<PAGE>
As filed with the SEC on July 31, 1997
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. 29 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY [x]
ACT OF 1940
Excelsior Funds, Inc.: Amendment No. 31 [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 LLP
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)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) 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.
--------------------------
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, 1997 was filed on May 29, 1997.
<PAGE>
CROSS-REFERENCE SHEET
---------------------
EXCELSIOR FUNDS, INC.
(Money Fund, Government Money Fund and Treasury Money Fund)
EXCELSIOR TAX-EXEMPT FUNDS, INC.
(Tax-Exempt Money Fund)
Form N-1A, Part A, Item Prospectus Caption
- ----------------------- ------------------
1. Cover Page........................... Cover Page
2. Synopsis............................. Expense Summary
3. Condensed Financial Information...... Financial Highlights;
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
<PAGE>
[LOGO] EXCELSIOR
Management Investment Companies FUNDS INC.
TAX-EXEMPT FUNDS, INC.
- --------------------------------------------------------------------------------
Money Fund For initial purchase information, current
Government Money Fund prices, yield and performance information
Treasury Money Fund and existing account information,call (800)
Tax-Exempt Money Fund 446-1012.
(From overseas, call (617) 557-8280.)
73 Tremont Street
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 (as defined below).
Each of the Funds is sponsored and distributed by Edgewood Services, Inc. and
advised by United States Trust Company of New York and U.S. Trust Company of
Connecticut (collectively, 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 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, U.S. TRUST, ITS PARENT OR AFFILIATES AND THE SHARES ARE
NOT FEDERALLY INSURED BY, GUARANTEED BY OR OBLIGATIONS OF OR OTHERWISE SUP-
PORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. 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 CON-
TINUOUS BASIS. INVESTMENT IN THE FUNDS INVOLVES INVESTMENT 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, 1997
<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/...... .19% .21% .28% .20%
12b-1 Fees................................ None None None None
Other Operating Expenses
Administrative Servicing Fee/2/.......... .06% .04% .02% .05%
Other Expenses........................... .22% .22% .22% .22%
---- ---- ---- ----
Total Operating Expenses (after fee
waivers)/2/.............................. .47% .47% .52% .47%
==== ==== ==== ====
</TABLE>
- -------
1. The Funds' sub-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 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 .53%, .51%, .54% and
.52% 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 $15 $26 $59
Government Money Fund........................... 5 15 26 59
Treasury Money Fund............................. 5 17 29 65
Tax-Exempt Money Fund........................... 5 15 26 59
</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, 1997. 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, 1997 (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,
------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<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......... 0.04888 0.05336 0.04494 0.02780 0.03234 0.05165 0.07589 0.08454 0.07698 0.06260
Net Gains or
(Losses) on
Securities
(both realized
and
unrealized).... 0.00000 0.00000 0.00002 0.00000 0.00000 0.00017 0.00001 0.00000 0.00000 0.00000
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total From
Investment
Operations..... 0.04888 0.05336 0.04496 0.02780 0.03234 0.05182 0.07590 0.08454 0.07698 0.06260
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Less
Distributions
Dividends From
Net Investment
Income......... (0.04888) (0.05336) (0.04496) (0.02780) (0.03234) (0.05165) (0.07589) (0.08454) (0.07698) (0.06260)
Distributions
From Net
Realized Gain
on Investments. 0.00000 0.00000 0.00000 0.00000 0.00000 (0.00019) 0.00000 0.00000 0.00000 0.00000
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total
Distributions.. (0.04888) (0.05336) (0.04496) (0.02780) (0.03234) (0.05184) (0.07589) (0.08454) (0.07698) (0.06260)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
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..... 5.00% 5.47% 4.59% 2.82% 3.25% 5.19% 7.64% 8.71% 7.76% 6.28%
Ratios/Supplemental
Data
Net Assets, End
of Period
(in millions).. $ 498.07 $ 394.29 $ 824.58 $ 736.08 $ 784.02 $ 574.27 $ 471.32 $ 432.37 $ 369.69 $ 321.27
Ratio of Net
Operating
Expenses to
Average Net
Assets......... 0.47% 0.50% 0.49% 0.51% 0.51% 0.51% 0.52% 0.55% 0.56% 0.55%
Ratio of Gross
Operating
Expenses to
Average Net
Assets/1/...... 0.53% 0.53% 0.52% 0.51% 0.51% 0.51% 0.52% 0.55% 0.56% 0.55%
Ratio of Net
Income to
Average Net
Assets......... 4.89% 5.40% 4.49% 2.78% 3.21% 5.11% 7.56% 8.42% 7.71% 6.25%
</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,
------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<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......... 0.04862 0.05296 0.04397 0.02736 0.03205 0.05069 0.07379 0.08379 0.07498 0.06111
Net Gains or
(Losses) on
Securities
(both realized
and
unrealized).... 0.00000 0.00000 0.00000 0.00000 0.00000 0.00002 0.00008 0.00000 0.00000 (0.00002)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total From
Investment
Operations..... 0.04862 0.05296 0.04397 0.02736 0.03205 0.05071 0.07387 0.08379 0.07498 0.06109
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Less
Distributions
Dividends From
Net Investment
Income......... (0.04862) (0.05296) (0.04397) (0.02736) (0.03205) (0.05069) (0.07379) (0.08379) (0.07498) (0.06111)
Distributions
From Net
Realized Gain
on Investments. 0.00000 0.00000 0.00000 0.00000 0.00000 (0.00005) (0.00005) (0.00001) 0.00000 (0.00023)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total
Distributions.. (0.04862) (0.05296) (0.04397) (0.02736) (0.03205) (0.05074) (0.07384) (0.08380) (0.07498) (0.06134)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
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..... 4.97% 5.43% 4.49% 2.77% 3.20% 5.09% 7.31% 8.30% 7.49% 6.44%
Ratios/Supplemental
Data
Net Assets, End
of Period
(in millions).. $ 533.83 $ 461.47 $ 725.77 $1,034.91 $ 710.49 $ 740.69 $ 700.22 $ 392.02 $ 241.13 $ 198.32
Ratio of Net
Operating
Expenses to
Average Net
Assets......... 0.47% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.57% 0.57% 0.56%
Ratio of Gross
Operating
Expenses to
Average Net
Assets/1/...... 0.51% 0.53% 0.53% 0.50% 0.50% 0.50% 0.50% 0.57% 0.57% 0.56%
Ratio of Net
Income to
Average Net
Assets......... 4.86% 5.36% 4.38% 2.74% 3.20% 5.09% 7.31% 8.30% 7.49% 6.10%
</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,
------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<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......... 0.03050 0.03362 0.02825 0.01938 0.02395 0.03849 0.05292 0.05808 0.05348 0.04572
Net Gains or
(Losses) on
Securities
(both realized
and
unrealized).... 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 (0.00001) 0.00000 0.00000 0.00000
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total From
Investment
Operations..... 0.03050 0.03362 0.02825 0.01938 0.02395 0.03849 0.05291 0.05808 0.05348 0.04572
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Less
Distributions
Dividends From
Net Investment
Income......... (0.03050) (0.03362) (0.02825) (0.01938) (0.02395) (0.03849) (0.05292) (0.05808) (0.05348) (0.04572)
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.. (0.03050) (0.03362) (0.02825) (0.01938) (0.02395) (0.03849) (0.05292) (0.05808) (0.05348) (0.04572)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
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..... 3.09% 3.41% 2.86% 1.96% 2.42% 3.92% 5.42% 5.97% 5.48% 4.67%
Ratios/Supplemental
Data
Net Assets, End
of Period
(in millions).. $1,069.69 $ 966.71 $ 814.89 $ 694.58 $ 659.33 $ 666.35 $ 662.34 $ 600.06 $ 525.30 $ 580.98
Ratio of Net
Operating
Expenses to
Average Net
Assets......... 0.47% 0.49% 0.49% 0.52% 0.52% 0.52% 0.53% 0.55% 0.53% 0.52%
Ratio of Gross
Operating
Expenses to
Average Net
Assets/1/...... 0.52% 0.53% 0.52% 0.52% 0.52% 0.52% 0.53% 0.55% 0.53% 0.52%
Ratio of Net
Income to
Average Net
Assets......... 3.05% 3.35% 2.85% 1.94% 2.39% 3.84% 5.28% 5.79% 5.33% 4.58%
</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,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991/1/
--------- --------- --------- --------- --------- --------- ---------
<S> <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
--------- --------- --------- --------- --------- --------- ---------
Income From Investment
Operations
Net Investment Income. 0.04676 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 0.00000 0.00036 0.00001
--------- --------- --------- --------- --------- --------- ---------
Total From Investment
Operations........... 0.04676 0.05043 0.04165 0.02590 0.02987 0.04767 0.00783
--------- --------- --------- --------- --------- --------- ---------
Less Distributions
Dividends From Net
Investment Income.... (0.04676) (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 0.00000 (0.00030) (0.00011) 0.00000
--------- --------- --------- --------- --------- --------- ---------
Total Distributions... (0.04676) (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 $ 1.00
========= ========= ========= ========= ========= ========= =========
Total Return............ 4.78% 5.16% 4.25% 2.62% 3.06% 4.85% 0.78%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions). $ 349.09 $ 258.17 $ 196.93 $ 254.68 $ 227.79 $ 172.29 $ 110.37
Ratio of Net Operating
Expenses to Average
Net Assets........... 0.52% 0.55% 0.55% 0.58% 0.58% 0.52% 0.09%/2/
Ratio of Gross
Operating Expenses to
Average Net
Assets/3/............ 0.54% 0.57% 0.57% 0.58% 0.58% 0.57% 0.60%/2/
Ratio of Net Income to
Average Net Assets... 4.68% 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.
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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 described below under "Illiquid Secu-
rities."
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. Any security
which cannot be disposed of within seven days without taking a reduced price
will be considered an illiquid security
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<PAGE>
subject to the 10% limitation discussed below under "Illiquid Securities."
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 maturities in excess of 13 months if such in-
struments 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 State-
ment 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 a nationally recognized statistical rating organization ("NRSRO"),
provided that if they are rated by more than one 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"). The rating symbols of the NRSROs which the
Funds may use are described in the Appendix to the Statement of Additional In-
formation.
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
agree ments 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 described below
under "Illiquid Securities."
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 10% limit described be-
low under "Illiquid Securities."
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<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."
BORROWING AND REVERSE REPURCHASE AGREEMENTS
Each Fund may borrow funds, in an amount up to 10% of the value of its total
assets, for temporary or emergency purposes, such as meeting larger than an-
ticipated redemption requests, and not for leverage. Each Fund may also agree
to sell portfolio securities to financial institutions such as banks and bro-
ker-dealers and to repurchase them at a mutually agreed date and price (a "re-
verse repurchase agreement"). The SEC views reverse repurchase agreements as a
form of borrowing. At the time a Fund enters into a reverse repurchase agree-
ment, it will place in a segregated custodial account liquid assets having a
value equal to the repurchase price, including accrued interest. Reverse re-
purchase agreements involve the risk that the market value of the securities
sold by a Fund may decline below the repurchase price of those securities.
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.
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").
No Fund may:
1. Purchase securities of any one issuer if immediately after such purchase
more than 5% of the value of its total assets would be invested in the secu-
rities of such issuer, provided that up to 25% of the value of each Fund's
total assets may be invested without
13
<PAGE>
regard to this 5% limitation; notwithstanding the foregoing restriction, each
Fund may invest without regard to the 5% limitation in Government Securities
(as defined in the 1940 Act) and as otherwise permitted in accordance with
Rule 2a-7 under the 1940 Act or any successor rule; 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 in strumentality 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 as to principal or interest by the United States,
or by a person controlled or supervised by and acting as an instrumentality of
the Government of the United States, or any certificate of deposit for any of
the foregoing, are deemed to be Government Securities.
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 net
assets. 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, 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 belonging to a
Fund, less the liabilities charged to the Fund, by the number of its outstand-
ing 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.
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 make payments to any dealer that
sponsors sales contests or recognition programs conforming to criteria estab-
lished by the Distributor, or that participates in sales programs sponsored by
the Distributor. The Distributor in its discretion may also from time to time,
pursuant to objective criteria established by the Distributor, pay fees to
qualifying dealers for certain services or activities which are primarily in-
tended 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 conditions. 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.
In addition, the Distributor may offer to pay a fee from its own assets to
financial 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 ac-
counts, participating in sales, educational and training seminars, providing
sales literature, and engineering computer software programs that emphasize
the attributes 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 in-
stitution.
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.
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"). Shares in the Funds bear the expense of fees payable
to Service Organizations for such services. See "Management of the Funds--
Service Organizations."
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<PAGE>
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 from the Distributor in accordance with proce-
dures 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
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
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.
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<PAGE>
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
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
17
<PAGE>
redemption proceeds of $500 or more to the shareholder 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 ac-
cess. 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 de-
ducted 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.
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. Redemp-
tion 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 In-
vestors 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 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 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 The Chase Manhattan Bank.
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).
18
<PAGE>
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 appears appropriate to do so in light of the Com-
panies' responsibilities under the 1940 Act.
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 12 diversified portfolios:
19
<PAGE>
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;
Blended Equity Fund, a fund seeking primarily long-term capital appreciation
through investments in a diversified portfolio of primarily equity securi-
ties;
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;
Value and Restructuring Fund, a fund seeking long-term capital appreciation
by investing in companies benefitting from their restructuring or redeploy-
ment of assets and operations in order to become more competitive or profit-
able;
Small Cap Fund, a fund seeking 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;
International Fund, a fund seeking total return derived primarily from in-
vestments in foreign equity securities;
Latin America 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, five 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;
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 in vests primarily in New York municipal obligations and has
a dollar-weighted average portfolio maturity of three to ten years; and
20
<PAGE>
California Tax-Exempt Income Fund, a non-diversified fund designed to pro-
vide California investors with as high a level of current interest income ex-
empt from Federal and, to the extent possible, California state personal in-
come taxes as is consistent with relative stability of principal; this fund
invests primarily in California municipal obligations and has a dollar-
weighted average portfolio maturity of three to ten years.
Excelsior Institutional Trust currently offers Trust Shares in the following
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
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 af-
ter 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 next
determined after receipt of the exchange request in good order.
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 Institutional
Trust should request and review the prospectuses of such funds. Such prospec-
tuses 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. The Companies may mod-
ify or terminate the exchange program at any time upon 60 days' written notice
to shareholders, and may reject any exchange request. THE COMPANIES, EXCELSIOR
INSTITUTIONAL TRUST, CGFSC AND THE DISTRIBUTOR ARE NOT RESPONSIBLE FOR THE AU-
THENTICITY OF EXCHANGE REQUESTS RECEIVED BY TELEPHONE THAT ARE REASONABLY BE-
LIEVED TO BE GENUINE. IN ATTEMPTING TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE
GENUINE, THE COMPANIES AND EXCELSIOR INSTITUTIONAL TRUST WILL USE SUCH PROCE-
DURES 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-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 Applica-
tion 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.
21
<PAGE>
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.
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 particular Company
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.
22
<PAGE>
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 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 their 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 qualifying pension plans are deferred under the
Code.) Because all of each Fund's net investment income is expected to be de-
rived from earned interest, it is anticipated that no part of any distributions
will be eligible for the dividends received 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
23
<PAGE>
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 attrib-
utable to interest on obligations of the U.S. Treasury and certain U.S. Gov-
ernment agencies and instrumentalities (including those authorized for pur-
chase by the Fund) are the functional equivalent of interest from such obliga-
tions and are, therefore, exempt from state and local income taxes. As a re-
sult, substantially all dividends paid by the Treasury Money Fund to share-
holders 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
under state or local law as dividend income, even though all or a portion of
such distributions is derived 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 ("U.S. Trust New York") and U.S.
Trust Company of Connecticut ("U.S. Trust Connecticut" and, collectively with
U.S. Trust New York, "U.S. Trust" or the "Investment Adviser") serve as the
Investment Adviser to the Funds. U.S. Trust New York is a state-chartered bank
and trust company and a member bank of the Federal Reserve System and is one
of the twelve members of the New York Clearing House Association. U.S. Trust
Connecticut is a Connecticut state bank and trust company. U.S. Trust New York
and U.S. Trust Connecticut are wholly-owned subsidiaries of U.S. Trust Corpo-
ration, a registered bank holding company.
The Investment 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. On De-
cember 31, 1996, the Asset Management Groups of U.S. Trust New York and U.S.
Trust Connecticut had approximately $53 billion in aggregate assets under man-
agement. U.S. Trust New York has its principal offices at 114 W. 47th Street,
New York, New York 10036. U.S. Trust Connecticut has its principal offices at
225 High Ridge Road, East Building, Stamford, Connecticut 06905.
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
24
<PAGE>
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 expenses as-
sumed with respect to the Treasury Money Fund, the Investment Adviser is enti-
tled to a fee, computed daily and paid monthly, at the annual rate of .30% of
the Fund's average daily net assets.
Prior to May 16, 1997, U.S. Trust New York served as investment adviser to
the Funds pursuant to advisory agreements substantially similar to the Invest-
ment Advisory Agreements currently in effect for the Funds. For the fiscal
year ended March 31, 1997, U.S. Trust New York received an advisory fee at the
effective annual rates of .19%, .21%, .28% and .20% of the average daily net
assets of the Money, Government Money, Treasury Money and Tax-Exempt Money
Funds, respectively. For the same period, U.S. Trust New York waived advisory
fees at the effective annual rates of .06%, .04%, .02% and .05% of the average
daily net assets of the Money, Government Money, Treasury Money and Tax-Exempt
Funds, respectively.
From time to time, the Investment Adviser may voluntarily waive all or a
portion of the advisory fees payable to it by a Fund, which waiver may be ter-
minated 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 Connecticut serve as
the Funds' administrators (the "Administrators") and provide them with general
administrative and operational assistance. The Administrators also serve as
administrators of the other portfolios of the Companies and of all the portfo-
lios of Excelsior Institutional Trust, which are also advised by the Invest-
ment Adviser and its affiliates and distributed by the Distributor. For the
services provided to all portfolios of the Companies and Excelsior Institu-
tional Trust (except the international portfolios of Excelsior 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 Companies and Excelsior Institutional Trust (excluding
the international portfolios of Excelsior Fund and Excelsior Institutional
Trust) as follows:
<TABLE>
<CAPTION>
COMBINED AGGREGATE AVERAGE DAILY NET ASSETS OF BOTH
COMPANIES AND EXCELSIOR INSTITUTIONAL TRUST (EXCLUDING THE
INTERNATIONAL PORTFOLIOS OF EXCELSIOR FUND
AND 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 voluntarily waive 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 addi-
tional information on fee waivers.
Prior to May 16, 1997, CGFSC, Federated Administrative Services and U.S.
Trust New York served as the Funds' administrators pursuant to an administra-
tion agreement substantially similar to the administration agreement currently
in effect for the Funds. For the fiscal year ended March 31, 1997, the Admin-
istrators received an aggregate administration fee at the effective annual
rate of .154% of the average daily net assets of each of the Funds.
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
25
<PAGE>
.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 re-
demption requests; transmitting and receiving funds in connection with Cus-
tomer 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 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 Fund (formerly UST Master Funds, Inc.) was organized as a Maryland
corporation on August 2, 1984. Currently, Excelsior Fund has authorized capi-
tal of 35 billion shares of Common Stock, $.001 par value per share, classi-
fied into 40 series of shares representing interests in 20 investment portfo-
lios. 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 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
organized 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 6 classes of shares representing 6
investment 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
distributions out of the income earned on the assets belonging to such Fund as
are declared in the discretion of the particular Company's Board of Directors.
26
<PAGE>
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 14, 1997, U.S. Trust and its affiliates held of record substan-
tially all of the Companies' outstanding shares as agent or custodian for
their customers, but did not own such shares beneficially because they did not
have voting or investment discretion with respect to such shares.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase"), a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as the custodian of the Funds' assets. Communi-
cations to the custodian should be directed to Chase, Mutual Funds Service Di-
vision, 3 Chase MetroTech Center, 8th Floor, Brooklyn, NY 11245.
U.S. Trust New York serves as the Funds' transfer and dividend disbursing
agent. U.S. Trust New York has also entered into a sub-transfer agency ar-
rangement with CGFSC, 73 Tremont Street, Boston, Massachusetts 02108-3913,
pursuant to which CGFSC provides 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 indexes or to
rankings prepared by independent services or other financial or industry pub-
lications that monitor the performance of mutual funds. For example, the
yields of the Funds may be compared to the applicable averages compiled by
Donoghue's Money Fund Report, a widely recognized independent publication 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 gen-
27
<PAGE>
erally a function of the kind and quality of the instruments held in a portfo-
lio, portfolio maturity, operating expenses, and market conditions. Any fees
charged by Shareholder Organizations 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 outstand- ing 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."
28
<PAGE>
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION
OPENING YOUR ACCOUNT:
Complete the Application(s) FOR OVERNIGHT DELIVERY: send to:
and mail to:
Excelsior Funds Excelsior Funds
c/o Chase Global Funds c/o Chase Global Funds Services Company--
Services 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 sub-transfer agent at (800) 446-1012 between 9:00
a.m. and 5:00 p.m. (Eastern Time).
29
<PAGE>
[LOGO] EXCELSIOR
FUNDS INC.
TAX-EMEMPT 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 appoint CGFSC as I/We hereby authorize CGFSC to
my/our agent to act upon act upon instructions received
instructions received by by telephone to withdraw $500
telephone in order to effect or more from my/our account in
the telephone exchange and the Excelsior Funds and to
redemption privileges. I/We wire the amount withdrawn to
hereby ratify any the following commercial bank
instructions given pursuant account. I/We understand that
to this authorization and CGFSC charges an $8.00 fee for
agree that Excelsior Fund, each wire redemption, which
Excelsior Tax-Exempt Fund, will be deducted from the
Excelsior Institutional proceeds of the redemption.
Trust, CGFSC and their
directors, trustees, officers Title on Bank Account*_________
and employees will not be
liable for any loss, Name of Bank __________________
liability, cost or expense
for acting upon instructions Bank A.B.A. Number ____________
believed to be genuine and
in accordance with the Account Number ________________
procedures described in the
then current Prospectus. To Bank Address __________________
the extent that Excelsior
Fund, Excelsior Tax-Exempt City/State/Zip Code ___________
Fund and Excelsior (attach voided check here)
Institutional Trust fail to
use reasonable procedures as A corporation, trust or
a basis for their belief, partnership must also submit a
they or their service "Corporate Resolution" (or
contractors may be liable "Certificate of Partnership")
for instructions that prove indicating the names and
to be fraudulent or titles of officers authorized
unauthorized. to act on its behalf.
* TITLE ON BANK AND FUND
I/We further acknowledge ACCOUNT MUST BE IDENTICAL.
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, U.S. Trust,
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.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO
ANY PROVISIONS OF THIS FORM OTHER THAN THE CERTIFICATIONS
REQUIRED TO AVOID BACKUP WITHHOLDING.
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] EXCELSIOR
FUNDS INC.
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 net asset value 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 check payable to: (To be completed only if
redemption proceeds to be paid to other than account
holder of record or mailed to address other than address
of record)
Recipient ________________________________
Street Address ___________________________
City, State, Zip Code ____________________
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
INVESTMENT LIMITATIONS.................................................... 13
PRICING OF SHARES......................................................... 14
HOW TO PURCHASE AND REDEEM SHARES......................................... 14
Distributor.............................................................. 14
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......................................................... 22
Automatic Investment Program............................................. 22
DIVIDENDS AND DISTRIBUTIONS............................................... 22
TAXES..................................................................... 23
Federal.................................................................. 23
State and Local.......................................................... 24
Miscellaneous............................................................ 24
MANAGEMENT OF THE FUNDS................................................... 24
Investment Adviser....................................................... 24
Administrators........................................................... 25
Service Organizations.................................................... 25
Banking Laws............................................................. 26
DESCRIPTION OF CAPITAL STOCK.............................................. 26
CUSTODIAN AND TRANSFER AGENT.............................................. 27
YIELD INFORMATION......................................................... 27
MISCELLANEOUS............................................................. 27
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION.................................. 29
</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.
[LOGO] EXCELSIOR
FUNDS INC.
TAX-EXEMPT FUNDS, INC.
MONEY FUND
GOVERNMENT MONEY FUND
TREASURY MONEY FUND
TAX-EXEMPT MONEY FUND
Prospectus
August 1, 1997
<PAGE>
GINTEL [LOGO] EXCELSIOR
FUNDS INC.
TAX-EXEMPT FUNDS, INC.
AVAILABLE THROUGH THE GINTEL GROUP
- --------------------------------------------------------------------------------
Money Fund For purchase or account information, call
Government Money Fund (800) 344-3092. For current prices and yield
Treasury Money Fund information, call (800) 759-4171. (From
Tax-Exempt Money Fund overseas, call (617) 482-9300.)
- --------------------------------------------------------------------------------
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 (as defined below).
Each of the Funds is sponsored and distributed by Edgewood Services, Inc. and
advised by United States Trust Company of New York and U.S. Trust Company of
Connecticut (collectively, 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, 1997 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, U.S. TRUST, ITS PARENT OR AFFILIATES AND THE SHARES ARE
NOT FEDERALLY INSURED BY, GUARANTEED BY OR OBLIGATIONS OF OR OTHERWISE SUP-
PORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. 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 CON-
TINUOUS BASIS. INVESTMENT IN THE FUNDS INVOLVES INVESTMENT 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, 1997
<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
INVESTMENT LIMITATIONS.................................................... 13
PRICING OF SHARES......................................................... 14
HOW TO PURCHASE AND REDEEM SHARES......................................... 14
Distributor.............................................................. 14
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......................................................... 22
Automatic Investment Program............................................. 22
DIVIDENDS AND DISTRIBUTIONS............................................... 22
TAXES..................................................................... 23
Federal.................................................................. 23
State and Local.......................................................... 24
Miscellaneous............................................................ 24
MANAGEMENT OF THE FUNDS................................................... 24
Investment Adviser....................................................... 24
Administrators........................................................... 25
Service Organizations.................................................... 25
Banking Laws............................................................. 26
DESCRIPTION OF CAPITAL STOCK.............................................. 26
CUSTODIAN AND TRANSFER AGENT.............................................. 27
YIELD INFORMATION......................................................... 27
MISCELLANEOUS............................................................. 27
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION.................................. 29
</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.
USTMMP897
MONEY FUND
GOVERNMENT MONEY FUND
EXCELSIOR FUNDS, INC.
AVAILABLE THROUGH THE GINTEL GROUP
PROSPECTUS
AUGUST 1, 1997
TREASURY MONEY FUND
TAX-EXEMPT MONEY FUND
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
AVAILABLE THROUGH EDGEWOOD SERVICES, INC.
GINTEL & CO.
6 GREENWICH OFFICE PARK
GREENWICH, CT 06831
TOLL FREE
(800) 344-3092
GINTEL
<PAGE>
CHECK WRITING SIGNATURE CARD EXCELSIOR FUNDS, INC.
MONEY FUND AND GOVERNMENT MONEY FUND
By signing on the reverse, I/we hereby appoint as agent The Chase Manhattan
Bank ("Chase") and, as such agent, Chase is hereby authorized and directed,
upon presentment of check(s), to request the redemption of shares of the
applicable Fund registered in my/our name(s) in the amount of such check(s)
drawn on my/our Fund account. I/We further authorize Chase Global Funds
Services Company ("CGFSC"), the sub-transfer agent, to accept and execute
instructions relating to this check writing privilege. I/We agree that Chase
and CGFSC, acting as agents on my/our behalf in connection with the foregoing
check writing privileges, shall be liable only for their own willful
misfeasance, bad faith or gross negligence.
I/We acknowledge that this check writing arrangement is subject to the
applicable terms and restrictions, including charges, set forth in the current
Prospectus for each Fund with respect to which I/we have arranged to redeem
Fund shares by check writing. I/We understand and agree to be bound and
subject to Chase's rules, regulations and associated laws governing check
collection, as amended from time to time.
Stop payment instructions must be given to CGFSC by calling toll-free (800)
446-1012.
To take advantage of the check writing privilege, please complete the
Signature Card on the reverse. Each person signing below guarantees the
genuineness of the other's signature. You will receive a supply of checks
approximately 3 weeks after this application is processed.
<PAGE>
Account Number ______________________ FUND
----
______________ _______________ _____
Last Name First M.I. [_] Money Fund
Last Name First M.I. [_] Government
Money Fund
By signing this Signature Card, the undersigned agree(s) that check writing
privileges will be subject to the instructions and rules of Excelsior Fund,
Excelsior Tax-Exempt Fund and Chase, as now in effect and as amended from time
to time, as they pertain to the use of redemption checks.
(Please use black ink)
[_] Check here if both signatures required on checks.
______________ [_] Check here if only one signature required on checks.
Signature
______________ If neither box is checked, all checks will require both
Joint Signature signatures.
EXCELSIOR FUNDS, INC.
<PAGE>
CHECK WRITING SIGNATURE CARD EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
By signing on the reverse, I/we hereby appoint as agent The Chase Manhattan
Bank (" Chase") and, as such agent, Chase is hereby authorized and directed,
upon presentment of check(s), to request the redemption of shares of the
applicable Fund registered in my/our name(s) in the amount of such check(s)
drawn on my/our Fund account. I/We further authorize Chase Global Funds
Services Company ("CGFSC"), the sub-transfer agent, to accept and execute
instructions relating to this check writing privilege. I/We agree that Chase
and CGFSC, acting as agents on my/our behalf in connection with the foregoing
check writing privileges, shall be liable only for their own willful
misfeasance, bad faith or gross negligence.
I/We acknowledge that this check writing arrangement is subject to the
applicable terms and restrictions, including charges, set forth in the current
Prospectus for each Fund with respect to which I/we have arranged to redeem
Fund shares by check writing. I/We understand and agree to be bound and
subject to Chase's rules, regulations and associated laws governing check
collection, as amended from time to time.
Stop payment instructions must be given to CGFSC by calling toll-free (800)
446-1012.
To take advantage of the check writing privilege, please complete the
Signature Card on the reverse. Each person signing below guarantees the
genuineness of the other's signature. You will receive a supply of checks
approximately 3 weeks after this application is processed.
<PAGE>
Account Number ______________________ FUND
----
_________________ ______________ ____ [_] Money Fund [_] Tax-Exempt Money
Last Name First M.I. Fund
_________________ ______________ ____ [_] Government [_] Treasury
Last Name First M.I. Money Fund Money Fund
By signing this Signature Card, the undersigned agree(s) that
check writing privileges will be subject to the instructions
and rules of Excelsior Fund, Excelsior Tax-Exempt Fund and
Chase, as now in effect and as amended from time to time, as
they pertain to the use of redemption checks.
(Please use black ink) [_] Check here if both signatures
required on checks.
[_] Check here if only one signature
required on checks.
_____________________________________ If neither box is checked, all checks
Signature will require both signatures.
_____________________________________
Joint Signature
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
<PAGE>
CROSS-REFERENCE SHEET
---------------------
EXCELSIOR FUNDS, INC.
(Short-Term Government Securities Fund, Intermediate-Term
Managed Income Fund, Managed Income Fund)
Form N-1A, Part A, Item Prospectus Caption
- ----------------------- ------------------
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
<PAGE>
[LOGO]
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
(800) 446-1012. (From overseas, call (617)
557-8280.)
73 Tremont Street Boston, Massachusetts 02108-3913
- -------------------------------------------------------------------------------
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 and U.S. Trust Company of
Connecticut (collectively, 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, 1997 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, U.S. TRUST, 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.
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, 1997
<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
$3 billion. See "Description of Capital Stock."
INVESTMENT ADVISER: United States Trust Company of New York and U.S. Trust
Company of Connecticut (collectively, "U.S. Trust" or the "Investment Advis-
er"), serve as the Funds' investment adviser. U.S. Trust offers 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 net asset value. Ex-
celsior Fund does not impose a sales load on purchases of Shares. 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)....... None None None
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/..... .21% .30% .61%
12b-1 Fees............................... None None None
Other Operating Expenses
Administrative Servicing Fee/2/........ .08% .05% .04%
Other Expenses......................... .32% .28% .25%
---- ---- ----
Total Operating Expenses (after fee
waivers)/2/............................. .61% .63% .90%
==== ==== ====
</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 .70%,
.68% and 1.04% 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........... $ 6 $20 $34 $ 76
Intermediate-Term Managed Income Fund........... 6 20 35 79
Managed Income Fund............................. 9 29 50 111
</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, 1997. 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, 1997 (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
1997 1996 1995 1994 MARCH 31, 1993/1/
------ ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period...................... $ 6.98 $ 6.89 $ 6.93 $ 7.06 $ 7.00
------ ------ ------ ------ ------
Income From Investment Opera-
tions
Net Investment Income...... 0.38 0.40 0.33 0.24 0.06
Net Gains or (Losses) on
Securities (both realized
and unrealized)........... (0.06) 0.09 (0.04) (0.09) 0.06
------ ------ ------ ------ ------
Total From Investment Oper-
ations.................... 0.32 0.49 0.29 0.15 0.12
------ ------ ------ ------ ------
Less Distributions
Dividends From Net Invest-
ment Income............... (0.37) (0.40) (0.33) (0.24) (0.06)
Dividends From Net Realized
Gain on Investments....... 0.00 0.00 0.00 (0.02) 0.00
Distributions in Excess of
Net Realized Gain on In-
vestments................. 0.00 0.00 0.00 (0.02) 0.00
------ ------ ------ ------ ------
Total Distributions........ (0.37) (0.40) (0.33) (0.28) (0.06)
------ ------ ------ ------ ------
Net Asset Value, End of Peri-
od.......................... $ 6.93 $ 6.98 $ 6.89 $ 6.93 $ 7.06
====== ====== ====== ====== ======
Total Return/2/.............. 4.77% 7.27% 4.30% 2.12% 1.70%
Ratios/Supplemental Data
Net Assets, End of Period
(in millions)............. $30.80 $25.07 $25.22 $25.23 $13.37
Ratio of Net Operating Ex-
penses to Average Net As-
sets...................... 0.61% 0.61% 0.61% 0.62% 0.62%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets/4/................. 0.70% 0.80% 0.67% 0.65% 0.82%/3/
Ratio of Net Income to Av-
erage Net Assets.......... 5.42% 5.72% 4.80% 3.42% 3.62%/3/
Portfolio Turnover Rate.... 82.0% 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 prior to February 14, 1997.
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
1997 1996 1995 1994 MARCH 31, 1993/1/
------ ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period...................... $ 7.06 $ 6.75 $ 6.83 $ 7.19 $ 7.00
------ ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income...... 0.41 0.43 0.39 0.31 0.08
Net Gains or (Losses) on
Securities (both realized
and unrealized)........... (0.19) 0.31 (0.07) (0.27) 0.19
------ ------ ------ ------ ------
Total From Investment
Operations................ 0.22 0.74 0.32 0.04 0.27
------ ------ ------ ------ ------
Less Distributions
Dividends From Net
Investment Income......... (0.41) (0.43) (0.39) (0.31) (0.08)
Dividends From Net Realized
Gain on Investments....... 0.00 0.00 0.00 0.00 0.00
Distributions in Excess of
Net Realized Gain
on Investments............ 0.00 0.00 (0.01) (0.09) 0.00
------ ------ ------ ------ ------
Total Distributions........ (0.41) (0.43) (0.40) (0.40) (0.08)
------ ------ ------ ------ ------
Net Asset Value, End of
Period...................... $ 6.87 $ 7.06 $ 6.75 $ 6.83 $ 7.19
====== ====== ====== ====== ======
Total Return/2/.............. 3.25% 11.13% 4.95% 0.45% 3.86%
Ratios/Supplemental Data
Net Assets, End of Period
(in millions)............. $78.44 $68.64 $47.93 $42.56 $19.48
Ratio of Net Operating
Expenses to Average
Net Assets................ 0.63% 0.64% 0.66% 0.69% 0.72%/3/
Ratio of Gross Operating
Expenses to Average
Net Assets/4/............. 0.68% 0.68% 0.68% 0.69% 0.98%/3/
Ratio of Net Income to
Average Net Assets........ 5.91% 6.06% 5.91% 4.31% 4.69%/3/
Portfolio Turnover Rate.... 129.0% 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 prior to February 14, 1997.
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,
----------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------- ------ ------ ------- ------- ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of period.... $ 8.84 $ 8.39 $ 8.57 $ 9.64 $ 9.15 $ 9.12 $ 8.77 $ 8.51 $ 8.61 $ 9.01
------- ------ ------ ------- ------- ------ ------ ------ ------- ------
Income From Investment
Operations
Net Investment Income.. 0.51 0.55 0.51 0.47 0.58 0.65 0.67 0.69 0.66 0.67
Net Gains or (Losses)
on Securities (both
realized and
unrealized)........... (0.24) 0.44 (0.18) (0.26) 0.79 0.27 0.44 0.32 (0.06) (0.08)
------- ------ ------ ------- ------- ------ ------ ------ ------- ------
Total From Investment
Operations............ 0.27 0.99 0.33 0.21 1.37 0.92 1.11 1.01 0.60 0.59
------- ------ ------ ------- ------- ------ ------ ------ ------- ------
Less Distributions
Dividends From Net
Investment Income..... (0.51) (0.54) (0.51) (0.47) (0.58) (0.65) (0.67) (0.69) (0.66) (0.67)
Dividends From Net
Realized Gain on
Investments........... 0.00 0.00 0.00 (0.31) (0.30) (0.24) (0.09) (0.06) (0.04) (0.32)
Distributions in Excess
of Net Realized Gain
on Investments........ 0.00 0.00 0.00 (0.50) 0.00 0.00 0.00 0.00 0.00 0.00
------- ------ ------ ------- ------- ------ ------ ------ ------- ------
Total Distributions.... (0.51) (0.54) (0.51) (1.28) (0.88) (0.89) (0.76) (0.75) (0.70) (0.99)
------- ------ ------ ------- ------- ------ ------ ------ ------- ------
Net Asset Value, End of
Period................. $ 8.60 $ 8.84 $ 8.39 $ 8.57 $ 9.64 $ 9.15 $ 9.12 $ 8.77 $ 8.51 $ 8.61
======= ====== ====== ======= ======= ====== ====== ====== ======= ======
Total Return/1/......... 3.17% 11.86% 4.06% 1.73% 15.74% 10.36% 13.37% 12.03% 7.18% 7.20%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions).. $185.90 $88.90 $86.02 $110.90 $110.62 $96.32 $52.74 $38.75 $ 19.53 $12.67
Ratio of Net Operating
Expenses to Average
Net Assets............ 0.90% 0.96% 1.00% 0.90% 0.89% 1.05% 1.11% 1.13% 1.07% 0.86%
Ratio of Gross
Operating Expenses to
Average
Net Assets/2/......... 1.04% 1.12% 1.12% 1.06% 1.04% 1.05% 1.11% 1.14% 1.24% 1.32%
Ratio of Net Income to
Average Net Assets.... 5.90% 6.09% 6.09% 4.89% 6.19% 6.97% 7.57% 7.73% 7.69% 7.76%
Portfolio Turnover
Rate.................. 238.0% 165.0% 492.0% 459.0% 455.0% 369.0% 342.0% 350.0% 1226.0% 576.0%
</TABLE>
- -------
NOTES:
1. Total return data does not reflect the sales load payable on purchases of
Shares prior to February 14, 1997.
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. 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.
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. 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 "Illiquid Securities."
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.
11
<PAGE>
REPURCHASE AGREEMENTS
As stated above, each Fund 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"). Each Fund will enter into repurchase agree-
ments only with financial institutions such as banks or broker/dealers which
are deemed to be creditworthy by the Investment Adviser under guidelines ap-
proved by Excelsior Fund's Board of Directors. No Fund will enter into repur-
chase agreements with the Investment Adviser or its affiliates. Repurchase
agreements with remaining maturities in excess of seven days will be considered
illiquid securities subject to the 10% limit described below under "Illiquid
Securities."
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 ob-
12
<PAGE>
ligation" 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 proceeds of a special excise tax or other specific rev-
enue 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 pay-
able from the unrestricted revenues of the issuer. Consequently, 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 Invest-
ment Adviser will consider investments in Municipal Bonds for the Intermediate-
Term Managed Income and Managed Income Funds when the Investment Adviser be-
lieves 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 Commis-
sion ("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 aggre-
gate 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 profits and
unrealized losses on the Fund's open contracts.
When investing in futures contracts, the Funds must satisfy certain asset seg-
regation 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 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 liquid assets
in an amount equal to the market value of the securities underlying such con-
tract (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 re-
quirements are not applicable 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
13
<PAGE>
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 securi-
ties which it holds or intends to purchase or may be unable to close a futures
position in the event of adverse price movements.
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 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
financially. However, loans are made only to borrowers deemed by the Invest-
ment 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.
BORROWING AND REVERSE REPURCHASE AGREEMENTS
Each Fund may borrow funds, in an amount up to 10% of the value of its total
assets, for temporary or emergency purposes, such as meeting larger than an-
ticipated redemption requests, and not for leverage. Each Fund may also agree
to sell portfolio securities to financial institutions such as banks and bro-
ker-dealers and to repurchase them at a mutually agreed date and price (a "re-
verse repurchase agreement"). The SEC views reverse repurchase agreements as a
form of borrowing. At the time a Fund enters into a reverse repurchase agree-
ment, it will place in a segregated custodial account liquid assets having a
value equal to the repurchase price, including accrued interest. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by a Fund may decline below the repurchase price of those securities.
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
Although each Fund generally seeks to invest for the long term, each Fund may
sell a portfolio investment immediately after its acquisition if the Invest-
ment Adviser believes that such a disposition is consistent with a Fund's in-
vestment objective. Portfolio investments may be sold for a variety of rea-
sons, 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 deci-
sions. Each Fund's portfolio turnover rate is not expected to exceed 400%.
High portfolio turnover may result in the realization of substantial net capi-
tal 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--Feder-
al.")
14
<PAGE>
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 total assets at the
time of such borrowing, provided that each Fund may enter into futures con-
tracts and futures options. (This borrowing provision is included solely to
facilitate 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;
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.
15
<PAGE>
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
net assets in illiquid securities, including repurchase agreements with remain-
ing maturities in excess of seven days, restricted securities and other securi-
ties 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.
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.
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, Thanksgiving 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 allocable to a Fund, less the liabilities
charged to the Fund, by the number of its outstanding 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
16
<PAGE>
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. 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 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.
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 principal business address is Clearing Operations, P.O. Box
897, Pittsburgh, PA 15230-0897.
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 make payments to any dealer that
sponsors sales contests or recognition programs conforming to criteria estab-
lished by the Distributor, or that participates in sales programs sponsored by
the Distributor. The Distributor in its discretion may also from time to time,
pursuant to objective criteria established by the Distributor, pay fees to
qualifying dealers for certain services or activities which are primarily in-
tended 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 conditions. 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.
In addition, the Distributor may offer to pay a fee from its own assets to
financial 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 ac-
counts, participating in sales, educational and training seminars, providing
sales literature, and engineering computer software programs that emphasize
the attributes 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 in-
stitution.
PURCHASE OF SHARES
Shares in each Fund are sold at their net asset value per Share next computed
after a purchase order is received by Excelsior Fund's sub-transfer agent. 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
17
<PAGE>
shareholder servicing agreements with Excelsior Fund. A Shareholder Organiza-
tion may elect to hold of record Shares for its Customers and to record benefi-
cial ownership of Shares on the account statements provided by it to its Cus-
tomers. If it does so, it is the Shareholder Organization's responsibility to
transmit to the Distributor all purchase orders for its Customers and to trans-
mit, on a timely basis, payment for such orders to Chase Global Funds Services
Company ("CGFSC"), the Funds' sub-transfer agent, in accordance with the proce-
dures agreed to by the Shareholder Organization and the Distributor. Confirma-
tions of all such Customer purchases and redemptions will be sent by CGFSC to
the particular Shareholder Organization. As an alternative, a Shareholder Or-
ganization 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.
Excelsior Fund enters into shareholder servicing agreements with Shareholder
Organizations which agree to provide their Customers various shareholder admin-
istrative 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--Serv-
ice 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 from the Distributor in accordance with proce-
dures 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
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
ABA #021000021
Excelsior Funds, Account No. 9102732915
For further credit to:
Excelsior Funds
Wire Control Number
Account Registration (including account number)
18
<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 ini- tial aggregate investment by a Shareholder Organi-
zation investing on behalf of its Customers is $500 per Fund. The minimum sub-
sequent 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") in order to be approved by CGFSC pursuant to the Sig-
nature Guarantee Guidelines. Copies of the Signature
19
<PAGE>
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, adminis-
trators, trustees and guardians. A redemption request will not be deemed to be
properly received until CGFSC receives all required documents in proper form.
Payment for Shares redeemed will ordinarily be made by mail within five Busi-
ness 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 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
20
<PAGE>
after 60 days' written notice if due to investor redemptions the balance in the
particular account with respect to the Fund remains below $500. If a Customer
has agreed with a particular Shareholder Organization 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 any 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 Funds, Inc. ("Excelsior Tax-Exempt Fund"), or for Trust Shares of Excel-
sior Institutional Trust, provided that such other shares may legally be sold
in the state of the Investor's residence.
Excelsior Fund currently offers twelve 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;
Blended Equity Fund, a fund seeking long-term capital appreciation through
investments 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;
Value and Restructuring Fund, a fund seeking long-term capital appreciation
by investing in companies benefitting from their restructuring or redeploy-
ment of assets and operations in order to become more competitive or profit-
able;
Small Cap Fund, a fund seeking 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;
International Fund, a fund seeking total return derived primarily from in-
vestments in foreign equity securities;
21
<PAGE>
Latin America 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 six 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;
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; and
California Tax-Exempt Income Fund, a non-diversified fund designed to pro-
vide California investors with as high a level of current interest income ex-
empt from Federal and, to the extent possible, California state personal in-
come taxes as is consistent with relative stability of principal; this fund
invests primarily in California municipal obligations and has a dollar-
weighted average portfolio maturity of three to ten years.
Excelsior Institutional Trust currently offers Trust Shares in the following
investment portfolios:
Optimum Growth Fund, a fund seeking superior, risk-adjusted total return by
investing in a diversified portfolio of equity securities whose growth pros-
pects, 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 by invest-
ing 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 next determined after receipt of the exchange re-
quest in good order.
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 ex-
change privilege with the other portfolios of Excelsior Fund, Excelsior Tax-
Exempt Fund or Excelsior Institutional
22
<PAGE>
Trust should request and review the prospectuses of such funds. Such prospec-
tuses may be obtained by calling the telephone 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 RE-
CEIVED BY TELEPHONE THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN ATTEMPTING
TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, EXCELSIOR FUND, EXCELSIOR
TAX-EXEMPT FUND AND EXCELSIOR INSTITUTIONAL TRUST WILL USE SUCH PROCEDURES AS
ARE CONSIDERED REASONABLE, INCLUDING RECORDING THOSE INSTRUCTIONS AND REQUEST-
ING 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. Pro-
23
<PAGE>
vided 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 op-
tion, 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
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 as-
sets, less (ii) amortization of premium on such assets, accrued expenses di-
rectly attributable to the Fund, and the general expenses or the expenses com-
mon to more than one Fund (e.g., legal, administrative, accounting, and Direc-
tors' 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 busi-
ness 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 distrib-
uted 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 or distribution is paid (as determined on the pay-
able date), unless they have requested in writing (received by CGFSC at Excel-
sior Fund's address prior to the payment date) to receive dividends and dis-
tributions 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.
24
<PAGE>
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 (includ-
ing 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 capi-
tal 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 a Fund's shareholders who are not currently ex-
empt from Federal income taxes, whether such income is received in cash or re-
invested 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 re-
ceived deduction.
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 shareholder has held the 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 effected an exchange of such Shares
for Shares of another Fund within 90 days of the purchase and was able to re-
duce the sales charges previously 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 deter-
mining 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.
25
<PAGE>
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 ("U.S. Trust New York") and U.S.
Trust Company of Connecticut ("U.S. Trust Connecticut" and, collectively with
U.S. Trust New York, "U.S. Trust" or the "Investment Adviser") serve as the
Investment Adviser to the Funds. U.S. Trust New York is a state-chartered bank
and trust company and a member bank of the Federal Reserve System and is one
of the twelve members of the New York Clearing House Association. U.S. Trust
Connecticut is a Connecticut state bank and trust company. U.S. Trust New York
and U.S. Trust Connecticut are wholly-owned subsidiaries of U.S. Trust Corpo-
ration, a registered bank holding company.
The Investment 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. On De-
cember 31, 1996, the Asset Management Groups of U.S. Trust New York and U.S.
Trust Connecticut had approximately $53 billion in aggregate assets under man-
agement. U.S. Trust New York has its principal offices at 114 W. 47th Street,
New York, New York 10036. U.S. Trust Connecticut has its principal offices at
225 High Ridge Road, East Building, Stamford, Connecticut 06905.
The Investment Adviser manages each Fund, makes decisions with respect to and
places orders for all purchases 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, G. Michael
O'Neil, III, is the person primarily responsible for the day-to-day management
of the Fund's investment portfolio. Mr. O'Neil, a Senior Vice President and
Manager of Money Market Investments at U.S. Trust, has been with U.S. Trust
since 1989 and has been the Fund's portfolio manager since December 1996.
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.
Prior to May 16, 1997, U.S. Trust New York served as investment adviser to
the Funds pursuant to advisory agreements substantially similar to the Invest-
ment Advisory Agreements currently in effect for the Funds. For the fiscal
year ended March 31, 1997, U.S. Trust New York received advisory fees at the
effective annual rates of .21%, .30% and .61% of the average daily net
26
<PAGE>
assets of the Short-Term Government Securities, Intermediate-Term Managed In-
come and Managed Income Funds, respectively. For that same period, U.S. Trust
New York waived advisory fees at the effective annual rates of .09%, .05% and
.14% of the average daily net assets of the Short-Term Government Securities,
Intermediate-Term Managed Income and Managed Income Funds, respectively.
From time to time, the Investment Adviser may voluntarily waive all or a por-
tion of the advisory fees payable to it by a Fund, which waiver may be termi-
nated 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 Connecticut serve as
the Funds' administrators (the "Administrators") and provide them with general
administrative and operational assistance. The Administrators also serve as
administrators of the other portfolios of Excelsior Fund and of all the port-
folios of Excelsior Tax-Exempt Fund and Excelsior Institutional Trust, which
are also advised by the Investment Adviser and its affiliates and distributed
by the Distributor. For the services provided to all portfolios of Excelsior
Fund, Excelsior Tax-Exempt Fund and Excelsior Institutional Trust (except the
international portfolios of Excelsior Fund and Excelsior 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 portfolios of Excelsior Fund and
Excelsior Institutional Trust) as follows:
<TABLE>
<CAPTION>
COMBINED AGGREGATE AVERAGE DAILY
NET ASSETS OF EXCELSIOR FUND, EXCELSIOR TAX-EXEMPT
FUND AND EXCELSIOR INSTITUTIONAL TRUST
(EXCLUDING THE INTERNATIONAL PORTFOLIOS OF
EXCELSIOR FUND AND
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 Excel-
sior Fund, Excelsior Tax-Exempt Fund and Excelsior Institutional Trust are al-
located in proportion to their relative average daily net assets at the time
of determination. From time to time, the Administrators may voluntarily waive
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 waivers.
Prior to May 16, 1997, CGFSC, Federated Administrative Services and U.S.
Trust New York served as the Funds' administrators pursuant to an administra-
tion agreement substantially similar to the administration agreement currently
in effect for the Funds. For the fiscal year ended March 31, 1997, CGFSC, Fed-
erated Administrative Services and U.S. Trust New York received an aggregate
administration fee at the effective annual rates of .154%, .152% and .153% of
the average daily net assets of the Short-Term Government Securities, Interme-
diate-Term Managed Income and Managed Income Funds, respectively, and waived
administration fees at the effective annual rates of .002% and .001% of the
average daily net assets of the Intermediate-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 con-
27
<PAGE>
nection with Customer orders to purchase, exchange or redeem Shares; and pro-
viding periodic statements. Under the terms of the Servicing Agreement, Serv-
ice 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. 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 14, 1997, U.S. Trust and its affiliates held of record substan-
tially all of Excelsior Fund's outstanding shares as agent or custodian for
their customers, but did not own such shares beneficially because they did not
have voting or investment discretion with respect to such shares..
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase"), a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as the custodian of the Funds' assets. Com-
28
<PAGE>
munications to the custodian should be directed to Chase, Mutual Funds Service
Division, 3 Chase MetroTech Center, 8th Floor, Brooklyn, NY 11245.
U.S. Trust New York serves as the Funds' transfer and dividend disbursing
agent. U.S. Trust New York has also entered into a sub-transfer agency arrange-
ment with CGFSC, 73 Tremont Street, Boston, Massachusetts 02108-3913, pursuant
to which CGFSC provides certain transfer agent, dividend disbursement and reg-
istrar 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 per-
formance of mutual funds.
Performance and yield data as reported in national financial publications, in-
cluding 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 net asset value per
Share on the last day of the period, and annualizing the result on a semiannual
basis.
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 Fund
Shares.
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 compare
an investment in the Funds with bank deposits, savings accounts and similar in-
vestment alternatives which often provide an agreed or guaranteed fixed yield
for a stated period of time. Shareholders should remember that the performance
and yield are generally functions of the kind and quality of the instruments
held in a portfolio, portfolio maturity, operating expenses, and market condi-
tions. Any fees charged by the Shareholder Organizations with respect to ac-
counts of Customers that have invested in Shares will not be included in calcu-
lations of yield and 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
29
<PAGE>
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 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."
