme Funds are offered having the common investment objective of long-
term capital appreciation. As noted above, these Theme Funds are based on
themes identified and followed by the Investment Adviser. Each Theme Fund's
key policies are discussed below. Additional policies common to all Theme
Funds are discussed after this section.
AGING OF AMERICA FUND--invests in companies which the Investment Adviser be-
lieves will benefit from the changes occurring in the demographic structure of
the U.S. population, particularly its growing proportion of individuals over
the age of 40. In analyzing companies for this Fund, the Investment Adviser
considers carefully the ongoing changes in the mean and median ages of the
U.S. population and the resulting effects on the lifestyles and day-to-day
economic actions of the population as a whole. Companies currently positioned
to benefit from such changes include health care, pharmaceutical, biotechnol-
ogy and similar health-related firms. In addition, certain clothing, financial
services, entertainment, real estate and housing, food and beverage and other
types of companies may be positioned to benefit from the demographic changes.
Under normal conditions, at least 65% of the Fund's total assets will be in-
vested in companies of the type described in this paragraph.
COMMUNICATION AND ENTERTAINMENT FUND--invests in companies which the Invest-
ment Adviser believes will benefit from the technological and international
transformation of the communications and entertainment industries, particu-
larly the convergence of information, communication and entertainment media.
Such companies may include those engaged in the development, production, sale
and distribution of products or services in the broadcast, radio and televi-
sion, leisure, entertainment, amusement, publishing, telecommunications serv-
ices and equipment, and telephone utilities industries. In analyzing companies
for investment, the Investment Adviser may focus on firms which the Investment
Adviser believes are innovators of or will benefit from the melding of comput-
er, communications and entertainment technologies. Under normal conditions, at
least 65% of the Fund's total assets will be invested in companies of the type
described in this paragraph.
BUSINESS AND INDUSTRIAL RESTRUCTURING FUND--invests in companies which the
Investment Adviser believes will benefit from their restructuring or redeploy-
ment of assets and operations in order to become more competitive or profit-
able. Such companies may include those involved in prospective mergers, con-
solidations, liquidations, spin-offs, financial restructurings and reorganiza-
tions. The business activities of such companies are not limited in any way.
Under normal conditions, at least 65% of the Fund's total assets will be in-
vested in companies of the type described in this paragraph. The Investment
Adviser's focus is to find companies whose restructuring activities offer sig-
nificant value and investment potential. For the past several years, leveraged
buy-outs and mergers have been prominent trends. Currently, a great deal of
value is being created as companies deleverage, recapitalize, and rationalize
their operations in order to increase profitability. There is risk in these
types of investments. For example, should a company be unsuccessful in reduc-
ing its
12
<PAGE>
debt, it may be forced into default on its debt, increasing its debt or bank-
ruptcy.
GLOBAL COMPETITORS FUND--invests primarily in U.S.-based companies which the
Investment Adviser believes will benefit from their position as effective and
strong competitors on a global basis. Such companies are characterized by their
ability to supply something unique or of greater value, or to deliver goods and
services more efficiently or reliably. These companies develop and implement
international marketing strategies for their goods and services. The range of
businesses encompassed by this policy is broad and, by way of example, may in-
clude companies engaged in soft drink production and sales, clothing manufac-
turers, tobacco product producers, precision instrument and aerospace provid-
ers, and a variety of communications systems, biotechnology and high technology
suppliers. While the Fund will invest primarily in U.S.-based companies with
such features, up to 20% of the Fund's assets may be invested in non-U.S.-based
global competitors. The Fund will not engage in currency hedging in an attempt
to anticipate currency fluctuations with respect to any such foreign invest-
ments. Under normal conditions, the Fund will invest in securities of issuers
from at least three countries and at least 65% of the Fund's total assets will
be invested in companies of the type described in this paragraph.
EARLY LIFE CYCLE FUND--invests primarily in smaller companies which are in the
earlier stages of their development or larger or more mature companies engaged
in new and higher growth potential operations. An early life cycle company is
one which is early in its development as a company, yet has demonstrated or is
expected to achieve substantial long-term earnings growth. More mature or larg-
er, established companies may also be positioned for accelerating earnings be-
cause of rejuvenated management, new products, new markets for existing prod-
ucts or structural changes in the economy. In selecting companies for invest-
ment, the Investment Adviser looks for innovative companies whose potential has
not yet been fully recognized by the securities markets. Under normal condi-
tions, at least 65% of the Fund's total assets will be invested in companies
with capitalization of $1 billion or less. The risk and venture oriented nature
of such companies naturally entails greater risk for investors when contrasted
with investing in more established companies.
INVESTMENT POLICIES COMMON TO THE EQUITY FUND AND THE THEME FUNDS
Under normal market and economic conditions, the Equity and each Theme Fund
will invest at least 65% of its total assets in common stock, preferred stock
and securities convertible into common stock. Normally, up to 35% of each such
Fund's total assets may be invested in other securities and instruments includ-
ing, e.g., other investment-grade debt securities, warrants, options, and
futures instruments as described in more detail below. During temporary defen-
sive periods or when the Investment Adviser believes that suitable stocks or
convertible securities are unavailable, each Fund may hold cash or invest some
or all of its assets in U.S. Government securities, high-quality money market
instruments and repurchase agreements collateralized by the foregoing obliga-
tions.
In managing the Equity and Theme Funds, the Investment Adviser seeks to pur-
chase securities having value currently not recognized in the market price of a
security, consistent with the strategies discussed above.
Portfolio holdings will include common stocks of companies having capitaliza-
tions of varying amounts, and all Funds will invest in the securities of high
growth, small companies where the Investment Adviser expects earnings and the
price of the securities to grow at an above-average rate. As discussed above,
the Early Life Cycle Fund emphasizes such companies. Certain securities owned
by the Equity and Theme Funds may be traded only in the over-the-counter market
or on a regional securities exchange, may be listed only in the quotation serv-
ice commonly known as the "pink sheets," and may not be traded every day or in
the volume typical of trading on a national securities exchange. As a result,
there may be a greater fluctuation
13
<PAGE>
in the value of a Fund's Shares, and a Fund may be required, in order to meet
redemptions or for other reasons, to sell these securities at a discount from
market prices, to sell during periods when such disposition is not desirable,
or to make many small sales over a period of time.
The Equity and Theme Funds may invest in the securities of foreign issuers.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored and unsponsored American Depository Receipts ("ADRs"). ADRs repre-
sent receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities of foreign issuers. Investments in
unsponsored ADRs involve additional risk because financial information based
on generally accepted accounting principles ("GAAP") may not be available for
the foreign issuers of the underlying securities. ADRs may not necessarily be
denominated in the same currency as the underlying securities into which they
may be converted.
RISK FACTORS
Each Fund is subject to market risk, interest rate risk and in some cases in-
dustry risk. Market risk is the possibility that stock prices will decline
over short or even extended periods. The stock markets tend to be cyclical,
with periods of generally rising prices and periods of generally declining
prices. These cycles will affect the values of each Fund. In addition, the
prices of bonds and other debt instruments generally fluctuate inversely with
interest rate changes. Factors affecting debt securities will affect all of
the Funds' debt holdings.
Companies in the various communications and entertainment industries encoun-
ter intense competition, short product life cycles and rapidly changing con-
sumer tastes. In addition, companies in the telecommunications and utilities
industries are subject to heavy governmental regulation.
Small companies may have limited product lines, markets, or financial re-
sources, or may be dependent upon a small management group, and their securi-
ties may be subject to more abrupt or erratic market movements than larger,
more established companies, both because their securities typically are traded
in lower volume and because the issuers typically are subject to a greater de-
gree to changes in their earnings and prospects.
All Funds may invest in the securities of foreign issuers. Investments in
foreign securities involve certain risks not ordinarily associated with in-
vestments in domestic securities. Such risks include fluctuations in foreign
exchange rates, future political and economic developments, and the possible
imposition of exchange controls or other foreign governmental laws or restric-
tions. In addition, with respect to certain countries there is the possibility
of expropriation of assets, confiscatory taxation, political or social insta-
bility or diplomatic developments which could adversely affect investments in
those countries. There may be less publicly available information about a for-
eign company than about a U.S. company, and foreign companies may not be sub-
ject to accounting, auditing and financial reporting standards and require-
ments comparable to or as uniform as those of U.S.-based companies. Foreign
securities markets, while growing in volume, have, for the most part, substan-
tially less volume than U.S. markets, and securities of many foreign companies
are less liquid and their prices more volatile than securities of comparable
U.S.-based companies. Transaction costs on foreign securities markets are gen-
erally higher than in the United States. There is generally less government
supervision and regulation of foreign exchanges, brokers and issuers than
there is in the United States and a Fund might have greater difficulty taking
appropriate legal action in a foreign court. Dividends and interest payable on
a Fund's foreign portfolio securities may be subject to foreign withholding
taxes. To the extent such taxes are not offset by credits or deductions al-
lowed to investors under the Federal income tax provisions, they may reduce
the net return to the shareholders.
The Funds should not be considered a complete investment program. In view of
the specialized nature of
14
<PAGE>
their investment activities, investment in the Equity and Theme Funds' shares
may be suitable only for those investors who can invest without concern for
current income and are financially able to assume risk in search of long-term
capital gains.
Securities of companies discussed in this section may be more volatile than
the overall market.
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION
MONEY MARKET INSTRUMENTS
All Funds may invest in "money market instruments," which include, among
other things, bank obligations, commercial paper and corporate bonds with re-
maining maturities of 13 months or less.
Bank obligations include bankers' acceptances, negotiable certificates of de-
posit, and non-negotiable time deposits earning a specified return and issued
by a U.S. bank which is a member of the Federal Reserve System or insured by
the Bank Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC"),
or by a savings and loan association or savings bank which is insured by the
Savings Association Insurance Fund of the FDIC. Bank obligations also include
U.S. dollar-denominated obligations of foreign branches of U.S. banks and ob-
ligations of domestic branches of foreign banks. Investments in bank obliga-
tions of foreign branches of domestic financial institutions or of domestic
branches of foreign banks are limited so that no more than 5% of the value of
a Fund's total assets may be invested in any one branch, and no more than 20%
of a particular Fund's total assets at the time of purchase may be invested in
the aggregate in such obligations (see investment limitation No. 5 below under
"Investment Limitations"). Investments in time deposits are limited to no more
than 5% of the value of a Fund's total assets at the time of purchase.
Investments by the Funds in commercial paper will consist of issues that are
rated "A-2" or better by Standard & Poor's Ratings Group ("S&P") or "Prime-2"
or better by Moody's Investors Service, Inc. ("Moody's"). In addition, each
Fund may acquire unrated commercial paper that is determined by the Investment
Adviser at the time of purchase to be of comparable quality to rated instru-
ments that may be acquired by the particular Fund.
Commercial paper may include variable and floating rate instruments. While
there may be no active secondary market with respect to a particular instru-
ment purchased by a Fund, the Fund may, from time to time as specified in the
instrument, demand payment of the principal of the instrument or may resell
the instrument to a third party. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if
the issuer defaulted on its payment obligation or during periods that the Fund
is not entitled to exercise its demand rights, and the Fund could, for this or
other reasons, suffer a loss with respect to such instrument. Any security
which cannot be disposed of within seven days without taking a reduced price
will be considered an illiquid security subject to the 10% limitation dis-
cussed below under "Investment Limitations."
GOVERNMENT OBLIGATIONS
All Funds may invest in U.S. Government obligations, including U.S. Treasury
Bills and the obligations of Federal Home Loan Banks, Federal Farm Credit
Banks, Federal Land Banks, the Federal Housing Administration, the Farmers
Home Administration, the Export-Import Bank of the United States, the Small
Business Administration, the Government National Mortgage Association, the
Federal National Mortgage Association, the General Services Administration,
the Student Loan Marketing Association, the Central Bank for Cooperatives, the
Federal Home Loan Mortgage Corporation, the Federal Intermediate Credit Banks
and the Maritime Administration.
REPURCHASE AGREEMENTS
In order to effectively manage their cash holdings, the Funds may enter into
repurchase agreements.
15
<PAGE>
Each Fund will enter into repurchase agreements only with financial institu-
tions that are deemed to be creditworthy by the Investment Adviser, pursuant
to guidelines established by Excelsior Fund's Board of Directors. No Fund will
enter into repurchase agreements with the Investment Adviser or any of its af-
filiates. Repurchase agreements with remaining maturities in excess of seven
days will be considered illiquid securities and will be subject to the 10%
limit described in Investment Limitation No. 6 below.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund
at not less than the repurchase price. Default or bankruptcy of the seller
would, however, expose a Fund to possible delay in connection with the dispo-
sition of the underlying securities or loss to the extent that proceeds from a
sale of the underlying securities were less than the repurchase price under
the agreement.
SECURITIES LENDING
To increase return on its portfolio securities, each Fund may lend its port-
folio securities to broker/dealers pursuant to agreements requiring the loans
to be continuously secured by collateral equal at all times in value to at
least the market value of the securities loaned. Collateral for such loans may
include cash, securities of the U.S. Government, its agencies or instrumental-
ities, or an irrevocable letter of credit issued by a bank, or any combination
thereof. Such loans will not be made if, as a result, the aggregate of all
outstanding loans of a Fund exceeds 30% of the value of its total assets.
There may be risks of delay in receiving additional collateral or in recover-
ing the securities loaned or even a loss of rights in the collateral should
the borrower of the securities fail financially. However, loans are made only
to borrowers deemed by the Investment Adviser to be of good standing and when,
in the Investment Adviser's judgment, the income to be earned from the loan
justifies the attendant risks.
OPTIONS
To further increase return on their portfolio securities in accordance with
their respective investment objectives and policies, the Funds may enter into
option transactions as described below.
The Theme Funds may purchase put and call options listed on a national secu-
rities exchange and issued by the Options Clearing Corporation in an amount
not exceeding 5% of a Fund's net assets, as described further in the Statement
of Additional Information. Such options may relate to particular securities or
to various stock or bond indices. Purchasing options is a specialized invest-
ment technique which entails a substantial risk of a complete loss of the
amounts paid as premiums to the writer of the options.
In addition, each Fund may engage in writing covered call options (options on
securities owned by the particular Fund) and enter into closing purchase
transactions with respect to such options. Such options must be listed on a
national securities exchange and issued by the Options Clearing Corporation.
The aggregate value of the securities subject to options written by each Fund
may not exceed 25% of the value of its net assets. By writing a covered call
option, a Fund forgoes the opportunity to profit from an increase in the mar-
ket price of the underlying security above the exercise price except insofar
as the premium represents such a profit, and it will not be able to sell the
underlying security until the option expires or is exercised or the Fund ef-
fects a closing purchase transaction by purchasing an option of the same se-
ries. The use of covered call options is not a primary investment technique of
the Funds and such options will normally be written on underlying securities
as to which the Investment Adviser does not anticipate significant short-term
capital appreciation. Additional information on option practices, including
particular risks thereof, is provided in the Funds' Statement of Additional
Information.
FUTURES CONTRACTS
The Theme Funds may also enter into interest rate futures contracts, other
types of financial futures con-
16
<PAGE>
tracts and related futures options, as well as any index or foreign market
futures which are available on recognized exchanges or in other established
financial markets.
The Theme Funds will not engage in futures transactions for speculation, but
only as a hedge against changes in market values of securities which a Fund
holds or intends to purchase. The Theme Funds will engage in futures transac-
tions only to the extent permitted by the Commodity Futures Trading Commission
("CFTC") and the Securities and Exchange Commission ("SEC"). When investing in
futures contracts, the Funds must satisfy certain asset segregation require-
ments to ensure that the use of futures is unleveraged. When a Fund takes a
long position in a futures contract, it must maintain a segregated account
containing cash and/or certain liquid assets equal to the purchase price of
the contract, less any margin or deposit. When a Fund takes a short position
in a futures contract, the Fund must maintain a segregated account containing
cash and/or certain liquid assets in an amount equal to the market value of
the securities underlying such contract (less any margin or deposit), which
amount must be at least equal to the market price at which the short position
was established. Asset segregation requirements are not applicable when a Fund
"covers" an options or futures position generally by entering into an offset-
ting position. Each Fund will limit its hedging transactions in futures con-
tracts and related options so that, immediately after any such transaction,
the aggregate initial margin that is required to be posted by the Fund under
the rules of the exchange on which the futures contract (or futures option) is
traded, plus any premiums paid by the Fund on its open futures options posi-
tions, does not exceed 5% of the Fund's total assets, after taking into ac-
count any unrealized profits and unrealized losses on the Fund's open con-
tracts (and excluding the amount that a futures option is "in-the-money" at
the time of purchase). An option to buy a futures contract is "in-the-money"
if the then-current purchase price of the underlying futures contract exceeds
the exercise or strike price; an option to sell a futures contract is "in-the-
money" if the exercise or strike price exceeds the then-current purchase price
of the contract that is the subject of the option. In addition, the use of
futures contracts is further restricted to the extent that no more than 10% of
a Fund's total assets may be hedged.
Transactions in futures as a hedging device may subject a Fund to a number of
risks. Successful use of futures by a Fund is subject to the ability of the
Investment Adviser to correctly anticipate movements in the direction of the
market. In addition, there may be an imperfect correlation, or no correlation
at all, between movements in the price of the futures contracts (or options)
and movements in the price of the instruments being hedged. Further, there is
no assurance that a liquid market will exist for any particular futures con-
tract (or option) at any particular time. Consequently, a Fund may realize a
loss on a futures transaction that is not offset by a favorable movement in
the price of securities which it holds or intends to purchase or may be unable
to close a futures position in the event of adverse price movements.
INVESTMENT COMPANY SECURITIES
In connection with the management of its daily cash positions, each Fund may
invest in securities issued by other investment companies which invest in
high-quality, short-term debt securities and which determine their net asset
value per share based on the amortized cost or penny-rounding method. In addi-
tion to the advisory fees and other expenses a Fund bears directly in connec-
tion with its own operations, as a shareholder of another investment company,
a Fund would bear its pro rata portion of the other investment company's advi-
sory fees and other expenses. As such, the Fund's shareholders would indi-
rectly bear the expenses of the Fund and the other investment company, some or
all of which would be duplicative. Such securities will be acquired by each
Fund within the limits prescribed by the Investment Company Act of 1940 (the
"1940 Act") which include, subject to certain exceptions, a prohibition
against a Fund investing more than 10% of the value of its total assets in
such securities.
17
<PAGE>
WHEN-ISSUED AND FORWARD TRANSACTIONS
Each Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. These transactions
involve a commitment by a Fund to purchase or sell particular securities with
payment and delivery taking place in the future, beyond the normal settlement
date, at a stated price and yield. Securities purchased on a "forward commit-
ment" or "when-issued" basis are recorded as an asset and are subject to
changes in value based upon changes in the general level of interest rates. It
is expected that forward commitments and "when-issued" purchases will not ex-
ceed 25% of the value of a Fund's total assets absent unusual market condi-
tions, and that the length of such commitments will not exceed 45 days. The
Funds do not intend to engage in "when-issued" purchases and forward commit-
ments for speculative purposes, but only in furtherance of their investment ob-
jectives.
ILLIQUID SECURITIES
No Fund will knowingly invest more than 10% of the value of its net assets in
securities that are illiquid. Each Fund may purchase securities which are not
registered under the Securities Act of 1933 (the "Act") but which can be sold
to "qualified institutional buyers" in accordance with Rule 144A under the Act.
Any such security will not be considered illiquid so long as it is determined
by the Investment Adviser, acting under guidelines approved and monitored by
the Board, that an adequate trading market exists for that security. This in-
vestment practice could have the effect of increasing the level of illiquidity
in a Fund during any period that qualified institutional buyers become uninter-
ested in purchasing these restricted securities.
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment immediately after its acquisition if
the Investment Adviser believes that such a disposition is consistent with the
investment objective of the particular Fund. Portfolio investments may be sold
for a variety of reasons, such as a more favorable investment opportunity or
other circumstances bearing on the desirability of continuing to hold such in-
vestments. A high rate of portfolio turnover may involve correspondingly
greater brokerage commission expenses and other transaction costs, which must
be borne directly by a Fund and ultimately by its shareholders. High portfolio
turnover may result in the realization of substantial net capital gains. To the
extent net short-term capital gains are realized, any distributions resulting
from such gains are considered ordinary income for Federal income tax purposes.
(See "Financial Highlights" and "Taxes--Federal.")
INVESTMENT LIMITATIONS
The investment limitations enumerated below are matters of fundamental policy
and may not be changed with respect to a Fund without the vote of the holders
of a majority of a Fund's outstanding shares (as defined under "Miscellane-
ous").
A Fund may not:
1. Purchase securities of any one issuer, other than U.S. Government obliga-
tions, if immediately after such purchase more than 5% of the value of its
total assets would be invested in the securities of such issuer, except that
up to 25% of the value of its total assets may be invested without regard to
this 5% limitation;
2. Borrow money except from banks for temporary purposes, and then in
amounts not in excess of 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any assets except in con-
nection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed and 10% of the value of its total assets at the
time of such borrowing. (This borrowing provision is included solely to fa-
cilitate the orderly sale of portfolio securities to accommodate abnormally
heavy redemption requests and is not for leverage purposes.) A Fund will not
purchase portfolio securities while borrowings in excess of 5% of
18
<PAGE>
its total assets are outstanding. Optioned stock held in escrow is not deemed
to be a pledge; and
3. Make loans, except that (i) each Fund may purchase or hold debt securi-
ties in accordance with its investment objective and policies, and may enter
into repurchase agreements with respect to obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, and (ii) each Fund
may lend portfolio securities in an amount not exceeding 30% of its total as-
sets.
Each Fund may not:
4. Purchase any securities which would cause more than 25% of the value of
its total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry, provided that (a) with respect to the Equity Fund, there is no
limitation with respect to securities issued or guaranteed by the U.S. Gov-
ernment or domestic bank obligations, (b) with respect to each Theme Fund,
there is no limitation with respect to securities issued or guaranteed by the
U.S. Government, and (c) neither all finance companies, as a group, nor all
utility companies, as a group, are considered a single industry for purposes
of this policy.
The Equity Fund may not:
5. Invest in obligations of foreign branches of financial institutions or in
domestic branches of foreign banks, if immediately after such purchase (i)
more than 5% of the value of its total assets would be invested in obliga-
tions of any one foreign branch of the financial institution or domestic
branch of a foreign bank; or (ii) more than 20% of its total assets would be
invested in foreign branches of financial institutions or in domestic
branches of foreign banks; and
6. Knowingly invest more than 10% of the value of its total assets in illiq-
uid securities, including repurchase agreements with remaining maturities in
excess of seven days, restricted securities, and other securities for which
market quotations are not readily available.
* * *
In addition to the investment limitations described above, no Fund may invest
in the securities of any single issuer if, as a result, the Fund holds more
than 10% of the outstanding voting securities of such issuer.
The Theme Funds may not invest in obligations of foreign branches of financial
institutions or in domestic branches of foreign banks if immediately after such
purchase (i) more than 5% of the value of their respective total assets would
be invested in obligations of any one foreign branch of the financial institu-
tion or domestic branch of a foreign bank; or (ii) more than 20% of their re-
spective total assets would be invested in foreign branches of financial insti-
tutions or in domestic branches of foreign banks. The Theme Funds may not know-
ingly invest more than 10% of the value of their respective total assets in il-
liquid securities, including repurchase agreements with remaining maturities in
excess of seven days, restricted securities and other securities for which mar-
ket quotations are not readily available. These investment policies may be
changed by Excelsior Fund's Board of Directors upon reasonable notice to share-
holders.
The Equity Fund will not invest more than 25% of the value of its total assets
in domestic bank obligations.
With respect to all investment policies, if a percentage limitation is satis-
fied at the time of investment, a later increase or decrease in such percentage
resulting from a change in value of a Fund's portfolio securities will not con-
stitute a violation of such limitation.
PRICING OF SHARES
The net asset value of each Fund is determined and the Shares of each Fund are
priced at the close of regular trading hours on the New York Stock Exchange
19
<PAGE>
(the "Exchange"), currently 4:00 p.m. (Eastern Time). Net asset value and
pricing for each Fund are determined on each day the Exchange and the Invest-
ment Adviser are open for trading ("Business Day"). Currently, the holidays
which the Funds observe are New Year's Day, Martin Luther King, Jr. Day, Pres-
idents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus
Day, Veterans Day, Thanksgiving Day and Christmas. A Fund's net asset value
per Share for purposes of pricing sales and redemptions is calculated by di-
viding the value of all securities and other assets allocable to its Shares,
less the liabilities allocable to its Shares, by the number of its outstanding
Shares.
Assets in the Funds which are traded on a recognized domestic stock exchange
are valued at the last sale price on the securities exchange on which such se-
curities are primarily traded or at the last sale price on the national secu-
rities market. Securities traded only on over-the-counter markets are valued
on the basis of closing over-the-counter bid prices. Securities for which
there were no transactions are valued at the average of the most recent bid
and asked prices. An option or futures contract is valued at the last sales
price quoted on the principal exchange or board of trade on which such option
or contract is traded, or in the absence of a sale, the mean between the last
bid and asked prices. Restricted securities, securities for which market quo-
tations are not readily available, and other assets are valued at fair value,
pursuant to guidelines adopted by Excelsior Fund's Board of Directors.
Portfolio securities which are primarily traded on foreign securities ex-
changes are generally valued at the preceding closing values of such securi-
ties on their respective exchanges, except that when an event subsequent to
the time where value was so established is likely to have changed such value,
then the fair value of those securities will be determined by consideration of
other factors under the direction of the Board of Directors. A security which
is listed or traded on more than one exchange is valued at the quotation on
the exchange determined to be the primary market for such security. Invest-
ments in debt securities having a maturity of 60 days or less are valued based
upon the amortized cost method. All other foreign securities are valued at the
last current bid quotation if market quotations are available, or at fair
value as determined in accordance with guidelines adopted by the Board of Di-
rectors. For valuation purposes, quotations of foreign securities in foreign
currency are converted to U.S. dollars equivalent at the prevailing market
rate on the day of conversion. Some of the securities acquired by the Funds
may be traded on foreign exchanges or over-the-counter markets on days which
are not Business Days. In such cases, the net asset value of the Shares may be
significantly affected on days when investors can neither purchase nor redeem
a Fund's Shares. Excelsior Fund's administrators have undertaken to price the
securities in the Funds' portfolios, and may use one or more independent pric-
ing services in connection with this service.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in each Fund are continuously offered for sale by Excelsior Fund's
sponsor and distributor, Edgewood Services, Inc. (the "Distributor"), a whol-
ly-owned subsidiary of Federated Investors. The Distributor is a registered
broker/dealer. Its principal business address is Clearing Operation, P.O. Box
897, Pittsburgh, PA 15230-0897.
PURCHASE OF SHARES
The Distributor has established several procedures for purchasing Shares in
order to accommodate different types of investors.
Shares may be purchased directly by individuals ("Direct Investors") or by
institutions ("Institutional Investors" and, collectively with Direct Invest-
ors, "Investors"). Shares may also be purchased by customers ("Customers") of
the Investment Adviser, its affiliates and correspondent banks, and other in-
stitutions ("Shareholder Organizations") that have entered into
20
<PAGE>
shareholder servicing agreements with Excelsior Fund. A Shareholder Organiza-
tion may elect to hold of record Shares for its Customers and to record bene-
ficial ownership of Shares on the account statements provided by it to its
Customers. If it does so, it is the Shareholder Organization's responsibility
to transmit to the Distributor all purchase orders for its Customers and to
transmit, on a timely basis, payment for such orders to Chase Global Funds
Services Company ("CGFSC"), the Funds' sub-transfer agent, in accordance with
the procedures agreed to by the Shareholder Organization and the Distributor.
Confirmations of all such Customer purchases and redemptions will be sent by
CGFSC to the particular Shareholder Organization. As an alternative, a Share-
holder Organization may elect to establish its Customers' accounts of record
with CGFSC. In this event, even if the Shareholder Organization continues to
place its Customers' purchase and redemption orders with the Funds, CGFSC will
send confirmations of such transactions and periodic account statements di-
rectly to Customers. A Shareholder Organization may also elect to establish
its Customers as record holders.
Excelsior Fund enters into shareholder servicing agreements with Shareholder
Organizations which agree to provide their Customers various shareholder ad-
ministrative services with respect to their Shares (hereinafter referred to as
"Service Organizations"). Shares in the Funds bear the expense of fees payable
to Service Organizations for such services. See "Management of the Funds--
Service Organizations."
Customers wishing to purchase Shares through their Shareholder Organization
should contact such entity directly for appropriate instructions. (For a list
of Shareholder Organizations in your area, call (800) 446-1012.) An investor
purchasing Shares through a registered investment adviser or certified finan-
cial planner may incur transaction charges in connection with such purchases.
Such investors should contact their registered investment adviser or certified
financial planner for further information on transaction fees. Investors may
also purchase Shares directly in accordance with procedures described below
under "Purchase Procedures."
PUBLIC OFFERING PRICE
The public offering price for Shares of each Fund is the sum of the net asset
value of the Shares purchased plus a sales load according to the table below:
<TABLE>
<CAPTION>
TOTAL SALES CHARGES REALLOWANCE TO DEALERS
------------------------------ ----------------------
AS A % OF AS A % OF AS A % OF
OFFERING PRICE NET ASSET OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE VALUE PER SHARE PER SHARE
- --------------------- -------------- --------------- ----------------------
<S> <C> <C> <C>
Less than $50,000....... 4.50% 4.71% 4.00%
$50,000 to $99,999...... 4.00 4.17 3.50
$100,000 to $249,999.... 3.50 3.63 3.00
$250,000 to $499,999.... 3.00 3.09 2.50
$500,000 to $999,999.... 2.00 2.05 1.50
$1,000,000 to
$1,999,999............. 1.00 1.00 .50
$2,000,000 and over..... .50 .50 .25
</TABLE>
The reallowance to dealers may be changed from time to time but will remain
the same for all such dealers.
At various times the Distributor may implement programs under which a deal-
er's sales force may be eligible to win nominal awards for certain sales ef-
forts or under which the Distributor will reallow to any dealer that sponsors
sales contests or recognition programs conforming to criteria established by
the Distributor, or participates in sales programs sponsored by the Distribu-
tor, an amount not exceeding the total applicable sales charges on the sales
generated by the dealer at the public offering price during such programs. Al-
so, the Distributor in its discretion may from time to time, pursuant to ob-
jective criteria established by the Distributor, pay fees to qualifying deal-
ers for certain services or activities which are primarily intended to result
in sales of Shares of the Funds. If any such program is made available to any
dealer, it will be made available to all dealers on the same terms and condi-
tions. Payments made under such programs will be made by the Distributor out
of its own assets and not out of the assets of the Funds. These programs will
not change the price of Shares or the amount that the Funds will receive from
such sales.
The sales load described above will not be applicable to: (a) purchases of
Shares by customers of the Investment Adviser or its affiliates; (b) trust,
agency or cus-
21
<PAGE>
todial accounts opened through the trust department of a bank, trust company
or thrift institution, provided that appropriate notification of such status
is given at the time of investment; (c) companies, corporations and partner-
ships (excluding full service broker/ dealers and financial planners, regis-
tered investment advisers and depository institutions not covered by the ex-
emptions in (d) and (e) below); (d) financial planners and registered invest-
ment advisers not affiliated with or clearing purchases through full service
broker/dealers; (e) purchases of Shares by depository institutions for their
own account as principal; (f) exchange transactions (described below under
"Investor Programs--Exchange Privilege") where the Shares being exchanged were
acquired in connection with the distribution of assets held in trust, agency
or custodial accounts maintained with the trust department of a bank; (g)
corporate/business retirement plans (such as 401(k), 403(b)(7), 457 and Keogh
accounts) sponsored by the Distributor and IRA accounts sponsored by the In-
vestment Adviser; (h) company-sponsored employee pension or retirement plans
making direct investments in the Funds; (i) purchases of Shares by officers,
trustees, directors, employees, former employees and retirees of Excelsior
Fund, Excelsior Tax-Exempt Funds, Inc. ("Excelsior Tax-Exempt Fund"), Excel-
sior Institutional Trust or Excelsior Funds, the Investment Adviser, the Dis-
tributor or of any direct or indirect affiliate of any of them; (j) purchases
of Shares by all beneficial shareholders of Excelsior Fund or Excelsior Tax-
Exempt Fund as of May 22, 1989; (k) purchases of Shares by investment advisers
registered under the Investment Advisers Act of 1940 for their customers
through an omnibus account established with United States Trust Company of New
York; (l) purchases of Shares by directors, officers and employees of brokers
and dealers selling shares pursuant to a selling agreement with Excelsior Fund
and Excelsior Tax-Exempt Fund; (m) purchases of shares by investors who are
members of affinity groups serviced by USAffinity Investments Limited Partner-
ship; and (n) customers of certain financial institutions who purchase Shares
through a registered representative of UST Financial Services Corp. on the
premises of their financial institutions. In addition, no sales load is
charged on the reinvestment of dividends or distributions or in connection
with certain share exchange transactions. Investors who have previously re-
deemed shares in an "Eligible Fund" (as defined below) on which a sales load
has been paid also have a one-time privilege of purchasing shares of another
"Eligible Fund" at net asset value without a sales charge, provided that such
privilege will apply only to purchases made within 30 calendar days from the
date of redemption and only with respect to the amount of the redemption.
These exemptions to the imposition of a sales load are due to the nature of
the investors and/or reduced sales effort that will be needed in obtaining in-
vestments.
QUANTITY DISCOUNTS
An investor in the Funds may be entitled to reduced sales charges through
Rights of Accumulation, a Letter of Intent or a combination of investments, as
described below, even if the investor does not wish to make an investment of a
size that would normally qualify for a quantity discount.
In order to obtain quantity discount benefits, an investor must notify CGFSC
at the time of purchase that he or she would like to take advantage of any of
the discount plans described below. Upon such notification, the investor will
receive the lowest applicable sales charge. Quantity discounts may be modified
or terminated at any time and are subject to confirmation of an investor's
holdings through a check of appropriate records. For more information about
quantity discounts, please call (800) 446-1012 or contact your Shareholder Or-
ganization.
Rights of Accumulation. A reduced sales load applies to any purchase of
shares of any portfolio of Excelsior Fund and Excelsior Tax-Exempt Fund that
is sold with a sales load ("Eligible Fund") where an investor's then current
aggregate investment is $50,000 or more. "Aggregate investment" means the to-
tal of: (a) the dollar amount of the then current purchase of shares of an El-
igible Fund and (b) the value (based on current net asset value) of previously
purchased and beneficially
22
<PAGE>
owned shares of any Eligible Fund on which a sales load has been paid. If, for
example, an investor beneficially owns shares of one or more Eligible Funds
with an aggregate current value of $49,000 on which a sales load has been paid
and subsequently purchases shares of an Eligible Fund having a current value
of $1,000, the load applicable to the subsequent purchase would be reduced to
4.00% of the offering price. Similarly, with respect to each subsequent in-
vestment, all shares of Eligible Funds that are beneficially owned by the in-
vestor at the time of investment may be combined to determine the applicable
sales load.
Letter of Intent. By completing the Letter of Intent included as part of the
New Account Application, an investor becomes eligible for the reduced sales
load applicable to the total number of Eligible Fund shares purchased in a 13-
month period pursuant to the terms and under the conditions set forth below
and in the Letter of Intent. To compute the applicable sales load, the offer-
ing price of shares of an Eligible Fund on which a sales load has been paid,
beneficially owned by an investor on the date of submission of the Letter of
Intent, may be used as a credit toward completion of the Letter of Intent.
However, the reduced sales load will be applied only to new purchases.
CGFSC will hold in escrow shares equal to 5% of the amount indicated in the
Letter of Intent for payment of a higher sales load if an investor does not
purchase the full amount indicated in the Letter of Intent. The escrow will be
released when an investor fulfills the terms of the Letter of Intent by pur-
chasing the specified amount. If purchases qualify for a further sales load
reduction, the sales load will be adjusted to reflect an investor's total pur-
chases. If total purchases are less than the amount specified, an investor
will be requested to remit an amount equal to the difference between the sales
load actually paid and the sales load applicable to the total purchases. If
such remittance is not received within 20 days, CGFSC, as attorney-in-fact
pursuant to the terms of the Letter of Intent and at the Distributor's direc-
tion, will redeem an appropriate number of shares held in escrow to realize
the difference. Signing a Letter of Intent does not bind an investor to pur-
chase the full amount indicated at the sales load in effect at the time of
signing, but an investor must complete the intended purchase in accordance
with the terms of the Letter of Intent to obtain the reduced sales load. To
apply, an investor must indicate his or her intention to do so under a Letter
of Intent at the time of purchase.
Qualification for Discounts. For purposes of applying the Rights of Accumula-
tion and Letter of Intent privileges described above, the scale of sales loads
applies to the combined purchases made by any individual and/or spouse pur-
chasing securities for his, her or their own account or for the account of any
minor children, or the aggregate investments of a trustee or custodian of any
qualified pension or profit sharing plan or IRA established (or the aggregate
investment of a trustee or other fiduciary) for the benefit of the persons
listed above.
PURCHASE PROCEDURES
General
Direct Investors may purchase Shares by completing the Application for pur-
chase of Shares accompanying this Prospectus and mailing it, together with a
check payable to Excelsior Funds, to:
Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
Subsequent investments in an existing account in any Fund may be made at any
time by sending to the above address a check payable to Excelsior Funds along
with: (a) the detachable form that regularly accompanies the confirmation of a
prior transaction; (b) a subsequent order form which may be obtained from
CGFSC; or (c) a letter stating the amount of the investment, the name of the
Fund and the account number in which the investment is to be made. Institu-
tional Investors may purchase Shares by transmitting their purchase orders to
CGFSC by telephone at (800) 446-1012 or by terminal access. Institutional In-
vestors must
23
<PAGE>
pay for Shares with Federal funds or funds immediately available to CGFSC.
Purchases by Wire
Investors may also purchase Shares by wiring Federal funds to CGFSC. Prior to
making an initial investment by wire, an Investor must telephone CGFSC at (800)
446-1012 (from overseas, call (617) 557-8280) for instructions. Federal funds
and registration instructions should be wired through the Federal Reserve Sys-
tem to:
The Chase Manhattan Bank, N.A.
ABA #021000021
Excelsior Funds, Account No. 9102732915
For further credit to:
Excelsior Funds
Wire Control Number
Account Registration (including account number)
Investors making initial investments by wire must promptly complete the Appli-
cation accompanying this Prospectus and forward it to CGFSC. Redemptions by In-
vestors will not be processed until the completed Application for purchase of
Shares has been received by CGFSC and accepted by the Distributor. Investors
making subsequent investments by wire should follow the above instructions.
OTHER PURCHASE INFORMATION
Except as provided in "Investor Programs" below, the minimum initial invest-
ment by an Investor or initial aggregate investment by a Shareholder Organiza-
tion investing on behalf of its Customers is $500 per Fund. The minimum subse-
quent investment for both types of investors is $50 per Fund. Customers may
agree with a particular Shareholder Organization to make a minimum purchase
with respect to their accounts. Depending upon the terms of the particular ac-
count, Shareholder Organizations may charge a Customer's account fees for auto-
matic investment and other cash management services provided. Excelsior Fund
reserves the right to reject any purchase order, in whole or in part, or to
waive any minimum investment requirements.
REDEMPTION PROCEDURES
Customers of Shareholder Organizations holding Shares of record may redeem all
or part of their investments in the Funds in accordance with procedures gov-
erning their accounts at the Shareholder Organizations. It is the responsibil-
ity of the Shareholder Organizations to transmit redemption orders to CGFSC and
credit such Customer accounts with the redemption proceeds on a timely basis.
Redemption orders for Institutional Investors must be transmitted to CGFSC by
telephone at (800) 446-1012 or by terminal access. No charge for wiring redemp-
tion payments to Shareholder Organizations or Institutional Investors is im-
posed by Excelsior Fund, although Shareholder Organizations may charge a Cus-
tomer's account for wiring redemption proceeds. Information relating to such
redemption services and charges, if any, is available from the Shareholder Or-
ganizations. An investor redeeming Shares through a registered investment ad-
viser or certified financial planner may incur transaction charges in connec-
tion with such redemptions. Such investors should contact their registered in-
vestment adviser or certified financial planner for further information on
transaction fees. Investors may redeem all or part of their Shares in accor-
dance with any of the procedures described below (these procedures also apply
to Customers of Shareholder Organizations for whom individual accounts have
been established with CGFSC).
REDEMPTION BY MAIL
Shares may be redeemed by a Direct Investor by submitting a written request
for redemption to:
Excelsior Funds c/o Chase Global Funds Services Company P.O. Box 2798 Bos-
ton, MA 02208-2798
A written redemption request to CGFSC must (i) state the number of Shares to
be redeemed, (ii) iden-
24
<PAGE>
tify the shareholder account number and tax identification number, and (iii) be
signed by each registered owner exactly as the Shares are registered. If the
Shares to be redeemed were issued in certificate form, the certificates must be
endorsed for transfer (or accompanied by a duly executed stock power) and must
be submitted to CGFSC together with the redemption request. A redemption re-
quest for an amount in excess of $50,000 per account, or for any amount if the
proceeds are to be sent elsewhere than the address of record, must be accompa-
nied by signature guarantees from any eligible guarantor institution approved
by CGFSC in accordance with its Standards, Procedures and Guidelines for the
Acceptance of Signature Guarantees ("Signature Guarantee Guidelines"). Eligible
guarantor institutions generally include banks, broker/dealers, credit unions,
national securities exchanges, registered securities associations, clearing
agencies and savings associations. All eligible guarantor institutions must
participate in the Securities Transfer Agents Medallion Program ("STAMP") in
order to be approved by CGFSC pursuant to the Signature Guarantee Guidelines.
Copies of the Signature Guarantee Guidelines and information on STAMP can be
obtained from CGFSC at (800) 446-1012 or at the address given above. CGFSC may
require additional supporting documents for redemptions made by corporations,
executors, administrators, trustees and guardians. A redemption request will
not be deemed to be properly received until CGFSC receives all required docu-
ments in proper form. Payment for Shares redeemed will ordinarily be made by
mail within five Business Days after proper receipt by CGFSC of the redemption
request. Questions with respect to the proper form for redemption requests
should be directed to CGFSC at (800) 446-1012 (from overseas, call (617) 557-
8280).
REDEMPTION BY WIRE OR TELEPHONE
Direct Investors who have so indicated on the Application, or have subse-
quently arranged in writing to do so, may redeem Shares by instructing CGFSC by
wire or telephone to wire the redemption proceeds directly to the Direct In-
vestor's account at any commercial bank in the United States. Direct Investors
who are shareholders of record may also redeem Shares by instructing CGFSC by
telephone to mail a check for redemption proceeds of $500 or more to the share-
holder of record at his or her address of record. Institutional Investors may
also redeem Shares by instructing CGFSC by telephone at (800) 446-1012 or by
terminal access. Only redemptions of $500 or more will be wired to a Direct In-
vestor's account. An $8.00 fee for each wire redemption by a Direct Investor is
deducted by CGFSC from the proceeds of the redemption. The redemption proceeds
for Direct Investors must be paid to the same bank and account as designated on
the Application or in written instructions subsequently received by CGFSC.
In order to arrange for redemption by wire or telephone after an account has
been opened or to change the bank or account designated to receive redemption
proceeds, a Direct Investor must send a written request to Excelsior Fund, c/o
CGFSC, at the address listed above under "Redemption by Mail." Such requests
must be signed by the Direct Investor, with signatures guaranteed (see "Redemp-
tion by Mail" above, for details regarding signature guarantees). Further docu-
mentation may be requested.
CGFSC and the Distributor reserve the right to re- fuse a wire or telephone
redemption if it is believed advisable to do so. Procedures for redeeming
Shares by wire or telephone may be modified or terminated at any time by Excel-
sior Fund, CGFSC or the Distributor. EXCELSIOR FUND, CGFSC, AND THE DISTRIBUTOR
WILL NOT BE LIABLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR ACTING UPON
TELEPHONE INSTRUCTIONS THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN ATTEMPT-
ING TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, EXCELSIOR FUND WILL USE
SUCH PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING THOSE IN-
STRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION.
If any portion of the Shares to be redeemed represents an investment made by
personal check, Excelsior Fund and
25
<PAGE>
CGFSC reserve the right not to honor the redemption until CGFSC is reasonably
satisfied that the check has been collected in accordance with the applicable
banking regulations which may take up to 15 days. A Direct Investor who antic-
ipates the need for more immediate access to his or her investment should pur-
chase Shares by Federal funds or bank wire or by certified or cashier's check.
Banks normally impose a charge in connection with the use of bank wires, as
well as certified checks, cashier's checks and Federal funds. If a Direct In-
vestor's purchase check is not collected, the purchase will be cancelled and
CGFSC will charge a fee of $25.00 to the Direct Investor's account.
During periods of substantial economic or market change, telephone redemp-
tions may be difficult to complete. If an Investor is unable to contact CGFSC
by telephone, the Investor may also deliver the redemption request to CGFSC in
writing at the address noted above under "How to Purchase and Redeem Shares--
Redemption by Mail."
OTHER REDEMPTION INFORMATION
Except as described in "Investor Programs" below, Investors may be required
to redeem Shares in a Fund after 60 days' written notice if due to investor
redemptions the balance in the particular account with respect to the Fund re-
mains below $500. If a Customer has agreed with a particular Shareholder Or-
ganization to maintain a minimum balance in his or her account at the institu-
tion with respect to Shares of a Fund, and the balance in such account falls
below that minimum, the Customer may be obliged by the Shareholder Organiza-
tion to redeem all or part of his or her Shares to the extent necessary to
maintain the required minimum balance.
GENERAL
Purchase and redemption orders for Shares which are received and accepted
prior to the close of regular trading hours on the Exchange (currently 4:00
p.m., Eastern Time) on any Business Day are priced according to the net asset
value determined on that day. Purchase orders received and accepted after the
close of regular trading hours on the Exchange are priced at the net asset
value per Share determined on the next Business Day.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Investors and Customers of Shareholder Organizations may, after appropriate
prior authorization and without an exchange fee imposed by Excelsior Fund, ex-
change Shares in a Fund having a value of at least $500 for shares of the same
series of any other portfolio offered by Excelsior Fund or Excelsior Tax-Ex-
empt Fund, or for Trust Shares of Excelsior Institutional Trust, provided that
such other shares may legally be sold in the state of the investor's resi-
dence.
Excelsior Fund currently offers, in addition to the Equity and Theme Funds,
several additional portfolios as follows:
Money Fund, a money market fund seeking as high a level of current income as
is consistent with liquidity and stability of principal through investments
in high-quality money market investments maturing within 13 months;
Government Money Fund, a money market fund seeking as high a level of cur-
rent income as is consistent with liquidity and stability of principal
through investments in obligations issued or guaranteed by the U.S. Govern-
ment, its agencies or instrumentalities and repurchase agreements collateral-
ized by such obligations;
Treasury Money Fund, a money market fund seeking current income generally
exempt from state and local income taxes through investments in direct short-
term obligations issued by the U.S. Treasury and certain agencies or instru-
mentalities of the U.S. Government;
Short-Term Government Securities Fund, a fund seeking a high level of cur-
rent income by investing principally in obligations issued or guaranteed by
the
26
<PAGE>
U.S. Government, its agencies or instrumentalities and repurchase agreements
collateralized by such obligations, and having a dollar-weighted average
portfolio maturity of 1 to 3 years;
Intermediate-Term Managed Income Fund, a fund seeking a high level of cur-
rent interest income by investing principally in investment grade or better
debt obligations and money market instruments, and having a dollar-weighted
average portfolio maturity of 3 to 10 years;
Managed Income Fund, a fund seeking higher current income through invest-
ments in investment grade debt obligations, U.S. Government obligations and
money market instruments;
Income and Growth Fund, a fund investing substantially in equity securities
in seeking to provide moderate current income and to achieve capital appreci-
ation as a secondary objective;
Long-Term Supply of Energy Fund, a fund seeking long-term capital apprecia-
tion by investing in companies benefiting from the availability, development
and delivery of secure hydrocarbon and other energy sources;
Productivity Enhancers Fund, a fund seeking long-term capital appreciation
by investing in companies benefitting from their roles as innovators, devel-
opers and suppliers of goods and services which enhance service and manufac-
turing productivity or companies that are most effective at obtaining and ap-
plying productivity enhancement developments;
Environmentally-Related Products and Services Fund, a fund seeking long-term
capital appreciation by investing in companies benefitting from their provi-
sion of products, technologies and services related to conservation, protec-
tion and restoration of the environment;
International Fund, a fund seeking total return derived primarily from in-
vestments in foreign equity securities;
Emerging Americas Fund, a fund seeking long-term capital appreciation
through investments in companies and securities of governments based in all
countries in the Western Hemisphere, except the U.S.;
Pacific/Asia Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments based in Asia and on the
Asian side of the Pacific Ocean; and
Pan European Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments located in Europe.
Excelsior Tax-Exempt Fund currently offers five portfolios as follows:
Tax-Exempt Money Fund, a diversified tax-exempt money market fund seeking a
moderate level of current interest income exempt from Federal income taxes
through investing primarily in high-quality municipal obligations maturing
within 13 months;
Short-Term Tax-Exempt Securities Fund, a diversified fund seeking a high
level of current interest income exempt from Federal income taxes through in-
vestments in municipal obligations and having a dollar-weighted average port-
folio maturity of 1 to 3 years;
Intermediate-Term Tax-Exempt Fund, a diversified fund seeking a high level
of current income exempt from Federal income taxes through investments in mu-
nicipal obligations and having a dollar-weighted average portfolio maturity
of 3 to 10 years;
Long-Term Tax-Exempt Fund, a diversified fund seeking to maximize over time
current income exempt from Federal income taxes, investing primarily in mu-
nicipal obligations and having a dollar-weighted average maturity of 10 to 30
years; and
New York Intermediate-Term Tax-Exempt Fund, a non- diversified fund designed
to provide New York investors with a high level of current income exempt from
Federal and, to the extent possible, New York state and New York City income
taxes; this fund invests primarily in New York municipal obligations and has
a dollar-weighted average portfolio maturity of three to ten years.
27
<PAGE>
Excelsior Institutional Trust currently offers Trust Shares in two investment
portfolios:
Optimum Growth Fund, a fund seeking superior, risk-adjusted total return
through investments in a diversified portfolio of equity securities whose
growth prospects, in the opinion of its investment adviser, appear to exceed
that of the overall market; and
Value Equity Fund, a fund seeking long-term capital appreciation through in-
vestments in a diversified portfolio of equity securities whose market value,
in the opinion of its investment adviser, appears to be undervalued relative
to the marketplace.
An exchange involves a redemption of all or a portion of the Shares in a Fund
and the investment of the redemption proceeds in shares of another portfolio
of Excelsior Fund, Excelsior Tax-Exempt Fund or Excelsior Institutional Trust.
The redemption will be made at the per Share net asset value of the Shares be-
ing redeemed next determined after the exchange request is received. The
shares of the portfolio to be acquired will be purchased at the per share net
asset value of those shares (plus any applicable sales load) next determined
after acceptance of the exchange request. No sales load will be payable on
shares to be acquired through an exchange to the extent that a sales load was
previously paid on the Shares being exchanged.
Investors may find the exchange privilege useful if their investment objec-
tives or market outlook should change after they invest in a Fund. For further
information regarding exchange privileges, shareholders should call (800) 446-
1012 (from overseas, call (617) 557-8280). Investors exercising the exchange
privilege with the other portfolios of Excelsior Fund, Excelsior Tax-Exempt
Fund or Excelsior Institutional Trust should request and review the prospec-
tuses of such funds. Such prospectuses may be obtained by calling the numbers
listed above. In order to prevent abuse of this privilege to the disadvantage
of other shareholders, Excelsior Fund, Excelsior Tax-Exempt Fund and Excelsior
Institutional Trust reserve the right to limit the number of exchange requests
of Investors and Customers of Shareholder Organizations to no more than six
per year. Excelsior Fund may modify or terminate the exchange program at any
time upon 60 days' written notice to shareholders, and may reject any exchange
request. EXCELSIOR FUND, EXCELSIOR TAX-EXEMPT FUND, EXCELSIOR INSTITUTIONAL
TRUST, CGFSC AND THE DISTRIBUTOR ARE NOT RESPONSIBLE FOR THE AUTHENTICITY OF
EXCHANGE REQUESTS RECEIVED BY TELEPHONE THAT ARE REASONABLY BELIEVED TO BE
GENUINE. IN ATTEMPTING TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, EX-
CELSIOR FUND, EXCELSIOR TAX-EXEMPT FUND AND EXCELSIOR INSTITUTIONAL TRUST WILL
USE SUCH PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING THOSE
INSTRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION.
For Federal income tax purposes, an exchange of Shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Be-
fore making an exchange, an investor should consult a tax or other financial
adviser to determine tax consequences.
SYSTEMATIC WITHDRAWAL PLAN
An Investor who owns Shares of a Fund with a value of $10,000 or more may es-
tablish a Systematic Withdrawal Plan. The Investor may request a declining-
balance withdrawal, a fixed-dollar withdrawal, a fixed-share withdrawal, or a
fixed-percentage withdrawal (based on the current value of Shares in the ac-
count) on a monthly, quarterly, semi-annual or annual basis. To initiate the
Systematic Withdrawal Plan, an investor must complete the Supplemental Appli-
cation contained in this Prospectus and mail it to CGFSC at the address given
above. Further information on establishing a Systematic Withdrawal Plan may be
obtained by calling (800) 446-1012 (from overseas, call (617) 557-8280.)
Shareholder Organizations may, at their discretion, establish similar system-
atic withdrawal plans with respect to the Shares held by their Customers.
Informa-
28
<PAGE>
tion about such plans and the applicable procedures may be obtained by Custom-
ers directly from their institutions.
RETIREMENT PLANS
Shares are available for purchase by Investors in connection with the follow-
ing tax-deferred prototype retirement plans offered by United States Trust
Company of New York:
IRAs (including "rollovers" from existing retirement plans) for individuals
and their spouses;
Profit Sharing and Money-Purchase Plans for corporations and self-employed
individuals and their partners to benefit themselves and their employees; and
Keogh Plans for self-employed individuals.
Investors investing in the Funds pursuant to Profit Sharing and Money-Pur-
chase Plans and Keogh Plans are not subject to the minimum investment and
forced redemption provisions described above. The minimum initial investment
for IRAs is $250 per Fund and the minimum subsequent investment is $50 per
Fund. Detailed information concerning eligibility, service fees and other mat-
ters related to these plans can be obtained by calling (800) 446-1012 (from
overseas, call (617) 557-8280). Customers of Shareholder Organizations may
purchase Shares of the Funds pursuant to retirement plans if such plans are
offered by their Shareholder Organizations.
AUTOMATIC INVESTMENT PROGRAM
The Automatic Investment Program permits Investors to purchase Shares (mini-
mum of $50 per Fund per transaction) at regular intervals selected by the In-
vestor. The minimum initial investment for an Automatic Investment Program is
$50 per Fund. Provided the Investor's financial institution allows automatic
withdrawals, Shares are purchased by transferring funds from an Investor's
checking, bank money market or NOW account designated by the Investor. At the
Investor's option, the account designated will be debited in the specified
amount, and Shares will be purchased, once a month, on either the first or
fifteenth day, or twice a month, on both days.
The Automatic Investment Program is one means by which an Investor may use
"Dollar Cost Averaging" in making investments. Instead of trying to time mar-
ket performance, a fixed dollar amount is invested in Shares at predetermined
intervals. This may help Investors to reduce their average cost per share be-
cause the agreed upon fixed investment amount allows more Shares to be pur-
chased during periods of lower share prices and fewer Shares during periods of
higher prices. In order to be effective, Dollar Cost Averaging should usually
be followed on a sustained, consistent basis. Investors should be aware, how-
ever, that Shares bought using Dollar Cost Averaging are purchased without re-
gard to their price on the day of investment or to market trends. In addition,
while investors may find Dollar Cost Averaging to be beneficial, it will not
prevent a loss if an Investor ultimately redeems his Shares at a price which
is lower than their purchase price.
To establish an Automatic Investment account permitting Investors to use the
Dollar Cost Averaging investment method described above, an Investor must com-
plete the Supplemental Application contained in this Prospectus and mail it to
CGFSC. An Investor may cancel his participation in this Program or change the
amount of purchase at any time by mailing written notification to CGFSC, P.O.
Box 2798, Boston, MA 02208-2798 and notification will be effective three Busi-
ness Days following receipt. Excelsior Fund may modify or terminate this priv-
ilege at any time or charge a service fee, although no such fee currently is
contemplated. An Investor may also implement the Dollar Cost Averaging method
on his own initiative or through other entities.
DIVIDENDS AND DISTRIBUTIONS
Dividends from the net investment income of the Funds are declared and paid
quarterly. For dividend purposes, a Fund's investment income is reduced by ac-
crued expenses directly attributable to that Fund and
29
<PAGE>
the general expenses of Excelsior Fund prorated to that Fund on the basis of
its relative net assets. A Fund's net investment income available for distri-
bution to the holders of Shares will be reduced by the amount of other ex-
penses allocated to such series. Net realized capital gains are distributed at
least annually. Dividends and distributions will reduce the net asset value of
each of the Funds by the amount of the dividend or distribution. All dividends
and distributions paid on Shares held of record by the Investment Adviser and
its affiliates or correspondent banks will be paid in cash. Direct and Insti-
tutional Investors and Customers of Shareholder Organizations will receive
dividends and distributions in additional Shares of the Fund on which the div-
idend or distribution is paid (as determined on the payable date), unless they
have requested in writing (received by CGFSC at Excelsior Fund's address prior
to the payment date) to receive dividends and distributions in cash. Rein-
vested dividends and distributions receive the same tax treatment as those
paid in cash.
TAXES
FEDERAL
Each of the Funds qualified for its last taxable year as a "regulated invest-
ment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Each Fund expects to so qualify in future years. Such qualification
generally relieves a Fund of liability for Federal income taxes to the extent
its earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code requires,
among other things, that a Fund distribute to its shareholders an amount equal
to at least 90% of its investment company taxable income for each taxable
year. In general, a Fund's investment company taxable income will be its in-
come (including dividends and interest), subject to certain adjustments and
excluding the excess of any net long-term capital gain for the taxable year
over the net short-term capital loss, if any, for such year. Each Fund intends
to distribute substantially all of its investment company taxable income each
year. Such dividends will be taxable as ordinary income to Fund shareholders
who are not currently exempt from Federal income taxes, whether such income is
received in cash or reinvested in additional Shares. (Federal income taxes for
distributions to IRAs and qualified pension plans are deferred under the
Code.) The dividends received deduction for corporations will apply to such
ordinary income distributions to the extent of the total qualifying dividends
received by a Fund from domestic corporations for the taxable year.
Distribution by a Fund of the excess of its net long- term capital gain over
its net short-term capital loss is taxable to shareholders as long-term capi-
tal gain, regardless of how long the shareholders have held their Shares and
whether such gains are received in cash or reinvested in additional Shares.
Such distributions are not eligible for the dividends received deduction.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to
have been received by shareholders and paid by a Fund on December 31 of such
year in the event such dividends are actually paid during January of the fol-
lowing year.
An investor considering buying Shares of a Fund on or just before the record
date of a dividend should be aware that the amount of the forthcoming dividend
payment, although in effect a return of capital, will be taxable to him.
A taxable gain or loss may be realized by a shareholder upon his redemption,
transfer or exchange of Shares depending upon the tax basis of such Shares and
their price at the time of redemption, transfer or exchange. If a shareholder
holds Shares for six months or less and during that time receives a capital
gain dividend on those Shares, any loss recognized on the sale or exchange of
those Shares will be treated as a long-term capital loss to the extent of the
capital gain dividend. Generally, a shareholder may include sales charges in-
curred upon the purchase of Shares in his tax basis for such Shares for the
purpose of determin-
30
<PAGE>
ing gain or loss on a redemption, transfer or exchange of such Shares. Howev-
er, if the shareholder effects an exchange of such Shares for Shares of an-
other Fund within 90 days of the purchase and is able to reduce the sales
charges applicable to the new Shares (by virtue of the exchange privilege),
the amount equal to such reduction may not be included in the tax basis of the
shareholder's exchanged Shares for the purpose of determining gain or loss,
but may be included (subject to the same limitation) in the tax basis of the
new Shares.
Qualification as a regulated investment company under the Code also requires
that each Fund satisfy certain requirements with respect to the source of its
income for a taxable year. At least 90% of the gross income of each Fund must
be derived from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities or for-
eign currencies, and other income (including, but not limited to, gains from
options, futures, or forward contracts) derived with respect to the Fund's
business of investing in such stock, securities or currencies. The Treasury
Department may by regulation exclude from qualifying income foreign currency
gains which are not directly related to a Fund's principal business of invest-
ing in stock or securities, or options and futures with respect to stock or
securities. Any income derived by a Fund from a partnership or trust is
treated for this purpose as derived with respect to the Fund's business of in-
vesting in stock, securities or currencies only to the extent that such income
is attributable to items of income which would have been qualifying income if
realized by the Fund in the same manner as by the partnership or trust.
The foregoing summarizes some of the important tax considerations generally
affecting the Funds and their shareholders and is not intended as a substitute
for careful tax planning. Accordingly, potential investors in the Funds should
consult their tax advisers with specific reference to their own tax situa-
tions. Shareholders will be advised annually as to the Federal income tax con-
sequences of distributions made each year.
STATE AND LOCAL
Purchasers are advised to consult their tax advisers concerning the applica-
tion of state and local taxes, which may have different consequences from
those of the Federal income tax law described above.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of Ex-
celsior Fund's Board of Directors. The Statement of Additional Information
contains the names of and general background information concerning Excelsior
Fund's directors.
INVESTMENT ADVISER
United States Trust Company of New York serves as the Investment Adviser to
each Fund. U.S. Trust is a state-chartered bank and trust company. The Invest-
ment Adviser provides trust and banking services to individuals, corporations,
and institutions both nationally and internationally, including investment
management, estate and trust administration, financial planning, corporate
trust and agency banking, and personal and corporate banking. The Investment
Adviser is a member bank of the Federal Reserve System and the Federal Deposit
Insurance Corporation and is one of the twelve members of the New York Clear-
ing House Association.
On December 31, 1995, the Investment Adviser's Asset Management Group had ap-
proximately $47 billion in assets under management. The Investment Adviser,
which has its principal offices at 114 W. 47th Street, New York, New York
10036, is a subsidiary of U.S. Trust Corporation, a registered bank holding
company.
The Investment Adviser manages each Fund, makes decisions with respect to and
places orders for all purchases and sales of its portfolio securities, and
maintains records relating to such purchases and sales.
The Equity Fund's portfolio manager, David A. Tillson, is the person primar-
ily responsible for the day-to-day management of the Fund's investment portfo-
31
<PAGE>
lio. Mr. Tillson, a Senior Vice President and Senior Portfolio Manager, has
been with U.S. Trust since 1993, and has been the Fund's portfolio manager
since December 1994. Prior to joining U.S. Trust, Mr. Tillson was the founder
and President of TDA Capital Management Company, and a Senior Vice President of
Matrix Asset Advisors until 1993. He was also a Vice President and Senior Port-
folio Manager with V C S & O Asset Management until 1990.
The Aging of America Fund's portfolio manager, Jonathan L. Stanley, is the
person primarily responsible for the day-to-day management of the Fund's in-
vestment portfolio. Mr. Stanley, a Senior Vice President and Senior Portfolio
Manager of U.S. Trust, has been with U.S. Trust since 1993 and has been the
Fund's portfolio manager since December, 1995. Prior to his association with
U.S. Trust, Mr. Stanley was an investment manager with Deutsche Bank Capital
Corporation.
The Communication and Entertainment Fund's portfolio manager, John J.
Apruzzese, is the person primarily responsible for the day-to-day management of
the Fund's investment portfolio. Mr. Apruzzese, a Senior Vice President, De-
partment Manager and Senior Portfolio Manager of U.S. Trust, has been with U.S.
Trust since 1984 and has been the Fund's portfolio manager since its inception.
The Business and Industrial Restructuring Fund's portfolio manager, David J.
Williams, is the person primarily responsible for the day-to-day management of
the Fund's investment portfolio. Mr. Williams, Senior Vice President, Depart-
ment Manager and Senior Portfolio Manager of the Personal Equity and Balanced
Investment Division of U.S. Trust, has been with U.S. Trust since 1987 and has
been the Fund's portfolio manager since its inception.
The Global Competitors Fund's portfolio manager, Wendy S. Popowich, is the
person primarily responsible for the day-to-day management of the Fund's in-
vestment portfolio. Ms. Popowich, a Senior Vice President and Portfolio Manager
of the Personal Investment Division of U.S. Trust, has been with U.S. Trust
since 1983 and has been the Fund's portfolio manager since its inception.
The Early Life Cycle Fund's portfolio manager, Timothy W. Evnin, is the person
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Evnin, a Vice President and Portfolio Manager of U.S. Trust, has
been with U.S. Trust since 1987 and has been the Fund's portfolio manager since
its inception.
For the services provided and expenses assumed pursuant to its Investment Ad-
visory Agreements, the Investment Adviser is entitled to be paid a fee, com-
puted daily and paid monthly, at the annual rate of: .75% of the average daily
net assets of the Equity Fund; and .60% of the average daily net assets of each
Theme Fund. The advisory fee rate payable by the Equity Fund is higher than the
rates payable by most mutual funds. The Board of Directors believes, based on
information supplied to it by the Investment Adviser, that this fee is compara-
ble to the rate paid by many other funds with similar investment objectives and
policies and is appropriate for the Fund in light of its investment objective
and policies. For the fiscal year ended March 31, 1996, the Investment Adviser
received an advisory fee at the effective annual rates of .68%, .56%, .55%,
.56%, .56% and .52% of the average daily net assets of the Equity, Aging of
America, Communication and Entertainment, Business and Industrial Restructur-
ing, Global Competitors and Early Life Cycle Funds, respectively. For the same
period, the Investment Adviser waived advisory fees at the effective annual
rates of .07% .04%, .05%, .04%, .04% and .08% of the average daily net assets
of the Equity, Aging of America, Communication and Entertainment, Business and
Industrial Restructuring, Global Competitors and Early Life Cycle Funds, re-
spectively.
From time to time, the Investment Adviser may waive (either voluntarily or
pursuant to applicable state expense limitations) all or a portion of the advi-
sory fees payable to it by a Fund, which waiver may be terminated at any time.
See "Management of the Funds--Service Organizations" for additional information
on fee waivers.
32
<PAGE>
ADMINISTRATORS
CGFSC, Federated Administrative Services and U.S. Trust serve as the Funds'
administrators (the "Administrators") and provide them with general adminis-
trative and operational assistance. The Administrators also serve as adminis-
trators of the other portfolios of Excelsior Fund and Excelsior Tax-Exempt
Fund and of Excelsior Institutional Trust, which are also advised by the In-
vestment Adviser and distributed by the Distributor. For the services provided
to all portfolios of Excelsior Fund (except the International, Emerging Ameri-
cas, Pacific/Asia and Pan European Funds) and Excelsior Tax-Exempt Fund and of
Excelsior Institutional Trust, the Administrators are entitled jointly to an-
nual fees, computed daily and paid monthly, based on the combined aggregate
average daily net assets of the three companies (excluding the International,
Emerging Americas, Pacific/Asia and Pan European Funds) as follows:
<TABLE>
<CAPTION>
COMBINED AGGREGATE AVERAGE DAILY
NET ASSETS OF EXCELSIOR FUND
(EXCLUDING THE INTERNATIONAL, EMERGING AMERICAS,
PACIFIC/ASIA AND PAN EUROPEAN FUNDS),
EXCELSIOR TAX-EXEMPT FUND ANNUAL
AND EXCELSIOR INSTITUTIONAL TRUST FEE
------------------------------------------------ ------
<S> <C>
first $200 million....................................................... .200%
next $200 million........................................................ .175%
over $400 million........................................................ .150%
</TABLE>
Administration fees payable to the Administrators by each portfolio of the
three investment companies are determined in proportion to their relative av-
erage daily net assets at the time of determination. From time to time, the
Administrators may waive (either voluntarily or pursuant to applicable state
expense limitations) all or a portion of the administration fee payable to
them by a Fund, which waivers may be terminated at any time. See "Management
of the Funds--Service Organizations" for additional information on fee waiv-
ers. For the period from April 1, 1995 through July 31, 1995, CGFSC and the
former administrator received an administration fee at the effective annual
rate of .151%, .154%, .154%, .154%, .154% and .154% of the average daily net
assets of each of the Equity, Aging of America, Communication and Entertain-
ment, Business and Industrial Restructuring, Global Competitors and Early Life
Cycle Funds, respectively. For the same period, CGFSC and the former adminis-
trator waived administration fees at the effective annual rate of .003%, 0%,
0%, 0%, 0% and 0% of the average daily net assets of the Equity, Aging of
America, Communication and Entertainment, Business and Industrial Restructur-
ing, Global Competitors and Early Life Cycle Funds, respectively. From August
1, 1995 through March 31, 1996, the Administrators received an aggregate ad-
ministration fee (under the same compensation arrangements noted above) at the
effective annual rate of .150%, .154%, .154%, .154%, .154% and .154% of the
average daily net assets of each of the Funds, respectively. For the same pe-
riod, the Administrators waived administration fees at the effective annual
rate of .004%, 0%, 0%, 0%, 0% and 0% of the average daily net assets of the
Equity, Aging of America, Communication and Entertainment, Business and Indus-
trial Restructuring, Global Competitors and Early Life Cycle Funds, respec-
tively.
SERVICE ORGANIZATIONS
Excelsior Fund will enter into Shareholder Servicing agreements ("Servicing
Agreement") with Shareholder Organizations which agree to provide their Cus-
tomers various shareholder administrative services with respect to their
Shares (hereinafter referred to as "Service Organizations"). As a considera-
tion for the administrative services provided to Customers, a Fund will pay
each Service Organization an administrative service fee at the annual rate of
up to .40% of the average daily net asset value of its Shares held by the
Service Organization's Customers. Such services, which are described more
fully in the Statement of Additional Information under "Management of the
Funds--Service Organizations," may include assisting in processing purchase,
exchange and redemption requests; transmitting and receiving funds in connec-
tion with Customer orders to purchase, exchange or redeem Shares; and provid-
ing periodic statements. Under the terms of the Servicing Agreement, Service
Organizations will be required to provide to Customers a schedule of any fees
that they may charge in connection with a Customer's investment. Until further
no-
33
<PAGE>
tice, the Investment Adviser and Administrators have voluntarily agreed to
waive fees payable by a Fund in an amount equal to administrative service fees
payable by that Fund.
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company regis-
tered under the Federal Bank Holding Company Act of 1956 or any bank or non-
bank affiliate thereof from sponsoring, organizing or controlling a regis-
tered, open-end investment company continuously engaged in the issuance of its
shares, and prohibit banks generally from issuing, underwriting, selling or
distributing securities such as Shares of the Funds, but such banking laws and
regulations do not prohibit such a holding company or affiliate or banks gen-
erally from acting as investment adviser, transfer agent, or custodian to such
an investment company, or from purchasing shares of such company for and upon
the order of customers. The Investment Adviser, CGFSC and certain Shareholder
Organizations may be subject to such banking laws and regulations. State secu-
rities laws may differ from the interpretations of Federal law discussed in
this paragraph and banks and financial institutions may be required to regis-
ter as dealers pursuant to state law.
Should legislative, judicial, or administrative action prohibit or restrict
the activities of the Investment Adviser or other Shareholder Organizations in
connection with purchases of Fund Shares, the Investment Adviser and such
Shareholder Organizations might be required to alter materially or discontinue
the investment services offered by them to Customers. It is not anticipated,
however, that any resulting change in the Funds' method of operations would
affect their net asset values per Share or result in financial loss to any
shareholder.
DESCRIPTION OF CAPITAL STOCK
Excelsior Funds, Inc. (formerly UST Master Funds, Inc.) was organized as a
Maryland corporation on August 2, 1984. Currently, Excelsior Fund has autho-
rized capital of 35 billion shares of Common Stock, $.001 par value per share,
classified into 40 series of shares representing interests in 20 investment
portfolios. This Prospectus describes the Equity, Early Life Cycle, Aging of
America, Communication and Entertainment, Business and Industrial Restructur-
ing and Global Competitors Funds. In addition to the Shares offered under this
Prospectus, Excelsior Fund offers a separate series of shares designated as
Trust Shares representing interests in each of those Funds. Trust Shares have
different expenses than the Shares offered under this Prospectus, which may
affect performance. Call (800) 446-1012 for information regarding the Trust
Shares in each Fund, which are offered under a separate prospectus.
Each share (irrespective of series designation) in a Fund represents an equal
proportionate interest in the particular Fund with other shares of the same
class, and is entitled to such dividends and distributions out of the income
earned on the assets belonging to such Fund as are declared in the discretion
of Excelsior Fund's Board of Directors. Excelsior Fund's Charter authorizes
the Board of Directors to classify or reclassify any class of shares into one
or more additional classes or series.
Excelsior Fund's shareholders are entitled to one vote for each full share
held and fractional votes for fractional shares held and will vote in the ag-
gregate and not by class or series, except as otherwise expressly required by
law.
Certificates for Shares will not be issued unless expressly requested in
writing to CGFSC and will not be issued for fractional Shares.
As of July 15, 1996, U.S. Trust held of record substantially all of the
Shares in the Funds as agent or custodian for its customers, but did not own
such Shares beneficially because it did not have voting or investment discre-
tion with respect to such Shares. U.S. Trust is a wholly-owned subsidiary of
U.S. Trust Corporation.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, N.A. ("Chase"), a wholly-owned subsidiary of The
Chase Manhattan Corporation, serves as the custodian of the Funds' as-
34
<PAGE>
sets. Communications to the custodian should be di
rected to Chase, Mutual Funds Service Division, 770 Broadway, New York, New
York 10003-9598.
Chase may enter into an international sub-custodian agreement with a third
party providing for the custody of foreign securities held by the Funds.
U.S. Trust serves as the Funds' transfer and dividend disbursing agent. U.S.
Trust has also entered into a sub-transfer agency arrangement with CGFSC, 73
Tremont Street, Boston, Massachusetts 02108-3913, pursuant to which CGFSC pro-
vides certain transfer agent, dividend disbursement and registrar services to
the Funds.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to shareholders, the per-
formance of the Shares of the Funds may be quoted and compared to that of
other mutual funds with similar investment objectives and to stock or other
relevant indices or to rankings prepared by independent services or other fi-
nancial or industry publications that monitor the performance of mutual funds.
For example, the performance of a Fund may be compared to data prepared by
Lipper Analytical Services, Inc., a widely recognized independent service
which monitors the performance of mutual funds. The performance of the Equity
and Theme Funds may be also compared to the Standard & Poor's 500 Stock Index
("S&P 500"), an index of unmanaged groups of common stocks, the Consumer Price
Index, or the Dow Jones Industrial Average, a recognized unmanaged index of
common stocks of 30 industrial companies listed on the New York Stock Ex-
change.
Performance data as reported in national financial publications, including
but not limited to Money Magazine, Forbes, Barron's, The Wall Street Journal
and The New York Times, or in publications of a local or regional nature, may
also be used in comparing the performance of the Funds.
From time to time, each Fund may advertise its performance by using "average
annual total return" over various periods of time. Such total return figure
reflects the average percentage change in the value of an investment in a Fund
from the beginning date of the measuring period to the end of the measuring
period. Average total return figures will be given for the most recent one-
year period, and may be given for other periods as well (such as from the com-
mencement of a Fund's operations, or on a year-by-year basis). Each Fund may
also use aggregate total return figures for various periods, representing the
cumulative change in the value of an investment in the Fund for the specific
period. Both methods of calculating total return assume that dividends and
capital gain distributions made by a Fund during the period are reinvested in
Fund Shares and also reflect the maximum sales load charged by the Fund.
Performance will fluctuate and any quotation of performance should not be
considered as representative of a Fund's future performance. Shareholders
should remember that performance is generally a function of the kind and qual-
ity of the instruments held in a portfolio, operating expenses, and market
conditions. Any fees charged by Shareholder Organizations with respect to ac-
counts of Customers that have invested in Shares will not be included in cal-
culations of performance.
MISCELLANEOUS
Shareholders will receive unaudited semiannual reports describing the Funds'
investment operations and annual financial statements audited by the Funds'
independent auditors.
As used in this Prospectus, a "vote of the holders of a majority of the out-
standing shares" of Excelsior Fund or a particular Fund means, with respect to
the approval of an investment advisory agreement or a change in a fundamental
investment policy, the affirmative vote of the lesser of (a) more than 50% of
the outstanding shares of Excelsior Fund or such Fund, or (b) 67% or more of
the shares of Excelsior Fund or such Fund present at a meeting if more than
50% of the outstanding shares of Excelsior Fund or such Fund are represented
at the meeting in person or by proxy.
Inquiries regarding any of the Funds may be directed to the Distributor at
the address listed under "Distributor."
35
<PAGE>
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION
OPENING YOUR ACCOUNT:
Complete the Application(s) and
mail to: FOR OVERNIGHT DELIVERY: send to:
Excelsior Funds Excelsior Funds
c/o Chase Global Funds Services c/o Chase Global Funds Services
Company Company--Transfer Agent
P.O. Box 2798 73 Tremont Street
Boston, MA 02208-2798 Boston, MA 02108-3913
Please enclose with the Application(s) your check made payable to the "Ex-
celsior Funds" in the amount of your investment.
For direct wire purchases please refer to the section of the Prospectus en-
titled "How to Purchase and Redeem Shares--Purchase Procedures."
MINIMUM INVESTMENTS:
Except as provided in the Prospectus, the minimum initial investment is $500
per Fund; subsequent investments must be in the minimum amount of $50 per
Fund. Investments may be made in excess of these minimums.
REDEMPTIONS:
Shares can be redeemed in any amount and at any time in accordance with pro-
cedures described in the Prospectus. In the case of shares recently purchased
by check, redemption proceeds will not be made available until the transfer
agent is reasonably assured that the check has been collected in accordance
with applicable banking regulations.
Certain legal documents will be required from corporations or other organi-
zations, executors and trustees, or if redemption is requested by anyone other
than the shareholder of record. Written redemption requests in excess of
$50,000 per account must be accompanied by signature guarantees.
SIGNATURES: Please be sure to sign the Application(s).
If the shares are registered in the name of:
- an individual, the individual should sign.
- joint tenants, both tenants should sign.
- a custodian for a minor, the custodian should sign.
- a corporation or other organization, an authorized officer should sign
(please indicate corporate office or title).*
- a trustee or other fiduciary, the fiduciary or fiduciaries should sign
(please indicate capacity).*
* A corporate resolution or appropriate certificate may be required.
QUESTIONS:
If you have any questions regarding the Application or redemption require-
ments, please contact the transfer agent at (800) 446-1012 between 9:00 a.m.
and 5:00 p.m. (Eastern Time).
36
<PAGE>
[LOGO OF EXCELSIOR CHASE GLOBAL FUNDS SERVICES COMPANY
FUNDS INC.] CLIENT SERVICES
P.O. Box 2798 NEW
Boston, MA 02208-2798 ACCOUNT
(800) 446-1012 APPLICATION
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION
-----------------------------------------------------------------------------
[_] Individual [_] Joint Tenants [_] Trust [_] Gift/Transfer to Minor
[_] Other________________________
Note: Joint tenant registration will be as "joint tenants
with right of survivorship" unless otherwise specified. Trust
registrations should specify name of the trust, trustee(s),
beneficiary(ies), and the date of the trust instrument.
Registration for Uniform Gifts/Transfers to Minors should be
in the name of one custodian and one minor and include the
state under which the custodianship is created (using the
minor's Social Security Number ("SSN")). For IRA accounts a
different application is required.
------------------------------ -----------------------------
Name(s) (please print) Social Security # or Taxpayer
------------------------------ Identification #
Name ( )
------------------------------ -----------------------------
Address Telephone #
------------------------------ [_] U.S. Citizen [_] Other
City/State/Zip Code (specify)
-----------------------------------------------------------------------------
FUND SELECTION (THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT IS $500 PER
FUND AND $50 PER FUND, RESPECTIVELY. MAKE CHECKS PAYABLE TO "EXCELSIOR
FUNDS.")
-----------------------------------------------------------------------------
FUND INITIAL INVESTMENT
[_] Equity Fund $ ___________ 800
[_] Aging of America
Fund $ ___________ 816
[_] Communication &
Entertainment Fund $ ___________ 817
[_] Business &
Industrial
Restructuring Fund $ ___________ 818
FUND INITIAL INVESTMENT
[_] Global Competi-
tors Fund $ ___________ 819
[_] Early Life Cycle
Fund $ ___________ 812
[_] Other $ ___________
TOTAL INITIAL INVESTMENT: $ ___________
NOTE: If investing A. BY MAIL: Enclosed is a check in the
by wire, you must amount of $ _____ payable to "Excelsior
obtain a Bank Wire Funds."
Control Number. To B. BY WIRE: A bank wire in the amount
do so, please call of $ has been sent to the Fund from
(800) 446-1012 and ------------------ ---------------
ask for the Wire Name of Bank Wire Control
Desk. Number
CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and
dividend distributions will be reinvested in additional
shares unless appropriate boxes below are checked:
All dividends are to be[_] reinvested[_] paid in cash
All capital gains are to be[_] reinvested[_] paid in cash
-----------------------------------------------------------------------------
ACCOUNT PRIVILEGES
-----------------------------------------------------------------------------
TELEPHONE EXCHANGE AND
REDEMPTION
[_] I/We appoint CGFSC as
my/our agent to act upon
instructions received by
telephone in order to effect
the telephone exchange and
redemption privileges. I/We
hereby ratify any
instructions given pursuant
to this authorization and
agree that Excelsior Fund,
Excelsior Tax-Exempt Fund,
Excelsior Institutional
Trust, CGFSC and their
directors, officers and
employees will not be liable
for any loss, liability,
cost or expense for acting
upon instructions believed
to be genuine and in
accordance with the
procedures described in the
then current Prospectus. To
the extent that Excelsior
Fund, Excelsior Tax-Exempt
Fund and Excelsior
Institutional Trust, fail to
use reasonable procedures as
a basis for their belief,
they or their service
contractors may be liable
for instructions that prove
to be fraudulent or
unauthorized.
I/We further acknowledge
that it is my/our
responsibility to read the
Prospectus of any Fund into
which I/we exchange.
[_] I/We do not wish to have
the ability to exercise
telephone redemption and
exchange privileges. I/We
further understand that all
exchange and redemption
requests must be in writing.
SPECIAL PURCHASE AND
REDEMPTION PLANS
I/We have completed and
attached the Supplemental
Application for:
[_] Automatic Investment
Plan
[_] Systematic Withdrawal
Plan
AUTHORITY TO TRANSMIT
REDEMPTION PROCEEDS TO PRE-
DESIGNATED ACCOUNT.
I/We hereby authorize CGFSC to
act upon instructions received
by telephone to withdraw
$1,000 or more from my/our
account in the Excelsior Funds
and to wire the amount
withdrawn to the following
commercial bank account. I/We
understand that CGFSC charges
an $8.00 fee for each wire
redemption, which will be
deducted from the proceeds of
the redemption.
Title on Bank Account*_________
Name of Bank __________________
Bank A.B.A. Number Account
Number ________________________
Bank Address __________________
City/State/Zip Code____________
(attach voided check here)
A corporation, trust or
partnership must also submit a
"Corporate Resolution" (or
"Certificate of Partnership")
indicating the names and
titles of officers authorized
to act on its behalf.
* TITLE ON BANK AND FUND
ACCOUNT MUST BE IDENTICAL.
<PAGE>
- ------------------------------------------------------------------
RIGHTS OF ACCUMULATION
- ------------------------------------------------------------------
To qualify for Rights of Accumulation, you must complete this
section, listing all of your accounts including those in your
spouse's name, joint accounts and accounts held for your
minor children. If you need more space, please attach a
separate sheet.
[_] I/We qualify for the Rights of Accumulation sales charge
discount described in the Prospectus and Statement of
Additional Information.
[_] I/We own shares of more than one Fund distributed by
Edgewood Services, Inc. Listed below are the numbers of
each of my/our Shareholder Accounts.
[_] The registration of some of my/our shares differs from that
shown on this application. Listed below are the account
number(s) and full registration(s) in each case.
LIST OF OTHER EXCELSIOR FUND ACCOUNTS:
______________________ _______________________________________
______________________ _______________________________________
______________________ _______________________________________
ACCOUNT NUMBER ACCOUNT REGISTRATIONS
- ------------------------------------------------------------------
LETTER OF INTENT
- ------------------------------------------------------------------
[_] I agree to the Letter of Intent provisions set forth in
the Prospectus. Although I am not obligated to purchase, and
Excelsior Fund is not obligated to sell, I intend to invest,
over a 13-month period beginning on , 19 , an aggregate
amount in Eligible Funds of Excelsior Fund and Excelsior Tax-
Exempt Fund at least equal to (check appropriate box):
[_] $50,000[_] $100,000[_] $250,000[_] $500,000[_] $1,000,000[_] $2,000,000
By signing this application, I hereby authorize CGFSC to
redeem an appropriate number of shares held in escrow to pay
any additional sales loads payable in the event that I do not
fulfill the terms of this Letter of Intent.
- ------------------------------------------------------------------
AGREEMENT AND SIGNATURES
- ------------------------------------------------------------------
By signing this application, I/we hereby certify under
penalty of perjury that the information on this application
is complete and correct and that as required by Federal law:
[_] I/We certify that (1) the number(s) shown on this form
is/are the correct taxpayer identification number(s) and (2)
I/we are not subject to backup withholding either because
I/we have not been notified by the Internal Revenue Service
that I/we are subject to backup withholding, or the IRS has
notified me/us that I am/we are no longer subject to backup
withholding. (NOTE: IF ANY OR ALL OF PART 2 IS NOT TRUE,
PLEASE STRIKE OUT THAT PART BEFORE SIGNING.)
[_] If no taxpayer identification number ("TIN") or SSN has
been provided above, I/we have applied, or intend to apply,
to the IRS or the Social Security Administration for a TIN or
a SSN, and I/we understand that if I/we do not provide this
number to CGFSC within 60 days of the date of this
application, or if I/we fail to furnish my/our correct SSN or
TIN, I/we may be subject to a penalty and a 31% backup
withholding on distributions and redemption proceeds. (Please
provide this number on Form W-9. You may request the form by
calling CGFSC at the number listed above).
I/We represent that I am/we are of legal age and capacity to
purchase shares of the Excelsior Funds. I/We have received,
read and carefully reviewed a copy of the appropriate Fund's
current Prospectus and agree to its terms and by signing
below I/we acknowledge that neither the Fund nor the
Distributor is a bank and that Fund Shares are not deposits
or obligations of, or guaranteed or endorsed by, United
States Trust Company of New York, its parent and affiliates
and the Shares are not federally insured by, guaranteed by,
obligations of or otherwise supported by the U.S. Government,
the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other governmental agency; and that an
investment in the Funds involves investment risks, including
possible loss of principal amount invested.
X ___________________________ Date __________________________
Owner Signature
X ___________________________ Date __________________________
Co-Owner Signature
Sign exactly as name(s) of registered owner(s) appear(s) above
(including legal title if signing for a corporation, trust
custodial account, etc.).
- ------------------------------------------------------------------
FOR USE BY AUTHORIZED AGENT (BROKER/DEALER) ONLY
- ------------------------------------------------------------------
We hereby submit this application for the purchase of shares
in accordance with the terms of our selling agreement with
Edgewood Services, Inc., and with the Prospectus and
Statement of Additional Information of each Fund purchased.
We agree to notify CGFSC of any purchases made under the
Letter of Intent or Rights of Accumulation.
----------------------------- -------------------------------
Investment Dealer's Name Source of Business Code
----------------------------- -------------------------------
Main Office Address Branch Number
----------------------------- -------------------------------
Representative's Number Representative's Name
----------------------------- -------------------------------
Branch Address Telephone
----------------------------- -------------------------------
Investment Dealer's Title
Authorized Signature
<PAGE>
[LOGO OF EXCELSIOR CHASE GLOBAL FUNDS SERVICES COMPANY
FUNDS INC.] CLIENT SERVICES
P.O. Box 2798 SUPPLEMENTAL
Boston, MA 02208-2798 APPLICATION
(800) 446-1012 SPECIAL INVESTMENT AND
WITHDRAWAL OPTIONS
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION PLEASE SUPPLY THE FOLLOWING INFORMATION EXACTLY AS IT
APPEARS ON THE FUND'S RECORD.
-----------------------------------------------------------------------------
Fund Name __________________ Account Number _________________
Owner Name _________________ Social Security or Taxpayer ID
Street Address _____________ Number _________________________
Resident City, State, Zip Code __________
of [_] U.S. [_] Other ____ [_] Check here if this is a
change of address
-----------------------------------------------------------------------------
DISTRIBUTION OPTIONS (DIVIDENDS AND CAPITAL GAINS WILL BE REINVESTED
UNLESS OTHERWISE INDICATED)
-----------------------------------------------------------------------------
A. CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend
distributions will be reinvested in additional shares unless appropriate
boxes below are checked:
All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash
B. PAYMENT ORDER: Complete only if distribution checks are to be payable
to another party. Make distribution checks payable to:
Name of Your Bank ______________
Name _______________________ Bank Account Number ____________
Address ____________________ Address of Bank ________________
City, State, Zip Code ________________________________________
C. DISTRIBUTIONS REINVESTED-CROSS FUNDS: Permits all distributions from
one Fund to be automatically reinvested into another identically-
registered Excelsior Fund. (NOTE: You may NOT open a new Fund account with
this option.) Transfer all distributions earned:
From: ______________________ Account No. ____________________
(Fund)
To: ________________________ Account No. ____________________
(Fund)
-----------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN [_] YES [_] NO
-----------------------------------------------------------------------------
I/We hereby authorize CGFSC to debit my/our personal checking account on
the designated dates in order to purchase shares in the Fund indicated at
the top of this application at the applicable public offering price
determined on that day.
[_] Monthly on the 1st day
[_] Monthly on the 15th day
[_] Monthly on both the 1st and 15th days
Amount of each debit (minimum $50
per Fund) $ ________________________
NOTE: A Bank Authorization Form (below) and a voided personal check must
accompany the Automatic Investment Plan application.
-----------------------------------------------------------------------------
EXCELSIOR FUNDS CLIENT SERVICES
AUTOMATIC INVESTMENT PLAN
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
BANK AUTHORIZATION
-----------------------------------------------------------------------------
-------------------- ----------------------------------------
Bank Name Bank Address Bank Account Number
I/We authorize you, the above named bank, to debit my/our
account for amounts drawn by CGFSC, acting as my agent for
the purchase of Fund shares. I/We agree that your rights in
respect to each withdrawal shall be the same as if it were a
check drawn upon you and signed by me/us. This authority
shall remain in effect until revoked in writing and received
by you. I/We agree that you shall incur no liability when
honoring debits, except a loss due to payments drawn against
insufficient funds. I/We further agree that you will incur no
liability to me if you dishonor any such withdrawal. This
will be so even though such dishonor results in the
cancellation of that purchase.
---------------------------- --------------------------------
Account Holder's Name Joint Account Holder's Name
X ________________ _________ X __________________ ___________
Signature Date Signature Date
<PAGE>
- -------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN [_] YES [_] NO NOT AVAILABLE FOR IRA'S
- -------------------------------------------------------------------------
AVAILABLE TO SHAREHOLDERS WITH ACCOUNT BALANCES OF $10,000 OR
MORE.
I/We hereby authorize CGFSC to redeem the necessary number of
shares from my/our Excelsior Fund Account on the designated
dates in order to make the following periodic payments:
[_] Monthly on the 24th day
[_] Quarterly on the 24th day of January, April, July and October
[_] Other_____________________
(This request for participation in the Plan must be received
by the 18th day of the month in which you wish withdrawals to
begin.)
Amount of each check ($100 minimum)
$
Please make Recipient ________________________________
check payable Street Address ___________________________
to: (To be City, State, Zip Code ____________________
completed only
if redemption
proceeds to be
paid to other
than account
holder of record
or mailed to
address other
than address of
record)
NOTE: If recipient of checks is not the registered
shareholder, signature(s) below must be guaranteed. A
corporation, trust or partnership must also submit a
"Corporate Resolution" (or "Certification of Partnership")
indicating the names and titles of officers authorized to act
on its behalf.
- ------------------------------------------------------------------
AGREEMENT AND SIGNATURES
- ------------------------------------------------------------------
The investor(s) certifies and agrees that the certifications,
authorizations, directions and restrictions contained herein
will continue until CGFSC receives written notice of any
change or revocation. Any change in these instructions must
be in writing with all signatures guaranteed (if applicable).
Date ______________________
X X
------------------------------- -----------------------------
Signature Signature
------------------------------- -----------------------------
Signature Guarantee* (if applicable)
Signature Guarantee* (if applicable)
X X
------------------------------- -----------------------------
Signature Signature
------------------------------- -----------------------------
Signature Guarantee* (if applicable)
Signature Guarantee* (if applicable)
*ELIGIBLE GUARANTORS: An Eligible Guarantor institution is a
bank, trust company, broker, dealer, municipal or government
securities broker or dealer, credit union, national
securities exchange, registered securities association,
clearing agency or savings association, provided that such
institution is a participant in STAMP, the Securities
Transfer Agents Medallion Program.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY......................................................... 2
EXPENSE SUMMARY............................................................ 3
FINANCIAL HIGHLIGHTS....................................................... 5
U.S. TRUST'S INVESTMENT PHILOSOPHY AND STRATEGIES.......................... 11
INVESTMENT OBJECTIVES AND POLICIES......................................... 11
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION..................... 15
INVESTMENT LIMITATIONS..................................................... 18
PRICING OF SHARES.......................................................... 19
HOW TO PURCHASE AND REDEEM SHARES.......................................... 20
INVESTOR PROGRAMS.......................................................... 26
DIVIDENDS AND DISTRIBUTIONS................................................ 29
TAXES...................................................................... 30
MANAGEMENT OF THE FUNDS.................................................... 31
DESCRIPTION OF CAPITAL STOCK............................................... 34
CUSTODIAN AND TRANSFER AGENT............................................... 34
PERFORMANCE INFORMATION.................................................... 35
MISCELLANEOUS.............................................................. 35
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION................................... 36
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' STATEMENT OF ADDI-
TIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OF-
FERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REP-
RESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY EXCELSIOR
FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY EX-
CELSIOR FUND OR BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
USTEQP896-F
[LOGO OF EXCELSIOR FUNDS INC.]
EQUITY FUND
AGING OF AMERICA FUND
COMMUNICATION AND ENTERTAINMENT FUND
BUSINESS AND INDUSTRIAL RESTRUCTURING FUND
GLOBAL COMPETITORS FUND
EARLY LIFE CYCLE FUND
Prospectus
August 1, 1996
<PAGE>
CROSS-REFERENCE SHEET
---------------------
EXCELSIOR FUNDS, INC.
(International Fund, Emerging Americas Fund,
Pacific Asia Fund, Pan European Fund)
<TABLE>
<CAPTION>
Form N-1A, Part A, Item Prospectus Caption
- ----------------------- ------------------
<S> <C> <C>
1. Cover Page . . . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . . . Prospectus Summary and
Expense Summary
3. Condensed Financial Information . Financial Highlights; Performance
Information
4. General Description of Registrant Prospectus Summary; Investment
Objectives and Policies; Portfolio
Instruments and Other Investment
Information; Investment
Limitations; Description of
Capital Stock
5. Management of the Fund . . . . . . Management of the Funds; Custodian
and Transfer Agent
5A. Management's Discussion of Fund
Performance . . . . . . . . . . Not Applicable
6. Capital Stock and
Other Securities . . . . . . . . How to Purchase and
Redeem Shares;
Dividends and
Distributions;
Taxes; Description
of Capital Stock;
Miscellaneous
7. Purchase of Securities
Being Offered . . . . . . . . . . Pricing of Shares; How to Purchase
and Redeem Shares; Investor
Programs
8. Redemption or Repurchase . . . . . How to Purchase and Redeem Shares
9. Pending Legal Proceedings . . . . . Inapplicable
</TABLE>
<PAGE>
[LOGO OF EXCELSIOR
FUNDS, INC.]
A Management Investment Company
- -------------------------------------------------------------------------------
International Funds For initial purchase information, current prices,
performance information and existing account in-
73 Tremont Street formation, call (800) 446-1012.
Boston, MA 02108-3913 (From overseas, call (617) 557-8280.)
- -------------------------------------------------------------------------------
This Prospectus describes several separate portfolios offered to investors by
Excelsior Funds, Inc. ("Excelsior Fund") (formerly UST Master Funds, Inc.), an
open-end, management investment company. Each portfolio (each a "Fund" and
collectively the "Funds") has its own investment objective and policies as
follows:
INTERNATIONAL FUND seeks total return on its assets through capital apprecia-
tion and income derived primarily from investments in a diversified portfolio
of marketable foreign equity securities.
EMERGING AMERICAS FUND seeks long-term capital appreciation through invest-
ments in companies and securities of governments based in all countries in the
Western Hemisphere, except the U.S.
PACIFIC/ASIA FUND seeks long-term capital appreciation through investments in
companies and securities of governments based in all countries in Asia and on
the Asian side of the Pacific Ocean.
PAN EUROPEAN FUND seeks long-term capital appreciation through investments in
companies and securities of governments based in Europe.
Excelsior Fund is sponsored and distributed by Edgewood Services, Inc. and
advised by United States Trust Company of New York (the "Investment Adviser"
or "U.S. Trust").
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated August 1, 1996 and containing additional information about
the Funds has been filed with the Securities and Exchange Commission. The cur-
rent Statement of Additional Information is available to investors without
charge by writing to Excelsior Fund at its address shown above or by calling
(800) 446-1012. The Statement of Additional Information, as it may be supple-
mented from time to time, is incorporated by reference in its entirety into
this Prospectus.
SHARES OF THE FUNDS ("SHARES") ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARAN-
TEED OR ENDORSED BY, UNITED STATES TRUST COMPANY OF NEW YORK, ITS PARENT OR
AFFILIATES AND THE SHARES ARE NOT FEDERALLY INSURED BY, GUARANTEED BY, OBLIGA-
TIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL
AGENCY.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
August 1, 1996
<PAGE>
PROSPECTUS SUMMARY
EXCELSIOR FUNDS, INC. is an investment company offering various diversified
investment portfolios with differing objectives and policies. Founded in 1984,
Excelsior Fund currently offers 20 Funds with combined assets of approximately
$2.4 billion. See "Description of Capital Stock."
INVESTMENT ADVISER: United States Trust Company of New York serves as the
Funds' investment adviser. U.S. Trust is a trust company offering a variety of
specialized financial and fiduciary services to high-net worth individuals,
institutions and corporations. Excelsior Fund offers investors access to U.S.
Trust's services. The International and Pan European Funds receive sub-advi-
sory services from Foreign and Colonial Asset Management ("FACAM"), and the
Emerging Americas and Pacific/Asia Funds receive sub-advisory services from
Foreign & Colonial Emerging Markets Limited ("FCEML"). FACAM and FCEML are
U.S. Trust affiliates. See "Management of the Funds--Investment Adviser."
INVESTMENT OBJECTIVES AND POLICIES: Generally, each Fund is a diversified
investment portfolio which invests principally in the equity securities of
foreign companies. The Funds also may invest in warrants, convertible securi-
ties, bonds and other securities of foreign companies and governments. The
Funds' investment objectives and policies are summarized on the cover and ex-
plained in greater detail later in this Prospectus. See "Investment Objectives
and Policies," "Portfolio Instruments and Other Information" and "Investment
Limitations."
HOW TO INVEST: The Funds' Shares are offered at their public offering price,
i.e., their net asset value plus a sales load which is subject to substantial
reductions for large purchases and programs for accumulation. The sales load
is not applicable to investors making their investments through a variety of
institutions, such as U.S. Trust, other banks and trust companies. See "How to
Purchase and Redeem Shares."
The minimum to start an account is $500 per Fund, with a minimum of $50 per
Fund for subsequent investments. The easiest way to invest is to complete the
account application which accompanies this Prospectus and to send it with a
check to the address noted on the application. Investors may also invest by
wire and through investment dealers or institutional investors with appropri-
ate sales agreements with Excelsior Fund. See "How to Purchase and Redeem
Shares."
HOW TO REDEEM: Redemptions may be requested directly from Excelsior Fund by
mail, wire or telephone. Investors investing through another institution
should request redemptions through their Shareholder Organization. See "How to
Purchase and Redeem Shares."
INVESTMENT RISKS AND CHARACTERISTICS: Generally, each Fund is subject to
market risk and currency risk. Market risk is the possibility that stock
prices will decline over short or even extended periods. Stock markets tend to
be cyclical, with periods of generally rising prices and periods of generally
declining prices. These cycles will affect the values of each Fund. In addi-
tion, since the Funds invest in foreign securities, the Funds are subject to
the risks of fluctuations of the value of foreign currencies relative to the
U.S. dollar and other risks associated with such investments. Finally, while
the International Fund diversifies its investments in a variety of companies
and countries, the Emerging Americas, Pacific/Asia and Pan European Funds
(collectively, the "Regional Funds") focus their investment activities in
their designated regions. As a result each Regional Fund is susceptible to re-
gional economic, market, political and other more localized risks. Although
each Fund generally seeks to invest for the long term, each Fund may engage in
short-term trading of portfolio securities. A high rate of portfolio turnover
may involve correspondingly greater transaction costs which must be borne di-
rectly by a Fund and ultimately by its shareholders. Investments in the Funds
should not be considered a complete investment program. See "Investment Objec-
tives and Policies--Risk Factors" and "Portfolio Instruments and Other Invest-
ment Information."
2
<PAGE>
EXPENSE SUMMARY
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING AMERICAS PACIFIC/ASIA PAN EUROPEAN
FUND FUND FUND FUND
------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Load
(as a percentage of
offering price)........ 4.50% 4.50% 4.50% 4.50%
Sales Load on Reinvested
Dividends.............. None None None None
Deferred Sales Load..... None None None None
Redemption Fees/1/...... None None None None
Exchange Fees........... None None None None
ANNUAL FUND OPERATING
EXPENSES
(AS A PERCENTAGE OF AV-
ERAGE NET ASSETS)
Advisory Fees (after fee
waivers)/2/............ .90% .91% .92% .91%
12b-1 Fees.............. None None None None
Other Operating Expenses
Administrative Servic-
ing Fee/2/............ .10% .09% .09% .09%
Other Expenses......... .40% .48% .48% .46%
----- ----- ----- -----
Total Operating Expenses
(after fee waivers)/2/. 1.40% 1.48% 1.43% 1.46%
===== ===== ===== =====
</TABLE>
- -------
/1The/Fund's transfer agent imposes a direct $8.00 charge on each wire redemp-
tion by noninstitutional (i.e. individual) investors which is not reflected
in the expense ratios presented herein. Shareholder organizations may charge
their customers transaction fees in connection with redemptions. See "Redemp-
tion Procedures."
/2The/Investment Adviser and Administrators may, from time to time, voluntarily
waive a portion of their respective fees which waivers may be terminated at
any time. Until further notice, the Investment Adviser and/or Administrators
intend to voluntarily waive fees in an amount equal to the Administrative
Servicing Fee; and to further waive fees and reimburse expenses to the extent
necessary for Shares of the Emerging Americas, Pacific/Asia and Pan European
Funds to maintain an annual expense ratio of not more than 1.67%. Without
such fee waivers, "Advisory Fees" would be 1.00%, 1.00%, 1.00% and 1.00% and
"Total Operating Expenses" would be 1.50%, 1.57%, 1.51%, and 1.55% for each
of the International, Emerging Americas, Pacific/Asia and Pan European Funds.
3
<PAGE>
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual returns and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
International Fund.............................. $59 $87 $118 $205
Emerging Americas Fund.......................... 59 90 122 214
Pacific/Asia Fund............................... 59 88 120 209
Pan European Fund............................... 59 89 121 212
</TABLE>
The foregoing expense summary and example (based on the maximum sales load
payable on the Shares) are intended to assist investors in understanding the
costs and expenses that an investor in Shares of the Funds will bear directly
or indirectly. The expense summary sets forth advisory and other expenses pay-
able with respect to Shares of the Funds for the fiscal year ended March 31,
1996. For more complete descriptions of the Funds' operating expenses, see
"Management of the Funds" in this Prospectus and the financial statements and
notes incorporated by reference in the Statement of Additional Information.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES AND RATE OF RETURN MAY BE
GREATER OR LOWER THAN THOSE SHOWN IN THE EXPENSE SUMMARY AND EXAMPLE.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables include selected data for a Share outstanding throughout
each period and other performance information derived from the financial state-
ments included in Excelsior Fund's Annual Report to Shareholders for the year
ended March 31, 1996 (the "Financial Statements"). The information contained in
the Financial Highlights for each period has been audited by Ernst & Young LLP,
Excelsior Fund's independent auditors. The following tables should be read in
conjunction with the Financial Statements and notes thereto. More information
about the performance of each Fund is also contained in the Annual Report to
Shareholders which may be obtained from Excelsior Fund without charge by call-
ing the number on the front cover of this Prospectus.
INTERNATIONAL FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989
------ ------- ------ ------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Begin-
ning of period......... $ 9.82 $ 10.44 $ 8.66 $ 8.27 $ 8.75 $ 9.84 $ 8.61 $ 7.85
------ ------- ------ ------ ------- ------- ------ ------
Income From Investment
Operations
Net Investment Income.. 0.10 0.10 0.05 0.15 0.08 0.13 0.15 0.05
Net Gains or (Losses)
on Securities (both
realized and
unrealized)........... 1.15 (0.29) 1.88 0.25 (0.45) (0.64) 1.47 0.77
------ ------- ------ ------ ------- ------- ------ ------
Total From Investment
Operations............ 1.25 (0.19) 1.93 0.40 (0.37) (0.51) 1.62 0.82
------ ------- ------ ------ ------- ------- ------ ------
Less Distributions
Dividends From Net
Investment Income..... (0.08) 0.00 (0.02) (0.01) (0.11) (0.11) (0.16) (0.06)
Dividends in Excess of
Net Investment Income. (0.01) (0.11) (0.12) 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Gain on
Investments........... (0.07) (0.32) (0.01) 0.00 0.00 (0.47) (0.23) 0.00
Distributions in Excess
of Net Realized Gain
on Investments........ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------ ------- ------ ------ ------- ------- ------ ------
Total Distributions.... (0.16) (0.43) (0.15) (0.01) (0.11) (0.58) (0.39) (0.06)
------ ------- ------ ------ ------- ------- ------ ------
Net Asset Value, End of
Period................. $10.91 $ 9.82 $10.44 $ 8.66 $ 8.27 $ 8.75 $ 9.84 $ 8.61
====== ======= ====== ====== ======= ======= ====== ======
Total Return/2/......... 12.77% (1.93)% 22.34% 4.85% (4.35)% (5.20)% 18.91% 10.59%
Ratios/Supplemental Data
Net Assets, End of Pe-
riod (in millions).... $97.85 $ 64.05 $55.74 $30.37 $ 46.92 $ 31.87 $21.49 $13.01
Ratio of Net Operating
Expenses to Average
Net Assets............ 1.40% 1.47% 1.53% 1.50% 1.52% 1.61% 1.34% 1.28%
Ratio of Gross
Operating Expenses to
Average Net Assets/4/. 1.50% 1.53% 1.53% 1.50% 1.52% 1.61% 1.58% 1.93%
Ratio of Net Investment
Income to Average Net
Assets................ 0.82% 0.71% 0.18% 1.27% 0.94% 1.57% 1.55% 0.75%
Portfolio Turnover
Rate.................. 39.0% 66.0% 64.0% 31.0% 32.0% 47.0% 50.0% 80.0%
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was July 21, 1987.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by adviser and administrators.
5
<PAGE>
EMERGING AMERICAS FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------ PERIOD ENDED
1995 1995 1994 MARCH 31, 1993/1/
------ -------- ------ -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
period........................ $ 5.86 $ 9.30 $ 7.12 $ 7.00
------ -------- ------ -------
Income From Investment
Operations
Net Investment Income........ 0.10 0.01 0.05 0.00
Net Gains or (Losses) on
Securities (both realized
and unrealized)............. 1.49 (2.56) 2.24 0.12
------ -------- ------ -------
Total From Investment Opera-
tions....................... 1.59 (2.55) 2.29 0.12
------ -------- ------ -------
Less Distributions
Dividends From Net Investment
Income...................... (0.04) 0.00 (0.03) 0.00
Dividends in Excess of Net
Investment Income........... (0.04) (0.17) (0.02) 0.00
Distributions From Net Real-
ized Gain on
Investments................. 0.00 0.00 (0.06) 0.00
Distributions in Excess of
Net Realized Gain on
Investments................. 0.00 (0.72) 0.00 0.00
------ -------- ------ -------
Total Distributions.......... (0.08) (0.89) (0.11) 0.00
------ -------- ------ -------
Net Asset Value, End of Period. $ 7.37 $ 5.86 $ 9.30 $ 7.12
====== ======== ====== =======
Total Return/2/................ 27.29% (30.47)% 32.25% 1.71%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)................... $43.16 $ 27.34 $39.28 $ 3.83
Ratio of Net Operating
Expenses to Average
Net Assets.................. 1.48% 1.50% 1.49% 1.67%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets/4/................... 1.57% 1.57% 1.71% 2.56%/3/
Ratio of Net Investment
Income/(Loss) to
Average Net Assets.......... 1.12% 0.06% 0.29% (0.04)%/3/
Portfolio Turnover Rate...... 54.0% 69.0% 51.0% 76.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by adviser and administrators.
6
<PAGE>
PACIFIC/ASIA FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------- PERIOD ENDED
1996 1995 1994 MARCH 31, 1993/1/
------ ------- ------ -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of peri-
od................................. $ 8.45 $ 10.04 $ 7.54 $7.00
------ ------- ------ -----
Income From Investment Operations
Net Investment Income............. 0.12 0.08 0.08 0.00
Net Gains or (Losses) on
Securities (both realized and
unrealized)...................... 1.33 (0.58) 2.81 0.54
------ ------- ------ -----
Total From Investment Operations.. 1.45 (0.50) 2.89 0.54
------ ------- ------ -----
Less Distributions
Dividends From Net Investment In-
come............................. (0.09) (0.03) (0.05) 0.00
Dividends in Excess of Net Invest-
ment Income...................... (0.01) (0.23) (0.06) 0.00
Distributions From Net Realized
Gain on Investments.............. (0.02) (0.83) (0.28) 0.00
Distributions in Excess of Net Re-
alized Gain on Investment........ 0.00 0.00 0.00 0.00
------ ------- ------ -----
Total Distributions............... (0.12) (1.09) (0.39) 0.00
------ ------- ------ -----
Net Asset Value, End of Period...... $ 9.78 $ 8.45 $10.04 $7.54
====== ======= ====== =====
Total Return/2/..................... 17.22% (5.89)% 38.11% 7.71%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)........................ $76.19 $ 47.62 $53.03 $9.67
Ratio of Net Operating Expenses to
Average Net Assets............... 1.43% 1.47% 1.53% 1.67%/3/
Ratio of Gross Operating Expenses
to Average Net Assets/4/......... 1.51% 1.52% 1.77% 2.00%/3/
Ratio of Net Investment Income to
Average Net Assets............... 1.12% 0.85% 0.54% 0.27%/3/
Portfolio Turnover Rate........... 29.0% 69.0% 68.0% 1.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by adviser and administrators.
7
<PAGE>
PAN EUROPEAN FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------- PERIOD ENDED
1996 1995 1994 MARCH 31, 1993/1/
------ ------ ------ -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of period. $ 8.19 $ 8.03 $ 7.34 $ 7.00
------ ------ ------ -------
Income From Investment Operations
Net Investment Income.............. 0.11 0.09 0.03 0.00
Net Gains or (Losses) on Securities
(both realized and unrealized).... 1.35 0.25 0.70 0.34
------ ------ ------ -------
Total From Investment Operations... 1.46 0.34 0.73 0.34
------ ------ ------ -------
Less Distributions
Dividends From Net Investment In-
come.............................. (0.10) (0.09) 0.00 0.00
Dividends in Excess of Net Invest-
ment Income....................... 0.00 0.00 (0.04) 0.00
Distributions From Net Realized
Gain on Investments............... (0.36) (0.09) 0.00 0.00
Distributions in Excess of Net Re-
alized Gain on Investment......... 0.00 0.00 0.00 0.00
------ ------ ------ -------
Total Distributions................ (0.46) (0.18) (0.04) 0.00
------ ------ ------ -------
Net Asset Value, End of Period....... $ 9.19 $ 8.19 $ 8.03 $ 7.34
====== ====== ====== =======
Total Return/2/...................... 18.25% 4.33% 10.05% 4.86%
Ratios/Supplemental Data
Net Assets, End of Period (in mil-
lions)............................ $47.92 $39.98 $36.68 $ 3.80
Ratio of Net Operating Expenses to
Average Net Assets................ 1.46% 1.51% 1.61% 1.67%/3/
Ratio of Gross Operating to Average
Net Assets/4/..................... 1.55% 1.57% 1.72% 3.13%/3/
Ratio of Net Investment
Income/(Loss) to Average Net As-
sets.............................. 1.28% 1.11% 0.06% (0.33%)/3/
Portfolio Turnover Rate............ 42.0% 47.0% 30.0% 9.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by adviser and administrators.
8
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Investment Adviser will use its best efforts to achieve the investment ob-
jectives of each Fund, although their achievement cannot be assured. The in-
vestment objective of each Fund is "fundamental," meaning that it may not be
changed without a vote of the holders of a majority of the particular Fund's
outstanding shares (as defined under "Miscellaneous"). Except as noted below in
"Investment Limitations," the investment policies of each Fund may be changed
without a vote of the holders of a majority of the outstanding shares of such
Fund.
INTERNATIONAL FUND
The International Fund's investment objective is to seek total return on its
assets through capital appreciation and income derived primarily from invest-
ments in a diversified portfolio of marketable foreign equity securities.
In seeking to achieve this investment objective, the International Fund will
invest primarily in equity securities of foreign issuers who will, in the opin-
ion of Foreign and Colonial Asset Management, the Fund's sub-adviser (the "Sub-
Adviser" or "FACAM") and the Investment Adviser, benefit from global economic
trends, promising technologies or products and specific country opportunities
resulting from changing geo-political, economic or currency relationships. In
making investment decisions, the Sub-Adviser and Investment Adviser will seek
to identify values not recognized in the market price of a security. The pri-
mary emphasis will be on the achievement of a higher total return focusing, as
circumstances warrant, solely on either growth of capital or generation of cur-
rent income or any combination thereof.
The International Fund does not intend to have, at any time, a specified per-
centage of its assets invested either for growth or for income, and all or any
portion of its assets may be allocated among these two components based on the
Investment Adviser's and Sub-Adviser's analysis of the prevailing market condi-
tions. Although the Fund will seek to realize its investment objective primar-
ily through investments in foreign equity securities, it may, from time to
time, assume a defensive position by allocating all or any portion of its as-
sets to foreign debt obligations. In determining investment strategy and allo-
cating investments, the Sub-Adviser and Investment Adviser will continuously
analyze a broad range of international equity and fixed-income securities in
order to assess the level of return, and degree of risk, that can be expected
from each type of investment and from each market.
The International Fund's investments will generally be diversified among geo-
graphic regions and countries. While there are no prescribed limits on geo-
graphic distribution, the Fund will normally include in its portfolio securi-
ties of issuers collectively having their principal business in no fewer than
three foreign countries. The Fund's assets may be invested in securities of is-
suers located in the Pacific Basin (e.g. Japan, Hong Kong, Singapore, Malay-
sia), Europe, Australia, Latin America and Canada. The Fund may also, from time
to time, invest in other regions, seeking to capitalize on investment opportu-
nities emerging in other parts of the world.
REGIONAL FUNDS:
The investment objective of each Regional Fund is long-term capital apprecia-
tion. In seeking to achieve this investment objective, each Regional Fund will
invest primarily in equity securities of foreign issuers who will, in the opin-
ion of the particular Fund's Sub-Adviser and the Investment Adviser, benefit
from global and regional economic trends, promising technologies or products
and specific country and regional opportunities resulting from changing geo-po-
litical, economic or currency relationships. In making investment decisions,
the particular Fund's Sub-Adviser and the Investment Adviser will seek to iden-
tify values not recognized in the market price of a security.
9
<PAGE>
Although each Regional Fund will seek to realize its investment objective pri-
marily through investments in foreign equity and government securities, it may,
from time to time, assume a defensive position by allocating all or any portion
of its assets to U.S. Government or foreign debt obligations. The Regional
Funds will limit their investments in foreign debt obligations to those rated
within the top three ratings by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Group ("S&P") or, if unrated, determined by the In-
vestment Advisory or the sub-adviser to be of comparable quality. No Regional
Fund currently expects to invest more than 25% of its total assets in the secu-
rities issued by any single foreign government. Any such investment would sub-
ject the particular Regional Fund to the risks presented by investing in secu-
rities of such foreign government to a greater extent than it would if that
Fund's assets were not so concentrated. In determining investment strategy and
allocating investments, the particular Fund's Sub-Adviser and the Investment
Adviser will continuously analyze a broad range of international equity and
fixed-income securities in order to assess the level of return, and degree of
risk, that can be expected from each type of investment and from each market.
Under normal circumstances, each Regional Fund will invest at least 65% of its
total assets in securities of issuers based in its targeted region. A company
is "based in" a region if it derives more than half of its assets, revenues or
profits from such region. The Regional Funds and their targeted regions are as
follows:
EMERGING AMERICAS FUND. The Emerging Americas Fund invests primarily in secu-
rities of companies and governments based in all countries of the Western Hemi-
sphere except the U.S. Currently, the Investment Adviser believes that such
countries may include Canada, Mexico, Ecuador, the Bahamas, Costa Rica, Venezu-
ela, Colombia, Peru, Brazil, Argentina and Chile. Under normal conditions, the
Fund will invest at least 65% of its total assets in securities of issuers
based in Western Hemisphere countries other than Canada. The Fund may also in-
vest in Brady Bonds, which are securities issued in various currencies (primar-
ily the dollar) that have been created through the exchange of existing commer-
cial bank loans to Latin American public and private entities for new bonds in
connection with debt restructurings under a debt restructuring plan announced
by former U.S. Secretary of the Treasury Nicholas F. Brady (the "Brady Plan").
Brady Bonds have been issued only recently and for that reason do not have a
long payment history. Brady Bonds may be collateralized or uncollateralized,
are issued in various currencies (primarily the dollar) and are actively traded
in the over-the-counter secondary market for Latin American debt instruments.
Brady Bonds are neither issued nor guaranteed by the U.S. Government. Addi-
tional information on Brady Bonds is included in the Statement of Additional
Information.
PACIFIC/ASIA FUND. The Pacific/Asia Fund invests primarily in securities of
companies and governments based in Asia and on the Asian side of the Pacific
Ocean. Currently, the Investment Adviser believes that such countries may in-
clude Australia, New Zealand, Hong Kong, India, Japan, Indonesia, the Philip-
pines, Malaysia, Singapore, Taiwan, China, Thailand, South Korea, Sri Lanka and
Pakistan. Under normal conditions, the Fund will limit its investments in the
securities of Japanese issuers to less than 20% of its total assets.
