<PAGE>
EXCELSIOR FUNDS, INC.
73 TREMONT STREET
BOSTON, MASSACHUSETTS 02108-3913
June 13, 1997
To the Shareholders of the
Productivity Enhancers Fund
Environmentally-Related Products and Services Fund
Aging of America Fund
Communication and Entertainment Fund
Global Competitors Fund
Long-Term Supply of Energy Fund
Enclosed you will find a booklet with two proxy statements in connection
with the solicitation of proxies by the Board of Directors of Excelsior Funds,
Inc. ("Excelsior") in connection with a Special Meeting of Shareholders of
certain portfolios of Excelsior to be held on August 18, 1997.
The first proxy statement relates to the approval or disapproval of a plan
of reorganization involving the Productivity Enhancers Fund, Environmentally-
Related Products and Services Fund, Aging of America Fund, Communication and
Entertainment Fund and Global Competitors Fund and the transactions
contemplated thereby.
The second proxy statement relates to the approval or disapproval of certain
changes to the Long-Term Supply of Energy Fund's fundamental investment
policies.
The Board of Directors recommends that shareholders vote in favor of all
proposals.
W. Bruce McConnel, III
Secretary
<PAGE>
EXCELSIOR FUNDS, INC.
73 TREMONT STREET
BOSTON, MASSACHUSETTS 02108-3913
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF THE
PRODUCTIVITY ENHANCERS FUND,
ENVIRONMENTALLY-RELATED PRODUCTS AND
SERVICES FUND, AGING OF AMERICA FUND, COMMUNICATION
AND ENTERTAINMENT FUND AND GLOBAL COMPETITORS FUND
TO BE HELD ON AUGUST 18, 1997
To the Shareholders of the
Productivity Enhancers Fund
Environmentally-Related Products and Services Fund
Aging of America Fund
Communication and Entertainment Fund and
Global Competitors Fund:
NOTICE IS HEREBY GIVEN THAT a Special Meeting of Shareholders of the
Productivity Enhancers Fund, Environmentally-Related Products and Services
Fund, Aging of America Fund, Communication and Entertainment Fund and Global
Competitors Fund, five investment portfolios offered by Excelsior Funds, Inc.
(the "Company"), will be held at the offices of United States Trust Company of
New York at 114 West 47th Street, New York, New York on August 18, 1997 at
10:00 a.m. (Eastern time), for the following purposes:
ITEM 1. To approve or disapprove a Plan of Reorganization and the
transactions contemplated thereby, including the transfer of all of
the assets and liabilities of the Company's Productivity Enhancers
Fund, Environmentally-Related Products and Services Fund, Aging of
America Fund, Communication and Entertainment Fund and Global
Competitors Fund (the "Transferor Funds") to the Company's Equity
Fund (the "Surviving Fund"), in exchange for retail shares and
trust shares of the Surviving Fund, and a liquidating distribution
of such retail shares and trust shares to holders of retail shares
and trust shares, respectively, of the Transferor Funds.
ITEM 2. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof.
YOUR DIRECTORS RECOMMEND THAT YOU VOTE IN FAVOR OF ITEMS 1 AND 2.
The proposed reorganization and related matters are described in the
attached Combined Proxy Statement/Prospectus. Appendix A to the Combined Proxy
Statement/Prospectus is a copy of the Plan of Reorganization.
Shareholders of record as of the close of business on June 2, 1997 are
entitled to notice of, and to vote at, the Special Meeting or any adjournment
thereof.
<PAGE>
SHAREHOLDERS ARE REQUESTED TO EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE THE ACCOMPANYING PROXY CARD WHICH IS BEING SOLICITED BY THE BOARD OF
DIRECTORS OF THE COMPANY. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE MEETING.
PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY SUBMITTING TO
THE COMPANY A WRITTEN NOTICE OF REVOCATION OR A SUBSEQUENTLY EXECUTED PROXY OR
BY ATTENDING THE MEETING AND ELECTING TO VOTE IN PERSON.
By the Order of the Board of
Directors
W. Bruce McConnel, III
Secretary
June 13, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY................................................................... 1
Proposed Reorganization................................................. 1
Reasons for Reorganization.............................................. 1
Federal Income Tax Consequences......................................... 2
Comparison of the Investment Objectives and Policies of the Funds....... 2
Comparative Fee Table................................................... 4
Expense Ratios.......................................................... 6
The Investment Advisers................................................. 7
The Administrators...................................................... 8
The Distributor......................................................... 9
Administrative Servicing Fee............................................ 9
The Transfer Agent...................................................... 11
The Custodian........................................................... 11
Fee Waivers and Expense Ratios.......................................... 11
Purchase and Redemption Procedures; Exchange Procedures; Dividends, Dis-
tributions and Pricing................................................. 11
Voting Information...................................................... 11
Risk Factors............................................................ 11
INFORMATION RELATING TO THE PROPOSED REORGANIZATION....................... 12
Description of the Plan of Reorganization............................... 12
Board Consideration..................................................... 14
Capitalization.......................................................... 14
Federal Income Tax Consequences......................................... 15
COMPARISON OF THE FUNDS................................................... 16
Investment Objectives and Policies...................................... 16
Fundamental Investment Limitations...................................... 17
Performance............................................................. 18
Other Information....................................................... 19
INFORMATION RELATING TO VOTING MATTERS.................................... 19
General Information..................................................... 19
Shareholder and Board Approval.......................................... 20
Quorum.................................................................. 20
Annual Meetings......................................................... 21
ADDITIONAL INFORMATION ABOUT THE FUNDS.................................... 21
FINANCIAL HIGHLIGHTS...................................................... 22
FINANCIAL STATEMENTS...................................................... 29
OTHER BUSINESS............................................................ 29
LITIGATION................................................................ 29
SHAREHOLDER INQUIRIES..................................................... 29
APPENDIX A--Plan of Reorganization........................................ A-1
APPENDIX B--Management's Discussion of Fund Performance................... B-1
</TABLE>
i
<PAGE>
COMBINED PROXY STATEMENT/PROSPECTUS
DATED JUNE 13, 1997
EXCELSIOR FUNDS, INC.
73 TREMONT STREET
BOSTON, MASSACHUSETTS 02108-3913
PHONE (800) 446-1012
This Combined Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors of Excelsior Funds, Inc.
(the "Company") for use at a Special Meeting of Shareholders of the Company's
Productivity Enhancers Fund, Environmentally-Related Products and Services
Fund, Aging of America Fund, Communication and Entertainment Fund and Global
Competitors Fund, (each, a "Transferor Fund" and collectively, the "Transferor
Funds") to be held at 10:00 a.m. (Eastern time), on August 18, 1997 at the
offices of United States Trust Company of New York at 114 West 47th Street,
New York, New York, or any adjournment thereof (the "Meeting"). At the Meeting
shareholders of the Transferor Funds will be asked to consider and approve a
proposed Plan of Reorganization dated as of May 16, 1997 and the transactions
contemplated thereby. A copy of the Plan of Reorganization is attached as
Appendix A.
The Company is registered as an open-end management investment company under
the Investment Company Act of 1940 (the "1940 Act") and currently offers
shares in twenty investment portfolios. The Transferor Funds and the Company's
Equity Fund (the "Surviving Fund") are separate investment portfolios of the
Company. The Aging of America Fund, Communication and Entertainment Fund,
Global Competitors Fund and Equity Fund each offer two classes of shares,
shares and trust shares ("Retail Shares and Trust Shares"). The Productivity
Enhancers Fund and Environmentally-Related Products and Services Fund offer
only Retail Shares. The investment objective, policies and fundamental
limitations of each Transferor Fund are similar to those of the Surviving
Fund, and the Surviving Fund's investment advisers have utilized the
investment strategies, policies and themes of the Transferor Funds in managing
the Surviving Fund. In addition, the purchase and redemption policies and the
service providers of each Transferor Fund and the Surviving Fund are the same.
The Plan of Reorganization provides that each Transferor Fund will transfer
all of its assets and liabilities to the Surviving Fund. In exchange for the
transfers of these assets and liabilities, the Company will simultaneously
issue Retail Shares and Trust Shares in the Surviving Fund to the Aging of
America Fund, Communications and Entertainment Fund and Global Competitors
Fund and Retail Shares of the Surviving Fund to the Productivity Enhancers
Fund and Environmentally-Related Products and Services Fund. Retail and Trust
Shares issued by the Surviving Fund to the corresponding holders of Retail
and/or Trust Shares of the Transferor Funds are hereinafter referred to as
"Corresponding Shares."
The Transferor Funds will then make liquidating distributions of the
Surviving Fund's Corresponding Shares to the shareholders of Retail Shares and
Trust Shares of the Transferor Funds, such that each holder of Retail and/or
Trust Shares of a Transferor Fund will hold, immediately after the effective
time of the reorganization, full and fractional Corresponding Shares in the
Surviving Fund with the same aggregate net asset value as the shareholder had
in the respective Transferor Fund immediately before the transaction.
1
<PAGE>
This Combined Proxy Statement/Prospectus sets forth the information that a
shareholder of each Transferor Fund should know before voting on the Plan of
Reorganization and should be retained for future reference. Additional
information is set forth in the Prospectuses relating to Retail Shares and
Trust Shares of the Transferor Funds and the Surviving Fund (collectively, the
"Funds") dated August 31, 1996, the Statement of Additional Information dated
August 31, 1996 relating to the Funds and the Statement of Additional
Information dated June 13, 1997 relating to this Combined Proxy
Statement/Prospectus. Each of these documents is on file with the Securities
and Exchange Commission (the "SEC") and is available without charge upon oral
or written request by writing or calling the Company at the address or
telephone number indicated above. The information contained in the aforesaid
Prospectus and Statements of Additional Information is incorporated herein by
reference.
This Combined Proxy Statement/Prospectus constitutes the Transferor Funds'
Proxy Statement for the Meeting, and the Prospectus for the Corresponding
Shares of the Surviving Fund that have been registered with the SEC and are to
be issued in connection with the reorganization.
This Combined Proxy Statement/Prospectus is expected to be sent to
shareholders of the Transferor Funds on or about June 24, 1997.
SHARES OF THE TRANSFEROR FUNDS AND THE SURVIVING FUND ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, UNITED STATES TRUST COMPANY OF
NEW YORK, U.S. TRUST COMPANY OF CONNECTICUT, 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.
THE SECURITIES OF THE SURVIVING FUND 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 ACCURACY OR ADEQUACY OF THIS COMBINED PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROXY
STATEMENT/PROSPECTUS AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY
REFERENCE AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
2
<PAGE>
SUMMARY
The following is a summary of certain information relating to the proposed
reorganization, the parties thereto and the related transactions, and is
qualified by reference to the more complete information contained elsewhere in
this Combined Proxy Statement/Prospectus, including the Plan of Reorganization
attached as Appendix A hereto, and in the Prospectuses and Statement of
Additional Information of the Funds. The Company's Semi-Annual Report to
Shareholders and its Annual Report to Shareholders may be obtained free of
charge by calling 1-800-446-1012 or by writing the Company at its address
given on the first page of this Combined Proxy Statement/Prospectus.
PROPOSED REORGANIZATION. Based upon their evaluation of the relevant
information presented to them, and in light of their fiduciary duties under
federal and state law, the Board of Directors, including the directors who are
not "interested persons" within the meaning of the 1940 Act, have determined
that the proposed Plan of Reorganization is in the best interests of each
Transferor Fund's shareholders.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS THE APPROVAL OF THE PLAN OF
REORGANIZATION BY THE SHAREHOLDERS OF EACH TRANSFEROR FUND AT THE MEETING.