30
<PAGE>
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION
OPENING YOUR ACCOUNT:
<TABLE>
<S> <C>
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 Company Services Company--Sub-Transfer Agent 73
P.O. Box 2798 Tremont Street Boston, MA 02108-3913
Boston, MA 02208-2798
</TABLE>
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 sub-transfer agent at (800) 446-1012 between 9:00
a.m. and 5:00 p.m. (Eastern Time).
31
<PAGE>
CHASE GLOBAL FUNDS SERVICES COMPANY
[LOGO] CLIENT SERVICES NEW
EXCELSIOR P.O. Box 2798 ACCOUNT
FUNDS, INC. Boston, MA 02208-2798 APPLICATION
(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
City/State/Zip Code [_] Other (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>
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 amount of
by wire, you must $ _____ payable to "Excelsior Funds."
obtain a Bank Wire B. BY WIRE: A bank wire in the amount of $______
Control Number. To has been sent to the Fund from _________________
do so, please call _____________________ Name of Bank
(800) 446-1012 and Wire Control Number
ask for the Wire
Desk.
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, trustees, 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>
- --------------------------------------------------------------------------------
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, U.S. Trust, 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.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISIONS
OF THIS FROM OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.
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 Authorized Title
Signature
<PAGE>
<TABLE>
<S> <C> <C>
CHASE GLOBAL FUNDS SERVICES COMPANY
[LOGO] CLIENT SERVICES SUPPLEMENTAL
EXCELSIOR P.O. Box 2798 APPLICATION
FUNDS INC. Boston, MA 02208-2798 SPECIAL INVESTMENT AND
(800) 446-1012 WITHDRAWAL OPTIONS
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ACCOUNT REGISTRATION PLEASE SUPPLY THE FOLLOWING INFORMATION EXACTLY AS IT
APPEARS ON THE FUND'S RECORD.
- --------------------------------------------------------------------------------
Fund Name ________________________ Account Number _____________________
Social Security or Taxpayer ID
Owner Name _______________________ Number _____________________________
Street Address ___________________ City, State, Zip Code ______________
Resident 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 net asset value 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[_] NONOT 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
check payable
to: (To be
completed only
if redemption Recipient ________________________________
proceeds to be Street Address ___________________________
paid to other City, State, Zip Code ____________________
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.......................................................... 21
DIVIDENDS AND DISTRIBUTIONS................................................ 24
TAXES...................................................................... 25
MANAGEMENT OF THE FUNDS.................................................... 26
DESCRIPTION OF CAPITAL STOCK............................................... 28
CUSTODIAN AND TRANSFER AGENT............................................... 29
PERFORMANCE AND YIELD INFORMATION.......................................... 29
MISCELLANEOUS.............................................................. 30
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION................................... 31
</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.
USTFXIP897
[LOGO]
EXCELSIOR FUNDS INC.
SHORT-TERM GOVERNMENT SECURITIES FUND
INTERMEDIATE-TERM MANAGED INCOME FUND
MANAGED INCOME FUND
Prospectus
August 1, 1997
<PAGE>
CROSS-REFERENCE SHEET
---------------------
EXCELSIOR FUNDS, INC.
(Blended Equity, Income and Growth, Value and
Restructuring and
Small Cap Funds)
Form N-1A, Part A, Item Prospectus Caption
- ----------------------- ------------------
1. Cover Page................................ Cover Page
2. Synopsis.................................. Prospectus Summary;
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
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
FUNDS INC]
A Management Investment Company
- --------------------------------------------------------------------------------
Equity Funds For initial purchase information, current
73 Tremont Street prices, performance information and existing
Boston, MA 02108-3913 account information, call (800) 446-1012.
(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:
BLENDED EQUITY FUND seeks long-term capital appreciation by investing in com-
panies believed by the Investment Adviser to represent good long-term values
not currently 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.
VALUE AND RESTRUCTURING FUND seeks long-term capital appreciation by investing
in companies which the Investment Adviser believes will benefit from their re-
structuring or redeployment of assets and operations in order to become more
competitive or profitable.
SMALL CAP 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 and U.S. Trust Company of
Connecticut (collectively, 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, 1997 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, U.S. TRUST, ITS PARENT OR AFFILIATES AND THE SHARES ARE NOT FEDER-
ALLY 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.
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, 1997
<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
$3 billion. See "Description of Capital Stock."
INVESTMENT ADVISER: United States Trust Company of New York and U.S. Trust
Company of Connecticut (collectively, "U.S. Trust" or the "Investment Advis-
er") serve as the Funds' investment adviser. U.S. Trust offers 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, 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 net asset value. Ex-
celsior Fund does not impose a sales load on purchases of Shares. 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. 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 secu-
rities are generally unsecured, are often subordinated debt and are often is-
sued by entities with high levels of indebtedness and that are more sensitive
to adverse economic conditions. Although each Fund generally seeks to invest
for the long term, each Fund may engage in short-term trading of portfolio se-
curities. A high rate of portfolio turnover may involve correspondingly
greater transaction costs which must be borne directly by a Fund and ulti-
mately 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 un-
der this Prospectus.
<TABLE>
<CAPTION>
BLENDED VALUE AND
EQUITY INCOME AND RESTRUCTURING SMALL CAP
FUND GROWTH FUND FUND FUND
------- ----------- ------------- ---------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load (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 waiv-
ers)/2/........................... .70% .67% .56% .52%
12b-1 Fees......................... None None None None
Other Operating Expenses
Administrative Servicing Fee/2/... .05% .08% .04% .08%
Other Expenses.................... .26% .28% .31% .34%
----- ----- ---- ----
Total Operating Expenses (after fee
waivers)/2/ ...................... 1.01% 1.03% .91% .94%
===== ===== ==== ====
</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 Value and Restructuring and
Small Cap Funds (collectively, the "Theme Funds") to maintain an annual ex-
pense ratio of not more than .99%. Without such fee waivers, "Advisory
Fees" would be .75%, .75%, .60% and .60%, and "Total Operating Expenses"
would be 1.06%, 1.11%, .95% and 1.02% for the Blended Equity, Income and
Growth, Value and Restructuring and Small Cap 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>
Blended Equity Fund............................. $10 $32 $56 $124
Income and Growth Fund.......................... 11 33 57 126
Value and Restructuring Fund.................... 9 29 50 112
Small Cap Fund.................................. 10 30 52 115
</TABLE>
The foregoing expense summary and example 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 advi-
sory and other expenses payable with respect to Shares of the Funds for the
fiscal year ended March 31, 1997. 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 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 statements included in Excelsior Fund's Annual Report to
Shareholders for the year ended March 31, 1997 (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.
The Blended Equity, Value and Restructuring, and Small Cap Funds offer two
separate series of shares--Trust Shares and shares of another series offered
under this Prospectus. Trust Shares and the Shares offered under this Prospec-
tus 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."
BLENDED EQUITY FUND
(FORMERLY, THE EQUITY FUND)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------- ------- ------- ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 24.43 $ 21.40 $ 19.17 $ 18.77 $ 16.28 $14.13 $13.87 $13.22 $11.32 $ 13.56
------- ------- ------- ------- ------- ------ ------ ------ ------ --------
Income From Investment
Operations
Net Investment Income.. 0.18 0.12 0.07 0.05 0.08 0.13 0.28 0.34 0.19 0.15
Net Gains or (Losses)
on Securities
(both realized and
unrealized)........... 2.50 5.21 2.67 1.16 3.01 2.23 0.39 1.26 1.88 (1.63)
------- ------- ------- ------- ------- ------ ------ ------ ------ --------
Total From Investment
Operations............ 2.68 5.33 2.74 1.21 3.09 2.36 0.67 1.60 2.07 (1.48)
------- ------- ------- ------- ------- ------ ------ ------ ------ --------
Less Distributions
Dividends From Net
Investment Income..... (0.14) (0.11) (0.04) (0.08) (0.09) (0.21) (0.23) (0.34) (0.17) (0.14)
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............... (1.16) (2.19) (0.47) (0.39) (0.51) 0.00 (0.18) (0.61) 0.00 (0.62)
Distributions in Excess
of Net Realized Gain
on Investments and
Options............... 0.00 0.00 0.00 (0.34) 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------- ------ ------ ------ ------ --------
Total Distributions.... (1.30) (2.30) (0.51) (0.81) (0.60) (0.21) (0.41) (0.95) (0.17) (0.76)
------- ------- ------- ------- ------- ------ ------ ------ ------ --------
Net Asset Value, End of
Period................. $ 25.81 $ 24.43 $ 21.40 $ 19.17 $ 18.77 $16.28 $14.13 $13.87 $13.22 $ 11.32
======= ======= ======= ======= ======= ====== ====== ====== ====== ========
Total Return/1/ ........ 11.09% 26.45% 14.65% 6.54% 19.26% 16.87% 5.11% 11.98% 18.52% (11.24)%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions).. $306.99 $188.57 $137.42 $122.26 $106.14 $71.62 $29.87 $25.98 $17.61 $ 13.58
Ratio of Net Operating
Expenses to Average
Net Assets............ 1.01% 1.05% 1.05% 1.14% 1.08% 1.15% 1.23% 1.22% 1.16% 1.16%
Ratio of Gross
Operating Expenses to
Average
Net Assets/2/ ........ 1.06% 1.12% 1.08% 1.14% 1.08% 1.15% 1.23% 1.22% 1.16% 1.16%
Ratio of Net Investment
Income to Average
Net Assets............ 0.71% 0.55% 0.36% 0.25% 0.51% 0.87% 2.21% 2.45% 1.62% 1.26%
Portfolio Turnover
Rate.................. 39.0% 27.0% 23.0% 17.0% 24.0% 20.0% 41.0% 53.0% 46.0% 67.0%
Average Commission Rate
Paid/3/............... $0.0663 N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- -------
NOTES:
1. Total return data does not reflect the sales load payable on purchases of
Shares prior to February 14, 1997.
2. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
3. Only required for fiscal years beginning on or after September 1, 1995.
4
<PAGE>
INCOME AND GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------ ------ ------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 14.45 $ 11.82 $11.94 $11.45 $ 9.10 $ 8.36 $ 8.84 $ 9.09 $ 8.12 $ 8.95
------- ------- ------ ------ ------ ------ ------- ------ ------ -------
Income From Investment
Operations
Net Investment Income.. 0.33 0.39 0.38 0.31 0.27 0.30 0.29 0.40 0.28 0.44
Net Gains or (Losses)
on Securities
(both realized and
unrealized)........... 1.45 2.61 0.26 0.46 2.43 0.72 (0.43) 0.19 1.15 (0.93)
------- ------- ------ ------ ------ ------ ------- ------ ------ -------
Total From Investment
Operations............ 1.78 3.00 0.64 0.77 2.70 1.02 (0.14) 0.59 1.43 (0.49)
------- ------- ------ ------ ------ ------ ------- ------ ------ -------
Less Distributions
Dividends From Net
Investment Income..... (0.35) (0.31) (0.35) (0.27) (0.35) (0.28) (0.34) (0.39) (0.46) (0.21)
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............... (0.63) (0.06) (0.41) (0.01) 0.00 0.00 0.00 (0.45) 0.00 (0.13)
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.... (0.98) (0.37) (0.76) (0.28) (0.35) (0.28) (0.34) (0.84) (0.46) (0.34)
------- ------- ------ ------ ------ ------ ------- ------ ------ -------
Net Asset Value, End of
Period................. $ 15.25 $ 14.45 $11.82 $11.94 $11.45 $ 9.10 $ 8.36 $ 8.84 $ 9.09 $ 8.12
======= ======= ====== ====== ====== ====== ======= ====== ====== =======
Total Return/1/......... 12.61% 25.83% 5.74% 6.69% 30.45% 12.42% (1.30%) 6.14% 18.36% (5.43%)
Ratios/Supplemental Data
Net Assets, End of
Period (in millions).. $132.77 $127.50 $99.93 $96.68 $51.30 $23.25 $ 19.59 $23.66 $14.62 $ 6.66
Ratio of Net Operating
Expenses to Average
Net Assets............ 1.03% 1.05% 1.06% 1.17% 1.15% 1.23% 1.28% 1.24% 1.22% 1.27%
Ratio of Gross
Operating Expenses to
Average Net Assets/2/. 1.11% 1.11% 1.09% 1.17% 1.15% 1.23% 1.28% 1.24% 1.22% 1.27%
Ratio of Net Investment
Income to Average Net
Assets................ 2.17% 2.95% 3.31% 2.77% 2.76% 3.52% 3.64% 4.47% 4.09% 6.20%
Portfolio Turnover
Rate.................. 25.0% 22.0% 36.0% 28.0% 28.0% 81.0% 148.0% 29.0% 24.0% 27.0%
Average Commission Rate
Paid/3/............... $0.0777 N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- -------
NOTES:
1. Total return data does not reflect the sales load payable on purchases of
Shares prior to February 14, 1997.
2. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
3. Only required for fiscal years beginning on or after September 1, 1995.
5
<PAGE>
VALUE AND RESTRUCTURING FUND
(FORMERLY, THE BUSINESS AND INDUSTRIAL RESTRUCTURING FUND)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------- PERIOD ENDED
1997 1996 1995 1994 MARCH 31, 1993/1/
------- ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................. $ 14.03 $10.55 $ 9.64 $ 7.71 $ 7.00
------- ------ ------ ------ -------
Income From Investment
Operations
Net Investment Income..... 0.13 0.10 0.07 0.06 0.02
Net Gains or (Losses) on
Securities (both realized
and unrealized).......... 2.36 3.71 1.02 1.96 0.69
------- ------ ------ ------ -------
Total From Investment
Operations............... 2.49 3.81 1.09 2.02 0.71
------- ------ ------ ------ -------
Less Distributions
Dividends From Net
Investment Income........ (0.12) (0.09) (0.06) (0.07) 0.00
Dividends in Excess of Net
Investment Income........ 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Gain on
Investments and Options.. (0.47) (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 0.00
------- ------ ------ ------ -------
Total Distributions....... (0.59) (0.33) (0.18) (0.09) 0.00
------- ------ ------ ------ -------
Net Asset Value, End of
Period..................... $ 15.93 $14.03 $10.55 $ 9.64 $ 7.71
======= ====== ====== ====== =======
Total Return/2/............. 18.09% 36.48% 11.49% 26.40% 10.14%
Ratios/Supplemental Data
Net Assets, End of Period
(in millions)............ $124.01 $74.05 $30.18 $14.44 $ 1.94
Ratio of Net Operating
Expenses to Average
Net Assets............... 0.91% 0.91% 0.98% 0.99% 0.99%/3/
Ratio of Gross Operating
Expenses to Average
Net Assets/4/............ 0.95% 0.95% 1.08% 1.73% 5.85%3
Ratio of Net Investment
Income to Average
Net Assets............... 0.90% 0.88% 0.83% 0.77% 2.48%/3/
Portfolio Turnover Rate... 62.0% 56.0% 82.0% 75.0% 9.0%/3/
Average Commission Rate
Paid/5/.................. $0.0755 N/A N/A N/A N/A
</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 prior to February 14, 1997.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
5. Only required for fiscal years beginning on or after September 1, 1995.
6
<PAGE>
SMALL CAP FUND
(FORMERLY, THE EARLY LIFE CYCLE FUND)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------- PERIOD ENDED
1997 1996 1995 1994 MARCH 31, 1993/1/
-------- ------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 10.78 $ 9.77 $ 8.66 $ 7.40 $7.00
-------- ------- ------- ------- -----
Income From Investment
Operations
Net Investment Income
(Loss)............... (0.03) (0.02) (0.02) (0.01) 0.00
Net Gains or (Losses)
on Securities (both
realized and
unrealized).......... (1.43) 1.72 1.31 1.36 0.40
-------- ------- ------- ------- -----
Total From Investment
Operations........... (1.46) 1.70 1.29 1.35 0.40
-------- ------- ------- ------- -----
Less Distributions
Dividends From Net
Investment Income.... 0.00 0.00 0.00 0.00 0.00
Dividends in Excess of
Net Investment
Income............... 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Gain on
Investments and
Options.............. (0.10) (0.69) (0.18) (0.09) 0.00
Distributions in
Excess of Net
Realized Gain on
Investments and
Options.............. (0.39) 0.00 0.00 0.00 0.00
-------- ------- ------- ------- -----
Total Distributions... (0.49) (0.69) (0.18) (0.09) 0.00
-------- ------- ------- ------- -----
Net Asset Value, End of
Period................. $ 8.83 $ 10.78 $ 9.77 $ 8.66 $7.40
======== ======= ======= ======= =====
Total Return/2/......... (14.33)% 18.29% 15.16% 18.27% 5.71%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions). $ 53.26 $ 78.06 $ 47.78 $ 24.95 $5.51
Ratio of Net Operating
Expenses to Average
Net Assets........... 0.94% 0.90% 0.96% 0.95% 0.99%/3/
Ratio of Gross
Operating Expenses to
Average Net
Assets/4/............ 1.02% 0.98% 1.04% 1.15% 2.70%/3/
Ratio of Net
Investment
Income/(Loss) to
Average Net Assets... (0.26)% (0.17)% (0.23)% (0.25)% 0.12%/3/
Portfolio Turnover
Rate................. 55.0% 38.0% 42.0% 20.0% 4.0%/3/
Average Commission
Rate Paid/5/......... $ 0.0433 N/A N/A N/A N/A
</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 prior to February 14, 1997.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
5. Only required for fiscal years beginning on or after September 1, 1995.
7
<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 in managing the Funds,
the three portfolio strategies discussed above are applied in concert with
other "longer-term investment themes" to identify investment opportunities.
The Investment Adviser believes these longer-term themes represent strong and
inexorable trends. The Investment Adviser also believes that understanding the
instigation, catalysts and effects of these longer-term trends should help to
identify 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.
8
<PAGE>
BLENDED EQUITY FUND
The Blended Equity Fund's investment objective is to seek long-term capital
appreciation. The Blended Equity Fund invests in companies which the Invest-
ment Adviser believes have value currently not recognized in the market prices
of the companies' securities. The Investment Adviser uses the investment phi-
losophy, 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 Blended Equity
Fund and the Theme Funds" for a discussion of various investment policies ap-
plicable to the Blended Equity Fund.
THEME FUNDS
Two 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 both Theme
Funds are discussed after this section.
VALUE AND RESTRUCTURING FUND--invests in companies which the Investment Ad-
viser believes will benefit from their restructuring or redeployment of assets
and operations in order to become more competitive or profitable. Such compa-
nies may include those involved in prospective mergers, consolidations, liqui-
dations, spin-offs, financial restructurings and reorganizations. The business
activities of such companies are not limited in any way. 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. The Investment Adviser's focus is to
find companies whose restructuring activities offer significant value and in-
vestment 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 or-
der to increase profitability. There is risk in these types of investments.
For example, should a company be unsuccessful in reducing its debt, it may be
forced into default on its debt, increasing its debt or bankruptcy.
SMALL CAP FUND--invests primarily in smaller companies which are in the ear-
lier stages of their development [or larger or more mature companies engaged
in new and higher growth potential operations]. Small cap companies are typi-
cally early in their development as companies, yet have demonstrated or are
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 selecting companies for in-
vestment, the Investment Adviser looks for innovative companies whose poten-
tial 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 compa-
nies 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 BLENDED EQUITY FUND AND THE THEME FUNDS
Under normal market and economic conditions, the Blended Equity and each
Theme Fund will invest at least 65% of its total assets in common stock, pre-
ferred 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 in-
struments including, e.g., other investment-grade debt securities, warrants,
options, and futures instruments as described in more detail below. During
temporary defensive periods or when the Investment Adviser believes that suit-
able 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-qual-
ity money market instruments and repurchase agreements collateralized by the
foregoing obligations.
9
<PAGE>
In managing the Blended Equity and Theme Funds, the Investment Adviser seeks
to purchase 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 Small Cap Fund emphasizes such companies. Certain securities owned by the
Blended 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 re-
sult, 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 periods
when such disposition is not desirable, or to make many small sales over a pe-
riod of time.
The Blended Equity and Theme Funds may invest in the securities of foreign is-
suers. 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 evi-
dence 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 de-
nominated in the same currency as the underlying securities into which they may
be converted.
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 Blended 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 Blended Equity Fund or other Theme Funds. The Invest-
ment Adviser may also purchase equity securities for the Income and Growth Fund
from time to time without regard to the strategies outlined above if it deter-
mines 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
10
<PAGE>
both convertible and non-convertible corporate and government bonds, deben-
tures, money market instruments, repurchase agreements collateralized by U.S.
Government obligations, and other types of instruments listed in the next par-
agraph. Except as stated below, investments in debt obligations will be lim-
ited to those that are considered to be investment grade-i.e., debt obliga-
tions classified 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 obligations when it believes that their investment characteristics make
them desirable acquisitions for the Income and Growth Fund in light of its in-
vestment objectives and current portfolio mix, so long as, under normal market
and economic conditions, no more than 5% of the Fund's total assets are in-
vested in non-investment grade debt obligations. Notwithstanding the forego-
ing, the Fund may invest up to 35% of its total assets 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 sensitiv-
ity 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 legisla-
tion 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 is-
suers 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 service their principal
and interest payment obligations, to meet projected business goals and to ob-
tain additional financing. An economic downturn could also disrupt the market
for lower-rated bonds and adversely effect the value of outstanding 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 perceptions, whether
or not based on fundamental analysis, may also decrease the values and liquid-
ity 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
conditions. The rating "CC" is typically applied to debt subordinated to se-
nior 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 implied "CCC-" debt rating, and may be used to cover a situation
where a bankruptcy petition has been filed, but debt service payments are con-
tinued. 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 inter-
est and/or repayment 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
classification scheme for non-investment grade debt obligations. Debt obliga-
tions rated "Ba," "B," "Caa," "Ca" and "C" provide questionable protection of
interest and principal. The rating "Ba" indicates that a debt obligation has
some speculative characteristics. The rating "B" indicates a general lack of
characteristics of desirable investment. Debt obligations rated "Caa" are of
poor quality, while debt obligations rated "Ca" are considered highly specula-
tive. "C" represents the lowest rated class of debt obligations. Moody's ap-
plies 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
11
<PAGE>
security ranks in the higher end of its rating category; the modifier "2" re-
flects a mid-range ranking; 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
participations. 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 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 securities 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.
Smaller capitalized companies may have limited product lines, markets, or fi-
nancial resources, or may be dependent upon a small management group, and
their securities may be subject to more abrupt or erratic market movements
than larger capitalized or more established companies, both because their se-
curities typically are traded in lower volume and because the issuers typi-
cally are subject to a greater degree 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
12
<PAGE>
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 exchanges, brokers and
issuers than there is in the United States and a Fund might have greater dif-
ficulty taking appropriate legal action in a foreign court. Dividends and in-
terest payable on a Fund's foreign portfolio securities may be subject to for-
eign withholding taxes. To the extent such taxes are not offset by credits or
deductions allowed 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
Blended Equity and Theme Funds' shares may be suitable only for those invest-
ors 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 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
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<PAGE>
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 Na-
tional 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 Mari-
time 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 below under "Illiquid Securities."
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, how-
ever, 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.
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, or any combination
thereof. Such loans will not be made if, as a result, the aggregate of all out-
standing 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 collateral should the bor-
rower of the securities fail financially. However, loans are made only to bor-
rowers 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 Corpora-
tion 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 particu-
lar 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 trans-
actions with respect to such options. Such options must be listed on a national
securities exchange and issued by the Options Clearing Corporation. The aggre-
gate 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 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
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<PAGE>
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 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 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 mar-
ket price at which the short position was established. Asset segregation re-
quirements are not applicable when a Fund "covers" an options or futures posi-
tion generally by entering into an offsetting position. Each Fund will limit
its hedging transactions in futures contracts and related options so that, im-
mediately after any such transaction, the aggregate initial margin that is re-
quired 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 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 under-
lying 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 op-
tion. 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-qual-
15
<PAGE>
ity, 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 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.
BORROWING AND REVERSE REPURCHASE AGREEMENTS
Each Fund may borrow funds, in an amount up to 10% of the value of its total
assets, for temporary or emergency purposes, such as meeting larger than an-
ticipated redemption requests, and not for leverage. Each Fund may also agree
to sell portfolio securities to financial institutions such as banks and bro-
ker-dealers and to repurchase them at a mutually agreed date and price (a "re-
verse repurchase agreement"). The SEC views reverse repurchase agreements as a
form of borrowing. At the time a Fund enters into a reverse repurchase agree-
ment, it will place in a segregated custodial account liquid assets having a
value equal to the repurchase price, including accrued interest. Reverse re-
purchase agreements involve the risk that the market value of the securities
sold by a Fund may decline below the repurchase price of those securities.
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 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
investments. 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
16
<PAGE>
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 "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 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;
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; and
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 Blended Equity and In-
come and Growth Funds, there is no limitation with respect to securities is-
sued 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 secu-
rities issued or guaranteed by the U.S. Government, and (c) neither all fi-
nance companies, as a group, nor all utility companies, as a group, are con-
sidered a single industry for purposes of this policy.
Each of the Blended 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 net assets in illiquid
securities, including repurchase agreements with remaining maturities in ex-
cess of seven days, restricted securities, and other securities for which
market quotations are not readily available.
* * *
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<PAGE>
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 matu rities
in excess of seven days, restricted securities and other securities for which
market 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 Blended 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, 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.
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 securi-
ties 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 quotations 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 securities
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. Investments 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 cur-
rent bid quotation if market quo-
18
<PAGE>
tations are available, or at fair value as determined in accordance with
guidelines adopted by the Board of Directors. For valuation purposes, quota-
tions 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 in-
vestors can neither purchase nor redeem a Fund's Shares. Excelsior Fund's ad-
ministrators have undertaken to price the securities in the Funds' portfolios,
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.
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 make payments to any dealer that
sponsors sales contests or recognition programs conforming to criteria estab-
lished by the Distributor, or that participates in sales programs sponsored by
the Distributor. The Distributor in its discretion may also from time to time,
pursuant to objective criteria established by the Distributor, pay fees to
qualifying dealers for certain services or activities which are primarily in-
tended 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 conditions. 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.
In addition, the Distributor may offer to pay a fee from its own assets to
financial 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 ac-
counts, participating in sales, educational and training seminars, providing
sales literature, and engineering computer software programs that emphasize
the attributes 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 in-
stitution.
PURCHASE OF SHARES
Shares in each Fund are sold at their net asset value per Share next computed
after a purchase order is received by Excelsior Fund's sub-transfer agent. 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 Cus-
19
<PAGE>
tomer purchases and redemptions will be sent by CGFSC to the particular Share-
holder Organization. As an alternative, a Shareholder 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 re-
demption orders with the Funds, CGFSC will send confirmations of such transac-
tions and periodic account statements directly to Customers.
Excelsior Fund enters into shareholder servicing agreements with Shareholder
Organizations which agree to provide their Customers various shareholder admin-
istrative 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--Serv-
ice 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 from the Distributor 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
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
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.
20
<PAGE>
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-ments 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") 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
21
<PAGE>
will not be deemed to be properly received until 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 redemp-
tion request. Questions with respect to the proper form for redemption re-
quests 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 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. 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
22
<PAGE>
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
Funds, Inc. ("Excelsior Tax-Exempt Fund") or for Trust Shares of Excelsior In-
stitutional Trust, provided that such other shares may legally be sold in the
state of the Investor's residence.
Excelsior Fund currently offers 11 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;
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;
International Fund, a fund seeking total return derived primarily from in-
vestments in foreign equity securities;
Latin America 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.;
23
<PAGE>
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 six 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;
New York Intermediate-Term Tax-Exempt Fund, a non- diversified fund designed
to provide New York in vestors 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;
and
California Tax-Exempt Income Fund, a non-diversified fund designed to pro-
vide California investors with as high a level of current interest income ex-
empt from Federal and, to the extent possible, California state personal in-
come taxes as is consistent with relative stability of principal; this fund
invests primarily in California municipal obligations and has a dollar-
weighted average portfolio maturity of three to ten years.
Excelsior Institutional Trust currently offers Trust Shares in the following
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 next determined after receipt of the exchange re-
quest in good order.
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 call-
24
<PAGE>
ing 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 ex-
change 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 REA-
SONABLY 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
auto-
25
<PAGE>
matic withdrawals, Shares are purchased by transferring funds from an Invest-
or'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 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
26
<PAGE>
for each taxable year. In general, a Fund's investment company taxable income
will be its income (including dividends and interest), subject to certain ad-
justments 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 de-
ferred under the Code.) The dividends received deduction for corporations will
apply to such ordinary income distributions to the extent of the total quali-
fying 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 effected an exchange of such Shares
for Shares of another Fund within 90 days of the purchase and was able to re-
duce the sales charges previously applicable to the new Shares (by virtue of
the exchange privilege), the amount equal to such reduction may not be in-
cluded 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 limita-
tion) 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
27
<PAGE>
(such as liquidating trust receipts and creditor claims) may not be securities
or may not produce qualifying income. Therefore, it may be necessary for the
Investment Adviser 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
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 ("U.S. Trust New York") and U.S.
Trust Company of Connecticut ("U.S. Trust Connecticut" and, collectively with
U.S. Trust New York, "U.S. Trust" or the "Investment Adviser") serve as the
Investment Adviser to the Funds. U.S. Trust New York is a state-chartered bank
and trust company and a member bank of the Federal Reserve System and is one
of the twelve members of the New York Clearing House Association. U.S. Trust
Connecticut is a Connecticut state bank and trust company. U.S. Trust New York
and U.S. Trust Connecticut are wholly-owned subsidiaries of U.S. Trust Corpo-
ration, a registered bank holding company.
The Investment 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. On De-
cember 31, 1996, the Asset Management Groups of U.S. Trust New York and U.S.
Trust Connecticut had approximately $53 billion in aggregate assets under man-
agement. U.S. Trust New York has its principal offices at 114 W. 47th Street,
New York, New York 10036. U.S. Trust Connecticut has its principal offices at
225 High Ridge Road, East Building, Stamford, CT 06905.
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 Blended 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 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 Income and Growth Fund portfolio manager, Richard L. Bayles, is the per-
son primarily responsible for the day-to-day management of the investment
portfolio. 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
28
<PAGE>
Director at John W. Bristol and Company, an investment advisory firm, from
1987 to 1990.
The Value and 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, Department 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 Small Cap Fund's portfolio co-manager is Jay B. Springer. Mr. Springer, a
Managing Director and Senior Portfolio Manager at U.S. Trust, has been with
U.S. Trust since June 1983 and has been the Fund's portfolio manager since
January 1997.
The Small Cap Fund's portfolio co-manager is Diana L. Chaney. Ms. Chaney, a
Vice President at U.S. Trust, has been with U.S. Trust since May 1995 and was
previously with Smith Barney Investment Advisers where she was Director of
Money Management from 1987 to 1995.
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: .75% of the average
daily net assets of the Blended Equity and the Income and Growth Funds; and
.60% of the average daily net assets of each Theme Fund. The advisory fee
rates payable by the Blended Equity and Income and Growth Funds are 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 these fees
are comparable to the rates paid by many other funds with similar investment
objectives and policies and are appropriate for the Funds in light of their
investment objectives and policies.
Prior to May 16, 1997, U.S. Trust New York served as investment adviser to
the Funds pursuant to advisory agreements substantially similar to the Invest-
ment Advisory Agreements currently in effect for the Funds. For the fiscal
year ended March 31, 1997, U.S. Trust New York received an advisory fee at the
effective annual rates of .70%, .67%, .56%, and .52% of the average daily net
assets of the Blended Equity, Income and Growth, Value and Restructuring and
Small Cap Funds, respectively. For the same period, U.S Trust New York waived
advisory fees at the effective annual rates of .05%, .08%, .04%, and .08% of
the average daily net assets of the Blended Equity, Income and Growth, Value
and Restructuring and Small Cap Funds, respectively.
From time to time, the Investment Adviser may voluntarily waive all or a por-
tion of the advisory fees payable to it by a Fund, which waiver may be termi-
nated at any time. See "Management of the Funds--Service Organizations" for
additional information on fee waivers.
In executing portfolio transactions for the Funds, the Investment Adviser may
use affiliated brokers in accordance with the requirements of the 1940 Act.
The Investment Adviser may also take into account the sale of Excelsior Fund's
shares in allocating brokerage transactions.
ADMINISTRATORS
CGFSC, Federated Administrative Services and U.S. Trust Connecticut serve as
the Funds' administrators (the "Administrators") and provide them with general
administrative and operational assistance. The Administrators also serve as
administrators of the other portfolios of Excelsior Fund and of all the port-
folios of Excelsior Tax-Exempt Fund and Excelsior Institutional Trust, which
are also advised by the Investment Adviser and its affiliates and distributed
by the Distributor. For the services provided to all portfolios of Excelsior
Fund, Excelsior Tax-Exempt Fund and Excelsior Institutional Trust (except the
international portfolios of Excelsior Fund and Excelsior Institutional Trust),
the Administrators are entitled jointly to annual fees,
29
<PAGE>
computed daily and paid monthly, based on the combined aggregate average daily
net assets of the three companies (excluding the international portfolios of
Excelsior Fund and Excelsior Institutional Trust) as follows:
<TABLE>
<CAPTION>
COMBINED AGGREGATE AVERAGE DAILY NET ASSETS
OF EXCELSIOR FUND, EXCELSIOR TAX-EXEMPT FUND AND EXCELSIOR
INSTITUTIONAL TRUST (EXCLUDING THE INTERNATIONAL ANNUAL
PORTFOLIOS OF EXCELSIOR FUND 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 Excel-
sior Fund, Excelsior Tax-Exempt Fund and Excelsior Institutional Trust are al-
located in proportion to their relative average daily net assets at the time
of determination. From time to time, the Administrators may voluntarily waive
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 waivers.
Prior to May 16, 1997 CGFSC, Federated Administrative Services and U.S. Trust
New York served as the Funds' administrators pursuant to an administration
agreement substantially similar to the administration agreement currently in
effect for the Funds. For the fiscal year ended March 31, 1997, CGFSC, Feder-
ated Administrative Services and U.S. Trust New York received an aggregate ad-
ministration fee at the effective annual rates of .153%, .153%, .154%, and
.154% of the average daily net assets of the Blended Equity, Income and
Growth, Value and Restructuring and Small Cap Funds, respectively, and waived
administration fees at the effective annual rates of .001% and .001% of the
average daily net assets of the Blended Equity and Income and Growth 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.
30
<PAGE>
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 Blended Equity, Income and Growth,
Small Cap and Value and Restructuring Funds. In addition to the Shares offered
under this Prospectus, Excelsior Fund offers a separate series of shares des-
ignated as Trust Shares representing interests in the Blended Equity, Value
and Restructuring and Small Cap 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 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 14, 1997, U.S. Trust and its affiliates held of record substan-
tially all of Excelsior Fund's outstanding shares as agent or custodian for
their customers, but did not own such shares beneficially because they did not
have voting or investment discretion with respect to such shares.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase"), a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as the custodian of the Funds' assets. Communi-
cations to the custodian should be directed to Chase, Mutual Funds Service Di-
vision, 3 Chase MetroTech Center, 8th Floor, Brooklyn, NY 11245.
U.S. Trust New York serves as the Funds' transfer and dividend disbursing
agent. U.S. Trust New York has also entered into a sub-transfer agency ar-
rangement with CGFSC, 73 Tremont Street, Boston, Massachusetts 02108-3913,
pursuant to which CGFSC provides 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
31
<PAGE>
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 Blended 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 In-
dex, or the Dow Jones Industrial Average, a recognized unmanaged index of com-
mon 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
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.
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."
32
<PAGE>
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION
OPENING YOUR ACCOUNT:
Complete the Application(s) and mail to: FOR OVERNIGHT DELIVERY: send to:
<TABLE>
<CAPTION>
<S> <C>
Excelsior Funds Excelsior Funds
c/o Chase Global Funds Services Company c/o Chase Global Funds Services Company--
P.O. Box 2798 Sub-Transfer Agent
Boston, MA 02208-2798 73 Tremont Street
Boston, MA 02108-3913
</TABLE>
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 sub- 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 NEW
FUNDS INC.] 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 ( )
------------------------------ -----------------------------
Address Telephone #
------------------------------ [_] 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>
<CAPTION>
FUND INITIAL INVESTMENT FUND INITIAL INVESTMENT
<S> <C> <C> <C>
[_] Blended Equity Fund $ ____________ 800 [_] Value & Restructuring Fund $ ____________ 818
[_] Income and Growth Fund $ ____________ 801 [_] Small Cap Fund $ ____________ 812
-----------------------------
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
(800) 446-1012 and from
ask for the Wire ------------------ ---------------------
Desk. Name of Bank Wire Control 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
[_] I/We appoint CGFSC as by telephone to withdraw $500
my/our agent to act upon or more from my/our account in
instructions received by the Excelsior Funds and to
telephone in order to effect wire the amount withdrawn to
the telephone exchange and the following commercial bank
redemption privileges. I/We account. I/We understand that
hereby ratify any CGFSC charges an $8.00 fee for
instructions given pursuant each wire redemption, which
to this authorization and will be deducted from the
agree that Excelsior Fund, proceeds of the redemption.
Excelsior Tax-Exempt Fund, Title on Bank Account*_________
Excelsior Institutional Name of Bank __________________
Trust, CGFSC and their Bank A.B.A. Number Account
directors, trustees, Number ________________________
officers and employees will Bank Address __________________
not be liable for any loss, City/State/Zip Code ___________
liability, cost or expense (attach voided check here)
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.
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.
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>
- -----------------------------------------------------------------
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, U.S. Trust,
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.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO
ANY PROVISIONS OF THIS FORM OTHER THAN THE CERTIFICATIONS
REQUIRED TO AVOID BACKUP WITHHOLDING.
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 CHASE GLOBAL FUNDS SERVICES COMPANY SUPPLEMENTAL
FUND INC.] CLIENT SERVICES APPLICATION
P.O. Box 2798
Boston, MA 02208-2798
(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 net asset value 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 check payable to: Recipient ________________________________
(To be completed
only if redemption Street Address ___________________________
proceeds to be
paid to other City, State, Zip Code ____________________
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....................................................... 4
U.S. TRUST'S INVESTMENT PHILOSOPHY AND STRATEGIES.......................... 8
INVESTMENT OBJECTIVES AND
POLICIES.................................................................. 8
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION..................... 13
INVESTMENT LIMITATIONS..................................................... 16
PRICING OF SHARES.......................................................... 18
HOW TO PURCHASE AND REDEEM SHARES.......................................... 19
INVESTOR PROGRAMS.......................................................... 23
DIVIDENDS AND DISTRIBUTIONS................................................ 26
TAXES...................................................................... 27
MANAGEMENT OF THE FUNDS.................................................... 28
DESCRIPTION OF CAPITAL STOCK............................................... 31
CUSTODIAN AND TRANSFER AGENT............................................... 31
PERFORMANCE INFORMATION.................................................... 32
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
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.
[LOGO]
EXCELSIOR
FUNDS INC.
BLENDED EQUITY FUND
INCOME AND GROWTH FUND
VALUE AND RESTRUCTURING FUND
SMALL CAP FUND
Prospectus
August 1, 1997
<PAGE>
CROSS-REFERENCE SHEET
---------------------
EXCELSIOR FUNDS, INC.
(Productivity Enhancers, Environmentally-Related
Products and Services, Aging of America, Communication
and Entertainment and Global Competitors Funds)
Form N-1A, Part A, Item Prospectus Caption
- ----------------------- ------------------
1. Cover Page................................ Cover Page
2. Synopsis.................................. Prospectus Summary;
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
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] EXCELSIOR
FUNDS INC.
A Management Investment Company
- --------------------------------------------------------------------------------
Equity Funds For initial purchase information, current
73 Tremont Street prices, performance information and existing
Boston, MA 02108-3913 account information, call (800) 446-1012.
(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:
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.
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.
Each of the Funds is sponsored and distributed by Edgewood Services, Inc. and
advised by United States Trust Company of New York and U.S. Trust Company of
Connecticut (collectively, 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, 1997 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, U.S. TRUST, ITS PARENT OR AFFILIATES AND THE SHARES ARE NOT FEDER-
ALLY 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.
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, 1997
<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
$3 billion. See "Description of Capital Stock."
INVESTMENT ADVISER: United States Trust Company of New York and U.S. Trust
Company of Connecticut (collectively, "U.S. Trust" or the "Investment Advis-
er") serve as the Funds' investment adviser. U.S. Trust offers 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, 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 Limi-
tations."
HOW TO INVEST: The Funds' Shares are offered at their net asset value. Ex-
celsior Fund does not impose a sales load on purchases of Shares. 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>
PRODUCTIVITY ENVIRONMENTALLY- AGING OF COMMUNICATION GLOBAL
ENHANCERS RELATED PRODUCTS AMERICA AND ENTERTAINMENT COMPETITORS
FUND AND SERVICES FUND FUND FUND FUND
------------ ----------------- -------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Front-End Sales Load.... None None None None None
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/............ .50% .26% .55% .55% .55%
12b-1 Fees.............. None None None None None
Other Operating Expenses
Administrative Servic-
ing Fee/2/............ .05% .05% .05% .05% .05%
Other Expenses......... .43% .68% .35% .39% .29%
---- ---- ---- ---- ----
Total Operating Expenses
(after fee waivers)/2/
....................... .98% .99% .95% .99% .89%
==== ==== ==== ==== ====
</TABLE>
- -------
1. The Fund's sub-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 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 Productivity Enhancers, Environmen-
tally-Related Products and Services, Aging of America, Communication and En-
tertainment and Global Competitors Funds, respectively, to maintain an an-
nual expense ratio of not more than .99%. Without such fee waivers, "Advi-
sory Fees" would be .60%, .60%, .60%, .60%, and .60% and "Total Operating
Expenses" would be 1.08%, 1.33%, 1.00%, 1.04% and .94% for the Productivity
Enhancers, Environmentally-Related Products and Services, Aging of America,
Communication and Entertainment and Global Competitors 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>
Productivity Enhancers Fund.................... $10 $31 $54 $120
Environmentally-Related Products and Services
Fund.......................................... 10 32 55 121
Aging of America Fund.......................... 10 30 53 117
Communication and Entertainment Fund........... 10 32 55 121
Global Competitors Fund........................ 9 28 49 110
</TABLE>
3
<PAGE>
The foregoing expense summary and example 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 payable with respect to Shares of the Funds for the fiscal year
ended March 31, 1997. 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 refer-
ence 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 statements included in Excelsior Fund's Annual Report to
Shareholders for the year ended March 31, 1997 (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.
The Aging of America, Communication and Entertainment and Global Competitors
Funds offer two separate series of shares--Trust Shares and shares of another
series offered under this Prospectus. Trust Shares and the Shares offered un-
der this Prospectus represent equal pro rata interests in each such Fund, ex-
cept that Trust Shares bear the additional expense of distribution fees. See
"Description of Capital Stock."
5
<PAGE>
PRODUCTIVITY ENHANCERS FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------- PERIOD ENDED
1997 1996 1995 1994 MARCH 31, 1993/1/
------- ------ ------- ------ -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................. $ 8.83 $ 8.12 $ 7.88 $ 6.94 $ 7.00
------- ------ ------- ------ -------
Income From Investment
Operations
Net Investment Income
(Loss).................. (0.02) 0.02 (0.01) 0.00 0.01
Net Gains or (Losses) on
Securities (both
realized and
unrealized)............. 0.16 2.12 0.35 0.96 (0.07)
------- ------ ------- ------ -------
Total From Investment
Operations.............. 0.14 2.14 0.34 0.96 (0.06)
------- ------ ------- ------ -------
Less Distributions
Dividends From Net
Investment Income....... 0.00 (0.02) 0.00 0.00 0.00
Dividends in Excess of
Net Investment Income... 0.00 (0.01) 0.00 (0.02) 0.00
Distributions From Net
Realized Gain on
Investments and Options. (0.80) (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 0.00
------- ------ ------- ------ -------
Total Distributions...... (0.80) (1.43) (0.10) (0.02) 0.00
------- ------ ------- ------ -------
Net Asset Value, End of
Period.................... $ 8.17 $ 8.83 $ 8.12 $ 7.88 $ 6.94
======= ====== ======= ====== =======
Total Return/2/............ 1.02% 26.97% 4.45% 13.81% (0.86)%
Ratios/Supplemental Data
Net Assets, End of Period
(in millions)........... $ 18.06 $29.07 $ 18.27 $15.70 $ 3.37
Ratio of Net Operating
Expenses to Average Net
Assets.................. 0.98% 0.98% 0.99% 0.99% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets/4/............... 1.08% 1.06% 1.21% 1.49% 4.23%/3/
Ratio of Net Investment
Income/(Loss) to Average
Net Assets.............. (0.16)% 0.20% (0.10)% 0.01% 1.29%/3/
Portfolio Turnover Rate.. 300.0% 472.0% 276.0% 198.0% 183.0%/3/
Average Commission Rate
Paid/5/................. $0.0797 N/A N/A N/A N/A
</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 prior to February 14, 1997.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
5. Only required for fiscal years beginning on or after September 1, 1995.
6
<PAGE>
ENVIRONMENTALLY-RELATED PRODUCTS AND SERVICES FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------- PERIOD ENDED
1997 1996 1995 1994 MARCH 31, 1993/1/
------- ------- ------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 7.73 $ 6.21 $ 6.24 $ 6.95 $ 7.00
------- ------- ------- -------- -------
Income From Investment
Operations
Net Investment Income
(Loss)............... 0.01 (0.02) (0.01) 0.00 0.00
Net Gains or (Losses)
on Securities (both
realized and
unrealized).......... 1.61 1.54 (0.01) (0.71) (0.05)
------- ------- ------- -------- -------
Total From Investment
Operations........... 1.62 1.52 (0.02) (0.71) (0.05)
------- ------- ------- -------- -------
Less Distributions
Dividends From Net
Investment Income.... (0.01) 0.00 0.00 0.00 0.00
Dividends in Excess of
Net Investment
Income............... 0.00 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 0.00
Distributions in
Excess of Net
Realized Gain on
Investments and
Options.............. 0.00 0.00 0.00 0.00 0.00
------- ------- ------- -------- -------
Total Distributions... (0.01) 0.00 (0.01) 0.00 0.00
------- ------- ------- -------- -------
Net Asset Value, End of
Period................. $ 9.34 $ 7.73 $ 6.21 $ 6.24 $ 6.95
======= ======= ======= ======== =======
Total Return/2/......... 21.22% 24.48% (0.27)% (10.15)% (0.71)%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions). $ 8.87 $ 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% 0.99%/3/
Ratio of Gross
Operating Expenses to
Average Net
Assets/4/............ 1.33% 2.46% 2.42% 2.20% 2.83%/3/
Ratio of Net
Investment
Income/(Loss) to
Average Net Assets... 0.15% (0.18)% (0.10)% (0.07)% 0.32%/3/
Portfolio Turnover
Rate................. 73.0% 64.0% 61.0% 28.0% 0%
Average Commission
Rate Paid/5/......... $0.0711 N/A N/A N/A N/A
</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 prior to February 14, 1997.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
5. Only required for fiscal years beginning on or after September 1, 1995.
7
<PAGE>
AGING OF AMERICA FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------- PERIOD ENDED
1997 1996 1995 1994 MARCH 31, 1993/1/
------- ------- ------ ------ -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................. $ 9.81 $ 7.84 $ 6.99 $ 7.01 $7.00
------- ------- ------ ------ -----
Income From Investment
Operations
Net Investment Income.... 0.07 0.05 0.04 0.03 0.01
Net Gains or (Losses) on
Securities (both
realized and
unrealized)............. 0.72 1.97 0.85 (0.02) 0.00
------- ------- ------ ------ -----
Total From Investment
Operations.............. 0.79 2.02 0.89 0.01 0.01
------- ------- ------ ------ -----
Less Distributions
Dividends From Net
Investment Income....... (0.07) (0.05) (0.04) (0.03) 0.00
Dividends in Excess of
Net Investment Income... 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Gain on
Investments and Options. (0.39) 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 0.00
------- ------- ------ ------ -----
Total Distributions...... (0.46) (0.05) (0.04) (0.03) 0.00
------- ------- ------ ------ -----
Net Asset Value, End of
Period.................... $ 10.14 $ 9.81 $ 7.84 $ 6.99 $7.01
======= ======= ====== ====== =====
Total Return/2/............ 8.18% 25.80% 12.80% 0.13% 0.14%
Ratios/Supplemental Data
Net Assets, End of Period
(in millions)........... $ 45.06 $ 44.79 $22.17 $10.58 $2.39
Ratio of Net Operating
Expenses to Average Net
Assets.................. 0.95% 0.93% 0.99% 0.99% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets/4/............... 1.00% 0.97% 1.26% 1.82% 3.87%/3/
Ratio of Net Investment
Income to Average Net
Assets.................. 0.67% 0.54% 0.63% 0.59% 0.77%/3/
Portfolio Turnover Rate.. 86% 34.0% 14.0% 24.0% 14.0%/3/
Average Commission Rate
Paid/5/................. $0.0831 N/A N/A N/A N/A
</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 prior to February 14, 1997.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
5. Only required for fiscal years beginning on or after September 1, 1995.
8
<PAGE>
COMMUNICATION AND ENTERTAINMENT FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------- PERIOD ENDED
1997 1996 1995 1994 MARCH 31, 1993/1/
------- ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................. $ 10.32 $ 9.64 $ 8.75 $ 7.61 $7.00
------- ------ ------ ------ -----
Income From Investment
Operations
Net Investment Income..... 0.00 0.03 0.04 0.02 0.01
Net Gains or (Losses) on
Securities (both realized
and unrealized).......... 0.05 1.30 1.06 1.52 0.60
------- ------ ------ ------ -----
Total From Investment
Operations............... 0.05 1.33 1.10 1.54 0.61
------- ------ ------ ------ -----
Less Distributions
Dividends From Net
Investment Income........ 0.00 (0.03) (0.04) (0.03) 0.00
Dividends in Excess of Net
Investment Income........ 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Gain on
Investments and Options.. (0.05) (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 0.00
------- ------ ------ ------ -----
Total Distributions....... (0.05) (0.65) (0.21) (0.40) 0.00
------- ------ ------ ------ -----
Net Asset Value, End of
Period..................... $ 10.32 $10.32 $ 9.64 $ 8.75 $7.61
======= ====== ====== ====== =====
Total Return/2/............. 0.34% 13.48% 12.87% 20.07% 8.71%
Ratios/Supplemental Data
Net Assets, End of Period
(in millions)............ $34.70 $46.95 $29.91 $21.02 $5.79
Ratio of Net Operating
Expenses to Average Net
Assets................... 0.99% 0.92% 0.98% 0.98% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets/4/................ 1.04% 0.97% 1.06% 1.16% 2.20%/3/
Ratio of Net Investment
Income (Loss) to Average
Net Assets............... (0.03)% 0.28% 0.46% 0.29% 1.06%/3/
Portfolio Turnover Rate... 65.0% 65.0% 56.0% 60.0% 25.0%/3/
Average Commission Rate
Paid/5/.................. $0.0677 N/A N/A N/A N/A
</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 prior to February 14, 1997.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
5.Only required for fiscal years beginning on or after September 1, 1995.
9
<PAGE>
GLOBAL COMPETITORS FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------- PERIOD ENDED
1997 1996 1995 1994 MARCH 31, 1993/1/
------- ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................. $ 10.83 $ 8.59 $ 7.69 $ 7.28 $7.00
------- ------ ------ ------ -----
Income From Investment
Operations
Net Investment Income..... 0.06 0.07 0.07 0.05 0.01
Net Gains or (Losses) on
Securities (both realized
and unrealized).......... 0.66 2.27 0.90 0.41 0.27
------- ------ ------ ------ -----
Total From Investment
Operations............... 0.72 2.34 0.97 0.46 0.28
------- ------ ------ ------ -----
Less Distributions
Dividends from Net
Investment Income........ (0.07) (0.06) (0.07) (0.05) 0.00
Dividends in Excess of Net
Investment Income........ 0.00 0.00 0.00 0.00 0.00
Distributions from Net
Realized Gain on
Investments and Options.. (0.09) (0.02) 0.00 0.00 0.00
Distributions in Excess of
Net Realized Gain on
Investments and Options.. 0.00 (0.02) 0.00 0.00 0.00
------- ------ ------ ------ -----
Total Distributions....... (0.16) (0.10) (0.07) (0.05) 0.00
------- ------ ------ ------ -----
Net Asset Value, End of
Period..................... $ 11.39 $10.83 $ 8.59 $ 7.69 $7.28
======= ====== ====== ====== =====
Total Return/2/............. 6.64% 27.39% 12.73% 6.29% 4.00%
Ratios/Supplemental Data
Net Assets, End of Period
(in millions)............ $ 81.92 $71.30 $25.50 $10.06 $2.04
Ratio of Net Operating
Expenses to Average Net
Assets................... 0.89% 0.89% 0.97% 0.99% 0.99%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets/4/................ 0.94% 0.93% 1.18% 1.72% 3.97%/3/
Ratio of Net Investment
Income to Average Net
Assets................... 0.54% 0.73% 1.04% 0.81% 0.82%/3/
Portfolio Turnover Rate... 25% 17.0% 29.0% 19.0% 0%
Average Commission Rate
Paid/5/.................. $0.0873 N/A N/A N/A N/A
</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 prior to February 14, 1997.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
5. Only required for fiscal years beginning on or after September 1, 1995.
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 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, in managing the
Funds, the three portfolio strategies discussed above are applied in concert
with other "longer-term investment themes" to identify investment opportuni-
ties. The Investment Adviser believes these longer-term themes represent
strong and inexorable trends. The Investment Adviser also believes that under-
standing the instigation, catalysts and effects of these longer-term trends
should help to identify 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.