PAN EUROPEAN FUND. The Pan European Fund invests primarily in securities of
companies and governments based in Europe. Currently, the Investment Adviser
believes that such countries may include Ireland, the United Kingdom, Norway,
Sweden, Finland, Holland, Belgium, Luxembourg, France, Portugal, Spain, Den-
mark, Germany, Poland, Czech Republic, Slovakia, Hungary, Switzerland, Austria,
Greece, Turkey and Italy. As other formerly communist and Eastern European
countries become economically viable, investments may be made there as well.
10
<PAGE>
INVESTMENT POLICIES COMMON TO ALL FUNDS
Under normal market and economic conditions, at least 75% of each Fund's as-
sets will be invested in foreign securities. Foreign securities include common
stock, preferred stock, securities convertible into common stock, warrants,
bonds, notes and other debt obligations issued by foreign entities, as well as
shares of U.S. registered investment companies that invest primarily in for-
eign securities. Foreign debt securities purchased by a Fund may include obli-
gations issued in the Eurocurrency markets and obligations of foreign govern-
ments and their political subdivisions. In addition, each Fund may invest in
U.S. Government obligations, including the when-issued securities of such is-
suers, and obligations issued by U.S. companies which are either denominated
in foreign currency and sold abroad or, if denominated in U.S. dollars, pay-
ment on which is determined by reference to some other foreign currency.
Each Fund may invest indirectly in the securities of foreign issuers through
sponsored and unsponsored American Depository Receipts ("ADRs") and European
Depository Receipts ("EDRs"). Investments in unsponsored ADRs involve addi-
tional risk because financial information based on generally accepted account-
ing principles ("GAAP") may not be available for the foreign issuers of the
underlying securities. ADRs and EDRs may not necessarily be denominated in the
same currency as the underlying securities into which they may be converted.
Under unusual economic and market conditions, each Fund may restrict the se-
curities markets in which its assets are invested and may invest all or a ma-
jor portion of its assets in U.S. Government obligations or in U.S. dollar-de-
nominated securities of U.S. companies. Up to 25% of each Fund's assets may
also be held on a continuous basis in cash or invested in U.S. money market
instruments (see below under "Money Market Instruments") to meet redemption
requests or to take advantage of emerging investment opportunities. To the ex-
tent described below under "Portfolio Instruments and Other Investment Infor-
mation," each Fund may purchase shares of other investment companies and may
engage in repurchase agreements, securities lending, forward currency con-
tracts and futures contracts, options on futures and covered call options.
Convertible and non-convertible debt securities purchased by each Fund will
be rated "investment grade," or, if unrated, deemed by the particular Sub-Ad-
viser and the Investment Adviser to be comparable to securities rated "invest-
ment grade," by Moody's or S&P. Debt obligations rated in the lowest of the
top four "investment grade" ratings ("Baa" by Moody's and "BBB" by S&P) are
considered to have some speculative characteristics and may be more sensitive
to adverse economic change than higher rated securities. Each Fund will sell
in an orderly fashion as soon as possible any convertible and non-convertible
debt securities it holds if they are downgraded below "Baa" by Moody's or be-
low "BBB" by S&P. Foreign securities are generally unrated. In purchasing for-
eign equity securities, the particular Fund's Sub-Adviser will look generally
to established foreign companies. Each Fund may purchase securities both on
recognized stock exchanges and in over-the-counter markets. Most of the Funds'
portfolio transactions will be effected in the primary trading market for the
given security. Each Fund also may invest up to 5% of its total assets in gold
bullion. Investments in gold will not produce dividends or interest income,
and the Funds can look only to price appreciation for a return on such invest-
ments.
RISK FACTORS
Generally. Each Fund is subject to market risk, interest rate risks and the
risks of investing in foreign securities. Market risk is the possibility that
stock prices will decline over short or even extended periods. The stock mar-
kets tend to be cyclical, with periods of generally rising prices and periods
of generally declining prices. These cycles will affect the values of each
Fund. In addition, to the extent that the Funds invest in fixed-income securi-
ties, their holdings of debt securities are
11
<PAGE>
sensitive to changes in interest rates and the interest rate environment. Gen-
erally, the prices of bonds and debt securities fluctuate inversely with in-
terest rate changes.
Investments in securities of foreign issuers involve certain risks not ordi-
narily associated with investments in securities of domestic issuers. Such
risks include fluctuations in foreign exchange rates, future political and
economic developments, and the possible imposition of exchange controls or
other foreign governmental laws or restrictions. Since each Fund will invest
heavily in securities denominated or quoted in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will, to the extent a Fund
does not adequately hedge against such fluctuations, affect the value of secu-
rities in the portfolio and the unrealized appreciation or depreciation of in-
vestments so far as U.S. investors are concerned. In addition, with respect to
certain countries, there is the possibility of expropriation of assets, con-
fiscatory taxation, political or social instability or diplomatic developments
which could adversely affect investments in those countries.
There may be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to accounting,
auditing and financial reporting standards and requirements comparable to or
as uniform as those of U.S.-based companies. Foreign securities markets, while
growing in volume, have, for the most part, substantially less volume than
U.S. markets, and securities of many foreign companies are less liquid and
their prices more volatile than securities of comparable U.S.-based companies.
Transaction costs on foreign securities markets are generally higher than in
the United States. There is generally less government supervision and regula-
tion of foreign exchanges, brokers and issuers than there is in the U.S. The
Funds might have greater difficulty taking appropriate legal action in a for-
eign court than in a U.S. court.
Dividends and interest payable on a Fund's foreign portfolio securities may
be subject to foreign withholding taxes. To the extent such taxes are not off-
set by credits or deductions allowed to investors under the Federal income tax
provisions--see "Taxes--Federal"--they may reduce the net return to the Fund's
shareholders. Investors should also understand that the expense ratio of the
Funds can be expected to be higher than those of funds investing in domestic
securities. The costs attributable to investing abroad are usually higher for
several reasons, such as the higher cost of investment research, higher cost
of custody of foreign securities, higher commissions paid on comparable trans-
actions on foreign markets and additional costs arising from delays in settle-
ments of transactions involving foreign securities.
Emerging Americas Fund. The Latin American economies have experienced consid-
erable difficulties in the past decade. Although there have been significant
improvements in recent years, the Latin American economies continue to experi-
ence significant problems, including high inflation rates and high interest
rates. Inflation and rapid fluctuations in inflation rates have had and may
continue to have very negative effects on the economies and securities markets
of certain Latin American countries. The emergence of the Latin American econ-
omies and securities markets will require continued economic and fiscal disci-
pline which has been lacking at times in the past, as well as stable political
and social conditions. There is no assurance that economic initiatives will be
successful. Recovery may also be influenced by international economic condi-
tions, particularly those in the United States, and by world prices for oil
and other commodities.
Pan European Fund. Political and economic developments in Europe, especially
as they relate to changes in the structure of the European Economic Community
and the anticipated development of a unified common market, may have profound
effects upon the value of a large segment of the Fund's investment portfolio.
For example, continued progress in the evolution of a unified European common
market may be slowed by unanticipated political or social events and may,
there-
12
<PAGE>
fore, adversely affect the value of certain of the securities held by the
Fund. There has been considerable currency volatility within the European mon-
etary system and it is unclear whether a unified currency will emerge.
Pacific/Asia Fund. The extent of economic development, political stability
and market depth of different countries in the Pacific/Asia region varies
widely. Certain countries in the region are either comparatively underdevel-
oped or are in the process of becoming developed, and investments in the secu-
rities of issuers in such countries typically involve greater potential for
gain or loss than investments in securities of issuers in more developed coun-
tries. Certain countries in the region also depend to a large degree upon ex-
ports of primary commodities and, therefore, are vulnerable to changes in com-
modity prices which, in turn, may be affected by a variety of factors. The
Fund may be particularly sensitive to changes in the economies of certain
countries in the Pacific/Asia region resulting from any reversal of economic
liberalization, political unrest or the imposition of sanctions by the United
States or other countries.
Latin America, Eastern Europe and the Pacific/Asia Region. Certain of the
risks associated with international investments are heightened with respect to
investments in developing countries and fledgling democracies in Latin Ameri-
ca, Eastern Europe and the Pacific/Asia region. The risks of expropriation,
nationalization and social, political and economic instability are greater in
those countries than in more developed capital markets. In addition, the de-
veloping countries and emerging democracies in those regions may have econo-
mies based on only a few industries and small securities markets with a low
volume of trading. Certain countries may also impose substantial restrictions
on investments in their capital markets by foreign entities, including re-
strictions on investments in issuers of industries deemed sensitive to rele-
vant national interests. These factors may limit the investment opportunities
available to the Funds and result in a lack of liquidity and a high price vol-
atility with respect to securities of issuers from the developing countries
and emerging democracies in those regions.
Countries in Latin America, Eastern Europe and the Pacific/Asia region may
also impose restrictions on the Funds' ability to repatriate investment income
or capital. Even where there is no outright restriction on repatriation of in-
vestment income or capital, the mechanics of repatriation may affect certain
aspects of the operations of the Funds.
Some of the currencies of developing countries and emerging democracies in
Latin America, Eastern Europe and the Pacific/Asia region have experienced de-
valuations relative to the U.S. dollar, and major adjustments have been made
periodically in certain of such currencies. Certain countries in these regions
face serious exchange constraints.
Lastly, governments of many developing countries and emerging democracies in
Latin America, Eastern Europe and the Pacific/Asia region exercise substantial
influence over many aspects of the private sector. In some countries, the gov-
ernment owns or controls many companies, including the largest in the country.
As such, government actions in the future could have a significant effect on
economic conditions in developing countries and emerging democracies in these
regions, which could affect private sector companies, a Fund and the value of
a Fund's portfolio securities. Furthermore, certain countries in Latin Ameri-
ca, Eastern Europe and the Pacific/Asia region are among the largest debtors
to commercial banks and foreign governments. Trading in debt obligations is-
sued or guaranteed by those governments or their agencies and instrumentali-
ties involves a high degree of risk.
* * *
Because of the Funds' investment policies and the considerations discussed
above, investments in Shares of the Funds may not be appropriate for all in-
vestors and should not be considered a complete investment program.
13
<PAGE>
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION
MONEY MARKET INSTRUMENTS
"Money market instruments" which may be purchased by each Fund in accordance
with its policies set forth above include, among other things, bank obliga-
tions, commercial paper and corporate bonds with remaining maturities of 13
months or less.
Bank obligations include bankers' acceptances, negotiable certificates of de-
posit, and non-negotiable time deposits earning a specified return and issued
by a U.S. bank which is a member of the Federal Reserve System or insured by
the Bank Insurance Fund of the Federal Deposit Insurance Corporation, or by a
savings and loan association or savings bank which is insured by the Savings
Association Insurance Fund of the Federal Deposit Insurance Corporation. Bank
obligations also include U.S. dollar-denominated obligations of foreign
branches of U.S. banks and obligations of domestic branches of foreign banks.
Investments in time deposits are limited to no more than 5% of the value of a
Fund's total assets at time of purchase.
Investments by a Fund in commercial paper will consist of issues that are
rated "A-2" or better by S&P or "Prime-2" by Moody's. In addition, each Fund
may acquire unrated commercial paper and corporate bonds that are determined
by the Investment Adviser at the time of purchase to be of comparable quality
to rated instruments that may be acquired by each Fund.
Commercial paper may include variable and floating rate instruments. While
there may be no active secondary market with respect to a particular instru-
ment purchased by a Fund, each Fund may, from time to time as specified in the
instrument, demand payment of the principal of the instrument or may resell
the instrument to a third party. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if
the issuer defaulted on its payment obligation or during periods when a Fund
is not entitled to exercise its demand rights, and a Fund could, for this or
other reasons, suffer a loss with respect to such instrument.
REPURCHASE AGREEMENTS
In order to effectively manage its cash holdings, each Fund may enter into
repurchase agreements. The Funds will enter into repurchase agreements only
with financial institutions that are deemed to be creditworthy by the Invest-
ment Adviser, pursuant to guidelines established by Excelsior Fund's Board of
Directors. The Funds will not enter into repurchase agreements with the In-
vestment Adviser or Sub-Advisers or any of their affiliates. Repurchase agree-
ments with remaining maturities in excess of seven days will be considered il-
liquid securities and will be subject to the 10% limit described in Investment
Limitation No. 5 below.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund
at not less than the repurchase price. Default or bankruptcy of the seller
would, however, expose a Fund to possible delay in connection with the dispo-
sition of the underlying securities or loss to the extent that proceeds from a
sale of the underlying securities were less than the repurchase price under
the agreement.
SECURITIES LENDING
To increase return on its portfolio securities, each Fund may lend its port-
folio securities to broker/ dealers pursuant to agreements requiring the loans
to be continuously secured by collateral equal at all times in value to at
least the market value of the securities loaned. Collateral for such loans may
include cash, securities of the U.S. Government, its agencies or instrumental-
ities, or an irrevocable letter of credit issued by a bank, or any combination
thereof. Such loans will not be made if, as a result, the aggregate of all
outstanding loans of a Fund exceeds 30% of the value of its total assets.
There may be risks of delay in receiving
14
<PAGE>
additional collateral or in recovering the securities loaned or even a loss of
rights in the collateral should the borrower of the securities fail financial-
ly. However, loans are made only to borrowers deemed by the Investment Adviser
to be of good standing when, in the Investment Adviser's judgment, the income
to be earned from the loan justifies the attendant risks.
FORWARD CURRENCY TRANSACTIONS
Each Fund will conduct its currency exchange transactions either on a spot
(i.e. cash) basis at the rate prevailing in the currency exchange markets, or
by entering into forward currency contracts. A forward foreign currency con-
tract involves an obligation to purchase or sell a specific currency for a set
price at a future date. In this respect, forward currency contracts are simi-
lar to foreign currency futures contracts described below; however, unlike
futures contracts, which are traded on recognized commodities exchanges, for-
ward currency contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers.
Also, forward currency contracts usually involve delivery of the currency in-
volved instead of cash payment as in the case of futures contracts.
A Fund's participation in forward currency contracts will be limited to hedg-
ing involving either specific transactions or portfolio positions. The Funds'
Investment Adviser does not expect to hedge positions as a routine investment
technique, but anticipates hedging principally with respect to specific trans-
actions. Transaction hedging involves the purchase or sale of foreign currency
with respect to specific receivables or payables of the Fund generally arising
in connection with the purchase or sale of its portfolio securities. The pur-
pose of transaction hedging is to "lock in" the U.S. dollar equivalent price
of such specific securities. Position hedging is the sale of foreign currency
with respect to portfolio security positions denominated or quoted in that
currency. The Funds will not speculate in foreign currency exchange transac-
tions. Transaction and position hedging will not be limited to an overall per-
centage of a Fund's assets, but will be employed as necessary to correspond to
particular transactions or positions. A Fund may not hedge its currency posi-
tions to an extent greater than the aggregate market value (at the time of en-
tering into the forward contract) of the securities held in its portfolio de-
nominated, quoted in, or currently convertible into that particular currency.
When the Funds engage in forward currency transactions, certain asset segrega-
tion requirements must be satisfied. When a Fund takes a long position in a
forward currency contract, it must maintain a segregated account containing
cash and/or certain liquid assets equal to the purchase price of the contract,
less any margin or deposit. When a Fund takes a short position in a forward
currency contract, the Fund must maintain a segregated account containing cash
and/or certain liquid assets in an amount equal to the market value of the
currency underlying such contract (less any margin or deposit), which amount
must be at least equal to the market price at which the short position was es-
tablished. Asset segregation requirements are not applicable when a Fund "cov-
ers" a forward currency position generally by entering into an offsetting po-
sition. Additional information on forward currency transactions, including a
discussion of risks involved in such transactions (which are similar to those
described below under "Futures Contracts"), is included in the Statement of
Additional Information.
FUTURES CONTRACTS
Each Fund may also enter into interest rate futures contracts, other types of
financial futures contracts (such as foreign currency futures contracts, which
are similar to forward currency contracts described above) and related futures
options, as well as any index or foreign market futures which are available on
recognized exchanges or in other established financial markets.
The Funds will not engage in futures transactions for speculation, but only
as a hedge against changes in market values of securities which a Fund holds
or in-
15
<PAGE>
tends to purchase. The Funds will engage in futures transactions only to the
extent permitted by the Commodity Futures Trading Commission ("CFTC") and the
Securities and Exchange Commission ("SEC"). When investing in futures con-
tracts, the Funds must satisfy certain asset segregation requirements to en-
sure that the use of futures is unleveraged. When a Fund takes a long position
in a futures contract, it must maintain a segregated account containing cash
and/or certain liquid assets equal to the purchase price of the contract, less
any margin or deposit. When a Fund takes a short position in a futures con-
tract, the Fund must maintain a segregated account containing cash and/or cer-
tain liquid assets in an amount equal to the market value of the securities
underlying such contract (less any margin or deposit), which amount must be at
least equal to the market price at which the short position was established.
Asset segregation requirements are not applicable when a Fund "covers" an op-
tions or futures position generally by entering into an offsetting position.
Each Fund will limit its hedging transactions in futures contracts and related
options so that, immediately after any such transaction, the aggregate initial
margin that is required to be posted by a Fund under the rules of the exchange
on which the futures contract (or futures option) is traded, plus any premiums
paid by such Fund on its open futures options positions, does not exceed 5% of
such Fund's total assets, after taking into account any unrealized profits and
unrealized losses on the Fund's open contracts (and excluding the amount that
a futures option is "in-the-money" at the time of purchase). An option to buy
a futures contract is "in-the-money" if the then-current purchase price of the
underlying futures contract exceeds the exercise or strike price; an option to
sell a futures contract is "in-the-money" if the exercise or strike price ex-
ceeds the then-current purchase price of the contract that is the subject of
the option.
Transactions in futures as a hedging device may subject a Fund to a number of
risks. Successful use of futures by a Fund is subject to the ability of the
Investment Adviser and Sub-Adviser to correctly anticipate movements in the
direction of the market. In addition, there may be an imperfect correlation,
or no correlation at all, between movements in the price of the futures con-
tracts (or options) and movements in the price of the instruments being
hedged. Further, there is no assurance that a liquid market will exist for any
particular futures contract (or option) at any particular time. Consequently,
a Fund may realize a loss on a futures transaction that is not offset by a fa-
vorable movement in the price of securities which it holds or intends to pur-
chase or may be unable to close a futures position in the event of adverse
price movements.
COVERED CALL OPTIONS
To further increase return on its portfolio securities in accordance with its
investment objective and policies, each Fund may engage in writing covered
call options (options on securities owned by such Fund) and enter into closing
purchase transactions with respect to such options. Such options must be
listed on a national securities exchange and issued by the Options Clearing
Corporation or be traded on foreign exchanges. The aggregate value of the se-
curities subject to options written by the Fund may not exceed 25% of the
value of its net assets. By writing a covered call option, a Fund forgoes the
opportunity to profit from an increase in the market price of the underlying
security above the exercise price except insofar as the premium represents
such a profit, and it will not be able to sell the underlying security until
the option expires or is exercised or the Fund effects a closing purchase
transaction by purchasing an option of the same series. The use of covered
call options is not a primary investment technique of the Funds and such op-
tions will normally be written on underlying securities as to which the In-
vestment Adviser and Sub-Adviser do not anticipate significant short-term cap-
ital appreciation. Additional information on option-writing practices, includ-
ing particular risks thereof, is provided in the Statement of Additional In-
formation.
INVESTMENT COMPANY SECURITIES
In connection with the management of its daily cash positions, each Fund may
invest in securities issued by
16
<PAGE>
other investment companies which invest in high-quality, short-term debt secu-
rities and which determine their net asset value per share based on the amor-
tized cost or penny-rounding method. Each Fund may also purchase shares of in-
vestment companies investing primarily in foreign securities, including so
called "country funds" which have portfolios consisting exclusively of securi-
ties of issuers located in one foreign country. The Regional Funds will limit
their investments in such country funds to those funds which invest in the ap-
propriate regions in light of a Regional Fund's policies. Securities of other
investment companies will be acquired by a Fund within the strict limits pre-
scribed by the Investment Company Act of 1940 (the "1940 Act"). In addition to
the advisory fees and other expenses each Fund bears directly in connection
with its own operations, as a shareholder of another investment company, each
Fund would bear its pro rata portion of the other investment company's advi-
sory fees and other expenses. As such, a Fund's shareholders would indirectly
bear the expenses of the Fund and the other investment company, some or all of
which would be duplicative.
WHEN-ISSUED AND FORWARD TRANSACTIONS
Each Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. These transac-
tions involve a commitment by a Fund to purchase or sell particular securities
with payment and delivery taking place in the future, beyond the normal set-
tlement date, at a stated price and yield. Securities purchased on a "forward
commitment" or "when-issued" basis are recorded as an asset and are subject to
changes in value based upon changes in the general level of interest rates. It
is expected that forward commitments and "when-issued" purchases will not ex-
ceed 25% of the value of a Fund's total assets absent unusual market condi-
tions, and that the length of such commitments will not exceed 45 days. The
Funds do not intend to engage in "when-issued" purchases and forward commit-
ments for speculative purposes, but only in furtherance of their investment
objectives.
ILLIQUID SECURITIES
No Fund will knowingly invest more than 10% of the value of its net assets in
securities that are illiquid. Each Fund may purchase securities which are not
registered under the Securities Act of 1933 (the "Act") but which can be sold
to "qualified institutional buyers" in accordance with Rule 144A under the
Act. Any such security will not be considered illiquid so long as it is deter-
mined by the Investment Adviser, acting under guidelines approved and moni-
tored by the Board, that an adequate trading market exists for that security.
This investment practice could have the effect of increasing the level of il-
liquidity in a Fund during any period that qualified institutional buyers be-
come uninterested in purchasing these restricted securities.
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment immediately after its acquisition
if the Investment Adviser and Sub-Adviser believe that such a disposition is
consistent with attaining the investment objective of the particular Fund.
Portfolio investments may be sold for a variety of reasons, such as a more fa-
vorable investment opportunity or other circumstances bearing on the desir-
ability of continuing to hold such investments. A high rate of portfolio turn-
over may involve correspondingly greater brokerage commission expenses and
other transaction costs, which must be borne directly by the Fund and ulti-
mately by its shareholders. High portfolio turnover may result in the realiza-
tion of substantial net capital gains. (See "Financial Highlights" and "Tax-
es--Federal").
INVESTMENT LIMITATIONS
The investment limitations enumerated below are matters of fundamental policy
and may not be changed with respect to a Fund without the vote of the holders
of a majority of its outstanding shares (as defined under "Miscellaneous").
17
<PAGE>
A Fund may not:
1. Purchase securities of any one issuer, other than U.S. Government obliga-
tions, if immediately after such purchase more than 5% of the value of its
total assets would be invested in the securities of such issuer, except that
up to 25% of the value of its total assets may be invested without regard to
this 5% limitation;
2. Borrow money, except from banks for temporary purposes, and then in
amounts not in excess of 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any assets except in con-
nection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed and 10% of the value of its total assets at the
time of such borrowing. (This borrowing provision is included solely to fa-
cilitate the orderly sale of portfolio securities to accommodate abnormally
heavy redemption requests and is not for leverage purposes.) The Fund will
not purchase portfolio securities while borrowings in excess of 5% of its to-
tal assets are outstanding. Optioned stock held in escrow is not deemed to be
a pledge;
3. Purchase any securities which would cause more than 25% of the value of
its total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry, provided that (a) with respect to the International Fund,
there is no limitation with respect to securities issued or guaranteed by the
U.S. Government or domestic bank obligations, (b) with respect to the Emerg-
ing Americas, Pacific/Asia and Pan European Funds, there is no limitation
with respect to securities issued or guaranteed by the U.S. Government, and
(c) neither all finance companies, as a group, nor all utility companies, as
a group, are considered a single industry for purposes of this policy; and
4. Make loans, except that (i) a Fund may purchase or hold debt securities
in accordance with its investment objective and policies, and may enter into
repurchase agreements with respect to obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, and (ii) a Fund may lend
portfolio securities in an amount not exceeding 30% of its total assets.
The International Fund may not:
5. Knowingly invest more than 10% of the value of its total assets in illiq-
uid securities, including repurchase agreements with remaining maturities in
excess of seven days, restricted securities, and other securities for which
market quotations are not readily available.
* * *
In addition to the investment limitations described above, as a matter of fun-
damental policy for each Fund which may not be changed without the vote of the
holders of a majority of the Fund's outstanding shares, a Fund may not invest
in the securities of any single issuer if, as a result, the Fund holds more
than 10% of the outstanding voting securities of such issuer.
The Emerging Americas, Pan European and Pacific/Asia Funds may not knowingly
invest more than 10% of the value of their respective total assets in illiquid
securities, including repurchase agreements with remaining maturities in excess
of seven days, restricted securities and other securities for which market quo-
tations are not readily available. This investment policy may be changed by Ex-
celsior Fund's Board of Directors upon reasonable notice to shareholders.
The International Fund will not invest more than 25% of the value of its total
assets in domestic bank obligations.
With respect to all investment policies, if a percentage limitation is satis-
fied at the time of investment, a later increase or decrease in such percentage
result-
18
<PAGE>
ing from a change in value of a Fund's portfolio securities will not consti-
tute a violation of such limitation.
PRICING OF SHARES
The net asset value of each Fund is determined and its Shares are priced at
the close of regular trading hours on the New York Stock Exchange (the "Ex-
change"), currently 4:00 p.m. (Eastern Time). Net asset value and pricing for
each Fund are determined on each day the Exchange and the Investment Adviser
and Sub-Adviser are open for trading ("Business Day"). Currently, the holidays
which the Funds observe are: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Co-
lumbus Day, Veterans Day, Thanksgiving Day and Christmas. A Fund's net asset
value per Share for purposes of pricing sales and redemptions is calculated by
dividing the value of all securities and other assets allocable to its Shares,
less the liabilities allocable to its Shares, by the number of its outstanding
Shares.
The Funds' portfolio securities which are primarily traded on a domestic ex-
change are valued at the last sale price on that exchange or, if there is no
recent sale, at the last current bid quotation. Portfolio securities which are
primarily traded on foreign securities exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges, ex-
cept that when an event subsequent to the time when value was so established
is likely to have changed such value, then the fair value of those securities
will be determined by consideration of other factors under the direction of
the Board of Directors. A security which is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to be the pri-
mary market for such security. Investments in foreign debt securities having a
maturity of 60 days or less are valued based upon the amortized cost method.
An option, futures or foreign currency futures contract is valued at the last
sales price quoted on the principal exchange or board of trade on which such
option or contract is traded, or in the absence of a sale, the mean between
the last bid and asked prices. A forward currency contract is valued based on
the last published forward currency rate which reflects the duration of the
contract and the value of the underlying currency. All other foreign securi-
ties are valued at the last current bid quotation if market quotations are
available, or at fair value as determined in accordance with guidelines
adopted by the Board of Directors. For valuation purposes, quotations of for-
eign securities in foreign currency are converted to U.S. dollars equivalent
at the prevailing market rate on the day of conversion.
Some of the securities acquired by the Funds may be traded on foreign ex-
changes or over-the-counter markets on days which are not Business Days. In
such cases, the net asset value of the Shares may be significantly affected on
days when investors can neither purchase nor redeem a Fund's Shares.
Excelsior Fund's administrators have undertaken to price the securities in
each Fund's portfolio, and may use one or more independent pricing services in
connection with this service.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in each Fund are continuously offered for sale by Excelsior Fund's
sponsor and distributor, Edgewood Services, Inc. (the "Distributor"), a whol-
ly-owned subsidiary of Federated Investors. The Distributor is a registered
broker/dealer. Its principal business address is Clearing Operations, P.O. Box
897, Pittsburgh, PA 15230-0897.
PURCHASE OF SHARES
The Distributor has established several procedures for purchasing Shares in
order to accommodate different types of investors.
19
<PAGE>
Shares may be purchased directly by individuals ("Direct Investors") or by
institutions ("Institutional Investors" and, collectively with Direct Invest-
ors, "Investors"). Shares may also be purchased by customers ("Customers") of
the Investment Adviser, its affiliates and correspondent banks, and other in-
stitutions ("Shareholder Organizations") that have entered into shareholder
servicing agreements with Excelsior Fund. A Shareholder Organization may elect
to hold of record Shares for its Customers and to record beneficial ownership
of Shares on the account statements provided by it to its Customers. If it
does so, it is the Shareholder Organization's responsibility to transmit to
the Distributor all purchase orders for its Customers and to transmit, on a
timely basis, payment for such orders to Chase Global Funds Services Company
("CGFSC"), the Funds' sub-transfer agent, in accordance with the procedures
agreed to by the Shareholder Organization and the Distributor. Confirmations
of all such Customer purchases and redemptions will be sent by CGFSC to the
particular Shareholder Organization. As an alternative, a Shareholder Organi-
zation may elect to establish its Customers' accounts of record with CGFSC. In
this event, even if the Shareholder Organization continues to place its Cus-
tomers' purchase and redemption orders with the Funds, CGFSC will send confir-
mations of such transactions and periodic account statements directly to Cus-
tomers. A Shareholder Organization may also elect to establish its Customers
as record holders.
Excelsior Fund enters into Shareholder servicing agreements with Shareholder
Organizations which agree to provide their Customers various shareholder ad-
ministrative services with respect to their Shares (hereinafter referred to as
"Service Organizations"). Shares in the Funds bear the expenses of fees pay-
able to Service Organizations for such services. See "Management of the
Funds--Service Organizations."
Customers wishing to purchase Shares through their Shareholder Organization
should contact such entity directly for appropriate instructions. (For a list
of Shareholder Organizations in your area, call (800) 446-1012.) An investor
purchasing Shares through a registered investment adviser or certified finan-
cial planner may incur transaction charges in connection with such purchases.
Such investors should contact their registered investment adviser or certified
financial planner for further information on transaction fees. Investors may
also purchase Shares directly in accordance with procedures described below
under "Purchase Procedures."
PUBLIC OFFERING PRICE
The public offering price for Shares of each Fund is the sum of the net asset
value of the Shares purchased plus a sales load according to the table below:
<TABLE>
<CAPTION>
REALLOWANCE
TOTAL SALES CHARGES TO DEALERS
------------------------------ --------------
AS A % OF AS A % OF AS A % OF
OFFERING PRICE NET ASSET OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE VALUE PER SHARE PER SHARE
--------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Less than $50,000................. 4.50% 4.71% 4.00%
$50,000 to $99,999................ 4.00 4.17 3.50
$100,000 to $249,999.............. 3.50 3.63 3.00
$250,000 to $499,999.............. 3.00 3.09 2.50
$500,000 to $999,999.............. 2.00 2.05 1.50
$1,000,000 to $1,999,999.......... 1.00 1.00 .50
$2,000,000 and over............... .50 .50 .25
</TABLE>
The reallowance to dealers may be changed from time to time but will remain
the same for all such dealers.
At various times the Distributor may implement programs under which a deal-
er's sales force may be eligible to win nominal awards for certain sales ef-
forts or under which the Distributor will reallow to any dealer that sponsors
sales contests or recognition programs conforming to criteria established by
the Distributor, or participates in sales programs sponsored by the Distribu-
tor, an amount not exceeding the total applicable sales charges on the sales
generated by the dealer at the public offering price during such programs. Al-
so, the Distributor in its discretion may from time to time, pursuant to ob-
jective criteria established by the Distributor, pay fees to qualifying deal-
ers for certain services or activities which are primarily intended to result
in
20
<PAGE>
sales of Shares of the Funds. If any such program is made available to any
dealer, it will be made available to all dealers on the same terms and condi-
tions. Payments made under such programs will be made by the Distributor out
of its own assets and not out of the assets of the Funds. These programs will
not change the price of Shares or the amount that the Funds will receive from
such sales.
The sales load described above will not be applicable to: (a) purchases of
Shares by customers of the Investment Adviser or its affiliates; (b) trust,
agency or custodial accounts opened through the trust department of a bank,
trust company or thrift institution, provided that appropriate notification of
such status is given at the time of investment; (c) companies, corporations
and partnerships (excluding full service broker/dealers and financial plan-
ners, registered investment advisers and depository institutions not covered
by the exemptions in (d) and (e) below);(d) financial planners and registered
investment advisers not affiliated with or clearing purchases through full
service broker/dealers; (e) purchases of Shares by depository institutions for
their own account as principal; (f) exchange transactions (described below un-
der "Investor Programs--Exchange Privilege") where the Shares being exchanged
were acquired in connection with the distribution of assets held in trust,
agency or custodial accounts maintained with the trust department of a bank;
(g) corporate/business retirement plans (such as 401(k), 403(b)(7), 457 and
Keogh accounts) sponsored by the Distributor and IRA accounts sponsored by the
Investment Adviser; (h) company-sponsored employee pension or retirement plans
making direct investments in the Funds; (i) purchases of Shares by officers,
trustees, directors, employees, former employees and retirees of Excelsior
Fund, Excelsior Tax-Exempt Funds, Inc. ("Excelsior Tax-Exempt Fund"), Excel-
sior Institutional Trust or Excelsior Funds, the Investment Adviser, the Dis-
tributor or of any direct or indirect affiliate of any of them; (j) purchases
of Shares by all beneficial shareholders of Excelsior Fund or Excelsior Tax-
Exempt Fund as of May 22, 1989; (k) purchases of Shares by investment advisers
registered under the Investment Advisers Act of 1940 for their customers
through an omnibus account established with United States Trust Company of New
York; (l) purchases of Shares by directors, officers and employees of brokers
and dealers selling shares pursuant to a selling agreement with Excelsior Fund
and Excelsior Tax-Exempt Fund; (m) purchases of shares by investors who are
members of affinity groups serviced by USAffinity Investments Limited Partner-
ship; and (n) customers of certain financial institutions who purchase Shares
through a registered representative of UST Financial Services Corp. on the
premises of their financial institutions. In addition, no sales load is
charged on the reinvestment of dividends or distributions or in connection
with certain share exchange transactions. Investors who have previously re-
deemed shares in an "Eligible Fund" (as defined below) on which a sales load
has been paid also have a one-time privilege of purchasing shares of another
"Eligible Fund" at net asset value without a sales charge, provided that such
privilege will apply only to purchases made within 30 calendar days from the
date of redemption and only with respect to the amount of the redemption.
These exemptions to the imposition of a sales load are due to the nature of
the investors and/or reduced sales effort that will be needed in obtaining in-
vestments.
Quantity Discounts
An investor in the Funds may be entitled to reduced sales charges through
Rights of Accumulation, a Letter of Intent or a combination of investments, as
described below, even if the investor does not wish to make an investment of a
size that would normally qualify for a quantity discount.
In order to obtain quantity discount benefits, an investor must notify CGFSC
at the time of purchase that he or she would like to take advantage of any of
the discount plans described below. Upon such notification, the investor will
receive the lowest applicable sales charge. Quantity discounts may be modified
or terminated at any time and are subject to confirma-
21
<PAGE>
tion of an investor's holdings through a check of appropriate records. For
more information about quantity discounts, please call (800) 446-1012 or con-
tact your Shareholder Organization.
Rights of Accumulation. A reduced sales load applies to any purchase of
shares of any portfolio of Excelsior Fund and Excelsior Tax-Exempt Fund that
is sold with a sales load ("Eligible Fund") where an investor's then current
aggregate investment is $50,000 or more. "Aggregate investment" means the to-
tal of: (a) the dollar amount of the then current purchase of shares of an El-
igible Fund and (b) the value (based on current net asset value) of previously
purchased and beneficially owned shares of any Eligible Fund on which a sales
load has been paid. If, for example, an investor beneficially owns shares of
one or more Eligible Funds with an aggregate current value of $49,000 on which
a sales load has been paid and subsequently purchases shares of an Eligible
Fund having current value of $1,000, the load applicable to the subsequent
purchase would be reduced to 4.00% of the offering price. Similarly, with re-
spect to each subsequent investment, all shares of Eligible Funds that are
beneficially owned by the investor at the time of investment may be combined
to determine the applicable sales load.
Letter of Intent. By completing the Letter of Intent included as part of the
New Account Application, an investor becomes eligible for the reduced sales
load applicable to the total number of Eligible Fund shares purchased in a 13-
month period pursuant to the terms and under the conditions set forth below
and in the Letter of Intent. To compute the applicable sales load, the offer-
ing price of shares of an Eligible Fund on which a sales load has been paid,
beneficially owned by an investor on the date of submission of the Letter of
Intent, may be used as a credit toward completion of the Letter of Intent.
However, the reduced sales load will be applied only to new purchases.
CGFSC will hold in escrow shares equal to 5% of the amount indicated in the
Letter of Intent for payment of a higher sales load if an investor does not
purchase the full amount indicated in the Letter of Intent. The escrow will be
released when an investor fulfills the terms of the Letter of Intent by pur-
chasing the specified amount. If purchases qualify for a further sales load
reduction, the sales load will be adjusted to reflect an investor's total pur-
chases. If total purchases are less than the amount specified, an investor
will be requested to remit an amount equal to the difference between the sales
load actually paid and the sales load applicable to the total purchases. If
such remittance is not received within 20 days, CGFSC, as attorney-in-fact
pursuant to the terms of the Letter of Intent and at the Distributor's direc-
tion, will redeem an appropriate number of shares held in escrow to realize
the difference. Signing a Letter of Intent does not bind an investor to pur-
chase the full amount indicated at the sales load in effect at the time of
signing, but an investor must complete the intended purchase in accordance
with the terms of the Letter of Intent to obtain the reduced sales load. To
apply, an investor must indicate his or her intention to do so under a Letter
of Intent at the time of purchase.
Qualification for Discounts. For purposes of applying the Rights of Accumula-
tion and Letter of Intent privileges described above, the scale of sales loads
applies to the combined purchases made by any individual and/or spouse pur-
chasing securities for his, her or their own account or for the account of any
minor children, or the aggregate investments of a trustee or custodian of any
qualified pension or profit sharing plan or IRA established (or the aggregate
investment of a trustee or other fiduciary) for the benefit of the persons
listed above.
PURCHASE PROCEDURES
General
Direct Investors may purchase Shares by completing the Application for pur-
chase of Shares accompa-
22
<PAGE>
nying this Prospectus and mailing it, together with a check payable to Excel-
sior Funds, to:
Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
Subsequent investments in an existing account in any Fund may be made at any
time by sending to the above address a check payable to Excelsior Funds along
with: (a) the detachable form that regularly accompanies the confirmation of a
prior transaction; (b) a subsequent order form which may be obtained from
CGFSC; or (c) a letter stating the amount of the investment, the name of the
Fund and the account number in which the investment is to be made. Institu-
tional Investors may purchase Shares by transmitting their purchase orders to
CGFSC by telephone at (800) 446-1012 or by terminal access. Institutional In-
vestors must pay for Shares with Federal funds or funds immediately available
to CGFSC.
Purchases by Wire
Investors may also purchase Shares by wiring Federal funds to CGFSC. Prior to
making an initial investment by wire, an Investor must telephone CGFSC at (800)
446-1012 (from overseas, call (617) 557-8280) for instructions. Federal funds
and registration instructions should be wired through the Federal Reserve Sys-
tem to:
The Chase Manhattan Bank, N.A.
ABA #021000021
Excelsior Funds, Account No. 9102732915
For further credit to:
Excelsior Funds Wire Control Number
Account Registration
(including account number)
Investors making initial investments by wire must promptly complete the Appli-
cation accompanying this Prospectus and forward it to CGFSC. Redemptions by In-
vestors will not be processed until the completed Application for purchase of
Shares has been received by CGFSC and accepted by the Distributor. Investors
making subsequent investments by wire should follow the above instructions.
Other Purchase Information
Except as provided in "Investor Programs" below, the minimum initial invest-
ment by an Investor or initial aggregate investment by a Shareholder Organiza-
tion investing on behalf of its Customers is $500 per Fund. The minimum subse-
quent investment for both types of investors is $50 per Fund. Customers may
agree with a particular Shareholder Organization to make a minimum purchase
with respect to their accounts. Depending upon the terms of the particular ac-
count, Shareholder Organizations may charge a Customer's account fees for auto-
matic investment and other cash management services provided. Excelsior Fund
reserves the right to reject any purchase order, in whole or in part, or to
waive any minimum investment requirements.
REDEMPTION PROCEDURES
Customers of Shareholder Organizations holding Shares of record may redeem all
or part of their investments in the Funds in accordance with procedures
governing their accounts at the Shareholder Organizations. It is the responsi-
bility of the Shareholder Organizations to transmit redemption orders to CGFSC
and credit such Customer accounts with the redemption proceeds on a timely ba-
sis. Redemption orders for Institutional Investors must be transmitted to CGFSC
by telephone at (800) 446-1012 or by terminal access. No charge for wiring re-
demption payments to Shareholder Organizations or Institutional Investors is
imposed by Excelsior Fund, although Shareholder Organizations may charge a Cus-
tomer's account for wiring redemption proceeds. Information relating to such
redemption services and charges, if any, is available from the Shareholder Or-
ganizations. An investor redeeming Shares through a registered investment ad-
viser or cer-
23
<PAGE>
tified financial planner may incur transaction charges in connection with such
redemptions. Such investors should contact their registered investment adviser
or certified financial planner for further information on transaction fees. In-
vestors may redeem all or part of their Shares in accordance with any of the
procedures described below (these procedures also apply to Customers of Share-
holder Organizations for whom individual accounts have been established with
CGFSC).
Redemption by Mail
Shares may be redeemed by a Direct Investor by submitting a written request
for redemption to:
Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
A written redemption request to CGFSC must (i) state the number of Shares to
be redeemed, (ii) identify the shareholder account number and tax identifica-
tion number, and (iii) be signed by each registered owner exactly as the Shares
are registered. If the Shares to be redeemed were issued in certificate form,
the certificates must be endorsed for transfer (or accompanied by a duly exe-
cuted stock power) and must be submitted to CGFSC together with the redemption
request. A redemption request for an amount in excess of $50,000 per account,
or for any amount if the proceeds are to be sent elsewhere than the address of
record, must be accompanied by signature guarantees from any eligible guarantor
institution approved by CGFSC in accordance with its Standards, Procedures and
Guidelines for the Acceptance of Signature Guarantees ("Signature Guarantee
Guidelines"). Eligible guarantor institutions generally include banks,
broker/dealers, credit unions, national securities exchanges, registered secu-
rities associations, clearing agencies and savings associations. All eligible
guarantor institutions must participate in the Securities Transfer Agents Me-
dallion Program ("STAMP") in order to be approved by CGFSC pursuant to the Sig-
nature Guarantee Guidelines. Copies of the Signature Guarantee Guidelines and
information on STAMP can be obtained from CGFSC at (800) 446-1012 or at the ad-
dress given above. CGFSC may require additional supporting documents for re-
demptions made by corporations, executors, administrators, trustees and guardi-
ans. A redemption request will not be deemed to be properly received until
CGFSC receives all required documents in proper form. Payment for Shares re-
deemed will ordinarily be made by mail within five Business Days after proper
receipt by CGFSC of the redemption request. Questions with respect to the
proper form for redemption requests should be directed to CGFSC at (800) 446-
1012 (from overseas, call (617) 557-8280).
Redemption by Wire or Telephone
Direct Investors who have so indicated on the Application, or have subse-
quently arranged in writing to do so, may redeem Shares by instructing CGFSC by
wire or telephone to wire the redemption proceeds directly to the Direct In-
vestor's account at any commercial bank in the United States. Direct Investors
who are shareholders of record may also redeem Shares by instructing CGFSC by
telephone to mail a check for redemption proceeds of $500 or more to the share-
holder of record at his or her address of record. Institutional Investors may
also redeem Shares by instructing CGFSC by telephone at (800) 446-1012 or by
terminal access. Only redemptions of $500 or more will be wired to a Direct In-
vestor's account. An $8.00 fee for each wire redemption by a Direct Investor is
deducted by CGFSC from the proceeds of the redemption. The redemption proceeds
for Direct Investors must be paid to the same bank and account as designated on
the Application or in written instructions subsequently received by CGFSC.
In order to arrange for redemption by wire or telephone after an account has
been opened or to change the bank or account designated to receive redemption
proceeds, a Direct Investor must send a written request
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to Excelsior Fund, c/o CGFSC, at the address listed above under "Redemption by
Mail." Such requests must be signed by the Direct Investor, with signatures
guaranteed (see "Redemption by Mail" above, for details regarding signature
guarantees). Further documentation may be requested.
CGFSC and the Distributor reserve the right to refuse a wire or telephone re-
demption if it is believed advisable to do so. Procedures for redeeming Shares
by wire or telephone may be modified or terminated at any time by Excelsior
Fund, CGFSC or the Distributor. EXCELSIOR FUND, CGFSC AND THE DISTRIBUTOR WILL
NOT BE LIABLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR ACTING UPON TELE-
PHONE INSTRUCTIONS THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN ATTEMPTING
TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, EXCELSIOR FUND WILL USE
SUCH PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING THOSE IN-
STRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION.
If any portion of the Shares to be redeemed represents an investment made by
personal check, Excelsior Fund and CGFSC reserve the right not to honor the
redemption until CGFSC is reasonably satisfied that the check has been col-
lected in accordance with the applicable banking regulations which may take up
to 15 days. A Direct Investor who anticipates the need for more immediate ac-
cess to his or her investment should purchase Shares by Federal funds or bank
wire or by certified or cashier's check. Banks normally impose a charge in
connection with the use of bank wires, as well as certified checks, cashier's
checks and Federal funds. If a Direct Investor's purchase check is not col-
lected, the purchase will be cancelled and CGFSC will charge a fee of $25.00
to the Direct Investor's account.
During periods of substantial economic or market change, telephone redemp-
tions may be difficult to complete. If an investor is unable to contact CGFSC
by telephone, the Investor may also deliver the redemption request to CGFSC in
writing at the address noted above under "How to Purchase and Redeem Shares--
Redemption by Mail."
Other Redemption Information
Except as described in "Investor Programs" below, Investors may be required
to redeem Shares in a Fund after 60 days' written notice if due to investor
redemptions the balance in the particular account with respect to the Fund re-
mains below $500. If a Customer has agreed with a particular Shareholder Or-
ganization to maintain a minimum balance in his or her account at the institu-
tion with respect to Shares of a Fund, and the balance in such account falls
below that minimum, the Customer may be obliged by the Shareholder Organiza-
tion to redeem all or part of his or her Shares to the extent necessary to
maintain the required minimum balance.
GENERAL
Purchase and redemption orders for Shares which are received and accepted
prior to the close of regular trading hours on the Exchange (currently 4:00
p.m., Eastern Time) on any Business Day are priced according to the net asset
value determined on that day. Purchase orders for Shares received and accepted
after the close of regular trading hours on the Exchange are priced at the net
asset value per Share determined on the next Business Day.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Investors and Customers of Shareholder Organizations may, after appropriate
prior authorization and without an exchange fee imposed by the Excelsior Fund,
exchange Shares in a Fund having a value of at least $500 for shares of the
same series of any other portfolio offered by Excelsior Fund or Excelsior Tax-
Exempt Fund, or for Trust Shares of Excelsior Institutional Trust, provided
that such other shares may legally be sold in the state of the Investor's res-
idence.
Excelsior Fund currently offers, in addition to the International Fund and
Regional Funds, 16 additional portfolios as follows:
Money Fund, a money market fund seeking as high a level of current income as
is consistent with li-
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<PAGE>
quidity and stability of principal through investments in high-quality money
market instruments maturing within 13 months;
Government Money Fund, a money market fund seeking as high a level of cur-
rent income as is consistent with liquidity and stability of principal
through investments in obligations issued or guaranteed by the U.S. Govern-
ment, its agencies or instrumentalities and repurchase agreements collateral-
ized by such obligations;
Treasury Money Fund, a money market fund seeking current income generally
exempt from state and local income taxes through investments in direct short-
term obligations issued by the U.S. Treasury and certain agencies or instru-
mentalities of the U.S. Government;
Short-Term Government Securities Fund, a fund seeking a high level of cur-
rent income by investing principally in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase agree-
ments collateralized by such obligations, and having a dollar-weighted aver-
age portfolio maturity of 1 to 3 years;
Intermediate-Term Managed Income Fund, a fund seeking a high level of cur-
rent interest income by investing principally in investment grade or better
debt obligations and money market instruments, and having a dollar-weighted
average portfolio maturity of 3 to 10 years;
Managed Income Fund, a fund seeking higher current income through invest-
ments in investment grade debt obligations, U.S. Government obligations and
money market instruments;
Equity Fund, a fund seeking primarily long-term capital appreciation through
investments in a diversified portfolio of primarily equity securities;
Income and Growth Fund, a fund investing substantially in equity securities
in seeking to provide moderate current income and to achieve capital appreci-
ation as a secondary objective;
Long-Term Supply of Energy Fund, a fund seeking long-term capital apprecia-
tion by investing in companies benefitting from the availability, development
and delivery of secure hydrocarbon and other energy sources;
Productivity Enhancers Fund, a fund seeking long-term capital appreciation
by investing in companies benefitting from their roles as innovators, devel-
opers and suppliers of goods and services which enhance service and manufac-
turing productivity or companies that are most effective at obtaining and ap-
plying productivity enhancement developments;
Environmentally-Related Products and Services Fund, a fund seeking long-term
capital appreciation by investing in companies benefitting from their provi-
sion of products, technologies and services related to conservation, protec-
tion and restoration of the environment;
Aging of America Fund, a fund seeking long-term capital appreciation by in-
vesting in companies benefitting from the changes occurring in the demo-
graphic structure of the U.S. population, particularly of its growing popula-
tion of individuals over the age of 40;
Communication and Entertainment Fund, a fund seeking long-term capital ap-
preciation by investing in companies benefitting from the technological and
international transformation of the communications and entertainment indus-
tries, particularly the convergence of information, communication and enter-
tainment media;
Business and Industrial Restructuring Fund, a fund seeking long-term capital
appreciation by investing in companies benefitting from their restructuring
or redeployment of assets and operations in order to become more competitive
or profitable;
Global Competitors Fund, a fund seeking long-term capital appreciation by
investing in U.S.-based companies benefitting from their position as effec-
tive and strong competitors on a global basis; and
Early Life Cycle Fund, a fund seeking long-term capital appreciation by in-
vesting in smaller companies in the earlier stages of their development or
larger or more mature companies engaged in new and higher growth potential
operations.
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<PAGE>
Excelsior Tax-Exempt Fund currently offers five portfolios as follows:
Tax-Exempt Money Fund, a diversified tax-exempt money market fund seeking a
moderate level of current interest income exempt from Federal income taxes
through investing primarily in high-quality municipal obligations maturing
within 13 months;
Short-Term Tax-Exempt Securities Fund, a diversified fund seeking a high
level of current interest income exempt from Federal income taxes through in-
vestments in municipal obligations and having a dollar-weighted average port-
folio maturity of 1 to 3 years;
Intermediate-Term Tax-Exempt Fund, a diversified fund seeking a high level
of current income exempt from Federal income taxes through investments in mu-
nicipal obligations and having a dollar-weighted average portfolio maturity
of three to ten years;
Long-Term Tax-Exempt Fund, a diversified fund seeking to maximize over time
current income exempt from Federal income taxes, investing primarily in mu-
nicipal obligations and having a dollar-weighted average portfolio maturity
of 10 to 30 years; and
New York Intermediate-Term Tax-Exempt Fund, a nondiversified fund designed
to provide New York investors with a high level of current income exempt from
Federal and, to the extent possible, New York state and New York City income
taxes; this fund invests primarily in New York municipal obligations and has
a dollar-weighted average portfolio maturity of three to ten years.
Excelsior Institutional Trust currently offers Trust Shares in two investment
portfolios:
Optimum Growth Fund, a fund seeking superior, risk-adjusted total return
through investments in a diversified portfolio of equity securities whose
growth prospects, in the opinion of its investment adviser, appear to exceed
that of the overall market; and
Value Equity Fund, a fund seeking long-term capital appreciation through in-
vestments in a diversified portfolio of equity securities whose market value,
in the opinion of its investment adviser, appears to be undervalued relative
to the marketplace.
An exchange involves a redemption of all or a portion of the Shares in a Fund
and the investment of the redemption proceeds in shares of another portfolio of
Excelsior Fund, Excelsior Tax-Exempt Fund or Excelsior Institutional Trust. The
redemption will be made at the per Share net asset value of the Shares being
redeemed next determined after the exchange request is received. The shares of
the portfolio to be acquired will be purchased at the per share net asset value
of those shares (plus any applicable sales load) next determined after accept-
ance of the exchange request. No sales load will be payable on shares to be ac-
quired through an exchange to the extent that a sales load was previously paid
on the Shares being exchanged.
Investors may find the exchange privilege useful if their investment objec-
tives or market outlook should change after they invest in a Fund. For further
information regarding exchange privileges, shareholders should call (800) 446-
1012 (from overseas, call ((617) 557-8280). Investors exercising the exchange
privilege with the other portfolios of Excelsior Fund, Excelsior Tax-Exempt
Fund or Excelsior Institutional Trust should request and review the prospec-
tuses of such funds. Such prospectuses may be obtained by calling the numbers
listed above. In order to prevent abuse of this privilege to the disadvantage
of other shareholders, Excelsior Fund, Excelsior Tax-Exempt Fund and Excelsior
Institutional Trust reserve the right to limit the number of exchange requests
of Investors and Customers of Shareholder Organizations to no more than six per
year. Excelsior Fund may modify or terminate the exchange program at any time
upon 60 days written notice to shareholders, and may reject any exchange re-
quest. EXCELSIOR FUND, EXCELSIOR TAX-EXEMPT FUND, EXCELSIOR INSTITUTIONAL
TRUST, CGFSC AND THE DISTRIBUTOR ARE NOT RESPONSIBLE FOR THE AUTHENTICITY OF
EXCHANGE REQUESTS RECEIVED BY TELEPHONE THAT ARE REASONABLY BELIEVED TO BE GEN-
UINE. IN ATTEMPTING TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, EXCEL-
SIOR
27
<PAGE>
FUND, EXCELSIOR TAX-EXEMPT FUND AND EXCELSIOR INSTITUTIONAL TRUST WILL USE
SUCH PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING THOSE IN-
STRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION.
For Federal income tax purposes, an exchange of Shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Be-
fore making an exchange, an investor should consult a tax or other financial
adviser to determine tax consequences.
SYSTEMATIC WITHDRAWAL PLAN
An Investor who owns Shares of a Fund with a value of $10,000 or more may es-
tablish a Systematic Withdrawal Plan. The Investor may request a declining-
bal-
ance withdrawal, a fixed-dollar withdrawal, a fixed-share withdrawal, or a
fixed-percentage withdrawal (based on the current value of Shares in the ac-
count) on a monthly, quarterly, semi-annual or annual basis. To initiate the
Systematic Withdrawal Plan, an investor must complete the Supplemental Appli-
cation contained in this Prospectus and mail it to CGFSC at the address given
above. Further information on establishing a Systematic Withdrawal Plan may be
obtained by calling (800) 446-1012 (from overseas, call (617) 557-8280).
Shareholder Organizations may, at their discretion, establish similar system-
atic withdrawal plans with respect to the Shares held by their Customers. In-
formation about such plans and the applicable procedures may be obtained by
Customers directly from their institutions.
RETIREMENT PLANS
Shares are available for purchase by Investors in connection with the follow-
ing tax-deferred prototype retirement plans offered by United States Trust
Company of New York:
IRAs (including "rollovers" from existing retirement plans) for individuals
and their spouses;
Profit Sharing and Money-Purchase Plans for corporations and self-employed
individuals and their partners to benefit themselves and their employees; and
Keogh Plans for self-employed individuals.
Investors investing in the Funds pursuant to Profit Sharing and Money-Pur-
chase Plans and Keogh Plans are not subject to the minimum investment and
forced redemption provisions described above. The minimum initial investment
for IRAs is $250 per Fund and the minimum subsequent investment is $50 per
Fund. Detailed information concerning eligibility, service fees and other mat-
ters related to these plans can be obtained by calling (800) 446-1012 (from
overseas, call (617) 557-8280). Customers of Shareholder Organizations may
purchase Shares of the Funds pursuant to retirement plans if such plans are
offered by their Shareholder Organizations.
AUTOMATIC INVESTMENT PROGRAM
The Automatic Investment Program permits Investors to purchase Shares (mini-
mum of $50 per Fund per transaction) at regular intervals selected by the In-
vestor. The minimum initial investment for an Automatic Investment Program ac-
count is $50 per Fund. Provided the Investor's financial institution allows
automatic withdrawals, Shares are purchased by transferring funds from an In-
vestor's checking, bank money market or NOW account designated by the Invest-
or. At the Investor's option, the account designated will be debited in the
specified amount, and Shares will be purchased, once a month, on either the
first or fifteenth day, or twice a month, on both days.
The Automatic Investment Program is one means by which an Investor may use
"Dollar Cost Averaging" in making investments. Instead of trying to time mar-
ket performance, a fixed dollar amount is invested in Shares at predetermined
intervals. This may help Investors to reduce their average cost per share be-
cause the agreed upon fixed investment amount allows more
28
<PAGE>
Shares to be purchased during periods of lower share prices and fewer Shares
during periods of higher prices. In order to be effective, Dollar Cost Averag-
ing should usually be followed on a sustained, consistent basis. Investors
should be aware, however, that Shares bought using Dollar Cost Averaging are
purchased without regard to their price on the day of investment or to market
trends. In addition, while Investors may find Dollar Cost Averaging to be ben-
eficial, it will not prevent a loss if an Investor ultimately redeems his
Shares at a price which is lower than their purchase price.
To establish an Automatic Investment account permitting Investors to use the
Dollar Cost Averaging investment method described above, an Investor must com-
plete the Supplemental Application contained in this Prospectus and mail it to
CGFSC. An Investor may cancel his participation in this Program or change the
amount of purchase at any time by mailing written notification to CGFSC, P.O.
Box 2798, Boston, MA 02208-2798 and notification will be effective three Busi-
ness Days following receipt. Excelsior Fund may modify or terminate this priv-
ilege at any time or charge a service fee, although no such fee currently is
contemplated. An Investor may also implement the Dollar Cost Averaging method
on his own initiative or through other entities.
DIVIDENDS AND DISTRIBUTIONS
Dividends from the net income of each Fund are declared and paid semi-annual-
ly. For dividend purposes, a Fund's investment income is reduced by accrued
expenses directly attributable to that Fund and the general expenses of Excel-
sior Fund prorated to that Fund on the basis of its relative net assets. A
Fund's net investment income available for distribution to the holders of
Shares will be reduced by the amount of other expenses allocated to such se-
ries. Net realized capital gains are distributed at least annually. Dividends
and distributions will reduce the net asset value of a Fund by the amount of
the dividend or distribution. All dividends and distributions paid on Shares
held of record by the Investment Adviser and its affiliates or correspondent
banks will be paid in cash. Direct and Institutional Investors and Customers
of other Shareholder Organizations will receive dividends and distributions in
additional Shares (as determined on the payable date), unless they have re-
quested in writing (received by CGFSC at Excelsior Fund's address prior to the
payment date) to receive dividends and distributions in cash. Reinvested divi-
dends and distributions receive the same tax treatment as those paid in cash.
TAXES
FEDERAL
Each of the Funds qualified for its last taxable year as a "regulated invest-
ment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Each Fund expects to so qualify in future years. Such qualification
generally relieves a Fund of liability for Federal income taxes to the extent
its earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code requires,
among other things, that a Fund distribute to its shareholders at least 90% of
its investment company taxable income for each taxable year. In general, a
Fund's investment company taxable income will be its taxable income (including
dividends, interest and short-term capital gains), subject to certain adjust-
ments and excluding the excess of any net long-term capital gain for the tax-
able year over the net short-term capital loss, if any, for such year. Each
Fund intends to distribute substantially all of its investment company income
each year. Such dividends will be taxable as ordinary income to a Fund's
shareholders who are not currently exempt from Federal income taxes, whether
such income is received in cash or reinvested in additional Shares. (Federal
income taxes for distributions to IRAs and qualified pension plans are de-
ferred under the Code.) It is anticipated that none
29
<PAGE>
of the dividends paid by a Fund will be eligible for the dividends received
deduction for corporations.
Distributions by a Fund of the excess of its net long-term capital gain over
its short-term capital loss are taxable to shareholders as long-term capital
gain, regardless of how long the shareholders have held their Shares and
whether such gains are received in cash or reinvested in additional Shares.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to
have been received by shareholders and paid by a Fund on December 31 of such
year in the event such dividends are actually paid during January of the fol-
lowing year.
An investor considering buying Shares of a Fund on or just before the record
date of a dividend should be aware that the amount of the forthcoming dividend
payment, although in effect a return of capital, will be taxable to him.
A taxable gain or loss may be realized by a shareholder upon his redemption,
transfer or exchange of Shares, depending upon the tax basis of such Shares
and their price at the time of redemption, transfer or exchange. If a share-
holder holds Shares for six months or less and during that time receives a
capital gain dividend on those Shares, any loss recognized on the sale or ex-
change of those Shares will be treated as a long-term capital loss to the ex-
tent of the capital gain dividend. Generally, a shareholder may include sales
charges incurred upon the purchase of Shares in his tax basis for such Shares
for the purpose of determining gain or loss on a redemption, transfer or ex-
change of such Shares. However, if the shareholder effects an exchange of
Shares of a Fund for shares of another portfolio of Excelsior Fund or Excel-
sior Tax-Exempt Fund within 90 days of the purchase and is able to reduce the
sales charges applicable to the new shares (by virtue of the exchange privi-
lege), the amount equal to such reduction may not be included in the tax basis
of the shareholder's exchanged Shares for the purpose of determining gain or
loss, but may be included (subject to the same limitation) in the tax basis of
the new shares.
It is expected that dividends and certain interest income earned by each Fund
from foreign securities will be subject to foreign withholding taxes or other
taxes. So long as more than 50% of the value of a Fund's total assets at the
close of any taxable year consists of stock or securities of foreign corpora-
tions, such Fund may elect, for U.S. Federal income tax purposes, to treat
certain foreign taxes paid by it, including generally any withholding taxes
and other foreign income taxes, as paid by its shareholders. A Fund may make
this election. As a consequence, the amount of such foreign taxes paid by a
Fund will be included in its shareholders' income pro rata (in addition to
taxable distributions actually received by them), and each shareholder will be
entitled either (a) to credit his proportionate amounts of such taxes against
his U.S. Federal income tax liabilities, or (b) if he itemizes his deductions,
to deduct such proportionate amounts from his U.S. taxable income, should he
so choose.
Qualification as a regulated investment company under the Code also requires
that a Fund satisfy certain requirements with respect to the source of its in-
come for a taxable year. At least 90% of the gross income of a Fund must be
derived from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock, securities or foreign cur-
rencies, and other income (including, but not limited to, gains from options,
futures, or forward contracts) derived with respect to the Fund's business of
investing in such stock, securities or currencies. The Treasury Department may
by regulation exclude from qualifying income foreign currency gains which are
not directly related to a Fund's principal business of investing in stock or
securities, or options and futures with respect to stock or securities. Some
of the investments that a Fund may make (such as gold bullion) may not be se-
curities or may not produce qualifying income. Therefore, it may be necessary
for the Investment Adviser and Sub-Adviser to restrict the invest-
30
<PAGE>
ments of a Fund to ensure that non-qualifying income does not exceed 10% of
such Fund's total gross income for a taxable year.
The foregoing summarizes some of the important tax considerations generally
affecting the Funds and their shareholders and is not intended as a substitute
for careful tax planning. Accordingly, potential investors in the Funds should
consult their tax advisers with specific reference to their own tax situa-
tions. Shareholders will be advised annually as to the Federal income tax con-
sequences of distributions made each year.
STATE AND LOCAL
Purchasers are advised to consult their tax advisers concerning the applica-
tion of state and local taxes, which may have different consequences from
those of the Federal income tax law described above.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of Ex-
celsior Fund's Board of Directors. The Statement of Additional Information
contains the names of and general background information concerning Excelsior
Fund's directors.
INVESTMENT ADVISER AND SUB-ADVISERS
United States Trust Company of New York serves as the Investment Adviser to
the Funds. U.S. Trust is a state-chartered bank and trust company. The Invest-
ment Adviser provides trust and banking services to individuals, corporations,
and institutions both nationally and internationally, including investment
management, estate and trust administration, financial planning, corporate
trust and agency banking, and personal and corporate banking. The Investment
Adviser is a member bank of the Federal Reserve System and the Federal Deposit
Insurance Corporation and is one of the twelve members of the New York Clear-
ing House Association.
On December 31, 1995, the Investment Adviser's Asset Management Group had ap-
proximately $47 billion in assets under management. The Investment Adviser,
which has its principal offices at 114 W. 47th Street, New York, New York
10036, is a subsidiary of U.S. Trust Corporation, a registered bank holding
company.
Foreign and Colonial Asset Management ("FACAM") (an SEC-registered investment
adviser) provides sub-advisory services to the International and Pan European
Funds. FACAM, a New York general partnership with offices at Exchange House,
Primrose Street, London EC2A2NY, is an investment management joint venture
created in 1982 by F&C Overseas Limited ("FCOC") and UST Overseas Corporation
("USTOC"), an indirect wholly owned subsidiary of the Investment Adviser. FCOC
and USTOC are general partners of FACAM with equal capital contribution. FCOC,
a private English company, is a wholly owned subsidiary of F&C Management,
Ltd. F&C Management, Ltd. is 50% owned by five U.K. investment trusts: F&C In-
vestment Trust Plc, F&C Pacific Investment Trust Plc, F&C Smaller Companies
Investment Trusts Plc, F&C Enterprise Trust Plc and F&C Eurotrust Plc. The re-
maining 50% of F&C Management, Ltd. is owned by Bayerische Hypotheken und
Wechsel Bank AG of Munich, Germany. FACAM currently manages and advises sev-
eral commingled funds with assets in excess of $9 billion at the end of 1994.
Under the current sub-advisory agreements FCEML (collectively with FACAM, the
"Sub-Advisers") provides sub-advisory services to the Emerging Americas and
Pacific/Asia Funds. FCEML was founded in 1987, and is a joint venture among
F&C Management, Ltd., the parent of FACAM, Banco de Investimentos Garantia
("Banco"), a Brazilian investment bank headquartered in Sao Paulo, Brazil, and
management of FCEML. Banco is owned by private investors. FCEML's offices are
at Exchange House, Primrose Street, London EC2A2NY.
The Sub-Advisers provide a continuous investment program for the Funds for
which they act as sub--
31
<PAGE>
adviser, including investment research and management with respect to all for-
eign securities and investments of the Funds. The Sub-Advisers prepare,
subject to the Investment Adviser's approval, lists of recommended countries
and determine what securities and other investments will be purchased, re-
tained or sold for each Fund for which they act as sub-adviser. The Investment
Adviser advises the Sub-Advisers with respect to U.S. economic factors and
trends, assists and consults with the Sub-Advisers in connection with the par-
ticular Fund's continuous investment program, places orders with respect to
purchases and sales of U.S. issuers, manages the particular Fund's short-term
cash in cooperation with the particular Sub-Adviser, monitors the Sub-Advis-
ers' investment procedures and periodically reviews, evaluates and reports to
Excelsior Fund's Board of Directors concerning the Sub-Advisers' performance.
All investment decisions for the International, Emerging Americas,
Pacific/Asia and Pan European Funds are made by committee and no persons are
primarily responsible for making recommendations to that committee.
For the services provided and expenses assumed pursuant to its Investment Ad-
visory Agreements, the Investment Adviser is entitled to be paid a fee, com-
puted daily and paid monthly, at the annual rate of 1% of the average daily
net assets of each Fund. Although the advisory fee rate payable by the Funds
is higher than the rates payable by most mutual funds, Excelsior Fund believes
it is comparable to the rate paid by many other funds with similar investment
objectives and policies and is appropriate for the Funds in light of their in-
vestment objective and policies. FACAM is entitled to receive from the Invest-
ment Adviser a fee, computed and paid quarterly, at the annual rate of .70% of
the average daily net assets of each of the International and Pan European
Funds. FCEML is entitled to receive from the Investment Adviser a fee, com-
puted and paid quarterly, at the annual rates of .50% and .70% of the average
daily net assets of the Emerging Americas and Pacific/Asia Funds, respective-
ly.
For the fiscal year ended March 31, 1996, the Investment Adviser received an
advisory fee after waivers at the effective annual rates of .90%, .91%, .92%
and .91% of the average daily net assets of the International, Emerging Ameri-
cas, Pacific/Asia and Pan European Funds, respectively. For the same period,
the Investment Adviser waived advisory fees at the effective annual rates of
.10%, .09% .08% and .09% of the average daily net assets of the International,
Emerging Americas, Pacific/Asia and Pan European Funds, respectively. For the
same period, FACAM received a sub-advisory fee from the Investment Adviser at
the effective annual rates of .70% and .70% of the average daily net assets of
the International and Pan European Funds, respectively. For the fiscal year
ended March 31, 1996, FCEML received a sub-advisory fee from the Investment
Adviser at the effective annual rates of .50% and .70% of the average daily
net assets of the Emerging Americas and Pacific/Asia Funds, respectively.
From time to time, the Investment Adviser and Sub-Advisers may waive (either
voluntarily or pursuant to applicable state expense limitations) all or a por-
tion of the advisory fees payable with respect to a Fund, which waivers may be
terminated at any time. See "Management of the Funds--Service Organizations"
for additional information on fee waivers.
ADMINISTRATORS
CGFSC, Federated Administrative Services and U.S. Trust serve as the Funds'
administrators (the "Administrators") and provide them with general adminis-
trative and operational assistance. For the services provided to the Funds,
the Administrators are jointly entitled to a fee, computed daily and paid
monthly, at the annual rate of .20% of the average daily net assets of each
Fund. From time to time, the Administrators may waive (either voluntarily or
pursuant to applicable state expense limitations) all or a portion of the ad-
ministration fee payable to them by a Fund, which waivers may be terminated at
any time. See "Management of the Funds--Service Organizations" for addi-
32
<PAGE>
tional information on fee waivers. For the period from April 1, 1995 through
July 31, 1995, CGFSC and the former administrator received an administration
fee at the effective annual rate of .199%, .200%, .198% and .199% of the aver-
age daily net assets of each of the International, Emerging Americas,
Pacific/Asia and Pan European Funds, respectively. For the same period, CGFSC
and the former administrator waived administration fees at the effective an-
nual rate of .001%, 0%, .002% and .001% of the average daily net assets of the
International, Emerging Americas, Pacific/Asia and Pan European Funds, respec-
tively. From August 1, 1995 through March 31, 1996, the Administrators re-
ceived an aggregate administration fee (under the same compensation arrange-
ments noted above) at the effective annual rate of .200%, of the average daily
net assets of each of the Funds, respectively. For the same period, the Admin-
istrators waived administration fees at the effective annual rate of 0%, of
the average daily net assets of each of the Funds.
SERVICE ORGANIZATIONS
Excelsior Fund will enter into an agreement ("Servicing Agreement") with each
Service Organization requiring it to provide administrative support services
to its Customers beneficially owning Shares. As a consideration for the admin-
istrative services provided to Customers, a Fund will pay the Service Organi-
zation an administrative service fee at the annual rate of up to .40% of the
average daily net asset value of its Shares held by the Service Organization's
Customers. Such services, which are described more fully in the Statement of
Additional Information under "Management of the Funds--Service Organizations,"
may include assisting in processing purchase, exchange and redemption re-
quests; transmitting and receiving funds in connection with Customer orders to
purchase, exchange or redeem Shares; and providing periodic statements. Under
the terms of the Servicing Agreement, Service Organizations will be required
to provide to Customers a schedule of any fees that they may charge in connec-
tion with a Customer's investment. Until further notice, the Investment Ad-
viser and Administrators have voluntarily agreed to waive fees payable by a
Fund in an amount equal to administrative service fees payable by that Fund.
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company regis-
tered under the Federal Bank Holding Company Act of 1956 or any bank or non-
bank affiliate thereof from sponsoring, organizing or controlling a regis-
tered, open-end investment company continuously engaged in the issuance of its
shares, and prohibit banks generally from issuing, underwriting, selling or
distributing securities such as Shares of the Funds, but such banking laws and
regulations do not prohibit such a holding company or affiliate or banks gen-
erally from acting as investment adviser, transfer agent, or custodian to such
an investment company, or from purchasing shares of such company for and upon
the order of customers. The Investment Adviser, CGFSC and certain Shareholder
Organizations may be subject to such banking laws and regulations. State secu-
rities laws may differ from the interpretations of Federal law discussed in
this paragraph and banks and financial institutions may be required to regis-
ter as dealers pursuant to state law.
Should legislative, judicial, or administrative action prohibit or restrict
the activities of the Investment Adviser or other Shareholder Organizations in
connection with purchases of Fund Shares, the Investment Adviser and such
Shareholder Organizations might be required to alter materially or discontinue
the investment services offered by them to Customers. It is not anticipated,
however, that any resulting change in the Funds' method of operations would
affect their net asset values per Share or result in financial loss to any
shareholder.
DESCRIPTION OF CAPITAL STOCK
Excelsior Funds, Inc. (formerly UST Master Funds, Inc.) was organized as a
Maryland corporation on August 2, 1984. Currently, Excelsior Fund has autho-
rized
33
<PAGE>
capital of 35 billion shares of Common Stock, $.001 par value per share, clas-
sified into 40 series of shares representing interests in 20 investment portfo-
lios. This Prospectus describes the International, Emerging Americas,
Pacific/Asia and Pan European Funds.
Each share in a Fund represents an equal proportionate interest in the partic-
ular Fund with other shares of the same class, and is entitled to such divi-
dends and distributions out of the income earned on the assets belonging to
such Fund as are declared in the discretion of Excelsior Fund's Board of Direc-
tors. Excelsior Fund's Charter authorizes the Board of Directors to classify or
reclassify any class of shares into one or more additional classes or series.
Excelsior Fund's shareholders are entitled to one vote for each full share
held and fractional votes for fractional shares held, and will vote in the ag-
gregate and not by class, except as otherwise expressly required by law.
Certificates for Shares will not be issued unless expressly requested in writ-
ing to CGFSC and will not be issued for fractional Shares.
As of July 15, 1996, U.S. Trust held of record substantially all of the Shares
in the Funds as agent or custodian for its customers, but did not own such
Shares beneficially because it did not have voting or investment discretion
with respect to such Shares. U.S. Trust is a wholly-owned subsidiary of U.S.
Trust Corporation.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, N.A. ("Chase"), a wholly-owned subsidiary of The
Chase Manhattan Corporation, serves as the custodian of the Funds' assets. Com-
munications to the custodian should bedirected to Chase, Mutual Funds Service
Division, 770 Broadway, New York, New York 10003-9598.
Chase may enter into an international sub-custodian agreement with a third
party providing for the custody of foreign securities held by the Funds.
U.S. Trust serves as the Funds' transfer and dividend disbursing agent. U.S.
Trust has also entered into a sub-transfer agency arrangement with CGFSC, 73
Tremont Street, Boston, Massachusetts 02108-3913, pursuant to which CGFSC pro-
vides certain transfer agent, dividend disbursement and registrar services to
the Funds.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to shareholders, the per-
formance of the Shares of the Funds may be quoted and compared to that of other
mutual funds with similar investment objectives and to stock or other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For exam-
ple, the performance of a Fund may be compared to data prepared by Lipper Ana-
lytical Services, Inc., a widely recognized independent service which monitors
the performance of mutual funds. The performance of a Fund may also be compared
to the Europe, Australia, and Far East Index ("EAFE") and the Financial Times
Index, unmanaged standard foreign securities indexes.
Performance data as reported in national financial publications, including but
not limited to Money Magazine, Forbes, Barron's, The Wall Street Journal and
The New York Times, or in publications of a local or regional nature, may also
be used in comparing the performance of the Funds.
From time to time, each Fund may advertise its performance by using "average
annual total return" over various periods of time. Such total return figure re-
flects the average percentage change in the value of an investment in a Fund
from the beginning date of the measuring period to the end of the measuring pe-
riod. Average total return figures will be given for the most recent one-year
period, and may be given for other periods as well (such as from the commence-
ment of a Fund's operations, or on a year-by-year basis). Each Fund may also
use aggregate total return figures for various periods, representing the cumu-
lative change in the value of an investment in the Fund for the specific peri-
od. Both methods of calculating total return assume that dividends and capital
gain distributions
34
<PAGE>
made by a Fund during the period are reinvested in Fund Shares and also re-
flect the maximum sales load charged by the Fund.
Performance will fluctuate and any quotation of performance should not be
considered as representative of a Fund's future performance. Shareholders
should remember that performance is generally a function of the kind and qual-
ity of the instrument held in a portfolio, operating expenses, and market con-
ditions. Any fees charged by Shareholder Organizations with respect to ac-
counts of Customers that have invested in Shares will not be included in cal-
culations of performance.
MISCELLANEOUS
Shareholders will receive unaudited semiannual reports describing the Funds'
investment operations and annual financial statements audited by the Funds'
independent auditors.
As used in this Prospectus, a "vote of the holders of a majority of the out-
standing shares" of Excelsior Fund or a particular Fund means, with respect to
the approval of an investment advisory agreement or a change in a fundamental
investment policy, the affirmative vote of the lesser of (a) more than 50% of
the outstanding shares of Excelsior Fund or such Fund, or (b) 67% or more of
the shares of Excelsior Fund or such Fund present at a meeting if more than
50% of the outstanding shares of Excelsior Fund or the Fund are represented at
the meeting in person or by proxy.
Inquiries regarding any of the Funds may be directed to the Distributor at
the address listed under "Distributor."
35
<PAGE>
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION
OPENING YOUR ACCOUNT:
Complete the Application(s)
and mail to: FOR OVERNIGHT DELIVERY: send to:
Excelsior Funds Excelsior Funds c/o Chase Global Funds
c/o Chase Global Funds Services Services Company--Transfer
Company Agent
P.O. Box 2798 73 Tremont Street
Boston, MA 02208-2798 Boston, MA 02108-3913
Please enclose with the Application(s) your check made payable to the
"Excelsior Funds" in the amount of your investment.
For direct wire purchases please refer to the section of the Prospectus
entitled "How to Purchase and Redeem Shares--Purchase Procedures."
MINIMUM INVESTMENTS:
Except as provided in the Prospectus, the minimum initial investment is $500
per Fund; subsequent investments must be in the minimum amount of $50 per
Fund. Investments may be made in excess of these minimums.
REDEMPTIONS:
Shares can be redeemed in any amount and at any time in accordance with
procedures described in the Prospectus. In the case of shares recently
purchased by check, redemption proceeds will not be made available until the
transfer agent is reasonably assured that the check has been collected in
accordance with applicable banking regulations.
Certain legal documents will be required from corporations or other
organizations, executors and trustees, or if redemption is requested by anyone
other than the shareholder of record. Written redemption requests in excess of
$50,000 per account must be accompanied by signature guarantees.
SIGNATURES: Please be sure to sign the Application(s).
If the shares are registered in the name of:
- an individual, the individual should sign.
- joint tenants, both tenants should sign.
- a custodian for a minor, the custodian should sign.
- a corporation or other organization, an authorized officer should sign
(please indicate corporate office or title).*
- a trustee or other fiduciary, the fiduciary or fiduciaries should sign
(please indicate capacity).*
*A corporate resolution or appropriate certificate may be required.
QUESTIONS:
If you have any questions regarding the Application or redemption
requirements, please contact the transfer agent at (800) 446-1012 between 9:00
a.m. and 5:00 p.m. (Eastern Time).
36
<PAGE>
[LOGO OF EXCELSIOR CHASE GLOBAL FUNDS SERVICES COMPANY
FUNDS INC.] CLIENT SERVICES
P.O. Box 2798 NEW
Boston, MA 02208-2798 ACCOUNT
(800) 446-1012 APPLICATION
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION
-----------------------------------------------------------------------------
[_] Individual [_] Joint Tenants [_] Trust [_] Gift/Transfer to Minor
[_] Other
Note: Joint tenant registration will be as "joint tenants
with right of survivorship" unless otherwise specified. Trust
registrations should specify name of the trust, trustee(s),
beneficiary(ies), and the date of the trust instrument.
Registration for Uniform Gifts/Transfers to Minors should be
in the name of one custodian and one minor and include the
state under which the custodianship is created (using the
minor's Social Security Number ("SSN")). For IRA accounts a
different application is required.
------------------------------ -----------------------------
Name(s) (please print) Social Security # or Taxpayer
------------------------------ Identification #
Name ( )
------------------------------ -----------------------------
Address Telephone #
------------------------------ [_] U.S. Citizen [_] Other
City/State/Zip Code (specify) ___________________
-----------------------------------------------------------------------------
FUND SELECTION (THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT IS $500 PER
FUND AND $50 PER FUND, RESPECTIVELY. MAKE CHECKS PAYABLE TO "EXCELSIOR
FUNDS.")
-----------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
INITIAL INVESTMENT INITIAL INVESTMENT
[_] International Fund $ ____________ 802 [_] Emerging Americas Fund $ ____________ 822
[_] Pan European Fund $ ____________ 821 [_] Other $ ____________
[_] Pacific/Asia Fund $ ____________ 820 TOTAL INITIAL INVESTMENT: $ ____________
</TABLE>
NOTE: If investing A. BY MAIL: Enclosed is a check in the
by wire, you must amount of $ _____ payable to "Excelsior
obtain a Bank Wire Funds."
Control Number. To B. BY WIRE: A bank wire in the amount
do so, please call of $ has been sent to the Fund from
(800) 446-1012 and ------------------ ---------------
ask for the Wire Name of Bank Wire Control
Desk. Number
CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and
dividend distributions will be reinvested in additional
shares unless appropriate boxes below are checked:
All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash
-----------------------------------------------------------------------------
ACCOUNT PRIVILEGES
-----------------------------------------------------------------------------
TELEPHONE EXCHANGE AND
REDEMPTION
[_] I/We appoint CGFSC as
my/our agent to act upon
instructions received by
telephone in order to effect
the telephone exchange and
redemption privileges. I/We
hereby ratify any
instructions given pursuant
to this authorization and
agree that Excelsior Fund,
Excelsior Tax-Exempt Fund,
Excelsior Institutional
Trust CGFSC and their
directors, officers and
employees will not be liable
for any loss, liability,
cost or expense for acting
upon instructions believed
to be genuine and in
accordance with the
procedures described in the
then current Prospectus. To
the extent that Excelsior
Fund, Excelsior Tax-Exempt
Fund and Excelsior
Institutional Trust fail to
use reasonable procedures as
a basis for their belief,
they or their service
contractors may be liable
for instructions that prove
to be fraudulent or
unauthorized.
I/We further acknowledge
that it is my/our
responsibility to read the
Prospectus of any Fund into
which I/we exchange.
[_] I/We do not wish to have
the ability to exercise
telephone redemption and
exchange privileges. I/We
further understand that all
exchange and redemption
requests must be in writing.
SPECIAL PURCHASE AND
REDEMPTION PLANS
I/We have completed and
attached the Supplemental
Application for:
[_] Automatic Investment Plan
[_] Systematic Withdrawal Plan
AUTHORITY TO TRANSMIT
REDEMPTION PROCEEDS TO PRE-
DESIGNATED ACCOUNT.
I/We hereby authorize CGFSC to
act upon instructions received
by telephone to withdraw $500
or more from my/our account in
the Excelsior Funds and to
wire the amount withdrawn to
the following commercial bank
account. I/We understand that
CGFSC charges an $8.00 fee for
each wire redemption, which
will be deducted from the
proceeds of the redemption.
Title on Bank Account*_________
Name of Bank __________________
Bank A.B.A. Number Account
Number ________________________
Bank Address __________________
City/State/Zip Code____________
(attach voided check here)
A corporation, trust or
partnership must also submit a
"Corporate Resolution" (or
"Certificate of Partnership")
indicating the names and
titles of officers authorized
to act on its behalf.
* TITLE ON BANK AND FUND
ACCOUNT MUST BE IDENTICAL.
<PAGE>
- ------------------------------------------------------------------
RIGHTS OF ACCUMULATION
- ------------------------------------------------------------------
To qualify for Rights of Accumulation, you must complete this
section, listing all of your accounts including those in your
spouse's name, joint accounts and accounts held for your
minor children. If you need more space, please attach a
separate sheet.
[_] I/We qualify for the Rights of Accumulation sales charge
discount described in the Prospectus and Statement of
Additional Information.
[_] I/We own shares of more than one Fund distributed by
Edgewood Service, Inc. Listed below are the numbers of each
of my/our Shareholder Accounts.
[_] The registration of some of my/our shares differs from that
shown on this application. Listed below are the account
number(s) and full registration(s) in each case.
LIST OF OTHER EXCELSIOR FUND ACCOUNTS:
______________________ _______________________________________
______________________ _______________________________________
______________________ _______________________________________
ACCOUNT NUMBER ACCOUNT REGISTRATIONS
- ------------------------------------------------------------------
LETTER OF INTENT
- ------------------------------------------------------------------
[_] I agree to the Letter of Intent provisions set forth in the
Prospectus. Although I am not obligated to purchase, and
Excelsior Fund is not obligated to sell, I intend to
invest, over a 13-month period beginning on , 19 , an
aggregate amount in Eligible Funds of Excelsior Fund and
Excelsior Tax-Exempt Fund at least equal to (check
appropriate box):
[_] $50,000[_] $100,000[_] $250,000[_] $500,000[_] $1,000,000[_] $2,000,000
By signing this application, I hereby authorize CGFSC to redeem an
appropriate number of shares held in escrow to pay any additional
sales loads payable in the event that I do not fulfill the terms of
this Letter of Intent.
- ------------------------------------------------------------------
AGREEMENTS AND SIGNATURES
- ------------------------------------------------------------------
By signing this application, I/we hereby certify under
penalty of perjury that the information on this application
is complete and correct and that as required by Federal law:
[_] I/We certify that (1) the number(s) shown on this form
is/are the correct taxpayer identification number(s) and (2)
I/we are not subject to backup withholding either because
I/we have not been notified by the Internal Revenue Service
that I/we are subject to backup withholding, or the IRS has
notified me/us that I am/we are no longer subject to backup
withholding. (NOTE: IF ANY OR ALL OF PART 2 IS NOT TRUE,
PLEASE STRIKE OUT THAT PART BEFORE SIGNING.)
[_] If no taxpayer identification number ("TIN") or SSN has
been provided above, I/we have applied, or intend to apply,
to the IRS or the Social Security Administration for a TIN or
a SSN, and I/we understand that if I/we do not provide this
number to CGFSC within 60 days of the date of this
application, or if I/we fail to furnish my/our correct SSN or
TIN, I/we may be subject to a penalty and a 31% backup
withholding on distributions and redemption proceeds. (Please
provide this number on Form W-9. You may request the form by
calling CGFSC at the number listed above).
I/We represent that I am/we are of legal age and capacity to
purchase shares of the Excelsior Funds. I/We have received,
read and carefully reviewed a copy of the appropriate Fund's
current Prospectus and agree to its terms and by signing
below I/we acknowledge that neither the Fund nor the
Distributor is a bank and that Fund Shares are not deposits
or obligations of, or guaranteed or endorsed by, United
States Trust Company of New York, its parent and affiliates
and the Shares are not federally insured by, guaranteed by,
obligations of or otherwise supported by the U.S. Government,
the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other governmental agency; and that an
investment in the Funds involves investment risks, including
possible loss of principal amount invested.
X ___________________________ Date __________________________
Owner Signature
X ___________________________ Date __________________________
Co-Owner Signature
Sign exactly as name(s) of registered owner(s) appear(s) above
(including legal title if signing for a corporation, trust
custodial account, etc.).
- ------------------------------------------------------------------
FOR USE BY AUTHORIZED AGENT (BROKER/DEALER) ONLY
- ------------------------------------------------------------------
We hereby submit this application for the purchase of shares
in accordance with the terms of our selling agreement with
Edgewood Services, Inc., and with the Prospectus and
Statement of Additional Information of each Fund purchased.
We agree to notify CGFSC of any purchases made under the
Letter of Intent or Rights of Accumulation.
----------------------------- -------------------------------
Investment Dealer's Name Source of Business Code
----------------------------- -------------------------------
Main Office Address Branch Number
----------------------------- -------------------------------
Representative's Number Representative's Name
----------------------------- -------------------------------
Branch Address Telephone
----------------------------- -------------------------------
Investment Dealer's Title
Authorized Signature
<PAGE>
[LOGO OF EXCELSIOR CHASE GLOBAL FUNDS SERVICES COMPANY
FUNDS INC.] CLIENT SERVICES
P.O. Box 2798 SUPPLEMENTAL
Boston, MA 02208-2798 APPLICATION
(800) 446-1012 SPECIAL INVESTMENT AND
WITHDRAWAL OPTIONS
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION PLEASE SUPPLY THE FOLLOWING INFORMATION EXACTLY AS IT
APPEARS ON THE FUND'S RECORD.
-----------------------------------------------------------------------------
Fund Name __________________ Account Number _________________
Owner Name _________________ Social Security or Taxpayer ID
Street Address _____________ Number _________________________
Resident City, State, Zip Code __________
of [_] U.S. [_] Other ____ [_] Check here if this is a
change of address
-----------------------------------------------------------------------------
DISTRIBUTION OPTIONS (DIVIDENDS AND CAPITAL GAINS WILL BE REINVESTED
UNLESS OTHERWISE INDICATED)
-----------------------------------------------------------------------------
A. CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend
distributions will be reinvested in additional shares unless appropriate
boxes below are checked:
All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash
B. PAYMENT ORDER: Complete only if distribution checks are to be payable
to another party. Make distribution checks payable to:
Name of Your Bank ______________
Name _______________________ Bank Account Number ____________
Address ____________________ Address of Bank ________________
City, State, Zip Code ________________________________________
C. DISTRIBUTIONS REINVESTED-CROSS FUNDS: Permits all distributions from
one Fund to be automatically reinvested into another identically-
registered Excelsior Fund. (NOTE: You may NOT open a new Fund account with
this option.) Transfer all distributions earned:
From: ______________________ Account No. ____________________
(Fund)
To: ________________________ Account No. ____________________
(Fund)
-----------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN [_] YES [_] NO
-----------------------------------------------------------------------------
I/We hereby authorize CGFSC to debit my/our personal checking account on
the designated dates in order to purchase shares in the Fund indicated at
the top of this application at the applicable public offering price
determined on that day.
[_] Monthly on the 1st day
[_] Monthly on the 15th day
[_] Monthly on both the 1st and 15th days
Amount of each debit (minimum $50
per Fund) $ ________________________
NOTE: A Bank Authorization Form (below) and a voided personal check must
accompany the Automatic Investment Plan application.
-----------------------------------------------------------------------------
EXCELSIOR FUNDS
CLIENT SERVICES AUTOMATIC INVESTMENT PLAN
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
BANK AUTHORIZATION
-----------------------------------------------------------------------------
-------------------- ----------------------------------------
Bank Name Bank Address Bank Account Number
I/We authorize you, the above named bank, to debit my/our
account for amounts drawn by CGFSC, acting as my agent for
the purchase of Fund shares. I/We agree that your rights in
respect to each withdrawal shall be the same as if it were a
check drawn upon you and signed by me/us. This authority
shall remain in effect until revoked in writing and received
by you. I/We agree that you shall incur no liability when
honoring debits, except a loss due to payments drawn against
insufficient funds. I/We further agree that you will incur no
liability to me if you dishonor any such withdrawal. This
will be so even though such dishonor results in the
cancellation of that purchase.
---------------------------- --------------------------------
Account Holder's Name Joint Account Holder's Name
X ________________ _________ X __________________ ___________
Signature Date Signature Date
<PAGE>
- ------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN [_] YES [_] NO NOT AVAILABLE FOR IRA'S
- ------------------------------------------------------------------------
AVAILABLE TO SHAREHOLDERS WITH ACCOUNT BALANCES OF $10,000 OR
MORE.
I/We hereby authorize CGFSC to redeem the necessary number of
shares from my/our Excelsior Fund Account on the designated
dates in order to make the following periodic payments:
[_] Monthly on the 24th day
[_] Quarterly on the 24th day of January, April, July and October
[_] Other_____________________
(This request for participation in the Plan must be received
by the 18th day of the month in which you wish withdrawals to
begin.)
Amount of each check ($100 minimum)
$
Please make Recipient ________________________________
check payable Street Address ___________________________
to: (To be City, State, Zip Code ____________________
completed only
if redemption
proceeds to be
paid to other
than account
holder of record
or mailed to
address other
than address of
record)
NOTE: If recipient of checks is not the registered
shareholder, signature(s) below must be guaranteed. A
corporation, trust or partnership must also submit a
"Corporate Resolution" (or "Certification of Partnership")
indicating the names and titles of officers authorized to act
on its behalf.
- ------------------------------------------------------------------
AGREEMENT AND SIGNATURES
- ------------------------------------------------------------------
The investor(s) certifies and agrees that the certifications,
authorizations, directions and restrictions contained herein
will continue until CGFSC receives written notice of any
change or revocation. Any change in these instructions must
be in writing with all signatures guaranteed (if applicable).
Date ______________________
X X
------------------------------- -----------------------------
Signature Signature
------------------------------- -----------------------------
Signature Guarantee* (if applicable)
Signature Guarantee* (if applicable)
X X
------------------------------- -----------------------------
Signature Signature
------------------------------- -----------------------------
Signature Guarantee* (if applicable)
Signature Guarantee* (if applicable)
*ELIGIBLE GUARANTORS: An Eligible Guarantor institution is a
bank, trust company, broker, dealer, municipal or government
securities broker or dealer, credit union, national
securities exchange, registered securities association,
clearing agency or savings association, provided that such
institution is a participant in STAMP, the Securities
Transfer Agents Medallion Program.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY......................................................... 2
EXPENSE SUMMARY............................................................ 3
FINANCIAL HIGHLIGHTS....................................................... 5
INVESTMENT OBJECTIVES AND POLICIES......................................... 9
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION..................... 14
INVESTMENT LIMITATIONS..................................................... 17
PRICING OF SHARES.......................................................... 19
HOW TO PURCHASE AND REDEEM SHARES.......................................... 19
INVESTOR PROGRAMS.......................................................... 25
DIVIDENDS AND DISTRIBUTIONS................................................ 29
TAXES...................................................................... 29
MANAGEMENT OF THE FUNDS.................................................... 31
DESCRIPTION OF CAPITAL STOCK............................................... 33
CUSTODIAN AND TRANSFER AGENT............................................... 34
PERFORMANCE INFORMATION.................................................... 34
MISCELLANEOUS.............................................................. 35
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION................................... 36
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' STATEMENT OF ADDI-
TIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OF-
FERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REP-
RESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY EXCELSIOR
FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY EX-
CELSIOR FUND OR BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
USTINLP896
[LOGO OF EXCELSIOR FUND INC.]
INTERNATIONAL FUND
EMERGING AMERICAS FUND
PACIFIC/ASIA FUND
PAN EUROPEAN FUND
Prospectus
August 1, 1996
<PAGE>
CROSS-REFERENCE SHEET
---------------------
EXCELSIOR FUNDS, INC.
(Money Fund, Government Money Fund, Treasury Money Fund)
EXCELSIOR TAX-EXEMPT FUNDS, INC.
(Tax-Exempt Money Fund)
<TABLE>
<CAPTION>
Form N-1A, Part A, Item Prospectus Caption
- ----------------------- ------------------
<S> <C> <C>
1. Cover Page . . . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . . . Expense Summary
3. Condensed Financial Information . Performance and Yield Information
4. General Description of Registrant Investment Objective and Policies;
Portfolio Instruments and Other
Investment Information; Investment
Limitations; Description of
Capital Stock
5. Management of the Fund . . . . . . Management of the Funds; Custodian
and Transfer Agent
5A. Management's Discussion of Fund
Performance . . . . . . . . . . Not Applicable
6. Capital Stock and
Other Securities . . . . . . . . How to Purchase and Redeem Shares;
Dividends and Distributions;
Taxes; Description of Capital
Stock; Miscellaneous
7. Purchase of Securities
Being Offered . . . . . . . . . . Pricing of Shares; How to Purchase
and Redeem Shares; Investor
Programs
8. Redemption or Repurchase . . . . . How to Purchase and Redeem Shares
9. Pending Legal Proceedings . . . . . Inapplicable
</TABLE>
<PAGE>
[LOGO OF EXCELSIOR
FUNDS INC.]
A Management Investment Company
- --------------------------------------------------------------------------------
Equity Funds For initial purchase information, current
Trust Shares prices, performance information and ex-
isting account information, call (800)
73 Tremont Street 446-1012.
Boston, MA 02108-3913 (From overseas, call (617) 557-8280.)
- --------------------------------------------------------------------------------
This Prospectus describes the Trust Shares ("Trust Shares" or "Shares") offered
by several separate portfolios offered to investors by Excelsior Funds, Inc.
("Excelsior Fund") (formerly UST Master Funds, Inc.), an open-end, management
investment company. Excelsior Fund also issues an additional series of shares
in the portfolios which are offered under a separate prospectus. Each portfolio
(individually, a "Fund" and collectively, the "Funds") has its own investment
objective and policies as follows:
EQUITY FUND seeks long-term capital appreciation by investing in companies be-
lieved by the Investment Adviser to represent good long-term values not cur-
rently recognized in the market prices of their securities.
AGING OF AMERICA FUND seeks long-term capital appreciation by investing in
companies which the Investment Adviser believes will benefit from the changes
occurring in the demographic structure of the U.S. population, particularly its
growing population of individuals over the age of 40.
COMMUNICATION AND ENTERTAINMENT FUND seeks long-term capital appreciation by
investing in companies which the Investment Adviser believes will benefit from
the technological and international transformation of the communications and
entertainment industries, particularly the convergence of information, communi-
cation and entertainment media.
BUSINESS AND INDUSTRIAL RESTRUCTURING FUND seeks long-term capital apprecia-
tion by investing in companies which the Investment Adviser believes will bene-
fit from their restructuring or redeployment of assets and operations in order
to become more competitive or profitable.
GLOBAL COMPETITORS FUND seeks long-term capital appreciation by investing pri-
marily in U.S.-based companies which the Investment Adviser believes will bene-
fit from their position as effective and strong competitors on a global basis.
EARLY LIFE CYCLE FUND seeks long-term capital appreciation by investing in
smaller companies in the earlier stages of their development or larger or more
mature companies engaged in new and higher growth potential operations.
Each of the Funds is sponsored and distributed by Edgewood Services, Inc. and
advised by United States Trust Company of New York (the "Investment Adviser" or
"U.S. Trust").
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated August 1, 1996 and containing additional information about
the Funds has been filed with the Securities and Exchange Commission. The cur-
rent Statement of Additional Information is available to investors without
charge by writing to Excelsior Fund at its address shown above or by calling
(800) 446-1012. The Statement of Additional Information, as it may be supple-
mented from time to time, is incorporated by reference in its entirety into
this Prospectus.
SHARES IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR EN-
DORSED BY, UNITED STATES TRUST COMPANY OF NEW YORK, ITS PARENT OR AFFILIATES
AND THE SHARES ARE NOT FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR
OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE COR-
PORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
August 1, 1996
<PAGE>
PROSPECTUS SUMMARY
EXCELSIOR FUNDS, INC. is an investment company offering various diversified
investment portfolios with differing objectives and policies. Founded in 1984,
Excelsior Fund currently offers 20 Funds with combined assets of approximately
$2.4 billion. See "Description of Capital Stock."
INVESTMENT ADVISER: United States Trust Company of New York ("U.S. Trust")
serves as the Funds' investment adviser. U.S. Trust offers a variety of spe-
cialized financial and fiduciary services to high-net worth individuals, in-
stitutions and corporations. Excelsior Fund offers investors access to U.S.
Trust's services. See "Management of the Funds--Investment Adviser."
INVESTMENT OBJECTIVES AND POLICIES: Generally, each Fund is a diversified
investment portfolio which invests in equity securities. The Funds' investment
objectives and policies are summarized on the cover and explained in greater
detail later in this Prospectus. See "Investment Objectives and Policies,"
"Portfolio Instruments and Other Investment Information," and "Investment Lim-
itations."
HOW TO INVEST: The Funds' Shares are offered at their public offering price,
i.e., their net asset value plus a sales load which is subject to substantial
reductions for large purchases and programs for accumulation. The sales load
is not applicable to investors making their investments through a variety of
institutions, such as U.S. Trust, other banks and trust companies. See "How to
Purchase and Redeem Shares."
The minimum to start an account is $500 per Fund, with a minimum of $50 per
Fund for subsequent investments. The easiest way to invest is to complete the
account application which accompanies this Prospectus and to send it with a
check to the address noted on the application. Investors may also invest by
wire and through investment dealers or institutional investors with appropri-
ate sales agreements with Excelsior Fund. See "How to Purchase and Redeem
Shares."
HOW TO REDEEM: Redemptions may be requested directly from Excelsior Fund by
mail, wire or telephone. Investors investing through another institution
should request redemptions through their Shareholder Organization. See "How to
Purchase and Redeem Shares."
INVESTMENT RISKS AND CHARACTERISTICS: Generally, each Fund is subject to
market and industry risk. Market risk is the possibility that stock prices
will decline over short or even extended periods. The stock markets tend to be
cyclical, with periods of generally rising prices and periods of generally de-
clining prices. These cycles will affect the values of each Fund. Because the
Funds may invest in securities of foreign issuers, they are subject to the
risks of fluctuations of the value of foreign currency relative to the U.S.
dollar and other risks associated with such investments. Although each Fund
generally seeks to invest for the long term, each Fund may engage in short-
term trading of portfolio securities. A high rate of portfolio turnover may
involve correspondingly greater transaction costs which must be borne directly
by a Fund and ultimately by its shareholders. Investment in the Funds should
not be considered a complete investment program. See "Investment Objectives
and Policies."
2
<PAGE>
EXPENSE SUMMARY
The following table summarizes the estimated expenses to be borne by the
Trust Shares of each Fund. The expense summary sets forth the expenses borne
by a separate series of shares of the Funds offered under a separate prospec-
tus for the fiscal year ended March 31, 1996, as restated to reflect the addi-
tional cost of distribution fees borne by Trust Shares.
<TABLE>
<CAPTION>
BUSINESS
AGING OF COMMUNICATION AND INDUSTRIAL GLOBAL
EQUITY AMERICA AND ENTERTAINMENT RESTRUCTURING COMPETITORS EARLY LIFE
FUND FUND FUND FUND FUND CYCLE FUND
------ -------- ----------------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Load (as a
percentage of offering
price)................. 4.50% 4.50% 4.50% 4.50% 4.50% 4.50%
Sales Load on Reinvested
Dividends.............. None None None None None None
Deferred Sales Load..... None None None None None None
Redemption Fees/1/ ..... None None None None None None
Exchange Fees........... None None None None None None
ANNUAL FUND OPERATING
EXPENSES FOR TRUST
SHARES (AS A PERCENTAGE
OF AVERAGE NET ASSETS)
Advisory Fees (after fee
waivers)/2/ ........... .68% .56% .55% .56% .56% .52%
12b-1 Fees/3/........... .35% .35% .35% .35% .35% .35%
Other Operating Expenses
Administrative Servic-
ing Fee/2/............ .07% .04% .05% .04% .04% .08%
Other Expenses/2/ (af-
ter fee waivers)...... .30% .33% .32% .31% .29% .30%
----- ----- ----- ----- ----- -----
Total Operating Expenses
(after fee waivers)/2/
....................... 1.40% 1.28% 1.27% 1.26% 1.24% 1.25%
===== ===== ===== ===== ===== =====
</TABLE>
- -------
1. The Fund's transfer agent imposes a direct $8.00 charge on each wire re-
demption by noninstitutional (i.e. individual) investors which is not re-
flected in the expense ratios presented herein. Shareholder organizations
may charge their customers transaction fees in connection with redemptions.
See "Redemption Procedures."
2. The Investment Adviser and Administrators may, from time to time, voluntar-
ily waive part of their respective fees, which waivers may be terminated at
any time. Until further notice, the Investment Adviser and/or Administra-
tors intend to voluntarily waive fees in an amount equal to the Administra-
tive Servicing Fee; and to further waive fees and reimburse expenses to the
extent necessary for Shares of each of the Aging of America, Communication
and Entertainment, Business and Industrial Restructuring, Global Competi-
tors and Early Life Cycle Funds (collectively, the "Theme Funds"), respec-
tively, to maintain an annual expense ratio, net of 12b-1 fees, of not more
than .99%. Without such fee waivers, "Advisory Fees" would be .75%, .60%,
.60%, .60%, .60% and .60%, and "Total Operating Expenses" would be 1.47%,
1.32%, 1.32%, 1.30%, 1.28% and 1.33% for the Equity, Aging of America, Com-
munication and Entertainment, Business and Industrial Restructuring, Global
Competitors and Early Life Cycle Funds, respectively.
3. As a result of the payment of sales charges and distribution fees, long-
term shareholders may pay more than the economic equivalent of the maximum
front-end sales load permitted by the National Association of Securities
Dealers, Inc. ("NASD"). The NASD has adopted rules which generally limit
the aggregate sales charges and payments under Excelsior Fund's Distribu-
tion Plan to a certain percentage of total new gross share sales, plus in-
terest. Excelsior Fund would stop accruing Distribution Plan fees if, to
the extent, and for as long as such limit would otherwise be exceeded.
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual returns and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity Fund..................................... $59 $87 $118 $205
Aging of America Fund........................... 57 84 112 193
Communication and Entertainment Fund............ 57 83 112 191
Business and Industrial Restructuring Fund...... 57 83 111 190
Global Competitors Fund......................... 57 83 110 188
Early Life Cycle Fund........................... 57 83 111 189
</TABLE>
3
<PAGE>
The foregoing expense summary and example (based on the maximum sales load
payable on the Shares) are intended to assist investors in understanding the
costs and expenses that an investor in Trust Shares of the Funds will bear di-
rectly or indirectly. The expense summary sets forth advisory and other ex-
penses payable with respect to a separate series of shares of the Funds for the
fiscal year ended March 31, 1996, as restated to reflect the additional cost of
distribution fees borne by Trust Shares. For more complete descriptions of the
Funds' operating expenses, see "Management of the Funds" and "Description of
Capital Stock" in this Prospectus and the financial statements and notes incor-
porated by reference in the Statement of Additional Information.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES AND RATE OF RETURN MAY BE
GREATER OR LOWER THAN THOSE SHOWN IN THE EXPENSE SUMMARY AND EXAMPLE.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The Funds offer two separate series of shares, Trust Shares and shares of
another series offered under a separate prospectus. Trust Shares and the
shares of the other series offered by a separate prospectus represent equal
pro rata interests in each Fund, except that Trust Shares bear the additional
expense of distribution fees. See "Description of Capital Stock."
The following tables include selected data for a share of a separate series
of the Fund outstanding throughout each period and other performance informa-
tion derived from the financial statements included in Excelsior Fund's Annual
Report to Shareholders for the year ended March 31, 1996 (the "Financial
Statements"). No Trust Shares were outstanding during the periods reflected in
the following tables. The information contained in the Financial Highlights
for each period has been audited by Ernst & Young LLP, Excelsior Fund's inde-
pendent auditors. The following tables should be read in conjunction with the
Financial Statements and notes thereto. More information about the performance
of each Fund is also contained in the Annual Report to Shareholders which may
be obtained from Excelsior Fund without charge by calling the number on the
front cover of this Prospectus.
EQUITY FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- ------ ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 21.40 $ 19.17 $ 18.77 $ 16.28 $ 14.13 $13.87 $ 13.22 $ 11.32 $ 13.56 $ 12.35
------- ------- ------- ------- ------- ------ ------- ------- --------- -------
Income From Investment
Operations
Net Investment Income.. 0.12 0.07 0.05 0.08 0.13 0.28 0.34 0.19 0.15 0.18
Net Gains or (Losses)
on Securities (both
realized and
unrealized)........... 5.21 2.67 1.16 3.01 2.23 0.39 1.26 1.88 (1.63) 1.86
------- ------- ------- ------- ------- ------ ------- ------- --------- -------
Total From Investment
Operations............ 5.33 2.74 1.21 3.09 2.36 0.67 1.60 2.07 (1.48) 2.04
------- ------- ------- ------- ------- ------ ------- ------- --------- -------
Less Distributions
Dividends From Net
Investment Income..... (0.11) (0.04) (0.08) (0.09) (0.21) (0.23) (0.34) (0.17) (0.14) (0.18)
Dividends in Excess of
Net Investment Income. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Gain on
Investments and
Options............... (2.19) (0.47) (0.39) (0.51) 0.00 (0.18) (0.61) 0.00 (0.62) (0.65)
Distributions in Excess
of Net Realized Gain
on Investments and
Options............... 0.00 0.00 (0.34) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------- ------ ------- ------- --------- -------
Total Distributions.... (2.30) (0.51) (0.81) (0.60) (0.21) (0.41) (0.95) (0.17) (0.76) (0.83)
------- ------- ------- ------- ------- ------ ------- ------- --------- -------
Net Asset Value, End of
Period................. $ 24.43 $ 21.40 $ 19.17 $ 18.77 $ 16.28 $14.13 $ 13.87 $ 13.22 $ 11.32 $ 13.56
======= ======= ======= ======= ======= ====== ======= ======= ========= =======
Total Return/1/ ........ 26.45% 14.65% 6.54% 19.26% 16.87% 5.11% 11.98% 18.52% (11.24)% 17.61%
Ratios/Supplemental Data
Net Assets, End of
Period
(in millions)......... $188.57 $137.42 $122.26 $106.14 $ 71.62 $29.87 $ 25.98 $ 17.61 $ 13.58 $ 13.40
Ratio of Net Operating
Expenses to Average
Net Assets/2/......... 1.05% 1.05% 1.14% 1.08% 1.15% 1.23% 1.22% 1.16% 1.16% 1.21%
Ratio of Gross
Operating Expenses to
Average Net Assets.... 1.12% 1.08% 1.14% 1.08% 1.15% 1.23% 1.22% 1.16% 1.16% 1.30%
Ratio of Net Investment
Income to Average Net
Assets................ 0.55% 0.36% 0.25% 0.51% 0.87% 2.21% 2.45% 1.62% 1.26% 1.53%
Portfolio Turnover
Rate.................. 27.0% 23.0% 17.0% 24.0% 20.0% 41.0% 53.0% 46.0% 67.0% 86.0%
</TABLE>
- -------
NOTES:
1. Total return data does not reflect the sales load payable on purchases of
Shares.
2. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
5
<PAGE>
AGING OF AMERICA FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------- PERIOD ENDED
1996 1995 1994 MARCH 31, 1993/1/
------ ------ ------ -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period. $ 7.84 $ 6.99 $ 7.01 $7.00
------ ------ ------ -----
Income From Investment Operations
Net Investment Income.............. 0.05 0.04 0.03 0.01
Net Gains or (Losses) on Securities
(both realized and unrealized).... 1.97 0.85 (0.02) 0.00
------ ------ ------ -----
Total From Investment Operations... 2.02 0.89 0.01 0.01
------ ------ ------ -----
Less Distributions
Dividends From Net Investment
Income............................ (0.05) (0.04) (0.03) 0.00
Dividends in Excess of Net
Investment Income................. 0.00 0.00 0.00 0.00
Distributions From Net Realized
Gain on Investments and Options... 0.00 0.00 0.00 0.00
Distributions in Excess of Net
Realized Gain on Investments and
Options........................... 0.00 0.00 0.00 0.00
------ ------ ------ -----
Total Distributions................ (0.05) (0.04) (0.03) 0.00
------ ------ ------ -----
Net Asset Value, End of Period....... $ 9.81 $ 7.84 $ 6.99 $7.01
====== ====== ====== =====
Total Return/2/...................... 25.80% 12.80% 0.13% 0.14%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)......................... $44.79 $22.17 $10.58 $2.39
Ratio of Net Operating Expenses to
Average Net Assets................ 0.93% 0.99% 0.99% 0.99%/3/
Ratio of Gross Operating Expenses
to Average Net Assets/4/.......... 0.97% 1.26% 1.82% 3.87%/3/
Ratio of Net Investment Income to
Average Net Assets................ 0.54% 0.63% 0.59% 0.77%/3/
Portfolio Turnover Rate............ 34.0% 14.0% 24.0% 14.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
6
<PAGE>
COMMUNICATION AND ENTERTAINMENT FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------- PERIOD ENDED
1996 1995 1994 MARCH 31, 1993/1/
------ ------ ------ -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period. $ 9.64 $ 8.75 $ 7.61 $7.00
------ ------ ------ -----
Income From Investment Operations
Net Investment Income.............. 0.03 0.04 0.02 0.01
Net Gains or (Losses) on Securities
(both realized and unrealized).... 1.30 1.06 1.52 0.60
------ ------ ------ -----
Total From Investment Operations... 1.33 1.10 1.54 0.61
------ ------ ------ -----
Less Distributions
Dividends From Net Investment
Income............................ (0.03) (0.04) (0.03) 0.00
Dividends in Excess of Net
Investment Income................. 0.00 0.00 0.00 0.00
Distributions From Net Realized
Gain on Investments and Options... (0.62) (0.17) (0.37) 0.00
Distributions in Excess of Net
Realized Gain on Investments and
Options........................... 0.00 0.00 0.00 0.00
------ ------ ------ -----
Total Distributions................ (0.65) (0.21) (0.40) 0.00
------ ------ ------ -----
Net Asset Value, End of Period....... $10.32 $ 9.64 $ 8.75 $7.61
====== ====== ====== =====
Total Return/2/...................... 13.48% 12.87% 20.07% 8.71%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)......................... $46.95 $29.91 $21.02 $5.79
Ratio of Net Operating Expenses to
Average Net Assets................ 0.92% 0.98% 0.98% 0.99%/3/
Ratio of Gross Operating Expenses
to Average Net Assets/4/.......... 0.97% 1.06% 1.16% 2.20%/3/
Ratio of Net Investment Income to
Average Net Assets................ 0.28% 0.46% 0.29% 1.06%/3/
Portfolio Turnover Rate............ 65.0% 56.0% 60.0% 25.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3.Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
7
<PAGE>
BUSINESS AND INDUSTRIAL RESTRUCTURING FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------- PERIOD ENDED
1996 1995 1994 MARCH 31, 1993/1/
------ ------ ------ -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period. $10.55 $ 9.64 $ 7.71 $ 7.00
------ ------ ------ ------
Income From Investment Operations
Net Investment Income.............. 0.10 0.07 0.06 0.02
Net Gains or (Losses) on Securities
(both realized and unrealized).... 3.71 1.02 1.96 0.69
------ ------ ------ ------
Total From Investment Operations... 3.81 1.09 2.02 0.71
------ ------ ------ ------
Less Distributions
Dividends From Net Investment
Income............................ (0.09) (0.06) (0.07) 0.00
Dividends in Excess of Net
Investment Income................. 0.00 0.00 0.00 0.00
Distributions From Net Realized
Gain on Investments and Options... (0.24) (0.12) (0.02) 0.00
Distributions in Excess of Net
Realized Gain on Investments and
Options........................... 0.00 0.00 0.00 0.00
------ ------ ------ ------
Total Distributions................ (0.33) (0.18) (0.09) 0.00
------ ------ ------ ------
Net Asset Value, End of Period....... $14.03 $10.55 $ 9.64 $ 7.71
====== ====== ====== ======
Total Return/2/...................... 36.48% 11.49% 26.40% 10.14%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)......................... $74.05 $30.18 $14.44 $ 1.94
Ratio of Net Operating Expenses to
Average Net Assets................ 0.91% 0.98% 0.99% 0.99%/3/
Ratio of Gross Operating Expenses
to Average Net Assets/4/.......... 0.95% 1.08% 1.73% 5.85%/3/
Ratio of Net Investment Income to
Average Net Assets................ 0.88% 0.83% 0.77% 2.48%/3/
Portfolio Turnover Rate............ 56.0% 82.0% 75.0% 9.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
8
<PAGE>
GLOBAL COMPETITORS FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------- PERIOD ENDED
1996 1995 1994 MARCH 31, 1993/1/
------ ------ ------ -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period. $ 8.59 $7.69 $ 7.28 $7.00
------ ------ ------ -----
Income From Investment Operations
Net Investment Income.............. 0.07 0.07 0.05 0.01
Net Gains or (Losses) on Securities
(both realized and unrealized).... 2.27 0.90 0.41 0.27
------ ------ ------ -----
Total From Investment Operations... 2.34 0.97 0.46 0.28
------ ------ ------ -----
Less Distributions
Dividends from Net Investment
Income............................ (0.06) (0.07) (0.05) 0.00
Dividends in Excess of Net
Investment Income................. 0.00 0.00 0.00 0.00
Distributions from Net Realized
Gain on Investments and Options... (0.02) 0.00 0.00 0.00
Distributions in Excess of Net
Realized Gain on Investments and
Options........................... (0.02) 0.00 0.00 0.00
------ ------ ------ -----
Total Distributions................ (0.10) (0.07) (0.05) 0.00
------ ------ ------ -----
Net Asset Value, End of Period....... $10.83 $ 8.59 $ 7.69 $7.28
====== ====== ====== =====
Total Return/2/...................... 27.39% 12.73% 6.29% 4.00%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)......................... $71.30 $25.50 $10.06 $2.04
Ratio of Net Operating Expenses to
Average Net Assets................ 0.89% 0.97% 0.99% 0.99%/3/
Ratio of Gross Operating Expenses
to Average Net Assets/4/.......... 0.93% 1.18% 1.72% 3.97%/3/
Ratio of Net Investment Income to
Average Net Assets................ 0.73% 1.04% 0.81% 0.82%/3/
Portfolio Turnover Rate............ 17.0% 29.0% 19.0% 0.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
9
<PAGE>
EARLY LIFE CYCLE FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------- PERIOD ENDED
1996 1995 MARCH 31, 1993/1/ 1994
---------- ---------- ----------------- -----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................. $ 9.77 $ 8.66 $ 7.40 $7.00
---------- ---------- ------- -----
Income From Investment
Operations
Net Investment Income..... (0.02) (0.02) (0.01) 0.00
Net Gains or (Losses) on
Securities (both realized
and unrealized).......... 1.72 1.31 1.36 0.40
---------- ---------- ------- -----
Total From Investment
Operations............... 1.70 1.29 1.35 0.40
---------- ---------- ------- -----
Less Distributions
Dividends From Net
Investment Income........ 0.00 0.00 0.00 0.00
Dividends in Excess of Net
Investment Income........ 0.00 0.00 0.00 0.00
Distributions From Net
Realized Gain on
Investments and Options.. (0.69) (0.18) (0.09) 0.00
Distributions in Excess of
Net Realized Gain on
Investments and Options.. 0.00 0.00 0.00 0.00
---------- ---------- ------- -----
Total Distributions....... (0.69) (0.18) (0.09) 0.00
---------- ---------- ------- -----
Net Asset Value, End of
Period..................... $ 10.78 $ 9.77 $ 8.66 $7.40
========== ========== ======= =====
Total Return/2/............. 18.29% 15.16% 18.27% 5.71%
Ratios/Supplemental Data
Net Assets, End of Period
(in millions)............ $ 78.06 $ 47.78 $ 24.95 $5.51
Ratio of Net Operating
Expenses to Average Net
Assets................... 0.90% 0.96% 0.95% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets/4/................ 0.98% 1.04% 1.15% 2.70%/3/
Ratio of Net Investment
Income to Average Net
Assets................... (0.17)% (0.23)% (0.25)% 0.12%/3/
Portfolio Turnover Rate... 38.0% 42.0% 20.0% 4.0%/3/
</TABLE>
- -------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Total return data does not reflect the sales load payable on purchases of
Shares.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
10
<PAGE>
U.S. TRUST'S INVESTMENT PHILOSOPHY AND STRATEGIES
U.S. Trust offers a variety of specialized fiduciary and financial services
to high-net worth individuals, institutions and corporations. As one of the
largest institutions of its type, U.S. Trust prides itself in offering an at-
tentive and high level of service to each of its clients. The Excelsior Funds
offer individual investors access to U.S. Trust's services.