Subject to shareholder approval, the Plan of Reorganization provides for the
acquisition by the Surviving Fund of all of the assets and liabilities of each
Transferor Fund (such assets subject to such liabilities are called the
"Assets") in exchange for Corresponding Shares of the Surviving Fund and a
liquidating distribution of such Corresponding Shares.
As a result of the proposed reorganization, each shareholder of a Transferor
Fund will become a shareholder of the Surviving Fund and will hold,
immediately after the time the reorganization becomes effective (the
"Effective Time of the Reorganization"), the same aggregate dollar value of
Corresponding Shares of the Surviving Fund as the shareholder held in the
particular Transferor Fund immediately before the Effective Time of the
Reorganization.
The Plan of Reorganization provides that in the event the Plan is approved
with respect to some but not all of the Transferor Funds, the Board of
Directors will abandon the reorganization with respect to all of the
Transferor Funds.
For further information, see "INFORMATION RELATING TO THE PROPOSED
REORGANIZATION--Description of the Plan of Reorganization."
REASONS FOR REORGANIZATION. The primary reason for the reorganization is to
streamline and simplify the Company's equity products. In connection with its
approval of the Plan of Reorganization, the Company's Board of Directors noted
that the investment objective and policies of each Transferor Fund were
similar to those of the Surviving Fund; that the combined total assets of the
Surviving Fund would be considerably greater than those of the Transferor
Funds; that the greater aggregate assets upon consummation of the
reorganization of the respective Transferor Funds into the Surviving Fund
would potentially allow the Surviving Fund to take
1
<PAGE>
advantage of the possible benefits of a larger asset base such as economies of
scale, lower fixed expense ratios and greater leverage in the market; and that
the service providers for each of the Transferor Funds and Surviving Fund were
the same. After consideration of the reasons for the proposed reorganization
and the proposed operations of the Surviving Fund after the reorganization,
and in consideration of the fact that the reorganization will be tax-free and
will not dilute the interests of the shareholders of the Transferor Funds or
the Surviving Fund, the Board of Directors has authorized the Plan of
Reorganization and recommended approval of the Plan of Reorganization by the
shareholders of each Transferor Fund. See "INFORMATION RELATING TO THE
PROPOSED REORGANIZATION--Board Consideration."
FEDERAL INCOME TAX CONSEQUENCES. Consummation of the reorganization will not
give rise to tax liability for federal income tax purposes to any of the
Transferor Funds or the Surviving Fund or their respective shareholders. See
"INFORMATION RELATING TO THE PROPOSED REORGANIZATION--Federal Income Tax
Consequences."
COMPARISON OF THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS. The
investment objective of each Transferor Fund and the Surviving Fund is to seek
long-term capital appreciation. The Transferor Funds and the Surviving Fund
adhere to a long-term value-based investment philosophy. In order to translate
its investment philosophy into more specific guidance for selection of
investments, United States Trust Company of New York ("USTNY") and U.S. Trust
Company of Connecticut ("USTCT"), the Company's joint investment advisers
(collectively, "U.S. Trust" or the "Investment Advisers") uses three specific
strategies. These strategies, while identified separately, may overlap 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
complex problems such as the changing demographics and aging of the U.S.
population 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
CYCLE" companies whose products are in their earlier stages of development or
that seek to exploit new markets. Frequently such companies are smaller
companies, but early life cycle companies may also include larger established
companies with new products or markets for existing products. U.S. Trust
believes that over time the value of such companies should be recognized in
the market. To complete U.S. Trust's investment philosophy, the three
portfolio strategies discussed above are applied in concert with several
"longer-term investment themes" to identify investment opportunities. U.S.
Trust believes these longer-term themes represent strong and inexorable
trends. U.S. Trust 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.
As discussed further below, the investment approach of the Surviving Fund is
slightly broader than each Transferor Fund which has its own narrow investment
theme. Each Transferor Fund, under normal market conditions, invests at least
65% of its total assets in companies which U.S. Trust believes are consistent
with the theme of such Fund. The investment approach of the Surviving Fund and
the investment themes of the Transferor Funds are as follows:
2
<PAGE>
The EQUITY FUND invests in companies which U.S.Trust believes have value
currently not recognized in the market price of the companies' securities. In
addition to the investment philosophy discussed above, U.S. Trust has utilized
the investment policies and themes of the Transferor Funds and other theme
funds of the Company managing the Equity Fund. At the meeting of the Board of
Directors on May 16, 1997, the Board approved the changing of the Equity
Fund's name to the Blended Equity Fund.
The PRODUCTIVITY ENHANCERS FUND invests in companies which the U.S. Trust
believes will benefit from their roles as innovators, developers and suppliers
of goods and services which enhance service and manufacturing productivity, or
companies that are most effective at obtaining and applying productivity
enhancement developments.
The ENVIRONMENTALLY-RELATED PRODUCTS AND SERVICES FUND invests in companies
which U.S. Trust believes will benefit from their provision of products,
technologies and services related to conservation, protection and restoration
of the environment.
The AGING OF AMERICA FUND invests in companies which U.S. Trust believes
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.
The COMMUNICATION AND ENTERTAINMENT FUND invests in companies which U.S.
Trust believes will benefit from the technological and international
transformation of the communications and entertainment industries,
particularly the convergence of information, communication and entertainment
media.
The GLOBAL COMPETITORS FUND invests primarily in U.S.-based companies which
U.S. Trust believes will benefit from their position as effective and strong
competitors on a global basis.
For further information, see "COMPARISON OF THE FUNDS--Investment Objectives
and Policies."
3
<PAGE>
COMPARATIVE FEE TABLE. The following table sets forth: (1) the fees and
expenses of the Retail and Trust Shares of the Transferor Funds; (2) the fees
and expenses of the Retail and Trust Shares of the Surviving Fund; and (3) the
estimated fees and expenses on a pro forma basis giving effect to the proposed
reorganization. Hypothetical examples based on the table are shown following
the table.
<TABLE>
<CAPTION>
COMMUNICATION
PRODUCTIVITY ENVIRONMENTALLY AND
ENHANCERS RELATED PRODUCTS AGING OF AMERICA ENTERTAINMENT
FUND AND SERVICES FUND FUND FUND
------------ ----------------- ---------------------- ----------------
RETAIL RETAIL RETAIL TRUST RETAIL TRUST
SHARES SHARES SHARES SHARES SHARES SHARES
------------ ----------------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION EXPENSES
Maximum Sales
Load (as a
percentage of offering price) None None None None None None
Sales Load on
Reinvested
Dividends None None None None None None
Deferred Sales
Load None None None None None None
Redemption
Fees/1/ None None None None None None
Exchange Fees None None None None None None
ANNUAL FUND
OPERATING EXPENSES
(as a percentage of average
net assets)
Advisory Fees
(after fee
waivers)/2/,/3/ .50% .26% .55% .55% .55% .55%
12b-1 Fees/4/ None None None .35% None .35%
Other Operating
Expenses
Administrative Servicing Fee/2/ .05% .05% .05% .05% .05% .05%
Other
Expenses/2/ .43% .68% .35% .35% .39% .39%
---- ---- -------- -------- ---- ----
Total Operating
Expenses
(after fee
waivers)/2/ .98%/5/ .99%/5/ .95%/5/ 1.30%/6/ .99%/5/ 1.34%/6/
==== ==== ======== ======== ==== ====
<CAPTION>
PRO FORMA
GLOBAL COMBINED
COMPETITORS FUND EQUITY FUND EQUITY FUND+
--------------------------- ------------------- -------------------
RETAIL TRUST RETAIL TRUST RETAIL TRUST
SHARES SHARES SHARES SHARES SHARES SHARES
------------- ------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION EXPENSES
Maximum Sales
Load (as a
percentage of offering price) None None None None None None
Sales Load on
Reinvested
Dividends None None None None None None
Deferred Sales
Load None None None None None None
Redemption
Fees/1/ None None None None None None
Exchange Fees None None None None None None
ANNUAL FUND
OPERATING EXPENSES
(as a percentage of average
net assets)
Advisory Fees
(after fee
waivers)/2/,/3/ .55% .55% .70% .70% .64% .64%
12b-1 Fees/4/ None .35% None .35% None .35%
Other Operating
Expenses
Administrative Servicing Fee/2/ .05% .05% .05% .05% .05% .05%
Other
Expenses/2/ .29% .29% .26% .26% .28% .28%
------------- ------------- --------- --------- --------- ---------
Total Operating
Expenses
(after fee
waivers)/2/ .89%/5/ 1.24%/6/ 1.01%/5/ 1.36%/6/ .97%/5/ 1.32%/6/
============= ============= ========= ========= ========= =========
</TABLE>
- --------
+ The reorganization of the Transferor Funds into the Surviving Fund will
occur only if the shareholders of each Transferor Fund approve the
reorganization.
1. The Company's transfer agent imposes a direct $8.00 charge on each wire
redemption by noninstitutional (i.e., individual) investors which is not
reflected in the expense ratios presented herein. Shareholder organizations
may charge their customers transaction fees in connection with redemptions.
2. The Investment Advisers 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 Advisers 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 Retail Shares and/or Trust Shares (net
of 12b-1 fees) of the Productivity Enhancers, Environmentally-Rated Products
and Services, Aging of America, Communication and Entertainment and Global
Competitors Funds to maintain an annual expense ratio of not more than .99%.
3. Without such fee waivers, "Advisory Fees" would be .60% for Productivity
Enhancers, Environmentally-Related Products and Services, Aging of America,
Communication and Entertainment and Global Competitors Funds and .75% for
the Equity Fund and pro forma combined Equity Fund, respectively.
4. As a result of the payment of sales charges and distribution fees, long-
term shareholders may pay more than the economic equivalent of the maximum
front-end sales load permitted by NASD Regulations, Inc. ("NASD"). The NASD
has adopted rules which generally limit the aggregate sales charges and
payments under the Company's Distribution Plan to a certain percentage of
total new gross share sales, plus interest. The Company would stop accruing
Distribution Plan fees if, to the extent, and for as long as such limit
would otherwise be exceeded.
5. Without fee waivers, "Total Operating Expenses" would be 1.08%, 1.33%,
1.00%, 1.04%, .94%, 1.06% and 1.08% for the Retail Shares of the
Productivity Enhancers, Environmentally-Related Products and Services, Aging
of America, Communication and Entertainment, Global Competitors, Equity and
pro forma combined Equity Funds, respectively.
6. Without fee waivers, "Total Operating Expenses" would be 1.35%, 1.39%,
1.29%, 1.41%, and 1.43% for the Trust Shares of the Aging of America,
Communication and Entertainment, Global Competitors, Equity and pro forma
combined Equity Funds, respectively.
4
<PAGE>
Example: The following table illustrates the expenses on a $1,000 investment
based on the fees and expenses stated in the above Comparative Fee Table,
assuming (1) a 5% annual return and (2) redemption at the end of each time
period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Productivity Enhancers Fund
Retail Shares................................ $10 $31 $54 $120
Environmentally-Related Products
and Services Funds
Retail Shares................................. $10 $32 $55 $121
Aging of America Fund
Retail Shares................................ $10 $30 $53 $117
Trust Shares.................................. $13 $41 $71 $157
Communication and Entertainment Fund
Retail Shares................................ $10 $32 $55 $121
Trust Shares.................................. $14 $42 $73 $161
Global Competitors Fund
Retail Shares................................ $ 9 $28 $49 $110
Trust Shares.................................. $13 $39 $68 $150
Equity Fund
Retail Shares................................ $10 $32 $56 $124
Trust Shares.................................. $14 $43 $74 $164
Pro Forma Combined Equity Fund
Retail Shares................................ $10 $31 $54 $119
Trust Shares.................................. $13 $42 $72 $159
</TABLE>
The purpose of the Example and the Table is to assist investors in
understanding the various costs and expenses of investing in shares of the
Funds. The example should not be considered a representation of past or future
expenses of the Funds. Actual expenses in the Example and Table may vary from
year to year and may be higher or lower than those shown above.