11
<PAGE>
The Funds have the common investment objective of long-term capital apprecia-
tion. As noted above, the Funds are based on themes identified and followed by
the Investment Adviser. Each Fund's key policies are discussed below. Addi-
tional policies common to all of the Funds are discussed after this section.
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 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 paragraph.
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
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<PAGE>
conditions, at least 65% of the Fund's total assets will be invested in compa-
nies of the type described in this paragraph.
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.
INVESTMENT POLICIES COMMON TO THE FUNDS
Under normal market and economic conditions, each Fund will invest at least
65% of its total assets in common stock, preferred stock and securities con-
vertible into common stock. Normally, up to 35% of each Fund's total assets may
be invested in other securities and instruments including, e.g., other invest-
ment-grade debt securities, warrants, options, and futures instruments as de-
scribed in more detail below. During temporary defensive 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 repur-
chase agreements collateralized by the foregoing obligations.
In managing the Funds, the Investment Adviser seeks to purchase securities
having value currently not recognized in the market price of a security, con-
sistent 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. Certain securities
owned by the Funds may be traded only in the over-the-counter market or on a
regional securities exchange, may be listed only in the quotation service com-
monly 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 se-
curities 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 Funds may invest in the securities of foreign issuers. The Funds may in-
vest indirectly in the securities of foreign issuers through sponsored and
unsponsored American Depository Receipts ("ADRs"). ADRs represent receipts typ-
ically issued by a U.S. bank or trust company which evidence ownership of un-
derlying securities of foreign issuers. Investments in unsponsored ADRs involve
additional risk because financial information based on generally accepted ac-
counting 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
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<PAGE>
possibility that stock prices will decline over short or even extended peri-
ods. 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 instru-
ments generally fluctuate inversely with interest rate changes. Factors af-
fecting debt securities will affect all of the Funds' debt holdings.
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 governmental spending and financing of public works and
cleanup projects. Finally, all of these types of companies are heavily af-
fected by regulation of various governments, including the federal Environmen-
tal Protection Agency and its state counterparts. As regulations are developed
and enforced, such companies 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.
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
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.
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<PAGE>
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. 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 "Illiquid Securities."
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 below under "Illiquid Securities."
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<PAGE>
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 Funds may purchase put and call options listed on a national securities
exchange and issued by the Options Clearing Corporation in an amount not ex-
ceeding 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 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 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 intends to purchase. The Funds will engage in futures transactions only to
the extent permitted by the Commodity Futures Trading Commission ("CFTC") and
16
<PAGE>
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 liquid
assets equal to the purchase price of the contract, less any margin or depos-
it. When a Fund takes a short position in a futures contract, the Fund must
maintain a segregated account containing 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 ap-
plicable when a Fund "covers" an options or futures position generally by en-
tering into an offsetting position. Each Fund will limit its hedging transac-
tions in futures contracts 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 positions, does not exceed 5% of the Fund's total assets, af-
ter 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 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 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 inter-
17
<PAGE>
est 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
conditions, 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 com-
mitments for speculative purposes, but only in furtherance of their investment
objectives.
BORROWING AND REVERSE REPURCHASE AGREEMENTS
Each Fund may borrow funds, in an amount up to 10% of the value of its total
assets, for temporary or emergency purposes, such as meeting larger than antic-
ipated redemption requests, and not for leverage. Each Fund may also agree to
sell portfolio securities to financial institutions such as banks and broker-
dealers and to repurchase them at a mutually agreed date and price (a "reverse
repurchase agreement"). The SEC views reverse repurchase agreements as a form
of borrowing. At the time a Fund enters into a reverse repurchase agreement, it
will place in a segregated custodial account liquid assets having a value equal
to the repurchase price, including accrued interest. Reverse repurchase agree-
ments involve the risk that the market value of the securities sold by a Fund
may decline below the repurchase price of those securities.
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
18
<PAGE>
total assets at the time of such borrowing. (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. Optioned stock held in escrow
is not deemed to be a pledge;
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; and
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) there is no limitation with respect to secu-
rities issued or guaranteed by the U.S. Government, and (b) neither all fi-
nance companies, as a group, nor all utility companies, as a group, are con-
sidered a single industry for purposes of this policy.
* * *
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 Funds may not invest in obligations of foreign branches of financial in-
stitutions 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 Funds may not knowingly
invest more than 10% of the value of their respective net 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. These investment policies may be changed by
Excelsior Fund's Board of Directors upon reasonable notice to shareholders.
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, 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.
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 securi-
ties 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
19
<PAGE>
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 quota-
tions 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 Operations, P.O. Box
897, Pittsburgh, PA 15230-0897.
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 make payments to any dealer that
sponsors sales contests or recognition programs conforming to criteria estab-
lished by the Distributor, or that participates in sales programs sponsored by
the Distributor. The Distributor in its discretion may also from time to time,
pursuant to objective criteria established by the Distributor, pay fees to
qualifying dealers for certain services or activities which are primarily in-
tended 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 conditions. 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.
In addition, the Distributor may offer to pay a fee from its own assets to
financial 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 ac-
counts, participating in sales, educational and training seminars, providing
sales literature, and engineering computer software programs that emphasize
the attributes 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 in-
stitution.
PURCHASE OF SHARES
Shares in each Fund are sold at their net asset value per Share next computed
after a purchase order is received by Excelsior Fund's sub-transfer agent. The
Distributor has established several procedures for purchasing Shares in order
to accommodate different types of investors.
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<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.
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 from the Distributor 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
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
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instructions. Federal funds and registration instructions should be wired
through the Federal Reserve System to:
The Chase Manhattan Bank
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) 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
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<PAGE>
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 associa-
tions, clearing agencies and savings associations. All eligible guarantor in-
stitutions must participate in the Securities Transfer Agents Medallion Pro-
gram ("STAMP") in order to be approved by CGFSC pursuant to the Signature
Guarantee Guidelines. Copies of the Signature Guarantee Guidelines and infor-
mation 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 re-
demption request will not be deemed to be properly received until CGFSC re-
ceives 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 over-
seas, 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 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. 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
23
<PAGE>
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 Funds, Inc. ("Excelsior Tax-Exempt Fund"), or for Trust Shares of Excel-
sior Institutional Trust, provided that such other shares may legally be sold
in the state of the Investor's residence.
Excelsior Fund currently offers 15 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;
Blended Equity Fund, a fund seeking long-term capital appreciation through
investments in a diversified portfolio primarily of equity securities;
24
<PAGE>
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;
Value and Restructuring Fund, a fund seeking long-term capital appreciation
by investing in companies benefitting from their restructuring or redeploy-
ment of assets and operations in order to become more competitive or profit-
able;
Small Cap Fund, a fund seeking 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;
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 six 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;
New York Intermediate-Term Tax-Exempt Fund, a non- diversified fund designed
to provide New York in- vestors 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;
and
California Tax-Exempt Income Fund, a non-diversified fund designed to pro-
vide California investors with as high a level of current interest income ex-
empt from Federal and, to the extent possible, California state personal in-
come taxes as is consistent with relative stability of principal; this fund
invests primarily in California municipal obligations and has a dollar-
weighted average portfolio maturity of three to ten years.
Excelsior Institutional Trust currently offers Trust Shares in the following
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
25
<PAGE>
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 next determined after receipt of the exchange re-
quest in good order.
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. 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.
26
<PAGE>
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 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
27
<PAGE>
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 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 effected an exchange of such Shares
for Shares of another Fund within 90 days of the purchase and was able to re-
duce the sales charges previously applicable to the new Shares (by virtue of
the exchange privilege), the amount equal to such reduction may not be in-
cluded 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 limita-
tion) 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, secu-
28
<PAGE>
rities or foreign 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 investing 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
investing in stock, securities or currencies only to the extent that such in-
come is attributable to items of income which would have been qualifying in-
come 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 ("U.S. Trust New York") and U.S.
Trust Company of Connecticut ("U.S. Trust Connecticut" and, collectively with
U.S. Trust New York, "U.S. Trust" or the "Investment Adviser") serve as the
Investment Adviser to the Funds. U.S. Trust New York is a state-chartered bank
and trust company and a member bank of the Federal Reserve System and is one
of the twelve members of the New York Clearing House Association. U.S. Trust
Connecticut is a Connecticut state bank and trust company. U.S. Trust New York
and U.S. Trust Connecticut are wholly-owned subsidiaries of U.S. Trust Corpo-
ration, a registered bank holding company.
The Investment 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. On De-
cember 31, 1996, the Asset Management Groups of U.S. Trust New York and U.S.
Trust Connecticut had approximately $53 billion in aggregate assets under man-
agement. U.S. Trust New York has its principal offices at 114 W. 47th Street,
New York, New York 10036. U.S. Trust Connecticut has its principal offices at
225 High Ridge Road, East Building, Stamford, Connecticut 06905.
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 Productivity Enhancers Fund's portfolio co-manager, John J. Knox, III, a
Vice President at U.S. Trust, has been with U.S. Trust since June 1995 and has
been the Fund's co-manager since January 1997. Prior to his association with
U.S. Trust, Mr. Knox was an investment manager with Smith Barney and its pred-
ecessor firms from 1985 to 1995.
29
<PAGE>
The Productivity Enhancers Fund's portfolio co-manager, Ronald A. Fisher, a
Vice President and Senior Analyst at U.S. Trust, has been with U.S. Trust
since December 1994 and has been the Fund's co-manager since January 1997.
Prior to his association with U.S. Trust, Mr. Fisher was an analyst at Nippon
Credit Trust Company from 1991 to 1994.
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, Michael E. Hoo-
ver, is the person primarily responsible for the day-to-day management of the
Fund's investment portfolio. Mr. Hoover, a Vice
President and Senior Analyst at U.S. Trust, has been associated with U.S.
Trust since 1989 and has been the Fund's portfolio manager since January 1997.
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.
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 .60% of the average daily
net assets of each Fund.
Prior to May 16, 1997, U.S. Trust New York served as investment adviser to
the Funds pursuant to advisory agreements substantially similar to the Invest-
ment Advisory Agreements currently in effect for the Funds. For the fiscal
year ended March 31, 1996, U.S. Trust New York received an advisory fee at the
effective annual rates of .50%, .26%, .55%, .55% and .55% of the average daily
net assets of the Productivity Enhancers, Environmentally-Related Products and
Services, Aging of America, Communication and Entertainment and Global Compet-
itors Funds, respectively. For the same period, U.S. Trust New York waived ad-
visory fees at the effective annual rates of .10%, .34%, .05%, .05% and .05%
of the average daily net assets of the Productivity Enhancers, Environmental-
ly-Related Products and Services, Aging of America, Communication and Enter-
tainment and Global Competitors Funds, respectively.
From time to time, the Investment Adviser may voluntarily waive all or a por-
tion of the advisory fees payable to it by a Fund, which waiver may be termi-
nated at any time. See "Management of the Funds--Service Organizations" for
additional information on fee waivers.
In executing portfolio transactions for the Funds, the Investment Adviser may
use affiliated brokers in accordance with the requirements of the 1940 Act.
The Investment Adviser may also take into account the sale of Excelsior Fund's
shares in allocating brokerage transactions.
ADMINISTRATORS
CGFSC, Federated Administrative Services and U.S. Trust Connecticut serve as
the Funds' administrators (the "Administrators") and provide them with general
30
<PAGE>
administrative and operational assistance. The Administrators also serve as
administrators of the other portfolios of Excelsior Fund and of all the port-
folios of Excelsior Tax-Exempt Fund and Excelsior Institutional Trust, which
are also advised by the Investment Adviser and its affiliates and distributed
by the Distributor. For the services provided to all portfolios of Excelsior
Fund, Excelsior Tax-Exempt Fund and Excelsior Institutional Trust (except the
international portfolios of Excelsior Fund and Excelsior 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 portfolios of Excelsior Fund and
Excelsior Institutional Trust) as follows:
<TABLE>
<CAPTION>
COMBINED AGGREGATE AVERAGE DAILY NET ASSETS
OF EXCELSIOR FUND, EXCELSIOR TAX-EXEMPT FUND AND EXCELSIOR
INSTITUTIONAL TRUST (EXCLUDING THE INTERNATIONAL ANNUAL
PORTFOLIOS OF EXCELSIOR FUND 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 Excel-
sior Fund, Excelsior Tax-Exempt Fund and Excelsior Institutional Trust are al-
located in proportion to their relative average daily net assets at the time
of determination. From time to time, the Administrators may voluntarily waive
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 waivers.
Prior to May 16, 1997, CGFSC, Federated Administrative Services and U.S.
Trust New York served as the Funds' administrators pursuant to an administra-
tion agreement substantially similar to the administration agreement currently
in effect for the Funds. For the
fiscal year ended March 31, 1997, CGFSC, Federated Administrative Services and
U.S. Trust New York received an aggregate administration fee at the effective
annual rates of .153%, .179%, .154%, .153% and .154% of the average daily net
assets of the Productivity Enhancers, Environmentally-Related Products and
Services, Aging of America, Communication and Entertainment and Global Compet-
itors 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 af-
31
<PAGE>
filiate or banks generally 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 reg-
ulations. State securities laws may differ from the interpretations of Federal
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
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 Productivity Enhancers, Environmen-
tally-Related Products and Services, Aging of America, Communication and En-
tertainment and Global Competitors Funds. In addition to the Shares offered
under this Prospectus, Ex-celsior Fund offers a separate series of shares des-
ignated as Trust Shares representing interests in the Aging of America, Commu-
nication and Entertainment and Global Competitors 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 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 14, 1997, U.S. Trust and its affiliates held of record substan-
tially all of Excelsior Fund's outstanding shares as agent or custodian for
their customers, but did not own such shares beneficially because they did not
have voting or investment discretion with respect to such shares.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase"), a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as the custodian of the Funds' assets. Communi-
cations to the custodian should be directed to Chase, Mutual Funds Service Di-
vision, 3 Chase MetroTech Center, 8th Floor, Brooklyn, NY 11245.
U.S. Trust New York serves as the Funds' transfer and dividend disbursing
agent. U.S. Trust New York has also entered into a sub-transfer agency ar-
rangement with CGFSC, 73 Tremont Street, Boston, Massachusetts 02108-3913,
pursuant to which CGFSC provides certain transfer agent, dividend disbursement
and registrar services to the Funds.
32
<PAGE>
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 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
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.
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."
33
<PAGE>
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION
OPENING YOUR ACCOUNT:
Complete the Application(s) FOR OVERNIGHT DELIVERY: send to:
and mail to:
Excelsior Funds Excelsior Funds
c/o Chase Global Funds c/o Chase Global Funds Services Company
Services Company -- Sub-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 sub-transfer agent at (800) 446-1012 between 9:00
a.m. and 5:00 p.m. (Eastern Time).
34
<PAGE>
[LOGO OF EXCELSIOR CHASE GLOBAL FUNDS SERVICES COMPANY NEW
FUNDS INC.] 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 ( )
------------------------------ -----------------------------
Address Telephone #
------------------------------ [_] 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>
FUND INITIAL INVESTMENT FUND INITIAL INVESTMENT
[_] Productivity Enhancers Fund $ ____________ 814 [_] Communication & Entertainment Fund $ ____________ 817
[_] Environmental Fund $ ____________ 815 [_] Global Competitors Fund $ ____________ 819
[_] Aging of America Fund $ ____________ 816 [_] 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
(800) 446-1012 and from
ask for the Wire ------------------ ---------------------
Desk. Name of Bank Wire Control 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,
Excelsior Tax-Exempt Fund, Title on Bank Account*_________
Excelsior Institutional
Trust, CGFSC and their Name of Bank __________________
directors, trustees,
officers and employees will Bank A.B.A. Number ____________
not be liable for any loss, Account Number ________________
liability, cost or expense
for acting upon instructions Bank Address __________________
believed to be genuine and
in accordance with the City/State/Zip Code ___________
procedures described in the (attach voided check here)
then current Prospectus. To
the extent that Excelsior A corporation, trust or
Fund, Excelsior Tax-Exempt partnership must also submit a
Fund and Excelsior "Corporate Resolution" (or
Institutional Trust fail to "Certificate of Partnership")
use reasonable procedures as indicating the names and
a basis for their belief, titles of officers authorized
they or their service to act on its behalf.
contractors may be liable * TITLE ON BANK AND FUND
for instructions that prove ACCOUNT MUST BE IDENTICAL.
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>
- -----------------------------------------------------------------
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, U.S. Trust,
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.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO
ANY PROVISIONS OF THIS FORM OTHER THAN THE CERTIFICATIONS
REQUIRED TO AVOID BACKUP WITHHOLDING.
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 CHASE GLOBAL FUNDS SERVICES COMPANY SUPPLEMENTAL
FUND INC.] CLIENT SERVICES APPLICATION
P.O. Box 2798
Boston, MA 02208-2798
(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 net asset value 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 check payable to: Recipient ________________________________
(To be completed Street Address ___________________________
only if redemption City, State, Zip Code ____________________
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.......................................................... 24
DIVIDENDS AND DISTRIBUTIONS................................................ 27
TAXES...................................................................... 28
MANAGEMENT OF THE FUNDS.................................................... 29
DESCRIPTION OF CAPITAL STOCK............................................... 32
CUSTODIAN AND TRANSFER AGENT............................................... 32
PERFORMANCE INFORMATION.................................................... 33
MISCELLANEOUS.............................................................. 33
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION................................... 34
</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.
[LOGO] EXCELSIOR FUNDS INC.
PRODUCTIVITY ENHANCERS FUND
ENVIRONMENTALLY-RELATED PRODUCTS AND SERVICES FUND
AGING OF AMERICA FUND
COMMUNICATION AND ENTERTAINMENT FUND
GLOBAL COMPETITORS FUND
Prospectus
August 1, 1997
<PAGE>
CROSS-REFERENCE SHEET
---------------------
EXCELSIOR FUNDS, INC.
(International Fund, Latin America Fund,
Pacific/Asia Fund and Pan European Fund)
Form N-1A, Part A, Item Prospectus Caption
- ----------------------- ------------------
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
<PAGE>
[LOGO] EXCELSIOR
FUNDS INC.
A Management Investment Company
- -------------------------------------------------------------------------------
For initial purchase information, current prices,
International Funds performance information and existing account in-
formation, call (800) 446-1012. (From overseas,
call (617) 557-8280.)
73 Tremont Street
Boston, MA 02108-3913
- -------------------------------------------------------------------------------
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.
LATIN AMERICA FUND seeks long-term capital appreciation through investments
in companies and securities of governments based in all countries in the West-
ern 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 and U.S. Trust Connecticut
(collectively, 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, 1997 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, U.S. TRUST, 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 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, 1997
<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
$3 billion. See "Description of Capital Stock."
INVESTMENT ADVISER: United States Trust Company of New York and U.S. Trust
Company of Connecticut (collectively, "U.S. Trust" or the "Investment Advis-
er") serve as the Funds' investment adviser. U.S. Trust offers 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, 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 net asset value. Ex-
celsior Fund does not impose a sales load on purchases of Shares. 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 Latin America, Pacific/Asia and Pan European Funds (collec-
tively, the "Regional Funds") focus their investment activities in their des-
ignated regions. As a result each Regional Fund is susceptible to regional
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 directly
by a Fund and ultimately by its shareholders. Investments in the Funds should
not be considered a complete investment program. See "Investment Objectives
and Policies--Risk Factors" and "Portfolio Instruments and Other Investment
Information."
2
<PAGE>
EXPENSE SUMMARY
<TABLE>
<CAPTION>
INTERNATIONAL LATIN AMERICA PACIFIC/ASIA PAN EUROPEAN
FUND FUND FUND FUND
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Front-End Sales Load..... 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 EX-
PENSES
(AS A PERCENTAGE OF AV-
ERAGE NET ASSETS)
Advisory Fees (after fee
waivers)/2/............. .92% .92% .93% .93%
12b-1 Fees............... None None None None
Other Operating Expenses
Administrative Servicing
Fee/2/................. .08% .08% .07% .07%
Other Expenses.......... .43% .48% .45% .45%
----- ----- ----- -----
Total Operating Expenses
(after fee waivers)/2/.. 1.43% 1.48% 1.45% 1.45%
===== ===== ===== =====
</TABLE>
- -------
/1/The Funds' sub-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 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 Latin America, 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 1.51%, 1.56%, 1.52%, and 1.52% for each
of the International, Latin America, Pacific/Asia and Pan European Funds, re-
spectively.
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.............................. $15 $45 $78 $171
Latin America Fund.............................. 15 47 81 177
Pacific/Asia Fund............................... 15 46 79 174
Pan European Fund............................... 15 46 79 174
</TABLE>
The foregoing expense summary and example 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 payable with respect to Shares of the Funds for the fiscal year
ended March 31, 1997. 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, 1997 (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,
-----------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988/1/
------- ------ ------- ------ ------ ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of period.... $ 10.91 $ 9.82 $ 10.44 $ 8.66 $ 8.27 $ 8.75 $ 9.84 $ 8.61 $ 7.85 $ 8.00
------- ------ ------- ------ ------ ------- ------- ------ ------ -------
Income From Investment
Operations
Net Investment Income.. 0.09 0.10 0.10 0.05 0.15 0.08 0.13 0.15 0.05 0.05
Net Gains or (Losses)
on Securities (both
realized and
unrealized)........... 0.63 1.15 (0.29) 1.88 0.25 (0.45) (0.64) 1.47 0.77 (0.16)
------- ------ ------- ------ ------ ------- ------- ------ ------ -------
Total From Investment
Operations............ 0.72 1.25 (0.19) 1.93 0.40 (0.37) (0.51) 1.62 0.82 (0.11)
------- ------ ------- ------ ------ ------- ------- ------ ------ -------
Less Distributions
Dividends From Net
Investment Income..... (0.10) (0.08) 0.00 (0.02) (0.01) (0.11) (0.11) (0.16) (0.06) (0.03)
Dividends in Excess of
Net Investment Income. 0.00 (0.01) (0.11) (0.12) 0.00 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Gain on
Investments........... (0.19) (0.07) (0.32) (0.01) 0.00 0.00 (0.47) (0.23) 0.00 (0.01)
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 0.00 0.00
------- ------ ------- ------ ------ ------- ------- ------ ------ -------
Total Distributions.... (0.29) (0.16) (0.43) (0.15) (0.01) (0.11) (0.58) (0.39) (0.06) (0.04)
------- ------ ------- ------ ------ ------- ------- ------ ------ -------
Net Asset Value, End of
Period................. $ 11.34 $10.91 $ 9.82 $10.44 $ 8.66 $ 8.27 $ 8.75 $ 9.84 $ 8.61 $ 7.85
======= ====== ======= ====== ====== ======= ======= ====== ====== =======
Total Return/2/......... 6.78% 12.77% (1.93)% 22.34% 4.85% (4.35)% (5.20)% 18.91% 10.59% (1.28)%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions).. $126.82 $97.85 $ 64.05 $55.74 $30.37 $ 46.92 $ 31.87 $21.49 $13.01 $ 8.56
Ratio of Net Operating
Expenses to Average
Net Assets............ 1.43% 1.40% 1.47% 1.53% 1.50% 1.52% 1.61% 1.34% 1.28% 1.09%/3/
Ratio of Gross
Operating Expenses to
Average Net Assets/4/. 1.51% 1.50% 1.53% 1.53% 1.50% 1.52% 1.61% 1.58% 1.93% 2.81%/3/
Ratio of Net Investment
Income to Average Net
Assets................ 0.70% 0.82% 0.71% 0.18% 1.27% 0.94% 1.57% 1.55% 0.75% 1.13%/3/
Portfolio Turnover
Rate.................. 116.0% 39.0% 66.0% 64.0% 31.0% 32.0% 47.0% 50.0% 80.0% 55.0%/3/
Average Commission Rate
Paid/5/............... $0.0123 N/A N/A N/A N/A N/A N/A N/A N/A N/A
</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 prior to February 14, 1997.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by adviser and administrators.
5. Only required for fiscal years beginning on or after September 1, 1995.
5
<PAGE>
LATIN AMERICA FUND
(FORMERLY, THE EMERGING AMERICAS FUND)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------- PERIOD ENDED
1997 1996 1995 1994 MARCH 31, 1993/1/
------ ------ -------- ------ ----------------- ---
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Begin-
ning of period......... $ 7.37 $ 5.86 $ 9.30 $ 7.12 $ 7.00
------ ------ -------- ------ -------
Income From Investment
Operations
Net Investment Income. 0.05 0.10 0.01 0.05 (0.00)/5/
Net Gains or (Losses)
on Securities (both
realized and
unrealized).......... 2.09 1.49 (2.56) 2.24 0.12
------ ------ -------- ------ -------
Total From Investment
Operations........... 2.14 1.59 (2.55) 2.29 0.12
------ ------ -------- ------ -------
Less Distributions
Dividends From Net In-
vestment
Income............... (0.05) (0.04) 0.00 (0.03) 0.00
Dividends in Excess of
Net Investment In-
come................. 0.00 (0.04) (0.17) (0.02) 0.00
Distributions From Net
Realized Gain on In-
vestments............ 0.00 0.00 0.00 (0.06) 0.00
Distributions in
Excess of Net
Realized Gain on
Investments.......... 0.00 0.00 (0.72) 0.00 0.00
------ ------ -------- ------ -------
Total Distributions... (0.05) (0.08) (0.89) (0.11) 0.00
------ ------ -------- ------ -------
Net Asset Value, End of
Period................. $ 9.46 $ 7.37 $ 5.86 $ 9.30 $ 7.12
====== ====== ======== ====== =======
Total Return/2/......... 29.09% 27.29% (30.47)% 32.25% 1.71%
Ratios/Supplemental Data
Net Assets, End of Pe-
riod (in millions)... $70.90 $43.16 $ 27.34 $39.28 $ 3.83
Ratio of Net Operating
Expenses to Average
Net Assets........... 1.48% 1.48% 1.50% 1.49% 1.67%/3/
Ratio of Gross
Operating Expenses to
Average Net
Assets/4/............ 1.56% 1.57% 1.57% 1.71% 2.56%/3/
Ratio of Net Invest-
ment Income/(Loss) to
Average Net Assets... 0.50% 1.12% 0.06% 0.29% (0.04)%/3/
Portfolio Turnover
Rate................. 73.0% 54.0% 69.0% 51.0% 76.0%/3/
Average Commission
Rate/6/.............. $0.005 N/A N/A N/A N/A
</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 prior to February 14, 1997.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by adviser and administrators.
5. Amount represents less than $0.01 per Share.
6. Only required for fiscal years beginning on or after September 1, 1995.
6
<PAGE>
PACIFIC/ASIA FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------- PERIOD ENDED
1997 1996 1995 1994 MARCH 31, 1993/1/
------- ------ ------- ------ -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of period................. $ 9.78 $ 8.45 $ 10.04 $ 7.54 $7.00
------- ------ ------- ------ -----
Income From Investment
Operations
Net Investment Income.... 0.07 0.12 0.08 0.08 (0.00)/5/
Net Gains or (Losses) on
Securities (both
realized and
unrealized)............. (0.53) 1.33 (0.58) 2.81 0.54
------- ------ ------- ------ -----
Total From Investment Op-
erations................ (0.46) 1.45 (0.50) 2.89 0.54
------- ------ ------- ------ -----
Less Distributions
Dividends From Net In-
vestment Income......... (0.07) (0.09) (0.03) (0.05) 0.00
Dividends in Excess of
Net Investment Income... 0.00 (0.01) (0.23) (0.06) 0.00
Distributions From Net
Realized Gain on Invest-
ments................... (0.16) (0.02) (0.83) (0.28) 0.00
Distributions in Excess
of Net Realized Gain on
Investment.............. 0.00 0.00 0.00 0.00 0.00
------- ------ ------- ------ -----
Total Distributions...... (0.23) (0.12) (1.09) (0.39) 0.00
------- ------ ------- ------ -----
Net Asset Value, End of Pe-
riod...................... $ 9.09 $ 9.78 $ 8.45 $10.04 $7.54
======= ====== ======= ====== =====
Total Return/2/............ (4.80%) 17.22% (5.89)% 38.11% 7.71%
Ratios/Supplemental Data
Net Assets, End of Period
(in millions)........... $ 89.95 $76.19 $ 47.62 $53.03 $9.67
Ratio of Net Operating
Expenses to Average Net
Assets.................. 1.45% 1.43% 1.47% 1.53% 1.67%/3/
Ratio of Gross Operating
Expenses to Average Net
Assets/4/............... 1.52% 1.51% 1.52% 1.77% 2.00%/3/
Ratio of Net Investment
Income to Average Net
Assets.................. 0.69% 1.12% 0.85% 0.54% 0.27%/3/
Portfolio Turnover Rate.. 126.0% 29.0% 69.0% 68.0% 1.0%/3/
Average Commission Rate
Paid/6/................. $0.0094 N/A N/A N/A N/A
</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 prior to February 14, 1997.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by adviser and administrators.
5. Amount represents less than $0.01 per Share.
6. Only required for fiscal years beginning on or after September 1, 1995.
7
<PAGE>
PAN EUROPEAN FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------- PERIOD ENDED
1997 1996 1995 1994 MARCH 31, 1993/1/
------- ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of period.................. $ 9.19 $ 8.19 $ 8.03 $ 7.34 $ 7.00
------- ------ ------ ------ -------
Income From Investment Oper-
ations
Net Investment Income..... 0.11 0.11 0.09 0.03 (0.00)/5/
Net Gains or (Losses) on
Securities (both
realized and unrealized). 2.01 1.35 0.25 0.70 0.34
------- ------ ------ ------ -------
Total From Investment Op-
erations................. 2.12 1.46 0.34 0.73 0.34
------- ------ ------ ------ -------
Less Distributions
Dividends From Net Invest-
ment Income.............. (0.10) (0.10) (0.09) 0.00 0.00
Dividends in Excess of Net
Investment
Income................... 0.00 0.00 0.00 (0.04) 0.00
Distributions From Net Re-
alized Gain on
Investments.............. (0.27) (0.36) (0.09) 0.00 0.00
Distributions in Excess of
Net Realized Gain on In-
vestment................. 0.00 0.00 0.00 0.00 0.00
------- ------ ------ ------ -------
Total Distributions....... (0.37) (0.46) (0.18) (0.04) 0.00
------- ------ ------ ------ -------
Net Asset Value, End of Pe-
riod....................... $ 10.94 $ 9.19 $ 8.19 $ 8.03 $ 7.34
======= ====== ====== ====== =======
Total Return/2/............. 23.76% 18.25% 4.33% 10.05% 4.86%
Ratios/Supplemental Data
Net Assets, End of Period
(in millions)............ $121.99 $47.92 $39.98 $36.68 $ 3.80
Ratio of Net Operating Ex-
penses to Average
Net Assets............... 1.45% 1.46% 1.51% 1.61% 1.67%/3/
Ratio of Gross Operating
Expenses to Average
Net Assets/4/............ 1.52% 1.55% 1.57% 1.72% 3.13%/3/
Ratio of Net Investment
Income/(Loss) to
Average Net Assets....... 1.23% 1.28% 1.11% 0.06% (0.33%)/3/
Portfolio Turnover Rate... 0.82% 42.0% 47.0% 30.0% 9.0%/3/
Average Commission Rate
Paid/6/.................. $0.0012 N/A N/A N/A N/A
</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 prior to February 14, 1997.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by adviser and administrators.
5. Amount represents less than $0.01 per Share.
6. Only required for fiscal years beginning on or after September 1, 1995.
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 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 invest-
ment decisions, the Investment Adviser will seek to identify values not recog-
nized in the market price of a security. The primary emphasis will be on the
achievement of a higher total return focusing, as circumstances warrant, solely
on either growth of capital or generation of current 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 compo-nents based on the
Investment Adviser's analysis of the prevailing market conditions. Although the
Fund will seek to realize its investment objective primarily through invest-
ments in foreign equity securities, it may, from time to time, assume a defen-
sive position by allocating all or any portion of its assets to foreign debt
obligations. In determining investment strategy and allocating investments, the
Investment Adviser will continuously analyze a broad range of international eq-
uity 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 Investment Adviser, benefit from global and regional economic
trends, promising technologies or products and specific country and regional
opportunities resulting from changing geo-political, economic or currency rela-
tionships. In making investment decisions, the Investment Adviser will seek to
identify values not recognized in the market price of a security.
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
9
<PAGE>
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, deter-
mined by the Investment Adviser to be of comparable quality. No Regional Fund
currently expects to invest more than 25% of its total assets in the securities
issued by any single foreign government. Any such investment would subject the
particular Regional Fund to the risks presented by investing in securities 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 in-
vestments, 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 invest-
ment 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:
LATIN AMERICA FUND. The Latin America Fund invests primarily in securities of
companies and governments based in [all countries of the Western Hemisphere ex-
cept the U.S.] Currently, the Investment Adviser believes that such countries
may include Mexico, Ecuador, the Bahamas, Costa Rica, Venezuela, Colombia, Pe-
ru, 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 invest in Brady
Bonds, which are securities issued in various currencies (primarily the dollar)
that have been 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
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 U.S. 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. Additional in-
formation 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, the Neth-
erlands, Norway, Sweden, Finland, Belgium, Luxembourg, France, Portugal, Spain,
Denmark, Germany, Poland, Czech Republic, Slovakia, Hungary, Switzerland, Aus-
tria, Greece, Turkey and Italy. As other formerly communist and Eastern Euro-
pean countries become economically viable, investments may be made there as
well.
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 foreign
securities. Foreign debt securities purchased by a Fund may include obligations
issued in
10
<PAGE>
the Eurocurrency markets and obligations of foreign governments and their po-
litical subdivisions. In addition, each Fund may invest in U.S. Government ob-
ligations, including the when-issued securities of such issuers, and obliga-
tions issued by U.S. companies which are either denominated in foreign cur-
rency and sold abroad or, if denominated in U.S. dollars, payment 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 Investment Adviser
to be comparable to securities rated "investment grade," by Moody's or S&P.
Debt obligations rated in the lowest of the top four "investment grade" rat-
ings ("Baa" by Moody's and "BBB" by S&P) are considered to have some specula-
tive 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 below "BBB" by S&P. Foreign securi-
ties are generally unrated. In purchasing foreign equity securities, the
Investment 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 ef-
fected 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 investments.
RISK FACTORS
Generally. Each Fund is subject to market risk, interest rate risk 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 sensitive to changes in interest
rates and the interest rate environment. Generally, the prices of bonds and
debt securities fluctuate inversely with interest 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 cur-
11
<PAGE>
rency exchange rates will, to the extent a Fund does not adequately hedge
against such fluctuations, affect the value of securities in the portfolio and
the unrealized appreciation or depreciation of investments so far as U.S. in-
vestors are concerned. In addition, with respect to certain countries, there
is the possibility of expropriation of assets, confiscatory taxation, politi-
cal or social instability or diplomatic developments which could adversely af-
fect 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
rights of investors in certain foreign countries may be more limited than
those of shareholders of U.S. corporations. The Funds might have greater dif-
ficulty taking appropriate legal action in a foreign 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. Each Fund also may be subject to
taxes on trading profits in some countries. In addition, some countries have a
transfer or stamp duties tax on certain securities transactions. The imposi-
tion of these taxes will increase the cost to a Fund of investing in any coun-
try imposing such taxes. To the extent such taxes are not offset 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 rea-
sons, such as the higher cost of investment research, higher cost of custody
of foreign securities, higher commissions paid on comparable transactions on
foreign markets and additional costs arising from delays in settlements of
transactions involving foreign securities.
Latin America Fund. The Latin American economies have experienced consider-
able difficulties in the past decade. Although there have been significant im-
provements 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,
therefore, 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
12
<PAGE>
underdeveloped or are in the process of becoming developed, and investments in
the securities of issuers in such countries typically involve greater poten-
tial for gain or loss than investments in securities of issuers in more devel-
oped countries. Certain countries in the region also depend to a large degree
upon exports of primary commodities and, therefore, are vulnerable to changes
in commodity 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. Issuers in emerging markets typically are subject to a
greater degree of change in earnings and business prospects than are companies
in more developed markets. Certain countries may also impose substantial re-
strictions on investments in their capital markets by foreign entities, in-
cluding restrictions on investments in issuers of industries deemed sensitive
to relevant national interests. These factors may limit the investment oppor-
tunities available to the Funds and result in a lack of liquidity and a high
price volatility 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. In addition, the currencies of certain
countries in these regions may not be internationally traded.
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.
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
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<PAGE>
forth 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 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. 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 "Illiquid Securities."
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 any of its affiliates. Repurchase agreements with remain-
ing maturities in excess of seven days will be considered illiquid securities
and will be subject to the 10% limitation discussed below under "'Illiquid Se-
curities."
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 when, in
the Investment Adviser's judgment, the income to be earned from the loan jus-
tifies the attendant risks.
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<PAGE>
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
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 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 mar-
ket price at which the short position was established. Asset segregation re-
quirements are not applicable when a Fund "covers" a forward currency position
generally by entering into an offsetting position. 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 intends 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 liquid
assets equal to the purchase price of the contract, less any
15
<PAGE>
margin or deposit. When a Fund takes a short position in a futures contract,
the Fund must maintain a segregated account containing 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 mar-
ket price at which the short position was established. Asset segregation re-
quirements are not applicable when a Fund "covers" an options or futures posi-
tion generally by entering into an offsetting position. Each Fund will limit
its hedging transactions in futures contracts and related options so that, im-
mediately after any such transaction, the aggregate initial margin that is re-
quired 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 under-
lying 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 op-
tion.
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.
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 does not antici-pate significant short-term capital apprecia-
tion. Additional information on option-writing practices, including particular
risks thereof, is provided in the Statement of Additional Information.
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. Each
Fund may also purchase shares of investment companies investing primarily in
foreign securities, including so called "country funds" which have portfolios
consisting exclusively of securities of issuers located in one foreign coun-
try. The Regional Funds will limit their investments in such country funds to
those funds which invest in the appropriate regions in light of their respec-
tive investment policies. Securities of other investment companies will
16
<PAGE>
be acquired by a Fund within the strict limits prescribed 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 advisory fees and other ex-
penses. 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 du-
plicative.
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.
BORROWING AND REVERSE REPURCHASE AGREEMENTS
Each Fund may borrow funds, in an amount up to 10% of the value of its total
assets, for temporary or emergency purposes, such as meeting larger than an-
ticipated redemption requests, and not for leverage. Each Fund may also agree
to sell portfolio securities to financial institutions such as banks and bro-
ker-dealers and to repurchase them at a mutually agreed date and price (a "re-
verse repurchase agreement"). The SEC views reverse repurchase agreements as a
form of borrowing. At the time a Fund enters into a reverse repurchase agree-
ment, it will place in a segregated custodial account liquid assets having a
value equal to the repurchase price, including accrued interest. Reverse re-
purchase agreements involve the risk that the market value of the securities
sold by a Fund may decline below the repurchase price of those securities.
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 believes that such a disposition is consistent with
attaining the investment objective of the particular Fund. Portfolio invest-
ments may be sold for a variety of reasons, such as a more favorable invest-
ment opportunity or other circumstances bearing on the desirability of contin-
uing to hold such investments. A high rate of portfolio turnover may involve
correspondingly greater brokerage commission expenses and other transaction
costs, which must be borne directly by the Fund and ultimately by its share-
holders. High portfolio turnover may result in the realization of substantial
net capital gains. (See "Financial Highlights" and "Taxes--Federal").
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<PAGE>
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").
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 Latin
America, Pacific/Asia and Pan European Funds, there is no limitation with re-
spect to securities issued or guaranteed by the U.S. Government, and (c) nei-
ther 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 Latin America, Pan European and Pacific/Asia Funds may not knowingly in-
vest more than 10% of the value of their respective net assets in illiquid se-
curities, 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.
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<PAGE>
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 percent-
age resulting from a change in value of a Fund's portfolio securities will not
constitute 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
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, 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.
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 make payments to any
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<PAGE>
dealer that sponsors sales contests or recognition programs conforming to cri-
teria established by the Distributor, or that participates in sales programs
sponsored by the Distributor. The Distributor in its discretion may also from
time to time, pursuant to objective criteria established by the Distributor,
pay fees to qualifying dealers for certain services or activities which are
primarily intended to result in sales of Shares of the Funds. If any such pro-
gram is made available to any dealer, it will be made available to all dealers
on the same terms and conditions. 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.
In addition, the Distributor may offer to pay a fee from its own assets to
financial 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 ac-
counts, participating in sales, educational and training seminars, providing
sales literature, and engineering computer software programs that emphasize
the attributes 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 in-
stitution.
PURCHASE OF SHARES
Shares in each Fund are sold at their net asset value per Share next computed
after a purchase order is received by Excelsior Fund's sub-transfer agent. 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.
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 from the Distributor in accordance with proce-
dures described below under "Purchase Procedures."
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<PAGE>
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
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
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<PAGE>
the Shareholder Organizations. An investor redeeming Shares through a regis-
tered 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 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 proce-
dures 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") 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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<PAGE>
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 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 Funds, Inc. ("Excelsior Tax-Exempt Fund"), or for Trust Shares of Excel-
sior Institutional Trust, provided that such other shares may legally be sold
in the state of the Investor's residence.
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<PAGE>
Excelsior Fund currently offers 11 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 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;
Blended Equity Fund, a fund seeking primarily long-term capital appreciation
through investments in a diversified portfolio of primarily equity securi-
ties;
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;
Value and Restructuring Fund, a fund seeking long-term capital appreciation
by investing in companies benefitting from their restructuring or redeploy-
ment of assets and operations in order to become more competitive or profit-
able; and
Small Cap Fund, a fund seeking 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.
Excelsior Tax-Exempt Fund currently offers six 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;
24
<PAGE>
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; and
California Tax-Exempt Income Fund, a non-diversified fund designed to pro-
vide California investors with as high a level of current interest income ex-
empt from Federal and, to the extent possible, California state personal in-
come taxes as is consistent with relative stability of principal; this fund
invests primarily in California municipal obligations and has a dollar-
weighted average portfolio maturity of three to ten years.
Excelsior Institutional Trust currently offers Trust Shares in the following
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 next determined after receipt of the exchange request in good
order.
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 REA- SONABLY 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 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. 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-
balance withdrawal, a fixed-dollar withdrawal, a fixed-
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<PAGE>
share withdrawal, or a fixed-percentage withdrawal (based on the current value
of Shares in the account) on a monthly, quarterly, semi-annual or annual ba-
sis. To initiate the Systematic Withdrawal Plan, an investor must complete the
Supplemental Application 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-tion 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
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 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
27
<PAGE>
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 divi-
dend. Generally, a shareholder may include sales charges incurred upon the
purchase of Shares in his tax basis for such Shares for the purpose of deter-
mining gain or loss on a redemption, transfer or exchange of such Shares. How-
ever, if the shareholder effected an exchange of Shares of a Fund for shares
of another portfolio of Excelsior Fund or Excelsior Tax-Exempt Fund within 90
days of the purchase and was able to reduce the sales charges previously ap-
plicable 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 sharehold-
er'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 to restrict the investments of a Fund to ensure
that non-qualifying income does not exceed 10% of such Fund's total gross in-
come 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.
28
<PAGE>
INVESTMENT ADVISER
United States Trust Company of New York ("U.S. Trust New York") and U.S.
Trust Company of Connecticut ("U.S. Trust Connecticut" and, collectively with
U.S. Trust New York, "U.S. Trust" or the "Investment Adviser") serve as the
Investment Adviser to the Funds. U.S. Trust New York is a state-chartered bank
and trust company and a member bank of the Federal Reserve System and is one
of the twelve members of the New York Clearing House Association. U.S. Trust
Connecticut is a Connecticut state bank and trust company. U.S. Trust New York
and U.S. Trust Connecticut are wholly-owned subsidiaries of U.S. Trust Corpo-
ration, a registered bank holding company.
The Investment 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. On De-
cember 31, 1996, the Asset Management Groups of U.S. Trust New York and U.S.
Trust Connecticut had approximately $53 billion in aggregate assets under man-
agement. U.S. Trust New York has its principal offices at 114 W. 47th Street,
New York, New York 10036. U.S. Trust Connecticut has its principal offices at
225 High Ridge Road, East Building, Stamford, Connecticut 06905.
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 International, Pan European and Latin America Funds' portfolio manager,
Rosemary Sagar, is the person primarily responsible for the day-to-day manage-
ment of the Funds' investment portfolios. Ms. Sagar is the Managing Director
of U.S. Trust's Global Investment Division. Prior to joining U.S. Trust, Ms.
Sagar was Senior Vice President for international equity investments for Gen-
eral Electric Investments Corp. in Stamford, CT from 1990 to 1996. Ms. Sagar
has been the Funds' portfolio manager since November 1996.
The Pacific/Asia Fund's portfolio manager, Wendy Agnew, is the person primar-
ily responsible for the day-to-day management of the Funds' investment portfo-
lio. Ms. Agnew is Senior Vice President in the Global Investment Division
where she heads the Pacific/Asia investment team. From 1988 to 1996, Ms. Agnew
was Senior Vice President for international equity investments at General
Electric Investments Corp. in Stamford, CT. Ms. Agnew has been the Fund's
portfolio manager since November 1996.
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 rates 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.
Prior to May 16, 1997, U.S. Trust New York served as investment adviser to
the Funds pursuant to advisory agreements substantially similar to the Invest-
ment Advisory Agreements currently in effect for the Funds. For the fiscal
year ended March 31, 1997, U.S. Trust New York received an advisory fee after
waivers at the effective annual rates of .92%, .92%, .93% and .93% of the av-
erage daily net assets of the International, Latin America, Pacific/Asia and
Pan European Funds, respectively. For the same period, U.S. Trust New York
waived advisory fees at the effective annual rates of .08%, .08% .07% and .07%
of the average daily net assets of the International, Latin America,
Pacific/Asia and Pan European Funds, respectively.
Prior to November 1, 1996, Foreign and Colonial Asset Management ("FACAM")
served as sub-adviser to the International and Pan European Funds, and Foreign
& Colonial Emerging Markets Ltd. ("FCEML") served as sub-adviser to the Latin
America and Pacific/Asia Funds. For the period ended October 31, 1996, FACAM
received a sub-advisory fee from U.S.
29
<PAGE>
Trust New York at the effective annual rate of .70% and .70% of the average
daily net assets of the International and Pan European Funds, respectively.
For the same period, FCEML received a sub-advisory fee from U.S. Trust New
York at the effective annual rate of .50% and .70% of the average daily net
assets of the Latin America and Pacific/Asia Funds, respectively.
From time to time, the Investment Adviser may voluntarily waive 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.
In executing portfolio transactions for the Funds, the Investment Adviser may
use affiliated brokers in accordance with the requirements of the 1940 Act.
The Investment Adviser may also take into account the sale of Excelsior Fund's
shares in allocating brokerage transactions.
ADMINISTRATORS
CGFSC, Federated Administrative Services and U.S. Trust Connecticut serve as
the Funds' administrators (the "Administrators") and provide them with general
administrative 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 voluntarily waive 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 Organiza-
tions" for additional information on fee waivers.
Prior to May 16, 1997, CGFSC, Federated Administrative Services and U.S.
Trust New York served as the Funds' administrators pursuant to an administra-
tion agreement substantially similar to the administration agreement currently
in effect for the Funds. For the fiscal year ended March 31, 1997, CGFSC, Fed-
erated Administrative Services and U.S. Trust New York received an aggregate
administration fee at the effective annual rate of .200% 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
30
<PAGE>
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 In-
vestment Adviser, CGFSC and certain Shareholder Organizations may be subject
to such banking laws and regulations. State securities laws may differ from
the interpretations of Federal 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
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 International, Latin America,
Pacific/Asia and Pan European Funds.
Each share in a Fund represents an equal proportionate interest in the par-
ticular Fund with other shares of the same class, and is entitled to such div-
idends 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 Di-
rectors. Excelsior Fund's Charter authorizes the Board of Directors to clas-
sify 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
writing to CGFSC and will not be issued for fractional Shares.
As of July 14, 1997, U.S. Trust and its affiliates held of record substan-
tially all of Excelsior Fund's outstanding shares as agent or custodian for
their customers, but did not own such shares beneficially because they did not
have voting or investment discretion with respect to such shares.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase"), a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as the custodian of the Funds' assets. Communi-
cations to the custodian should bedirected to Chase, Mutual Funds Service Di-
vision, 3 Chase MetroTech Center, 8th Floor, Brooklyn, NY 11245.
U.S. Trust New York serves as the Funds' transfer and dividend disbursing
agent. U.S. Trust New York has also entered into a sub-transfer agency ar-
rangement with CGFSC, 73 Tremont Street, Boston, Massachusetts 02108-3913,
pursuant to which CGFSC provides 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
31
<PAGE>
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 a Fund may also be compared to
the Europe, Australia, and Far East Index ("EAFE"), the Financial Times Index,
and other unmanaged 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
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.
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 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 Excelsior Funds c/o Chase Global Funds
Services Company Services Company--Sub-Transfer Agent 73
P.O. Box 2798 Tremont Street Boston, MA 02108-3913
Boston, MA 02208-2798
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 sub-transfer agent at (800) 446-1012 between
9:00 a.m. and 5:00 p.m. (Eastern Time).
33
<PAGE>
[LOGO] 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>
INITIAL INVESTMENT INITIAL INVESTMENT
[_] International Fund $ ____________ 802 [_] Latin America 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 AUTHORITY TO TRANSMIT
REDEMPTION PROCEEDS TO PRE-
DESIGNATED ACCOUNT.
[_] I/We appoint CGFSC as I/We hereby authorize CGFSC to
my/our agent to act upon act upon instructions received
instructions received by by telephone to withdraw $500
telephone in order to effect or more from my/our account in
the telephone exchange and the Excelsior Funds and to
redemption privileges. I/We wire the amount withdrawn to
hereby ratify any the following commercial bank
instructions given pursuant account. I/We understand that
to this authorization and CGFSC charges an $8.00 fee for
agree that Excelsior Fund, each wire redemption, which
Excelsior Tax-Exempt Fund, will be deducted from the
Excelsior Institutional proceeds of the redemption.
Trust, CGFSC and their Title on Bank Account*_________
directors, trustees, Name of Bank __________________
officers and employees will Bank A.B.A. Number Account
not be liable for any loss, Number ________________________
liability, cost or expense Bank Address __________________
for acting upon instructions City/State/Zip Code ___________
believed to be genuine and (attach voided check here)
in accordance with the
procedures described in the A corporation, trust or
then current Prospectus. To partnership must also submit a
the extent that Excelsior "Corporate Resolution" (or
Fund, Excelsior Tax-Exempt "Certificate of Partnership")
Fund and Excelsior indicating the names and
Institutional Trust fail to titles of officers authorized
use reasonable procedures as to act on its behalf.
a basis for their belief, * TITLE ON BANK AND FUND
they or their service ACCOUNT MUST BE IDENTICAL.
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>
- ------------------------------------------------------------------
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, U.S. Trust,
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.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO
ANY PROVISIONS OF THIS FORM OTHER THAN THE CERTIFICATIONS
REQUIRED TO AVOID BACKUP WITHHOLDING.
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] 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 net asset value 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 check payable to: (To be completed only if redemption
proceeds to be paid to other than account holder of record or mailed
to address other than address of record)
Recipient ________________________________
Street Address ___________________________
City, State, Zip Code ____________________
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>
PROSPECTUS SUMMARY......................................................... 2
EXPENSE SUMMARY............................................................ 3
FINANCIAL HIGHLIGHTS....................................................... 5
INVESTMENT OBJECTIVES AND POLICIES......................................... 9
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION..................... 13
INVESTMENT LIMITATIONS..................................................... 17
PRICING OF SHARES.......................................................... 18
HOW TO PURCHASE AND REDEEM SHARES.......................................... 19
INVESTOR PROGRAMS.......................................................... 23
DIVIDENDS AND DISTRIBUTIONS................................................ 27
TAXES...................................................................... 27
MANAGEMENT OF THE FUNDS.................................................... 29
DESCRIPTION OF CAPITAL STOCK............................................... 31
CUSTODIAN AND TRANSFER AGENT............................................... 31
PERFORMANCE INFORMATION.................................................... 32
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 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.
USTINLP897
[LOGO] EXCELSIOR
FUNDS, INC.
INTERNATIONAL FUND
LATIN AMERICA FUND
PACIFIC/ASIA FUND
PAN EUROPEAN FUND
Prospectus August 1, 1997
<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, 1997
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, 1997 (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
----
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES.................... 1
Additional Information on Portfolio Instruments.. 1
Additional Investment Limitations................ 6
NET ASSET VALUE AND NET INCOME........................ 9
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION........ 10
INVESTOR PROGRAMS..................................... 12
Systematic Withdrawal Plan....................... 12
Exchange Privilege............................... 13
Other Investor Programs.......................... 14
DESCRIPTION OF CAPITAL STOCK.......................... 14
MANAGEMENT OF THE FUNDS............................... 16
Directors and Officers........................... 16
Investment Advisory and
Administration Agreements...................... 21
Service Organizations............................ 23
Expenses......................................... 25
Custodian and Transfer Agent..................... 25
PORTFOLIO TRANSACTIONS................................ 26
INDEPENDENT AUDITORS.................................. 28
COUNSEL............................................... 29
ADDITIONAL INFORMATION CONCERNING TAXES............... 29
Generally........................................ 29
Tax-Exempt Money Fund............................ 30
YIELD INFORMATION..................................... 31
MISCELLANEOUS......................................... 32
FINANCIAL STATEMENTS.................................. 33
APPENDIX A............................................ A-1
</TABLE>
(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 prin cipal. 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 New York")
and U.S. Trust Company of Connecticut ("U.S. Trust Connecticut" and,
collectively, with U.S. Trust New York, the "Investment Adviser" or "U.S.