Philosophy. In managing investments for the Funds, U.S. Trust follows a long-
term investment philosophy which generally does not change with the short-term
variability of financial markets or fundamental conditions. U.S. Trust's ap-
proach begins with the conviction that all worthwhile investments are grounded
in value. The Investment Adviser believes that an investor can identify funda-
mental values that eventually should be reflected in market prices. U.S. Trust
believes that over time, a disciplined search for fundamental value will
achieve better results than attempting to take advantage of short-term price
movements.
Implementation of this long-term value philosophy consists of searching for,
identifying and obtaining the benefits of present or future investment values.
For example, such values may be found in a company's future earnings potential
or in its existing resources and assets. Accordingly, U.S. Trust in managing
investments for the Funds is constantly engaged in assessing, comparing and
judging the worth of companies, particularly in comparison to the price the
markets place on such companies' shares.
Strategies. In order to translate its investment philosophy into more spe-
cific guidance for selection of investments, the Investment Adviser uses three
specific strategies. These strategies, while identified separately, may over-
lap so that more than one may be applied in an investment decision.
U.S. Trust's "PROBLEM/OPPORTUNITY STRATEGY" seeks to identify industries and
companies with the capabilities to provide solutions to or benefit from com-
plex problems such as the changing demo-graphics and aging of the U.S. popula-
tion or the need to enhance industrial productivity. U.S. Trust's second
strategy is a "TRANSACTION VALUE" comparison of a company's real underlying
asset value with the market price of its shares and with the sale prices for
similar assets changing ownership in public market transactions. Differences
between a company's real asset value and the price of its shares often are
corrected over time by restructuring of the assets or by market recognition of
their value. U.S. Trust's third strategy involves identifying "EARLY LIFE CY-
CLE" companies whose products are in their earlier stages of development or
that seek to exploit new markets. Frequently such companies are smaller compa-
nies, but early life cycle companies may also include larger established com-
panies with new products or markets for existing products. The Investment Ad-
viser believes that over time the value of such companies should be recognized
in the market.
Themes. To complete U.S. Trust's investment philosophy, the three portfolio
strategies discussed above are applied in concert with several "longer-term
investment themes" to identify investment opportunities. The Investment Ad-
viser believes these longer-term themes represent strong and inexorable
trends. The Investment Adviser also believes that understanding the instiga-
tion, catalysts and effects of these longer-term trends should help to iden-
tify companies that are beneficiaries of these trends.
INVESTMENT OBJECTIVES AND POLICIES
The Investment Adviser will use its best efforts to achieve the investment
objective of each Fund, although their achievement cannot be assured. The in-
vestment objective of each Fund is "fundamental", meaning that it may not be
changed without a vote of the holders of a majority of the particular Fund's
outstanding shares (as defined under "Miscellaneous"). Except as noted below
in "Investment Limitations,"
11
<PAGE>
the investment policies of each Fund may be changed without a vote of the
holders of a majority of the outstanding shares of such Fund.
EQUITY FUND
The Equity Fund's investment objective is to seek long-term capital apprecia-
tion. The Equity Fund invests in companies which the Investment Adviser
believes have value currently not recognized in the market prices of the com-
panies' securities. The Investment Adviser uses the investment philosophy,
strategies and themes discussed above to identify such investment values and
to diversify the Fund's investments over a variety of industries and types of
companies. See "Investment Policies Common to the Equity Fund and the Theme
Funds" for a discussion of various investment policies applicable to the Eq-
uity Fund.
THEME FUNDS
Five Theme Funds are offered having the common investment objective of long-
term capital appreciation. As noted above, these Theme Funds are based on
themes identified and followed by the Investment Adviser. Each Theme Fund's
key policies are discussed below. Additional policies common to all Theme
Funds are discussed after this section.
AGING OF AMERICA FUND--invests in companies which the Investment Adviser be-
lieves will benefit from the changes occurring in the demographic structure of
the U.S. population, particularly its growing proportion of individuals over
the age of 40. In analyzing companies for this Fund, the Investment Adviser
considers carefully the ongoing changes in the mean and median ages of the
U.S. population and the resulting effects on the lifestyles and day-to-day
economic actions of the population as a whole. Companies currently positioned
to benefit from such changes include health care, pharmaceutical, biotechnol-
ogy and similar health-related firms. In addition, certain clothing, financial
services, entertainment, real estate and housing, food and beverage and other
types of companies may be positioned to benefit from the demographic changes.
Under normal conditions, at least 65% of the Fund's total assets will be in-
vested in companies of the type described in this paragraph.
COMMUNICATION AND ENTERTAINMENT FUND--invests in companies which the Invest-
ment Adviser believes will benefit from the technological and international
transformation of the communications and entertainment industries, particu-
larly the convergence of information, communication and entertainment media.
Such companies may include those engaged in the development, production, sale
and distribution of products or services in the broadcast, radio and televi-
sion, leisure, entertainment, amusement, publishing, telecommunications serv-
ices and equipment, and tele-phone utilities industries. In analyzing compa-
nies for investment, the Investment Adviser may focus on firms which the In-
vestment Adviser believes are innovators of or will benefit from the melding
of computer, communications and entertainment technologies. Under normal con-
ditions, at least 65% of the Fund's total assets will be invested in companies
of the type described in this paragraph.
BUSINESS AND INDUSTRIAL RESTRUCTURING FUND--invests in companies which the
Investment Adviser believes will benefit from their restructuring or redeploy-
ment of assets and operations in order to become more competitive or profit-
able. Such companies may include those involved in prospective mergers, con-
solidations, liquidations, spin-offs, financial restructurings and reorganiza-
tions. The business activities of such companies are not limited in any way.
Under normal conditions, at least 65% of the Fund's total assets will be in-
vested in companies of the type described in this paragraph. The Investment
Adviser's focus is to find companies whose restructuring activities offer sig-
nificant value and investment potential. For the past several years leveraged
buy-outs and mergers have been prominent trends. Currently, a great deal of
value is being created as companies deleverage, recapitalize, and rationalize
their operations in order to increase profitability. There is risk in these
types of investments. For example, should a company be unsuccessful in reduc-
ing its debt, it may be forced into default on its debt, increasing its debt
or bankruptcy.
12
<PAGE>
GLOBAL COMPETITORS FUND--invests primarily in U.S.-based companies which the
Investment Adviser believes will benefit from their position as effective and
strong competitors on a global basis. Such companies are characterized by
their ability to supply something unique or of greater value, or to deliver
goods and services more efficiently or reliably. These companies develop and
implement international marketing strategies for their goods and services. The
range of businesses encompassed by this policy is broad and, by way of exam-
ple, may include companies engaged in soft drink production and sales, cloth-
ing manufacturers, tobacco product producers, precision instrument and aero-
space providers, and a variety of communications systems, biotechnology and
high technology suppliers. While the Fund will invest primarily in U.S.-based
companies with such features, up to 20% of the Fund's assets may be invested
in non-U.S.-based global competitors. The Fund will not engage in currency
hedging in an attempt to anticipate currency fluctuations with respect to any
such foreign investments. Under normal conditions, the Fund will invest in se-
curities of issuers from at least three countries and at least 65% of the
Fund's total assets will be invested in companies of the type described in
this paragraph.
EARLY LIFE CYCLE FUND--invests primarily in smaller companies which are in
the earlier stages of their development or larger or more mature companies en-
gaged in new and higher growth potential operations. An early life cycle com-
pany is one which is early in its development as a company, yet has
demonstrated or is expected to achieve substantial long-term earnings growth.
More mature or larger, established companies may also be positioned for
accelerating earnings because of rejuvenated management, new products, new
markets for existing products or structural changes in the economy. In select-
ing companies for investment, the Investment Adviser looks for innovative com-
panies whose potential has not yet been fully recognized by the securities
markets. Under normal conditions, at least 65% of the Fund's total assets will
be invested in companies with capitalization of $1 billion or less. The risk
and venture oriented nature of such companies naturally entails greater risk
for investors when contrasted with investing in more established companies.
INVESTMENT POLICIES COMMON TO THE EQUITY FUND AND THE THEME FUNDS
Under normal market and economic conditions, the Equity and each Theme Fund
will invest at least 65% of its total assets in common stock, preferred stock
and securities convertible into common stock. Normally, up to 35% of each such
Fund's total assets may be invested in other securities and instruments in-
cluding, e.g., other investment-grade debt securities, warrants, options, and
futures instruments as described in more detail below. During temporary defen-
sive periods or when the Investment Adviser believes that suitable stocks or
convertible securities are unavailable, each Fund may hold cash or invest some
or all of its assets in U.S. Government securities, high-quality money market
instruments and repurchase agreements collateralized by the foregoing obliga-
tions.
In managing the Equity and Theme Funds, the Investment Adviser seeks to pur-
chase securities having value currently not recognized in the market price of
a security, consistent with the strategies discussed above.
Portfolio holdings will include common stocks of companies having capitaliza-
tions of varying amounts, and all Funds will invest in the securities of high
growth, small companies where the Investment Adviser expects earnings and the
price of the securities to grow at an above-average rate. As discussed above,
the Early Life Cycle Fund emphasizes such companies. Certain securities owned
by the Equity and Theme Funds may be traded only in the over-the-counter mar-
ket or on a regional securities exchange, may be listed only in the quotation
service commonly known as the "pink sheets," and may not be traded every day
or in the volume typical of trading on a national securities exchange. As a
result, there may be a greater fluctuation in the value of a Fund's Shares,
and a Fund may be required, in order to meet redemptions or for other reasons,
to sell these securities at a discount from market prices, to sell during pe-
riods when such disposition
13
<PAGE>
is not desirable, or to make many small sales over a period of time.
The Equity and Theme Funds may invest in the securities of foreign issuers.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored and unsponsored American Depository Receipts ("ADRs"). ADRs repre-
sent receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities of foreign issuers. Investments in
unsponsored ADRs involve additional risk because financial information based
on generally accepted accounting principles ("GAAP") may not be available for
the foreign issuers of the underlying securities. ADRs may not necessarily be
denominated in the same currency as the underlying securities into which they
may be converted.
RISK FACTORS
Each Fund is subject to market risk, interest rate risk and in some cases in-
dustry risk. Market risk is the possibility that stock prices will decline
over short or even extended periods. The stock markets tend to be cyclical,
with periods of generally rising prices and periods of generally declining
prices. These cycles will affect the values of each Fund. In addition, the
prices of bonds and other debt instruments generally fluctuate inversely with
interest rate changes. Factors affecting debt securities will affect all of
the Funds' debt holdings.
Companies in the various communications and entertainment industries encoun-
ter intense competition, short product life cycles and rapidly changing con-
sumer tastes. In addition, companies in the telecommunications and utilities
industries are subject to heavy governmental regulation.
Small companies may have limited product lines, markets, or financial re-
sources, or may be dependent upon a small management group, and their securi-
ties may be subject to more abrupt or erratic market movements than larger,
more established companies, both because their securities typically are traded
in lower volume and because the issuers typically are subject to a greater de-
gree to changes in their earnings and prospects.
All Funds may invest in the securities of foreign issuers. Investments in
foreign securities involve certain risks not ordinarily associated with in-
vestments in domestic securities. Such risks include fluctuations in foreign
exchange rates, future political and economic developments, and the possible
imposition of exchange controls or other foreign governmental laws or restric-
tions. In addition, with respect to certain countries there is the possibility
of expropriation of assets, confiscatory taxation, political or social insta-
bility or diplomatic developments which could adversely affectinvestments in
those countries. There may be less publicly available information about a for-
eign company than about a U.S. company, and foreign companies may not be sub-
ject to accounting, auditing and financial reporting standards and require-
ments comparable to or as uniform as those of U.S.-based companies. Foreign
securities markets, while growing in volume, have, for the most part, substan-
tially less volume than U.S. markets, and securities of many foreign companies
are less liquid and their prices more volatile than securities of comparable
U.S.-based companies. Transaction costs on foreign securities markets are gen-
erally higher than in the United States. There is generally less government
supervision and regulation of foreign exchanges, brokers and issuers than
there is in the United States and a Fund might have greater difficulty taking
appropriate legal action in a foreign court. Dividends and interest payable on
a Fund's foreign portfolio securities may be subject to foreign withholding
taxes. To the extent such taxes are not offset by credits or deductions al-
lowed to investors under the Federal income tax provisions, they may reduce
the net return to the shareholders.
The Funds should not be considered a complete investment program. In view of
the specialized nature of their investment activities, investment in the Eq-
uity and Theme Funds' shares may be suitable only for those investors who can
invest without concern for current income and are financially able to assume
risk in search of long-term capital gains.
14
<PAGE>
Securities of companies discussed in this section may be more volatile than
the overall market.
PORTFOLIO INSTRUMENTS AND OTHER
INVESTMENT INFORMATION
MONEY MARKET INSTRUMENTS
All Funds may invest in "money market instruments," which include, among
other things, bank obligations, commercial paper and corporate bonds with re-
maining maturities of 13 months or less.
Bank obligations include bankers' acceptances, negotiable certificates of de-
posit, and non-negotiable time deposits earning a specified return and issued
by a U.S. bank which is a member of the Federal Reserve System or insured by
the Bank Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC"),
or by a savings and loan association or savings bank which is insured by the
Savings Association Insurance Fund of the FDIC. Bank obligations also include
U.S. dollar-denominated obligations of foreign branches of U.S. banks and ob-
ligations of domestic branches of foreign banks. Investments in bank obliga-
tions of foreign branches of domestic financial institutions or of domestic
branches of foreign banks are limited so that no more than 5% of the value of
a Fund's total assets may be invested in any one branch, and no more than 20%
of a particular Fund's total assets at the time of purchase may be invested in
the aggregate in such obligations (see investment limitation No. 5 below under
"Investment Limitations"). Investments in time deposits are limited to no more
than 5% of the value of a Fund's total assets at the time of purchase.
Investments by the Funds in commercial paper will consist of issues that are
rated "A-2" or better by Standard & Poor's Ratings Group ("S&P") or "Prime-2"
or better by Moody's Investors Service, Inc. ("Moody's"). In addition, each
Fund may acquire unrated commercial paper that is determined by the Investment
Adviser at the time of purchase to be of comparable quality to rated instru-
ments that may be acquired by the particular Fund.
Commercial paper may include variable and floating rate instruments. While
there may be no active secondary market with respect to a particular instru-
ment purchased by a Fund, the Fund may, from time to time as specified in the
instrument, demand payment of the principal of the instrument or may resell
the instrument to a third party. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if
the issuer defaulted on its payment obligation or during periods that the Fund
is not entitled to exercise its demand rights, and the Fund could, for this or
other reasons, suffer a loss with respect to such instrument. Any security
which cannot be disposed of within seven days without taking a reduced price
will be considered an illiquid security subject to the 10% limitation dis-
cussed below under "Investment Limitations."
GOVERNMENT OBLIGATIONS
All Funds may invest in U.S. Government obligations, including U.S. Treasury
Bills and the obligations of Federal Home Loan Banks, Federal Farm Credit
Banks, Federal Land Banks, the Federal Housing Administration, the Farmers
Home Administration, the Export-Import Bank of the United States, the Small
Business Administration, the Government National Mortgage Association, the
Federal National Mortgage Association, the General Services Administration,
the Student Loan Marketing Association, the Central Bank for Cooperatives, the
Federal Home Loan Mortgage Corporation, the Federal Intermediate Credit Banks
and the Maritime Administration.
REPURCHASE AGREEMENTS
In order to effectively manage their cash holdings, the Funds may enter into
repurchase agreements. Each Fund will enter into repurchase agreements only
with financial institutions that are deemed to be creditworthy by the Invest-
ment Adviser, pursuant to guidelines established by Excelsior Fund's Board of
Directors. No Fund will enter into repurchase agreements with the Investment
Adviser or any of its affiliates. Repurchase agreements with remaining maturi-
15
<PAGE>
ties in excess of seven days will be considered illiquid securities and will
be subject to the 10% limit described in Investment Limitation No. 6 below.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund
at not less than the repurchase price. Default or bankruptcy of the seller
would, however, expose a Fund to possible delay in connection with the dispo-
sition of the underlying securities or loss to the extent that proceeds from a
sale of the underlying securities were less than the repurchase price under
the agreement.
SECURITIES LENDING
To increase return on its portfolio securities, each Fund may lend its port-
folio securities to broker/dealers pursuant to agreements requiring the loans
to be continuously secured by collateral equal at all times in value to at
least the market value of the securities loaned. Collateral for such loans may
include cash, securities of the U.S. Government, its agencies or instrumental-
ities, or an irrevocable letter of credit issued by a bank, or any combination
thereof. Such loans will not be made if, as a result, the aggregate of all
outstanding loans of a Fund exceeds 30% of the value of its total assets.
There may be risks of delay in receiving additional collateral or in recover-
ing the securities loaned or even a loss of rights in the collateral should
the borrower of the securities fail financially. However, loans are made only
to borrowers deemed by the Investment Adviser to be of good standing and when,
in the Investment Adviser's judgment, the income to be earned from the loan
justifies the attendant risks.
OPTIONS
To further increase return on their portfolio securities in accordance with
their respective investment objectives and policies, the Funds may enter into
option transactions as described below.
The Theme Funds may purchase put and call options listed on a national secu-
rities exchange and issued by the Options Clearing Corporation in an amount
not exceeding 5% of a Fund's net assets, as described further in the Statement
of Additional Information. Such options may relate to particular securities or
to various stock or bond indices. Purchasing options is a specialized invest-
ment technique which entails a substantial risk of a complete loss of the
amounts paid as premiums to the writer of the options.
In addition, each Fund may engage in writing covered call options (options on
securities owned by the particular Fund) and enter into closing purchase
transactions with respect to such options. Such options must be listed on a
national securities exchange and issued by the Options Clearing Corporation.
The aggregate value of the securities subject to options written by each Fund
may not exceed 25% of the value of its net assets. By writing a covered call
option, a Fund forgoes the opportunity to profit from an increase in the mar-
ket price of the underlying security above the exercise price except insofar
as the premium represents such a profit, and it will not be able to sell the
underlying security until the option expires or is exercised or the Fund ef-
fects a closing purchase transaction by purchasing an option of the same se-
ries. The use of covered call options is not a primary investment technique of
the Funds and such options will normally be written on underlying securities
as to which the Investment Adviser does not anticipate significant short-term
capital appreciation. Additional information on option practices, including
particular risks thereof, is provided in the Funds' Statement of Additional
Information.
FUTURES CONTRACTS
The Theme Funds may also enter into interest rate futures contracts, other
types of financial futures contracts and related futures options, as well as
any index or foreign market futures which are available on recognized ex-
changes or in other established financial markets.
The Theme Funds will not engage in futures transactions for speculation, but
only as a hedge against changes in market values of securities which a Fund
16
<PAGE>
holds or intends to purchase. The Theme Funds will engage in futures transac-
tions only to the extent per mitted by the Commodity Futures Trading Commis-
sion ("CFTC") and the Securities and Exchange Commission ("SEC"). When invest-
ing in futures contracts, the Funds must satisfy certain asset segregation re-
quirements to ensure that the use of futures is unleveraged. When a Fund takes
a long position in a futures contract, it must maintain a segregated account
containing cash and/or certain liquid assets equal to the purchase price of
the contract, less any margin or deposit. When a Fund takes a short position
in a futures contract, the Fund must maintain a segregated account containing
cash and/or certain liquid assets in an amount equal to the market value of
the securities underlying such contract (less any margin or deposit), which
amount must be at least equal to the market price at which the short position
was established. Asset segregation requirements are not applicable when a Fund
"covers" an options or futures position generally by entering into an offset-
ting position. Each Fund will limit its hedging transactions in futures con-
tracts and related options so that, immediately after any such transaction,
the aggregate initial margin that is required to be posted by the Fund under
the rules of the exchange on which the futures contract (or futures option) is
traded, plus any premiums paid by the Fund on its open futures options posi-
tions, does not exceed 5% of the Fund's total assets, after taking into ac-
count any unrealized profits and unrealized losses on the Fund's open con-
tracts (and excluding the amount that a futures option is "in-the-money" at
the time of purchase). An option to buy a futures contract is "in-the-money"
if the then-current purchase price of the underlying futures contract exceeds
the exercise or strike price; an option to sell a futures contract is "in-the-
money" if the exercise or strike price exceeds the then-current purchase price
of the contract that is the subject of the option. In addition, the use of
futures contracts is further restricted to the extent that no more than 10% of
a Fund's total assets may be hedged.
Transactions in futures as a hedging device may subject a Fund to a number of
risks. Successful use of futures by a Fund is subject to the ability of the
Investment Adviser to correctly anticipate movements in the direction of the
market. In addition, there may be an imperfect correlation, or no correlation
at all, between movements in the price of the futures contracts (or options)
and movements in the price of the instruments being hedged. Further, there is
no assurance that a liquid market will exist for any particular futures con-
tract (or option) at any particular time. Consequently, a Fund may realize a
loss on a futures transaction that is not offset by a favorable movement in
the price of securities which it holds or intends to purchase or may be unable
to close a futures position in the event of adverse price movements.
INVESTMENT COMPANY SECURITIES
In connection with the management of its daily cash positions, each Fund may
invest in securities issued by other investment companies which invest in
high-quality, short-term debt securities and which determine their net asset
value per share based on the amortized cost or penny-rounding method. In addi-
tion to the advisory fees and other expenses a Fund bears directly in connec-
tion with its own operations, as a shareholder of another investment company,
a Fund would bear its pro rata portion of the other investment company's advi-
sory fees and other expenses. As such, the Fund's shareholders would indi-
rectly bear the expenses of the Fund and the other investment company, some or
all of which would be duplicative. Such securities will be acquired by each
Fund within the limits prescribed by the Investment Company Act of 1940 (the
"1940 Act") which include, subject to certain exceptions, a prohibition
against a Fund investing more than 10% of the value of its total assets in
such securities.
WHEN-ISSUED AND FORWARD TRANSACTIONS
Each Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. These transac-
tions involve a commitment by a Fund to purchase or sell particular securities
with payment and delivery taking place in the future, beyond the normal set-
tlement
17
<PAGE>
date, at a stated price and yield. Securities purchased on a "forward commit-
ment" or "when-issued" basis are recorded as an asset and are subject to
changes in value based upon changes in the general level of interest rates. It
is expected that forward commitments and "when-issued" purchases will not ex-
ceed 25% of the value of a Fund's total assets absent unusual market condi-
tions, and that the length of such commitments will not exceed 45 days. The
Funds do not intend to engage in "when-issued" purchases and forward commit-
ments for speculative purposes, but only in furtherance of their investment ob-
jectives.
ILLIQUID SECURITIES
No Fund will knowingly invest more than 10% of the value of its net assets in
securities that are illiquid. Each Fund may purchase securities which are not
registered under the Securities Act of 1933 (the "Act") but which can be sold
to "qualified institutional buyers" in accordance with Rule 144A under the Act.
Any such security will not be considered illiquid so long as it is determined
by the Investment Adviser, acting under guidelines approved and monitored by
the Board, that an adequate trading market exists for that security. This in-
vestment practice could have the effect of increasing the level of illiquidity
in a Fund during any period that qualified institutional buyers become uninter-
ested in purchasing these restricted securities.
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment immediately after its acquisition if
the Investment Adviser believes that such a disposition is consistent with the
investment objective of the particular Fund. Portfolio investments may be sold
for a variety of reasons, such as a more favorable investment opportunity or
other circumstances bearing on the desirability of continuing to hold such in-
vestments. A high rate of portfolio turnover may involve correspondingly
greater brokerage commission expenses and other transaction costs, which must
be borne directly by a Fund and ultimately by its shareholders. High portfolio
turnover may result in the realization of substantial net capital gains. To the
extent net short-term capital gains are realized, any distributions resulting
from such gains are considered ordinary income for Federal income tax purposes.
(See "Financial Highlights" and "Taxes--Federal").
INVESTMENT LIMITATIONS
The investment limitations enumerated below are matters of fundamental policy
and may not be changed with respect to a Fund without the vote of the holders
of a majority of a Fund's outstanding shares (as defined under "Miscellane-
ous").
A Fund may not:
1. Purchase securities of any one issuer, other than U.S. Government obliga-
tions, if immediately after such purchase more than 5% of the value of its
total assets would be invested in the securities of such issuer, except that
up to 25% of the value of its total assets may be invested without regard to
this 5% limitation;
2. Borrow money except from banks for temporary purposes, and then in
amounts not in excess of 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any assets except in con-
nection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed and 10% of the value of its total assets at the
time of such borrowing. (This borrowing provision is included solely to fa-
cilitate the orderly sale of portfolio securities to accommodate abnormally
heavy redemption requests and is not for leverage purposes.) A Fund will not
purchase portfolio securities while borrowings in excess of 5% of its total
assets are outstanding. Optioned stock held in escrow is not deemed to be a
pledge; and
3. Make loans, except that (i) each Fund may purchase or hold debt securi-
ties in accordance with its investment objective and policies, and may enter
into repurchase agreements with respect to obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, and (ii) each Fund
18
<PAGE>
may lend portfolio securities in an amount not exceeding 30% of its total as-
sets.
Each Fund may not:
4. Purchase any securities which would cause more than 25% of the value of
its total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry, provided that (a) with respect to the Equity Fund, there is no
limitation with respect to securities issued or guaranteed by the U.S. Gov-
ernment or domestic bank obligations, (b) with respect to each Theme Fund,
there is no limitation with respect to securities issued or guaranteed by the
U.S. Government, and (c) neither all finance companies, as a group, nor all
utility companies, as a group, are considered a single industry for purposes
of this policy.
The Equity Fund may not:
5. Invest in obligations of foreign branches of financial institutions or in
domestic branches of foreign banks, if immediately after such purchase (i)
more than 5% of the value of its total assets would be invested in obliga-
tions of any one foreign branch of the financial institution or domestic
branch of a foreign bank; or (ii) more than 20% of its total assets would be
invested in foreign branches of financial institutions or in domestic
branches of foreign banks; and
6. Knowingly invest more than 10% of the value of its total assets in illiq-
uid securities, including repurchase agreements with remaining maturities in
excess of seven days, restricted securities, and other securities for which
market quotations are not readily available.
* * *
In addition to the investment limitations described above, no Fund may invest
in the securities of any single issuer if, as a result, the Fund holds more
than 10% of the outstanding voting securities of such issuer.
The Theme Funds may not invest in obligations of foreign branches of financial
institutions or in domestic branches of foreign banks if immediately after such
purchase (i) more than 5% of the value of their respective total assets would
be invested in obligations of any one foreign branch of the financial institu-
tion or domestic branch of a foreign bank; or (ii) more than 20% of their re-
spective total assets would be invested in foreign branches of financial insti-
tutions or in domestic branches of foreign banks. The Theme Funds may not know-
ingly invest more than 10% of the value of their respective total assets in il-
liquid securities, including repurchase agreements with remaining maturities in
excess of seven days, restricted securities and other securities for which mar-
ket quotations are not readily available. These investment policies may be
changed by Excelsior Fund's Board of Directors upon reasonable notice to share-
holders.
The Equity Fund will not invest more than 25% of the value of its total assets
in domestic bank obligations.
With respect to all investment policies, if a percentage limitation is satis-
fied at the time of investment, a later increase or decrease in such percentage
resulting from a change in value of a Fund's portfolio securities will not con-
stitute a violation of such limitation.
PRICING OF SHARES
The net asset value of each Fund is determined and the Shares of each Fund are
priced at the close of regular trading hours on the New York Stock Exchange
(the "Exchange"), currently 4:00 p.m. (Eastern Time). Net asset value and pric-
ing for each Fund are determined on each day the Exchange and the Investment
Adviser are open for trading ("Business Day"). Currently, the holidays which
the Funds observe are New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Vet-
erans Day, Thanksgiving Day and Christmas. A Fund's net asset value per Trust
Share for purposes of pricing sales and redemptions is calculated by dividing
the value of all securities and other assets allocable to its Trust Shares,
19
<PAGE>
less the liabilities allocable to its Trust Shares, by the number of its out-
standing Trust Shares.
Assets in the Funds which are traded on a recognized domestic stock exchange
are valued at the last sale price on the securities exchange on which such se-
curities are primarily traded or at the last sale price on the national secu-
rities market. Securities traded only on over-the-counter markets are valued
on the basis of closing over-the-counter bid prices. Securities for which
there were no transactions are valued at the average of the most recent bid
and asked prices. An option or futures contract is valued at the last sales
price quoted on the principal exchange or board of trade on which such option
or contract is traded, or in the absence of a sale, the mean between the last
bid and asked prices. Restricted securities, securities for which market quo-
tations are not readily available, and other assets are valued at fair value,
pursuant to guidelines adopted by Excelsior Fund's Board of Directors.
Portfolio securities which are primarily traded on foreign securities ex-
changes are generally valued at the preceding closing values of such securi-
ties on their respective exchanges, except that when an event subsequent to
the time where value was so established is likely to have changed such value,
then the fair value of those securities will be determined by consideration of
other factors under the direction of the Board of Directors. A security which
is listed or traded on more than one exchange is valued at the quotation on
the exchange determined to be the primary market for such security. Invest-
ments in debt securities having a maturity of 60 days or less are valued based
upon the amortized cost method. All other foreign securities are valued at the
last current bid quotation if market quotations are available, or at fair
value as determined in accordance with guidelines adopted by the Board of Di-
rectors. For valuation purposes, quotations of foreign securities in foreign
currency are converted to U.S. dollars equivalent at the prevailing
market rate on the day of conversion. Some of the securities acquired by the
Funds may be traded on foreign exchanges or over-the-counter markets on days
which are not Business Days. In such cases, the net asset value of the Shares
may be significantly affected on days when investors can neither purchase nor
redeem a Fund's Shares. Excelsior Fund's administrators have undertaken to
price the securities in the Funds' portfolios, and may use one or more inde-
pendent pricing services in connection with this service.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in each Fund are continuously offered for sale by Excelsior Fund's
sponsor and distributor, Edgewood Services, Inc. (the "Distributor"), a whol-
ly-owned subsidiary of Federated Investors. The Distributor is a registered
broker/dealer. Its principal business address is Clearing Operations, P.O. Box
897, Pittsburgh, PA 15230-0897.
Under Excelsior Fund's Distribution Agreement and Distribution Plan, adopted
pursuant to Rule 12b-1 under the 1940 Act, the Trust Shares of each Fund may
reimburse the Distributor monthly for distribution expenses in an amount not
to exceed the annual rate of .75% of the average daily net asset value of the
Fund's outstanding Trust Shares. Trust Shares of each Fund currently bear the
expense of such distribution fees at the annual rate of .35% of the average
daily net asset value of the Fund's outstanding Trust Shares. Distribution ex-
penses payable by the Distributor under the Distribution Plan include direct
and indirect marketing expenses such as: i) the expense of preparing, printing
and distributing promotional materials and prospectuses (other than prospec-
tuses used for regulatory purposes or for distribution to existing sharehold-
ers); ii) the expense of other advertising via radio, television or other
print or electronic media; and iii) the expense of payments to financial in-
stitutions that are not affiliated with the Distributor ("Distribution Organi-
zations") for distribution assistance (including sales incentives).
PURCHASE OF SHARES
Shares may be purchased by customers ("Customers") of financial institutions
("Shareholder Organiza-
20
<PAGE>
tions"). A Shareholder Organization may elect to hold of record Shares for its
Customers and to record beneficial ownership of Shares on the account state-
ments provided by it to its Customers. If it does so, it is the Shareholder
Organization's responsibility to transmit to the Distributor all purchase or-
ders for its Customers and to transmit, on a timely basis, payment for such
orders to Chase Global Funds Services Company ("CGFSC"), the Funds' sub-trans-
fer agent, in accordance with the procedures agreed to by the Shareholder Or-
ganization and the Distributor. Confirmations of all such Customer purchases
and redemptions will be sent by CGFSC to the particular Shareholder Organiza-
tion. As an alternative, a Shareholder Organization may elect to establish its
Customers' accounts of record with CGFSC. In this event, even if the Share-
holder Organization continues to place its Customers' purchase and redemption
orders with the Funds, CGFSC will send confirmations of such transactions and
periodic account statements directly to Customers. A Shareholder Organization
may also elect to establish its Customers as record holders.
Customers wishing to purchase Shares through their Shareholder Organization
should contact such entity directly for appropriate instructions. (For a list
of Shareholder Organizations in your area, call (800) 446-1012.) An investor
purchasing Shares through certain Shareholder Organizations may incur transac-
tion charges in connection with such purchases. Investors should contact their
Shareholder Organizations for further information on transaction fees.
PUBLIC OFFERING PRICE
The public offering price for Shares of each Fund is the sum of the net asset
value of the Shares purchased plus a sales load according to the table below:
<TABLE>
<CAPTION>
TOTAL SALES CHARGES REALLOWANCE TO DEALERS
------------------------------ ----------------------
AS A % OF AS A % OF AS A % OF
OFFERING PRICE NET ASSET OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE VALUE PER SHARE PER SHARE
- --------------------- -------------- --------------- ----------------------
<S> <C> <C> <C>
Less than $50,000....... 4.50% 4.71% 4.00%
$50,000 to $99,999...... 4.00 4.17 3.50
$100,000 to $249,999.... 3.50 3.63 3.00
$250,000 to $499,999.... 3.00 3.09 2.50
$500,000 to $999,999.... 2.00 2.05 1.50
$1,000,000 to
$1,999,999............. 1.00 1.00 .50
$2,000,000 and over..... .50 .50 .25
</TABLE>
The reallowance to dealers may be changed from time to time but will remain
the same for all such dealers.
At various times the Distributor may implement programs under which a deal-
er's sales force may be eligible to win nominal awards for certain sales ef-
forts or under which the Distributor will reallow to any dealer that sponsors
sales contests or recognition programs conforming to criteria established by
the Distributor, or participates in sales programs sponsored by the Distribu-
tor, an amount not exceeding the total applicable sales charges on the sales
generated by the dealer at the public offering price during such programs. Al-
so, the Distributor in its discretion may from time to time, pursuant to ob-
jective criteria established by the Distributor, pay fees to qualifying deal-
ers for certain services or activities which are primarily intended to result
in sales of Shares of the Funds. If any such program is made available to any
dealer, it will be made available to all dealers on the same terms and condi-
tions. Payments made under such programs will be made by the Distributor out
of its own assets and not out of the assets of the Funds. These programs will
not change the price of Shares or the amount that the Funds will receive from
such sales.
In addition, the Distributor may offer to pay a fee from its own assets (in-
cluding any portion of the sales load retained by the Distributor) to finan-
cial institutions as financial assistance for the continuing investment of
customers' assets in the Funds or for providing substantial marketing, sales
and operational support. The support may include initiating customer accounts,
participating in sales, educational and training seminars, providing sales
literature, and engineering computer software programs that emphasize the at-
tributes of the Funds. Such assistance will be predicated upon the amount of
Shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution.
The sales load described above will not be applicable to: (a) purchases of
Shares by customers of the Investment Adviser or its affiliates; (b) trust,
agency or custodial accounts opened through the trust department of
21
<PAGE>
a bank, trust company or thrift institution, provided that appropriate notifi-
cation of such status is given at the time of investment; (c) companies, cor-
porations and partnerships (excluding full service broker/dealers and finan-
cial planners, registered investment advisers and depository institutions not
covered by the exemptions in (d) and (e) below); (d) financial planners and
registered investment advisers not affiliated with or clearing purchases
through full service broker/dealers; (e) purchases of Shares by depository in-
stitutions for their own account as principal; (f) exchange transactions (de-
scribed below under "Investor Programs--Exchange Privilege") where the Shares
being exchanged were acquired in connection with the distribution of assets
held in trust, agency or custodial accounts maintained with the trust depart-
ment of a bank; (g) corporate/ business retirement plans (such as 401(k),
403(b)(7), 457 and Keogh accounts) sponsored by the Distributor and IRA ac-
counts sponsored by the Investment Adviser; (h) company-sponsored employee
pension or retirement plans making direct investments in the Funds; (i) pur-
chases of Shares by officers, trustees, directors, employees, former employees
and retirees of Excelsior Fund, Excelsior Tax-Exempt Funds, Inc. ("Excelsior
Tax-Exempt Fund"), Excelsior Institutional Trust or Excelsior Funds, the In-
vestment Adviser, the Distributor or of any direct or indirect affiliate of
any of them; (j) purchases of Shares by all beneficial shareholders of Excel-
sior Fund or Excelsior Tax-Exempt Fund as of May 22, 1989; (k) purchases of
Shares by investment advisers registered under the Investment Advisers Act of
1940 for their customers through an omnibus account established with United
States Trust Company of New York; (l) purchases of Shares by directors, offi-
cers and employees of brokers and dealers selling shares pursuant to a selling
agreement with Excelsior Fund and Excelsior Tax-Exempt Fund; (m) purchases of
shares by investors who are members of affinity groups serviced by USAffinity
Investments Limited Partnership; and (n) customers of certain financial insti-
tutions who purchase Shares through a registered representative of UST Finan-
cial Services Corp. on the premises of their financial institutions. In addi-
tion, no sales load is charged on the reinvestment of dividends or distribu-
tions or in connection with certain share exchange transactions. Investors who
have previously redeemed shares in an "Eligible Fund" (as defined below) on
which a sales load has been paid also have a one-time privilege of purchasing
shares of another "Eligible Fund" at net asset value without a sales charge,
provided that such privilege will apply only to purchases made within 30 cal-
endar days from the date of redemption and only with respect to the amount of
the redemption. These exemptions to the imposition of a sales load are due to
the nature of the investors and/or reduced sales effort that will be needed in
obtaining investments.
QUANTITY DISCOUNTS
An investor in the Funds may be entitled to reduced sales charges through
Rights of Accumulation, a Letter of Intent or a combination of investments, as
described below, even if the investor does not wish to make an investment of a
size that would normally qualify for a quantity discount.
In order to obtain quantity discount benefits, an investor must notify CGFSC
at the time of purchase that he or she would like to take advantage of any of
the discount plans described below. Upon such notification, the investor will
receive the lowest applicable sales charge. Quantity discounts may be modified
or terminated at any time and are subject to confirmation of an investor's
holdings through a check of appropriate records. For more information about
quantity discounts, please call (800) 446-1012 or contact your Shareholder Or-
ganization.
Rights of Accumulation. A reduced sales load applies to any purchase of
shares of any portfolio of Excelsior Fund and Excelsior Tax-Exempt Fund that
is sold with a sales load ("Eligible Fund") where an investor's then current
aggregate investment is $50,000 or more. "Aggregate investment" means the to-
tal of: (a) the dollar amount of the then current purchase of shares of an El-
igible Fund and (b) the value (based on current net asset value) of previously
purchased and beneficially
22
<PAGE>
owned shares of any Eligible Fund on which a sales load has been paid. If, for
example, an investor beneficially owns shares of one or more Eligible Funds
with an aggregate current value of $49,000 on which a sales load has been paid
and subsequently purchases shares of an Eligible Fund having a current value
of $1,000, the load applicable to the subsequent purchase would be reduced to
4.00% of the offering price. Similarly, with respect to each subsequent in-
vestment, all shares of Eligible Funds that are beneficially owned by the in-
vestor at the time of investment may be combined to determine the applicable
sales load.
Letter of Intent. By completing the Letter of Intent included as part of the
New Account Application, an investor becomes eligible for the reduced sales
load applicable to the total number of Eligible Fund shares purchased in a 13-
month period pursuant to the terms and under the conditions set forth below
and in the Letter of Intent. To compute the applicable sales load, the offer-
ing price of shares of an Eligible Fund on which a sales load has been paid,
beneficially owned by an investor on the date of submission of the Letter of
Intent, may be used as a credit toward completion of the Letter of Intent.
However, the reduced sales load will be applied only to new purchases.
CGFSC will hold in escrow shares equal to 5% of the amount indicated in the
Letter of Intent for payment of a higher sales load if an investor does not
purchase the full amount indicated in the Letter of Intent. The escrow will be
released when an investor fulfills the terms of the Letter of Intent by pur-
chasing the specified amount. If purchases qualify for a further sales load
reduction, the sales load will be adjusted to reflect an investor's total pur-
chases. If total purchases are less than the amount specified, an investor
will be requested to remit an amount equal to the difference between the sales
load actually paid and the sales load applicable to the total purchases. If
such remittance is not received within 20 days, CGFSC, as attorney-in-fact
pursuant to the terms of the Letter of Intent and at the Distributor's direc-
tion, will redeem an appropriate number of shares held in escrow to realize
the difference. Signing a Letter of Intent does not bind an investor to pur-
chase the full amount indicated at the sales load in effect at the time of
signing, but an investor must complete the intended purchase in accordance
with the terms of the Letter of Intent to obtain the reduced sales load. To
apply, an investor must indicate his or her intention to do so under a Letter
of Intent at the time of purchase.
Qualification for Discounts. For purposes of applying the Rights of Accumula-
tion and Letter of Intent privileges described above, the scale of sales loads
applies to the combined purchases made by any individual and/or spouse pur-
chasing securities for his, her or their own account or for the account of any
minor children, or the aggregate investments of a trustee or custodian of any
qualified pension or profit sharing plan or IRA established (or the aggregate
investment of a trustee or other fiduciary) for the benefit of the persons
listed above.
PURCHASE PROCEDURES
General
Customers of certain Shareholder Organizations may purchase Shares by com-
pleting the Application for purchase of Shares accompanying this Prospectus
and mailing it, together with a check payable to Excelsior Funds, to:
Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
Subsequent investments in an existing account in any Fund may be made at any
time by sending to the above address a check payable to Excelsior Funds along
with: (a) the detachable form that regularly accompanies the confirmation of a
prior transaction; (b) a subsequent order form which may be obtained from
CGFSC or a Shareholder Organization; or (c) a letter stating the amount of the
investment, the name of the Fund and the account number in which the invest-
ment is to be made.
23
<PAGE>
Purchases by Wire
Customers of certain Shareholder Organizations may also purchase Shares by
wiring Federal funds to CGFSC. Prior to making an initial investment by wire,
an investor must telephone CGFSC at (800) 446-1012 (from overseas, call (617)
557-8280) for instructions. Federal funds and registration instructions should
be wired through the Federal Reserve System to:
The Chase Manhattan Bank, N.A.
ABA #021000021
Excelsior Funds, Account No. 9102732915
For further credit to:
Excelsior Funds
Wire Control Number
Account Registration (including account number)
Investors making initial investments by wire must promptly complete the Appli-
cation accompanying this Prospectus and forward it to CGFSC. Redemptions by in-
vestors will not be processed until the completed Application for purchase of
Shares has been received by CGFSC and accepted by the Distributor. Investors
making subsequent investments by wire should follow the above instructions.
OTHER PURCHASE INFORMATION
Except as provided in "Investor Programs" below, the minimum initial aggregate
investment by a Shareholder Organization investing on behalf of its Customers
is $500 per Fund. The minimum subsequent investment is $50 per Fund. Customers
may agree with a particular Shareholder Organization to make a minimum purchase
with respect to their accounts. Depending upon the terms of the particular ac-
count, Shareholder Organizations may charge a Customer's account fees for auto-
matic investment and other cash management services provided. Excelsior Fund
reserves the right to reject any purchase order, in whole or in part, or to
waive any minimum investment requirements.
REDEMPTION PROCEDURES
Customers of Shareholder Organizations holding Shares of record may redeem all
or part of their investments in the Funds in accordance with procedures gov-
erning their accounts at the Shareholder Organizations. It is the responsibil-
ity of the Shareholder Organizations to transmit redemption orders to CGFSC and
credit such Customer accounts with the redemption proceeds on a timely basis.
No charge for wiring redemption payments to Shareholder Organizations is im-
posed by Excelsior Fund, although Shareholder Organizations may charge a Cus-
tomer's account for wiring redemption proceeds. Information relating to such
redemption services and charges, if any, is available from the Shareholder Or-
ganizations. An investor redeeming Shares through a Shareholder Organization
may incur transaction charges in connection with such redemptions. Such invest-
ors should contact their Shareholder Organization for further information on
transaction fees. Investors may redeem all or part of their Shares in accor-
dance with the procedures described below (these procedures also apply to Cus-
tomers of Shareholder Organizations for whom individual accounts have been es-
tablished with CGFSC).
REDEMPTION BY MAIL
Customers of certain Shareholder Organizations may redeem shares by submitting
a written request for redemption to:
Excelsior Funds c/o Chase Global Funds Services Company P.O. Box 2798 Bos-
ton, MA 02208-2798
A written redemption request to CGFSC must (i) state the number of Shares to
be redeemed, (ii) identify the shareholder account number and tax identifica-
tion number, and (iii) be signed by each registered owner exactly as the Shares
are registered. If the Shares to be redeemed were issued in certificate form,
the certificates must be endorsed for transfer (or accompanied by a duly exe-
cuted stock power) and must be submitted to CGFSC together with the redemption
request. A redemption request for an amount in excess of $50,000 per account,
or for any amount if the proceeds are to be sent elsewhere than the address of
rec-
24
<PAGE>
ord, must be accompanied by signature guarantees from any eligible guarantor
institution approved by CGFSC in accordance with its Standards, Procedures and
Guidelines for the Acceptance of Signature Guarantees ("Signature Guarantee
Guidelines"). Eligible guarantor institutions generally include banks,
broker/dealers, credit unions, national securities exchanges, registered secu-
rities associations, clearing agencies and savings associations. All eligible
guarantor institutions must participate in the Securities Transfer Agents Me-
dallion Program ("STAMP") in order to be approved by CGFSC pursuant to the
Signature Guarantee Guidelines. Copies of the Signature Guarantee Guidelines
and information on STAMP can be obtained from CGFSC at (800) 446-1012 or at
the address given above. CGFSC may require additional supporting documents for
redemptions made by corporations, executors, administrators, trustees and
guardians. A redemption request will not be deemed to be properly received un-
til CGFSC receives all required documents in proper form. Payment for Shares
redeemed will ordinarily be made by mail within five Business Days after
proper receipt by CGFSC of the redemption request. Questions with respect to
the proper form for redemption requests should be directed to CGFSC at (800)
446-1012 (from overseas, call (617) 557-8280).
REDEMPTION BY WIRE OR TELEPHONE
Customers of certain Shareholder Organizations who have so indicated on the
Application, or have subsequently arranged in writing to do so, may redeem
Shares by instructing CGFSC by wire or telephone to wire the redemption pro-
ceeds directly to the investor's account at any commercial bank in the United
States. Customers of certain Shareholder Organizations who are shareholders of
record may redeem Shares by instructing CGFSC by telephone to mail a check for
redemption proceeds of $500 or more to the shareholder of record at his or her
address of record. Only redemptions of $500 or more will be wired to an in-
vestor's account. An $8.00 fee for each wire redemption by an investor is de-
ducted by CGFSC from the proceeds of the redemption. The redemption proceeds
for investors must be paid to the same bank and account as designated on the
Application or in written instructions subsequently received by CGFSC.
In order to arrange for redemption by wire or telephone after an account has
been opened or to change the bank or account designated to receive redemption
proceeds, an investor must send a written request to Excelsior Fund, c/o
CGFSC, at the address listed above under "Redemption by Mail." Such requests
must be signed by the investor, with signatures guaranteed (see "Redemption by
Mail" above, for details regarding signature guarantees). Further documenta-
tion may be requested.
CGFSC and the Distributor reserve the right to re- fuse a wire or telephone
redemption if it is believed advisable to do so. Procedures for redeeming
Shares by wire or telephone may be modified or terminated at any time by Ex-
celsior Fund, CGFSC or the Distributor. EXCELSIOR FUND, CGFSC, AND THE DIS-
TRIBUTOR WILL NOT BE LIABLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR ACT-
ING UPON TELEPHONE INSTRUCTIONS THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN
ATTEMPTING TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, EXCELSIOR FUND
WILL USE SUCH PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING
THOSE INSTRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION.
If any portion of the Shares to be redeemed represents an investment made by
personal check, Excelsior Fund and CGFSC reserve the right not to honor the
redemption until CGFSC is reasonably satisfied that the check has been col-
lected in accordance with the applicable banking regulations which may take up
to 15 days. An investor who anticipates the need for more immediate access to
his or her investment should purchase Shares by Federal funds or bank wire or
by certified or cashier's check. Banks normally impose a charge in connection
with the use of bank wires, as well as certified checks, cashier's checks and
Federal funds. If an investor's purchase check is not collected, the purchase
will be cancelled and CGFSC will charge a fee of $25.00 to the investor's ac-
count.
During periods of substantial economic or market change, telephone redemp-
tions may be difficult to
25
<PAGE>
complete. If a Customer is unable to contact CGFSC by telephone, the Customer
may also deliver the redemption request to CGFSC in writing at the address
noted above under "How to Purchase and Redeem Shares--Redemption by Mail."
OTHER REDEMPTION INFORMATION
Except as described in "Investor Programs" below, investors may be required
to redeem Shares in a Fund after 60 days' written notice if due to investor
redemptions the balance in the particular account with respect to the Fund re-
mains below $500. If a Customer has agreed with a particular Shareholder Or-
ganization to maintain a minimum balance in his or her account at the institu-
tion with respect to Shares of a Fund, and the balance in such account falls
below that minimum, the Customer may be obliged by the Shareholder Organiza-
tion to redeem all or part of his or her Shares to the extent necessary to
maintain the required minimum balance.
GENERAL
Purchase and redemption orders for Shares which are received and accepted
prior to the close of regular trading hours on the Exchange (currently 4:00
p.m., Eastern Time) on any Business Day are priced according to the net asset
value determined on that day. Purchase orders received and accepted after the
close of regular trading hours on the Exchange are priced at the net asset
value per Share determined on the next Business Day.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Customers of Shareholder Organizations may, after appropriate prior authori-
zation and without an exchange fee imposed by Excelsior Fund, exchange Shares
in a Fund having a value of at least $500 for Shares of any other Fund, or for
Trust Shares of Excelsior Institutional Trust, provided that such other Shares
may legally be sold in the state of the investor's residence.
Excelsior Institutional Trust currently offers Trust Shares in two investment
portfolios:
Optimum Growth Fund, a fund seeking superior, risk-adjusted total return
through investments in a diversified portfolio of equity securities whose
growth prospects, in the opinion of its investment adviser, appear to exceed
that of the overall market; and
Value Equity Fund, a fund seeking long-term capital appreciation through in-
vestments in a diversified portfolio of equity securities whose market value,
in the opinion of its investment adviser, appears to be undervalued relative
to the marketplace.
An exchange involves a redemption of all or a portion of the Shares in a Fund
and the investment of the redemption proceeds in Shares of another Fund or Ex-
celsior Institutional Trust. The redemption will be made at the per Share net
asset value of the Shares being redeemed next determined after the exchange
request is received. The Shares of the Fund to be acquired will be purchased
at the per share net asset value of those Shares (plus any applicable sales
load) next determined after acceptance of the exchange request. No sales load
will be payable on Shares to be acquired through an exchange to the extent
that a sales load was previously paid on the Shares being exchanged.
Investors may find the exchange privilege useful if their investment objec-
tives or market outlook should change after they invest in a Fund. For further
information regarding exchange privileges, shareholders should call (800) 446-
1012 (from overseas, call (617) 557-8280). Investors exercising the exchange
privilege with the portfolios of Excelsior Institutional Trust should request
and review the prospectus of such funds. In order to prevent abuse of this
privilege to the disadvantage of other shareholders, Excelsior Fund and Excel-
sior Institutional Trust reserve the right to limit the number of exchange re-
quests of investors to no more than six per year. Excelsior Fund may modify or
terminate the exchange program at any time upon
26
<PAGE>
60 days' written notice to shareholders, and may reject any exchange request.
EXCELSIOR FUND, EXCELSIOR INSTITUTIONAL TRUST, CGFSC AND THE DISTRIBUTOR ARE
NOT RESPONSIBLE FOR THE AUTHENTICITY OF EXCHANGE REQUESTS RECEIVED BY TELE-
PHONE THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN ATTEMPTING TO CONFIRM
THAT TELEPHONE INSTRUCTIONS ARE GENUINE, EXCELSIOR FUND AND EXCELSIOR INSTITU-
TIONAL TRUST WILL USE SUCH PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING
RECORDING THOSE INSTRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGIS-
TRATION.
For Federal income tax purposes, an exchange of Shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Be-
fore making an exchange, an investor should consult a tax or other financial
adviser to determine tax consequences.
SYSTEMATIC WITHDRAWAL PLAN
Customers of certain Shareholder Organizations who own Shares of a Fund with
a value of $10,000 or more may establish a Systematic Withdrawal Plan. The in-
vestor may request a declining-balance withdrawal, a fixed-dollar withdrawal,
a fixed-share withdrawal, or a fixed-percentage withdrawal (based on the cur-
rent value of Shares in the account) on a monthly, quarterly, semi-annual or
annual basis. Information concerning the availability of, and the procedures
and fees relating to, such plans may be obtained by Customers directly from
their Shareholder Organizations.
RETIREMENT PLANS
Shares are available for purchase by investors in connection with the follow-
ing tax-deferred prototype retirement plans offered by certain Shareholder Or-
ganizations:
IRAs (including "rollovers" from existing retirement plans) for individuals
and their spouses;
Profit Sharing and Money-Purchase Plans for corporations and self-employed
individuals and their partners to benefit themselves and their employees; and
Keogh Plans for self-employed individuals.
Investors investing in the Funds pursuant to Profit Sharing and Money-Pur-
chase Plans and Keogh Plans are not subject to the minimum investment and
forced redemption provisions described above. The minimum initial investment
for IRAs is $250 per Fund and the minimum subsequent investment is $50 per
Fund. Detailed information concerning eligibility, service fees and other mat-
ters related to these plans is available from Shareholder Organizations.
Information concerning the availability of, and the procedures and fees re-
lating to, such retirement plans may be obtained by Customers directly from
their Shareholder Organizations.
AUTOMATIC INVESTMENT PROGRAM
The Automatic Investment Program permits Customers of certain Shareholder Or-
ganizations to purchase Shares (minimum of $50 per Fund per transaction) at
regular intervals selected by the Customer. Provided the investor's financial
institution allows automatic withdrawals, Shares are purchased by transferring
funds from an investor's checking, bank money market or NOW account designated
by the investor. At the investor's option, the account designated will be deb-
ited in the specified amount, and Shares will be purchased, once a month, on
either the first or fifteenth day, or twice a month, on both days.
The Automatic Investment Program is one means by which an investor may use
"Dollar Cost Averaging" in making investments. Instead of trying to time mar-
ket performance, a fixed dollar amount is invested in Shares at predetermined
intervals. This may help investors to reduce their average cost per share be-
cause the agreed upon fixed investment amount allows more Shares to be pur-
chased during periods of lower share prices and fewer Shares during periods of
higher prices. In order to be effective, Dollar Cost Averaging should usually
be followed on a sustained, consistent basis. Investors should be aware, how-
ever, that Shares bought using Dollar Cost Averaging are purchased without re-
gard to their price on the day of investment or to market trends. In addition,
while investors may find Dollar Cost Averaging to be beneficial, it will not
27
<PAGE>
prevent a loss if an investor ultimately redeems his Shares at a price which is
lower than their purchase price.
Information concerning the availability of, and the procedures and fees relat-
ing to, Automatic Investment accounts may be obtained by Customers directly
from their Shareholder Organizations.
DIVIDENDS AND DISTRIBUTIONS
Dividends from the net investment income of the Funds are declared and paid
quarterly. For dividend purposes, a Fund's investment income is reduced by ac-
crued expenses directly attributable to that Fund and the general expenses of
Excelsior Fund prorated to that Fund on the basis of its relative net assets. A
Fund's net investment income available for distribution to the holders of Trust
Shares will be reduced by the amount of other expenses allocated to such se-
ries, including the expense of distribution fees associated with Excelsior
Fund's Distribution Plan. Net realized capital gains are distributed at least
annually. Dividends and distributions will reduce the net asset value of each
of the Funds by the amount of the dividend or distribution. All dividends and
distributions paid on Shares held of record by the Investment Adviser and its
affiliates or correspondent banks will be paid in cash. Customers of Share-
holder Organizations will receive dividends and distributions in additional
Shares of the Fund on which the dividend or distribution is paid (as determined
on the payable date), unless they have requested in writing (received by CGFSC
at Excelsior Fund's address prior to the payment date) to receive dividends and
distributions in cash. Reinvested dividends and distributions receive the same
tax treatment as those paid in cash.
TAXES
FEDERAL
Each of the Funds qualified for its last taxable year as a "regulated invest-
ment company" under the Internal Revenue Code of 1986, as amended (the "Code").
Each Fund expects to so qualify in future years. Such qualification generally
relieves a Fund of liability for Federal income taxes to the extent its earn-
ings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code requires, among
other things, that a Fund distribute to its shareholders an amount equal to at
least 90% of its investment company taxable income for each taxable year. In
general, a Fund's investment company taxable income will be its income (includ-
ing dividends and interest), subject to certain adjustments and excluding the
excess of any net long-term capital gain for the taxable year over the net
short-term capital loss, if any, for such year. Each Fund intends to distribute
substantially all of its investment company taxable income each year. Such div-
idends will be taxable as ordinary income to Fund shareholders who are not cur-
rently exempt from Federal income taxes, whether such income is received in
cash or reinvested in additional Shares. (Federal income taxes for distribu-
tions to IRAs and qualified pension plans are deferred under the Code.) The
dividends received deduction for corporations will apply to such ordinary in-
come distributions to the extent of the total qualifying dividends received by
a Fund from domestic corporations for the taxable year.
Distribution by a Fund of the excess of its net long- term capital gain over
its net short-term capital loss is taxable to shareholders as long-term capital
gain, regardless of how long the shareholders have held their Shares and
whether such gains are received in cash or reinvested in additional Shares.
Such distributions are not eligible for the dividends received deduction.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to
have been received by shareholders and paid by a Fund on December 31 of such
year in the event such dividends are actually paid during January of the fol-
lowing year.
An investor considering buying Shares of a Fund on or just before the record
date of a dividend should be
28
<PAGE>
aware that the amount of the forthcoming dividend payment, although in effect
a return of capital, will be taxable to him.
A taxable gain or loss may be realized by a shareholder upon his redemption,
transfer or exchange of Shares depending upon the tax basis of such Shares and
their price at the time of redemption, transfer or exchange. If a shareholder
holds Shares for six months or less and during that time receives a capital
gain dividend on those Shares, any loss recognized on the sale or exchange of
those Shares will be treated as a long-term capital loss to the extent of the
capital gain dividend. Generally, a shareholder may include sales charges in-
curred upon the purchase of Shares in his tax basis for such Shares for the
purpose of determining gain or loss on a redemption, transfer or exchange of
such Shares. However, if the shareholder effects an exchange of such Shares
for Shares of another Fund within 90 days of the purchase and is able to re-
duce the sales charges applicable to the new Shares (by virtue of the exchange
privilege), the amount equal to such reduction may not be included in the tax
basis of the shareholder's exchanged Shares for the purpose of determining
gain or loss but may be included (subject to the same limitation) in the tax
basis of the new Shares.
Qualification as a regulated investment company under the Code also requires
that each Fund satisfy certain requirements with respect to the source of its
income for a taxable year. At least 90% of the gross income of each Fund must
be derived from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities or for-
eign currencies, and other income (including, but not limited to, gains from
options, futures, or forward contracts) derived with respect to the Fund's
business of investing in such stock, securities or currencies. The Treasury
Department may by regulation exclude from qualifying income foreign currency
gains which are not directly related to a Fund's principal business of invest-
ing in stock or securities, or options and futures with respect to stock or
securities. Any in come derived by a Fund from a partnership or trust is
treated for this purpose as derived with respect to the Fund's business of in-
vesting in stock, securities or currencies only to the extent that such income
is attributable to items of income which would have been qualifying income if
realized by the Fund in the same manner as by the partnership or trust.
The foregoing summarizes some of the important tax considerations generally
affecting the Funds and their shareholders and is not intended as a substitute
for careful tax planning. Accordingly, potential investors in the Funds should
consult their tax advisers with specific reference to their own tax situa-
tions. Shareholders will be advised annually as to the Federal income tax con-
sequences of distributions made each year.
STATE AND LOCAL
Purchasers are advised to consult their tax advisers concerning the applica-
tion of state and local taxes, which may have different consequences from
those of the Federal income tax law described above.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of Ex-
celsior Fund's Board of Directors. The Statement of Additional Information
contains the names of and general background information concerning Excelsior
Fund's directors.
INVESTMENT ADVISER
United States Trust Company of New York serves as the Investment Adviser to
each Fund. U.S. Trust is a state-chartered bank and trust company. The Invest-
ment Adviser provides trust and banking services to individuals, corporations,
and institutions both nationally and internationally, including investment
management, estate and trust administration, financial planning, corporate
trust and agency banking, and personal and corporate banking. The Investment
Adviser is a member bank of the Federal Reserve System and the Federal Deposit
Insurance Corporation and is one of the twelve members of the New York Clear-
ing House Association.
29
<PAGE>
On December 31, 1995, the Investment Adviser's Asset Management Group had ap-
proximately $47 billion in assets under management. The Investment Adviser,
which has its principal offices at 114 W. 47th Street, New York, New York
10036, is a subsidiary of U.S. Trust Corporation, a registered bank holding
company.
The Investment Adviser manages each Fund, makes decisions with respect to and
places orders for all purchases and sales of its portfolio securities, and
maintains records relating to such purchases and sales.
The Equity Fund's portfolio manager, David A. Tillson, is the person primar-
ily responsible for the day-to-day management of the Fund's investment portfo-
lio. Mr. Tillson, a Senior Vice President and Senior Portfolio Manager, has
been with U.S. Trust since 1993, and has been the Fund's portfolio manager
since December 1994. Prior to joining U.S. Trust, Mr. Tillson was the founder
and President of TDA Capital Management Company, and a Senior Vice President
of Matrix Asset Advisors until 1993. He was also a Vice President and Senior
Portfolio Manager with V C S & O Asset Management until 1990.
The Aging of America Fund's portfolio manager, Jonathan L. Stanley, is the
person primarily responsible for the day-to-day management of the Fund's in-
vestment portfolio. Mr. Stanley, a Senior Vice President and Senior Portfolio
Manager of U.S. Trust, has been with U.S. Trust since 1993 and has been the
Fund's portfolio manager since December, 1995. Prior to his association with
U.S. Trust, Mr. Stanley was an investment manager with Deutche Bank Capital
Corporation.
The Communication and Entertainment Fund's portfolio manager, John J.
Apruzzese, is the person primarily responsible for the day-to-day management
of the Fund's investment portfolio. Mr. Apruzzese, a Senior Vice President,
Department Manager and Senior Portfolio Manager of U.S. Trust, has been with
U.S. Trust since 1984 and has been the Fund's portfolio manager since its in-
ception.
The Business and Industrial Restructuring Fund's portfolio manager, David J.
Williams, is the person primarily responsible for the day-to-day management of
the Fund's investment portfolio. Mr. Williams, Senior Vice President, Depart-
ment Manager and Senior Portfolio Manager of the Personal Equity and Balanced
Investment Division of U.S. Trust, has been with U.S. Trust since 1987 and has
been the Fund's portfolio manager since its inception.
The Global Competitors Fund's portfolio manager, Wendy S. Popowich, is the
person primarily responsible for the day-to-day management of the Fund's in-
vestment portfolio. Ms. Popowich, a Senior Vice President and Portfolio Man-
ager of the Personal Investment Division of U.S. Trust, has been with U.S.
Trust since 1983 and has been the Fund's portfolio manager since its incep-
tion.
The Early Life Cycle Fund's portfolio manager, Timothy W. Evnin, is the per-
son primarily responsible for the day-to-day management of the Fund's invest-
ment portfolio. Mr. Evnin, a Vice President and Portfolio Manager of U.S.
Trust, has been with U.S. Trust since 1987 and has been the Fund's portfolio
manager since its inception.
For the services provided and expenses assumed pursuant to its Investment Ad-
visory Agreements, the Investment Adviser is entitled to be paid a fee, com-
puted daily and paid monthly, at the annual rate of: .75% of the average daily
net assets of the Equity Fund; and .60% of the average daily net assets of
each Theme Fund. The advisory fee rate payable by the Equity Fund is higher
than the rates payable by most mutual funds. The Board of Directors believes,
based on information supplied to it by the Investment Adviser, that this fee
is comparable to the rate paid by many other funds with similar investment ob-
jectives and policies and is appropriate for the Fund in light of its invest-
ment objective and policies. For the fiscal year ended March 31, 1996, the In-
vestment Adviser received an advisory fee at the effective annual rates of
.68%, .56%, .55%, .56%, .56% and .52% of the average daily net assets of the
Equity, Aging of America, Communication and Entertainment, Business and Indus-
trial Restructuring, Global Competitors and Early Life Cycle Funds, re
30
<PAGE>
spectively. For the same period, the Investment Adviser waived advisory fees
at the effective annual rates of .07%, .04%, .05%, .04%, .04% and .08% of the
average daily net assets of the Equity, Aging of America, Communication and
Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds, respectively.
From time to time, the Investment Adviser may waive (either voluntarily or
pursuant to applicable state expense limitations) all or a portion of the ad-
visory fees payable to it by a Fund, which waiver may be terminated at any
time. See "Management of the Funds--Service Organizations" for additional in-
formation on fee waivers.
ADMINISTRATORS
CGFSC, Federated Administrative Services and U.S. Trust serve as the Funds'
administrators (the "Administrators") and provide them with general adminis-
trative and operational assistance. The Administrators also serve as adminis-
trators of the other portfolios of Excelsior Fund and Excelsior Tax-Exempt
Fund and Excelsior Institutional Trust, which are also advised by the Invest-
ment Adviser and distributed by the Distributor. For the services provided to
all portfolios of Excelsior Fund (except the International, Emerging Americas,
Pacific/Asia and Pan European Funds) and Excelsior Tax-Exempt Fund and Excel-
sior Institutional Trust, the Administrators are entitled jointly to annual
fees, computed daily and paid monthly, based on the combined aggregate average
daily net assets of the three companies (excluding the International, Emerging
Americas, Pacific/Asia and Pan European Funds) as follows:
<TABLE>
<CAPTION>
COMBINED AGGREGATE AVERAGE DAILY
NET ASSETS OF EXCELSIOR FUND
(EXCLUDING THE INTERNATIONAL, EMERGING AMERICAS,
PACIFIC/ASIA AND PAN EUROPEAN FUNDS),
EXCELSIOR TAX-EXEMPT FUND ANNUAL
AND EXCELSIOR INSTITUTIONAL TRUST FEE
------------------------------------------------ ------
<S> <C>
first $200 million....................................................... .200%
next $200 million........................................................ .175%
over $400 million........................................................ .150%
</TABLE>
Administration fees payable to the Administrators by each portfolio of the
three investment companies are determined in proportion to their relative av-
erage daily net assets at the time of determination. From time to time, the
Administrators may waive (either voluntarily or pursuant to applicable state
expense limitations) all or a portion of the administration fee payable to
them by a Fund, which waivers may be terminated at any time. See "Management
of the Funds--Service Organizations" for additional information on fee waiv-
ers. For the period from April 1, 1995 through July 31, 1995, CGFSC and the
former administrator received an administration fee at the effective annual
rate of .151%, .154%, .154%, .154%, .154% and .154% of the average daily net
assets of each of the Equity, Aging of America, Communication and Entertain-
ment, Business and Industrial Restructuring, Global Competitors and Early Life
Cycle Funds, respectively. For the same period, CGFSC and the former adminis-
trator waived administration fees at the effective annual rate of .003%, 0%,
0%, 0%, 0% and 0% of the average daily net assets of the Equity, Aging of
America, Communication and Entertainment, Business and Industrial Restructur-
ing, Global Competitors and Early Life Cycle Funds, respectively. From August
1, 1995 through March 31, 1996, the Administrators received an aggregate ad-
ministration fee (under the same compensation arrangements noted above) at the
effective annual rate of .150%, .154%, .154%, .154%, .154% and .154% of the
average daily net assets of each of the Equity, Aging of America, Communica-
tion and Entertainment, Business and Industrial Restructuring, Global Competi-
tors and Early Life Cycle Funds, respectively. For the same period, the Admin-
istrators waived administration fees at the effective annual rate of .004%,
0%, 0%, 0%, 0% and 0% of the average daily net assets of the Equity, Aging of
America, Communication and Entertainment, Business and Industrial Restructur-
ing, Global Competitors and Early Life Cycle Funds, respectively.
SERVICE ORGANIZATIONS
Excelsior Fund will enter into Shareholder Servicing agreements ("Servicing
Agreement") with Share-
31
<PAGE>
holder Organizations which agree to provide their Customers various share-
holder administrative services with respect to their Shares (hereinafter re-
ferred to as "Service Organizations"). As a consideration for the administra-
tive services provided to Customers, a Fund will pay each Service Organization
an administrative service fee at the annual rate of up to .40% of the average
daily net asset value of its Shares held by the Service Organization's Custom-
ers. Such services, which are described more fully in the Statement of Addi-
tional Information under "Management of the Funds--Service Organizations," may
include assisting in processing purchase, exchange and redemption requests;
transmitting and receiving funds in connection with Customer orders to pur-
chase, exchange or redeem Shares; and providing periodic statements. Under the
terms of the Servicing Agreement, Service Organizations will be required to
provide to Customers a schedule of any fees that they may charge in connection
with a Customer's investment. Until further notice, the Investment Adviser and
Administrators have voluntarily agreed to waive fees payable by a Fund in an
amount equal to administrative service fees payable by that Fund.
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company regis-
tered under the Federal Bank Holding Company Act of 1956 or any bank or non-
bank affiliate thereof from sponsoring, organizing or controlling a regis-
tered, open-end investment company continuously engaged in the issuance of its
shares, and prohibit banks generally from issuing, underwriting, selling or
distributing securities such as Shares of the Funds, but such banking laws and
regulations do not prohibit such a holding company or affiliate or banks gen-
erally from acting as investment adviser, transfer agent, or custodian to such
an investment company, or from purchasing shares of such company for and upon
the order of customers. The Investment Adviser, CGFSC and certain Shareholder
Organizations may be subject to such banking laws and regulations. State secu-
rities laws may differ from the interpretations of Federal law discussed in
this paragraph and banks and financial institutions may be required to regis-
ter as dealers pursuant to state law.
Should legislative, judicial, or administrative action prohibit or restrict
the activities of the Investment Adviser or other Shareholder Organizations in
connection with purchases of Fund Shares, the Investment Adviser and such
Shareholder Organizations might be required to alter materially or discontinue
the investment services offered by them to Customers. It is not anticipated,
however, that any resulting change in the Funds' method of operations would
affect their net asset values per Share or result in financial loss to any
shareholder.
DESCRIPTION OF CAPITAL STOCK
Excelsior Funds, Inc. (formerly UST Master Funds, Inc.) was organized as a
Maryland corporation on August 2, 1984. Currently, Excelsior Fund has autho-
rized capital of 35 billion shares of Common Stock, $.001 par value per share,
classified into 40 series of shares representing interests in 20 investment
portfolios. This Prospectus describes the Equity, Early Life Cycle, Aging of
America, Communication and Entertainment, Business and Industrial Restructur-
ing and Global Competitors Funds. In addition to the Trust Shares, Excelsior
Fund offers a separate series of shares offered under a separate prospectus
representing interests in each of those Funds. Trust Shares and the other se-
ries of shares offered under a separate prospectus have different expenses,
which may affect performance. Call (800) 446-1012 for information regarding
the other series of shares in each Fund offered under a separate prospectus.
Each share (irrespective of series designation) in a Fund represents an equal
proportionate interest in the particular Fund with other shares of the same
class, and is entitled to such dividends and distributions out of the income
earned on the assets belonging to such Fund as are declared in the discretion
of Excelsior Fund's Board of Directors. Excelsior Fund's Charter
32
<PAGE>
authorizes the Board of Directors to classify or reclassify any class of shares
into one or more additional classes or series.
Excelsior Fund's shareholders are entitled to one vote for each full share
held and fractional votes for fractional shares held and will vote in the ag-
gregate and not by class or series, except as otherwise expressly required by
law.
Certificates for Shares will not be issued unless expressly requested in writ-
ing to CGFSC and will not be issued for fractional Shares.
As of July 15, 1996, U.S. Trust held of record substantially all of the Shares
in the Funds as agent or custodian for its customers, but did not own such
Shares beneficially because it did not have voting or investment discretion
with respect to such Shares. U.S. Trust is a wholly-owned subsidiary of U.S.
Trust Corporation.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, N.A. ("Chase"), a wholly-owned subsidiary of The
Chase Manhattan Corporation, serves as the custodian of the Funds' assets. Com-
munications to the custodian should be directed to Chase, Mutual Funds Service
Division, 770 Broadway, New York, New York 10003-9598.
Chase may enter into an international sub-custodian agreement with a third
party providing for the custody of foreign securities held by the Funds.
U.S. Trust serves as the Funds' transfer and dividend disbursing agent. U.S.
Trust has also entered into a sub-transfer agency arrangement with CGFSC, 73
Tremont Street, Boston, Massachusetts 02108-3913, pursuant to which CGFSC pro-
vides certain transfer agent, dividend disbursement and registrar services to
the Funds.
U.S. Trust may, from time to time, enter into sub-transfer agency arrangements
with third party providers of transfer agency services.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to shareholders, the per-
formance of the Shares of the Funds may be quoted and compared to that of other
mutual funds with similar investment objectives and to stock or other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For exam-
ple, the performance of a Fund may be compared to data prepared by Lipper Ana-
lytical Services, Inc., a widely recognized independent service which monitors
the performance of mutual funds. The performance of the Equity and Theme Funds
may be also compared to the Standard & Poor's 500 Stock Index ("S&P 500"), an
index of unmanaged groups of common stocks, the Consumer Price Index, or the
Dow Jones Industrial Average, a recognized unmanaged index of common stocks of
30 industrial companies listed on the New York Stock Exchange.
Performance data as reported in national financial publications, including but
not limited to Money Magazine, Forbes, Barron's, The Wall Street Journal and
The New York Times, or in publications of a local or regional nature, may also
be used in comparing the performance of the Funds.
From time to time, each Fund may advertise its performance by using "average
annual total return" over various periods of time. Such total return figure re-
flects the average percentage change in the value of an investment in a Fund
from the beginning date of the measuring period to the end of the measuring pe-
riod. Average total return figures will be given for the most recent one-year
period, and may be given for other periods as well (such as from the commence-
ment of a Fund's operations, or on a year-by-year basis). Each Fund may also
use aggregate total return figures for various periods, representing the cumu-
lative change in the value of an investment in the Fund for the specific peri-
od. Both methods of calculating total return assume that dividends and capital
gain distributions made by a Fund during the period are reinvested in
33
<PAGE>
Fund Shares and also reflect the maximum sales load charged by the Fund.
Performance will fluctuate and any quotation of performance should not be
considered as representative of a Fund's future performance. Shareholders
should remember that performance is generally a function of the kind and qual-
ity of the instruments held in a portfolio, operating expenses, and market
conditions. Any fees charged by Shareholder Organizations with respect to ac-
counts of Customers that have invested in Shares will not be included in cal-
culations of performance.
MISCELLANEOUS
Shareholders will receive unaudited semiannual reports describing the Funds'
investment operations and annual financial statements audited by the Funds'
independent auditors.
As used in this Prospectus, a "vote of the holders of a majority of the out-
standing shares" of Excelsior Fund or a particular Fund means, with respect to
the approval of an investment advisory agreement or a change in a fundamental
investment policy, the affirmative vote of the lesser of (a) more than 50% of
the outstanding shares of Excelsior Fund or such Fund, or (b) 67% or more of
the shares of Excelsior Fund or such Fund present at a meeting if more than
50% of the outstanding shares of Excelsior Fund or such Fund are represented
at the meeting in person or by proxy.
Inquiries regarding any of the Funds may be directed to the Distributor at
the address listed under "Distributor."
34
<PAGE>
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION
OPENING YOUR ACCOUNT:
Complete the Application(s) and mail to:
FOR OVERNIGHT DELIVERY: send to:
Excelsior Funds Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798 c/o Chase Global Funds Services Compa-
Boston, MA 02208-2798 ny--Transfer Agent
73 Tremont Street
Boston, MA 02108-3913
Please enclose with the Application(s) your check made payable to the "Ex-
celsior Funds" in the amount of your investment.
For direct wire purchases please refer to the section of the Prospectus en-
titled "How to Purchase and Redeem Shares--Purchase Procedures."
MINIMUM INVESTMENTS:
Except as provided in the Prospectus, the minimum initial investment is $500
per Fund; subsequent investments must be in the minimum amount of $50 per
Fund. Investments may be made in excess of these minimums.
REDEMPTIONS:
Shares can be redeemed in any amount and at any time in accordance with pro-
cedures described in the Prospectus. In the case of shares recently purchased
by check, redemption proceeds will not be made available until the transfer
agent is reasonably assured that the check has been collected in accordance
with applicable banking regulations.
Certain legal documents will be required from corporations or other organi-
zations, executors and trustees, or if redemption is requested by anyone other
than the shareholder of record. Written redemption requests in excess of
$50,000 per account must be accompanied by signature guarantees.
SIGNATURES: Please be sure to sign the Application(s).
If the shares are registered in the name of:
- an individual, the individual should sign.
- joint tenants, both tenants should sign.
- a custodian for a minor, the custodian should sign.
- a corporation or other organization, an authorized officer should sign
(please indicate corporate office or title).*
- a trustee or other fiduciary, the fiduciary or fiduciaries should sign
(please indicate capacity).*
* A corporate resolution or appropriate certificate may be required.
QUESTIONS:
If you have any questions regarding the Application or redemption require-
ments, please contact the transfer agent at (800) 446-1012 between 9:00 a.m.
and 5:00 p.m. (Eastern Time).
35
<PAGE>
[LOGO OF EXCELSIOR CHASE GLOBAL FUNDS SERVICES COMPANY
FUNDS INC.] CLIENT SERVICES
P.O. Box 2798 NEW
Boston, MA 02208-2798 ACCOUNT
(800) 446-1012 APPLICATION
(TRUST SHARES)
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION
-----------------------------------------------------------------------------
[_] Individual [_] Joint Tenants [_] Trust [_] Gift/Transfer to Minor
[_] Other
Note: Joint tenant registration will be as "joint tenants
with right of survivorship" unless otherwise specified. Trust
registrations should specify name of the trust, trustee(s),
beneficiary(ies), and the date of the trust instrument.
Registration for Uniform Gifts/Transfers to Minors should be
in the name of one custodian and one minor and include the
state under which the custodianship is created (using the
minor's Social Security Number ("SSN")). For IRA accounts a
different application is required.
------------------------------ -----------------------------
Name(s) (please print) Social Security # or Taxpayer
------------------------------ Indentification #
Name ( )
------------------------------ -----------------------------
Address Telephone #
------------------------------ [_] U.S. Citizen [_] Other
City/State/Zip Code (specify)
-----------------------------------------------------------------------------
FUND SELECTION (THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT IS $500 PER
FUND AND $50 PER FUND, RESPECTIVELY. MAKE CHECKS PAYABLE TO
"EXCELSIOR FUNDS.")
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND INITIAL INVESTMENT
<S> <C> <C>
[_] Equity Fund $ ___________ 8815
[_] Aging of America
Fund $ ___________ 8816
[_] Communication &
Entertainment Fund $ ___________ 8817
[_] Business &
Industrial
Restructuring Fund $ ___________ 8818
</TABLE>
<TABLE>
<CAPTION>
FUND INITIAL INVESTMENT
<S> <C> <C>
[_] Global Competitors Fund $ ___________ 8819
[_] Early Life Cycle Fund $ ___________ 8812
[_] Other $ ___________
TOTAL INITIAL INVESTMENT: $ ___________
</TABLE>
NOTE: If investing A. BY MAIL: Enclosed is a check in the
by wire, you must amount of $ _____ payable to "Excelsior
obtain a Bank Wire Funds."
Control Number. To B. BY WIRE: A bank wire in the amount
do so, please call of $ has been sent to the Fund from
(800) 446-1012 and ------------------ ---------------
ask for the Wire Name of Bank Wire Control
Desk. Number
CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and
dividend distributions will be reinvested in additional
shares unless appropriate boxes below are checked:
All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash
-----------------------------------------------------------------------------
ACCOUNT PRIVILEGES
-----------------------------------------------------------------------------
TELEPHONE EXCHANGE AND
REDEMPTION
[_] I/We appoint CGFSC as
my/our agent to act upon
instructions received by
telephone in order to effect
the telephone exchange and
redemption privileges. I/We
hereby ratify any
instructions given pursuant
to this authorization and
agree that Excelsior Fund,
Excelsior Tax-Exempt Fund,
Excelsior Institutional
Trust, CGFSC and their
directors, officers and
employees will not be liable
for any loss, liability,
cost or expense for acting
upon instructions believed
to be genuine and in
accordance with the
procedures described in the
then current Prospectus. To
the extent that Excelsior
Fund, Excelsior Tax-Exempt
Fund and Excelsior
Institutional Trust fail to
use reasonable procedures as
a basis for their belief,
they or their service
contractors may be liable
for instructions that prove
to be fraudulent or
unauthorized.
I/We further acknowledge
that it is my/our
responsibility to read the
Prospectus of any Fund into
which I/we exchange.
[_] I/We do not wish to have
the ability to exercise
telephone redemption and
exchange privileges. I/We
further understand that all
exchange and redemption
requests must be in writing.
SPECIAL PURCHASE AND
REDEMPTION PLANS
I/We have completed and
attached the Supplemental
Application for:
[_] Automatic Investment
Plan
[_] Systematic Withdrawal
Plan
AUTHORITY TO TRANSMIT
REDEMPTION PROCEEDS TO PRE-
DESIGNATED ACCOUNT.
I/We hereby authorize CGFSC to
act upon instructions received
by telephone to withdraw
$1,000 or more from my/our
account in the Excelsior Funds
and to wire the amount
withdrawn to the following
commercial bank account. I/We
understand that CGFSC charges
an $8.00 fee for each wire
redemption, which will be
deducted from the proceeds of
the redemption.
Title on Bank Account*_________
Name of Bank __________________
Bank A.B.A. Number Account
Number ________________________
Bank Address __________________
City/State/Zip Code____________
(attach voided check here)
A corporation, trust or
partnership must also submit a
"Corporate Resolution" (or
"Certificate of Partnership")
indicating the names and
titles of officers authorized
to act on its behalf.
* TITLE ON BANK AND FUND
ACCOUNT MUST BE IDENTICAL.
<PAGE>
- ------------------------------------------------------------------
RIGHTS OF ACCUMULATION
- ------------------------------------------------------------------
To qualify for Rights of Accumulation, you must complete this
section, listing all of your accounts including those in your
spouse's name, joint accounts and accounts held for your
minor children. If you need more space, please attach a
separate sheet.
[_] I/We qualify for the Rights of Accumulation sales charge
discount described in the Prospectus and Statement of
Additional Information.
[_] I/We own shares of more than one Fund distributed by
Edgewood Services, Inc. Listed below are the numbers of
each of my/our Shareholder Accounts.
[_] The registration of some of my/our shares differs from that
shown on this application. Listed below are the account
number(s) and full registration(s) in each case.
LIST OF OTHER EXCELSIOR FUND ACCOUNTS:
______________________ _______________________________________
______________________ _______________________________________
______________________ _______________________________________
ACCOUNT NUMBER ACCOUNT REGISTRATIONS
- ------------------------------------------------------------------
LETTER OF INTENT
- ------------------------------------------------------------------
[_] I agree to the Letter of Intent provisions set forth in
the Prospectus. Although I am not obligated to purchase, and
Excelsior Fund is not obligated to sell, I intend to invest,
over a 13-month period beginning on , 19 , an aggregate
amount in Eligible Funds of Excelsior Fund and Excelsior Tax-
Exempt Fund at least equal to (check appropriate box):
[_] $50,000[_] $100,000[_] $250,000[_] $500,000[_] $1,000,000[_] $2,000,000
By signing this application, I hereby authorize CGFSC to
redeem an appropriate number of shares held in escrow to pay
any additional sales loads payable in the event that I do not
fulfill the terms of this Letter of Intent.
- ------------------------------------------------------------------
AGREEMENT AND SIGNATURES
- ------------------------------------------------------------------
By signing this application, I/we hereby certify under
penalty of perjury that the information on this application
is complete and correct and that as required by Federal law:
[_] I/We certify that (1) the number(s) shown on this form
is/are the correct taxpayer identification number(s) and (2)
I/we are not subject to backup withholding either because
I/we have not been notified by the Internal Revenue Service
that I/we are subject to backup withholding, or the IRS has
notified me/us that I am/we are no longer subject to backup
withholding. (NOTE: IF ANY OR ALL OF PART 2 IS NOT TRUE,
PLEASE STRIKE OUT THAT PART BEFORE SIGNING.)
[_] If no taxpayer identification number ("TIN") or SSN has
been provided above, I/we have applied, or intend to apply,
to the IRS or the Social Security Administration for a TIN or
a SSN, and I/we understand that if I/we do not provide this
number to CGFSC within 60 days of the date of this
application, or if I/we fail to furnish my/our correct SSN or
TIN, I/we may be subject to a penalty and a 31% backup
withholding on distributions and redemption proceeds. (Please
provide this number on Form W-9. You may request the form by
calling CGFSC at the number listed above).
I/We represent that I am/we are of legal age and capacity to
purchase shares of the Excelsior Funds. I/We have received,
read and carefully reviewed a copy of the appropriate Fund's
current Prospectus and agree to its terms and by signing
below I/we acknowledge that neither the Fund nor the
Distributor is a bank and that Fund Shares are not deposits
or obligations of, or guaranteed or endorsed by, United
States Trust Company of New York, its parent and affiliates
and the Shares are not federally insured by, guaranteed by,
obligations of or otherwise supported by the U.S. Government,
the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other governmental agency; and that an
investment in the Funds involves investment risks, including
possible loss of principal amount invested.
X ___________________________ Date __________________________
Owner Signature
X ___________________________ Date __________________________
Co-Owner Signature
Sign exactly as name(s) of registered owner(s) appear(s) above
(including legal title if signing for a corporation, trust
custodial account, etc.).
- ------------------------------------------------------------------
FOR USE BY AUTHORIZED AGENT (BROKER/DEALER) ONLY
- ------------------------------------------------------------------
We hereby submit this application for the purchase of shares
in accordance with the terms of our selling agreement with
Edgewood Services, Inc., and with the Prospectus and
Statement of Additional Information of each Fund purchased.
We agree to notify CGFSC of any purchases made under the
Letter of Intent or Rights of Accumulation.
----------------------------- -------------------------------
Investment Dealer's Name Source of Business Code
----------------------------- -------------------------------
Main Office Address Branch Number
----------------------------- -------------------------------
Representative's Number Representative's Name
----------------------------- -------------------------------
Branch Address Telephone
----------------------------- -------------------------------
Investment Dealer's Title
Authorized Signature
<PAGE>
[LOGO OF EXCELSIOR CHASE GLOBAL FUNDS SERVICES COMPANY CLIENT SERVICES
FUNDS INC.]
LOGO P.O. Box 2798 SUPPLEMENTAL
Boston, MA 02208-2798 APPLICATION
(800) 446-1012 SPECIAL INVESTMENT AND
WITHDRAWAL OPTIONS
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION PLEASE SUPPLY THE FOLLOWING INFORMATION EXACTLY AS IT
APPEARS ON THE FUND'S RECORD.
-----------------------------------------------------------------------------
Fund Name __________________ Account Number _________________
Owner Name _________________ Social Security or Taxpayer ID
Street Address _____________ Number _________________________
Resident City, State, Zip Code __________
of [_] U.S. [_] Other ____ [_] Check here if this is a
change of address
-----------------------------------------------------------------------------
DISTRIBUTION OPTIONS (DIVIDENDS AND CAPITAL GAINS WILL BE REINVESTED
UNLESS OTHERWISE INDICATED)
-----------------------------------------------------------------------------
A. CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend
distributions will be reinvested in additional shares unless appropriate
boxes below are checked:
All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash
B. PAYMENT ORDER: Complete only if distribution checks are to be payable
to another party. Make distribution checks payable to:
Name of Your Bank ______________
Name _______________________ Bank Account Number ____________
Address ____________________ Address of Bank ________________
City, State, Zip Code ________________________________________
C. DISTRIBUTIONS REINVESTED-CROSS FUNDS: Permits all distributions from
one Fund to be automatically reinvested into another identically-
registered Excelsior Fund. (NOTE: You may NOT open a new Fund account with
this option.) Transfer all distributions earned:
From: ______________________ Account No. ____________________
(Fund)
To: ________________________ Account No. ____________________
(Fund)
-----------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN [_] YES [_] NO
-----------------------------------------------------------------------------
I/We hereby authorize CGFSC to debit my/our personal checking account on
the designated dates in order to purchase shares in the Fund indicated at
the top of this application at the applicable public offering price
determined on that day.
[_] Monthly on the 1st day
[_] Monthly on the 15th day
[_] Monthly on both the 1st and 15th days
Amount of each debit (minimum $50
per Fund) $ ________________________
NOTE: A Bank Authorization Form (below) and a voided personal check must
accompany the Automatic Investment Plan application.
-----------------------------------------------------------------------------
EXCELSIOR FUNDS
CLIENT SERVICES AUTOMATIC INVESTMENT PLAN
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
BANK AUTHORIZATION
-----------------------------------------------------------------------------
-------------------- ------------------------ -------------------------
Bank Name Bank Address Bank Account Number
I/We authorize you, the above named bank, to debit my/our
account for amounts drawn by CGFSC, acting as my agent for
the purchase of Fund shares. I/We agree that your rights in
respect to each withdrawal shall be the same as if it were a
check drawn upon you and signed by me/us. This authority
shall remain in effect until revoked in writing and received
by you. I/We agree that you shall incur no liability when
honoring debits, except a loss due to payments drawn against
insufficient funds. I/We further agree that you will incur no
liability to me if you dishonor any such withdrawal. This
will be so even though such dishonor results in the
cancellation of that purchase.
---------------------------- --------------------------------
Account Holder's Name Joint Account Holder's Name
X ________________ _________ X __________________ ___________
Signature Date Signature Date
<PAGE>
- --------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN [_] YES [_] NO NOT AVAILABLE FOR IRA'S
- --------------------------------------------------------------------------
AVAILABLE TO SHAREHOLDERS WITH ACCOUNT BALANCES OF $10,000 OR
MORE.
I/We hereby authorize CGFSC to redeem the necessary number of
shares from my/our Excelsior Fund Account on the designated
dates in order to make the following periodic payments:
[_] Monthly on the 24th day
[_] Quarterly on the 24th day of January, April, July and October
[_] Other_____________________
(This request for participation in the Plan must be received
by the 18th day of the month in which you wish withdrawals to
begin.)
Amount of each check ($100 minimum)
$
Please make Recipient ________________________________
check payable Street Address ___________________________
to: (To be City, State, Zip Code ____________________
completed only
if redemption
proceeds to be
paid to other
than account
holder of record
or mailed to
address other
than address of
record)
NOTE: If recipient of checks is not the registered
shareholder, signature(s) below must be guaranteed. A
corporation, trust or partnership must also submit a
"Corporate Resolution" (or "Certification of Partnership")
indicating the names and titles of officers authorized to act
on its behalf.
- ------------------------------------------------------------------
AGREEMENT AND SIGNATURES
- ------------------------------------------------------------------
The investor(s) certifies and agrees that the certifications,
authorizations, directions and restrictions contained herein
will continue until CGFSC receives written notice of any
change or revocation. Any change in these instructions must
be in writing with all signatures guaranteed (if applicable).
Date ______________________
X X
------------------------------- -----------------------------
Signature Signature
------------------------------- -----------------------------
Signature Guarantee* (if applicable)
Signature Guarantee* (if applicable)
X X
------------------------------- -----------------------------
Signature Signature
------------------------------- -----------------------------
Signature Guarantee* (if applicable)
Signature Guarantee* (if applicable)
*ELIGIBLE GUARANTORS: An Eligible Guarantor institution is a
bank, trust company, broker, dealer, municipal or government
securities broker or dealer, credit union, national
securities exchange, registered securities association,
clearing agency or savings association, provided that such
institution is a participant in STAMP, the Securities
Transfer Agents Medallion Program.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY......................................................... 2
EXPENSE SUMMARY............................................................ 3
FINANCIAL HIGHLIGHTS....................................................... 5
U.S. TRUST'S INVESTMENT PHILOSOPHY AND STRATEGIES.......................... 11
INVESTMENT OBJECTIVES AND POLICIES......................................... 11
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION..................... 15
INVESTMENT LIMITATIONS..................................................... 18
PRICING OF SHARES.......................................................... 19
HOW TO PURCHASE AND REDEEM SHARES.......................................... 20
INVESTOR PROGRAMS.......................................................... 26
DIVIDENDS AND DISTRIBUTIONS................................................ 28
TAXES...................................................................... 28
MANAGEMENT OF THE FUNDS.................................................... 29
DESCRIPTION OF CAPITAL STOCK............................................... 32
CUSTODIAN AND TRANSFER AGENT............................................... 33
PERFORMANCE INFORMATION.................................................... 33
MISCELLANEOUS.............................................................. 34
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION................................... 35
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' STATEMENT OF ADDI-
TIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OF-
FERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY EXCELSIOR
FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
EXCELSIOR FUND OR BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
USTEQP896-FT
[LOGO OF EXCELSIOR FUNDS INC.]
EQUITY FUND
AGING OF AMERICA FUND
COMMUNICATION AND ENTERTAINMENT FUND
BUSINESS AND INDUSTRIAL RESTRUCTURING FUND
GLOBAL COMPETITORS FUND
EARLY LIFE CYCLE FUND
TRUST SHARES
Prospectus
August 1, 1996
<PAGE>
CROSS-REFERENCE SHEET
---------------------
EXCELSIOR FUNDS, INC.
(Short-Term Government Securities Fund, Intermediate-Term
Managed Income Fund, Managed Income Fund)
<TABLE>
<CAPTION>
Form N-1A, Part A, Item Prospectus Caption
- ----------------------- ------------------
<S> <C> <C>
1. Cover Page . . . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . . . Expense Summary
3. Condensed Financial Information Financial Highlights; Performance
and Yield Information
4. General Description of Registrant Prospectus Summary; Investment
Objectives and Policies; Portfolio
Instruments and Other Investment
Information; Investment
Limitations; Description of
Capital Stock
5. Management of the Fund . . . . . . Management of the Funds; Custodian
and Transfer Agent
5A. Management's Discussion of Fund
Performance . . . . . . . . . . . Not Applicable
6. Capital Stock and
Other Securities . . . . . . . . How to Purchase and Redeem Shares;
Dividends and Distributions;
Taxes; Description of Capital
Stock; Miscellaneous
7. Purchase of Securities
Being Offered . . . . . . . . . . Pricing of Shares; How to Purchase
and Redeem Shares; Investor
Programs
8. Redemption or Repurchase . . . . . How to Purchase and Redeem Shares
9. Pending Legal Proceedings . . . . . Inapplicable
</TABLE>
<PAGE>
[LOGO OF EXCELSIOR
FUNDS INC.]
A Management Investment Company
- -------------------------------------------------------------------------------
Fixed-Income Funds For initial purchase information, current
prices, yield and performance information
and existing account information, call
73 Tremont Street (800) 446-1012.
Boston, Massachusetts 02108-3913 (From overseas, call (617) 557-8280.)
- -------------------------------------------------------------------------------
This Prospectus describes three separate portfolios offered to investors by
Excelsior Funds, Inc. ("Excelsior Fund") (formerly UST Master Funds, Inc.), an
open-end management investment company. This Prospectus describes the fixed-
income portfolios. Each portfolio (individually, a "Fund" and collectively,
the "Funds") has its own investment objective and policies as follows:
SHORT-TERM GOVERNMENT SECURITIES FUND'S investment objective is to seek a
high level of current income consistent with stability of principal by invest-
ing principally in obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities and repurchase agreements collateralized by
such obligations. As a result, the interest income on such investments gener-
ally should be exempt from state and local personal income taxes in most
states. The Fund will generally have a dollar-weighted average portfolio matu-
rity of one to three years.
INTERMEDIATE-TERM MANAGED INCOME FUND'S investment objective is to seek as
high a level of current interest income consistent with relative stability of
principal by investing principally in investment grade or better debt obliga-
tions and money market instruments. The Fund will ordinarily have a dollar-
weighted average portfolio maturity of three to ten years.
MANAGED INCOME FUND'S investment objective is to seek higher current income
consistent with what is believed to be prudent risk of capital. Subject to
this investment objective, the Fund's investment adviser will consider the to-
tal rate of return on portfolio securities in managing the Fund. Under normal
market or economic conditions, the Fund will invest a majority of its assets
in investment grade debt obligations and money market instruments.
Each of the Funds is sponsored and distributed by Edgewood Services, Inc. and
advised by United States Trust Company of New York (the "Investment Adviser"
or "U.S. Trust").
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated August 1, 1996 and containing additional information about
the Funds has been filed with the Securities and Exchange Commission. The cur-
rent Statement of Additional Information is available to investors without
charge by writing to Excelsior Fund at its address shown above or by calling
(800) 446-1012. The Statement of Additional Information, as it may be supple-
mented from time to time, is incorporated by reference in its entirety into
this Prospectus.
SHARES IN THE FUNDS ("SHARES") ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARAN-
TEED OR ENDORSED BY, UNITED STATES TRUST COMPANY OF NEW YORK, ITS PARENT AND
AFFILIATES AND THE SHARES ARE NOT FEDERALLY INSURED BY, GUARANTEED BY, OBLIGA-
TIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL
AGENCY.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
August 1, 1996
<PAGE>
PROSPECTUS SUMMARY
EXCELSIOR FUNDS, INC. is an investment company offering various diversified
investment portfolios with differing objectives and policies. Founded in 1984,
Excelsior Fund currently offers 20 Funds with combined assets of approximately
$2.4 billion. See "Description of Capital Stock."
INVESTMENT ADVISER: United States Trust Company of New York serves as the
Funds' investment adviser. U.S. Trust is a trust company offering a variety of
specialized financial and fiduciary services to high-net worth individuals,
institutions and corporations. Excelsior Fund offers investors access to U.S.
Trust's services. See "Management of the Funds--Investment Adviser."
INVESTMENT OBJECTIVES AND POLICIES: Generally, the Short-Term Government Se-
curities Fund is a diversified investment portfolio which invests principally
in obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and the Intermediate-Term Managed Income and Managed Income
Funds are diversified investment portfolios which invest principally in in-
vestment grade or better debt obligations. The Funds' investment objectives
and policies are summarized on the cover and explained in greater detail later
in this Prospectus. See "Investment Objectives and Policies," "Portfolio In-
struments and Other Investment Information" and "Investment Limitations."
HOW TO INVEST: The Funds' shares are offered at their public offering price,
i.e., their net asset value per share plus a sales load which is subject to
substantial reductions for large purchases and programs for accumulation. The
sales load is not applicable to investors making their investments through a
variety of institutions, such as U.S. Trust, other banks and trust companies.
See "How to Purchase and Redeem Shares."
The minimum initial investment is $500 per Fund, and the minimum subsequent
investment is $50 per Fund. The easiest way to invest is to complete the ac-
count application which accompanies this Prospectus and to send it with a
check to the address noted on the application. Investors may also invest by
wire and through investment dealers or institutional investors with appropri-
ate sales agreements with Excelsior Fund. See "How to Purchase and Redeem
Shares."
HOW TO REDEEM: Redemptions may be requested directly from Excelsior Fund by
mail, wire or telephone. Investors investing through another institution
should request redemptions through their Shareholder Organization. See "How to
Purchase and Redeem Shares."
INVESTMENT RISKS AND CHARACTERISTICS: Generally, each Fund is affected di-
rectly by credit markets and fluctuations in interest rates. Although each
Fund generally seeks to invest for the long term, each Fund may engage in
short-term trading of portfolio securities. A high rate of portfolio turnover
may involve correspondingly greater transaction costs which must be borne di-
rectly by a Fund and ultimately by its shareholders. Investments in non-in-
vestment grade obligations may subject the Intermediate-Term Managed Income
and Managed Income Funds to increased risk of loss upon default. Such securi-
ties are generally unsecured, are often subordinated debt and are often issued
by entities with high levels of indebtedness and that are more sensitive to
adverse economic conditions. Investments in the obligations of foreign issuers
may subject the Intermediate-Term Managed Income and Managed Income Funds to
additional investment risks, including fluctuations in foreign exchange rates,
future political and economic developments and the possible imposition of ex-
change controls or other foreign governmental laws or restrictions. See "In-
vestment Policies Common to Intermediate-Term Managed Income and Managed In-
come Funds--Risk Factors." Investment in the Funds should not be considered a
complete investment program.
2
<PAGE>
EXPENSE SUMMARY
<TABLE>
<CAPTION>
SHORT-TERM INTERMEDIATE- MANAGED
GOVERNMENT TERM MANAGED INCOME
SECURITIES FUND INCOME FUND FUND
--------------- ------------- -------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load on Purchases
(as percentage of offering price)....... 4.50% 4.50% 4.50%
Sales Load on Reinvested Dividends....... None None None
Deferred Sales Load...................... None None None
Redemption Fee/1/........................ None None None
Exchange Fees............................ None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fees (after fee waivers)/2/..... .11% .31% .59%
12b-1 Fees............................... None None None
Other Operating Expenses
Administrative Servicing Fee/2/........ .09% .04% .06%
Other Expenses......................... .41% .29% .31%
----- ----- -----
Total Operating Expenses (after fee
waivers)/2/............................. .61% .64% .96%
===== ===== =====
</TABLE>
- -------
1. The Funds' transfer agent imposes a direct $8.00 charge on each wire re-
demption by noninstitutional (i.e. individual) investors which is not re-
flected in the expense ratios presented herein. Shareholder organizations
may charge their customers transaction fees in connection with redemptions.
See "Redemption Procedures."
2. The Investment Adviser and Administrators may from time to time voluntarily
waive part of their respective fees, which waivers may be terminated at any
time. Until further notice, the Investment Adviser and/or Administrators
intend to voluntarily waive fees in an amount equal to the Administrative
Servicing Fee; and to further waive fees and reimburse expenses to the ex-
tent necessary for the Short-Term Government Securities and Intermediate-
Term Managed Income Funds to maintain annual expense ratios of not more
than .62% and .72%, respectively. Without such fee waivers, "Advisory Fees"
would be .30%, .35% and .75% and "Total Operating Expenses" would be 0.80%,
.68% and 1.12% for the Short-Term Government Securities, Intermediate-Term
Managed Income and Managed Income Funds, respectively.
3
<PAGE>
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Short-Term Government Securities Fund........... $51 $64 $77 $118
Intermediate-Term Managed Income Fund........... 51 65 79 121
Managed Income Fund............................. 54 74 96 158
</TABLE>
The foregoing expense summary and example (based on the maximum sales load
payable on the Shares of the Funds) are intended to assist the investor in un-
derstanding the costs and expenses that an investor in Shares of the Funds will
bear directly or indirectly. The expense summary sets forth advisory and other
expenses payable with respect to Shares of the Funds for the fiscal year ended
March 31, 1996. For more complete descriptions of the Funds' operating ex-
penses, see "Management of the Funds" in this Prospectus and the financial
statements and notes incorporated by reference in the Statement of Additional
Information.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES AND RATE OF RETURN MAY BE
GREATER OR LOWER THAN THOSE SHOWN IN THE EXPENSE SUMMARY AND EXAMPLE.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables include selected data for a Share outstanding throughout
each period and other performance information derived from the financial state-
ments included in Excelsior Fund's Annual Report to Shareholders for the year
ended March 31, 1996 (the "Financial Statements"). The information contained in
the Financial Highlights for each period has been audited by Ernst & Young LLP,
Excelsior Fund's independent auditors. The following tables should be read in
conjunction with the Financial Statements and notes thereto. More information
about the performance of each Fund is also contained in the Annual Report to
Shareholders which may be obtained from Excelsior Fund without charge by call-
ing the number on the front cover of this Prospectus.
SHORT-TERM GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------- PERIOD ENDED
1996 1995 1994 MARCH 31, 1993/1/
------ ------ ------ -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period. $ 6.89 $ 6.93 $ 7.06 $ 7.00
------ ------ ------ ------
Income From Investment Operations
Net Investment Income.............. 0.40 0.33 0.24 0.06
Net Gains or (Losses) on Securities
(both realized and unrealized).... 0.09 (0.04) (0.09) 0.06
------ ------ ------ ------
Total From Investment Operations... 0.49 0.29 0.15 0.12
------ ------ ------ ------
Less Distributions
Dividends From Net Investment In-
come.............................. (0.40) (0.33) (0.24) (0.06)
Dividends From Net Realized Gain on
Investments....................... 0.00 0.00 (0.02) 0.00
Distributions in Excess of Net Re-
alized Gain on Investments........ 0.00 0.00 (0.02) 0.00
------ ------ ------ ------
Total Distributions................ (0.40) (0.33) (0.28) (0.06)
------ ------ ------ ------
Net Asset Value, End of Period....... $ 6.98 $ 6.89 $ 6.93 $ 7.06
====== ====== ====== ======
Total Return/2/...................... 7.27% 4.30% 2.12% 1.70%
Ratios/Supplemental Data
Net Assets, End of Period (in mil-
lions)............................ $25.07 $25.22 $25.23 $13.37
Ratio of Net Operating Expenses to
Average Net Assets................ 0.61% 0.61% 0.62% 0.62%/3/
Ratio of Gross Operating Expenses
to Average Net Assets/4/.......... 0.80% 0.67% 0.65% 0.82%/3/
Ratio of Net Income to Average Net
Assets............................ 5.72% 4.80% 3.42% 3.62%/3/
Portfolio Turnover Rate............ $77.0% 198.0% 267.0% 93.0%/3/
</TABLE>
- -------
NOTES:
1.Inception date of the Fund was December 31, 1992.
2.Total return data does not reflect the sales load payable on purchases of
Shares.
3.Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
5
<PAGE>
INTERMEDIATE-TERM MANAGED INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------
PERIOD ENDED
1996 1995 1994 MARCH 31, 1993/1/
------ ------ ------ -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period. $ 6.75 $ 6.83 $ 7.19 $ 7.00
------ ------ ------ ------
Income From Investment Operations
Net Investment Income.............. 0.43 0.39 0.31 0.08
Net Gains or (Losses) on Securities
(both realized and unrealized).... 0.31 (0.07) (0.27) 0.19
------ ------ ------ ------
Total From Investment Operations... 0.74 0.32 0.04 0.27
------ ------ ------ ------
Less Distributions
Dividends From Net Investment
Income............................ (0.43) (0.39) (0.31) (0.08)
Dividends From Net Realized Gain on
Investments....................... 0.00 0.00 0.00 0.00
Distributions in Excess of Net
Realized Gain on Investments...... (0.00) (0.01) (0.09) 0.00
------ ------ ------ ------
Total Distributions................ (0.43) (0.40) (0.40) (0.08)
------ ------ ------ ------
Net Asset Value, End of Period....... $ 7.06 $ 6.75 $ 6.83 $ 7.19
====== ====== ====== ======
Total Return/2/...................... 11.13% 4.95% 0.45% 3.86%
Ratios/Supplemental Data
Net Assets, End of Period (in
millions)......................... $68.64 $47.93 $42.56 $19.48
Ratio of Net Operating Expenses to
Average Net Assets................ 0.64% 0.66% 0.69% 0.72%/3/
Ratio of Gross Operating Expenses
to Average Net Assets/4/.......... 0.68% 0.68% 0.69% 0.98%/3/
Ratio of Net Income to Average Net
Assets............................ 6.06% 5.91% 4.31% 4.69%/3/
Portfolio Turnover Rate............ 129.0% 682.0% 385.0% 66.00%/3/
</TABLE>
- -------
NOTES:
1.Inception date of the Fund was December 31, 1992.
2.Total return data does not reflect the sales load payable on purchases of
Shares.
3.Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
6
<PAGE>
MANAGED INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------ ------ ------- ------- ------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of period.... $ 8.39 $ 8.57 $ 9.64 $ 9.15 $ 9.12 $ 8.77 $ 8.51 $ 8.61 $ 9.01 $ 8.62
------ ------ ------- ------- ------ ------ ------ ------- ------ ------
Income From Investment
Operations
Net Investment Income.. 0.55 0.51 0.47 0.58 0.65 0.67 0.69 0.66 0.67 0.69
Net Gains or (Losses)
on Securities (both
realized and
unrealized)........... 0.44 (0.18) (0.26) 0.79 0.27 0.44 0.32 (0.06) (0.08) 0.79
------ ------ ------- ------- ------ ------ ------ ------- ------ ------
Total From Investment
Operations............ 0.99 0.33 0.21 1.37 0.92 1.11 1.01 0.60 0.59 1.48
------ ------ ------- ------- ------ ------ ------ ------- ------ ------
Less Distributions
Dividends From Net
Investment Income..... (0.54) (0.51) (0.47) (0.58) (0.65) (0.67) (0.69) (0.66) (0.67) (0.75)
Dividends From Net
Realized Gain on
Investments........... 0.00 0.00 (0.31) (0.30) (0.24) (0.09) (0.06) (0.04) (0.32) (0.34)
Distributions in Excess
of Net Realized Gain
on Investments........ 0.00 0.00 (0.50) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------ ------ ------- ------- ------ ------ ------ ------- ------ ------
Total Distributions.... (0.54) (0.51) (1.28) (0.88) (0.89) (0.76) (0.75) (0.70) (0.99) (1.09)
------ ------ ------- ------- ------ ------ ------ ------- ------ ------
Net Asset Value, End of
Period................. $ 8.84 $ 8.39 $ 8.57 $ 9.64 $ 9.15 $ 9.12 $ 8.77 $ 8.51 $ 8.61 $ 9.01
====== ====== ======= ======= ====== ====== ====== ======= ====== ======
Total Return/1/......... 11.86% 4.06% 1.73% 15.74% 10.36% 13.37% 12.03% 7.18% 7.20% 18.46%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions).. $88.90 $86.02 $110.90 $110.62 $96.32 $52.74 $38.75 $ 19.53 $12.67 $11.53
Ratio of Net Operating
Expenses to Average
Net Assets............ 0.96% 1.00% 0.90% 0.89% 1.05% 1.11% 1.13% 1.07% 0.86% 0.81%
Ratio of Gross
Operating Expenses to
Average
Net Assets/2/......... 1.12% 1.12% 1.06% 1.04% 1.05% 1.11% 1.14% 1.24% 1.32% 1.38%
Ratio of Net Income to
Average Net Assets.... 6.0% 6.09% 4.89% 6.19% 6.97% 7.57% 7.73% 7.69% 7.76% 7.72%
Portfolio Turnover
Rate.................. 165.0% 492.0% 459.0% 455.0% 369.0% 342.0% 350.0% 1226.0% 576.0% 751.0%
</TABLE>
- -------
NOTES:
1. Total return data does not reflect the sales load payable on purchases of
Shares.
2. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Investment Adviser will use its best efforts to achieve the investment ob-
jective of each Fund, although their achievement cannot be assured. The invest-
ment objective of each Fund may not be changed without a vote of the holders of
a majority of the particular Fund's outstanding Shares (as defined under "Mis-
cellaneous"). Except as noted below and in "Investment Limitations," the in-
vestment policies of each Fund may be changed without the vote of the holders
of a majority of the outstanding Shares of such Fund.
SHORT-TERM GOVERNMENT SECURITIES FUND
The Short-Term Government Securities Fund's investment objective is to seek a
high level of current income consistent with stability of principal by invest-
ing principally in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and repurchase agreements collateralized by such
obligations. As a result, the interest income on such investments generally
should be exempt from state and local personal income taxes in most states. In
all states this tax exemption is passed through to the Fund's shareholders. The
Fund will generally have a dollar-weighted average portfolio maturity of one to
three years. Changes in interest rates will affect the value of the portfolio
investments held by the Short-Term Government Securities Fund. As a result, in-
vestment in the Short-Term Government Securities Fund should not be considered
a complete investment program. Additional information about the Fund's policies
and portfolio instruments is set forth below under "Portfolio Instruments and
Other Investment Information."
INTERMEDIATE-TERM MANAGED INCOME FUND
The Intermediate-Term Managed Income Fund's investment objective is to seek as
high a level of current interest income as is consistent with relative stabil-
ity of principal. The Fund will have a dollar-weighted average portfolio matu-
rity of three to ten years.
MANAGED INCOME FUND
The Managed Income Fund's investment objective is to seek high current income
consistent with what is believed to be prudent risk of capital. Subject to this
investment objective, the Investment Adviser will consider the market value ap-
preciation of portfolio securities in managing the Fund. The Managed Income
Fund's dollar-weighted average portfolio maturity will vary from time to time
in light of current market and economic conditions, the comparative yields on
instruments with different maturities and other factors.
INVESTMENT POLICIES COMMON TO INTERMEDIATE-TERM MANAGED INCOME AND MANAGED
INCOME FUNDS
The Intermediate-Term Managed Income and Managed Income Funds may invest in
the following types of securities: corporate debt obligations such as bonds,
debentures, obligations convertible into common stocks and money market instru-
ments; preferred stocks; and obligations issued or guaranteed by the U.S. Gov-
ernment and its agencies or instrumentalities. The Intermediate-Term Managed
Income and Managed Income Funds are also permitted to enter into repurchase
agreements. The Intermediate-Term Managed Income and Managed Income Funds may,
from time to time, invest in debt obligations exempt from Federal income tax
issued by or on behalf of states, territories and possessions of the United
States, the District of Columbia and their authorities, agencies, instrumental-
ities and political subdivisions ("Municipal Bonds"). The purchase of Municipal
Bonds may be advantageous when, as a result of prevailing economic, regulatory
or other circumstances, the performance of such securities, on a pre-tax basis,
is comparable to that of corporate or U.S. Government debt obligations.
Under normal market conditions, at least 75% of the Intermediate-Term Managed
Income and Managed Income Fund's total assets will be invested in investment-
grade debt obligations rated within the four highest ratings of Standard &
Poor's Ratings Group ("S&P") or Moody's Investor Service, Inc. ("Moody's") (or
in unrated obligations considered to be of investment grade by the Investment
Adviser) and in U.S. Government obligations and money market instruments of the
types listed below under "Money Market Instruments." When, in the opinion of
the Invest-
8
<PAGE>
ment Adviser, a defensive investment posture is warranted, the Funds may in-
vest temporarily and without limitation in high quality, short-term money mar-
ket instruments.
Unrated securities will be considered of investment grade if deemed by the
Investment Adviser to be comparable in quality to instruments so rated, or if
other outstanding obligations of the issuers of such securities are rated
"Baa/BBB" or better. It should be noted that obligations rated in the lowest
of the top four ratings ("Baa" by Moody's or "BBB" by S&P) are considered to
have some speculative characteristics and are more sensitive to economic
change than higher rated bonds.
The Intermediate-Term Managed Income and Managed Income Funds may invest up
to 25% of their respective total assets in: preferred stocks; dollar-denomi-
nated debt obligations of foreign issuers, including foreign corporations and
foreign governments; and dollar-denominated debt obligations of U.S. companies
issued outside the United States (see additional limitation on investments in
obligations of foreign branches of U.S. banks and U.S. branches of foreign
banks under "Money Market Instruments" below). The Intermediate-Term Managed
Income and Managed Income Funds may invest up to 10% and 25% of their respec-
tive total assets in obligations rated below the four highest ratings of S&P
or Moody's (commonly called "junk bonds") with no minimum rating required. The
Intermediate-Term Managed Income and Managed Income Funds will not invest in
common stocks, and any common stocks received through conversion of convert-
ible debt obligations will be sold in an orderly manner as soon as possible.
Changes in interest rates will affect the value of the portfolio investments
held by the Intermediate-Term Managed Income and Managed Income Funds.
RISK FACTORS
Investments in the obligations of foreign issuers may subject the Intermedi-
ate-Term Managed Income and Managed Income Funds to additional investment
risks including fluctuations in foreign exchange rates, future political and
economic developments and the possible imposition of exchange controls or
other foreign governmental laws or restrictions. In addition, with respect to
certain countries, there is the possibility of expropriation of assets, con-
fiscatory taxation, political or social instability or diplomatic developments
which could adversely affect investments in those countries. There may be less
publicly available information about a foreign company than about a U.S. com-
pany, and foreign companies may not be subject to accounting, auditing and fi-
nancial reporting standards and requirements comparable to or as uniform as
those of U.S.-based companies. Foreign securities markets, while growing in
volume, have, for the most part, substantially less volume than U.S. markets,
and securities of many foreign companies are less liquid and their prices more
volatile than securities of comparable U.S.-based companies. Transaction costs
on foreign securities markets are generally higher than in the United States.
There is generally less government supervision and regulation of foreign ex-
changes, brokers and issuers than there is in the United States. The Interme-
diate-Term Managed Income and Managed Income Funds might have greater diffi-
culty taking appropriate legal action in a foreign court. Interest payable on
a Fund's foreign portfolio securities may be subject to foreign withholding
taxes. To the extent such taxes are not offset by credits or deductions al-
lowed to investors under the Federal income tax provisions, they may reduce
the net return to the shareholders.
The Intermediate-Term Managed Income and Managed Income Funds' investments in
obligations rated below the four highest ratings of S&P and Moody's have dif-
ferent risks than investments in securities that are rated "investment grade."
Risk of loss upon default by the borrower is significantly greater because
lower-rated securities are generally unsecured and are often subordinated to
other creditors of the issuer, and because the issuers frequently have high
levels of indebtedness and are more sensitive to adverse economic conditions,
such as recessions, individual corporate developments and increasing interest
rates than
9
<PAGE>
are investment grade issuers. As a result, the market price of such securities,
and the net asset value of the Funds' Shares, may be particularly volatile.
Additional risks associated with lower-rated fixed-income securities are (a)
the relative youth and growth of the market for such securities, (b) the rela-
tively low trading market liquidity for the securities, (c) the impact that
legislation may have on the high-yield bond market (and, in turn, on the Funds'
net asset value and investment practices), (d) the operation of mandatory sink-
ing fund or call/redemption provisions during periods of declining interest
rates whereby the Funds may be required to reinvest premature redemption pro-
ceeds in lower yielding portfolio securities, and (e) the creditworthiness of
the issuers of such securities. During an economic downturn or substantial pe-
riod of rising interest rates, highly-leveraged issuers may experience finan-
cial stress which would adversely affect their ability to service their princi-
pal and interest payment obligations, to meet projected business goals and to
obtain additional financing. An economic downturn could also disrupt the market
for lower-rated bonds generally and adversely affect the value of outstanding
bonds and the ability of the issuers to repay principal and interest. If the
issuer of a lower-rated security held by the Intermediate-Term Managed Income
and Managed Income Funds defaulted, the Fund could incur additional expenses to
seek recovery. Adverse publicity and investor perceptions, whether or not based
on fundamental analysis, may also decrease the values and liquidity of lower-
rated securities held by the Fund, especially in a thinly traded market. Final-
ly, the Funds' trading in fixed-income securities to achieve capital apprecia-
tion entails risks that capital losses rather than gains will result. As a re-
sult, investment in the Intermediate-Term Managed Income and Managed Income
Funds should not be considered a complete investment program.