5
<PAGE>
EXPENSE RATIOS. The following table sets forth the ratios of operating
expenses to average net assets of the Retail Shares and Trust Shares of the
pro forma combined Equity Fund, Retail Shares of the Transferor Funds and
Retail and Trust Shares of the Surviving Fund for the period ended March 31,
1997 (a) after fee waivers and (b) absent fee waivers:
<TABLE>
<CAPTION>
PERIOD ENDED MARCH 31, 1997
---------------------------------------
RATIO OF OPERATING RATIO OF OPERATING
EXPENSES TO AVERAGE EXPENSES TO AVERAGE
NET ASSETS AFTER NET ASSETS ABSENT
FEE WAIVERS FEE WAIVERS
------------------- -------------------
<S> <C> <C>
Pro Forma Combined Equity Fund
Retail Shares .97% 1.08%
Trust Shares 1.32% 1.43%
Equity Fund
Retail Shares 1.01% 1.06%
Trust Shares 1.36% 1.41%
Productivity Enhancers Fund .98% 1.08%
Environmentally-Related Products and
Services Fund .99% 1.33%
Aging of America Fund .95% 1.00%
Communication and Entertainment Fund .99% 1.04%
Global Competitors Fund .89% .94%
</TABLE>
As of March 31, 1997, no Transferor Fund had issued any Trust Shares in a
public offering.
6
<PAGE>
THE INVESTMENT ADVISERS. USTNY and USTCT serve as joint investment advisers
for each Fund and are entitled to receive advisory fees from them, computed
daily and paid monthly, at the annual rates set forth in the table below.
The following table sets forth comparative data regarding the advisory fees
paid to USTNY by the Surviving Fund and the Transferor Funds for the fiscal
year ended March 31, 1997:(/1/)
<TABLE>
<CAPTION>
ANNUAL ADVISORY FEE ADVISORY FEES PAID
AS A PERCENTAGE OF AS A PERCENTAGE OF
AVERAGE DAILY ADVISORY FEES AVERAGE DAILY NET
FUND NET ASSETS PAID ASSETS
- ---- ------------------- ----------------- ------------------
<S> <C> <C> <C>
Equity 0.75% $1,954,607 .70%
[$132,737 Waived] [.05% Waived]
Productivity Enhancers 0.60% $129,207 .50%
[$24,184 Waived] [.10% Waived]
Environmentally Related 0.60% $17,407 .26%
Products and Services [$23,451 Waived] [.34% Waived]
Aging of America 0.60% $260,468 .55%
[$21,988 Waived] [.05% Waived]
Communication and 0.60% $265,750 .55%
Entertainment [$24,461 Waived] [.05% Waived]
Global Competitors 0.60% $467,445 .55%
[$36,378 Waived] [.05% Waived]
</TABLE>
- --------
1. Effective May 16, 1997, USTCT became a joint investment adviser to each
Fund. Prior to May 16, 1997, USTNY was the sole investment adviser to each
Fund.
U.S. Trust 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.
7
<PAGE>
THE ADMINISTRATORS. Administrative services are provided to each of the
Transferor Funds and to the Surviving Fund by Chase Global Funds Services
Company ("CGFSC"), Federated Administrative Services ("Federated") and USTCT
(collectively, the "Administrators"). The Administrators also provide
administrative services to the other investment portfolios of the Company and
to all of the investment portfolios of Excelsior Tax-Exempt Fund and Excelsior
Institutional Trust which are also advised by U.S. Trust and its affiliates
and distributed by the Distributor (as defined below). For services provided
to all of the investment portfolios of the Company, Excelsior Tax-Exempt Fund
and Excelsior Institutional Trust (except for the international portfolios of
the Company and Excelsior Institutional Trust), the Administrators are
entitled jointly to fees, computed daily and paid monthly, based on the
combined aggregate average daily net assets of the three companies (excluding
the international portfolios of the Company and Excelsior Institutional Trust)
as follows:
COMBINED AGGREGATE AVERAGE DAILY NET ASSETS
OF THE COMPANY, EXCELSIOR TAX-EXEMPT FUND AND
EXCELSIOR INSTITUTIONAL TRUST (EXCLUDING
THE INTERNATIONAL PORTFOLIOS OF THE COMPANY
AND EXCELSIOR INSTITUTIONAL TRUST)
---------------------------------------
<TABLE>
<CAPTION>
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
Company, Excelsior Tax-Exempt Fund and Excelsior Institutional Trust are
allocated in proportion to their relative average daily net assets at the time
of determination.
8
<PAGE>
The following table sets forth comparative data regarding the administration
fees paid by the Surviving Fund and the Transferor Funds for the fiscal year
ended March 31, 1997:/1/
<TABLE>
<CAPTION>
ADMINISTRATION FEES
PAID AS A PERCENTAGE
ADMINISTRATION OF AVERAGE DAILY NET
FUND FEES PAID ASSETS
---- --------------- --------------------
<S> <C> <C>
Equity $422,505 .153%
[$5,344 Waived] [.001% Waived]
Productivity Enhancers $39,258 .153%
[$7 Waived] [0% Waived]
Environmentally Related Products and $12,255 .179%
Services [$2 Waived] [0% Waived]
Aging of America $72,337 .154%
[$43 Waived] [0% Waived]
Communication and Entertainment $74,244 .153%
[$43 Waived] [0% Waived]
Global Competitors $129,073 .154%
[$14 Waived] [0% Waived]
</TABLE>
- --------
1. Effective May 16, 1997, USTCT replaced USTNY as a co-administrator to each
Fund. Prior to May 16, 1997, USTNY served as a co-administrator to each
Fund. References to the Administrators for periods prior to May 16, 1997
shall mean CGFSC, Federated and USTNY.
THE DISTRIBUTOR. Edgewood Services, Inc., (the "Distributor") an affiliate
of Federated Administrative Services, serves as sponsor and underwriter of
each of the Transferor Funds and of the Surviving Fund.
Under the Company's Distribution Agreement and Distribution Plan, adopted
pursuant to Rule 12b-1 under the 1940 Act, the Trust Shares of the Equity,
Aging of America, Communication and Entertainment, and Global Competitors
Funds may compensate the Distributor (or any other person) monthly for
distribution expenses in an amount not to exceed the annual rate of .75% of
the average daily net asset value of the Fund's outstanding Trust Shares.
Trust Shares of such Funds currently bear distribution fees at the annual rate
of .35% of the average daily net asset value of the Fund's outstanding Trust
Shares. Distribution expenses include (1) direct out-of-pocket promotional
expenses incurred by the Distributor in connection with the advertising and
marketing of Shares including but not limited to amounts spent by the
Distributor in connection with advertising via radio, television, newspapers,
magazines and otherwise; preparing, printing and mailing sales materials,
brochures and prospectuses (except for prospectuses used for regulatory
purposes or for distribution to existing shareholders); and other out-of-
pocket expenses incurred in connection with the promotion of the Shares; and
(2) payments to one or more securities dealers, financial institutions or
other industry professionals and financial intermediaries, such as but not
limited to investment advisers, accountants and estate planning firms,
including affiliates of the Distributor (severally, a "Distribution
Organization") for distribution assistance.
ADMINISTRATIVE SERVICING FEE. Each of the Transferor Funds and the Surviving
Fund may enter into Servicing Agreements with Service Organizations which
agree to provide their customers with various administrative support services.
Service Organizations include customers of U.S. Trust, its affiliates and
9
<PAGE>
correspondent banks, and other institutions. As consideration for the
administrative services provided, a Fund will pay each Service Organization an
administrative service fee at the annual rate of up to 0.40% of the average
daily net asset value of its shares held by the Service Organization's
customers. Administrative services may include but are not limited to
assisting in processing purchase, exchange and redemption requests;
transmitting and receiving funds in connection with customer orders to
purchase, exchange or redeem shares; and providing periodic statements. U.S.
Trust and the Administrators have voluntarily agreed to waive fees payable by
a Fund in an amount equal to administrative service fees payable by that Fund.
The following table sets forth comparative information regarding the sales
charges, 12b-1 fees and administrative service fees paid by the Transferor
Funds and the Surviving Fund for the fiscal year ended March 31, 1997:
<TABLE>
<CAPTION>
MAXIMUM 12B-1 FEES ADMINISTRATIVE SERVICE FEES
SALES CHARGE ----------------------- ---------------------------
AS A PERCENTAGE PERCENTAGE OF PERCENTAGE OF FEES PAID TO
OF PUBLIC TOTAL SALES AVERAGE DAILY AVERAGE DAILY SERVICE
FUND AND CLASS OFFERING PRICE CHARGES PAID NET ASSETS FEES PAID NET ASSETS ORGANIZATIONS
- -------------- --------------- ------------ ------------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Equity
Retail 4.5%+ $3,806 N/A N/A
[$ 823]++ .05%++++* $132,737*
[$118,778]++*
Trust 4.5%+ $ 0 .35%+++ $88
[$ 0]++ [$0]++
Productivity Enhancers
Retail 4.5%+ $ 495 N/A N/A .05%++++ $ 13,268
[$ 430]++ [$ 13,268]+
Environmentally Related
Products & Services
Retail 4.5%+ $ 71 N/A N/A .05%++++ $ 3,484
[$ 0]++ [$ 3,484]++
Aging of America
Retail 4.5%+ $ 715 N/A N/A .05%++++ $ 21,988
[$ 430]++ [$ 21,968]++
Communication and
Entertainment
Retail 4.5%+ $ 587 N/A N/A .05%++++ $ 24,461
[$ 90]++ [$ 24,409]++
Global Competitors
Retail 4.5%+ $ 735 N/A N/A .04%++++ $ 36,378
[$ 400]++ [$ 36,376]++
</TABLE>
- --------
+Effective February 14, 1997, Retail and Trust Shares are no longer subject
to a sales charge.
++Represents portion of sales charge, 12b-1 fee or administrative service
fee paid to affiliates of U.S. Trust.
+++Maximum annual rate is .75%.
++++ Maximum annual rate is .40%.
*Represents Administrative Service Fees charged to the Equity Fund and not
a particular class of such Fund.
As of March 31, 1997, no Transferor Fund has issued Trust Shares in a public
offering.
10
<PAGE>
THE TRANSFER AGENT. USTNY serves as the transfer and dividend disbursing
agent for both the Transferor Funds and the Surviving Fund. USTNY has entered
into a sub-transfer agency arrangement with CGFSC pursuant to which CGFSC
provides certain transfer agent, dividend disbursement and registrar services
to both the Transferor Funds and the Surviving Fund.
THE CUSTODIAN. The Chase Manhattan Bank serves as custodian of the assets of
both the Transferor Funds and the Surviving Fund.
FEE WAIVERS AND EXPENSE RATIOS. Except as otherwise noted, the service
providers bear all expenses in connection with the performance of their
services, and the Funds each bear the expenses incurred in their operations.
From time to time, U.S. Trust and the Administrators may undertake to waive a
portion or all of the fees payable to them and may also reimburse the Funds
for a portion of other expenses. U.S. Trust is voluntarily waiving fees to the
extent necessary for each Transferor Fund to maintain an annual expense ratio
of not more than 0.99%.