Trust") 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
<PAGE>
will be computed in accordance with guidelines established by the Securities and
Exchange Commission (the "SEC").
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
-2-
<PAGE>
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 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 commit ments" 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.
-3-
<PAGE>
The Tax-Exempt Money Fund intends 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.
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 Secur ities are
"general obligations" and "revenue" issues, but the Tax-Exempt Money Fund's
portfolio may also include "moral obliga tion" 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.
-4-
<PAGE>
The payment of principal and interest on most securi ties purchased by
the Tax-Exempt Money Fund 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
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
-5-
<PAGE>
investor's Federal 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 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 Secur ities 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;
-6-
<PAGE>
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 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 con tracts, 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 pre decessor, 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,
-7-
<PAGE>
consolidation, reorganization, or acquisition of assets or where otherwise
permitted by the Investment Company Act of 1940;
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 objec tive, 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
-8-
<PAGE>
U.S. Government; the District of Columbia; or any of their authorities,
agencies, instrumentalities, or political subdivisions; and
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.
NET ASSET VALUE AND NET INCOME
------------------------------
The Companies use the amortized cost method of valua tion 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
-9-
<PAGE>
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.
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
-10-
<PAGE>
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 [The Chase Manhattan Bank ("Chase")]. Direct Investors will be subject to
the same rules and regulations that Chase 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 Chase for payment,
Chase, 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 SEC; (b) the Exchange is closed for other than customary
weekend and holiday closings; (c) the SEC has by order permitted such
suspension; or (d) an emergency exists as determined by the SEC.
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
-11-
<PAGE>
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;
(3) A fixed-percentage withdrawal (based on the current value of the
account); or
-12-
<PAGE>
(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 on a redemption,
transfer or exchange of such Shares. However, if the shareholder effected an
exchange of Shares for shares of another portfolio of the Companies within 90
days of the purchase and was able to reduce the sales load previously 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.
-13-
<PAGE>
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 Direc tors 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 con version 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 a Company's
aggregate outstanding shares may elect all of that Company's directors,
regardless of the votes of other shareholders.
-14-
<PAGE>
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 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
-15-
<PAGE>
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:
<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address the Companies Other Affiliations
- ---------------- ------------- ----------------------------
<S> <C> <C>
Frederick S. Wonham/1/ Chairman of the Retired; Director of
238 June Road Board, President Excelsior Fund and Excelsior
Stamford, CT 06903 and Treasurer Tax-Exempt (since 1995);
Age: 66 Trustee of Excelsior Funds and Excelsior Institutional Trust
(since 1995); Vice Chairman of U.S.
Trust Corporation and U.S. Trust
Company of New York (from February 1990
until September
1995); Chairman, U.S. Trust Company of
Connecticut (from
March 1993 to May 1997).
Donald L. Campbell Director Retired; Director of
333 East 69th Street Excelsior Fund and Excelsior Apt. 10-H
Tax-Exempt (since 1984); Director of UST Master
New York, NY 10021 Variable Series, Inc.
Age: 71 (from 1994 to June 1997); Trustee of
Excelsior Institutional Trust (since
1995); Director, Royal Life Insurance
Co. of New York (since 1991).
Rodman L. Drake Director Director, Excelsior Fund
485 Park Avenue and Excelsior Tax-Exempt
New York, NY 10022 Fund (since 1996); Trustee,
Age: 54 Excelsior Institutional
Trust and Excelsior Funds
(since 1994); Director,
Parsons Brinkerhoff, Inc. (engineering
firm) (since 1995); Director, Parsons
Brinkerhoff Energy Services
</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 During Past 5 Years and
Name and Address the Companies Other Affiliations
- ---------------- ------------- ----------------------------
<S> <C> <C>
Inc. (since 1996); President, Mandrake
Group (investment and consulting firm)
(since 1994); Director, Hyperion Total
Return Fund, Inc. and four other funds
for which Hyperion Capital Management,
Inc. serves as investment adviser
(since 1991); Co-Chairman, KMR Power
Corporation (power plants) (from 1993
to 1996); Director, The Latin American
Growth Fund (since 1993); Member of
Advisory Board, Argentina Private
Equity Fund L.P. (from 1992 to 1996)
and Garantia L.P. (Brazil) (from 1993
to 1996); and Director, Mueller
Industries, Inc. (from 1992 to 1994).
Joseph H. Dugan Director Retired; Director of
913 Franklin Lakes Road Excelsior Fund and
Franklin Lakes, NJ 07417 Excelsior Tax-Exempt (since
Age: 72 1984); Director of UST Master
Variable Series, Inc.
(from 1994 to June 1997); Trustee of
Excelsior Institutional Trust (since
1995).
Wolfe J. Frankl Director Retired; Director of
2320 Cumberland Road Excelsior Fund and Excelsior
Charlottesville, VA 22901 Tax-Exempt (since 1986);
Age: 76 Director of UST Master
Variable Series, Inc. (from 1994 to
June 1997); 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 1988).
W. Wallace McDowell, Jr. Director Director, Excelsior Fund
c/o Prospect Capital and Excelsior Tax-Exempt
Corp. Fund (since 1996); Trustee,
43 Arch Street Excelsior Institutional Trust
Greenwich, CT 06830 and Excelsior Funds
Age: 60 (since 1994); Private Investor
(since 1994); Managing Director,
Morgan Lewis Githens & Ahn (from 1991
to 1994); and Director, U.S.
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address the Companies Other Affiliations
- ---------------- ------------- ----------------------------
<S> <C> <C>
Homecare Corporation (since 1992),
Grossmans, Inc. (from 1993 to 1996),
Children's Discovery Centers (since
1984), ITI Technologies, Inc. (since
1992) and Jack Morton Productions
(since 1987).
Jonathan Piel Director Director, Excelsior Fund and
558 E. 87th Street Excelsior Tax-Exempt Fund
New York, NY 10128 (since 1996); Trustee, Excelsior
Age: 58 Institutional Trust and
Excelsior Funds (since 1994);
President, Scientific American, Inc.
(from 1984 to 1986); Vice President and
Editor, Scientific American, Inc. (from
1986 to 1994); Director, Group for The
South Fork, Bridgehampton, New York
(since 1993); and Member, Advisory
Committee, Knight Journalism
Fellowships, Massachusetts Institute of
Technology (since 1984).
Robert A. Robinson Director Director of Excelsior Fund
Church Pension Fund and Excelsior Tax-Exempt
800 Second Avenue (since 1997); Director of UST
New York, NY 10017 Master Variable Series, Inc.
Age: 71 (from 1994 to June 1997);
Trustee of Excelsior Institutional Trust
(since 1995); President Emeritus, The
Church Pension Fund and its affiliated
companies (since 1966); 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).
Alfred C. Tannachion/1/ Director Retired; Director of Excelsior Fund and
6549 Pine Meadows Drive Excelsior Tax-Exempt
Spring Hill, FL 34606 (since 1985); Chairman
Age: 71 of the Board, President and Treasurer
of UST Master Variable
</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 the Companies Other Affiliations
- ---------------- ------------- ----------------------------
<S> <C> <C>
Series, Inc. (from 1994 to June 1997);
Trustee of Excelsior Institutional
Trust (since 1995).
W. Bruce McConnel, III Secretary Partner of the law firm of Drinker
Philadelphia National Biddle & Reath LLP.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age: 54
Gregory Sackos Assistant Second Vice President, Senior
Chase Global Funds Secretary Manager of Blue Sky Compliance
Services Company and Financial Reporting, Chase
73 Tremont Street Global Funds Services Company
Boston, MA 02108-3913 (March 1997 to present); Second
Age: 32 Vice President, Senior Manager of
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 (since July 1996);
Boston, MA 02108-3913 Second Vice President, Manager
Age: 32 of Administration, Chase Global
Funds Services Company (from
October 1993 to 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 LLP, 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 __, 1997, 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%
-19-
<PAGE>
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 Excelsior Fund
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 $27,000 None $31,750 (4)**
Director
Rodman L. Drake*** $ 7,500 None $12,250 (4)**
Director
Joseph H. Dugan $30,000 None $35,000 (4)**
Director
Wolfe J. Frankl $30,000 None $35,000 (4)**
Director
W. Wallace McDowell, Jr.*** $ 4,500 None $ 9,250 (4)**
Director
Jonathan Piel*** $ 7,500 None $12,500 (4)**
Director
Robert A. Robinson $30,000 None $35,000 (4)**
Director
Alfred C. Tannachion**** $40,000 None $45,000 (4)**
Director
Frederick S. Wonham**** $30,000 None $35,000 (4)**
Chairman of the Board,
President and Treasurer
</TABLE>
- ---------------------------
/*/ The "Fund Complex" consists of Excelsior Fund, Excelsior Tax-Exempt
Fund, 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.
/***/ Messrs. Drake, McDowell and Piel were elected to the Board of
Excelsior Fund and Excelsior Tax-Exempt Fund on December 9, 1996.
-20-
<PAGE>
/****/ Mr. Tannachion served as Excelsior Fund's Chairman of the Board,
President and Treasurer until February 13, 1997. On that date Mr.
Wonham was elected to serve as Excelsior Fund's Chairman of the Board,
President and Treasurer.
Investment Advisory and Administration Agreements
- -------------------------------------------------
United States Trust Company of New York ("U.S. Trust New York") and
U.S. Trust Company of Connecticut ("U.S. Trust Connecticut" and, collectively
with U.S. Trust New York, "U.S. Trust" or the "Investment Adviser") serve 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.
Prior to May 16, 1997, U.S. Trust New York served as investment
adviser to the Funds pursuant to advisory agreements substantially similar to
the Investment Advisory Agreements currently in effect for the Funds.
For the fiscal year ended March 31, 1995, Excelsior Fund paid U.S.
Trust New York $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 U.S. Trust New York $1,698,879 with respect to
the Tax-Exempt Money Fund. For the fiscal year ended March 31, 1995, the U.S.
Trust New York 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 U.S.
Trust New York $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 U.S. Trust New York $1,745,649 with respect to
the Tax-Exempt Money Fund. For the fiscal year ended March 31, 1996, U.S. Trust
New York 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.
For the fiscal year ended March 31, 1997, Excelsior Fund paid U.S.
Trust New York $81,101, $1,136,936 and $828,277 with respect to the Money,
Government Money and Treasury Money Funds, respectively. For the same period,
Excelsior Tax-
-21-
<PAGE>
Exempt Fund paid U.S. Trust New York $1,891,333 with respect to the Tax-Exempt
Money Fund. For the fiscal year ended March 31, 1997, U.S. Trust New York waived
fees totalling $215,132, $183,979, $79,008 and $502,764 with respect to the
Money, Government Money, Treasury Money and Tax-Exempt Money 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. 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
Connecticut (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 May 16, 1997, CGFSC, Federated Administrative Services and
U.S. Trust New York served as the Funds' administrators pursuant to an
administrative agreement substantially similar to the Administration Agreements
currently in effect for the Funds. 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, 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,
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<PAGE>
Government Money Fund and Treasury Money Fund, respectively. For 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 $407,281 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 CGFSC, Federated Administrative Services and U.S. Trust New York $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 CGFSC, Federated Administrative Services
and U.S. Trust New York $889,555 in the aggregate with respect to the Tax-Exempt
Money Fund. For the period August 1, 1995 through March 31, 1996, CGFSC,
Federated Administrative Services and U.S. Trust New York waived fees totalling
$705 with respect to the Government Money Fund.
For the fiscal year ended March 31, 1997, Excelsior Fund paid CGFSC,
Federated Administrative Services and U.S. Trust New York $1,117,782, $1,269,925
and $701,603 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 CGFSC, Federated Administrative Services and U.S. Trust New
York $2,362,137 in the aggregate with respect to the Tax-Exempt Money Fund. For
the fiscal year ended March 31, 1997, CGFSC, Federated Administrative Services
and U.S. Trust New York waived fees totalling $8, $961, $0 and $0 with respect
to the Money, Government Money, Treasury Money and Tax-Exempt Money Funds,
respectively.
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
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<PAGE>
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 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
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<PAGE>
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, 1997, 1996 and 1995, payments to
Service Organizations totalled $215,140, $227,463 and $204,060; $184,235,
$172,980 and $174,408; $79,008, $46,887 and $45,717; and $502,764, $353,419 and
$236,867 with respect to the Money, Government Money, Treasury Money and Tax-
Exempt Money Funds, respectively. Of these respective amounts, $215,090,
$227,463 and $203,572; $182,579, $168,064 and $171,257; $79,008, $46,887 and
$44,596; and $502,764, $353,419 and $236,399 were paid to affiliates of U.S.
Trust with respect to the Money, Government Money, Treasury Money and Tax-Exempt
Money 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 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 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.
Custodian and Transfer Agent
- ----------------------------
The Chase Manhattan Bank ("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 may, at its own expense, open and
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<PAGE>
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 New York serves as the Funds' transfer agent and dividend
disbursing agent. In such capacity, U.S. Trust New York 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 New York is entitled to receive $15.00 per
annum per account and subaccount. In addition, U.S. Trust New York 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 New York 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 New York 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 New York 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 New York. For the services
provided by CGFSC, U.S. Trust New York 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 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.
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<PAGE>
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 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.
-27-
<PAGE>
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 indepen dently 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, 1997, the following Funds held the following securities of
Excelsior Fund's or Excelsior Tax-Exempt 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 $13,804,749,
and commercial paper of Bear Stearns Co., Inc. in the principal amount of
$15,000,000; and (b) the Government Money Fund held the following security:
repurchase agreement with Dillon Read & Co., Inc. in the principal amount of
$14,127,127. Dillon Read & Co., Inc. and Bear Stearns Co., Inc. are considered
to be regular brokers or dealers of Excelsior Fund. As of March 31, 1997,
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, 1997 incorporated by reference in this Statement of Additional
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<PAGE>
Information have been audited by Ernst & Young LLP for the periods included in
their reports thereon which appear therein.
COUNSEL
-------
Drinker Biddle & Reath LLP (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.
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
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<PAGE>
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 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.
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<PAGE>
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 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
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<PAGE>
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, 1997, the annualized
yields for Shares of the Money Fund, Government Money Fund, Treasury Money Fund
and Tax-Exempt Money Fund were 5.26%, 5.24%, 4.70% and 2.99%, respectively, and
the effective yields for Shares of such respective Funds were 5.39%, 5.38%,
4.81% and 3.03%.
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%.
Based on the foregoing calculation, the annualized tax-equivalent
yield of the Tax-Exempt Money Fund for the seven-day period ended March 31, 1997
was ____%.
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
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<PAGE>
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 __, 1997, U.S. Trust and is affiliates held sole or shared
voting or investment power with respect to more than 50% of each Company's
outstanding shares on behalf of their customers.
As of July __, 1997, 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 audited financial statements and notes thereto in the Companies'
Annual Reports to Shareholders for the fiscal year ended March 31, 1997 (the
"1997 Annual Reports") for the fixed income and tax-exempt fixed income
portfolios are incorporated in this Statement of Additional Information by
reference. No other parts of the 1997 Annual Reports are incorporated by
reference herein. The financial statements included in the 1997 Annual Reports
for the Money, Government Money, Treasury Money and Tax-Exempt Money Funds have
been audited by the Companies' independent auditors, Ernst & Young LLP, whose
reports thereon also appear in the 1997 Annual Reports and are incorporated
herein by reference. Such financial statements 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 1997 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.
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<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" - The highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
"A-3" - Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
"B" - Issues are regarded as having only a speculative capacity for
timely payment.
"C" - This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
"D" - Issues are 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" - Issuers or related supporting institutions 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" - Issuers or related supporting institutions 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" - Issuers 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" - Issuers do 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" ratings.
"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 are 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 good 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 that 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 other 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 below
"AAA" 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.
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, 1997
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,
1997, 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
-----------------
<TABLE>
<CAPTION>
Page
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<S> <C>
INVESTMENT OBJECTIVES AND POLICIES...................... 1
Additional Information on Portfolio Instruments.... 1
Additional Investment Limitations.................. 8
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.......... 11
INVESTOR PROGRAMS....................................... 14
Systematic Withdrawal Plan......................... 14
Exchange Privilege................................. 14
Other Investor Programs............................ 15
DESCRIPTION OF CAPITAL STOCK............................ 15
MANAGEMENT OF THE FUNDS................................. 17
Directors and Officers............................. 17
Investment Advisory and Administration Agreements.. 23
Service Organizations.............................. 26
Expenses........................................... 27
Custodian and Transfer Agent....................... 27
PORTFOLIO TRANSACTIONS.................................. 28
INDEPENDENT AUDITORS.................................... 31
COUNSEL................................................. 31
ADDITIONAL INFORMATION CONCERNING TAXES................. 31
Generally.......................................... 31
Tax-Exempt Funds................................... 32
Taxation of Certain Financial Instruments.......... 33
PERFORMANCE AND YIELD INFORMATION....................... 35
Yields and Performance............................. 35
MISCELLANEOUS........................................... 39
FINANCIAL STATEMENTS.................................... 40
APPENDIX A A-1
</TABLE>
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
("U.S. Trust New York") and U.S. Trust Company of Connecticut ("U.S. Trust
Connecticut" and, collectively, with U.S. Trust New York, the "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
-2-
<PAGE>
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 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.
-3-
<PAGE>
Dividends paid by the IT Income and Managed Income Funds that are 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
-4-
<PAGE>
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.
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.
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
-11-
<PAGE>
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 at their net asset value per
Share next computed after a purchase order is received by the Companies' sub-
transfer agent.
Prior to March 1, 1997, Shares of the Funds were offered for sale with
a maximum sales charge of 4.50%. For the fiscal years ended March 31, 1997,
1996 and 1995, total sales charges paid by shareholders with respect to the IT
Tax-Exempt Fund were $314, $1,621 and $17,776, respectively; with respect to the
LT Tax-Exempt Fund were $8,085, $15,633 and $4,088, respectively; and with
respect to the Managed Income Fund were $2,072, $727 and $973, respectively. Of
these respective amounts, UST Distributors, Inc., the Funds' former distributor,
retained $341 and $431 with respect to the IT Tax-Exempt Fund; $1,972 and $3,188
with respect to the LT Tax-Exempt Fund; and $653 and $973 with respect to the
Managed Income Fund for the period from April 1, 1995 through July 31, 1995, and
the fiscal year ended March 31, 1995. Edgewood Services, Inc., the distributor,
retained none of the foregoing sales charges with respect to the IT Tax-Exempt,
LT Tax-Exempt and Managed Income Funds for the fiscal year ended March 31, 1997,
and 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, 1997, 1996
and 1995 were $292, $1,523 and $20; $0, $0 and $1; and $0, $299 and $815,
respectively. Of these respective amounts, UST Distributors, Inc., the Funds'
former distributor, retained $1,523 and $20 with respect to the Short-Term Tax-
Exempt Fund; $0 and $1 with respect to the ST Government Fund; and $20 and $815
with respect to the IT Income Fund for the period from April 1, 1995 through
July 31, 1995, and the fiscal year ended March 31, 1995. Edgewood
-12-
<PAGE>
Services, Inc. retained none of the foregoing sales charges with respect to the
Short-Term Tax-Exempt, ST Government and IT Income Funds for the fiscal year
ended March 31, 1997, and 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 (the "SEC"); (b)
the Exchange is closed for other than customary weekend and holiday closings;
(c) the SEC has by order permitted such suspension; or (d) an emergency exists
as determined by the SEC.
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.
-13-
<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. 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
-14-
<PAGE>
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 effected an
exchange of Shares for shares of another portfolio of the Companies within 90
days of the purchase and was able to reduce the sales load previously 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. 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 Prospectuses describe 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 Prospectuses, 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
-15-
<PAGE>
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 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
-16-
<PAGE>
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, 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:
<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/ Chairman of the Retired; Director of
238 June Road Board, President Excelsior Fund and Excelsior
Stamford, CT 06903 and Treasurer Tax-Exempt (since 1995);
Age: 66 Trustee of Excelsior Funds
and Excelsior Institutional Trust
(since 1995); Vice Chairman of U.S.
Trust Corporation and U.S. Trust
Company of New York (from Feburary 1990
until September
1995); Chairman, U.S. Trust Company of
Connecticut (from
March 1993 to May 1997).
</TABLE>
- ----------
/1/ This director is considered to be an "interested person" of Excelsior Fund
as defined in the 1940 Act.
-17-
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupation
with the During Past 5 Years and
Name and Address Companies Other Affiliations
- ---------------- --------- -----------------------
<S> <C> <C>
Donald L. Campbell Director Retired; Director of
333 East 69th Street Excelsior Fund and Excelsior Apt. 10-H
Tax-Exempt (since 1984); Director of UST Master
New York, NY 10021 Variable Series, Inc.
Age: 71 (from 1994 to June 1997); Trustee of
Excelsior Institutional Trust (since
1995); Director, Royal Life Insurance
Co. of New York (since 1991).
Rodman L. Drake Director Director, Excelsior Fund
485 Park Avenue and Excelsior Tax-Exempt
New York, NY 10022 Fund (since 1996); Trustee,
Age: 54 Excelsior Institutional
Trust and Excelsior Funds
(since 1994); Director,
Parsons Brinkerhoff, Inc. (engineering
firm) (since 1995); Director, Parsons
Brinkerhoff Energy Services Inc. (since
1996); President, Mandrake Group
(investment and consulting firm) (since
1994); Director, Hyperion Total Return
Fund, Inc. and four other funds for
which Hyperion Capital Management, Inc.
serves as investment adviser (since
1991); Co-Chairman, KMR Power
Corporation (power plants) (from 1993
to 1996); Director, The Latin American
Growth Fund (since 1993); Member of
Advisory Board, Argentina Private
Equity Fund L.P. (from 1992 to 1996)
and Garantia L.P. (Brazil) (from 1993
to 1996); and Director, Mueller
Industries, Inc. (from 1992 to 1994).
Joseph H. Dugan Director Retired; Director of
913 Franklin Lakes Road Excelsior Fund and Excelsior
Franklin Lakes, NJ 07417 Tax-Exempt (since 1984);
Age: 72 Director of UST Master
Variable Series, Inc.
(from 1994 to June 1997); Trustee of
Excelsior Institutional Trust (since
1995).
Wolfe J. Frankl Director Retired; Director of
2320 Cumberland Road Excelsior Fund and Excelsior
Charlottesville, VA 22901 Tax-Exempt (since 1986);
Age: 76 Director of UST Master
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupation
with the During Past 5 Years and
Name and Address Companies Other Affiliations
- ---------------- --------- -----------------------
<S> <C> <C>
Variable Series, Inc. (from 1994 to
June 1997); 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 1988).
W. Wallace Director Director, Excelsior
McDowell, Jr. and Excelsior Tax-Exempt
Fund Fund (since 1996); Trustee,
c/o Prospect Capital Excelsior Institutional Trust
Corp. and Excelsior Funds
43 Arch Street (since 1994); Private Investor
Greenwich, CT 06830 (since 1994); Managing Director,
Age: 60 Morgan Lewis Githens & Ahn (from 1991
to 1994); and Director, U.S. Homecare
Corporation (since 1992), Grossmans,
Inc. (from 1993 to 1996), Children's
Discovery Centers (since 1984), ITI
Technologies, Inc. (since 1992) and
Jack Morton Productions (since 1987).
Jonathan Piel Director Director, Excelsior Fund and
558 E. 87th Street Excelsior Tax-Exempt Fund
New York, NY 10128 (since 1996); Trustee, Excelsior
Age: 58 Institutional Trust and
Excelsior Funds (since 1994);
President, Scientific American, Inc.
(from 1984 to 1986); Vice President and
Editor, Scientific American, Inc. (from
1986 to 1994); Director, Group for The
South Fork, Bridgehampton, New York
(since 1993); and Member, Advisory
Committee, Knight Journalism
Fellowships, Massachusetts Institute of
Technology (since 1984).
Robert A. Robinson Director Director of Excelsior Fund
Church Pension Fund and Excelsior Tax-Exempt
800 Second Avenue (since 1997); Director of UST
New York, NY 10017 Master Variable Series, Inc.
Age: 71 Excelsior Institutional Trust (since
1995); President Emeritus, The
Church Pension Fund and its
affiliated companies (since 1966);
Trustee, H.B. and F.H. Bugher
wholly owned subsidiaries --
Rosiclear Lead and Flourspar Mining
Co. and The Pigmy Corporation (since
Publishing Co. (since 1974); (from
1994 to June 1997); Trustee of
Trustee, HSBC Funds Trust and HSBC
Foundation and Director of its
Mutual Funds Trust (since 1982);
1984); Director, Morehouse
Director, Infinity Funds, Inc. (since 1995).
</TABLE>
-19-
<PAGE>
<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/ Director Retired; Director of
6549 Pine Meadows Drive Excelsior Fund and
Spring Hill, FL 34606 Excelsior Tax-Exempt
Age: 71 (since 1985); Chairman
of the Board, President and Treasurer
of UST Master Variable Series, Inc.
(from 1994 to June 1997); Trustee of
Excelsior Institutional Trust (since
1995).
W. Bruce McConnel, III Secretary Partner of the law firm of Drinker
Philadelphia National Biddle & Reath LLP.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age: 54
Greg Sackos Assistant Second Vice President, Senior
Chase Global Funds Secretary Manager of Blue Sky Compliance
Services Company and Financial Reporting, Chase
73 Tremont Street Global Funds Services Company
Boston, MA 02108-3913 (March 1997 to present); Second
Age: 32 Vice President, Senior Manager of
Financial Reporting, Chase Global
Funds Services Company (September
1996 to March 1997); Assistant Vice
President, Assistant Manager of
Financial Reporting, Scudder, Stevens &
Clark Inc. (October 1992 to September
1996).
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 (since July 1996);
Boston, MA 02108-3913 Second Vice President, Manager
Age: 32 of Administration, Chase Global Funds
Services Company (from
October 1993 to July 1996); Audit
Manager, Ernst & Young LLP (from August
1987 to September 1993).
</TABLE>
/1/ This director is considered to be an "interested person" of Excelsior Fund
as defined in the 1940 Act.
-20-
<PAGE>
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 for services in such
capacity. Drinker Biddle & Reath LLP, 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 ___, 1997, 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.
-21-
<PAGE>
<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 $27,000 None $31,750 (4)**
Director
Rodman L. Drake*** $ 7,500 None $12,250 (4)**
Director
Joseph H. Dugan $30,000 None $35,000 (4)**
Director
Wolfe J. Frankl $30,000 None $35,000 (4)**
Director
W. Wallace McDowell, Jr.*** $ 4,500 None $ 9,250 (4)**
Director
Jonathan Piel*** $ 7,500 None $12,500 (4)**
Director
Robert A. Robinson $30,000 None $35,000 (4)**
Director
Alfred C. Tannachion**** $40,000 None $45,000 (4)**
Director
Frederick S. Wonham**** $30,000 None $35,000 (4)**
Chairman of the Board,
President and Treasurer
</TABLE>
- ---------------------------
/*/ The "Fund Complex" consists of Excelsior Fund, Excelsior Tax-Exempt
Fund, 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.
/***/ Messrs. Drake, McDowell and Piel were elected to the Board of
Excelsior Fund and Excelsior Tax-Exempt Fund on December 9, 1996.
/****/ Mr. Tannachion served as Excelsior Fund's Chairman of the Board,
President and Treasurer until February 13, 1997. On that date Mr.
Wonham was elected to serve as Excelsior Fund's Chairman of the Board,
President and Treasurer.
-22-
<PAGE>
Investment Advisory and Administration Agreements
- -------------------------------------------------
United States Trust Company of New York ("U.S. Trust New York") and
U.S. Trust Company of Connecticut ("U.S. Trust Connecticut" and, collectively
with U.S. Trust New York, "U.S. Trust" or the "Investment Adviser") serve as
Investment Adviser to the Funds. In the Investment Advisory Agreements, U.S.
Trust 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, if any, purchased for the
Funds.
Prior to May 16, 1997, U.S. Trust New York served as investment
adviser to the Funds pursuant to an advisory agreement substantially similar to
the Investment Advisory Agreement currently in effect for the Funds.
For the fiscal year ended March 31, 1995, the particular Company paid
U.S. Trust New York 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, U.S. Trust New York waived advisory fees
totalling $14,308, $8,255, $121,999, $12,322, $84,360 and advisory $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
U.S. Trust New York 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, U.S. Trust New York waived advisory fees
totalling $20,410, $22,783, $46,807, $26,523, $117,024 and advisory $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.
For the fiscal year ended March 31, 1997, the particular Company paid
U.S. Trust New York advisory fees of $63,713, $217,254, $1,185,427, $95,564,
$741,452 and $457,137 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, U.S. Trust New York waived advisory fees
totalling $21,478, $35,586, $77,751, $28,208, $140,769 and $69,305 with respect
to the ST Government, IT
-23-
<PAGE>
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. 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
Connecticut (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 SEC,
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 May 16, 1997, CGFSC, Federated Administrative Services and
U.S. Trust New York served as the Funds' administrators pursuant to an
administrative agreement substantially similar to the Administration Agreement
currently in effect for the Funds. 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, 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 former
-24-
<PAGE>
administrators waived administration 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 administration 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.
For the period August 1, 1995 through March 31, 1996, Excelsior Tax-
Exempt Fund paid CGFSC, Federated Administrative Services and U.S. Trust New
York $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 CGFSC, Federated
Administrative Services and U.S. Trust New York $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, CGFSC, Federated Administrative
Services and U.S. Trust New York waived administration 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.
For the fiscal year ended March 31, 1997, Excelsior Tax-Exempt Fund
paid CGFSC, Federated Administrative Services and U.S. Trust New York $97,345,
$646,262 and $253,504 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 CGFSC, Federated Administrative Services and U.S.
Trust New York $81,987, $175,090 and $348,102 in the aggregate with respect to
the ST Government, IT Income and Managed Income Funds, respectively. For the
same period, CGFSC, Federated Administrative Services and U.S. Trust New York
waived fees totalling $31, $2,476, $880, $15,562, $983 and $3,433 with respect
to the ST Government, IT Income, Managed Income, Short-Term Tax-Exempt, IT Tax-
Exempt and LT Tax-Exempt Funds, respectively.
-25-
<PAGE>
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 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
-26-
<PAGE>
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, 1997, 1996 and 1995, payments to
Service Organizations under the Plans totalled $28,304, $26,684 and $12,678;
$141,258, $118,114 and $87,815; $70,956, $22,586 and $27,140; $21,479, $20,504
and $4,466; $36,495, $24,893 and $439; and $78,219, $47,693 and $28,171 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, $28,304, $26,684 and $11,475; $139,275, $115,826 and
$74,979; $68,722, $22,586 and $25,075; $21,479, $20,504 and $3,649; $37,886,
$21,217 and $8,041; and $77,650, $46,426 and $20,247 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 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.
Custodian and Transfer Agent
- ----------------------------
The Chase Manhattan Bank ("Chase") serves as custodian of the Funds'
assets. Under the custodian agreements, Chase has
-27-
<PAGE>
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 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 New York serves as the Funds' transfer agent and dividend
disbursing agent. In such capacity, U.S. Trust New York 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 New York is entitled to receive $15.00
per annum per account and subaccount. In addition, U.S. Trust New York 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 New York 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 New York 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 New York 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 New York. For the services
provided by CGFSC, U.S. Trust New York 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
-28-
<PAGE>
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 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
-29-
<PAGE>
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 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 SEC.
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, 1997, the following Funds held the following securities issued
by the Companies' regular brokers or dealers or their parents:
-30-
<PAGE>
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 Prospectuses and the financial statements for the period ended
March 31, 1997 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 LLP (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
Prospectuses.
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.
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<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). 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.
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
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<PAGE>
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 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
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<PAGE>
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, 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
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<PAGE>
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 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 SEC for
mutual funds. Such yield will be calculated separately for each Fund according
to the following formula:
a-b
Yield = 2 [(-------- + 1)/to the sixth power/ - 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.
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<PAGE>
For the purpose of determining interest earned during the period
(variable "a" in the formula), each of the Funds 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). 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,
1997 were ____%, ____%, ____%, ____%, ____% and ____%, 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 yields of the Short-Term Tax-
Exempt, IT Tax-Exempt and LT Tax-Exempt Funds for the 30-day period ended March
31, 1997 were ____%, ____% and ____%, respectively.
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<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 /to the one divided by nth power/
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 may also advertise the "aggregate total return" for its Shares,
which is computed 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, (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.
Based on the foregoing calculations, the total returns for Shares of
the Short-Term Tax-Exempt Fund, IT Tax-Exempt Fund,
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<PAGE>
LT Tax-Exempt Fund, ST Government Fund, IT Income Fund and Managed Income Fund
for the one year period ended March 31, 1997 were 3.55%, 4.58%, 5.47%, 4.77%,
3.75% and 3.17%, 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, 1997 were 6.65%, 8.80% and 7.16%, respectively. The average
annual total returns for the IT Tax-Exempt, LT Tax-Exempt and Managed Income
Funds for the ten year period ended March 31, 1997 were 6.81%, 9.42% and 8.57%,
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, 1997 were 3.91%, 5.51% and 4.73%,
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.
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 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.
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<PAGE>
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 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 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
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<PAGE>
allocable liabilities and the allocable portion of any general assets with
respect to a particular Fund are conclusive.
As of July ___, 1997, U.S. Trust and its affiliates held sole or
shared voting or investment power with respect to more than 50% of each
Company's outstanding Shares on behalf of their customers.
As of July __, 1997, 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 audited financial statements and notes thereto in the Companies'
Annual Reports to Shareholders for the fiscal year ended March 31, 1997 (the
"1997 Annual Reports") for the fixed income and tax-exempt fixed income
portfolios are incorporated in this Statement of Additional Information by
reference. No other parts of the 1997 Annual Reports are incorporated by
reference herein. The financial statements included in the 1997 Annual Reports
for the ST Government, IT Income, Managed Income, Short-Term Tax-Exempt, IT Tax-
Exempt and LT Tax-Exempt Funds have been audited by the Companies' independent
auditors, Ernst & Young LLP, whose reports thereon also appear in the 1997
-----------------
Annual Reports and are incorporated herein by reference. Such financial
statements 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 1997 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" - The highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
"A-3" - Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
"B" - Issues are regarded as having only a speculative capacity for
timely payment.
"C" - This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
"D" - Issues are 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" - Issuers or related supporting institutions 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" - Issuers or related supporting institutions 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" - Issuers 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" - Issuers do 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" ratings.
"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 are 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 good 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 that 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 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
A-8
<PAGE>
and repay principal is very strong, although not quite as strong 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.
A-9
<PAGE>
"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 business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
other 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 below
"AAA" 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
A-10
<PAGE>
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.
"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.
A-11
<PAGE>
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 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.
Blended Equity Fund
Income and Growth Fund
Value and Restructuring Fund
Small Cap Fund
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1997
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current prospectus for the Blended Equity, Income and
Growth, Value and Restructuring and Small Cap Funds (individually, a "Fund" and
collectively, the "Funds") of Excelsior Funds, Inc. ("Excelsior Fund") dated
August 1, 1997 (the "Prospectus"). 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 Blended Equity, Value and Restructuring and Small Cap Funds and to the
other series of shares in each of the Funds that does not bear the expense of
12b-1 fees (the "Service Shares" and, collectively with the Trust Shares, the
"Shares"). No investment in Shares of the Funds described herein 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
----
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES................... 1
Other Investment Considerations -
Blended Equity and Theme Funds................... 1
Other Investment Considerations -
Income and Growth Fund........................... 3
Additional Information on Portfolio Instruments.... 4
Additional Investment Limitations.................. 12
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION....... 14
INVESTOR PROGRAMS.................................... 18
Systematic Withdrawal Plan......................... 18
Exchange Privilege................................. 18
Other Investor Programs............................ 19
DESCRIPTION OF CAPITAL STOCK......................... 19
MANAGEMENT OF THE FUNDS.............................. 21
Directors and Officers............................. 21
Investment Advisory and Administration Agreements.. 27
Service Organizations.............................. 29
Expenses........................................... 30
Custodian and Transfer Agent....................... 31
PORTFOLIO TRANSACTIONS............................... 32
INDEPENDENT AUDITORS................................. 34
COUNSEL.............................................. 35
ADDITIONAL INFORMATION CONCERNING TAXES.............. 35
PERFORMANCE INFORMATION.............................. 37
MISCELLANEOUS........................................ 40
FINANCIAL STATEMENTS................................. 40
APPENDIX A-1
</TABLE>
-i-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
----------------------------------
The investment objective of the Blended Equity Fund (formerly, the
Equity Fund) and of the Value and Restructuring (formerly, the Business and
Industrial Restructuring Fund) and Small Cap (formerly, the 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 - Blended Equity Fund and Theme Funds
- ---------------------------------------------------------------------
The Blended Equity Fund and the Theme Funds invest primarily in common
stocks, but each Fund may also purchase both preferred stocks and securities
convertible into common stock at the discretion of United States Trust Company
of New York ("U.S. Trust New York") and U.S. Trust Company of Connecticut ("U.S.
Trust Connecticut" and, collectively, with U.S. Trust 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
<PAGE>
costs and competing priorities of providing health care; and the accelerating
interdependence and "shrinking size" of the world.
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 Fund's 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
2
<PAGE>
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 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 Blended Equity Fund and Theme Funds.
Further, although the Investment Adviser will generally use the three strategies
described above for the Blended 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
3
<PAGE>
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 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,
4
<PAGE>
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 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.
5
<PAGE>
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 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.
6
<PAGE>
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 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.
7
<PAGE>
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.
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
8
<PAGE>
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 a Fund because the
maximum amount at risk is the premium paid for the options (plus transaction
costs). Although permitted by their 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.
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
9
<PAGE>
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.
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 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 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
10
<PAGE>
least equal to the market price 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 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.
Real Estate Investment Trusts
-----------------------------
Each Fund may invest in equity real estate investment trusts
("REITs"). REITs pool investors' funds for investment
11
<PAGE>
primarily in commercial real estate properties. Investments in REITs may
subject a Fund to certain risks. REITs may be affected by changes in the value
of the underlying property owned by the trust. REITs are dependent upon
specialized management skill, may not be diversified and are subject to the
risks of financing projects. REITs are also subject to heavy cash flow
dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for the beneficial tax treatment available to REITs under the
Internal Revenue Code of 1986, as amended, and to maintain exemption from the
1940 Act. As a shareholder in a REIT, a Fund would bear, along with other
shareholders, its pro rata portion of the REIT's operating expenses. These
expenses would be in addition to the advisory and other expenses a Fund bears
directly in connection with its own operations.
Securities Lending
------------------
When a Fund lends its 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 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.
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 and may purchase securities
which are secured by interests in real estate; and
12
<PAGE>
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 Blended 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
Blended Equity and Income and Growth Funds. The Blended 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,
certificates of beneficial ownership or other instruments in accordance with its
investment objectives and policies.
13
<PAGE>
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 either 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 Blended Equity and Income and Growth Funds 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 securities will not constitute a violation of such limitation.
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
14
<PAGE>
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 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.
Under Excelsior Fund's Distribution Agreement and Distribution Plan,
adopted pursuant to Rule 12b-1 under the 1940 Act, the Trust Shares of the
Blended Equity, Value and Restructuring and Small Cap Funds may compensate the
Distributor monthly for its services which are intended to result in the sale of
Trust Shares. The Compensation may not exceed the annual rate of .75% of the
average daily net asset value of each 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. The Distributor may also use the distribution fees to
defray direct and indirect marketing
15
<PAGE>
expenses such as: (i) the expense of preparing, printing and distributing
promotional materials and prospectuses (other than prospectuses used for
regulatory purposes or for distribution to existing shareholders); (ii) the
expense of other advertising via radio, television or other print or electronic
media; and (iii) the expense of payments to financial institutions that are not
affiliated with the Distributor (" Distribution Organizations") for distribution
assistance (including sales incentives). Payments under the Distribution Plan
are not tied directly to out-of-pocket expenses and therefore may be used by the
Distributor as it chooses (for example, to defray its overhead expenses).
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.
For the fiscal year ended March 31, 1997, the Trust Shares of the
Blended Equity, Value and Restructuring and Small Cap Funds bore distribution
fees of $_____, $_____ and $______, respectively, under the Distribution Plan.
Shares of the Funds are offered for sale at their net asset value per
Share next computed after a purchase order is received by Excelsior Fund's sub-
transfer agent. Prior to March 1, 1997, Shares of the Funds were offered for
sale with a maximum sales charge of 4.50%. For the fiscal years ended March 31,
1997, 1996 and 1995, total sales charges paid by shareholders of the Blended
Equity, Income and Growth, Value and Restructuring and Small Cap Funds were
$3,806, $2,725 and $7,492; $1,241, $1,223 and $1,713; $8,716, $3,970 and $779;
and $698, $961 and $1,107, respectively. The Distributor retained $______,
$________, $________ and $________ of the foregoing sales charges with respect
to the Blended Equity, Income and Growth, Value and Restructuring and Small Cap
Funds for the fiscal year ended March 31, 1997. The Distributor retained none
of the foregoing sales charges with respect to the Funds for the period August
1, 1995 through March 31, 1996. UST Distributors, Inc., Excelsior Fund's
16
<PAGE>
former distributor, retained $473 and $7,092 with respect to the Blended Equity
Fund; $298 and $1,703 with respect to the Income and Growth Fund; $42 and $779
with respect to the Value and Restructuring Fund; $0 and $1,107 with respect to
the Small Cap Fund for the period April 1, 1995 through July 31, 1995 and for
the fiscal year ended March 31, 1995, respectively. 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 (the
"SEC"); (b) the Exchange is closed for other than customary weekend and holiday
closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC.
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
17
<PAGE>
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;
(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 Funds, Inc.
("Excelsior Tax-Exempt Fund" and, collectively with Excelsior 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
18
<PAGE>
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 year. The Companies and Excelsior
Institutional Trust 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 effected an
exchange of Shares for shares of another portfolio of the Companies within 90
days of the purchase and was able to reduce the sales load previously 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.
19
<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
20
<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:
<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/ Chairman of the Retired; Director of
238 June Road Board, President Excelsior Fund and Excelsior
Stamford, CT 06903 and Treasurer Tax-Exempt (since 1995);
Age: 66 and Trustee of Excelsior Funds
Excelsior Institutional Trust
(since 1995); Vice Chairman of U.S.
Trust
</TABLE>
/1/ This director is considered to be an "interested person" of Excelsior Fund
as defined in the 1940 Act.
21
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ------------------------ -------------------------- ----------------------------
<S> <C> <C>
Corporation and U.S. Trust Company of
New York (from February 1990 until
September 1995); Chairman, U.S. Trust
Company of Connecticut (from March 1993
to May 1997).
Donald L. Campbell Director Retired; Director of
333 East 69th Street Excelsior Fund and Excelsior
Apt. 10-H Tax-Exempt (since 1984);
New York, NY 10021 Director of UST Master
Age: 71 Variable Series, Inc.
(from 1994 to June 1997); Trustee of
Excelsior Institutional Trust (since
1995); Director, Royal Life Insurance
Co. of New York (since 1991).
Rodman L. Drake Director Director, Excelsior Fund
485 Park Avenue and Excelsior Tax-Exempt
New York, NY 10022 Fund (since 1996); Trustee,
Age: 54 Excelsior Institutional
Trust and Excelsior Funds
(since 1994); Director, Parsons
Brinkerhoff Energy Services Inc. (since
1996); Director, Parsons Brinkerhoff,
Inc. (engineering firm) (since 1995);
President, Mandrake Group (investment
and consulting firm) (since 1994);
Director, Hyperion Total Return Fund,
Inc. and four other funds for which
Hyperion Capital Management, Inc.
serves as investment adviser (since
1991); Co-Chairman, KMR Power
Corporation (power plants) (since
1993); Director, The Latin American
Growth Fund (since 1993); Member of
Advisory Board, Argentina Private
Equity Fund L.P. (from 1992 to 1996)
and Garantia L.P. (Brazil) (from 1993
to 1996); and Director, Mueller
Industries, Inc. (from 1992 to 1994).
</TABLE>
22
<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
913 Franklin Lakes Road Excelsior Fund and
Franklin Lakes, NJ 07417 Excelsior
Age: 72 Tax-Exempt (since 1984);
Director of UST Master
Variable Series, Inc.
(from 1994 to June 1997); Trustee of
Excelsior Institutional Trust (since
1995).
Wolfe J. Frankl Director Retired; Director of
2320 Cumberland Road Excelsior Fund and Excelsior
Charlottesville, VA 22901 Tax-Exempt (since 1986);
Age: 76 Director of UST Master
Variable Series, Inc. (from 1994 to
June 1997); 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 1988).
W. Wallace McDowell, Jr. Director Director, Excelsior Fund
c/o Prospect Capital and Excelsior Tax-Exempt
Corp. Fund (since 1996); Trustee,
43 Arch Street Excelsior Institutional Trust
Greenwich, CT 06830 and Excelsior Funds
Age: 60 (since 1994); Private Investor
(since 1994); Managing Director,
Morgan Lewis Githens & Ahn (from 1991
to 1994); and Director, U.S. Homecare
Corporation (since 1992), Grossmans,
Inc. (from 1993 to 1996), Children's
Discovery Centers (since 1984), ITI
Technologies, Inc. (since 1992) and
Jack Morton Productions (since 1987).
Jonathan Piel Director Director, Excelsior Fund and
558 E. 87th Street Excelsior Tax-Exempt Fund
New York, NY 10128 (since 1996); Trustee, Excelsior
Age: 58 Institutional Trust and
Excelsior Funds (since 1994);
President, Scientific American, Inc.
(from 1984 to 1986); Vice President and
Editor, Scientific American, Inc. (from
1986 to 1994); Director, Group for The
South Fork, Bridgehampton, New York
(since 1993); and Member, Advisory
Committee, Knight Journalism
Fellowships, Massachusetts Institute of
Technology (since 1984).
</TABLE>
23
<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 Fund
Church Pension Fund and Excelsior Tax-Exempt
800 Second Avenue (since 1997); Director of UST
New York, NY 10017 Master Variable Series, Inc.
Age: 71 (from 1994 to June 1997); Trustee of
Excelsior Institutional Trust
(since 1995); President Emeritus, The
Church Pension Fund and its affiliated
companies (since 1966); 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).
Alfred C. Tannachion/1/ Director Retired; Director of
6549 Pine Meadows Drive Excelsior Fund and
Spring Hill, FL 34606 Excelsior Tax-Exempt
Age: 71 (since 1985); Chairman
of the Board, President and Treasurer
of UST Master Variable Series, Inc.
(from 1994 to June 1997); Trustee of
Excelsior Institutional Trust (since
1995).
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: 54
Gregory Sackos Assistant Second Vice President, Senior
Chase Global Funds Secretary Manager of Blue Sky Compliance
Services Company and Financial Reporting, Chase
73 Tremont Street Global Funds Services Company
Boston, MA 02108-3913 (March 1997 to present); Second
Age: 32 Vice President, Senior Manager of
Financial Reporting, Chase Global
Funds Services Company (September 1996
to March 1997); Assistant Vice
President; Assistant Manager of
Financial Reporting, Scudder, Stevens &
Clark Inc. (October 1992 to September
1996)
</TABLE>
- -------------------------
/1/ This director is considered to be an "interested person" of Excelsior Fund
as defined in the 1940 Act.
24
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ------------------------ -------------------------- ----------------------------
<S> <C> <C>
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 (since July 1996);
Boston, MA 02108-3913 Second Vice President, Manager
Age: 32 of Administration, Chase Global
Funds Services Company (from October
1993 to 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 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 LLP, 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 ___, 1997, the directors and officers of Excelsior Fund as a
group owned beneficially less than 1% of the outstanding Shares of each fund of
Excelsior Fund, and less than 1% of the outstanding Shares of all funds of
Excelsior Fund 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.
25
<PAGE>
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Accrued as from Excelsior
Aggregate Part of Fund and Fund
Name of Compensation from Fund Complex* Paid
Person/Position Excelsior Fund Expenses to Directors
- ----------------------------- ----------------- -------- -------------------
<S> <C> <C> <C>
Donald L. Campbell $13,500 None $31,750(4)**
Director
Rodman L. Drake*** $ 3,750 None $12,250(4)**
Director
Joseph H. Dugan $15,000 None $35,000(4)**
Director
Wolfe J. Frankl $15,000 None $35,000(4)**
Director
W. Wallace McDowell, Jr.*** $ 2,250 None $ 9,250(4)**
Director
Jonathan Piel*** $ 3,750 None $12,500(4)**
Director
Robert A. Robinson $15,000 None $35,000(4)**
Director
Alfred C. Tannachion**** $20,000 None $45,000(4)**
Director
Frederick S. Wonham**** $15,000 None $35,000(4)**
Chairman of the Board,
President and Treasurer
</TABLE>
- ---------------------------
* The "Fund Complex" consists of Excelsior Fund, Excelsior Tax-Exempt
Fund, 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.
*** Messrs. Drake, McDowell and Piel were elected to the Board of
Excelsior Fund and Excelsior Tax-Exempt Fund on December 9, 1996.
**** Mr. Tannachion served as Excelsior Fund's Chairman of the Board,
President and Treasurer until February 13, 1997. On that date Mr.
Wonham was elected to serve as Excelsior Fund's Chairman of the Board,
President and Treasurer.
26
<PAGE>
Investment Advisory and Administration Agreements
- -------------------------------------------------
United States Trust Company of New York ("U.S. Trust New York") and
U.S. Trust Company of Connecticut ("U.S. Trust Connecticut" and, collectively
with U.S. Trust New York, "U.S. Trust" or the "Investment Adviser") serve 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.
Prior to May 16, 1997, U.S. Trust New York served as investment
adviser to the Funds pursuant to an advisory agreement substantially similar to
the Investment Advisory Agreement currently in effect for the Funds.
For the fiscal year ended March 31, 1995, Excelsior Fund paid U.S.
Trust New York advisory fees of $880,638, $726,295, $120,783 and $194,501 with
respect to the Blended Equity, Income and Growth, Value and Restructuring and
Small Cap Funds, respectively. For the same period, U.S. Trust New York waived
advisory fees totalling $26,987, $24,620, $18,380 and $26,625 with respect to
the Blended Equity, Income and Growth, Value and Restructuring and Small Cap
Funds, respectively.
For the fiscal year ended March 31, 1996, Excelsior Fund paid U.S.
Trust New York advisory fees of $1,111,127, $785,037, $273,025, and $336,194
with respect to the Blended Equity, Income and Growth, Value and Restructuring
and Small Cap Funds, respectively. For the same period, U.S. Trust New York
waived fees totalling $106,377, $69,637, $21,119 and $57,942 with respect to the
Blended Equity, Income and Growth, Value and Restructuring and Small Cap Funds,
respectively.
For the fiscal year ended March 31, 1997, Excelsior Fund paid U.S.
Trust New York advisory fees of $1,954,607, $876,995, $552,742 and $408,027 with
respect to the Blended Equity, Income and Growth, Value and Restructuring and
Small Cap Funds, respectively. For the same period, U.S. Trust New York waived
advisory fees totalling $132,737, $105,756, $41,509 and $61,885 with respect to
the Blended Equity, Income and Growth, Value and Restructuring and Small Cap
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
27
<PAGE>
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 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
Connecticut (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 May 16, 1997, CGFSC, Federated Administrative Services and
U.S. Trust New York served as the Funds' administrators pursuant to an
administration Agreement substantially similar to the Administration Agreement
currently in effect for the Funds. 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, 1995, Excelsior Fund paid the
former administrators $186,366, $154,582, $35,765 and $56,809 in the aggregate
with respect to the Blended Equity, Income and Growth, Value and Restructuring
and Small Cap Funds, respectively. For the same period, the former
administrators waived administration fees totalling $5,985 with respect to the
Value and Restructuring Fund.
For the period April 1, 1995 through July 31, 1995, Excelsior Fund
paid the former administrators $72,709, $53,296, $18,319 and $27,350 in the
aggregate with respect to the Blended Equity, Income and Growth, Value and
Restructuring and Small Cap Funds, respectively. For the same period, the
former administrators waived administration fees totalling $1,640, $575, $34 and
$75 with respect to the Blended Equity, Income and Growth, Value and
Restructuring and Small Cap Funds, respectively.
28
<PAGE>
For the period August 1, 1995 through March 31, 1996, Excelsior Fund
paid CGFSC, Federated Administrative Services and U.S. Trust New York $171,595,
$120,732, $57,370 and $74,016 in the aggregate with respect to the Blended
Equity, Income and Growth, Value and Restructuring and Small Cap Funds,
respectively. For the same period, CGFSC, Federated Administrative Services and
U.S. Trust New York waived administration fees totalling $4,809, $1,416, $19 and
$40 with respect to the Blended Equity, Income and Growth, Value and
Restructuring and Small Cap Funds, respectively.
For the fiscal year ended March 31, 1997, Excelsior Fund paid CGFSC,
Federated Administrative Services and U.S. Trust New York $422,505, $322,113,
$209,726, and $194,466 in the aggregate with respect to the Blended Equity,
Income and Growth, Value and Restructuring and Small Cap Funds, respectively.