Debt obligations rated "BB," "B" or "CCC" by S&P are regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" represents the
lowest degree of speculation and "CCC" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse condi-
tions. The rating "CC" is typically applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating. The rating "C" is typically
applied to debt subordinated to senior debt which is assigned an actual or im-
plied "CCC-" debt rating, and may be used to cover a situation where a bank-
ruptcy petition has been filed, but debt service payments are continued. The
rating "CI" is reserved for income bonds on which no interest is being paid.
Debt obligations rated "D" are in default, and payments of interest and/or re-
payment of principal is in arrears. The ratings from "AA" through "CCC" are
sometimes modified by the addition of a plus or minus sign to show relative
standing within the major rating categories. Moody's has a similar classifica-
tion scheme for non-investment grade debt obligations. Debt obligations rated
"Ba," "B," "Caa," "Ca" and "C" provide questionable protection of interest and
principal. The rating "Ba" indicates that a debt obligation has some specula-
tive characteristics. The rating "B" indicates a general lack of characteris-
tics of desirable investment. Debt obligations rated "Caa" are of poor quality,
while debt obligations rated "Ca" are considered highly speculative. "C" repre-
sents the lowest rated class of debt obligations. Debt obligations rated from
"Aa" to "B" which Moody's believes possess the strongest investment attributes
are designated by the symbols Aa1, A1, Baa1, Ba1 and B1.
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION
MONEY MARKET INSTRUMENTS
Money market instruments that may be purchased by the Intermediate-Term Man-
aged Income and Man-
10
<PAGE>
aged Income Funds in accordance with their investment objectives and policies
stated above include, among other things, bank obligations, commercial paper
and corporate bonds with remaining maturities of 13 months or less.
Bank obligations include bankers' acceptances, negotiable certificates of de-
posit, and non-negotiable time deposits earning a specified return and issued
by a U.S. bank which is a member of the Federal Reserve System or insured by
the Bank Insurance Fund of the Federal Deposit Insurance Corporation, or by a
savings and loan association or savings bank which is insured by the Savings
Association Insurance Fund of the Federal Deposit Insurance Corporation. Bank
obligations acquired by a Fund may also include U.S. dollar-denominated obli-
gations of foreign branches of U.S. banks and obligations of domestic branches
of foreign banks. Investments in bank obligations of foreign branches of do-
mestic financial institutions or of domestic branches of foreign banks are
limited so that no more than 5% of the value of the Managed Income Fund's to-
tal assets will be invested in obligations of any one foreign or domestic
branch and no more than 20% of the Fund's total assets at the time of purchase
will be invested in the aggregate in such obligations. Investments in time de-
posits are limited to no more than 5% of the value of a Fund's total assets at
time of purchase.
Investments by the Funds in commercial paper will consist of issues that are
rated "A-2" or better by S&P or "Prime-2" or better by Moody's. In addition,
each Fund may acquire unrated commercial paper that is determined by the In-
vestment Adviser at the time of purchase to be of comparable quality to rated
instruments that may be acquired by the particular Fund.
Commercial paper may include variable and floating rate instruments. While
there may be no active secondary market with respect to a particular instru-
ment purchased by a Fund, a Fund may, from time to time as specified in the
instrument, demand payment of the principal of the instrument or may resell
the instrument to a third party. The absence of an active secondary market,
however, could make it difficult for the Fund to dispose of the instrument if
the issuer defaulted on its payment obligation or during periods that the Fund
is not entitled to exercise its demand rights, and the Fund could, for this or
other reasons, suffer a loss with respect to such instrument.
GOVERNMENT OBLIGATIONS
Government obligations acquired by the Funds include obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities. Such
investments may include obligations issued by the Farm Credit System Financial
Assistance Corporation, the Federal Financing Bank, the General Services Ad-
ministration, Federal Home Loan Banks, the Tennessee Valley Authority and the
Student Loan Marketing Association. Obligations of certain agencies and in-
strumentalities of the U.S. Government are supported by the full faith and
credit of the U.S. Treasury; others are supported by the right of the issuer
to borrow from the Treasury; others are supported by the discretionary author-
ity of the U.S. Government to purchase the agency's obligations; still others
are supported only by the credit of the instrumentality. No assurance can be
given that the U.S. Government would provide financial support to U.S. Govern-
ment-sponsored instrumentalities if it is not obligated to do so by law. Obli-
gations of such instrumentalities will be purchased only when the Investment
Adviser believes that the credit risk with respect to the instrumentality is
minimal. The Statement of Additional Information contains further information
on the various types of U.S. Government obligations.
Securities issued or guaranteed by the U.S. Government have historically in-
volved little risk of loss of principal if held to maturity. However, due to
fluctuations in interest rates, the market value of such securities may vary
during the period a shareholder owns shares of a Fund.
REPURCHASE AGREEMENTS
As stated above, each Fund may agree to purchase portfolio securities subject
to the seller's agreement to
11
<PAGE>
repurchase them at a mutually agreed upon date and price ("repurchase agree-
ments"). Each Fund will enter into repurchase agreements only with financial
institutions such as banks or broker/dealers which are deemed to be credit-
worthy by the Investment Adviser under guidelines approved by Excelsior Fund's
Board of Directors. No Fund will enter into repurchase agreements with the In-
vestment Adviser or its affiliates. Repurchase agreements with remaining matu-
rities in excess of seven days will be considered illiquid securities subject
to the 10% limit described in Investment Limitation No. 5 below.
The seller under a repurchase agreement will be required to maintain the value
of the obligations subject to the agreement at not less than the repurchase
price. Default or bankruptcy of the seller would, however, expose a Fund to
possible delay in connection with the disposition of the underlying securities
or loss to the extent that proceeds from a sale of the underlying securities
were less than the repurchase price under the agreement. Income on the repur-
chase agreements will be taxable.
INVESTMENT COMPANY SECURITIES
The Funds may also invest in securities issued by other investment companies
which invest in high-quality, short-term securities and which determine their
net asset value per share based on the amortized cost or penny-rounding method.
In addition to the advisory fees and other expenses a Fund bears directly in
connection with its own operations, as a shareholder of another investment com-
pany, a Fund would bear its pro rata portion of the other investment company's
advisory fees and other expenses. As such, the Fund's shareholders would indi-
rectly bear the expenses of the Fund and the other investment company, some or
all of which would be duplicative. Such securities will be acquired by the
Funds within the limits prescribed by the Investment Company Act of 1940 (the
"1940 Act") which include, subject to certain exceptions, a prohibition against
a Fund investing more than 10% of the value of its total assets in such securi-
ties.
WHEN-ISSUED AND FORWARD TRANSACTIONS AND STAND-BY COMMITMENTS
Each of the Funds may purchase eligible securities on a "when-issued" basis
and may purchase or sell securities on a "forward commitment" basis. These
transactions involve a commitment by a Fund to purchase or sell particular se-
curities with payment and delivery taking place in the future, beyond the nor-
mal settlement date, at a stated price and yield. Securities purchased on a
"forward commitment" or "when-issued" basis are recorded as an asset and are
subject to changes in value based upon changes in the general level of interest
rates. It is expected that forward commitments and "when-issued" purchases will
not exceed 25% of the value of a Fund's total assets absent unusual market con-
ditions, and that the length of such commitments will not exceed 45 days. The
Funds do not intend to engage in "when-issued" purchases and forward commit-
ments for speculative purposes, but only in furtherance of their investment ob-
jectives.
In addition, the Intermediate-Term Managed Income and Managed Income Funds may
acquire "stand-by commitments" with respect to Municipal Bonds held by them.
Under a "stand-by commitment," a dealer agrees to purchase at a Fund's option
specified Municipal Bonds at a specified price. The Intermediate-Term Managed
Income and Managed Income Funds will acquire "stand-by commitments" solely to
facilitate portfolio liquidity and do not intend to exercise their rights
thereunder for trading purposes. "Stand-by commitments" acquired by a Fund
would be valued at zero in determining the Fund's net asset value.
TYPES OF MUNICIPAL BONDS
The two principal classifications of Municipal Bonds which may be held by the
Intermediate-Term Managed Income and Managed Income Funds are "general obliga-
tion" securities and "revenue" securities. General obligation securities are
secured by the issuer's pledge of its full faith, credit, and taxing power for
the payment of principal and interest. Revenue securities are
12
<PAGE>
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or
other specific revenue source such as the user of the facility being financed.
Private activity bonds held by the Funds are in most cases revenue securities
and are not payable from the unrestricted revenues of the issuer. Consequent-
ly, the credit quality of private activity revenue bonds is usually directly
related to the credit standing of the corporate user of the facility involved.
The Intermediate-Term Managed Income and Managed Income Funds' portfolios may
also include "moral obligation" securities, which are normally issued by spe-
cial-purpose public authorities. If the issuer of moral obligation securities
is unable to meet its debt service obligations from current revenues, it may
draw on a reserve fund, the restoration of which is a moral commitment, but
not a legal obligation of the state or municipality which created the issuer.
There is no limitation on the amount of moral obligation securities that may
be held by the Intermediate-Term Managed Income and Managed Income Funds. The
Investment Adviser will consider investments in Municipal Bonds for the Inter-
mediate-Term Managed Income and Managed Income Funds when the Investment Ad-
viser believes that the total return on such securities is attractive relative
to that of taxable securities.
FUTURES CONTRACTS
The Funds may enter into interest rate futures contracts as a hedge against
changes in market conditions. An interest rate futures contract represents a
firm commitment by which two parties agree to take or make delivery of fixed-
income securities on the last trading date of the contract and the price at
which the futures contract is originally struck.
The Funds will not engage in transactions in futures contracts for specula-
tion, but only as a hedge against changes in market values of securities which
they hold or intend to purchase where the transactions are intended to reduce
risks inherent in the management of the Funds. Each Fund may engage in futures
contracts only to the extent permitted by the Commodity Futures Trading Com-
mission ("CFTC") and the Securities and Exchange Commission ("SEC"). As of the
date of this Prospectus, each Fund intends to limit its hedging transactions
in futures contracts so that, immediately after any such transaction, the ag-
gregate initial margin that is required to be posted by the Fund under the
rules of the exchange on which the futures contract is traded does not exceed
5% of the Fund's total assets, after taking into account any unrealized prof-
its and unrealized losses on the Fund's open contracts.
When investing in futures contracts, the Funds must satisfy certain asset
segregation requirements to ensure that the use of futures is unleveraged.
When a Fund takes a long position in a futures contract, it must maintain a
segregated account containing cash and/or certain liquid assets equal to the
purchase price of the contract, less any margin or deposit. When a Fund takes
a short position in a futures contract, the Fund must maintain a segregated
account containing cash and/or certain liquid assets in an amount equal to the
market value of the securities underlying such contract (less any margin or
deposit), which amount must be at least equal to the market price at which the
short position was established. Asset segregation requirements are not appli-
cable when a Fund "covers" a futures position generally by entering into an
offsetting position.
Transactions by a Fund in futures contracts may subject the Fund to a number
of risks. Successful use of futures by a Fund is subject to the ability of the
Investment Adviser to anticipate correctly movements in the direction of the
market. In addition, there may be an imperfect correlation, or no correlation
at all, between movements in the price of the futures contracts and movements
in the price of the instruments being hedged. Further, there is no assurance
that a liquid market will exist for any particular futures contract at any
particular time. Consequently, a Fund may realize a loss on a futures transac-
tion that is not offset by a favorable movement in the price of securities
which it holds or intends to purchase or may be unable to close
13
<PAGE>
a futures position in the event of adverse price movements.
SECURITIES LENDING
To increase return on its portfolio securities, each Fund may lend its portfo-
lio securities to broker/dealers pursuant to agreements requiring the loans to
be continuously secured by collateral equal at all times in value to at least
the market value of the securities loaned. Collateral for such loans may in-
clude cash, securities of the U.S. Government, its agencies or instrumentali-
ties, or an irrevocable letter of credit issued by a bank which meets the in-
vestment standards of a Fund, or any combination thereof. Such loans will not
be made if, as a result, the aggregate of all outstanding loans of a Fund ex-
ceeds 30% of the value of its total assets. There may be risks of delay in re-
ceiving additional collateral or in recovering the securities loaned or even a
loss of rights in the collateral should the borrower of the securities fail fi-
nancially. However, loans are made only to borrowers deemed by the Investment
Adviser to be of good standing and when, in the Investment Adviser's judgment,
the income to be earned from the loan justifies the attendant risks.
ILLIQUID SECURITIES
No Fund will knowingly invest more than 10% of the value of its net assets in
securities that are illiquid. Each Fund may purchase securities which are not
registered under the Securities Act of 1933 (the "Act") but which can be sold
to "qualified institutional buyers" in accordance with Rule 144A under the Act.
Any such security will not be considered illiquid so long as it is determined
by the Investment Adviser, acting under guidelines approved and monitored by
the Board, that an adequate trading market exists for that security. This in-
vestment practice could have the effect of increasing the level of illiquidity
in a Fund during any period that qualified institutional buyers become uninter-
ested in purchasing these restricted securities.
PORTFOLIO TURNOVER
Although each Fund generally seeks to invest for the long term, each Fund may
sell a portfolio investment immediately after its acquisition if the Investment
Adviser believes that such a disposition is consistent with a Fund's investment
objective. Portfolio investments may be sold for a variety of reasons, such as
a more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold the investments. A high rate of portfolio
turnover may involve correspondingly greater transaction costs, which must be
borne directly by a Fund and ultimately by its shareholders. Portfolio turnover
will not be a limiting factor in making portfolio decisions. Each Fund's port-
folio turnover rate is not expected to exceed 400%. High portfolio turnover may
result in the realization of substantial net capital gains. To the extent that
net short-term capital gains are realized, any distributions resulting from
such gains are considered ordinary income for Federal income tax purposes. (See
"Financial Highlights" and "Taxes--Federal.")
INVESTMENT LIMITATIONS
The investment limitations enumerated below are matters of fundamental policy
and may not be changed without the vote of the holders of a majority of a
Fund's outstanding Shares (as defined under "Miscellaneous").
A Fund may not:
1. Purchase securities of any one issuer, other than U.S. Government obliga-
tions, if immediately after such purchase more than 5% of the value of its
total assets would be invested in the securities of such issuer, except that
up to 25% of the value of its total assets may be invested without regard to
this 5% limitation;
2. Borrow money except from banks for temporary purposes, and then in
amounts not in excess of 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any assets except in con-
nection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed and 10% of the value of its
14
<PAGE>
total assets at the time of such borrowing, provided that each Fund may enter
into futures contracts and futures options. (This borrowing provision is in-
cluded solely to facilitate the orderly sale of portfolio securities to ac-
commodate abnormally heavy redemption requests and is not for leverage pur-
poses.) A Fund will not purchase portfolio securities while borrowings in ex-
cess of 5% of its total assets are outstanding;
3. Purchase any securities which would cause more than 25% of the value of
its total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry, provided that (a) with respect to the Managed Income Fund,
there is no limitation with respect to securities issued or guaranteed by the
U.S. Government or domestic bank obligations, (b) with respect to the Short-
Term Government Securities and Intermediate-Term Managed Income Funds, there
is no limitation with respect to securities issued or guaranteed by the U.S.
Government and (c) neither all finance companies, as a group, nor all utility
companies, as a group, are considered a single industry for purposes of this
policy; and
4. Make loans, except that (i) the Fund may purchase or hold debt securities
in accordance with its investment objective and policies, and may enter into
repurchase agreements with respect to obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, and (ii) each Fund may
lend portfolio securities in an amount not exceeding 30% of its total assets.
In addition, the Managed Income Fund may not:
5. Knowingly invest more than 10% of the value of its total assets in illiq-
uid securities, including repurchase agreements with remaining maturities in
excess of seven days, restricted securities, and other securities for which
market quotations are not readily available; and
6. Invest in obligations of foreign branches of financial institutions or in
domestic branches of foreign banks if immediately after such purchase (i)
more than 5% of the value of its total assets would be invested in obliga-
tions of any one foreign branch of the financial institution or domestic
branch of a foreign bank; or (ii) more than 20% of its total assets would be
invested in foreign branches of financial institutions or in domestic
branches of foreign banks.
* * *
In addition to the investment limitations described above, as a matter of fun-
damental policy for each Fund, which may not be changed without the vote of the
holders of a majority of the Fund's outstanding shares, a Fund may not invest
in the securities of any single issuer if, as a result, the Fund holds more
than 10% of the outstanding voting securities of such issuer.
In Investment Limitation No. 1 above: (a) a security is considered to be is-
sued by the governmental entity or entities whose assets and revenues back the
security, or, with respect to a private activity bond that is backed only by
the assets and revenues of a non-governmental user, such non-governmental user;
(b) in certain circumstances, the guarantor of a guaranteed security may also
be considered to be an issuer in connection with such guarantee; and (c) secu-
rities issued or guaranteed by the United States Government, its agencies or
instrumentalities (including securities backed by the full faith and credit of
the United States) are deemed to be U.S. Government obligations.
The Short-Term Government Securities and Intermediate-Term Managed Income
Funds may not knowingly invest more than 10% of the value of their respective
total assets in illiquid securities, including repurchase agreements with re-
maining maturities in excess of seven days, restricted securities and other se-
curities for which market quotations are not readily available. This investment
policy may be changed by Excelsior Fund's Board of Directors upon reasonable
notice to shareholders.
15
<PAGE>
The Managed Income Fund will not invest more than 25% of the value of its to-
tal assets in domestic bank obligations.
With respect to all investment policies, if a percentage limitation is satis-
fied at the time of investment, a later increase or decrease in such percentage
resulting from a change in the value of a Fund's portfolio securities will not
constitute a violation of such limitation.
In order to permit the sale of Shares in certain states, Excelsior Fund may
make commitments that are more restrictive than the investment policies and
limitations described above. Should Excelsior Fund determine that any such com-
mitment is no longer in the Funds' best interests, it will revoke the commit-
ment by terminating sales of Shares to investors residing in the state in-
volved.
PRICING OF SHARES
The net asset value of each Fund's Shares is determined and priced for pur-
chases and redemptions at the close of regular trading hours on the New York
Stock Exchange (the "Exchange"), currently 4:00 p.m. (Eastern Time). Net asset
value and pricing for each Fund's Shares are determined on each day the Ex-
change and the Investment Adviser are open for trading ("Business Day"). Cur-
rently, the holidays which Excelsior Fund observes are New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and Christmas. Net
asset value per share for purposes of pricing sales and redemptions is calcu-
lated by dividing the value of all securities and other assets allocable to a
Fund, less the liabilities charged to the Fund, by the number of its outstand-
ing Shares.
Assets in the Funds which are traded on a recognized stock exchange are valued
at the last sale price on the securities exchange on which such securities are
primarily traded or at the last sale price on the national securities market.
Securities traded on only over-the-counter markets are valued on the basis of
closing over-the-counter bid prices. Securities for which there were no trans-
actions are valued at the average of the most recent bid and asked prices. A
futures contract is valued at the last sales price quoted on the principal ex-
change or board of trade on which such contract is traded, or in the absence of
a sale, the mean between the last bid and asked prices. Restricted securities,
securities for which market quotations are not readily available, and other as-
sets are valued at fair value pursuant to guidelines adopted by the Board of
Directors. Absent unusual circumstances, portfolio securities maturing in 60
days or less are normally valued at amortized cost. The net asset value of
Shares in the Funds will fluctuate as the market value of their portfolio secu-
rities changes in response to changing market rates of interest and other fac-
tors.
Portfolio securities held by the Intermediate-Term Managed Income and Managed
Income Funds which are primarily traded on foreign securities exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, except that when an event subsequent to the time when
value was so established is likely to have changed such value, then the fair
value of those securities will be determined by consideration of other factors
under the direction of the Board of Directors. A security which is listed or
traded on more than one exchange is valued at the quotation on the exchange de-
termined to be the primary market for such security. Investments in foreign
debt securities having a maturity of 60 days or less are valued based upon the
amortized cost method. All other foreign securities are valued at the last cur-
rent bid quotation if market quotations are available, or at fair value as de-
termined in accordance with guidelines adopted by the Board of Directors. For
valuation purposes, quotations of foreign securities in foreign currency are
converted to U.S. dollars equivalent at the prevailing market rate on the day
of conversion. Some of the securities acquired by the Funds may be traded on
foreign exchanges or over-the-counter markets on days which are not Business
Days. In such cases, the net asset value of the Shares may be signifi-
16
<PAGE>
cantly affected on days when investors can neither purchase nor redeem a
Fund's Shares.
The Funds' administrators have undertaken to price the securities in the
Funds' portfolios and may use one or more pricing services to value certain
portfolio securities in the Funds where the prices provided are believed to
reflect the fair market value of such securities. The methods used by the
pricing services and the valuations so established will be reviewed by the ad-
ministrators under the general supervision of the Board of Directors.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in each Fund are continuously offered for sale by Excelsior Fund's
sponsor and distributor, Edgewood Services, Inc. (the "Distributor"), a whol-
ly-owned subsidiary of Federated Investors. The Distributor is a registered
broker/dealer. Its business address is Clearing Operations, P.O. Box 897,
Pittsburgh, PA 15230-0897.
PURCHASE OF SHARES
The Distributor has established several procedures for purchasing Shares in
order to accommodate different types of investors.
Shares may be purchased directly by individuals ("Direct Investors") or by
institutions ("Institutional Investors" and, collectively with Direct Invest-
ors, "Investors"). Shares may also be purchased by customers ("Customers") of
the Investment Adviser, its affiliates and correspondent banks, and other in-
stitutions ("Shareholder Organizations") that have entered into shareholder
servicing agreements with Excelsior Fund. A Shareholder Organization may elect
to hold of record Shares for its Customers and to record beneficial ownership
of Shares on the account statements provided by it to its Customers. If it
does so, it is the Shareholder Organization's responsibility to transmit to
the Distributor all purchase orders for its Customers and to transmit, on a
timely basis, payment for such orders to Chase Global Funds Services Company
("CGFSC"), the Funds' sub-transfer agent, in accordance with the procedures
agreed to by the Shareholder Organization and the Distributor. Confirmations
of all such Customer purchases and redemptions will be sent by CGFSC to the
particular Shareholder Organization. As an alternative, a Shareholder Organi-
zation may elect to establish its Customers' accounts of record with CGFSC. In
this event, even if the Shareholder Organization continues to place its Cus-
tomers' purchase and redemption orders with the Funds, CGFSC will send confir-
mations of such transactions and periodic account statements directly to Cus-
tomers. A Shareholder Organization may also elect to establish its Customers
as record holders.
Excelsior Fund enters into shareholder servicing agreements with Shareholder
Organizations which agree to provide their Customers various shareholder ad-
ministrative services with respect to their Shares (hereinafter referred to as
"Service Organizations"). Shares in the Funds bear the expense of fees payable
to Service Organizations for such services. See "Management of the Funds--
Service Organizations."
Customers wishing to purchase Shares through their Shareholder Organization
should contact such entity directly for appropriate instructions. (For a list
of Shareholder Organizations in your area, call (800) 446-1012.) An investor
purchasing Shares through a registered investment adviser or certified finan-
cial planner may incur transaction charges in connection with such purchases.
Such investors should contact their registered investment adviser or certified
financial planner for further information on transaction fees. Investors may
also purchase Shares directly in accordance with procedures described below
under "Purchase Procedures."
PUBLIC OFFERING PRICE
The public offering price for Shares of each Fund is the sum of the net asset
value of the Shares purchased plus a sales load according to the table below:
17
<PAGE>
<TABLE>
<CAPTION>
REALLOWANCE TO
TOTAL SALES CHARGE DEALER
------------------------------ --------------
AS A % OF AS A % OF AS A % OF
OFFERING PRICE NET ASSET OFFERING PRICE
PER SHARE VALUE PER SHARE PER SHARE
-------------- --------------- --------------
<S> <C> <C> <C>
Amount of Transaction
- ---------------------
Less than $50,000................. 4.50% 4.71% 4.00%
$50,000 to $99,999................ 4.00 4.17 3.50
$100,000 to $249,999.............. 3.50 3.63 3.00
$250,000 to $499,999.............. 3.00 3.09 2.50
$500,000 to $999,999.............. 2.00 2.05 1.50
$1,000,000 to $1,999,999.......... 1.00 1.00 .50
$2,000,000 and over............... .50 .50 .25
</TABLE>
The reallowance to dealers may be changed from time to time but will remain
the same for all such dealers.
At various times the Distributor may implement programs under which a deal-
er's sales force may be eligible to win nominal awards for certain sales ef-
forts or under which the Distributor will reallow to any dealer that sponsors
sales contests or recognition programs conforming to criteria established by
the Distributor, or participates in sales programs sponsored by the Distribu-
tor, an amount not exceeding the total applicable sales charges on the sales
generated by the dealer at the public offering price during such programs. Al-
so, the Distributor in its discretion may from time to time, pursuant to ob-
jective criteria established by the Distributor, pay fees to qualifying deal-
ers for certain services or activities which are primarily intended to result
in sales of Shares of the Funds. If any such program is made available to any
dealer, it will be made available to all dealers on the same terms and condi-
tions. Payments made under such programs will be made by the Distributor out
of its own assets and not out of the assets of the Funds. These programs will
not change the price of Shares or the amount that the Funds will receive from
such sales.
The sales load described above will not be applicable to: (a) purchases of
Shares by customers of the Investment Adviser or its affiliates; (b) trust,
agency or custodial accounts opened through the trust department of a bank,
trust company or thrift institution, provided that appropriate notification of
such status is given at the time of investment; (c) companies, corporations
and partnerships (excluding full service broker/dealers and financial plan-
ners, registered investment advisers and depository institutions not covered
by the exemptions in (d) and (e) below); (d) financial planners and registered
investment advisers not affiliated with or clearing purchases through full
service broker/dealers; (e) purchases of Shares by depository institutions for
their own account as principal; (f) exchange transactions (described below un-
der "Investor Programs-Exchange Privilege") where the Shares being exchanged
were acquired in connection with the distribution of assets held in trust,
agency or custodial accounts maintained with the trust department of a bank;
(g) corporate/business retirement plans (such as 401(k), 403(b)(7), 457 and
Keogh accounts) sponsored by the Distributor and IRA accounts sponsored by the
Investment Adviser; (h) company-sponsored employee pension or retirement plans
making direct investments in the Funds; (i) purchases of Shares by officers,
trustees, directors, employees, former employees and retirees of Excelsior
Fund, Excelsior Tax-Exempt Funds, Inc. ("Excelsior Tax-Exempt Fund") Excelsior
Institutional Trust or Excelsior Funds, the Investment Adviser, the Distribu-
tor or of any direct or indirect affiliate of any of them; (j) purchases of
Shares by all beneficial shareholders of Excelsior Fund or Excelsior Tax-Ex-
empt Fund as of May 22, 1989; (k) purchases of Shares by investment advisers
registered under the Investment Advisers Act of 1940 for their customers
through an omnibus account established with United States Trust Company of New
York; (l) purchases of Shares by directors, officers and employees of brokers
and dealers selling shares pursuant to a selling agreement with Excelsior Fund
or Excelsior Tax-Exempt Fund; (m) purchases of shares by investors who are
members of affinity groups serviced by USAffinity Investments Limited Partner-
ship; and (n) customers of certain financial institutions who purchase Shares
through a registered representative of UST Financial Services Corp. on the
premises of their financial institutions. In addition, no sales load is
charged on the reinvestment of dividends or distributions or in connection
with certain share exchange
18
<PAGE>
transactions. Investors who have previously redeemed shares in an "Eligible
Fund" (as defined below) on which a sales load has been paid also have a one-
time privilege of purchasing shares of another "Eligible Fund" at net asset
value without a sales charge, provided that such privilege will apply only to
purchases made within 30 calendar days from the date of redemption and only
with respect to the amount of the redemption. These exemptions to the imposi-
tion of a sales load are due to the nature of the investors and/or reduced
sales effort that will be needed in obtaining investments.
Quantity Discounts
An investor in the Funds may be entitled to reduced sales charges through
Rights of Accumulation, a Letter of Intent or a combination of investments, as
described below, even if the investor does not wish to make an investment of a
size that would normally qualify for a quantity discount.
In order to obtain quantity discount benefits, an investor must notify CGFSC
at the time of purchase that he or she would like to take advantage of any of
the discount plans described below. Upon such notification, the investor will
receive the lowest applicable sales charge. Quantity discounts may be modified
or terminated at any time and are subject to confirmation of an investor's
holdings through a check of appropriate records. For more information about
quantity discounts, please call (800) 446-1012 or contact your Shareholder Or-
ganization.
Rights of Accumulation. A reduced sales load applies to any purchase of
shares of any portfolio of Excelsior Fund and Excelsior Tax-Exempt Fund that
is sold with a sales load ("Eligible Fund") where an investor's then current
aggregate investment is $50,000 or more. "Aggregate investment" means the to-
tal of: (a) the dollar amount of the then current purchase of shares of an El-
igible Fund and (b) the value (based on current net asset value) of previously
purchased and beneficially owned shares of any Eligible Fund on which a sales
load has been paid. If, for example, an investor beneficially owns shares of
one or more Eligible Funds with an aggregate current value of $49,000 on which
a sales load has been paid and subsequently purchases shares of an Eligible
Fund having current value of $1,000, the load applicable to the subsequent
purchase would be reduced to 4.00% of the offering price. Similarly, with re-
spect to each subsequent investment, all shares of Eligible Funds that are
beneficially owned by the investor at the time of investment may be combined
to determine the applicable sales load.
Letter of Intent. By completing the Letter of Intent included as part of the
New Account Application, an investor becomes eligible for the reduced sales
load applicable to the total number of Eligible Fund shares purchased in a 13-
month period pursuant to the terms and under the conditions set forth below
and in the Letter of Intent. To compute the applicable sales load, the offer-
ing price of shares of an Eligible Fund on which a sales load has been paid,
beneficially owned by an investor on the date of submission of the Letter of
Intent, may be used as a credit toward completion of the Letter of Intent.
However, the reduced sales load will be applied only to new purchases.
CGFSC will hold in escrow shares equal to 5% of the amount indicated in the
Letter of Intent for payment of a higher sales load if an investor does not
purchase the full amount indicated in the Letter of Intent. The escrow will be
released when an investor fulfills the terms of the Letter of Intent by pur-
chasing the specified amount. If purchases qualify for a further sales load
reduction, the sales load will be adjusted to reflect an investor's total pur-
chases. If total purchases are less than the amount specified, an investor
will be requested to remit an amount equal to the difference between the sales
load actually paid and the sales load applicable to the total purchases. If
such remittance is not received within 20 days, CGFSC, as attorney-in-fact
pursuant to the terms of the Letter of Intent and at the Distributor's direc-
tion, will redeem an appropriate number of shares held in escrow to realize
the difference. Signing a Letter of Intent does not bind an investor to pur-
chase the full amount indicated at the sales load in effect at the time of
signing, but an investor must complete the intended
19
<PAGE>
purchase in accordance with the terms of the Letter of Intent to obtain the re-
duced sales load. To apply, an investor must indicate his or her intention to
do so under a Letter of Intent at the time of purchase.
Qualification for Discounts. For purposes of applying the Rights of Accumula-
tion and Letter of Intent privileges described above, the scale of sales loads
applies to the combined purchases made by any individual and/or spouse purchas-
ing securities for his, her or their own account or for the account of any mi-
nor children, or the aggregate investments of a trustee or custodian of any
qualified pension or profit sharing plan or IRA established (or the aggregate
investment of a trustee or other fiduciary) for the benefit of the persons
listed above.
PURCHASE PROCEDURES
General
Direct Investors may purchase Shares by completing the Application for pur-
chase of Shares accompanying this Prospectus and mailing it, together with a
check payable to Excelsior Funds, to:
Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
Subsequent investments in an existing account in any Fund may be made at any
time by sending to the above address a check payable to Excelsior Funds along
with: (a) the detachable form that regularly accompanies the confirmation of a
prior transaction; (b) a subsequent order form which may be obtained from
CGFSC; or (c) a letter stating the amount of the investment, the name of the
Fund and the account number in which the investment is to be made. Institu-
tional Investors may purchase Shares by transmitting their purchase orders to
CGFSC by telephone at (800) 446-1012 or by terminal access. Institutional In-
vestors must pay for Shares with Federal funds or funds immediately available
to CGFSC.
Purchases by Wire
Investors may also purchase Shares by wiring Federal funds to CGFSC. Prior to
making an initial investment by wire, an Investor must telephone CGFSC at
(800) 446-1012 (from overseas, call (617) 557-8280) for instructions. Federal
funds and registration instructions should be wired through the Federal Reserve
System to:
The Chase Manhattan Bank, N.A.
ABA #021000021
Excelsior Funds, Account No. 9102732915
For further credit to:
Excelsior Funds
Wire Control Number
Account Registration (including account number)
Investors making initial investments by wire must promptly complete the Appli-
cation accompanying this Prospectus and forward it to CGFSC. Redemptions by In-
vestors will not be processed until the completed Application for purchase of
Shares has been received by CGFSC and accepted by the Distributor. Investors
making subsequent investments by wire should follow the above instructions.
Other Purchase Information
Except as provided in "Investor Programs" below, the minimum initial invest-
ment by an Investor or initial aggregate investment by a Shareholder Organiza-
tion investing on behalf of its Customers is $500 per Fund. The minimum subse-
quent investment for both types of investors is $50 per Fund. Customers may
agree with a particular Shareholder Organization to make a minimum purchase
with respect to their accounts. Depending upon the terms of the particular ac-
count, Shareholder Organizations may charge a Customer's account fees for auto-
matic investment and other cash management services provided. Excelsior Fund
reserves the right to reject any purchase order, in whole or in part, or to
waive any minimum investment requirements.
REDEMPTION PROCEDURES
Customers of Shareholder Organizations holding Shares of record may redeem all
or part of their invest-
20
<PAGE>
ments in the Funds in accordance with procedures governing their accounts at
the Shareholder Organizations. It is the responsibility of the Shareholder Or-
ganizations to transmit redemption orders to CGFSC and credit such Customer ac-
counts with the redemption proceeds on a timely basis. Redemption orders for
Institutional Investors must be transmitted to CGFSC by telephone at (800) 446-
1012 or by terminal access. No charge for wiring redemption payments to Share-
holder Organizations or Institutional Investors is imposed by Excelsior Fund,
although Shareholder Organizations may charge a Customer's account for wiring
redemption proceeds. Information relating to such redemption services and
charges, if any, is available from the Shareholder Organizations. An investor
redeeming Shares through a registered investment adviser or certified financial
planner may incur transaction charges in connection with such redemptions. Such
investors should contact their registered investment adviser or certified fi-
nancial planner for further information on transaction fees. Investors may re-
deem all or part of their Shares in accordance with any of the procedures de-
scribed below (these procedures also apply to Customers of Shareholder Organi-
zations for whom individual accounts have been established with CGFSC).
Redemption by Mail
Shares may be redeemed by a Direct Investor by submitting a written request
for redemption to:
Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
A written redemption request to CGFSC must (i) state the number of Shares to
be redeemed, (ii) identify the shareholder account number and tax identifica-
tion number, and (iii) be signed by each registered owner exactly as the Shares
are registered. If the Shares to be redeemed were issued in certificate form,
the certificates must be endorsed for transfer (or accompanied by a duly exe-
cuted stock power) and must be submitted to CGFSC together with the redemption
request. A redemption request for an amount in excess of $50,000 per account,
or for any amount if the proceeds are to be sent elsewhere than the address of
record, must be accompanied by signature guarantees from any eligible guarantor
institution approved by CGFSC in accordance with its Standards, Procedures and
Guidelines for the Acceptance of Signature Guarantees ("Signature Guarantee
Guidelines"). Eligible guarantor institutions generally include banks,
broker/dealers, credit unions, national securities exchanges, registered secu-
rities associations, clearing agencies and savings associations. All eligible
guarantor institutions must participate in the Securities Transfer Agents Me-
dallion Program ("STAMP") in order to be approved by CGFSC pursuant to the Sig-
nature Guarantee Guidelines. Copies of the Signature Guarantee Guidelines and
information on STAMP can be obtained from CGFSC at (800) 446-1012 or at the ad-
dress given above. CGFSC may require additional supporting documents for re-
demptions made by corporations, executors, administrators, trustees and guardi-
ans. A redemption request will not be deemed to be properly received until
CGFSC receives all required documents in proper form. Payment for Shares re-
deemed will ordinarily be made by mail within five Business Days after proper
receipt by CGFSC of the redemption request. Questions with respect to the
proper form for redemption requests should be directed to CGFSC at (800) 446-
1012 (from overseas, call (617) 557-8280).
Redemption by Wire or Telephone
Direct Investors who have so indicated on the Application, or have subse-
quently arranged in writing to do so, may redeem Shares by instructing CGFSC by
wire or telephone to wire the redemption proceeds directly to the Direct In-
vestor's account at any commercial bank in the United States. Direct Investors
who are shareholders of record may also redeem Shares by instructing CGFSC by
telephone to mail a check for redemption proceeds of $500 or more to the share-
holder of record at his or her address of record. Institutional Investors may
also redeem Shares by instructing CGFSC by telephone at (800) 446-1012 or by
21
<PAGE>
terminal access. Only redemptions of $500 or more will be wired to a Direct
Investor's account. An $8.00 fee for each wire redemption by a Direct Investor
is deducted by CGFSC from the proceeds of the redemption. The redemption pro-
ceeds for Direct Investors must be paid to the same bank and account as desig-
nated on the Application or in written instructions subsequently received by
CGFSC.
In order to arrange for redemption by wire or telephone after an account has
been opened or to change the bank or account designated to receive redemption
proceeds, a Direct Investor must send a written request to Excelsior Fund, c/o
CGFSC, at the address listed above under "Redemption by Mail." Such requests
must be signed by the Direct Investor, with signatures guaranteed (see "Re-
demption by Mail" above, for details regarding signature guarantees). Further
documentation may be requested.
CGFSC and the Distributor reserve the right to refuse a wire or telephone re-
demption if it is believed advisable to do so. Procedures for redeeming Shares
by wire or telephone may be modified or terminated at any time by Excelsior
Fund, CGFSC or the Distributor. EXCELSIOR FUND, CGFSC AND THE DISTRIBUTOR WILL
NOT BE LIABLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR ACTING UPON TELE-
PHONE INSTRUCTIONS THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN ATTEMPTING
TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, EXCELSIOR FUND WILL USE
SUCH PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING THOSE IN-
STRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION.
If any portion of the Shares to be redeemed represents an investment made by
personal check, Excelsior Fund and CGFSC reserve the right not to honor the
redemption until CGFSC is reasonably satisfied that the check has been col-
lected in accordance with the applicable banking regulations which may take up
to 15 days. A Direct Investor who anticipates the need for more immediate ac-
cess to his or her investment should purchase Shares by Federal funds or bank
wire or by certified or cashier's check. Banks normally impose a charge in
connection with the use of bank wires, as well as certified checks, cashier's
checks and Federal funds. If a Direct Investor's purchase check is not col-
lected, the purchase will be cancelled and CGFSC will charge a fee of $25.00
to the Direct Investor's account.
During periods of substantial economic or market change, telephone redemp-
tions may be difficult to complete. If an Investor is unable to contact CGFSC
by telephone, the Investor may also deliver the redemption request to CGFSC in
writing at the address noted above under "How to Purchase and Redeem Shares--
Redemption by Mail."
Other Redemption Information
Except as described in "Investor Programs" below, Investors may be required
to redeem Shares in a Fund after 60 days' written notice if due to investor
redemptions the balance in the particular account with respect to the Fund re-
mains below $500. If a Customer has agreed with a particular Shareholder Or-
ganization to maintain a minimum balance in his or her account at the institu-
tion with respect to Shares of a Fund, and the balance in such account falls
below that minimum, the Customer may be obliged by the Shareholder Organiza-
tion to redeem all or part of his or her Shares to the extent necessary to
maintain the required minimum balance.
GENERAL
Purchase and redemption orders for Shares which are received and accepted
prior to the close of regular trading hours on the Exchange (currently 4:00
p.m., Eastern Time) on any Business Day are priced according to the net asset
value determined on that day. Purchase orders received and accepted after the
close of regular trading hours on the Exchange are priced at the net asset
value per Share determined on the next Business Day.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Investors and Customers of Shareholder Organizations may, after appropriate
prior authorization and
22
<PAGE>
without an exchange fee imposed by Excelsior Fund, exchange Shares in any Fund
having a value of at least $500 for shares of the same series of any other
portfolio offered by Excelsior Fund, Excelsior Tax-Exempt Fund or Excelsior
Institutional Trust, provided that such other shares may legally be sold in
the state of the Investor's residence.
Excelsior Fund currently offers, in addition to the Short-Term Government Se-
curities, Intermediate-Term Managed Income and Managed Income Funds, seventeen
additional portfolios as follows:
Money Fund, a money market fund seeking as high a level of current income as
is consistent with liquidity and stability of principal through investments
in high-quality money market instruments maturing within 13 months;
Government Money Fund, a money market fund seeking as high a level of cur-
rent income as is consistent with liquidity and stability of principal
through investments in obligations issued or guaranteed by the U.S. Govern-
ment, its agencies and instrumentalities and repurchase agreements collater-
alized by such obligations;
Treasury Money Fund, a money market fund seeking current income generally
exempt from state and local income taxes through investments in direct short-
term obligations issued by the U.S. Treasury and certain agencies or instru-
mentalities of the U.S. Government;
Equity Fund, a fund seeking long-term capital appreciation through invest-
ments in a diversified portfolio primarily of equity securities;
Income and Growth Fund, a fund investing substantially in equity securities
in seeking to provide moderate current income and to achieve capital appreci-
ation as a secondary objective;
Long-Term Supply of Energy Fund, a fund seeking long-term capital apprecia-
tion by investing in companies benefitting from the availability, development
and delivery of secure hydrocarbon and other energy sources;
Productivity Enhancers Fund, a fund seeking long-term capital appreciation
by investing in companies benefitting from their roles as innovators, devel-
opers and suppliers of goods and services which enhance service and manufac-
turing productivity or companies that are most effective at obtaining and ap-
plying productivity enhancement developments;
Environmentally-Related Products and Services Fund, a fund seeking long-term
capital appreciation by investing in companies benefitting from their provi-
sion of products, technologies and services related to conservation, protec-
tion and restoration of the environment;
Aging of America Fund, a fund seeking long-term capital appreciation by in-
vesting in companies benefitting from the changes occurring in the demo-
graphic structure of the U.S. population, particularly of its growing popula-
tion of individuals over the age of 40;
Communication and Entertainment Fund, a fund seeking long-term capital ap-
preciation by investing in companies benefitting from the technological and
international transformation of the communications and entertainment indus-
tries, particularly the convergence of information, communication and enter-
tainment media;
Business and Industrial Restructuring Fund, a fund seeking long-term capital
appreciation by investing in companies benefitting from their restructuring
or redeployment of assets and operations in order to become more competitive
or profitable;
Global Competitors Fund, a fund seeking long-term capital appreciation by
investing in U.S.-based companies benefitting from their position as effec-
tive and strong competitors on a global basis;
Early Life Cycle Fund, a fund seeking long-term capital appreciation by in-
vesting in smaller companies in the earlier stages of their development or
larger or more mature companies engaged in new and higher growth potential
operations;
23
<PAGE>
International Fund, a fund seeking total return derived primarily from in-
vestments in foreign equity securities;
Emerging Americas Fund, a fund seeking long-term capital appreciation
through investments in companies and securities of governments based in all
countries in the Western Hemisphere, except the U.S.;
Pacific/Asia Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments based in Asia and on the
Asian side of the Pacific Ocean; and
Pan European Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments located in Europe.
Excelsior Tax-Exempt Fund currently offers five portfolios as follows:
Tax-Exempt Money Fund, a diversified tax-exempt money market fund seeking a
moderate level of current interest income exempt from Federal income taxes
through investing primarily in high-quality municipal obligations maturing
within 13 months;
Short-Term Tax-Exempt Securities Fund, a diversified fund seeking a high
level of current interest income exempt from Federal income taxes through in-
vestments in municipal obligations and having a dollar-weighted average port-
folio maturity of 1 to 3 years;
Intermediate-Term Tax-Exempt Fund, a diversified fund seeking a high level
of current income exempt from Federal income taxes through investments in mu-
nicipal obligations and having a dollar-weighted average portfolio maturity
of 3 to 10 years;
Long-Term Tax-Exempt Fund, a diversified fund seeking to maximize over time
current income exempt from Federal income taxes, investing primarily in mu-
nicipal obligations and having a dollar-weighted average maturity of 10 to 30
years; and
New York Intermediate-Term Tax-Exempt Fund, a non-diversified fund designed
to provide New York investors with a high level of current income exempt from
Federal and, to the extent possible, New York state and New York City income
taxes; this fund invests primarily in New York municipal obligations and has
a dollar-weighted average portfolio maturity of three to ten years.
Excelsior Institutional Trust currently offers Trust Share in two investment
portfolios as follows:
24
<PAGE>
Excelsior Institutional Trust currently offers Trust Shares in two investment
portfolios:
Institutional Optimum Growth Fund, a fund seeking superior, risk-adjusted
total return by investing in a diversified portfolio of equity securities
whose growth prospects, in the opinion of the investment adviser, appear to
exceed that of the overall market.
Institutional Value Equity Fund, a fund seeking long-term capital apprecia-
tion by investing in a diversified portfolio of equity securities whose mar-
ket value, in the opinion of the investment adviser, appears to be underval-
ued relative to the marketplace.
An exchange involves a redemption of all or a portion of the Shares in a Fund
and the investment of the redemption proceeds in shares of another portfolio of
Excelsior Fund, Excelsior Tax-Exempt Fund or Excelsior Institutional Trust. The
redemption will be made at the per Share net asset value of the Shares being
redeemed next determined after the exchange request is received. The Shares of
the portfolio to be acquired will be purchased at the per share net asset value
of those shares (plus any applicable sales load) next determined after accept-
ance of the exchange request. No sales load will be payable on shares to be ac-
quired through an exchange to the extent that a sales load was previously paid
on the Shares being exchanged.
Investors may find the exchange privilege useful if their investment objec-
tives or market outlook should change after they invest in a Fund. For further
information regarding exchange privileges, shareholders should call (800) 446-
1012 (from overseas, call at (617) 557-8280). Investors exercising the exchange
privilege with the other portfolios of Excelsior Fund, Excelsior Tax-Exempt
Fund or Excelsior Institutional Trust should request and review the prospec-
tuses of such funds. Such prospectuses may be obtained by calling the telephone
numbers listed above. In order to prevent abuse of this privilege to the disad-
vantage of other shareholders, Excelsior Fund and Excelsior Tax-Exempt Fund re-
serve the right to limit the number of exchange requests of Investors and Cus-
tomers of Shareholder Organizations to no more than six per year. Excelsior
Fund may modify or terminate the exchange program at any time upon 60 days'
written notice to shareholders, and may reject any exchange request. EXCELSIOR
FUND, CGFSC AND THE DISTRIBUTOR ARE NOT RESPONSIBLE FOR THE AUTHENTICITY OF EX-
CHANGE REQUESTS RECEIVED BY TELEPHONE THAT ARE REASONABLY BELIEVED TO BE GENU-
INE. IN ATTEMPTING TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, EXCEL-
SIOR FUND WILL USE SUCH PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RE-
CORDING THOSE INSTRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRA-
TION.
For Federal income tax purposes, an exchange of Shares is a taxable event and,
accordingly, a capital gain or loss may be realized by an investor. Before mak-
ing an exchange, an investor should consult a tax or other financial adviser to
determine tax consequences.
SYSTEMATIC WITHDRAWAL PLAN
An Investor who owns Shares of a Fund with a value of $10,000 or more may es-
tablish a Systematic Withdrawal Plan. The Investor may request a declining-bal-
ance withdrawal, a fixed-dollar withdrawal, a fixed-share withdrawal, or a
fixed-percentage withdrawal (based on the current value of Shares in the ac-
count) on a monthly, quarterly, semi-annual or annual basis.
25
<PAGE>
To initiate the Systematic Withdrawal Plan, an investor must complete the Sup-
plemental Application contained in this Prospectus and mail it to CGFSC at the
address given above. Further information on establishing a Systematic With-
drawal Plan may be obtained by calling (800) 446-1012 (from overseas, call
(617) 557-8280).
Shareholder Organizations may, at their discretion, establish similar system-
atic withdrawal plans with respect to the Shares held by their Customers. In-
formation about such plans and the applicable procedures may be obtained by
Customers directly from their institutions.
RETIREMENT PLANS
Shares are available for purchase by Investors in connection with the follow-
ing tax-deferred prototype retirement plans offered by United States Trust
Company of New York:
IRAs (including "rollovers" from existing retirement plans) for individuals
and their spouses;
Profit Sharing and Money-Purchase Plans for corporations and self-employed
individuals and their partners to benefit themselves and their employees; and
Keogh Plans for self-employed individuals.
Investors investing in the Funds pursuant to Profit Sharing and Money-Pur-
chase Plans and Keogh Plans are not subject to the minimum investment and
forced redemption provisions described above. The minimum initial investment
for IRAs is $250 per Fund and the minimum subsequent investment is $50 per
Fund. Detailed information concerning eligibility, service fees and other mat-
ters related to these plans can be obtained by calling (800) 446-1012 (from
overseas, call (617) 557-8280). Customers of Shareholder Organizations may
purchase Shares of the Funds pursuant to retirement plans if such plans are
offered by their Shareholder Organizations.
AUTOMATIC INVESTMENT PROGRAM
The Automatic Investment Program permits Investors to purchase Shares (mini-
mum of $50 per Fund per transaction) at regular intervals selected by the In-
vestor. The minimum initial investment for an Automatic Investment Program ac-
count is $50 per Fund. Provided the Investor's financial institution allows
automatic withdrawals, Shares are purchased by transferring funds from an In-
vestor's checking, bank money market or NOW account designated by the Invest-
or. At the Investor's option, the account designated will be debited in the
specified amount, and Shares will be purchased, once a month, on either the
first or fifteenth day, or twice a month, on both days.
The Automatic Investment Program is one means by which an Investor may use
"Dollar Cost Averaging" in making investments. Instead of trying to time mar-
ket performance, a fixed dollar amount is invested in Shares at predetermined
intervals. This may help Investors to reduce their average cost per share be-
cause the agreed upon fixed investment amount allows more Shares to be pur-
chased during periods of lower share prices and fewer Shares during periods of
higher prices. In order to be effective, Dollar Cost Averaging should usually
be followed on a sustained, consistent basis. Investors should be aware, how-
ever, that Shares bought using Dollar Cost Averaging are purchased without re-
gard to their price on the day of investment or to market trends. In addition,
while Investors may find Dollar Cost Averaging to be beneficial, it will not
prevent a loss if an Investor ultimately redeems his Shares at a price which
is lower than their purchase price.
To establish an Automatic Investment account permitting Investors to use the
Dollar Cost Averaging investment method described above, an Investor must com-
plete the Supplemental Application contained in this Prospectus and mail it to
CGFSC. An Investor may cancel his participation in this Program or change the
amount of purchase at any time by mailing written notification to CGFSC, P.O.
Box 2798, Boston, MA 02208-2798 and notification will be effective three Busi-
ness
26
<PAGE>
Days following receipt. Excelsior Fund may modify or terminate this privilege
at any time or charge a service fee, although no such fee currently is contem-
plated. An Investor may also implement the Dollar Cost Averaging method on his
own initiative or through other entities.
DIVIDENDS AND DISTRIBUTIONS
Each Fund's net income for dividend purposes consists of (i) all accrued in-
come, whether taxable or tax-exempt, plus discount earned on the Fund's assets,
less (ii) amortization of premium on such assets, accrued expenses directly at-
tributable to the Fund, and the general expenses or the expenses common to more
than one Fund (e.g., legal, administrative, accounting, and Directors' fees)
prorated to each Fund on the basis of its relative net assets.
The net investment income of the Funds is declared daily as a dividend to the
persons who are shareholders of the respective Funds at the opening of business
on the day of declaration. All such dividends are paid within ten days after
the end of each month or within seven days after the redemption of all of a
shareholder's Shares of a Fund. Net realized capital gains are distributed at
least annually.
All dividends and distributions paid on Shares held of record by the Invest-
ment Adviser and its affiliates or correspondent banks will be paid in cash.
Direct and Institutional Investors and Customers of other Shareholder Organiza-
tions will receive dividends and distributions in additional Shares of the Fund
on which the dividend or distribution is paid (as determined on the payable
date), unless they have requested in writing (received by CGFSC at Excelsior
Fund's address prior to the payment date) to receive dividends and distribu-
tions in cash. Reinvested dividends and distributions receive the same tax
treatment as those paid in cash.
TAXES
FEDERAL
Each of the Funds qualified for its last taxable year as a "regulated invest-
ment company" under the Inter nal Revenue Code of 1986, as amended (the
"Code"). Each Fund expects to so qualify in future years. Such qualification
generally relieves a Fund of liability for Federal income taxes to the extent
its earnings are distributed in accordance with the Code.
Qualification as a regulated investment company requires, among other things,
that a Fund distribute to its shareholders an amount equal to at least the sum
of 90% of its investment company taxable income and 90% of its exempt-interest
income (if any), net of certain deductions for each taxable year. In general, a
Fund's investment company taxable income will be its taxable income (including
interest) subject to certain adjustments and excluding the excess of any net
long-term capital gain for the taxable year over the net short-term capital
loss, if any, for such year. Each Fund intends to distribute substantially all
of its investment company taxable income each year. Such dividends will be tax-
able as ordinary income to a Fund's shareholders who are not currently exempt
from Federal income taxes, whether such income is received in cash or rein-
vested in additional Shares. (Federal income taxes for distributions to IRAs
and qualified pension plans are deferred under the Code.) The dividends re-
ceived deduction for corporations will apply to such distributions to the ex-
tent of the total qualifying dividends received by a Fund from domestic corpo-
rations for the taxable year. It is anticipated that only a small part (if any)
of the dividends paid by a Fund will be eligible for the dividends received de-
duction.
Distribution by a Fund of the excess of its net long- term capital gain over
its net short-term capital loss is taxable to shareholders as long-term capital
gain, regardless of how long the shareholder has held the Shares and whether
such gains are received in cash or reinvested in additional Shares. Such dis-
tributions are not eligible for the dividends received deduction.
27
<PAGE>
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to
have been received by shareholders and paid by a Fund on December 31 of such
year in the event such dividends are actually paid during January of the fol-
lowing year.
An investor considering buying Shares of a Fund on or just before the record
date of a dividend should be aware that the amount of the forthcoming dividend
payment, although in effect a return of capital, will be taxable to him.
A taxable gain or loss may be realized by a shareholder upon his redemption,
transfer or exchange of Shares depending upon the tax basis of such Shares and
their price at the time of redemption, transfer or exchange. If a shareholder
holds Shares for six months or less and during that time receives a capital
gain dividend on those Shares, any loss recognized on the sale or exchange of
those Shares will be treated as a long-term capital loss to the extent of the
capital gain dividend. Generally, a shareholder may include sales charges in-
curred upon the purchase of Shares in his tax basis for such Shares for the
purpose of determining gain or loss on a redemption, transfer or exchange of
such Shares. However, if the shareholder effects an exchange of such Shares
for Shares of another Fund within 90 days of the purchase and is able to re-
duce the sales charges applicable to the new Shares (by virtue of the exchange
privilege), the amount equal to reduction may not be included in the tax basis
of the shareholder's exchanged Shares for the purpose of determining gain or
loss, but may be included (subject to the limitation) in the tax basis of the
new Shares.
The foregoing summarizes some of the important tax considerations generally
affecting the Funds and their shareholders and is not intended as a substitute
for careful tax planning. Accordingly, potential investors in the Funds should
consult their tax advisers with specific reference to their own tax situa-
tions. Shareholders will be advised at least annually as to the Federal income
tax consequences of distributions made each year.
STATE AND LOCAL
Purchasers are advised to consult their tax advisers concerning the applica-
tion of state and local taxes, which may have different consequences from
those of the Federal income tax law described above.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of Ex-
celsior Fund's Board of Directors. The Statement of Additional Information
contains the names of and general background information concerning Excelsior
Fund's directors.
INVESTMENT ADVISER
United States Trust Company of New York serves as the Investment Adviser to
each Fund. U.S. Trust is a state-chartered bank and trust company. The Invest-
ment Adviser provides trust and banking services to individuals, corporations,
and institutions both nationally and internationally, including investment
management, estate and trust administration, financial planning, corporate
trust and agency banking, and personal and corporate banking. The Investment
Adviser is a member bank of the Federal Reserve System and the Federal Deposit
Insurance Corporation and is one of the twelve members of the New York Clear-
ing House Association.
On December 31, 1995, the Investment Adviser's Asset Management Group had ap-
proximately $47 billion in assets under management. The Investment Adviser,
which has its principal offices at 114 W. 47th Street, New York, New York
10036, is a subsidiary of U.S. Trust Corporation, a registered bank holding
company.
The Investment Adviser manages each Fund, makes decisions with respect to and
places orders for all pur-
28
<PAGE>
chases and sales of each Fund's portfolio securities, and maintains records
relating to such purchases and sales.
The Short-Term Government Securities Fund's portfolio manager, Charles E.
Rabus, is the person primarily responsible for the day-to-day management of
the Fund's investment portfolio. Mr. Rabus, a Vice President and Fixed Income
Portfolio Manager of U.S. Trust, has been with U.S. Trust since 1987 and has
been the Fund's portfolio manager since its inception.
The Intermediate-Term Managed Income and Managed Income Funds' portfolio man-
ager, Henry M. Milkewicz, is the person primarily responsible for the day-to-
day management of the Funds' investment portfolios. Mr. Milkewicz, a Senior
Vice President and Senior Fixed Income Portfolio Manager of U.S. Trust, has
been with U.S. Trust since 1986 and has been the Intermediate-Term Managed In-
come Fund's portfolio manager since its inception and the Managed Income
Fund's portfolio manager since 1986.
For the services provided and expenses assumed pursuant to its Investment Ad-
visory Agreements, the Investment Adviser is entitled to be paid a fee, com-
puted daily and paid monthly, at the annual rates of .30% of the average daily
net assets of the Short-Term Government Securities Fund, .35% of the average
daily net assets of the Intermediate-Term Managed Income Fund, and .75% of the
average daily net assets of the Managed Income Fund. The advisory fee rate
payable by the Managed Income Fund is higher than the rate payable by most mu-
tual funds. The Board of Directors believes based on information supplied to
it by the Investment Adviser that this fee is comparable to the rate paid by
many other funds with similar investment objectives and policies and is appro-
priate for the Fund in light of its investment objective and policies. For the
fiscal year ended March 31, 1996, the Investment Adviser received advisory
fees at the effective annual rates of .11%, .31% and .59% of the average daily
net assets of the Short-Term Government Securities, Intermediate-Term Managed
Income and Managed Income Funds, respectively. For that same period, the In-
vestment Adviser waived advisory fees at the effective annual rates of .19%,
.04% and .16% of the average daily net assets of the Short-Term Government
Securities, Intermediate-Term Managed Income and Managed Income Funds, respec-
tively.
From time to time, the Investment Adviser may waive (either voluntarily or
pursuant to applicable state expense limitations) all or a portion of the ad-
visory fees payable to it by a Fund, which waiver may be terminated at any
time. See "Management of the Funds--Service Organizations" for additional in-
formation on fee waivers.
ADMINISTRATORS
CGFSC, Federated Administrative Services and U.S. Trust serve as the Funds'
administrators (the "Administrators") and provide them with general adminis-
trative and operational assistance. The Administrators also serve as adminis-
trators of the other portfolios of Excelsior Fund and Excelsior Tax-Exempt
Fund and of Excelsior Institutional Trust, which are also advised by the In-
vestment Adviser and distributed by the Distributor. For the services provided
to all portfolios of Excelsior Fund (except the International, Emerging Ameri-
cas, Pacific/Asia and Pan European Funds) and Excelsior Tax-Exempt Fund and
Excelsior Institutional Trust, the Administrators are entitled jointly to an-
nual fees, computed daily and paid monthly, based on the combined aggregate
average daily net assets of the three companies (excluding the International,
Emerging Americas, Pacific/Asia and Pan European Funds) as follows:
<TABLE>
<CAPTION>
COMBINED AGGREGATE AVERAGE DAILY
NET ASSETS OF EXCELSIOR FUND
(EXCLUDING THE INTERNATIONAL, EMERGING AMERICAS,
PACIFIC/ASIA AND PAN EUROPEAN FUNDS),
EXCELSIOR TAX-EXEMPT FUND
AND EXCELSIOR INSTITUTIONAL TRUST ANNUAL FEE
------------------------------------------------ ----------
<S> <C>
first $200 million................................................... .200%
next $200 million.................................................... .175%
over $400 million.................................................... .150%
</TABLE>
29
<PAGE>
Administration fees payable to the Administrators by each portfolio of Excel-
sior Fund, Excelsior Tax-Exempt Fund and Excelsior Institutional Trust are de-
termined in proportion to their relative average daily net assets at the time
of determination. From time to time, the Administrators may waive (either vol-
untarily or pursuant to applicable state expense limitations) all or a portion
of the administration fee payable to them by a Fund, which waivers may be ter-
minated at any time. See "Management of the Funds--Service Organizations" for
additional information on fee waivers. For the period from April 1, 1995
through July 31, 1995, CGFSC and the former administrator received an adminis-
tration fee at the effective annual rate of .153%, .151% and .152% of the av-
erage daily net assets of each of the Short-Term Government Securities, Inter-
mediate-Term Managed Income and Managed Income Funds, respectively. For the
same period, CGFSC and the former administrator waived administration fees at
the effective annual rate of .001%, .003% and .002% of the average daily net
assets of the Short-Term Government Securities, Intermediate-Term Managed In-
come and Managed Income Funds, respectively. From August 1, 1995 through March
31, 1996, the Administrators received an aggregate administration fee (under
the same compensation arrangements noted above) at the effective annual rate
of .154%, .151% and .153% of the average daily net assets of each of the
Short-Term Government Securities, Intermediate-Term Managed Income and Managed
Income Funds, respectively. For the same period, the Administrators waived ad-
ministration fees at the effective annual rate of 0%, .003% and .002% of the
average daily net assets of the Short-Term Government Securities, Intermedi-
ate-Term Managed Income and Managed Income Funds, respectively.
SERVICE ORGANIZATIONS
Excelsior Fund will enter into an agreement ("Servicing Agreement") with each
Service Organization requiring it to provide administrative support services
to its Customers beneficially owning Shares. As a consideration for the admin-
istrative services provided to Customers, a Fund will pay the Service Organi-
zation an administrative service fee at the annual rate of up to .40% of the
average daily net asset value of its Shares held by the Service Organization's
Customers. Such services, which are described more fully in the Statement of
Additional Information under "Management of the Funds-Service Organizations,"
may include assisting in processing purchase, exchange and redemption re-
quests; transmitting and receiving funds in connection with Customer orders to
purchase, exchange or redeem Shares; and providing periodic statements. Under
the terms of the Servicing Agreement, Service Organizations will be required
to provide to Customers a schedule of any fees that they may charge in connec-
tion with a Customer's investment. Until further notice, the Investment Ad-
viser and Administrators have voluntarily agreed to waive fees payable by a
Fund in an amount equal to administrative service fees payable by that Fund.
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company regis-
tered under the Federal Bank Holding Company Act of 1956 or any bank or non-
bank affiliate thereof from sponsoring, organizing or controlling a regis-
tered, open-end investment company continuously engaged in the issuance of its
shares, and prohibit banks generally from issuing, underwriting, selling or
distributing securities such as Shares of the Funds, but such banking laws and
regulations do not prohibit such a holding company or affiliate or banks gen-
erally from acting as investment adviser, transfer agent, or custodian to such
an investment company, or from purchasing shares of such company for and upon
the order of customers. The Investment Adviser, CGFSC and certain Shareholder
Organizations may be subject to such banking laws and regulations. State secu-
rities laws may differ from the interpretations of Federal law discussed in
this paragraph and banks and financial institutions may be required to regis-
ter as dealers pursuant to state law.
Should legislative, judicial, or administrative action prohibit or restrict
the activities of the Investment Ad-
30
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Excelsior Funds, Inc. (formerly UST Master Funds, Inc.) was organized as a
Maryland corporation on August 2, 1984. Currently, Excelsior Fund has autho-
rized capital of 35 billion shares of Common Stock, $.001 par value per share,
classified into 40 series of shares representing interests in 20 investment
portfolios. Excelsior Fund's Charter authorizes the Board of Directors to
classify or reclassify any class of shares of Excelsior Fund into one or more
classes or series. Shares of Class D, Class S and Class T Common Stock repre-
sent interests in the Managed Income, Short-Term Government Securities and In-
termediate-Term Managed Income Funds, respectively.
Each Share represents an equal proportionate interest in the particular Fund
with other shares of the Fund, and is entitled to such dividends and distribu-
tions out of the income earned on the assets belonging to such Fund as are de-
clared in the discretion of Excelsior Fund's Board of Directors.
Shareholders are entitled to one vote for each full Share held, and frac-
tional votes for fractional Shares held, and will vote in the aggregate and
not by class, except as otherwise expressly required by law.
Certificates for Shares will not be issued unless expressly requested in
writing to CGFSC and will not be issued for fractional Shares.
As of July 15, 1996, U.S. Trust held of record substantially all of the
Shares in the Funds as agent or custodian for its customers, but did not own
such Shares beneficially because it did not have voting or investment discre-
tion with respect to such Shares. U.S. Trust is a wholly-owned subsidiary of
U.S. Trust Corporation.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, N.A. ("Chase"), a wholly-owned subsidiary of The
Chase Manhattan Corporation, serves as the custodian of the Funds' assets.
Communications to the custodian should be directed to Chase, Mutual Funds
Service Division, 770 Broadway, New York, New York 10003-9598.
Chase may enter into an international sub-custodian agreement with a third
party providing for the custody of foreign securities held by the Funds.
U.S. Trust serves as the Fund's transfer and dividend disbursing agent. U.S.
Trust has also entered into a sub-transfer agency arrangement with CGFSC, 73
Tremont Street, Boston, Massachusetts 02108-3913, pursuant to which CGFSC pro-
vides certain transfer agent, dividend disbursement and registrar services to
the Funds.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders, the per-
formance and yields of the Funds may be quoted and compared to those of other
mutual funds with similar investment objectives and to other relevant indexes
or to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of a Fund may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds.
Performance and yield data as reported in national financial publications,
including but not limited to Money Magazine, Forbes, Barron's, The Wall Street
Journal and The New York Times, or in publications of a local or regional na-
ture, may also be used in comparing the performance and yields of the Funds.
Each Fund may advertise its effective yield which is calculated by dividing
its average daily net investment income per Share during a 30-day (or one
month) base period identified in the advertisement by its maximum offering
price per Share on the last day of the period, and annualizing the result on a
semiannual basis.
31
<PAGE>
From time to time, each Fund may advertise its performance by using "average
annual total return" over various periods of time. Such total return figure
reflects the average percentage change in the value of an investment in a Fund
from the beginning date of the measuring period to the end of the measuring
period. Average total return figures will be given for the most recent one-
year period and may be given for other periods as well (such as from the com-
mencement of a Fund's operations, or on a year-by-year basis). Each Fund may
also use aggregate total return figures for various periods, representing the
cumulative change in the value of an investment in the Fund for the specific
period. Both methods of calculating total return assume that dividends and
capital gain distributions made by a Fund during the period are reinvested in
Fund Shares and also reflect the maximum sales load charged by the Fund.
Performance and yields will fluctuate and any quotation of performance and
yield should not be considered as representative of a Fund's future perfor-
mance. Since yields fluctuate, yield data cannot necessarily be used to com-
pare an investment in the Funds with bank deposits, savings accounts and simi-
lar investment alternatives which often provide an agreed or guaranteed fixed
yield for a stated period of time. Shareholders should remember that the per-
formance and yield are generally functions of the kind and quality of the in
struments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any fees charged by the Shareholder Organizations with re-
spect to accounts of Customers that have invested in Shares will not be in-
cluded in calculations of yield and performance.
MISCELLANEOUS
Shareholders will receive unaudited semiannual reports describing the Funds'
investment operations and annual financial statements audited by the Funds'
independent auditors.
As used in this Prospectus, a "vote of the holders of a majority of the out-
standing shares" of Excelsior Fund or a particular Fund means, with respect to
the approval of an investment advisory agreement or a change in a fundamental
investment policy, the affirmative vote of the lesser of (a) more than 50% of
the outstanding shares of Excelsior Fund or such Fund, or (b) 67% or more of
the shares of Excelsior Fund or such Fund present at a meeting if more than
50% of the outstanding shares of Excelsior Fund or such Fund are represented
at the meeting in person or by proxy.
Inquiries regarding any of the Funds may be directed to the Distributor at
the address listed under "Distributor."
32
<PAGE>
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION
OPENING YOUR ACCOUNT:
Complete the Application(s) and mail to:
FOR OVERNIGHT DELIVERY: send to:
Excelsior Funds c/o Chase Global Funds Services Company P.O. Box 2798 Bos-
ton, MA 02208-2798
Excelsior Funds c/o Chase Global Funds
Services Company--Transfer Agent 73
Tremont Street Boston, MA 02108-3913
Please enclose with the Application(s) your check made payable to the "Ex-
celsior Funds" in the amount of your investment.
For direct wire purchases please refer to the section of the Prospectus en-
titled "How to Purchase and Redeem Shares--Purchase Procedures."
MINIMUM INVESTMENTS:
Except as provided in the Prospectus, the minimum initial investment is $500
per Fund; subsequent investments must be in the minimum amount of $50 per
Fund. Investments may be made in excess of these minimums.
REDEMPTIONS:
Shares can be redeemed in any amount and at any time in accordance with pro-
cedures described in the Prospectus. In the case of shares recently purchased
by check, redemption proceeds will not be made available until the transfer
agent is reasonably assured that the check has been collected in accordance
with applicable banking regulations.
Certain legal documents will be required from corporations or other organi-
zations, executors and trustees, or if redemption is requested by anyone other
than the shareholder of record. Written redemption requests in excess of
$50,000 per account must be accompanied by signature guarantees.
SIGNATURES: Please be sure to sign the Application(s).
If the shares are registered in the name of:
- an individual, the individual should sign.
- joint tenants, both tenants should sign.
- a custodian for a minor, the custodian should sign.
- a corporation or other organization, an authorized officer should sign
(please indicate corporate office or title).*
- a trustee or other fiduciary, the fiduciary or fiduciaries should sign
(please indicate capacity).*
* A corporate resolution or appropriate certificate may be required.
QUESTIONS:
If you have any questions regarding the Application or redemption require-
ments, please contact the transfer agent at (800) 446-1012 between 9:00 a.m.
and 5:00 p.m. (Eastern Time).
33
<PAGE>
[LOGO OF EXCELSIOR CHASE GLOBAL FUNDS SERVICES COMPANY
FUNDS INC.] CLIENT SERVICES
P.O. Box 2798 NEW
Boston, MA 02208-2798 ACCOUNT
(800) 446-1012 APPLICATION
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION
-----------------------------------------------------------------------------
[_] Individual [_] Joint Tenants [_] Trust [_] Gift/Transfer to Minor
[_] Other________________________
Note: Joint tenant registration will be as "joint tenants
with right of survivorship" unless otherwise specified. Trust
registrations should specify name of the trust, trustee(s),
beneficiary(ies), and the date of the trust instrument.
Registration for Uniform Gifts/Transfers to Minors should be
in the name of one custodian and one minor and include the
state under which the custodianship is created (using the
minor's Social Security Number ("SSN")). For IRA accounts a
different application is required.
------------------------------ -----------------------------
Name(s) (please print) Social Security # or Taxpayer
------------------------------ Identification #
Name ( )
------------------------------ -----------------------------
Address Telephone #
------------------------------ [_] U.S. Citizen [_] Other
City/State/Zip Code (specify)
-----------------------------------------------------------------------------
FUND SELECTION (THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT IS $500 PER
FUND AND $50 PER FUND, RESPECTIVELY. MAKE CHECKS PAYABLE TO "EXCELSIOR
FUNDS.")
-----------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
INITIAL INVESTMENT INITIAL INVESTMENT
[_] Short-Term Government [_] Intermediate-Term Managed
Securities Fund $ ____________ 823 Income Fund $ ____________ 824
[_] Managed Income Fund $ ____________ 805 [_] Other _________________ $ ____________
TOTAL INITIAL INVESTMENT: $ ____________
</TABLE>
NOTE: If investing A. BY MAIL: Enclosed is a check in the
by wire, you must amount of $ _____ payable to "Excelsior
obtain a Bank Wire Funds."
Control Number. To B. BY WIRE: A bank wire in the amount
do so, please call of $ has been sent to the Fund from
(800) 446-1012 and ------------------ ---------------
ask for the Wire Name of Bank Wire Control
Desk. Number
CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and
dividend distributions will be reinvested in additional
shares unless appropriate boxes below are checked:
All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash
-----------------------------------------------------------------------------
ACCOUNT PRIVILEGES
-----------------------------------------------------------------------------
TELEPHONE EXCHANGE AND
REDEMPTION
[_] I/We appoint CGFSC as
my/our agent to act upon
instructions received by
telephone in order to effect
the telephone exchange and
redemption privileges. I/We
hereby ratify any
instructions given pursuant
to this authorization and
agree that Excelsior Fund,
Excelsior Tax-Exempt Fund
and Excelsior Institutional
Trust, CGFSC and their
directors, officers and
employees will not be liable
for any loss, liability,
cost or expense for acting
upon instructions believed
to be genuine and in
accordance with the
procedures described in the
then current Prospectus. To
the extent that Excelsior
Fund, Excelsior Tax-Exempt
Fund and Excelsior
Institutional Trust fail to
use reasonable procedures as
a basis for their belief,
they or their service
contractors may be liable
for instructions that prove
to be fraudulent or
unauthorized.
I/We further acknowledge
that it is my/our
responsibility to read the
Prospectus of any Fund into
which I/we exchange.
[_] I/We do not wish to have
the ability to exercise
telephone redemption and
exchange privileges. I/We
further understand that all
exchange and redemption
requests must be in writing.
SPECIAL PURCHASE AND
REDEMPTION PLANS
I/We have completed and
attached the Supplemental
Application for:
[_] Automatic Investment
Plan
[_] Systematic Withdrawal
Plan
AUTHORITY TO TRANSMIT
REDEMPTION PROCEEDS TO PRE-
DESIGNATED ACCOUNT.
I/We hereby authorize CGFSC to
act upon instructions received
by telephone to withdraw $500
or more from my/our account in
the Excelsior Funds and to
wire the amount withdrawn to
the following commercial bank
account. I/We understand that
CGFSC charges an $8.00 fee for
each wire redemption, which
will be deducted from the
proceeds of the redemption.
Title on Bank Account*_________
Name of Bank __________________
Bank A.B.A. Number Account
Number ________________________
Bank Address __________________
City/State/Zip Code____________
(attach voided check here)
A corporation, trust or
partnership must also submit a
"Corporate Resolution" (or
"Certificate of Partnership")
indicating the names and
titles of officers authorized
to act on its behalf.
* TITLE ON BANK AND FUND
ACCOUNT MUST BE IDENTICAL.
<PAGE>
- ------------------------------------------------------------------
RIGHTS OF ACCUMULATION
- ------------------------------------------------------------------
To qualify for Rights of Accumulation, you must complete this
section, listing all of your accounts including those in your
spouse's name, joint accounts and accounts held for your
minor children. If you need more space, please attach a
separate sheet.
[_] I/We qualify for the Rights of Accumulation sales charge
discount described in the Prospectus and Statement of
Additional Information.
[_] I/We own shares of more than one Fund distributed by
Edgewood Services, Inc. Listed below are the numbers of
each of my/our Shareholder Accounts.
[_] The registration of some of my/our shares differs from that
shown on this application. Listed below are the account
number(s) and full registration(s) in each case.
LIST OF OTHER EXCELSIOR FUND ACCOUNTS:
______________________ _______________________________________
______________________ _______________________________________
______________________ _______________________________________
ACCOUNT NUMBER ACCOUNT REGISTRATIONS
- ------------------------------------------------------------------
LETTER OF INTENT
- ------------------------------------------------------------------
[_] I agree to the Letter of Intent provisions set forth in
the Prospectus. Although I am not obligated to purchase, and
Excelsior Fund is not obligated to sell, I intend to invest,
over a 13-month period beginning on , 19 , an aggregate
amount in Eligible Funds of Excelsior Fund and Excelsior Tax-
Exempt Fund at least equal to (check appropriate box):
[_] $50,00 [_] $100,000 [_] $250,000 [_] $500,000 [_] $1,000,000
[_] $2,000,0000
By signing this application, I hereby authorize CGFSC to
redeem an appropriate number of shares held in escrow to pay
any additional sales loads payable in the event that I do not
fulfill the terms of this Letter of Intent.
- ------------------------------------------------------------------
AGREEMENTS AND SIGNATURES
- ------------------------------------------------------------------
By signing this application, I/we hereby certify under
penalty of perjury that the information on this application
is complete and correct and that as required by Federal law:
[_] I/We certify that (1) the number(s) shown on this form
is/are the correct taxpayer identification number(s) and (2)
I/we are not subject to backup withholding either because
I/we have not been notified by the Internal Revenue Service
that I/we are subject to backup withholding, or the IRS has
notified me/us that I am/we are no longer subject to backup
withholding. (NOTE: IF ANY OR ALL OF PART 2 IS NOT TRUE,
PLEASE STRIKE OUT THAT PART BEFORE SIGNING.)
[_] If no taxpayer identification number ("TIN") or SSN has
been provided above, I/we have applied, or intend to apply,
to the IRS or the Social Security Administration for a TIN or
a SSN, and I/we understand that if I/we do not provide this
number to CGFSC within 60 days of the date of this
application, or if I/we fail to furnish my/our correct SSN or
TIN, I/we may be subject to a penalty and a 31% backup
withholding on distributions and redemption proceeds. (Please
provide this number on Form W-9. You may request the form by
calling CGFSC at the number listed above).
I/We represent that I am/we are of legal age and capacity to
purchase shares of the Excelsior Funds. I/We have received,
read and carefully reviewed a copy of the appropriate Fund's
current Prospectus and agree to its terms and by signing
below I/we acknowledge that neither the Fund nor the
Distributor is a bank and that Fund Shares are not deposits
or obligations of, or guaranteed or endorsed by, United
States Trust Company of New York, its parent and affiliates
and the Shares are not federally insured by, guaranteed by,
obligations of or otherwise supported by the U.S. Government,
the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other governmental agency; and that an
investment in the Funds involves investment risks, including
possible loss of principal amount invested.
X ___________________________ Date __________________________
Owner Signature
X ___________________________ Date __________________________
Co-Owner Signature
Sign exactly as name(s) of registered owner(s) appear(s) above
(including legal title if signing for a corporation, trust
custodial account, etc.).
- ------------------------------------------------------------------
FOR USE BY AUTHORIZED AGENT (BROKER/DEALER) ONLY
- ------------------------------------------------------------------
We hereby submit this application for the purchase of shares
in accordance with the terms of our selling agreement with
Edgewood Services, Inc., and with the Prospectus and
Statement of Additional Information of each Fund purchased.
We agree to notify CGFSC of any purchases made under the
Letter of Intent or Rights of Accumulation.
----------------------------- -------------------------------
Investment Dealer's Name Source of Business Code
----------------------------- -------------------------------
Main Office Address Branch Number
----------------------------- -------------------------------
Representative's Number Representative's Name
----------------------------- -------------------------------
Branch Address Telephone
----------------------------- -------------------------------
Investment Dealer's Title
Authorized Signature
<PAGE>
[LOGO OF EXCELSIOR CHASE GLOBAL FUNDS SERVICES COMPANY
FUNDS INC.] CLIENT SERVICES
P.O. Box 2798 SUPPLEMENTAL
Boston, MA 02208-2798 APPLICATION
(800) 446-1012 SPECIAL INVESTMENT AND
WITHDRAWAL OPTIONS
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
ACCOUNT REGISTRATION PLEASE SUPPLY THE FOLLOWING INFORMATION EXACTLY AS IT
APPEARS ON THE FUND'S RECORD.
-----------------------------------------------------------------------------
Fund Name __________________ Account Number _________________
Owner Name _________________ Social Security or Taxpayer ID
Street Address _____________ Number _________________________
Resident City, State, Zip Code __________
of [_] U.S. [_] Other ____ [_] Check here if this is a
change of address
-----------------------------------------------------------------------------
DISTRIBUTION OPTIONS (DIVIDENDS AND CAPITAL GAINS WILL BE REINVESTED
UNLESS OTHERWISE INDICATED)
-----------------------------------------------------------------------------
A. CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend
distributions will be reinvested in additional shares unless appropriate
boxes below are checked:
All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash
B. PAYMENT ORDER: Complete only if distribution checks are to be payable
to another party. Make distribution checks payable to:
Name of Your Bank ______________
Name _______________________ Bank Account Number ____________
Address ____________________ Address of Bank ________________
City, State, Zip Code ________________________________________
C. DISTRIBUTIONS REINVESTED-CROSS FUNDS: Permits all distributions from
one Fund to be automatically reinvested into another identically-
registered UST Master Fund. (NOTE: You may NOT open a new Fund account
with this option.) Transfer all distributions earned:
From: ______________________ Account No. ____________________
(Fund)
To: ________________________ Account No. ____________________
(Fund)
-----------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN [_] YES [_] NO
-----------------------------------------------------------------------------
I/We hereby authorize CGFSC to debit my/our personal checking account on
the designated dates in order to purchase shares in the Fund indicated at
the top of this application at the applicable public offering price
determined on that day.
[_] Monthly on the 1st day
[_] Monthly on the 15th day
[_] Monthly on both the 1st and 15th days
Amount of each debit (minimum $50
per Fund) $ ________________________
NOTE: A Bank Authorization Form (below) and a voided personal check must
accompany the Automatic Investment Plan application.
-----------------------------------------------------------------------------
EXCELSIOR FUNDS
CLIENT SERVICES AUTOMATIC INVESTMENT PLAN
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
BANK AUTHORIZATION
-----------------------------------------------------------------------------
-------------------- ------------------------ -----------------------
Bank Name Bank Address Bank Account Number
I/We authorize you, the above named bank, to debit my/our
account for amounts drawn by CGFSC, acting as my agent for
the purchase of Fund shares. I/We agree that your rights in
respect to each withdrawal shall be the same as if it were a
check drawn upon you and signed by me/us. This authority
shall remain in effect until revoked in writing and received
by you. I/We agree that you shall incur no liability when
honoring debits, except a loss due to payments drawn against
insufficient funds. I/We further agree that you will incur no
liability to me if you dishonor any such withdrawal. This
will be so even though such dishonor results in the
cancellation of that purchase.
---------------------------- --------------------------------
Account Holder's Name Joint Account Holder's Name
X ________________ _________ X __________________ ___________
Signature Date Signature Date
<PAGE>
- --------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN [_] YES [_] NO NOT AVAILABLE FOR IRA'S
- --------------------------------------------------------------------------
AVAILABLE TO SHAREHOLDERS WITH ACCOUNT BALANCES OF $10,000 OR
MORE.
I/We hereby authorize CGFSC to redeem the necessary number of
shares from my/our Excelsior Fund Account on the designated
dates in order to make the following periodic payments:
[_] Monthly on the 24th day
[_] Quarterly on the 24th day of January, April, July and October
[_] Other______
(This request for participation in the Plan must be received
by the 18th day of the month in which you wish withdrawals to
begin.)
Amount of each check ($100 minimum)
$
Please make Recipient ________________________________
check payable Street Address ___________________________
to: (To be City, State, Zip Code ____________________
completed only
if redemption
proceeds to be
paid to other
than account
holder of record
or mailed to
address other
than address of
record)
NOTE: If recipient of checks is not the registered
shareholder, signature(s) below must be guaranteed. A
corporation, trust or partnership must also submit a
"Corporate Resolution" (or "Certification of Partnership")
indicating the names and titles of officers authorized to act
on its behalf.
- ------------------------------------------------------------------
AGREEMENT AND SIGNATURES
- ------------------------------------------------------------------
The investor(s) certifies and agrees that the certifications,
authorizations, directions and restrictions contained herein
will continue until CGFSC receives written notice of any
change or revocation. Any change in these instructions must
be in writing with all signatures guaranteed (if applicable).
Date ______________________
X X
------------------------------- -----------------------------
Signature Signature
------------------------------- -----------------------------
Signature Guarantee* (if applicable)
Signature Guarantee* (if applicable)
X X
------------------------------- -----------------------------
Signature Signature
------------------------------- -----------------------------
Signature Guarantee* (if applicable)
Signature Guarantee* (if applicable)
*ELIGIBLE GUARANTORS: An Eligible Guarantor institution is a
bank, trust company, broker, dealer, municipal or government
securities broker or dealer, credit union, national
securities exchange, registered securities association,
clearing agency or savings association, provided that such
institution is a participant in STAMP, the Securities
Transfer Agents Medallion Program.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY......................................................... 2
EXPENSE SUMMARY............................................................ 3
FINANCIAL HIGHLIGHTS....................................................... 5
INVESTMENT OBJECTIVES AND POLICIES......................................... 8
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION..................... 10
INVESTMENT LIMITATIONS..................................................... 14
PRICING OF SHARES.......................................................... 16
HOW TO PURCHASE AND REDEEM SHARES.......................................... 17
INVESTOR PROGRAMS.......................................................... 22
DIVIDENDS AND DISTRIBUTIONS................................................ 27
TAXES...................................................................... 27
MANAGEMENT OF THE FUNDS.................................................... 28
DESCRIPTION OF CAPITAL STOCK............................................... 31
CUSTODIAN AND TRANSFER AGENT............................................... 31
PERFORMANCE AND YIELD INFORMATION.......................................... 31
MISCELLANEOUS.............................................................. 32
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION................................... 33
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' STATEMENT OF ADDI-
TIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OF-
FERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REP-
RESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY EXCELSIOR
FUND OR BY ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
EXCELSIOR FUND OR BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
USTFXIP896
[LOGO OF EXCELSIOR FUNDS INC.]
SHORT-TERM GOVERNMENT SECURITIES FUND
INTERMEDIATE-TERM MANAGED INCOME FUND
MANAGED INCOME FUND
Prospectus
August 1, 1996
<PAGE>
EXCELSIOR FUNDS, INC.
Money Fund
Government Money Fund
Treasury Money Fund
EXCELSIOR TAX-EXEMPT FUNDS, INC.
Tax-Exempt Money Fund
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1996
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current prospectus for the Money Fund, Government Money
Fund and Treasury Money Fund of Excelsior Funds, Inc. ("Excelsior Fund") and the
Tax-Exempt Money Fund of Excelsior Tax-Exempt Funds, Inc. ("Excelsior Tax-Exempt
Fund") dated August 1, 1996 (the "Prospectus"). Much of the information
contained in this Statement of Additional Information expands upon the subjects
discussed in the Prospectus. No investment in shares of the portfolios
described herein ("Shares") should be made without reading the Prospectus. A
copy of the Prospectus may be obtained by writing Excelsior Funds c/o Chase
Global Funds Services Company, 73 Tremont Street, Boston, MA 02108-3913 or by
calling (800) 446-1012.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . .
Additional Information on Portfolio Instruments .
Additional Investment Limitations. . . . . . . . .
NET ASSET VALUE AND NET INCOME . . . . . . . . . . . .
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . .
INVESTOR PROGRAMS . . . . . . . . . . . . . . . . . . .
Systematic Withdrawal Plan . . . . . . . . . . . .
Exchange Privilege . . . . . . . . . . . . . . . .
Other Investor Programs . . . . . . . . . . . . .
DESCRIPTION OF CAPITAL STOCK . . . . . . . . . . . . .
MANAGEMENT OF THE FUNDS . . . . . . . . . . . . . . . .
Directors and Officers . . . . . . . . . . . . . .
Investment Advisory and
Administration Agreements . . . . . . . . . . .
Service Organizations . . . . . . . . . . . . . .
Expenses . . . . . . . . . . . . . . . . . . . . .
Custodian and Transfer Agent . . . . . . . . . . .
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . .
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . .
COUNSEL . . . . . . . . . . . . . . . . . . . . . . . .
ADDITIONAL INFORMATION CONCERNING TAXES . . . . . . . .
Generally . . . . . . . . . . . . . . . . . . . .
Tax-Exempt Money Fund . . . . . . . . . . . . . .
YIELD INFORMATION . . . . . . . . . . . . . . . . . . .
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . .
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . .
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . A-1
(i)
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
----------------------------------
This Statement of Additional Information contains additional
information with respect to the Money Fund, Government Money Fund and Treasury
Money Fund of Excelsior Fund (collectively, the "Taxable Funds") and the Tax-
Exempt Money Fund of Excelsior Tax-Exempt Fund (the portfolios are referred to
individually as a "Fund" and collectively as the "Funds"; Excelsior Fund and
Excelsior Tax-Exempt Fund are referred to individually as a "Company" and
collectively as the "Companies").
The investment objective of the Money Fund and the Government Money
Fund is to seek as high a level of current income as is consistent with
liquidity and stability of principal. The Money Fund generally invests in money
market instruments; the Government Money Fund generally invests in obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
and in repurchase agreements collateralized by such obligations. The investment
objective of the Treasury Money Fund is to seek current income consistent with
liquidity and stability of principal. The Treasury Money Fund invests primarily
in direct short-term obligations issued by the U.S. Treasury and certain
agencies or instrumentalities of the U.S. Government with a view toward
providing dividend income that is generally considered exempt from state and
local income taxes. The investment objective of the Tax-Exempt Money Fund is to
seek a moderate level of current interest income exempt from Federal income
taxes consistent with stability of principal. The Tax-Exempt Money Fund invests
substantially all of its assets in high-quality Municipal Securities (as defined
in the Prospectus) and, except during temporary defensive periods, maintains at
least 80% of its assets in tax-exempt obligations. All Funds invest in
instruments that generally have remaining maturities of not more than 13 months.
The following policies supplement the Funds' investment policies as set forth in
the Prospectus.
Additional Information on Portfolio Instruments
- -----------------------------------------------
Variable and Floating Rate Instruments
--------------------------------------
With respect to variable and floating rate instruments described in
the Prospectus, United States Trust Company of New York ("U.S. Trust" or the
"Investment Adviser") will consider the earning power, cash flows and other
liquidity ratios of the issuers of such instruments and will continuously
monitor their financial ability to meet payment on demand. In determining
dollar-weighted average portfolio maturity and whether a variable or floating
rate instrument has a remaining maturity of 13 months or less, the maturity of
each instrument will be computed in accordance with guidelines established by
the SEC.
<PAGE>
Repurchase Agreements
---------------------
The repurchase price under the repurchase agreements described in the
Prospectus generally equals the price paid by a Fund plus interest negotiated on
the basis of current short-term rates (which may be more or less than the rate
on the securities underlying the repurchase agreement). Securities subject to
repurchase agreements are held by the Funds' custodian (or sub-custodian) or in
the Federal Reserve/Treasury Money book-entry system. Repurchase agreements are
considered loans by a Fund under the Investment Company Act of 1940 (the "1940
Act").
Securities Lending
------------------
When the Money Fund or Government Money Fund lends its portfolio
securities, it continues to receive interest or dividends on the securities lent
and may simultaneously earn interest on the investment of the cash loan
collateral, which will be invested in readily marketable, high-quality, short-
term obligations. Although voting rights, or rights to consent, attendant to
securities lent pass to the borrower, such loans may be called at any time and
will be called so that the securities may be voted by a Fund if a material event
affecting the investment is to occur.
When-Issued and Forward Transactions
------------------------------------
When a Fund agrees to purchase securities on a "when-issued" or
"forward commitment" basis, the custodian will set aside cash or liquid
portfolio securities equal to the amount of the commitment in a separate
account. Normally, the custodian will set aside portfolio securities to satisfy
a purchase commitment and, in such case, the Fund may be required subsequently
to place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that a Fund's net assets will fluctuate to a greater degree when
it sets aside portfolio securities to cover such purchase commitments than when
it sets aside cash. Because a Fund will set aside cash or liquid assets to
satisfy its purchase commitments in the manner described, the Fund's liquidity
and ability to manage its portfolio might be affected in the event its forward
commitments or commitments to purchase "when-issued" securities ever exceed 25%
of the value of its assets.
A Fund will purchase securities on a "when-issued" or "forward
commitment" basis only with the intention of completing the transaction. If
deemed advisable as a matter of investment strategy, however, a Fund may dispose
of or renegotiate a commitment after it is entered into, and may sell securities
it has committed to purchase before those securities are delivered
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<PAGE>
to the Fund on the settlement date. In these cases, the Fund may realize a
taxable capital gain or loss.
When a Fund engages in "when-issued" or "forward commitment"
transactions, it relies on the other party to consummate the trade. Failure of
such other party to do so may result in the Funds incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a "when-issued" purchase
or a forward commitment to purchase securities and any subsequent fluctuations
in their market value are taken into account when determining the market value
of a Fund starting on the day the Fund agrees to purchase the securities. The
Fund does not earn interest on the securities it has committed to purchase until
they are paid for and delivered on the settlement date.
Stand-By Commitments
--------------------
The Tax-Exempt Money Fund may acquire "stand-by commitments" with
respect to Municipal Securities held by it. Under a "stand-by commitment," a
dealer or bank agrees to purchase from the Tax-Exempt Money Fund, at the Fund's
option, specified Municipal Securities at a specified price. The amount payable
to the Fund upon its exercise of a "stand-by commitment" is normally (i) the
Fund's acquisition cost of the Municipal Securities (excluding any accrued
interest which the Fund paid on their acquisition), less any amortized market
premium or plus any amortized market or original issue discount during the
period the Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date during that period. "Stand-by
commitments" are exercisable by the Tax-Exempt Money Fund at any time before the
maturity of the underlying Municipal Securities, and may be sold, transferred or
assigned by the Fund only with the underlying instruments.
The Tax-Exempt Money Fund expects that "stand-by commitments" will
generally be available without the payment of any direct or indirect
consideration. However, if necessary or advisable, the Fund may pay for a
"stand-by commitment" either separately in cash or by paying a higher price for
securities which are acquired subject to the commitment (thus reducing the yield
to maturity otherwise available for the same securities). Where the Tax-Exempt
Money Fund has paid any consideration directly or indirectly for a "stand-by
commitment," its cost will be reflected as unrealized depreciation for the
period during which the commitment was held by the Fund.
The Tax-Exempt Money Fund intends to enter into "stand-by commitments"
only with banks and broker/dealers which, in the
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<PAGE>
Investment Adviser's opinion, present minimal credit risks. In evaluating the
creditworthiness of the issuer of a "stand-by commitment," the Investment
Adviser will review periodically the issuer's assets, liabilities, contingent
claims and other relevant financial information.
Municipal Securities
--------------------
The Tax-Exempt Money Fund invests primarily in Municipal Securities as
defined in the Prospectus. Municipal Securities include debt obligations issued
by governmental entities to obtain funds for various public purposes, including
the construction of a wide range of public facilities, the refunding of
outstanding obligations, the payment of general operating expenses, and the
extension of loans to public institutions and facilities. Private activity
bonds that are issued by or on behalf of public authorities to finance various
privately operated facilities are included within the term "Municipal
Securities" only if the interest paid thereon is exempt from regular Federal
income tax and not treated as a specific tax preference item under the Federal
alternative minimum tax.
The two principal classifications of Municipal Securities are "general
obligations" and "revenue" issues, but the Tax-Exempt Money Fund's portfolio may
also include "moral obligation" issues, which are normally issued by special-
purpose authorities. There are, of course, variations in the quality of
Municipal Securities, both within a particular classification and between
classifications, and the yields on Municipal Securities depend upon a variety of
factors, including general money market conditions, the financial condition of
the issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. The ratings of Moody's Investors Service, Inc. ("Moody's") and Standard
& Poor's Ratings Group ("S&P") described in the Prospectus and Appendix hereto
represent their opinion as to the quality of Municipal Securities. It should be
emphasized that these ratings are general and are not absolute standards of
quality, and Municipal Securities with the same maturity, interest rate, and
rating may have different yields while Municipal Securities of the same maturity
and interest rate with different ratings may have the same yield. Subsequent to
its purchase by the Fund, an issue of Municipal Securities may cease to be
rated, or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Investment Adviser will consider such an event in
determining whether the Tax-Exempt Money Fund should continue to hold the
obligation.
The payment of principal and interest on most securities purchased by
the Tax-Exempt Money Fund will depend upon the
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<PAGE>
ability of the issuers to meet their obligations. Each state, the District of
Columbia, each of their political subdivisions, agencies, instrumentalities and
authorities, and each multistate agency of which a state is a member, is a
separate "issuer" as that term is used in this Statement of Additional
Information and the Prospectus. The non-governmental user of facilities
financed by private activity bonds is also considered to be an "issuer." An
issuer's obligations under its Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code, and laws, if any,
which may be enacted by Federal or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its Municipal Securities may be
materially adversely affected by litigation or other conditions.
Private activity bonds are or have been issued to obtain funds to
provide, among other things, privately operated housing facilities, pollution
control facilities, convention or trade show facilities, mass transit, airport,
port or parking facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Private activity bonds are also
issued to privately held or publicly owned corporations in the financing of
commercial or industrial facilities. State and local governments are authorized
in most states to issue private activity bonds for such purposes in order to
encourage corporations to locate within their communities. The principal and
interest on these obligations may be payable from the general revenues of the
users of such facilities.
Among other instruments, the Tax-Exempt Money Fund may purchase short-
term General Obligation Notes, Tax Anticipation Notes, Bond Anticipation Notes,
Revenue Anticipation Notes, Tax-Exempt Commercial Paper, Construction Loan Notes
and other forms of short-term loans. Such instruments are issued with a short-
term maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues. In addition, the Fund may invest in long-term
tax-exempt instruments, such as municipal bonds and private activity bonds, to
the extent consistent with the maturity restrictions applicable to it.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the Federal income tax exemption for
interest on Municipal Securities. For example, under the Tax Reform Act of
1986, interest on certain private activity bonds must be included in an
investor's Federal alternative minimum taxable income, and corporate investors
must treat all tax-exempt interest as an item
-5-
<PAGE>
of tax preference. Excelsior Tax-Exempt Fund cannot, of course, predict what
legislation may be proposed in the future regarding the income tax status of
interest on Municipal Securities, or which proposals, if any, might be enacted.
Such proposals, while pending or if enacted, might materially adversely affect
the availability of Municipal Securities for investment by the Tax-Exempt Money
Fund and the liquidity and value of its portfolio. In such an event, Excelsior
Tax-Exempt Fund would re-evaluate the Fund's investment objective and policies
and consider possible changes in its structure or possible dissolution.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither Excelsior
Tax-Exempt Fund nor the Investment Adviser will review the proceedings relating
to the issuance of Municipal Securities or the basis for such opinions.
Miscellaneous
-------------
The Funds may not invest in oil, gas, or mineral leases.
Additional Investment Limitations
- ---------------------------------
In addition to the investment limitations set forth in the Prospectus,
the Funds are subject to the investment limitations enumerated below, which may
be changed with respect to a particular Fund only by a vote of the holders of a
majority of such Fund's outstanding Shares (as defined under "Miscellaneous" in
the Prospectus).
No Fund may:
1. Purchase securities on margin, make short sales of securities, or
maintain a short position;
2. Act as an underwriter of securities within the meaning of the
Securities Act of 1933, except insofar as the Taxable Funds might be deemed to
be underwriters upon disposition of certain portfolio securities acquired within
the limitation on purchases of restricted securities; and except to the extent
that purchase by the Tax-Exempt Money Fund of Municipal Securities or other
securities directly from the issuer thereof in accordance with the Fund's
investment objective, policies and limitations may be deemed to be underwriting;
3. Purchase or sell real estate, except that each Taxable Fund may
purchase securities of issuers which deal in real estate and may purchase
securities which are secured by
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<PAGE>
interests in real estate; and except that the Tax-Exempt Money Fund may invest
in Municipal Securities secured by real estate or interests therein;
4. Purchase or sell commodities or commodity contracts, or invest in
oil, gas, or other mineral exploration or development programs;
5. Invest in or sell puts, calls, straddles, spreads, or any
combination thereof; and
6. Issue any senior securities, except insofar as any borrowing in
accordance with a Fund's investment limitations might be considered to be the
issuance of a senior security.
In addition, the Money, Government Money and Treasury Money Funds may
not:
7. Make loans, except that (i) each Fund may purchase or hold debt
securities in accordance with its investment objective and policies, and the
Money Fund and the Government Money Fund may enter into repurchase agreements
with respect to obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, and (ii) the Money Fund and the Government Money
Fund may lend portfolio securities in an amount not exceeding 30% of their total
assets;
8. Invest in bank obligations having remaining maturities in excess
of one year, except that securities subject to repurchase agreements may bear
longer maturities;
9. Invest in companies for the purpose of exercising management or
control;
10. Invest more than 5% of a Funds's total assets in securities
issued by companies which, together with any predecessor, have been in
continuous operation for fewer than three years;
11. Purchase foreign securities; except the Money Fund may purchase
certificates of deposit, bankers' acceptances, or other similar obligations
issued by domestic branches of foreign banks and foreign branches of U.S. banks
in an amount not to exceed 20% of its total net assets;
12. Acquire any other investment company or investment company
security, except in connection with a merger, consolidation, reorganization, or
acquisition of assets or where otherwise permitted by the Investment Company Act
of 1940;
-7-
<PAGE>
13. Invest in obligations of foreign branches of financial
institutions or in domestic branches of foreign banks, if immediately after such
purchase (i) more than 5% of the value of a Fund's total assets would be
invested in obligations of any one foreign branch of the financial institution
or domestic branch of a foreign bank; or (ii) more than 20% of its total assets
would be invested in foreign branches of financial institutions or in domestic
branches of foreign banks;
14. Purchase any securities which would cause more than 25% of the
value of a Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that (a) there is no limitation with respect to
securities issued or guaranteed by the U.S. Government or domestic bank
obligations, and (b) neither all finance companies, as a group, nor all utility
companies, as a group, are considered a single industry for purposes of this
policy; and
15. Knowingly invest more than 10% of the value of a Fund's total
assets in illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days, restricted securities, and other securities
for which market quotations are not readily available.
In addition, the Tax-Exempt Money Fund may not:
16. Make loans, except that the Fund may purchase or hold debt
obligations in accordance with its investment objective, policies, and
limitations;
17. Invest in industrial revenue bonds where the payment of principal
and interest are the responsibility of a company (including its predecessors)
with less than three years of continuous operation;
18. Knowingly invest more than 10% of the value of its total assets
in securities which may be illiquid in light of legal or contractual
restrictions on resale or the absence of readily available market quotations;
19. Purchase any securities which would cause more than 25% of the
value of its total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that there is no limitation with respect to
domestic bank obligations or securities issued or guaranteed by the United
States; any state or territory; any possession of the U.S. Government; the
District of Columbia; or any of their authorities, agencies, instrumentalities,
or political subdivisions; and
-8-
<PAGE>
20. Purchase securities of other investment companies (except as part
of a merger, consolidation or reorganization or purchase of assets approved by
the Fund's shareholders), provided that the Fund may purchase shares of any
registered, open-end investment company, if immediately after any such purchase,
the Fund does not (a) own more than 3% of the outstanding voting stock of any
one investment company, (b) invest more than 5% of the value of its total assets
in the securities of any one investment company, or (c) invest more than 10% of
the value of its total assets in the aggregate in securities of investment
companies.
* * *
If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in value
of a Fund's portfolio securities will not constitute a violation of such
limitation.
For the purpose of Investment Limitation No. 3, the prohibition of
purchases of real estate includes acquisition of limited partnership interests
in partnerships formed with a view toward investing in real estate, but does not
prohibit purchases of shares in real estate investment trusts.
Notwithstanding Investment Limitations Nos. 15 and 18 above, the
Companies intend to limit the Funds' investments in illiquid securities to 10%
of each Fund's net (rather than total) assets.
Notwithstanding the proviso in Investment Limitation No. 19, to the
extent that the Tax-Exempt Money Fund has invested more than 20% of the value of
its assets in taxable securities on a temporary defensive basis, the industry
diversification limitation in Investment Limitation No. 19 shall apply to
taxable securities issued or guaranteed by any state, territory, or possession
of the U.S. Government; the District of Columbia; or any of their authorities,
agencies, instrumentalities, or political subdivisions.
In order to permit the sale of Shares in certain states, the Companies
may make other commitments more restrictive than the investment policies and
limitations described above and in the Funds' Prospectus. Should the Companies
determine that any such commitment is no longer in the Funds' best interests,
they will revoke the commitment by terminating sales of the Shares to investors
residing in the state involved.
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<PAGE>
NET ASSET VALUE AND NET INCOME
------------------------------
The Companies use the amortized cost method of valuation to value
Shares in the Funds. Pursuant to this method, a security is valued at its cost
initially, and thereafter a constant amortization to maturity of any discount or
premium is assumed, regardless of the impact of fluctuating interest rates on
the market value of the security. This method may result in periods during which
value, as determined by amortized cost, is higher or lower than the price the
Fund involved would receive if it sold the security. The market value of
portfolio securities held by the Funds can be expected to vary inversely with
changes in prevailing interest rates.
The Funds invest only in high-quality instruments and maintain a
dollar-weighted average portfolio maturity appropriate to their objective of
maintaining a constant net asset value per Share. The Funds will not purchase
any security deemed to have a remaining maturity of more than 13 months within
the meaning of the 1940 Act or maintain a dollar-weighted average portfolio
maturity which exceeds 90 days. The Companies' Boards of Directors have
established procedures that are intended to stabilize the net asset value per
Share of each Fund for purposes of sales and redemptions at $1.00. These
procedures include the determination, at such intervals as the Boards deem
appropriate, of the extent, if any, to which the net asset value per Share of a
Fund calculated by using available market quotations deviates from $1.00 per
Share. In the event such deviation exceeds one half of one percent, the Boards
of Directors will promptly consider what action, if any, should be initiated.
If the Boards of Directors believe that the extent of any deviation from a
Fund's $1.00 amortized cost price per Share may result in material dilution or
other unfair results to new or existing investors, they will take appropriate
steps to eliminate or reduce, to the extent reasonably practicable, any such
dilution or unfair results. These steps may include selling portfolio
instruments prior to maturity; shortening the average portfolio maturity;
withholding or reducing dividends; redeeming Shares in kind; reducing the number
of the Fund's outstanding Shares without monetary consideration; or utilizing a
net asset value per share determined by using available market quotations.
Net income of each of the Funds for dividend purposes consists of (i)
interest accrued and discount earned on a Fund's assets, less (ii) amortization
of market premium on such assets, accrued expenses directly attributable to the
Fund, and the general expenses or the expenses common to more than one portfolio
of a Company (e.g., administrative, legal, accounting, and directors' fees)
prorated to each portfolio of the Company on the basis of their relative net
assets.
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<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
----------------------------------------------
Shares are continuously offered for sale by Edgewood Services, Inc.
(the "Distributor"), a wholly-owned subsidiary of Federated Investors, and the
Distributor has agreed to use appropriate efforts to solicit all purchase
orders. As described in the Prospectus, Shares may be sold to customers
("Customers") of the Investment Adviser, its affiliates and correspondent banks,
and qualified banks, savings and loan associations, broker/dealers and other
institutions ("Shareholder Organizations") that have entered into servicing
agreements with one of the Companies. Shares are also offered for sale to
institutional investors ("Institutional Investors") and to members of the
general public ("Direct Investors", and collectively with Institutional
Investors, "Investors"). Different types of Customer accounts at Shareholder
Organizations may be used to purchase Shares, including eligible agency and
trust accounts. In addition, Shareholder Organizations may automatically
"sweep" a Customer's account not less frequently than weekly and invest amounts
in excess of a minimum balance agreed to by the Shareholder Organization and its
Customer in Shares of the Fund selected by the Customer. Investors purchasing
Shares may include officers, directors, or employees of the particular
Shareholder Organization.
As stated in the Prospectus, no sales charge is imposed by the
Companies on purchases of Shares. In addition, no sales load is charged on the
reinvestment of dividends or distributions or in connection with certain Share
exchanges as described in the Prospectus under "Investor Programs--Exchange
Privilege."
As described in the Prospectus, Direct Investors may redeem Shares by
writing a check. Checks to redeem Shares are drawn on the Companies' accounts
at United States Trust Company of New York. Direct Investors will be subject to
the same rules and regulations that U.S. Trust applies to checking accounts and
will have the same rights and duties with respect to stop-payment orders,
"stale" checks, unauthorized signatures, collection of deposits, alterations and
unauthorized endorsements as bank checking account customers do under the New
York Uniform Commercial Code. When a check is presented to U.S. Trust for
payment, U.S. Trust, as the shareholder's agent, will cause the Fund from which
the redemption is requested to redeem sufficient Shares in the shareholder's
account to cover the amount of the check.
The Companies may suspend the right of redemption or postpone the date
of payment for Shares for more than 7 days during any period when (a) trading on
the New York Stock Exchange (the "Exchange") is restricted by applicable rules
and regulations of the Securities and Exchange Commission; (b) the
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Exchange is closed for other than customary weekend and holiday closings; (c)
the Securities and Exchange Commission has by order permitted such suspension;
or (d) an emergency exists as determined by the Securities and Exchange
Commission.
In the event that Shares are redeemed in cash at their net asset
value, a shareholder may receive in payment for such Shares an amount that is
more or less than his original investment due to changes in the market prices of
that Fund's portfolio securities.
Each Company reserves the right to honor any request for redemption or
repurchase of a Fund's Shares by making payment in whole or in part in
securities chosen by the Company and valued in the same way as they would be
valued for purposes of computing a Fund's net asset value. If payment is made
in securities, a shareholder may incur transaction costs in converting these
securities into cash. Such redemptions in kind will be governed by Rule 18f-1
under the 1940 Act so that a Fund is obligated to redeem its Shares solely in
cash up to the lesser of $250,000 or 1% of its net asset value during any 90-day
period for any one shareholder of a Fund.
Under limited circumstances, the Companies may accept securities as
payment for Shares. Securities acquired in this manner will be limited to
securities issued in transactions involving a bona fide reorganization or
---------
statutory merger, or will be limited to other securities (except for municipal
debt securities issued by state political subdivisions or their agencies or
instrumentalities) that: (a) meet the investment objective and policies of any
Fund acquiring such securities; (b) are acquired for investment and not for
resale; (c) are liquid securities that are not restricted as to transfer either
by law or liquidity of market; and (d) have a value that is readily
ascertainable (and not established only by evaluation procedures) as evidenced
by a listing on the American Stock Exchange, New York Stock Exchange or NASDAQ,
or as evidenced by their status as U.S. Government securities, bank certificates
of deposit, banker's acceptances, corporate and other debt securities that are
actively traded, money market securities and other similar securities with a
readily ascertainable value.
INVESTOR PROGRAMS
-----------------
Systematic Withdrawal Plan
- --------------------------
An Investor who owns Shares with a value of $10,000 or more may begin
a Systematic Withdrawal Plan. The withdrawal can be on a monthly, quarterly,
semiannual or annual basis. There
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<PAGE>
are four options for such systematic withdrawals. The Investor may request:
(1) A fixed-dollar withdrawal;
(2) A fixed-share withdrawal;
(3) A fixed-percentage withdrawal (based on the current value of the
account); or
(4) A declining-balance withdrawal.
Prior to participating in a Systematic Withdrawal Plan, the Investor must
deposit any outstanding certificates for Shares with Chase Global Funds Services
Company, the Funds' sub-transfer agent. Under this Plan, dividends and
distributions are automatically reinvested in additional Shares. Amounts paid
to Investors under this Plan should not be considered as income. Withdrawal
payments represent proceeds from the sale of Shares, and there will be a
reduction of the shareholder's equity in the Fund involved if the amount of the
withdrawal payments exceeds the dividends paid on the Shares. This in turn may
result in a complete depletion of the shareholder's investment. An Investor may
not participate in a program of systematic investing in a Fund while at the same
time participating in the Systematic Withdrawal Plan with respect to an account
in that Fund.
Exchange Privilege
- ------------------
Investors and Customers of Shareholder Organizations may exchange
Shares having a value of at least $500 for Shares of any other portfolio of the
Companies or for Trust Shares of Excelsior Institutional Trust. Shares may be
exchanged by wire, telephone or mail and must be made to accounts of identical
registration. There is no exchange fee imposed by the Companies or Excelsior
Institutional Trust. In order to prevent abuse of this privilege to the
disadvantage of other shareholders, the Companies and Excelsior Institutional
Trust reserve the right to limit the number of exchange requests of Investors
and Customers of Shareholder Organizations to no more than six per year. The
Companies may modify or terminate the exchange program at any time upon 60 days'
written notice to shareholders, and may reject any exchange request.
For Federal income tax purposes, exchanges are treated as sales on
which the shareholder will realize a gain or loss, depending upon whether the
value of the Shares to be given up in exchange is more or less than the basis in
such Shares at the time of the exchange. Generally, a shareholder may include
sales loads incurred upon the purchase of Shares in his or her tax basis for
such Shares for the purpose of determining gain or loss
-13-
<PAGE>
on a redemption, transfer or exchange of such Shares. However, if the
shareholder effects an exchange of Shares for shares of another portfolio of the
Companies within 90 days of the purchase and is able to reduce the sales load
applicable to the new shares (by virtue of the Companies' exchange privilege),
the amount equal to such reduction may not be included in the tax basis of the
shareholder's exchanged Shares but may be included (subject to the limitation)
in the tax basis of the new shares.
Other Investor Programs
- -----------------------
As discussed in the Prospectus, Shares of the Funds may be purchased
in connection with the Automatic Investment Program. Shares of the Money,
Government Money and Treasury Money Funds may also be purchased in connection
with certain Retirement Programs.
DESCRIPTION OF CAPITAL STOCK
----------------------------
Excelsior Fund's Charter authorizes its Board of Directors to issue up
to 35 billion full and fractional shares of capital stock; and Excelsior Tax-
Exempt Fund's Charter authorizes its Board of Directors to issue up to 14
billion full and fractional shares of capital stock. Both Charters authorize
the respective Boards of Directors to classify or reclassify any unissued shares
of the respective Companies into one or more additional classes or series by
setting or changing in any one or more respects their respective preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption. The
Prospectus describes the classes of shares into which the Companies' authorized
capital is currently classified.
Shares have no preemptive rights and only such conversion or exchange
rights as the Boards of Directors may grant in their discretion. When issued
for payment as described in the Prospectus, Shares will be fully paid and non-
assessable. In the event of a liquidation or dissolution of a Fund,
shareholders of that Fund are entitled to receive the assets available for
distribution belonging to that Fund and a proportionate distribution, based upon
the relative asset values of the portfolios of the Company involved, of any
general assets of that Company not belonging to any particular portfolio of that
Company which are available for distribution. In the event of a liquidation or
dissolution of either Company, shareholders of such Company will be entitled to
the same distribution process.
Shareholders of the Companies are entitled to one vote for each full
share held, and fractional votes for fractional shares held, and will vote in
the aggregate and not by class,
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<PAGE>
except as otherwise required by the 1940 Act or other applicable law or when the
matter to be voted upon affects only the interests of the shareholders of a
particular class. Voting rights are not cumulative and, accordingly, the
holders of more than 50% of a Company's aggregate outstanding shares may elect
all of that Company's directors, regardless of the votes of other shareholders.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as each Company shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each portfolio affected by the matter. A portfolio is affected by a matter
unless it is clear that the interests of each portfolio in the matter are
substantially identical or that the matter does not affect any interest of the
portfolio. Under the Rule, the approval of an investment advisory agreement or
any change in a fundamental investment policy would be effectively acted upon
with respect to a portfolio only if approved by a majority of the outstanding
shares of such portfolio. However, the Rule also provides that the ratification
of the appointment of independent public accountants, the approval of principal
underwriting contracts, and the election of directors may be effectively acted
upon by shareholders of each Company voting without regard to class.
The Companies' Charters authorize the Boards of Directors, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding Shares of the Fund involved to be
redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert a Fund's assets into
money and, in connection therewith, to cause all outstanding Shares to be
redeemed at their net asset value; or (c) combine the assets belonging to a Fund
with the assets belonging to another portfolio of the Company involved, if the
Board of Directors reasonably determines that such combination will not have a
material adverse effect on shareholders of any portfolio participating in such
combination, and, in connection therewith, to cause all outstanding shares of
any portfolio to be redeemed at their net asset value or converted into shares
of another class of the Company's capital stock at net asset value. The
exercise of such authority by the Boards of Directors will be subject to the
provisions of the 1940 Act, and the Boards of Directors will not take any action
described in this paragraph
-15-
<PAGE>
unless the proposed action has been disclosed in writing to the particular
Fund's shareholders at least 30 days prior thereto.
Notwithstanding any provision of Maryland law requiring a greater vote
of a Company's Common Stock (or of the Shares of a Fund voting separately as a
class) in connection with any corporate action, unless otherwise provided by law
(for example, by Rule 18f-2, discussed above) or by the Company's Charter, each
Company may take or authorize such action upon the favorable vote of the holders
of more than 50% of its outstanding Common Stock voting without regard to class.
MANAGEMENT OF THE FUNDS
-----------------------
Directors and Officers
- ----------------------
The directors and executive officers of the Companies, their
addresses, ages, principal occupations during the past five years, and other
affiliations are as follows (the listed positions apply to both):
<TABLE>
<CAPTION>
Position Principal Occupation
with the During Past 5 Years and
Name and Address Companies Other Affiliations
- ---------------- --------- -----------------------
<S> <C> <C>
Alfred C. Tannachion/1/ Chairman of the Retired; Chairman of the
1135 Hyde Park Court Board, President Boards, President and
Mahwah, NJ 07430 and Treasurer Treasurer of Excelsior and
Age 70 Excelsior Tax-Exempt;
Chairman of the Board,
President and Treasurer of
UST Master Variable Series,
Inc. (since 1994); Chairman
of the Board, President and
Treasurer of Excelsior
Institutional Trust (since
1995).
Donald L. Campbell Director Retired; Director of
333 East 69th Street Excelsior and Excelsior
Apt. 10-H Tax-Exempt; Director of UST
New York, NY 10021 Master Variable Series,
Age 70 Inc. (since 1994); Trustee of
Excelsior Institutional Trust
(since 1995); Director, Royal
Life Insurance Co. of NY
(since 1991).
</TABLE>
- ---------------------------
1 This director is considered to be an "interested person" of Excelsior Fund
as defined in the 1940 Act.
-16-
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupation
with the During Past 5 Years and
Name and Address Companies Other Affiliations
- ---------------- --------- -----------------------
<S> <C> <C>
Joseph H. Dugan Director Retired; Director of
913 Franklin Lake Road Excelsior and Excelsior
Franklin Lakes, NJ 07417 Tax-Exempt; Director of UST
Age 71 Master Variable Series, Inc.
(since 1994); Trustee of
Excelsior Institutional Trust
(since 1995).