PURCHASE AND REDEMPTION PROCEDURES; EXCHANGE PROCEDURES; DIVIDENDS,
DISTRIBUTIONS AND PRICING. The procedures for purchasing, redeeming and
exchanging Retail and Trust Shares of the Transferor Funds are the same as
those of the Surviving Fund. Additionally, dividends from net investment
income are declared and paid quarterly for both the Transferor Funds and the
Surviving Fund, and net realized gains (if any) for these Funds are
distributed at least annually. The net asset value per share of each Fund is
determined as of the close of regular trading hours on the New York Stock
Exchange. The procedures for valuing the Assets of each Transferor Fund are
the same as for those of the Surviving Fund.
Additional information concerning each Fund's purchase, redemption,
exchange, dividends and distributions and pricing procedures is contained in
the Funds' Prospectuses.
VOTING INFORMATION. This Combined Proxy Statement/Prospectus is being
furnished in connection with the solicitation of proxies by the Company's
Board of Directors in connection with a Special Meeting of Shareholders to be
held at the offices of U.S. Trust at 114 West 47th Street, New York, New York,
on August 18, 1997 at 10:00 a.m. Eastern time. Only Shareholders of record at
the close of business on June 2, 1997 will be entitled to notice of and to
vote at the Meeting or any adjournment thereof. Each share or fraction thereof
is entitled to one vote or fraction thereof and all shares will vote
separately by Fund. Shares represented by a properly executed proxy will be
voted in accordance with the instructions thereon, or if no specification is
made, the persons named as proxies will vote in favor of each proposal set
forth in the Notice of Meeting. Proxies may be revoked at any time before they
are exercised by submitting to the Company a written notice of revocation or a
subsequently executed proxy or by attending the Meeting and voting in person.
For additional information, including a description of the shareholder vote
required for approval of the Plan of Reorganization and related transactions
contemplated thereby, see "INFORMATION RELATING TO VOTING MATTERS."
RISK FACTORS. The following discussion highlights the principal risk factors
associated with an investment in the Transferor Funds and the Surviving Fund
and is qualified in its entirety by the more extensive discussion in
"COMPARISON OF THE FUNDS--Investment Objectives and Policies and Fundamental
Investment Limitations."
11
<PAGE>
Because of the similarities of the investment objectives and policies of the
Transferor Funds and the Surviving Fund, U.S. Trust believes that an
investment in the Surviving Fund involves risks that are similar to those of
the Transferor Funds. These investment risks include those typically
associated with investing in a portfolio of common stocks and securities
convertible into common stock and to a lesser degree, debt securities.
Generally, the Transferor Funds and the Surviving Fund are subject to market
risk, interest rate risk and in some cases, industry 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. The prices of bonds and other debt instruments generally
fluctuate inversely with interest rate changes. Therefore, interest rate risk
is the risk that the prices of debt instruments held by a Fund will decrease
as interest rates increase. Factors affecting debt securities will affect all
of the Funds' debt holdings.
Industry risk is the possibility that a particular group of stocks will
decline in price due to industry-specific developments. This risk may be more
pronounced for the Transferor Funds than the Surviving Fund because the
Transferor Funds, unlike the Surviving Fund, tend to invest their holdings in
a small number of industries.
The Transferor Funds and the Surviving Fund may invest in common stock;
securities convertible into common stock; investment grade debt securities;
warrants; U.S. government securities; high quality money market instruments;
repurchase agreements; and securities of foreign issuers, either directly or
indirectly through sponsored and unsponsored American Depository Receipts. In
addition, the Transferor Funds and the Surviving Fund may invest up to 10% of
the value of their respective total assets in money market fund securities;
lend their respective portfolio securities; purchase eligible securities on a
"when-issued" basis; purchase or sell securities on a "forward commitment"
basis; participate in forward currency contracts; invest in equity real estate
investment trusts; write covered call options and enter into closing purchase
transactions with respect to such options and invest up to 10% of their
respective net assets in illiquid securities. A description of the risks
associated with such securities is included in the Company's prospectuses
dated August 31, 1996 and is incorporated herein by reference.
INFORMATION RELATING TO THE PROPOSED REORGANIZATION
The terms and conditions under which the reorganization may be consummated
are set forth in the Plan of Reorganization. Significant provisions of the
Plan of Reorganization are summarized below; however, this summary is
qualified in its entirety by reference to the Plan of Reorganization, a copy
of which is attached as Appendix A to this Combined Proxy
Statement/Prospectus.
DESCRIPTION OF THE PLAN OF REORGANIZATION. The Plan of Reorganization
provides that at the Effective Time of the Reorganization, all of the Assets
of each Transferor Fund will be transferred to the Surviving Fund, such that
at and after the Effective Time of the Reorganization, the Assets (and
liabilities) of the Transferor Fund will become and be the Assets (and
liabilities) of the Surviving Fund. In exchange for the transfer of Assets,
the Company will assume the liability of each Transferor Fund and issue to
each Transferor Fund full and fractional Corresponding Shares of the Surviving
Fund. The number of Corresponding Shares of the Surviving Fund so issued will
have an aggregate net asset value equal to the aggregate net asset value of
the Retail and Trust Shares
12
<PAGE>
of the particular Transferor Fund that are outstanding immediately prior to
the Effective Time of the Reorganization. Each Transferor Fund will make a
liquidating distribution of such shares to its shareholders. At and after the
Effective Time of the Reorganization, all debts, liabilities and obligations
of each Transferor Fund will attach to the Surviving Fund and may thereafter
be enforced against the Surviving Fund to the same extent as if they had been
incurred by it.
Subsequent to the Reorganization, U.S. Trust, in light of the investment
policies of the Surviving Fund, may liquidate a number of portfolio holdings
that the Surviving Fund received from certain of the Transferor Funds. The
Surviving Fund intends to distribute any capital gains and/or losses incurred
from the sale of certain holdings of the Transferor Funds to its shareholders.
Such distribution will be taxed as capital gains and/or losses to the
shareholders of the Surviving Fund. Transaction costs are expected to have a
minimal effect on the amount of distributions received by shareholders from
the Surviving Fund.
The Plan of Reorganization provides that the Board of Directors of the
Company will declare a dividend or dividends prior to the Effective Time of
the Reorganization which, together with all previous dividends, will have the
effect of distributing to the shareholders of each of the Transferor Funds all
undistributed ordinary income earned and net capital gains realized up to and
including the Effective Time of the Reorganization.
The stock transfer books of the Company for the Transferor Funds will be
permanently closed as of the close of business on the day immediately
preceding the Effective Time of the Reorganization. Redemption requests
received thereafter by the Company with respect to the Transferor Funds will
be deemed to be redemption requests for the Surviving Fund. If any Transferor
Fund shares held by a Transferor Fund shareholder are represented by a share
certificate, the certificate must be surrendered to the Company's transfer
agent for cancellation before the Surviving Fund shares issued to the
shareholder in the reorganization will be redeemed.
The reorganization is subject to a number of conditions, including approval
of the Plan of Reorganization and the transactions contemplated therein by the
shareholders of the respective Transferor Funds, and the receipt of certain
legal opinions described in the Plan of Reorganization including a legal
opinion of Drinker Biddle & Reath LLP that Corresponding Shares of the
Surviving Fund issued to shareholders of the Transferor Funds in accordance
with the terms of the Plan of Reorganization will be validly issued, fully
paid and nonassessable. The Company, by consent of its Board of Directors, may
waive any condition to the obligations of any Transferor Funds or Surviving
Fund under the Plan of Reorganization if, in its or such officer's judgment,
such waiver will not have a material adverse affect on the interests of the
shareholders of the Transferor Funds and Surviving Fund.
The expenses incurred in connection with the reorganization will be borne by
USTNY.
Assuming satisfaction of the conditions in the Plan of Reorganization, the
Effective Time of the Reorganization will be on September 15, 1997, or such
other date as is scheduled by the Company.
The Plan of Reorganization and the reorganization described therein may be
abandoned at any time for any reason prior to the Effective Time of the
Reorganization upon the vote of a majority of the Board of Directors of
13
<PAGE>
the Company. The Plan of Reorganization provides further that at any time
prior to or (to the fullest extent permitted by law) after approval of the
Plan of Reorganization by the shareholders of the Transferor Funds the Company
may, upon authorization by the Board of Directors of the Company, and with or
without the approval of the shareholders, amend any of the provisions of the
Plan of Reorganization. The Plan of Reorganization provides that in the event
the Plan is approved with respect to some but not all of the Transferor Funds,
the Board of Directors will abandon the reorganization with respect to all of
the Transferor Funds.
BOARD CONSIDERATION. The Board of Directors of the Company considered the
proposed reorganization at meetings held on February 12, 1997 and May 16,
1997. In considering the Plan of Reorganization, the Company's Board of
Directors considered the terms of the Plan of Reorganization; a comparison of
each Transferor Fund's expense ratio with those of the Surviving Fund; the
recommendation of U.S. Trust with respect to the proposed reorganization; the
fact that the proposed reorganization would be conducted on a tax-free basis;
and the fact that the interests of shareholders would not be diluted as a
result of the reorganization. In connection with its approval of the Plan of
Reorganization, the Company's directors noted that the investment objectives
and fundamental investment limitations of each Transferor Fund were similar to
those of the Surviving Fund. The Board noted the advantage of simplifying and
streamlining the equity products offered by the Company. The directors
considered the difficulties in classifying the Transferor Funds within their
industry peer groups, the related difficulties in marketing the Transferor
Funds, and the resultant investor confusion; and that the combination of the
Transferor Funds into the Surviving Fund would allow for the development of a
unified marketing strategy for equity products which could lead to greater
asset growth. The Board of Directors also reviewed the potential advantages of
a larger asset base such as economies of scale and lower expense ratios. The
Board of Directors reviewed the expected costs of the reorganization, and
noted U.S. Trust's commitment to pay all expenses in connection with the
reorganization.
Based upon their evaluation of the relevant information presented to them,
and in light of their fiduciary duties under federal and state law, the
Company's Board of Directors unanimously determined that (i) the proposed
reorganization was in the best interests of each of the Transferor Funds and
the Surviving Fund, (ii) that the interests of existing shareholders of the
Funds will not be diluted as a result of the transaction, and recommended the
approval of the Plan of Reorganization by shareholders of each Transferor Fund
at the Meeting. The Plan of Reorganization in the form attached hereto as
Appendix A was approved by the Board of Directors on May 16, 1997.
CAPITALIZATION. Because the Transferor Funds will be combined with the
Surviving Fund in the reorganization, the total capitalization of the
Surviving Fund after the reorganization is expected to be greater than the
current capitalization of each Transferor Fund. The following table sets forth
as of March 31, 1997 (i) the capitalization of each Transferor Fund; (ii) the
capitalization of the Surviving Fund; and (iii) the pro forma capitalization
of the Surviving Fund as adjusted to give effect to the proposed
reorganization of the Transferor Funds. The table below reflects the scenario
whereby all the Transferor Funds will reorganize into the Surviving Fund. The
proposed reorganization is structured such that all the Transferor Funds will
combine or none are to reorganize. As of March 31, 1997, the Transferor Funds
had not issued Trust Shares. There is, of course, no assurance that the
reorganization will be consummated. Moreover, if consummated, the
capitalization of each Fund is likely to be different at the Effective Time of
the Reorganization as a result of daily share purchase and redemption activity
in the Funds.