For the same period, CGFSC, Federated Administration Services and U.S. Trust New
York waived administration fees totalling $5,344, $2,548, $126 and $127 with
respect to the Blended Equity, Income and Growth, Value and Restructuring and
Small Cap 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 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
29
<PAGE>
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
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, 1997, 1996 and 1995, payments to
Service Organizations totalled $132,737, $112,827 and $26,987; $106,888, $71,628
and $24,620; $41,617, $21,172 and $5,189; and $61,972, $58,058 and $17,091 with
respect to the Blended Equity, Income and Growth, Value and Restructuring and
Small Cap Funds, respectively. Of these amounts, $118,778, $97,209 and $18,606;
$103,262, $66,022 and $22,697; $41,514, $21,149 and $4,851; and $61,952, $58,039
and $16,428 were paid to affiliates of U.S. Trust with respect to the Blended
Equity, Income and Growth, Value and Restructuring and Small Cap 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
30
<PAGE>
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 shareholder 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.
Custodian and Transfer Agent
- ----------------------------
The Chase Manhattan Bank ("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 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 New York serves as the Funds' transfer agent and dividend
disbursing agent. In such capacity, U.S. Trust New York 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 its transfer agency, dividend disbursing, and
subaccounting services, U.S. Trust New York is entitled to receive $15.00 per
annum per account and subaccount. In addition, U.S. Trust New York 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 New York may, at its own expense, delegate its transfer
agency obligations to another transfer agent
31
<PAGE>
registered or qualified under applicable law, provided that U.S. Trust New York
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 New York 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 New York. For the
services provided by CGFSC, U.S. Trust New York 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 New York 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 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, 1995, March 31, 1996 and March 31, 1997, the Blended Equity Fund
paid brokerage commissions aggregating $123,112, $174,492 and $______,
respectively, and the Income and Growth Fund paid brokerage commissions
aggregating $89,218, $89,512 and $74,499, respectively.
For the fiscal years ended March 31, 1995, March 31, 1996, and March
31, 1997, the Value and Restructuring and Small Cap Funds paid brokerage
commissions aggregating $121,755, $152,269 and $271,334; and $73,534, $95,108
and $122,184, 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
32
<PAGE>
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 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.
33
<PAGE>
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.
To the extent that a Fund effects brokerage transactions with any
broker-dealer affiliated directly or indirectly with U.S. Trust, such
transactions, including the frequency thereof, the receipt of any commissions
payable in connection therewith, and the selection of the affiliated broker-
dealer effecting such transactions, will be fair and reasonable to the
shareholders of the Fund.
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, 1997, the following Funds held the following securities of
Excelsior Fund's regular brokers or dealers or their parents: (a) the Income &
Growth Fund held the following security: 40,000 shares of common stock of
Morgan Stanley & Co., Inc.; and (b) the Value and Restructuring Fund held the
following security: 42,000 shares of common stock of Donaldson, Lufkin &
Jenrette, Inc.
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, 1997 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.
34
<PAGE>
COUNSEL
-------
Drinker Biddle & Reath LLP (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 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
35
<PAGE>
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 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
36
<PAGE>
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 may also advertise the "aggregate total return" for its Service
Shares and Trust Shares which is computed 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:
37
<PAGE>
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, (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.
Based on the foregoing calculations, the total returns for the Service
Shares of the Blended Equity, Income and Growth, Value and Restructuring and
Small Cap Funds for the one year period ended March 31, 1997 were 11.09%,
12.61%, 18.09% and -14.33%, respectively. The average annual total returns for
the Service Shares of the Blended Equity and Income and Growth Funds for the
five year period ended March 31, 1997 were ____% and 15.81%, respectively. The
average annual total returns for the Service Shares of the Blended Equity and
Income and Growth Funds for the ten year period ended March 31, 1997 were ____%
and 10.63%, respectively. The average annual total returns for the Service
Shares of the Value and Restructuring and Small Cap Funds for the period from
December 31, 1992 (commencement of operations) to March 31, 1997 were 24.07% and
9.29%, 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 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.
The total return of Shares of a Fund may be compared to that of other
mutual funds with similar investment objectives and
38
<PAGE>
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, 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, advertisements, 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.
39
<PAGE>
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 ___, 1997, U.S. Trust and its affiliates held sole or
shared voting or investment power with respect to more than 50% of Excelsior
Fund's outstanding shares on behalf of their customers.
As of July ___, 1997, 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 audited financial statements and notes thereto in Excelsior Fund's
Annual Report to Shareholders for the fiscal year ended March 31, 1997 (the
"1997 Annual Report") for the domestic equity portfolios are incorporated in
this Statement of Additional Information by reference. No other parts of the
1997 Annual Report are incorporated by reference herein. The financial
statements included in the 1997 Annual Report for the Funds have been audited by
Excelsior Fund's independent auditors, ERNST & YOUNG LLP, whose reports thereon
-----------------
also appear in the 1997 Annual Report and are incorporated herein by reference.
Such financial statements 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 1997 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.
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" - The highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
"A-3" - Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
"B" - Issues are regarded as having only a speculative capacity for
timely payment.
"C" - This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
"D" - Issues are 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" - Issuers or related supporting institutions 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" - Issuers or related supporting institutions 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" - Issuers 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" - Issuers do 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" ratings.
"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 are 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 good 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 that 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 other 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 below
"AAA" 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.
Productivity Enhancers Fund
Environmentally-Related Products and Services Fund
Aging of America Fund
Communication and Entertainment Fund
Global Competitors Fund
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1997
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current prospectuses for the Productivity Enhancers,
Environmentally-Related Products and Services, Aging of America, Communication
and Entertainment and Global Competitors Funds (individually, a "Fund" and
collectively, the "Funds") of Excelsior Funds, Inc. ("Excelsior Fund") dated
August 1, 1997 (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 Aging of America, Communication and Entertainment and Global Competitors
Funds and to the other series of shares in each of the Funds that does not bear
the expense of 12b-1 fees (the "Service Shares" and, collectively with the Trust
Shares, the "Shares"). No investment in Shares of the Funds described herein
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
----
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES................... 1
Other Investment Considerations.................... 1
Additional Information on Portfolio Instruments.... 3
Additional Investment Limitations.................. 11
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION....... 13
INVESTOR PROGRAMS.................................... 16
Systematic Withdrawal Plan......................... 16
Exchange Privilege................................. 17
Other Investor Programs............................ 17
DESCRIPTION OF CAPITAL STOCK......................... 18
MANAGEMENT OF THE FUNDS.............................. 19
Directors and Officers............................. 19
Investment Advisory and Administration Agreements.. 25
Service Organizations.............................. 27
Expenses........................................... 29
Custodian and Transfer Agent....................... 29
PORTFOLIO TRANSACTIONS............................... 30
INDEPENDENT AUDITORS................................. 33
COUNSEL.............................................. 33
ADDITIONAL INFORMATION CONCERNING TAXES.............. 33
PERFORMANCE INFORMATION.............................. 35
MISCELLANEOUS........................................ 38
FINANCIAL STATEMENTS................................. 38
APPENDIX A-1
</TABLE>
(i)
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
----------------------------------
The investment objective of each Fund is to seek long-term 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
- -------------------------------
The Funds invest primarily in common stocks, but they may also
purchase both preferred stocks and securities convertible into common stock at
the discretion of United States Trust Company of New York ("U.S. Trust New
York") and U.S. Trust Company of Connecticut ("U.S. Trust Connecticut" and,
collectively, with U.S. Trust 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.
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.
<PAGE>
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 the 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 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.
-2-
<PAGE>
Additional Information on Portfolio Instruments
- -----------------------------------------------
Options
-------
As stated in the Prospectuses, the 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 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 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
-3-
<PAGE>
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 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").
-4-
<PAGE>
Futures Contracts and Related Options
-------------------------------------
The Funds may invest in futures contracts and options thereon. The
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 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 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 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
-5-
<PAGE>
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 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.
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 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
-6-
<PAGE>
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
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 a Fund because the maximum amount at risk is the
premium paid for the options (plus transaction costs). Although permitted by
their 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
-7-
<PAGE>
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.
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
-8-
<PAGE>
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 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 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 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 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
-9-
<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.
Real Estate Investment Trusts
-----------------------------
Each Fund may invest in equity real estate investment trusts
("REITs"). REITs pool investors' funds for investment primarily in commercial
real estate properties. Investments in REITs may subject a Fund to certain
risks. REITs may be affected by changes in the value of the underlying property
owned by the trust. REITs are dependent upon specialized management skill, may
not be diversified and are subject to the risks of financing projects. REITs
are also subject to heavy cash flow dependency, defaults by borrowers, self
liquidation and the possibility of failing to qualify for the beneficial tax
treatment available to REITs under the Internal Revenue Code of 1986, as
amended, and to maintain exemption from the 1940 Act. As a shareholder in a
REIT, a Fund would bear, along with other shareholders, its pro rata portion of
the REIT's operating expenses. These expenses would be in addition to the
advisory and other expenses a Fund bears directly in connection with its own
operations.
Securities Lending
------------------
When a Fund lends its 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 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
-10-
<PAGE>
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 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; and
4. 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 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 Fund may enter into futures contracts and
futures options.
-11-
<PAGE>
The following investment limitations are non-fundamental operating
policies with respect to the Funds. No Fund may:
5. Purchase securities on margin, make short sales of securities, or
maintain a short position;
6. 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
each Fund may purchase options and other rights in accordance with its
investment objectives and policies;
7. Invest in companies for the purpose of exercising management or
control;
8. 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
9. 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.
* * *
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.
-12-
<PAGE>
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.
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 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
-13-
<PAGE>
a majority of Excelsior Fund's disinterested directors or by vote of the holders
of a majority of the Trust Shares of the Fund.
Under Excelsior Fund's Distribution Agreement and Distribution Plan,
adopted pursuant to Rule 12b-1 under the 1940 Act, the Trust Shares of the Aging
of America, Communication and Entertainment and Global Competitors Funds may
compensate the Distributor monthly for its services which are intended to result
in the sale of Trust Shares. The compensation may not exceed the annual rate of
.75% of the average daily net asset value of each 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. The Distributor may also use the
distribution fees to defray direct and indirect marketing expenses such as: (i)
the expense of preparing, printing and distributing promotional materials and
prospectuses (other than prospectuses used for regulatory purposes or for
distribution to existing shareholders); (ii) the expense of other advertising
via radio, television or other print or electronic media; and (iii) the expense
of payments to financial institutions that are not affiliated with the
Distributor ("Distribution Organizations") for distribution assistance
(including sales incentives). Payments under the Distribution Plan are not tied
directly to out-of-pocket expenses and therefore may be used by the Distributor
as it chooses (for example, to defray its overhead expenses).
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 at their net asset value per
Share next computed after a purchase order is received by Excelsior Fund's sub-
transfer agent prior to March 1, 1997, Shares of the Funds were offered for sale
with a maximum sales charge of 4.50%. For the fiscal years ended March 31,
1997, 1996 and 1995, total sales charges paid by shareholders of
-14-
<PAGE>
the Productivity Enhancers, Environmentally-Related Products and Services, Aging
of America, Communication and Entertainment and Global Competitors Funds were
$495, $347 and $143; $71, $325 and $0; $715, $1,662 and $357; $587, $1,728 and
$438; and $735, $405 and $353, respectively. The Distributor retained $____,
$____, $____, $____ and $____ of the foregoing sales charges with respect to the
Productivity Enhancers, Environmentally-Related Products and Services, Aging of
America, Communication and Entertainment and Global Competitors Funds for the
fiscal year ended March 31, 1997. The Distributor retained none of the
foregoing sales charges with respect to the Funds for the period August 1, 1995
through March 31, 1996. UST Distributors, Inc., Excelsior Fund's former
distributor, retained $0 and $143 with respect to the Productivity Enhancers
Fund; $0 and $0 with respect to the Environmentally-Related Products and
Services Fund; $0 and $37 with respect to the Aging of America Fund; $74 and
$438 with respect to the Communication and Entertainment Fund; and $0 and $353
with respect to the Global Competitors Fund for the period April 1, 1995 through
July 31, 1995 and for the fiscal year ended March 31, 1995, respectively. 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 (the
"SEC") (b) the Exchange is closed for other than customary weekend and holiday
closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC.
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
-15-
<PAGE>
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;
(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
-16-
<PAGE>
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 Funds, Inc.
("Excelsior Tax-Exempt Fund" and, collectively with Excelsior 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 year. The Companies and Excelsior
Institutional Trust 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 effected an
exchange of Shares for shares of another portfolio of the Companies within 90
days of the purchase and was able to reduce the sales load previously 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.
-17-
<PAGE>
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,
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
-18-
<PAGE>
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 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:
-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/ Chairman of the Retired; Director of
238 June Road Board, President Excelsior Fund and Excelsior
Stamford, CT 06903 and Treasurer Tax-Exempt (since 1995);
Age: 66 Trustee of Excelsior Funds
and Excelsior Institutional Trust
(since 1995); Vice Chairman of U.S.
Trust Corporation and U.S. Trust
Company of New York (from February 1990
until September 1995); Chairman, U.S.
Trust Company of Connecticut (from
March 1993 to May 1997).
Donald L. Campbell Director Retired; Director of
333 East 69th Street Excelsior Fund and Excelsior
Apt. 10-H Tax-Exempt (since 1984);
New York, NY 10021 Director of UST Master
Age: 71 Variable Series, Inc.
(from 1994 to June 1997); Trustee of
Excelsior Institutional Trust (since
1995); Director, Royal Life Insurance
Co. of New York (since 1991).
Rodman L. Drake Director Director, Excelsior Fund
485 Park Avenue and Excelsior Tax-Exempt
New York, NY 10022 Fund (since 1996); Trustee,
Age: 54 and Excelsior Funds (since
1994); Director, Parsons
Brinkerhoff Energy Services,
Inc. (since 1996); Director,
Parsons Brinkerhoff, Inc.
(engineering firm) (since
1996); President, Mandrake
Group (investment and
consulting firm) (since 1994);
Director, Hyperion Total
Return Fund, Inc. and four
other funds for which Hyperion
Capital Management, Inc.
serves as investment adviser
(since 1991); Co-Chairman, KMR
Power Corporation (power
plants) (from 1993 to 1996);
Director, The Latin American
Growth Fund (since 1993);
Member of Advisory Board,
Argentina Private Equity
Fund
</TABLE>
- ----------
/1/ This director is considered to be an "interested person" of Excelsior Fund
as defined in the 1940 Act.
-20-
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ------------------------ -------------------------- ----------------------------
<S> <C> <C>
L.P. (from 1992 to 1996) and
Excelsior Institutional Trust
Garantia L.P. (Brazil) (from
1993 to 1996); and Director,
Mueller Industries, Inc. (from
1992 to 1994).
Joseph H. Dugan Director Retired; Director of
913 Franklin Lakes Road Excelsior Fund and Excelsior
Franklin Lakes, NJ 07417 Tax-Exempt (since 1984);
Age: 72 Director of UST Master
Variable Series, Inc.
(from 1994 to Juen 1997); Trustee of
Excelsior Institutional Trust (since
1995).
Wolfe J. Frankl Director Retired; Director of
2320 Cumberland Road Excelsior Fund and Excelsior
Charlottesville, VA 22901 Tax-Exempt (since 1986);
Age: 76 Director of UST Master
Variable Series, Inc. (from 1994 to
June 1997); 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 1988).
W. Wallace McDowell, Jr. Director Director, Excelsior Fund
c/o Prospect Capital and Excelsior Tax-Exempt
Corp. Fund (since 1996); Trustee,
43 Arch Street Excelsior Institutional Trust
Greenwich, CT 06830 and Excelsior Funds
Age: 60 (since 1994); Private Investor
(since 1994); Managing Director,
Morgan Lewis Githens & Ahn (from 1991
to 1994); and Director, U.S. Homecare
Corporation (since 1992), Grossmans,
Inc. (from 1993 to 1996), Children's
Discovery Centers (since 1984), ITI
Technologies, Inc. (since 1992) and
Jack Morton Productions (since 1987).
Jonathan Piel Director Director, Excelsior Fund and
558 E. 87th Street Excelsior Tax-Exempt Fund
New York, NY 10128 (since 1996); Trustee, Excelsior
Age: 58 Institutional Trust and
Excelsior Funds (since 1994);
President, Scientific American, Inc.
(from 1984 to 1986); Vice President and
Editor, Scientific American, Inc. (from
1986 to 1994); Director, Group for The
South Fork, Bridgehampton, New York
(since 1993); and Member, Advisory
</TABLE>
-21-
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ------------------------ -------------------------- ----------------------------
<S> <C> <C>
Committee, Knight Journalism
Fellowships, Massachusetts Institute of
Technology (since 1984).
Robert A. Robinson Director Director of Excelsior Fund
Church Pension Fund and Excelsior Tax-Exempt
800 Second Avenue (since 1997); Director of UST
New York, NY 10017 Master Variable Series, Inc.
Age: 71 (from 1994 to June 1997); Trustee of
Excelsior Institutional Trust (since
1995); President Emeritus, The Church
Pension Fund and its affiliated
companies (since 1966); 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).
Alfred C. Tannachion/1/ Director Retired; Director of
6549 Pine Meadows Drive Excelsior Fund and
Spring Hill, FL 34606 Excelsior Tax-Exempt
Age: 71 (since 1985); Chairman
of the Board, President and Treasurer
of UST Master Variable Series, Inc.
(from 1994 to June 1997); Trustee of
Excelsior Institutional Trust (since
1995).
W. Bruce McConnel, III Secretary Partner of the law firm of Drinker
Philadelphia National Biddle & Reath LLP.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age: 54
Gregory Sackos Assistant Second Vice President, Senior
Chase Global Funds Secretary Manager of Blue Sky Compliance
Services Company and Financial Reporting, Chase
73 Tremont Street Global Funds Reporting, Chase
Boston, MA 02108-3913 Global Funds Services Company
Age: 32 Company (from March 1997 to present);
Second Vice President, Senior
Manager of Financial Reporting, Chase
Global Funds
</TABLE>
- ----------
/1/ This director is considered to be an "interested person" of Excelsior Fund
as defined in the 1940 Act.
-22-
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ------------------------ -------------------------- ----------------------------
<S> <C> <C>
Services Company (from September 1996
to March 1997); Assistant Vice
President, Assistant Manager of
Financial Reporting, Scudder, Stevens &
Clark Inc. (October 1992 to September
1996).
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 (since July 1996);
Boston, MA 02108-3913 Second Vice President, Manager
Age: 32 of Administration, Chase Global
Funds Services Company (from October
1993 to 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 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 LLP, 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 ___, 1997, the directors and officers of Excelsior Fund as a
group owned beneficially less than 1% of the outstanding Shares of each fund of
Excelsior Fund, and less than 1% of the outstanding Shares of all funds of
Excelsior Fund 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.
-23-
<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 $13,500 None $31,750(4)**
Director
Rodman L. Drake*** $ 3,750 None $12,250(4)**
Director
Joseph H. Dugan $15,000 None $35,000(4)**
Director
Wolfe J. Frankl $15,000 None $35,000(4)**
Director
W. Wallace McDowell, Jr.*** $ 2,250 None $ 9,250(4)**
Director
Jonathan Piel*** $ 3,750 None $12,500(4)**
Director
Robert A. Robinson $15,000 None $35,000(4)**
Director
Alfred C. Tannachion**** $20,000 None $45,000(4)**
Director
Frederick S. Wonham**** $15,000 None $35,000(4)**
Chairman of the Board,
President and Treasurer
</TABLE>
- ----------
/*/ The "Fund Complex" consists of Excelsior Fund, Excelsior Tax-Exempt
Fund, 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.
/***/ Messrs. Drake, McDowell and Piel were elected to the Board of
Excelsior Fund and Excelsior Tax-Exempt Fund on December 9, 1996.
/****/ Mr. Tannachion served as Excelsior Fund's Chairman of the Board,
President and Treasurer until February 13, 1997. On that date Mr.
Wonham was elected to serve as Excelsior Fund's Chairman of the Board,
President and Treasurer.
-24-
<PAGE>
Investment Advisory and Administration Agreements
- -------------------------------------------------
United States Trust Company of New York ("U.S. Trust New York") and
U.S. Trust Company of Connecticut ("U.S. Trust Connecticut" and, collectively
with U.S. Trust New York, "U.S. Trust" or the "Investment Adviser") serve 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.
Prior to May 16, 1997, U.S. Trust New York served as investment
adviser to the Funds pursuant to an advisory agreement substantially similar to
the Investment Advisory Agreement currently in effect for the Funds.
For the fiscal year ended March 31, 1995, Excelsior Fund paid U.S.
Trust New York advisory fees of $79,570, $0, $68,122, $136,328, and $79,924 with
respect to the Productivity Enhancers, Environmentally-Related Products and
Services, Aging of America, Communication and Entertainment and Global
Competitors Funds, respectively. For the same period, U.S. Trust New York
waived advisory fees totalling $22,983, $26,278, $24,503, $17,130 and $15,637
with respect to the Productivity Enhancers, Environmentally-Related Products and
Services, Aging of America, Communication and Entertainment and Global
Competitors Funds, respectively.
For the fiscal year ended March 31, 1996, Excelsior Fund paid U.S.
Trust New York advisory fees of $147,036, $0, $185,180, $222,009 and $253,937
with respect to the Productivity Enhancers, Environmentally-Related Products and
Services, Aging of America, Communication and Entertainment and Global
Competitors Funds, respectively. For the same period, U.S. Trust New York
waived advisory fees totalling $11,813, $25,855, $15,937, $18,360 and $16,714
with respect to the Productivity Enhancers, Environmentally-Related Products and
Services, Aging of America, Communication and Entertainment and Global
Competitors Funds, respectively.
For the fiscal year ended March 31, 1997, Excelsior Fund paid U.S.
Trust New York advisory fees of $129,207, $17,407, $260,468, $265,750 and
$467,445 with respect to the Productivity Enhancers, Environmentally-Related
Products and Services, Aging of America, Communication and Entertainment and
Global Competitors Funds, respectively. For the same period, U.S. Trust New
York waived advisory fees totalling $24,184, $23,451, $21,988, $24,461 and
$36,378 with respect to the Productivity Enhancers, Environmentally-Related
Products and
-25-
<PAGE>
Services, Aging of America, Communication and Entertainment and Global
Competitors 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 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
Connecticut (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 May 16, 1997, CGFSC, Federated Administrative Services and
U.S. Trust New York served as the Funds' administrators pursuant to an
administrative agreement substantially similar to the Administration agreement
currently in effect for the Funds. 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, 1995, Excelsior Fund paid the
former administrators $26,357, $5,451, $24,003, $39,403, and $24,816 in the
aggregate with respect to the Productivity Enhancers, Environmentally-Related
Products and Services, Aging of America, Communication and Entertainment, and
Global Competitors Funds, respectively. For the same period, the former
administrators waived administration fees totalling $15,393, $36,299, $17,747,
$2,347 and $16,934 with respect to the
-26-
<PAGE>
Productivity Enhancers, Environmentally-Related Products and Services, Aging of
America, Communication and Entertainment and Global Competitors Funds,
respectively.
For the period April 1, 1995 through July 31, 1995, Excelsior Fund
paid the former administrators $11,203, $6,000, $13,476, $16,964, and $16,756 in
the aggregate with respect to the Productivity Enhancers, Environmentally-
Related Products and Services, Aging of America, Communication and Entertainment
and Global Competitors Funds, respectively. For the same period, the former
administrators waived administration fees totalling $10, $0, $13, $37, and $16
with respect to the Productivity Enhancers, Environmentally-Related Products and
Services, Aging of America, Communication and Entertainment and Global
Competitors Funds, respectively.
For the period August 1, 1995 through March 31, 1996, Excelsior Fund
paid CGFSC, Federated Administrative Services and U.S. Trust New York $29,686,
$6,494, $38,285, $44,871 and $52,911 in the aggregate with respect to the
Productivity Enhancers, Environmentally-Related Products and Services, Aging of
America, Communication and Entertainment and Global Competitors Funds,
respectively. For the same period, the Administrators waived administration
fees totalling $9,101, $37,506, $13, $16 and $7 with respect to the Productivity
Enhancers, Environmentally-Related Products and Services, Aging of America,
Communication and Entertainment and Global Competitors Funds, respectively.
For the fiscal year ended March 31, 1997, Excelsior Fund paid CGFSC,
Federated Administrative Services and U.S. Trust New York $39,258, $12,255,
$72,337, $74,244 and $129,073 in the aggregate with respect to the Productivity
Enhancers, Environmentally-Related Products and Services, Aging of America,
Communication and Entertainment and Global Competitors Funds, respectively. For
the same period CGFSC, Federated Administrative Services and U.S. Trust New York
waived administration fees totalling $7, $2, $43, $43 and $14 with respect to
the Productivity Enhancers, Environmentally-Related Products and Services, Aging
of America, Communication and Entertainment and Global Competitors 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
-27-
<PAGE>
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
selection and nomination of the members of Excelsior Fund's Board of Directors
who are not "interested persons" (as defined in the
-28-
<PAGE>
1940 Act) of Excelsior Fund will be committed to the discretion of such non-
interested Directors.
For the fiscal years ended March 31, 1997, 1996 and 1995, payments to
Service Organizations totalled $13,268, $11,169 and $4,525; $3,484, $4,404 and
$1,660; $21,988, $15,685 and $4,051; $24,461, $18,414 and $7,168; and $36,378,
$16,737 and $3,243 with respect to the Productivity Enhancers, Environmentally-
Related Products and Services, Aging of America, Communication and Entertainment
and Global Competitors Funds, respectively. Of these amounts, $13,268, $11,169
and $4,446; $3,484, $4,403 and $1,626; $21,968, $15,685 and $3,902; $24,409,
$18,385 and $6,707; and $36,376, $16,737 and $3,163 were paid to affiliates of
U.S. Trust with respect to the Productivity Enhancers, Environmentally-Related
Products and Services, Aging of America, Communication and Entertainment and
Global Competitors 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 shareholder
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.
Custodian and Transfer Agent
- ----------------------------
The Chase Manhattan Bank ("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 may, at its own expense, open and maintain custody
accounts with respect to the Funds with
-29-
<PAGE>
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 New York serves as the Funds' transfer agent and dividend
disbursing agent. In such capacity, U.S. Trust New York 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 its transfer agency, dividend disbursing, and
subaccounting services, U.S. Trust New York is entitled to receive $15.00 per
annum per account and subaccount. In addition, U.S. Trust New York 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 New York 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 New York 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 New York 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 New York. For the services
provided by CGFSC, U.S. Trust New York 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 New York 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 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
-30-
<PAGE>
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, 1995, March 31, 1996, and March
31, 1997, the Productivity Enhancers, Environmentally-Related Products and
Services, Aging of America, Communication and Entertainment and Global
Competitors Funds paid brokerage commissions aggregating $141,290, $353,788 and
$____; $16,669, $18,680 and $____; $28,296, $67,494 and $____; $50,724, $68,004
and $____; and $41,638, $79,458 and $____, 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
-31-
<PAGE>
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, 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.
To the extent that a Fund effects brokerage transactions with any
broker-dealer affiliated directly or indirectly with U.S. Trust, such
transactions, including the frequency thereof, the receipt of any commissions
payable in connection therewith, and the selection of the affiliated broker-
dealer effecting such transactions, will be fair and reasonable to the
shareholders of the Fund.
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, 1997, the following Funds held the following securities of
Excelsior Fund's regular brokers or dealers or their parents: _____________.
-32-
<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, 1997 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 LLP (of which Mr. McConnel, Secretary of
Excelsior Fund, is a partner), Philadelphia National Bank Building, 1345
Chestnut Street, 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
-33-
<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
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<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 = [(-----) /to the one divided by nth power - 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.
-35-
<PAGE>
Each Fund may also advertise the "aggregate total return" for its Service
Shares and Trust Shares which is computed 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, (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.
Based on the foregoing calculations, the total returns for the Service
Shares of the Productivity Enhancers, Environmentally-Related Products and
Services, Aging of America, Communication and Entertainment and Global
Competitors Funds for the one year period ended March 31, 1997 were 1.02%,
21.22%, 8.18%, 0.34% and 6.64%, respectively. The average annual total returns
for the Service Shares of the Productivity Enhancers, Environmentally-Related
Products and Services, Aging of America, Communication and Entertainment and
Global Competitors Funds for the period from December 31, 1992 (commencement of
operations) to March 31, 1997 were 10.21%, 7.17%, 10.68%, 12.94% and 13.18%,
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 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
-36-
<PAGE>
subtracting the initial value of the investment from the ending value and by
dividing the remainder by the beginning value.
The total return of Shares of a Fund may be compared to that 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, 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, advertisements, 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
-37-
<PAGE>
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 __, 1997, U.S. Trust and its affiliates held sole or shared
voting or investment power with respect to more than 50% of Excelsior Fund's
outstanding shares on behalf of their customers.
As of July __, 1997, 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 audited financial statements and notes thereto in Excelsior Fund's
Annual Report to Shareholders for the fiscal year ended March 31, 1997 (the
"1997 Annual Report") for the domestic equity portfolios are incorporated in
this Statement of Additional Information by reference. No other parts of the
1997 Annual Report are incorporated by reference herein. The financial
statements included in the 1997 Annual Report for the Funds have been audited by
Excelsior Fund's independent auditors, Ernst & Young LLP, whose reports thereon
also appear in the 1997 Annual Report and are incorporated herein by reference.
Such financial statements 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 1997 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.
-38-
<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" - The highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
"A-3" - Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
"B" - Issues are regarded as having only a speculative capacity for
timely payment.
"C" - This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
"D" - Issues are 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" - Issuers or related supporting institutions 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" - Issuers or related supporting institutions 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" - Issuers 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" - Issuers do 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" ratings.
"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 are 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 good 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 that 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 other 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 below
"AAA" 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.
International Fund
Latin America Fund
Pacific/Asia Fund
Pan European Fund
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1997
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current prospectus for the International, Latin America
(formerly, "Emerging Americas"), Pacific/Asia and Pan European Funds (each a
"Fund" and collectively the "Funds") of Excelsior Funds, Inc. ("Excelsior Fund")
dated August 1, 1997 (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 Funds described herein
(collectively, the "Shares") should be made without reading the Prospectus. 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 1
Other Investment Considerations 1
Additional Information on Portfolio Instruments 2
Additional Investment Limitations 9
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION 11
INVESTOR PROGRAMS 13
Systematic Withdrawal Plan 13
Exchange Privilege 14
Other Investor Programs 14
DESCRIPTION OF CAPITAL STOCK 14
MANAGEMENT OF THE FUNDS 16
Directors and Officers 16
Investment Advisory and
Administration Agreements 22
Service Organizations 24
Expenses 26
Custodian and Transfer Agent 26
PORTFOLIO TRANSACTIONS 27
INDEPENDENT AUDITORS 30
COUNSEL 30
ADDITIONAL INFORMATION CONCERNING TAXES 30
Generally 30
Taxation of Certain Financial Instruments 32
PERFORMANCE INFORMATION 34
MISCELLANEOUS 38
FINANCIAL STATEMENTS 38
APPENDIX A-1
(i)
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
----------------------------------
The following policies and discussions supplement the Funds'
investment objectives and policies as set forth in the Prospectus.
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 New York") and U.S. Trust Company of Connecticut ("U.S.
Trust Connecticut" and, collectively, with U.S. Trust New York, the "Investment
Adviser" or "U.S. Trust") 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 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
<PAGE>
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 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
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 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 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 result in losses in excess of the amount invested in the
contract.
-5-
<PAGE>
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 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
-6-
<PAGE>
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.
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
-7-
<PAGE>
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 Latin America 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 repayment of principal at maturity (these uncollateralized
amounts constituting the "residual risk").
Miscellaneous
- -------------
-8-
<PAGE>
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 Prospectus). 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 Latin
America, 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 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
-9-
<PAGE>
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 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
-10-
<PAGE>
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.
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.
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 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 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 at their net asset value per
Share next computed after a purchase order is received by Excelsior Fund's sub-
transfer agent.
Prior to March 1, 1997, Shares of the Funds were offered for sale with
a maximum sales charge of 4.50%. No sales charges were imposed in connection
with sales of Shares of the International Fund during the fiscal years ended
March 31, 1997 and 1996. For the fiscal year ended March 31, 1995, total sales
charges paid by shareholders of the International Fund were $4,219. Of this
amount, UST Distributors, Inc., the Funds' former distributor, retained $4.
-11-
<PAGE>
Total sales charges paid by shareholders of the Latin America,
Pacific/Asia and Pan European Funds for the fiscal years ended March 31, 1997,
1996 and 1995 were $528, $698 and $8,465; $3,715, $333 and $144; and $550, $99
and $183, respectively. Of these respective amounts, UST Distributors, Inc.,
the Funds' former distributor, retained $203 and $1,403 with respect to the
Latin America Fund; $9 and $69 with respect to the Pacific/Asia Fund; and $1 and
$11 with respect to the Pan European Fund for the period April 1, 1995 through
July 31, 1995, and the fiscal year ended March 31, 1995. The Distributor
retained none of the foregoing sales charges with respect to the Latin America,
Pacific/Asia and Pan European Funds for the period August 1, 1995 through March
31, 1996, and the fiscal year ended March 31, 1997. 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 (the
"SEC"); (b) the Exchange is closed for other than customary weekend and holiday
closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC.
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
-12-
<PAGE>
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;
(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.
-13-
<PAGE>
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 Funds, Inc. ("Excelsior Tax-Exempt Fund"
and, collectively with Excelsior 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
year. The Companies and Excelsior Institutional Trust 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 effected an
exchange of Shares for shares of another portfolio of the Companies within 90
days of the purchase and was able to reduce the sales load previously 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 Prospectus, 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
-14-
<PAGE>
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 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.
-15-
<PAGE>
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, 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 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:
Position Principal Occupation
with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ------------------------ -------------------------- --------------------------
Frederick S. Wonham/1/ Chairman of the Retired; Director of
- ----------
/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 During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ------------------------ -------------------------- --------------------------
<S> <C> <C>
238 June Road Board, President Excelsior Fund and Excelsior
Stamford, CT 06903 and Treasurer Tax-Exempt (since 1995);
Age: 66 Trustee of Excelsior Funds and
Excelsior Institutional Trust
(since 1995); Vice Chairman of U.S.
Trust Corporation and U.S. Trust
Company of New York (from February 1990
until September 1995); Chairman, U.S.
Trust Company of Connecticut (from
March 1993 to May 1997).
Donald L. Campbell Director Retired; Director of
333 East 69th Street Excelsior Fund and Excelsior Apt. 10-H
Tax-Exempt (since 1984); Director of UST Master
New York, NY 10021 Variable Series, Inc.
Age: 71 (from 1994 to June 1997); Trustee of
Excelsior Institutional Trust (since
1995); Director, Royal Life Insurance
Co. of New York (since 1991).
Rodman L. Drake Director Director, Excelsior Fund
485 Park Avenue and Excelsior Tax-Exempt
New York, NY 10022 Fund (since 1996); Trustee,
Age: 54 Excelsior Institutional
Trust and Excelsior Funds
(since 1994); Director,
Parsons Brinkerhoff, Inc. (engineering
firm) (since 1995); Director, Parsons
Brinkeroff Energy Services, Inc. (since
1996); President, Mandrake Group
(investment and consulting firm) (since
1994); Director, Hyperion Total Return
Fund, Inc. and four other funds for
which Hyperion Capital Management, Inc.
serves as investment adviser (since
1991); Co-Chairman, KMR Power
Corporation (power plants) (from 1993
to 1996); Director, The Latin American
Growth Fund (since 1993); Member of
Advisory Board, Argentina Private
Equity Fund L.P. (from 1992 to 1996)
and Garantia L.P. (Brazil) (from 1993
to 1996); and Director, Mueller
Industries, Inc. (from 1992 to 1994).
</TABLE>
-17-
<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
913 Franklin Lakes Road Excelsior Fund and
Franklin Lakes, NJ 07417 Excelsior Tax-Exempt (since 1984);
Age: 72 Director of UST Master
Variable Series, Inc.
(from 1994 to June 1997); Trustee of
Excelsior Institutional Trust (since
1995).
Wolfe J. Frankl Director Retired; Director of
2320 Cumberland Road Excelsior Fund and Excelsior
Charlottesville, VA 22901 Tax-Exempt (since 1986);
Age: 76 Director of UST Master
Variable Series, Inc. (from 1994 to
June 1997); 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 1988).
W. Wallace McDowell, Jr. Director Director, Excelsior Fund
c/o Prospect Capital and Excelsior Tax-Exempt
Corp. Fund (since 1996); Trustee,
43 Arch Street Excelsior Institutional Trust
Greenwich, CT 06830 and Excelsior Funds
Age: 60 (since 1994); Private Investor
(since 1994); Managing Director,
Morgan Lewis Githens & Ahn (from 1991
to 1994); and Director, U.S. Homecare
Corporation (since 1992), Grossmans,
Inc. (from 1993 to 1996), Children's
Discovery Centers (since 1984), ITI
Technologies, Inc. (since 1992) and
Jack Morton Productions (since 1987).
Jonathan Piel Director Director, Excelsior Fund and
558 E. 87th Street Excelsior Tax-Exempt Fund
New York, NY 10128 (since 1996); Trustee, Excelsior
Age: 58 Institutional Trust and
Excelsior Funds (since 1994);
President, Scientific American, Inc.
(from 1984 to 1986); Vice President and
Editor, Scientific American, Inc. (from
1986 to 1994); Director, Group for The
South Fork, Bridgehampton, New York
(since 1993); and Member, Advisory
Committee, Knight Journalism
Fellowships, Massachusetts Institute of
Technology (since 1984).
</TABLE>
-18-
<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 Fund
Church Pension Fund and Excelsior Tax-Exempt
800 Second Avenue (since 1997); Director of UST
New York, NY 10017 Master Variable Series, Inc.
Age: 71 (since 1994); Trustee of
Excelsior Institutional Trust (since
1995); President Emeritus, The Church
Pension Fund and its affiliated
companies (since 1966); 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).
Alfred C. Tannachion/1/ Director Retired; Director of
6549 Pine Meadows Drive Excelsior Fund and
Spring Hill, FL 34606 Excelsior Tax-Exempt
Age: 71 (since 1985); Chairman
of the Board, President and Treasurer
of UST Master Variable Series, Inc.
(from 1994 to June 1997); Trustee of
Excelsior Institutional Trust (since
1995).
W. Bruce McConnel, III Secretary Partner of the law firm of Drinker
Philadelphia National Biddle & Reath LLP.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age: 54
Gregory Sackos Assistant Second Vice President, Senior
Chase Global Funds Secretary Manager of Blue Sky Compliance
Services Company and Financial Reporting, Chase
73 Tremont Street Global Funds Services Company
Boston, MA 02108-3913 (March 1997 to present); Second
Age: 32 Vice President, Senior Manager
of Financial Reporting, Chase
Global Funds Services Company
(September 1996 to March 1997);
</TABLE>
- ----------
/1/ This director is considered to be an "interested person" of Excelsior Fund
as defined in the 1940 Act.
-19-
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ------------------------ -------------------------- --------------------------
<S> <C> <C>
Assistant Vice President,
Assistant Manager of Financial
Reporting, Scudder, Stevens &
Clark Inc. (October 1992 to
September 1996).
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 (since July 1996);
Boston, MA 02108-3913 Second Vice President, Manager
Age: 32 of Administration, Chase Global
Funds Services Company (from October
1993 to 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 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 LLP, 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 ___, 1997, the directors and officers of Excelsior Fund as a
group owned beneficially less than 1% of the outstanding Shares of each fund of
Excelsior Fund, and less than 1% of the outstanding Shares of all funds of
Excelsior Fund 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.
-20-
<PAGE>
<TABLE>
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 $13,500 None $31,750 (4)**
Director
Rodman L. Drake*** $ 3,750 None $12,250 (4)**
Director
Joseph H. Dugan $15,000 None $35,000 (4)**
Director
Wolfe J. Frankl $15,000 None $35,000 (4)**
Director
W. Wallace McDowell, Jr.*** $ 2,250 None $ 9,250 (4)**
Director
Jonathan Piel*** $ 3,750 None $12,500 (4)**
Director
Robert A. Robinson $15,000 None $35,000 (4)**
Director
Alfred C. Tannachion**** $20,000 None $45,000 (4)**
Director
Frederick S. Wonham**** $15,000 None $35,000 (4)**
Chairman of the Board,
President and Treasurer
</TABLE>
- ---------------------------
/*/ The "Fund Complex" consists of Excelsior Fund, Excelsior Tax-Exempt
Fund, 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.
/***/ Messrs. Drake, McDowell and Piel were elected to the Board of
Excelsior Fund and Excelsior Tax-Exempt Fund on December 9, 1996.
/****/ Mr. Tannachion served as Excelsior Fund's Chairman of the Board,
President and Treasurer until February 13, 1997. On that date Mr.
Wonham was elected to serve as Excelsior Fund's Chairman of the Board,
President and Treasurer.
-21-
<PAGE>
Investment Advisory and Administration Agreements
- -------------------------------------------------
United States Trust Company of New York ("U.S. Trust New York") and
U.S. Trust Company of Connecticut ("U.S. Trust Connecticut" and, collectively
with U.S. Trust New York, "U.S. Trust" or the "Investment Adviser") serve as
Investment Adviser to the Funds. In the Investment Advisory Agreements, the
Investment Adviser 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 agreements other than the cost
of securities, including brokerage commissions, purchased for the Funds.
Prior to May 16, 1997, U.S. Trust New York served as investment
adviser to the Funds pursuant to advisory agreements substantially similar to
the Investment Advisory Agreements currently in effect for the Funds. Prior to
November 1, 1996, Foreign and Colonial Asset Management ("FACAM") served as sub-
adviser to the International and Pan European Funds, and Foreign & Colonial
Emerging Markets Ltd. ("FCEML") served as sub-adviser to the Latin America and
Pacific/Asia Funds.
For the fiscal year ended March 31, 1995, Excelsior Fund paid U.S.
Trust New York advisory fees of $574,455, $368,128, $480,194, and $375,873 with
respect to the International, Latin America, Pacific/Asia and Pan European
Funds, respectively. For the same period, U.S. Trust New York waived advisory
fees totalling $37,822, $28,097, $27,189 and $22,473, with respect to the
International, Latin America, Pacific/Asia and Pan European Funds, respectively.
For the fiscal year ended March 31, 1995, FACAM received sub-advisory fees from
U.S. Trust New York with respect to the International and Pan European Funds
totalling $428,594 and $278,842, respectively, and FCEML received sub-advisory
fees from U.S. Trust New York with respect to the Latin America and Pacific/Asia
Funds totalling $196,098 and $355,168, respectively.
For the fiscal year ended March 31, 1996, Excelsior Fund paid U.S.
Trust New York advisory fees of $733,456, $326,552, $536,350 and $405,582 with
respect to the International, Latin America, Pacific/Asia, and Pan European
Funds, respectively. For the same period, U.S. Trust New York waived advisory
fees totalling $79,560, $29,512, $45,970 and $40,033 with respect to the
International, Latin America, Pacific/Asia and Pan European Funds, respectively.
For the fiscal year ended March 31, 1996, FACAM received sub-advisory fees from
U.S. Trust New York with respect to the International and Pan European Funds
totalling $402,062 and $263,111, respectively, and FCEML received sub-advisory
fees from U.S. Trust New York with respect to the Latin America and Pacific/Asia
Funds totalling $182,039 and $336,130, respectively.
-22-
<PAGE>
For the fiscal year ended March 31, 1997, Excelsior Fund paid U.S.
Trust New York advisory fees of $999,833, $494,539, $796,280 and $620,988 with
respect to the International, Latin America, Pacific/Asia and Pan European
Funds, respectively. For the same period, U.S. Trust New York waived advisory
fees totalling $87,156, $42,840, $65,538 and $48,946 with respect to the
International, Latin America, Pacific/Asia and Pan European Funds, respectively.
For the period from April 1, 1996 to October 31, 1996, FACAM received sub-
advisory fees from U.S. Trust New York with respect to the International and Pan
European Funds totalling $293,566 and $126,440, respectively, and FCEML received
sub-advisory fees from U.S. Trust New York with respect to the Latin America and
Pacific/Asia Funds totalling $65,708 and $168,214, 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 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 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
Connecticut (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 SEC, 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 May 16, 1997, CGFSC, Federated Administrative Services and
U.S. trust New York served as the Funds'
-23-
<PAGE>
administrators pursuant to an administrative agreement
substantially similar to the Administration Agreement currently in effect for
the Funds. 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, 1995, Excelsior Fund paid the
former administrators $122,374, $78,418, $101,468 and $79,669 in the aggregate
with respect to the International, Latin America, 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, Latin America 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, Latin America, 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,
Latin America, Pacific/Asia and Pan European Funds, respectively.
For the period August 1, 1995 through March 31, 1996, Excelsior Fund
paid CGFSC, Federated Administrative Services and U.S. Trust New York $115,390,
$49,315, $82,681 and $60,758 in the aggregate with respect to the International,
Latin America, Pacific/Asia and Pan European Funds, respectively. For the same
period, CGFSC, Federated Administrative Services and U.S. Trust New York waived
fees totalling $84, $32, $17 and $4 with respect to the International, Latin
America, Pacific/Asia and Pan European Funds, respectively.
For the fiscal year ended March 31, 1997, Excelsior Fund paid CGFSC,
Federated Administrative Services and U.S. Trust New York $332,793, $156,791,
$255,045 and $233,122 in the aggregate with respect to the International, Latin
America, Pacific/Asia and Pan European Funds, respectively. For the same
period, CGFSC, Federated Administrative Services and U.S. Trust New York waived
fees totalling $131, $90, $85 and $5 with respect to the International, Latin
America, Pacific/Asia and Pan European Funds, respectively.
Service Organizations
- ---------------------
As stated in the Prospectus, 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
-24-
<PAGE>
(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 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
-25-
<PAGE>
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, 1997, 1996 and 1995, payments to
Service Organizations totalled $87,203, $79,843 and $37,903; $42,989, $29,595
and $24,089; $65,606, $46,251 and $27,198; and $48,947, $40,127 and $22,473 with
respect to the International, Latin America, Pacific/Asia and Pan European
Funds, respectively. Of these amounts, $87,203, $79,843 and $36,955; $42,877,
$29,594 and $23,712; $65,398, $46,251 and $26,836; and $48,947, $40,127 and
$22,338 were paid to affiliates of U.S. Trust with respect to the International,
Latin America, Pacific/Asia and Pan European Funds, respectively.
Expenses
- --------
Except as otherwise noted, the Investment Adviser 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); SEC
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.
Custodian and Transfer Agent
- ----------------------------
The Chase Manhattan Bank ("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 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.
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<PAGE>
U.S. Trust New York also serves as the Funds' transfer agent and
dividend disbursing agent. In such capacity, U.S. Trust New York 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 New York is entitled
to receive $15.00 per annum per account and subaccount. In addition, U.S. Trust
New York 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 New York 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 New York 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 New York 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 New York. For the services
provided by CGFSC, U.S. Trust New York 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.
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 portfolio securities for 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 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' Prospectus for the Funds' portfolio
turnover rates.
-27-
<PAGE>
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, 1995, March 31, 1996 and March 31,
1997, the International Fund paid brokerage commissions aggregating $234,115,
$218,421 and $396,525, respectively. For the fiscal years ended March 31, 1995,
1996 and 1997, the Latin America, Pacific/Asia and Pan European Funds paid
brokerage commissions aggregating $200,467, $153,428 and $254,681; $300,058,
$234,659 and $700,865; and $88,275, $81,250 and $296,765, 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 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 Excelsior Fund,
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
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 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
-28-
<PAGE>
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 and does not
reduce the investment advisory fees payable by the Funds. Such information may
be useful to U.S. Trust 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 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 any of them (as
such term is defined in the 1940 Act) acting as principal, except to the extent
permitted by the SEC.
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. 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 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 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.
To the extent that a Fund effects brokerage transactions with any
broker-dealer affiliated directly or indirectly with such transactions,
including the frequency thereof, the receipt of any commissions payable in
connection therewith, and the selection of the affiliated broker-dealer
effecting such transactions, will be fair and reasonable to the shareholders of
the Fund.
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, 1997, the
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<PAGE>
Funds held the following securities of Excelsior 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 Excelsior Fund. The Funds' Financial Highlights
included in the Prospectus and the financial statements for the period ended
March 31, 1997 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 LLP (of which Mr. McConnel, Secretary of
Excelsior Fund, is a partner), 1345 Chestnut Street, Philadelphia, Pennsylvania
19107, is counsel to Excelsior Fund 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 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.
-30-
<PAGE>
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 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
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<PAGE>
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."
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
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<PAGE>
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.
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
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<PAGE>
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 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:
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<PAGE>
ERV
T = [(-----) to the first power divided by n - 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 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, (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.
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,
1997, for the five-year period ended March 31, 1997, and for the period from
July 21, 1987 (commencement of operations) to March 31, 1997 were 6.78%, 8.65%,
and 6.14%, respectively. The average annual total returns for the Shares of the
Latin America, Pacific/Asia and Pan European Funds for the one year period ended
March 31, 1997 and for the period from December 31, 1992 (commencement of
operations) to March 31, 1997 were 29.09% and 10.64%; -4.80% and 11.06%; and
23.76% and 14.25%, respectively.
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<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, 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.
The total return of Shares of a Fund may be compared to that 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.
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<PAGE>
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, advertisements, 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.
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<PAGE>
MISCELLANEOUS
-------------
As used in the Prospectus, "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 __, 1997, U.S. Trust and its affiliates held sole or shared
voting or investment power with respect to more than 50% of Excelsior Fund's
outstanding shares on behalf of their customers.
As of July __, 1997, 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 audited financial statements and notes thereto in Excelsior Fund's
Annual Report to Shareholders for the fiscal year ended March 31, 1997 (the
"1997 Annual Report") for the international equity portfolios are incorporated
in this Statement of Additional Information by reference. No other parts of the
1997 Annual Report are incorporated by reference herein. The financial
statements included in the 1997 Annual Report for the Funds have been audited by
Excelsior Fund's independent auditors, Ernst & Young LLP, whose reports thereon
also appear in the 1997 Annual Report and are incorporated herein by reference.
Such financial statements 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 1997 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.
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<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" - The highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
"A-3" - Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
"B" - Issues are regarded as having only a speculative capacity for
timely payment.
"C" - This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
"D" - Issues are 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" - Issuers or related supporting institutions 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" - Issuers or related supporting institutions 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" - Issuers 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" - Issuers do 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" ratings.
"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 are 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 good 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 that 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 other 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 below
"AAA" 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:
Audited Financial Highlights for the Registrant's
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,
1997; 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, 1997; Aging of America Fund, Value and
Restructuring Fund, Communication & Entertainment Fund,
Small Cap 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 Latin America 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, 1997; and for the Money,
Government Money, Managed Income, Blended Equity and
Income and Growth Funds for the fiscal years ended
March 31, 1988 through March 31, 1997.
(2) Incorporated by reference into Part B are the following
audited financial statements:
i) With respect to the Money, Government Money,
Treasury Money, Short-Term Government
Securities, Intermediate-Term Managed Income
and Managed Income Funds:
. Statements of Assets and Liabilities as
of March 31, 1997;
. Statements of Operations for the year
ended March 31, 1997;
<PAGE>
. Statements of Changes in Net Assets for
the year ended March 31, 1997;
. Portfolio of Investments as of March
31, 1997;
. Notes to Financial Statements; and
. Report of Independent Auditors for the
fiscal year ended March 31, 1997.
ii) With respect to the Blended Equity, Income
and Growth, Aging of America, Value and
Restructuring, Communication and
Entertainment, Small Cap, Environmentally-
Related Products and Services, Long-Term
Supply of Energy, Global Competitors and
Productivity Enhancers Funds:
. Statements of Assets and Liabilities as
of March 31, 1997;
. Statements of Operations for the year
ended March 31, 1997;
. Statements of Changes in Net Assets for
the year ended March 31, 1997;
. Portfolio of Investments as of March
31, 1997;
. Notes to Financial Statements; and
. Report of Independent Auditors for the
fiscal year ended March 31, 1997.
iii) With respect to the International,
Pacific/Asia, Pan European and Latin America
Funds:
. Statements of Assets and Liabilities as
of March 31, 1997;
. Statements of Operations for the year
ended March 31, 1997;
. Statements of Changes in Net Assets for
the year ended March 31, 1997;
. Portfolio of Investments as of March
31, 1997;
. Notes to Financial Statements; and
<PAGE>
. Report of Independent Auditors for the
fiscal year ended March 31, 1997.
(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 dated January
29, 1991 (13).
(h) Articles Supplementary of Registrant dated December
24, 1992 (16).
(i) Articles Supplementary of Registrant dated August
31, 1995 (20).
(j) Articles Supplementary of Registrant dated December
28, 1995 (20).
(2) (a) By-Laws of Registrant dated August 6, 1984.
(1).
(b) Amendment No. 1 to By-Laws of Registrant dated
April 28, 1986. (3).
(c) Amendment No. 2 to By-Laws of Registrant dated
July 31, 1987. (22).
(d) Amendment No. 3 to By-Laws of Registrant dated May
16, 1997. (22).
(3) None.
(4) (a) Articles VI, VII, VIII and X of Registrant's
Articles of Incorporation dated August 7, 1984 are incorporated
herein by reference to Exhibit 1(a) of Registrant's Registration
Statement on Form N-1A filed on August 8, 1984;
(b) Articles I, II, IV and VI of Registrant's By-Laws
are incorporated herein by reference to Exhibit 2(a) of
Registrant's Registration Statement on Form N-1A filed on August
8, 1984.