Wolfe J. Frankl Director Retired; Director of
2320 Cumberland Road Excelsior and Excelsior Tax-
Charlottesville, VA 22901 Exempt; Director of UST
Age 75 Master Variable Series, Inc.
(since 1994); Trustee of
Excelsior Institutional Trust
(since 1995); Director, Deutsche
Bank Financial, Inc. (since
1989); Director, The Harbus
Corporation (since 1951);
Trustee, HSBC Funds Trust and
HSBC Mutual Funds Trust (since
1995).
Robert A. Robinson Director Director of Excelsior and
Church Pension Fund Excelsior Tax-Exempt;
800 Second Avenue Director of UST Master
New York, NY 10017 Variable Series, Inc. (since
Age 70 1994); Trustee of Excelsior
Institutional Trust (since
1995); President Emeritus, The
Church Pension Fund and its
affiliated companies (since
1968); Trustee, H.B. and F.H.
Bugher Foundation and Director
of its wholly owned subsidiaries
-- Rosiclear Lead and Flourspar
Mining Co. and The Pigmy
Corporation (since 1984);
Director, Morehouse Publishing
Co. (since 1974); Trustee, HSBC
Funds Trust and HSBC Mutual
Funds Trust (since 1982);
Director, Infinity Funds, Inc.
(since 1995).
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupation
with the During Past 5 Years and
Name and Address Companies Other Affiliations
- ---------------- --------- -----------------------
<S> <C> <C>
Frederick S. Wonham/1/ Director Retired; Director of Excelsior
238 June Road and Excelsior Tax-Exempt;
Stamford, CT 06903 Trustee of Excelsior Funds and
Age 65 Excelsior Institutional Trust
(since 1995); Vice Chairman of
U.S. Trust Corporation and U.S.
Trust Company of New York (until
September, 1995); Chairman, U.S.
Trust of Connecticut.
W. Bruce McConnel, III Secretary Partner of the law firm of
Philadelphia National Drinker Biddle & Reath.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age 53
Sherry Aramini Assistant Second Vice President, Blue
Chase Global Funds Secretary Sky Compliance Manager,
Services Company Chase Global Funds Services
73 Tremont Street Company since May 1996;
Boston, MA 02108-3913 Technical Resource Manager,
Age 32 Chase Global Funds Services
Company, April 1995-May 1996;
Financial Reporting Supervisor,
Chase Global Funds Services Company,
September 1993-April 1995; Audit
Supervisor, Coopers & Lybrand L.P.,
July 1990-August 1993.
John M. Corcoran Assistant Vice President, Director of
Chase Global Funds Treasurer Administration, Client Group,
Services Company Chase Global Funds Services
73 Tremont Street Company (July 1996-present);
Boston, MA 02108-3913 Second Vice President, Manager
Age 31 of Administration, Chase Global
Funds Services Company (October 1993-
July 1996); Audit Manager, Ernst &
Young LLP (from August 1987 to
September 1993).
</TABLE>
Each director receives an annual fee of $9,000 with respect to each
Company plus a per-Company meeting fee of $1,500 for each meeting attended and
is reimbursed for expenses incurred in attending meetings. The Chairman of the
Board is entitled to receive an additional $5,000 per annum with respect to each
Company for services in such capacity. Drinker Biddle & Reath,
- -----------------------------
1. This director is considered to be an "interested person" of Excelsior
Fund as defined in the 1940 Act.
-18-
<PAGE>
of which Mr. McConnel is a partner, receives legal fees as counsel to the
Companies. The employees of Chase Global Funds Services Company do not receive
any compensation from the Companies for acting as officers of the Companies. No
person who is currently an officer, director or employee of the Investment
Adviser serves as an officer, director or employee of the Companies. As of July
15, 1996, the directors and officers of each Company as a group owned
beneficially less than 1% of the outstanding Shares of each Fund of the Company,
and less than 1% of the outstanding Shares of all Funds of the Company in the
aggregate.
The following chart provides certain information about the fees
received by the Companies' directors in the most recently completed fiscal year.
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Accrued as from the Companies
Aggregate Part of and Fund
Name of Compensation from Fund Complex/*/ Paid
Person/Position each Company Expenses to Directors
--------------- ----------------- -------- ------------------
<S> <C> <C> <C>
Donald L. Campbell $16,500 None $39,500(4)**
Director
Joseph H. Dugan $16,500 None $39,500(4)**
Director
Wolfe J. Frankl $16,500 None $39,500(4)**
Director
Robert A. Robinson $16,500 None $39,500(4)**
Director
Alfred C. Tannachion $21,500 None $51,500(4)**
Chairman of the Boards,
President and Treasurer
Frederick S. Wonham+ $ 6,375 None $14,424(4)**
</TABLE>
- ---------------------------
/*/ The "Fund Complex" consists of Excelsior Funds, Inc., Excelsior Tax-Exempt
Funds, Inc., UST Master Variable Series, Inc., Excelsior Funds and
Excelsior Institutional Trust.
-19-
<PAGE>
/**/ Number of investment companies in the Fund Complex for which director
services as director or trustee.
/+/ Frederick S. Wonham was elected to the Board of Directors of Excelsior
Funds, Inc. and Excelsior Tax-Exempt Funds, Inc. on November 17, 1995.
Investment Advisory and Administration Agreements
- -------------------------------------------------
United States Trust Company of New York serves as Investment Adviser
to the Funds. In the Investment Advisory Agreements, U.S. Trust has agreed to
provide the services described in the Prospectus. The Investment Adviser has
also agreed to pay all expenses incurred by it in connection with its activities
under the respective agreements other than the cost of securities, including
brokerage commissions, if any, purchased for the Funds. See "Expenses" in the
Prospectus.
For the fiscal year ended March 31, 1994, Excelsior Fund paid the
Investment Adviser $2,183,204, $1,897,581 and $702,230 with respect to the
Money, Government Money and Treasury Money Funds, respectively. For the same
period, Excelsior Tax-Exempt Fund paid the Investment Adviser $1,697,812 with
respect to the Tax-Exempt Money Fund. For the fiscal year ended March 31, 1994,
the Investment Adviser waived fees totalling $14,775, $20,874, $1,704 and
$20,732 with respect to the Money, Government Money, Treasury Money and Tax-
Exempt Money Funds, respectively.
For the fiscal year ended March 31, 1995, Excelsior Fund paid the
Investment Adviser $1,781,897, $1,665,344 and $674,259 with respect to the
Money, Government Money and Treasury Money Funds, respectively. For the same
period, Excelsior Tax-Exempt Fund paid the Investment Adviser $1,698,879 with
respect to the Tax-Exempt Money Fund. For the fiscal year ended March 31, 1995,
the Investment Adviser waived fees totalling $204,060, $173,321, $45,366 and
$236,867 with respect to the Money, Government Money, Treasury Money and Tax-
Exempt Money Funds, respectively.
For the fiscal year ended March 31, 1996, Excelsior Fund paid the
Investment Adviser $1,291,496, $1,224,338 and $621,988 with respect to the
Money, Government Money and Treasury Money Funds, respectively. For the same
period, Excelsior Tax-Exempt Fund paid the Investment Adviser $1,745,649 with
respect to the Tax-Exempt Money Fund. For the fiscal year ended March 31, 1996,
the Investment Adviser waived fees totalling $227,463, $172,140, $46,887 and
$353,419 with respect to the Money, Government Money, Treasury Money and Tax-
Exempt Money Funds, respectively.
-20-
<PAGE>
The Investment Advisory Agreements provide that the Investment Adviser
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Funds in connection with the performance of such agreements,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for advisory services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Investment Adviser
in the performance of its duties or from reckless disregard by it of its duties
and obligations thereunder. In addition, the Investment Adviser has undertaken
in the Investment Advisory Agreements to maintain its policy and practice of
conducting its Asset Management Group independently of its Banking Group.
Chase Global Funds Services Company ("CGFSC"), Federated
Administrative Services, an affiliate of the Distributor, and U.S. Trust (the
"Administrators") serve as the Funds' administrators. Under the Administration
Agreements, the Administrators have agreed to maintain office facilities for the
Funds, furnish the Funds with statistical and research data, clerical,
accounting and bookkeeping services, and certain other services required by the
Funds, and to compute the net asset value, net income, "exempt-interest
dividends," and realized capital gains or losses, if any, of the respective
Funds. The Administrators prepare semiannual reports to the Securities and
Exchange Commission, prepare Federal and state tax returns, prepare filings with
state securities commissions, arrange for and bear the cost of processing Share
purchase and redemption orders, maintain the Funds' financial accounts and
records, and generally assist in the Funds' operations.
Prior to August 1, 1995, administrative services were provided to the
Funds by CGFSC and Concord Holding Corporation (collectively, the "former
administrators") under administration agreements having substantially the same
terms as the Administration Agreements currently in effect.
For the fiscal year ended March 31, 1994, Excelsior Fund paid the
former administrators $1,362,669, $1,183,297 and $360,869 in the aggregate with
respect to the Money, Government Money and Treasury Money Funds, respectively.
For the same period, Excelsior Tax-Exempt Fund paid the former administrators
$1,060,325 in the aggregate with respect to the Tax-Exempt Money Fund. For the
fiscal year ended March 31, 1994, the former administrators waived fees
totalling $384 and $358 with respect to the Government Money and Treasury Money
Funds, respectively.
For the fiscal year ended March 31, 1995, Excelsior Fund paid the
former administrators $1,223,349, $1,131,530 and $369,056 in the aggregate with
respect to the Money Fund, Government Money Fund and Treasury Money Fund,
respectively. For
-21-
<PAGE>
the same period, Excelsior Tax-Exempt Fund paid the former administrators
$1,193,896 in the aggregate with respect to the Tax-Exempt Money Fund. For the
fiscal year ended March 31, 1995, the former administrators waived fees
totalling $1,087 and $351 with respect to the Government Money and Treasury
Money Funds, respectively.
For the period April 1, 1995 through July 31, 1995, Excelsior Fund
paid the former administrators $450,305, $403,443 and $107,685 in the aggregate
with respect to the Money Fund, Government Money Fund and Treasury Money Fund,
respectively. For the same period, Excelsior Tax-Exempt Fund paid the former
administrators $________ in the aggregate with respect to the Tax-Exempt Money
Fund. For the period April 1, 1995 through July 31, 1995, the former
administrators waived fees totalling $135 with respect to the Government Money
Fund.
For the period August 1, 1995 through March 31, 1996, Excelsior Fund
paid the Administrators $487,151, $457,681, and $236,672 in the aggregate with
respect to the Money Fund, Government Money Fund and Treasury Money Fund,
respectively. For the same period, Excelsior Tax-Exempt Fund paid the
Administrators $889,555 in the aggregate with respect to the Tax-Exempt Money
Fund. For the period August 1, 1995 through March 31, 1996, the Administrators
waived fees totalling $705 with respect to the Government Money Fund.
Service Organizations
- ---------------------
As stated in the Prospectus, the Companies will enter into agreements
with Service Organizations. Such shareholder servicing agreements will require
the Service Organizations to provide shareholder administrative services to
their Customers who beneficially own Shares in consideration for a Fund's
payment (on an annualized basis) of up to .40% of the average daily net assets
of the Fund's Shares beneficially owned by Customers of the Service
Organization. Such services with respect to a Fund may include: (a) assisting
Customers in designating and changing dividend options, account designations and
addresses; (b) providing necessary personnel and facilities to establish and
maintain certain shareholder accounts and records, as may reasonably be
requested from time to time by the Companies; (c) assisting in processing
purchases, exchange and redemption transactions; (d) arranging for the wiring
of funds; (e) transmitting and receiving funds in connection with Customer
orders to purchase, exchange or redeem Shares; (f) verifying and guaranteeing
Customer signatures in connection with redemption orders, transfers among and
changes in Customer-designated accounts; (g) providing periodic statements
showing a Customer's account balances and, to the extent practicable,
integrating of such information with information concerning other client
-22-
<PAGE>
transactions otherwise effected with or through the Service Organization; (h)
furnishing on behalf of the Companies' distributor (either separately or on an
integrated basis with other reports sent to a Customer by the Service
Organization) periodic statements and confirmations of all purchases, exchanges
and redemptions of Shares in a Customer's account required by applicable federal
or state law; (i) transmitting proxy statements, annual reports, updating
prospectuses and other communications from the Companies to Customers; (j)
receiving, tabulating and transmitting to the Companies proxies executed by
Customers with respect to annual and special meetings of shareholders of the
Companies; (k) providing reports (at least monthly, but more frequently if so
requested by the Companies' distributor) containing state-by-state listings of
the principal residences of the beneficial owners of the Shares; and (l)
providing or arranging for the provision of such other related services as the
Companies or a Customer may reasonably request.
The Companies' agreements with Service Organizations are governed by
Administrative Services Plans (the "Plans") adopted by the Companies. Pursuant
to the Plans, each Company's Board of Directors will review, at least quarterly,
a written report of the amounts expended under the Company's agreements with
Service Organizations and the purposes for which the expenditures were made. In
addition, the arrangements with Service Organizations will be approved annually
by a majority of each Company's directors, including a majority of the directors
who are not "interested persons" of the Company as defined in the 1940 Act and
have no direct or indirect financial interest in such arrangements (the
"Disinterested Directors").
Any material amendment to a Company's arrangements with Service
Organizations must be approved by a majority of the Company's Board of Directors
(including a majority of the Disinterested Directors). So long as the
Companies' arrangements with Service Organizations are in effect, the selection
and nomination of the members of the Companies' Boards of Directors who are not
"interested persons" (as defined in the 1940 Act) of the Companies will be
committed to the discretion of such non-interested Directors.
For the fiscal years ended March 31, 1996, 1995 and 1994, payments to
Service Organizations totalled $227,463, $204,060 and $14,775; $172,980,
$174,408 and $21,258; $46,887, $45,717 and $2,062; and $353,419, $236,867 and
$20,732 with respect to the Money, Government Money, Treasury Money and Tax-
Exempt Money Funds, respectively. Of these respective amounts, $227,463,
$203,572 and $14,775; $168,064, $171,257 and $20,233; $46,887, $44,596 and
$1,075; and $353,419, $236,399 and $20,732 were paid to affiliates of U.S. Trust
with respect to the Money, Government Money, Treasury Money and Tax-Exempt Money
Funds.
-23-
<PAGE>
Expenses
- --------
Except as otherwise noted, the Investment Adviser and the
Administrators bear all expenses in connection with
the performance of their services. The Funds bear the expenses incurred in
their operations. Expenses of the Funds include taxes; interest; fees
(including fees paid to the Companies' Directors and officers who are not
affiliated with the Distributor or the Administrators); Securities and Exchange
Commission fees; state securities qualification fees, costs of preparing and
printing prospectuses for regulatory purposes and for distribution to
shareholders; advisory, administration and administrative servicing fees,
charges of the custodian, transfer agent, and dividend disbursing agent; certain
insurance premiums; outside auditing and legal expenses; costs of shareholder
reports and meetings; and any extraordinary expenses. The Funds also pay any
brokerage fees and commissions in connection with the purchase of portfolio
securities.
If the expenses borne by a Fund in any fiscal year exceed expense
limitations imposed by applicable state securities regulations, the Investment
Adviser and the Administrators will reimburse such Fund for a portion of any
such excess to the extent required by such regulations in proportion to the fees
received by them in such year up to the amount of the fees payable to them,
provided, however, to the extent required by such state regulations, the
Investment Adviser and the Administrators have agreed to effect such
reimbursement regardless of the fees payable to them. The amounts of the above
reimbursements, if any, will be estimated, reconciled and paid on a monthly
basis. To the Companies' knowledge, of the applicable expense limitations in
effect on the date of this Statement of Additional Information, none is more
restrictive than the following: 2 1/2% of the first $30 million of average
annual net assets, 2% of the next $70 million of average annual net assets and
1/2% of average annual net assets in excess of $100 million.
Custodian and Transfer Agent
- ----------------------------
The Chase Manhattan Bank, N.A. ("Chase") serves as custodian of the
Funds' assets. Under the custodian agreements, Chase has agreed to (i) maintain
a separate account or accounts in the name of the Funds; (ii) make receipts and
disbursements of money on behalf of the Funds; (iii) collect and receive all
income and other payments and distributions on account of the Funds' portfolio
securities; (iv) respond to correspondence from securities brokers and others
relating to its duties; (v) maintain certain financial accounts and records; and
(vi) make periodic reports to the Companies' Boards of Directors concerning the
Funds' operations. Chase is entitled to monthly fees for furnishing custodial
services according to the following fee
-24-
<PAGE>
schedule: on the face value of debt securities and the market value of equity
securities, a fee at the annual rate of .025%; on issues held, $50.00 for each
physical issue held, $25.00 for each book-entry issue held and 1/4 of 1% of
market value for each foreign issue held; on transactions, $25.00 for each
physical transaction, $15.00 for each book-entry transaction and $50.00 for each
foreign security transaction. In addition, Chase is entitled to reimbursement
for its out-of-pocket expenses in connection with the above services. Chase
may, at its own expense, open and maintain custody accounts with respect to the
Funds with other banks or trust companies, provided that Chase shall remain
liable for the performance of all its custodial duties under the Custodian
Agreements, notwithstanding any delegation.
U.S. Trust also serves as the Funds' transfer agent and dividend
disbursing agent. In such capacity, U.S. Trust has agreed to (i) issue and
redeem Shares; (ii) address and mail all communications by the Funds to their
shareholders, including reports to shareholders, dividend and distribution
notices, and proxy materials for its meetings of shareholders; (iii) respond to
correspondence by shareholders and others relating to its duties; (iv) maintain
shareholder accounts; and (v) make periodic reports to the Companies concerning
each Fund's operations. For its transfer agency, dividend disbursing, and
subaccounting services, U.S. Trust is entitled to receive $15.00 per annum per
account and subaccount. In addition, U.S. Trust is entitled to be reimbursed
for its out-of-pocket expenses for the cost of forms, postage, processing
purchase and redemption orders, handling of proxies, and other similar expenses
in connection with the above services.
U.S. Trust may, at its own expense, delegate its transfer agency
obligations to another transfer agent registered or qualified under applicable
law, provided that U.S. Trust shall remain liable for the performance of all of
its transfer agency duties under the Transfer Agency Agreements, notwithstanding
any delegation. Pursuant to this provision in the agreement, U.S. Trust has
entered into a sub-transfer agency arrangement with CGFSC, an affiliate of
Chase, with respect to accounts of shareholders who are not Customers of U.S.
Trust. For the services provided by CGFSC, U.S. Trust has agreed to pay CGFSC
$15.00 per annum per account or subaccount plus out-of-pocket expenses. CGFSC
receives no fee directly from the Companies for any of its sub-transfer agency
services.
-25-
<PAGE>
PORTFOLIO TRANSACTIONS
----------------------
Subject to the general control of the Companies' Boards of Directors,
the Investment Adviser is responsible for, makes decisions with respect to, and
places orders for all purchases and sales of all portfolio securities of each of
the Funds.
The Funds do not intend to seek profits from short-term trading.
Their annual portfolio turnover will be relatively high, but brokerage
commissions are not normally paid on money market instruments, and portfolio
turnover is not expected to have a material effect on the net income of the
Funds.
Securities purchased and sold by the Funds are generally traded in the
over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
With respect to over-the-counter transactions, the Funds, where possible, will
deal directly with the dealers who make a market in the securities involved,
except in those circumstances where better prices and execution are available
elsewhere.
The Investment Advisory Agreements between the Companies and the
Investment Adviser provide that, in executing portfolio transactions and
selecting brokers or dealers, the Investment Adviser will seek to obtain the
best net price and the most favorable execution. The Investment Adviser shall
consider factors it deems relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer and whether such broker or dealer is selling
shares of the Companies, and the reasonableness of the commission, if any, for
the specific transaction and on a continuing basis.
In addition, the Investment Advisory Agreements authorize the
Investment Adviser, to the extent permitted by law and subject to the review of
the Companies' Boards of Directors from time to time with respect to the extent
and continuation of the policy, to cause the Funds to pay a broker which
furnishes brokerage and research services a higher commission than that which
might be charged by another broker for effecting the same transaction, provided
that the Investment Adviser determines in good faith that such commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker, viewed in terms of either that particular transaction
or the overall responsibilities of the Investment Adviser to the
-26-
<PAGE>
accounts as to which it exercises investment discretion. Such brokerage and
research services might consist of reports and statistics on specific companies
or industries, general summaries of groups of stocks and their comparative
earnings, or broad overviews of the stock market and the economy.
Supplementary research information so received is in addition to and
not in lieu of services required to be performed by the Investment Adviser and
does not reduce the investment advisory fees payable by the Funds. Such
information may be useful to the Investment Adviser in serving the Funds and
other clients and, conversely, supplemental information obtained by the
placement of business of other clients may be useful to the Investment Adviser
in carrying out its obligations to the Funds.
Portfolio securities will not be purchased from or sold to the
Investment Adviser, the Distributor, or any affiliated person of either of them
(as such term is defined in the 1940 Act) acting as principal, except to the
extent permitted by the Securities and Exchange Commission.
Investment decisions for the Funds are made independently from those
for other investment companies, common trust funds and other types of funds
managed by the Investment Adviser. Such other investment companies and funds
may also invest in the same securities as the Funds. When a purchase or sale of
the same security is made at substantially the same time on behalf of the Funds
and another investment company or common trust fund, the transaction will be
averaged as to price, and available investments allocated as to amount, in a
manner which the Investment Adviser believes to be equitable to the Funds and
such other investment company or common trust fund. In some instances, this
investment procedure may adversely affect the price paid or received by the
Funds or the size of the position obtained by the Funds. To the extent
permitted by law, the Investment Adviser may aggregate the securities to be sold
or purchased for the Funds with those to be sold or purchased for other
investment companies or common trust funds in order to obtain best execution.
The Companies are required to identify any securities of their regular
brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or their
parents held by the Companies as of the close of their most recent fiscal year.
As of March 31, 1996, the following Funds held the following securities of
Excelsior Fund's regular brokers or dealers or their parents: (a) the Money
Fund held the following securities: repurchase agreement with Dillon Read &
Co., Inc. in the principal amount of $8,835,594, and commercial paper of Merrill
Lynch & Co., Inc. in the principal amount of $16,781,833; and (b) the Government
Money Fund held the following security: repurchase agreement with
-27-
<PAGE>
Dillon Read & Co., Inc. in the principal amount of $13,387,835. Dillon Read &
Co., Inc., Merrill Lynch & Co., Inc., Morgan Stanley & Co., Inc., First National
Bank of Chicago and Dean Witter Reynolds, Inc. are considered to be regular
brokers or dealers of Excelsior Fund. As of March 31, 1996, Excelsior Tax-
Exempt Fund held no securities of Excelsior Tax-Exempt Fund's regular brokers or
dealers or their parents.
INDEPENDENT AUDITORS
--------------------
Ernst & Young LLP, independent auditors, 200 Clarendon Street, Boston,
MA 02116, serve as auditors of the Companies. The Funds' Financial Highlights
included in the Prospectus and the financial statements for the period ended
March 31, 1996 incorporated by reference in this Statement of Additional
Information have been audited by Ernst & Young LLP for the periods included in
their reports thereon which appear therein.
COUNSEL
-------
Drinker Biddle & Reath (of which Mr. McConnel, Secretary of the
Companies, is a partner), located at 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107, is counsel to the Companies, and will pass upon the legality
of the Shares offered by the Prospectus.
ADDITIONAL INFORMATION CONCERNING TAXES
---------------------------------------
Generally
- ---------
The following supplements the tax information contained in the
Prospectus.
Each of the Funds is treated as a separate corporate entity under the
Internal Revenue Code of 1986, as amended (the "Code"), and intends to qualify
as a regulated investment company. If, for any reason, a Fund does not qualify
for a taxable year for the special Federal tax treatment afforded regulated
investment companies, such Fund would be subject to Federal tax on all of its
taxable income at regular corporate rates, without any deduction for
distributions to shareholders. In such event, dividend distributions (whether
or not derived from interest on Municipal Securities) would be taxable as
ordinary income to shareholders to the extent of the Fund's current and
accumulated earnings and profits and would be eligible for the dividends
received deduction in the case of corporate shareholders.
-28-
<PAGE>
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income (excess
of capital gains over capital losses). The Funds intend to make sufficient
distributions or deemed distributions of their ordinary taxable income and any
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Each Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends paid to shareholders who have failed
to provide a correct tax identification number in the manner required, who are
subject to withholding by the Internal Revenue Service for failure properly to
include on their return payments of taxable interest or dividends, or who have
failed to certify to the Fund when required to do so either that they are not
subject to backup withholding or that they are "exempt recipients."
Tax-Exempt Money Fund
- ---------------------
The Tax-Exempt Money Fund is not intended to constitute a balanced
investment program and is not designed for investors seeking capital
appreciation or maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the Tax-Exempt Money Fund would not be suitable for tax-
exempt institutions and may not be suitable for retirement plans qualified under
Section 401 of the Code, H.R. 10 plans and individual retirement accounts
because such plans and accounts are generally tax-exempt and, therefore, not
only would not gain any additional benefit from the Tax-Exempt Money Fund
dividends being tax-exempt, but such dividends would be ultimately taxable to
the beneficiaries when distributed to them. In addition, the Tax-Exempt Money
Fund may not be an appropriate investment for entities which are "substantial
users" of facilities financed by private activity bonds or "related persons"
thereof. "Substantial user" is defined under the Treasury Regulations to include
a non-exempt person who regularly uses a part of such facilities in his trade or
business and whose gross revenues derived with respect to the facilities
financed by the issuance of bonds are more than 5% of the total revenues derived
by all users of such facilities, who occupies more than 5% of the usable area of
such facilities or for whom such facilities or a part thereof were specifically
constructed, reconstructed or acquired. "Related persons" include certain
related natural persons, affiliated corporations, a partnership and its partners
and an S Corporation and its shareholders.
In order for the Tax-Exempt Money Fund to pay exempt-interest
dividends for any taxable year, at least 50% of the aggregate value of the
Fund's portfolio must consist of
-29-
<PAGE>
exempt-interest obligations at the close of each quarter of its taxable year.
Within 60 days after the close of the taxable year, the Tax-Exempt Money Fund
will notify its shareholders of the portion of the dividends paid by the Fund
which constitutes an exempt-interest dividend with respect to such taxable year.
However, the aggregate amount of dividends so designated by the Tax-Exempt Money
Fund cannot exceed the excess of the amount of interest exempt from tax under
Section 103 of the Code received by the Tax-Exempt Money Fund during the taxable
year over any amounts disallowed as deductions under Sections 265 and 171(a)(2)
of the Code. The percentage of total dividends paid by the Tax-Exempt Money
Fund with respect to any taxable year which qualifies as exempt-interest
dividends will be the same for all shareholders receiving dividends from the
Tax-Exempt Money Fund for such year.
Interest on indebtedness incurred by a shareholder to purchase or
carry the Tax-Exempt Money Fund's Shares generally is not deductible for Federal
income tax purposes.
Excelsior Tax-Exempt Fund intends to distribute to shareholders of the
Tax-Exempt Money Fund any investment company taxable income earned by the Tax-
Exempt Money Fund for each taxable year. In general, the Tax-Exempt Money
Fund's investment company taxable income will be its taxable income (including
taxable interest and short-term capital gains) subject to certain adjustments
and excluding the excess of any net long-term capital gain for the taxable year
over the net short-term capital loss, if any, for such year. Such distributions
will be taxable to the shareholders as ordinary income (whether paid in cash or
additional Shares).
* * *
The foregoing discussion is based on Federal tax laws and regulations
which are in effect on the date of this Statement of Additional Information;
such laws and regulations may be changed by legislative or administrative
action. Shareholders are advised to consult their tax advisers concerning their
specific situations and the application of state and local taxes.
YIELD INFORMATION
-----------------
The standardized annualized seven-day yields for the Shares of the
Funds are computed separately by determining the net change, exclusive of
capital changes, in the value of a hypothetical pre-existing account in the Fund
involved, having a balance of one Share at the beginning of the period, dividing
the net change in account value by the value of the account at the beginning of
the period to obtain the base period return, and multiplying the base period
return by (365/7). The net change in
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<PAGE>
the value of an account in each of the Funds includes the value of additional
Shares purchased with dividends from the original Share and dividends declared
on both the original Share and any such additional Shares, net of all fees that
are charged to all shareholder accounts and to the particular series of Shares
in proportion to the length of the base period, other than nonrecurring account
or any sales charges. For any account fees that vary with the size of the
account, the amount of fees charged is computed with respect to the Fund's mean
(or median) account size. The capital changes to be excluded from the
calculation of the net change in account value are realized gains and losses
from the sale of securities and unrealized appreciation and depreciation. In
addition, each Fund may use effective compound yield quotations for its Shares
computed by adding 1 to the unannualized base period return (calculated as
described above), raising the sums to a power equal to 365 divided by 7, and
subtracting 1 from the results.
From time to time, in advertisements, sales literature or in reports
to shareholders, the yields of each Money Market Fund's Shares may be quoted and
compared to those of other mutual funds with similar investment objectives and
to stock or other relevant indices. For example, the yield of such a Fund's
Shares may be compared to the Donoghue's Money Fund average, which is an average
compiled by Donoghue's MONEY FUND REPORT of Holliston, MA 01746, a widely
recognized independent publication that monitors the performance of money market
funds, or to the data prepared by Lipper Analytical Services, Inc., a widely
recognized independent service that monitors the performance of mutual funds.
Advertisements, sales literature or reports to shareholders may from time to
time also include a discussion and analysis of each Fund's performance,
including without limitation, those factors, strategies and techniques that,
together with market conditions and events, materially affected each Fund's
performance.
The current yields for the Funds' Shares may be obtained by calling
(800) 446-1012. For the seven-day period ended March 31, 1996, the annualized
yields for Shares of the Money Fund, Government Money Fund, Treasury Money Fund
and Tax-Exempt Money Fund were 5.10%, 5.10%, 4.98% and 3.08%, respectively, and
the effective yields for Shares of such respective Funds were 4.98%, 4.94%,
4.80% and 2.93%.
The "tax-equivalent" yield of the Tax-Exempt Money Fund is computed
by: (a) dividing the portion of the yield (calculated as above) that is exempt
from Federal income tax by one minus a stated Federal income tax rate and (b)
adding that figure to that portion, if any of the yield that is not exempt from
Federal income tax. Tax-equivalent yields assume the payment of Federal income
taxes at a rate of 31%.
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<PAGE>
Based on the foregoing calculation, the annualized tax-equivalent
yield of the Tax-Exempt Money Fund for the seven-day period ended March 31, 1996
was 4.24%.
MISCELLANEOUS
-------------
As used in the Prospectus, "assets belonging to a Fund" means the
consideration received upon the issuance of Shares in the Fund, together with
all income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale of such investments, any funds or payments
derived from any reinvestment of such proceeds, and a portion of any general
assets of the Company involved not belonging to a particular portfolio of that
Company. In determining the net asset value of a Fund's Shares, assets
belonging to the Fund are charged with the direct liabilities in respect of that
Fund and with a share of the general liabilities of the Company involved which
are normally allocated in proportion to the relative asset values of the
Company's portfolios at the time of allocation. Subject to the provisions of
the Companies' Charters, determinations by the Boards of Directors as to the
direct and allocable liabilities, and the allocable portion of any general
assets with respect to a particular Fund, are conclusive.
As of July 15, 1996, U.S. Trust held of record substantially all of
the outstanding Shares in the Funds, but did not own such Shares beneficially
because it did not have discretion to vote or invest such Shares.
As of July 15, 1996, the name, address and percentage ownership of
each person, in addition to U.S. Trust, that beneficially owned 5% or more of
the outstanding shares of a Fund were as follows:
FINANCIAL STATEMENTS
--------------------
The Companies' Annual Reports to Shareholders for the fiscal year
ended March 31, 1996 (the "Annual Reports") for the fixed income and tax-exempt
fixed income portfolios accompany this Statement of Additional Information. The
financial statements in the Annual Reports for the Money, Government Money,
Treasury Money and Tax-Exempt Money Funds (the "Financial Statements") are
incorporated in this Statement of Additional Information by reference. The
Financial Statements included in the Annual Reports for the fiscal year ended
March 31, 1996 have been audited by the Companies' independent auditors, Ernst &
Young LLP, whose reports thereon also appear in such Annual Reports and are
incorporated herein by reference. The Financial Statements in such Annual
Reports have been incorporated herein in reliance upon such reports given upon
the authority of such
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<PAGE>
firm as experts in accounting and auditing. Additional copies of the Annual
Reports may be obtained at no charge by telephoning CGFSC at the telephone
number appearing on the front page of this Statement of Additional Information.
-33-
<PAGE>
APPENDIX A
----------
COMMERCIAL PAPER RATINGS
- ------------------------
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the rating categories used by Standard and
Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory. However,
the relative degree of safety is not as high as for issues designated "A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are considered
to have a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity.
A-1
<PAGE>
"Prime-2" - Issuer or related supporting institutions are considered
to have a strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment. Short-
term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk
A-2
<PAGE>
factors are larger and subject to more variation. Nevertheless, timely payment
is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years. The
following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one
A-3
<PAGE>
year or less which is issued by United States commercial banks, thrifts and non-
bank banks; non-United States banks; and broker-dealers. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded as non-
investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations which posses a particularly strong credit feature
are supported by the highest capacity for timely repayment.
"A1" - Obligations are supported by the highest capacity for timely
repayment.
"A2" - Obligations are supported by a satisfactory capacity for timely
repayment.
"A3" - Obligations are supported by a satisfactory capacity for timely
repayment.
"B" - Obligations for which there is an uncertainty as to the capacity
to ensure timely repayment.
"C" - Obligations for which there is a high risk of default or which
are currently in default.
A-4
<PAGE>
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
A-5
<PAGE>
"CCC" - Debt has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no interest
is being paid.
"D" - Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes such payments
will be made during such grace period. "D" rating is also used upon the filing
of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are
A-6
<PAGE>
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
(P) ... - When applied to forward delivery bonds, indicates that the
rating is provisional pending delivery of the bonds. The rating may be revised
prior to delivery if changes occur in the legal documents or the underlying
credit quality of the bonds.
A-7
<PAGE>
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1 and B1.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong
A-8
<PAGE>
as bonds rated "AAA." Because bonds rated in the "AAA" and "AA" categories are
not significantly vulnerable to foreseeable future developments, short-term debt
of these issuers is generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "BBB" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions may increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of
A-9
<PAGE>
principal and interest is adequate, although adverse changes in business,
economic or financial conditions are more likely to lead to increased investment
risk than for obligations in higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to
denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
A-10
<PAGE>
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection
A-11
<PAGE>
commonly regarded as required of an investment security and not distinctly or
predominantly speculative.
"SG" - Loans bearing this designation are of speculative quality and
lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
A-12
<PAGE>
EXCELSIOR FUNDS, INC.
Equity Fund
Income and Growth Fund
Long-Term Supply of Energy Fund
Productivity Enhancers Fund
Environmentally-Related Products and Services Fund
Aging of America Fund
Communication and Entertainment Fund
Business and Industrial Restructuring Fund
Global Competitors Fund
Early Life Cycle Fund
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1996
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current prospectuses for the Equity, Income and Growth,
Long-Term Supply of Energy, Productivity Enhancers, Environmentally-Related
Products and Services, Aging of America, Communication and Entertainment,
Business and Industrial Restructuring, Global Competitors and Early Life Cycle
Funds (individually, a "Fund" and collectively, the "Funds") of Excelsior Funds,
Inc. ("Excelsior Fund") dated August 1, 1996 (the "Prospectuses"). Much of the
information contained in this Statement of Additional Information expands upon
the subjects discussed in the Prospectuses. This Statement of Additional
Information relates to Trust Shares of the Equity, Aging of America,
Communication and Entertainment, Business and Industrial Restructuring, Global
Competitors and Early Life Cycle Funds and to the other series of shares in each
of the Funds that does not bear the expense of 12b-1 fees (the "Services Shares"
and, collectively with the Trust Shares, the "Shares"). No investment in Shares
of the Funds described herein (collectively, the "Shares") should be made
without reading the Prospectuses. A copy of the Prospectus may be obtained by
writing Excelsior Fund c/o Chase Global Funds Services Company, 73 Tremont
Street, Boston, MA 02108-3913 or by calling (800) 446-1012.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . .
Other Investment Considerations -
Equity and Theme Funds . . . . . . . . . . . . .
Other Investment Considerations -
Income and Growth Fund . . . . . . . . . . . . .
Additional Information on Portfolio Instruments . .
Additional Investment Limitations . . . . . . . . .
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . .
INVESTOR PROGRAMS . . . . . . . . . . . . . . . . . .
Systematic Withdrawal Plan . . . . . . . . . . . .
Exchange Privilege. . . . . . . . . . . . . . . . .
Other Investor Programs . . . . . . . . . . . . . .
DESCRIPTION OF CAPITAL STOCK . . . . . . . . . . . .
MANAGEMENT OF THE FUNDS . . . . . . . . . . . . . . .
Directors and Officers . . . . . . . . . . . . . .
Investment Advisory and Administration Agreements .
Service Organizations . . . . . . . . . . . . . . .
Expenses . . . . . . . . . . . . . . . . . . . . .
Custodian and Transfer Agent . . . . . . . . . . .
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . .
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . .
COUNSEL . . . . . . . . . . . . . . . . . . . . . . .
ADDITIONAL INFORMATION CONCERNING TAXES . . . . . . .
PERFORMANCE INFORMATION . . . . . . . . . . . . . . .
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . .
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . .
APPENDIX . . . . . . . . . . . . . . . . . . . . . . A-1
-i-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
----------------------------------
The investment objective of the Equity Fund and of the Long-Term
Supply of Energy, Productivity Enhancers, Environmentally-Related Products and
Services, Aging of America, Communication and Entertainment, Business and
Industrial Restructuring, Global Competitors and Early Life Cycle Funds
(collectively, the "Theme Funds") is to seek long-term capital appreciation.
The investment objective of the Income and Growth Fund is to seek to provide
moderate current income and to attempt to achieve capital appreciation. Under
normal market and economic conditions, each Fund invests a significant portion
of its assets in common stock, preferred stock and debt securities convertible
into common stock. The following policies supplement the Funds' investment
objectives and policies as set forth in the Prospectuses.
Other Investment Considerations - Equity Fund and Theme Funds
- -------------------------------------------------------------
The Equity Fund and the Theme Funds invest primarily in common stocks,
but each Fund may purchase both preferred stocks and securities convertible into
common stock at the discretion of United States Trust Company of New York (the
"Investment Adviser" or "U.S. Trust"). While current income is secondary to the
objective of long-term capital appreciation, Excelsior Fund expects that the
broad and diversified strategies utilized by the Investment Adviser will result
in somewhat more current income than would be generated if the Investment
Adviser utilized a single strategy more narrowly focused on rapid growth of
principal and involving exposure to higher levels of risk.
The Investment Adviser's investment philosophy is to identify
investment values available in the market at attractive prices. Investment
value arises from the ability to generate earnings or from the ownership of
assets or resources. Underlying earnings potential and asset values are
frequently demonstrable but not recognized in the market prices of the
securities representing their ownership. The Investment Adviser employs the
following three different but closely interrelated portfolio strategies to focus
and organize its search for investment values.
1. Problem/Opportunity Companies. Important investment
-----------------------------
opportunities often occur where companies develop solutions to large, complex,
fundamental problems, such as declining industrial productivity; rising costs
and declining sources of energy; the economic imbalances and value erosion
caused by years of high inflation and interest rates; the soaring costs and
competing priorities of providing health care; and the accelerating
interdependence and "shrinking size" of the world.
<PAGE>
Solutions or parts of solutions to large problems may be generated by
established companies or comparatively new companies of all sizes through the
development of new products, technologies or services, or through new
applications of older ones.
Investment in such companies represents a very wide range of
investment potential, current income return rates, and exposure to fundamental
and market risks. Income generated by each Funds' investments in these
companies would be expected to be moderate, characterized by lesser rates than
those of a fund whose sole objective is current income, and somewhat higher
rates than those of a higher-risk growth fund.
2. Transaction Value Companies. In the opinion of the Investment
---------------------------
Adviser, the stock market frequently values the aggregate ownership of a company
at a substantially lower figure than its component assets would be worth if they
were sold off separately over time. Such assets may include intangible assets
such as product and market franchises, operating know-how, or distribution
systems, as well as such tangible properties as oil reserves, timber, real
estate, or production facilities. Investment opportunities in these companies
are determined by the magnitude of difference between economic worth and current
market price.
Market undervaluations are very often corrected by purchase and sale,
restructuring of the company, or market appreciation to recognize the actual
worth. The recognition process may well occur over time, however, incurring a
form of time-exposure risk. Success from investing in these companies is often
great, but may well be achieved only after a waiting period of inactivity.
Income derived from investing in undervalued companies is expected to
be moderately greater than that derived from investments in either the
Problem/Opportunity or Early Life Cycle companies.
3. Early Life Cycle Companies. Investments in Early Life Cycle
--------------------------
companies tend to be narrowly focused on an objective of higher rates of capital
appreciation. They correspondingly will involve a significantly greater degree
of risk and the reduction of current income to a negligible level. Such
investments will not be limited to new, small companies engaged only in frontier
technology, but will seek opportunities for maximum appreciation through the
full spectrum of business operations, products, services, and asset values.
Consequently, the Funds' investments in Early Life Cycle companies are primarily
in younger, small- to medium- sized companies in the early stages of their
development. Such companies are usually more flexible in trying new approaches
to problem-solving and in
-2-
<PAGE>
making new or different employment of assets. Because of the high risk level
involved, the ratio of success among such companies is lower than the average,
but for those companies which succeed, the magnitude of investment reward is
potentially higher.
Other Investment Considerations - Income and Growth Fund
- --------------------------------------------------------
The Income and Growth Fund is expected to have a greater portion of
its assets invested in debt obligations
under normal market conditions than the Equity Fund and Theme Funds. Further,
although the Investment Adviser will generally use the three strategies
described above for the Equity and Theme Funds, the Income and Growth Fund will
generally invest in those companies which are expected to generate the greater
income. As a result, the Income and Growth Fund is likely to have a relatively
small portion of its assets invested in Early Life Cycle companies.
As stated in the Prospectuses, the Income and Growth Fund may invest
up to 10% of its assets in instruments such as liquidating trust receipts;
certificates of beneficial ownership; limited partnership interests; creditor
claims; loan participations; and warrants, options and other rights to purchase
securities. Liquidating trust receipts, as well as certificates of beneficial
interest, acquired by the Income and Growth Fund represent interests in trusts
holding specific assets. In the case of a liquidating trust, such assets may
include airplanes, ships and trucks that have been leased to third parties.
Limited partnership interests acquired by the Fund may represent equitable
interests in enterprises engaged in activities related to leasing of electronic,
computer and other types of equipment. Normally, the profits and losses
attributable to the foregoing types of instruments pass directly to the holders
of the instruments and are not taxed at the trust or partnership level.
Creditor claims (which may be in the form of notes or debentures)
acquired by the Income and Growth Fund comprise debt obligations of companies
being reorganized under bankruptcy or insolvency laws. Creditor claims normally
sell at a substantial discount from their face value, may be convertible into
stock of the reorganized company, and have a high degree of potential risk and
reward. Loan participations acquired by the Income and Growth Fund represent
interests in either separate, privately negotiated loans that have been made by
lending institutions to third parties or pools of privately negotiated loans
maintained in the loan portfolios of lending institutions. Lending institutions
may sell loan participations to the Income and Growth Fund and other
institutional investors in order to achieve additional revenues and to reduce
their exposure on the loans involved, as well as for other reasons. Loan
participations are
-3-
<PAGE>
considered to be illiquid securities subject to the 10% limitation on
investments in illiquid securities described in the Prospectuses.
The instruments described above may provide a higher than normal rate
of return but may also entail greater risks. These risks include the absence of
any secondary or other organized market for certain instruments that the Income
and Growth Fund may acquire; the likelihood that the transfer of certain
instruments will otherwise be restricted because they have not been registered
under Federal or state securities laws; the probability that certain instruments
will represent interests in a single asset or project and will be entirely
dependent upon market and economic factors affecting such asset or project and
upon the skill of project managers to produce value; the possibility of volatile
changes in the value of an instrument because of changes in the value of the
asset underlying the instrument; the possibility that certain instruments will
be subject to heavy cash flow dependency, defaults by borrowers, self-
liquidation and the risk that the underlying portfolio company will fail to
qualify for favorable tax treatment under the Internal Revenue Code of 1986, as
amended (the "Code"); the possibility that the Fund's loss with respect to an
instrument may exceed the amount of its investment; and, with respect to
creditor claims and other debt instruments, the quality of the credit extended.
In addition, as discussed in the Prospectuses, income from some of the
instruments described above may be non-qualifying income for purposes of the
Code and must be monitored by the Investment Adviser so that the amount of any
such non-qualifying income does not exceed the amount permitted by the Code.
The Investment Adviser will purchase such instruments only when it determines
that the expected return justifies the attendant risks.
Additional Information on Portfolio Instruments
- -----------------------------------------------
Options
-------
As stated in the Prospectuses, the Income and Growth Fund and the
Theme Funds may purchase put and call options listed on a national securities
exchange and issued by the Options Clearing Corporation. Such purchases would
be in an amount not exceeding 5% of each such Fund's net assets. Purchase of
options is a highly specialized activity which entails greater than ordinary
investment risks. Regardless of how much the market price of the underlying
security increases or decreases, the option buyer's risk is limited to the
amount of the original investment for the purchase of the option. However,
options may be more volatile than the underlying securities, and therefore, on a
percentage basis, an investment in options may be subject to greater fluctuation
than an investment in the underlying securities. A listed call option gives the
purchaser of the
-4-
<PAGE>
option the right to buy from a clearing corporation, and the writer has the
obligation to sell to the clearing corporation, the underlying security at the
stated exercise price at any time prior to the expiration of the option,
regardless of the market price of the security. The premium paid to the writer
is in consideration for undertaking the obligations under the option contract.
A listed put option gives the purchaser the right to sell to a clearing
corporation the underlying security at the stated exercise price at any time
prior to the expiration date of the option, regardless of the market price of
the security. Put and call options purchased by the Income and Growth and Theme
Funds will be valued at the last sale price or, in the absence of such a price,
at the mean between bid and asked prices.
Also as stated in the Prospectuses, each Fund may engage in writing
covered call options and enter into closing purchase transactions with respect
to such options. When any of the Funds writes a covered call option, it may
terminate its obligation to sell the underlying security prior to the expiration
date of the option by executing a closing purchase transaction, which is
effected by purchasing on an exchange an option of the same series (i.e., same
underlying security, exercise price and expiration date) as the option
previously written. Such a purchase does not result in the ownership of an
option. A closing purchase transaction will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to permit the
writing of a new call option containing different terms on such underlying
security. The cost of such a liquidation purchase plus transaction costs may be
greater than the premium received upon the original option, in which event the
writer will have incurred a loss on the transaction. An option position may be
closed out only on an exchange which provides a secondary market for an option
of the same series. There is no assurance that a liquid secondary market on an
exchange will exist for any particular option. A covered option writer, unable
to effect a closing purchase transaction, will not be able to sell the
underlying security until the option expires or the underlying security is
delivered upon exercise, with the result that the writer in such circumstances
will be subject to the risk of market decline in the underlying security during
such period. The Funds will write an option on a particular security only if
the Investment Adviser believes that a liquid secondary market will exist on an
exchange for options of the same series, which will permit the Funds to make a
closing purchase transaction in order to close out its position.
When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by that Fund is included in the liability
section of that Fund's statement of assets and liabilities as a deferred credit.
The
-5-
<PAGE>
amount of the deferred credit will be subsequently marked to market to reflect
the current value of the option written. The current value of the traded option
is the last sale price or, in the absence of a sale, the average of the closing
bid and asked prices. If an option expires on the stipulated expiration date,
or if the Fund involved enters into a closing purchase transaction, the Fund
will realize a gain (or loss if the cost of a closing purchase transaction
exceeds the net premium received when the option is sold), and the deferred
credit related to such option will be eliminated. If an option is exercised, the
Fund involved may deliver the underlying security from its portfolio or purchase
the underlying security in the open market. In either event, the proceeds of
the sale will be increased by the net premium originally received, and the Fund
involved will realize a gain or loss. Premiums from expired call options
written by the Funds and net gains from closing purchase transactions are
treated as short-term capital gains for Federal income tax purposes, and losses
on closing purchase transactions are short-term capital losses.
Repurchase Agreements
---------------------
The repurchase price under the repurchase agreements described in the
Prospectuses generally equals the price paid by a Fund plus interest negotiated
on the basis of current short-term rates (which may be more or less than the
rate on the securities underlying the repurchase agreement). Securities subject
to repurchase agreements are held by the Funds' custodian (or sub-custodian) or
in the Federal Reserve/Treasury book-entry system. Repurchase agreements are
considered loans by a Fund under the Investment Company Act of 1940 (the "1940
Act").
Futures Contracts and Related Options
-------------------------------------
The Theme Funds may invest in futures contracts and options thereon.
The Theme Funds may enter into interest rate futures contracts and other types
of financial futures contracts, including foreign currency futures contracts, as
well as any index or foreign market futures which are available on recognized
exchanges or in other established financial markets. A futures contract on
foreign currency creates a binding obligation on one party to deliver, and a
corresponding obligation on another party to accept delivery of, a stated
quantity of a foreign currency for an amount fixed in U.S. dollars. Foreign
currency futures, which operate in a manner similar to interest rate futures
contracts may be used by the Theme Funds to hedge against exposure to
fluctuations in exchange rates between the U.S. dollar and other currencies
arising from multinational transactions.
Futures contracts will not be entered into for speculative purposes,
but to hedge risks associated with a Fund's
-6-
<PAGE>
securities investments. Positions in futures contracts may be closed out only
on an exchange which provides a secondary market for such futures. However,
there can be no assurance that a liquid secondary market will exist for any
particular futures contract at any specific time. Thus, it may not be possible
to close a futures position. In the event of adverse price movements, a Fund
would continue to be required to make daily cash payments to maintain its
required margin. In such situations, if the Fund has insufficient cash, it may
have to sell portfolio securities to meet daily margin requirements at a time
when it may be disadvantageous to do so. In addition, the Fund may be required
to make delivery of the instruments underlying futures contracts it holds. The
inability to close options and futures positions also could have an adverse
impact on the Fund's ability to effectively hedge.
Successful use of futures by the Theme Funds is also subject to the
Investment Adviser's ability to correctly predict movements in the direction of
the market. For example, if a Fund has hedged against the possibility of a
decline in the market adversely affecting securities held by it and securities
prices increase instead, the Fund will lose part or all of the benefit to the
increased value of its securities which it has hedged because it will have
approximately equal offsetting losses in its futures positions. In addition, in
some situations, if a Fund has insufficient cash, it may have to sell securities
to meet daily variation margin requirements. Such sales of securities may be,
but will not necessarily be, at increased prices which reflect the rising
market. The Fund may have to sell securities at a time when it may be
disadvantageous to do so.
The risk of loss in trading futures contracts in some strategies can
be substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit, before any deduction for the
transaction costs, if the contract were closed out. Thus, a purchase or sale of
a futures contract may result in losses in excess of the amount invested in the
contract.
Utilization of futures transactions by the Theme Funds involves the
risk of loss by a Fund of margin deposits in the event of bankruptcy of a broker
with whom such Fund has an open position in a futures contract or related
option.
-7-
<PAGE>
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Options on Futures Contracts
----------------------------
The Theme Funds may purchase options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer,
of an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing, an option of the same
series, at which time the person entering into the closing transaction will
realize a gain or loss.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
of an option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option
purchased. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the instruments
being hedged, an option may or may not be less risky than ownership of the
futures contract or such instruments. In general, the market prices of options
-8-
<PAGE>
can be expected to be more volatile than the market prices on the underlying
futures contract. Compared to the purchase or sale of futures contracts,
however, the purchase of call or put options on futures contracts may frequently
involve less potential risk to the Fund because the maximum amount at risk is
the premium paid for the options (plus transaction costs). Although permitted
by its fundamental investment policies, the Fund does not currently intend to
write futures options, and will not do so in the future absent any necessary
regulatory approvals.
When-Issued and Forward Transactions
------------------------------------
When a Fund agrees to purchase securities on a "when-issued" or
forward commitment basis, the custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment and, in such case, the Fund may be required subsequently to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that a Fund's net assets will fluctuate to a greater degree when
it sets aside portfolio securities to cover such purchase commitments than when
it sets aside cash. Because a Fund will set aside cash or liquid assets to
satisfy its purchase commitments in the manner described, its liquidity and
ability to manage its portfolio might be affected in the event its forward
commitments or commitments to purchase "when-issued" securities ever exceed 25%
of the value of its assets.
A Fund will purchase securities on a "when-issued" or forward
commitment basis only with the intention of completing the transaction. If
deemed advisable as a matter of investment strategy, however, a Fund may dispose
of or renegotiate a commitment after it is entered into, and may sell securities
it has committed to purchase before those securities are delivered to the Fund
on the settlement date. In these cases, the Fund may realize a taxable capital
gain or loss.
When a Fund engages in "when-issued" or forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such other party to do so may result in the Fund incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a "when-issued" purchase
or a forward commitment to purchase securities and any subsequent fluctuations
in their market value are taken into account when determining the market value
of a Fund starting
-9-
<PAGE>
on the day the Fund agrees to purchase the securities. The Fund does not earn
interest on the securities it has committed to purchase until they are paid for
and delivered on the settlement date.
Forward Currency Transactions
-----------------------------
Each Fund will conduct its currency exchange transactions either on a
spot (i.e., cash) basis at the rate prevailing in the currency exchange markets,
or by entering into forward currency contracts. A forward foreign currency
contract involves an obligation to purchase or sell a specific currency for a
set price at a future date. In this respect, forward currency contracts are
similar to foreign currency futures contracts; however, unlike futures contracts
which are traded on recognized commodities exchange, forward currency contracts
are traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. Also, forward currency
contracts usually involve delivery of the currency involved instead of cash
payment as in the case of futures contracts.
A Fund's participation in forward currency contracts will be limited
to hedging involving either specific transactions or portfolio positions.
Transaction hedging involves the purchase or sale of foreign currency with
respect to specific receivables or payables of the Fund generally arising in
connection with the purchase or sale of its portfolio securities. The purpose
of transaction hedging is to "lock in" the U.S. dollar equivalent price of such
specific securities. Position hedging is the sale of foreign currency with
respect to portfolio security positions denominated or quoted in that currency.
The Fund will not speculate in foreign currency exchange transactions.
Transaction and position hedging will not be limited to an overall percentage of
a Fund's assets, but will be employed as necessary to correspond to particular
transactions or positions. A Fund may not hedge its currency positions to an
extent greater than the aggregate market value (at the time of entering into the
forward contract) of the securities held in its portfolio denominated, quoted
in, or currently convertible into that particular currency. When the Funds
engage in forward currency transactions, certain asset segregation requirements
must be satisfied to ensure that the use of foreign currency transactions is
unleveraged. When a Fund takes a long position in a forward currency contract,
it must maintain a segregated account containing cash and/or certain liquid
assets equal to the purchase price of the contract, less any margin or deposit.
When a Fund takes a short position in a forward currency contract, the Fund must
maintain a segregated account containing cash and/or certain liquid assets in an
amount equal to the market value of the currency underlying such contract (less
any margin or deposit), which amount must be at least equal to the market price
-10-
<PAGE>
at which the short position was established. Asset segregation requirements are
not applicable when a Fund "covers" a forward currency position generally by
entering into an offsetting position.
The transaction costs to the Funds of engaging in forward currency
transactions described in the Prospectus vary with factors such as the currency
involved, the length of the contract period and prevailing currency market
conditions. Because currency transactions are usually conducted on a principal
basis, no fees or commissions are involved. The use of forward currency
contracts does not eliminate fluctuations in the underlying prices of the
securities being hedged, but it does establish a rate of exchange that can be
achieved in the future. Thus, although forward currency contracts used for
transaction or position hedging purposes may limit the risk of loss due to an
increase in the value of the hedged currency, at the same time they limit
potential gain that might result were the contracts not entered into. Further,
the Investment Adviser may be incorrect in its expectations as to currency
fluctuations, and a Fund may incur losses in connection with its currency
transactions that it would not otherwise incur. If a price movement in a
particular currency is generally anticipated, a Fund may not be able to contract
to sell or purchase that currency at an advantageous price.
At or before the maturity of a forward sale contract, a Fund may sell
a portfolio security and make delivery of the currency, or retain the security
and offset its contractual obligation to deliver the currency by purchasing a
second contract pursuant to which the Fund will obtain, on the same maturity
date, the same amount of the currency which it is obligated to deliver. If the
Fund retains the portfolio security and engages in an offsetting transaction,
the Fund, at the time of execution of the offsetting transaction, will incur a
gain or a loss to the extent that movement has occurred in forward contract
prices. Should forward prices decline during the period between a Fund's
entering into a forward contract for the sale of a currency and the date it
enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, the Fund will suffer a loss to the extent the price of
the currency it has agreed to sell is less than the price of the currency it has
agreed to purchase in the offsetting contract. The foregoing principles
generally apply also to forward purchase contracts.
Securities Lending
------------------
When a Fund lends its securities, it continues to receive interest or
dividends on the securities lent and may
-11-
<PAGE>
simultaneously earn interest on the investment of the cash loan collateral,
which will be invested in readily marketable, high-quality, short-term
obligations. Although voting rights, or rights to consent, attendant to lent
securities pass to the borrower, such loans may be called at any time and will
be called so that the securities may be voted by a Fund if a material event
affecting the investment is to occur.
Restricted Securities
---------------------
The Productivity Enhancers Fund may invest in restricted securities
(privately placed securities) and other securities without readily available
market quotations. The Fund's investments in securities without readily
available market quotations will not exceed 5% of its total assets at the time
of purchase. Restricted securities may be sold only in private transactions or
in a public offering with respect to which a registration statement is in effect
under the Securities Act of 1933 (the "1933 Act"). Where registration may be
required, the Fund may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of the decision
to sell and the time the Fund may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, the Fund might obtain a less favorable price than
prevailed when it decided to sell. Certain transactions in restricted
securities may qualify for the registration exemption provided in Rule 144A
under the 1933 Act.
Additional Investment Limitations
- ---------------------------------
In addition to the investment limitations disclosed in the
Prospectuses, the Funds are subject to the investment limitations enumerated
below. Fundamental investment limitations may be changed with respect to a Fund
only by a vote of a majority of the holders of such Fund's outstanding Shares
(as defined under "Miscellaneous" in the Prospectuses). However, investment
limitations which are "operating policies" with respect to a Fund may be changed
by Excelsior Fund's Board of Directors upon reasonable notice to Investors.
The following investment limitations are fundamental with respect to
each Fund. Each Fund may not:
1. Act as an underwriter of securities within the meaning of the
Securities Act of 1933, except insofar as it might be deemed to be an
underwriter upon disposition of certain portfolio securities acquired within the
limitation on purchases of restricted securities;
2. Purchase or sell real estate, except that each Fund may purchase
securities of issuers which deal in real estate
-12-
<PAGE>
and may purchase securities which are secured by interests in real estate; and
3. Issue any senior securities, except insofar as any borrowing in
accordance with a Fund's investment limitation contained in the Prospectuses
might be considered to be the issuance of a senior security.
The following investment limitations are fundamental with respect to
the Equity and Income and Growth Funds, but are operating policies with respect
to the Theme Funds. No Fund may:
4. Purchase securities on margin, make short sales of securities, or
maintain a short position;
5. Invest in or sell put options, call options, straddles, spreads,
or any combination thereof; provided, however, that each Fund may write covered
call options with respect to its portfolio securities that are traded on a
national securities exchange, and may enter into closing purchase transactions
with respect to such options if, at the time of the writing of such option, the
aggregate value of the securities subject to the options written by the Fund
involved does not exceed 25% of the value of its total assets; and provided that
the Income and Growth Fund and Theme Funds may purchase options and other rights
in accordance with their investment objectives and policies;
6. Invest in companies for the purpose of exercising management or
control;
7. Invest more than 5% of its total assets in securities issued by
companies which, together with any predecessor, have been in continuous
operation for fewer than three years; and
8. Acquire any other investment company or investment company
security, except in connection with a merger, consolidation, reorganization, or
acquisition of assets or where otherwise permitted by the 1940 Act.
The following investment limitation is fundamental with respect to the
Equity and Income and Growth Funds. The Equity and Income and Growth Funds may
not:
9. Purchase or sell commodities futures contracts or invest in oil,
gas, or other mineral exploration or development programs; provided, however,
that this shall not prohibit either Fund from purchasing publicly traded
securities of companies engaging in whole or in part in such activities or the
Income and Growth Fund from investing in liquidating trust receipts,
-13-
<PAGE>
certificates of beneficial ownership or other instruments in accordance with its
investment objectives and policies.
The following investment limitation is fundamental with respect to the
Theme Funds. Each Theme Fund may not:
10. Purchase or sell commodities or commodities futures contracts or
invest in oil, gas, or other mineral exploration or development programs;
provided, however, that i) this shall not prohibit any Theme Fund from
purchasing publicly traded securities of companies engaging in whole or in part
in such activities or from investing in liquidating trust receipts, certificates
of beneficial ownership or other instruments in accordance with its investment
objectives and policies, and ii) each Theme Fund may enter into futures
contracts and futures options.
* * *
For the purpose of Investment Limitation No. 2, the prohibition of
purchases of real estate includes acquisition of limited partnership interests
in partnerships formed with a view toward investing in real estate, but does not
prohibit purchases of shares in real estate investment trusts.
In addition to the above investment limitations, Excelsior Fund
currently intends to limit the Funds' investments in warrants so that, valued at
the lower of cost or market value, they do not exceed 5% of the net assets of
the Fund involved. Included within that amount, but not to exceed 2% of the
value of a Fund's net assets, may be warrants which are not listed on the New
York or American Stock Exchanges. For the purpose of this limitation, warrants
acquired by a Fund in units or attached to securities will be deemed to be
without value. The Funds also intend to refrain from entering into arbitrage
transactions.
Each of the Equity and Income and Growth Funds may not purchase or
sell commodities except as provided in Investment Limitation No. 9 above.
Pursuant to the requirements of state securities laws, each Fund
currently intends to limit its option transactions so that they do not exceed,
at the time when they are written, 25% of the net (rather than total) assets of
the particular Fund involved. See Investment Limitation No. 5 above.
If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in value
of a Fund's securities will not constitute a violation of such limitation.
-14-
<PAGE>
In order to permit the sale of Shares in certain states, Excelsior
Fund may make on behalf of the Funds other commitments more restrictive than the
investment policies and limitations described above and in the Prospectuses.
Should Excelsior Fund determine that any such commitment is no longer in the
Funds' best interests, it will revoke the commitment by terminating sales of
Shares to investors residing in the state involved.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
----------------------------------------------
Shares are continuously offered for sale by Edgewood Services, Inc.
(the "Distributor"), a wholly-owned subsidiary of Federated Investors, and the
Distributor has agreed to use appropriate efforts to solicit all purchase
orders. As described in the Prospectuses, Shares may be sold to customers
("Customers") of financial institutions ("Shareholder Organizations"). Service
Shares are also offered for sale directly to institutional investors and to
members of the general public. Different types of Customer accounts at the
Shareholder Organizations may be used to purchase Shares, including eligible
agency and trust accounts. In addition, Shareholder Organizations may
automatically "sweep" a Customer's account not less frequently than weekly and
invest amounts in excess of a minimum balance agreed to by the Shareholder
Organization and its Customer in Shares selected by the Customer. Investors
purchasing Shares may include officers, directors, or employees of the
particular Shareholder Organization.
Pursuant to Rule 12b-1 of the 1940 Act, Excelsior Fund has adopted a
Distribution Plan (the "Distribution Plan") which permits the Trust Shares of
the Funds to bear certain expenses in connection with the distribution of those
Shares. As required by Rule 12b-1, the Funds' Distribution Plan and related
distribution agreement have been approved, and are subject to annual approval
by, a majority of Excelsior Fund's Board of Directors, and by a majority of the
directors who are not interested persons of Excelsior Fund and have no direct or
indirect interest in the operation of the Distribution Plan or any agreement
relating to the Distribution Plan, by vote cast in person at a meeting called
for the purpose of voting on the Distribution Plan and related agreement. Rule
12b-1 also requires that persons authorized to direct the disposition of monies
payable by a Fund (in the Funds' case, the Distributor) provide for the
directors' review of quarterly reports on the amounts expended and the purposes
for the expenditures.
Any change in the Distribution Plan that would materially increase the
distribution expenses of Trust Shares requires approval by holders of those
Shares, but otherwise, the Distribution Plan may be amended by the directors,
including a
-15-
<PAGE>
majority of the disinterested directors who do not have any direct or indirect
financial interest in the Distribution Plan or any related agreement. The
Distribution Plan and related agreement may be terminated as to a particular
Fund by a vote of a majority of Excelsior Fund's disinterested directors or by
vote of the holders of a majority of the Trust Shares of the Fund.
The Distribution Plan provides that each Fund will reimburse the
Distributor for distribution expenses in an amount not to exceed the annual rate
of .75% of the average daily net asset value of outstanding Trust Shares of the
Fund. The Trust Shares of the Equity, Aging of America, Communication and
Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds currently bear the expense of such payments at the annual
rate of .35% of the average daily net asset value of each such Fund's
outstanding Trust Shares. Distribution expenses payable by the Distributor
pursuant to the Distribution Plan include direct and indirect costs and expenses
incurred in connection with advertising and marketing a Fund's Distribution
Shares, and direct and indirect costs and expenses of preparing, printing and
distributing its prospectuses to other than current shareholders and payments to
financial institutions that are not affiliated with the Distributor
("Distribution Organizations").
The Distribution Plan will continue in effect for successive one year
periods, provided that such continuance is specifically approved by the vote of
a majority of the directors who are not parties to the Distribution Plan or
interested persons of any such party and who have no direct or indirect
financial interest in the Distribution Plan or any related agreement and the
vote of a majority of the entire Board of Directors.
Any material amendment to Excelsior Fund's arrangements with
Distribution Organizations must be approved by a majority of Excelsior Fund's
Board of Directors (including a majority of the disinterested directors). So
long as the Distribution Plan is in effect, the selection and nomination of the
members of Excelsior Fund's Board of Directors who are not "interested persons"
(as defined in the 1940 Act) of Excelsior Fund will be committed to the
discretion of such non-interested directors.
Shares of the Funds are offered for sale with a maximum sales charge
of 4.50%. An illustration of the computation of the offering price per share of
the Funds, using the value of each Fund's net assets and number of outstanding
securities at the close of business on March 31, 1996 and the value of the
initial capitalization of each Fund's Trust Shares prior to the commencement of
operations, is as follows:
-16-
<PAGE>
<TABLE>
<CAPTION>
Income
Equity & Growth
Fund Fund
Service Shares Service Shares
-------------- --------------
<S> <C> <C>
Net Assets.................. $188,573,804 $127,494,667
Outstanding Shares.......... 7,718,433 8,821,024
Net Asset Value Per Share... $ 24.43 $ 14.45
Sales Charge (4.50% of the
offering price)........... $ 1.15 $ 0.68
Offering to Public.......... $ 25.58 $ 15.13
</TABLE>
<TABLE>
<CAPTION>
Environmentally-
Long-Term Related
Supply of Products
Energy Fund Productivity and Services Aging of
Service Enhancers Fund- Fund Service America Fund
Shares Service Shares Shares Service Shares
------------ --------------- ---------------- ---------------
<CAPTION> <C> <C> <C>
Net Assets.................. $ 23,294,491 $29,069,279 $3,946,766 $44,791,773
Outstanding Shares.......... 2,440,017 3,290,836 510,900 4,564,329
Net Asset Value Per Share... $ 9 .55 $ 8.83 $ 7.73 $ 9.81
Sales Charge (4.50% of the
offering price)........... $ 0.45 $ 0.42 $ 0.36 $ 0.46
Offering to Public.......... $ 10.00 $ 9.25 $ 8.09 $ 10.27
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
Business and
Communication Industrial
and Restructuring Global Early Life
Entertainment Fund Fund Service Competitors Fund Cycle Fund
Service Shares Shares Service Shares Service Shares
--------------------------- ----------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Net Assets.................. $46,949,340 $74,052,303 $71,304,491 $78,060,846
Outstanding Shares.......... 4,548,484 5,277,747 6,583,892 7,240,420
Net Asset Value Per Share... $ 10.32 $ 14.03 $ 10.83 $ 10.78
Sales Charge (4.50% of the
offering price)........... $ 0.49 $ 0.63 $ 0.51 $ 0.51
Offering to Public.......... $ 10.81 $ 14.69 $ 11.34 $ 11.29
</TABLE>
Equity
Fund
Trust
Shares
------
Net Assets.................. $100.00
Outstanding Shares.......... 10
Net Asset Value Per Share... $ 10.00
Sales Charge (4.50% of the
offering price)........... $ .47
Offering to Public.......... $ 10.47
Aging of
America
Fund
Trust
Shares
------
Net Assets.................. $100.00
Outstanding Shares.......... 10
Net Asset Value Per Share... $ 10.00
Sales Charge (4.50% of the $ .47
offering price)...........
Offering to Public.......... $ 10.47
-18-
<PAGE>
<TABLE>
<CAPTION>
Business and Early Life
Communication and Industrial Global Cycle
Entertainment Fund Restructuring Competitors Fund Trust
Trust Shares Fund Trust Shares Fund Trust Shares Shares
--------------------------- ------------------ ------------------ ----------------
<S> <C> <C> <C> <C>
Net Assets.................. $ 100.00 $ 100.00 $ 100.00 $ 100.00
Outstanding Shares.......... 10 10 10 10
Net Asset Value Per Share... $ 10.00 $ 10.00 $ 10.00 $ 10.00
Sales Charge (4.50% of the
offering price)........... $ .47 $ .47 $ .47 $ .47
Offering to Public.......... $ 10.47 $ 10.47 $ 10.47 $ 10.47
</TABLE>
As stated in the Prospectuses, the sales load described above will not be
applicable to: (a) purchases of Shares by customers of the Investment Adviser
or its affiliates; (b) trust, agency or custodial accounts opened through the
trust department of a bank, trust company or thrift institution, provided that
appropriate notification of such status is given at the time of investment; (c)
companies, corporations and partnerships (excluding full service broker/dealers
and financial planners, registered investment advisers and depository
institutions not covered by the exemptions in (d) and (e) below); (d) financial
planners and registered investment advisers not affiliated with or clearing
purchases through full service broker/dealers; (e) purchases of Shares by
depository institutions for their own account as principal; (f) exchange
transactions (described below under "Investor Programs -- Exchange Privilege")
where the Shares being exchanged were acquired in connection with the
distribution of assets held in trust, agency or custodial accounts maintained
with the trust department of a bank; (g) corporate/business retirement plans
(such as 401(k), 403(b)(7), 457 and Keogh accounts) sponsored by the Distributor
and IRA accounts sponsored by the Investment Adviser; (h) company-sponsored
employee pension or retirement plans making direct investments in the Funds; (i)
purchases of Shares by officers, trustees, directors, employees, former
employees and retirees of Excelsior Fund, Excelsior Tax-Exempt Funds, Inc.
("Excelsior Tax-Exempt Fund"), Excelsior Institutional Trust or Excelsior Funds,
the Investment Adviser, the Distributor or of any direct or indirect affiliate
of any of them; (j) purchases of Shares by all beneficial shareholders of
Excelsior Fund or Excelsior Tax-Exempt Fund as of May 22, 1989; (k) purchases of
Shares by investment advisers registered under the Investment Advisers Act of
1940 for their customers through an omnibus account established with United
States Trust Company of New York; (l) purchases of Shares by directors, officers
and employees of brokers and dealers selling shares pursuant to a selling
agreement with Excelsior Fund and Excelsior Tax-Exempt Fund; (m) purchase of
shares by investors who are members of affinity groups serviced by USAffinity
Investments Limited
-19-
<PAGE>
Partnership; and (n) customers of certain financial institutions who purchase
shares through a registered representative of UST Financial Services Corp. on
the premises of their financial institutions. In addition, no sales load is
charged on the reinvestment of dividends or distributions or in connection with
certain share exchange transactions. Investors who have previously redeemed
shares in a portfolio of Excelsior Fund or Excelsior Tax-Exempt Fund on which a
sales load has been paid also have a one-time privilege of purchasing shares of
another portfolio of either company at net asset value without a sales charge,
provided that such privilege will apply only to purchases made within 30
calendar days from the date of redemption and only with respect to the amount of
the redemption.
Total sales charges paid by shareholders of the Equity and Income and Growth
Funds during the fiscal years ended March 31, 1996, 1995 and 1994 were $2,725,
$7,492 and $1,713, respectively, and $1,223, $10,877 and $5,866, respectively.
Of these respective amounts, UST Distributors, Inc., the Funds' former
distributor, retained $473, $7,092 and $9,249 with respect to the Equity Fund
and $298, $1,703 and $5,037 with respect to the Income and Growth Fund for the
period April 1, 1995 through July 31, 1995 and for the fiscal years ended March
31, 1995 and 1994, respectively. The balance was paid to selling dealers.
Edgewood Services, Inc., the Funds' distributor, retained $0 with respect to the
Equity Fund and $0 with respect to the Income and Growth Fund for the period
August 1, 1995 through March 31, 1996.
For the fiscal years ended March 31, 1996, 1995 and 1994, total sales
charges paid by shareholders of the Long-Term Supply of Energy, Productivity
Enhancers, Environmentally-Related Products and Services, Aging of America,
Communication and Entertainment, Business and Industrial Restructuring, Global
Competitors and Early Life Cycle Funds were $0, $84 and $315; $347, $143 and
$181; $325, $0, and $45; $1,662, $357 and $272; 1,728, $438 and $2,453; $3,970,
$779 and $1,672; $405, $353 and $136; and $961, $1,107 and $840, respectively.
Of these respective amounts, UST Distributors, Inc., the Funds' former
distributor, retained $0, $84 and $280 with respect to the Long-Term Supply of
Energy Fund; $0, $143 and $160 with respect to the Productivity Enhancers Fund;
$0, $0 and $0 with respect to the Environmentally-Related Products and Services
Fund; $0, $37 and $200 with respect to the Aging of America Fund; $74, $438 and
$2,175 with respect to the Communication and Entertainment Fund; $42, $779 and
$1,282 with respect to the Business and Industrial Restructuring Fund; $0, $353
and $120 with respect to the Global Competitors Fund; and $0, $1,107 and $744
with respect to the Early Life Cycle Fund for the period April 1, 1995 through
July 31, 1995 and for the fiscal years ended March 31, 1995 and 1994,
respectively. Edgewood Services, Inc. retained $0, $0, $0, $0, $0, $0, $0 and
$0 with respect to the Long-Term Supply of Energy Fund, Productivity Enhancers
Fund, Environmentally-Related
-20-
<PAGE>
Products and Services Fund, Aging of America Fund, Communication and
Entertainment Fund, Business and Industrial Restructuring Fund, Global
Competitors Fund and Early Life Cycle Fund, respectively, for the period August
1, 1995 through March 31, 1996. The balance was paid to selling dealers.
Excelsior Fund may suspend the right of redemption or postpone the date of
payment for Shares for more than 7 days during any period when (a) trading on
the New York Stock Exchange (the "Exchange") is restricted by applicable rules
and regulations of the Securities and Exchange Commission; (b) the Exchange is
closed for other than customary weekend and holiday closings; (c) the Securities
and Exchange Commission has by order permitted such suspension; or (d) an
emergency exists as determined by the Securities and Exchange Commission.
In the event that Shares are redeemed in cash at their net asset value, a
shareholder may receive in payment for such Shares an amount that is more or
less than his original investment due to changes in the market prices of that
Fund's portfolio securities.
Excelsior Fund reserves the right to honor any request for redemption or
repurchase of a Fund's Shares by making payment in whole or in part in
securities chosen by Excelsior Fund and valued in the same way as they would be
valued for purposes of computing a Fund's net asset value. If payment is made
in securities, a shareholder may incur transaction costs in converting these
securities into cash. Such redemptions in kind will be governed by Rule 18f-1
under the 1940 Act so that a Fund is obligated to redeem its Shares solely in
cash up to the lesser of $250,000 or 1% of its net asset value during any 90-day
period for any one shareholder of a Fund.
Under limited circumstances, Excelsior Fund may accept securities as payment
for Shares. Securities acquired in this manner will be limited to securities
issued in transactions involving a bona fide reorganization or statutory merger,
---------
or will be limited to other securities (except for municipal debt securities
issued by state political subdivisions or their agencies or instrumentalities)
that: (a) meet the investment objective and policies of any Fund acquiring such
securities; (b) are acquired for investment and not for resale; (c) are liquid
securities that are not restricted as to transfer either by law or liquidity of
market; and (d) have a value that is readily ascertainable (and not established
only by evaluation procedures) as evidenced by a listing on the American Stock
Exchange, New York Stock Exchange or NASDAQ, or as evidenced by their status as
U.S. Government securities, bank certificates of deposit, banker's acceptances,
corporate and other debt securities that are actively traded, money market
securities and other similar securities with a readily ascertainable value.
-21-
<PAGE>
INVESTOR PROGRAMS
-----------------
Systematic Withdrawal Plan
- --------------------------
An investor who owns Shares with a value of $10,000 or more may begin a
Systematic Withdrawal Plan. The withdrawal can be on a monthly, quarterly,
semiannual or annual basis. There are four options for such systematic
withdrawals. The investor may request:
(1) A fixed-dollar withdrawal;
(2) A fixed-share withdrawal;
(3) A fixed-percentage withdrawal (based on the current value of the
account); or
(4) A declining-balance withdrawal.
Prior to participating in a Systematic Withdrawal Plan, the investor must
deposit any outstanding certificates for Shares with Chase Global Funds Services
Company, the Funds' sub-transfer agent. Under this Plan, dividends and
distributions are automatically reinvested in additional Shares of a Fund.
Amounts paid to investors under this Plan should not be considered as income.
Withdrawal payments represent proceeds from the sale of Shares, and there will
be a reduction of the shareholder's equity in the Fund involved if the amount of
the withdrawal payments exceeds the dividends and distributions paid on the
Shares and the appreciation of the investor's investment in the Fund. This in
turn may result in a complete depletion of the shareholder's investment. An
investor may not participate in a program of systematic investing in a Fund
while at the same time participating in the Systematic Withdrawal Plan with
respect to an account in the same Fund. Customers of Shareholder Organizations
may obtain information on the availability of, and the procedures and fees
relating to, the Systematic Withdrawal Plan directly from their Shareholder
Organizations.
Exchange Privilege
- ------------------
Investors and Customers of Shareholder Organizations may exchange
Shares having a value of at least $500 for shares of the same series of any
other portfolio of Excelsior Fund or Excelsior Tax-Exempt Fund (the "Companies")
or for Trust Shares of Excelsior Institutional Trust. Shares may be exchanged
by wire, telephone or mail and must be made to accounts of identical
registration. There is no exchange fee imposed by the Companies or Excelsior
Institutional Trust. As of the date of this Statement of Additional
Information, Trust Shares were available only in the Equity, Global Competitors,
Aging of America,
-22-
<PAGE>
Communication and Entertainment, Business and Industrial Restructuring and Early
Life Cycle Funds of Excelsior Fund and the Value Equity and Optimum Growth Funds
of Excelsior Institutional Trust. In order to prevent abuse of this privilege
to the disadvantage of other shareholders, the Companies and Excelsior
Institutional Trust reserve the right to limit the number of exchange requests
of investors to no more than six per year. The Companies may modify or terminate
the exchange program at any time upon 60 days' written notice to shareholders,
and may reject any exchange request. Customers of Shareholder Organizations may
obtain information on the availability of, and the procedures relating to, such
programs directly from their Shareholder Organizations.
For Federal income tax purposes, exchanges are treated as sales on
which the shareholder will realize a gain or loss, depending upon whether the
value of the Shares to be given up in exchange is more or less than the basis in
such Shares at the time of the exchange. Generally, a shareholder may include
sales loads incurred upon the purchase of Shares in his or her tax basis for
such Shares for the purpose of determining gain or loss on a redemption,
transfer or exchange of such Shares. However, if the shareholder effects an
exchange of Shares for shares of another portfolio of the Companies within 90
days of the purchase and is able to reduce the sales load applicable to the new
shares (by virtue of the Companies' exchange privilege), the amount equal to
such reduction may not be included in the tax basis of the shareholder's
exchanged Shares but may be included (subject to the limitation) in the tax
basis of the new shares.
Other Investor Programs
- -----------------------
As described in the Prospectuses, Shares of the Funds may be purchased
in connection with the Automatic Investment Program, and certain Retirement
Programs. Customers of Shareholder Organizations may obtain information on the
availability of, and the fees and procedures relating to, such programs directly
from their Shareholder Organizations.
DESCRIPTION OF CAPITAL STOCK
----------------------------
Excelsior Fund's Charter authorizes its Board of Directors to issue up
to thirty-five billion full and fractional shares of capital stock, and to
classify or reclassify any unissued shares of Excelsior Fund into one or more
classes or series by setting or changing in any one or more respects their
respective preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption. The Prospectuses describe the classes of shares into which
Excelsior Fund's authorized capital is currently classified.
-23-
<PAGE>
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Directors may grant in its discretion. When issued for
payment as described in the Prospectuses, Shares will be fully paid and non-
assessable. In the event of a liquidation or dissolution of a Fund,
shareholders of any series of that Fund are entitled to receive the assets
available for distribution belonging to that Fund and allocable to such series
and a proportionate distribution, based upon the relative asset values of
Excelsior Fund's portfolios, of any general assets of Excelsior Fund not
belonging to any particular portfolio of Excelsior Fund which are available for
distribution. In the event of a liquidation or dissolution of Excelsior Fund,
its shareholders will be entitled to the same distribution process.
Shareholders of Excelsior Fund are entitled to one vote for each full
share held, and fractional votes for fractional shares held, and will vote in
the aggregate and not by class or series, except as otherwise required by the
1940 Act or other applicable law or when the matter to be voted upon affects
only the interests of the shareholders of a particular class or series. Voting
rights are not cumulative and, accordingly, the holders of more than 50% of the
aggregate of Excelsior Fund's shares may elect all of Excelsior Fund's
directors, regardless of votes of other shareholders.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as Excelsior Fund shall not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding
shares of each portfolio affected by the matter. A portfolio is affected by a
matter unless it is clear that the interests of each portfolio in the matter are
substantially identical or that the matter does not affect any interest of the
portfolio. Under the Rule, the approval of an investment advisory agreement or
any change in a fundamental investment policy would be effectively acted upon
with respect to a portfolio only if approved by a majority of the outstanding
shares of such portfolio. However, the Rule also provides that the ratification
of the appointment of independent public accountants, the approval of principal
underwriting contracts, and the election of directors may be effectively acted
upon by shareholders of Excelsior Fund voting without regard to class.
Excelsior Fund's Charter authorizes its Board of Directors, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding Shares of the Fund involved to be
redeemed at a price which is equal to their net
-24-
<PAGE>
asset value and which may be paid in cash or by distribution of the securities
or other consideration received from the sale and conveyance; (b) sell and
convert a Fund's assets into money and, in connection therewith, to cause all
outstanding Shares of the Fund involved to be redeemed at their net asset value;
or (c) combine the assets belonging to a Fund with the assets belonging to
another portfolio of Excelsior Fund, if the Board of Directors reasonably
determines that such combination will not have a material adverse effect on
shareholders of any portfolio participating in such combination, and, in
connection therewith, to cause all outstanding Shares of the Fund involved to be
redeemed at their net asset value or converted into shares of another class of
Excelsior Fund's capital stock at net asset value. The exercise of such
authority by the Board of Directors will be subject to the provisions of the
1940 Act, and the Board of Directors will not take any action described in this
paragraph unless the proposed action has been disclosed in writing to the
particular Fund's shareholders at least 30 days prior thereto.
Notwithstanding any provision of Maryland law requiring a greater vote
of Excelsior Fund's Common Stock (or of the Shares of a Fund voting separately
as a class) in connection with any corporate action, unless otherwise provided
by law (for example, by Rule 18f-2, discussed above) or by Excelsior Fund's
Charter, Excelsior Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of the outstanding Common Stock of
Excelsior Fund voting without regard to class or series.
MANAGEMENT OF THE FUNDS
-----------------------
Directors and Officers
- ----------------------
The directors and executive officers of Excelsior Fund, their
addresses, ages, principal occupations during the past five years, and other
affiliations are as follows:
-25-
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ---------------- -------------- -----------------------
<S> <C> <C>
Alfred C. Tannachion/1/ Chairman of the Retired; Chairman of the
1135 Hyde Park Court Board, President Boards, President and
Mahwah, NJ 07430 and Treasurer Treasurer of Excelsior and
Age 70 Excelsior Tax-Exempt; Chairman
of the Board, President and
Treasurer of UST Master
Variable Series, Inc. (since
1994); Chairman of the Board,
President and Treasurer of
Excelsior Institutional Trust
(since 1995).
Donald L. Campbell Director Retired; Director of
333 East 69th Street Excelsior and Excelsior Tax-
Apt. 10-H Exempt; Director of UST
New York, NY 10021 Master Variable Series, Inc.
Age 70 (since 1994); Trustee of
Excelsior Institutional Trust
(since 1995); Director, Royal
Life Insurance Co. of NY
(since 1991).
Joseph H. Dugan Director Retired; Director of
913 Franklin Lake Road Excelsior and Excelsior Tax-
Franklin Lakes, NJ 07417 Exempt; Director of UST
Age 71 Master Variable Series, Inc.
(since 1994); Trustee of
Excelsior Institutional Trust
(since 1995).
Wolfe J. Frankl Director Retired; Director of
2320 Cumberland Road Excelsior and Excelsior Tax-
Charlottesville, VA 22901 Exempt; Director of UST
Age 75 Master Variable Series, Inc. (since
1994); Trustee of Excelsior
Institutional Trust (since 1995);
Director, Deutsche Bank Financial,
Inc. (since 1989); Director, The
Harbus Corporation (since 1951);
Trustee, HSBC Funds Trust and HSBC
Mutual Funds Trust (since 1995).
</TABLE>
- -------------------------
/1/ This director is considered to be an "interested person" of Excelsior Fund
as defined in the 1940 Act.
-26-
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ---------------- -------------- -----------------------
<S> <C> <C>
Robert A. Robinson Director Director of Excelsior and
Church Pension Fund Excelsior Tax-Exempt;
800 Second Avenue Director of UST Master
New York, NY 10017 Variable Series, Inc. (since
Age 70 1994); Trustee of Excelsior
Institutional Trust (since 1995);
President Emeritus, The Church Pension
Fund and its affiliated companies
(since 1968); Trustee, H.B. and F.H.
Bugher Foundation and Director of its
wholly owned subsidiaries -- Rosiclear
Lead and Flourspar Mining Co. and The
Pigmy Corporation (since 1984);
Director, Morehouse Publishing Co.
(since 1974); Trustee, HSBC Funds Trust
and HSBC Mutual Funds Trust (since
1982); Director, Infinity Funds, Inc.
(since 1995).
Frederick S. Wonham/1/ Director Retired; Director of Excelsior and
238 June Road Excelsior Tax-Exempt; Trustee of
Stamford, CT 06903 Excelsior Funds and Excelsior
Age 65 Institutional Trust (since 1995);
Vice Chairman of U.S. Trust Corporation
and U.S. Trust Company of New York
(until September, 1995); Chairman, U.S.
Trust of Connecticut.
W. Bruce McConnel, III Secretary Partner of the law firm of Drinker
Philadelphia National Biddle & Reath.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age 53
</TABLE>
- ------------------------
/1/ This director is considered to be an "interested person" of Excelsior Fund
as defined in the 1940 Act.
-27-
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ---------------- -------------- -----------------------
<S> <C> <C>
Sherry Aramini Assistant Second Vice President, Blue
Chase Global Funds Secretary Sky Compliance Manager,
Services Company Chase Global Funds Services
73 Tremont Street Company since May 1996;
Boston, MA 02108-3913 Technical Resource Manager,
Age 32 Chase Global Funds Services
Company, April 1995-May 1996; Financial
Reporting Supervisor, Chase Global
Funds Services Company, September 1993-
April 1995; Audit Supervisor, Coopers &
Lybrand L.P., July 1990-August 1993.
John M. Corcoran Assistant Vice President, Director of
Chase Global Funds Treasurer Administration, Client Group,
Services Company Chase Global Funds Services
73 Tremont Street Company (July 1996-present);
Boston, MA 02108-3913 Second Vice President, Manager
Age 31 of Administration, Chase Global
Funds Services Company (October 1993-
July 1996); Audit Manager, Ernst &
Young LLP (from August 1987 to
September 1993).
</TABLE>
Each director of Excelsior Fund receives an annual fee of $9,000 plus
a per-Company meeting fee of $1,500 for each meeting attended and is reimbursed
for expenses incurred in attending meetings. The Chairman of the Board is
entitled to receive an additional $5,000 per annum with respect to each Company
for services in such capacity. Drinker Biddle & Reath, of which Mr. McConnel is
a partner, receives legal fees as counsel to Excelsior Fund. The employees of
Chase Global Funds Services Company do not receive any compensation from
Excelsior Fund for acting as officers of Excelsior Fund. No person who is
currently an officer, director or employee of the Investment Adviser serves as
an officer, director or employee of Excelsior Fund. As of July 15, 1996, the
directors and officers of Excelsior Fund as a group owned beneficially less than
1% of the outstanding Shares of each Fund of the Company, and less than 1% of
the outstanding Shares of all Funds of the Company in the aggregate.
The following chart provides certain information about the fees
received by Excelsior Fund's directors in the most recently completed fiscal
year.
-28-
<PAGE>
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Accrued as from Excelsior Fund
Aggregate Part of and Fund
Name of Compensation from Fund Complex* Paid
Person/Position Excelsior Fund Expenses to Directors
--------------- ----------------- ----------- -----------------
<S> <C> <C> <C>
Donald L. Campbell $16,500 None $39,500(4)**
Director
Joseph H. Dugan $16,500 None $39,500(4)**
Director
Wolfe J. Frankl $16,500 None $39,500(4)**
Director
Robert A. Robinson $16,500 None $39,500(4)**
Director
Alfred C. Tannachion $21,500 None $51,500(4)**
Chairman of the Boards,
President and Treasurer
Frederick S. Wonham+ $ 6,375 None $ 14,424**
- ---------------------------
</TABLE>
/*/ The "Fund Complex" consists of Excelsior Fund, Excelsior Tax-Exempt Funds,
Inc., UST Master Variable Series, Inc., Excelsior Funds and Excelsior
Institutional Trust.
/**/ Number of investment companies in the Fund Complex for which director
serves as director or trustee.
/+/ Frederick S. Wonham was elected to the Board of Directors of Excelsior
Funds, Inc. and Excelsior Tax-Exempt Funds, Inc. on November 17, 1995.
Investment Advisory and Administration Agreements
- -------------------------------------------------
United States Trust Company of New York serves as Investment Adviser
to the Funds. In the Investment Advisory Agreement, the Investment Adviser has
agreed to provide the services described in the Prospectuses. The Investment
Adviser has also agreed to pay all expenses incurred by it in connection with
its activities under the respective agreements other than the cost of
securities, including brokerage commissions, purchased for the Funds.
For the fiscal year ended March 31, 1994, Excelsior Fund paid the
Investment Adviser $870,735, $555,404, $599, $12,682, $0, $2,216, $59,196,
$4,566, $5,162 and $53,036 with respect to the Equity, Income and Growth, Long-
Term Supply of Energy, Productivity Enhancers, Environmentally-Related Products
-29-
<PAGE>
and Services, Aging of America, Communication and Entertainment, Business and
Industrial Restructuring, Global Competitors and Early Life Cycle Funds,
respectively. For the same period, the Investment Adviser waived fees totalling
$1,516, $1,179, $22,139, $30,754, $18,247, $32,626, $22,594, $29,394, $26,625
and $23,696 with respect to the Equity, Income and Growth, Long-Term Supply of
Energy, Productivity Enhancers, Environmentally-Related Products and Services,
Aging of America, Communication and Entertainment, Business and Industrial
Restructuring, Global Competitors and Early Life Cycle Funds, respectively.
For the fiscal year ended March 31, 1995, Excelsior Fund paid the
Investment Adviser advisory fees of $880,638, $726,295, $48,882, $79,570, $0,
$68,122, $136,328, $120,783, $79,924 and $194,501 with respect to the Equity,
Income and Growth, Long-Term Supply of Energy, Productivity Enhancers,
Environmentally-Related Products and Services, Aging of America, Communication
and Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds, respectively. For the same period, the Investment
Adviser waived fees totalling $26,987, $24,620, $20,193, $22,983, $26,278,
$24,503, $17,130, $18,380, $15,637 and $26,625 with respect to the Equity,
Income and Growth, Long-Term Supply of Energy, Productivity Enhancers,
Environmentally-Related Products and Services, Aging of America, Communication
and Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds, respectively.
For the fiscal year ended March 31, 1996, Excelsior Fund paid the
Investment Adviser advisory fees of $1,111,127; $785,037; $114,497; $147,036;
$0; $185,180; $222,009; $273,025; $253,937; and $336,194 with respect to the
Equity, Income and Growth, Long-Term Supply of Energy, Productivity Enhancers,
Environmentally-Related Products and Services, Aging of America, Communication
and Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds, respectively. For the same period, the Investment
Adviser waived fees totalling $106,377, $69,637, $10,935, $11,813, $25,855,
$15,937, $18,360, $21,119, $16,714, and $57,942 with respect to the Equity,
Income and Growth, Long-Term Supply of Energy, Productivity Enhancers,
Environmentally-Related Products and Services, Aging of America, Communication
and Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds, respectively.
The Investment Advisory Agreement provides that the Investment Adviser
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Funds in connection with the performance of such agreements,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of
-30-
<PAGE>
the Investment Adviser in the performance of its duties or from reckless
disregard by it of its duties and obligations thereunder. In addition, the
Investment Adviser has undertaken in the Investment Advisory Agreement to
maintain its policy and practice of conducting its Asset Management Group
independently of its Banking Group.
Chase Global Funds Services Company ("CGFSC"), Federated
Administrative Services, an affiliate of the Distributor, and U.S. Trust (the
"Administrators")serve as the Funds' administrators. Under the Administration
Agreement, the Administrators have agreed to maintain office facilities for the
Funds, furnish the Funds with statistical and research data, clerical,
accounting and bookkeeping services, and certain other services required by the
Funds, and to compute the net asset value, net income and realized capital gains
or losses, if any, of the respective Funds. The Administrators prepare
semiannual reports to the Securities and Exchange Commission, prepare Federal
and state tax returns, prepare filings with state securities commissions,
arrange for and bear the cost of processing Share purchase and redemption
orders, maintain the Funds' financial accounts and records, and generally assist
in the Funds' operations.
Prior to August 1, 1995, administrative services were provided to the
Funds by CGFSC and Concord Holding Corporation (collectively, the "former
administrators") under an administration agreement having substantially the same
terms as the Administration Agreement currently in effect.
For the fiscal year ended March 31, 1994, Excelsior Fund paid the
former administrators $179,398, $114,452, $5,826, $17,527, $4,739, $7,444,
$22,881, $10,016, $10,462 and $21,420 in the aggregate with respect to the
Equity, Income and Growth, Long-Term Supply of Energy, Productivity Enhancers,
Environmentally-Related Products and Services, Aging of America, Communication
and Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds, respectively. For the same period, the former
administrators waived fees totalling $17,424, $5,723, $18,511, $15,806, $2,360,
$13,234, $12,788 and $1,861 with respect to the Long-Term Supply of Energy,
Productivity Enhancers, Environmentally-Related Products and Services, Aging of
America, Communication and Entertainment, Business and Industrial Restructuring,
Global Competitors and Early Life Cycle Funds, respectively.
For the fiscal year ended March 31, 1995, Excelsior Fund paid the
former administrators $186,366, $154,582, $19,660, $26,357, $5,451, $24,003,
$39,403, $35,765, $24,816 and $56,809 in the aggregate with respect to the
Equity, Income and Growth, Long-Term Supply of Energy, Productivity Enhancers,
Environmentally-Related Products and Services, Aging of America,
-31-
<PAGE>
Communication and Entertainment, Business and Industrial Restructuring, Global
Competitors and Early Life Cycle Funds, respectively. For the same period, the
former administrators waived fees totalling $22,090, $15,393, $36,299, $17,747,
$2,347, $5,985 and $16,934 with respect to the Long-Term Supply of Energy,
Productivity Enhancers, Environmentally-Related Products and Services, Aging of
America, Communication and Entertainment, Business and Industrial Restructuring
and Global Competitors Funds, respectively.
For the period April 1, 1995 through July 31, 1995, Excelsior Fund
paid the former administrators $72,709, $53,296, $9,318, $11,203, $6,000,
$13,476, $16,964, $18,319, $16,756 and $27,350 in the aggregate with respect to
the Equity, Income and Growth, Long-Term Supply of Energy, Productivity
Enhancers, Environmentally-Related Products and Services, Aging of America,
Communication and Entertainment, Business and Industrial Restructuring, Global
Competitors and Early Life Cycle Funds, respectively. For the same period, the
former administrators waived fees totalling $1,640, $575, $9, $10, $0, $13, $37,
$34, $16 and $75 with respect to the Equity, Income and Growth, Long-Term Supply
of Energy, Productivity Enhancers, Environmentally-Related Products and
Services, Aging of America, Communication and Entertainment, Business and
Industrial Restructuring, Global Competitors and Early Life Cycle Funds,
respectively.
For the period August 1, 1995 through March 31, 1996, Excelsior Fund
paid the Administrators $171,595, $120,732, $22,976, $29,686, $6,494, $38,285,
$44,871, $57,370, $52,911 and $74,016 in the aggregate with respect to the
Equity, Income and Growth, Long-Term Supply of Energy, Productivity Enhancers,
Environmentally-Related Products and Services, Aging of America, Communication
and Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds, respectively. For the same period, the Administrators
waived fees totalling $4,809, $1,416, $17,697, $9,101, $37,506, $13, $16, $19,
$7 and $40 with respect to the Equity, Income and Growth, Long-Term Supply of
Energy, Productivity Enhancers, Environmentally-Related Products and Services,
Aging of America, Communication and Entertainment, Business and Industrial
Restructuring, Global Competitors and Early Life Cycle Funds, respectively.
Service Organizations
- ---------------------
As stated in the Prospectuses, Excelsior Fund will enter into
agreements with Service Organizations. Such shareholder servicing agreements
will require the Service Organizations to provide shareholder administrative
services to their Customers who beneficially own Shares in consideration for a
Fund's payment (on an annualized basis) of up to .40% of the
-32-
<PAGE>
average daily net assets of the Fund's Shares beneficially owned by Customers of
the Service Organization. Such services may include: (a) assisting Customers in
designating and changing dividend options, account designations and addresses;
(b) providing necessary personnel and facilities to establish and maintain
certain shareholder accounts and records, as may reasonably be requested from
time to time by Excelsior Fund; (c) assisting in processing purchases, exchange
and redemption transactions; (d) arranging for the wiring of funds; (e)
transmitting and receiving funds in connection with Customer orders to purchase,
exchange or redeem Shares; (f) verifying and guaranteeing Customer signatures in
connection with redemption orders, transfers among and changes in Customer-
designated accounts; (g) providing periodic statements showing a Customer's
account balances and, to the extent practicable, integrating such information
with information concerning other client transactions otherwise effected with or
through the Service Organization; (h) furnishing on behalf of Excelsior Fund's
distributor (either separately or on an integrated basis with other reports sent
to a Customer by the Service Organization) periodic statements and confirmations
of all purchases, exchanges and redemptions of Shares in a Customer's account
required by applicable federal or state law; (i) transmitting proxy statements,
annual reports, updating prospectuses and other communications from Excelsior
Fund to Customers; (j) receiving, tabulating and transmitting to Excelsior Fund
proxies executed by Customers with respect to annual and special meetings of
shareholders of Excelsior Fund; (k) providing reports (at least monthly, but
more frequently if so requested by Excelsior Fund's distributor) containing
state-by-state listings of the principal residences of the beneficial owners of
the Shares; and (l) providing or arranging for the provision of such other
related services as Excelsior Fund or a Customer may reasonably request.
Excelsior Fund's agreements with Service Organizations are governed by
an Administrative Services Plan (the "Plan") adopted by Excelsior Fund.
Pursuant to the Plan, Excelsior Fund's Board of Directors will review, at least
quarterly, a written report of the amounts expended under Excelsior Fund's
agreements with Service Organizations and the purposes for which the
expenditures were made. In addition, the arrangements with Service
Organizations will be approved annually by a majority of Excelsior Fund's
directors, including a majority of the directors who are not "interested
persons" of Excelsior Fund as defined in the 1940 Act and have no direct or
indirect financial interest in such arrangements (the "Disinterested
Directors").
Any material amendment to Excelsior Fund's arrangements with Service
Organizations must be approved by a majority of Excelsior Fund's Board of
Directors (including a majority of the Disinterested Directors). So long as
Excelsior Fund's arrangements with Service Organizations are in effect, the
-33-
<PAGE>
selection and nomination of the members of Excelsior Fund's Board of Directors
who are not "interested persons" (as defined in the 1940 Act) of Excelsior Fund
will be committed to the discretion of such non-interested Directors.
For the fiscal years ended March 31, 1996, 1995 and 1994, payments to
Service Organizations totalled $112,827, $26,987 and $1,516; $71,628, $24,620
and $1,179; $10,946, $3,576 and $124; $11,169, $4,525 and $239; $4,404, $1,660
and $83; $15,685, $4,051 and $180; $18,414, $7,168 and $382; $21,172, $5,189 and
$196; $16,737, $3,243 and $117; and $58,058, $17,091 and $779 with respect to
the Equity, Income and Growth, Long-Term Supply of Energy, Productivity
Enhancers, Environmentally-Related Products and Services, Aging of America,
Communication and Entertainment, Business and Industrial Restructuring, Global
Competitors and Early Life Cycle Funds, respectively. Of these amounts,
$97,209, $18,606 and $1,516; $66,022, $22,697 and $1,179; $10,945, $3,525 and
$124; $11,169, $4,446 and $239; $4,403, $1,626 and $83; $15,685, $3,902 and
$180; $18,385, $6,707 and $382; $21,149, $4,851 and $196; $16,737, $3,163 and
$717; and $58,039, $16,428 and $779 were paid to affiliates of U.S. Trust with
respect to the Equity, Income and Growth, Long-Term Supply of Energy,
Productivity Enhancers, Environmentally-Related Products and Services, Aging of
America, Communication and Entertainment, Business and Industrial Restructuring,
Global Competitors and Early Life Cycle Funds, respectively.
Expenses
- --------
Except as otherwise noted, the Investment Adviser and the
Administrators bear all expenses in connection with the performance of their
services. The Funds bear the expenses incurred in their operations. Expenses
of the Funds include taxes; interest; fees (including fees paid to Excelsior
Fund's Directors and officers who are not affiliated with the Distributor or the
Administrators); Securities and Exchange Commission fees; state securities
qualifications fees; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to shareholders; expenses related to the
Distribution Plan; advisory, administration and administrative servicing fees;
charges of the custodian, transfer agent, and dividend disbursing agent; certain
insurance premiums; outside auditing and legal expenses; costs of shareholders
reports and shareholder meetings; and any extraordinary expenses. The Funds
also pay for brokerage fees and commissions in connection with the purchase of
portfolio securities.
If the expenses borne by a Fund in any fiscal year exceed expense
limitations imposed by applicable state securities regulations, the Investment
Adviser and the Administrators will reimburse such Fund for a portion of any
such excess to the extent required by such regulations in proportion
-34-
<PAGE>
to the fees received by them in such year up to the amount of the fees payable
to them, provided, however, to the extent required by such state regulations,
the Investment Adviser and the Administrators have agreed to effect such
reimbursement regardless of the fees payable to them. The amounts of the above
reimbursements, if any, will be estimated, reconciled and paid on a monthly
basis. To Excelsior Fund's knowledge, of the applicable expense limitations in
effect on the date of this Statement of Additional Information, none is more
restrictive than the following: 2 1/2% of the first $30 million of average
annual net assets, 2% of the next $70 million of average annual net assets and
1/2% of average annual net assets in excess of $100 million.
Custodian and Transfer Agent
- ----------------------------
The Chase Manhattan Bank, N.A. ("Chase") serves as custodian of the
Funds' assets. Under the custodian agreement, Chase has agreed to (i) maintain a
separate account or accounts in the name of the Funds; (ii) make receipts and
disbursements of money on behalf of the Funds; (iii) collect and receive all
income and other payments and distributions on account of the Funds' portfolio
securities; (iv) respond to correspondence from securities brokers and others
relating to its duties; (v) maintain certain financial accounts and records; and
(vi) make periodic reports to Excelsior Fund's Board of Directors concerning the
Funds' operations. Chase is entitled to monthly fees for furnishing custodial
services according to the following fee schedule: on the face value of debt
securities and the market value of equity securities, a fee at the annual rate
of .025%; on issues held, $50.00 for each physical issue held, $25.00 for each
book-entry issue held and 1/4 of 1% of market value for each foreign issue held;
on transactions, $25.00 for each physical transaction, $15.00 for each book-
entry transaction and $50.00 for each foreign security transaction. In addition,
Chase is entitled to reimbursement for its out-of-pocket expenses in connection
with the above services. Chase may, at its own expense, open and maintain
custody accounts with respect to the Funds with other banks or trust companies,
provided that Chase shall remain liable for the performance of all its custodial
duties under the Custodian Agreement, notwithstanding any delegation.
U.S. Trust also serves as the Funds' transfer agent and dividend
disbursing agent. In such capacity, U.S. Trust has agreed to (i) issue and
redeem Shares; (ii) address and mail all communications by the Funds to their
shareholders, including reports to shareholders, dividend and distribution
notices, and proxy materials for its meetings of shareholders; (iii) respond to
correspondence by shareholders and others relating to its duties; (iv) maintain
shareholder accounts; and (v) make periodic reports to Excelsior Fund concerning
the Funds' operations. For
-35-
<PAGE>
its transfer agency, dividend disbursing, and subaccounting services, U.S. Trust
is entitled to receive $15.00 per annum per account and subaccount. In
addition, U.S. Trust is entitled to be reimbursed for its out-of-pocket expenses
for the cost of forms, postage, processing purchase and redemption orders,
handling of proxies, and other similar expenses in connection with the above
services.
U.S. Trust may, at its own expense, delegate its transfer agency
obligations to another transfer agent registered or qualified under applicable
law, provided that U.S. Trust shall remain liable for the performance of all of
its transfer agency duties under the Transfer Agency Agreement, notwithstanding
any delegation. Pursuant to this provision in the agreement, U.S. Trust has
entered into a sub-transfer agency arrangement with CGFSC, an affiliate of
Chase, with respect to accounts of shareholders who are not Customers of U.S.
Trust. For the services provided by CGFSC, U.S. Trust has agreed to pay CGFSC
$15.00 per annum per account or subaccount plus out-of-pocket expenses. CGFSC
receives no fee directly from Excelsior Fund for any of its sub-transfer agency
services. U.S. Trust may, from time to time, enter into sub-transfer agency
arrangements with third party providers of transfer agency services.
PORTFOLIO TRANSACTIONS
----------------------
Subject to the general control of Excelsior Fund's Board of Directors,
the Investment Adviser is responsible for, makes decisions with respect to, and
places orders for all purchases and sales of all portfolio securities of each of
the Funds.
The Funds may engage in short-term trading to achieve their investment
objectives. Portfolio turnover may vary greatly from year to year as well as
within a particular year. The Funds' portfolio turnover rate may also be
affected by cash requirements for redemptions of Shares and by regulatory
provisions which enable the Funds to receive certain favorable tax treatment.
Portfolio turnover will not be a limiting factor in making portfolio decisions.
See "Financial Highlights" in the Funds' Prospectuses for the Funds' portfolio
turnover rates.
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. For the fiscal years
ended March 31, 1994, March 31, 1995 and March 31, 1996, the Equity Fund paid
brokerage commissions aggregating $61,608, $123,112 and $174,492, respectively,
and the Income and Growth Fund paid brokerage commissions aggregating $140,168,
$89,218 and $89,512, respectively.
-36-
<PAGE>
For fiscal years ended March 31, 1994, March 31, 1995, and March 31,
1996, the Long-Term Supply of Energy, Productivity Enhancers, Environmentally-
Related Products and Services, Aging of America, Communication and
Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds paid brokerage commissions aggregating $15,871, $36,759
and $46,678; $40,563, $141,290 and $353,788; $13,602, $16,669, and $18,680;
$20,905, $28,296 and $67,494; $40,593, $50,724 and $68,004; $46,444, $121,755
and $152,269; $17,428, $41,638 and $79,458; and $40,397, $73,534 and $95,108,
respectively.
Transactions in domestic over-the-counter markets are generally
principal transactions with dealers, and the costs of such transactions involve
dealer spreads rather than brokerage commissions. With respect to over-the-
counter transactions, the Funds, where possible, will deal directly with the
dealers who make a market in the securities involved, except in those
circumstances where better prices and execution are available elsewhere.
The Investment Advisory Agreement between Excelsior Fund and the
Investment Adviser provides that, in executing portfolio transactions and
selecting brokers or dealers, the Investment Adviser will seek to obtain the
best net price and the most favorable execution. The Investment Adviser shall
consider factors it deems relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer and whether such broker or dealer is selling
shares of Excelsior Fund, and the reasonableness of the commission, if any, for
the specific transaction and on a continuing basis.
In addition, the Investment Advisory Agreement authorizes the
Investment Adviser, to the extent permitted by law and subject to the review of
Excelsior Fund's Board of Directors from time to time with respect to the extent
and continuation of the policy, to cause the Funds to pay a broker which
furnishes brokerage and research services a higher commission than that which
might be charged by another broker for effecting the same transaction, provided
that the Investment Adviser determines in good faith that such commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker, viewed in terms of either that particular transaction
or the overall responsibilities of the Investment Adviser to the accounts as to
which it exercises investment discretion. Such brokerage and research services
might consist of reports and statistics on specific companies or industries,
general summaries of groups of stocks and their comparative earnings, or broad
overviews of the stock market and the economy.
Supplementary research information so received is in addition to and
not in lieu of services required to be performed
-37-
<PAGE>
by the Investment Adviser and does not reduce the investment advisory fees
payable by the Funds. Such information may be useful to the Investment Adviser
in serving the Funds and other clients and, conversely, supplemental information
obtained by the placement of business of other clients may be useful to the
Investment Adviser in carrying out its obligations to the Funds.
Portfolio securities will not be purchased from or sold to the
Investment Adviser, Distributor, or any affiliated person of either of them (as
such term is defined in the 1940 Act) acting as principal, except to the extent
permitted by the Securities and Exchange Commission.
Investment decisions for the Funds are made independently from those
for other investment companies, common trust funds and other types of funds
managed by the Investment Adviser. Such other investment companies and funds
may also invest in the same securities as the Funds. When a purchase or sale of
the same security is made at substantially the same time on behalf of a Fund and
another investment company or common trust fund, the transaction will be
averaged as to price, and available investments allocated as to amount, in a
manner which the Investment Adviser believes to be equitable to the Fund and
such other investment company or common trust fund. In some instances, this
investment procedure may adversely affect the price paid or received by the
Funds or the size of the position obtained by the Funds. To the extent
permitted by law, the Investment Adviser may aggregate the securities to be sold
or purchased for the Funds with those to be sold or purchased for other
investment companies or common trust funds in order to obtain best execution.
Excelsior Fund is required to identify any securities of its regular
brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or their
parents held by Excelsior Fund as of the close of its most recent fiscal year.
As of March 31, 1996, the following Funds held the following securities of
Excelsior Fund's regular brokers or dealers or their parents: (a) the Equity
held the following security: 88,000 shares of common stock of Morgan Stanley &
Co., Inc.; (b) the Income & Growth Fund held the following security: 48,000
shares of common stock of Morgan Stanley & Co., Inc.; (c) the Business and
Industrial Restructuring Fund held the following security: 18,000 shares of
common stock of First National Bank of Chicago; (d) the Aging of America Fund
held the following security: 16,000 shares of common stock of Dean Witter
Reynolds; (e) the Global Competitors Fund held the following security: 45,000
shares of common stock of Morgan Stanley & Co., Inc. Dillon Read & Co., Inc.,
Merrill Lynch & Co., Inc., Morgan Stanley & Co., Inc., First National Bank of
Chicago and Dean Witter Reynolds, Inc. are considered to be regular brokers or
dealers of Excelsior Fund.
-38-
<PAGE>
INDEPENDENT AUDITORS
--------------------
Ernst & Young LLP, independent auditors, 200 Clarendon Street, Boston,
MA 02116, serve as auditors of Excelsior Fund. The Funds' Financial Highlights
included in the Prospectuses and the financial statements for the period ended
March 31, 1996 incorporated by reference in this Statement of Additional
Information have been audited by Ernst & Young LLP for the periods included in
their reports thereon which appear therein.
COUNSEL
-------
Drinker Biddle & Reath (of which Mr. McConnel, Secretary of Excelsior
Fund, is a partner), Philadelphia National Bank Building, 1345 Chestnut Streets,
Philadelphia, Pennsylvania 19107, is counsel to Excelsior Fund and will pass
upon the legality of the Shares offered by the Prospectuses.
ADDITIONAL INFORMATION CONCERNING TAXES
---------------------------------------
The following supplements the tax information contained in the
Prospectuses.
Each Fund is treated as a separate corporate entity under the Internal
Revenue Code of 1986, as amended (the "Code"), and intends to qualify as a
regulated investment company. If, for any reason, a Fund does not qualify for a
taxable year for the special Federal tax treatment afforded regulated investment
companies, such Fund would be subject to Federal tax on all of its taxable
income at regular corporate rates, without any deduction for distributions to
shareholders. In such event, dividend distributions (whether or not derived
from interest on Municipal Securities) would be taxable as ordinary income to
shareholders to the extent of the Fund's current and accumulated earnings and
profits and would be eligible for the dividends received deduction in the case
of corporate shareholders.
A Fund will designate any distribution of the excess of net long-term
capital gain over net short-term capital loss as a capital gain dividend in a
written notice mailed to shareholders within 60 days after the close of the
Fund's taxable year. Upon the sale or exchange of Shares, if the shareholder
has not held such Shares for more than six months, any loss on the sale or
exchange of those Shares will be treated as long-term capital loss to the extent
of the capital gain dividends received with respect to the Shares.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income
-39-
<PAGE>
and capital gain net income (excess of capital gains over capital losses). The
Funds intend to make sufficient distributions or deemed distributions of their
ordinary taxable income and any capital gain net income prior to the end of each
calendar year to avoid liability for this excise tax.
A Fund will not be treated as a regulated investment company under the
Code if 30% or more of the Fund's gross income for a taxable year is derived
from gains realized on the sale or other disposition of the following
investments held for less than three months (the "30% test"): (1) stock and
securities (as defined in section 2(a)(36) of the 1940 Act); (2) options,
futures and forward contracts other than those on foreign currencies; and (3)
foreign currencies (and options, futures and forward contracts on foreign
currencies) that are not directly related to the Fund's principal business of
investing in stock and securities (and options and futures with respect to
stocks and securities). Interest (including original issue discount and accrued
market discount) received by a Fund upon maturity or disposition of a security
held for less than three months will not be treated as gross income derived from
the sale or other disposition of such security within the meaning of this
requirement. However, any other income which is attributable to realized market
appreciation will be treated as gross income from the sale or other disposition
of securities for this purpose. With respect to covered call options, if the
call is exercised by the holder, the premium and the price received on exercise
constitute the proceeds of sale, and the difference between the proceeds and the
cost of the securities subject to the call is capital gain or loss. Premiums
from expired call options written by a Fund and net gains from closing purchase
transactions are treated as short-term capital gains for Federal income tax
purposes, and losses on closing purchase transactions are short-term capital
losses. With respect to forward contracts, futures contracts, options on
futures contracts, and other financial instruments subject to the "mark-to-
market" rules, the Internal Revenue Service has ruled in private letter rulings
that a gain realized from such a contract, option or financial instrument will
be treated as being derived from a security held for three months or more
(regardless of the actual period for which the contract, option or instrument is
held) if the gain arises as a result of a constructive sale under the mark-to-
market rules, and will be treated as being derived from a security held for less
than three months only if the contract, option or instrument is terminated (or
transferred) during the taxable year (other than by reason of mark-to-market)
and less than three months has elapsed between the date the contract, option or
instrument was acquired and the termination date. Increases and decreases in
the value of the forward contracts, futures contracts, options on futures
contracts and other investments that qualify as part of a "designated hedge," as
defined in Section 851(g) of the Code, may
-40-
<PAGE>
be netted for purposes of determining whether the 30% test is met.
Each Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends or gross proceeds realized upon sale
paid to shareholders who have failed to provide a correct tax identification
number in the manner required, who are subject to withholding by the Internal
Revenue Service for failure properly to include on their return payments of
taxable interest or dividends, or who have failed to certify to the Fund when
required to do so either that they are not subject to backup withholding or that
they are "exempt recipients."
The foregoing discussion is based on Federal tax laws and regulations
which are in effect on the date of this Statement of Additional Information;
such laws and regulations may be changed by legislative or administrative
action. Shareholders are advised to consult their tax advisers concerning their
specific situations and the application of state and local taxes.
PERFORMANCE INFORMATION
-----------------------
The Funds may advertise the "average annual total return" for its
Service Shares and Trust Shares. Such return is computed by determining the
average annual compounded rate of return during specified periods that equates
the initial amount invested to the ending redeemable value of such investment
according to the following formula:
ERV /1/n/
T = [(-----) - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10 year
(or other) periods at the end of the applicable period
(or a fractional portion thereof).
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in years.
Each Fund that advertises an "aggregate total return" for its Service
Shares and Trust Shares computes such return by
-41-
<PAGE>
determining the aggregate compounded rates of return during specified periods
that likewise equate the initial amount invested to the ending redeemable value
of such investment. The formula for calculating aggregate total return is as
follows:
ERV
Aggregate Total Return = [(------)] - 1
P
-----
The above calculations are made assuming that (1) all dividends and
capital gain distributions are reinvested on the reinvestment dates at the price
per Share existing on the reinvestment date (reflecting any sales load charged
upon such reinvestment), (2) all recurring fees charged to all shareholder
accounts are included, and (3) for any account fees that vary with the size of
the account, a mean (or median) account size in a Fund during the periods is
reflected. The ending redeemable value (variable "ERV" in the formula) is
determined by assuming complete redemption of the hypothetical investment after
deduction of all nonrecurring charges at the end of the measuring period. In
addition, the Funds' average annual total return and aggregate total return
quotations will reflect the deduction of the maximum sales load charged in
connection with the purchase of Shares.