14
<PAGE>
<TABLE>
<CAPTION>
ENVIRON-
MENTALLY- COMMUNICATION
PRODUCTIVITY RELATED AGING OF AND GLOBAL PRO-FORMA
ENHANCERS PRODUCTS AND AMERICA ENTERTAINMENT COMPETITORS EQUITY COMBINED EQUITY
FUND SERVICES FUND FUND FUND FUND FUND FUND
------------ ------------- ----------- ------------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Net Assets
Retail Shares $18,057,247 $8,868,844 $45,057,554 $34,696,491 $81,921,799 $306,989,598 $495,591,533
Trust Shares -- -- -- -- -- $ 81,040 $ 81,040
Shares Outstanding
Retail Shares 2,209,782 949,105 4,444,010 3,363,248 7,194,476 11,893,854 19,201,173
Trust Shares -- -- -- -- -- 3,144 3,144
Net Asset Value Per
Share
Retail Shares $ 8.17 $ 9.34 $ 10.14 $ 10.32 $ 11.39 $ 25.81 $ 25.81
Trust Shares -- -- -- -- -- $ 25.78 $ 25.78
</TABLE>
As of March 31, 1997, no Transferor Fund had issued Trust Shares in a public
offering.
FEDERAL INCOME TAX CONSEQUENCES. Consummation of the transaction is subject
to the condition that the Company receive an opinion from Drinker Biddle &
Reath LLP, subject to appropriate factual assumptions, to the effect that for
federal income tax purposes: (i) the transfer of all of the Assets (subject to
all liabilities) of each of the Transferor Funds to the Surviving Fund in
exchange for shares of the Surviving Fund and the liquidating distributions to
shareholders of the Transferor Funds of the shares of the Surviving Fund so
received, as described in the Plan of Reorganization, will constitute
reorganizations within the meaning of Section 368(a)(1)(C) and Section
368(a)(1)(D) of the Internal Revenue Code of 1986, as amended, (the "Code")
and with respect to the reorganization, each Transferor Fund and the Surviving
Fund will be considered "a party to a reorganization" within the meaning of
Section 368(b) of the Code; (ii) no gain or loss will be recognized by the
Transferor Funds as a result of such transactions; (iii) no gain or loss will
be recognized by the Surviving Fund as a result of such transactions; (iv) no
gain or loss will be recognized by the shareholders of any Transferor Fund on
the distribution to them by the Company of Corresponding Shares of the
Surviving Fund in exchange for their Retail and Trust Shares of any Transferor
Fund; (v) the basis of the Surviving Fund's Corresponding Shares received by a
shareholder of a Transferor Fund will be the same as the basis of the
shareholder's Retail and Trust Shares of a Transferor Fund immediately prior
to the reorganization; (vi) the basis of the Surviving Fund in the Assets of
the corresponding Transferor Fund received pursuant to the reorganization will
be the same as the basis of the Assets in the hands of the Transferor Fund
immediately before the reorganization; (vii) a shareholder's holding period
for a Surviving Fund's Corresponding Shares will be determined by including
the period for which the shareholder held the Retail and Trust Shares of the
Transferor Fund exchanged therefor, provided that the shareholder held such
Transferor Fund's Retail and Trust shares as a capital asset; and (viii) the
Surviving Fund's holding period with respect to the Assets received in the
reorganization will include the period for which such Assets were held by each
Transferor Fund.
The Company has not sought a tax ruling from the Internal Revenue Service
("IRS"). The tax opinion described in the preceding paragraph will not be
binding on the IRS and will not preclude the IRS from adopting a contrary
position. Shareholders should consult their own advisors concerning the
potential tax consequences to them, including state and local income tax
consequences.
15
<PAGE>
COMPARISON OF THE FUNDS
INVESTMENT OBJECTIVES AND POLICIES. The investment objective of each
Transferor Fund and the Surviving Fund is to seek long-term capital
appreciation. As discussed in "SUMMARY--Comparison of the Investment
Objectives of the Funds," the investment approach of the Surviving Fund is
slightly broader than each Transferor Fund which has its own narrow investment
theme. In managing the Surviving Fund, U.S. Trust utilizes its three-pronged
investment strategies, the problem/opportunity strategy, transaction value
strategy and early life cycle strategy, as well as the investment policies and
themes of the Transferor Funds in managing the Surviving Fund.
Certain investments, however, are common to the Transferor Funds and the
Surviving Fund (collectively, the "Funds").
Under normal market and economic conditions, the Funds will invest at least
65% of their total assets in common stock, preferred stock and securities
convertible into common stock. Normally, up to 35% of each Fund's total assets
may be invested in other securities and instruments including investment grade
debt securities and warrants. During temporary defensive periods, each Fund
may hold cash or invest some or all of its assets in U.S. Government
securities, high-quality money market instruments and repurchase agreements
collateralized by the foregoing obligations.
Each Fund may also invest in the securities of foreign issuers, either
directly or indirectly through sponsored and unsponsored American Depository
Receipts; invest up to 10% of the value of its total assets in money market
fund securities; lend its portfolio securities; purchase eligible securities
on a "when-issued" basis; purchase or sell securities on a "forward
commitment" basis; participate in forward currency contracts; invest in equity
real estate investment trusts; write covered call options and enter into
closing purchase transactions with respect to such options and invest up to
10% of its net assets in illiquid securities.
Certain investments of the Transferor Funds are not common to the Surviving
Fund.
OPTIONS. The Transferor Funds, unlike the Surviving Fund, may purchase put
and call options listed on a national securities exchange and issued by the
Options Clearing Corporation in an amount not exceeding 5% of the particular
Fund's net assets. 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 complete loss of the amounts
paid as premiums to the writer of the options.
FUTURES. The Transferor Funds, unlike the Surviving Fund, for hedging
purposes, 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 use of futures contracts is
restricted such that no more than 10% of a Transferor 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
U.S. Trust 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 contract
(or option) at any particular
16
<PAGE>
time. Consequently, a Transferor 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.
FUNDAMENTAL INVESTMENT LIMITATIONS. The Transferor Funds and the Surviving
Fund are subject to a number of investment limitations which are matters of
fundamental policy and may not be changed with respect to a particular Fund
without the affirmative vote of the holders of a majority of a Fund's
outstanding shares (as defined in the 1940 Act). The following is a comparison
of certain fundamental investment limitations of the Transferor Funds and the
Surviving Fund.
The fundamental investment limitations of the Transferor Funds and the
Surviving Fund are generally identical except as follows:
INDUSTRY CONCENTRATION. The Transferor Funds and the Surviving Fund may not
purchase any securities which would cause more than 25% of the value of their
respective 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. However, with respect to the Surviving Fund,
this limitation on industry concentration is not applicable to securities
issued or guaranteed by the U.S. Government or domestic bank obligations. With
respect to each Transferor Fund, this limitation on industry concentration is
not applicable to securities issued or guaranteed by the U.S. Government. For
both the Transferor Funds and the Surviving Fund, neither all finance
companies, as a group, nor all utility companies, as a group, are considered a
single industry for purposes of this limitation.
COMMODITIES FUTURES CONTRACTS AND OIL, GAS AND OTHER MINERAL EXPLORATION
PROGRAMS. The Transferor Funds and the Surviving Fund may not purchase or sell
commodities futures contracts or invest in oil, gas, or other mineral
exploration or development programs; provided that for the Transferor Funds
and Surviving Fund the foregoing limitation shall not prohibit a Fund from
purchasing publicly traded securities of companies engaging in whole or in
part in such activities. In addition, with respect to the Transferor Funds,
the foregoing limitation shall not prohibit a Transferor Fund from investing
in liquidating trust receipts, certificates of beneficial ownership or other
instruments in accordance with their respective investment objectives and
policies; and each Transferor Fund may enter into futures contracts and
futures options.
The following investment limitations are fundamental with respect to the
Surviving Fund but are merely nonfundamental operating policies with respect
to the Transferor Funds:
BANK OBLIGATIONS. The Transferor Funds and Surviving Fund 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 institution or domestic branch or a
foreign bank; or (ii) more than 20% of their respective total assets would be
invested in foreign branches of financial institutions or in domestic branches
of foreign banks.
ILLIQUID SECURITIES. The Transferor Funds and Surviving Fund may not
knowingly invest more than 10% of the value of their respective total assets
in illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days, restricted securities and other securities
for which market quotations are not readily available.
17
<PAGE>
MARGIN AND SHORT SALES. The Transferor Funds and Surviving Fund may not
purchase securities on margin, make short sales of securities, or maintain a
short position.
OPTIONS. The Transferor Funds and Surviving Fund may not 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 does not exceed 25% of
the value of its total assets; and provided that the Transferor Funds may
purchase options and other rights in accordance with their investment
objectives and policies.
CONTROL. The Transferor Funds and Surviving Fund may not invest in companies
for the purpose of exercising management or control.
UNSEASONED ISSUERS. The Transferor Funds and Surviving Fund may not invest
more than 5% of their total assets in securities issued by companies which,
together with any predecessor, have been in continuous operation for fewer
than three years.
INVESTMENT COMPANIES. The Transferor Funds and Surviving Fund may not
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.
PERFORMANCE. The average annual total return for the period ended March 31,
1997 for the Retail Shares of the Transferor Funds and the Retail and Trust
Shares of the Surviving Fund were as follows:
<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION
----- ----- ----- ---------
<S> <C> <C> <C> <C>
Productivity Enhancers Fund
(inception 12/31/92) 1.02% N/A N/A 10.21%
Environmentally-Related
Products and Services Fund
(inception 12/31/92) 20.77% N/A N/A 7.17%
Aging of America Fund
(inception 12/31/92) 8.18% N/A N/A 10.68%
Communication and Entertainment
Fund
(inception 12/31/92) 0.34% N/A N/A 12.94%
Global Competitors Fund
(inception 12/31/92) 6.64% N/A N/A 13.18%
Equity Fund
(inception 4/25/85)
Retail Shares 11.09% 15.38% 11.45% 15.27%
Trust Shares 10.95% 15.35% 11.44% 15.26%
</TABLE>
As of March 31, 1997, the Transferor Funds had not issued Trust Shares in a
public offering.
18
<PAGE>
OTHER INFORMATION. The Company is organized as a Maryland corporation and,
as such, is subject to the provisions of its Articles of Incorporation and its
By-Laws. The Company is registered as an open-end management investment
company under the 1940 Act. Currently, the Company has authorized capital of
35 billion shares of common stock, $.001 par value per share, classified into
forty series of shares representing interests in twenty investment portfolios.
The Company has authorized the issuance of two classes of shares, Retail
Shares and with respect to certain Funds, including but not limited to, the
Equity, Aging of America, Communication and Entertainment, and Global
Competitors Funds, a separate class of shares designated as Trust Shares.
Trust Shares have different expenses than non-Trust Shares, which may affect
performance.
Each share 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 the Company's Board of
Directors. The Company's Charter authorizes the Board to classify or
reclassify any class of shares into one or more additional classes or series.
The Company's shareholders are entitled to one vote for each full share held
and fractional votes for fractional shares held and will vote in the aggregate
and not by class or series, except as otherwise expressly required by law.
The foregoing is only a summary of certain material attributes of the Funds
and their shares. Shareholders may obtain copies of the Company's Articles of
Incorporation and By-Laws from the Company upon written request at the address
shown on the cover page of this Combined Proxy Statement/Prospectus.
INFORMATION RELATING TO VOTING MATTERS
GENERAL INFORMATION. This Combined Proxy Statement/Prospectus is being
furnished in connection with the solicitation of proxies by the Board of
Directors of the Company for use at the Meeting. It is expected that
the solicitation of proxies will be primarily by mail. The Company's officers
and service contractors may also solicit proxies by telephone, telegraph or
personal interview. In addition, the Company may retain the services of one or
more outside organizations to aid in the solicitation of proxies. Such
organizations normally charge a fee plus out-of-pocket charges.