(5) (a) Investment Advisory Agreement among Registrant,
U.S. Trust Company of Connecticut and United States Trust Company
of New York dated May 16, 1997 with respect to the Money Fund,
Government Money Fund, Blended
-3-
<PAGE>
Equity Fund, Small Cap Fund, Long-Term Supply of Energy Fund,
Productivity Enhancers Fund, Environmentally-Related Products and
Services Fund, Aging of America Fund, Communication and
Entertainment Fund, Value and Restructuring Fund, Global
Competitors Fund, Latin America Fund, Pacific/Asia Fund, Pan
European Fund, Short-Term Government Securities Fund and
Intermediate-Term Managed Income Fund (24).
(b) Investment Advisory Agreement among Registrant,
U.S. Trust Company of Connecticut and United States Trust Company
of New York dated May 16, 1997 with respect to the Managed Income
Fund (24).
(c) Investment Advisory Agreement among Registrant,
U.S. Trust Company of Connecticut and United States Trust Company
of New York dated May 16, 1997 with respect to the Income and
Growth Fund (24).
(d) Investment Advisory Agreement among Registrant,
U.S. Trust Company of Connecticut and United States Trust Company
of New York dated May 16, 1997 with respect to the International
Fund (24).
(e) Investment Advisory Agreement among
Registrant, U.S. Trust Company of Connecticut and United States Trust
Company of New York dated May 16, 1997 with respect to the Treasury Money
Fund (24).
(6) Distribution Contract dated August 1, 1995 between
Registrant and Edgewood Services, Inc. (20).
(7) None.
(8) Form of Custody Agreement between Registrant and The
Chase Manhattan Bank dated September 1, 1995 (20).
(9) (a) Amended and Restated Administrative Services Plan
and Related Form of Shareholder Servicing Agreement (20).
(b) Administration Agreement dated May 16, 1997 among
Registrant, Chase Global Funds Services Company, Federated
Administrative Services and U.S. Trust Company of Connecticut
(24).
(c) Form of Mutual Funds Transfer Agency
Agreement dated as of September 1, 1995 between Registrant and United
States Trust Company of New York (24).
(d) Form of Mutual Funds Sub-Transfer Agency
Agreement dated as of September 1, 1995 between United States Trust
Company of New York and Chase Global Funds Services Company (24).
(10) Opinion of counsel/1/.
(11) (a) Consent of Drinker Biddle & Reath LLP (24).
(b) Consent of Ernst & Young LLP (24).
- -------------------
/1/ Filed with the SEC as part of Registrant's Rule 24f-2 Notice.
-4-
<PAGE>
(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 (20).
(14) None.
(15) Amended and Restated Distribution Plan and Related Form
of Distribution Agreement (21).
(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, 1997 for
the Money Fund (24).
(b) Financial Data Schedule as of March 31, 1997 for
the Government Money Fund (24).
(c) Financial Data Schedule as of March 31, 1997 for
the Blended Equity Fund (24).
(d) Financial Data Schedule as of March 31, 1997 for
the Managed Income Fund (24).
(e) Financial Data Schedule as of March 31, 1997 for
the Income and Growth Fund (24).
(f) Financial Data Schedule as of March 31, 1997 for
the International Fund (24).
(g) Financial Data Schedule as of March 31, 1997 for
the Treasury Money Fund (24).
(h) Financial Data Schedule as of March 31, 1997 for
the Small Cap Fund (24).
(i) Financial Data Schedule as of March 31, 1997 for
the Productivity Enhancers Fund (24).
(j) Financial Data Schedule as of March 31, 1997 for
the Environmentally-Related Products and Services
Fund (24).
(k) Financial Data Schedule as of March 31, 1997 for
the Aging of America Fund (24).
(l) Financial Data Schedule as of March 31, 1997 for
the Communication and Entertainment Fund (24).
(m) Financial Data Schedule as of March 31, 1997 for
the Value and Restructuring Fund (24).
-5-
<PAGE>
(n) Financial Data Schedule as of March 31, 1997 for
the Global Competitors Fund (24).
(o) Financial Data Schedule as of March 31, 1997 for
the Latin America Fund (24).
(p) Financial Data Schedule as of March 31, 1997 for
the Pacific/Asia Fund (24).
(q) Financial Data Schedule as of March 31, 1997 for
the Pan European Fund (24).
(r) Financial Data Schedule as of March 31, 1997 for
the Short-Term Government Securities Fund (24).
(s) Financial Data Schedule as of March 31, 1997 for
the Intermediate-Term Managed Income Fund (24).
(t) Financial Data Schedule as of March 31, 1997 for
the Long-Term Supply of Energy Fund (24).
(18) Amended and Restated Plan Pursuant to Rule 18f-3 for
Operation of a Multi-Class System (22).
(24) Registrant's Annual Report dated March 31, 1997 is
incorporated herein by reference to Registrant's filing including such
Annual Report and filed with the Securities and Exchange Commission on
June 10, 1997 (Accession Nos. 0000927016-97-001663 and 0000927016-97-
001664); and on June 5, 1997 (Accession No. 0000950109-97-004459.
Notes:
- -----
(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.
(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.
-6-
<PAGE>
(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 Post-Effective Amendment
No. 9 to its Registration Statements on Form N-1A filed March 12, 1990.
(11) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 10 to its Registration Statement on Form N-1A filed July 27, 1990.
(12) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 11 to its Registration Statement on Form N-1A filed December 7, 1990.
(13) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 12 to its Registration Statement on Form N-1A filed May 31, 1991.
(14) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 13 to its Registrant Statement 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.
(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.
(20) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 23 to its Registration Statement on Form N-1A filed July 31, 1996.
(21) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 24 to its Registration Statement on Form N-1A filed May 15, 1997.
(22) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 26 to its Registration Statement on Form N-1A filed July 3, 1997.
(23) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 27 to its Registration Statement on Form N-1A filed July 14, 1997.
(24) Filed herewith.
-7-
<PAGE>
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 14, 1997:
Title of Class Number of Record Holders
-------------- ------------------------
<TABLE>
<CAPTION>
<S> <C>
Class A Common Stock 497
Class B Common Stock 1063
Class C Common Stock 99
Class C Common Stock -
Special Series 1 0
----
Class D Common Stock 1422
Class E Common Stock 2617
Class F Common Stock 2846
Class G Common Stock 811
Class H Common Stock 2080
Class H Common Stock -
Special Series 1 0
----
Class I Common Stock 1766
Class J Common Stock 867
Class K Common Stock 633
Class L Common Stock 1355
Class L Common Stock -
Special Series 1 0
----
Class M Common Stock 1255
Class M Common Stock -
Special Series 1 0
----
Class N Common Stock 3093
Class N Common Stock -
Special Series 1 0
----
Class O Common Stock 1763
Class O Common Stock -
Special Series 1 0
----
Class P Common Stock 3366
Class Q Common Stock 3433
Class R Common Stock 3351
Class S Common Stock 460
Class T Common Stock 994
</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 Exhibit (2)(a) hereto, provide
for the indemnification of Registrant's directors and officers. Indemnification
of Registrant's principal underwriter, custodian, transfer agent and co-
administrators is provided for, respectively, in Section 1.11 of the
Distribution Contract incorporated by reference as Exhibit (6) hereto, Section
12 of the Custody Agreement incorporated by reference as Exhibit (8) hereto,
Section 7 of the Mutual Funds Transfer Agency Agreement incorporated by
reference as Exhibit 9(c), and Section 6 of the Administration Agreement
incorporated by reference as Exhibit 9(b) 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
-8-
<PAGE>
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.
Insofar as indemnification for liability arising under the Secu rities
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) U.S Trust Company of Connecticut
U.S. Trust Company of Connecticut ("U.S. Trust CT") is a Connecticut
State Bank and Trust Company. Set forth below are the names and principal
businesses of the trustees and certain senior executive officers of the U.S.
Trust Connecticut, including those who are engaged in any other business,
profession, vocation or employment of a substantial nature.
<TABLE>
<CAPTION>
Position
with U.S. Principal Type of
Trust CT Name Occupation Business
- ------------- -------------------- ----------------- ------------------
<S> <C> <C> <C>
Director John N. Irwin Lawyer
1133 Avenue of the
Americas
New York, NY 10035
Director June Noble Larkin Foundation Not-for-Profit
Edward John Noble Director Organization
Foundation, Inc.
32 East 57th Street
New York, NY 10022
Director Tucker H. Warner Co-Founder, Consulting Firm
The Nutmeg Financial Partner &
Group, LLC Director
1157 Highland Avenue
West
Cheshire, CT 06903
Director Thomas C. Clark UST-NY Asset Management,
United States Trust Managing Director Investment and
Company of New York Fiduciary Services
11 West 54th Street
New York, NY 10019
Director Maribeth S. Rahe UST-NY Asset Management,
United States Trust Vice Chairman Investment and
Company of New York Fiduciary Services
114 West 47th Street
New York, NY 10036
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
Position
with U.S. Principal Type of
Trust CT Name Occupation Business
- ------------- -------------------- ----------------- ------------------
<S> <C> <C> <C>
Director Frederick B. Taylor UST-NY Asset Management,
United States Trust Vice Chairman Investment and
Company of New York Fiduciary Services
114 West 47th Street
New York, NY 10036
Director Kenneth G. Walsh United States Asset Management,
United States Trust Trust Company Investment and
Company of New York of New York Fiduciary Services
114 West 47th Street Executive Vice
New York, NY 10036 President
Director, William V. Ferdinand Managing Director Asset Management,
Managing U.S. Trust Company & CIO Fiduciary Services
Director & of Connecticut & Private Banking
CIO 225 High Ridge Road
Stamford, CT 06905
Director, W. Michael Funck President & CEO Asset Management,
President & U.S. Trust Company Fiduciary Services
CEO of Connecticut & Private Banking
225 High Ridge Road
Stamford, CT 06905
Vice Presi- Neil M. McDonnell Vice President & Asset Management,
dent & U.S. Trust Company Treasurer Fiduciary Services
Treasurer of Connecticut & Private Banking
225 High Ridge Road
Stamford, CT 06905
Vice Presi- Alberto Rodriguez Vice President & Asset Management,
dent & U.S. Trust Company Secretary Fiduciary Services
Secretary of Connecticut & Private Banking
225 High Ridge Road
Stamford, CT 06905
</TABLE>
(b) United States Trust Company of New York.
United States Trust Company of New York ("U.S. Trust NY") 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 NY, including those who are engaged in any other
business, profession, vocation, or employment of a substantial nature.
-10-
<PAGE>
<TABLE>
<CAPTION>
Position
with U.S. Principal Type of
Trust NY Name Occupation Business
- --------------- ----------------------- ---------------------- ------------------
<S> <C> <C> <C>
Director Eleanor Baum Dean of School Academic
The Cooper Union for of Engineering
the Advancement
of Science & 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 LLP & Tyler
1133 Avenue of the
Americas
New York, NY 10036
Director, H. Marshall Schwarz Chairman of the Asset Management,
Chairman United States Trust Board & Chief Exe- Investment and
of the Board Company of New York cutive Officer of Fiduciary Services
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
The Metropolitan Museum Metropolitan
of Art Museum of Art
1000 Fifth Avenue
New York, NY 10028-0198
Director Paul W. Douglas Retired Chairman of Coal Mining,
250 Park Avenue The Pittston Company Transportation
Suite 1800 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 Corporate Director
Per Scholas Inc. and Trustee
131 Walnut Avenue
Bronx, New York 10454
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
Position
with U.S. Principal Type of
Trust NY Name Occupation Business
- --------------- ----------------------- ---------------------- ------------------
<S> <C> <C> <C>
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 Law Firm
Wein, Malkin LLP Wein, Malkin & Bettex
Lincoln Building
60 East 42nd Street
New York, NY 10165
Director David A. Olsen Vice Chairman Risk & Insurance
Marsh & McLennan, Inc. Services
125 Broad Street
New York, NY 10004
Director Richard F. Tucker Retired Vice Chairman- Petroleum
P.O.Box 2072 Mobil Oil Corporation and Chemicals
New York, NY 10163
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 & CEO Not for
The Advertising Profit Public
Council, Inc. Service
261 Madison Avenue Advertising
11th Floor
New York, NY 10016
Executive Paul K. Napoli Executive Asset Management,
Vice United States Trust Vice President Investment and
President Company of New York Fiduciary Services
114 West 47th Street
New York, NY 10036
Director and Maribeth S. Rahe Vice Chairman Asset Management,
Vice Chair- United States Trust Investment and
man Company of New York Fiduciary Services
114 West 47th Street
New York, NY 10036
Director Frederick B. Taylor Vice Chairman and Asset Management,
Vice Chair- United States Trust Chief Investment Of- Investment and
man and Company of New York ficer of U.S. Trust Fiduciary Services
Chief Invest- 114 West 47th Street Corporation and United
ment Officer New York, NY 10036 States Trust Company
of New York
Director, Jeffrey S. Maurer President and Asset Management,
President, United States Trust Chief Operating Investment and
and Chief Company of New York Officer Fiduciary Services
Operating 114 West 47th Street
Officer New York, NY 10036
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
Position
with U.S. Principal Type of
Trust NY Name Occupation Business
- --------------- ----------------------- ---------------------- ------------------
<S> <C> <C> <C>
Trustee/ Daniel P. Davison Chairman, Christie, Fine Art
Director Christie, Manson Manson & Woods Auctioneer
& Woods International, Inc.
International,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
Executive John L. Kirby Executive Asset Management,
Vice United States Trust Vice President Investment and
President Company of New York Fiduciary Services
114 West 47th Street
New York, NY 10030
Executive Kenneth G. Walsh Executive Asset Management,
Vice United States Trust Vice President Investment and
President Company of New York Fiduciary Services
114 West 47th Street
New York, NY 10030
Director Philip L. Smith Corporate Director and
P.O. Box 386 Trustee
Ponte Verde Beach, FL 32004
Executive John C. Hoover, II Executive Asset Management,
Vice United States Trust Vice President Investment and
President Company of New York Fiduciary Services
114 West 47th Street
New York, NY 10030
Executive John M. Deignan Executive Asset Management,
Vice United States Trust Vice President Investment and
President Company of New York Fiduciary Services
114 West 47th Street
New York, NY 10030
</TABLE>
Item 29. Principal Underwriter
---------------------
(a) Edgewood Services, Inc., the Distributor for shares of the
Registrant, also acts as principal underwriter for the following open-end
investment companies: BT Advisor Funds, BT Pyramid Mutual Funds, BT Investment
Funds, BT Institutional Funds, Excelsior Tax-Exempt Funds, Inc., Excelsior
Institutional Trust, Excelsior Funds, FTI Funds, Fund Manager Portfolios,
Marketvest Funds, Marketvest Funds, Inc., and Old Westbury Funds, Inc.
(b) Names and Principal Positions and Offices with Offices with
Business Addresses the Distributor Registrant
------------------------- -------------------------- ------------
Lawrence Caracciolo Director and President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
-13-
<PAGE>
Arthur L. Cherry Director, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
J. Christopher Donahue Director, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Thomas P. Sholes Vice President, __
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Ronald M. Petnuch Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Thomas P. Schmitt Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3770
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, Assistant
Federated Investors Tower Edgewood Services, Inc. Secretary
Pittsburgh, PA 15222-3779
Thomas J. Ward Assistant Secretary, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Kenneth W. Pegher, Jr. Treasurer, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
(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 and
transfer agent).
2. U.S. Trust Company of Connecticut, 225 High Ridge Road, East
Building, Stamford, Connecticut 06905 (records relating to its function as
investment adviser and co-administrator).
3. Edgewood Services, Inc., Clearing Operations, P.O. Box 897,
Pittsburgh, PA 15230-0897 (records relating to its function as distributor).
4. Chase Global Funds Services Company, 73 Tremont Street, Boston,
Massachusetts 02108-3913 (records relating to its function as co-administrator
and sub-transfer agent).
5. Federated Administrative Services, Federated Investors Tower,
Pittsburgh, PA 15222-3799 (records relating to its function as co-
administrator).
6. The Chase Manhattan Bank, 3 Chase MetroTech Center, 8th Floor,
Brooklyn, NY 11245 (records relating to its function as custodian).
-14-
<PAGE>
7. Drinker Biddle & Reath LLP, 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 upon request and without charge.
-15-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 (the "1933
Act") and the Investment Company Act of 1940, Excelsior Funds, Inc. certifies
that it meets all of the requirements for effectiveness of this Post-Effective
Amendment No. 29 to its Registration Statement on Form N-1A ("Amendment No. 29")
pursuant to Rule 485(b) under the 1933 Act and has duly caused this Amendment
No. 29 to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Philadelphia and the Commonwealth of Pennsylvania on the 31st day
of July, 1997.
EXCELSIOR FUNDS, INC.
Registrant
* Frederick S. Wonham
---------------------
Frederick S. Wonham, President
(Signature and Title)
Pursuant to the requirements of the 1933 Act, this Amendment No. 29
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ----------------------- ----------------------- -------------
<S> <C> <C>
* Frederick S. Wonham
- -----------------------
Frederick S. Wonham Chairman of the Board, July 31, 1997
President and Treasurer
* Joseph H. Dugan
- -----------------------
Joseph H. Dugan Director July 31, 1997
* Donald L. Campbell
- --------------------
Donald L. Campbell Director July 31, 1997
* Wolfe J. Frankl
- -----------------
Wolfe J. Frankl Director July 31, 1997
* Robert A. Robinson
- --------------------
Robert A. Robinson Director July 31, 1997
* Alfred Tannachion Director July 31, 1997
- -------------------
Alfred Tannachion
* W. Wallace McDowell, Jr. Director July 31, 1997
- -------------------------
W. Wallace McDowell, Jr.
* Jonathan Piel Director July 31, 1997
- ---------------
Jonathan Piel
* Rodman L. Drake Director July 31, 1997
- -----------------
Rodman L. Drake
</TABLE>
*By: /s/ W. Bruce McConnel, III
---------------------------
W. Bruce McConnel, III, Attorney-in-Fact
-16-
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
EXCELSIOR FUNDS
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, to execute amendments to Excelsior Funds, Inc.'s,
Excelsior Tax-Exempt Funds, Inc.'s, Excelsior Institutional Trust's and
Excelsior Funds' (collectively, the "Companies") respective Registration
Statements on Form N-1A pursuant to the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended (the "Acts") and all
instruments necessary or incidental in connection therewith pursuant to said
Acts and any rules, regulations, or requirements of the Securities and Exchange
Commission in respect thereof, and to file the same with the Securities and
Exchange Commission, and either of said attorneys shall have full power and
authority, to do and perform in the name and on behalf of the undersigned in any
and all capacities, every act whatsoever requisite or necessary to be done, as
fully and to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that either of said attorneys may lawfully do or
cause to be done by virtue hereof.
Dated: May 17, 1997 /s/ Jonathan Piel
-------------------
Jonathan Piel
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
EXCELSIOR FUNDS
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, to execute amendments to Excelsior Funds, Inc,'s,
Excelsior Tax-Exempt Funds, Inc.'s, Excelsior Institutional Trust's and
Excelsior Funds' (collectively, the "Companies") respective Registration
Statements on Form N-1A pursuant to the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended (the "Acts") and all
instruments necessary or incidental in connection therewith pursuant to said
Acts and any rules, regulations, or requirements of the Securities and Exchange
Commission in respect thereof, and to file the same with the Securities and
Exchange Commission, and either of said attorneys shall have full power and
authority, to do and perform in the name and on behalf of the undersigned in any
and all capacities, every act whatsoever requisite or necessary to be done, as
fully and to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that either of said attorneys may lawfully do or
cause to be done by virtue hereof.
Dated: May 16, 1997 /s/ W. Wallace McDowell
------------------------
W. Wallace McDowell
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
EXCELSIOR FUNDS
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, to execute amendments to Excelsior Funds, Inc.'s,
Excelsior Tax-Exempt Fund's, Excelsior Institutional Trust's and Excelsior
Funds' (collectively, the "Companies") respective Registration Statements on
Form N-1A pursuant to the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended (the "Acts") and all instruments necessary or
incidental in connection therewith pursuant to said Acts and any rules,
regulations, or requirements of the Securities and Exchange Commission in
respect thereof, and to file the same with the Securities and Exchange
Commission, and either of said attorneys shall have full power and authority, to
do and perform in the name and on behalf of the undersigned in any and all
capacities, every act whatsoever requisite or necessary to be done, as fully and
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that either of said attorneys may lawfully do or cause to be
done by virtue hereof.
Dated: May 16, 1997 /s/ Rodman L. Drake
---------------------
Rodman L. Drake
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
EXCELSIOR FUNDS
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints W.
Bruce McConnel, III his true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution, for him and in his name, place and
stead, in his capacity as director/trustee or officer, or both, to execute
amendments to Excelsior Funds, Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s,
Excelsior Institutional Trust's and Excelsior Funds' (collectively, the
"Companies") respective Registration Statements on Form N-1A pursuant to the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended (the "Acts") and all instruments necessary or incidental in connection
therewith pursuant to said Acts and any rules, regulations, or requirements of
the Securities and Exchange Commission in respect thereof, and to file the same
with the Securities and Exchange Commission, and said attorney shall have full
power and authority, to do and perform in the name and on behalf of the
undersigned in any and all capacities, every act whatsoever requisite or
necessary to be done, as fully and to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorney may
lawfully do or cause to be done by virtue hereof.
Dated: May 16, 1997 /s/ Frederick S. Wonham
------------------------
Frederick S. Wonham
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
EXCELSIOR FUNDS
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s, Excelsior Institutional Trust's and
Excelsior Funds' (collectively, the "Companies") respective Registration
Statements on Form N-1A pursuant to the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended (the "Acts") and all
instruments necessary or incidental in connection therewith pursuant to said
Acts and any rules, regulations, or requirements of the Securities and Exchange
Commission in respect thereof, and to file the same with the Securities and
Exchange Commission, and either of said attorneys shall have full power and
authority, to do and perform in the name and on behalf of the undersigned in any
and all capacities, every act whatsoever requisite or necessary to be done, as
fully and to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that either of said attorneys may lawfully do or
cause to be done by virtue hereof.
Dated: May 16, 1997 /s/ Wolfe J. Frankl
--------------------
Wolfe J. Frankl
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
EXCELSIOR FUNDS
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s, Excelsior Institutional Trust's and
Excelsior Funds' (collectively, the "Companies") respective Registration
Statements on Form N-1A pursuant to the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended (the "Acts") and all
instruments necessary or incidental in connection therewith pursuant to said
Acts and any rules, regulations, or requirements of the Securities and Exchange
Commission in respect thereof, and to file the same with the Securities and
Exchange Commission, and either of said attorneys shall have full power and
authority, to do and perform in the name and on behalf of the undersigned in any
and all capacities, every act whatsoever requisite or necessary to be done, as
fully and to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that either of said attorneys may lawfully do or
cause to be done by virtue hereof.
Dated: May 16, 1997 /s/ Robert A. Robinson
-----------------------
Robert A. Robinson
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
EXCELSIOR FUNDS
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s, Excelsior Institutional Trust's and
Excelsior Funds' (collectively, the "Companies") respective Registration
Statements on Form N-1A pursuant to the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended (the "Acts") and all
instruments necessary or incidental in connection therewith pursuant to said
Acts and any rules, regulations, or requirements of the Securities and Exchange
Commission in respect thereof, and to file the same with the Securities and
Exchange Commission, and either of said attorneys shall have full power and
authority, to do and perform in the name and on behalf of the undersigned in any
and all capacities, every act whatsoever requisite or necessary to be done, as
fully and to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that either of said attorneys may lawfully do or
cause to be done by virtue hereof.
Dated: May 16, 1997 /s/ Joseph H. Dugan
--------------------
Joseph H. Dugan
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
EXCELSIOR FUNDS
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s, Excelsior Institutional Trust's and
Excelsior Funds' (collectively, the "Companies") respective Registration
Statements on Form N-1A pursuant to the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended (the "Acts") and all
instruments necessary or incidental in connection therewith pursuant to said
Acts and any rules, regulations, or requirements of the Securities and Exchange
Commission in respect thereof, and to file the same with the Securities and
Exchange Commission, and either of said attorneys shall have full power and
authority, to do and perform in the name and on behalf of the undersigned in any
and all capacities, every act whatsoever requisite or necessary to be done, as
fully and to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that either of said attorneys may lawfully do or
cause to be done by virtue hereof.
Dated: May 16, 1997 /s/ Donald L. Campbell
-----------------------
Donald L. Campbell
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
EXCELSIOR FUNDS
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s, Excelsior Institutional Trust's, and
Excelsior Funds' (collectively, the "Companies") respective Registration
Statements on Form N-1A pursuant to the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended (the "Acts") and all
instruments necessary or incidental in connection therewith pursuant to said
Acts and any rules, regulations, or requirements of the Securities and Exchange
Commission in respect thereof, and to file the same with the Securities and
Exchange Commission, and said attorney shall have full power and authority, to
do and perform in the name and on behalf of the undersigned in any and all
capacities, every act whatsoever requisite or necessary to be done, as fully and
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney may lawfully do or cause to be done by
virtue hereof.
Dated: May 16, 1997 /s/ Alfred C. Tannachion
-------------------------
Alfred C. Tannachion
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
(5) (a) Investment Advisory Agreement among Registrant, U.S. Trust Company
of Connecticut and United States Trust Company of New York dated
May 16, 1997 with respect to the Money Fund, Government Money
Fund, Blended Equity Fund, Small Cap Fund, Long-Term Supply of
Energy Fund, Productivity Enhancers Fund, Environmentally-Related
Products and Services Fund, Aging of America Fund, Communication
and Entertainment Fund, Value and Industrial Fund, Global
Competitors Fund, Latin America Fund, Pacific/Asia Fund, Pan
European Fund, Short-Term Government Securities Fund and
Intermediate-Term Managed Income Fund.
(5) (b) Investment Advisory Agreement among Registrant, U.S. Trust Company
of Connecticut and United States Trust Company of New York dated
May 16, 1997 with respect to the Managed Income Fund.
(5) (c) Investment Advisory Agreement among Registrant, U.S. Trust Company
of Connecticut and United States Trust Company of New York dated
May 16, 1997 with respect to the Income and Growth Fund.
(5) (d) Investment Advisory Agreement among Registrant, U.S. Trust Company
of Connecticut and United States Trust Company of New York dated
May 16, 1997 with respect to the International Fund.
(5) (e) Investment Advisory Agreement among Registrant, U.S. Trust Company
of Connecticut and United States Trust Company of New York dated
May 16, 1997 with respect to the Treasury Money Fund.
(9) (b) Administration Agreement dated May 16, 1997 among Registrant,
Chase Global Funds Services Company, Federated Administrative
Services and U.S. Trust Company of Connecticut.
(9) (c) Form of Mutual Funds Transfer Agency Agreement dated as of
September 1, 1995 between Registrant and United States Trust
Company of New York.
(9) (d) Form of Mutual Funds Sub-Transfer Agency Agreement dated as of
September 1, 1995 between United States Trust Company of New York
and Chase Global Funds Services Company.
(11) (a) Consent of Drinker Biddle & Reath LLP.
(b) Consent of Ernst & Young LLP.
(27) (a) Financial Data Schedule as of March 31, 1997 for the Money
Fund.
(b) Financial Data Schedule as of March 31, 1997 for the
Government Money Fund.
(c) Financial Data Schedule as of March 31, 1997 for the Equity
Fund.
<PAGE>
(d) Financial Data Schedule as of March 31, 1997 for the Managed
Income Fund.
(e) Financial Data Schedule as of March 31, 1997 for the Income
and Growth Fund.
(f) Financial Data Schedule as of March 31, 1997 for the
International Fund.
(g) Financial Data Schedule as of March 31, 1997 for the
Treasury Money Fund.
(h) Financial Data Schedule as of March 31, 1997 for the Early
Life Cycle Fund.
(i) Financial Data Schedule as of March 31, 1997 for the
Productivity Enhancers Fund.
(j) Financial Data Schedule as of March 31, 1997 for the
Environmentally-Related Products and Services Fund.
(k) Financial Data Schedule as of March 31, 1997 for the Aging
of America Fund.
(l) Financial Data Schedule as of March 31, 1997 for the
Communication and Entertainment Fund.
(m) Financial Data Schedule as of March 31, 1997 for the
Business and Industrial Restructuring Fund.
(n) Financial Data Schedule as of March 31, 1997 for the Global
Competitors Fund.
(o) Financial Data Schedule as of March 31, 1997 for the
Emerging Americas Fund.
(p) Financial Data Schedule as of March 31, 1997 for the
Pacific/Asia Fund.
(q) Financial Data Schedule as of March 31, 1997 for the Pan
European Fund.
(r) Financial Data Schedule as of March 31, 1997 for the Short-
Term Government Securities Fund.
(s) Financial Data Schedule as of March 31, 1997 for the
Intermediate-Term Managed Income Fund.
<PAGE>
EXHIBIT 5(a)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of May 16, 1997 by and among EXCELSIOR FUNDS, INC.,
a Maryland corporation (herein called the "Company"), U.S. TRUST COMPANY OF
CONNECTICUT ("USTCT"), a Connecticut state bank and trust company, and UNITED
STATES TRUST COMPANY OF NEW YORK ("USTNY"), a New York state-chartered bank and
trust company (together with USTCT, the "Investment Adviser").
WHEREAS, the Company is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940;
WHEREAS, the Company desires to retain the Investment Adviser to
render investment advisory and other services to the Company for its Money Fund,
Government Money Fund, Equity Fund, Early Life Cycle 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, Emerging
Americas Fund, Pacific/Asia Fund, Pan European Fund, Short-Term Government
Securities Fund and Intermediate-Term Managed Income Fund portfolios ("the
Funds"), and the Investment Adviser is willing to so render such services;
NOW, THEREFORE, this Agreement
WITNESSETH:
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 Investment Adviser
-----------
to act as investment adviser to the Company for the Funds for the period and on
the terms set forth in this Agreement. The Investment Adviser accepts such
appointment and agrees to render the services herein set forth for the
compensation herein provided.
2. Delivery of Documents. The Company has furnished the Investment
---------------------
Adviser with copies properly certified or authenticated of each of the
following:
(a) Articles of Incorporation of the Company;
(b) By-Laws of the Company;
<PAGE>
(c) Resolutions of the Board of Directors of the Company
authorizing the appointment of the Investment Adviser and the execution and
delivery of this Agreement;
(d) Registration Statement under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, on Form N-1A (No.
2-92665) relating to shares of the Company's Class A Common Shares, $.001 par
value, representing interests in the Money Fund; Class B Common Shares, $.001
par value, representing interests in the Government Money Fund; Class C Common
Shares, $.001 par value, representing interests in the Equity Fund; Class H
Common Shares, $.001 par value, representing interests in the Early Life Cycle
Fund; Class I Common Shares, $.001 par value, representing interests in the
Long-Term Supply of Energy Fund; Class J Common Shares, $.001 par value,
representing interests in the Productivity Enhancers Fund; Class K Common
Shares, $.001 par value, representing interests in the Environmentally-Related
Products and Services Fund; Class L Common Shares, $.001 par value, representing
interests in the Aging of America Fund; Class M Common Shares, $.001 par value,
representing interests in the Communication and Entertainment Fund; Class N
Common Shares, $.001 par value, representing interests in the Business and
Industrial Restructuring Fund; Class O Common Shares, $.001 par value,
representing interests in the Global Competitors Fund; Class P Common Shares,
$.001 par value, representing interests in the Emerging Americas Fund; Class Q
Common Shares, $.001 par value, representing interests in the Pacific/Asia Fund;
Class R Common Shares, $.001 par value, representing interests in the Pan
European Fund; Class S Common Shares, $.001 par value, representing interests in
the Short-Term Government Securities Fund; and Class T Common Shares, $.001 par
value, representing interests in the Intermediate-Term Managed Income Fund
("Shares"), and all amendments thereto;
(e) Notification of Registration of the Company under the
Investment Company Act of 1940, as amended, on Form N-8A as filed with the
Securities and Exchange Commission on August 8, 1984, and all amendments
thereto; and
(f) Prospectuses of the Company relating to the Shares in effect
under the Securities Act of 1933 (such prospectuses and supplements thereto, as
presently in effect and as from time to time amended and supplemented, herein
called the "Prospectus").
The Company will furnish the Investment Adviser from time to time with
copies of all amendments of or supplements to the foregoing, if any.
3. Management. Subject to the supervision of the Board of Directors
----------
of the Company, the investment Adviser will provide a continuous investment
program for the Funds, including
-2-
<PAGE>
investment research and management with respect to all securities, investments,
cash and cash equivalents in the Funds. The Investment Adviser will determine
from time to time what securities and other investments will be purchased,
retained or sold by the Company for the Funds. The Investment Adviser will
provide the services rendered by it hereunder in accordance with the Funds'
respective investment objectives and policies as stated in the Prospectus. The
Investment Adviser further agrees that it:
(a) will conform with all applicable Rules and Regulations of the
Securities and Exchange Commission (herein called the "Rules"), and will in
addition conduct its activities under this Agreement in accordance with
applicable law, including but not limited to applicable banking law;
(b) will not make loans for the purpose of purchasing or carrying
Shares, or make loans to the Company;
(c) will place orders pursuant to its investment determinations for
the Funds either directly with the issuer or with any broker or dealer selected
by it. In placing orders with brokers and dealers, the Investment Adviser will
use its reasonable best efforts to obtain the best net price and the most
favorable execution of its orders, after taking into account all 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 the reason ableness of the commission, if any, both for the
specific transaction and on a continuing basis. Consistent with this
obligation, the Investment Adviser may, to the extent permitted by law, purchase
and sell portfolio securities to and from brokers and dealers who provide
brokerage and research services (within the meaning of Section 28(e) of the
Securities Exchange Act of 1934) to or for the benefit of any Fund and/or other
accounts over which the Investment Adviser or any of its affiliates exercises
investment discretion. Subject to the review of the Company's Board of
Directors from time to time with respect to the extent and continuation of the
policy, the Investment Adviser is authorized to pay to a broker or dealer who
provides such brokerage and research services a commission for effecting a
securities transaction for any Fund which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if the Investment Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the overall responsibilities of the Investment Adviser
with respect to the accounts as to which it exercises investment discretion. In
no instance will portfolio securities be purchased from or sold to the Funds'
principal underwriter, the Investment Adviser or any
-3-
<PAGE>
affiliated person thereof except as permitted by the Securities and Exchange
Commission;
(d) will maintain books and records with respect to the Funds'
securities transactions and will render to the Company's Board of Directors such
periodic and special reports as the Board may request;
(e) will maintain a policy and practice of conducting its Asset
Management Group independently of its Banking Group. When the Investment
Adviser makes investment recommendations for the Funds, its Asset Management
Group personnel will not inquire or take into consideration whether the issuer
of securities proposed for purchase or sale for the Funds' account are customers
of the Banking Group. In dealing with commercial customers, the Banking Group
will not inquire or take into consideration whether securities of those
customers are held by the Funds;
(f) will 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 will not 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 Investment Adviser 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. Nothing contained herein, however, shall prohibit the Investment
Adviser from advertising or soliciting the public generally with respect to
other products or services, regardless of whether such advertisement or
solicitation may include prior, present or potential shareholders of the
Company.
4. Services Not Exclusive. The investment management services
----------------------
rendered by the Investment Adviser hereunder are not to be deemed exclusive, and
the Investment Adviser shall be free to render similar services to others so
long as its services under this Agreement are not impaired thereby.
5. Books and Records. In compliance with the requirements of Rule
-----------------
31a-3 of the Rules under the Investment Company Act of 1940, the Investment
Adviser hereby agrees that all records which it maintains for the Funds are the
property of the Company and further agrees to surrender promptly to the Company
any of such records upon the Company's request. The Investment Adviser further
agrees to preserve for the periods prescribed by Rule 31a-2 the records required
to be maintained by Rule 31a-1 of the Rules.
-4-
<PAGE>
6. Expenses. During the term of this Agreement, the Investment
--------
Adviser will pay all expenses incurred by it in connection with its activities
under this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Funds.
In addition, if the expenses borne by any Fund in any fiscal year
exceed the applicable expense limitations imposed by the securities regulations
of any state in which the Shares are registered or qualified for sale to the
public, the Investment Adviser shall reimburse such Fund for a portion of any
such excess in an amount equal to the proportion that the fees otherwise payable
to the Investment Adviser bear to the total amount of investment advisory and
administration fees otherwise payable by the Fund up to the amount of the fees
payable to the Investment Adviser during such fiscal year pursuant to paragraph
7 hereof; provided, however, that notwithstanding the foregoing, the Investment
Adviser shall reimburse the Fund for a portion of such excess expenses in an
amount equal to the proportion that the fees otherwise payable to the Investment
Adviser bear to the total amount of investment advisory and administration fees
otherwise payable by the Fund regardless of the amount of fees paid to the
Investment Adviser during such fiscal year to the extent that the securities
regulations of any state in which the Shares are registered or qualified for
sale so require.
7. Compensation. For the services provided and the expenses assumed
------------
pursuant to this Agreement, the Company will pay the Investment Adviser and the
Investment Adviser will accept as full compensation therefor a fee, computed
daily and payable monthly, at the following annual rates: .25% of the average
daily net assets of each of the Money Fund and the Government Money Fund; .75%
of the average daily net assets of the Equity Fund; .60% of the average daily
net assets of each of the Early Life Cycle Fund, the Long-Term Supply of Energy
Fund, the Productivity Enhancers Fund, the Environmentally-Related Products and
Services Fund, the Aging of America Fund, the Communication and Entertainment
Fund, the Business and Industrial Restructuring Fund and the Global Competitors
Fund; 1% of the average daily net assets of each of the Emerging Americas Fund,
Pacific/Asia Fund and the Pan European Fund; .30% of the average daily net
assets of the Short-Term Government Securities Fund; and .35% of the average
daily net assets of the Intermediate-Term Managed Income Fund.
8. Limitation of Liability of the Investment Adviser. The Investment
-------------------------------------------------
Adviser shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Company in connection with the matters to which this
Agreement relates, except the Investment Adviser shall be jointly, but not
severally, liable for a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or
-5-
<PAGE>
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 obligations and duties under this Agreement.
9. Duration and Termination. This Agreement shall be effective as of
------------------------
the date hereof and unless sooner terminated as provided herein, shall continue
until July 31, 1997. Thereafter, if not terminated, this Agreement shall
continue in effect as to a particular Fund for successive periods of 12 months
each, provided such continuance is specifically approved at least annually (a)
by the vote of a majority of those members of the Board of Directors of the
Company who are not parties to this Agreement or interested persons of any such
party, cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the Board of Directors of the Company or, with respect to
any Fund, by vote of a majority of the outstanding voting securities of such
Fund; provided, however, that this Agreement may be terminated by the Company as
to any Fund at any time, without the payment of any penalty, by the Board of
Directors of the Company or, with respect to any Fund, by vote of a majority of
the outstanding voting securities of such Fund on 60 days' written notice to the
Investment Adviser, or by the Investment Adviser as to any Fund at any time,
without payment of any penalty, on 90 days' written notice to the Company. This
Agreement will immediately terminate in the event of its assignment. (As used
in this Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meanings as such terms
have in the Investment Company Act of 1940.)
10. Amendment of this Agreement. No provision of this Agreement may
---------------------------
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective with respect to a Fund until approved by vote of a majority of such
Fund's outstanding voting securities.
11. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by New York law.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
EXCELSIOR FUNDS, INC.
Attest:
/s/W. Bruce McConnel, III By:/s/F.S. Wonham
- -------------------------- ---------------------------
Secretary President
[Seal]
Attest: U.S. TRUST COMPANY OF CONNECTICUT
/s/Francis J. Hearn, Jr. By:/s/W. Michael Funck
- -------------------------- ---------------------------
President & CEO
UNITED STATES TRUST COMPANY
Attest: OF NEW YORK
/s/Francis J. Hearn, Jr. By:/s/Kenneth L. Walsh
- -------------------------- --------------------------
Executive Vice President
-7-
<PAGE>
EXHIBIT 5(b)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of May 16, 1997 by and among EXCELSIOR FUNDS, INC.,
a Maryland corporation (herein called the "Company"), U. S. TRUST COMPANY OF
CONNECTICUT ("USTCT"), a Connecticut state bank and trust company, and UNITED
STATES TRUST COMPANY OF NEW YORK ("USTNY"), a New York state-chartered bank and
trust company (together with USTCT, the "Investment Adviser").
WHEREAS, the Company is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940;
WHEREAS, the Company desires to retain the Investment Adviser to
render investment advisory and other services to the Company for its Managed
Income Fund portfolio ("the Fund"), and the Investment Adviser is willing to so
render such services;
NOW, THEREFORE, this Agreement
WITNESSETH:
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 investment Adviser to
-----------
act as investment adviser to the Company for the Fund for the period and on the
terms set forth in this Agreement. The Investment Adviser accepts such
appointment and agrees to render the services herein set forth for the
compensation herein provided.
2. Delivery of Documents. The Company has furnished the Investment
---------------------
Adviser with copies properly certified or authenticated of each of the
following:
(a) Articles of Incorporation of the Company;
(b) By-Laws of the Company;
(c) Resolutions of the Board of Directors of the Company
authorizing the appointment of the Investment Adviser and the execution and
delivery of this Agreement;
(d) Registration Statement under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, on Form N-1A (No.
2-92665) relating to shares of the Company's Class A Common Shares, $.001 par
value, representing interests in the Money Fund; Class B Common Shares, $.001
par
<PAGE>
value, representing interests in the Government Money Fund; Class C Common
Shares, $.001 par value, representing interests in the Equity Fund and Class D
Common Shares, $.001 par value, representing interests in the Managed Income
Fund, and all amendments thereto;
(e) Notification of Registration of the Company under the Investment
Company Act of 1940, as amended, on Form N-8A as filed with the Securities and
Exchange Commission on August 8, 1984, and all amendments thereto; and
(f) Prospectuses of the Company relating to the Company's shares in
effect under the Securities Act of 1933 (such prospectuses and supplements
thereto, as presently in effect and as from time to time amended and
supplemented, herein called the "Prospectus").
The Company will furnish the Investment Adviser from time to time with
copies of all amendments of or supplements to the foregoing, if any.
3. Management. Subject to the supervision of the Board of Directors
----------
of the Company, the Investment Adviser will provide a continuous investment
program for the Fund, including investment research and management with respect
to all securities, investments, cash and cash equivalents in the Fund. The
Investment Adviser will determine from time to time what securities and other
investments will be purchased, retained or sold by the Company for the Fund.
The Investment Adviser will provide the services rendered by it hereunder in
accordance with the Fund's investment objectives and policies as stated in the
Prospectus. The Investment Adviser further agrees that it:
(a) will conform with all applicable Rules and Regulations of the
Securities and Exchange Commission (herein called the "Rules"), and will in
addition conduct its activities under this Agreement in accordance with
applicable law, including but not limited to applicable banking law;
(b) will not make loans for the purpose of purchasing or carrying Fund
shares, or make loans to the Company;
(c) will place orders pursuant to its investment determinations for
the Fund either directly with the issuer or with any broker or dealer selected
by it. In placing orders with brokers and dealers, the Investment Adviser will
use its reasonable best efforts to obtain the best net price and the most
favorable execution of its orders, after taking into account all 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 the reasonableness of the commission, if any, both for the
specific
-2-
<PAGE>
transaction and on a continuing basis. Consistent with this obligation, the
Investment Adviser may, to the extent permitted by law, purchase and sell
portfolio securities to and from brokers and dealers who provide brokerage and
research services (within the meaning of Section 28(e) of the Securities
Exchange Act of 1934) to or for the benefit of the Fund and/or other accounts
over which the Investment Adviser or any of its affiliates exercises investment
discretion. Subject to the review of the Company's Board of Directors from time
to time with respect to the extent and continuation of the policy, the
Investment Adviser is authorized to pay to a broker or dealer who provides such
brokerage and research services a commission for effecting a securities
transaction for the Fund which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if the
Investment Adviser determines in good faith that such commission was reasonable
in relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or the
overall responsibili ties of the Investment Adviser with respect to the accounts
as to which it exercises investment discretion. In no instance will portfolio
securities be purchased from or sold to the Fund's principal underwriter, the
Investment Adviser or any affiliated person thereof except as permitted by the
Securities and Exchange Commission;
(d) will maintain books and records with respect to the Fund's
securities transactions and will render to the Company's Board of Directors such
periodic and special reports as the Board may request;
(e) will maintain a policy and practice of conducting its Asset
Management Group independently of its Banking Group. When the Investment Adviser
makes investment recommendations for the Fund, its Asset Management Group
personnel will not inquire or take into consideration whether the issuer of
securities proposed for purchase or sale for the Fund's account are customers of
the Banking Group. In dealing with commercial customers, the Banking Group will
not inquire or take into consideration whether securities of those customers are
held by the Fund;
(f) will treat confidentially and as proprietary information of the
Company all records and other information relative to the Fund and prior,
present or potential shareholders, and will not 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 Investment Adviser may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
-3-
<PAGE>
information by duly constituted authorities, or when so requested by the
Company. Nothing contained herein, however, shall prohibit the Investment
Adviser from advertising or soliciting the public generally with respect to
other products or services, regardless of whether such advertisement or
solicitation may include prior, present or potential shareholders of the
Company.
4. Services Not Exclusive. The investment management services
----------------------
rendered by the Investment Adviser hereunder are not to be deemed exclusive, and
the Investment Adviser shall be free to render similar services to others so
long as its services under this Agreement are not impaired thereby.
5. Books and Records. In compliance with the requirements of Rule
-----------------
31a-3 of the Rules under the Investment Company Act of 1940, the Investment
Adviser hereby agrees that all records which it maintains for the Fund are the
property of the Company and further agrees to surrender promptly to the Company
any of such records upon the Company's request. The Investment Adviser further
agrees to preserve for the periods prescribed by Rule 31a-2 the records required
to be maintained by Rule 31a-1 of the Rules.
6. Expenses. During the term of this Agreement, the Investment
--------
Adviser will pay all expenses incurred by it in connection with its activities
under this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Fund.
In addition, if the expenses borne by the Fund in any fiscal year
exceed the applicable expense limitations imposed by the securities regulations
of any state in which its shares are registered or qualified for sale to the
public, the Investment Adviser shall reimburse the Fund for a portion of any
such excess in an amount equal to the proportion that the fees otherwise payable
to the Investment Adviser bear to the total amount of investment advisory and
administration fees otherwise payable by the Fund up to the amount of the fees
payable to the Investment Adviser during such fiscal year pursuant to paragraph
7 hereof; provided, however, that notwithstanding the foregoing, the Investment
Adviser shall reimburse the Fund for a portion of such excess expenses in an
amount equal to the proportion that the fees otherwise payable to the Investment
Adviser bear to the total amount of investment advisory and administration fees
otherwise payable by the Fund regardless of the amount of fees paid to the
Investment Adviser during such fiscal year to the extent that the securities
regulations of any state in which Fund shares are registered or qualified for
sale so require.
7. Compensation. For the services provided and the expenses assumed
------------
pursuant to this Agreement, the Company will pay the Investment Adviser and the
Investment Adviser will accept as
-4-
<PAGE>
full compensation therefor a fee, computed daily and payable monthly, at the
annual rate of .75% of the average daily net assets of the Fund.
8. Limitation of Liability of the Investment Adviser. The Investment
-------------------------------------------------
Adviser shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Company in connection with the matters to which this
Agreement relates, except the Investment Adviser shall be jointly, but not
severally, liable for 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 in the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement.
9. Duration and Termination. This Agreement shall be effective as of
------------------------
the date of the commencement of the public sale of Fund shares and unless sooner
terminated as provided herein, shall continue until July 31, 1997. Thereafter,
if not terminated, this Agreement shall continue in effect for successive
periods of 12 months each, provided such continuance is specifically approved at
least annually (a) by the vote of a majority of those members of the Board of
Directors of the Company who are not parties to this Agreement or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such approval, and (b) by the Board of Directors of the Company or by
vote of a majority of the outstanding voting securities of the Fund; provided,
however, that this Agreement may be terminated by the Company at any time,
without the payment of any penalty, by the Board of Directors of the Company or
by vote of a majority of the outstanding voting securities of the Fund on 60
days' written notice to the Investment Adviser, or by the Investment Adviser at
any time, without payment of any penalty, on 90 days' written notice to the
Company. This Agreement will immediately terminate in the event of its
assignment. (As used in this Agreement, the terms "majority of the outstanding
voting securities," "interested person" and "assignment" shall have the same
meanings as such terms have in the Investment Company Act of 1940.)
10. Amendment of this Agreement. No provision of this Agreement may
---------------------------
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective with respect to the Fund until approved by vote of a majority of the
Fund's outstanding voting securities.
11. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their
-5-
<PAGE>
construction or effect. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and shall be governed by New York law.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
EXCELSIOR FUNDS, INC.
Attest:
/s/W. Bruce McConnel, III By:/s/F.S. Wonham
- ------------------------- ------------------------------
Secretary President
[Seal]
Attest: U.S. TRUST COMPANY OF CONNECTICUT
/s/Francis J. Hearn, Jr. By: /s/W. Michael Funck
- ------------------------- -----------------------------
President & CEO
UNITED STATES TRUST COMPANY
Attest: OF NEW YORK
/s/Francis J. Hearn, Jr. By:/s/Kenneth L. Walsh
- ------------------------- ------------------------------
Executive Vice President
-6-
<PAGE>
EXHIBIT 5(c)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of May 16, 1997 by and among EXCELSIOR FUNDS, INC.,
a Maryland corporation (herein called the "Company"), U.S. TRUST COMPANY OF
CONNECTICUT ("USTCT"), a Connecticut state bank and trust company, and UNITED
STATES TRUST COMPANY OF NEW YORK ("USTNY"), a New York state-chartered bank and
trust company (together with USTCT, the "Investment Adviser").
WHEREAS, the Company is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940;
WHEREAS, the Company desires to retain the Investment Adviser to
render investment advisory and other services to the Company for its Income and
Growth Fund portfolio ("the Fund"), and the Investment Adviser is willing to so
render such services;
NOW, THEREFORE, this Agreement
WITNESSETH:
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 Investment Adviser
-----------
to act as investment adviser to the Company for the Fund for the period and on
the terms set forth in this Agreement. The Investment Adviser accepts such
appointment and agrees to render the services herein set forth for the
compensation herein provided.
2. Delivery of Documents. The Company has furnished the Investment
---------------------
Adviser with copies properly certified or authenticated of each of the
following:
(a) Articles of Incorporation of the Company;
(b) By-Laws of the Company;
(c) Resolutions of the Board of Directors of the Company
authorizing the appointment of the Investment Adviser and the execution and
delivery of this Agreement;
(d) Registration Statement under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, on Form N-1A (No.
2-92665) relating to shares of the Company's Class A Common Shares, $.001 par
value, representing interests in the Money Fund; Class B Common Shares, $.001
par
<PAGE>
value, representing interests in the Government Money Fund; Class C Common
Shares, $.001 par value, representing interests in the Equity Fund, Class D
Common Shares, $.001 par value, representing interests in the Managed Income
Fund, and Class E Common Shares, $.001 par value, representing interests in the
Income and Growth Fund, and all amendments thereto;
(e) Notification of Registration of the Company under the Investment
Company Act of 1940, as amended, on Form N-8A as filed with the Securities and
Exchange Commission on August 8, 1984, and all amendments thereto; and
(f) Prospectuses of the Company relating to the Company's shares in
effect under the Securities Act of 1933 (such prospectuses and supplements
thereto, as presently in effect and as from time to time amended and
supplemented, herein called the "Prospectus").
The Company will furnish the Investment Adviser from time to time with
copies of all amendments of or supplements to the foregoing, if any.
3. Management. Subject to the supervision of the Board of Directors
----------
of the Company, the Investment Adviser will provide a continuous investment
program for the Fund, including investment research and management with respect
to all securities, investments, cash and cash equivalents in the Fund. The
Investment Adviser will determine from time to time what securities and other
investments will be purchased, retained or sold by the Company for the Fund.
The Investment Adviser will provide the services rendered by it hereunder in
accordance with the Fund's investment objectives and policies as stated in the
Prospectus. The Investment Adviser further agrees that it:
(a) will conform with all applicable Rules and Regulations of the
Securities and Exchange Commission (herein called the "Rules"), and will in
addition conduct its activities under this Agreement in accordance with
applicable law, including but not limited to applicable banking law;
(b) will not make loans for the purpose of purchasing or carrying Fund
shares, or make loans to the Company;
(c) will place orders pursuant to its investment determinations for
the Fund either directly with the issuer or with any broker or dealer selected
by it. In placing orders with brokers and dealers, the Investment Adviser will
use its reasonable best efforts to obtain the best net price and the most
favorable execution of its orders, after taking into account all 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 the
-2-
<PAGE>
reasonableness of the commission, if any, both for the specific transaction and
on a continuing basis. Consistent with this obligation, the Investment Adviser
may, to the extent permitted by law, purchase and sell portfolio securities to
and from brokers and dealers who provide brokerage and research services (within
the meaning of Section 28(e) of the Securities Exchange Act of 1934) to or for
the benefit of the Fund and/or other accounts over which the Investment Adviser
or any of its affiliates exercises investment discretion. Subject to the review
of the Company's Board of Directors from time to time with respect to the extent
and continuation of the policy, the Investment Adviser is authorized to pay to a
broker or dealer who provides such brokerage and research services a commission
for effecting a securities transaction for the Fund which is in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction if the Investment Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the overall responsibilities of the Investment Adviser
with respect to the accounts as to which it exercises investment discretion. In
no instance will portfolio securities be purchased from or sold to the Fund's
principal underwriter, the Investment Adviser or any affiliated person thereof
except as permitted by the Securities and Exchange Commission;
(d) will maintain books and records with respect to the Fund's
securities transactions and will render to the Company's Board of Directors such
periodic and special reports as the Board may request;
(e) will maintain a policy and practice of conducting its Asset
Management Group independently of its Banking Group. When the Investment
Adviser makes investment recommendations for the Fund, its Asset Management
Group personnel will not inquire or take into consideration whether the issuer
of securities proposed for purchase or sale for the Fund's account are customers
of the Banking Group. In dealing with commercial customers, the Banking Group
will not inquire or take into consideration whether securities of those
customers are held by the Fund;
(f) will treat confidentially and as proprietary information of the
Company all records and other information relative to the Fund and prior,
present or potential shareholders, and will not 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 Investment Adviser may be exposed to civil or criminal
contempt
-3-
<PAGE>
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by the Company. Nothing
contained herein, however, shall prohibit the Investment Adviser from
advertising or soliciting the public generally with respect to other products or
services, regardless of whether such advertisement or solicitation may include
prior, present or potential shareholders of the Company.