Based on the foregoing calculations, the average annual total returns
for the Service Shares of the Equity, Income and Growth, Long-Term Supply of
Energy, Productivity Enhancers, Environmentally-Related Products and Services,
Aging of America, Communication and Entertainment, Business and Industrial
Restructuring, Global Competitors and Early Life Cycle Funds for the one year
period ended March 31, 1996 were 20.75%, 20.14%, 16.17%, 21.30%, 18.92%, 20.14%,
8.42%, 30.31%, 21.72% and 12.97% respectively. The average annual total returns
for the Service Shares of the Equity Fund and the Income and Growth Fund for the
five year period ended March 31, 1996 were 15.49% and 14.73%, respectively. The
average annual total returns for the Service Shares of the Equity Fund and the
Income and Growth Fund for the periods from April 25, 1985 and January 6, 1987
(the commencement of operations of such respective Funds) to March 31, 1996 were
15.18% and 10.93%, respectively. The average annual total returns for the
Service Shares of the Long-Term Supply of Energy, Productivity Enhancers,
Environmentally-Related Products and Services, Aging of America, Communication
and Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds for the period from December 31, 1992 (commencement of
operations) to March 31, 1996 were 9.52%, 11.63%, 1.74%, 9.91%, 15.51%, 24.24%,
13.67% and 16.16%, respectively. No Trust Shares of the Funds had been issued as
of March 31, 1996.
-42-
<PAGE>
The Funds may also from time to time include in advertisements, sales
literature and communications to shareholders a total return figure that is not
calculated according to the formula set forth above in order to compare more
accurately a Fund's performance with other measures of investment return. For
example, in comparing a Fund's total return with data published by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. or Weisenberger
Investment Company Service, or with the performance of an index, a Fund may
calculate its aggregate total return for the period of time specified in the
advertisement or communication by assuming the investment of $10,000 in Shares
and assuming the reinvestment of each dividend or other distribution at net
asset value on the reinvestment date. Percentage increases are determined by
subtracting the initial value of the investment from the ending value and by
dividing the remainder by the beginning value. A Fund does not, for these
purposes, deduct from the initial value invested any amount representing sales
charges. A Fund will, however, disclose the maximum sales charge and will also
disclose that the performance data does not reflect sales charges and that
inclusion of sales charges would reduce the performance quoted.
The total return of Shares of a Fund may be compared to those of other
mutual funds with similar investment objectives and to other relevant indices or
to ratings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
total return of a Fund may be compared to data prepared by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc. and Weisenberger Investment
Company Service. Total return and yield data as reported in national financial
publications such as Money Magazine, Forbes, Barron's, The Wall Street Journal
----- -------- ------ -------- --- ---- ------ -------
and The New York Times, or in publications of a local or regional nature, may
--- --- ---- -----
also be used in comparing the performance of a Fund. Advertisements, sales
literature or reports to shareholders may from time to time also include a
discussion and analysis of each Fund's performance, including without
limitation, those factors, strategies and techniques that together with market
conditions and events, materially affected each Fund's performance.
The Funds may also from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on a Fund
investment are reinvested by being paid in additional Fund Shares, any future
income or capital appreciation of a Fund would increase the value, not only of
the original Fund investment, but also of the additional Fund Shares received
through reinvestment. As a result, the value of the Fund investment would
increase more quickly than if dividends or other distributions had been paid in
cash. The Funds may also include discussions or illustrations of the potential
investment goals of a prospective investor,
-43-
<PAGE>
investment management techniques, policies or investment suitability of a Fund,
economic conditions, the effects of inflation and historical performance of
various asset classes, including but not limited to, stocks, bonds and Treasury
bills. From time to time advertisements, sales literature or communications to
shareholders may summarize the substance of information contained in shareholder
reports (including the investment composition of a Fund), as well as the views
of the Investment Adviser as to current market, economy, trade and interest rate
trends, legislative, regulatory and monetary developments, investment strategies
and related matters believed to be of relevance to a Fund. The Funds may also
include in advertisements charts, graphs or drawings which illustrate the
potential risks and rewards of investment in various investment vehicles,
including but not limited to, stocks, bonds, treasury bills and Shares of a
Fund. In addition, advertisement, sales literature or shareholder communications
may include a discussion of certain attributes or benefits to be derived by an
investment in a Fund. Such advertisements or communicators may include symbols,
headlines or other material which highlight or summarize the information
discussed in more detail therein.
MISCELLANEOUS
-------------
As used in the Prospectuses, "assets belonging to a Fund" means the
consideration received upon the issuance of Shares in the Fund, together with
all income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale of such investments, any funds or payments
derived from any reinvestment of such proceeds, and a portion of any general
assets of Excelsior Fund not belonging to a particular portfolio of Excelsior
Fund. In determining a Fund's net asset value, assets belonging to the Fund are
charged with the direct liabilities in respect of the Fund and with a share of
the general liabilities of Excelsior Fund which are normally allocated in
proportion to the relative asset values of Excelsior Fund's portfolios at the
time of allocation. Subject to the provisions of Excelsior Fund's Charter,
determinations by the Board of Directors as to the direct and allocable
liabilities, and the allocable portion of any general assets with respect to a
particular Fund, are conclusive.
As of July 15, 1996, U.S. Trust held of record substantially all of
the Shares in the Funds, in each case as agent or custodian for its customers,
but did not own such Shares beneficially because it did not have discretion to
vote or invest such Shares.
-44-
<PAGE>
FINANCIAL STATEMENTS
--------------------
Excelsior Fund's Annual Report to Shareholders for the fiscal year
ended March 31, 1996 (the "Annual Report") for the domestic equity portfolios
accompanies this Statement of Additional Information. The financial statements
in the Annual Report for the Equity, Income and Growth, Long-Term Supply of
Energy, Productivity Enhancers, Environmentally-Related Products and Services,
Aging of America, Communication and Entertainment, Business and Industrial
Restructuring, Global Competitors and Early Life Cycle Funds (the "Financial
Statements") are incorporated in this Statement of Additional Information by
reference. The Financial Statements included in the Annual Report for the
fiscal year ended March 31, 1996 have been audited by Excelsior Fund's
independent auditors, Ernst & Young LLP, whose reports thereon also appear in
such Annual Report and are incorporated herein by reference. The Financial
Statements in such Annual Report have been incorporated herein in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing. Additional copies of the Annual Report may be obtained at no charge
by telephoning CGFSC at the telephone number appearing on the front page of this
Statement of Additional Information.
-45-
<PAGE>
APPENDIX A
----------
COMMERCIAL PAPER RATINGS
- ------------------------
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the rating categories used by Standard and
Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory. However,
the relative degree of safety is not as high as for issues designated "A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are considered
to have a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity.
A-1
<PAGE>
"Prime-2" - Issuer or related supporting institutions are considered
to have a strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment. Short-
term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk
A-2
<PAGE>
factors are larger and subject to more variation. Nevertheless, timely payment
is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years. The
following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one
A-3
<PAGE>
year or less which is issued by United States commercial banks, thrifts and non-
bank banks; non-United States banks; and broker-dealers. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded as non-
investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations which possess a particularly strong credit feature
are supported by the highest capacity for timely repayment.
"A1" - Obligations are supported by the highest capacity for timely
repayment.
"A2" - Obligations are supported by a satisfactory capacity for timely
repayment.
"A3" - Obligations are supported by a satisfactory capacity for timely
repayment.
"B" - Obligations for which there is an uncertainty as to the capacity
to ensure timely repayment.
"C" - Obligations for which there is a high risk of default or which
are currently in default.
A-4
<PAGE>
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
A-5
<PAGE>
"CCC" - Debt has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no interest
is being paid.
"D" - Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes such payments
will be made during such grace period. "D" rating is also used upon the filing
of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are
A-6
<PAGE>
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
(P) ... - When applied to forward delivery bonds, indicates that the
rating is provisional pending delivery of the bonds. The rating may be revised
prior to delivery if changes occur in the legal documents or the underlying
credit quality of the bonds.
A-7
<PAGE>
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1 and B1.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA"
A-8
<PAGE>
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "BBB" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in
A-9
<PAGE>
business, economic or financial conditions are more likely to lead to increased
investment risk than for obligations in higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to
denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
A-10
<PAGE>
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection
A-11
<PAGE>
commonly regarded as required of an investment security and not distinctly or
predominantly speculative.
"SG" - Loans bearing this designation are of speculative quality and
lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
A-12
<PAGE>
EXCELSIOR FUNDS, INC.
International Fund
Emerging Americas Fund
Pacific/Asia Fund
Pan European Fund
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1996
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current prospectus for the International, Emerging
Americas, Pacific/Asia and Pan European Funds (each a "Fund" and collectively
the "Funds") of Excelsior Funds, Inc. ("Excelsior Fund") dated August 1, 1996
(the "Prospectus"). Much of the information contained in this Statement of
Additional Information expands upon the subjects discussed in the Prospectuses.
No investment in shares of the Funds described herein (collectively, the
"Shares") should be made without reading the Prospectuses. A copy of the
Prospectuses may be obtained by writing Excelsior Fund c/o Chase Global Funds
Services Company, 73 Tremont Street, Boston, MA 02108-3913 or by calling (800)
446-1012.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . .
Other Investment Considerations . . . . . . . . . .
Additional Information on Portfolio Instruments . .
Additional Investment Limitations . . . . . . . . .
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . .
INVESTOR PROGRAMS . . . . . . . . . . . . . . . . . . . .
Systematic Withdrawal Plan . . . . . . . . . . . . .
Exchange Privilege . . . . . . . . . . . . . . . . .
Other Investor Programs . . . . . . . . . . . . . .
DESCRIPTION OF CAPITAL STOCK . . . . . . . . . . . . . .
MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . . .
Directors and Officers . . . . . . . . . . . . . . .
Investment Advisory, Sub-Advisory and
Administration Agreements . . . . . . . . . . .
Service Organizations . . . . . . . . . . . . . . .
Expenses . . . . . . . . . . . . . . . . . . . . . .
Custodian and Transfer Agent . . . . . . . . . . . .
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . .
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . .
COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . .
ADDITIONAL INFORMATION CONCERNING TAXES . . . . . . . . .
Generally . . . . . . . . . . . . . . . . . . . . .
Taxation of Certain Financial Instruments . . . . .
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . .
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . .
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . .
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . A-1
(i)
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
---------------------------------
The following policies and discussions supplement the Funds'
investment objectives and policies as set forth in the Prospectuses.
Other Investment Considerations
- -------------------------------
In determining the preferred distribution of investments of the Funds
among various geographic regions and countries, United States Trust Company of
New York ("U.S. Trust" or the "Investment Adviser"), Foreign and Colonial Asset
Management ("FACAM") and Foreign & Colonial Emerging Markets Limited ("FCEML")
(FACAM and FCEML hereinafter collectively referred to as the "Sub-Advisers")
will consider, among other things, regional and country-by-country prospects for
economic growth, anticipated levels of inflation, prevailing interest rates, the
historical patterns of government regulation of the economy and the outlook for
currency relationships.
The transaction costs to the Funds of engaging in forward currency
transactions described in the Prospectus vary with factors such as the currency
involved, the length of the contract period and prevailing currency market
conditions. Because currency transactions are usually conducted on a principal
basis, no fees or commissions are involved. The use of forward currency
contracts does not eliminate fluctuations in the underlying prices of the
securities being hedged, but it does establish a rate of exchange that can be
achieved in the future. Thus, although forward currency contracts used for
transaction or position hedging purposes may limit the risk of loss due to an
increase in the value of the hedged currency, at the same time they limit
potential gain that might result were the contracts not entered into. Further,
the Investment Adviser and the Sub-Advisers may be incorrect in their
expectations as to currency fluctuations, and a Fund may incur losses in
connection with its currency transactions that it would not otherwise incur. If
a price movement in a particular currency is generally anticipated, a Fund may
not be able to contract to sell or purchase that currency at an advantageous
price.
At or before the maturity of a forward sale contract, a Fund may sell
a portfolio security and make delivery of the currency, or retain the security
and offset its contractual obligation to deliver the currency by purchasing a
second contract pursuant to which the Fund will obtain, on the same maturity
date, the same amount of the currency which it is obligated to deliver. If the
Fund retains the portfolio security and engages in an offsetting transaction,
the Fund, at the time of execution of the offsetting transaction, will incur a
gain or a loss to the extent that movement has occurred in forward
<PAGE>
contract prices. Should forward prices decline during the period between a
Fund's entering into a forward contract for the sale of a currency and the date
it enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, the Fund will suffer a loss to the extent the price of
the currency it has agreed to sell is less than the price of the currency it has
agreed to purchase in the offsetting contract. The foregoing principles
generally apply also to forward purchase contracts.
Each Fund may purchase gold bars primarily of standard weight
(approximately 400 troy ounces) at the best available prices in the New York
bullion market. However, the Investment Adviser and Sub-Advisers will have
discretion to purchase or sell gold bullion in other markets, including foreign
markets, if better prices can be obtained. Gold bullion is valued by the Funds
at the mean between the closing bid and asked prices in the New York bullion
market as of the close of the New York Stock Exchange each business day. When
there is no readily available market quotation for gold bullion, the bullion
will be valued by such method as determined by Excelsior Fund's Board of
Directors to best reflect its fair value. For purpose of determining net asset
value, gold held by a Fund, if any, will be valued in U.S. dollars.
Additional Information on Portfolio Instruments
- -----------------------------------------------
Repurchase Agreements
---------------------
The repurchase price under the repurchase agreements described in the
Prospectuses generally equals the price paid by a Fund plus interest negotiated
on the basis of current short-term rates (which may be more or less than the
rate on the securities underlying the repurchase agreement). Securities subject
to repurchase agreements are held by the Funds' custodian (or sub-custodian) or
in the Federal Reserve/Treasury book-entry system. Repurchase agreements are
considered to be loans by a Fund under the Investment Company Act of 1940 (the
"1940 Act").
Securities Lending
------------------
When a Fund lends its portfolio securities, it continues to receive
interest or dividends on the securities lent and may simultaneously earn
interest on the investment of the cash loan collateral, which will be invested
in readily marketable, high-quality, short-term obligations. Although voting
rights, or rights to consent, attendant to securities lent pass to the borrower,
such loans may be called at any time and will be called so that the securities
may be voted by a Fund if a material event affecting the investment is to occur.
-2-
<PAGE>
Government Obligations
----------------------
Examples of the types of U.S. Government obligations that may be held
by the Funds include, in addition to U.S. Treasury Bills, the obligations of
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the
Federal Housing Administration, Farmers Home Administration, Export-Import Bank
of the United States, Small Business Administration, Government National
Mortgage Association, Federal National Mortgage Association, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks and Maritime Administration.
American and European Depository Receipts
-----------------------------------------
American Depository Receipts ("ADRs") that may be purchased by the
Funds are receipts typically issued by a U.S. bank or trust company which
evidence ownership of underlying securities of a foreign issuer. ADRs may be
sponsored or unsponsored. Investments in unsponsored ADRs involve additional
risk because financial information based on generally accepted accounting
principles ("GAAP") may not be available with respect to the foreign issuers of
the underlying securities. European Depository Receipts ("EDRs"), which are
sometimes referred to as Continental Depository Receipts ("CDRs"), are receipts
issued in Europe typically by non-U.S. banks or trust companies and foreign
branches of U.S. banks that evidence ownership of foreign or United States
securities. Generally, ADRs, which are in registered form, are designed for use
in U.S. securities markets, and EDRs, which are in bearer form, are designed for
use in European securities markets.
Covered Call Options
--------------------
When a Fund writes a covered call option, it may terminate its
obligation to sell the underlying security prior to the expiration date of the
option by executing a closing purchase transaction, which is effected by
purchasing on an exchange an option of the same series (i.e., same underlying
security, exercise price and expiration date) as the option previously written.
Such a purchase does not result in the ownership of an option. A closing
purchase transaction will ordinarily be effected to realize a profit on an
outstanding call option, to prevent an underlying security from being called, to
permit the sale of the underlying security or to permit the writing of a new
call option containing different terms on such underlying security. The cost of
such a liquidation purchase plus transaction costs may be greater than the
premium received upon the original option, in which event the writer will have
incurred a loss on the transaction. An option position may be closed out only
on an exchange which provides a secondary market for an
-3-
<PAGE>
option of the same series. There is no assurance that a liquid secondary market
on an exchange will exist for any particular option. A covered option writer,
unable to effect a closing purchase transaction, will not be able to sell the
underlying security until the option expires or the underlying security is
delivered upon exercise, with the result that the writer in such circumstances
will be subject to the risk of market decline in the underlying security during
such period. A Fund will write an option on a particular security only if the
Investment Adviser and the Sub-Advisers believe that a liquid secondary market
will exist on an exchange for options of the same series, which will permit the
Fund to make a closing purchase transaction in order to close out its position.
When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by the Fund is included in the liability
section of the Fund's statement of assets and liabilities as a deferred credit.
The amount of the deferred credit will be subsequently marked to market to
reflect the current value of the option written. The current value of the
traded option is the last sale price or, in the absence of a sale, the average
of the closing bid and asked prices. If an option expires on the stipulated
expiration date, or if a Fund enters into a closing purchase transaction, it
will realize a gain (or loss if the cost of a closing purchase transaction
exceeds the net premium received when the option is sold) and the deferred
credit related to such option will be eliminated. If an option is exercised, the
Fund may deliver the underlying security from its portfolio or purchase the
underlying security in the open market. In either event, the proceeds of the
sale will be increased by the net premium originally received, and the Fund will
realize a gain or loss. Premiums from expired call options written by a Fund
and net gains from closing purchase transactions are treated as short-term
capital gains for Federal income tax purposes, and losses on closing purchase
transactions are short-term capital losses.
Futures Contracts and Related Options
-------------------------------------
Each Fund may invest in futures contracts and related options. Each
Fund may enter into interest rate futures contracts and other types of financial
futures contracts, including foreign currency futures contracts, as well as any
index or foreign market futures which are available on recognized exchanges or
in other established financial markets. A futures contract on foreign currency
creates a binding obligation on one party to deliver, and a corresponding
obligation on another party to accept delivery of, a stated quantity of a
foreign currency for an amount fixed in U.S. dollars. Foreign currency futures,
which operate in a manner similar to interest rate futures contracts, may be
used by the Funds to hedge against exposure to
-4-
<PAGE>
fluctuations in exchange rates between the U.S. dollar and other currencies
arising from multinational transactions.
Futures contracts will not be entered into for speculative purposes,
but to hedge risks associated with a Fund's securities investments. Positions
in futures contracts may be closed out only on an exchange which provides a
secondary market for such futures. However, there can be no assurance that a
liquid secondary market will exist for any particular futures contract at any
specific time. Thus, it may not be possible to close a futures position. In
the event of adverse price movements, a Fund would continue to be required to
make daily cash payments to maintain its required margin. In such situations,
if a Fund has insufficient cash, it may have to sell portfolio securities to
meet daily margin requirements at a time when it may be disadvantageous to do
so. In addition, the Fund may be required to make delivery of the instruments
underlying futures contracts it holds. The inability to close options and
futures positions also could have an adverse impact on a Fund's ability to
effectively hedge.
Successful use of futures by the Funds is also subject to the ability
of the Investment Adviser or Sub-Advisers to correctly predict movements in the
direction of the market. For example, if a Fund has hedged against the
possibility of a decline in the market adversely affecting securities held by it
and securities prices increase instead, the Fund will lose part or all of the
benefit to the increased value of its securities which it has hedged because it
will have approximately equal offsetting losses in its futures positions. In
addition, in some situations, if a Fund has insufficient cash, it may have to
sell securities to meet daily variation margin requirements. Such sales of
securities may be, but will not necessarily be, at increased prices which
reflect the rising market. A Fund may have to sell securities at a time when it
may be disadvantageous to do so.
The risk of loss in trading futures contracts in some strategies can
be substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit, before any deduction for the
transaction costs, if the contract were closed out. Thus, a purchase or sale of
a futures contract may
-5-
<PAGE>
result in losses in excess of the amount invested in the contract.
Utilization of futures transactions by a Fund involves the risk of
loss by the Fund of margin deposits in the event of bankruptcy of a broker with
whom the Fund has an open position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Options on Futures Contracts
----------------------------
Each Fund may purchase options on the futures contracts described
above. A futures option gives the holder, in return for the premium paid, the
right to buy (call) from or sell (put) to the writer of the option a futures
contract at a specified price at any time during the period of the option. Upon
exercise, the writer of the option is obligated to pay the difference between
the cash value of the futures contract and the exercise price. Like the buyer
or seller of a futures contract, the holder, or writer, of an option has the
right to terminate its position prior to the scheduled expiration of the option
by selling, or purchasing, an option of the same series, at which time the
person entering into the closing transaction will realize a gain or loss.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
of an option also
-6-
<PAGE>
entails the risk that changes in the value of the underlying futures contract
will not be fully reflected in the value of the option purchased. Depending on
the pricing of the option compared to either the futures contract upon which it
is based, or upon the price of the instruments being hedged, an option may or
may not be less risky than ownership of the futures contract or such
instruments. In general, the market prices of options can be expected to be
more volatile than the market prices on the underlying futures contract.
Compared to the purchase or sale of futures contracts, however, the purchase of
call or put options on futures contracts may frequently involve less potential
risk to the Fund because the maximum amount at risk is the premium paid for the
options (plus transaction costs). Although permitted by its fundamental
investment policies, the Funds do not currently intend to write futures options,
and will not do so in the future absent any necessary regulatory approvals.
When-Issued and Forward Transactions
------------------------------------
When a Fund agrees to purchase securities on a "when-issued" or
forward commitment basis, the custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment and, in such case, the Fund may be required subsequently to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that a Fund's net assets will fluctuate to a greater degree when
it sets aside portfolio securities to cover such purchase commitments than when
it sets aside cash. Because a Fund will set aside cash or liquid assets to
satisfy its purchase commitments in the manner described, its liquidity and
ability to manage its portfolio might be affected in the event its forward
commitments or commitments to purchase "when-issued" securities ever exceed 25%
of the value of its assets.
A Fund will purchase securities on a "when-issued" or forward
commitment basis only with the intention of completing the transaction. If
deemed advisable as a matter of investment strategy, however, a Fund may dispose
of or renegotiate a commitment after it is entered into, and may sell securities
it has committed to purchase before those securities are delivered to the Fund
on the settlement date. In these cases, the Fund may realize a taxable capital
gain or loss.
When a Fund engages in "when-issued" or forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such other party to do so may result in the Fund incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
-7-
<PAGE>
The market value of the securities underlying a "when-issued" purchase
or a forward commitment to purchase securities and any subsequent fluctuations
in their market value are taken into account when determining the market value
of a Fund starting on the day the Fund agrees to purchase the securities. The
Fund does not earn interest on the securities it has committed to purchase until
they are paid for and delivered on the settlement date.
Brady Bonds
-----------
The Emerging Americas Fund may invest in Brady Bonds, which are
securities created through the exchange of existing commercial bank loans to
Latin American public and private entities for new bonds in connection with debt
restructurings under a debt restructuring plan announced by former U.S.
Secretary of the Treasury Nicholas F. Brady (the "Brady Plan"). Brady Bonds may
be collateralized or uncollateralized, are issued in various currencies
(primarily the U.S. dollar) and are currently actively traded in the over-the-
counter secondary market for Latin American debt instruments.
Dollar-denominated, collateralized Brady Bonds, which may be fixed
rate par bonds or floating rate discount bonds, are collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Interest payments on these Brady Bonds generally are collateralized by
cash or securities in an amount that, in the case of fixed rate bonds, is equal
to at least one year of rolling interest payments or, in the case of floating
rate bonds, initially is equal to at least one year's rolling interest payments
based on the applicable interest rate at that time and is adjusted at regular
intervals thereafter.
All Mexican Brady Bonds issued to date, except New Money Bonds, have
principal repayments at final maturity fully collateralized by U.S. Treasury
zero coupon bonds (or comparable collateral in other currencies) and interest
coupon payments collateralized on an 18-month rolling-forward basis by funds
held in escrow by an agent for the bondholders. Approximately half of the
Venezuelan Brady Bonds issued to date have principal repayments at final
maturity collateralized by U.S. Treasury zero coupon bonds (or comparable
collateral in other currencies), while slightly more than half have interest
coupon payments collateralized on a 14-month rolling-forward basis by securities
held by the Federal Reserve Bank of New York as collateral agent.
Brady Bonds are often viewed as having three or four valuation
components: the collateralized repayment of principal at final maturity; the
collateralized interest payments; the uncollateralized interest payments; and
any uncollateralized
-8-
<PAGE>
repayment of principal at maturity (these uncollateralized amounts constituting
the "residual risk").
Miscellaneous
- -------------
The Funds may not invest in oil, gas or mineral leases.
Additional Investment Limitations
- ---------------------------------
In addition to the investment limitations disclosed in the
Prospectuses, the Funds are subject to the investment limitations enumerated
below. Fundamental investment limitations may be changed with respect to a Fund
only by a vote of a majority of the holders of such Fund's outstanding Shares
(as defined under "Miscellaneous" in the Prospectuses). However, investment
limitations which are "operating policies" with respect to a Fund may be changed
by Excelsior Fund's Board of Directors upon reasonable notice to shareholders.
The following investment limitations are fundamental with respect to
each Fund. A Fund may not:
1. Act as an underwriter of securities within the meaning of the
Securities Act of 1933, except insofar as it might be deemed to be an
underwriter upon disposition of certain portfolio securities acquired within the
limitation on purchases of restricted securities;
2. Purchase or sell real estate, except that the Fund may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by interests in real estate; and
3. Issue any senior securities, except insofar as any borrowing in
accordance with the Funds' investment limitation contained in the Prospectuses
might be considered to be the issuance of a senior security.
The following investment limitations are fundamental with respect to
the International Fund, but are operating policies with respect to the Emerging
Americas, Pacific/Asia and Pan European Funds (collectively, the "Regional
Funds"). Each Fund may not:
4. Purchase securities on margin, make short sales of securities, or
maintain a short position;
5. Invest in or sell put options, call options, straddles, spreads,
or any combination thereof; provided, however, that each Fund may write covered
call options with respect to its portfolio securities that are traded on a
national securities exchange or on foreign exchanges and may enter into
-9-
<PAGE>
closing purchase transactions with respect to such options if, at the time of
the writing of such option, the aggregate value of the securities subject to the
options written by the Fund does not exceed 25% of the value of its total
assets; and provided that each Fund may enter into forward currency contracts in
accordance with its investment objective and policies;
6. Invest in companies for the purpose of exercising management or
control;
7. Invest more than 5% of its total assets in securities issued by
companies which, together with any predecessor, have been in continuous
operation for fewer than three years; and
8. Acquire any other investment company or investment company
security, except in connection with a merger, consolidation, reorganization, or
acquisition of assets or where otherwise permitted by the Investment Company Act
of 1940.
The following investment limitation is fundamental with respect to the
International Fund. The International Fund may not:
9. Purchase or sell commodities futures contracts or invest in oil,
gas, or other mineral exploration or development programs; provided, however,
that (i) this shall not prohibit the Fund from purchasing publicly traded
securities of companies engaging in whole or in part in such activities; and
(ii) the Fund may enter into forward currency contracts, futures contracts and
related options and may invest up to 5% of its total assets in gold bullion.
The following investment limitation is fundamental with respect to the
Regional Funds. Each Regional Fund may not:
10. Purchase or sell commodities or commodities futures contracts or
invest in oil, gas, or other mineral exploration or development programs;
provided, however, that (i) this shall not prohibit a Fund from purchasing
publicly traded securities of companies engaging in whole or in part in such
activities; and (ii) a Fund may enter into forward currency contracts, futures
contracts and related options and may invest up to 5% of its total assets in
gold bullion.
* * *
For the purpose of Investment Limitation No. 2, the prohibition of
purchases of real estate includes acquisition of
-10-
<PAGE>
limited partnership interests in partnerships formed with a view toward
investing in real estate, but does not prohibit purchases of shares in real
estate investment trusts.
In addition to the above investment limitations, Excelsior Fund
currently intends to limit each Fund's investments in warrants so that, valued
at the lower of cost or market value, they do not exceed 5% of the net assets of
the particular Fund. Included within that amount, but not to exceed 2% of the
value of a Fund's net assets, may be warrants which are not listed on the New
York or American Stock Exchanges. For the purpose of this limitation, warrants
acquired by a Fund in units or attached to securities will be deemed to be
without value. Each Fund also intends to refrain from entering into arbitrage
transactions.
Pursuant to the requirements of state securities laws, each Fund currently
intends to limit its option transactions so that they do not exceed, at the time
when they are written, 25% of the net (rather than total) assets of the
particular Fund. See Investment Limitation No. 5 above.
The International Fund may not purchase or sell commodities except as
provided in Investment Limitation No. 9 above.
If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in value
of a Fund's portfolio securities will not constitute a violation of such
limitation.
In order to permit the sale of Shares in certain states, Excelsior
Fund may make on behalf of a Fund other commitments more restrictive than the
investment policies and limitations described above and in the Prospectuses.
Should Excelsior Fund determine that any such commitment is no longer in a
Fund's best interests, it will revoke the commitment by terminating sales of
such Fund's Shares to investors residing in the state involved.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
----------------------------------------------
Shares are continuously offered for sale by Edgewood Services, Inc.
(the "Distributor"), a wholly-owned subsidiary of Federated Investors, and the
Distributor has agreed to use appropriate efforts to solicit all purchase
orders. As described in the Prospectuses, Shares may be sold to customers
("Customers") of financial institutions ("Shareholder Organizations"). Shares
are also offered for sale directly to institutional investors and to members of
the general public. Different types of Customer accounts at the Shareholder
Organizations may be used to purchase Shares, including eligible agency and
trust accounts. In addition, Shareholder
-11-
<PAGE>
Organizations may automatically "sweep" a Customer's account not less frequently
than weekly and invest amounts in excess of a minimum balance agreed to by the
Shareholder Organization and its Customer in Shares selected by the Customer.
Investors purchasing Shares may include officers, directors, or employees of the
particular Shareholder Organization.
Shares of the Funds are offered for sale with a maximum sales charge
of 4.50%. An illustration of the computation of the offering price per share of
the Funds, using the value of each Fund's net assets and number of outstanding
securities at the close of business on March 31, 1996 is as follows:
<TABLE>
<CAPTION>
Emerging Americas
International Fund Fund Pacific/Asia Fund Pan European Fund
------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net Assets........ $97,850,496 $43,159,718 $76,192,253 $47,915,844
Outstanding
Shares........... 8,968,353 5,858,457 7,792,286 5,214,555
Net Asset Value
Per Share........ $ 10.91 $ 7.37 $ 9.78 $ 9.19
Sales Charge
(4.50% of the
offering price).. $ 0.51 $ 0.35 $ 0.46 $ 0.43
Offering to
Public........... $ 11.42 $ 7.72 $ 10.24 $ 9.62
</TABLE>
As stated in the Prospectuses, the sales load described above will not be
applicable to: (a) purchases of Shares by customers of the Investment Adviser
or its affiliates; (b) trust, agency or custodial accounts opened through the
trust department of a bank, trust company or thrift institution, provided that
appropriate notification of such status is given at the time of investment; (c)
companies, corporations and partnerships (excluding full service broker/dealers
and financial planners, registered investment advisers and depository
institutions not covered by the exemptions in (d) and (e) below); (d) financial
planners and registered investment advisers not affiliated with or clearing
purchases through full service broker/dealers; (e) purchases of Shares by
depository institutions for their own account as principal; (f) exchange
transactions (described below under "Investor Programs - Exchange Privilege")
where the Shares being exchanged were acquired in connection with the
distribution of assets held in trust, agency or custodial accounts maintained
with the trust department of a bank; (g) corporate/business retirement plans
(such as 401(k), 403(b)(7), 457 and Keogh accounts) sponsored by the Distributor
and IRA accounts sponsored by the Investment Adviser; (h) company-sponsored
employee pension or retirement plans making direct investments in the Funds; (i)
purchases of Shares by officers, trustees, directors, employees,
-12-
<PAGE>
former employees and retirees of Excelsior Fund, Excelsior Tax-Exempt Funds,
Inc. ("Excelsior Tax-Exempt Fund"), Excelsior Institutional Trust or Excelsior
Funds, the Investment Adviser, the Distributor or of any direct or indirect
affiliate of any of them; (j) purchases of Shares by all beneficial shareholders
of Excelsior Fund or Excelsior Tax-Exempt Fund as of May 22, 1989; (k) purchases
of Shares by investment advisers registered under the Investment Advisers Act of
1940 for their customers through an omnibus account established with United
States Trust Company of New York; (l) purchases of Shares by directors, officers
and employees of brokers and dealers selling shares pursuant to a selling
agreement with Excelsior Fund and Excelsior Tax-Exempt Fund; (m) purchase of
Shares by investors who are members of affinity groups services by USAffinity
Investments Limited Partnership; and (n) customers of certain financial
institutions who purchase shares through a registered representative of UST
Financial Services Corp. on the premises of their financial institutions. In
addition, no sales load is charged on the reinvestment of dividends or
distributions or in connection with certain share exchange transactions.
Investors who have previously redeemed shares in a portfolio of Excelsior Fund
or Excelsior Tax-Exempt Fund on which a sales load has been paid also have a
one-time privilege of purchasing shares of another portfolio of either company
at net asset value without a sales charge, provided that such privilege will
apply only to purchases made within 30 calendar days from the date of redemption
and only with respect to the amount of the redemption.
Total sales charges paid by shareholders of the International Fund for
the fiscal years ended March 31, 1996, 1995 and 1994 were $0, $4,219 and $7,779,
respectively. Of these respective amounts, UST Distributors, Inc., the Funds'
former distributor, retained $0, $4,169 and $4,786 for the period April 1, 1995
through July 31, 1996. Edgewood Services, Inc., the Funds' distributor,
retained $0 for the period August 1, 1995 through March 31, 1996. The balance
was paid to selling dealers. Total sales charges paid by shareholders of the
Emerging Americas, Pacific/Asia and Pan European Funds for the fiscal years
ended March 31, 1996, 1995 and 1994 were $698, $8,465 and $19,985; $333, $144
and $6,489; and $99, $183 and $1,112, respectively. Of these respective
amounts, UST Distributors, Inc., the Funds' former distributor, retained $203,
$1,403 and $8,643 with respect to the Emerging Americas Fund; $9, $69 and $1,998
with respect to the Pacific/Asia Fund; and $1, $11 and $980 with respect to the
Pan European Fund for the period April 1, 1995 through July 31, 1995, and the
fiscal years ended March 31, 1995 and 1994. Edgewood Services, Inc. retained $0
with respect to the Emerging Americas Fund; $0 with respect to the Pacific/Asia
Fund; and $0 with respect to the Pan European Fund for the period August 1, 1995
through March 31, 1996. The balance was paid to selling dealers.
-13-
<PAGE>
Excelsior Fund may suspend the right of redemption or postpone the
date of payment for Shares for more than 7 days during any period when (a)
trading on the New York Stock Exchange (the "Exchange") is restricted by
applicable rules and regulations of the Securities and Exchange Commission; (b)
the Exchange is closed for other than customary weekend and holiday closings;
(c) the Securities and Exchange Commission has by order permitted such
suspension; or (d) an emergency exists as determined by the Securities and
Exchange Commission.
In the event that Shares are redeemed in cash at their net asset
value, a shareholder may receive in payment for such Shares an amount that is
more or less than his original investment due to changes in the market prices of
a Fund's portfolio securities.
Excelsior Fund reserves the right to honor any request for redemption
or repurchase of a Fund's Shares by making payment in whole or in part in
securities chosen by Excelsior Fund and valued in the same way as they would be
valued for purposes of computing a Fund's net asset value. If payment is made
in securities, a shareholder may incur transaction costs in converting these
securities into cash. Such redemptions in kind will be governed by Rule 18f-1
under the 1940 Act so that a Fund is obligated to redeem its Shares solely in
cash up to the lesser of $250,000 or 1% of its net asset value during any 90-day
period for any one shareholder of a Fund.
Under limited circumstances, Excelsior Fund may accept securities as
payment for Shares. Securities acquired in this manner will be limited to
securities issued in transactions involving a bona fide reorganization or
---------
statutory merger, or will be limited to other securities (except for municipal
debt securities issued by state political subdivisions or their agencies or
instrumentalities) that: (a) meet the investment objective and policies of any
Fund acquiring such securities; (b) are acquired for investment and not for
resale; (c) are liquid securities that are not restricted as to transfer either
by law or liquidity of market; and (d) have a value that is readily
ascertainable (and not established only by evaluation procedures) as evidenced
by a listing on the American Stock Exchange, New York Stock Exchange or NASDAQ,
or as evidenced by their status as U.S. Government securities, bank certificates
of deposit, banker's acceptances, corporate and other debt securities that are
actively traded, money market securities and other similar securities with a
readily ascertainable value.
-14-
<PAGE>
INVESTOR PROGRAMS
-----------------
Systematic Withdrawal Plan
- --------------------------
An investor who owns Shares with a value of $10,000 or more may begin
a Systematic Withdrawal Plan. The withdrawal can be on a monthly, quarterly,
semiannual or annual basis. There are four options for such systematic
withdrawals. The investor may request:
(1) A fixed-dollar withdrawal;
(2) A fixed-share withdrawal;
(3) A fixed-percentage withdrawal (based on the current value of the
account); or
(4) A declining-balance withdrawal.
Prior to participating in a Systematic Withdrawal Plan, the investor must
deposit any outstanding certificates for Shares with Chase Global Funds Services
Company, the Funds' sub-transfer agent. Under this Plan, dividends and
distributions are automatically reinvested in additional Shares of a Fund.
Amounts paid to investors under this Plan should not be considered as income.
Withdrawal payments represent proceeds from the sale of Shares, and there will
be a reduction of the shareholder's equity in the Fund involved if the amount of
the withdrawal payments exceeds the dividends and distributions paid on the
Shares and the appreciation of the investor's investment in the Fund. This in
turn may result in a complete depletion of the shareholder's investment. An
investor may not participate in a program of systematic investing in a Fund
while at the same time participating in the Systematic Withdrawal Plan with
respect to an account in the same Fund. Customers of Shareholder Organizations
may obtain information on the availability of, and the procedures and fees
relating to, the Systematic Withdrawal Plan directly from their Shareholder
Organizations.
Exchange Privilege
- ------------------
Investors and Customers of Shareholder Organizations may exchange
Shares having a value of at least $500 for shares of any other portfolio of
Excelsior Fund or Excelsior Tax-Exempt Fund ("the Companies") or for Trust
Shares of Excelsior Institutional Trust. Shares may be exchanged by wire,
telephone or mail and must be made to accounts of identical registration. There
is no exchange fee imposed by the Companies or Excelsior Institutional Trust.
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, the Companies and Excelsior Institutional Trust reserve the right
to limit the number of exchange requests of investors to no more than six per
-15-
<PAGE>
year. The Companies may modify or terminate the exchange program at any time
upon 60 days' written notice to shareholders, and may reject any exchange
request.
For Federal income tax purposes, exchanges are treated as sales on
which the shareholder will realize a gain or loss, depending upon whether the
value of the Shares to be given up in exchange is more or less than the basis in
such Shares at the time of the exchange. Generally, a shareholder may include
sales loads incurred upon the purchase of Shares in his or her tax basis for
such Shares for the purpose of determining gain or loss on a redemption,
transfer or exchange of such Shares. However, if the shareholder effects an
exchange of Shares for shares of another portfolio of the Companies within 90
days of the purchase and is able to reduce the sales load applicable to the new
shares (by virtue of the Companies' exchange privilege), the amount equal to
such reduction may not be included in the tax basis of the shareholder's
exchanged Shares but may be included (subject to the limitation) in the tax
basis of the new shares.
Other Investor Programs
- -----------------------
As described in the Prospectuses, Shares of a Fund may be purchased in
connection with the Automatic Investment Program, and certain Retirement
Programs. Customers of Shareholder Organizations may obtain information on the
availability of, and the fees and procedures relating to, such programs directly
from their Shareholder Organizations.
DESCRIPTION OF CAPITAL STOCK
----------------------------
Excelsior Fund's Charter authorizes its Board of Directors to issue up
to thirty-five billion full and fractional shares of capital stock, and to
classify or reclassify any unissued shares of Excelsior Fund into one or more
classes or series by setting or changing in any one or more respects their
respective preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption. The Prospectuses describe the classes of shares into which
Excelsior Fund's authorized capital is currently classified.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Directors may grant in its discretion. When issued for
payment as described in the Prospectuses, Shares will be fully paid and non-
assessable. In the event of a liquidation or dissolution of a Fund, its
shareholders are entitled to receive the assets available for distribution
belonging to the particular Fund and a proportionate distribution, based upon
the relative asset values of Excelsior Fund's portfolios, of any general assets
of Excelsior Fund not
-16-
<PAGE>
belonging to any particular portfolio of Excelsior Fund which are available for
distribution. In the event of a liquidation or dissolution of Excelsior Fund,
its shareholders will be entitled to the same distribution process.
Shareholders of Excelsior Fund are entitled to one vote for each full
share held, and fractional votes for fractional shares held, and will vote in
the aggregate and not by class, except as otherwise required by the 1940 Act or
other applicable law or when the matter to be voted upon affects only the
interests of the shareholders of a particular class. Voting rights are not
cumulative and, accordingly, the holders of more than 50% of the aggregate of
Excelsior Fund's shares may elect all of Excelsior Fund's directors, regardless
of the votes of other shareholders.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as Excelsior Fund shall not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding
shares of each portfolio affected by the matter. A portfolio is affected by a
matter unless it is clear that the interests of each portfolio in the matter are
substantially identical or that the matter does not affect any interest of the
portfolio. Under the Rule, the approval of an investment advisory agreement or
any change in a fundamental investment policy would be effectively acted upon
with respect to a portfolio only if approved by a majority of the outstanding
shares of such portfolio. However, the Rule also provides that the ratification
of the appointment of independent public accountants, the approval of principal
underwriting contracts, and the election of directors may be effectively acted
upon by shareholders of Excelsior Fund voting without regard to class.
Excelsior Fund's Charter authorizes its Board of Directors, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding Shares of the Fund to be redeemed
at a price which is equal to their net asset value and which may be paid in cash
or by distribution of the securities or other consideration received from the
sale and conveyance; (b) sell and convert a Fund's assets into money and, in
connection therewith, to cause all outstanding Shares of the Fund to be redeemed
at their net asset value; or (c) combine the assets belonging to a Fund with the
assets belonging to another portfolio of Excelsior Fund, if Excelsior Fund's
Board of Directors reasonably determines that such combination will not have a
material adverse effect on shareholders of any portfolio participating in such
combination, and, in connection therewith,
-17-
<PAGE>
to cause all outstanding Shares of the Fund to be redeemed at their net asset
value or converted into shares of another class of Excelsior Fund's capital
stock at net asset value. The exercise of such authority by the Board of
Directors will be subject to the provisions of the 1940 Act, and the Board of
Directors will not take any action described in this paragraph unless the
proposed action has been disclosed in writing to the affected Fund's
shareholders at least 30 days prior thereto.
Notwithstanding any provision of Maryland law requiring a greater vote
of Excelsior Fund's Common Stock (or of the Shares of a Fund voting separately
as a class) in connection with any corporate action, unless otherwise provided
by law (for example, by Rule 18f-2, discussed above) or by Excelsior Fund's
Charter, Excelsior Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of the outstanding Common Stock of
Excelsior Fund voting without regard to class.
MANAGEMENT OF THE FUND
----------------------
Directors and Officers
- ----------------------
The directors and executive officers of Excelsior Fund, their
addresses, ages, principal occupations during the past five years, and other
affiliations are as follows:
<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ---------------- -------------- --------------------------
<S> <C> <C>
Alfred C. Tannachion/1/ Chairman of Retired; Chairman of the
1135 Hyde Park the Board, Boards, President and
Mahwah, NJ 07430 President and Treasurer of Excelsior and
Age 70 Treasurer Excelsior Tax-Exempt;
Chairman of the Board, President and
Treasurer of UST Master Variable
Series, Inc. (since 1994); Chairman of
the Board, President and Treasurer of
Excelsior Institutional Trust (since
1995).
Donald L. Campbell Director Retired; Director of
333 East 69th Street Excelsior and Excelsior Tax-
Apt. 10-H Exempt; Director of UST Master
New York, NY 10021 Variable Series, Inc. (since
Age 70 1994); Trustee of Excelsior
Institutional Trust (since
1995); Director, Royal Life
Insurance Co. of NY (since
1991).
</TABLE>
1. This director is considered to be an "interested person" of Excelsior Fund
as defined in the 1940 Act.
-18-
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ---------------- -------------- --------------------------
<S> <C> <C>
Joseph H. Dugan Director Retired; Director of Excelsior
913 Franklin Lake Road and Excelsior Tax-Exempt;
Franklin Lakes, NJ 07417 Director of UST Master
Age 71 Variable Series, Inc. (since
1994); Trustee of Excelsior
Institutional Trust (since
1995).
Wolfe J. Frankl Director Retired; Director of Excelsior
2320 Cumberland Road and Excelsior Tax-Exempt;
Charlottesville, VA 22901 Director of UST Master
Age 75 Variable Series, Inc. (since
1994); Trustee of Excelsior
Institutional Trust (since
1995); Director, Deutsche Bank
Financial, Inc. (since 1989);
Director, The Harbus
Corporation (since 1951);
Trustee, HSBC Funds Trust and
HSBC Mutual Funds Trust (since
1995).
Robert A. Robinson Director Director of Excelsior and
Church Pension Fund Excelsior Tax-Exempt; Director
800 Second Avenue of UST Master Variable Series,
New York, NY 10017 Inc. (since 1994); Trustee of
Age 70 Excelsior Institutional Trust
(since 1995); President
Emeritus, The Church Pension
Fund and its affiliated
companies (since 1968);
Trustee, H.B. and F.H. Bugher
Foundation and Director of its
wholly owned subsidiaries --
Rosiclear Lead and Flourspar
Mining Co. and The Pigmy
Corporation (since 1984);
Director, Morehouse Publishing
Co. (since 1974); Trustee,
HSBC Funds Trust and HSBC
Mutual Funds Trust (since
1982); Director, Infinity
Funds, Inc. (since 1995).
</TABLE>
-19-
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ---------------- -------------- --------------------------
<S> <C> <C>
Frederick S. Wonham/1/ Director Retired; Director of Excelsior
238 June Road and Excelsior Tax-Exempt;
Stamford, CT 06903 Trustee of Excelsior Funds and
Age 65 Excelsior Institutional Trust
(since 1995); Vice Chairman of
U.S. Trust Corporation and
U.S. Trust Company of New York
(until September, 1995);
Chairman, U.S. Trust of
Connecticut.
W. Bruce McConnel, III Secretary Partner of the law firm of
Philadelphia National Drinker Biddle & Reath.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
Age 53
Sherry Aramini Assistant Second Vice President, Blue
Chase Global Funds Secretary Sky Compliance Manager,
Services Company Chase Global Funds Services
73 Tremont Street Company since May 1996;
Boston, MA 02108-3913 Technical Resource Manager,
Age 32 Chase Global Funds Services
Company, April 1995-May 1996; Financial
Reporting Supervisor, Chase Global
Funds Services Company, September 1993-
April 1995; Audit Supervisor, Coopers &
Lybrand L.P., July 1990-August 1993.
John M. Corcoran Assistant Vice President, Director of
Chase Global Funds Treasurer Administration, Client Group,
Services Company Chase Global Funds Services
73 Tremont Street Company (July 1996-present);
Boston, MA 02108-3913 Second Vice President, Manager
Age 31 of Administration, Chase
Global Funds Services Company (October 1993-
July 1996); Audit Manager, Ernst &
Young LLP (from August 1987 to
September 1993).
</TABLE>
Each director receives an annual fee of $9,000 plus a meeting fee of
$1,500 for each meeting attended and is reimbursed for expenses incurred in
attending meetings. The Chairman of the Board is entitled to receive an
additional $5,000 per annum for services in such capacity. Drinker Biddle &
Reath, of which Mr.
- --------------------------
1. This director is considered to be an "interested person" of Excelsior Fund
as defined in the 1940 Act.
-20-
<PAGE>
McConnel is a partner, receives legal fees as counsel to Excelsior Fund. The
employees of Chase Global Funds Services Company do not receive any compensation
from Excelsior Fund for acting as officers of Excelsior Fund. No person who is
currently an officer, director or employee of the Investment Adviser or any Sub-
Adviser serves as an officer, director or employee of Excelsior Fund.
As of July 15, 1996, the directors and officers of Excelsior Fund as
a group owned less than 1% of the Outstanding Shares of each Fund of the
Company, and less than 1% of the outstanding Shares of all Funds of the Company
in the aggregate.
The following chart provides certain information about the fees
received by Excelsior Fund's directors in the most recently completed fiscal
year.
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Accrued as from Excelsior Fund
Aggregate Part of and Fund
Name of Compensation from Fund Complex/*/ Paid
Person/Position Excelsior Fund Expenses to Directors
- --------------- ------------------- -------- ---------------
<S> <C> <C> <C>
Donald L. Campbell $16,500 None $39,500(4)**
Director
Joseph H. Dugan $16,500 None $39,500(4)**
Director
Wolfe J. Frankl $16,500 None $39,500(4)**
Director
Robert A. Robinson $16,500 None $39,500(4)**
Director
Alfred C. Tannachion $21,500 None $51,500(4)**
Chairman of the Board,
President and Treasurer
Frederick S. Wonham/+/ $ 6,375 None $14,424(4)**
Director
</TABLE>
- ---------------------------
/*/ The "Fund Complex" consists of Excelsior Fund, Excelsior Tax-Exempt, UST
Master Variable Series, Inc., Excelsior Funds and Excelsior Institutional
Trust.
/**/ Number of investment companies in the Fund Complex for which director
serves as director or trustee.
-21-
<PAGE>
/+/ Frederick S. Wonham was elected to the Board of Directors of Excelsior
Funds, Inc. and Excelsior Tax-Exempt Funds, Inc. on November 17, 1995.
Investment Advisory, Sub-Advisory and Administration Agreements
- ---------------------------------------------------------------
United States Trust Company of New York serves as Investment Adviser
to the Funds, and FACAM provides Sub-Advisory services with respect to the
International and Pan European Funds. FCEML serves as Sub-Adviser to the
Emerging Americas and Pacific/Asia Funds. In the Investment Advisory and Sub-
Advisory Agreements, the Investment Adviser and Sub-Advisers have agreed to
provide the services described in the Prospectuses. The Investment Adviser and
Sub-Advisers have also agreed to pay all expenses incurred by them in connection
with their activities under the respective agreements other than the cost of
securities, including brokerage commissions, purchased for the Funds.
For the fiscal year ended March 31, 1994, Excelsior Fund paid the
Investment Adviser $417,136, $131,416, $240,305 and $160,310 with respect to the
International, Emerging Americas, Pacific/Asia and Pan European Funds,
respectively. For the same period the Investment Adviser waived fees totalling
$2,244, $36,056, $75,624 and $20,318 with respect to the International, Emerging
Americas, Pacific/Asia and Pan European Funds, respectively. For the fiscal
year ended March 31, 1994, FACAM received sub-advisory fees with respect to the
International and Pan European Funds from the Investment Adviser totalling
$293,566 and $126,440, respectively. For the same period, FCEML received sub-
advisory fees with respect to the Emerging Americas Fund and FCEML and FACAM
received aggregate sub-advisory fees with respect to the Pacific/Asia Fund from
the Investment Adviser totalling $65,708 and $168,214, respectively.
For the fiscal year ended March 31, 1995, Excelsior Fund paid the
Investment Adviser advisory fees of $574,455, $368,128, $480,194, and $375,873
with respect to the International, Emerging Americas, Pacific/Asia, and Pan
European Funds, respectively. For the same period, the Investment Adviser
waived fees totalling $37,822, $28,097, $27,189 and $22,473, with respect to the
International, Emerging Americas, Pacific/Asia and Pan European Funds,
respectively. For the fiscal year ended March 31, 1995, FACAM received sub-
advisory fees with respect to the International and Pan European Funds totalling
$428,594 and $278,842, respectively, and FCEML received sub-advisory fees with
respect to the Emerging Americas and Pacific/Asia Funds totalling $196,098 and
$355,168, respectively.
For the fiscal year ended March 31, 1996, Excelsior Fund paid the
Investment Adviser advisory fees of $733,456,
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$326,552, $536,350 and $405,582 with respect to the International, Emerging
Americas, Pacific/Asia, and Pan European Funds, respectively. For the same
period, the Investment Adviser waived fees totalling $79,560, $29,512, $45,970
and $40,033, with respect to the International, Emerging Americas, Pacific/Asia
and Pan European Funds, respectively. For the fiscal year ended March 31, 1996,
FACAM received sub-advisory fees with respect to the International and Pan
European Funds totalling _______ and _______, respectively, and FCEML received
sub-advisory fees with respect to the Emerging Americas and Pacific/Asia Funds
totalling _______ and _______, respectively.
The Investment Adviser may, from time to time, voluntarily waive a
portion of its fees, which waiver may be terminated at any time.
The Investment Advisory Agreement and the Sub-Advisory Agreements
provide that the Investment Adviser and Sub-Advisers shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Funds in
connection with the performance of such agreements, except a loss resulting from
a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Adviser or Sub-Advisers in the
performance of their duties or from reckless disregard by either of them of
their duties and obligations thereunder.
Chase Global Funds Services Company ("CGFSC"), Federated
Administrative Services, an affiliate of the Distributor, and U.S. Trust (the
"Administrators") serve as the Funds' administrators. Under the Administration
Agreement, the Administrators have agreed to maintain office facilities for the
Funds, furnish the Funds with statistical and research data, clerical,
accounting, and bookkeeping services, and certain other services required by the
Funds, and to compute the net asset values, net income and realized capital
gains or losses, if any, of the Funds. The Administrators prepare semi-annual
reports to the Securities and Exchange Commission, prepare Federal and state tax
returns, prepare filings with state securities commissions, arrange for and bear
the cost of processing Share purchase and redemption orders, maintain the Funds'
financial accounts and records, and generally assist in the Funds' operations.
Prior to August 1, 1995, administrative services were provided by
CGFSC and Concord Holding Corporation (collectively, the "former
administrators") under an administration agreement having substantially the same
terms as the Administration Agreement currently in effect.
For the fiscal year ended March 31, 1994, Excelsior Fund paid the
former administrators $83,885, $37,765, $63,192 and
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$41,471 in the aggregate with respect to the International, Emerging Americas,
Pacific/Asia and Pan European Funds, respectively.
For the fiscal year ended March 31, 1995, Excelsior Fund paid the
former administrators $122,374, $78,418, $101,468 and $79,669 in the aggregate
with respect to the International, Emerging Americas, Pacific/Asia and Pan
European Funds, respectively. For the same period, the administrators waived
fees totalling $81, $21 and $9 with respect to the International, Emerging
Americas and Pacific/Asia Funds, respectively.
For the period April 1, 1995 through July 31, 1995, Excelsior Fund
paid the former administrators $46,929, $21,815, $33,502 and $28,271 in the
aggregate with respect to the International, Emerging Americas, Pacific/Asia and
Pan European Funds, respectively. For the same period, the former
administrators waived fees totalling $199, $51, $264 and $90 with respect to the
International, Emerging Americas, Pacific/Asia and Pan European Funds,
respectively.
For the period August 1, 1995 through March 31, 1996, Excelsior Fund
paid the Administrators $115,390, $49,315, $82,681 and $60,758 in the aggregate
with respect to the International, Emerging Americas, Pacific/Asia and Pan
European Funds, respectively. For the same period, the Administrators waived
fees totalling $84, $32, $17 and $4 with respect to the International, Emerging
Americas, Pacific/Asia and Pan European Funds, respectively.
Service Organizations
- ---------------------
As stated in the Prospectuses, Excelsior Fund will enter into
agreements with Service Organizations. Such shareholder servicing agreements
will require the Service Organizations to provide shareholder administrative
services to their Customers who beneficially own Shares in consideration for a
Fund's payment (on an annualized basis) of up to .40% of the average daily net
assets of the Fund's Shares beneficially owned by Customers of the Service
Organization. Such services may include: (a) assisting Customers in designating
and changing dividend options, account designations and addresses; (b) providing
necessary personnel and facilities to establish and maintain certain shareholder
accounts and records, as may reasonably be requested from time to time by
Excelsior Fund; (c) assisting in processing purchases, exchange and redemption
transactions; (d) arranging for the wiring of funds; (e) transmitting and
receiving funds in connection with Customer orders to purchase, exchange or
redeem Shares; (f) verifying and guaranteeing Customer signatures in connection
with redemption orders, transfers among and changes in Customer-designated
accounts; (g) providing periodic statements showing a Customer's
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account balances and, to the extent practicable, integrating such information
with information concerning other client transactions otherwise effected with or
through the Service Organization; (h) furnishing on behalf of Excelsior Fund's
distributor (either separately or on an integrated basis with other reports sent
to a Customer by the Service Organization) periodic statements and confirmations
of all purchases, exchanges and redemptions of Shares in a Customer's account
required by applicable federal or state law; (i) transmitting proxy statements,
annual reports, updating prospectuses and other communications from Excelsior
Fund to Customers; (j) receiving, tabulating and transmitting to the Excelsior
Fund proxies executed by Customers with respect to annual and special meetings
of shareholders of Excelsior Fund; (k) providing reports (at least monthly, but
more frequently if so requested by Excelsior Fund's distributor) containing
state-by-state listings of the principal residences of the beneficial owners of
the Shares; and (l) providing or arranging for the provision of such other
related services as Excelsior Fund or a Customer may reasonably request.
Excelsior Fund's agreements with Service Organizations are governed by
an Administrative Services Plan (the "Plan") adopted by Excelsior Fund.
Pursuant to the Plan, Excelsior Fund's Board of Directors will review, at least
quarterly, a written report of the amounts expended under Excelsior Fund's
agreements with Service Organizations and the purpose for which the expenditures
were made. In addition, the arrangements with Service Organizations will be
approved annually by a majority of Excelsior Fund's directors, including a
majority of the directors who are not "interested persons" of Excelsior Fund as
defined in the 1940 Act and have no direct or indirect financial interest in
such arrangements (the "Disinterested Directors").
Any material amendment to Excelsior Fund's arrangements with Service
Organizations must be approved by a majority of Excelsior Fund's Board of
Directors (including a majority of the Disinterested Directors). So long as
Excelsior Fund's arrangements with Service Organizations are in effect, the
selection and nomination of the members of Excelsior Fund's Board of Directors
who are not "interested persons" (as defined in the 1940 Act) of Excelsior Fund
will be committed to the discretion of such non-interested Directors.
For the fiscal years ended March 31, 1996, 1995 and 1994, payments to
Service Organizations totalled $79,843, $37,903 and $2,244; $29,595, $24,089 and
$2,025; $46,251, $27,198 and $2,555; and $40,127, $22,473 and $1,499 with
respect to the International, Emerging Americas, Pacific/Asia and Pan European
Funds, respectively. Of these amounts, $79,843, $36,955 and $2,244; $29,594,
$23,712 and $2,025; $46,251, $26,836 and $2,555; and $40,127, $22,338 and $1,499
were paid to affiliates of U.S.
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Trust with respect to the International, Emerging Americas, Pacific/Asia and Pan
European Funds, respectively.
Expenses
- --------
Except as otherwise noted, the Investment Adviser, Sub-Advisers and
the Administrators bear all expenses in connection with the performance of their
services. Each Fund bears the expenses incurred in its operations. Expenses of
a Fund include taxes; interest; fees (including fees paid to its directors and
officers who are not affiliated with the Distributor or the Administrators);
Securities and Exchange Commission fees; state securities qualification fees;
costs of preparing and printing prospectuses for regulatory purposes and for
distribution to shareholders; advisory, administration and administrative
servicing fees; charges of the custodian, transfer agent, and dividend
disbursing agent; certain insurance premiums; outside auditing and legal
expenses; costs of shareholder reports and meetings; and any extraordinary
expenses. A Fund also pays for brokerage fees and commissions in connection
with the purchase of portfolio securities.
If the expenses borne by a Fund in any fiscal year exceed expense
limitations imposed by applicable state securities regulations, the Investment
Adviser and the Administrators will reimburse the affected Fund for a portion of
any such excess to the extent required by such regulations in proportion to the
fees received by them in such year up to the amount of the fees payable to them,
provided, however, to the extent required by such state regulations, the
Investment Adviser and the Administrators have agreed to effect such
reimbursement regardless of the fees payable to them. In addition, FACAM and
FCEML have agreed to pay the Investment Adviser an amount equal to 70% and 50%,
respectively, of each expense reimbursement made by the Investment Adviser to
any Fund for which they are Sub-Adviser pursuant to the foregoing undertaking.
The amounts of the above reimbursements, if any, will be estimated, reconciled
and paid on a monthly basis. To Excelsior Fund's knowledge, of the applicable
expense limitations in effect on the date of this Statement of Additional
Information, none is more restrictive than the following: 2 1/2% of the first
$30 million of average annual net assets, 2% of the next $70 million of average
annual net assets and 1/2% of average annual net assets in excess of $100
million.
Custodian and Transfer Agent
- ----------------------------
The Chase Manhattan Bank, N.A. ("Chase") serves as custodian of the
Funds' assets. Under the custodian agreement, Chase has agreed to (i) maintain a
separate account or accounts in the name of the Funds; (ii) make receipts and
disbursements of
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money on behalf of the Funds; (iii) collect and receive all income and other
payments and distributions on account of the Funds' portfolio securities; (iv)
respond to correspondence from securities brokers and others relating to its
duties; (v) maintain certain financial accounts and records; and (vi) make
periodic reports to Excelsior Fund's Board of Directors concerning the Funds'
operations. Chase is entitled to monthly fees for furnishing custodial services
according to the following fee schedule: on the face value of debt securities
and the market value of equity securities, a fee at the annual rate of .15%; on
issues held, $50.00 for each physical issue held, $25.00 for each book-entry
issue held and 1/4 of 1% of market value for each foreign issue held; on
transactions, $25.00 for each physical transaction, $15.00 for each book-entry
transaction and $50.00 for each foreign security transaction. In addition, Chase
is entitled to reimbursement for its out-of-pocket expenses in connection with
the above services. Chase may, at its own expense, open and maintain custody
accounts with respect to the Funds with other banks or trust companies, provided
that Chase shall remain liable for the performance of all its custodial duties
under the Custodian Agreement, notwithstanding any delegation.
U.S. Trust also serves as the Funds' transfer agent and dividend
disbursing agent. In such capacity, U.S. Trust has agreed to (i) issue and
redeem Shares; (ii) address and mail all communications by the Funds to their
shareholders, including reports to shareholders, dividend and distribution
notices, and proxy materials for its meetings of shareholders; (iii) respond to
correspondence by shareholders and others relating to its duties; (iv) maintain
shareholder accounts; and (v) make periodic reports to Excelsior Fund concerning
the Fund's operations. For its transfer agency, dividend disbursing, and
subaccounting services, U.S. Trust is entitled to receive $15.00 per annum per
account and subaccount. In addition, U.S. Trust is entitled to be reimbursed
for its out-of-pocket expenses for the cost of forms, postage, processing
purchase and redemption orders, handling of proxies, and other similar expenses
in connection with the above services.
U.S. Trust may, at its own expense, delegate its transfer agency
obligations to another transfer agent registered or qualified under applicable
law, provided that U.S. Trust shall remain liable for the performance of all of
its transfer agency duties under the Transfer Agency Agreement, notwithstanding
any delegation. Pursuant to this provision in the agreement, U.S. Trust has
entered into a sub-transfer agency arrangement with CGFSC, an affiliate of
Chase, with respect to accounts of shareholders who are not Customers of U.S.
Trust. For the services provided by CGFSC, U.S. Trust has agreed to pay CGFSC
$15.00 per annum per account or subaccount plus out-of-pocket
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<PAGE>
expenses. CGFSC receives no fee directly from Excelsior Fund for any of its
sub-transfer agency services.
PORTFOLIO TRANSACTIONS
----------------------
Subject to the general control of Excelsior Fund's Board of Directors,
the Investment Adviser is responsible for and makes decisions with respect to
all U.S. securities acquired for the Funds. FACAM and FCEML supervise through
their trading desks the execution of all transactions in foreign securities for
the Funds for which they serve as Sub-Adviser.
The Funds may engage in short-term trading to achieve their investment
objectives. Portfolio turnover may vary greatly from year to year as well as
within a particular year. The Funds' portfolio turnover rate may also be
affected by cash requirements for redemptions of Shares and by regulatory
provisions which enable a Fund to receive certain favorable tax treatment.
Portfolio turnover will not be a limiting factor in making portfolio decisions.
See "Financial Highlights" in the Funds' Prospectuses for the Funds' portfolio
turnover rates.
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. Transactions on foreign
stock exchanges involve payment for brokerage commissions which are generally
fixed. For the fiscal years ended March 31, 1994, March 31, 1995 and March 31,
1996, the International Fund paid brokerage commissions aggregating $187,670,
$234,115 and $218,421, respectively. For the fiscal years ended March 31, 1994,
1995 and 1996, the Emerging Americas, Pacific/Asia and Pan European Funds paid
brokerage commissions aggregating $167,502, $200,467 and $153,428, $377,060,
$300,058 and $234,659; and $97,169, $88,275 and $81,250, respectively.
Transactions in both foreign and domestic over-the-counter markets are
generally principal transactions with dealers, and the costs of such
transactions involve dealer spreads rather than brokerage commissions. With
respect to over-the-counter transactions, a Fund, where possible, will deal
directly with the dealers who make a market in the securities involved, except
in those circumstances where better prices and execution are available
elsewhere. The cost of securities purchased from underwriters includes an
underwriting commission or concession.
The Investment Advisory Agreements between Excelsior Fund and U.S.
Trust, and the Sub-Advisory Agreements between U.S. Trust and FACAM and between
U.S. Trust and FCEML, provide that, in executing portfolio transactions and
selecting brokers or
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<PAGE>
dealers, the Investment Adviser and Sub-Advisers will seek to obtain the best
net price and the most favorable execution. The Investment Adviser and Sub-
Advisers shall consider factors they deem relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer and whether such broker or dealer
is selling shares of Excelsior Fund, and the reasonableness of the commission,
if any, for the specific transaction and on a continuing basis.
In addition, the Investment Advisory and Sub-Advisory Agreements
authorize the Investment Adviser and Sub-Advisers, to the extent permitted by
law and subject to the review of Excelsior Fund's Board of Directors from time
to time with respect to the extent and continuation of the policy, to cause a
Fund to pay a broker which furnishes brokerage and research services a higher
commission than that which might be charged by another broker for effecting the
same transaction, provided that the Investment Adviser and Sub-Advisers
determine in good faith that such commission is reasonable in relation to the
value of the brokerage and research services provided by such broker, viewed in
terms of either that particular transaction or the overall responsibilities of
the Investment Adviser and Sub-Advisers to the accounts as to which they
exercise investment discretion. Such brokerage and research services might
consist of reports and statistics on specific companies or industries, general
summaries of groups of stocks and their comparative earnings, or broad overviews
of the stock market and the economy. Such services might also include reports
on global, regional, and country-by-country prospects for economic growth,
anticipated levels of inflation, prevailing and expected interest rates, and the
outlook for currency relationships.
Supplementary research information so received is in addition to and
not in lieu of services required to be performed by U.S. Trust, FACAM and FCEML
and does not reduce the investment advisory fees payable by the Funds. Such
information may be useful to U.S. Trust, FACAM or FCEML in serving the Funds and
other clients and, conversely, supplemental information obtained by the
placement of business of other clients may be useful to U.S. Trust, FACAM and
FCEML in carrying out their obligations to the Funds.
Portfolio securities will not be purchased from or sold to the
Investment Adviser, Sub-Advisers, or the Distributor, or any affiliated person
of any of them (as such term is defined in the 1940 Act) acting as principal,
except to the extent permitted by the Securities and Exchange Commission.
Investment decisions for each Fund are made independently from those
for other investment companies, common trust funds and other types of funds
managed by U.S. Trust or
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<PAGE>
FACAM or FCEML. Such other investment companies and funds may also invest in
the same securities as the Funds. When a purchase or sale of the same security
is made at substantially the same time on behalf of a Fund and another
investment company or common trust fund, the transaction will be averaged as to
price, and available investments allocated as to amount, in a manner which U.S.
Trust, FACAM or FCEML, as applicable, believes to be equitable to the Fund and
such other investment company or common trust fund. In some instances, this
investment procedure may adversely affect the price paid or received by a Fund
or the size of the position obtained by the Fund. To the extent permitted by
law, U.S. Trust, FACAM and FCEML may aggregate the securities to be sold or
purchased for the Funds with those to be sold or purchased for other investment
companies or common trust funds in order to obtain best execution.
Excelsior Fund is required to identify any securities of its regular
brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or their
parents held by Excelsior Fund as of the close of its most recent fiscal year.
As of March 31, 1996, the following Funds held the following securities of
Excelsior Fund's regular brokers or dealers or their parents: (a) the Equity
held the following security: 88,000 shares of common stock of Morgan Stanley &
Co., Inc.; (b) the Income & Growth Fund held the following security: 48,000
shares of common stock of Morgan Stanley & Co., Inc.; (c) the Business and
Industrial Restructuring Fund held the following security: 18,000 shares of
common stock of First National Bank of Chicago; (d) the Aging of America Fund
held the following security: 16,000 shares of common stock of Dean Witter
Reynolds; (e) the Global Competitors Fund held the following security: 45,000
shares of common stock of Morgan Stanley & Co., Inc. Dillon Read & Co., Inc.,
Merrill Lynch & Co., Inc., Morgan Stanley & Co., Inc., First National Bank of
Chicago and Dean Witter Reynolds, Inc. are considered to be regular brokers or
dealers of Excelsior Fund.
INDEPENDENT AUDITORS
--------------------
Ernst & Young LLP, independent auditors, 200 Clarendon Street, Boston,
MA 02116, serve as auditors of Excelsior Fund. The Funds' Financial Highlights
included in the Prospectuses and the financial statements for the period ended
March 31, 1996 incorporated by reference in this Statement of Additional
Information have been audited by Ernst & Young LLP for the periods included in
their reports thereon which appear therein.
COUNSEL
-------
Drinker Biddle & Reath (of which Mr. McConnel, Secretary of Excelsior
Fund, is a partner), 1345 Chestnut Street,
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Philadelphia, Pennsylvania 19107, is counsel to Excelsior Fund and will pass
upon the legality of the Shares offered by the Prospectuses.
ADDITIONAL INFORMATION CONCERNING TAXES
---------------------------------------
Generally
- ---------
The following supplements the tax information contained in the
Prospectuses.
Each Fund is treated as a separate corporate entity under the Internal
Revenue Code of 1986, as amended (the "Code"), and intends to qualify as a
regulated investment company. If, for any reason, a Fund does not qualify for a
taxable year for the special Federal tax treatment afforded regulated investment
companies, the Fund would be subject to Federal tax on all of its taxable income
at regular corporate rates, without any deduction for distributions to
shareholders. In such event, dividend distributions would be taxable as
ordinary income to shareholders to the extent of such Fund's current and
accumulated earnings and profits and would be eligible for the dividends
received deduction in the case of corporate shareholders.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income (excess
of capital gains over capital losses). Each Fund intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and any
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
A Fund will not be treated as a regulated investment company under the
Code if 30% or more of the Fund's gross income for a taxable year is derived
from gains realized on the sale or other disposition of the following
investments held for less than three months (the "30% test"): (1) stock and
securities (as defined in section 2(a)(36) of the 1940 Act); (2) options,
futures and forward contracts other than those on foreign currencies; and (3)
foreign currencies (and options, futures and forward contracts on foreign
currencies) that are not directly related to the Fund's principal business of
investing in stock and securities (and options and futures with respect to
stocks and securities). Interest (including original issue discount and accrued
market discount) received by a Fund upon maturity or disposition of a security
held for less than three months will not be treated as gross income derived from
the sale or other disposition of such security within the meaning of this
requirement. However, any other income which is attributable to realized market
appreciation will be treated as gross income from
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<PAGE>
the sale or other disposition of securities for this purpose. With respect to
covered call options, if the call is exercised by the holder, the premium and
the price received on exercise constitute the proceeds of sale, and the
difference between the proceeds and the cost of the securities subject to the
call is capital gain or loss. Premiums from expired call options written by a
Fund and net gains from closing purchase transactions are treated as short-term
capital gains for Federal income tax purposes, and losses on closing purchase
transactions are short-term capital losses. With respect to forward contracts,
futures contracts, options on futures contracts, and other financial instruments
subject to the mark-to-market rules described below under "Taxation of Certain
Financial Instruments," the Internal Revenue Service has ruled in private letter
rulings that a gain realized from such a contract, option or financial
instrument will be treated as being derived from a security held for three
months or more (regardless of the actual period for which the contract, option
or instrument is held) if the gain arises as a result of a constructive sale
under the mark-to-market rules, and will be treated as being derived from a
security held for less than three months only if the contract, option or
instrument is terminated (or transferred) during the taxable year (other than by
reason of mark-to-market) and less than three months have elapsed between the
date the contract, option or instrument is acquired and the termination date.
Increases and decreases in the value of a Fund's forward contracts, futures
contracts, options on futures contracts and other investments that qualify as
part of a "designated hedge," as defined in Section 851(g) of the Code, may be
netted for purposes of determining whether the 30% test is met.
Each Fund will designate any distribution of the excess of net long-
term capital gain over net short-term capital loss as a capital gain dividend in
a written notice mailed to shareholders within 60 days after the close of the
Fund's taxable year. Shareholders should note that, upon the sale or exchange
of Fund Shares, if the shareholder has not held such Shares for more than six
months, any loss on the sale or exchange of those Shares will be treated as
long-term capital loss to the extent of the capital gain dividends received with
respect to the Shares.
A Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of taxable dividends or gross proceeds realized upon sale paid
to shareholders who have failed to provide a correct tax identification number
in the manner required, who are subject to withholding by the Internal Revenue
Service for failure properly to include on their return payments of taxable
interest or dividends, or who have failed to certify to the Fund when required
to do so either that they are not subject to backup withholding or that they are
"exempt recipients."
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Taxation of Certain Financial Instruments
- -----------------------------------------
Generally, futures contracts and options on futures held by a Fund at
the close of its taxable year will be treated for Federal income tax purposes as
sold for their fair market value on the last business day of such year, a
process known as "mark-to-market." Forty percent of any gain or loss resulting
from such constructive sale will be treated as short-term capital gain or loss
and 60% of such gain or loss will be treated as long-term capital gain or loss
without regard to the length of time the Fund holds the futures contract or
related option (the "40%-60% rule"). The amount of any capital gain or loss
actually realized by a Fund in a subsequent sale or other disposition of those
futures contracts and related options will be adjusted to reflect any capital
gain or loss taken into account by the Fund in a prior year as a result of the
constructive sale of the contracts and options. Losses with respect to futures
contracts to sell and related options, which are regarded as parts of a "mixed
straddle" because their values fluctuate inversely to the values of specific
securities held by a Fund, are subject to certain loss deferral rules which
limit the amount of loss currently deductible on either part of the straddle to
the amount thereof which exceeds the unrecognized gain (if any) with respect to
the other part of the straddle, and to certain wash sales regulations. Under
short sales rules, which are also applicable, the holding period of the
securities forming part of the straddle will (if they have not been held for the
long-term holding period) be deemed not to begin prior to termination of the
straddle. With respect to certain futures contracts and related options,
deductions for interest and carrying charges will not be allowed.
Notwithstanding the rules described above, with respect to futures contracts to
sell and related options which are properly identified as such, a Fund may make
an election which will exempt (in whole or in part) those identified futures
contracts and options from being treated for Federal income tax purposes as sold
on the last business day of the Fund's taxable year, but gains and losses will
be subject to such short sales, wash sales and loss deferral rules, and the
requirement to capitalize interest and carrying charges. Under Temporary
Regulations, a Fund would be allowed (in lieu of the foregoing) to elect either
(1) to offset gains or losses from positions which are part of a mixed straddle
by separately identifying each mixed straddle to which such treatment applies,
or (2) to establish a mixed straddle account for which gains and losses would be
recognized and offset on a periodic basis during the taxable year. Under either
election, the 40%-60% rule will apply to the net gain or loss attributable to
the futures contracts and options, but in the case of a mixed straddle account
election, not more than 50 percent of any net gain may be treated as long term
and no more than 40 percent of any net loss may be treated as short term.
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<PAGE>
Certain foreign currency contracts entered into by the Funds
(including forward foreign currency exchange transactions) may be subject to the
"mark-to-market" rules described above. To receive such treatment, a foreign
currency contract must meet the following conditions: (1) the contract must
require delivery of a foreign currency of a type in which regulated futures
contracts are traded or upon which the settlement value of the contract depends;
(2) the contract must be entered into at arm's length at a price determined by
reference to the price in the interbank market; and (3) the contract must be
traded in the interbank market. The Treasury Department has broad authority to
issue regulations under these provisions. As of the date of this Statement of
Additional Information, the Treasury Department has not issued any such
regulations. Other foreign currency contracts entered into by the Funds may
result in the creation of one or more straddles for Federal income tax purposes,
in which case certain loss deferral, short sales, and wash sales rules and the
requirement to capitalize interest and carrying charges may apply.
The Funds' investments may also be subject to the provisions of
Subpart J of the Code which govern the Federal income tax treatment of certain
transactions denominated in terms of a currency other than the U.S. dollar or
determined by reference to the value of one or more currencies other than the
U.S. dollar. The types of transactions covered by the special rules include the
following: (1) the acquisition of, or becoming the obligor under, a bond or
other debt instrument (including, to the extent provided in Treasury
regulations, preferred stock); (2) the accruing of certain trade receivables and
payables; and (3) the entering into or acquisition of any forward contract,
futures contract, option and similar financial instrument. The disposition of a
currency other than the U.S. dollar by a U.S. taxpayer also is treated as a
transaction subject to the special currency rules. However, foreign currency-
related regulated futures contracts and nonequity options are generally not
subject to the special currency rules if they are or would be treated as sold
for their fair market value at year-end under the mark-to-market rules unless an
election is made to have such currency rules apply. With respect to
transactions covered by the special rules, foreign currency gain or loss is
calculated separately from any gain or loss on the underlying transaction and is
normally taxable as ordinary gain or loss. A taxpayer may elect to treat as
capital gain or loss foreign currency gain or loss arising from certain
identified forward contracts, futures contracts and options that are capital
assets in the hands of the taxpayer and which are not part of a straddle. In
accordance with the Treasury regulations, certain transactions that are part of
a "Section 988 hedging transaction" (as defined in the Code and Treasury
regulations) will be integrated and treated as a single transaction or otherwise
treated consistently for purposes of the Code. "Section 988 hedging
transactions" are not subject
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<PAGE>
to the mark-to-market or loss deferral rules under the Code. It is anticipated
that some of the non-U.S. dollar-denominated investments that a Fund may make
(such as non-U.S. dollar-denominated debt securities and obligations and certain
preferred stocks) and some of the foreign currency contracts a Fund may enter
into will be subject to the special currency rules described above. Exchange
gains and losses attributable to foreign currency transactions engaged in by a
Fund which are not subject to the special currency rules (such as foreign equity
investments other than certain preferred stocks) will be treated as capital
gains or losses and will not be segregated from the gain or loss on the
underlying transaction.
The foregoing discussion is based on Federal tax laws and regulations
which are in effect on the date of this Statement of Additional Information;
such laws and regulations may be changed by legislative or administrative
action. Shareholders are advised to consult their tax advisers concerning their
specific situations and the application of state and local taxes.
PERFORMANCE INFORMATION
-----------------------
The Funds may advertise the "average annual total return" for its
Shares. Such return is computed by determining the average annual compounded
rate of return during specified periods that equates the initial amount invested
to the ending redeemable value of such investment according to the following
formula:
ERV /1/n/
T = [(-----) - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10 year
(or other) periods at the end of the applicable
period (or a fractional portion thereof).
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in
years.
Each Fund that advertises an "aggregate total return" for its Shares
computes such return by determining the aggregate compounded rates of return
during specified periods that likewise
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<PAGE>
equate the initial amount invested to the ending redeemable value of such
investment. The formula for calculating aggregate total return is as follows:
ERV
Aggregate Total Return = [(------)] - 1
P
The above calculations are made assuming that (1) all dividends and
capital gain distributions are reinvested on the reinvestment dates at the price
per Share existing on the reinvestment date (reflecting any sales load charged
upon such reinvestment), (2) all recurring fees charged to all shareholder
accounts are included, and (3) for any account fees that vary with the size of
the account, a mean (or median) account size in a Fund during the periods is
reflected. The ending redeemable value (variable "ERV" in the formula) is
determined by assuming complete redemption of the hypothetical investment after
deduction of all nonrecurring charges at the end of the measuring period. In
addition, the Funds' average annual total return and aggregate total return
quotations will reflect the deduction of the maximum sales load charged in
connection with the purchase of Shares.
Based on the foregoing calculations, the average annual total returns
for the Shares of the International Fund for the one year period ended March 31,
1996, for the five-year period ended March 31, 1996, and for the period from
July 21, 1987 (commencement of operations) to March 31, 1996 were 7.72%, 5.32%,
and 5.51%, respectively. The average annual total returns for the Shares of the
Emerging Americas, Pacific/Asia and Pan European Funds for the one year period
ended March 31, 1996 and for the period from December 31, 1992 (commencement of
operations) to March 31, 1996 were 21.48% and 4.03%, 11.93% and 14.84%, and
12.88% and 9.92%, respectively.
The Funds may also from time to time include in advertisements, sales
literature and communications to shareholders a total return figure that is not
calculated according to the formula set forth above in order to compare more
accurately a Fund's performance with other measures of investment return. For
example, in comparing a Fund's total return with data published by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. or Weisenberger
Investment Company Service, or with the performance of an index, a Fund may
calculate its aggregate total return for the period of time specified in the
advertisement, sales literature or communication by assuming the investment of
$10,000 in Shares and assuming the reinvestment of each dividend or other
distribution at net asset value on the reinvestment date. Percentage increases
are determined by subtracting the initial value of the investment from the
ending value and by dividing the remainder by the beginning value. A Fund does
not, for these purposes, deduct
-36-
<PAGE>
from the initial value invested any amount representing sales charges. A Fund
will, however, disclose the maximum sales charge and will also disclose that the
performance data does not reflect sales charges and that inclusion of sale
charges would reduce the performance quoted.
The total return of Shares of a Fund may be compared to those of other
mutual funds with similar investment objectives and to other relevant indices or
to ratings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
total return of a Fund may be compared to data prepared by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc. and Weisenberger Investment
Company Service. Total return and yield data as reported in national financial
publications such as Money Magazine, Forbes, Barron's, The Wall Street Journal
----- -------- ------ -------- --- ---- ------ -------
and The New York Times, or in publications of a local or regional nature, may
--- --- ---- -----
also be used in comparing the performance of a Fund. Advertisements, sales
literature or reports to shareholders may from time to time also include a
discussion and analysis of each Fund's performance, including without
limitation, those factors, strategies and techniques that together with market
conditions and events, materially affected each Fund's performance.
The Funds may also from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions of a Fund
investment are reinvested by being paid in additional Fund Shares, any future
income or capital appreciation of a Fund would increase the value, not only of
the original Fund investment, but also of the additional Fund Shares received
through reinvestment. As a result, the value of the Fund investment would
increase more quickly than if dividends or other distributions had been paid in
cash. The Funds may also include discussions or illustrations of the potential
investment goals of a prospective investor, investment management techniques,
policies or investment suitability of a Fund, economic conditions, the effects
of inflation and historical performance of various asset classes, including but
not limited to, stocks, bonds and Treasury bills. From time to time
advertisements, sales literature or communications to shareholders may summarize
the substance of information contained in shareholder reports (including the
investment composition of a Fund), as well as the views of the Investment
Adviser as to current market, economy, trade and interest rate trends,
legislative, regulatory and monetary developments, investment strategies and
related matters believed to be of relevance to a Fund. The Funds may also
include in advertisements charts, graphs or drawings which illustrate the
potential risks and rewards of investment in various investment vehicles,
including but not limited to, stocks, bonds, treasury bills and Shares of a
Fund. In addition, advertisement, sales
-37-
<PAGE>
literature or shareholder communications may include a discussion of certain
attributes or benefits to be derived by an investment in a Fund. Such
advertisements or communicators may include symbols, headlines or other material
which highlight or summarize the information discussed in more detail therein.
-38-
<PAGE>
MISCELLANEOUS
-------------
As used in the Prospectuses, "assets belonging to a Fund" means the
consideration received upon the issuance of Shares in a Fund together with all
income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale of such investments, any funds or payments
derived from any reinvestment of such proceeds, and a portion of any general
assets of Excelsior Fund not belonging to a particular portfolio of Excelsior
Fund. In determining a Fund's net asset value, assets belonging to the Fund are
charged with the direct liabilities in respect of the Fund and with a share of
the general liabilities of Excelsior Fund which are normally allocated in
proportion to the relative asset values of Excelsior Fund's portfolios at the
time of allocation. Subject to the provisions of Excelsior Fund's Charter,
determinations by the Board of Directors as to the direct and allocable
liabilities, and the allocable portion of any general assets with respect to a
particular Fund, are conclusive.
As of July 15, 1996, U.S. Trust held of record substantially all of
the Shares in the Funds as agent or custodian for its customers, but did not own
such Shares beneficially because it did not have discretion to vote or invest
such Shares.
FINANCIAL STATEMENTS
--------------------
Excelsior Fund's Annual Report to Shareholders for the fiscal year
ended March 31, 1996 (the "Annual Report") for the international equity
portfolios accompanies this Statement of Additional Information. The financial
statements in the Annual Report for the International, Emerging Americas,
Pacific/Asia and Pan European Funds (the "Financial Statements") are
incorporated in this Statement of Additional Information by reference. The
Financial Statements included in the Annual Report for the fiscal year ended
March 31, 1996 have been audited by Excelsior Fund's independent auditors, Ernst
& Young LLP, whose reports thereon also appear in such Annual Report and are
incorporated herein by reference. The Financial Statements in such Annual
Report have been incorporated herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing. Additional copies
of the Annual Report may be obtained at no charge by telephoning CGFSC at the
telephone number appearing on the front page of this Statement of Additional
Information.
-39-
<PAGE>
APPENDIX A
----------
COMMERCIAL PAPER RATINGS
- ------------------------
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the rating categories used by Standard and
Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory. However,
the relative degree of safety is not as high as for issues designated "A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are considered
to have a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity.
A-1
<PAGE>
"Prime-2" - Issuer or related supporting institutions are considered
to have a strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment. Short-
term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk
A-2
<PAGE>
factors are larger and subject to more variation. Nevertheless, timely payment
is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years. The
following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one
A-3
<PAGE>
year or less which is issued by United States commercial banks, thrifts and non-
bank banks; non-United States banks; and broker-dealers. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded as non-
investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations which possess a particularly strong credit feature
are supported by the highest capacity for timely repayment.
"A1" - Obligations are supported by the highest capacity for timely
repayment.
"A2" - Obligations are supported by a satisfactory capacity for timely
repayment.
"A3" - Obligations are supported by a satisfactory capacity for timely
repayment.
"B" - Obligations for which there is an uncertainty as to the capacity
to ensure timely repayment.
"C" - Obligations for which there is a high risk of default or which
are currently in default.
A-4
<PAGE>
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
A-5
<PAGE>
"CCC" - Debt has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no interest
is being paid.
"D" - Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes such payments
will be made during such grace period. "D" rating is also used upon the filing
of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are
A-6
<PAGE>
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
(P)... - When applied to forward delivery bonds, indicates that the
rating is provisional pending delivery of the bonds. The rating may be revised
prior to delivery if changes occur in the legal documents or the underlying
credit quality of the bonds.
A-7
<PAGE>
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1 and B1.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong
A-8
<PAGE>
as bonds rated "AAA." Because bonds rated in the "AAA" and "AA" categories are
not significantly vulnerable to foreseeable future developments, short-term debt
of these issuers is generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "BBB" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of
A-9
<PAGE>
principal and interest is adequate, although adverse changes in business,
economic or financial conditions are more likely to lead to increased investment
risk than for obligations in higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to
denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
A-10
<PAGE>
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection
A-11
<PAGE>
commonly regarded as required of an investment security and not distinctly or
predominantly speculative.
"SG" - Loans bearing this designation are of speculative quality and
lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
A-12
<PAGE>
EXCELSIOR FUNDS, INC.
Short-Term Government Securities Fund
Intermediate-Term Managed Income Fund
Managed Income Fund
EXCELSIOR TAX-EXEMPT FUNDS, INC.
Short-Term Tax-Exempt Securities Fund
Intermediate-Term Tax-Exempt Fund
Long-Term Tax-Exempt Fund
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1996
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current prospectuses for the Short-Term Government
Securities Fund, Intermediate-Term Managed Income Fund and Managed Income Fund
of Excelsior Funds, Inc. ("Excelsior Fund") and Short-Term Tax-Exempt Securities
Fund, Intermediate-Term Tax-Exempt Fund and Long-Term Tax-Exempt Fund of
Excelsior Tax-Exempt Funds, Inc. ("Excelsior Tax-Exempt Fund") dated August 1,
1996, respectively (the "Fixed-Income Funds Prospectus" and the "Tax-Exempt
Funds Prospectus", respectively; together, the "Prospectuses"). Much of the
information contained in this Statement of Additional Information expands upon
the subjects discussed in the Prospectuses. No investment in shares of the
portfolios described herein ("Shares") should be made without reading the
Prospectuses. A copy of each Prospectus may be obtained by writing Excelsior
Funds c/o Chase Global Funds Services Company, 73 Tremont Street, Boston, MA
02108-3913 or by calling (800) 446-1012.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . .
Additional Information on Portfolio Instruments . .
Additional Investment Limitations . . . . . . . . .
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . .
INVESTOR PROGRAMS . . . . . . . . . . . . . . . . . .
Systematic Withdrawal Plan . . . . . . . . . . . .
Exchange Privilege. . . . . . . . . . . . . . . . .
Other Investor Programs . . . . . . . . . . . . . .
DESCRIPTION OF CAPITAL STOCK . . . . . . . . . . . .
MANAGEMENT OF THE FUNDS . . . . . . . . . . . . . . .
Directors and Officers . . . . . . . . . . . . . .
Investment Advisory and Administration Agreements .
Service Organizations . . . . . . . . . . . . . . .
Expenses . . . . . . . . . . . . . . . . . . . . .
Custodian and Transfer Agent . . . . . . . . . . .
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . .
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . .
COUNSEL . . . . . . . . . . . . . . . . . . . . . . .
ADDITIONAL INFORMATION CONCERNING TAXES . . . . . . .
Generally . . . . . . . . . . . . . . . . . . . . .
Tax-Exempt Funds . . . . . . . . . . . . . . . . .
Taxation of Certain Financial Instruments . . . . .
PERFORMANCE AND YIELD INFORMATION . . . . . . . . . .
Yields and Performance . . . . . . . . . . . . . .
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . .
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . .
APPENDIX . . . . . . . . . . . . . . . . . . . . . . A-1
-i-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
----------------------------------
This Statement of Additional Information contains additional
information with respect to the Short-Term Tax-Exempt Securities Fund,
Intermediate-Term Tax-Exempt Fund and Long-Term Tax-Exempt Fund (collectively,
the "Tax-Exempt Funds") of Excelsior Tax-Exempt Fund and the Short-Term
Government Securities Fund, Intermediate-Term Managed Income Fund and Managed
Income Fund of Excelsior Fund (collectively, the "Fixed-Income Funds"). The
portfolios are referred to individually as a "Fund" and collectively as the
"Funds"; Excelsior Tax-Exempt Fund and Excelsior Fund are referred to
individually as a "Company" and collectively as the "Companies".
For ease of reference, the various Funds are referred to as follows:
Short-Term Tax-Exempt Securities Fund as "Short-Term Tax-Exempt Fund";
Intermediate-Term Tax-Exempt Fund as "IT Tax-Exempt Fund"; Long-Term Tax-Exempt
Fund as "LT Tax-Exempt Fund", Short-Term Government Securities Fund as "ST
Government Fund", and Intermediate-Term Managed Income Fund as "IT Income Fund".
The following policies and disclosures supplement the Funds'
investment objectives and policies as set forth in the Prospectuses.
Additional Information on Portfolio Instruments
- -----------------------------------------------
Municipal Obligations
---------------------
The Tax-Exempt Funds invest substantially all of their assets in
Municipal Obligations as defined in the Prospectus. Municipal Obligations
include debt obligations issued by governmental entities to obtain funds for
various public purposes, including the construction of a wide range of public
facilities, the refunding of outstanding obligations, the payment of general
operating expenses, and the extension of loans to public institutions and
facilities. Private activity bonds that are issued by or on behalf of public
authorities to finance various privately operated facilities are included within
the term "Municipal Obligations" only if the interest paid thereon is exempt
from regular Federal income tax and not treated as a specific tax preference
item under the Federal alternative minimum tax.
The two principal classifications of Municipal Obligations are
"general obligation" and "revenue" issues, but the Tax-Exempt Funds' portfolios
may include "moral obligation" issues, which are normally issued by special-
purpose authorities. There are, of course, variations in the quality of
Municipal Obligations, both within a particular classification and between
<PAGE>
classifications, and the yields on Municipal Obligations depend upon a variety
of factors, including general money market conditions, the financial condition
of the issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. The ratings of Moody's Investors Service, Inc. ("Moody's") and Standard
& Poor's Ratings Group ("S&P") described in the Prospectus and Appendix A hereto
represent their opinion as to the quality of Municipal Obligations. It should
be emphasized that these ratings are general and are not absolute standards of
quality, and Municipal Obligations with the same maturity, interest rate, and
rating may have different yields while Municipal Obligations of the same
maturity and interest rate with different ratings may have the same yield.
Subsequent to its purchase by a Fund, an issue of Municipal Obligations may
cease to be rated, or its rating may be reduced below the minimum rating
required for purchase by that Fund. United States Trust Company of New York,
the Funds' investment adviser ("Investment Adviser" or "U.S. Trust"), will
consider such an event in determining whether a Fund should continue to hold the
obligation.
The payment of principal and interest on most securities purchased by
the Tax-Exempt Funds will depend upon the ability of the issuers to meet their
obligations. Each state, the District of Columbia, each of their political
subdivisions, agencies, instrumentalities and authorities, and each multistate
agency of which a state is a member, is a separate "issuer" as that term is used
in this Statement of Additional Information and the Prospectus. The non-
governmental user of facilities financed by private activity bonds is also
considered to be an "issuer." An issuer's obligations under its Municipal
Obligations are subject to the provisions of bankruptcy, insolvency, and other
laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Code, and laws, if any, which may be enacted by Federal or state
legislatures extending the time for payment of principal or interest, or both,
or imposing other constraints upon enforcement of such obligations or upon the
ability of municipalities to levy taxes. The power or ability of an issuer to
meet its obligations for the payment of interest on and principal of its
Municipal Obligations may be materially adversely affected by litigation or
other conditions.
Private activity bonds are or have been issued to obtain funds to
provide, among other things, privately operated housing facilities, pollution
control facilities, convention or trade show facilities, mass transit, airport,
port or parking facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Private activity bonds are also
issued to privately held or publicly owned corporations in the financing of
commercial or industrial facilities. State and local governments are authorized
in most
-2-
<PAGE>
states to issue private activity bonds for such purposes in order to encourage
corporations to locate within their communities. The principal and interest on
these obligations may be payable from the general revenues of the users of such
facilities.
Among other instruments, the Tax-Exempt Funds may purchase short-term
General Obligation Notes, Tax Anticipation Notes, Bond Anticipation Notes,
Revenue Anticipation Notes, Tax-Exempt Commercial Paper, Construction Loan Notes
and other forms of short-term loans. Such instruments are issued with a short-
term maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues. In addition, each Fund may invest in long-term
tax-exempt instruments, such as municipal bonds and private activity bonds, to
the extent consistent with the maturity restrictions applicable to it.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the Federal income tax exemption for
interest on Municipal Obligations. For example, under the Tax Reform Act of
1986, as amended, interest on certain private activity bonds must be included in
an investor's alternative minimum taxable income, and corporate investors must
treat all tax-exempt interest as an item of tax preference. Excelsior Tax-
Exempt Fund cannot, of course, predict what legislation may be proposed in the
future regarding the income tax status of interest on Municipal Obligations, or
which proposals, if any, might be enacted. Such proposals, while pending or if
enacted, might materially adversely affect the availability of Municipal
Obligations for investment by the Tax-Exempt Funds and the liquidity and value
of their portfolios. In such an event, Excelsior Tax-Exempt Fund would
reevaluate the Funds' investment objectives and policies and consider possible
changes in their structure or possible dissolution.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither Excelsior
Tax-Exempt Fund nor the Investment Adviser will review the proceedings relating
to the issuance of Municipal Obligations or the basis for such opinions.
The IT Income and Managed Income Funds may, when deemed appropriate by
the Investment Adviser in light of the Funds' investment objective, also invest
in Municipal Obligations. Although yields on municipal obligations can
generally be expected under normal market conditions to be lower than yields on
corporate and U.S. Government obligations, from time to time municipal
securities have outperformed, on a total return basis, comparable corporate and
Federal debt obligations as a result of prevailing economic, regulatory or other
circumstances. Dividends paid by the IT Income and Managed Income Funds that
are
-3-
<PAGE>
derived from interest on municipal securities would be taxable to the Funds'
shareholders for Federal income tax purposes.
Insured Municipal Obligations
-----------------------------
The Tax-Exempt Funds may purchase Municipal Obligations which are
insured as to timely payment of principal and interest at the time of purchase.
The insurance policies will usually be obtained by the issuer of the bond at the
time of its original issuance. Bonds of this type will be acquired only if at
the time of purchase they satisfy quality requirements generally applicable to
Municipal Obligations as described in the Prospectus. Although insurance
coverage for the Municipal Obligations held by the Tax-Exempt Funds reduces
credit risk by insuring that the Funds will receive timely payment of principal
and interest, it does not protect against market fluctuations caused by changes
in interest rates and other factors. Each Tax-Exempt Fund may invest more than
25% of its net assets in Municipal Obligations covered by insurance policies.
Repurchase Agreements
---------------------
The repurchase price under the repurchase agreements described in the
Prospectus generally equals the price paid by a Fund plus interest negotiated on
the basis of current short-term rates (which may be more or less than the rate
on the securities underlying the repurchase agreement). Securities subject to
repurchase agreements are held by the Funds' custodian (or sub-custodian) or in
the Federal Reserve/ Treasury book-entry system. Repurchase agreements are
considered loans by a Fund under the Investment Company Act of 1940 (the "1940
Act").
Securities Lending
------------------
When the ST Government Fund, IT Income Fund and Managed Income Fund
lend their portfolio securities, they continue to receive interest or dividends
on the securities lent and may simultaneously earn interest on the investment of
the cash loan collateral, which will be invested in readily marketable, high-
quality, short-term obligations. Although voting rights, or rights to consent,
attendant to securities lent pass to the borrower, such loans may be called at
any time and will be called so that the securities may be voted by the pertinent
Fund if a material event affecting the investment is to occur.
Government Obligations
----------------------
Examples of the types of U.S. Government obligations that may be held
by the Funds include, in addition to U.S. Treasury Bills, the obligations of
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the
Federal Housing Administration, Farmers Home Administration, Export-
-4-
<PAGE>
Import Bank of the United States, Small Business Administration, Government
National Mortgage Association, Federal National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks and Maritime Administration.
When-Issued and Forward Transactions
------------------------------------
When a Fund agrees to purchase securities on a "when-issued" or
forward commitment basis, the custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment and, in such case, the Fund may be required subsequently to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that a Fund's net assets will fluctuate to a greater degree when
it sets aside portfolio securities to cover such purchase commitments than when
it sets aside cash. Because a Fund will set aside cash or liquid assets to
satisfy its purchase commitments in the manner described, its liquidity and
ability to manage its portfolio might be affected in the event its forward
commitments or commitments to purchase "when-issued" securities ever exceeded
25% of the value of its assets.
A Fund will purchase securities on a "when-issued" or forward
commitment basis only with the intention of completing the transaction. If
deemed advisable as a matter of investment strategy, however, a Fund may dispose
of or renegotiate a commitment after it is entered into, and may sell securities
it has committed to purchase before those securities are delivered to the Fund
on the settlement date. In these cases, the Fund may realize a taxable capital
gain or loss.
When a Fund engages in "when-issued" or forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such other party to do so may result in the Fund incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a "when-issued" purchase
or a forward commitment to purchase securities and any subsequent fluctuations
in their market value are taken into account when determining the market value
of a Fund starting on the day the Fund agrees to purchase the securities. The
Fund does not earn interest on the securities it has committed to purchase until
they are paid for and delivered on the settlement date.
-5-
<PAGE>
Stand-By Commitments
--------------------
The Managed Income and IT Income Funds and the Tax-Exempt Funds may
acquire "stand-by commitments" with respect to Municipal Obligations held by
them. Under a "stand-by commitment," a dealer or bank agrees to purchase from a
Fund, at the Fund's option, specified Municipal Obligations at a specified
price. The amount payable to a Fund upon its exercise of a "stand-by
commitment" is normally (i) the Fund's acquisition cost of the Municipal
Obligations (excluding any accrued interest which the Fund paid on their
acquisition), less any amortized market premium or plus any amortized market or
original issue discount during the period the Fund owned the securities, plus
(ii) all interest accrued on the securities since the last interest payment date
during that period. "Stand-by commitments" are exercisable by a Fund at any
time before the maturity of the underlying Municipal Obligations, and may be
sold, transferred or assigned by the Fund only with the underlying instruments.
The Managed Income and IT Income Funds and the Tax-Exempt Funds expect
that "stand-by commitments" will generally be available without the payment of
any direct or indirect consideration. However, if necessary or advisable, a
Fund may pay for a "stand-by commitment" either separately in cash or by paying
a higher price for securities which are acquired subject to the commitment (thus
reducing the yield to maturity otherwise available for the same securities).
Where a Fund has paid any consideration directly or indirectly for a "stand-by
commitment," its cost will be reflected as unrealized depreciation for the
period during which the commitment was held by the Fund.
The Managed Income and IT Income Funds and the Tax-Exempt Funds intend
to enter into "stand-by commitments" only with banks and broker/dealers which,
in the Investment Adviser's opinion, present minimal credit risks. In evaluating
the creditworthiness of the issuer of a "stand-by commitment," the Investment
Adviser will review periodically the issuer's assets, liabilities, contingent
claims and other relevant financial information.
Commercial Paper
----------------
Investments by the Funds in commercial paper will consist of issues
that are rated "A-2" or better by S&P or "Prime-2" or better by Moody's. In
addition, each Fund may acquire unrated commercial paper that is determined by
the Investment Adviser at the time of purchase to be of comparable quality to
rated instruments that may be acquired by the particular Fund. Each Fund will
generally limit its investments in such unrated commercial paper to 5% of its
total assets.
-6-
<PAGE>
Futures Contracts
-----------------
Each Fund may invest in futures contracts (interest rate futures
contracts or municipal bond index futures contracts, as applicable). Futures
contracts will not be entered into for speculative purposes, but to hedge risks
associated with a Fund's securities investments. Positions in futures contracts
may be closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may
not be possible to close a futures position. In the event of adverse price
movements, a Fund would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if a Fund has insufficient
cash, it may have to sell portfolio securities to meet daily margin requirements
at a time when it may be disadvantageous to do so. In addition, a Fund may be
required to make delivery of the instruments underlying futures contracts it
holds. The inability to close options and futures positions also could have an
adverse impact on a Fund's ability to effectively hedge.
Successful use of futures by a Fund is also subject to the Investment
Adviser's ability to correctly predict movements in the direction of the market.
For example, if a Fund has hedged against the possibility of a decline in the
market adversely affecting securities held by it and securities prices increase
instead, the Fund will lose part or all of the benefit to the increased value of
its securities which it has hedged because it will have approximately equal
offsetting losses in its futures positions. In addition, in some situations, if
a Fund has insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising market. A Fund may
have to sell securities at a time when it may be disadvantageous to do so.
The risk of loss in trading futures contracts in some strategies can
be substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit, before any deduction for the
transaction costs, if the contract were closed out. Thus, a purchase or sale of
a futures contract may
-7-
<PAGE>
result in losses in excess of the amount invested in the contract.
Utilization of futures transactions by a Fund involves the risk of
loss by a Fund of margin deposits in the event of bankruptcy of a broker with
whom the Fund has an open position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Additional Investment Limitations
- ---------------------------------
In addition to the investment limitations disclosed in the Prospectus,
the Funds are subject to the investment limitations enumerated below.
Fundamental investment limitations may be changed with respect to a Fund only by
a vote of the holders of a majority of such Fund's outstanding Shares (as
defined under "Miscellaneous" in the Prospectuses). However, investment
limitations which are "operating policies" with respect to a Fund may be changed
by Excelsior Fund's or Excelsior Tax-Exempt Fund's Board of Directors upon
reasonable notice to investors.
The following investment limitations are fundamental with respect to
each Fund. No Fund may:
1. Act as an underwriter of securities within the meaning of the
Securities Act of 1933, except to the extent that the purchase of Municipal
Obligations or other securities directly from the issuer thereof in accordance
with the Tax-
-8-
<PAGE>
Exempt Funds' investment objectives, policies, and limitations may be deemed to
be underwriting; and except insofar as the Managed Income Fund might be deemed
to be an underwriter upon disposition of certain portfolio securities acquired
within the limitation on purchases of restricted securities;
2. Purchase or sell real estate, except that each Tax-Exempt Fund may
invest in Municipal Obligations secured by real estate or interests therein, and
the Managed Income and Intermediate-Term Managed Income Funds may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by interests in real estate; and
3. Issue any senior securities, except insofar as any borrowing by
each Fund in accordance with its investment limitations might be considered to
be the issuance of a senior security; provided that each Fund may enter into
futures contracts and futures options.
The following investment limitations are fundamental with respect to
the IT Tax-Exempt, LT Tax-Exempt and Managed Income Funds, but are operating
policies with respect to the Short-Term Tax-Exempt, ST Government and IT Income
Funds. The Funds may not:
4. Purchase securities on margin, make short sales of securities, or
maintain a short position; provided that each Fund may enter into futures
contracts and futures options; and
5. Write or sell puts, calls, straddles, spreads, or combinations
thereof; provided that each Fund may enter into futures contracts and futures
options.
The following investment limitation is fundamental with respect to
each Tax-Exempt Fund. A Tax-Exempt Fund may not:
6. Make loans, except that each Tax-Exempt Fund may purchase or hold
debt obligations in accordance with its investment objective, policies, and
limitations.
The following investment limitations are fundamental with respect to
the IT Tax-Exempt and LT Tax-Exempt Funds, but are operating policies with
respect to the Short-Term Tax-Exempt Fund. A Tax-Exempt Fund may not:
7. Invest in industrial revenue bonds where the payment of principal
and interest are the responsibility of a company (including its predecessors)
with less than three years of continuous operation; and
8. Purchase securities of other investment companies (except as part
of a merger, consolidation or reorganization or
-9-
<PAGE>
purchase of assets approved by the Fund's shareholders), provided that a Fund
may purchase shares of any registered, open-end investment company, if
immediately after any such purchase, the Fund does not (a) own more than 3% of
the outstanding voting stock of any one investment company, (b) invest more than
5% of the value of its total assets in the securities of any one investment
company, or (c) invest more than 10% of the value of its total assets in the
aggregate in securities of investment companies.
The following investment limitations are fundamental with respect to
the Managed Income Fund, but are operating policies with respect to the IT
Income and ST Government Funds.
A Fixed-Income Fund may not:
9. Invest in companies for the purpose of exercising management or
control;
10. Invest more than 5% of its total assets in securities issued by
companies which, together with any predecessor, have been in continuous
operation for fewer than three years;
11. Purchase foreign securities; provided that subject to the limit
described below, the IT Income and Managed Income Funds may purchase (a) dollar-
denominated debt obligations issued by foreign issuers, including foreign
corporations and governments, by U.S. corporations outside the United States in
an amount not to exceed 25% of its total assets at time of purchase; and (b)
certificates of deposit, bankers' acceptances, or other similar obligations
issued by domestic branches of foreign banks, or foreign branches of U.S. banks,
in an amount not to exceed 20% of its total net assets; and
12. Acquire any other investment company or investment company
security, except in connection with a merger, consolidation, reorganization, or
acquisition of assets or where otherwise permitted by the 1940 Act.
The following investment limitation is fundamental with respect to the
IT Tax-Exempt, LT Tax-Exempt and Managed Income Funds. The IT Tax-Exempt, LT
Tax-Exempt and Managed Income Funds may not:
13. Purchase or sell commodity futures contracts, or invest in oil,
gas, or mineral exploration or development programs; provided that the Funds may
enter into futures contracts and futures options.
The following investment limitation is fundamental with respect to the
Short-Term Tax-Exempt, ST Government and IT Income
-10-
<PAGE>
Funds. The Short-Term Tax-Exempt, ST Government and IT Income Funds may not:
14. Purchase or sell commodities or commodity futures contracts, or
invest in oil, gas, or mineral exploration or development programs; provided
that the Funds may enter into futures contracts and futures options.
* * *
For the purpose of Investment Limitation No. 2, the prohibition of
purchases of real estate includes acquisition of limited partnership interests
in partnerships formed with a view toward investing in real estate, but does not
prohibit purchases of shares in real estate investment trusts. The Funds do not
currently intend to invest in real estate investment trusts.
In addition to the above investment limitations, Excelsior Fund
currently intends to limit the IT Income and Managed Income Funds' investments
in warrants so that, valued at the lower of cost or market value, they do not
exceed 5% of a Fund's net assets. Included within that amount, but not to
exceed 2% of the value of the IT Income or Managed Income Fund's net assets, may
be warrants which are not listed on the New York or American Stock Exchange.
For the purpose of this limitation, warrants acquired by the IT Income or
Managed Income Fund in units or attached to securities will be deemed to be
without value.
The IT Tax-Exempt, LT Tax-Exempt and Managed Income Funds may not
purchase or sell commodities.
The Funds' transactions in futures contracts and futures options
(including the margin posted by the Funds in connection with such transactions)
are excluded from the Funds' prohibitions: against the purchase of securities
on margin, short sales of securities and the maintenance of a short position;
the issuance of senior securities; writing or selling puts, calls, straddles,
spreads, or combinations thereof; and the mortgage, pledge or hypothecation of
the Funds' assets.
If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in value
of a Fund's portfolio securities will not constitute a violation of such
limitation.
In order to permit the sale of Shares in certain states, Excelsior
Fund may make other commitments more restrictive than the investment policies
and limitations described above and in the Prospectus. Should the Companies
determine that any such commitment is no longer in the Funds'
-11-
<PAGE>
best interests, they will revoke the commitment by terminating sales of the
Shares to investors residing in the state involved.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
----------------------------------------------
Shares are continuously offered for sale by Edgewood Services, Inc.
(the "Distributor"), a wholly-owned subsidiary of Federated Investors, and the
Distributor has agreed to use appropriate efforts to solicit all purchase
orders. As described in the Prospectus, Shares may be sold to customers
("Customers") of the Investment Adviser, its affiliates and correspondent banks,
and qualified banks, savings and loan associations, broker/dealers and other
institutions ("Shareholder Organizations") that have entered into servicing
agreements with one of the Companies. Shares are also offered for sale to
institutional investors ("Institutional Investors") and to members of the
general public ("Direct Investors", and collectively with "Institutional
Investors", "Investors"). Different types of Customer accounts at the
Shareholder Organizations may be used to purchase Shares, including eligible
agency and trust accounts. In addition, Shareholder Organizations may
automatically "sweep" a Customer's account not less frequently than weekly and
invest amounts in excess of a minimum balance agreed to by the Shareholder
Organization and its Customer in Shares of the Fund selected by the Customer.
Investors purchasing Shares may include officers, directors, or employees of the
particular Shareholder Organization.
Shares of the Funds are offered for sale with a maximum sales charge
of 4.50%. An illustration of the computation of the offering price per share of
the Funds, using the value of each Fund's net assets and number of outstanding
securities at the close of business on March 31, 1996, is as follows:
<TABLE>
<CAPTION>
Short-Term LT Tax-
Tax-Exempt IT Tax-Exempt Exempt
Fund Fund Fund
------------ ------------- -----------
<S> <C> <C> <C>
Net Assets.............. $42,969,838 $255,178,276 $91,058,456
Outstanding Shares...... 6,098,765 27,966,055 9,557,695
Net Asset Value Per
Share................... $ 7.05 $ 9.12 $ 9.53
Sales Charge (4.50% of
the offering price)..... $ 0.33 $ 0.43 $ 0.45
Offering to Public...... $ 7.38 $ 9.55 $ 9.98
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
Managed IT Income ST Government
Income Fund Fund Fund
----------- ----------- -------------
<S> <C> <C> <C>
Net Assets.............. $88,899,638 $68,640,119 $25,067,792
Outstanding Shares...... 10,050,920 9,718,927 3,589,100
Net Asset Value Per
Share................... $ 8.84 $ 7.06 $ 6.98
Sales Charge (4.50% of
the offering price)..... $ 0.42 $ 0.33 $ 0.33
Offering to Public...... $ 9.26 $ 7.39 $ 7.31
</TABLE>
As stated in the Prospectus, the sales load described above will not
be applicable to: (a) purchases of Shares by customers of the Investment Adviser
or its affiliates; (b) trust, agency or custodial accounts opened through the
trust department of a bank, trust company or thrift institution, provided that
appropriate notification of such status is given at the time of investment; (c)
companies, corporations and partnerships (excluding full service broker/dealers
and financial planners, registered investment advisers and depository
institutions not covered by the exemptions in (d) and (e) below); (d) financial
planners and registered investment advisers not affiliated with or clearing
purchases through full service broker/dealers; (e) purchases of Shares by
depository institutions for their own account as principal; (f) exchange
transactions (described below under "Investor Programs -- Exchange Privilege")
where the Shares being exchanged were acquired in connection with the
distribution of assets held in trust, agency or custodial accounts maintained
with the trust department of a bank; (g) corporate/business retirement plans
(such as 401(k), 403(b)(7), 457 and Keogh accounts) sponsored by the Distributor
and IRA accounts sponsored by the Investment Adviser; (h) company-sponsored
employee pension or retirement plans making direct investments in the Funds; (i)
purchases of Shares by officers, trustees, directors, employees, former
employees and retirees of the Companies, Excelsior Institutional Trust or
Excelsior Funds, the Investment Adviser, the Distributor or of any direct or
indirect affiliate of any of them; (j) purchases of Shares by all beneficial
shareholders of the Companies as of May 22, 1989; (k) purchases of Shares by
investment advisers registered under the Investment Advisers Act of 1940 for
their customers through an omnibus account established with United States Trust
Company of New York; (l) purchases of Shares by directors, officers and
employees of brokers and dealers selling shares pursuant to a selling agreement
with the Companies; (m) purchase of Shares by investors who are members of
groups services by USAffinity Investment Limited Partnership; and (n) customers
of certain financial institutions who purchase Shares through a registered
representative of UST Financial Services Corp. on the premises of their
financial institutions. In addition, no sales load is charged on the
reinvestment of dividends or distributions or in connection with certain share
exchange transactions. Investors who have previously redeemed shares in a
portfolio of Excelsior
-13-
<PAGE>
Fund or Excelsior Tax-Exempt Fund on which a sales load has been paid also have
a one-time privilege of purchasing shares of another portfolio of either Company
at net asset value without a sales charge, provided that such privilege will
--------
apply only to purchases made within 30 calendar days from the date of redemption
and only with respect to the amount of the redemption.
For the fiscal years ended March 31, 1996, 1995 and 1994, total sales
charges paid by shareholders: for the IT Tax-Exempt Fund were $1,621, $17,776
and $8,588, respectively; for the LT Tax-Exempt Fund were $15,633, $4,088 and
$16,720, respectively; for the Managed Income Fund were $727, $973 and $17,120,
respectively. Of these respective amounts, UST Distributors, Inc., the Funds'
former distributor, retained $341, $431 and $6,693 with respect to the IT Tax-
Exempt Fund; $1,972, $3,188 and $9,491 with respect to the LT Tax-Exempt Fund;
and $653, $973 and $14,297 with respect to the Managed Income Fund for the
period from April 1, 1995 through July 31, 1995, and the fiscal years ended
March 31, 1995 and 1994. Edgewood Services, Inc., the distributor, retained $0
with respect to the IT Tax-Exempt Fund; $0 with respect to the LT Tax-Exempt
Fund; and $0 with respect to the Managed Income Fund for the period from August
1, 1995 through March 31, 1996.
Total sales charges paid by shareholders of the Short-Term Tax-Exempt,
ST Government and IT Income Funds for the fiscal years ended March 31, 1996,
1995 and 1994 were $1,523, $20 and $42,285; $0, $1 and $11,744; and $299, $815
and $741, respectively. Of these respective amounts, UST Distributors, Inc.,
the Funds' former distributor, retained $1,523, $20 and $27,165 with respect to
the Short-Term Tax-Exempt Fund; $0, $1 and $9,788 with respect to the ST
Government Fund; and $20, $815 and $660 with respect to the IT Income Fund for
the period from April 1, 1995 through July 31, 1995, and the fiscal years ended
March 31, 1995 and 1994. Edgewood Services, Inc. retained $0 with respect to
the Short-Term Tax-Exempt Fund; $0 with respect to the ST Government Fund; and
$0 with respect to the IT Income Fund for the period August 1, 1995 through
March 31, 1996. The balance was paid to selling dealers.
The Companies may suspend the right of redemption or postpone the date
of payment for Shares for more than seven days during any period when (a)
trading on the New York Stock Exchange (the "Exchange") is restricted by
applicable rules and regulations of the Securities and Exchange Commission; (b)
the Exchange is closed for other than customary weekend and holiday closings;
(c) the Securities and Exchange Commission has by order permitted such
suspension; or (d) an emergency exists as determined by the Securities and
Exchange Commission.
-14-
<PAGE>
In the event that Shares are redeemed in cash at their net asset
value, a shareholder may receive in payment for such Shares an amount that is
more or less than his original investment due to changes in the market prices of
that Fund's portfolio securities.
Each Company reserves the right to honor any request for redemption or
repurchase of a Fund's Shares by making payment in whole or in part in
securities chosen by the Company and valued in the same way as they would be
valued for purposes of computing a Fund's net asset value. If payment is made
in securities, a shareholder may incur transaction costs in converting these
securities into cash. Such redemptions in kind will be governed by Rule 18f-1
under the 1940 Act so that a Fund is obligated to redeem its Shares solely in
cash up to the lesser of $250,000 or 1% of its net asset value during any 90-day
period for any one shareholder of a Fund.
Under limited circumstances, the Companies may accept securities as
payment for Shares. Securities acquired in this manner will be limited to
securities issued in transactions involving a bona fide reorganization or
---------
statutory merger, or will be limited to other securities (except for municipal
debt securities issued by state political subdivisions or their agencies or
instrumentalities) that: (a) meet the investment objective and policies of any
Fund acquiring such securities; (b) are acquired for investment and not for
resale; (c) are liquid securities that are not restricted as to transfer either
by law or liquidity of market; and (d) have a value that is readily
ascertainable (and not established only by evaluation procedures) as evidenced
by a listing on the American Stock Exchange, New York Stock Exchange or NASDAQ,
or as evidenced by their status as U.S. Government securities, bank certificates
of deposit, banker's acceptances, corporate and other debt securities that are
actively traded, money market securities and other similar securities with a
readily ascertainable value.
INVESTOR PROGRAMS
-----------------
Systematic Withdrawal Plan
- --------------------------
An Investor who owns Shares with a value of $10,000 or more may begin
a Systematic Withdrawal Plan. The withdrawal can be on a monthly, quarterly,
semiannual or annual basis. There are four options for such systematic
withdrawals. The Investor may request:
(1) A fixed-dollar withdrawal;
(2) A fixed-share withdrawal;
-15-
<PAGE>
(3) A fixed-percentage withdrawal (based on the current value of the
account); or
(4) A declining-balance withdrawal.