Only shareholders of record at the close of business on June 2, 1997 will be
entitled to vote at the Meeting. On that date, there were outstanding and
entitled to be voted 1,870,129.256 Retail Shares of the Productivity Enhancers
Fund, 884,351.326 Retail Shares of the Environmentally-Related Products and
Services Fund, 4,253,833.372 Retail Shares and 0 Trust Shares of the Aging of
America Fund, 2,815.334.66 Retail Shares and 0 Trust Shares of the
Communication and Entertainment Fund and 6,985.323.31 Retail Shares and 0
Trust Shares of the Global Competitors Fund. Each share or fraction thereof is
entitled to one vote or fraction thereof.
If the accompanying proxy is executed and returned in time for the Meeting,
the shares covered thereby will be voted in accordance with the proxy on all
matters that may properly come before the Meeting. Any shareholder giving a
proxy may revoke it at any time before it is exercised by submitting to the
Company a written notice of revocation or a subsequently executed proxy or by
attending the Meeting and electing to vote in person.
19
<PAGE>
SHAREHOLDER AND BOARD APPROVAL. The Plan of Reorganization and the
transactions contemplated therein are being submitted for approval at the
Meeting by the holders of a majority of the outstanding shares of each
Transferor Fund in accordance with the terms of the Plan. The term "majority
of the outstanding shares" as used herein means more than 50% of all the votes
cast at a meeting at which a quorum is present.
The vote of the shareholders of the Surviving Fund is not being solicited,
because their approval or consent is not required for the reorganization.
The approval of the Plan of Reorganization by the Board of Directors of the
Company is discussed above under "INFORMATION RELATING TO THE PROPOSED
REORGANIZATION--Board Consideration."
On June 2, 1997, USTNY and its affiliates held of record substantially all
of the shares in each of the Transferor Funds and the Surviving Fund as agent
or custodian for their customers, but did not own such Shares beneficially
because it did not have discretion to vote or invest such Shares.
At June 2, 1997, the name, address and share ownership of each person who
owned beneficially and/or of record 5% or more of the outstanding shares of
each Transferor Fund and the Surviving Fund are listed in the following table.
The table also shows the percentage of each Fund that would be owned by these
persons upon the consummation of the reorganization based on their holdings at
that date.
<TABLE>
<CAPTION>
PERCENTAGE OF
TRANSFEROR OR PERCENTAGE OF PERCENTAGE OF
PERCENTAGE OF SURVIVING CLASS OWNED SURVIVING FUND
CLASS AND CLASS OWNED FUND OWNED ON ON OWNED ON
AMOUNT OF ON RECORD RECORD CONSUMMATION OF CONSUMMATION OF
FUND NAME AND ADDRESS SHARES OWNED DATE DATE REORGANIZATION REORGANIZATION
- ---- ---------------- ------------ ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Environmentally- V. Camuto
Related United States Trust Company
Product and of New York
Services 114 W. 47th Street
New York, NY 10036 62,344 7.05% 7.05% 0.22% 0.22%
Equity United States Trust Company
Retirement Fund
114 W. 47th Street
New York, NY 10036 2,085,040 17.53% 17.53% 7.26% 7.26%
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one or
more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company.
At the record date for the Meeting, the directors and officers of the
Company as a group owned beneficially less than 1% of the outstanding shares
of the Transferor Funds and the Surviving Fund.
QUORUM. In the event that a quorum is not present at the Meeting, or in the
event that a quorum is present at the Meeting but sufficient votes to approve
the Plan of Reorganization are not received, the persons named as proxies, or
their substitutes, may propose one or more adjournments of the Meeting to
permit further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of those shares represented at the Meeting in
person or by proxy. If a quorum is not present, the persons named as proxies
will vote those proxies FOR adjournment. If a quorum is present, the persons
named as proxies will vote those proxies which
20
<PAGE>
they are entitled to vote FOR the Plan of Reorganization in favor of such
adjournments, and will vote those proxies required to be voted AGAINST such
proposal against any adjournment. A shareholder vote may be taken with respect
to one Transferor Fund (but not the other Transferor Funds) before any such
adjournment if sufficient votes have been received for approval. A quorum is
constituted with respect to a Fund by the presence in person or by proxy of
the holders of more than 50% of the outstanding shares of the Fund entitled to
vote at the Meeting. Shares represented by broker non-votes are treated as
being present for purposes of determining a quorum. A vote cast does not
include an abstention or the failure to vote for or against a proposal.
Therefore, for purposes of determining the affirmative vote of a "majority of
the outstanding shares," an abstention or the failure to vote, including a
broker non-vote, will be the equivalent of voting against approval of the Plan
of Reorganization.
ANNUAL MEETINGS. The Company does not presently intend to hold annual
meetings of shareholders except as required by the 1940 Act or other
applicable law. The Company will call a meeting of shareholders for the
purpose of voting upon the question of removal of a member of the Board of
Directors upon written request of shareholders owning at least 25% of the
outstanding shares of the Company entitled to vote.
ADDITIONAL INFORMATION ABOUT THE FUNDS
Information about the Transferor Funds and the Surviving Fund is included in
the Prospectuses dated August 31, 1996 which is incorporated by reference
herein. Additional information about the Transferor Funds and the Surviving
Fund is included in the Statement of Additional Information dated August 31,
1996, which has been filed with the SEC and is incorporated by reference
herein. Copies of the Prospectus and the Statement of Additional Information
may be obtained without charge by calling the Company at 1-800-446-1012. The
Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act, as applicable, and, in accordance with
such requirements, files proxy materials, reports and other information with
the SEC. These materials can be inspected and copied at the Public Reference
Facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, and by calling the Company at the telephone number listed above. In
addition, these materials can be inspected and copied at the SEC's Regional
Offices at 7 World Trade Center, Suite 1300, New York, New York 10048, and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can also be obtained from the Public
Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington, D.C. 20549, at prescribed
rates.
21
<PAGE>
FINANCIAL HIGHLIGHTS
The tables set forth below present financial information for the Retail
Shares of the Transferor Funds and Retail and Trust Shares of the Surviving
Fund. This information is derived from the Company's audited financial
statements for the annual period ended March 31, 1997. The data should be read
in conjunction with the audited financial statements and related notes which
are included in the Statement of Additional Information related to this
Combined Proxy Statement/Prospectus. Financial highlights for the Transferor
Funds and the Surviving Fund for prior periods are contained in the Prospectus
dated August 31, 1996, and financial statements for the Transferor Funds and
the Surviving Fund for the prior periods are contained in the Company's Annual
Report to Shareholders and are incorporated by reference into the Transferor
Funds' and the Surviving Fund's Statement of Additional Information dated
August 31, 1996, which Prospectus and Statement of Additional Information are
incorporated herein by reference. As of March 31, 1997, the Transferor Funds
had not issued Trust Shares in a public offering.
Selected data for a Retail Share of capital stock outstanding throughout the
period indicated:
EQUITY FUND
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED MARCH
31, 1997
-----------
<S> <C>
Net Asset Value, Beginning of Period $ 24.43
--------
Net Investment Income (Loss) 0.18
Net Realized and Unrealized Gain (Loss) on Investments and Op-
tions 2.50
--------
Total from Investment Operations 2.68
--------
Dividends from Net Investment Income (0.14)
Distributions from Net Realized Gain on Investments and Options (1.16)
--------
Total Distributions (1.30)
--------
Net Asset Value, End of Period $ 25.81
========
Total Return+ 11.09%
Net Assets, End of Period (000's omitted) $306,990
Ratio of Net Operating Expenses to Average Net Assets 1.01%
Ratio of Gross Operating Expenses to Average Net Assets++ 1.06%
Ratio of Net Investment Income (Loss) to Average Net Assets 0.71%
Portfolio Turnover Rate 39%
Fee Waivers $ 0.01
Average Commission Rate# $ 0.0663
</TABLE>
- --------
+ Total return data does not reflect the sales load payable on purchases of
shares. The sales load was eliminated effective February 14, 1997.
++ Expense ratios before waiver of fees and reimbursement of expenses (if any)
by USTNY and the Administrators.
# Beginning with fiscal year 1996, each Fund is required to disclose the
average commission rate per share it paid for portfolio trades, on which
commissions were charged, during the period.
22
<PAGE>
Selected data for a Trust Share of capital stock outstanding throughout the
period indicated:
EQUITY FUND
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 12, 1996
TO MARCH 31, 1997
-----------------
<S> <C>
Net Asset Value, Beginning $ 26.30
of Period -------
Net Investment Income (Loss) 0.04
Net Realized and Unrealized
Gain (Loss) on Investments and Options 0.03
-------
Total from Investment Operations 0.07
-------
Dividends from Net Investment Income (0.03)
Distributions from Net Realized Gain
on Investments and Options (0.56)
-------
Total Distributions (0.59)
-------
Net Asset Value, End of Period $ 25.78
=======
Total Return+ 0.23%*
Net Assets, End of Period
(000's omitted) $ 81
Ratio of Net Operating Expenses to
Average Net Assets 1.36%**
Ratio of Gross Operating Expenses to
Average Net Assets++ 1.41%**
Ratio of Net Investment Income (Loss) to
Average Net Assets 0.45%**
Portfolio Turnover Rate 39%**
Fee Waivers $ 0.00
Average Commission Rate# $0.0663
</TABLE>
- --------
*Not annualized.
** Annualized.
+ Total return data does not reflect the sales load payable on purchases of
shares. The sales load was eliminated effective February 14, 1997.
++ Expense ratios before waiver of fees and reimbursement of expenses (if any)
by USTNY and the Administrators.
#Beginning with fiscal year 1996, each Fund is required to disclose the
average commission rate per share it paid for portfolio trades, on which
commissions were charged, during the period.
23
<PAGE>
Selected data for a Retail Share of capital stock outstanding throughout the
period indicated:
PRODUCTIVITY ENHANCERS FUND
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED MARCH 31,
1997
---------------
<S> <C>
Net Asset Value, Beginning
of Period $ 8.83
-------
Net Investment Income (Loss) (0.02)
Net Realized and Unrealized
Gain (Loss) on Investments and Options 0.16
-------
Total from Investment Operations 0.14
-------
Dividends from Net Investment Income 0.00
Distributions from Net Realized Gain
on Investments and Options (0.80)
-------
Total Distributions (0.80)
-------
Net Asset Value, End of Period $ 8.17
=======
Total Return+ 1.02%
Net Assets, End of Period
(000's omitted) $18,057
Ratio of Net Operating Expenses to
Average Net Assets 0.98%
Ratio of Gross Operating Expenses to
Average Net Assets++ 1.08%
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.16)%
Portfolio Turnover Rate 300%
Fee Waivers $ 0.01
Average Commission Rate# $0.0797
</TABLE>
- --------
+ Total return data does not reflect the sales load payable on purchases of
shares. The sales load was eliminated effective February 14, 1997.
++ Expense ratios before waiver of fees and reimbursement of expenses (if any)
by USTNY and the Administrators.
#Beginning with fiscal year 1996, each Fund is required to disclose the
average commission rate per share it paid for portfolio trades, on which
commissions were charged, during the period.
24
<PAGE>
Selected data for a Retail Share of capital stock outstanding throughout the
period indicated:
ENVIRONMENTALLY-RELATED PRODUCTS AND SERVICES FUND
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
MARCH 31,
1997
-----------
<S> <C>
Net Asset Value, Beginning of Period $ 7.73
-------
Net Investment Income (Loss) 0.01
Net Realized and Unrealized Gain (Loss) on Investments and Options 1.61
-------
Total from Investment Operations 1.62
-------
Dividends from Net Investment Income (0.01)
Distributions from Net Realized Gain on Investments and Options 0.00
-------
Total Distributions (0.01)
-------
Net Asset Value, End of Period $ 9.34
=======
Total Return+ 21.22%
Net Assets, End of Period (000's omitted) $ 8,869
Ratio of Net Operating Expenses to Average Net Assets 0.99%
Ratio of Gross Operating Expenses to Average Net Assets++ 1.33%
Ratio of Net Investment Income (Loss) to Average Net Assets 0.15%
Portfolio Turnover Rate 73%
Fee Waivers $ 0.03
Average Commission Rate# $0.0711
</TABLE>
- --------
+ Total return data does not reflect the sales load payable on purchases of
shares. The sales load was eliminated effective February 14, 1997.