4. Services Not Exclusive. The investment management services
----------------------
rendered by the Investment Adviser hereunder are not to be deemed exclusive, and
the Investment Adviser shall be free to render similar services to others so
long as its services under this Agreement are not impaired thereby.
5. Books and Records. In compliance with the requirements of Rule
-----------------
31a-3 under the Investment Company Act of 1940, the Investment Adviser hereby
agrees that all records which it maintains for the Fund are the property of the
Company and further agrees to surrender promptly to the Company any of such
records upon the Company's request. The Investment Adviser further agrees to
preserve for the periods prescribed by Rule 31a-2 the records required to be
maintained by such Rule.
6. Expenses. During the term of this Agreement, the Investment
--------
Adviser will pay all expenses incurred by it in connection with its activities
under this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Fund.
In addition, if the expenses borne by the Fund in any fiscal year
exceed the applicable expense limitations imposed by the securities regulations
of any state in which its shares are registered or qualified for sale to the
public, the Investment Adviser shall reimburse the Fund for a portion of any
such excess in an amount equal to the proportion that the fees otherwise payable
to the Investment Adviser bear to the total amount of investment advisory and
administration fees otherwise payable by the Fund up to the amount of the fees
payable to the Investment Adviser during such fiscal year pursuant to paragraph
7 hereof; provided, however, that notwithstanding the foregoing, the Investment
Adviser shall reimburse the Fund for a portion of such excess expenses in an
amount equal to the proportion that the fees otherwise payable to the Investment
Adviser bear to the total amount of investment advisory and administration fees
otherwise payable by the Fund regardless of the amount of fees paid to the
Investment Adviser during such fiscal year to the extent that the securities
regulations of any state in which Fund shares are registered or qualified for
sale so require.
7. Compensation. For the services provided and the expenses assumed
------------
pursuant to this Agreement, the Company will pay the Investment Adviser and the
Investment Adviser will accept as
-4-
<PAGE>
full compensation therefor a fee, computed daily and payable monthly, at the
annual rate of .75% of the average daily net assets of the Fund.
8. Limitation of Liability of the Investment Adviser. The Investment
-------------------------------------------------
Adviser shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the company in connection with the matters to which this
Agreement relates, except the Investment Adviser shall be jointly, but not
severally, liable for 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 in the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement.
9. Duration and Termination. This Agreement shall be effective as of
------------------------
the date of the commencement of the public sale of Fund shares and unless sooner
terminated as provided herein, shall continue until July 31, 1997. Thereafter,
if not terminated, this Agreement shall continue in effect for successive
periods of 12 months each, provided such continuance is specifically approved at
least annually (a) by the vote of a majority of those members of the Board of
Directors of the Company who are not parties to this Agreement or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such approval, and (b) by the Board of Directors of the Company or by
vote of a majority of the outstanding voting securities of the Fund; provided,
however, that this Agreement may be terminated by the Company at any time,
without the payment of any penalty, by the Board of Directors of the Company or
by vote of a majority of the outstanding voting securities of the Fund on 60
days' written notice to the Investment Adviser, or by the Investment Adviser at
any time, without payment of any penalty, on 90 days' written notice to the
Company. This Agreement will immediately terminate in the event of its
assignment. (As used in this Agreement, the terms "majority of the outstanding
voting securities," "interested person" and "assignment" shall have the same
meanings as such terms have in the Investment Company Act of 1940.)
10. Amendment of this Agreement. No provision of this Agreement may
---------------------------
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective with respect to the Fund until approved by vote of a majority of the
Fund's outstanding voting securities.
11. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their
-5-
<PAGE>
construction or effect. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and shall be governed by New York law.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
EXCELSIOR FUNDS, INC.
Attest:
/s/W. Bruce McConnel, III By:/s/F.S. Wonham
- ------------------------- --------------------------
Secretary President
[Seal]
Attest: U.S. TRUST COMPANY OF CONNECTICUT
/s/Francis J. Hearn, Jr. By:/s/W. Michael Funck
- ------------------------- --------------------------
President & CEO
[Corporate Seal]
UNITED STATES TRUST COMPANY
Attest: OF NEW YORK
/s/Francis J. Hearn, Jr. By:/s/Kenneth L. Walsh
- ------------------------- --------------------------
Executive Vice President
-6-
<PAGE>
EXHIBIT 5(d)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of May 16, 1997 by and among EXCELSIOR FUNDS, INC.,
a Maryland corporation (herein called the "Company"), U.S. TRUST COMPANY OF
CONNECTICUT ("USTCT"), a Connecticut state bank and trust company, and UNITED
STATES TRUST COMPANY OF NEW YORK ("USTNY"), a New York state-chartered bank and
trust company (together with USTCT, the "Investment Adviser").
WHEREAS, the Company is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940;
WHEREAS, the Company desires to retain the Investment Adviser to
render investment advisory and other services to the Company for its
International Fund portfolio ("the Fund"), and the Investment Adviser is willing
to so render such services;
NOW, THEREFORE, this Agreement
WITNESSETH:
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 Investment Adviser
-----------
to act as investment adviser to the Company for the Fund for the period and on
the terms set forth in this Agreement. The Investment Adviser accepts such
appointment and agrees to render the services herein set forth for the
compensation herein provided.
2. Sub-Adviser. It is understood that the Investment Adviser may
-----------
from time to time employ or associate with itself such person or persons as the
Investment Adviser believes to be fitted to assist it in the performance of this
Agreement; provided, however, that the compensation of such person or persons
shall be paid by the Investment Adviser and that the Investment Adviser shall be
as fully responsible to the Company for the acts and omissions of any such
person as it is for its own acts and omissions. Without limiting the generality
of the foregoing, it is agreed that the sub-advisory services to the Fund shall
be provided by person or persons agreeable to the Investment Adviser and
approved in accordance with the provisions of the Investment Company Act of 1940
(the "1940 Act"). Such sub-adviser is hereinafter referred to as the "Sub-
Adviser."
<PAGE>
3. Delivery of Documents. The Company has furnished the Investment
---------------------
Adviser with copies properly certified or authenticated of each of the
following:
(a) Articles of Incorporation of the Company;
(b) By-Laws of the Company;
(c) Resolutions of the Board of Directors of the Company authorizing
the appointment of the Investment Adviser as investment adviser for the Fund and
the execution and delivery of this Agreement;
(d) Resolutions of the Board of Directors of the Company authorizing
the appointment of the initial Sub-Adviser for the Fund and the execution and
delivery of the Sub-Advisory Agreement between the Investment Adviser and the
Sub-Adviser relating to the Fund;
(e) Registration Statement under the Securities Act of 1933, as
amended, and the 1940 Act on Form N-1A (No. 2-92665) relating to shares of the
Company's Class A Common Stock, $.001 par value, representing interests in the
Money Fund; Class B Common Stock, $.001 par value, representing interests in the
Government Money Fund; Class C Common Stock, $.001 par value, representing
interests in the Equity Fund, Class D Common Stock, $.001 par value,
representing interests in the Managed Income Fund, Class E Common Stock, $.001
par value, representing interests in the Income and Growth Fund, and Class F
Common Stock, $.001 par value, representing interests in the International Fund,
and all amendments thereto;
(f) Notification of Registration of the Company under the 1940 Act on
Form N-8A, as filed with the Securities and Exchange Commission on August 8,
1984, and all amendments thereto; and
(g) Prospectuses and statements of additional information of the
Company relating to the Company's shares in effect under the Securities Act of
1933 (such prospectuses, 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 furnish the Investment Adviser from time to time with
copies of all amendments of or supplements to the foregoing, if any.
4. Management. Subject to the supervision of the Board of Directors
----------
of the Company, the Investment Adviser will provide continuous investment
advisory assistance and portfolio
-2-
<PAGE>
management advice for the Fund in accordance with the Fund's investment
objective and policies as stated in the Prospectus.
Investment Adviser's responsibilities include:
(i) Advising the Sub-Adviser with respect to U.S. economic
factors and trends;
(ii) Assisting and consulting with the Sub Adviser in
connection with the Fund's continuous investment program;
(iii) Approving lists of foreign countries recommended by
the Sub-Adviser for investments of the Fund;
(iv) Placing orders with respect to purchases and sales of
the securities of U.S. issuers as described in the Prospectus;
(v) Managing, in cooperation with the Sub Adviser, the
Fund's short-term cash balance positions denominated in U.S. dollars
to preserve required liquidity of the-Fund's assets including placing
of orders for U.S. money market instruments;
(vi) Monitoring the Sub-Adviser's investment procedures; and
(vii) Periodically reviewing, evaluating and reporting to
the Company's Board of Directors with respect to the performance of
the Sub-Adviser under the Sub-Advisory Agreement.
The Investment Adviser further agrees that it:
(a) will conform with all applicable Rules and Regulations of the
Securities and Exchange Commission (herein called the "Rules"), and will in
addition conduct its activities under this Agreement in accordance with
applicable law, including but not limited to applicable banking law;
(b) will not make loans for the purpose of purchasing or carrying
Fund shares, or make loans to the Company;
(c) will place orders, if any, pursuant to its investment
determinations for the Fund either directly with the issuer or with any broker
or dealer selected by it. In placing orders with brokers and dealers, the
Investment Adviser will use its reasonable best efforts to obtain the best net
price and the most favorable execution of its orders, after taking into account
all factors it deems relevant, including the breadth of the
-3-
<PAGE>
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing basis.
Consistent with this obligation, the Investment Adviser may, to the extent
permitted by law, purchase and sell portfolio securities to and from brokers and
dealers who provide brokerage and research services (within the meaning of
Section 28(e) of the Securities Exchange Act of 1934) to or for the benefit of
the Fund and/or other accounts over which the Investment Adviser or any of its
affiliates exercises investment discretion. Subject to the review of the
Company's Board of Directors from time to time with respect to the extent and
continuation of the policy, the Investment Adviser is authorized to pay to a
broker or dealer who provides such brokerage and research services a commission
for effecting a securities transaction for the Fund which is in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction if the Investment Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the overall responsibilities of the Investment Adviser
with respect to the accounts as to which it exercises investment discretion. In
no instance will portfolio securities be purchased from or sold to the Fund's
principal underwriter, the Investment Adviser, Sub-Adviser, or any affiliated
person thereof except as permitted by the Securities and Exchange Commission;
(d) will maintain books and records with respect to the Fund's
securities transactions and will render to the Company's Board of Directors such
periodic and special reports as the Board may request;
(e) will maintain a policy and practice of conducting its Asset
Management Group independently of its Banking Group. When the Investment
Adviser makes investment recommendations for the Fund, its Asset Management
Group personnel will not inquire or take into consideration whether the issuer
of securities proposed for purchase or sale for the Fund's account are customers
of the Banking Group. In dealing with commercial customers, the Banking Group
will not inquire or take into consideration whether securities of those
customers are held by the Fund;
(f) will treat confidentially and as proprietary information of the
Company all records and other information relative to the Fund and prior,
present or potential shareholders, and will not 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
-4-
<PAGE>
unreasonably withheld and may not be withheld where the Investment Adviser 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. Nothing contained herein, however, shall prohibit
the Investment Adviser from advertising or soliciting the public generally with
respect to other products or services, regardless of whether such advertisement
or solicitation may include prior, present or potential shareholders of the
Company.
5. Services Not Exclusive. The investment management services
----------------------
rendered by the Investment Adviser hereunder are not to be deemed exclusive, and
the Investment Adviser shall be free to render similar services to others so
long as its services under this Agreement are not impaired thereby.
6. Books and Records. In compliance with the re quirements of Rule
-----------------
31a-3 under the 1940 Act, the Investment Adviser hereby agrees that all records
which it maintains for the Fund are the property of the Company and further
agrees to surrender promptly to the Company any of such records upon the
Company's request. The Investment Adviser further agrees to preserve for the
periods prescribed by Rule 31a-2 the records required to be maintained by Rule
31a-1 under the 1940 Act.
7. Expenses. During the term of this Agreement, the Investment
--------
Adviser will pay all expenses incurred by it in connection with its activities
under this Agreement other than the cost of securities, commodities, and other
investments (including brokerage commissions and other transaction charges, if
any) purchased or sold for the Fund.
In addition, if the expenses borne by the Fund in any fiscal year
exceed the applicable expense limitations imposed by the securities regulations
of any state in which its shares are registered or qualified for sale to the
public, the Investment Adviser shall reimburse the Fund for a portion of any
such excess in an amount equal to the proportion that the fees otherwise payable
to the Investment Adviser bear to the total amount of investment advisory and
administration fees otherwise payable by the Fund up to the amount of the fees
payable to the Investment Adviser during such fiscal year pursuant to paragraph
8 hereof; provided, however, that notwithstanding the foregoing, the Investment
Adviser shall reimburse the Fund for a portion of such excess expenses in an
amount equal to the proportion that the fees otherwise payable to the Investment
Adviser bear to the total amount of investment advisory and administration fees
otherwise payable by the Fund regardless of the amount of fees paid to the
Investment Adviser during such fiscal year to the extent that the securities
regulations of any state in which Fund shares are registered or qualified for
sale so require.
-5-
<PAGE>
8. Compensation. For the services provided and the expenses assumed
------------
pursuant to this Agreement, the Company will pay the Investment Adviser and the
Investment Adviser will accept as full compensation therefor a fee, computed
daily and payable monthly, at the annual rate of 1% of the average daily net
assets of the Fund.
9. Limitation of Liability of the Investment Adviser. Subject to
-------------------------------------------------
the provisions of Paragraph 2 above, concerning the Investment Adviser's
responsibility for the acts and omissions of person's employed by or associated
with the Investment Adviser, the Investment Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Company in
connection with the matters to which this Agreement relates, except the
Investment Adviser shall be jointly, but not severally, liable for 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 in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement.
10. Duration and Termination. This Agreement shall be effective as
------------------------
of the date of the commencement of the public sale of Fund shares and unless
sooner terminated as provided herein, shall continue until July 31, 1997.
Thereafter, if not terminated, this Agreement shall continue in effect for
successive periods of 12 months each, provided such continuance is specifically
approved at least annually (a) by the vote of a majority of those members of the
Board of Directors of the Company who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval, and (b) by the Board of Directors of the
Company or by vote of a majority of the outstanding voting securities of the
Fund; provided, however, that this Agreement may be terminated by the Company at
any time, without the payment of any penalty, by the Board of Directors of the
Company or by vote of a majority of the outstanding voting securities of the
Fund on 60 days' written notice to the Investment Adviser, or by the Investment
Adviser at any time, without payment of any penalty, on 90 days' written notice
to the Company. This Agreement will immediately terminate in the event of its
assignment. (As used in this Agreement, the terms "majority of the outstanding
voting securities," "interested person" and "assignment" shall have the same
meanings as such terms have in the 1940 Act.)
11. Amendment of this Agreement. No provision of this Agreement may
---------------------------
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall
-6-
<PAGE>
be effective with respect to the Fund until approved by vote of a majority of
the Fund's outstanding voting securities.
12. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by New York law.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
EXCELSIOR FUNDS, INC.
Attest:
/s/W. Bruce McConnel, III By:/s/F.S. Wonham
- -------------------------- --------------------------
Secretary President
[Seal]
U.S. TRUST COMPANY OF CONNECTICUT
Attest:
/s/Francis J. Hearn, Jr. By:/s/W. Michael Funck
- -------------------------- --------------------------
President & CEO
UNITED STATES TRUST COMPANY
Attest: OF NEW YORK
/s/Francis J. Hearn, Jr. By:/s/Kenneth L. Walsh
- -------------------------- --------------------------
Executive Vice President
-7-
<PAGE>
EXHIBIT 5(e)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of May 16, 1997 by and among EXCELSIOR FUNDS, INC.,
a Maryland corporation (herein called the "Company"), U.S. TRUST COMPANY OF
CONNECTICUT ("USTCT"), a Connecticut state bank and trust company, and UNITED
STATES TRUST COMPANY OF NEW YORK ("USTNY"), a New York state-chartered bank and
trust company (together with USTCT, the "Investment Adviser").
WHEREAS, the Company is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940;
WHEREAS, the Company desires to retain the Investment Adviser to
render investment advisory and other services to the Company for its Treasury
Money Fund ("the Fund"), and the Investment Adviser is willing to so render such
services;
NOW, THEREFORE, this Agreement
WITNESSETH:
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 Investment Adviser to
-----------
act as investment adviser to the Company for the Fund for the period and on the
terms set forth in this Agreement. The Investment Adviser accepts such
appointment and agrees to render the services herein set forth for the
compensation herein provided.
2. Delivery of Documents. The Company has furnished the Investment
---------------------
Adviser with copies properly certified or authenticated of each of the
following:
(a) Articles of Incorporation of the Company;
(b) By-Laws of the Company;
(c) Resolutions of the Board of Directors of the Company
authorizing the appointment of the Investment Adviser and the execution and
delivery of this Agreement;
(d) Registration Statement under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, on Form N-IA (No.
2-92665) relating to shares of the Company's Class G Common Stock (including
shares of any special series of such class now or hereafter designated), $.001
par
<PAGE>
value, representing interests in the Treasury Fund, and all amendments thereto;
(e) Notification of Registration of the Company under the Investment
Company Act of 1940, as amended, on Form N-8A as filed with the Securities and
Exchange Commission on August 8, 1984, and all amendments thereto; and
(f) Prospectus and Statement of Additional Information relating to the
Company's Class G Common Stock in effect under the Securities Act of 1933 (such
Prospectus and Statement of Additional Information and all supplements thereto,
as presently in effect and as from time to time amended and supplemented, herein
called the "Prospectus").
The Company will furnish the Investment Adviser from time to time with
copies of all amendments of or supplements to the foregoing, if any.
3. Management. Subject to the supervision of the Board of Directors
----------
of the Company, the Investment Adviser will provide a continuous investment
program for the Fund, including investment research and management with respect
to all securities, investments, cash and cash equivalents in the Fund. The
Investment Adviser will determine from time to time what securities and other
investments will be purchased, retained or sold by the Company for the Fund.
The Investment Adviser will provide the services rendered by it hereunder in
accordance with the Fund's investment objectives and policies as stated in the
Prospectus. The Investment Adviser further agrees that it:
(a) will conform with all applicable Rules and Regulations of the
Securities and Exchange Commission (herein called the "Rules"), and will in
addition conduct its activities under this Agreement in accordance with
applicable laws, including but not limited to applicable banking laws;
(b) will not make loans for the purpose of purchasing or carrying Fund
shares, or make loans to the Company;
(c) will place orders pursuant to its investment determinations for
the Fund either directly with the issuer or with any broker or dealer selected
by it. In placing orders with brokers and dealers, the Investment Adviser will
use its reasonable best efforts to obtain the best net price and the most
favorable execution of its orders, after taking into account all 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 the reasonableness of the commission, if any, both for the
specific transaction and on a continuing basis. Consistent with this obligation,
the Investment Adviser may, to the extent permitted
-2-
<PAGE>
by law, purchase and sell portfolio securities to and from brokers and dealers
who provide brokerage and research services (within the meaning of Section 28(e)
of the Securities Exchange Act of 1934)to or for the benefit of the Fund and/or
other accounts over which the Investment Adviser or any of its affiliates
exercises investment discretion. Subject to the review of the Company's Board of
Directors from time to time with respect to the extent and continuation of the
policy, the Investment Adviser is authorized to pay to a broker or dealer who
provides such brokerage and research services a commission for effecting a
securities transaction for the Fund which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if the Investment Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the overall responsibilities of the Investment Adviser
with respect to the accounts as to which it exercises investment discretion. In
no instance will portfolio securities be purchased from or sold to the Fund's
principal underwriter, the Investment Adviser or any affiliated person thereof
except as permitted by the Securities and Exchange Commission;
(d) will maintain books and records with respect to the Fund's
securities transactions and will render to the Company's Board of Directors such
periodic and special reports as the Board may request;
(e) will maintain a policy and practice of conducting its Asset
Management Group independently of its Banking Group. When the Investment
Adviser makes investment recommendations for the Fund, its Asset Management
Group personnel will not inquire or take into consideration whether the issuer
of securities proposed for purchase or sale for the Fund's account are customers
of the Banking Group. In dealing with commercial customers, the Banking Group
will not inquire or take into consideration whether securities of those
customers are held by the Fund;
(f) will treat confidentially and as proprietary information of the
Company all records and other information relative to the Fund and prior,
present or potential shareholders, and will not 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 Investment Adviser 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. Nothing contained herein, however, shall
-3-
<PAGE>
prohibit the Investment Adviser from advertising or soliciting the public
generally with respect to other products or services, regardless of whether such
advertisement or solicitation may include prior, present or potential
shareholders of the Company.
4. Services Not Exclusive. The investment management services
----------------------
rendered by the Investment Adviser hereunder are not to be deemed exclusive, and
the Investment Adviser shall be free to render similar services to others so
long as its services under this Agreement are not impaired thereby.
5. Books and Records. In compliance with the requirements of Rule
-----------------
31a-3 under the Investment Company Act of 1940, the Investment Adviser hereby
agrees that all records which it maintains for the Fund are the property of the
Company and further agrees to surrender promptly to the Company any of such
records upon the Company's request. The Investment Adviser further agrees to
preserve for the periods prescribed by Rule 31a-2 the records required to be
maintained by such Rule.
6. Expenses. During the term of this Agreement,the Investment
--------
Adviser will pay all expenses incurred by it in connection with its activities
under this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Fund.
In addition, if the expenses borne by the Fund in any fiscal year
exceed the applicable expense limitations imposed by the securities regulations
of any state in which its shares are registered or qualified for sale to the
public, the Investment Adviser shall reimburse the Fund for a portion of any
such excess in an amount equal to the proportion that the fees otherwise payable
to the Investment Adviser bear to the total amount of investment advisory and
administration fees otherwise payable by the Fund up to the amount of the fees
payable to the Investment Adviser during such fiscal year pursuant to paragraph
7 hereof; provided, however, that notwithstanding the foregoing, the Investment
Adviser shall reimburse the Fund for a portion of such excess expenses in an
amount equal to the proportion that the fees otherwise payable to the Investment
Adviser bear to the total amount of investment advisory and administration fees
otherwise payable by the Fund regardless of the amount of fees paid to the
Investment Adviser during such fiscal year to the extent that the securities
regulations of any state in which Fund shares are registered or qualified for
sale so require.
7. Compensation. For the services provided and the expenses assumed
------------
pursuant to this Agreement, the Company will pay the Investment Adviser and the
Investment Adviser will accept as full compensation therefor a fee, computed
daily and payable monthly, at the annual rate of .30% of the average daily net
assets of the Fund.
-4-
<PAGE>
8. Limitation of Liability of the Investment Adviser. The Investment
-------------------------------------------------
Adviser shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Company in connection with the matters to which this
Agreement relates, except the Investment Adviser shall be jointly, but not
severally, liable for 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 in the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement.
9. Duration and Termination. This Agreement shall be effective as of
------------------------
the date of the commencement of the public sale of Fund shares and unless sooner
terminated as provided herein, shall continue until July 31, 1997. Thereafter,
if not terminated, this Agreement shall continue in effect for successive
periods of 12 months each, provided such continuance is specifically approved at
least annually (a) by the vote of a majority of those members of the Board of
Directors of the Company who are not parties to this Agreement or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such approval, and (b) by the Board of Directors of the Company or by
vote of a majority of the outstanding voting securities of the Fund; provided,
however, that this Agreement may be terminated by the Company at any time,
without the payment of any penalty, by the Board of Directors of the Company or
by vote of a majority of the outstanding voting securities of the Fund on 60
days' written notice to the Investment Adviser, or by the Investment Adviser at
any time, without payment of any penalty, on 90 days' written notice to the
Company. This Agreement will immediately terminate in the event of its
assignment. (As used in this Agreement the terms "majority of the outstanding
voting securities," "interested person" and "assignment" shall have the same
meanings as such terms have in the Investment Company Act of 1940.)
10. Amendment of this Agreement. No provision of this Agreement may
---------------------------
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective with respect to the Fund until approved by vote of a majority of the
Fund's outstanding voting securities.
11. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to
-5-
<PAGE>
the benefit of the parties hereto and their respective successors and shall be
governed by New York law.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
Attest: EXCELSIOR FUNDS, INC.
/s/W. Bruce McConnel, III By:/s/F.S. Wonham
- ----------------------------- -----------------------------
Secretary President
[Seal]
Attest: U.S. TRUST COMPANY OF
CONNECTICUT
/s/Francis J. Hearn, Jr. By:/s/W. Michael Funck
- ----------------------------- --------------------------
President & CEO
Attest: UNITED STATES TRUST COMPANY OF
NEW YORK
/s/Francis J. Hearn, Jr. By:/s/Kenneth L. Walsh
- ---------------------------- -----------------------------
Executive Vice President
-6-
<PAGE>
EXHIBIT 9(b)
ADMINISTRATION AGREEMENT
This AGREEMENT made as of May 16, 1997 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 U.S. TRUST COMPANY OF CONNECTICUT ("U.S. Trust"),
a Connecticut state bank and trust company (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 May 16, 1997 and,
----
unless sooner terminated as provided herein, shall continue until July 31, 1997,
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:
U.S. Trust Company of Connecticut
225 High Ridge Road
East Tower
Stamford, CT 06905
Telecopier Number: (203) 352-4488
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 may be executed in one or
more counterparts and all such counterparts will constitute one and the same
instrument.
-9-
<PAGE>
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:/s/W. Bruce McConnel, III By:/s/F.S. Wonham
------------------------- --------------------
Title: President
(SEAL)
ATTEST: CHASE GLOBAL FUNDS SERVICES
COMPANY
By:/s/Daniel A. Moonay By:/s/Donald P. Hearn
------------------------- ---------------------
Title: Chairman & CEO
(SEAL)
ATTEST: FEDERATED ADMINISTRATIVE SERVICES
By:/s/Victor R. Siclari By:/s/Joseph A. Machi
------------------------- ---------------------
Vice President Title: Vice President
(SEAL)
ATTEST: U.S. TRUST COMPANY OF CONNECTICUT
By:/s/Francis J. Hearn, Jr. By:/s/W. Michael Funck
------------------------- ----------------------
Title:President & CEO
-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 May 16, 1997 among Excelsior Funds, Inc. (the "Company"),
Chase Global Funds Services Company ("CGFSC"), Federated Administrative Services
("FAS") and U.S. Trust Company of Connecticut ("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;
-11-
<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 16th day of May, 1997.
ATTEST: EXCELSIOR FUNDS, INC.
/s/W. Bruce McConnel, III /s/F.S. Wonham
- ------------------------- -------------------------
Secretary Title: President
(SEAL)
ATTEST: FEDERATED ADMINISTRATIVE
SERVICES
/s/Victor R. Siclari /s/Joseph A. Machi
- --------------------------- --------------------------
Vice President Title: Vice President
(SEAL)
ATTEST: CHASE GLOBAL FUNDS SERVICES COMPANY
/s/Daniel A. Moonay /s/Donald P. Hearn
- --------------------------- -------------------------
Title: Chairman & CEO
(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 May 16, 1997 among Excelsior Funds, Inc. (the "Company"),
Chase Global Funds Services Company ("CGFSC"), Federated Administrative Services
("FAS") and U.S. Trust Company of Connecticut ("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;
-1-
<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 16th day of May, 1997.
ATTEST: EXCELSIOR FUNDS, INC.
/s/W. Bruce McConnel, III /s/F.S. Wonham
- ------------------------- -------------------------
Secretary Title: President
(SEAL)
ATTEST: U.S. TRUST COMPANY
OF CONNECTICUT
/s/Francis J. Hearn, Jr. By:/s/W. Michael Funck
- -------------------------- -------------------------
Title: President & CEO
-2-
<PAGE>
EXHIBIT 9(c)
MUTUAL FUNDS TRANSFER AGENCY AGREEMENT
AGREEMENT made as of September 1, 1995 by and between UST Master
Funds, Inc. (the "Company") a Maryland corporation, and United States Trust
Company of New York ("U.S. Trust"), a New York corporation.
W I T N E S S E T H:
WHEREAS, the Company is registered as an open-end investment company
under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Company is authorized to issue shares of Common Stock in
separate series and classes representing interests in separate portfolios of
securities and other assets;
WHEREAS, the Company wishes to retain U.S. Trust to serve as the
Company's transfer agent, registrar and dividend disbursing agent;
WHEREAS, U.S. Trust desires to assign its duties and obligations with
respect to the provision of such services to Chase Global Funds Services Company
("CGFSC"), and the Company acknowledges the right of U.S. Trust to make such
assignment provided U.S. Trust shall be as fully responsible to the Company for
the acts and omissions of CGFSC as U.S. Trust is for its own acts and omissions;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
<PAGE>
1. APPOINTMENT. The Company hereby appoints U.S. Trust to serve as
transfer agent, registrar and dividend disbursing agent for each class and/or
series of Common Stock of the Company with respect to its existing Funds (as
hereinafter defined) for the period and on the terms set forth in this
Agreement. In the event that the Company establishes additional classes or
series other than the Common Stock of the Funds covered by this Agreement with
respect to which it desires to retain U.S. Trust to serve as transfer agent,
registrar and dividend disbursing agent hereunder, the Company shall notify U.S.
Trust in writing, whereupon such fund 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 the compensation payable
on behalf of such new Fund, may be modified in writing by the Company and U.S.
Trust at the time). U.S. Trust accepts such appointment and agrees to furnish
the services herein set forth in return for the compensation as provided in
Paragraph 5 of this Agreement.
2. REPRESENTATIONS AND WARRANTIES.
(a) U.S. Trust represents and warrants to the Company that:
(i) U.S. Trust is a state chartered bank and trust company
organized and existing under the laws of the State of New York;
-2-
<PAGE>
(ii) U.S. Trust is empowered under applicable laws and by its charter
and by-laws to enter into and perform this Agreement;
(iii) all requisite corporate proceedings have been taken to authorize
U.S. Trust to enter into and perform this Agreement;
(iv) U.S. Trust is duly registered as a transfer agent under Section
17A of the Securities Exchange Act of 1934, as amended (the "1934 Act"). U.S.
Trust shall promptly give written notice to the Company in the event that its
registration is revoked or a proceeding is commenced that could result in such
revocation;
(v) U.S. Trust has been in, and shall continue to be in, compliance
with all provisions of law, including Section 17A(c) of the 1934 Act, required
in connection with the performance of its duties under this Agreement;
(vi) U.S. Trust has, and will continue to have, access to the
facilities, personnel and equipment required to fully perform its duties and
obligations hereunder;
(vii) no legal or administrative proceedings have been instituted
or threatened which would impair U.S. Trust's ability to perform its duties and
obligations under this Agreement; and
(viii) U.S. Trust's entrance into this Agreement shall not cause a
material breach or be in material conflict with
-3-
<PAGE>
any other agreement or obligation of U.S. Trust or any law or regulation
applicable to U.S. Trust;
(b) The Company represents and warrants to U.S. Trust that:
(i) the Company is a Maryland corporation, duly organized and
existing and in good standing under the laws of Maryland;
(ii) the Company is empowered under applicable laws and by its
Articles of Incorporation, as supplemented ("Charter"), and By-Laws, as amended
("By-Laws"), to enter into and perform this Agreement;
(iii) all requisite proceedings have been taken to authorize
the Company to enter into and perform this Agreement;
(iv) the Company is an investment company properly registered
under the 1940 Act;
(v) a registration statement under the Securities Act of 1933, as
amended (the "1933 Act") and the 1940 Act on Form N-1A has been filed and will
be effective and will remain effective during the term of this Agreement, and
all necessary filings under the laws of the states will have been made and will
be current during the term of this Agreement;
(vi) no legal or administrative proceedings have been instituted or
threatened which would impair the Company's ability to perform its duties and
obligations under this Agreement;
-4-
<PAGE>
(vii) the Company's registration statement complies in all material
respects with the 1933 Act and the 1940 Act (including the rules and regulations
thereunder) and none of the Company's prospectuses contain any untrue statement
of material fact or omit to state a material fact necessary to make the
statements therein not misleading; and
(viii) the Company's entrance into this Agreement shall not cause
a material breach or be in material conflict with any other agreement or
obligation of the Company or any law or regulation applicable to it.
3. DELIVERY OF DOCUMENTS. The Company has furnished U.S. Trust with
copies properly certified or authenticated of each of the following:
(a) Resolutions of the Company's Board of Directors authorizing the
appointment of U.S. Trust as transfer agent, registrar and dividend disbursing
agent for each class and/or series of Common Stock of the Company and approving
this Agreement;
(b) Incumbency and signature certificates identifying and containing
the signatures of the Company's officers and/or the persons authorized to sign
Written Instructions, as hereafter defined, on behalf of the Company;
(c) The Company's Charter;
(d) The Company's By-Laws;
(e) Resolutions of the Company's Board of Directors appointing U.S.
Trust as the investment adviser to the Company's
-5-
<PAGE>
Money, Government Money, Equity, Managed Income, Income and Growth,
International, Treasury Money, Early Life Cycle, Long-Term Supply of Energy,
Productivity Enhancers, Environmentally-Related Products and Services, Aging of
America, Communication and Entertainment, Business and Industrial Restructuring,
Global Competitors, Emerging Americas, Pacific/Asia, Pan European, Short-Term
Government Securities and Intermediate-Term Managed Income Funds (herein "the
Funds") and resolutions of the Company's Board of Directors and Fund
shareholders ("Shareholders") approving an Investment Advisory Agreement between
U.S. Trust and the Company dated February 6, 1985, as amended; an Investment
Advisory Agreement between U.S. Trust and the Company dated November 26, 1985,
as amended; an Investment Advisory Agreement between U.S. Trust and the Company
dated December 16, 1986, as amended; an Investment Advisory Agreement between
U.S. Trust and the Company dated May 27, 1987, as amended; an Investment
Advisory Agreement between U.S. Trust and the Company dated February 1, 1991; a
Sub-Advisory Agreement dated May 27, 1987 between U.S. Trust and Foreign and
Colonial Asset Management ("FACAM"); a Sub-Advisory Agreement dated December 15,
1992 between U.S. Trust and FACAM; and a Sub-Advisory Agreement dated February
16, 1994 between U.S. Trust and Foreign and Colonial Emerging Markets Limited
(the "Advisory Agreements");
(f) Resolutions of the Company's Board of Directors appointing
Edgewood Services, Inc. (the "Distributor") as the
-6-
<PAGE>
Company's distributor for the Funds and approving a Distribution Agreement
between the Distributor and the Company dated as of August 1, 1995 (the
"Distribution Agreement");
(g) Resolutions of the Company's Board of Directors appointing
Federated Administrative Services ("Federated") as the administrator for the
Funds and approving an Administration Agreement between Federated and the
Company dated as of August 1, 1995 (the "Administration Agreement");
(h) The Advisory Agreements, the Distribution Agreement and the
Administration Agreement;
(i) The Company's Notification of Registration filed pursuant to
Section 8(a) of the 1940 Act on Form N-8A with the Securities and Exchange
Commission ("SEC") on August 8, 1984;
(j) Post-Effective Amendment No. 21 to the Company's Registration
Statement on Form N-1A under the 1940 Act and the 1933 Act, as filed with the
SEC on August 1, 1995 (File No. 2-92665) relating to shares of the Company's
Class A Common Stock, $.001 par value per share, which represent interests in
the Money Fund; Class B Common Stock, $.001 par value per share, which
represents interests in the Government Money Fund; Class C Common Stock and
Class C Common Stock - Special Series 1, $.001 par value per share, which
represent interests in the Equity Fund; Class D Common Stock, $.001 par value
per share, which represent interests in the Managed Income Fund; Class E Common
Stock and Class E Common Stock - Special Series 1, $.001 par value per share,
which represent interests in the Income and Growth Fund;
-7-
<PAGE>
Class F Common Stock, $.001 par value per share, which represent interests in
the International Fund; Class G Common Stock, $.001 par value per share, which
represent interests in the Treasury Money Fund; Class H Common Stock and Class H
Common Stock -Special Series 1, $.001 par value per share, which represent
interests in the Early Life Cycle Fund; Class I Common Stock and Class I Common
Stock - Special Series 1, $.001 par value per share, which represent interests
in the Long-Term Supply of Energy Fund; Class J Common Stock and Class J Common
Stock -Special Series 1, $.001 par value per share, which represent interests in
the Productivity Enhancers Fund; Class K Common Stock and Class K Common Stock -
Special Series 1, $.001 par value per share, which represent interests in the
Environmentally-Related Products and Services Fund; Class L Common Stock and
Class L Common Stock - Special Series 1, $.001 par value per share, which
represent interests in the Aging of America Fund; Class M Common Stock and Class
M Common Stock -Special Series 1, $.001 par value per share, which represent
interests in the Communication and Entertainment Fund; Class N Common Stock and
Class N Common Stock - Special Series 1, $.001 par value per share, which
represent interests in the Business and Industrial Restructuring Fund; Class O
Common Stock and Class O Common Stock - Special Series 1, $.001 par value per
share, which represent interests in the Global Competitors Fund; Class P Common
Stock, $.001 par value per share, which represent interests in the Emerging
Americas Fund; Class Q Common Stock,
-8-
<PAGE>
$.001 par value per share, which represent interests in the Pacific/Asia Fund;
Class R Common Stock, $.001 par value per share, which represent interests in
the Pan European Fund; Class S Common Stock, $.001 par value per share, which
represent interests in the Short-Term Government Securities Fund; and Class T
Common Stock, $.001 par value per share, which represent interests in the
Intermediate-Term Managed Income Fund (such shares and shares of the Company
hereafter classified by the Company's Board of Directors are hereinafter
collectively called "Shares"), and all amendments thereto; and
(k) The Company's most recent prospectuses (such prospectuses, as
currently in effect, and all amendments and supplements thereto and future
versions thereof are herein called the "Prospectuses").
The Company will furnish U.S. Trust from time to time with copies of
all amendments of or supplements to the foregoing, if any, and with comparable
documents with respect to any Fund of the Company organized after the date of
this Agreement that is covered by this Agreement. The Company shall also
deliver to U.S. Trust the following documents on or before the effective date of
any increase or decrease in the total number of Shares authorized to be issued
by the Company: (a) a certified copy of the amendment of the Articles of
Incorporation giving effect to such increase or decrease, and (b) in the case of
an increase, if the appointment of U.S. Trust was theretofore expressly limited,
-9-
<PAGE>
a certified copy of a resolution of the Board of Directors of the Company
increasing the authority of U.S. Trust.
4. SERVICES PROVIDED
(a) U.S. Trust will provide the following services subject to the
control, direction and supervision of the Board of Directors and in compliance
with the objectives, policies and limitations set forth in the Company's
Registration Statement, Charter and By-Laws; applicable laws and regulations;
and all resolutions and policies implemented by the Board of Directors.
The following is a general description of the transfer agency services
U.S. Trust shall provide to the Company.
A. SHAREHOLDER RECORDKEEPING. Maintain records showing for each
Fund shareholder the following: (i) name, address, appropriate
tax certification and tax identifying number; (ii) number of
shares of each Fund; (iii) historical information including, but
not limited to, dividends paid and date and price of all
transactions including individual purchase and redemptions and
appropriate supporting documents; and (iv) any dividend
reinvestment order, application, dividend to a specific address
and correspondence relating to the current maintenance of the
account.
B. SHARE ISSUANCE. Record the issuance of shares of each Fund.
Except as specifically agreed in writing between U.S. Trust and
the Company, U.S.
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<PAGE>
Trust shall have no obligation when countersigning and issuing
and/or crediting shares to take cognizance of any other laws
relating to the issue and sale of such shares except insofar as
policies and procedures of the Stock Transfer Association
recognize such laws. U.S. Trust shall notify the Company in case
any proposed issue of shares by the Company shall result in an
over-issuance. In case any issue of shares would result in such
an over-issue, U.S. Trust shall refuse to issue said shares and
shall not countersign and issue certificates (if any) for such
shares.
C. PURCHASE ORDERS. Process all orders for the purchase of shares
of the Company in accordance with the Company's Prospectuses,
including electronic transmissions, which the Company
acknowledges it has authorized. Upon receipt of any check or
other payment for purchase of shares of the Company from an
investor, U.S. Trust will (i) stamp the order or other
documentation with the date and time of receipt, (ii) forthwith
process the same for collection, (iii) determine the amounts
thereof due the Company, and notify the Company of such
determination and deposit, such notification to be given on a
daily basis of the total amounts determined and deposited to the
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<PAGE>
Company's custodian bank account during such day. U.S. Trust
shall then credit the share account of the investor with the
number of Fund shares to be purchased made on the date such
payment is received by U.S. Trust, as set forth in the Company's
Prospectus and shall promptly mail a confirmation of said
purchase to the investor, all subject to any instructions which
the Company may give to U.S. Trust with respect to the timing or
manner of acceptance of orders for shares relating to payments so
received by it. Any purchase order received by U.S. Trust, which
is not in good order will be rejected immediately.
D. REDEMPTION ORDERS. Receive and stamp with the date and time of
receipt all requests for redemptions or repurchase of shares held
in certificate or non-certificate form, and process redemptions
and repurchase requests as follows: (i) if such certificate or
redemption request complies with the applicable standards
approved by the Company, U.S. Trust shall on each business day
notify the Company of the total number of shares presented and
covered by such requests received by U.S. Trust on such day; (ii)
within the time specified in the Prospectus and if not so
specified on or prior to the seventh calendar day
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<PAGE>
succeeding any such requests received by U.S. Trust, shall notify
The Chase Manhattan Bank, N.A. (the "Custodian"), subject to
instructions from the Company, to transfer monies to such account
as designated by U.S. Trust for such payment to the redeeming
shareholder of the applicable redemption or repurchase price;
(iii) if any such certificate or request for redemption of
repurchase does not comply with applicable standards, U.S. Trust
shall promptly notify the investor of such fact, together with
the reason therefor, and shall effect such redemption at the
Company's price next determined after receipt of documents
complying with said standards.
E. TELEPHONE ORDERS. Process redemptions, exchanges and transfers
of Fund shares upon telephone instructions from qualified
shareholders in accordance with the procedures set forth in the
Company's Prospectuses. The administrator shall be permitted to
redeem, exchange and/or transfer Fund shares from any account for
which such services have been authorized, including electronic
transmissions.
F. TRANSFER OF SHARES. Upon receipt by U.S. Trust of documentation
in proper form to effect a transfer of shares, including in the
case of shares for
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which certificates have been issued the share certificates in
proper form for transfer, U.S. Trust will register such transfer
on the Company's shareholder records maintained by U.S. Trust
pursuant to instructions received from the transferor, cancel the
certificates representing such shares, if any, and if so
requested, countersign, register, issue and mail by first class
mail new certificates for the same or a smaller whole number of
shares.
G. SHAREHOLDER COMMUNICATIONS. Address and mail all communications
by the Company to its shareholders promptly following the
delivery by the Company of the material to be mailed.
H. PROXY MATERIALS. Prepare shareholder lists, mail and certify as
to the mailing of proxy materials, receive the tabulated proxy
cards, render periodic reports to the Company on the progress of
such tabulation, and provide the Company with inspectors of
election at any meeting of shareholders.
I. SHARE CERTIFICATES. If a shareholder of the Company requests a
certificate representing his shares, U.S. Trust as Transfer Agent
or CGFSC as sub-transfer agent, will countersign and mail, a
share certificate to the investor at his/her
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address as it appears on the Company's transfer books. U.S.
Trust shall supply, at the expense of the Company a supply of
blank share certificates. The certificates shall be properly
signed, manually or by facsimile, as authorized by the Company,
and shall bear the Company's seal or facsimile; and
notwithstanding the death, resignation or removal of any officers
of the Company authorized to sign certificates, U.S. Trust and/or
CGFSC may, until otherwise directed by the Company, continue to
countersign certificates which bear the manual or facsimile
signature of such officer.
J. RETURNED CHECKS. In the event that any check or other order for
the payment of money is returned unpaid for any reason, U.S.
Trust will take such steps, including redepositing the check for
collection or returning the check to the investor, as U.S. Trust
may, at its discretion, deem appropriate and notify the Company
of such action, or as the Company may instruct. However, subject
to Paragraph 7(b) below, the Company remains ultimately liable
for any returned checks of its shareholders.
K. SHAREHOLDER CORRESPONDENCE. Acknowledge all correspondence from
shareholders relating to their
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share accounts and undertake such other shareholder
correspondence as may from time to time be mutually agreed upon.
L. TAX REPORTING. U.S. Trust shall issue appropriate shareholder
tax forms on an annual basis.
M. DIVIDEND DISBURSING. U.S. Trust will serve as the Company's
dividend disbursing agent. U.S. Trust will prepare and mail
checks, place wire transfers of credit income and capital gain
payments to shareholders. The Company will advise U.S. Trust of
the declaration of any dividend or distribution and the record
and payable date thereof at least five (5) days prior to the
record date. U.S. Trust will, on or before the payment date of
any such dividend or distribution, notify the Company's Custodian
of the estimated amount required to pay any portion of such
dividend or distribution payable in cash, and on or before the
payment date of such distribution, the Company will instruct its
Custodian to make available to U.S. Trust sufficient funds for
the cash amount to be paid out. If a shareholder is entitled to
receive additional shares by virtue of any such distribution or
dividend, appropriate credits will be made to each shareholder's
account.
(b) U.S. Trust will also:
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(i) provide office facilities with respect to the provision of the
services contemplated herein (which may be in the offices of U.S. Trust or a
corporate affiliate of U.S. Trust);
(ii) provide the services of individuals to serve as officers of the
Company who will be designated by U.S. Trust and elected by the Board of
Directors subject to reasonable Board approval;
(iii) provide or otherwise obtain personnel sufficient, in U.S.
Trust's sole discretion, for provision of the services contemplated herein;
(iv) furnish equipment and other materials, which U.S. Trust, in its
sole discretion, believes are necessary or desirable for provision of the
services contemplated herein; and
(v) keep records relating to the services provided hereunder in
accordance with the 1940 Act and the rules thereunder. To the extent required
by the 1940 Act and the rules thereunder, U.S. Trust agrees that all such
records prepared or maintained by U.S. Trust relating to the services provided
hereunder are the property of the Company and will be preserved for the periods
prescribed under the 1940 Act and the rules thereunder, maintained at the
Company's expense, and made available in accordance with such Act and rules.
U.S. Trust further agrees to surrender promptly to the Company upon its request
and cease to retain in its records and files those
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records and documents created and maintained by U.S. Trust pursuant to this
Agreement.
5. FEES; EXPENSES; EXPENSE REIMBURSEMENT.
(a) As compensation for the services rendered to the Company pursuant
to this Agreement, the Company shall pay U.S. Trust monthly $15.00 per account
and subaccount of each Fund of the Company per year or for any portion of a year
plus U.S. Trust's out-of-pocket expenses relating to such services, including,
but not limited to, expenses of postage, telephone, TWX rental and line charges,
communication forms, and checks and check processing. Such fees are to be
billed monthly and shall be due and payable upon receipt of the invoice. The
Company shall also pay U.S. Trust monthly any fees and expenses charged by any
sub-transfer agent other than CGFSC provided that the sub-transfer agent and the
fees and expenses charged by that sub-transfer agent have been approved by the
Company's Board of Directors. Upon any termination of this Agreement before the
end of any month, the fee for the part of the month before such termination
shall be prorated according to the proportion which such part bears to the full
monthly period and shall be payable upon the date of termination of this
Agreement.
(b) For the purpose of determining fees calculated as a function of
the Company's assets, the value of the Company's assets and net assets shall be
computed as required by its Prospectuses, generally accepted accounting
principles, and resolutions of the Board of Directors.
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(c) U.S. Trust may, in its sole discretion, from time to time employ
or associate with such person or persons as may be appropriate to assist U.S.
Trust in the performance of this Agreement. Such person or persons may be
officers and employees who are employed or designated as officers by both U.S.
Trust and the Company. The compensation of such person or persons for such
employment shall be paid by U.S. Trust and no obligation will be incurred by or
on behalf of the Company in such respect.
(d) The Company may request additional services, additional
processing, or special reports. The Company shall submit such requests in
writing together with such specifications and documentation as may be reasonably
required by U.S. Trust. If U.S. Trust elects to provide such services or
arrange for their provision, it shall be entitled to additional fees and
expenses at its customary rates and charges as approved by the Company's Board
of Directors.
(e) U.S. Trust will bear all of its own expenses in connection with
the performance of the services under this Agreement except as otherwise
expressly provided herein. The Company agrees to promptly reimburse U.S. Trust
for any equipment and supplies specially ordered by or for the Company through
U.S. Trust, and for any other expenses not contemplated by this Agreement that
U.S. Trust may incur on the Company's behalf, as consented to by the Company
from time to time. Expenses to be incurred in the operation of the Company and
to be borne by the Company, include, but are not limited to: taxes; interest;
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brokerage fees and commissions, salaries and fees of officers and directors who
are not officers, directors, shareholders or employees of U.S. Trust, or the
Company's investment adviser, or distributor or other service providers; SEC and
state Blue Sky registration and qualification fees, levies, fines and other
charges; EDGAR filing fees, processing services and related fees; advisory and
administration fees; charges and expenses of pricing and data services,
independent public accountants and custodians; insurance premiums including
fidelity bond premiums; legal expenses; costs of maintenance of corporate
existence; expenses of typesetting and printing of prospectuses for regulatory
purposes and for distribution to current shareholders of the Company (the
Company's distributor to bear the expense of all other printing, production, and
distribution of prospectuses, statements of additional information, and
marketing materials except as otherwise approved by the Board of Directors of
the Company); expenses of printing and production costs of shareholders' reports
and proxy statements and materials; costs and expenses of Fund stationery and
forms; costs and expenses of special telephone and data lines and devices; costs
associated with corporate, shareholder, and Board meetings; trade association
dues and expenses; and any extraordinary expenses and other customary Fund
expenses. In addition, U.S. Trust may utilize one or more independent pricing
services, approved from time to time by the Board, to obtain securities prices
and to act as backup to the primary pricing services, in connection with
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determining the net asset values of the Company, and the Company will reimburse
U.S. Trust for the Company's share of the cost of such services based upon the
actual usage, or a pro rata estimate of the use, of the services for the benefit
of the Company.
(f) All fees, out-of-pocket expenses, or additional charges of U.S.
Trust shall be billed on a monthly basis and shall be due and payable upon
receipt of the invoice.
U.S. Trust will render, after the close of each month in which
services have been furnished, a statement reflecting all of the charges for such
month.
6. PROPRIETARY AND CONFIDENTIAL INFORMATION. U.S. Trust 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
Company's prior, present or potential shareholders, and to not use such records
and information for any purpose other than performance of U.S. Trust's
responsibilities and duties hereunder. U.S. Trust may seek a waiver of such
confidentiality provisions by furnishing reasonable prior notice to the Company
and obtaining approval in writing from the Company, which approval shall not be
unreasonably withheld and may not be withheld where U.S. Trust may be exposed to
civil or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities. Waivers of
confidentiality are automatically effective without further action by U.S. Trust
with
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respect to Internal Revenue Service levies, subpoenas and similar actions, or
with respect to any request by the Company.
7. DUTIES, RESPONSIBILITIES, AND LIMITATION OF LIABILITY.
(a) In the performance of its duties hereunder, U.S. Trust shall be
obligated to act in good faith in performing the services provided for under
this Agreement. In performing its services hereunder, U.S. Trust shall be
entitled to rely on any oral or written instructions, notices or other
communications, including electronic transmissions, from the Company and its
custodians, officers and directors, investors, agents and other service
providers which U.S. Trust reasonably believes to be genuine, valid and
authorized. U.S. Trust shall also be entitled to consult with and rely on the
advice and opinions of outside legal counsel retained by the Company, as
necessary or appropriate.
(b) Except as provided herein, U.S. Trust 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 caused by or resulting from willful misfeasance, bad faith
or negligence on U.S. Trust's part in the performance of its duties or from
reckless disregard by U.S. Trust of its obligations and duties under this
Agreement. Any person, even though also an officer, director, partner, employee
or agent of U.S. Trust, who may be or become an officer, director, partner,
employee or agent of the Company, shall be deemed when rendering
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services to the Company in that capacity or acting on any business of the
Company in that capacity (other than services or business in connection with
U.S. Trust's duties hereunder) to be rendering such services to or acting solely
for the Company and not as an officer, director, partner, employee or agent or
person under the control or direction of U.S. Trust even though paid by U.S.
Trust.