Prior to participating in a Systematic Withdrawal Plan, the Investor must
deposit any outstanding certificates for Shares with Chase Global Funds Services
Company, the Funds' sub-transfer agent. Under this Plan, dividends and
distributions are automatically reinvested in additional Shares. Amounts paid
to Investors under this Plan should not be considered as income. Withdrawal
payments represent proceeds from the sale of Shares, and there will be a
reduction of the shareholder's equity in the Fund involved if the amount of the
withdrawal payments exceeds the dividends and distributions paid on the Shares
and the appreciation of the Investor's investment in the Fund. This in turn may
result in a complete depletion of the shareholder's investment. An Investor may
not participate in a program of systematic investing in a Fund while at the same
time participating in the Systematic Withdrawal Plan with respect to an account
in that Fund.
Exchange Privilege
- ------------------
Investors and Customers of Shareholder Organizations may exchange
Shares having a value of at least $500 for Shares of any other portfolio of the
Companies or for Trust Shares of Excelsior Institutional Trust. Shares may be
exchanged by wire, telephone or mail and must be made to accounts of identical
registration. There is no exchange fee imposed by the Companies or Excelsior
Institutional Trust. In order to prevent abuse of this privilege to the
disadvantage of other shareholders, the Companies and Excelsior Institutional
Trust reserve the right to limit the number of exchange requests of Investors
and Customers of Shareholder Organizations to no more than six per year. The
Companies may modify or terminate the exchange program at any time upon 60 days'
written notice to shareholders, and may reject any exchange request.
For Federal income tax purposes, exchanges are treated as sales on
which the shareholder will realize a gain or loss, depending upon whether the
value of the Shares to be given up in exchange is more or less than the basis in
such Shares at the time of the exchange. Generally, a shareholder may include
sales loads incurred upon the purchase of Shares in his or her tax basis for
such Shares for the purpose of determining gain or loss on a redemption,
transfer or exchange of such Shares. However, if the shareholder effects an
exchange of Shares for shares of another portfolio of the Companies within 90
days of the purchase and is able to reduce the sales load applicable to the new
shares (by virtue of the Companies' exchange privilege), the amount equal to
such reduction may not be included in the tax basis of
-16-
<PAGE>
the shareholder's exchanged Shares but may be included (subject to the
limitation) in the tax basis of the new shares.
Other Investor Programs
- -----------------------
As described in the Prospectus, Shares of the Funds may be purchased
in connection with the Automatic Investment Program. Shares of the Managed
Income, IT Income and ST Government Funds may also be purchased in connection
with certain Retirement Programs.
DESCRIPTION OF CAPITAL STOCK
----------------------------
Excelsior Fund's Charter authorizes its Board of Directors to issue up
to thirty-five billion full and fractional shares of capital stock; Excelsior
Tax-Exempt Fund's Charter authorizes its Board of Directors to issue up to
fourteen billion full and fractional shares of capital stock. Both Charters
authorize the respective Boards of Directors to classify or reclassify any
unissued shares of the respective Companies into one or more additional classes
or series by setting or changing in any one or more respects their respective
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption. The Prospectus describes the classes of shares into which the
Companies' authorized capital is currently classified.
Shares have no preemptive rights and only such conversion or exchange
rights as the Boards of Directors may grant in their discretion. When issued
for payment as described in the Prospectus, Shares will be fully paid and non-
assessable. In the event of a liquidation or dissolution of a Fund,
shareholders of that Fund are entitled to receive the assets available for
distribution belonging to that Fund and a proportionate distribution, based upon
the relative asset values of the portfolios of the Company involved, of any
general assets of that Company not belonging to any particular portfolio of that
Company which are available for distribution. In the event of a liquidation or
dissolution of either Company, shareholders of such Company will be entitled to
the same distribution process.
Shareholders of the Companies are entitled to one vote for each full
share held, and fractional votes for fractional shares held, and will vote in
the aggregate and not by class, except as otherwise required by the 1940 Act or
other applicable law or when the matter to be voted upon affects only the
interests of the shareholders of a particular class. Voting rights are not
cumulative and, accordingly, the holders of more than 50% of the aggregate of a
Company's outstanding shares may
-17-
<PAGE>
elect all of that Company's directors, regardless of the votes of other
shareholders.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as each Company shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each portfolio affected by the matter. A portfolio is affected by a matter
unless it is clear that the interests of each portfolio in the matter are
substantially identical or that the matter does not affect any interest of the
portfolio. Under the Rule, the approval of an investment advisory agreement or
any change in a fundamental investment policy would be effectively acted upon
with respect to a portfolio only if approved by a majority of the outstanding
shares of such portfolio. However, the Rule also provides that the ratification
of the appointment of independent public accountants, the approval of principal
underwriting contracts, and the election of directors may be effectively acted
upon by shareholders of each Company voting without regard to class.
The Companies' Charters authorize the Boards of Directors, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding Shares of the Fund involved to be
redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert a Fund's assets into
money and, in connection therewith, to cause all outstanding Shares to be
redeemed at their net asset value; or (c) combine the assets belonging to a Fund
with the assets belonging to another portfolio of the Company involved, if the
Board of Directors reasonably determines that such combination will not have a
material adverse effect on shareholders of any portfolio participating in such
combination, and, in connection therewith, to cause all outstanding shares of
any portfolio to be redeemed at their net asset value or converted into shares
of another class of the Company's capital stock at net asset value. The
exercise of such authority by the Boards of Directors will be subject to the
provisions of the 1940 Act, and the Boards of Directors will not take any action
described in this paragraph unless the proposed action has been disclosed in
writing to the particular Fund's shareholders at least 30 days prior thereto.
Notwithstanding any provision of Maryland law requiring a greater vote
of the Companies' Common Stock (or of the Shares of a Fund voting separately as
a class) in connection with any corporate action, unless otherwise provided by
law (for example,
-18-
<PAGE>
by Rule 18f-2, discussed above) or by the Companies' Charters, the Companies may
take or authorize such action upon the favorable vote of the holders of more
than 50% of the outstanding Common Stock of the particular Company voting
without regard to class.
MANAGEMENT OF THE FUNDS
-----------------------
Directors and Officers
- ----------------------
The directors and executive officers of the Companies, their
addresses, ages, principal occupations during the past five years, and other
affiliations are as follows (the listed positions apply to both Companies):
<TABLE>
<CAPTION>
Principal Occupation
Position with During Past 5 Years
Name and Address the Companies and Other Affiliations
- ---------------------------------- ---------------- ------------------------------
<S> <C> <C>
Alfred C. Tannachion/1/ Chairman of the Retired; Chairman of the
1135 Hyde Park Court Board, President Boards, President and
Mahwah, NJ 07430 and Treasurer Treasurer of Excelsior and
Age 70 Excelsior Tax-Exempt; Chairman
of the Board, President and
Treasurer of UST Master
Variable Series, Inc. (since
1994); Chairman of the Board,
President and Treasurer of
Excelsior Institutional Trust
(since 1995).
Donald L. Campbell Director Retired; Director of
333 East 69th Street Excelsior and Excelsior Tax-
Apt. 10-H Exempt; Director of UST
New York, NY 10021 Master Variable Series, Inc.
Age 70 (since 1994); Trustee of
Excelsior Institutional Trust
(since 1995); Director, Royal
Life Insurance Co. of NY (since
1991).
Joseph H. Dugan Director Retired; Director of
913 Franklin Lake Road Excelsior and Excelsior Tax-
Franklin Lakes, NJ 07417 Exempt; Director of UST
Age 71 Master Variable Series, Inc.
(since 1994); Trustee of
Excelsior Institutional Trust
(since 1995).
</TABLE>
- ---------------------------
/1/ This director is considered to be an "interested person" of the Companies
as defined in the 1940 Act.
-19-
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Position with During Past 5 Years
Name and Address the Companies and Other Affiliations
- ---------------------------------- ---------------- ------------------------------
<S> <C> <C>
Wolfe J. Frankl Director Retired; Director of
2320 Cumberland Road Excelsior and Excelsior Tax-
Charlottesville, VA 22901 Exempt; Director of UST
Age 75 Master Variable Series, Inc.
(since 1994); Trustee of
Excelsior Institutional Trust
(since 1995); Director,
Deutsche Bank Financial, Inc.
(since (1989); Director, The
Harbus Corporation (since
1951); Trustee, HSBC Funds
Trust and HSBC Mutual Funds
Trust (since 1995).
Robert A. Robinson Director Director of Excelsior and
Church Pension Fund Excelsior Tax-Exempt;
800 Second Avenue Director of UST Master
New York, New York 10017 Variable Series, Inc. (since
Age 70 1994); Trustee of Excelsior
Institutional Trust (since
1995); President Emeritus, The
Church Pension Fund and its
affiliated companies (since
1968); Trustee, H.B. and F.H.
Bugher Foundation and Director
of its wholly owned
subsidiaries -- Rosiclear Lead
and Flourspar Mining Co. and
The Pigmy Corporation (since
1984); Director, Morehouse
Publishing Co. (since 1974);
Trustee, HSBC Funds Trust and
HSBC Mutual Funds Trust (since
1982); Director, Infinity
Funds, Inc. (since 1995).
Frederick S. Wonham/1/ Director Retired; Director of
238 June Road Excelsior and Excelsior Tax-
Stamford, CT 06903 Exempt; Trustee of Excelsior
Age 65 Funds and Excelsior
Institutional Trust (since
1995); Vice Chairman of U.S.
Trust Corporation and U.S.
Trust Company of New York
(until September, 1995);
Chairman, U.S. Trust of
Connecticut.
</TABLE>
- -------------------------
/1/ This director is considered to be an "interested person" of Excelsior Fund
as defined in the 1940 Act.
-20-
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Position with During Past 5 Years
Name and Address the Companies and Other Affiliations
- ---------------------------------- ---------------- ------------------------------
<S> <C> <C>
W. Bruce McConnel, III Secretary Partner of the law firm of
Philadelphia National Drinker Biddle & Reath.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
Age 53
Sherry Aramini Assistant Second Vice President, Blue
Chase Global Funds Secretary Sky Compliance Manager,
Services Company Chase Global Funds Services
73 Tremont Street Company since May 1996;
Boston, MA 02108-3913 Technical Resource Manager,
Age 32 Chase Global Funds Services
Company, April 1995-May 1996;
Financial Reporting Supervisor, Chase
Global Funds Services Company,
September 1993-April 1995; Audit
Supervisor, Coopers & Lybrand L.P.,
July 1990-August 1993.
John M. Corcoran Assistant Vice President, Director of
Chase Global Funds Treasurer Administration, Client Group,
Services Company Chase Global Funds Services
73 Tremont Street Company (July 1996-present);
Boston, MA 02108-3913 Second Vice President, Manager
Age 31 of Administration, Chase Global Funds
Services Company (October 1993-
July 1996); Audit Manager, Ernst &
Young LLP (from August 1987 to
September 1993).
</TABLE>
Each director receives an annual fee of $9,000 with respect to each
Company plus a per-Company meeting fee of $1,500 for each meeting attended and
is reimbursed for expenses incurred in attending meetings. The Chairman of the
Board is entitled to receive an additional $5,000 per annum with respect to each
Company for services in such capacity. Drinker Biddle & Reath, of which Mr.
McConnel is a partner, receives legal fees as counsel to the Companies. The
employees of Chase Global Funds Services Company do not receive any compensation
from the Companies for acting as officers of the Companies. No person who is
currently an officer, director or employee of the Investment Adviser serves as
an officer, director or employee of the Companies. As of __________, 1996, the
directors and officers of each Company as a group owned beneficially less than
1% of the outstanding Shares of each Fund of the Company, and less than 1% of
the outstanding shares of all Funds of the Company in the aggregate.
-21-
<PAGE>
The following chart provides certain information about the fees
received by the Companies' directors in the most recently completed fiscal year.
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Accrued as from Excelsior Fund
Aggregate Part of and Fund
Name of Compensation from Fund Complex/*/ Paid
Person/Position Excelsior Fund Expenses to Directors
- ------------------------------ ------------------- -------- --------------------
<S> <C> <C> <C>
Donald L. Campbell $16,500 None ** $39,500
Director
Joseph H. Dugan $16,500 None ** $39,500
Director
Wolfe J. Frankl $16,500 None ** $39,500
Director
Robert A. Robinson $16,500 None ** $39,500
Director
Alfred C. Tannachion $21,500 None ** $51,500
Chairman of the Board,
President and Treasurer
Frederick S. Wonham/+/ $ 6,375 None ** $14,424
Director
</TABLE>
- ---------------------------
/*/ The "Fund Complex" consists of Excelsior Funds, Inc., Excelsior Tax-Exempt
Funds, Inc. UST Master Variable Series, Inc., Excelsior Funds and Excelsior
Institutional Trust.
/**/ Number of investment companies in the Fund Complex for which director
serves as director or trustee.
/+/ Frederick S. Wonham was elected to the Board of Directors of Excelsior
Funds, Inc. and Excelsior Tax-Exempt Funds, Inc. on November 17, 1995.
Investment Advisory and Administration Agreements
- -------------------------------------------------
United States Trust Company of New York serves as Investment Adviser
to the Funds. In the Investment Advisory Agreements, U.S. Trust has agreed to
provide the services described in the Prospectus. The Investment Adviser has
also agreed to pay all expenses incurred by it in connection with its activities
under the respective agreements other than the cost of securities, including
brokerage commissions, if any, purchased for the Funds.
-22-
<PAGE>
For the fiscal year ended March 31, 1994, the particular Company paid
the Investment Adviser advisory fees of $54,640, $137,367, $654,944, $143,413,
$1,052,739 and $426,183 with respect to the ST Government, IT Income, Managed
Income, Short-Term Tax-Exempt, IT Tax-Exempt and LT Tax-Exempt Funds,
respectively, and the Investment Adviser waived advisory fees of $5,489, $439,
$177,587, $1,948, $6,157 and $1,779 with respect to such respective Funds.
For the fiscal year ended March 31, 1995, the particular Company paid
the Investment Adviser advisory fees of $62,036, $142,883, $634,922, $149,283,
$801,081 and $374,134 with respect to the ST Government, IT Income, Managed
Income, Short-Term Tax-Exempt, IT Tax-Exempt and LT Tax-Exempt Funds,
respectively. For the same period, the Investment Adviser waived fees totalling
$14,308, $8,255, $121,999, $12,322, $84,360 and $26,819 with respect to the ST
Government, IT Income, Managed Income, Short-Term Tax-Exempt, IT Tax-Exempt and
LT Tax-Exempt Funds, respectively.
For the fiscal year ended March 31, 1996, the particular Company paid
the Investment Adviser advisory fees of $46,513, $187,185, $602,962, $116,249,
$754,048 and $391,724 with respect to the ST Government, IT Income, Managed
Income, Short-Term Tax-Exempt, IT Tax-Exempt and LT Tax-Exempt Funds,
respectively. For the same period, the Investment Adviser waived fees totalling
$20,410, $22,783, $46,807, $26,523, $117,024 and $47,791 with respect to the ST
Government, IT Income, Managed Income, Short-Term Tax-Exempt, IT Tax-Exempt and
LT Tax-Exempt Funds, respectively.
The Investment Advisory Agreements provide that the Investment Adviser
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Funds in connection with the performance of such agreements,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for advisory services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Investment Adviser
in the performance of its duties or from reckless disregard by it of its duties
and obligations thereunder.
Chase Global Funds Services Company ("CGFSC"), Federated
Administrative Services, an affiliate of the Distributor, and U.S. Trust (the
"Administrators") serve as the Funds' administrators. Under the Administration
Agreements, the Administrators have agreed to maintain office facilities for the
Funds, furnish the Funds with statistical and research data, clerical,
accounting and bookkeeping services, and certain other services required by the
Funds, and to compute the net asset value, net income, "exempt interest
dividends" and realized capital gains or losses, if any, of the respective
Funds. The
-23-
<PAGE>
Administrators prepare semiannual reports to the Securities and Exchange
Commission, prepare Federal and state tax returns, prepare filings with state
securities commissions, arrange for and bear the cost of processing Share
purchase and redemption orders, maintain the Funds' financial accounts and
records, and generally assist in all aspects of the Funds' operations.
Prior to August 1, 1995, administrative services were provided to the
Funds by CGFSC and Concord Holding Corporation (collectively, the "former
administrators") under administration agreements having substantially the same
terms as the Administration Agreements currently in effect.
For the fiscal year ended March 31, 1994, Excelsior Tax-Exempt Fund
paid the former administrators $74,732, $466,189 and $131,739 in the aggregate
with respect to the Short-Term Tax-Exempt Fund, IT Tax-Exempt Fund and LT Tax-
Exempt Fund, respectively, and the administrators waived fees totalling $519
with respect to the IT Tax-Exempt Fund. For the same period Excelsior Fund paid
the administrators in the aggregate $31,686, $58,869 and $171,157 with respect
to the ST Government, IT Income and Managed Income Funds, respectively, and the
administrators waived fees totalling $95 with respect to the Managed Income
Fund.
For the fiscal year ended March 31, 1995, Excelsior Tax-Exempt Fund
paid the former administrators $82,797, $386,614 and $123,173 in the aggregate
with respect to the Short-Term Tax-Exempt Fund, IT Tax-Exempt Fund and the LT
Tax-Exempt Fund, respectively. For the same period, Excelsior Fund paid the
administrators $39,116, $66,481 and $154,370 in the aggregate with respect to
the ST Government, IT Income and Managed Income Funds, respectively. For the
same period, the administrators waived fees totalling $2,634, $19, $1,051, $356,
$3,455 and $321 with respect to the ST Government, IT Income, Managed Income,
Short-Term Tax-Exempt, IT Tax-Exempt and LT Tax-Exempt Funds, respectively.
For the period April 1, 1995 through July 31, 1995, the Excelsior Tax-
Exempt Fund paid the former administrators $23,993, $124,638 and $41,586 in the
aggregate with respect to the Short-Term Tax-Exempt Fund, IT Tax-Exempt Fund and
the LT Tax-Exempt Fund, respectively. For the same period, Excelsior Fund paid
the former administrators $11,576, $26,526 and $43,727 in the aggregate with
respect to the ST Government, IT Income and Managed Income Funds, respectively.
For the same period, the former administrators waived fees totalling $64, $543,
$474, $140, $820 and $160 with respect to the ST Government, IT Income, Managed
Income, Short-Term Tax-Exempt, IT Tax-Exempt and LT Tax-Exempt Funds,
respectively.
-24-
<PAGE>
For the period August 1, 1995 through March 31, 1996, Excelsior Tax-
Exempt Fund paid the Administrators $33,906, $258,662 and $91,594 in the
aggregate with respect to the Short-Term Tax-Exempt Fund, IT Tax-Exempt Fund and
the LT Tax-Exempt Fund,respectively. For the same period, Excelsior Fund paid
the Administrators $38,330, $64,035 and $89,196 in the aggregate with respect to
the ST Government, IT Income and Managed Income Funds, respectively. For the
same period, the Administrators waived fees totalling $30, $1,567, $412,
$15,466, $494 and $1,782 with respect to the ST Government, IT Income, Managed
Income, Short-Term Tax-Exempt, IT Tax-Exempt and LT Tax-Exempt Funds,
respectively.
Service Organizations
- ---------------------
As stated in the Prospectus, a Company will enter into agreements with
Service Organizations. Such shareholder servicing agreements will require the
Service Organizations to provide shareholder administrative services to their
Customers who beneficially own Shares in consideration for a Fund's payment (on
an annualized basis) of up to .40% of the average daily net assets of the Fund's
Shares beneficially owned by Customers of the Service Organization. Such
services may include: (a) assisting Customers in designating and changing
dividend options, account designations and addresses; (b) providing necessary
personnel and facilities to establish and maintain certain shareholder accounts
and records, as may reasonably be requested from time to time by the Companies;
(c) assisting in processing purchases, exchange and redemption transactions; (d)
arranging for the wiring of funds; (e) transmitting and receiving funds in
connection with Customer orders to purchase, exchange or redeem Shares; (f)
verifying and guaranteeing Customer signatures in connection with redemption
orders, transfers among and changes in Customer-designated accounts; (g)
providing periodic statements showing a Customer's account balances and, to the
extent practicable, integrating such information with information concerning
other client transactions otherwise effected with or through the Service
Organization; (h) furnishing on behalf of the Companies' distributor (either
separately or on an integrated basis with other reports sent to a Customer by
the Service Organization) periodic statements and confirmations of all
purchases, exchanges and redemptions of Shares in a Customer's account required
by applicable federal or state law; (i) transmitting proxy statements, annual
reports, updating prospectuses and other communications from the Companies to
Customers; (j) receiving, tabulating and transmitting to the Companies proxies
executed by Customers with respect to annual and special meetings of
shareholders of the Companies; (k) providing reports (at least monthly, but more
frequently if so requested by the Companies' distributor) containing state-by-
state listings of the principal residences of the beneficial
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<PAGE>
owners of the Shares; and (l) providing or arranging for the provision of such
other related services as the Companies or a Customer may reasonably request.
The Companies' agreements with Service Organizations are governed by
Administrative Services Plans (the "Plans") adopted by the Companies. Pursuant
to the Plans, each Company's Board of Directors will review, at least quarterly,
a written report of the amounts expended under the Company's agreements with
Service Organizations and the purposes for which the expenditures were made. In
addition, the arrangements with Service Organizations will be approved annually
by a majority of each Company's directors, including a majority of the directors
who are not "interested persons" of the Company as defined in the 1940 Act and
have no direct or indirect financial interest in such arrangements (the
"Disinterested Directors").
Any material amendment to a Company's arrangements with Service
Organizations must be approved by a majority of the Company's Board of Directors
(including a majority of the Disinterested Directors). So long as the
Companies' arrangements with Service Organizations are in effect, the selection
and nomination of the members of the Companies' Boards of Directors who are not
"interested persons" (as defined in the 1940 Act) of the Companies will be
committed to the discretion of such non-interested Directors.
For the fiscal years ended March 31, 1996, 1995 and 1994, payments to
Service Organizations under the Plans totalled $26,684, $12,678 and $615;
$118,114, $87,815 and $6,676; $22,586, 27,140 and $1,779; $20,504, $4,466 and
$119; $24,893, $8,274 and $439; and $47,693, $28,171 and $1,537 with respect to
the Short-Term Tax-Exempt, IT Tax-Exempt, LT Tax-Exempt, ST Government, IT
Income and Managed Income Funds, respectively. Of these respective amounts,
$26,684, $11,475 and $615; $115,826, $74,979 and $4,947; $22,586, $25,075 and
$1,779; $20,504, $3,649 and $119; $21,217, $8,041 and $439; and $46,426, $20,247
and $965 were paid to affiliates of U.S. Trust with respect to the Short-Term
Tax-Exempt, IT Tax-Exempt, LT Tax-Exempt, ST Government, IT Income and Managed
Income Funds, respectively.
Expenses
- --------
Except as otherwise noted, the Investment Adviser and the
Administrators bear all expenses in connection with the performance of their
advisory and administrative services. The Funds bear the expenses incurred in
their operations. Expenses of the Funds include: taxes; interest; fees
(including fees paid to the Companies' Directors and officers who are not
affiliated with the Distributor or the Administrators); SEC fees; state
securities qualification fees; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to
-26-
<PAGE>
shareholders; advisory, administration and administrative servicing fees;
charges of the custodian, transfer agent and dividend disbursing agent; certain
insurance premiums; outside auditing and legal expenses; cost of independent
pricing service; costs of shareholder reports and meetings; and any
extraordinary expenses. The Funds also pay for any brokerage fees and
commissions in connection with the purchase of portfolio securities.
If the expenses borne by a Fund in any fiscal year exceed expense
limitations imposed by applicable state securities regulations, the Investment
Adviser and the Administrators will reimburse such Fund for a portion of any
such excess to the extent required by such regulations in proportion to the fees
received by them in such year up to the amount of fees payable to them,
provided, however, to the extent required by such state regulations, the
Investment Adviser and the Administrators have agreed to effect such
reimbursement regardless of the fees payable to them. The amounts of the above
reimbursements, if any, will be estimated, reconciled and paid on a monthly
basis. To the Companies' knowledge, of the applicable expense limitations in
effect on the date of this Statement of Additional Information, none is more
restrictive than the following: 2 1/2% of the first $30 million of average
annual net assets, 2% of the next $70 million of average annual net assets and l
1/2% of average annual net assets in excess of $100 million.
Custodian and Transfer Agent
- ----------------------------
The Chase Manhattan Bank, N.A. ("Chase") serves as custodian of the
Funds' assets. Under the custodian agreements, Chase has agreed to (i) maintain
a separate account or accounts for each of the Funds; (ii) make receipts and
disbursements of money on behalf of the Funds; (iii) collect and receive income
and other payments and distributions on account of the Funds' portfolio
securities; (iv) respond to correspondence from securities brokers and others
relating to its duties; (v) maintain certain financial accounts and records; and
(vi) make periodic reports to the Companies concerning the Funds' operations.
Chase is entitled to monthly fees for furnishing custodial services according to
the following fee schedule: on the face value of debt securities and the market
value of equities, a fee at the annual rate of .025%; on issues held, $50.00 for
each physical issue held, $25.00 for each book-entry issue held, and 1/4 of 1%
of market value for each foreign issue held; on transactions, $25.00 for each
physical transaction, $15.00 for each book-entry transaction, and $50.00 for
each foreign security transaction. In addition, Chase is entitled to
reimbursement for its out-of-pocket expenses in connection with the above
services. Chase may, at its own expense, open and maintain custody accounts
with respect to the Funds with other banks or trust companies, provided that
Chase shall remain liable
-27-
<PAGE>
for the performance of all its custodial duties under the Custodian Agreements,
notwithstanding any delegation.
U.S. Trust also serves as the Funds' transfer agent and dividend
disbursing agent. In such capacity, U.S. Trust has agreed to (i) issue and
redeem Shares; (ii) address and mail all communications by the Funds to their
shareholders, including reports to shareholders, dividend and distribution
notices, and proxy materials for their meetings of shareholders; (iii) respond
to correspondence by shareholders and others relating to its duties; (iv)
maintain shareholder accounts; and (v) make periodic reports to the Companies
concerning the Funds' operations. For its transfer agency, dividend disbursing,
and subaccounting services, U.S. Trust is entitled to receive $15.00 per annum
per account and subaccount. In addition, U.S. Trust is entitled to be
reimbursed for its out-of-pocket expenses for the cost of forms, postage,
processing purchase and redemption orders, handling of proxies, and other
similar expenses in connection with the above services.
U.S. Trust may, at its own expense, delegate its transfer agency
obligations to another transfer agent registered or qualified under applicable
law, provided that U.S. Trust shall remain liable for the performance of all of
its transfer agency duties under the Transfer Agency Agreements, notwithstanding
any delegation. Pursuant to this provision in the agreements, U.S. Trust has
entered into a sub-transfer agency arrangement with CGFSC, an affiliate of
Chase, with respect to accounts of shareholders who are not Customers of U.S.
Trust. For the services provided by CGFSC, U.S. Trust has agreed to pay CGFSC
$15.00 per annum per account or subaccount plus out-of-pocket expenses. CGFSC
receives no fee directly from the Companies for any of its sub-transfer agency
services.
PORTFOLIO TRANSACTIONS
----------------------
Subject to the general control of the Companies' Boards of Directors,
the Investment Adviser is responsible for, makes decisions with respect to and
places orders for all purchases and sales of portfolio securities of each of the
Funds. Purchases and sales of portfolio securities will usually be principal
transactions without brokerage commissions.
The Funds may engage in short-term trading to achieve their investment
objectives. Portfolio turnover may vary greatly from year to year as well as
within a particular year. It is expected that the Funds' turnover rates may
remain higher than those of many other investment companies with similar
investment objectives and policies. However, since brokerage commissions are
not normally paid on instruments purchased by the Funds, portfolio turnover is
not expected to have a material effect on
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<PAGE>
the net income of any of the Funds. The Funds' portfolio turnover rate may also
be affected by cash requirements for redemptions of Shares and by regulatory
provisions which enable the Funds to receive certain favorable tax treatment.
Portfolio turnover will not be a limiting factor in making portfolio decisions.
See "Financial Highlights" in the Funds' prospectuses for the Funds' portfolio
turnover rates.
Securities purchased and sold by the Funds are generally traded in the
over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or markdown. With
respect to over-the-counter transactions, the Funds, where possible, will deal
directly with dealers who make a market in the securities involved, except in
those situations where better prices and execution are available elsewhere.
The Investment Advisory Agreements between the Companies and the
Investment Adviser provide that, in executing portfolio transactions and
selecting brokers or dealers, the Investment Adviser will seek to obtain the
best net price and the most favorable execution. The Investment Adviser shall
consider factors it deems relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer and whether such broker or dealer is selling
shares of the Companies, and the reasonableness of the commission, if any, for
the specific transaction and on a continuing basis.
In addition, the Investment Advisory Agreements authorize the
Investment Adviser, to the extent permitted by law and subject to the review of
the Companies' Boards of Directors from time to time with respect to the extent
and continuation of the policy, to cause the Funds to pay a broker which
furnishes brokerage and research services a higher commission than that which
might be charged by another broker for effecting the same transaction, provided
that the Investment Adviser determines in good faith that such commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker, viewed in terms of either that particular transaction
or the overall responsibilities of the Investment Adviser to the accounts as to
which it exercises investment discretion. Such brokerage and research services
might consist of reports and statistics on specific companies or industries,
general summaries of groups of stocks and their comparative earnings, or broad
overviews of the stock market and the economy.
-29-
<PAGE>
Supplementary research information so received is in addition to and
not in lieu of services required to be performed by the Investment Adviser and
does not reduce the investment advisory fee payable by the Funds. Such
information may be useful to the Investment Adviser in serving the Funds and
other clients and, conversely, supplemental information obtained by the
placement of business of other clients may be useful to the Investment Adviser
in carrying out its obligations to the Funds.
Portfolio securities will not be purchased from or sold to the
Investment Adviser, the Distributor, or any affiliated person of either of them
(as such term is defined in the 1940 Act) acting as principal, except to the
extent permitted by the Securities and Exchange Commission.
Investment decisions for the Funds are made independently from those
for other investment companies, common trust funds and other types of funds
managed by the Investment Adviser. Such other investment companies and funds
may also invest in the same securities as the Funds. When a purchase or sale of
the same security is made at substantially the same time on behalf of the Funds
and another investment company or common trust fund, the transaction will be
averaged as to price, and available investments allocated as to amount, in a
manner which the Investment Adviser believes to be equitable to the Funds and
such other investment company or common trust fund. In some instances, this
investment procedure may adversely affect the price paid or received by the
Funds or the size of the position obtained by the Funds. To the extent
permitted by law, the Investment Adviser may aggregate the securities to be sold
or purchased for the Funds with those to be sold or purchased for other
investment companies or common trust funds in order to obtain best execution.
The Companies are required to identify any securities of their regular
brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or their
parents held by the Companies as of the close of their most recent fiscal year.
As of March 31, 1996 none of the Funds held any securities of Excelsior Fund's
or Excelsior Tax-Exempt Fund's regular brokers or dealers or their parents.
INDEPENDENT AUDITORS
--------------------
Ernst & Young LLP, independent auditors, 200 Clarendon Street, Boston,
MA 02116, serve as auditors of the Companies. The Funds' Financial Highlights
included in the Prospectus and the financial statements for the period ended
March 31, 1996 incorporated by reference in this Statement of Additional
Information have been audited by Ernst & Young LLP for the periods included in
their reports thereon which appear therein.
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<PAGE>
COUNSEL
-------
Drinker Biddle & Reath (of which Mr. McConnel, Secretary of the
Companies, is a partner), Philadelphia National Bank Building, 1345 Chestnut
Street, Philadelphia, Pennsylvania 19107-3496, is counsel to the Companies and
will pass upon the legality of the Shares offered by the Prospectuses.
ADDITIONAL INFORMATION CONCERNING TAXES
---------------------------------------
Generally
- ---------
The following supplements the tax information contained in the
Prospectus.
Each of the Funds is treated as a separate corporate entity under the
Internal Revenue Code of 1986, as amended (the "Code"), and intends to qualify
as a regulated investment company. If, for any reason, a Fund does not qualify
for a taxable year for the special Federal tax treatment afforded regulated
investment companies, such Fund would be subject to Federal tax on all of its
taxable income at regular corporate rates, without any deduction for
distributions to shareholders. In such event, dividend distributions (whether or
not derived from interest on Municipal Securities) would be taxable as ordinary
income to shareholders to the extent of the Fund's current and accumulated
earnings and profits and would be eligible for the dividends received deduction
in the case of corporate shareholders.
A Fund will designate any distribution of the excess of net long-term
capital gain over net short-term capital loss as a capital gain dividend in a
written notice mailed to shareholders within 60 days after the close of the
Fund's taxable year. Shareholders should note that, upon the sale or exchange
of Shares, if the shareholder has not held such Shares for at least six months,
any loss on the sale or exchange of those Shares will be treated as long-term
capital loss to the extent of the capital gain dividends received with respect
to the Shares.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income (excess
of capital gains over capital losses). Each Fund intends to make sufficient
distributions or deemed distributions of their ordinary taxable income and any
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
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<PAGE>
Each Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends or gross proceeds realized upon sale
paid to shareholders who have failed to provide a correct tax identification
number in the manner required, who are subject to withholding by the Internal
Revenue Service for failure properly to include on their return payments of
taxable interest or dividends, or who have failed to certify to the Fund when
required to do so either that they are not subject to backup withholding or that
they are "exempt recipients."
Tax-Exempt Funds
- ----------------
As stated in their Prospectus, the Tax-Exempt Funds are not intended
to constitute a balanced investment program and are not designed for investors
seeking capital appreciation or maximum tax-exempt income irrespective of
fluctuations in principal. Shares of the Tax-Exempt Funds would not be suitable
for tax-exempt institutions and may not be suitable for retirement plans
qualified under Section 401 of the Code, H.R. 10 plans and individual retirement
accounts because such plans and accounts are generally tax-exempt and,
therefore, not only would not gain any additional benefit from the Tax-Exempt
Funds' dividends being tax-exempt, but such dividends would be ultimately
taxable to the beneficiaries when distributed to them. In addition, the Tax-
Exempt Funds may not be an appropriate investment for entities which are
"substantial users" of facilities financed by private activity bonds or "related
persons" thereof. "Substantial user" is defined under the Treasury Regulations
to include a non-exempt person who regularly uses a part of such facilities in
his trade or business and whose gross revenues derived with respect to the
facilities financed by the issuance of bonds are more than 5% of the total
revenues derived by all users of such facilities, who occupies more than 5% of
the usable area of such facilities or for whom such facilities or a part thereof
were specifically constructed, reconstructed or acquired. "Related persons"
include certain related natural persons, affiliated corporations, a partnership
and its partners and an S corporation and its shareholders.
In order for a Tax-Exempt Fund to pay exempt-interest dividends for
any taxable year, at least 50% of the aggregate value of such Fund's portfolio
must consist of exempt-interest obligations at the close of each quarter of its
taxable year. Within 60 days after the close of the taxable year, each of the
Tax-Exempt Funds will notify its shareholders of the portion of the dividends
paid by that Fund which constitutes an exempt-interest dividend with respect to
such taxable year. However, the aggregate amount of dividends so designated by
that Fund cannot exceed the excess of the amount of interest exempt from tax
under Section 103 of the Code received by that Fund during the taxable year over
any amounts disallowed as deductions under
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<PAGE>
Sections 265 and 171(a)(2) of the Code. The percentage of total dividends paid
by each of the Tax-Exempt Funds with respect to any taxable year which qualifies
as exempt-interest dividends will be the same for all shareholders receiving
dividends from that Tax-Exempt Fund for such year.
Interest on indebtedness incurred by a shareholder to purchase or
carry a Tax-Exempt Fund's Shares generally is not deductible for Federal income
tax purposes. In addition, if a shareholder holds Tax-Exempt Fund Shares for
six months or less, any loss on the sale or exchange of those Shares will be
disallowed to the extent of the amount of exempt-interest dividends received
with respect to the Shares. The Treasury Department, however, is authorized to
issue regulations reducing the six-month holding requirement to a period of not
less than the greater of 31 days or the period between regular dividend
distributions where the investment company regularly distributes at least 90% of
its net tax-exempt interest. No such regulations had been issued as of the date
of this Statement of Additional Information.
Taxation of Certain Financial Instruments
- -----------------------------------------
Generally, futures contracts held by the Funds at the close of their
taxable year will be treated for Federal income tax purposes as sold for their
fair market value on the last business day of such year, a process known as
"mark-to-market." Forty percent of any gain or loss resulting from such
constructive sale will be treated as short-term capital gain or loss and 60% of
such gain or loss will be treated as long-term capital gain or loss, without
regard to the length of time a Fund has held the futures contract (the "40%-60%
rule"). The amount of any capital gain or loss actually realized by a Fund in a
subsequent sale or other disposition of those futures contracts will be adjusted
to reflect any capital gain or loss taken into account by the Fund in a prior
year as a result of the constructive sale of the contracts. Futures contracts
to sell will be regarded as parts of a "mixed straddle" because their values
fluctuate inversely to the values of specific securities held by a Fund. Losses
as to futures contracts to sell will be subject to certain loss deferral rules
which limit the amount of loss currently deductible on either part of the
straddle to the amount thereof which exceeds the unrecognized gain (if any) with
respect to the other part of the straddle, and to certain wash sales
regulations. Under short sales rules, which also are applicable, the holding
period of the securities forming part of the straddle will (if they have not
been held for the long-term holding period) be deemed not to begin prior to
termination of the straddle. With respect to certain futures contracts,
deductions for interest and carrying charges will not be allowed.
Notwithstanding the rules described above, with respect to futures contracts to
sell which are properly identified as such,
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<PAGE>
a Fund may make an election which will exempt (in whole or in part) those
identified futures contracts from being treated for Federal income tax purposes
as sold on the last business day of the Fund's taxable year, but gains and
losses will be subject to such short sales, wash sales and loss deferral rules,
and the requirement to capitalize interest and carrying charges. Under
temporary regulations, the Fund would be allowed (in lieu of the foregoing) to
elect either (1) to offset gains or losses from positions which are part of a
mixed straddle by separately identifying each mixed straddle to which such
treatment applies, or (2) to establish a mixed straddle account for which gains
and losses would be recognized and offset on a periodic basis during the taxable
year. Under either election, the 40%-60% rule will apply to the net gain or
loss attributable to the futures contracts, but in the case of a mixed straddle
account election, not more than 50 percent of any net gain may be treated as
long term and no more than 40 percent of any net loss may be treated as short
term. Options on futures contracts generally receive Federal tax treatment
similar to that described above.
A Fund will not be treated as a regulated investment company under the
Code if 30% or more of the Fund's gross income for a taxable year is derived
from gains realized on the sale or other disposition of the following
investments held for less than three months (the "30% test"): (1) stock and
securities (as defined in section 2(a)(36) of the 1940 Act); (2) options,
futures and forward contracts other than those on foreign currencies; and (3)
foreign currencies (and options, futures and forward contracts on foreign
currencies) that are not directly related to the Fund's principal business of
investing in stock and securities (and options and futures with respect to
stocks and securities). Interest (including original issue discount and accrued
market discount) received by the Fund upon maturity or disposition of a security
held for less than three months will not be treated as gross income derived from
the sale or other disposition of such security within the meaning of this
requirement. However, any other income which is attributable to realized market
appreciation will be treated as gross income from the sale or other disposition
of securities for this purpose. With respect to forward contracts, futures
contracts, options on futures contracts, and other financial instruments subject
to the mark-to-market rules described above, the Internal Revenue Service has
ruled in private letter rulings that a gain realized from such a contract,
option or financial instrument will be treated as being derived from a security
held for three months or more (regardless of the actual period for which the
contract, option or instrument is held) if the gain arises as a result of a
constructive sale under the mark-to-market rules, and will be treated as being
derived from a security held for less than three months only if the contract,
option or instrument is terminated (or transferred) during the taxable year
(other than by reason of mark-to-market) and less than three months have elapsed
between
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<PAGE>
the date the contract, option or instrument is acquired and the termination
date. Increases and decreases in the value of a Fund's futures contracts and
other investments that qualify as part of a "designated hedge," as defined in
Section 851(g) of the Code, may be netted for purposes of determining whether
the 30% test is met.
* * *
The foregoing discussion is based on Federal tax laws and regulations
which are in effect on the date of this Statement of Additional Information;
such laws and regulations may be changed by legislative or administrative
action. Shareholders are advised to consult their tax advisers concerning their
specific situations and the application of state and local taxes.
PERFORMANCE AND YIELD INFORMATION
---------------------------------
Yields and Performance
- ----------------------
The Funds may advertise the standardized effective 30-day (or one
month) yields calculated in accordance with the method prescribed by the
Securities and Exchange Commission for mutual funds. Such yield will be
calculated separately for each Fund according to the following formula:
a-b
Yield = 2 [(-------- + 1)/6/ - 1]
cd
Where: a = dividends and interest earned
during the period.
b = expenses accrued for the period
(net of reimbursements).
c = average daily number of Shares
outstanding that were entitled to
receive dividends.
d = maximum offering price per Share
on the last day of the period.
For the purpose of determining interest earned during the period
(variable "a" in the formula), each of the Funds
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<PAGE>
computes the yield to maturity of any debt obligation held by it based on the
market value of the obligation (including actual accrued interest) at the close
of business on the last business day of each month, or, with respect to
obligations purchased during the month, the purchase price (plus actual accrued
interest). Such yield is then divided by 360, and the quotient is multiplied by
the market value of the obligation (including actual accrued interest) in order
to determine the interest income on the obligation for each day of the
subsequent month that the obligation is in the portfolio. It is assumed in the
above calculation that each month contains 30 days. Also, the maturity of a debt
obligation with a call provision is deemed to be the next call date on which the
obligation reasonably may be expected to be called or, if none, the maturity
date. Each of the Funds calculates interest gained on tax-exempt obligations
issued without original issue discount and having a current market discount by
using the coupon rate of interest instead of the yield to maturity. In the case
of tax-exempt obligations with original issue discount, where the discount based
on the current market value exceeds the then-remaining portion of original issue
discount, the yield to maturity is the imputed rate based on the original issue
discount calculation. Conversely, where the discount based on the current market
value is less than the remaining portion of the original issue discount, the
yield to maturity is based on the market value.
Expenses accrued for the period (variable "b" in the formula) include
all recurring fees charged by each of the Funds to all shareholder accounts and
to the particular series of Shares in proportion to the length of the base
period and that Fund's mean (or median) account size. Undeclared earned income
will be subtracted from the maximum offering price per Share (variable "d" in
the formula). The Funds' maximum offering price per Share for purposes of the
formula will include the maximum sales load imposed by the Funds -- currently
4.50% of the per share offering price. Based on the foregoing calculations, the
effective yields for Shares of the IT Tax-Exempt, LT Tax-Exempt, Managed Income,
Short-Term Tax-Exempt, IT Income and ST Government Funds for the 30-day period
ended March 31, 1996 were 3.76%, 4.67%, 5.84%, 3.28%, 5.43%, and 4.73%,
respectively.
The "tax-equivalent" yield of the Short-Term Tax-Exempt, IT Tax-Exempt
and LT Tax-Exempt Funds is computed by: (a) dividing the portion of the yield
(calculated as above) that is exempt from Federal income tax by one minus a
stated Federal income tax rate and (b) adding that figure to that portion, if
any, of the yield that is not exempt from Federal income tax. Tax-equivalent
yields assume the payment of Federal income taxes at a rate of 31%. Based on
the foregoing calculations, the tax-equivalent yield of the Short-Term Tax-
Exempt, IT Tax-Exempt and LT Tax-Exempt Funds for the 30-day period ended
March 31, 1996 were 4.75%, 5.45%, and 6.77%, respectively.
-36-
<PAGE>
Each Fund's "average annual total return" is computed by determining
the average annual compounded rate of return during specified periods that
equates the initial amount invested to the ending redeemable value of such
investment according to the following formula:
ERV /1/n/
T = [(-----) - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10
year (or other) periods at the end of the
applicable period (or a fractional portion
thereof).
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in
years.
Each Fund that advertises an "aggregate total return" computes such return
by determining the aggregate compounded rates of return during specified periods
that likewise equate the initial amount invested to the ending redeemable value
of such investment. The formula for calculating aggregate total return is as
follows:
ERV
Aggregate Total Return = [(------)] - 1
P
The above calculations are made assuming that (1) all dividends and
capital gain distributions are reinvested on the reinvestment dates at the price
per Share existing on the reinvestment date (reflecting any sales load charged
upon such reinvestment), (2) all recurring fees charged to all shareholder
accounts are included, and (3) for any account fees that vary with the size of
the account, a mean (or median) account size in the Fund during the periods is
reflected. The ending redeemable value (variable "ERV', in the formula) is
determined by assuming complete redemption of the hypothetical investment after
deduction of all nonrecurring charges at the end of the measuring period. In
addition, the Funds' average annual total return and aggregate total return
quotations will reflect the deduction of the maximum sales load charged in
connection with the purchase of Shares.
-37-
<PAGE>
Based on the foregoing calculations, the average annual total returns
for Shares of the Short-Term Tax-Exempt Fund, IT Tax-Exempt Fund, LT Tax-Exempt
Fund, ST Government Fund, IT Income Fund and Managed Income Fund for the one
year period ended March 31, 1996 were 0.65%, 3.48%, 4.40%, 2.51%, 6.10% and
6.77%, respectively. The average annual total returns for the IT Tax-Exempt
Fund, LT Tax-Exempt Fund and Managed Income Fund for the five year period ended
March 31, 1996 were 6.34%, 8.56% and 7.63%, respectively. The average annual
total returns for the IT Tax-Exempt, LT Tax-Exempt and Managed Income Funds for
the periods from their commencement of operations (December 3, 1985, February 5,
1986, and January 9, 1986, respectively) to March 31, 1996 were 7.75%, 10.54%
and 10.27%, respectively. The average annual total returns for the Short-Term
Tax-Exempt, IT Income and ST Government Funds for the period from their
commencement of operations (December 31, 1992) to March 31, 1996 were 2.57%,
4.73% and 3.26%, respectively.
The Funds may also from time to time include in advertisements, sales
literature and communications to shareholders a total return figure that is not
calculated according to the formula set forth above in order to compare more
accurately a Fund's performance with other measures of investment return. For
example, in comparing a Fund's total return with data published by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. or Weisenberger
Investment Company Service, or with the performance of an index, a Fund may
calculate its aggregate total return for the period of time specified in the
advertisement, sales literature or communication by assuming the investment of
$10,000 in Shares and assuming the reinvestment of each dividend or other
distribution at net asset value on the reinvestment date. Percentage increases
are determined by subtracting the initial value of the investment from the
ending value and by dividing the remainder by the beginning value. A Fund does
not, for these purposes, deduct from the initial value invested any amount
representing sales charges. A Fund will, however, disclose the maximum sales
charge and will also disclose that the performance data does not reflect sales
charges and that inclusion of sale charges would reduce the performance quoted.
The total return and yield of a Fund may be compared to those of other
mutual funds with similar investment objectives and to other relevant indices or
to ratings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
total return and/or yield of a Fund may be compared to data
prepared by Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.
and Weisenberger Investment Company Service. Total return and yield data as
reported in national financial publications such as Money Magazine, Forbes,
----- -------- ------
Barron's, The Wall Street Journal and The New York Times, or in publications of
- -------- --- ---- ------ ------- --- --- ---- -----
a
-38-
<PAGE>
local or regional nature, may also be used in comparing the performance of a
Fund. Advertisements, sales literature or reports to shareholders may from time
to time also include a discussion and analysis of each Fund's performance,
including without limitation, those factors, strategies and technologies that
together with market conditions and events, materially affected each Fund's
performance.
The Funds may also from time to time include discussions or illustrations
of the effects of compounding in advertisements. "Compounding" refers to the
fact that, if dividends or other distributions of a Fund investment are
reinvested by being paid in additional Fund shares, any future income or capital
appreciations of a Fund would increase the value, not only of the original Fund
investment, but also of the additional Fund shares received through
reinvestment. As a result, the value of the Fund investment would increase more
quickly than if dividends or other distributions had been paid in cash. The
Funds may also include discussions or illustrations of the potential investment
goals of a prospective investor, investment management techniques, policies or
investment suitability of a Fund, economic conditions, the effects of inflation
and historical performance of various asset classes, including but not limited
to, stocks, bonds and Treasury bills. From time to time advertisements, sales
literature or communications to shareholders may summarize the substance of
information contained in shareholder reports (including the investment
composition of a Fund), as well as the views of the Investment Adviser as to
current market, economy, trade and interest rate trends, legislative, regulatory
and monetary developments, investment strategies and related matters believed to
be of relevance to a Fund. The Funds may also include in advertisements charts,
graphs or drawings which illustrate the potential risks and rewards of
investment in various investment vehicles, including but not limited to, stocks,
bonds, treasury bills and shares of a Fund. In addition, advertisement, sales
literature or shareholder communications may include a discussion of certain
attributes or benefits to be derived by an investment in a Fund. Such
advertisements or communicators may include symbols, headlines or other material
which highlight or summarize the information discussed in more detail therein.
MISCELLANEOUS
-------------
As used in the Prospectus, "assets belonging to a Fund" means the
consideration received upon the issuance of Shares in the Fund, together with
all income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale of such investments, any funds or payments
derived from any reinvestment of such proceeds, and a portion of any general
assets of the Company involved not belonging to a
-39-
<PAGE>
particular portfolio of that Company. In determining the net asset value of a
Fund's Shares, assets belonging to the Fund are charged with the direct
liabilities in respect of that Fund and with a share of the general liabilities
of the Company involved which are normally allocated in proportion to the
relative asset values of the Company's portfolios at the time of allocation.
Subject to the provisions of the Companies' Charters, determinations by the
Boards of Directors as to the direct and allocable liabilities and the allocable
portion of any general assets with respect to a particular Fund are conclusive.
As of July 15, 1996 U.S. Trust held of record substantially all of the
outstanding Shares in all Funds other than the Managed Income Fund, where it
held a majority of the Shares, acting as agent or custodian for its customers,
but did not own such Shares beneficially because it did not have discretion to
vote or invest such Shares.
As of July 15, 1996, the name, address and percentage ownership of
each person, in addition to U.S. Trust, that beneficially owned 5% or more of
the outstanding Shares of the Short-Term Tax-Exempt Fund was as follows: G.L. &
J.E. Swenson, c/o United States Trust Company of New York, 114 West 47th Street,
New York, New York 10036, ____%.
FINANCIAL STATEMENTS
--------------------
The Companies' Annual Reports to Shareholders for the fiscal year
ended March 31, 1996 (the "Annual Reports") for the fixed income and tax-exempt
fixed income portfolios accompany this Statement of Additional Information. The
financial statements in the Annual Reports for the ST Government, IT Income,
Managed Income, Short-Term Tax-Exempt, IT Tax-Exempt and LT Tax-Exempt Funds
(the "Financial Statements") are incorporated in this Statement of Additional
Information by reference. The Financial Statements included in the Annual
Reports for the fiscal year ended March 31, 1996 have been audited by the
Companies' independent auditors, Ernst & Young LLP, whose reports thereon also
appear in such Annual Reports and are incorporated herein by reference. The
Financial Statements in such Annual Reports have been incorporated herein in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing. Additional copies of the Annual Reports may be
obtained at no charge by telephoning CGFSC at the telephone number appearing on
the front page of this Statement of Additional Information.
-40-
<PAGE>
APPENDIX A
----------
COMMERCIAL PAPER RATINGS
- ------------------------
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the rating categories used by Standard and
Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory. However,
the relative degree of safety is not as high as for issues designated "A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are considered
to have a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity.
A-1
<PAGE>
"Prime-2" - Issuer or related supporting institutions are considered
to have a strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment. Short-
term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk
A-2
<PAGE>
factors are larger and subject to more variation. Nevertheless, timely payment
is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years. The
following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or
A-3
<PAGE>
interest of unsubordinated instruments having a maturity of one year or less
which is issued by United States commercial banks, thrifts and non-bank banks;
non-United States banks; and broker-dealers. The following summarizes the
ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded as non-
investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations which posses a particularly strong credit feature
are supported by the highest capacity for timely repayment.
"A1" - Obligations are supported by the highest capacity for timely
repayment.
"A2" - Obligations are supported by a satisfactory capacity for timely
repayment.
"A3" - Obligations are supported by a satisfactory capacity for timely
repayment.
"B" - Obligations for which there is an uncertainty as to the capacity
to ensure timely repayment.
"C" - Obligations for which there is a high risk of default or which
are currently in default.
A-4
<PAGE>
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
----------------------------------------------
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
A-5
<PAGE>
"CCC" - Debt has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no interest
is being paid.
"D" - Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes such payments
will be made during such grace period. "D" rating is also used upon the filing
of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and
A-6
<PAGE>
principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
(P) ... - When applied to forward delivery bonds, indicates that the
rating is provisional pending delivery of the bonds. The rating may be raised
prior to delivery if changes occur in the legal documents or the underlying
credit quality of the bonds.
A-7
<PAGE>
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1 and B1.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong
A-8
<PAGE>
as bonds rated "AAA." Because bonds rated in the "AAA" and "AA" categories are
not significantly vulnerable to foreseeable future developments, short-term debt
of these issuers is generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "BBB" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions may increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of
A-9
<PAGE>
principal and interest is adequate, although adverse changes in business,
economic or financial conditions are more likely to lead to increased investment
risk than for obligations in higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to
denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of
A-10
<PAGE>
principal and interest. "BB" indicates the lowest degree of speculation and
"CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
A-11
<PAGE>
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative quality and
lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
A-12
<PAGE>
EXCELSIOR FUNDS, INC.
FORM N-1A
---------
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements:
(1) Included in Part A:
Financial Highlights for the Registrant's Managed
Income Fund for the fiscal years ended March 31, 1987
through March 31, 1996, Income and Growth Fund for the
period from January 6, 1987 (commencement of
operations) to March 31, 1987 and for the fiscal years
ended March 31, 1988 through March 31, 1996, Equity
Fund for the fiscal years ended March 31, 1987 through
March 31, 1996, Money Fund and Government Money Fund
for the fiscal years ended March 31, 1987 through March
31, 1996, International Fund for the period from July
21, 1987 (commencement of operations) to March 31, 1988
and for the fiscal years ended March 31, 1989 through
March 31, 1996, Treasury Money Fund for the period from
February 13, 1991 (commencement of operations) to March
31, 1991 and for the fiscal years ended March 31, 1992
through March 31, 1996, and for the Aging of America
Fund, Business & Industrial Restructuring Fund,
Communication & Entertainment Fund, Early Life Cycle
Fund, Environmentally-Related Products & Services Fund,
Global Competitors Fund, Long-Term Supply of Energy
Fund, Productivity Enhancers Fund, Short-Term
Government Securities Fund, Intermediate-Term Managed
Income Fund, Pacific/Asia Fund, Pan European Fund and
Emerging Americas Fund for the period from December 31,
1992 (commencement of operations) to March 31, 1993 and
for the fiscal years ended March 31, 1994 through March
31, 1996.
(2) Included in Part B:
The Registrant's March 31, 1996 Annual Report to
Shareholders has been filed with the Commission and the
financial statements included therein are incorporated
herein by reference.
<PAGE>
(b) Exhibits:
--------
(1) (a) Articles of Incorporation of Registrant dated
August 1, 1984 (1).
(b) Articles Supplementary of Registrant dated October
30, 1985 (3).
(c) Articles Supplementary of Registrant dated
September 30, 1986 (4).
(d) Articles Supplementary of Registrant dated April
10, 1987 (6).
(e) Articles Supplementary of Registrant dated April
27, 1990 (12).
(f) Articles Supplementary of Registrant dated October
26, 1990 (13).
(g) Articles Supplementary of Registrant concerning the
creation of the Treasury Fund (13).
(h) Articles Supplementary of Registrant concerning the
increase of authorized capital stock. (16)
(i) Articles Supplementary of Registrant dated August
31, 1995.
(j) Articles Supplementary of Registrant dated December
28, 1995.
(2) (a) Bylaws of Registrant (1).
(b) Amendment No. 1 to Bylaws of Registrant (3).
(3) None.
(4) (a) Specimen copy of share certificate for Class A
Common Stock of Registrant (3).
(b) Specimen copy of share certificate for Class B
Common Stock of Registrant (3).
(c) Specimen copy of share certificate for Class C
Common Stock of Registrant (3).
(d) Specimen copy of share certificate for Class D
Common Stock of Registrant (3).
(e) Specimen copy of share certificate for Class E
Common Stock of Registrant (4).
(f) Specimen copy of share certificate for Class F
Common Stock of Registrant (5).
(g) Specimen copy of share certificate for Class A
Common Stock - Special Series 1 of Registrant (8).
(h) Specimen copy of share certificate for Class B
Common Stock - Special Series 1 of Registrant (8).
-2-
<PAGE>
(i) Specimen copy of share certificate for Class D
Common Stock - Special Series 1 of Registrant (8).
(j) Specimen copy of share certificate for Class G
Common Stock of Registrant (13).
(k) Specimen copy of share certificate for Class G
Common Stock - Special Series 1 of Registrant (13).
(l) Specimen copy of share certificate for Class H
Common Stock of Registrant. (15)
(m) Specimen copy of share certificate for Class I
Common Stock of Registrant. (15)
(n) Specimen copy of share certificate for Class J
Common Stock of Registrant. (15)
(o) Specimen copy of share certificate for Class K
Common Stock of Registrant. (15)
(p) Specimen copy of share certificate for Class L
Common Stock of Registrant. (15)
(q) Specimen copy of share certificate for Class M
Common Stock of Registrant. (15)
(r) Specimen copy of share certificate for Class N
Common Stock of Registrant. (15)
(s) Specimen copy of share certificate for Class O
Common Stock of Registrant. (15)
(t) Specimen copy of share certificate for Class P
Common Stock of Registrant. (15)
(u) Specimen copy of share certificate for Class Q
Common Stock of Registrant. (15)
(v) Specimen copy of share certificate for Class R
Common Stock of Registrant. (15)
(w) Specimen copy of share certificate for Class S
Common Stock of Registrant. (15)
(x) Specimen copy of share certificate for Class S
Common Stock - Special Series 1 of Registrant. (15)
(y) Specimen copy of share certificate for Class T
Common Stock of Registrant. (15)
(z) Specimen copy of share certificate for Class T
Common Stock - Special Series 1 of Registrant. (15)
(5) (a) Investment Advisory Agreement between Registrant
and United States Trust Company of New York ("U.S. Trust") dated
February 6, 1985 (2).
(b) Amendment No. 1 to Investment Advisory Agreement
between Registrant and U.S. Trust dated February 6, 1985 (10).
-3-
<PAGE>
(c) Investment Advisory Agreement between Registrant
and U.S. Trust dated November 26, 1985 (3).
(d) Amendment No. 1 to Investment Advisory Agreement
between Registrant and U.S. Trust dated November 26, 1985 (10).
(e) Investment Advisory Agreement between Registrant
and U.S. Trust dated December 16, 1986 (5).
(f) Amendment No. 1 to Investment Advisory Agreement
between Registrant and U.S. Trust dated December 16, 1986 (10).
(g) Investment Advisory Agreement between Registrant
and U.S. Trust dated May 27, 1987 (7).
(h) Amendment No. 1 to Investment Advisory Agreement
between Registrant and U.S. Trust dated May 27, 1987 (10).
(i) Sub-Advisory Agreement between U.S. Trust and
Foreign and Colonial Asset Management ("FACAM") dated May 27,
1987 (7).
(j) Investment Advisory Agreement between Registrant
and United States Trust dated February 1, 1991 with respect to
the Treasury Fund (13).
(k) Amendment No. 2 to Investment Advisory Agreement
between Registrant and U.S. Trust dated February 6, 1985 with
respect to Early Life Cycle Fund, Long-Term Supply of Energy
Fund, Productivity Enhancers Fund, Environmentally-Related
Products and Services Fund, Aging of America Fund, Communications
and Entertainment Fund, Business and Industrial Restructuring
Fund, Global Competitors Fund, Emerging Americas Fund,
Pacific/Asia Fund, Pan European Fund, Short-Term Government Fund
and Intermediate-Term Managed Income Fund (17).
(l) Form of Sub-Advisory Agreement between U.S. Trust
and FACAM with respect to Pacific/Asia Fund and Pan European Fund
(16).
(m) Form of Agreement between FACAM and Latin American
Securities Limited with respect to the Emerging Americas Fund
(16).
(n) Form of Interim Sub-Advisory Agreement between U.S.
Trust and FCEML with respect to the Emerging Americas Fund and
the Pacific/Asia Fund dated July 1, 1993 (18).
(o) Form of Sub-Advisory Agreement between U.S. Trust
and FCEML with respect to the Emerging Americas Fund and
Pacific/Asia Fund (18).
(6) (a) Distribution Agreement dated August 1, 1995 between
Registrant and Edgewood Services, Inc.
-4-
<PAGE>
(7) None.
(8) (a) Custody and Transfer Agency Agreement between
Registrant and U.S. Trust, Amended and Restated as of November 1,
1987 (7).
(b) International Custodian Agreement between U.S.
Trust and Morgan Stanley Trust Company dated December 15, 1989.
(15)
(c) Amendment No. 1 dated December 18, 1989 to the
Amended and Restated Custody and Transfer Agency Agreement
between Registrant and U.S. Trust dated November 1, 1987 (10).
(d) Amendment No. 2 to Custody and Transfer Agency
Agreement between Registrant and U.S. Trust with respect to Early
Life Cycle Fund, Long-Term Supply of Energy Fund, Productivity
Enhancers Fund, Environmentally-Related Products and Services
Fund, Aging of America Fund, Communications and Entertainment
Fund, Business and Industrial Restructuring Fund, Global
Competitors Fund, Emerging Americas Fund, Pacific/Asia Fund, Pan
European Fund, Short-Term Government Fund and Intermediate-Term
Managed Income Fund (17).
(g) Custody Agreement between Registrant and The Chase
Manhattan Bank, N.A. dated September 1, 1995.
(9) (a) Form of Amended and Restated Administrative
Services Plan and Related Form of Shareholder Servicing
Agreement.
(b) Administration Agreement among Registrant, Chase
Global Funds Services Company, Federated Administrative Services
and United States Trust Company of New York dated January 1,
1996.
-5-
<PAGE>
Filed with the SEC as part of Registrant's Rule 24f-2 Notice.
(10) (a) Opinion of counsel./1/
(b) Opinion of counsel.
(11) (a) Consent of Ernst & Young LLP.
(b) Consent of Drinker Biddle & Reath.
(12) None.
(13) (a) Purchase Agreement between Registrant and Shearson
Lehman Brothers Inc. dated February 6, 1985 (2).
(b) Purchase Agreement between Registrant and UST
Distributors, Inc. dated December 29, 1992 (17).
(c) Purchase Agreement between Registrant and
Edgewood Services, Inc. dated November 17, 1995.
(14) None.
(15) Amended and Restated Distribution Plan and Related Form
of Distribution Agreement.
(16) (a) Schedule for computation of performance quotation
(14).
(b) Schedule for computation of performance quotation
(17).
(17)(a) Financial Data Schedule as of March 31, 1996 for the
Money Fund.
(b) Financial Data Schedule as of March 31, 1996 for the
Government Money Fund.
(c) Financial Data Schedule as of March 31, 1996 for the
Equity Fund.
(d) Financial Data Schedule as of March 31, 1996 for the
Managed Income Fund.
(e) Financial Data Schedule as of March 31, 1996 for the
Income and Growth Fund.
(f) Financial Data Schedule as of March 31, 1996 for the
International Fund.
(g) Financial Data Schedule as of March 31, 1996 for the
Treasury Money Fund.
(h) Financial Data Schedule as of March 31, 1996 for the
Early Life Cycle Fund.
/1/ Filed with the SEC as part of Registrant's Rule 24f-2 Notice.
-6-
<PAGE>
(i) Financial Data Schedule as of March 31, 1996 for the
Long-Term Supply of Energy Fund.
(j) Financial Data Schedule as of March 31, 1996 for the
Productivity Enhancers Fund.
(k) Financial Data Schedule as of March 31, 1996 for the
Environmentally-Related Products and Services Fund.
(l) Financial Data Schedule as of March 31, 1996 for the
Aging of America Fund.
(m) Financial Data Schedule as of March 31, 1996 for the
Communication and Entertainment Fund.
(n) Financial Data Schedule as of March 31, 1996 for the
Business and Industrial Restructuring Fund.
(o) Financial Data Schedule as of March 31, 1996 for the
Global Competitors Fund.
(p) Financial Data Schedule as of March 31, 1996 for the
Emerging Americas Fund.
(q) Financial Data Schedule as of March 31, 1996 for the
Pacific/Asia Fund.
(r) Financial Data Schedule as of March 31, 1996 for the
Pan European Fund.
(s) Financial Data Schedule as of March 31, 1996 for the
Short-Term Government Securities Fund.
(t) Financial Data Schedule as of March 31, 1996 for the
Intermediate-Term Managed Income Fund.
(18) Plan pursuant to Rule 18f-3 for Operation of a Multi-Class System.
(1) Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed August 8, 1984.
(2) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 1 to its Registration Statement on Form N-1A filed October 30, 1985.
-7-
<PAGE>
(3) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 2 to its Registration Statement on Form N-1A filed June 6, 1986.
(4) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 3 to its Registration Statement on Form N-1A filed October 17, 1986.
(5) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 4 to its Registration Statement on Form N-1A filed March 19, 1987.
(6) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 5 to its Registration Statement on Form N-1A filed July 23, 1987.
(7) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 6 to its Registration Statement on Form N-1A filed July 29, 1988.
(8) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 7 to its Registration Statement on Form N-1A filed November 1, 1988.
(9) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 8 to its Registration Statement on Form N-1A filed June 2, 1989.
(10) Incorporated herein by reference to Registrant's and UST Master Tax-Exempt
Funds, Inc.'s ("Master T/E Fund") joint Post-Effective Amendments Nos. 9
and 7, respectively, to their Registration Statements on Form N-1A filed
March 12, 1990.
(11) Incorporated herein by reference to Registrant's and Master T/E Fund's
joint Post-Effective Amendments Nos. 10 and 8, respectively, to their
Registration Statements on Form N-1A filed July 27, 1990.
(12) Incorporated herein by reference to Registrant's and Master T/E Fund's
joint Post-Effective Amendments Nos. 11 and 9, respectively, to their
Registration Statements on Form N-1A filed December 7, 1990.
(13) Incorporated herein by reference to Registrant's and Master T/E Fund's
joint Post-Effective Amendments Nos. 12 and 10, respectively, to their
Registration Statements on Form N-1A filed May 31, 1991.
(14) Incorporated herein by reference to Registrant's and Master T/E Fund's
joint Post-Effective Amendments Nos. 13 and 11, respectively, to their
Registrant Statements on Form N-1A filed August 1, 1991.
(15) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 15 to its Registration Statement on Form N-1A filed October 29, 1992.
(16) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 16 to its Registration Statement on Form N-1A filed December 24, 1992.
(17) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 17 to its Registration Statement on Form N-1A filed August 2, 1993.
-8-
<PAGE>
(18) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 18 to its Registration Statement on Form N-1A filed December 27, 1993.
(19) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 21 to its Registration Statement on Form N-1A filed August 1, 1995.
Item 25. Persons Controlled By or Under
Common Control with Registrant
------------------------------
Registrant is controlled by its Board of Directors.
Item 26. Number of Holders of Securities
-------------------------------
The following information is as of July 15, 1996:
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Class A Common Stock 1,903
Class B Common Stock 778
Class C Common Stock 3,467
Class D Common Stock 1,519
Class E Common Stock 2,246
Class F Common Stock 1,170
Class G Common Stock 247
Class H Common Stock 1,070
Class I Common Stock 271
Class J Common Stock 315
Class K Common Stock 114
Class L Common Stock 328
Class M Common Stock 796
Class N Common Stock 822
Class O Common Stock 482
Class P Common Stock 714
Class Q Common Stock 801
Class R Common Stock 365
Class S Common Stock 160
Class T Common Stock 475
</TABLE>
Item 27. Indemnification
---------------
Article VII, Section 3 of Registrant's Articles of Incorporation,
incorporated by reference as Exhibit (1)(a) hereto, and Article VI, Section 2 of
Registrant's Bylaws, incorporated by reference as Exhibits (2)(a) hereto,
provide for the indemnification of Registrant's directors and officers.
Indemnification of Registrant's principal underwriter, custodian, and transfer
agent is provided for, respectively, in Section 1.12 of the Distribution
Agreement incorporated by reference as Exhibit (6) hereto and Sections 26 and 27
of the Custody and Transfer Agency Agreement, incorporated by reference as
Exhibit (8)(a) hereto. Registrant has obtained from a major insurance carrier a
directors' and officers' liability policy covering certain types of errors and
omissions. In no event will Registrant indemnify any of its directors,
officers, employees, or agents against any liability to which such person would
otherwise be subject by reason of his willful misfeasance, bad faith, gross
negligence in the performance of his duties, or by reason of his reckless
disregard of the duties involved in the conduct of his office or arising under
his agreement with Registrant. Registrant will comply with Rule 484 under the
Securities Act of 1933 and Release No. 11330 under the Investment Company Act of
1940 in connection with any indemnification.
-9-
<PAGE>
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a director, officer, or controlling person of Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
(a) United States Trust Company of New York.
United States Trust Company of New York ("U.S. Trust") is a full-
service state-chartered bank located in New York, New York. Set forth below are
the names and principal businesses of the trustees and certain senior executive
officers of U.S. Trust, including those who are engaged in any other business,
profession, vocation, or employment of a substantial nature.
Position
with U.S. Principal Type of
Trust Name Occupation Business
- --------- ---- ---------- --------
Director Eleanor Baum Dean of School Academic
Cooper Union for the of Engineering
Advancement of Science
and Art
51 Astor Place
New York, NY 10003
Director Samuel C. Butler Partner in Cravath, Law Firm
Cravath, Swaine Swaine & Moore
& Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Director Peter O. Crisp Chairman Venture
Venrock Inc. Capital
Room 5600
30 Rockefeller Plaza
New York, NY 10112
Director Antonia M. Grumbach Partner in Patter- Law Firm
Patterson, Belknap, son, Belknap, Webb
Webb & Tyler & Tyler
1133 Avenue of the
Americas
New York, NY 10036
-10-
<PAGE>
Position
with U.S. Principal Type of
Trust Name Occupation Business
- --------- ---- ---------- --------
Director, H. Marshall Schwarz Chairman of the Bank
Chairman of United States Trust Board & Chief Exe-
the Board Co. of New York cutive Officer of
and Chief 114 West 47th Street U.S. Trust Corp. and
Executive New York, NY 10036 U.S. Trust Company of
Officer N.Y.
Director Philippe de Montebello Director of the Art Museum
Metropolitan Museum of Metropolitan
Art Museum of Art
1000 Fifth Avenue
New York, NY 10028-0198
-11-
<PAGE>
Position
with U.S. Principal Type of
Trust Name Occupation Business
- --------- ---- ---------- --------
Director Paul W. Douglas Retired Executive Coal Mining,
250 Park Avenue Transportation
Room 1900 and Security
New York, NY 10177 Services
Director Frederic C. Hamilton Chairman of the Investment and
The Hamilton Companies Board Venture Capital
1560 Broadway
Suite 2000
Denver, CO 80202
Director John H. Stookey
Landmark Volunteers
749 A Main Street
Route 7, Box 455
Sheffield, MA 01257
Director Robert N. Wilson Vice Chairman of Health Care
Johnson & Johnson the Board of Johnson Products
One Johnson & & Johnson
Johnson Plaza
New Brunswick, NJ 08933
Director Peter L. Malkin Chairman of Wein, Law Firm
Wein, Malkin & Bettex Malkin & Bettex
Lincoln Building
60 East 42nd Street
New York, NY 10165
Director Richard F. Tucker Retired-Mobil Petroleum and
11 Over Rock Lane Oil Corporation Chemicals
Westport, CT 06880
Director Carroll L. Wainright, Consulting Partner Law Firm
Jr. of Milbank, Tweed,
Milbank, Tweed, Hadley Hadley & McCloy
& McCloy
One Chase Manhattan
Plaza
New York, NY 10005
Director Ruth A. Wooden President and Not for
The Advertising CEO Profit Public
Council, Inc. Service
261 Madison Avenue Advertising
11th Floor
New York, NY 10016
-12-
<PAGE>
Position
with U.S. Principal Type of
Trust Name Occupation Business
- --------- ---- ---------- --------
Trustee/ Frederick B. Taylor Vice Chairman and Bank
Director, United States Trust Chief Investment Of-
Vice Chair- Company of New York ficer of U.S. Trust
man and 114 West 47th Street Corporation and United
Chief Invest- New York, NY 10036 States Trust Company
ment Officer of New York
Trustee/ Jeffrey S. Maurer President of U.S. Bank
Director and United States Trust Trust Corporation and
President Company of New York United States Trust
114 West 47th Street Company of New York
New York, NY 10036
Trustee/ Daniel P. Davison Chairman, Christie, Fine Art
Director Christie, Manson Manson & Woods Auctioneer
& Woods International, International, Inc.
Inc.
502 Park Avenue
New York, NY 10021
Trustee/ Orson D. Munn Chairman and Investment
Director Munn, Bernhard & Director of Munn, Advisory
Associates, Inc. Bernhard & Asso- Firm
6 East 43rd Street ciates, Inc.
28th Floor
New York, NY 10017
Trustee/ Philip L. Smith Corporate Director and
Director P.O. Box 386 Trustee
Ponte Verde Beach, FL 32004
-13-
<PAGE>
(b) Investment Sub-Adviser - Foreign and Colonial Asset Management.
Foreign and Colonial Asset Management ("FACAM") serves as sub-adviser
with respect to the International Fund the Emerging Americas Fund and the Pan
European Fund. FACAM is a New York partnership registered with the SEC under
the Investment Advisers Act of 1940. Set forth below are the names and
principal businesses of each senior executive officer of FACAM, including those
who are engaged in any other business, profession, vocation or employment of a
substantial nature.
<TABLE>
<CAPTION>
Position
with Principal Type of
FACAM/1/ Name Occupation Business
- ---------- ---- ---------- ----------
<S> <C> <C> <C>
Simon James Director, Foreign and Investment
Exchange House Colonial Management Adviser
Primrose Street,
London, England
EC2A 2NY
Oliver N. Dawson Chief Investment Investment
Exchange House Officer of Adviser
Primrose Street, Foreign &
London, England Colonial Management
EC2A 2NY Limited
Harry C. Rowney Senior Vice President Bank
114 W. 47th Street of United States
New York, NY 10036 Trust Company of New
York
Hon. James D. D. Ogilvy Chief Executive of Investment
Exchange House Foreign & Colonial Adviser
Primrose Street, Management Limited
London, England
EC2A 2NY
Managing Steve Darby Executive Vice Bank
Director 114 W. 47th Street President of U.S.
New York, NY 10036 Trust Company of
New York
Paul K. Napoli Executive Vice Bank
114 W. 47th Street President of United
New York, NY 10036 States Trust Company
of New York
Chairman Jeffrey S. Maurer President of Bank
114 W. 47th Street United States
New York, NY 10036 Trust Company
of New York
Director Audley Twiston Davies Director of Investment
Exhange House Foreign and Adviser
Primrose Street Colonial
London EC2A 2NY Management
Ltd.
</TABLE>
- -------------------------------------
1. All individuals listed above are members of FACAM's investment committee
that determines general investment advice to be given to clients.
-14-
<PAGE>
(c) Investment Sub-Adviser - Foreign & Colonial Emerging Markets
Limited ("FCEML").
Foreign & Colonial Emerging Markets Limited ("FCEML") serves as sub-
adviser with respect to the Emerging Americas Fund and Pacific/Asia Fund. FCEML
is a joint venture between Foreign & Colonial Management Limited in London and
Banco de Investimentos Garantia in Sao Paulo. Set forth below are the names and
principal businesses of the executive and non-executive directors of FCEML,
including those who are engaged in any other business, profession, vocation or
employment of a substantial nature.
<TABLE>
<CAPTION>
Position Type of
with FCEML Name Principal Occupation Business
- ------------ ---- -------------------- ------------------
<S> <C> <C> <C>
Director Tobias Cepelowicz Director, Petroserv SA
Av. Almirante Barroso
52/7th
20031 Rio de Janeiro
Director Mailson Ferreira de Director of an economic
Nobrega consultancy firm in
Exchange House Brazil
Primrose Street
London EC2A 2NY
Director Juan Carlos Iarezza Head of Corporate Bank
Esmerelda 130 Finance, Banco
(1035) Buenos Aires General de Negocios
Director Jorge Esteban Kalledey Vice President
25 de Mayo 367 Bolsa de Comercio
8th/9th Floor de Buenos Aires
1002 Buenos Aires
Director Roberto Hernandez Chairman,
Ramirez Acciones y
Casa de Bolsa Valores de
Paseo de la Reforma Mexico SA de CV
398 CP 06600 Mexico DF
Director Lorenzo H. Zambrano President,
Avenida Constitucion Cemex SA
444 Pte.
Apartado Postal 392
CP 64000, NL, Mexico
Managing Audley Twiston Davies Director of Investment Adviser
Director Exchange House Foreign & Colonial
Primrose Street Management Ltd.
London EC2A 2NY
Chief Arnab Banerji
Investment
Officer
Chairman Fred Arthur Partner, Banco de Bank
Rank Packard Investimentos
Garantia
Director Jean De Bolle
Director Humphrey Carey
Director Kevin Smith
Director Jeff Chowdhry
Director Scott Delman
Director Emily McLaughlin
Director Helene Williamson
</TABLE>
-15-
<PAGE>
Position Type of
with FCEML Name Principal Occupation Business
- ----------- ---- -------------------- --------
Executive Eduardo C. G. de Faria
Director Exchange House
Primrose Street
London EC2A 2NY
Executive Marc Wenhammar
Director Exchange House
Primrose Street
London EC2A 2NY
Item 29. Principal Underwriter
---------------------
(a) Edgewood Services, Inc. (the "Distributor") currently serves as
distributor for Registrant and acts as principal underwriter or distributor for
Excelsior Tax-Exempt Funds, Inc. and Excelsior Institutional Trust.
<TABLE>
<CAPTION>
Positions and
(b) Names and Principal Positions and Offices with Offices with
Business Addresses Edgewood Services, Inc. Registrant
------------------ ----------------------- ----------
<S> <C> <C>
James J. Dolan Trustee and President, -
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
R. Jeffrey Niss Senior Vice President and -
Federated Investors Tower Trustee, Edgewood Services,
Pittsburgh, PA 15222-3779 Inc.
Douglas L. Hein Trustee, -
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Frank E. Polefrone Trustee, -
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Newton Heston, III Vice President, -
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, -
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, -
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Jeannette Fisher-Garber Assistant Secretary, -
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
</TABLE>
-16-
<PAGE>
<TABLE>
<S> <C> <C>
Kenneth W. Pegher, Jr. Treasurer, -
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
</TABLE>
(c) Not Applicable.
Item 30. Location of Accounts and Records
--------------------------------
(1) United States Trust Company of New York, 114 W. 47th Street, New
York, NY 10036 (records relating to its functions as investment adviser,
custodian and transfer agent).
(2) Foreign and Colonial Asset Management, Exchange House, Primrose
Street, London England EC2A 2NY (records relating to its function as sub-adviser
to the International and Pan European Funds).
(3) Foreign & Colonial Emerging Markets Limited, Exchange House,
Primrose Street, London EC2A 2NY (records relating to its function as sub-
adviser to the Emerging Americas and Pacific/Asia Funds).
(4) Edgewood Services, Inc., Clearing Operations, P.O. Box 897,
Pittsburgh, PA 15230-0897 (records relating to its function as distributor).
(5) Chase Global Funds Services Company, 73 Tremont Street, Boston,
Massachusetts 02108-3913; Federated Administrative Services, Inc., Federated
Investors Tower, Pittsburgh, PA 15222-3799; United States Trust Company of New
York, 114 West 47th Street, New York, NY 10036 (records relating to their
functions as administrators and sub-transfer agent).
(6) Drinker Biddle & Reath, Philadelphia National Bank Building, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496 (Registrant's Articles of
Incorporation, Bylaws, and Minute Books).
Item 31. Management Services
-------------------
Inapplicable.
Item 32. Undertakings
------------
Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest available Annual Report to
Shareholders which includes Management's Discussion of Registrant's performance,
upon request and without charge.
-17-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Excelsior Funds, Inc. certifies that it meets
all of the requirements for effectiveness for this Post-Effective Amendment No.
23 to its Registration Statement ("Amendment No. 23") pursuant to Rule 485(b)
under the 1933 Act and has duly caused this Amendment No. 23 to its Registration
Statement on Form N-1A to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York and the State of New York on the 31st
day of July, 1996.
EXCELSIOR FUNDS, INC.
Registrant
/s/ Alfred Tannachion
-----------------------
Alfred Tannachion, President
(Signature and Title)
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 23 to Excelsior Funds, Inc. Registration Statement on
Form N-1A has been signed below by the following persons in the capacities and
on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Alfred Tannachion
- ---------------------
Alfred Tannachion Chairman of the July 31, 1996
Board, President
and Treasurer
/s/ Joseph H. Dugan
- -------------------
Joseph H. Dugan Director July 31, 1996
/s/ Donald L. Campbell
- ----------------------
Donald L. Campbell Director July 31, 1996
/s/ Wolfe J. Frankl
- -------------------
Wolfe J. Frankl Director July 31, 1996
/s/ Robert A. Robinson
- ----------------------
Robert A. Robinson Director July 31, 1996
/s/ Frederick S. Wonham Director July 31, 1996
- -----------------------
Frederick S. Wonham
-18-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description Page No.
- ----------- ----------- --------
(1) (i) Articles Supplementary to Articles
of Incorporation dated August 31,
1995.
(1) (j) Articles Supplementary to Articles of
Incorporation dated December 28, 1995.
(6) (a) Distribution Agreement dated August
1, 1995 between Registrant and
Edgewood Services, Inc.
(8) (g) Custody Agreement between Registrant and
The Chase Manhattan Bank, N.A. dated
September 1, 1995.
(9) (a) Amended and Restated Administrative
Services Plan and Related Form of
Shareholder Servicing Agreement.
(b) Administration Agreement among Registrant,
Chase Global Funds Services Company,
Federated Administrative Services and
United States Trust Company of New York
dated January 1, 1996.
(10) (b) Opinion of Counsel.
(11) (a) Consent of Ernst & Young LLP.
(b) Consent of Drinker Biddle &
Reath.
(13) (c) Purchase Agreement between Registrant and
Edgewood Services, Inc. dated November 17, 1995.
(17) (a) Financial Data Schedule as of
March 31, 1996 for the Money Fund.
(b) Financial Data Schedule as of
March 31, 1996 for the Government
Money Fund.
(c) Financial Data Schedule as of
March 31, 1996 for the Equity Fund.
(d) Financial Data Schedule as of
March 31, 1996 for the Managed
Income Fund.
<PAGE>
(e) Financial Data Schedule as of
March 31, 1996 for the Income and
Growth Fund.
(f) Financial Data Schedule as of
March 31, 1996 for the International
Fund.
(g) Financial Data Schedule as of
March 31, 1996 for the Treasury Money
Fund.
(h) Financial Data Schedule as of
March 31, 1996 for the Early Life
Cycle Fund.
(i) Financial Data Schedule as of
March 31, 1996 for the Long-Term
Supply of Energy Fund.
(j) Financial Data Schedule as of
March 31, 1996 for the Productivity
Enhancers Fund.
(k) Financial Data Schedule as of
March 31, 1996 for the
Environmentally-Related Products and
Services Fund.
(l) Financial Data Schedule as of
March 31, 1996 for the Aging of
America Fund.
(m) Financial Data Schedule as of
March 31, 1996 for the Communication
and Entertainment Fund.
(n) Financial Data Schedule as of
March 31, 1996 for the Business and
Industrial Restructuring Fund.
(o) Financial Data Schedule as of
March 31, 1996 for the Global
Competitors Fund.
(p) Financial Data Schedule as of
March 31, 1996 for the Emerging
Americas Fund.
(q) Financial Data Schedule as of
March 31, 1996 for the Pacific/Asia
Fund.
(r) Financial Data Schedule as of
March 31, 1996 for the Pan European
Fund.
(s) Financial Data Schedule as of
March 31, 1996 for the Short-Term
Government Securities Fund.
<PAGE>
(t) Financial Data Schedule as of
March 31, 1996 for the Intermediate-
Term Managed Income Fund.
(18) Plan pursuant to Rule 18f-3
for Operation of a Multi-Class
System.
<PAGE>
EXHIBIT (1)(i)
UST MASTER FUNDS, INC.
ARTICLES SUPPLEMENTARY
UST Master Funds, Inc., a Maryland Corporation having its principal office
in Maryland in the City of Baltimore (hereinafter called the "Company"), hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to Section 2-208 of the Maryland General Corporation Law,
the Board of Directors of the Company has declassified certain previously
authorized and classified shares:
RESOLVED, that the following authorized and classified shares shall be
declassified, and, subject to the authority of the Board of Directors to
hereafter classify and reclassify such shares, shall no longer represent
interests in any investment portfolio of the Company: Five Hundred Million
(with an aggregate par value of Five Hundred Thousand Dollars ($500,000) of
each of the following Series: Class A Common Stock - Special Series 2;
Class B Common Stock - Special Series 2; Class C Common Stock - Special
Series 2; Class D Common Stock - Special Series 2; Class E Common Stock -
Special Series 2; Class F Common Stock -Special Series 2; Class G Common
Stock - Special Series 2; Class H Common Stock - Special Series 2; Class I
Common Stock - Special Series 2; Class J Common Stock - Special Series 2;
Class K Common Stock - Special Series 2; Class L Common Stock - Special
Series 2; Class M Common Stock -Special Series 2; Class N Common Stock -
Special Series 2; Class O Common Stock - Special Series 2; Class P Common
Stock - Special Series 2; Class Q Common Stock - Special Series 2; Class R
Common Stock - Special Series 2; Class S Common Stock - Special Series 2;
and Class T Common Stock -Special Series 2;
SECOND: Pursuant to Section 2-208 of the Maryland General Corporation Law,
the Board of Directors of the Company has amended and restated the attributes of
all of its Special Series 1 shares, all of them being unissued, of each of
Common Stock Groups A through T:
FURTHER RESOLVED, that all consideration received by the Company for
the issue or sale of all shares of Common Stock with the same alphabetical
designation and all shares of any Special Series of said Common Stock
(irrespective of the particular series designation) (collectively "Common
Stock Group") shall be invested and reinvested with the consideration
received by the Company for the issue and sale of all other shares of that
Common Stock Group, together with all income, earnings, profits and
proceeds thereof,
<PAGE>
including any proceeds derived from the sale, exchange or liquidation
thereof, any funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, and any general assets of the
Company allocated to shares of that Common Stock Group by the Board of
Directors in accordance with the Company's Articles of Incorporation, and
each share of that Common Stock Group shall share equally and with such
other shares in such consideration and other assets, income, earnings,
profits and proceeds thereof, including any proceeds derived from the sale,
exchange or liquidation thereof, and any assets derived from exchange or
liquidation thereof, and any assets derived from any reinvestment of such
proceeds in whatever form, except as may be otherwise provided herein or
determined by the Board of Directors in accordance with applicable law;
FURTHER RESOLVED, that each share in each particular Common Stock
Group shall be charged in proportion to its respective net asset value with
each other share now or hereafter designated as the particular Common Stock
Group (irrespective of whether said share has been designated as part of a
series of said Common Stock Group and, if so designated as a part of a
series, irrespective of the particular series designation) with the
expenses and liabilities of the Company in respect of the Common Stock
Group, and in respect of any general expenses and liabilities of the
Company allocated to the Common Stock Group in accordance with the
Company's Articles of Incorporation except that to the extent permitted by
rule or order of the Securities and Exchange Commission and as may be from
time to time determined by the Board of Directors:
(a) only shares of Class A, B, C, D, E, F, G, H, I, J, K, L, M, N, O,
P, Q, R, S and T Common Stock shall bear all expenses and
liabilities: (1) arising from transfer agency services that are
directly attributable to those shares; and (2) any other
expenses and liabilities which the Board of Directors determines
should be borne solely by such shares;
(b) only shares of Class A, B, C, D, E, F, G, H, I, J, K, L, M, N, O,
P, Q, R, S and T Common Stock -Special Series 1 shall bear all
expenses and liabilities which the Board of Directors determines
should be borne solely by shares of such Special Series;
FURTHER RESOLVED, that in the event of the liquidation or dissolution
of the Company or the liquidation of any particular Common Stock Group (or
series thereof), the stockholders of each affected Common Stock Group (or
series
-2-
<PAGE>
thereof) shall be entitled to receive out of the Company's net assets only
those belonging to the particular Common Stock Group (or attributable to
the series thereof) in accordance with the preceding resolutions and the
Articles of Incorporation of the Company; and
FURTHER RESOLVED, that except as otherwise provided by these
resolutions, each share of a Common Stock Group shall have all the
preferences, conversion and other rights, voting powers, restrictions,
limitations, qualifications and terms and conditions of redemption as set
forth in the Company's Articles of Incorporation and shall also have the
same preferences, conversion and other rights, voting powers, restrictions,
limitations, qualifications and terms and conditions of redemption as each
other share of the particular Common Stock Group, except that: (i) on any
matter that pertains to the expenses and liabilities described in these
resolutions (or to any agreement, plan or other document relating to said
expenses or liabilities) and is submitted to a vote of stockholders, only
shares of the particular class and/or series affected thereby shall be
entitled to vote, except that if such matter affects more than one class or
series, the shares of all other affected classes or series shall also be
entitled to vote, and in such case all shares of affected classes or series
shall be voted in the aggregate without regard to class or series except
where otherwise required by law or permitted by the Board of Directors; and
(ii) if any matter submitted to a vote of the stockholders of the Company
does not affect a particular class or series, shares of such class or
series shall not be entitled to vote (except where required by law or
permitted by the Board of Directors) even though the matter is submitted to
a vote of the holders of shares of other classes or series.
THIRD: These Articles Supplementary do not increase the total number of
shares that the Company is authorized to issue or the aggregate par value
thereof. The shares classified and reclassified pursuant to these Articles
Supplementary have been classified and reclassified by the Company's Board of
Directors under the authority contained in the Charter of the Company.
FOURTH: Immediately following the declassification of Special Series 2
shares set forth in Article FIRST, the Company was authorized to issue Thirty-
Five Billion shares of Common Stock of the par value of One Mill ($0.001) per
share and of the aggregate par value of Thirty-Five Million Dollars
($35,000,000), classified or remaining unclassified as follows:
Class A Common Stock: One Billion Five Hundred Million
--------------------
(1,500,000,000) shares of capital stock of the
-3-
<PAGE>
Company of the par value of One Mill ($0.001) per share and of the
aggregate par value of One Million Five Hundred Thousand Dollars
($1,500,000);
Class A Common Stock -- Special Series 1: One Billion (1,000,000,000)
----------------------------------------
shares of capital stock of the Company of the par value of One Mill
($0.001) per share and of the aggregate par value of One Million Dollars
($1,000,000);
Class B Common Stock: One Billion Five Hundred Million
--------------------
(1,500,000,000) shares of capital stock of the Company of the par value of
One Mill ($0.001) per share and of the aggregate par value of One Million
Five Hundred Thousand Dollars ($1,500,000);
Class B Common Stock -- Special Series 1: One Billion (1,000,000,000)
----------------------------------------
shares of capital stock of the Company of the par value of One Mill
($0.001) per share and of the aggregate par value of One Million Dollars
($1,000,000);
Class C Common Stock: Three Hundred Seventy Five Million
--------------------
(375,000,000) shares of capital stock of the Company of the par value of
One Mill ($0.001) per share and of the aggregate par value of Three Hundred
Seventy Five Thousand Dollars ($375,000);
Class C Common Stock -- Special Series 1: Five Hundred Million
----------------------------------------
(500,000,000) shares of capital stock of the Company of the par value of
One Mill ($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
Class D Common Stock: Three Hundred Seventy Five Million
--------------------
(375,000,000) shares of capital stock of the Company of the par value of
One Mill ($0.001) per share and of the aggregate par value of Three Hundred
Seventy Five Thousand Dollars ($375,000);
Class D Common Stock -- Special Series 1: Three Hundred Seventy Five
----------------------------------------
Million (375,000,000) shares of capital stock of the Company of the par
value of One Mill ($0.001) per share and of the aggregate par value of
Three Hundred Seventy Five Thousand Dollars ($375,000);
Class E Common Stock: Three Hundred Seventy Five Million
--------------------
(375,000,000) shares of capital stock of the Company of the par value of
One Mill ($0.001) per share and of the aggregate par value of Three Hundred
Seventy Five Thousand Dollars ($375,000);
-4-
<PAGE>
Class E Common Stock -- Special Series 1: Five Hundred Million
----------------------------------------
(500,000,000) shares of capital stock of the Company of the par value of
One Mill ($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
Class F Common Stock: Three Hundred Seventy Five Million
--------------------
(375,000,000) shares of capital stock of the Company of the par value of
One Mill ($0.001) per share and of the aggregate par value of Three Hundred
Seventy Five Thousand Dollars ($375,000);
Class F Common Stock -- Special Series 1: Five Hundred Million
----------------------------------------
(500,000,000) shares of capital stock of the Company of the par value of
One Mill ($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
Class G Common Stock: Five Hundred Million (500,000,000) shares of
--------------------
capital stock of the Company of the par value of One Mill ($0.001) per
share and of the aggregate par value of Five Hundred Thousand Dollars
($500,000);
Class G Common Stock -- Special Series 1: Five Hundred Million
----------------------------------------
(500,000,000) shares of capital stock of the Company of the par value of
One Mill ($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
Class H Common Stock: Five Hundred Million (500,000,000) shares of
--------------------
capital stock of the Company of the par value of One Mill ($0.001) per
share and of the aggregate par value of Five Hundred Thousand Dollars
($500,000);
Class H Common Stock -- Special Series 1: Five Hundred Million
----------------------------------------
(500,000,000) shares of capital stock of the Company of the par value of
One Mill ($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
Class I Common Stock: Five Hundred Million (500,000,000) shares of
--------------------
capital stock of the Company of the par value of One Mill ($0.001) per
share and of the aggregate par value of Five Hundred Thousand Dollars
($500,000);
Class I Common Stock -- Special Series 1: Five Hundred Million
----------------------------------------
(500,000,000) shares of capital stock of the Company of the par value of
One Mill ($0.001) per share and
-5-
<PAGE>
of the aggregate par value of Five Hundred Thousand Dollars ($500,000);
Class J Common Stock: Five Hundred Million (500,000,000) shares of
--------------------
capital stock of the Company of the par value of One Mill ($0.001) per
share and of the aggregate par value of Five Hundred Thousand Dollars
($500,000);
Class J Common Stock -- Special Series 1: Five Hundred Million
----------------------------------------
(500,000,000) shares of capital stock of the Company of the par value of
One Mill ($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
Class K Common Stock: Five Hundred Million (500,000,000) shares of
--------------------
capital stock of the Company of the par value of One Mill ($0.001) per
share and of the aggregate par value of Five Hundred Thousand Dollars
($500,000);
Class K Common Stock -- Special Series 1: Five Hundred Million
----------------------------------------
(500,000,000) shares of capital stock of the Company of the par value of
One Mill ($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
Class L Common Stock: Five Hundred Million (500,000,000) shares of
--------------------
capital stock of the Company of the par value of One Mill ($0.001) per
share and of the aggregate par value of Five Hundred Thousand Dollars
($500,000);
Class L Common Stock -- Special Series 1: Five Hundred Million
----------------------------------------
(500,000,000) shares of capital stock of the Company of the par value of
One Mill ($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
Class M Common Stock: Five Hundred Million (500,000,000) shares of
--------------------
capital stock of the Company of the par value of One Mill ($0.001) per
share and of the aggregate par value of Five Hundred Thousand Dollars
($500,000);
Class M Common Stock -- Special Series 1: Five Hundred Million
----------------------------------------
(500,000,000) shares of capital stock of the Company of the par value of
One Mill ($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
-6-
<PAGE>
Class N Common Stock: Five Hundred Million (500,000,000) shares of
--------------------
capital stock of the Company of the par value of One Mill ($0.001) per
share and of the aggregate par value of Five Hundred Thousand Dollars
($500,000);
Class N Common Stock -- Special Series 1: Five Hundred Million
----------------------------------------
(500,000,000) shares of capital stock of the Company of the par value of
One Mill ($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
Class O Common Stock: Five Hundred Million (500,000,000) shares of
--------------------
capital stock of the Company of the par value of One Mill ($0.001) per
share and of the aggregate par value of Five Hundred Thousand Dollars
($500,000);
Class O Common Stock -- Special Series 1: Five Hundred Million
----------------------------------------
(500,000,000) shares of capital stock of the Company of the par value of
One Mill ($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
Class P Common Stock: Five Hundred Million (500,000,000) shares of
--------------------
capital stock of the Company of the par value of One Mill ($0.001) per
share and of the aggregate par value of Five Hundred Thousand Dollars
($500,000);
Class P Common Stock -- Special Series 1: Five Hundred Million
----------------------------------------
(500,000,000) shares of capital stock of the Company of the par value of
One Mill ($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
Class Q Common Stock: Five Hundred Million (500,000,000) shares of
--------------------
capital stock of the Company of the par value of One Mill ($0.001) per
share and of the aggregate par value of Five Hundred Thousand Dollars
($500,000);
Class Q Common Stock -- Special Series 1: Five Hundred Million
----------------------------------------
(500,000,000) shares of capital stock of the Company of the par value of
One Mill ($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
Class R Common Stock: Five Hundred Million (500,000,000) shares of
--------------------
capital stock of the Company of the par value of One Mill ($0.001) per
share and of the
-7-
<PAGE>
aggregate par value of Five Hundred Thousand Dollars ($500,000);
Class R Common Stock -- Special Series 1: Five Hundred Million
----------------------------------------
(500,000,000) shares of capital stock of the Company of the par value of
One Mill ($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
Class S Common Stock: Five Hundred Million (500,000,000) shares of
--------------------
capital stock of the Company of the par value of One Mill ($0.001) per
share and of the aggregate par value of Five Hundred Thousand Dollars
($500,000);
Class S Common Stock -- Special Series 1: Five Hundred Million
----------------------------------------
(500,000,000) shares of capital stock of the Company of the par value of
One Mill ($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
Class T Common Stock: Five Hundred Million (500,000,000) shares of
--------------------
capital stock of the Company of the par value of One Mill ($0.001) per
share and of the aggregate par value of Five Hundred Thousand Dollars
($500,000); and
Class T Common Stock -- Special Series 1: Five Hundred Million
----------------------------------------
(500,000,000) shares of capital stock of the Company of the par value of
One Mill ($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000).
The total number of authorized and unclassified shares of capital
stock of the Company remaining after the actions described above is Twelve
Billion Six Hundred Twenty-Five Million (12,625,000,000) shares of capital stock
of the par value of One Mill ($0.001) per share and of the aggregate par value
of Twelve Million Six Hundred Twenty-Five Thousand Dollars ($12,625,000).
IN WITNESS WHEREOF, UST Master Funds, Inc. has caused these presents to be
signed in its name and on its behalf by its President and its Corporate Seal to
be herewith affixed and attested to by its Secretary as of August 29, 1995.
[SEAL] UST MASTER FUNDS, INC.
Attest:
/s/ W. Bruce McConnel, III By: /s/ Alfred Tannachion
- -------------------------- ---------------------
W. Bruce McConnel, III Alfred Tannachion,
Secretary President
-8-
<PAGE>
CERTIFICATE
THE UNDERSIGNED, President of UST MASTER FUNDS, INC., who executed on
behalf of said Corporation the attached Articles Supplementary of said
Corporation, of which this Certificate is made a part, hereby acknowledges, in
the name and on behalf of said Corporation, the attached Articles Supplementary
to be the corporate act of said Corporation, and certifies that to the best of
his knowledge, information and belief the matters and facts set forth in the
attached Articles Supplementary with respect to authorization and approval are
true in all material respects, under the penalties for perjury.
/s/ Alfred Tannachion
---------------------
Alfred Tannachion
President
Dated as of: August 29, 1995
<PAGE>
EXHIBIT (1)(j)
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
UST MASTER FUNDS, INC.
UST MASTER FUNDS, INC., a Maryland Corporation, having its principal office
in Maryland in the City of Baltimore (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The Articles of Incorporation of the Corporation are hereby amended
as follows:
By striking out Article II of the Articles of Incorporation in its entirety
and inserting in lieu thereof the following:
"The name of the Corporation is:
EXCELSIOR FUNDS, INC."
SECOND: The foregoing amendment to the Articles of Incorporation has been
duly approved by a majority of the entire Board of Directors of the Corporation.
The amendment is limited to a change expressly permitted to be made without
action of the stockholders under Section 2-605 of the Maryland General
Corporation Law and the Corporation is an open-end company under the Investment
Company Act of 1940.
THIRD: The Articles of Amendment will become effective at 12:01 a.m. on
January 1, 1996.
IN WITNESS WHEREOF, UST MASTER FUNDS, INC. has caused these presents to be
signed in its name and on its behalf by its
<PAGE>
President and its corporate seal to be hereunto affixed and attested by its
Secretary on this ____ day of December, 1995.
(SEAL)
ATTEST:
UST MASTER FUNDS, INC.
By: /s/ Alfred Tannachion
---------------------
Alfred Tannachion
President
/s/ W. Bruce McConnel, III
- --------------------------
W. Bruce McConnel, III,
Secretary
-2-
<PAGE>
CERTIFICATE
-----------
THE UNDERSIGNED, President of UST MASTER FUNDS, INC., who executed on
behalf of said Corporation the foregoing Articles of Amendment, of which this
certificate is made a part, hereby acknowledges, in the name and on behalf of
said Corporation, the foregoing Articles of Amendment to be the corporate act of
said Corporation and certifies that, to the best of his knowledge, information
and belief, the matters and facts set forth in the attached Articles of
Amendment with respect to authorization and approval are true in all material
respects, under the penalties of perjury.
/s/ Alfred Tannachion
---------------------
Alfred Tannachion
President
Date: December 27, 1995
<PAGE>
EXHIBIT (6)(a)
DISTRIBUTION CONTRACT
Edgewood Services, Inc.
Clearing Operations
P.O. Box 897
Pittsburgh, Pennsylvania 15230-0897
Gentlemen:
This is to confirm that, in consideration of the agreements hereinafter
contained, the undersigned, UST MASTER FUNDS, INC. (the "Company"), a Maryland
corporation, has agreed that EDGEWOOD SERVICES, INC. (the "Distributor"), a
subsidiary of Federated Investors ("Federated"), shall be, for the period of
this Contract, a distributor of shares (the "Shares") of the Company's Common
Stock of one or more classes and series representing interests in the Company's
investment portfolios (individually, a "Fund," collectively, "Funds"), as
described and set forth on one or more exhibits to this Contract. In the event
that the Company establishes one or more additional investment portfolios other
than the Funds with respect to which it decides to retain the Distributor to act
as a distributor hereunder, the Company shall so notify the Distributor in
writing. If the Distributor is willing to render such services to a new
investment portfolio, it will notify the Company in writing whereupon such
investment portfolio will become a Fund under this Contract.
1. Services as Distributor.
-----------------------
1.1 The Distributor will act as agent for the distribution of Shares
in accordance with the instructions of the Company's Board of Directors and the
Company's registration statement and prospectuses then in effect under the
Securities Act of 1933, as amended, and will transmit promptly any orders
received by it for the purchase or redemption of Shares to the Company's
transfer agent or to any qualified broker/dealer for transmittal to said agent.
1.2 The Distributor agrees to use its best efforts to solicit orders
for the sale of Shares and will undertake such advertising and promotion as it
believes appropriate in connection with such solicitation. The Company
understands that the Distributor may in the future be the distributor of shares
of other investment company portfolios ("Portfolios") including Portfolios
having investment objectives similar to those of the Funds. The Company further
understands that existing and future investors in the Funds may invest in shares
of such other Portfolios. The Company agrees that the Distributor's duties to
such Portfolios shall not be deemed in conflict with its duties to the Company
under this Paragraph 1.2.
<PAGE>
1.3 Except to the extent that any plan adopted by the Company
pursuant to Rule 12b-1 under the Investment Company Act of 1940 provides
otherwise, the Distributor shall, at its own expense, finance such activities as
it deems reasonable and which are primarily intended to result in the sale of
Shares, including, but not limited to, advertising, compensation of
underwriters, dealers and sales personnel, the printing and mailing of
prospectuses to other than current shareholders, and the printing and mailing of
sales literature. In addition, the Distributor will provide one or more
persons, during normal business hours, to respond to telephone questions with
respect to the Funds. It is contemplated that the Distributor will enter into
selling agreements with qualified broker/dealers and other persons with respect
to the offering of Shares to the public, and in so doing will act only on its
own behalf as principal.
1.4 All Shares offered for sale by the Distributor shall be offered
for sale to the public at a price per share (the "offering price") equal to (a)
their net asset value (determined in the manner set forth in the Company's
charter documents and the then current prospectus) plus, except to those classes
of persons or transactions described in the then current Prospectus, (b) a sales
charge which shall be the percentage of the offering price of such Shares as set
forth in the Company's then current prospectus. The offering price, if not an
exact multiple of one cent, shall be adjusted to the nearest cent. Concessions
by the Distributor to broker/dealers and other persons shall be set forth in
either the selling agreements between the Distributor and such broker/dealers
and persons, as from time to time amended, or if such concessions are described
in the Company's then current prospectus, shall be as so set forth. No
broker/dealer or other person who enters into a selling agreement with the
Distributor shall be authorized to act as agent for the Company in connection
with the offering or sale of the Shares to the public or otherwise.
1.5 If any Shares sold by the Company are redeemed or repurchased by
the Company or by the Distributor as agent or are tendered for redemption within
seven business days after the date of confirmation of the original purchase of
said Shares, the Distributor shall forfeit the amount above the net asset value
received by the Distributor in respect of such Shares, provided that the
portion, if any, of such amount re-allowed by the Distributor to broker/dealers
or other persons shall be repayable to the Company only to the extent recovered
by the Distributor from the broker/dealer or other person involved. The
Distributor shall include in each selling agreement with such broker/dealers and
other persons a corresponding provision for the forfeiture by them of their
concession with respect to Shares sold by them or their principals and redeemed
or repurchased by the Company or by the Distributor as agent (or tendered for
redemption) within
-2-
<PAGE>
seven business days after the date of confirmation of such initial purchases.
1.6 All activities by the Distributor and its agents and employees as
distributor of Shares shall comply with all applicable laws, rules and
regulations, including, without limitation, all rules and regulations made or
adopted pursuant to the Investment Company Act of 1940 by the Securities and
Exchange Commission or any securities association registered under the
Securities Exchange Act of 1934.
1.7 Whenever in their judgment such action is warranted by unusual
market, economic or political conditions, or by abnormal circumstances of any
kind, the Company's officers may decline to accept any orders for or make any
sales of Shares until such time as those officers deem it advisable to accept
such orders and to make such sales.
1.8 The Company agrees at its own expense to execute any and all
documents and to furnish any and all information and otherwise to take all
actions that may be reasonably necessary in connection with the qualification of
Shares for sale in such states as the Company may approve, and the Company shall
pay all fees and other expenses incurred in connection with such qualification.
The Distributor agrees to pay all expenses related to its own qualification as a
broker or dealer required by any federal or state law or self-regulatory
organization and, except as otherwise specifically provided in this Contract,
all other expenses incurred by the Distributor in connection with the offering
of Shares as contemplated by this Contract.
1.9 The Company shall timely furnish from time to time, for use in
connection with the sale of Shares, such information with respect to the Funds
and Shares as the Distributor may reasonably request; and the Company warrants
that the statements contained in any such information shall fairly show or
represent what they purport to show or represent. The Company shall also
furnish the Distributor upon request with: (a) audited annual and unaudited
semi-annual statements of the Company's books and accounts with respect to each
Fund, and, (b) from time to time such additional information regarding the
Funds' financial condition as the Distributor may reasonably request.
1.10 The Company represents to the Distributor that all registration
statements and prospectuses filed by the Company with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, with respect
to Shares have been prepared in conformity with the requirements of said Act and
rules and regulations of the Securities and Exchange Commission thereunder. As
used in this Contract, the terms "registration statement" and "prospectus" shall
mean any registration
-3-
<PAGE>
statement, prospectus (together with the related statement of additional
information) filed with respect to Shares with the Securities and Exchange
Commission, and any amendments and supplements thereto which at any time shall
have been filed with said Commission. The Company represents and warrants to
the Distributor that any registration statement and prospectus, when such become
effective, will contain all statements required to be stated therein in
conformity with said Act and the rules and regulations of said Commission; that
all statements of fact contained in any such registration statement and
prospectus will be true and correct when such registration statement and
prospectus become effective; and that neither any registration statement nor any
prospectus, when they become effective, will include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading to a purchaser of
Shares. The Company may but shall not be obligated to propose from time to time
such amendment or amendments to any registration statement and such supplement
or supplements to any prospectus which, in the light of future developments,
may, in the opinion of the Company's counsel, be necessary or advisable. The
Company shall promptly notify the Distributor of any advice given to it by the
Company's counsel regarding the necessity or advisability so to amend or
supplement such registration statement or prospectus. If the Company shall not
propose such amendment or amendments and/or supplement or supplements within
fifteen days after receipt by the Company of a written request from the
Distributor to do so, the Distributor may, at its option, terminate this
Contract. The Company shall not file any amendment to any registration
statement or supplement to any prospectus without giving the Distributor
reasonable notice thereof in advance; provided, however, that nothing contained
in this Contract shall in any way limit the Company's right to file at any time
such amendments to any registration statements and/or supplements to any
prospectus, of whatever character, as the Company may deem advisable, such right
being in all respects absolute and unconditional.
1.11 The Company authorizes the Distributor and dealers to use any
prospectus in the form furnished from time to time in connection with the sale
of Shares. The Company agrees to indemnify, defend and hold the Distributor,
its several officers and directors, and any person who controls the Distributor
within the meaning of Section 15 of the Securities Act of 1933, as amended, free
and harmless from and against any and all claims, demands, liabilities and
reasonable expenses (as those expenses are incurred) (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Distributor, its officers and
directors, or any such controlling person may incur under the Securities Act of
1933, as amended, or under common law or otherwise, arising out of or based upon
any untrue statement,
-4-
<PAGE>
or alleged untrue statement, of a material fact contained in any registration
statement or any prospectus or arising out of or based upon any omission, or
alleged omission, to state a material fact required to be stated in any
registration statement or prospectus or necessary to make any statement in such
documents not misleading; provided, however, that the Company's agreement to
-------- -------
indemnify the Distributor, its officers or directors, and any such controlling
person shall not be deemed to cover any claims, demands, liabilities or expenses
arising out of any untrue statement or alleged untrue statement or omission or
alleged omission made in any registration statement or prospectus or in any
financial or other statements in reliance upon and in conformity with any
information furnished to the Company by the Distributor and used in the
preparation thereof; and further provided that the Company's agreement to
------- --------
indemnify the Distributor and the Company's representations and warranties
herein set forth shall not be deemed to cover any liability to the Company or
its shareholders to which the Distributor would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of the Distributor's reckless disregard of its obligations
and duties under this Contract. The Company's agreement to indemnify the
Distributor, its officers and directors, and any such controlling person, as
aforesaid, is expressly conditioned upon the Company's being notified of any
action brought against the Distributor, its officers or directors, or any such
controlling person, such notification to be given by letter or by telegram
addressed to the Company at its principal office in Boston, Massachusetts and
sent to the Company by the person against whom such action is brought within 20
days after the summons or other first legal process shall have been served. The
failure to so notify the Company of any such action shall not relieve the
Company from any liability which the Company may have to the person against whom
such action is brought by reason of any such untrue, or allegedly untrue,
statement or omission, or alleged omission, otherwise than on account of the
Company's indemnity agreement contained in this paragraph 1.11. The Company
will be entitled to assume the defense of any suit brought to enforce any such
claim, demand or liability, but, in such case, such defense shall be conducted
by counsel of good standing chosen by the Company and approved by the
Distributor, which approval shall not unreasonably be withheld. In the event
the Company elects to assume the defense of any such suit and retain counsel of
good standing approved by the Distributor, the defendant or defendants in such
suit shall bear the fees and expenses of any additional counsel retained by any
of them; but in case the Company does not elect to assume the defense of any
such suit, or in case the Distributor reasonably does not approve of counsel
chosen by the Company, the Company will reimburse the Distributor, its officers
and directors, or the controlling person or persons named as defendant or
defendants in such suit, for the reasonable fees and expenses of any counsel
retained by
-5-
<PAGE>
the Distributor or them. The Company's indemnification agreement contained in
this paragraph 1.11 and the Company's representations and warranties in this
Contract shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Distributor, its officers and
directors, or any controlling person and shall survive the delivery of any
Shares. This agreement of indemnity will inure exclusively to the Distributor's
benefit, to the benefit of its several officers and directors, and their
respective estates, and to the benefit of the controlling persons and their
successors. The Company agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against the Company or any of its
officers or directors in connection with the issue and sale of any Shares.
1.12 The Distributor agrees to indemnify, defend and hold the
Company, its several officers and directors, and any person who controls the
Company within the meaning of Section 15 of the Securities Act of 1933, as
amended, free and harmless from and against any and all claims, demands,
liabilities and reasonable expenses (as those expenses are incurred) (including
the costs of investigating or defending such claims, demands or liabilities and
any counsel fees incurred in connection therewith) which the Company, its
officers or directors or any such controlling person may incur under the
Securities Act of 1933, as amended, or under common law or otherwise, but only
to the extent that such liability or expense incurred by the Company, its
officers or directors, or such controlling person resulting from such claims or
demands, shall arise out of or be based upon any untrue, or alleged untrue,
statement of a material fact contained in information furnished by the
Distributor to the Company or its counsel and used in the Company's registration
statement or corresponding statement made in the prospectus, or shall arise out
of or be based upon any omission, or alleged omission, to state a material fact
in connection with such information furnished by the Distributor to the Company
or its counsel required to be stated in such answers or necessary to make such
information not misleading. The Distributor's agreement to indemnify the
Company, its officers and directors, and any such controlling person, as
aforesaid, is expressly conditioned upon the Distributor being notified of any
action brought against the Company, its officers or directors, or any such
controlling person, such notification to be given by letter or telegram
addressed to the Distributor at its principal office in Pittsburgh, Pennsylvania
and sent to the Distributor by the person against whom such action is brought,
within 20 days after the summons or other first legal process shall have been
served. The failure to so notify the Distributor of any such action shall not
relieve the Distributor from any liability which the Distributor may have to the
Company, its officers or directors, or to such controlling person by reason of
any such untrue or alleged untrue statement, or omission or alleged omission,
-6-
<PAGE>
otherwise than on account of the Distributor's indemnity agreement contained in
this paragraph 1.12. The Distributor shall have the right to control the
defense of such action, with counsel of its own choosing, satisfactory to the
Company, if such action is based solely upon such alleged misstatement or
omission on the Distributor's part, and in any other event the Company, its
officers or directors or such controlling person shall each have the right to
participate in the defense or preparation of the defense of any such action. In
the event the Distributor elects to assume the defense of any such suit and
retain counsel of good standing approved by the Company, the defendant or
defendants in such suit shall bear the fees and expenses of any additional
counsel retained by any of them; but in case the Distributor does not elect to
assume the defense of any such suit, or in case the Company reasonably does not
approve of counsel chosen by the Distributor, the Distributor will reimburse the
Company, its officers and directors, or the controlling person or persons named
as defendant or defendants in such suit, for the reasonable fees and expenses of
any counsel retained by the Company or them. The Distributor's indemnification
agreement contained in this paragraph 1.12 and the Distributor's representations
and warranties in this Contract shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of the Company, its
officers and directors, or any controlling person and shall survive the delivery
of any Shares. This agreement of indemnity will inure exclusively to the
Company's benefit, to the benefit of its several officers and directors, and
their respective estates, and to the benefit of the controlling persons and
their successors. The Distributor agrees promptly to notify the Company of the
commencement of any litigation or proceedings against the Distributor or any of
its officers or directors in connection with the issue and sale of any Shares.
1.13 No Shares shall be offered by either the Distributor or the
Company under any of the provisions of this Contract and no orders for the
purchase or sale of Shares hereunder shall be accepted by the Company if and so
long as effectiveness of the registration statement then in effect or any
necessary amendments thereto shall be suspended under any of the provisions of
the Securities Act of 1933, as amended, or if and so long as a current
prospectus, as required by Section 10(b) of said Act, as amended, is not on file
with the Securities and Exchange Commission; provided, however, that nothing
contained in this paragraph 1.13 shall in any way restrict or have any
application to or bearing upon the Company's obligation to repurchase Shares
from any shareholder in accordance with the provisions of the Company's
prospectus or charter documents.
1.14 The Company agrees to advise the Distributor as soon as
reasonably practical:
-7-
<PAGE>
(a) of any request by the Securities and Exchange Commission for
amendments to the registration statement or prospectus then in effect;
(b) in the event of the issuance by the Securities and Exchange
Commission of any stop order suspending the effectiveness of the
registration statement or prospectus then in effect or the initiation
of any proceeding for that purpose;
(c) of the happening of any event that makes untrue any statement
of a material fact made in the registration statement or prospectus
then in effect or which requires the making of a change in such
registration statement or prospectus in order to make the statements
therein not misleading; and
(d) of all actions of the Securities and Exchange Commission with
respect to any amendment to any registration statement or prospectus
which may from time to time be filed with the Securities and Exchange
Commission.
For purposes of this section, informal requests by or acts of the
Staff of the Securities and Exchange Commission shall not be deemed actions of
or requests by the Securities and Exchange Commission.
1.15 The Distributor agrees on behalf of itself and its employees to
treat confidentially and as proprietary information of the Company all records
and other information relative to the Funds and its prior, present or potential
shareholders, and not to use such records and information for any purpose other
than performance of its responsibilities and duties hereunder, except after
prior notification to and approval in writing by the Company, which approval
shall not be unreasonably withheld and may not be withheld where the Distributor
may be exposed to civil or criminal contempt proceedings for failure to comply,
when requested to divulge such information by duly constituted authorities, or
when so requested by the Company.
2. Term.
----
This Contract shall become effective on August 1, 1995 and, unless
sooner terminated as provided herein, shall continue until July 31, 1996, and
thereafter shall continue automatically with respect to each Fund for successive
annual periods ending on July 31 of each year, provided such continuance is
specifically approved at least annually by (i) the Company's Board of Directors
or (ii) by a vote of a majority (as defined in the Investment Company Act of
1940) of the outstanding voting securities of the Fund, and provided that in
--------
either event the
-8-
<PAGE>
continuance is also approved by the majority of the Company's directors who are
not parties to this Contract or interested persons (as defined in the Investment
Company Act of 1940) of any such party, by vote cast in person at a meeting
called for the purpose of voting on such approval. This Contract is not
assignable and is terminable with respect to each Fund, without penalty, on not
less than ninety days' notice by the Company's Board of Directors, by vote of a
majority (as defined in the Investment Company Act of 1940) of the outstanding
voting securities of such Fund, or by the Distributor. This Contract will
terminate automatically in the event of its "assignment" (as defined in the
Investment Company Act of 1940). The parties agree that an assignment includes
the transfer of "control" of more than 25% of the outstanding voting securities
of the Distributor to a company that is not a subsidiary of Federated.