++ Expense ratios before waiver of fees and reimbursement of expenses (if any)
by USTNY and the Administrators.
# Beginning with fiscal year 1996, each Fund is required to disclose the
average commission rate per share it paid for portfolio trades, on which
commissions were charged, during the period.
25
<PAGE>
Selected data for a Retail Share of capital stock outstanding throughout the
period indicated:
AGING OF AMERICA FUND
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED MARCH
31, 1997
-----------
<S> <C>
Net Asset Value, Beginning of Period $ 9.81
-------
Net Investment Income (Loss) 0.07
Net Realized and Unrealized Gain (Loss) on Investments and Op-
tions 0.72
-------
Total from Investment Operations 0.79
Dividends from Net Investment Income (0.07)
-------
Distributions from Net Realized Gain on Investments and Options (0.39)
-------
Total Distributions (0.46)
-------
Net Asset Value, End of Period $ 10.14
=======
Total Return+ 8.18%
Net Assets, End of Period (000's omitted) $45,058
Ratio of Net Operating Expenses to Average Net Assets 0.95%
Ratio of Gross Operating Expenses to Average Net Assets++ 1.00%
Ratio of Net Investment Income (Loss) to Average Net Assets 0.67%
Portfolio Turnover Rate 86%
Fee Waivers $ 0.00
Average Commission Rate# $0.0831
</TABLE>
- --------
+ Total return data does not reflect the sales load payable on purchases of
shares. The sales load was eliminated effective February 14, 1997.
++ Expense ratios before waiver of fees and reimbursement of expenses (if any)
by USTNY and the Administrators.
# Beginning with fiscal year 1996, each Fund is required to disclose the
average commission rate per share it paid for portfolio trades, on which
commissions were charged, during the period.
26
<PAGE>
Selected data for a Retail Share of capital stock outstanding throughout the
period indicated:
COMMUNICATION AND ENTERTAINMENT FUND
<TABLE>
<CAPTION>
ANNUAL PERIOD
ENDED MARCH 31,
1997
---------------
<S> <C>
Net Asset Value, Beginning of Period $ 10.32
-------
Net Investment Income (Loss) 0.00
Net Realized and Unrealized
Gain (Loss) on Investments and Options 0.05
-------
Total from Investment Operations 0.05
-------
Dividends from Net Investment Income 0.00
Distributions from Net Realized Gain
on Investments and Options (0.05)
-------
Total Distributions (0.05)
-------
Net Asset Value, End of Period $ 10.32
=======
Total Return+ 0.34%
Net Assets, End of Period
(000's omitted) $34,696
Ratio of Net Operating Expenses to
Average Net Assets 0.99%
Ratio of Gross Operating Expenses to
Average Net Assets++ 1.04%
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.03)%
Portfolio Turnover Rate 63%
Fee Waivers $ 0.01
Average Commission Rate# $0.0677
</TABLE>
- --------
+ Total return data does not reflect the sales load payable on purchases of
shares. The sales load was eliminated effective February 14, 1997.
++ Expense ratios before waiver of fees and reimbursement of expenses (if any)
by USTNY and the Administrators.
#Beginning with fiscal year 1996, each Fund is required to disclose the
average commission rate per share it paid for portfolio trades, on which
commissions were charged, during the period.
27
<PAGE>
Selected data for a Retail Share of capital stock outstanding throughout the
period indicated:
GLOBAL COMPETITORS FUND
<TABLE>
<CAPTION>
ANNUAL PERIOD
ENDED
MARCH 31,
1997
-------------
<S> <C>
Net Asset Value, Beginning of Period $ 10.83
-------
Net Investment Income (Loss) 0.06
Net Realized and Unrealized Gain (Loss) on Investments and
Options 0.66
-------
Total from Investment Operations 0.72
-------
Dividends from Net Investment Income (0.07)
Distributions from Net Realized Gain on Investments and Options (0.09)
-------
Total Distributions (0.16)
-------
Net Asset Value, End of Period $ 11.39
=======
Total Return+ 6.64%
Net Assets, End of Period (000's omitted) $81,922
Ratio of Net Operating Expenses to Average Net Assets 0.89%
Ratio of Gross Operating Expenses to Average Net Assets++ 0.94%
Ratio of Net Investment Income (Loss) to Average Net Assets 0.54%
Portfolio Turnover Rate 25%
Fee Waivers $ 0.00
Average Commission Rate# $0.0873
</TABLE>
- --------
+ Total return data does not reflect the sales load payable on purchases of
shares. The sales load was eliminated effective February 14, 1997.
++ Expense ratios before waiver of fees and reimbursement of expenses (if any)
by USTNY and the Administrators.
# Beginning with fiscal year 1996, each Fund is required to disclose the
average commission rate per share it paid for portfolio trades, on which
commissions were charged, during the period.
28
<PAGE>
FINANCIAL STATEMENTS
The audited financial statements for the Transferor Funds and the Surviving
Fund for the annual period ended March 31, 1997 are included in the Statement
of Additional Information related to this Combined Proxy Statement/Prospectus.
The financial highlights for the Transferor Funds and the Surviving Fund for
the fiscal year ended March 31, 1996, included in the Funds' Prospectus dated
August 31, 1996, and the financial statements for the Transferor Funds and the
Surviving Fund set forth in the Company's Annual Report to Shareholders for
the fiscal year ended March 31, 1996, are incorporated by reference in such
Funds' Statement of Additional Information dated August 31, 1996, which
Prospectus and Statement of Additional Information are incorporated by
reference in this Combined Proxy Statement/Prospectus and are also included in
the Statement of Additional Information related to this Combined Proxy
Statement/Prospectus. Such audited financial highlights and financial
statements have been incorporated herein in reliance on the report of Ernst &
Young LLP, independent auditors, given on the authority of that firm as
experts in accounting and auditing.
OTHER BUSINESS
The Company's Board of Directors knows of no other business to be brought
before the Meeting with respect to Productivity Enhancers Fund,
Environmentally-Related Products and Services Fund, Aging of America Fund,
Communication and Entertainment Fund and Global Competitors Fund. In addition,
the shareholders of the Long-Term Supply of Energy Fund will vote on certain
matters which are discussed more fully in the enclosed proxy statement
relating to such Fund. However, if any other matters come before the Meeting,
it is the intention of the Board that proxies that do not contain specific
restrictions to the contrary will be voted on such matters in accordance with
the judgment of the persons named in the enclosed form of proxy.
LITIGATION
The Company is not involved in any litigation that would have any material
adverse financial effect upon the funds.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Company in writing at the
address on the cover page of this Combined Proxy Statement/Prospectus or by
telephoning 1-800-446-1012.
* * *
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING ARE REQUESTED TO
DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
29
<PAGE>
APPENDIX A
PLAN OF REORGANIZATION
This PLAN OF REORGANIZATION (the "Plan") is dated as of the 16th day of May,
1997, and has been adopted by the Board of Directors of Excelsior Funds, Inc.
(the "Company") to provide for the reorganization of its Productivity
Enhancers Fund, Environmentally-Related Products and Services Fund, Aging of
America Fund, Communication and Entertainment Fund and Global Competitors Fund
(the "Transferor Funds") into its Equity Fund (the "Surviving Fund").
A. BACKGROUND
Each of the Transferor Funds and the Surviving Fund (individually, a "Fund,"
collectively, the "Funds") is a separate investment portfolio of the Company.
The Company is organized as a Maryland corporation and is an open-end
management investment company registered with the Securities and Exchange
Commission (the "SEC") under the Investment Company Act of 1940 (the "1940
Act"). The Board of Directors of the Company has determined that it is in the
best interests of each Transferor Fund and its shareholders for each such Fund
to be reorganized through the transfer of all of its assets and liabilities to
the Surviving Fund upon the terms set forth in this Plan (the
"Reorganization").
B. THE REORGANIZATION
1. At the Effective Time of the Reorganization as defined below in Section 5
of this Article B, all property of every description, and all interests,
rights, privileges and powers of each Transferor Fund, subject to all
liabilities of each such Transferor Fund, whether accrued, absolute,
contingent or otherwise (such assets subject to such liabilities are herein
referred to as the "Assets") will be transferred and conveyed by such
Transferor Fund to the Surviving Fund and will be assumed by the Surviving
Fund, such that at and after the Effective Time of the Reorganization the
Assets of each Transferor Fund will become and be the Assets of the Surviving
Fund. In exchange for the transfer of the Assets of each Transferor Fund, the
Surviving Fund will contemporaneously issue to each Transferor Fund full and
fractional retail and trust shares, as applicable, of the Surviving Fund. The
number of retail shares and trust shares of the Surviving Fund so issued will
have an aggregate net asset value equal to the value of the Assets of the
particular Transferor Fund. The net asset value of each Transferor Fund and of
the Surviving Fund shall be determined as of 4:00 p.m., Eastern time, on
September 12, 1997, or at such other time as may be determined by the Board of
Directors or an authorized officer of the Company. The net asset value of each
Transferor Fund and of the Surviving Fund shall be computed in the manner set
forth in the Funds' then current prospectus under the Securities Act of 1933,
as amended. At and after the Effective Time of the Reorganization, all debts,
liabilities, obligations and duties of each Transferor Fund will attach to the
Surviving Fund as aforesaid and may thenceforth be enforced against the
Surviving Fund to the same extent as if the same had been incurred by it.
2. Prior to the Effective Time of the Reorganization, each of the Transferor
Funds shall have declared a dividend or dividends, with a record date and ex-
dividend date prior to such Effective Time of the Reorganization, which,
together with all previous dividends, shall have the effect of distributing to
its shareholders all of its net investment income, if any, for the taxable
periods or years ended on or before March
A-1
<PAGE>
31, 1997 and for the period from said date to and including the Effective Time
of the Reorganization applicable to the Transferor Funds (computed without
regard to any deduction for dividends paid) and all of its net capital gain,
if any, realized in taxable years or periods ended on or before March 31, 1997
and in the period from said date to and including the Effective Time of the
Reorganization applicable to the Transferor Funds.
3. At the Effective Time of the Reorganization, each Transferor Fund will
make a liquidating distribution to the holders of its retail shares and trust
shares, retail shares and trust shares, as appropriate, of the Surviving Fund,
such that the number of shares of the Surviving Fund that are distributed to a
shareholder of a Transferor Fund will, as indicated above in Section 1 of this
Article B, have an aggregate net asset value equal to the aggregate net asset
value of the shares of the particular Transferor Fund that are outstanding
immediately prior to the Effective Time of the Reorganization. In addition,
each such shareholder will have the right to receive any unpaid dividends or
other distributions that were declared before the Effective Time of the
Reorganization with respect to the shares of such Transferor Fund held by the
shareholder immediately prior to the Effective Time of the Reorganization.
4. The stock transfer books of the Company with respect to each Transferor
Fund will be permanently closed as of the close of business on the day
immediately preceding the Effective Time of the Reorganization. Redemption
requests received thereafter by the Company with respect to a Transferor Fund
will be deemed to be redemption requests for shares of the Surviving Fund
issued in the Reorganization. If any shares of a Transferor Fund are
represented by a share certificate, the certificate must be surrendered to the
Company's transfer agent for cancellation before the Surviving Fund shares
issued to the shareholder in the Reorganization will be redeemed.