(c) Subject to Paragraphs 7(b) and (d), U.S. Trust shall not be
responsible for, and the Company shall indemnify and hold U.S. Trust harmless
from and against, any and all losses, damages, costs, reasonable attorneys' fees
and expenses, payments, expenses and liabilities arising out of or attributable
to:
(i) all actions of U.S. Trust or its officers or agents required to be
taken pursuant to this Agreement;
(ii) the reliance on or use by U.S. Trust or its officers or agents of
information, records, or documents which are received by U.S. Trust or its
officers or agents and furnished to it or them by or on behalf of the Company,
and which have been prepared or maintained by the Company or any third party on
behalf of the Company other than U.S. Trust or any of its affiliates;
(iii) the Company's refusal or failure to comply with the terms
of this Agreement or the Company's lack of good faith, or its actions, or lack
thereof, involving gross negligence or willful misfeasance;
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(iv) the material breach of any representation or warranty of the
Company hereunder;
(v) the legal taping or other form of legal recording of telephone
conversations or other legal forms of electronic communications with investors
and shareholders, or reliance by U.S. Trust or its officers or agents on
telephone or other electronic instructions of any person acting on behalf of a
shareholder or shareholder account for which telephone or other electronic
services have been authorized;
(vi) the reliance on or the carrying out by U.S. Trust or its officers
or agents of any proper instructions reasonably believed to be duly authorized,
or requests of the Company or recognition by U.S. Trust or its officers or
agents of any share certificates which are reasonably believed to bear the
proper signatures of the officers of the Company and the proper countersignature
of any transfer agent or registrar of the Company;
(vii) any delays, inaccuracies, errors in or omissions from data
provided to U.S. Trust or its officers or agents by data and pricing services;
(viii) the offer or sale of shares by the Company in violation of
any requirement under the Federal securities laws or regulations or the
securities laws or regulations of any state, or in violation of any stop order
or other determination or ruling by any Federal agency or any state agency with
respect to the offer or sale of such shares in such state (1) resulting
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from activities, actions, or omissions by the Company or its other service
providers and agents other than U.S. Trust or its officers or agents or any of
their affiliates, or (2) existing or arising out of activities, actions or
omissions by or on behalf of the Company other than by U.S. Trust or its
officers or agents or any of their affiliates prior to the effective date of
this Agreement;
(ix) any failure of the Company's registration statement to comply
with the 1933 Act and the 1940 Act (including the rules and regulations
thereunder) and any other applicable laws, or any untrue statement of a material
fact or omission of a material fact necessary to make any statement therein not
misleading in a Fund's prospectus, unless such failure, misstatement or omission
relates to, results from or otherwise arises in connection with, actions,
inactions and/or information provided by U.S. Trust or its officers or agents;
and
(x) the actions taken by the Company, its investment adviser (other
than U.S. Trust or its officers or agents or any of their affiliates), and its
distributor in compliance with applicable securities, tax, commodities and other
laws, rules and regulations, or the failure to so comply.
(d) Notwithstanding anything herein to the contrary, U.S. Trust shall
be as fully responsible to the Company for the acts and omissions of any sub-
transfer agent as U.S. Trust is for its own acts and omissions.
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8. TERM. This Agreement shall become effective on the date first
hereinabove written. This Agreement may be modified or amended from time to
time by mutual agreement between the parties hereto. This Agreement shall
continue in effect unless terminated by either party on 120 days' prior written
notice provided that should U.S. Trust fail to be registered pursuant to Section
17A of the 1934 Act as a transfer agent at any time, the Company may, on written
notice to U.S. Trust, immediately terminate this Agreement. Upon termination of
this Agreement, the Company shall pay to U.S. Trust such compensation and any
out-of-pocket or other reimbursable expenses which may become due or payable
under the terms hereof as of the date of termination or after the date that the
provision of services ceases, whichever is later.
9. NOTICES. Any notice required or permitted hereunder shall be in
writing and shall be deemed to have been given when delivered in person or by
certified mail, return receipt requested, to the parties at the following
address (or such other address as a party may specify by notice to the other):
If to the Company:
Drinker Biddle & Reath
1345 Chestnut Street, Suite 1100
Philadelphia, PA 19107
Attn: W. Bruce McConnel, III
Fax: (215) 988-2757
If to U.S. Trust:
United States Trust Company of New York
114 West 47th Street
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New York, NY 10036
Attention: Maureen Scannell Bateman
Fax: (212) 852-1310
Notice shall be effective upon receipt if by mail, on the date of personal
delivery (by private messenger, courier service or otherwise) or upon confirmed
receipt of telex or facsimile, whichever occurs first.
10. ASSIGNMENT AND DELEGATION. This Agreement shall not be assigned and
the rights, duties and obligations of the parties hereunder may not be
subcontracted or delegated by either of the parties hereto without the prior
consent in writing of the other party.
11. WAIVER. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver nor
shall it deprive such party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver must be in
writing signed by the waiving party.
12. FORCE MAJEURE. U.S. Trust shall not be responsible or liable for any
failure or delay in performance of its obligations under this Agreement arising
out of or caused, directly or indirectly, by circumstances beyond its control,
including without limitation, acts of God, earthquakes, fires, floods, wars,
acts of civil or military authorities, or governmental actions, nor shall any
such failure or delay give the Company the right to terminate this Agreement.
During the term of this Agreement, at no additional cost to the Company, U.S.
Trust shall
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provide a facility capable of safeguarding the transfer agency and dividend
disbursing records of the Company in case of damage to the primary facility
providing those services (the "Back-Up Facility"). Transfer of the transfer
agency and dividend records of the Company to the Back-Up Facility shall be at
U.S. Trust's expense, shall commence immediately after damage to the primary
facility results in an inability to provide the transfer agency and dividend
disbursing services, and shall be completed within 72 hours of commencement.
After the primary facility has recovered, U.S. Trust shall again utilize it to
provide the transfer agency and dividend disbursing services to the Company at
no additional cost to the Company. U.S. Trust shall use reasonable efforts to
provide the services described in this Agreement from the Back-Up Facility.
13. USE OF NAME. The Company and U.S. Trust agree not to use the other's
name nor the names of such other's affiliates, designees, or assignees in any
prospectus, sales literature, or other printed material written in a manner not
previously approved by the other or such other's affiliates, designees, or
assignees except where required by the SEC or other regulatory authorities.
14. AMENDMENTS. This Agreement may be modified or amended from time to
time by mutual written agreement between the parties. No provision of this
Agreement may be changed, discharged, or terminated orally, but only by an
instrument in
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writing signed by the party against which enforcement of the change, discharge
or termination is sought.
15. SEVERABILITY. If any provision of this Agreement is invalid or
unenforceable, the balance of the Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance it shall nevertheless
remain applicable to all other persons and circumstances.
16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE SUBSTANTIVE
LAWS OF THE STATE OF NEW YORK, INCLUDING THE DETERMINATION OF WHEN AN
"ASSIGNMENT" HAS OCCURRED.
This Agreement may be executed in one or more counterparts and all
such counterparts will constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below as of the date first written
above.
UST MASTER FUNDS, INC.
By: _____________________
Name: __________________
Title: _________________
UNITED STATES TRUST COMPANY
OF NEW YORK
By: ______________________
Name: ____________________
Title: ___________________
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EXHIBIT 9(d)
MUTUAL FUNDS SUB-TRANSFER AGENCY AGREEMENT
AGREEMENT made as of September 1, 1995 by and between United States
Trust Company of New York ("U.S. Trust"), and Chase Global Funds Services
Company ("Sub-Transfer Agent").
W I T N E S S E T H:
WHEREAS, UST Master Funds, Inc. (the "Company") a Maryland
corporation, is registered as an open-end investment company under the
Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Company is authorized to issue shares of Common Stock in
separate series and classes representing interests in separate portfolios of
securities and other assets;
WHEREAS, the Company has retained U.S. Trust to serve as the Company's
transfer agent, registrar and dividend disbursing agent;
WHEREAS, U.S. Trust desires to assign its duties and obligations with
respect to the provision of such services to Sub-Transfer Agent, and the Company
has acknowledged the right of U.S. Trust to make such assignment provided U.S.
Trust shall be as fully responsible to the Company for the acts and omissions of
Sub-Transfer Agent as U.S. Trust is for its own acts and omissions;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
<PAGE>
1. APPOINTMENT. U.S. Trust hereby appoints Sub-Transfer Agent to serve
as sub-transfer agent, sub-registrar and sub-dividend disbursing agent for each
class and/or series of Common Stock of the Company with respect to its existing
Funds (as hereinafter defined) for the period and on the terms set forth in this
Agreement. In the event that the Company establishes additional classes or
series other than the Common Stock of the Funds covered by this Agreement with
respect to which U.S. Trust desires to retain Sub-Transfer Agent to serve as
sub-transfer agent, sub-registrar and sub-dividend disbursing agent hereunder,
U.S. Trust shall notify Sub-Transfer Agent in writing, whereupon such fund 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 the compensation payable on behalf of such new Fund, may be modified
in writing by U.S. Trust and Sub-Transfer Agent at the time). Sub-Transfer
Agent accepts such appointment and agrees to furnish the services herein set
forth in return for the compensation as provided in Paragraph 5 of this
Agreement.
2. REPRESENTATIONS AND WARRANTIES.
(a) U.S. Trust and Sub-Transfer Agent represent and warrant to each
other that:
(i) it is empowered under applicable laws and by its charter
and by-laws to enter into and perform this Agreement;
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(ii) all requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement;
(iii) it is duly registered as a transfer agent under Section 17A
of the Securities Exchange Act of 1934, as amended (the "1934 Act"). Each shall
promptly give written notice to the other and the Company in the event that its
registration is revoked or a proceeding is commenced that could result in such
revocation;
(iv) it has been in, and shall continue to be in, compliance with all
provisions of law, including Section 17A(c) of the 1934 Act, required in
connection with the performance of its duties under this Agreement;
(v) it has, and will continue to have, access to the facilities,
personnel and equipment required to fully perform its duties and obligations
hereunder;
(vi) no legal or administrative proceedings have been instituted or
threatened which would impair its ability to perform its duties and obligations
under this Agreement; and
(vii) its entrance into this Agreement shall not cause a material
breach or be in material conflict with any other agreement or obligation of it
or any law or regulation applicable to it;
U.S. Trust represents and warrants to Sub-Transfer Agent that:
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(i) U.S. Trust is a state chartered bank and trust company
organized and existing under the laws of the State of New York;
(c) Sub-Transfer Agent represents and warrants to U.S. Trust that:
(i) Sub-Transfer Agent is a Delaware corporation, duly organized and
existing and in good standing under the laws of Delaware;
3. DELIVERY OF DOCUMENTS. U.S. Trust has furnished Sub-Transfer Agent
with copies properly certified or authenticated of each of the following:
(a) Resolutions of the Company's Board of Directors authorizing the
appointment of U.S. Trust as transfer agent, registrar and dividend disbursing
agent for each class and/or series of Common Stock of the Company and approving
the Mutual Funds Transfer Agency Agreement made as of September 1, 1995 by and
between the Company and U.S. Trust;
(b) Incumbency and signature certificates identifying and containing
the signatures of the Company's officers and/or the persons authorized to sign
Written Instructions, as hereafter defined, on behalf of the Company;
(c) The Company's Charter;
(d) The Company's By-Laws;
(e) Resolutions of the Company's Board of Directors appointing U.S.
Trust as the investment adviser to the Company's Money, Government Money,
Equity, Managed Income, Income and
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Growth, International, Treasury Money, Early Life Cycle, Long-Term Supply of
Energy, Productivity Enhancers, Environmentally-Related Products and Services,
Aging of America, Communication and Entertainment, Business and Industrial
Restructuring, Global Competitors, Emerging Americas, Pacific/Asia, Pan
European, Short-Term Government Securities and Intermediate-Term Managed Income
Funds (herein "the Funds") and resolutions of the Company's Board of Directors
and Fund shareholders ("Shareholders") approving an Investment Advisory
Agreement between U.S. Trust and the Company dated February 6, 1985, as amended;
an Investment Advisory Agreement between U.S. Trust and the Company dated
November 26, 1985, as amended; an Investment Advisory Agreement between U.S.
Trust and the Company dated December 16, 1986, as amended; an Investment
Advisory Agreement between U.S. Trust and the Company dated May 27, 1987, as
amended; an Investment Advisory Agreement between U.S. Trust and the Company
dated February 1, 1991; a Sub-Advisory Agreement dated May 27, 1987 between U.S.
Trust and Foreign and Colonial Asset Management ("FACAM"); a Sub-Advisory
Agreement dated December 15, 1992 between U.S Trust and FACAM; and a Sub-
Advisory Agreement dated February 16, 1994 between U.S. Trust and Foreign and
Colonial Emerging Markets Limited (the "Advisory Agreements");
(f) Resolutions of the Company's Board of Directors appointing
Edgewood Services, Inc. (the "Distributor") as the Company's distributor for the
Funds and approving a Distribution
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Agreement between the Distributor and the Company dated as of August 1, 1995
(the "Distribution Agreement");
(g) Resolutions of the Company's Board of Directors appointing
Federated Administrative Services ("Federated") as the administrator for the
Funds and approving an Administration Agreement between Federated and the
Company dated as of August 1, 1995 (the "Administration Agreement");
(h) The Advisory Agreements, the Distribution Agreement and the
Administration Agreement;
(i) The Company's Notification of Registration filed pursuant to
Section 8(a) of the 1940 Act on Form N-8A with the Securities and Exchange
Commission ("SEC") on August 8, 1984;
(j) Post-Effective Amendment No. 21 to the Company's Registration
Statement on Form N-1A under the 1940 Act and the 1933 Act, as filed with the
SEC on August 1, 1995 (File No. 2-92665) relating to shares of the Company's
Class A Common Stock, $.001 par value per share, which represent interests in
the Money Fund; Class B Common Stock, $.001 par value per share, which
represents interests in the Government Money Fund; Class C Common Stock and
Class C Common Stock - Special Series 1, $.001 par value per share, which
represent interests in the Equity Fund; Class D Common Stock, $.001 par value
per share, which represent interests in the Managed Income Fund; Class E Common
Stock and Class E Common Stock - Special Series 1, $.001 par value per share,
which represent interests in the Income and Growth Fund; Class F Common Stock,
$.001 par value per share, which represent
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interests in the International Fund; Class G Common Stock, $.001 par value per
share, which represent interests in the Treasury Money Fund; Class H Common
Stock and Class H Common Stock -Special Series 1, $.001 par value per share,
which represent interests in the Early Life Cycle Fund; Class I Common Stock and
Class I Common Stock - Special Series 1, $.001 par value per share, which
represent interests in the Long-Term Supply of Energy Fund; Class J Common Stock
and Class J Common Stock -Special Series 1, $.001 par value per share, which
represent interests in the Productivity Enhancers Fund; Class K Common Stock and
Class K Common Stock - Special Series 1, $.001 par value per share, which
represent interests in the Environmentally-Related Products and Services Fund;
Class L Common Stock and Class L Common Stock - Special Series 1, $.001 par
value per share, which represent interests in the Aging of America Fund; Class M
Common Stock and Class M Common Stock -Special Series 1, $.001 par value per
share, which represent interests in the Communication and Entertainment Fund;
Class N Common Stock and Class N Common Stock - Special Series 1, $.001 par
value per share, which represent interests in the Business and Industrial
Restructuring Fund; Class O Common Stock and Class O Common Stock - Special
Series 1, $.001 par value per share, which represent interests in the Global
Competitors Fund; Class P Common Stock, $.001 par value per share, which
represent interests in the Emerging Americas Fund; Class Q Common Stock, $.001
par value per share, which represent interests in the
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Pacific/Asia Fund; Class R Common Stock, $.001 par value per share, which
represent interests in the Pan European Fund; Class S Common Stock, $.001 par
value per share, which represent interests in the Short-Term Government
Securities Fund; and Class T Common Stock, $.001 par value per share, which
represent interests in the Intermediate-Term Managed Income Fund (such shares
and shares of the Company hereafter classified by the Company's Board of
Directors are hereinafter collectively called "Shares"), and all amendments
thereto; and
(k) The Company's most recent prospectuses (such prospectuses, as
currently in effect, and all amendments and supplements thereto and future
versions thereof are herein called the "Prospectuses").
U.S. Trust will furnish Sub-Transfer Agent from time to time with
copies of all amendments of or supplements to the foregoing, if any, and with
comparable documents with respect to any Fund of the Company organized after the
date of this Agreement that is covered by this Agreement. U.S. Trust shall also
deliver to Sub-Transfer Agent the following documents on or before the effective
date of any increase or decrease in the total number of Shares authorized to be
issued by the Company: (a) a certified copy of the amendment of the Articles of
Incorporation giving effect to such increase or decrease, and (b) in the case of
an increase, if the appointment of U.S. Trust was theretofore expressly limited,
a certified copy of a resolution
-8-
<PAGE>
of the Board of Directors of the Company increasing the authority of U.S. Trust.
4. SERVICES PROVIDED
(a) Sub-Transfer Agent will provide the following services subject to
the control, direction and supervision of U.S. Trust and in compliance with the
objectives, policies and limitations set forth in the Company's Registration
Statement, Charter and By-Laws; applicable laws and regulations; and all
resolutions and policies implemented by the Board of Directors.
The following is a general description of the transfer agency services
Sub-Transfer Agent shall provide to the Company.
A. SHAREHOLDER RECORDKEEPING. Maintain records showing for each
Fund shareholder the following: (i) name, address, appropriate
tax certification and tax identifying number; (ii) number of
shares of each Fund; (iii) historical information including, but
not limited to, dividends paid and date and price of all
transactions including individual purchase and redemptions and
appropriate supporting documents; and (iv) any dividend
reinvestment order, application, dividend to a specific address
and correspondence relating to the current maintenance of the
account.
B. SHARE ISSUANCE. Record the issuance of shares of each Fund.
Except as specifically agreed in writing between U.S. Trust and
Sub-Transfer Agent,
-9-
<PAGE>
Sub-Transfer Agent shall have no obligation when countersigning
and issuing and/or crediting shares to take cognizance of any
other laws relating to the issue and sale of such shares except
insofar as policies and procedures of the Stock Transfer
Association recognize such laws. Sub-Transfer Agent shall notify
U.S. Trust and the Company in case any proposed issue of shares
by the Company shall result in an over-issuance. In case any
issue of shares would result in such an over-issue, Sub-Transfer
Agent shall refuse to issue said shares and shall not countersign
and issue certificates (if any) for such shares.
C. PURCHASE ORDERS. Process all orders for the purchase of shares
of the Company in accordance with the Company's Prospectuses,
including electronic transmissions, which the Company has
acknowledged it has authorized. Upon receipt of any check or
other payment for purchase of shares of the Company from an
investor, Sub-Transfer Agent will (i) stamp the order or other
documentation with the date and time of receipt, (ii) forthwith
process the same for collection, (iii) determine the amounts
thereof due the
-10-
<PAGE>
Company, and notify U.S Trust and the Company of such
determination and deposit, such notification to be given on a
daily basis of the total amounts determined and deposited to the
Company's custodian bank account during such day. Sub-Transfer
Agent shall then credit the share account of the investor with
the number of Fund shares to be purchased made on the date such
payment is received by Sub-Transfer Agent, as set forth in the
Company's Prospectus and shall promptly mail a confirmation of
said purchase to the investor, all subject to any instructions
which the Company or U.S. Trust may give to Sub-Transfer Agent
with respect to the timing or manner of acceptance of orders for
shares relating to payments so received by it. Any purchase
order received by Sub-Transfer Agent, which is not in good order
will be rejected immediately.
D. REDEMPTION ORDERS. Receive and stamp with the date and time of
receipt all requests for redemptions or repurchase of shares held
in certificate or non-certificate form, and process redemptions
and repurchase requests as follows: (i) if such certificate or
redemption request complies with the applicable standards
approved by the Company, Sub-Transfer Agent shall on each
-11-
<PAGE>
business day notify the Company of the total number of shares
presented and covered by such requests received by Sub-Transfer
Agent on such day; (ii) within the time specified in the
Prospectus and if not so specified on or prior to the seventh
calendar day succeeding any such requests received by Sub-
Transfer Agent, shall notify The Chase Manhattan Bank, N.A. (the
"Custodian"), subject to instructions from the Company or U.S.
Trust, to transfer monies to such account as designated by Sub-
Transfer Agent for such payment to the redeeming shareholder of
the applicable redemption or repurchase price; (iii) if any such
certificate or request for redemption of repurchase does not
comply with applicable standards, Sub-Transfer Agent shall
promptly notify the investor of such fact, together with the
reason therefor, and shall effect such redemption at the
Company's price next determined after receipt of documents
complying with said standards.
E. TELEPHONE ORDERS. Process redemptions, exchanges and transfers
of Fund shares upon telephone instructions from qualified
shareholders in accordance with the procedures set forth in the
Company's Prospectuses. The administrator shall
-12-
<PAGE>
be permitted to redeem, exchange and/or transfer Fund shares from
any account for which such services have been authorized,
including electronic transmissions.
F. TRANSFER OF SHARES. Upon receipt by Sub-Transfer Agent of
documentation in proper form to effect a transfer of shares,
including in the case of shares for which certificates have been
issued the share certificates in proper form for transfer, Sub-
Transfer Agent will register such transfer on the Company's
shareholder records maintained by Sub-Transfer Agent pursuant to
instructions received from the transferor, cancel the
certificates representing such shares, if any, and if so
requested, countersign, register, issue and mail by first class
mail new certificates for the same or a smaller whole number of
shares.
G. SHAREHOLDER COMMUNICATIONS. Address and mail all communications
by the Company to its shareholders promptly following the
delivery by the Company or U.S. Trust of the material to be
mailed.
H. PROXY MATERIALS. Prepare shareholder lists, mail and certify as
to the mailing of proxy materials, receive the tabulated proxy
cards, render periodic reports to the Company and U.S. Trust on
the progress of such tabulation, and provide the
-13-
<PAGE>
Company with inspectors of election at any meeting of
shareholders.
I. SHARE CERTIFICATES. If a shareholder of the Company requests a
certificate representing his shares, Sub-Transfer Agent as sub-
transfer agent will countersign and mail, a share certificate to
the investor at his/her address as it appears on the Company's
transfer books. Sub-Transfer Agent shall supply, at the expense
of the Company a supply of blank share certificates. The
certificates shall be properly signed, manually or by facsimile,
as authorized by the Company, and shall bear the Company's seal
or facsimile; and notwithstanding the death, resignation or
removal of any officers of the Company authorized to sign
certificates, Sub-Transfer Agent may, until otherwise directed by
the Company or U.S. Trust, continue to countersign certificates
which bear the manual or facsimile signature of such officer.
J. RETURNED CHECKS. In the event that any check or other order for
the payment of money is returned unpaid for any reason, Sub-
Transfer Agent will take such steps, including redepositing the
check for collection or returning the check to the investor, as
Sub-Transfer Agent may, at its discretion, deem appropriate and
notify the
-14-
<PAGE>
Company and U.S. Trust of such action, or as the Company or U.S.
Trust may instruct. However, subject to Paragraph 7(b) below,
the Company remains ultimately liable for any returned checks of
its shareholders.
K. SHAREHOLDER CORRESPONDENCE. Acknowledge all correspondence from
shareholders relating to their share accounts and undertake such
other shareholder correspondence as may from time to time be
mutually agreed upon.
L. TAX REPORTING. Sub-Transfer Agent shall issue appropriate
shareholder tax forms on an annual basis.
M. DIVIDEND DISBURSING. Sub-Transfer Agent will serve as the
Company's dividend disbursing agent. Sub-Transfer Agent will
prepare and mail checks, place wire transfers of credit income
and capital gain payments to shareholders. The Company or U.S.
Trust will advise Sub-Transfer Agent of the declaration of any
dividend or distribution and the record and payable date thereof
at least five (5) days prior to the record date. Sub-Transfer
Agent will, on or before the payment date of any such dividend or
distribution, notify the Company's Custodian of the estimated
amount required to pay any portion of such dividend or
-15-
<PAGE>
distribution payable in cash, and on or before the payment date
of such distribution, the Company will instruct its Custodian to
make available to Sub-Transfer Agent sufficient funds for the
cash amount to be paid out. If a shareholder is entitled to
receive additional shares by virtue of any such distribution or
dividend, appropriate credits will be made to each shareholder's
account.
(b) Sub-Transfer Agent will also:
(i) provide office facilities with respect to the provision of
the services contemplated herein (which may be in the offices of Sub-Transfer
Agent or a corporate affiliate of Sub-Transfer Agent);
(ii) provide the services of individuals to serve as officers of the
Company who will be designated by Sub-Transfer Agent and elected by the
Company's Board of Directors subject to reasonable Board approval;
(iii) provide or otherwise obtain personnel sufficient, in
Sub-Transfer Agent's sole discretion, for provision of the services contemplated
herein;
(iv) furnish equipment and other materials, which Sub-Transfer Agent,
in its sole discretion, believes are necessary or desirable for provision of the
services contemplated herein; and
-16-
<PAGE>
(v) keep records relating to the services provided hereunder in
accordance with the 1940 Act and the rules thereunder. To the extent required
by the 1940 Act and the rules thereunder, Sub-Transfer Agent agrees that all
such records prepared or maintained by Sub-Transfer Agent relating to the
services provided hereunder are the property of the Company and will be
preserved for the periods prescribed under the 1940 Act and the rules
thereunder, maintained at the Company's expense, and made available in
accordance with such Act and rules. Sub-Transfer Agent further agrees to
surrender promptly to the Company upon its request and cease to retain in its
records and files those records and documents created and maintained by Sub-
Transfer Agent pursuant to this Agreement.
5. FEES; EXPENSES; EXPENSE REIMBURSEMENT.
(a) As compensation for the services rendered to the Company for
U.S. Trust pursuant to this Agreement, U.S. Trust shall pay Sub-Transfer Agent
monthly $15.00 per account and subaccount of each Fund of the Company per year
or for any portion of a year plus Sub-Transfer Agent's out-of-pocket expenses
relating to such services, including, but not limited to, expenses of postage,
telephone, TWX rental and line charges, communication forms, and checks and
check processing. Such fees are to be billed monthly and shall be due and
payable upon receipt of the invoice. Upon any termination of this Agreement
before the end of any month, the fee for the part of the month before such
termination shall be prorated according to the
-17-
<PAGE>
proportion which such part bears to the full monthly period and shall be payable
upon the date of termination of this Agreement.
(b) For the purpose of determining fees calculated as a function of
the Company's assets, the value of the Company's assets and net assets shall be
computed as required by its Prospectuses, generally accepted accounting
principles, and resolutions of the Board of Directors.
(c) Sub-Transfer Agent may, in its sole discretion, from time to time
employ or associate with such person or persons as may be appropriate to assist
Sub-Transfer Agent in the performance of this Agreement. Such person or persons
may be officers and employees who are employed or designated as officers by both
Sub-Transfer Agent and the Company. The compensation of such person or persons
for such employment shall be paid by Sub-Transfer Agent and no obligation will
be incurred by or on behalf of the Company or U.S. Trust in such respect.
(d) U.S. Trust may request additional services, additional processing,
or special reports. U.S. Trust shall submit such requests in writing together
with such specifications and documentation as may be reasonably required by Sub-
Transfer Agent. If Sub-Transfer Agent elects to provide such services or
arrange for their provision, it shall be entitled to additional fees and
expenses at its customary rates and charges as approved by U.S. Trust.
(e) Sub-Transfer Agent will bear all of its own expenses in connection
with the performance of the services under
-18-
<PAGE>
this Agreement except as otherwise expressly provided herein. U.S. Trust agrees
to promptly reimburse Sub-Transfer Agent for any equipment and supplies
specially ordered by or for the Company through Sub-Transfer Agent, and for any
other expenses not contemplated by this Agreement that Sub-Transfer Agent may
incur on the Company's behalf, as consented to by U.S. Trust and the Company
from time to time. Expenses to be incurred in the operation of the Company and
to be borne by the Company, include, but are not limited to: taxes; interest;
brokerage fees and commissions, salaries and fees of officers and directors who
are not officers, directors, shareholders or employees of U.S. Trust, or the
Company's investment adviser, or distributor or other service providers; SEC and
state Blue Sky registration and qualification fees, levies, fines and other
charges; EDGAR filing fees, processing services and related fees; advisory and
administration fees; charges and expenses of pricing and data services,
independent public accountants and custodians; insurance premiums including
fidelity bond premiums; legal expenses; costs of maintenance of corporate
existence; expenses of typesetting and printing of prospectuses for regulatory
purposes and for distribution to current shareholders of the Company (the
Company's distributor to bear the expense of all other printing, production, and
distribution of prospectuses, statements of additional information, and
marketing materials except as otherwise approved by the Board of Directors of
the Company); expenses of printing and production costs of
-19-
<PAGE>
shareholders' reports and proxy statements and materials; costs and expenses of
Fund stationery and forms; costs and expenses of special telephone and data
lines and devices; costs associated with corporate, shareholder, and Board
meetings; trade association dues and expenses; and any extraordinary expenses
and other customary Fund expenses. In addition, Sub-Transfer Agent may utilize
one or more independent pricing services, approved from time to time by the
Board, to obtain securities prices and to act as backup to the primary pricing
services, in connection with determining the net asset values of the Company,
and U.S. Trust will reimburse Sub-Transfer Agent for the Company's share of the
cost of such services based upon the actual usage, or a pro rata estimate of the
use, of the services for the benefit of the Company.
(f) All fees, out-of-pocket expenses, or additional charges of Sub-
Transfer Agent shall be billed on a monthly basis and shall be due and payable
upon receipt of the invoice.
Sub-Transfer Agent will render, after the close of each month in which
services have been furnished, a statement reflecting all of the charges for such
month.
6. PROPRIETARY AND CONFIDENTIAL INFORMATION. Sub-Transfer Agent 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
Company's prior, present or potential shareholders, and to not use such records
and information for any purpose other than performance of Sub-
-20-
<PAGE>
Transfer Agent's responsibilities and duties hereunder. Sub-Transfer Agent may
seek a waiver of such confidentiality provisions by furnishing reasonable prior
notice to the Company and obtaining approval in writing from the Company, which
approval shall not be unreasonably withheld and may not be withheld where Sub-
Transfer Agent may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities. Waivers of confidentiality are automatically
effective without further action by Sub-Transfer Agent with respect to Internal
Revenue Service levies, subpoenas and similar actions, or with respect to any
request by the Company.
7. DUTIES, RESPONSIBILITIES, AND LIMITATION OF LIABILITY.
(a) In the performance of its duties hereunder, Sub-Transfer Agent
shall be obligated to act in good faith in performing the services provided for
under this Agreement. In performing its services hereunder, Sub-Transfer Agent
shall be entitled to rely on any oral or written instructions, notices or other
communications, including electronic transmissions, from the Company and its
custodians, officers and directors, investors, agents and other service
providers which Sub-Transfer Agent reasonably believes to be genuine, valid and
authorized. Sub-Transfer Agent shall also be entitled to consult with and rely
on the advice and opinions of outside legal counsel retained by the Company, as
necessary or appropriate.
-21-
<PAGE>
(b) Sub-Transfer Agent shall not be liable for any error of judgment
or mistake of law or for any loss or expense suffered by the Company or U.S.
Trust, in connection with the matters to which this Agreement relates, except
for a loss or expense caused by or resulting from willful misfeasance, bad faith
or negligence on Sub-Transfer Agent's part in the performance of its duties or
from reckless disregard by Sub-Transfer Agent of its obligations and duties
under this Agreement. Any person, even though also an officer, director,
partner, employee or agent of Sub-Transfer Agent, who may be or become an
officer, director, partner, employee or agent of the Company, shall be deemed
when rendering services to the Company in that capacity or acting on any
business of the Company in that capacity (other than services or business in
connection with Sub-Transfer Agent's duties hereunder) to be rendering such
services to or acting solely for the Company and not as an officer, director,
partner, employee or agent or person under the control or direction of Sub-
Transfer Agent even though paid by Sub-Transfer Agent.
(c) Subject to Paragraphs 7(b) and (d), Sub-Transfer Agent shall not
be responsible for, and U.S. Trust shall indemnify and hold Sub-Transfer Agent
harmless from and against, any and all losses, damages, costs, reasonable
attorneys' fees and expenses, payments, expenses and liabilities arising out of
or attributable to:
-22-
<PAGE>
(i) all actions of Sub-Transfer Agent or its officers or
agents required to be taken pursuant to this Agreement;
(ii) the reliance on or use by Sub-Transfer Agent or its officers or
agents of information, records, or documents which are received by Sub-Transfer
Agent or its officers or agents and furnished to it or them by or on behalf of
the Company, and which have been prepared or maintained by the Company or any
third party on behalf of the Company other than Sub-Transfer Agent or any of its
affiliates;
(iii) U.S. Trust's refusal or failure to comply with the terms of
this Agreement or U.S. Trust's lack of good faith, or its actions, or lack
thereof, involving gross negligence or willful misfeasance;
(iv) the material breach of any representation or warranty of
U.S. Trust hereunder;
(v) the legal taping or other form of legal recording of telephone
conversations or other legal forms of electronic communications with investors
and shareholders, or reliance by Sub-Transfer Agent or its officers or agents on
telephone or other electronic instructions of any person acting on behalf of a
shareholder or shareholder account for which telephone or other electronic
services have been authorized;
(vi) the reliance on or the carrying out by Sub-Transfer Agent or its
officers or agents of any proper instructions reasonably believed to be duly
authorized, or
-23-
<PAGE>
requests of U.S. Trust or the Company or recognition by Sub-Transfer Agent or
its officers or agents of any share certificates which are reasonably believed
to bear the proper signatures of the officers of the Company and the proper
countersignature of any transfer agent or registrar of the Company;
(vii) any delays, inaccuracies, errors in or omissions from data
provided to Sub-Transfer Agent or its officers or agents by data and pricing
services;
(viii) the offer or sale of shares by the Company in violation of
any requirement under the Federal securities laws or regulations or the
securities laws or regulations of any state, or in violation of any stop order
or other determination or ruling by any Federal agency or any state agency with
respect to the offer or sale of such shares in such state (1) resulting from
activities, actions, or omissions by the Company or its other service providers
and agents other than Sub-Transfer Agent or its officers or agents or any of
their affiliates, or (2) existing or arising out of activities, actions or
omissions by or on behalf of the Company other than by Sub-Transfer Agent or its
officers or agents or any of their affiliates prior to the effective date of
this Agreement;
(ix) any failure of the Company's registration statement to comply
with the 1933 Act and the 1940 Act (including the rules and regulations
thereunder) and any other applicable laws, or any untrue statement of a material
fact or omission of a
-24-
<PAGE>
material fact necessary to make any statement therein not misleading in a Fund's
prospectus, unless such failure, misstatement or omission relates to, results
from or otherwise arises in connection with, actions, inactions and/or
information provided by Sub-Transfer Agent or its officers or agents; and
(x) the actions taken by the Company, its investment adviser, and its
distributor in compliance with applicable securities, tax, commodities and other
laws, rules and regulations, or the failure to so comply.
(d) Notwithstanding anything herein to the contrary, U.S. Trust shall
be as fully responsible to the Company for the acts and omissions of any sub-
transfer agent as U.S. Trust is for its own acts and omissions.
8. TERM. This Agreement shall become effective on the date first
hereinabove written. This Agreement may be modified or amended from time to
time by mutual agreement between the parties hereto. This Agreement shall
continue in effect unless terminated by either party on 120 days' prior written
notice provided that should Sub-Transfer Agent fail to be registered pursuant to
Section 17A of the 1934 Act as a transfer agent at any time, the Company or U.S.
Trust may, on written notice to Sub-Transfer Agent, immediately terminate this
Agreement. Upon termination of this Agreement, U.S. Trust shall pay to Sub-
Transfer Agent such compensation and any out-of-pocket or other reimbursable
expenses which may become due or payable under the
-25-
<PAGE>
terms hereof as of the date of termination or after the date that the provision
of services ceases, whichever is later.
9. NOTICES. Any notice required or permitted hereunder shall be in
writing and shall be deemed to have been given when delivered in person or by
certified mail, return receipt requested, to the parties at the following
address (or such other address as a party may specify by notice to the other):
If to the Company:
Drinker Biddle & Reath
1345 Chestnut Street, Suite 1100
Philadelphia, PA 19107
Attn: W. Bruce McConnel, III
Fax: (215) 988-2757
If to U.S. Trust:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
Attention: Maureen Scannell Bateman
Fax: (212) 852-1310
If to Sub-Transfer Agent:
Chase Global Funds Services Company
73 Tremont Street
Boston, MA 02108-3913
Attention: Karl O. Hartmann
Fax: (617) 557-8616
Notice shall be effective upon receipt if by mail, on the date of personal
delivery (by private messenger, courier service or otherwise) or upon confirmed
receipt of telex or facsimile, whichever occurs first.
10. ASSIGNMENT AND DELEGATION. This Agreement shall not be assigned and
the rights, duties and obligations of the parties hereunder may not be
subcontracted or delegated by either of the
-26-
<PAGE>
parties hereto without the prior consent in writing of the other party.
11. WAIVER. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver nor
shall it deprive such party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver must be in
writing signed by the waiving party.
12. FORCE MAJEURE. Sub-Transfer Agent shall not be responsible or liable
for any failure or delay in performance of its obligations under this Agreement
arising out of or caused, directly or indirectly, by circumstances beyond its
control, including without limitation, acts of God, earthquakes, fires, floods,
wars, acts of civil or military authorities, or governmental actions, nor shall
any such failure or delay give the Company the right to terminate this
Agreement. During the term of this Agreement, at no additional cost to the
Company or U.S. Trust, Sub-Transfer Agent shall provide a facility capable of
safeguarding the transfer agency and dividend disbursing records of the Company
in case of damage to the primary facility providing those services (the "Back-Up
Facility"). Transfer of the transfer agency and dividend records of the Company
to the Back-Up Facility shall be at Sub-Transfer Agent's expense, shall commence
immediately after damage to the primary facility results in an inability to
provide the transfer agency and dividend disbursing services, and shall be
completed within 72 hours of
-27-
<PAGE>
commencement. After the primary facility has recovered, Sub-Transfer Agent
shall again utilize it to provide the transfer agency and dividend disbursing
services to the Company at no additional cost to the Company. Sub-Transfer
Agent shall use reasonable efforts to provide the services described in this
Agreement from the Back-Up Facility.
13. USE OF NAME. Sub-Transfer Agent and U.S. Trust agree not to use the
other's name nor the name of the Company nor the names of such other's nor the
Company's affiliates, designees, or assignees in any prospectus, sales
literature, or other printed material written in a manner not previously
approved by the other or the Company or such other's or the Company's
affiliates, designees, or assignees except where required by the SEC or other
regulatory authorities.
14. AMENDMENTS. This Agreement may be modified or amended from time to
time by mutual written agreement between the parties. No provision 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.
15. SEVERABILITY. If any provision of this Agreement is invalid or
unenforceable, the balance of the Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance it shall nevertheless
remain applicable to all other persons and circumstances.
-28-
<PAGE>
16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE SUBSTANTIVE
LAWS OF THE STATE OF NEW YORK, INCLUDING THE DETERMINATION OF WHEN AN
"ASSIGNMENT" HAS OCCURRED.
17. THIRD PARTY BENEFICIARY. U.S. Trust and Sub-Transfer Agent expressly
agree that the Company is a third party beneficiary hereof and expressly agree
that the Company may enforce the provisions hereof.
This Agreement may be executed in one or more counterparts and all
such counterparts will constitute one and the same instrument.
-29-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below as of the date first written
above.
CHASE GLOBAL FUNDS SERVICES
COMPANY
By:___________________________
Name:_________________________
Title:________________________
UNITED STATES TRUST COMPANY
OF NEW YORK
By:___________________________
Name:_________________________
Title:________________________
-30-
<PAGE>
EXHIBIT 11(a)
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. 29 and 31 to the Registration
Statement (Nos. 2-92665; 811-4088) on Form N-1A of Excelsior 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 LLP
---------------------------------
DRINKER BIDDLE & REATH LLP
Philadelphia, Pennsylvania
July 31, 1997
<PAGE>
Exhibit 11(b)
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 29 to the Registration Statement
(Form N-1A No. 2-92665/811-4088) of Excelsior Funds, Inc. of our report dated
May 9, 1997 on the financial statements and financial highlights included in the
1997 Annual Reports to Shareholders.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
July 30, 1997
<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-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 498,790
<INVESTMENTS-AT-VALUE> 498,790
<RECEIVABLES> 1,476
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 10
<TOTAL-ASSETS> 500,276
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,210
<TOTAL-LIABILITIES> 2,210
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 498,137
<SHARES-COMMON-STOCK> 498,294
<SHARES-COMMON-PRIOR> 394,516
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (71)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 498,066
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 22,019
<OTHER-INCOME> 0
<EXPENSES-NET> (1,946)
<NET-INVESTMENT-INCOME> 20,073
<REALIZED-GAINS-CURRENT> (4)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 20,069
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (20,073)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,009,771
<NUMBER-OF-SHARES-REDEEMED> (1,908,410)
<SHARES-REINVESTED> 2,417
<NET-CHANGE-IN-ASSETS> 103,781
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (67)
<GROSS-ADVISORY-FEES> 1,025
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,161
<AVERAGE-NET-ASSETS> 410,093
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.049
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.049)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.47
<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-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 534,110
<INVESTMENTS-AT-VALUE> 534,110
<RECEIVABLES> 2,329
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 17
<TOTAL-ASSETS> 536,456
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,622
<TOTAL-LIABILITIES> 2,622
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 533,894
<SHARES-COMMON-STOCK> 533,924
<SHARES-COMMON-PRIOR> 461,563
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (60)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 533,834
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 28,195
<OTHER-INCOME> 0
<EXPENSES-NET> (2,497)
<NET-INVESTMENT-INCOME> 25,698
<REALIZED-GAINS-CURRENT> 3
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 25,701
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (25,698)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,287,998
<NUMBER-OF-SHARES-REDEEMED> (3,216,759)
<SHARES-REINVESTED> 1,122
<NET-CHANGE-IN-ASSETS> 72,364
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (62)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,321
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,681
<AVERAGE-NET-ASSETS> 528,365
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.049
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.049)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.47
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> EQUITY FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 239,891
<INVESTMENTS-AT-VALUE> 306,300
<RECEIVABLES> 4,784
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 12
<TOTAL-ASSETS> 311,096
<PAYABLE-FOR-SECURITIES> 3,212
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 813
<TOTAL-LIABILITIES> 4,025
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 232,984
<SHARES-COMMON-STOCK> 11,894
<SHARES-COMMON-PRIOR> 7,718
<ACCUMULATED-NII-CURRENT> 640
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7,038
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 66,409
<NET-ASSETS> 307,071
<DIVIDEND-INCOME> 3,957
<INTEREST-INCOME> 834
<OTHER-INCOME> 0
<EXPENSES-NET> (2,823)
<NET-INVESTMENT-INCOME> 1,968
<REALIZED-GAINS-CURRENT> 13,470
<APPREC-INCREASE-CURRENT> 11,036
<NET-CHANGE-FROM-OPS> 26,474
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,439)
<DISTRIBUTIONS-OF-GAINS> (11,114)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,198
<NUMBER-OF-SHARES-REDEEMED> (2,219)
<SHARES-REINVESTED> 196
<NET-CHANGE-IN-ASSETS> 118,497
<ACCUMULATED-NII-PRIOR> 111
<ACCUMULATED-GAINS-PRIOR> 4,682
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,087
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,955
<AVERAGE-NET-ASSETS> 278,477
<PER-SHARE-NAV-BEGIN> 24.43
<PER-SHARE-NII> 0.18
<PER-SHARE-GAIN-APPREC> 2.50
<PER-SHARE-DIVIDEND> (0.14)
<PER-SHARE-DISTRIBUTIONS> (1.16)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 25.81
<EXPENSE-RATIO> 1.01
<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-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 187,385
<INVESTMENTS-AT-VALUE> 185,164
<RECEIVABLES> 1,881
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 7
<TOTAL-ASSETS> 187,052
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,156
<TOTAL-LIABILITIES> 1,156
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 192,803
<SHARES-COMMON-STOCK> 21,624
<SHARES-COMMON-PRIOR> 10,051
<ACCUMULATED-NII-CURRENT> 152
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (4,838)
<ACCUM-APPREC-OR-DEPREC> (2,221)
<NET-ASSETS> 185,896
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,446
<OTHER-INCOME> 0
<EXPENSES-NET> (1,509)
<NET-INVESTMENT-INCOME> 9,937
<REALIZED-GAINS-CURRENT> (1,258)
<APPREC-INCREASE-CURRENT> (1,647)
<NET-CHANGE-FROM-OPS> 7,032
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (9,853)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,905
<NUMBER-OF-SHARES-REDEEMED> (3,541)
<SHARES-REINVESTED> 209
<NET-CHANGE-IN-ASSETS> 96,996
<ACCUMULATED-NII-PRIOR> 68
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (3,580)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,263
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,756
<AVERAGE-NET-ASSETS> 168,449
<PER-SHARE-NAV-BEGIN> 8.84
<PER-SHARE-NII> 0.51
<PER-SHARE-GAIN-APPREC> (0.24)
<PER-SHARE-DIVIDEND> (0.51)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.60
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 05
<NAME> INCOME AND GROWTH FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 100,064
<INVESTMENTS-AT-VALUE> 132,131
<RECEIVABLES> 902
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 6
<TOTAL-ASSETS> 133,039
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 271
<TOTAL-LIABILITIES> 271
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 95,161
<SHARES-COMMON-STOCK> 8,705
<SHARES-COMMON-PRIOR> 8,821
<ACCUMULATED-NII-CURRENT> 572
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,969
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 32,066
<NET-ASSETS> 132,768
<DIVIDEND-INCOME> 1,717
<INTEREST-INCOME> 2,468
<OTHER-INCOME> 0
<EXPENSES-NET> (1,346)
<NET-INVESTMENT-INCOME> 2,839
<REALIZED-GAINS-CURRENT> 8,773
<APPREC-INCREASE-CURRENT> 3,900
<NET-CHANGE-FROM-OPS> 15,512
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,036)
<DISTRIBUTIONS-OF-GAINS> (5,520)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,397
<NUMBER-OF-SHARES-REDEEMED> (1,688)
<SHARES-REINVESTED> 175
<NET-CHANGE-IN-ASSETS> 5,273
<ACCUMULATED-NII-PRIOR> 993
<ACCUMULATED-GAINS-PRIOR> 1,469
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 983
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,453
<AVERAGE-NET-ASSETS> 131,107
<PER-SHARE-NAV-BEGIN> 14.45
<PER-SHARE-NII> 0.33
<PER-SHARE-GAIN-APPREC> 1.45
<PER-SHARE-DIVIDEND> (0.35)
<PER-SHARE-DISTRIBUTIONS> (0.63)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.25
<EXPENSE-RATIO> 1.03
<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-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 117,492
<INVESTMENTS-AT-VALUE> 127,365
<RECEIVABLES> 925
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 4
<TOTAL-ASSETS> 128,294
<PAYABLE-FOR-SECURITIES> 446
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,033
<TOTAL-LIABILITIES> 1,479
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 114,831
<SHARES-COMMON-STOCK> 11,183
<SHARES-COMMON-PRIOR> 8,968
<ACCUMULATED-NII-CURRENT> 4
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,112
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,868
<NET-ASSETS> 126,815
<DIVIDEND-INCOME> 2,208
<INTEREST-INCOME> 108
<OTHER-INCOME> 0
<EXPENSES-NET> (1,559)
<NET-INVESTMENT-INCOME> 757
<REALIZED-GAINS-CURRENT> 3,265
<APPREC-INCREASE-CURRENT> 2,695
<NET-CHANGE-FROM-OPS> 6,717
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (980)
<DISTRIBUTIONS-OF-GAINS> (1,734)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,436
<NUMBER-OF-SHARES-REDEEMED> (3,250)
<SHARES-REINVESTED> 29
<NET-CHANGE-IN-ASSETS> 28,965
<ACCUMULATED-NII-PRIOR> (325)
<ACCUMULATED-GAINS-PRIOR> 1,133
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,087
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,647
<AVERAGE-NET-ASSETS> 108,698
<PER-SHARE-NAV-BEGIN> 10.91
<PER-SHARE-NII> 0.09
<PER-SHARE-GAIN-APPREC> 0.63
<PER-SHARE-DIVIDEND> (0.10)
<PER-SHARE-DISTRIBUTIONS> (0.19)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.34
<EXPENSE-RATIO> 1.51
<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-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 350,277
<INVESTMENTS-AT-VALUE> 350,277
<RECEIVABLES> 296
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 11
<TOTAL-ASSETS> 350,584
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,497
<TOTAL-LIABILITIES> 1,497
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 349,104
<SHARES-COMMON-STOCK> 349,104
<SHARES-COMMON-PRIOR> 258,208
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (17)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 349,087
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 15,712
<OTHER-INCOME> 0
<EXPENSES-NET> (1,568)
<NET-INVESTMENT-INCOME> 14,144
<REALIZED-GAINS-CURRENT> 23
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 14,167
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (14,144)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,727,537
<NUMBER-OF-SHARES-REDEEMED> (1,637,795)
<SHARES-REINVESTED> 1,153
<NET-CHANGE-IN-ASSETS> 90,918
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (39)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 907
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,647
<AVERAGE-NET-ASSETS> 302,429
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.047
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.047)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 141
<NAME> EARLY LIFE CYCLE FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 52,480
<INVESTMENTS-AT-VALUE> 52,436
<RECEIVABLES> 1,117
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 6
<TOTAL-ASSETS> 53,559
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 293
<TOTAL-LIABILITIES> 293
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 56,205
<SHARES-COMMON-STOCK> 6,031
<SHARES-COMMON-PRIOR> 7,240
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,896)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (43)
<NET-ASSETS> 53,266
<DIVIDEND-INCOME> 359
<INTEREST-INCOME> 172
<OTHER-INCOME> 0
<EXPENSES-NET> (734)
<NET-INVESTMENT-INCOME> (203)
<REALIZED-GAINS-CURRENT> (1,252)
<APPREC-INCREASE-CURRENT> (10,177)
<NET-CHANGE-FROM-OPS> (11,632)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (760)
<DISTRIBUTIONS-OTHER> (2,896)
<NUMBER-OF-SHARES-SOLD> 2,507
<NUMBER-OF-SHARES-REDEEMED> (3,753)
<SHARES-REINVESTED> 37
<NET-CHANGE-IN-ASSETS> (24,795)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 2,012
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 470
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 796
<AVERAGE-NET-ASSETS> 78,320
<PER-SHARE-NAV-BEGIN> 10.78
<PER-SHARE-NII> (0.03)
<PER-SHARE-GAIN-APPREC> (1.43)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.49)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.83
<EXPENSE-RATIO> 0.94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 142
<NAME> EARLY LIFE CYCLE FUND TRUST SHARES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> SEP-06-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 52,480
<INVESTMENTS-AT-VALUE> 52,436
<RECEIVABLES> 1,117
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 6
<TOTAL-ASSETS> 53,559
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 293
<TOTAL-LIABILITIES> 293
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 56,205
<SHARES-COMMON-STOCK> 1
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,896)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (43)
<NET-ASSETS> 53,266
<DIVIDEND-INCOME> 359
<INTEREST-INCOME> 172
<OTHER-INCOME> 0
<EXPENSES-NET> (734)
<NET-INVESTMENT-INCOME> (203)
<REALIZED-GAINS-CURRENT> (1,252)
<APPREC-INCREASE-CURRENT> (10,177)
<NET-CHANGE-FROM-OPS> (11,632)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (24,795)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 2,012
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 470
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 796
<AVERAGE-NET-ASSETS> 78,320
<PER-SHARE-NAV-BEGIN> 9.98
<PER-SHARE-NII> (0.03)
<PER-SHARE-GAIN-APPREC> (0.92)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.22)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.81
<EXPENSE-RATIO> 1.29
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 18
<NAME> PRODUCTIVITY ENHANCERS FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 16,472
<INVESTMENTS-AT-VALUE> 17,129
<RECEIVABLES> 1,000
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 18,133
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 76
<TOTAL-LIABILITIES> 76
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16,794
<SHARES-COMMON-STOCK> 2,210
<SHARES-COMMON-PRIOR> 3,291
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 606
<OVERDISTRIBUTION-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 749
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<SHARES-REINVESTED> 13
<NET-CHANGE-IN-ASSETS> (11,012)
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<PER-SHARE-NII> (0.02)
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 15
<NAME> ENVIRONMENTALLY-RELATED PRODUCTS AND SERVICES FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
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<PAID-IN-CAPITAL-COMMON> 7,318
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> AGING OF AMERICA FUND
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<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> COMMUNICATION AND ENTERTAINMENT FUND
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<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 121
<NAME> BUSINESS AND INDUSTRIAL RESTRUCTURING FUND
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<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 122
<NAME> BUSINESS AND INDUSTRIAL RESTRUCTURING FUND TRUST SHARES
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<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 16
<NAME> GLOBAL COMPETITORS FUND
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<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 21
<NAME> EMERGING AMERICAS FUND
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<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 19
<NAME> PACIFIC/ASIA FUND
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<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 20
<NAME> PAN EUROPEAN FUND
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<S> <C>
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<TABLE> <S> <C>
<PAGE>
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<NAME> SHORT-TERM GOVERNMENT SECURITIES FUND
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<S> <C>
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<TABLE> <S> <C>
<PAGE>
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<SERIES>
<NUMBER> 10
<NAME> INTERMEDIATE-TERM MANAGED INCOME FUND
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<S> <C>
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