3. Miscellaneous.
-------------
3.1 No provision of this Contract may be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which an enforcement of the change, waiver, discharge or termination is
sought. This Contract may be executed in one or more counterparts and all such
counterparts will constitute one and the same instrument.
3.2 This Contract shall be governed by the laws of the Commonwealth
of Pennsylvania.
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Yours very truly,
UST MASTER FUNDS, INC.
By: /s/ A. C. Tannachion
--------------------
Title: President
Accepted:
EDGEWOOD SERVICES, INC.
By: /s/ R. Jeffrey Niss
-------------------
Title: Executive Vice President
-9-
<PAGE>
Exhibit A to the
Distribution Contract
UST MASTER FUNDS, INC.
----------------------
Money Fund
Government Money Fund
Treasury Money Fund
Short-Term Government Securities Fund
Intermediate-Term Managed Income Fund
Managed Income Fund
Equity Fund
Income and Growth Fund
Long-Term Supply of Energy Fund
Productivity Enhancers Fund
Environmentally-Related Products and Services Fund
Aging of America Fund
Communication and Entertainment Fund
Business and Industrial Restructuring Fund
Global Competitors Fund
Early Life Cycle Fund
International Fund
Emerging Americas Fund
Pacific/Asia Fund
Pan European Fund
In consideration of the mutual covenants set forth in the Distribution
Contract dated as of August 1, 1995 between UST MASTER FUNDS, INC. and Edgewood
Services, Inc., UST MASTER FUNDS, INC. executes and delivers this Exhibit on
behalf of the Funds, and with respect to any class or series thereof, first set
forth in this Exhibit.
Witness the due execution hereof this 1st day of August, 1995.
ATTEST: UST MASTER FUNDS, INC.
/s/ W. Bruce McConnel, III /s/ A. C. Tannachion
- ----------------------------- -----------------------------
Secretary President
(SEAL)
ATTEST: EDGEWOOD SERVICES, INC.
[signature illegible] /s/ R. Jeffrey Niss
----------------------------- -----------------------------
Secretary Executive Vice President
(SEAL)
<PAGE>
EXHIBIT (8)(g)
CUSTODY AGREEMENT
-----------------
AGREEMENT effective as of September 1, 1995 between THE CHASE MANHATTAN
BANK, N.A. ("Bank") and EXCELSIOR FUNDS, INC., a Maryland corporation (the
"Fund").
WITNESSETH:
WHEREAS, the Fund wishes to retain Bank to provide custodian services to
the Fund for the benefit of the investment portfolios of the Fund listed on
Exhibit A hereto, as the same may be amended from time to time by the parties
hereto (each a "Portfolio," collectively, "Portfolios") and Bank is willing to
furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Custody Account. The Bank agrees to establish and maintain (a) a
---------------
separate custody account for each Portfolio of the Fund ("Custody Account") for
any and all stocks, shares, bonds, debentures, notes, mortgages or other
obligations for the payment of money and any certificates, receipts, warrants or
other instruments representing rights to receive, purchase or subscribe for the
same or evidencing or representing any other rights of interests therein and
other similar property (hereinafter called "Securities") from time to time
received by the Bank or any subcustodian (as defined in the second paragraph of
Section 3 hereof) for the account of the particular Portfolio of the Fund and
(b) a separate deposit account(s) in the
<PAGE>
name of each Portfolio of the Fund ("Deposit Account") for any and all cash and
cash equivalents in any currency received by the Bank or any subcustodian for
the account of the particular Portfolio of the Fund, which cash shall not be
subject to withdrawal by draft or check. The term "Property" as used herein
shall mean all Securities, cash, cash equivalents and other assets of the Fund.
2. Maintenance of Property Domestically and Abroad. Securities in a
-----------------------------------------------
Custody Account shall be held in the country or other jurisdiction as shall be
specified from time to time in Instructions (as defined in Section 9 hereof),
provided that such country or other jurisdiction shall be one in which the
principal trading market for such Securities is located or the country of other
jurisdiction in which such Securities are to be presented for payment or are
acquired for the Custody Account, and cash in a Deposit Account shall be
credited to an account in such country or other jurisdiction in which such cash
may be legally deposited or is the legal currency for the payment of public or
private debts. Cash may be held pursuant to Instructions in either interest or
non-interest bearing accounts as may be available for the particular currency.
To the extent Instructions are issued and the Bank can comply with such
Instructions, the Bank is authorized to maintain cash balances on deposit for
the Fund with itself or one of its affiliates at such reasonable rates of
interest as may from time to time be paid on such accounts, or in non-interest
bearing accounts as the Fund may direct, if acceptable to the Bank.
3. Eligible Foreign Custodians and Securities Depositories. The Board of
-------------------------------------------------------
Directors of the Fund authorizes the Bank to hold the Securities in the Custody
Account(s) and the cash in the Deposit Account(s) in custody and deposit
accounts, respectively, which
-2-
<PAGE>
have been established by the Bank with one of its branches, a branch of a
qualified U.S. bank, an eligible foreign custodian or an eligible foreign
securities depository; provided, however, that the Board of Directors of the
Fund has approved the use of, and the Bank's contract with, such eligible
foreign custodian or eligible foreign securities depository by resolution, and
Instructions to such effect have been provided to the Bank. Furthermore, if a
Bank's branch, a branch of a qualified U.S. bank or an eligible foreign
custodian is selected to act as the Bank's subcustodian to hold any Property,
such entity is authorized to hold such Property in its account with any eligible
foreign securities depository in which it participates so long as such foreign
securities depository has been approved by the Board of Directors of the Fund.
For purposes of this Agreement "qualified U.S. bank" and "eligible foreign
custodian," shall have the same meanings as are given in Rule 17f-5 under the
Investment Company Act of 1940, as amended ("Rule 17f-5") and "eligible foreign
securities depository" shall be a depository within the meaning of Rule 17f-
5(c)(2)(iii) and (iv).
Hereinafter the term "subcustodian" will refer to any Bank branch, any
branch of a qualified U.S. bank, any eligible foreign custodian or any eligible
foreign securities depository with which the Bank has entered into an agreement
of the type contemplated hereunder regarding Securities and/or cash held in or
to be acquired for a Custody Account or a Deposit Account.
If, after the initial approval of the subcustodians by the Board of
Directors of the Fund in connection with this Agreement, the Bank wishes to
appoint other subcustodians to hold the Fund's Property, it will so notify the
Fund and will provide it with information reasonably necessary to determine any
such new subcustodian's eligibility under Rule 17f-5,
-3-
<PAGE>
including a copy of the proposed agreement with such subcustodian. The Fund
shall within 30 days after receipt of such notice give a written approval or
disapproval of the proposed action.
If the Bank intends to remove any subcustodian previously approved, it
shall so notify the Fund and shall move the Property deposited with such
subcustodian to another subcustodian previously approved or to a new
subcustodian, provided that the appointment of any new subcustodian will be
subject to the requirements set forth in the preceding paragraph. The Bank
shall take steps as may be required to remove any subcustodian which has ceased
to meet the requirements of Rule 17f-5.
4. Use of Subcustodians. With respect to Property which is maintained by
--------------------
the Bank in the physical custody of a subcustodian pursuant to Section 3:
(a) The Bank will identify on its books as belonging to the particular
Portfolio of the Fund any Property held by such subcustodian.
(b) In the event that a subcustodian permits any of the Securities
placed in its care to be held in an eligible foreign securities depository, such
subcustodian will be required by its agreement with the Bank to identify on its
books such Securities as being held for the account of the Bank as a custodian
for its customers.
(c) Any Securities in a Custody Account held by a subcustodian of the
Bank will be subject only to the instructions of the Bank or its agents; and any
Securities held in an eligible foreign securities depository for the account of
a subcustodian will be subject only to the instructions of such subcustodian.
-4-
<PAGE>
(d) The Bank will only deposit Securities in an account with a
subcustodian which includes exclusively the assets held by the Bank for its
customers, and the Bank will cause such account to be designated by such
subcustodian as a special custody account for the exclusive benefit of customers
of the Bank.
(e) Any agreement the Bank shall enter into with a subcustodian with
respect to the holding of Securities shall require that (i) the Securities are
not subject to any right, charge, security interest, lien or claim of any kind
in favor of such subcustodian or its creditors except for a claim of payment for
its safe custody or administration and (ii) beneficial ownership of such
Securities is freely transferable without the payment of money or value other
than for safe custody or administration; provided, however, that the foregoing
shall not apply to the extent that any of the above-mentioned rights, charges,
etc. result from any compensation or other expenses arising with respect to the
safekeeping of Securities pursuant to such agreement.
(f) The Bank shall allow independent public accountants of the Fund
such reasonable access to the records of the Bank relating to Property held in a
Custody Account and a Deposit Account as required by such accountants in
connection with their examination of the books and records pertaining to the
affairs of the Fund. The Bank shall, subject to restrictions under applicable
law, also obtain from any subcustodian with which the Fund maintains the
physical possession of any Property an undertaking to permit independent public
accountants of the Fund such reasonable access to the records of such
subcustodian as may be required in connection with their examination of the
books and records pertaining to the affairs of the Fund or to supply a
verifiable confirmation of the contents of such records.
-5-
<PAGE>
The Bank shall furnish the Fund such reports (or portions thereof) of the Bank's
external auditors as relate directly to the Bank's system of internal accounting
controls applicable to the Bank's duties under this Agreement. The Bank shall
request for and furnish to the Fund such similar reports as may be furnished to
it with respect to each subcustodian and securities depository holding the
Fund's assets.
(g) The Bank will supply to the Fund, care of its investment adviser,
at least monthly a statement in respect to any Property in a Custody and a
Deposit Account held by each subcustodian, including an identification of the
entity having possession of such Property, and the Bank will send to the Fund an
advice or notification of any transfers of Property to or from the Custody
Account and Deposit Account, indicating, as to Property acquired for an
investment portfolio of the Fund, the identity of the entity having physical
possession of such Property. In the absence of the filing in writing with the
Bank by the Fund of exceptions or objections to any such statement within sixty
(60) days of the Fund's receipt of such statement, or within sixty (60) days
after the date that a material defect is reasonably discoverable, the Fund shall
be deemed to have approved such statement and in such case or upon written
approval of the Fund of any such statement the Bank shall, to the extent
permitted by law and provided the Bank has met the standard of care in Section
12 hereunder, be released, relieved and discharged with respect to all matters
and things set forth in such statement as though such statement has been settled
by the decree of a court of competent jurisdiction in an action in which the
Fund and all persons having any equity interest in the Fund were parties.
-6-
<PAGE>
(h) The Bank hereby warrants to the Fund that in its opinion, after
due inquiry, the established procedures to be followed by each of its branches,
each branch of a qualified U.S. bank, each eligible foreign custodian and each
eligible foreign securities depository holding Securities of the Fund pursuant
to this Agreement afford protection for such Securities at least equal to that
afforded by the Bank's established procedures with respect to similar Securities
held by the Bank (and its securities depositories) in New York.
(i) The Bank hereby warrants to the Fund that as of the date of this
Agreement it is maintaining a Bankers Blanket Bond sufficient to cover any of
its liabilities hereunder and hereby agrees to notify the Fund in the event its
Bankers Blanket Bond is canceled or otherwise lapses.
5. Deposit Account Payments. Subject to the provisions of Section 7, the
------------------------
Bank shall make, or cause its subcustodian to make, payments of cash credited to
a Deposit Account only:
(a) in connection with the purchase of Securities for the particular
Portfolio of the Fund involved and the delivery of such Securities to, or the
crediting of such Securities to the particular Custody Account of the Bank or
its subcustodian, each such payment to be made at prices as confirmed by
Instructions from Authorized Persons (as defined in Section 10 hereof);
(b) for the purchase or redemption of shares of the capital stock of
the particular Portfolio of the Fund involved and the delivery to, or crediting
to the account of, the Bank or its subcustodian of such shares to be so
purchased or redeemed;
-7-
<PAGE>
(c) for the payment for the account of the particular Portfolio of the
Fund involved of dividends, interest, taxes, management or supervisory fees,
capital distributions or operating expenses;
(d) for the payments to be made in connection with the conversion,
exchange or surrender of Securities held in a Custody Account;
(e) for spot or forward foreign exchange transactions to facilitate
security trading, receipt of income from Securities or related transactions;
(f) for other proper corporate purposes of the particular Portfolio of
the Fund involved; or
(g) upon the termination of this Custody Agreement as hereinafter set
forth.
All payments of cash for a purpose permitted by subsection (a), (b), (c) or
(d) of this Section 5 will be made only upon receipt by the Bank of Instructions
from Authorized Persons which shall specify the purpose for which the payment is
to be made and the applicable subsection of this Section 5. In the case of any
payment to be made for the purpose permitted by subsection (f) of this Section
5, the Bank must first receive a certified copy of a resolution of the Board of
Directors of the Fund adequately describing such payment, declaring such purpose
to be a proper corporate purpose, and naming the person or persons to whom such
payment shall be made. Any payment pursuant to subsection (g) of this Section 5
will be made in accordance with Section 17 hereof.
In the event that any payment for a Portfolio of the Fund made under this
Section 5 exceeds the funds available in that Portfolio's Deposit Account, the
Bank may, in its
-8-
<PAGE>
discretion, advance the Fund on behalf of that Portfolio an amount equal to such
excess and such advance shall be deemed a loan from the Bank to that Portfolio
payable on demand, bearing interest at the rate of interest customarily charged
by the Bank on similar loans. If the Bank causes a Deposit Account to be
credited on the payable date for interest, dividends or redemptions, the
particular Portfolio of the Fund involved will promptly return to the Bank any
such amount or property so credited upon oral or written notification that
neither the Bank nor its subcustodian can collect such amount or property in the
ordinary course of business. The Bank or its subcustodian, as the case may be,
shall have no duty or obligation to institute legal proceedings, file a claim or
proof of claim in any insolvency proceeding or take any other action with
respect to the collection of such amount or property beyond its ordinary
collection procedures.
6. Custody Account Transactions. Subject to the provisions of Section 7,
----------------------------
Securities in a Custody Account will be transferred, exchanged or delivered by
the Bank or its subcustodians only:
(a) upon sale of such Securities for the particular Portfolio of the
Fund involved and receipt by the Bank or its subcustodian of payment therefor,
each such payment to be in the amount confirmed by Instructions from Authorized
Persons;
(b) when such Securities are called, redeemed or retired, or otherwise
become payable;
(c) in exchange for or upon conversion into other Securities alone or
other Securities and cash pursuant to any plan of merger, consolidation,
reorganization, recapitalization or readjustment;
-9-
<PAGE>
(d) upon conversion of such Securities pursuant to their terms into
other Securities;
(e) upon exercise of subscription, purchase or other similar rights
represented by such Securities;
(f) for the purpose of exchanging interim receipts or temporary
Securities for definitive Securities;
(g) for the purpose of redeeming in-kind shares of the capital stock
of the particular Portfolio of the Fund involved against delivery to the Bank or
its subcustodian of such shares to be redeemed;
(h) in connection with any borrowings by the particular Portfolio
requiring a pledge of Securities, but only against receipt of amounts borrowed;
(i) in connection with any loans, but only against receipt of adequate
collateral as specified in Instructions which shall reflect any restrictions
applicable to the Fund;
(j) for delivery in accordance with the provisions of any agreement
among the Fund, the Bank and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of the National
Association of Securities Dealers, Inc. relating to compliance with the rules of
The Options Clearing Corporation and of any registered national securities
exchange, or of any similar organizations, regarding escrow or other
arrangements in connection with transactions by the particular Portfolio;
(k) for release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only upon
payment to the
-10-
<PAGE>
Bank of monies for the premium due and a receipt for the Securities which are to
be held in escrow. Upon exercise of the option, or at expiration, the Bank will
receive the Securities previously deposited from brokers. The Bank will act
strictly in accordance with Instructions in the delivery of Securities to be
held in escrow and will have no responsibility or liability for any such
Securities which are not returned promptly when due other than to make proper
request for such return.
(l) for other proper corporate purposes of the particular Portfolio of
the Fund involved; or
(m) upon the termination of this Custody Agreement as hereinafter set
forth.
All transfers, exchanges or deliveries of Securities in a Custody Account
for a purpose permitted by either subsection (a), (b), (c), (d), (e) or (f) of
this Section 6 will be made, except as provided in Section 8 hereof, only upon
receipt by the Bank of Instructions from Authorized Persons which shall specify
the purpose of the transfer, exchange or delivery to be made and the applicable
subsection of this Section 6. In the case of any transfer or delivery to be
made for the purpose permitted by subsection (g) of this Section 6, the Bank
must first receive Instructions from Authorized Persons specifying the shares
held by the Bank or its subcustodian to be so transferred or delivered and
naming the person or persons to whom transfers or delivery of such shares shall
be made. In the case of any transfer, exchange or delivery to be made for the
purpose permitted by subsection (h) of this Section 6, the Bank must first
receive a certified copy of a resolution of the Board of Directors of the Fund
adequately describing such transfer, exchange or delivery, declaring
-11-
<PAGE>
such purpose to be a proper corporate purpose, and naming the person or persons
to whom delivery of such Securities shall be made. Any transfer or delivery
pursuant to subsection (m) of this Section 6 will be made in accordance with
Section 17 hereof.
7. Custody Account Procedures. With respect to any transaction involving
--------------------------
Securities held in or to be acquired for a Custody Account, the Bank in its
discretion may cause the Deposit Account for the particular Portfolio of the
Fund involved to be credited on the contractual settlement date with the
proceeds of any sale or exchange of Securities from the particular Custody
Account and to be debited on the contractual settlement date for the cost of
Securities purchased or acquired for the particular Custody Account. The Bank
may reverse any such credit or debit if the transaction with respect to which
such credit or debit was made fails to settle within a reasonable period,
determined by the Bank in its discretion, after the contractual settlement date,
except that if any Securities delivered pursuant to this Section 7 are returned
by the recipient thereof, the Bank may cause any such credits and debits to be
reversed at any time. With respect to any transactions as to which the Bank does
not determine so to credit or debit the particular Deposit Account, the proceeds
from the sale or exchange of Securities will be credited and the cost of such
Securities purchased or acquired will be debited to the particular Deposit
Account on the date such proceeds or Securities are received by the Bank.
Notwithstanding the preceding paragraph, settlement and payment for
Securities received for, and delivery of Securities out of, a Custody Account
may be effected in accordance with the customary or established securities
trading or securities processing practices and procedures in the jurisdiction or
market in which the transaction occurs,
-12-
<PAGE>
including, without limitation, delivering Securities to the purchaser thereof or
to a dealer therefor (or an agent for such purchaser or dealer) against a
receipt with the expectation of receiving later payment for such Securities from
such purchaser or dealer.
8. Actions of the Bank. Until the Bank receives Instructions from
-------------------
Authorized Persons to the contrary, the Bank will, or will instruct its
subcustodian, to:
(a) present for payment any Securities in a Custody Account which are
called, redeemed or retired or otherwise become payable and all coupons and
other income items which call for payment upon presentation to the extent that
the Bank or subcustodian is aware of such opportunities for payment, and hold
cash received upon presentation of such Securities in accordance with the
provisions of Sections 2, 3 and 4 hereof;
(b) in respect of Securities in a Custody Account, execute in the name
of the Fund on behalf of the particular Portfolio involved such ownership and
other certificates as may be required to obtain payments in respect thereof;
(c) exchange interim receipts or temporary Securities in a Custody
Account for definitive Securities;
(d) (if applicable) convert monies received with respect to Securities
of foreign issue into United States dollars or any other currency necessary to
effect any transaction involving the Securities whenever it is practicable to do
so through customary banking channels, using any method or agency available,
including, but not limited to, the facilities of the Bank, its subsidiaries,
affiliates or subcustodians;
-13-
<PAGE>
(e) (if applicable) appoint brokers and agents for any transaction
involving the Securities in a Custody Account, including, without limitation,
affiliates of the Bank or any subcustodian; and
(f) reclaim taxes withheld by foreign issuers where reclaim is
possible, provided that Bank has been provided with all documentation it may
require.
9. Instructions. As used in this Agreement, the term "Instructions" means
------------
instructions of the Fund received by the Bank via telephone, telex, TWX,
facsimile transmission, bank wire or other teleprocess or electronic instruction
system acceptable to the Bank which the Bank believes in good faith to have been
given by Authorized Persons or which are transmitted with proper testing or
authentication pursuant to terms and conditions which the Bank may specify.
Any Instructions delivered to the Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which confirmation
may bear the facsimile signature of such Person), but the particular Portfolio
of the Fund involved will hold the Bank harmless for the Fund's (i) failure to
send such confirmation in writing, or (ii) the failure of such confirmation to
conform to the telephone Instructions received. Unless otherwise expressly
provided, all Instructions shall continue in full force and effect until
canceled or superseded. If the Bank requires test arrangements, authentication
methods or other security devices to be used with respect to Instructions, any
Instructions given by the Fund thereafter shall be given and processed in
accordance with such terms and conditions for the use of such arrangements,
methods or devices as the Bank may put into effect and modify from time to time.
The Fund shall safeguard any testkeys, identification codes or
-14-
<PAGE>
other security devices which the Bank shall make available to them. The Bank
may electronically record any Instructions given by telephone, and any other
telephone discussions, with respect to a Custody Account.
10. Authorized Persons. As used in this Agreement, the term "Authorized
------------------
Persons" means such officers or such agents of the Fund as have been designated
by a resolution of the Board of Directors of the Fund, a certified copy of which
has been provided to the Bank, to act on behalf of the Fund in the performance
of any acts which Authorized Persons may do under this Agreement. Such persons
shall continue to be Authorized Persons until such time as the Bank receives
Instructions from Authorized Persons that any such officer or agent is no longer
an Authorized Person.
11. Nominees. Securities in a Custody Account which are ordinarily held
--------
in registered form may be registered in the name of the Bank's nominee or, as to
any Securities in the possession of an entity other than the Bank, in the name
of such entity's nominee. The particular Portfolio of the Fund involved agrees
to hold any such nominee harmless from any liability as a holder of record of
such Securities, but not if such liability is a result of such nominee's
negligence. The Bank may without notice to the Fund cause any such Securities
to cease to be registered in the name of any such nominee and to be registered
in the name of the Fund. In the event that any Securities registered in the
name of the Bank's nominee or held by one of its subcustodians and registered in
the name of such subcustodian's nominee are called for partial redemption by the
issuer of such Security, the Bank may allot, or cause to be allotted, the called
portion to the respective beneficial holders of such class of security in any
manner the Bank deems to be fair and equitable.
-15-
<PAGE>
12. Standard of Care.
----------------
(a) The Bank shall be obligated to perform only such duties as are set
forth in this Agreement or expressly contained in instructions given to Bank
which are consistent with the provisions of this Agreement.
(i) The Bank will use reasonable care with respect to its
obligations under this Agreement and the safekeeping of Property.
The Bank shall be liable to the Fund for any loss which shall
occur as the result of the failure of a subcustodian or an
eligible foreign securities depository to exercise reasonable
care with respect to the safekeeping of such Property to the same
extent that the Bank would be liable to the Fund if the Bank were
holding such Property in New York. In the event of any loss to
the Fund by reason of the failure of the Bank or its subcustodian
or an eligible foreign securities depository to exercise
reasonable care, the Bank shall be liable to the Fund only to the
extent the Fund's direct damages and expenses, to be determined
based on, but not limited to, the market value of the Property
which is the subject of the loss at the date of discovery of such
loss, and without reference to any special conditions or
circumstances.
(ii) The Bank will not be responsible for any act, omission,
default or for the solvency of any broker or agent (other than as
provided herein) which it or a subcustodian appoints and uses
unless such appointment and use were made or done negligently or
in bad faith.
-16-
<PAGE>
(iii) The Bank shall be indemnified by, and without liability to
the Fund and the particular Portfolio of the Fund involved for
any action taken or omitted by the Bank whether pursuant to
Instructions or otherwise within the scope of this Agreement if
such act or omission was in good faith and without negligence.
In performing its obligations under this Agreement, the Bank may
rely on the genuineness of any document which it believes in good
faith and without negligence to have been validly executed.
(iv) The Fund, on behalf of the particular Portfolio of the Fund
involved, agrees to cause such Portfolio to pay for and hold the
Bank harmless from any liability or loss resulting from the
imposition or assessment of any taxes or other governmental
charges, and any related expenses with respect to income from or
Property in such Portfolio's Custody Account and Deposit Account.
(v) The Bank shall be entitled to rely, and may act upon the
advice of counsel (who may be counsel for the Fund) on all
matters and shall be without liability for any action reasonably
taken or omitted in good faith and without negligence pursuant to
such advice.
(vi) The Bank need not maintain any insurance for the exclusive
benefit of the Fund.
(vii) Without limiting the foregoing, the Bank shall not be
liable for any loss which results from:
-17-
<PAGE>
1) the general risk of investing, or
2) subject to Section 12(a)(i) hereof, investing or
holding Property in a particular country including, but not
limited to, losses resulting from nationalization, expropriation
or other governmental actions; regulation of the banking or
securities industry; currency restrictions, devaluations or
fluctuations; and market conditions which prevent the orderly
execution of securities transactions or affect the value of
Property.
(viii) No party shall be liable to the other for any loss due to
forces beyond its control including but not limited to strikes or
work stoppages, acts of war or terrorism, insurrection,
revolution, nuclear fusion, fission or radiation, or acts of God.
(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that the Bank shall have no duty or
responsibility to:
(i) Question Instructions or make any suggestions to the Fund or
an Authorized Person regarding such Instructions;
(ii) Supervise or make recommendations with respect to
investments or the retention of Securities;
(iii) Subject to Section 12(a)(ii) hereof, evaluate or report to
the Fund or an Authorized Person regarding the financial
condition of any broker, agent or other party to which Securities
are delivered or payments are made pursuant to this Agreement; or
-18-
<PAGE>
(iv) Review or reconcile trade confirmations received from
brokers.
(c) The Bank shall provide to the Fund, on an annual basis, a report
confirming that the arrangements hereunder remain in compliance with the rules
of the Securities and Exchange Commission governing such arrangements.
13. Compliance with Securities and Exchange Commission Rules and Orders.
-------------------------------------------------------------------
Except to the extent the Bank has specifically agreed pursuant to this Agreement
or in an exemptive order to comply with a condition of Rule 17f-5 or any
interpretation or exemptive order promulgated thereunder by or under the
authority of the Securities and Exchange Commission, the Fund shall be solely
responsible to assure that the maintenance of Securities and cash under this
Agreement complies with such Rule 17f-5.
14. Corporate Actions.
-----------------
(a) With respect to domestic U.S. and Canadian Securities (the latter
only when held with DTC), the Bank will send to the Customer or the Authorized
Person for a Custody Account such proxies (signed in blank, if issued in the
name of the Bank's nominee or the nominee of a central depository) and
communications with respect to Securities in the Custody Account as call for
voting or relate to legal proceedings within a reasonable time after sufficient
copies are received by the Bank for forwarding to its customers. In addition,
the Bank will follow coupon payments, redemptions, exchanges or similar matters
with respect to Securities in the Custody Account and advise the Customer or the
Authorized Person for such Account of rights issued, tender offers or any other
discretionary rights with respect to such Securities, in each case, of which the
Bank has received notice from the
-19-
<PAGE>
issuer of the Securities, or as to which notice is published in publications
routinely utilized by the Bank for this purpose.
(b) With respect to proxies and Corporate Actions (as defined below)
not covered by paragraph (a) of this Section 14:
(i) Whenever the Bank or its subcustodian receives information
concerning the Securities which requires discretionary action by
the beneficial owner of the Securities (other than a proxy), such
as subscription rights, bonus issues, stock repurchase plans and
rights offerings, or legal notices or other material intended to
be transmitted to securities holders ("Corporate Actions"), the
Bank will give the Fund notice of such Corporate Actions to the
extent that the Bank's central corporate actions department has
actual knowledge of a Corporate Action in time to notify its
customers.
(ii) When a rights entitlement or a fractional interest
resulting from a rights issue, stock dividend, stock split or
similar Corporate Action is received which bears an expiration
date, the Bank or its subcustodians will endeavor to obtain
Instructions from the Fund or its Authorized Persons, but if
Instructions are not received in time for the Bank to take timely
action, or actual notice of such Corporate Action was received
too late to seek Instructions, the Bank is authorized to sell
such rights entitlement or fractional interest and to credit the
applicable Deposit Account with the proceeds and to take any
other action it
-20-
<PAGE>
deems in good faith to be appropriate in which case, provided it
has met the standard of care in Section 12 hereof, it shall be
held harmless by the particular Portfolio of the Fund involved
for any such action.
(iii) Proxies will only be voted pursuant to special
arrangements which may have been agreed to in writing between the
parties hereto.
15. Fees and Expenses. The Fund agrees to pay the Bank from time to time
-----------------
such compensation for its services pursuant to this Agreement as may be mutually
agreed upon in writing from time to time and the Bank's out-of-pocket or
incidental expenses, including (but without limitation) reasonable legal fees.
The Fund hereby agrees on behalf of its respective Portfolios to cause the
particular Portfolio of the Fund involved to hold the Bank harmless from any
liability or loss resulting from any taxes or other governmental charges, and
any expenses related thereto, which may be imposed, or assessed with respect to
such Portfolio's Custody Account and also agrees on behalf of its respective
Portfolios to cause the particular Portfolio of the Fund involved to hold the
Bank, its subcustodians, and their respective nominees harmless from any
liability as a record holder of Securities in such Portfolio's Custody Account.
The Bank is authorized to charge any account of the particular Portfolio of the
Fund involved for such items specified in the previous sentence and the Bank
shall have a lien on Securities in such Portfolio's Custody Account and on cash
in such Portfolio's Deposit Account for any amount owing to the Bank in
connection with such Portfolio from time to time under this Agreement.
16. Effectiveness. This Agreement shall be effective on the date first
-------------
noted above.
-21-
<PAGE>
17. Termination. This Agreement may be terminated by the Fund or the Bank
-----------
by 60 days' written notice to the other, sent by registered mail. If notice of
termination is given by the Bank, the Fund shall, within 60 days following the
giving of such notice, deliver to the Bank a certified copy of a resolution of
the Board of Directors of the Fund specifying the names of the persons to whom
the Bank shall deliver such Securities and cash, after deducting therefrom any
amounts which the Bank determines to be owed to it under Section 15 hereof. If
within 60 days following the giving of a notice of termination by the Bank, the
Bank does not receive from the Fund a certified copy of a resolution of the
Board of Directors of the Fund specifying the names of the persons to whom the
cash in each Deposit Account shall be paid and to whom the Securities in each
Custody Account shall be delivered, the Bank, at its election, may deliver such
Securities and pay such cash to a bank or trust company doing business in the
State of New York and qualified as a custodian under the Investment Company Act
of 1940 and other applicable rules and regulations to be held and disposed of
pursuant to the provisions of this Agreement, or to Authorized Persons, or may
continue to hold such Securities and cash until a certified copy of one or more
resolutions as aforesaid is delivered to the Bank. The obligations of the
parties hereto regarding the use of reasonable care, indemnities and payment of
fees and expenses shall survive the termination of this Agreement, and the
obligations of each Portfolio of the Fund to indemnify and/or hold harmless
other persons or entities under this Agreement shall be the several (and not the
joint or joint and several) obligation of each Portfolio of the Fund.
18. Notices. Any notice or other communication from the Fund to the Bank
-------
is to be sent to the office of the Bank at:
-22-
<PAGE>
The Chase Manhattan Bank, N.A.
Chase MetroTech Center
Brooklyn, NY 11245
Attention: Global Custody Division
or such other address as may hereafter be given to the Fund in accordance with
the notice provisions hereunder, and any notice from the Bank to the Fund is to
be mailed postage prepaid, addressed to the Fund at the addresses appearing
below, or as the same may hereafter be changed on the Bank's records in
accordance with notice hereunder from the Fund.
19. Governing Law and Successors and Assigns. This Agreement shall be
----------------------------------------
governed by the law of the State of New York and shall not be assignable by any
party without the prior written consent of the other party, and shall bind the
successors and assigns of the Fund and the Bank.
20. Names. The names "Excelsior Funds, Inc." and "Board of Directors of
------
Excelsior Funds, Inc." refer respectively to the Fund created and the Directors,
as directors but not individually or personally, acting from time to time under
a Master Trust Agreement dated , 19__, which is hereby referred to
and a copy of which is on file at the office of the state Secretary of the State
of Maryland and at the principal office of the Fund. The obligations of
"Excelsior Funds, Inc." entered into in the name or on behalf thereof by any of
the Directors, representatives or agent are made not individually, but in such
capacities, and are not binding upon any of the Directors, shareholder, or
representatives of the Fund personally, but bind only the Property, and all
persons dealing with any class of shares of the Fund must look solely to the
Fund Property belonging to such class for the enforcement of any claims against
the Fund.
-23-
<PAGE>
21. Headings. The headings of the paragraphs hereof are included for
--------
convenience of reference only and do not form a part of this Agreement.
22. Counterpart Execution. This Agreement may be executed in any number
---------------------
of counterparts with the same effect as if all parties hereto had signed the
same document. All counterparts shall be construed together and shall
constitute one agreement.
23. Confidentiality. Bank agrees on behalf of itself and its employees to
---------------
treat confidentially all records and other information relative to the Fund and
its prior, present, or potential shareholders, except, after prior notification
to and approval in writing by the Fund which approval shall not be unreasonably
withheld and may not be withheld where Bank may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by the Fund.
-24-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
THE CHASE MANHATTAN BANK, N.A.
By:_________________________________________
Address for record:
---------------------------------------------
---------------------------------------------
EXCELSIOR FUNDS, INC.
By:_________________________________________
Address for record:
---------------------------------------------
---------------------------------------------
---------------------------------------------
-25-
<PAGE>
EXHIBIT A
---------
Portfolios covered by the Custody Agreement between The Chase Manhattan
Bank, N.A. and Excelsior Funds, Inc.
Money Fund
Government Money Fund
Treasury Money Fund
Equity Fund
Income and Growth Fund
Long-Term Supply of Energy Fund
Productivity Enhancers Fund
Environmentally-Related Products and Services Fund
Aging of America Fund
Communication and Entertainment Fund
Business and Industrial Restructuring Fund
Global Competitors Fund
Early Life Cycle Fund
International Fund
Emerging Americas Fund
Pacific/Asia Fund
Pan European Fund
Short-Term Government Securities Fund
Intermediate-Term Managed Income Fund
Managed Income Fund
-26-
<PAGE>
EXHIBIT (9)(a)
EXCELSIOR TAX-EXEMPT FUNDS, INC.
--------------------------------
AMENDED AND RESTATED ADMINISTRATIVE SERVICES PLAN
Section 1. Upon the recommendation of Chase Global Funds Services Company,
---------
Federated Administrative Services or U.S. Trust Company of New York (each a "Co-
Administrator") as Co-Administrator of Excelsior Tax-Exempt Funds, Inc. (the
"Company"), any officer of the Company (or any other person authorized by the
Company's Board) is authorized to execute and deliver, in the name and on behalf
of the Company, written agreements in substantially the form attached hereto or
in any other form duly approved by the Board of Directors ("Servicing
Agreements") with institutions that are shareholders of record or that have
clients that are shareholders of record or beneficial owners of any of the Funds
of the Company, including without limitation the Company's service providers and
their affiliates ("Service Organizations"). Such Servicing Agreements shall
require the Service Organizations to provide or arrange for the provision of
support services as set forth therein to their clients who beneficially own
Shares of any Fund offered by the Company in consideration of a fee, computed
and paid in the manner set forth in the Servicing Agreements, at the annual rate
of up to .40% of the applicable net asset value of Shares beneficially owned by
such clients. Among other institutions, any bank, trust company, thrift
institution or broker-dealer is eligible to become a Service Organization and to
receive fees under this Plan. All expenses incurred by the Company with respect
to a particular class or series of Shares of a particular Fund in connection
with Servicing Agreements and the implementation of this Plan shall be borne
entirely by the holders of that class or series.
Section 2. The Co-Administrators shall monitor the arrangements pertaining
---------
to the Company's Servicing Agreements with Service Organizations in accordance
with the terms of the Co-Administration Agreement by and among the Co-
Administrators and the Company. The Co-Administrators shall not, however, be
obliged by this Plan to recommend, and the Company shall not be obliged to
execute, any Servicing Agreement with any qualifying Service Organization.
Section 3. So long as this Plan is in effect, the Co-Administrators shall
---------
provide to the Company's Boards of Directors, and the Directors shall review, at
least quarterly, a written report of the amounts expended pursuant to this Plan
and the purposes for which such expenditures were made.
<PAGE>
Section 4. This Plan shall become effective immediately upon the approval
---------
of the Plan (and the form of Servicing Agreement attached hereto) by a majority
of the Board of Directors, including a majority of the Directors who are not
"interested persons" as defined in the Investment Company Act of 1940 (the
"Act") of the Company and have no direct or indirect financial interest in the
operation of this Plan or in any Servicing Agreement or other agreements related
to this Plan (the "Disinterested Directors"), pursuant to a vote cast in person
at a meeting called for the purpose of voting on the approval of this Plan (or
form of Servicing Agreement).
Section 5. Unless sooner terminated, this Plan shall continue until July
---------
31, 1996 and thereafter shall continue automatically for successive annual
periods provided such continuance is approved at least annually in the manner
set forth in Section 4.
Section 6. This Plan may be amended at any time by the Board of Directors,
---------
provided that any material amendments of the terms of this Plan shall become
effective only upon the approvals set forth in Section 4.
Section 7. This Plan is terminable at any time by vote of a majority of
---------
the Disinterested Directors.
Section 8. While this Plan is in effect, the selection and nomination of
---------
the new Directors of the Company who are not "interested persons" (as defined in
the Act) of the Company shall be committed to the discretion of the existing
Disinterested Directors.
Section 9. The Company initially adopted this Plan as of February 21,
---------
1994, and amended this Plan as of February 10, 1995, July 27, 1995 and November
17, 1995.
-2-
<PAGE>
SHAREHOLDER SERVICING AGREEMENT
THIS AGREEMENT, by and between Excelsior Tax-Exempt Funds, Inc. (the
"Corporation") and the shareholder service organization (the "Organization")
listed on the signature page hereof;
WITNESSETH:
WHEREAS, certain transactions in Shares of Common Stock, $.001 par value,
of the Corporation or of any series now existing or later created of the
Corporations ("Shares") may be made by investors who are customers of, and using
the services of or arranged by, an Organization, including without limitation
the Company's service providers and their affiliates, that has entered into a
shareholder servicing agreement with the Corporation; and
WHEREAS, the Organization wishes to make it possible for its customers (the
"Customers") to purchase Shares and wishes to act as the Customers' agent in
performing or arranging for the performance of certain administrative functions
in connection with purchases, exchanges and redemptions of Shares from time to
time upon the order and for the account of Customers and to provide related
services to its Customers in connection with their investments in the
Corporation; and
WHEREAS, it is in the interest of the Corporation to make the services of
the Organization available to Customers who are or may become beneficial owners
of Shares of the Corporation;
NOW, THEREFORE, the Corporation and the Organization hereby agree as
follows:
1. Appointment. The Organization, as an independent contractor, hereby
-----------
agrees to perform or to have performed certain services for Customers as
hereinafter set forth. The Organization's appointment hereunder is non-
exclusive, and the parties recognize and agree that, from time to time, the
Corporation may enter into other shareholder servicing agreements, with others
without the Organization's consent. For the purposes of this Agreement, the
Organization is deemed an independent contractor and will have no authority to
act as the Corporation's agent in any respect.
<PAGE>
2. Service to be Performed.
-----------------------
2.1 Type of Service. The Organization shall be responsible for performing
---------------
or having performed shareholder account administrative and servicing functions,
which shall include without limitation: (a) assisting Customers in designating
and changing dividend options, account designations and addresses;/1/ (b)
providing necessary personnel and facilities to establish and maintain certain
shareholder accounts and records, as may reasonably be requested from time to
time by the Corporation; (c) assisting in processing purchases, exchange and
redemption transactions; (d) arranging for the wiring of funds; (e) transmitting
and receiving funds in connection with Customer orders to purchase, exchange or
redeem Shares; (f) verifying and guaranteeing Customer signatures in connection
with redemption orders, transfers among and changes in Customer-designated
accounts; (g) providing periodic statements showing a Customer's account
balances and, to the extent practicable, integration of such information with
information concerning other client transactions otherwise effected with or
through the Organization; (h) furnishing on behalf of the Corporation's
distributor (either separately or on an integrated basis with other reports sent
to a Customer by the Organization) periodic statements and confirmations of all
purchases, exchanges and redemptions of Shares in a Customer's account required
by applicable federal or state law, all such confirmations and statements to
conform to Rule 10b-10 under the Securities Exchange Act of 1934 and other
applicable federal or state law; (i) transmitting proxy statements, annual
reports, updating prospectuses and other communications from the Corporation to
Customers; (j) receiving, tabulating and transmitting to the Corporation proxies
executed by Customers with respect to annual and special meetings of
shareholders of the Corporation; (k) providing reports (at least monthly, but
more frequently if so requested by the Corporation's distributor) containing
state-by-state listings of the principal residences of the beneficial owners of
the Shares; and (l) providing or arranging for the provision of such other
related services as the Corporation or a Customer may reasonably request. The
Organization shall provide or arrange for all personnel and facilities to
perform the functions described in this paragraph with respect to its Customers.
2.2 Standard of Services. All services to be rendered or arranged for by
--------------------
the Organization hereunder shall be performed in a professional, competent and
timely manner. The details of the
- --------------------
1. Services may be modified or omitted in a particular case and items
relettered or renumbered.
-2-
<PAGE>
operating standards and procedures to be followed in performance of the services
described above shall be determined from time to time by agreement between the
Organization and the Corporation. The Corporation acknowledges that the
Organization's ability to perform on a timely basis certain of its obligations
under this Agreement depends upon the Corporation's timely delivery of certain
materials and/or information to the Organization. The Corporation agrees to use
its best efforts to provide such materials to the Organization in a timely
manner.
3. Fees.
----
3.1 Fees from the Corporation. In consideration for the services
-------------------------
described in Section 2 hereof and the incurring of expenses in connection
therewith, the Organization shall receive fees set forth in Appendix A hereto,
such fees to be paid in arrears periodically (but in no event less frequently
than semi-annually) at annual rates of up to .40% of the average daily net
assets of the Corporation's Shares owned during the period for which payment has
been made by Customers for whom the Organization is the holder or agent of
record or with whom it maintains a servicing relationship. For purposes of
determining the fees payable to the Organization hereunder, the value of the
Corporation's net assets shall be computed in the manner specified in the
Corporation's then-current prospectus for computation of the net asset value of
the Corporation's Shares. The above fees constitute all fees to be paid to the
Organization by the Corporation with respect to the transactions contemplated
hereby. The Corporation may at any time in its discretion suspend or withdraw
the sale of its Shares.
3.2 Fees from Customers. It is agreed that the Organization may impose
-------------------
certain conditions on Customers, in addition to or different from those imposed
by the Corporation, such as requiring a minimum initial investment or charging
Customers direct fees for the same or similar services as are provided hereunder
by the Organization (which fees may either relate specifically to the
Organization's services with respect to the Corporation or generally cover
services not limited to those with respect to the Corporation). The
Organization shall bill Customers directly for such fees. In the event the
Organization charges Customers such fees, it shall notify the Corporation in
advance and make appropriate prior written disclosure (such disclosure to be in
accordance with all applicable laws) to Customers of any such fees charged to
the Customer. To the extent required by applicable rules and regulations of the
Securities and Exchange Commission, the Corporation shall make written
disclosure of the fees paid or to be paid to the Organization pursuant to
Section 3.1 of this Agreement. It is understood, however, that in no event
shall the Organization have recourse or access to the account of any shareholder
of the Corporation except to the extent expressly
-3-
<PAGE>
authorized by law or by such shareholder, or to any assets of the Corporation,
for payment of any direct fees referred to in this Section 3.2.
4. Information Pertaining to the Shares. The Organization and its
------------------------------------
officers, employees and agents are not authorized to make any representations
concerning the Corporation or the Shares to Customers or prospective Customers,
excepting only accurate communication of any information provided by or on
behalf of any administrator or distributor of the Corporation or any factual
information contained in the then-current prospectus relating to the Corporation
or to any series of the Corporation. In furnishing such information regarding
the Corporation or the Shares, the Organization shall act as agent for the
Customer only and shall have no authority to act as agent for the Corporation.
Advance copies or proofs of all materials which are generally circulated or
disseminated by the Organization to Customers or prospective Customers which
identify or describe the Corporation shall be provided to the Corporation at
least 10 days prior to such circulation or dissemination (unless the Corporation
consents in writing to a shorter period), and such materials shall not be
circulated or disseminated or further circulated or disseminated at any time
after the Corporation shall have given written notice within such 10 day period
to the Organization of any objection thereto.
Nothing in this Section 4 shall be construed to make the Corporation liable
for the use (or accuracy unless prepared by the Corporation for the specific
use) of any information about the Corporation which is disseminated by the
Organization.
5. Use of the Organization's Name. The Corporation shall not use the name
------------------------------
of the Organization (or any of its affiliates or subsidiaries) in any
prospectus, sales literature or other material relating to the Corporation in a
manner not approved by the Organization prior thereto in writing; provided,
however, that the approval of the Organization shall not be required for any use
of its name which merely refers in accurate and factual terms to its appointment
hereunder and the terms hereof or which is required by law, including without
limitation, by the Securities and Exchange Commission or any state securities
authority or any other appropriate regulatory, governmental or judicial
authority; provided, further, that in no event shall such approval be
unreasonably withheld or delayed.
6. Use of the Corporation's Name. The Organization shall not use the name
-----------------------------
of the Corporation on any checks, bank drafts, bank statements or forms for
other than internal use in a manner not approved by the Corporation prior
thereto in writing; provided, however, that the approval of the Corporation
shall not be required for the use of the Corporation's name in connection with
communications permitted by Section 4 hereof or (subject to
-4-
<PAGE>
Section 4, to the extent the same may be applicable) for any use of the
Corporation's name which merely refers in accurate and factual terms to the
Corporation in connection with the Organization's role hereunder or which is
required by law, including without limitations, by the Securities and Exchange
Commission or any state securities authority or any other appropriate
regulatory, governmental or judicial authority; provided, further, that in no
event shall such approval be unreasonably withheld or delayed.
7. Security. The Organization represents and warrants that to the best of
--------
its knowledge, the various procedures and systems which it has implemented
(including provision for twenty-four hours a day restricted access) with regard
to safeguarding from loss or damage attributable to fire, theft or any other
cause the Corporation's records and other data and the Organization's records,
data, equipment, facilities and other property used in the performance of its
obligations hereunder are adequate and that it will make such changes therein
from time to time as in its judgment are required for the secure performance of
its obligations hereunder. The parties shall review such systems and procedures
on a periodic basis, and the Corporation shall from time to time specify the
types of records and other data of the Corporation to be safeguarded in
accordance with this Section 7.
8. Compliance with Laws. The Organization shall comply with all
--------------------
applicable federal and state laws and regulations, including without limitation
securities laws. The Organization represents and warrants to the Corporation
that the performance of all its obligations hereunder will comply with all
applicable laws and regulations, the provisions of its charter documents and by-
laws and all material contractual obligations binding upon the Organization.
The Organization furthermore undertakes that it will promptly, after the
Organization becomes so aware, inform the Corporation of any change in
applicable laws or regulations (or interpretations thereof) or in its charter or
by-laws or material contracts which would prevent or impair full performance of
any of its obligations hereunder.
9. Reports. Quarterly, and more frequently to the extent requested by the
-------
Corporation from time to time, the Organization agrees that it will provide the
administrator of the Corporation with a written report of the amounts expended
by the Organization pursuant to this Agreement and the purposes for which such
expenditures were made. Such written reports shall be in a form satisfactory to
the Corporation and shall supply all information necessary for the Corporation
to discharge its responsibilities under applicable laws and regulations.
-5-
<PAGE>
10. Record Keeping.
--------------
10.1 Section 31. The Organization shall maintain records in a form
----------
reasonably acceptable to the Corporation and in compliance with applicable laws
and the rules and regulations of the Securities and Exchange Commission,
including but not limited to the record-keeping requirements of Section 31 of
the Investment Company Act of 1940, as amended (the "1940 Act") and the rules
thereunder. Such records shall be deemed to be the property of the Corporation
and will be made available at the Corporation's request for inspection and use
by the Corporation, representatives of the Corporation and governmental
authorities. The Organization agrees that, for so long as it retains any
records of the Corporation, it will meet all reporting requirements pursuant to
the 1940 Act and applicable to the Organization with respect to such records.
Upon termination of this Agreement, the Organization shall deliver to the
administrator of the Corporation all books and records maintained by the
Organization and deemed to be the Corporation's property hereunder.
10.2 Rules 17a-3 and 17a-4. The Organization shall maintain accurate and
---------------------
complete records with respect to services performed by the Organization in
connection with the purchase and redemption of Shares. Such records shall be
maintained in form reasonably acceptable to the Corporation and in compliance
with the requirements of all applicable laws, rules and regulations, including
without limitation, Rules 17a-3 and 17a-4 under the Securities Exchange Act of
1934, as amended, pursuant to which any dealer of the Shares must maintain
certain records. All such records maintained by the Organization shall be the
property of such dealer and will be made available for inspection and use by the
Corporation or such dealer upon the request of either. The Organization shall
file with the Securities and Exchange Commission and other appropriate
governmental authorities, and furnish to the Corporation and any such dealer
copies of, all reports and undertakings as may be reasonably requested by the
Corporation or such dealer in order to comply with the said rules. If so
requested by any such dealer, the Organization shall confirm to such dealer its
obligations under this Section 10.2 by a writing reasonably satisfactory to such
dealer.
10.3 Transfer of Customer Data. In the event this Agreement is terminated
-------------------------
or a successor to the Organization is appointed, the Organization shall transfer
to such designee as the Corporation may direct a certified list of the
shareholders of the Corporation serviced by the Organization (with name, address
and tax identification or Social Security number, if any), a complete record of
the account of each such shareholder and the status thereof, and all other
relevant books, records, correspondence, and other data established or
maintained by the Organization under this Agreement. In the event this
Agreement
-6-
<PAGE>
is terminated, the Organization will use its best efforts to cooperate in the
orderly transfer of such duties and responsibilities, including assistance in
the establishment of books, records and other data by the successor.
10.4 Survival of Record-Keeping Obligations. The record-keeping
--------------------------------------
obligations imposed in this Section 10 shall survive the termination of this
Agreement for a period of three years.
10.5 Obligations Pursuant to Agreement Only. Nothing in this Section 10
--------------------------------------
shall be construed so that the Organization would, by virtue of its role
hereunder, be required under applicable law to maintain the records required to
be maintained by it under this Section 10, but is understood that the
Organization has agreed to do so in order to enable the Corporation and its
dealer or dealers to comply with laws and regulations applicable to them.
10.6 Organization's Rights to Copy Records. Anything in this Section 10
-------------------------------------
to the contrary notwithstanding, except to the extent otherwise prohibited by
law, the Organization shall have the right to copy, maintain and use any records
maintained by the Organization pursuant to this Section 10, except as otherwise
prohibited by Sections 4 and 6 hereof.
11. Force Majeure. The Organization shall not be liable or responsible
-------------
for delays or errors by reason of circumstances beyond its reasonable control,
including, but not limited to, acts of civil or military authority, national
emergencies, labor difficulties, fire, mechanical breakdown, flood or
catastrophe, Acts of God, insurrection, war, riots or failure of communication
or power supply.
12. Indemnification.
---------------
12.1 Indemnification of the Organization. The Corporation will indemnify
-----------------------------------
and hold the Organization harmless from all losses, claims, damages, liabilities
or expenses (including reasonable counsel fees and expenses) from any claim,
demand, action or suit (collectively, "Claims") arising in connection with
material misstatements or omissions in the Corporation's Prospectus.
Notwithstanding anything herein to the contrary, the Corporation will indemnify
and hold the Organization harmless from any and all losses, claims, damages,
liabilities or expenses (including reasonable counsel fees and expenses)
resulting from any Claim as a result of its acting in accordance with any
written instructions reasonably believed by the Organization to have been
executed by any person duly authorized by the Corporation, or as a result of
acting in reliance upon any instrument or stock certificate reasonably believed
by the Organization to have been genuine and signed, countersigned or
-7-
<PAGE>
executed by a person duly authorized by the Corporation, excepting only the
negligence or bad faith of the Organization.
In any case in which the Corporation may be asked to indemnify or hold the
Organization harmless, the Corporation shall be advised of all pertinent facts
concerning the situation in question and the Organization shall use reasonable
care to identify and notify the Corporation promptly concerning any situation
which presents or appears likely to present a claim for indemnification against
the Corporation. The Corporation shall have the option to defend the
Organization against any Claim which may be the subject of indemnification
hereunder. In the event that the Corporation elects to defend against such
Claim, the defense shall be conducted by counsel chosen by the Corporation and
satisfactory to the Organization. The Organization may retain additional
counsel at its expense. Except with the prior written consent of the
Corporation, the Organization shall not confess any Claim or make any compromise
in any case in which the Corporation will be asked to indemnify the
Organization.
12.2 Indemnification of the Corporation. Without limiting the rights of
----------------------------------
the Corporation under applicable law, the Organization will indemnify and hold
the Corporation harmless from all losses, claims, damages, liabilities or
expenses (including reasonable counsel fees and expenses) from any Claim (a)
arising from (i) the bad faith or negligence of the Organization, its officers,
employees or agents, (ii) any breach of applicable law by the Organization, its
officers, employees or agents, (iii) any action of the Organization, its
officers, employees or agents which exceeds the legal authority of the
Organization or its authority hereunder, or (iv) any actions, inactions, errors
or omissions of the Organization, its officers, employees or agents with respect
to the purchase, redemption, transfer and registration of Customers' Shares or
the Corporation's verification or guarantee of any Customer signature.
In any case in which the Organization may be asked to indemnify or hold the
Corporation harmless, the Organization shall be advised of all pertinent facts
concerning the situation in question and the Corporation shall use reasonable
care to identify and notify the Organization promptly concerning any situation
which presents or appears likely to present a claim for indemnification against
the Organization. The Organization shall have the option to defend the
Corporation against any Claim which may be the subject of indemnification
hereunder. In the event that the Organization elects to defend against such
Claim, the defense shall be conducted by counsel chosen by the Organization and
satisfactory to the Corporation. The Corporation may retain additional counsel
at its expense. Except with the prior written consent of the Organization, the
Corporation shall not confess
-8-
<PAGE>
any Claim or make any compromise in any case in which the Organization will be
asked to indemnify the Corporation.
12.3 Survival of Indemnities. The indemnities granted by the parties in
-----------------------
this Section 12 shall survive the termination of this Agreement.
13. Notices. All notices or other communications hereunder to either party
-------
shall be in writing and shall be deemed sufficient if mailed to such party at
the address of such party set forth on the signature page of this Agreement or
at such other address as such party may have designated by written notice to the
other.
14. Further Assurances. Each party agrees to perform such further acts
------------------
and execute such further documents as are necessary to effectuate the purposes
hereof.
15. Termination. Unless sooner terminated, this Agreement will continue
-----------
until July 31, 1996 and thereafter will continue automatically for successive
annual periods provided such continuance is specifically approved at least
annually by vote of a majority of (i) the Board of Directors of the Corporation
and (ii) those Directors who are not "interested persons" (as defined in the
1940 Act) of the Corporation and have no direct or indirect financial interest
in the operation of the Corporation's Administrative Services Plan or in any
agreement related thereto cast in person at a meeting called for the purpose of
voting on such approval ("Disinterested Directors"). This Agreement is
terminable, without penalty, at any time by the Corporation (which termination
may be by a vote of a majority of the Disinterested Directors) or by you upon
notice to the Corporation.
16. Changes; Amendments. This Agreement may be changed or amended only by
-------------------
written instrument signed by both parties hereto.
17. Subcontracting By Organization. The Organization may, with the
------------------------------
written approval of the Corporation (such approval not to be unreasonably
withheld), subcontract for the performance of the Organization's obligations
hereunder with any one or more persons, including but not limited to any one or
more persons which is an affiliate of the Organization; provided, however, that
the Organization shall be as fully responsible to the Corporation for the acts
and omissions of any subcontractor as it would be for its own acts or omissions.
18. Compliance with Laws and Policies; Cooperation. The Corporation
----------------------------------------------
hereby agrees that it will comply with all laws and regulations applicable to
its operations and the Organization agrees that it will comply with all laws and
regulations applicable to its operations hereunder. Each party understands
-9-
<PAGE>
that the other may from time to time adopt or modify policies relating to the
subject matter of this Agreement, in which case the party adopting or modifying
such a policy shall notify the other thereof and the parties shall consider the
applicability thereof and endeavor to comply therewith to the extent not
impracticable or unreasonably burdensome. Each of the parties agrees to
cooperate with the other in connection with the performance of this Agreement
and the resolution of any problems, questions or disagreements in connection
herewith.
18.1 Annual Financial Reports. At least once a year, the Corporation
------------------------
shall send to the record owners of its shares the Corporation's audited
financial statements.
18.2 Annual Certification. At least once a year, the Organization shall
--------------------
certify to the Corporation that it is conducting its business in accordance with
the terms and conditions of the Agreement.
19. Single Portfolio. Notwithstanding anything in this Agreement to the
----------------
contrary, any amount owed by Corporation to the Organization under this
Agreement or otherwise with respect to any matter hereunder shall be paid only
from and shall be limited to the assets and property of the particular
investment portfolio of the Corporation to which the matter relates.
20. Miscellaneous. This Agreement shall be construed and enforced in
-------------
accordance with and governed by the laws of the State of Maryland. The captions
in this Agreement are included for convenience of reference only and in no way
define or limit any of the provisions hereof or otherwise affect their
construction or effect. This Agreement may be executed simultaneously in two
ore more counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument. The terms of
this Agreement shall become effective as of the date set forth below.
IN WITNESS WHEREOF, intending to be legally bound hereby, the parties
hereto have caused this Agreement to be executed and delivered in their names
and on their behalf by the undersigned, thereunto duly authorized, all as of the
day and year set forth below.
Dated as of: ______________________
Excelsior Tax-Exempt Funds, Inc. Address for Notices:
_______________________
_______________________
-10-
<PAGE>
_______________________
By: ______________________________ _______________________
(Authorized Officer)
___________________________________
[Service Organization]
By: _______________________________ Address for Notices:
(Authorized Officer) ________________________
________________________
________________________
________________________
-11-
<PAGE>
APPENDIX A
----------
EXCELSIOR TAX-EXEMPT FUNDS, INC.
Pursuant to the terms and conditions set forth in the attached
Shareholder Servicing Agreement, the Organization will receive the fees set
forth below in consideration for the services described in Section 2 of said
Agreement and the incurring of expenses in connection therewith, such fees
(calculated pursuant to Section 3.1 of said Agreement) to be paid in arrears
periodically (but in no event less frequently than semi-annually):
<TABLE>
<CAPTION>
================================================
FUND SHAREHOLDER
SERVICING
FEE
================================================
<S> <C>
Tax-Exempt Money Fund __ BP
================================================
Short-Term Tax-Exempt Securities
Fund __ BP
Intermediate-Term Tax-Exempt Fund __ BP
Long-Term Tax-Exempt Fund __ BP
New York Intermediate-Term Tax-
Exempt Fund __ BP
California Tax-Exempt Income Fund
__ BP
================================================
</TABLE>
-12-
<PAGE>
EXHIBIT (9)(b)
ADMINISTRATION AGREEMENT
This AGREEMENT made as of January 1, 1996 by and among EXCELSIOR
FUNDS, INC., a Maryland corporation (the "Company"), CHASE GLOBAL FUNDS SERVICES
COMPANY, a Delaware corporation ("CGFSC"), FEDERATED ADMINISTRATIVE SERVICES
("FAS"), a Delaware trust, and UNITED STATES TRUST COMPANY OF NEW YORK ("U.S.
Trust"), a New York corporation (CGFSC, FAS and U.S. Trust are collectively
referred to as the "Administrators").
WITNESSETH:
WHEREAS, the Company is registered as an open-end, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Company wishes to retain the Administrators to provide,
as co-administrators, certain administration services with respect to one or
more of the Company's investment portfolios (individually, a "Fund," and
collectively, the "Funds"), as described and set forth on one or more exhibits
to this Agreement, and the Administrators are willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Company hereby appoints the Administrators to
-----------
provide administration services to the Funds for the period and on the terms set
forth in this Agreement. The Administrators accept such appointment and agree to
furnish the services herein set forth in return for the compensation as provided
in Section 4 of this Agreement. In the event that the Company establishes one or
more investment portfolios other than the Funds with respect to which it decides
to retain the Administrators to act as co-administrators hereunder, the Company
shall notify the Administrators in writing. If the Administrators are willing to
render such services to a new investment portfolio, they shall so notify the
Company in writing whereupon such investment portfolio shall become a Fund
hereunder and shall be subject to the provisions of this Agreement to the same
extent as the Funds, except to the extent that said provisions (including those
relating to the compensation payable by the Company) may be modified with
respect to such investment portfolio in writing by the Company and the
Administrators at the time of the addition of such new investment portfolio.
2. DELIVERY OF DOCUMENTS. The Company has furnished each of the
---------------------
Administrators with copies, properly certified or authenticated, of each of the
following:
<PAGE>
(a) Resolutions of the Company's Board of Directors authorizing
the appointment of the Administrators to provide certain administration services
to the Company and approving this Agreement;
(b) The Company's Articles of Incorporation ("Charter");
(c) The Company's Bylaws ("Bylaws");
(d) The Company's Notification of Registration on Form N-8A under
the 1940 Act as filed with the Securities and Exchange Commission ("SEC") on
August 8, 1984;
(e) The Company's most recent Post-Effective Amendment to its
Registration Statement on Form N-1A (No. 2-92665) (the "Registration Statement")
under the Securities Act of 1933 and the 1940 Act, as filed with the SEC;
(f) The Company's Amended and Restated Administrative Services
and Amended and Restated Distribution Plans; and
(g) The Company's most recent Prospectuses and Statements of
Additional Information and all amendments and supplements thereto (such
Prospectuses and Statements of Additional Information and supplements thereto,
as presently in effect and as from time to time amended and supplemented, herein
called the "Prospectus").
The Company will timely furnish each of the Administrators from
time to time with copies, properly certified or authenticated, of all amendments
of or supplements to the foregoing, if any.
3. SERVICES AND DUTIES. Subject to the supervision and control of
-------------------
the Company's Board of Directors, and as delineated on one or more Exhibit to
the Agreement, the Administrators agree to assist in supervising various aspects
of each Fund's administrative operations, including the performance of the
following specific services for each Fund:
(a) Providing office facilities (which may be in the offices of
any of the Administrators or a corporate affiliate of any of them, but shall be
in such location as the Company shall reasonably approve);
(b) Furnishing statistical and research data, clerical services,
and stationery and office supplies;
-2-
<PAGE>
(c) Keeping and maintaining all financial accounts and records
(other than those required to be maintained by the Company's Custodian and
Transfer Agent);
(d) Computing each Fund's net asset value, net income and net
capital gain (loss) in accordance with the Company's Prospectus and resolutions
of its Board of Directors;
(e) Compiling data for and preparing for execution and filing
with the SEC required reports and notices to shareholders of record and the SEC
including, without limitation, Semi-Annual and Annual Reports to Shareholders,
Semi-Annual Reports on Form N-SAR and timely Rule 24f-2 Notices;
(f) Compiling data for, and preparing for execution and filing
all reports or other documents required by Federal, state and other applicable
laws and regulations, including those required by applicable laws and
regulations, including those required by applicable Federal and state tax laws
(other than those required to be filed by the Company's Custodian or Transfer
Agent);
(g) Reviewing and providing advice with respect to all sales
literature (advertisements, brochures and shareholder communications) for each
of the Funds and any class or series thereof;
(h) Assisting in developing and monitoring compliance procedures
for each Fund and any class or series thereof, including, without limitation,
procedures to monitor compliance with applicable law and regulations, each
Fund's investment objectives, policies and restrictions, its continued
qualification as a regulated investment company under the Internal Revenue Code
of 1986, as amended, and other tax matters;
(i) Monitoring the Company's arrangements with respect to
services provided by certain organizations ("Organizations") under its Amended
and Restated Distribution Plan. With respect to Organizations, the
Administrators shall specifically monitor and review the services rendered under
the Amended and Restated Distribution Plan by Organizations to their customers
who are the beneficial owners of shares, pursuant to agreements between the
Company and such Organizations ("Agreements"), including, without limitation,
reviewing the qualifications of financial institutions wishing to be
Organizations, assisting in the execution and delivery of Agreements, reporting
to the Company's Board of Directors with respect to the amounts paid or payable
by the Company from time to time under the Agreements and the nature of the
services provided by Organizations, and maintaining appropriate records in
connection with such duties;
-3-
<PAGE>
(j) Monitoring the Company's arrangements with respect to
services provided by certain organizations ("Service Organizations") under its
Amended and Restated Administrative Services Plan, provided that each
Administrator will only be responsible for monitoring arrangements with Service
Organizations with whom the Administrator has established the servicing
relationship on behalf of the Company. With respect to such Service
Organizations, the Administrators shall specifically monitor and review the
services rendered by Service Organizations to their customers who are the
beneficial owners of shares, pursuant to agreements between the Company and such
Service Organizations ("Servicing Agreements"), including, without limitation,
reviewing the qualifications of financial institutions wishing to be Service
Organizations, assisting in the execution and delivery of Servicing Agreements,
reporting to the Company's Board of Directors with respect to the amounts paid
or payable by the Company from time to time under the Servicing Agreements and
the nature of the services provided by Service Organizations, and maintaining
appropriate records in connection with such duties;
(k) Determining, together with the Company's Board of Directors,
the jurisdictions in which the Company's shares shall be registered or qualified
for sale and, in connection therewith, maintaining the registration or
qualification of shares for sale under the securities laws of any state. Payment
of share registration fees and any fees for qualifying or continuing the
qualification of any Fund as a dealer or broker, if applicable, shall be made by
that Fund;
(l) Assisting to the extent requested by the Company and its
outside counsel with the preparation of the Company's Registration Statement on
Form N-1A or any replacement therefor; and
(m) Assisting in the monitoring of regulatory and legislative
developments which may affect the Company and, in response to such developments,
counseling and assisting the Company in routine regulatory examinations or
investigations of the Company, and working with outside counsel to the Company
in connection with regulatory matters or litigation.
In performing their duties as co-administrators of the Company, the
Administrators (a) will act in accordance with the Company's Charter, Bylaws,
Prospectus and the instructions and directions of the Company's Board of
Directors and will conform to, and comply with, the requirements of the 1940 Act
and all other applicable Federal or state laws and regulations, and (b) will
consult with outside legal counsel to the Company, as necessary or appropriate.
-4-
<PAGE>
The Administrators will preserve for the periods prescribed by Rule
31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1
under said Act in connection with the services required to be performed
hereunder. The Administrators further agree that all such records which they
maintain for the Company are the property of the Company and further agree to
surrender promptly to the Company any of such records upon the Company's
request.
4. FEES; EXPENSES; EXPENSE REIMBURSEMENT.
-------------------------------------
For the services rendered pursuant to this Agreement for all Funds
(except the International, Pacific/Asia, Pan European and Emerging Americas
Funds), the Administrators shall be entitled jointly to a fee based on the
average net assets of the Company, determined at the following annual rates
applied to the average combined daily net assets of all of the Funds (except the
International, Pacific/Asia, Pan European and Emerging Americas Funds) and all
of the investment portfolios of Excelsior Tax-Exempt Funds, Inc. and Excelsior
Institutional Trust (the "Trust")(except the International Equity Fund of the
Trust): .20% of the first $200 million; .175% of the next $200 million; and
.15% of any amount in excess of $400 million. Each Fund (except the
International, Pacific/Asia, Pan European and Emerging Americas Funds) will pay
a portion of the total fee payable by the Company in an amount equal to the
proportion that such Fund's average daily net assets bears to the total average
daily net assets of all the Funds of the Company (except the International,
Pacific/Asia, Pan European and Emerging Americas Funds). For the services
provided to the International, Pacific/Asia, Pan European and Emerging Americas
Funds, the Administrators shall be entitled jointly to a fee, at the annual rate
of .20% of the average daily net assets of each such Fund. The fee attributable
to each Fund shall be the several (and not joint or joint and several)
obligation of each Fund. Such fees are to be computed daily and paid monthly on
the first business day of the following month. Upon any termination of this
Agreement before the end of any month, the fee for such part of the month shall
be pro-rated according to the proportion which such period bears to the full
monthly period and shall be payable upon the date of termination of this
Agreement.
For purposes of determining fees payable to the Administrators, the
value of each Fund's net assets shall be computed as required by its Prospectus,
generally accepted accounting principles, and resolutions of the Company's Board
of Directors.
The Administrators will from time to time employ or associate with
themselves such person or persons as they may believe to be fitted to assist
them in the performance of this Agreement. Such person or persons may be
officers and employees
-5-
<PAGE>
who are employed by both the Administrators and the Company. The compensation
of such person or persons for such employment shall be paid by the
Administrators and no obligation may be incurred on behalf of the Company in
such respect.
The Administrators will bear all expenses in connection with the
performance of their services under this Agreement except as otherwise expressly
provided herein. Other expenses to be incurred in the operation of the Funds,
including taxes, interest, brokerage fees and commissions, if any, salaries and
fees of officers and directors who are not officers, directors, shareholders or
employees of the Administrators, or the Company's investment adviser or
distributor for the Funds, Securities and Exchange Commission fees and state
Blue Sky qualification fees, advisory and administration fees, charges of
custodians, transfer and dividend disbursing agents' fees, certain insurance
premiums, outside auditing and legal expenses, payments to Organizations and
Service Organizations, costs of maintenance of corporate existence, typesetting
and printing of prospectuses for regulatory purposes and for distribution to
current shareholders of the Funds, costs of shareholders' reports and corporate
meetings and any extraordinary expenses, will be borne by the Company, provided,
--------
however, that, except pursuant to the Amended and Restated Distribution Plan,
- -------
the Company will not bear, directly or indirectly, the cost of any activity
which is primarily intended to result in the distribution of shares of the
Funds, and further provided that the Administrators may utilize one or more
----------------
independent pricing services, approved from time to time by the Board of
Directors of the Company, to obtain securities prices in connection with
determining the net asset value of each Fund and that each Fund will reimburse
the Administrators for its share of the cost of such services based upon its
actual use of the services.
If in any fiscal year any Fund's aggregate expenses (as defined under
the securities regulations of any state having jurisdiction over the Fund)
exceed the expense limitations of any such state, the Administrators agree to
reimburse such Fund for a portion of any such excess expenses in an amount equal
to the proportion that the fees otherwise payable to the Administrators bears to
the total amount of investment advisory and administration fees otherwise
payable by the Fund. The expense reimbursement obligation of the Administrators
is limited to the amount of their fees hereunder for such fiscal year, provided,
--------
however, that notwithstanding the foregoing, the Administrators shall reimburse
- -------
such Fund for a portion of any such excess expenses in an amount equal to the
proportion that the fee otherwise payable to the Administrators bears to the
total amount of investment advisory and administration fees otherwise payable by
the Fund regardless of the amount of fees paid to the Administrators during such
fiscal year to the extent that the securities regulations of any state having
jurisdiction over the
-6-
<PAGE>
Funds so require. Such expense reimbursement, if any, will be estimated,
reconciled and paid on a monthly basis. With respect to the amounts required to
be reimbursed under this Section 4 in any fiscal year, the parties to this
Agreement agree that U.S. Trust alone shall reimburse such amounts up to the
amount of fees received by CGFSC and U.S. Trust under this Agreement for such
year. FAS shall only be obligated to reimburse expenses to the extent that the
amounts required to be reimbursed under this Section 4 in any fiscal year exceed
the amount of fees received by CGFSC and U.S. Trust under this Agreement for
such year and to the extent that U.S. Trust makes reimbursements equalling the
amount of all such fees received by CGFSC and U.S. Trust, provided that the
reimbursement obligation of FAS shall be limited to the amount of fees received
by it under this Agreement for such year.
5. PROPRIETARY AND CONFIDENTIAL INFORMATION. The Administrators
----------------------------------------
agree on behalf of themselves and their employees to treat confidentially and as
proprietary information of the Company all records and other information
relative to the Funds and prior, present or potential shareholders, and not to
use such records and information for any purpose other than performance of their
responsibilities and duties hereunder, except after prior notification to and
approval in writing by the Company, which approval shall not be unreasonably
withheld and may not be withheld where the Administrators may be exposed to
civil or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so requested
by the Company.
6. LIMITATION OF LIABILITY. Each Administrator shall not be liable
-----------------------
for any error of judgment or mistake of law or for any loss or expense suffered
by the Company in connection with the matters to which this Agreement relates,
except for a loss or expense resulting from willful misfeasance, bad faith or
gross negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement. Any person,
even though also an officer, partner, employee or agent of any of the
Administrators, who may be or become an officer, director, employee or agent of
the Company shall be deemed when rendering services to the Company or acting on
any business of the Company (other than services or business in connection with
the Administrators' duties hereunder) to be rendering such services to or acting
solely for the Company and not as an officer, partner, employee or agent or one
under the control or direction of the Administrators even though paid by any of
them. The Administrators agree that this Agreement shall not create any joint
and/or several liability among the Administrators with respect to services
provided by any particular Administrator as set forth herein.
-7-
<PAGE>
7. TERM. This Agreement shall become effective on January 1, 1996
----
and, unless sooner terminated as provided herein, shall continue until July 31,
1996, and thereafter shall continue automatically with respect to each Fund for
successive annual periods ending on July 31 of each year, provided such
continuance is specifically approved at least annually by the Company's Board of
Directors. This Agreement is terminable with respect to each Fund, without
penalty, on not less than ninety days' notice by the Company's Board of
Directors or by CGFSC, FAS or U.S. Trust. This Agreement will terminate
automatically in the event of its "assignment" (as defined in the Investment
Company Act 1940). The parties agree that an assignment includes the transfer of
"control" of more than 25% of the outstanding voting securities of FAS to a
company that is not a subsidiary of Federated Investors. The parties also agree
that the merger between The Chase Manhattan Corporation and Chemical Banking
Corporation and the merger between The Chase Manhattan Bank, N.A. and Chemical
Bank will not constitute an assignment under this Agreement.
8. GOVERNING LAW. This Agreement shall be governed by New York law.
-------------
9. NOTICES. All notices required or permitted herein shall be in
-------
writing and shall be deemed to be properly given when delivered personally or by
telecopier to the party entitled to receive the notice or when sent by certified
or registered mail, postage prepaid, or delivered to an internationally
recognized overnight courier service, in each case properly addressed to the
party entitled to receive such notice at the address or telecopier number stated
below or to such other address or telecopier number as may hereafter be
furnished in writing by notice similarly given by one party to the other party
hereto:
If to the Company:
Excelsior Funds, Inc.
73 Tremont Street
Boston, Massachusetts 02108-3913
Telecopier Number: (617) 557-8617
With copies to:
W. Bruce McConnel, III, Esq.
Drinker Biddle & Reath
1345 Chestnut Street, Suite 1100
Philadelphia, Pennsylvania 19107
Telecopier Number: (215) 988-2757
-8-
<PAGE>
If to CGFSC:
Chase Global Funds Services Company
73 Tremont Street
Boston, Massachusetts 02108-3913
Telecopier Number: (617) 557-8617
If to FAS:
Federated Administrative Services
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Telecopier Number: (412) 288-8141
If to U.S. Trust:
United States Trust Company of New York
114 West 47th Street, 10th Floor
New York, New York 10036
Telecopier Number: (212) 852-3971
10. MISCELLANEOUS. No provisions of this Agreement may be changed,
-------------
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, discharge or termination is
sought. If a change or discharge is sought against the Company, the instrument
must be signed by each Administrator. This Agreement
-9-
<PAGE>
may be executed in one or more counterparts and all such counterparts will
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below as of the date indicated above.
ATTEST: EXCELSIOR FUNDS, INC.
By:___________________________ By:________________________
Title:
(SEAL)
ATTEST: CHASE GLOBAL FUNDS SERVICES
COMPANY
By:___________________________ By:________________________
Title:
(SEAL)
ATTEST: FEDERATED ADMINISTRATIVE SERVICES
By:___________________________ By:________________________
Title:
(SEAL)
ATTEST: UNITED STATES TRUST COMPANY
OF NEW YORK
By:___________________________ By:________________________
Title:
(SEAL)
-10-
<PAGE>
Exhibit A
to the
Administration Agreement
EXCELSIOR FUNDS, INC.
---------------------
Money Fund
Government Money Fund
Treasury Money Fund
Short-Term Government Securities Fund
Intermediate-Term Managed Income Fund
Managed Income Fund
Equity Fund
Income and Growth Fund
Long-Term Supply of Energy Fund
Productivity Enhancers Fund
Environmentally-Related Products and Services Fund
Aging of America Fund
Communication and Entertainment Fund
Business and Industrial Restructuring Fund
Global Competitors Fund
Early Life Cycle Fund
International Fund
Emerging Americas Fund
Pacific/Asia Fund
Pan European Fund
In consideration of the mutual covenants set forth in the
Administration Agreement dated as of January 1, 1996 among Excelsior Funds, Inc.
(the "Company"), Chase Global Funds Services Company ("CGFSC"), Federated
Administrative Services ("FAS") and United States Trust Company of New York
("U.S. Trust"), Excelsior Funds, Inc. executes and delivers this Exhibit on
behalf of the Funds, and with respect to any class or series thereof, first set
forth in this Exhibit.
Pursuant to Section 3 of the Agreement, FAS agrees to provide
facilities, equipment, and personnel to carry out the following administrative
services to the Funds, with the understanding that CGFSC will provide all other
services and duties set forth in said Section 3 but not otherwise listed below:
(a) Performing a due diligence review of SEC required reports and
notices to shareholders of record and to the SEC including, without limitation,
Semi-Annual and Annual Reports to Shareholders, Semi-Annual Reports on Form N-
SAR, Proxy Statements and SEC share registration notices;
(b) Reviewing the Company's Registration Statement on Form N-1A or any
replacement therefor;
<PAGE>
(c) Reviewing and filing with the National Association of Securities
Dealers, Inc. all sales literature (advertisements, brochures and shareholder
communications) for each of the Funds and any class or series thereof;
(d) Preparing distributor's reports to the Company's Board of
Directors;
(e) Performing internal audit examinations in accordance with a
charter to be adopted by FAS and the Company;
(f) Upon request, providing individuals reasonably acceptable to the
Company's Board of Directors for nomination, appointment, or election as
officers of the Company, who will be responsible for the management of certain
of the Funds' affairs as determined by the Company;
(g) Consulting with the Funds and the Company's Board of Directors, as
appropriate, on matters concerning the distribution of Funds;
(h) Monitoring the Company's arrangements with respect to services
provided by certain organizations ("Organizations") under its Amended and
Restated Distribution Plan. With respect to Organizations, FAS shall
specifically monitor and review the services rendered under the Amended and
Restated Distribution Plan by Organizations to their customers who are the
beneficial owners of shares, pursuant to agreements between the Company and such
Organizations ("Agreements"), including, without limitation, reviewing the
qualifications of financial institutions wishing to be Organizations, assisting
in the execution and delivery of Agreements, reporting to the Company's Board of
Directors with respect to the amounts paid or payable by the Company from time
to time under the Agreements and the nature of the services provided by
Organizations, and maintaining appropriate records in connection with such
duties;
(i) Monitoring the Company's arrangements with respect to services
provided by certain organizations ("Service Organizations") under its Amended
and Restated Administrative Services Plan, provided that FAS will only be
responsible for monitoring arrangements with Service Organizations with whom FAS
has established the servicing relationship on behalf of the Company. With
respect to such Service Organizations, FAS shall specifically monitor and review
the services rendered by Service Organizations to their customers who are the
beneficial owners of shares, pursuant to agreements between the Company and such
Service Organizations ("Servicing Agreements"), including, without limitation,
reviewing the qualifications of financial institutions wishing to be Service
Organizations, assisting in the execution and delivery of Servicing Agreements,
reporting to the Company's Board of Directors with respect to the amounts paid
-2-
<PAGE>
or payable by the Company from time to time under the Servicing Agreements and
the nature of the services provided by Service Organizations, and maintaining
appropriate records in connection with such duties; and
(j) Consulting with CGFSC and the Company regarding the jurisdictions
in which the Company's shares shall be registered or qualified for sale and, in
connection therewith, reviewing and monitoring the actions of CGFSC in
maintaining the registration or qualification of shares for sale under the
securities laws of any state. Payment of share registration fees and any fees
for qualifying or continuing the qualification of any Fund as a dealer or
broker, if applicable, shall be made by that Fund.
Witness the due execution hereof this 1st day of January, 1996.
ATTEST: EXCELSIOR FUNDS, INC.
__________________________ _____________________________
Secretary President
(SEAL)
ATTEST: FEDERATED ADMINISTRATIVE
SERVICES
__________________________ _____________________________
Secretary Executive Vice President
(SEAL)
ATTEST: CHASE GLOBAL FUNDS SERVICES COMPANY
__________________________ _____________________________
Secretary Executive Vice President
(SEAL)
-3-
<PAGE>
Exhibit B
to the
Administration Agreement
EXCELSIOR FUNDS, INC.
---------------------
Money Fund
Government Money Fund
Treasury Money Fund
Short-Term Government Securities Fund
Intermediate-Term Managed Income Fund
Managed Income Fund
Equity Fund
Income and Growth Fund
Long-Term Supply of Energy Fund
Productivity Enhancers Fund
Environmentally-Related Products and Services Fund
Aging of America Fund
Communication and Entertainment Fund
Business and Industrial Restructuring Fund
Global Competitors Fund
Early Life Cycle Fund
International Fund
Emerging Americas Fund
Pacific/Asia Fund
Pan European Fund
In consideration of the mutual covenants set forth in the
Administration Agreement dated as of January 1, 1996 among Excelsior Funds, Inc.
(the "Company"), Chase Global Funds Services Company ("CGFSC"), Federated
Administrative Services ("FAS") and United States Trust Company of New York
("U.S. Trust"), Excelsior Funds, Inc. executes and delivers this Exhibit on
behalf of the Funds, and with respect to any class or series thereof, first set
forth in this Exhibit.
Pursuant to Section 3 of the Agreement, U.S. Trust agrees to provide
facilities, equipment, and personnel to carry out the following administrative
services to the Funds:
(a) Providing guidance and assistance in the preparation of SEC
required reports and notices to shareholders of record and to the SEC including,
without limitation, Semi-Annual and Annual Reports to Shareholders, Semi-Annual
Reports on Form N-SAR, Proxy Statements and SEC share registration notices;
(b) Reviewing the Company's Registration Statement on Form N-1A or any
replacement therefor;
(c) Consulting with the Funds and the Company's Board of Directors, as
appropriate, on matters concerning the administration and operation of the
Funds;
-4-
<PAGE>
(d) Monitoring the Company's arrangements with respect to services
provided by certain organizations ("Service Organizations") under its Amended
and Restated Administrative Services Plan, provided that U.S. Trust will only be
responsible for monitoring arrangements with Service Organizations with whom
U.S. Trust has established the servicing relationship on behalf of the Company.
With respect to such Service Organizations, U.S. Trust shall specifically
monitor and review the services rendered by Service Organizations to their
customers who are the beneficial owners of shares, pursuant to agreements
between the Company and such Service Organizations ("Servicing Agreements"),
including, without limitation, reviewing the qualifications of financial
institutions wishing to be Service Organizations, assisting in the execution and
delivery of Servicing Agreements, reporting to the Company's Board of Directors
with respect to the amounts paid or payable by the Company from time to time
under the Servicing Agreements and the nature of the services provided by
Service Organizations, and maintaining appropriate records in connection with
such duties.
Witness the due execution hereof this 1st day of January, 1996.
ATTEST: EXCELSIOR FUNDS, INC.
_______________________________ _________________________________
Secretary President
(SEAL)
ATTEST: UNITED STATES TRUST COMPANY
OF NEW YORK
_______________________________ By:______________________________
Secretary Title:
(SEAL)
-5-
<PAGE>
EXHIBIT 10(b)
July 31, 1996
Excelsior Funds, Inc.
73 Tremont Street
Boston, Massachusetts 02108-3913
RE: SHARES REGISTERED BY POST-EFFECTIVE AMENDMENT NO. 23 TO
REGISTRATION STATEMENT ON FORM N-1A (FILE NO. 2-92665)
Ladies and Gentlemen:
We acted as counsel to Excelsior Funds, Inc. (the "Company") in
connection with the preparation and filing with the Securities and Exchange
Commission of Post-Effective Amendment No. 23 to the Company's Registration
Statement on Form N-1A under the Securities Act of 1933, as amended, registering
615,496,616 shares of the Company's Common Stock, $.001 par value per share, to
be issued and sold by the Company (the "Common Stock"). The registration of such
Common Stock has been made in reliance upon Rule 24e-2 under the Investment
Company Act of 1940, as amended.
In this connection, we have reviewed originals or copies, certified or
otherwise identified to our satisfaction, of the Company's Certificate of
Incorporation, By-Laws, resolutions of its Board of Directors and such other
documents and corporate records as we deem appropriate for the purpose of giving
this opinion. We express no opinion concerning the laws of any jurisdiction
other than the Maryland General Corporation Law and the Federal Law of the
United States of America.
Based upon the foregoing, it is our opinion that the foregoing shares of
Common STock, when issued for payment as described in the Company's Prospectus
and in accordance with the Company's Articles of Incorporation for not less than
$.001 per share, will be legally issued, fully paid and non-assessable shares of
Common Stock of the Company.
<PAGE>
Excelsior Funds, Inc.
July 31, 1996
Page 2
We hereby consent to the filing of this opinion as an exhibit to
Post-Effective Amendment No. 23 to the Company's Registration Statement.
Very truly yours,
/s/ Drinker Biddle & Reath
DRINKER BIDDLE & REATH
<PAGE>
EXHIBIT (11)(a)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in each Prospectus and "Financial Statements" and "Independent
Auditors" in each Statement of Additional Information and to the incorporation
by reference in Post-Effective Amendment Number 23 to the Registration Statement
(Form N-1A No. 2-92665) of Excelsior Funds, Inc. of our report dated May 13,
1996 on the financial statements and financial highlights included in the 1996
Annual Report.
ERNST & YOUNG LLP
Boston, Massachusetts
July 26, 1996
<PAGE>
EXHIBIT (11)(b)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to our Firm
under the caption "Counsel" in the Statements of Additional Information that are
included in Post-Effective Amendment Nos. 23 and 25 to the Registration
Statement (Nos. 2-93068; 811-4101) on Form N-1A of Excelsior Tax-Exempt Funds,
Inc. under the Securities Act of 1933 and the Investment Company Act of 1940,
respectively. This consent does not constitute a consent under Section 7 of the
Securities Act of 1933, and in consenting to the use of our name and the
references to our Firm under such caption we have not certified any part of the
Registration Statement and do not otherwise come within the categories of
persons whose consent is required under Section 7 or the rules and regulations
of the Securities and Exchange Commission thereunder.
/s/ DRINKER BIDDLE & REATH
--------------------------
DRINKER BIDDLE & REATH
Philadelphia, Pennsylvania
July 31, 1996
<PAGE>
EXHIBIT (13)(c)
PURCHASE AGREEMENT
------------------
UST Master Funds, Inc. (the "Company"), a Maryland corporation, and
EDGEWOOD SERVICES, INC. ("Distributor"), a New York corporation, hereby agree
with each other as follows:
1. The Company hereby offers Distributor and Distributor hereby purchases
one Trust Share of each of the Equity Fund, Global Competitors Fund,
Aging of America Fund, Communication and Entertainment Fund, Business
and Industrial Restructuring Fund and Early Life Cycle Fund
(collectively, the "New Fund Shares") of the Company at $10 per share.
The Company hereby acknowledges receipt from Distributor of funds in
the total amount of $60 in full payment for the New Fund Shares.
2. Distributor represents and warrants to the Company that the New Fund
Shares are being acquired for investment purposes and not with a view
to the distribution thereof.
IN AGREEMENT WHEREOF, and intending to be legally bound hereby, the parties
hereto have executed this Agreement as of the 17th day of November, 1995.
UST MASTER FUNDS, INC.
By: /s/ Alfred Tannachion
---------------------
its President
EDGEWOOD SERVICES, INC.
By:/s/ R. Jeffrey Niss
-------------------
its Senior Vice President
<PAGE>
EXHIBIT (18)
EXCELSIOR FUNDS, INC.
(THE "COMPANY")
AMENDED AND RESTATED PLAN PURSUANT TO RULE 18f-3 FOR OPERATION OF
A MULTI-CLASS SYSTEM
----------------------------
I. INTRODUCTION
---------------
On February 23, 1995, the Securities and Exchange Commission (the
"Commission") adopted Rule 18f-3 under the Investment Company Act of 1940, as
amended (the "1940 Act"), which permits the creation and operation of a multi-
class distribution structure without the need to obtain an exemptive order under
Section 18 of the 1940 Act. Rule 18f-3, which became effective on April 3,
1995, requires an investment company to file with the Commission a written plan
specifying all of the differences among classes, including the various services
offered to shareholders, different distribution arrangements for each class,
methods for allocating expenses relating to those differences and any conversion
features or exchange privileges. On May 19, 1995, the Board of Directors of the
Company initially authorized the Company to operate a multi-class distribution
structure in compliance with Rule 18f-3. This Plan pursuant to Rule 18f-3 is
hereby amended and restated as of May 17, 1996.
II. ATTRIBUTES OF CLASSES
-------------------------
A. Generally
---------
The Company is initially authorized to offer two classes of shares under
this Plan as follows:
Equity Funds
------------
Class C shares ("Non-Trust Shares") and Class C-Special Series 1 shares
("Trust Shares") in the Equity Fund; Class E shares ("Non-Trust Shares") and
Class E-Special Series 1 shares ("Trust Shares") in the Income and Growth Fund;
Class H shares ("Non-Trust Shares") and Class H-Special Series 1 shares ("Trust
Shares") in the Early Life Cycle Fund; Class I shares ("Non-Trust Shares") and
Class I-Special Series 1 shares ("Trust Shares") in the Long-Term Supply of
Energy Fund; Class J shares ("Non-Trust Shares") and Class J-Special Series 1
shares ("Trust Shares") in the Productivity Enhancers Fund; Class K shares
("Non-Trust Shares") and Class K-Special Series 1 shares ("Trust Shares") in the
Environmentally-Related Products and Services Fund; Class L shares ("Non-Trust
Shares") and Class L-Special Series 1 shares ("Trust Shares") in the Aging of
America Fund; Class M shares
<PAGE>
("Non-Trust Shares") and Class M-Special Series 1 shares ("Trust Shares") in the
Communication and Entertainment Fund; Class N shares ("Non-Trust Shares") and
Class N-Special Series 1 shares ("Trust Shares") in the Business and Industrial
Restructuring Fund; and Class O shares ("Non-Trust Shares") and Class O-Special
Series 1 shares ("Trust Shares") in the Global Competitors Fund (each a "Fund"
and, collectively, the "Equity Funds"); and
International Funds
-------------------
Class F shares ("Non-Trust Shares") and Class F-Special Series 1 shares
("Trust Shares") in the International Fund; Class P shares ("Non-Trust Shares")
and Class P-Special Series 1 shares ("Trust Shares") in the Emerging Americas
Fund; Class Q shares ("Non-Trust Shares") and Class Q-Special Series 1 shares
("Trust Shares") in the Pacific/Asia Fund; and Class R shares ("Non-Trust
Shares") and Class R-Special Series 1 shares ("Trust Shares") in the Pan
European Fund (each a "Fund" and, collectively, the "International Funds").
In general, shares of each class shall initially be identical except for
different expense variables (which will result in different total returns for
each class), certain related rights and certain shareholder services. More
particularly, the Non-Trust Shares and the Trust Shares shall represent
interests in the same portfolio of investments of the particular Fund, and shall
be identical in all respects, except for: (a) the impact of (i) expenses
assessed to a class pursuant to an Administrative Services Plan ("Non-12b-1
Plan") and/or a Distribution Plan ("12b-1 Plan") adopted for that class, and
(ii) any other incremental expenses identified from time to time that should be
properly allocated to one class so long as any changes in expense allocations
are reviewed and approved by a vote of the Board of Directors, including a
majority of the non-interested directors; (b) the fact that each class shall
vote separately on any matter submitted to shareholders that pertains to (i) the
Non-12b-1 Plan and/or the 12b-1 Plan adopted for that class or (ii) any class
expense borne by that class; (c) the exchange privileges of each class of
shares; (d) the designation of each class of shares of a Fund; and (e) any
different shareholder services relating to a class of shares.
B. Shareholder Servicing and Distribution Arrangements and Sales Charges
---------------------------------------------------------------------
NON-TRUST SHARES
Non-Trust Shares of each Equity and International Fund shall initially
be available for purchase directly by individuals or by institutions. Non-Trust
Shares of each Equity and International Fund shall initially be subject to a
sales charge
-2-
<PAGE>
which shall not initially exceed 4.50% of the offering price of Non-Trust Shares
of those Funds.
Non-Trust Shares of each Equity and International Fund shall initially
be subject to a fee payable to United States Trust Company of New York, its
affiliates and correspondent banks, and other institutions (collectively,
"Shareholder Organizations") pursuant to the Non-12b-1 Plan adopted for that
class which shall not initially exceed .40% (on an annual basis) of the average
daily net asset value of the Fund's Non-Trust Shares held by customers of such
Shareholder Organizations.
Shareholder services provided under the Non-12b-1 Plan adopted for the
class may include (i) assisting in processing purchase, exchange and redemption
requests; (ii) transmitting and receiving funds in connection with customer
orders to purchase, exchange or redeem shares; and (iii) providing periodic
statements.
TRUST SHARES
Trust Shares of each Equity and International Fund shall initially be
available for purchase by customers of financial intermediaries eligible to
receive payments under the 12b-1 Plan adopted for that class. Trust Shares of
each Equity and International Fund shall initially be subject to a sales charge
which initially shall not exceed 4.50% of the offering price of Trust Shares of
those Funds.
Trust Shares of each Equity and International Fund shall initially be
subject to a fee payable pursuant to the 12b-1 Plan adopted for that class which
initially shall not exceed .75% (on an annual basis) of the daily net asset
value of the outstanding Trust Shares of the Fund. Payments under the 12b-1
Plan will be used to reimburse the Company's distributor for its expenses in
connection with services intended to result in the sale of Trust Shares.
Trust Shares of each Equity and International Fund shall initially be
subject to a fee payable to Shareholder Organizations pursuant to the Non-12b-1
Plan adopted for that class which shall not initially exceed .40% (on an annual
basis) of the average daily net asset value of the Fund's Trust Shares held by
customers of such Shareholder Organizations.
Shareholder services provided under the Non-12b-1 Plan adopted for the
class may include (i) assisting in processing purchase, exchange and redemption
requests; (ii) transmitting and receiving funds in connection with customer
orders to purchase, exchange or redeem shares; and (iii) providing periodic
statements.
-3-
<PAGE>
C. Shareholder Services
--------------------
1. Exchange Privileges
-- -------------------
NON-TRUST SHARES
Investors shall initially be permitted to exchange, without an
exchange fee imposed by the Company, their Non-Trust Shares in a Fund for: (i)
Non-Trust Shares of another Fund offered by the Company; (ii) Non-Trust Shares
of any investment portfolio offered by Excelsior Tax-Exempt Funds, Inc.; and
(iii) Trust Shares of any investment portfolio offered by Excelsior
Institutional Trust, provided that such other shares may legally be sold in the
state of the investor's residence. No sales charge shall initially be payable
on Non-Trust Shares acquired through an exchange to the extent that a sales
charge was previously paid on the Non-Trust Shares being exchanged.
TRUST SHARES
Holders of Trust Shares generally shall initially be permitted to
exchange, without an exchange fee imposed by the Company, their Trust Shares in
a Fund for: (i) Trust Shares of another Fund offered by the Company; and (ii)
Trust Shares of any investment portfolio offered by Excelsior Institutional
Trust, provided that such other shares may legally be sold in the state of the
investor's residence. No sales charge shall initially be payable on Trust
Shares acquired through an exchange to the extent that a sales charge was
previously paid on the Trust Shares being exchanged.
2. Retirement Plans
----------------
NON-TRUST AND TRUST SHARES
The Company generally shall initially make Non-Trust and Trust Shares
available for purchase by investors in connection with the following tax-
deferred prototype retirement plans: (i) IRAs (including "rollovers" from
existing retirement plans) for individuals and their spouses; (ii) profit-
sharing and money-purchase plans for corporations and self-employed individuals
and their partners to benefit themselves and their employees; and (iii) Keogh
plans for self-employed individuals.
-4-
<PAGE>
3. Automatic Investment Program
----------------------------
NON-TRUST SHARES AND TRUST SHARES
The Company shall initially offer an automatic investment program
whereby, in general, an investor may arrange to have Non-Trust Shares or Trust
Shares purchased automatically by authorizing the Company's transfer agent to
withdraw funds from the investor's bank account.
4. Systematic Withdrawal Plan
--------------------------
NON-TRUST SHARES AND TRUST SHARES
The Company shall initially offer a systematic withdrawal plan
whereby, in general, an investor may arrange to have Non-Trust Shares or Trust
Shares redeemed automatically.
D. Methodology for Allocating Expenses Between Classes
---------------------------------------------------
Class-specific expenses of a Fund shall be allocated to the specific
class of shares of that Fund. Non-class-specific expenses of the Funds shall be
allocated in accordance with paragraph (c) of Rule 18f-3.
-5-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> MONEY FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 395,655
<INVESTMENTS-AT-VALUE> 395,655
<RECEIVABLES> 586
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 24
<TOTAL-ASSETS> 396,265
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,980
<TOTAL-LIABILITIES> 1,980
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 394,352
<SHARES-COMMON-STOCK> 394,516
<SHARES-COMMON-PRIOR> 824,777
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (67)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 394,285
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 35,840
<OTHER-INCOME> 0
<EXPENSES-NET> (3,010)
<NET-INVESTMENT-INCOME> 32,830
<REALIZED-GAINS-CURRENT> (32)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 32,798
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (32,830)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,492,501
<NUMBER-OF-SHARES-REDEEMED> (5,924,408)
<SHARES-REINVESTED> 1,646
<NET-CHANGE-IN-ASSETS> (430,294)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (35)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,519
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,237
<AVERAGE-NET-ASSETS> 607,575
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.053
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.053)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> GOVERNMENT MONEY FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 461,826
<INVESTMENTS-AT-VALUE> 461,826
<RECEIVABLES> 1,474
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 23
<TOTAL-ASSETS> 463,323
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,853
<TOTAL-LIABILITIES> 1,853
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 461,532
<SHARES-COMMON-STOCK> 461,563
<SHARES-COMMON-PRIOR> 725,865
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (62)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 461,470
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 32,722
<OTHER-INCOME> 0
<EXPENSES-NET> (2,783)
<NET-INVESTMENT-INCOME> 29,939
<REALIZED-GAINS-CURRENT> (1)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 29,938
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (29,939)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,873,485
<NUMBER-OF-SHARES-REDEEMED> (5,139,596)
<SHARES-REINVESTED> 1,809
<NET-CHANGE-IN-ASSETS> (264,304)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (61)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,396
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,956
<AVERAGE-NET-ASSETS> 558,593
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.053
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.053)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> EQUITY FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 133,153
<INVESTMENTS-AT-VALUE> 188,526
<RECEIVABLES> 1,237
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 6
<TOTAL-ASSETS> 189,769
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,195
<TOTAL-LIABILITIES> 1,195
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 128,408
<SHARES-COMMON-STOCK> 7,718
<SHARES-COMMON-PRIOR> 6,421
<ACCUMULATED-NII-CURRENT> 111
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,682
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 55,373
<NET-ASSETS> 188,574
<DIVIDEND-INCOME> 2,219
<INTEREST-INCOME> 373
<OTHER-INCOME> 0
<EXPENSES-NET> (1,700)
<NET-INVESTMENT-INCOME> 892
<REALIZED-GAINS-CURRENT> 12,290
<APPREC-INCREASE-CURRENT> 24,332
<NET-CHANGE-FROM-OPS> 37,514
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (775)
<DISTRIBUTIONS-OF-GAINS> (14,900)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,335
<NUMBER-OF-SHARES-REDEEMED> (1,343)
<SHARES-REINVESTED> 305
<NET-CHANGE-IN-ASSETS> 51,157
<ACCUMULATED-NII-PRIOR> 200
<ACCUMULATED-GAINS-PRIOR> 7,292
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,217
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,813
<AVERAGE-NET-ASSETS> 162,357
<PER-SHARE-NAV-BEGIN> 21.40
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> 5.21
<PER-SHARE-DIVIDEND> (0.11)
<PER-SHARE-DISTRIBUTIONS> (2.19)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 24.43
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> MANAGED INCOME FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 88,989
<INVESTMENTS-AT-VALUE> 88,415
<RECEIVABLES> 900
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 3
<TOTAL-ASSETS> 89,318
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 418
<TOTAL-LIABILITIES> 418
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 92,986
<SHARES-COMMON-STOCK> 10,051
<SHARES-COMMON-PRIOR> 10,251
<ACCUMULATED-NII-CURRENT> 68
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,580)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (574)
<NET-ASSETS> 88,900
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,113
<OTHER-INCOME> 0
<EXPENSES-NET> (836)
<NET-INVESTMENT-INCOME> 5,277
<REALIZED-GAINS-CURRENT> 2,677
<APPREC-INCREASE-CURRENT> 1,730
<NET-CHANGE-FROM-OPS> 9,684
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,198)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,917
<NUMBER-OF-SHARES-REDEEMED> (3,276)
<SHARES-REINVESTED> 159
<NET-CHANGE-IN-ASSETS> 2,875
<ACCUMULATED-NII-PRIOR> (11)
<ACCUMULATED-GAINS-PRIOR> (6,257)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 650
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 970
<AVERAGE-NET-ASSETS> 86,641
<PER-SHARE-NAV-BEGIN> 8.39
<PER-SHARE-NII> 0.55
<PER-SHARE-GAIN-APPREC> 0.44
<PER-SHARE-DIVIDEND> (0.54)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.84
<EXPENSE-RATIO> 0.96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> INCOME AND GROWTH FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 98,795
<INVESTMENTS-AT-VALUE> 126,962
<RECEIVABLES> 788
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 4
<TOTAL-ASSETS> 127,754
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 259
<TOTAL-LIABILITIES> 259
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 96,866
<SHARES-COMMON-STOCK> 8,821
<SHARES-COMMON-PRIOR> 8,456
<ACCUMULATED-NII-CURRENT> 993
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,469
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 28,167
<NET-ASSETS> 127,495
<DIVIDEND-INCOME> 2,188
<INTEREST-INCOME> 2,371
<OTHER-INCOME> 0
<EXPENSES-NET> (1,199)
<NET-INVESTMENT-INCOME> 3,360
<REALIZED-GAINS-CURRENT> 3,103
<APPREC-INCREASE-CURRENT> 19,139
<NET-CHANGE-FROM-OPS> 25,602
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,643)
<DISTRIBUTIONS-OF-GAINS> (495)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,141
<NUMBER-OF-SHARES-REDEEMED> (1,843)
<SHARES-REINVESTED> 67
<NET-CHANGE-IN-ASSETS> 27,570
<ACCUMULATED-NII-PRIOR> 280
<ACCUMULATED-GAINS-PRIOR> (1,142)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 855
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,271
<AVERAGE-NET-ASSETS> 114,029
<PER-SHARE-NAV-BEGIN> 11.82
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> 2.61
<PER-SHARE-DIVIDEND> (0.31)
<PER-SHARE-DISTRIBUTIONS> (0.06)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.45
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> INTERNATIONAL FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 90,311
<INVESTMENTS-AT-VALUE> 97,486
<RECEIVABLES> 509
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 4
<TOTAL-ASSETS> 97,999
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 149
<TOTAL-LIABILITIES> 149
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 89,869
<SHARES-COMMON-STOCK> 8,968
<SHARES-COMMON-PRIOR> 6,525
<ACCUMULATED-NII-CURRENT> (325)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,133
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,173
<NET-ASSETS> 97,850
<DIVIDEND-INCOME> 1,450
<INTEREST-INCOME> 350
<OTHER-INCOME> 0
<EXPENSES-NET> (1,136)
<NET-INVESTMENT-INCOME> 664
<REALIZED-GAINS-CURRENT> 1,761
<APPREC-INCREASE-CURRENT> 6,821
<NET-CHANGE-FROM-OPS> 9,246
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (734)
<DISTRIBUTIONS-OF-GAINS> (549)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,595
<NUMBER-OF-SHARES-REDEEMED> (2,164)
<SHARES-REINVESTED> 12
<NET-CHANGE-IN-ASSETS> 33,799
<ACCUMULATED-NII-PRIOR> (321)
<ACCUMULATED-GAINS-PRIOR> (11)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 813
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,216
<AVERAGE-NET-ASSETS> 81,335
<PER-SHARE-NAV-BEGIN> 9.82
<PER-SHARE-NII> 0.10
<PER-SHARE-GAIN-APPREC> 1.15
<PER-SHARE-DIVIDEND> (0.09)
<PER-SHARE-DISTRIBUTIONS> (0.07)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.91
<EXPENSE-RATIO> 1.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> TREASURY MONEY FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 256,254
<INVESTMENTS-AT-VALUE> 256,254
<RECEIVABLES> 3,061
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 8
<TOTAL-ASSETS> 259,323
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,154
<TOTAL-LIABILITIES> 1,154
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 258,208
<SHARES-COMMON-STOCK> 258,208
<SHARES-COMMON-PRIOR> 196,951
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (39)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 258,169
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 12,426
<OTHER-INCOME> 0
<EXPENSES-NET> (1,215)
<NET-INVESTMENT-INCOME> 11,211
<REALIZED-GAINS-CURRENT> (21)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 11,190
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11,211)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,701,120
<NUMBER-OF-SHARES-REDEEMED> (1,640,897)
<SHARES-REINVESTED> 1,034
<NET-CHANGE-IN-ASSETS> 61,237
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (18)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 669
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,262
<AVERAGE-NET-ASSETS> 222,959
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.050)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> SHORT-TERM GOVERNMENT SECURITIES FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 24,602
<INVESTMENTS-AT-VALUE> 24,720
<RECEIVABLES> 475
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 8
<TOTAL-ASSETS> 25,203
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 135
<TOTAL-LIABILITIES> 135
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,344
<SHARES-COMMON-STOCK> 3,589
<SHARES-COMMON-PRIOR> 3,657
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (394)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 118
<NET-ASSETS> 25,068
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,413
<OTHER-INCOME> 0
<EXPENSES-NET> (137)
<NET-INVESTMENT-INCOME> 1,276
<REALIZED-GAINS-CURRENT> 81
<APPREC-INCREASE-CURRENT> 167
<NET-CHANGE-FROM-OPS> 1,524
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,276)
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<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,308
<NUMBER-OF-SHARES-REDEEMED> (2,392)
<SHARES-REINVESTED> 16
<NET-CHANGE-IN-ASSETS> (148)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (475)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 67
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 179
<AVERAGE-NET-ASSETS> 22,306
<PER-SHARE-NAV-BEGIN> 6.89
<PER-SHARE-NII> 0.40
<PER-SHARE-GAIN-APPREC> 0.09
<PER-SHARE-DIVIDEND> (0.40)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.98
<EXPENSE-RATIO> 0.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> INTERMEDIATE-TERM MANAGED INCOME FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 68,642
<INVESTMENTS-AT-VALUE> 68,027
<RECEIVABLES> 972
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 9
<TOTAL-ASSETS> 69,008
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 368
<TOTAL-LIABILITIES> 368
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69,716
<SHARES-COMMON-STOCK> 9,719
<SHARES-COMMON-PRIOR> 7,095
<ACCUMULATED-NII-CURRENT> 7
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (467)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (616)
<NET-ASSETS> 68,640
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,020
<OTHER-INCOME> 0
<EXPENSES-NET> (382)
<NET-INVESTMENT-INCOME> 3,638
<REALIZED-GAINS-CURRENT> 1,200
<APPREC-INCREASE-CURRENT> 743
<NET-CHANGE-FROM-OPS> 5,581
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,637)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,190
<NUMBER-OF-SHARES-REDEEMED> (1,611)
<SHARES-REINVESTED> 45
<NET-CHANGE-IN-ASSETS> 20,712
<ACCUMULATED-NII-PRIOR> 5
<ACCUMULATED-GAINS-PRIOR> (1,512)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 210
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 407
<AVERAGE-NET-ASSETS> 59,997
<PER-SHARE-NAV-BEGIN> 6.75
<PER-SHARE-NII> 0.43
<PER-SHARE-GAIN-APPREC> 0.31
<PER-SHARE-DIVIDEND> (0.43)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.06
<EXPENSE-RATIO> 0.64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> AGING OF AMERICA FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 35,113
<INVESTMENTS-AT-VALUE> 44,842
<RECEIVABLES> 106
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 8
<TOTAL-ASSETS> 44,956
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 164
<TOTAL-LIABILITIES> 164
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 35,326
<SHARES-COMMON-STOCK> 4,564
<SHARES-COMMON-PRIOR> 2,827
<ACCUMULATED-NII-CURRENT> 48
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (311)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,729
<NET-ASSETS> 44,792
<DIVIDEND-INCOME> 389
<INTEREST-INCOME> 101
<OTHER-INCOME> 0
<EXPENSES-NET> (311)
<NET-INVESTMENT-INCOME> 179
<REALIZED-GAINS-CURRENT> 229
<APPREC-INCREASE-CURRENT> 7,454
<NET-CHANGE-FROM-OPS> 7,862
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (163)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,314
<NUMBER-OF-SHARES-REDEEMED> (578)
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 22,618
<ACCUMULATED-NII-PRIOR> 31
<ACCUMULATED-GAINS-PRIOR> (541)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 201
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 327
<AVERAGE-NET-ASSETS> 33,526
<PER-SHARE-NAV-BEGIN> 7.84
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 1.97
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.81
<EXPENSE-RATIO> 0.93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> BUSINESS AND INDUSTRIAL RESTRUCTURING FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 60,157
<INVESTMENTS-AT-VALUE> 75,265
<RECEIVABLES> 221
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 9
<TOTAL-ASSETS> 75,495
<PAYABLE-FOR-SECURITIES> 1,260
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 183
<TOTAL-LIABILITIES> 1,443
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 57,588
<SHARES-COMMON-STOCK> 5,278
<SHARES-COMMON-PRIOR> 2,861
<ACCUMULATED-NII-CURRENT> 137
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,218
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,109
<NET-ASSETS> 74,052
<DIVIDEND-INCOME> 800
<INTEREST-INCOME> 75
<OTHER-INCOME> 0
<EXPENSES-NET> (445)
<NET-INVESTMENT-INCOME> 430
<REALIZED-GAINS-CURRENT> 2,630
<APPREC-INCREASE-CURRENT> 11,536
<NET-CHANGE-FROM-OPS> 14,596
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (346)
<DISTRIBUTIONS-OF-GAINS> (987)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,886
<NUMBER-OF-SHARES-REDEEMED> (477)
<SHARES-REINVESTED> 8
<NET-CHANGE-IN-ASSETS> 43,870
<ACCUMULATED-NII-PRIOR> 64
<ACCUMULATED-GAINS-PRIOR> (436)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 466
<AVERAGE-NET-ASSETS> 49,076
<PER-SHARE-NAV-BEGIN> 10.55
<PER-SHARE-NII> 0.10
<PER-SHARE-GAIN-APPREC> 3.71
<PER-SHARE-DIVIDEND> (0.09)
<PER-SHARE-DISTRIBUTIONS> (0.24)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.03
<EXPENSE-RATIO> 0.91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> COMMUNICATION AND ENTERTAINMENT FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 43,127
<INVESTMENTS-AT-VALUE> 47,913
<RECEIVABLES> 211
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 10
<TOTAL-ASSETS> 48,134
<PAYABLE-FOR-SECURITIES> 790
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 395
<TOTAL-LIABILITIES> 1,185
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 41,920
<SHARES-COMMON-STOCK> 4,548
<SHARES-COMMON-PRIOR> 3,102
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 243
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,786
<NET-ASSETS> 46,949
<DIVIDEND-INCOME> 195
<INTEREST-INCOME> 285
<OTHER-INCOME> 0
<EXPENSES-NET> (368)
<NET-INVESTMENT-INCOME> 112
<REALIZED-GAINS-CURRENT> 2,475
<APPREC-INCREASE-CURRENT> 1,241
<NET-CHANGE-FROM-OPS> 3,828
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (105)
<DISTRIBUTIONS-OF-GAINS> (2,341)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,119
<NUMBER-OF-SHARES-REDEEMED> (702)
<SHARES-REINVESTED> 29
<NET-CHANGE-IN-ASSETS> 17,035
<ACCUMULATED-NII-PRIOR> 22
<ACCUMULATED-GAINS-PRIOR> 81
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 240
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 386
<AVERAGE-NET-ASSETS> 40,057
<PER-SHARE-NAV-BEGIN> 9.64
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 1.30
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> (0.62)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.32
<EXPENSE-RATIO> 0.92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> EARLY LIFE CYCLE FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 68,843
<INVESTMENTS-AT-VALUE> 78,977
<RECEIVABLES> 204
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 11
<TOTAL-ASSETS> 79,192
<PAYABLE-FOR-SECURITIES> 819
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 312
<TOTAL-LIABILITIES> 1,131
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 65,915
<SHARES-COMMON-STOCK> 7,240
<SHARES-COMMON-PRIOR> 4,892
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,012
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,134
<NET-ASSETS> 78,061
<DIVIDEND-INCOME> 272
<INTEREST-INCOME> 206
<OTHER-INCOME> 0
<EXPENSES-NET> (589)
<NET-INVESTMENT-INCOME> (111)
<REALIZED-GAINS-CURRENT> 3,934
<APPREC-INCREASE-CURRENT> 6,179
<NET-CHANGE-FROM-OPS> 10,002
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (4,028)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,520
<NUMBER-OF-SHARES-REDEEMED> (1,214)
<SHARES-REINVESTED> 42
<NET-CHANGE-IN-ASSETS> 30,278
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 2,216
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 394
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 647
<AVERAGE-NET-ASSETS> 65,721
<PER-SHARE-NAV-BEGIN> 9.77
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> 1.72
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.69)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.78
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 14
<NAME> ENVIRONMENTALLY-RELATED PRODUCTS AND SERVICES FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 2,987
<INVESTMENTS-AT-VALUE> 3,997
<RECEIVABLES> 10
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<OTHER-ITEMS-ASSETS> 7
<TOTAL-ASSETS> 4,014
<PAYABLE-FOR-SECURITIES> 0
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<TOTAL-LIABILITIES> 67
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,421
<SHARES-COMMON-STOCK> 511
<SHARES-COMMON-PRIOR> 702
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (484)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,010
<NET-ASSETS> 3,947
<DIVIDEND-INCOME> 30
<INTEREST-INCOME> 5
<OTHER-INCOME> 0
<EXPENSES-NET> (43)
<NET-INVESTMENT-INCOME> (8)
<REALIZED-GAINS-CURRENT> 32
<APPREC-INCREASE-CURRENT> 924
<NET-CHANGE-FROM-OPS> 948
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<NUMBER-OF-SHARES-SOLD> 186
<NUMBER-OF-SHARES-REDEEMED> (377)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (412)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (516)
<OVERDISTRIB-NII-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 106
<AVERAGE-NET-ASSETS> 4,296
<PER-SHARE-NAV-BEGIN> 6.21
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> 1.54
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.73
<EXPENSE-RATIO> 0.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 15
<NAME> GLOBAL COMPETITORS FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 59,549
<INVESTMENTS-AT-VALUE> 71,554
<RECEIVABLES> 167
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 9
<TOTAL-ASSETS> 71,730
<PAYABLE-FOR-SECURITIES> 261
<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 426
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 59,265
<SHARES-COMMON-STOCK> 6,584
<SHARES-COMMON-PRIOR> 2,968
<ACCUMULATED-NII-CURRENT> 121
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (87)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,005
<NET-ASSETS> 71,304
<DIVIDEND-INCOME> 590
<INTEREST-INCOME> 141
<OTHER-INCOME> 0
<EXPENSES-NET> (403)
<NET-INVESTMENT-INCOME> 328
<REALIZED-GAINS-CURRENT> 721
<APPREC-INCREASE-CURRENT> 9,216
<NET-CHANGE-FROM-OPS> 10,265
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<DISTRIBUTIONS-OF-GAINS> (172)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,255
<NUMBER-OF-SHARES-REDEEMED> (640)
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 45,810
<ACCUMULATED-NII-PRIOR> 50
<ACCUMULATED-GAINS-PRIOR> (636)
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-EXPENSE> 420
<AVERAGE-NET-ASSETS> 45,131
<PER-SHARE-NAV-BEGIN> 8.59
<PER-SHARE-NII> 0.07
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<PER-SHARE-DIVIDEND> (0.06)
<PER-SHARE-DISTRIBUTIONS> (0.04)
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<PER-SHARE-NAV-END> 10.83
<EXPENSE-RATIO> 0.89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 16
<NAME> LONG-TERM SUPPLY OF ENERGY FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 19,789
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<TOTAL-LIABILITIES> 100
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19,439
<SHARES-COMMON-STOCK> 2,440
<SHARES-COMMON-PRIOR> 1,997
<ACCUMULATED-NII-CURRENT> 38
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 260
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,557
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<DIVIDEND-INCOME> 336
<INTEREST-INCOME> 47
<OTHER-INCOME> 0
<EXPENSES-NET> (199)
<NET-INVESTMENT-INCOME> 184
<REALIZED-GAINS-CURRENT> 522
<APPREC-INCREASE-CURRENT> 3,436
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<NUMBER-OF-SHARES-REDEEMED> (771)
<SHARES-REINVESTED> 1
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<ACCUMULATED-GAINS-PRIOR> (262)
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<GROSS-EXPENSE> 228
<AVERAGE-NET-ASSETS> 20,901
<PER-SHARE-NAV-BEGIN> 7.92
<PER-SHARE-NII> 0.07
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<PER-SHARE-DIVIDEND> (0.07)
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<PER-SHARE-NAV-END> 9.55
<EXPENSE-RATIO> 0.96
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 17
<NAME> PRODUCTIVITY ENHANCERS FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
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<TOTAL-LIABILITIES> 796
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<PAID-IN-CAPITAL-COMMON> 26,141
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<ACCUMULATED-NET-GAINS> 1,998
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<ACCUM-APPREC-OR-DEPREC> 930
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<EXPENSES-NET> (259)
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<TABLE> <S> <C>
<PAGE>
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<NAME> PACIFIC/ASIA FUND
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<S> <C>
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 19
<NAME> PAN EUROPEAN FUND
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<S> <C>
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 20
<NAME> EMERGING AMERICAS FUND
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<S> <C>
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</TABLE>