5. The Effective Time of the Reorganization for purposes of this Agreement
shall be the opening of business on September 15, 1997, or at such other time
as may be determined by the Board of Directors or an authorized officer of the
Company.
C. ACTIONS BY SHAREHOLDERS OF EACH TRANSFEROR FUND
Prior to the Effective Time of the Reorganization and as a condition
thereto, the Board of Directors of the Company will call, and the Company will
hold, a meeting of the shareholders of each Transferor Fund to consider and
vote upon:
(1) Approval of this Plan and the transactions contemplated hereby.
(2) Such other matters as may be determined by the Board of Directors of
the Company.
D. CONDITIONS TO THE REORGANIZATION
Consummation of this Plan and the Effective Time of the Reorganization will
be subject to:
A-2
<PAGE>
(1) the approval of the matters referred to in Article C of this Plan by
the shareholders of each Transferor Fund in the manner required by law and
otherwise deemed necessary or advisable by the Board of Directors of the
Company; and
(2) the following additional conditions:
a. The Company will have received an opinion of Drinker Biddle &
Reath LLP to the effect that:
(i) the shares of the Surviving Fund issued pursuant to this Plan
will, when issued in accordance with the provisions hereof, be
legally issued, fully paid and non-assessable; and
(ii) for federal income tax purposes: (i) the acquisition of the
assets and assumption of the liabilities of the Transferor Funds by
the Surviving Fund in return for retail and trust shares of the
Surviving Fund followed by the distribution of such shares to the
shareholders of the Transferor Funds will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) or
Section 368(a)(1)(D) of the Code and the Surviving Fund and the
Transferor Funds will be "a party to the reorganization" within the
meaning of Section 368(b) of the Code; (ii) no gain or loss will be
recognized by any Transferor Fund upon the transfer of their assets
and liabilities to the Surviving Fund; (iii) no gain or loss will be
recognized by the Surviving Fund upon the receipt of the assets of
each Transferor Fund in exchange for retail and trust shares of the
Surviving Fund and the assumption by the Surviving Fund of the
liabilities of the Transferor Funds; (iv) no gain or loss will be
recognized by the shareholders of any Transferor Fund upon the
receipt of said Surviving Fund's retail and trust shares in exchange
for their retail and trust shares in the Transferor Funds; (v) the
basis of said Surviving Fund's retail and trust shares received by
the shareholders of the Transferor Funds will be the same as the
basis of the retail and trust shares of the Transferor Funds
exchanged therefor; (vi) the tax basis of the assets of the
Transferor Funds in the hands of the Surviving Fund will be the same
as the tax basis of such assets in the hands of the Transferor Funds
immediately prior to the transfer; (vii) the holding period of said
Surviving Fund retail and trust shares received by the shareholders
of the Transferor Funds will include the holding period of the
retail and trust shares of the Transferor Funds exchanged therefor,
provided that at the time of the exchange the retail and trust
shares of the Transferor Funds were held as capital assets; and
(viii) the holding period of the Surviving Fund for the assets of
the Transfer Funds transferred to it will include the period during
which such assets were held by the Transferor Funds.
b. All necessary approvals, registrations and exemptions required
under federal and state laws will have been obtained.
E. MISCELLANEOUS
1. This Plan and the transactions contemplated hereby will be governed and
construed in accordance with the laws of the State of Maryland.
2. This Plan and the Reorganization contemplated hereby may be abandoned at
any time for any reason prior to the Effective Time of the Reorganization upon
the vote of a majority of the Board of Directors of the Company.
A-3
<PAGE>
3. At any time prior to or (to the fullest extent permitted by law) after
approval of this Plan by the shareholders of any Transferor Fund, the Company
may, upon authorization by the Board of Directors and with or without the
approval of shareholders of any Transferor Fund, amend any of the provisions
of this Plan.
4. Notwithstanding Section 1 of Article B, unamortized organizational
expenses of the Transferor Funds shall not be transferred or assumed
hereunder. The Company has been advised that such expenses will be paid to
such Transferor Funds by one or more third parties and will be eliminated from
the balance sheets of such Transferor Funds prior to the Effective Time of the
Reorganization.
5. The expenses incurred in connection with the Reorganization will be borne
by United States Trust Company of New York.
6. The Company, by consent of its Board of Directors, or an officer
authorized by such Board of Directors, may waive any condition to the
obligations of any Transferor Fund or Surviving Fund hereunder if, in its or
such officer's judgment, such waiver will not have a material adverse effect
on the interests of the shareholders of the Transferor Funds and Surviving
Fund. In the event that shareholder approval of the Reorganization is obtained
with respect to one or more Transferor Funds but not with respect to all
Transferor Funds, with the result that the transactions contemplated by this
Plan may be consummated with respect to some but not all Transferor Funds, the
Board of Directors of the Company will abandon the Plan with respect to all
Transferor Funds.
A-4
<PAGE>
APPENDIX B
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
EXCELSIOR FUNDS, INC.
ADVISER'S INVESTMENT REVIEW
PRODUCTIVITY ENHANCERS FUND
- -------------------------------------------------------------------------------
For the twelve months ended March 31, 1997, the Fund realized a total return
of 1.02%*, versus 19.83%** for the Standard & Poor's 500 Composite Stock Price
Index. During the first half of the fiscal year, we focused heavily on the
technology sector, followed by capital goods and the consumer sector. Weakness
in technology, particularly small-capitalization technology stocks, had a
negative impact on the Fund. During the second half of the fiscal year, we
conducted a thorough review of the Fund's investments, identifying areas where
the Fund was either under-represented or without representation. While the
main drivers of the Fund remained the same--technology, financials, aerospace,
diversified basic materials--we increased diversification and added emphasis
on good long-term fundamental business values at the portfolio's center. We
also shifted weightings somewhat, adding to positions on the consumer side and
in transportation, for instance. During the final quarter, holdings in the
areas of basic materials, financial services, and transportation helped the
Fund, though again performance was hampered by the further slide in technology
stocks.
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
- -----------------------------------------------------
Productivity Enhancers Fund+
- -----------------------------------------------------
Average Annual Total Return Ended on 3/31/97*
- -----------------------------------------------------
<S> <C>
1 year Since inception (12/31/92)
- -----------------------------------------------------
1.02% 10.21%
- -----------------------------------------------------
</TABLE>
<TABLE>
Productivity Enhancers Fund Productivity Enhancers Fund The Standard & Poors 500
(reflects maximum sales charge) (exclusive of sales charge)
<S> <C> <C> <C>
12/31/92 9,550 10,000 10,000
3/31/93 9,468 9,914 10,440
10,105 10,582 10,760
3/31/94 10,775 11,283 10,590
10,728 11,234 11,150
3/31/95 11,255 11,786 12,240
13,501 14,138 14,470
3/31/96 14,291 14,965 16,160
3/31/97 14,437 15,118 19,365
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURNS
AND PRINCIPAL VALUES WILL VARY AND SHARES MAY BE WORTH MORE OR LESS AT
REDEMPTION THAN THEIR ORIGINAL COST.
The above illustration compares a $10,000 investment made in Productivity
Enhancers Fund and a broad-based index since 12/31/92 (inception date). All
dividends and capital gain distributions are reinvested. The Fund's
performance takes into account fees and expenses. The index does not take into
account charges, fees and other expenses. Further information relating to Fund
performance is contained in the Financial Highlights section of the Prospectus
and elsewhere in this report.
- --------
* Total return represents the change during the period in a hypothetical
account with dividends reinvested, without taking into account the 4.5%
maximum initial sales charge which was eliminated effective 2/14/97.
** Source: Standard & Poor's Corporation -- Reflects the reinvestment of
income dividends and, where applicable, capital gain distributions. The
Standard & Poor's 500 Composite Stock Price Index is a widely accepted
unmanaged index of U.S. stock market performance.
+ The Fund is currently waiving certain fees. Had the Fund not waived fees,
returns would have been lower. This voluntary waiver may be modified or
terminated at any time.
++ Reflects 4.5% maximum sales charge on initial investment. The sales charge
was eliminated effective 2/14/97.
B-1
<PAGE>
EXCELSIOR FUNDS, INC.
ADVISER'S INVESTMENT REVIEW
ENVIRONMENTALLY-RELATED PRODUCTS AND SERVICES FUND
- -------------------------------------------------------------------------------
For the twelve months ended March 31, 1997, the Fund realized a total return
of 21.22%*, versus 19.83%** for the Standard & Poor's 500 Composite Stock
Price Index. While we have expanded the focus of the environmental theme to
include companies that improve resource utilization and/or enhance the
efficiency of our built environment, much of the Fund's gains were led by the
more traditional environmental stocks, in particular the solid waste sector.
In fact, we remained overweighted in the core environmental area of solid
waste. Other big winners, at least through the first three fiscal quarters,
came from the water technology area. The Fund is a blend of small, medium and
large-capitalization companies; in the fourth fiscal quarter, the Fund's
smaller companies hampered performance. As we moved toward year end, though
the structure and strategy of the Fund did not change, we reduced the number
of positions in the portfolio, selling several of our smaller-capitalization
names and concentrating instead on mid and large-capitalization issues.
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
- -----------------------------------------------------
Environmentally-Released Products and Services Fund+
- -----------------------------------------------------
Average Annual Total Return Ended on 3/31/97*
- -----------------------------------------------------
<S> <C>
1 year Since inception (12/31/92)
- -----------------------------------------------------
21.22% 7.17%
- -----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Environ. Rel. Pr. & Ser. Environ. Rel. Pr. & Ser.
(reflects maximum sales charge) (exclusive of sales charge) The Standard & Poors 500
<S> <C> <C> <C>
12/31/92 9,550 10,000 10,000
3/31/93 9,482 9,929 10,440
8,614 9,021 10,760
3/31/94 8,519 8,920 10,590
8,696 9,106 11,150
3/31/95 8,496 8,897 12,240
10,056 10,530 14,470
3/31/96 10,576 11,075 16,160
3/31/97 12,820 13,424 19,365
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURNS
AND PRINCIPAL VALUES WILL VARY AND SHARES MAY BE WORTH MORE OR LESS AT
REDEMPTION THAN THEIR ORIGINAL COST.
The above illustration compares a $10,000 investment made in
Environmentally-Related Products and Services Fund and a broad-based index
since 12/31/92 (inception date). All dividends and capital gain distributions
are reinvested. The Fund's performance takes into account fees and expenses.
The index does not take into account charges, fees and other expenses. Further
information relating to Fund performance is contained in the Financial
Highlights section of the Prospectus and elsewhere in this report.
- --------
* Total return represents the change during the period in a hypothetical
account with dividends reinvested, without taking into account the 4.5%
maximum initial sales charge which was eliminated effective 2/14/97.
** Source: Standard & Poor's Corporation -- Reflects the reinvestment of
income dividends and, where applicable, capital gain distributions. The
Standard & Poor's 500 Composite Stock Price Index is a widely accepted
unmanaged index of U.S. stock market performance.
+ The Fund is currently waiving certain fees. Had the Fund not waived fees,
returns would have been lower. This voluntary waiver may be modified or
terminated at any time.
++ Reflects 4.5% maximum sales charge on initial investment. The sales charge
was eliminated effective 2/14/97.
B-2
<PAGE>
EXCELSIOR FUNDS, INC.
ADVISER'S INVESTMENT REVIEW
AGING OF AMERICA FUND
- -------------------------------------------------------------------------------
For the twelve months ended March 31, 1997, the Fund realized a total return
of 8.18%*, versus 19.83%** for the Standard & Poor's 500 Composite Stock Price
Index. The Fund's overall structure remained consistent--maintaining emphasis
on health care, financials, and large-capitalization consumer stocks. During
the first half, the fund's performance was hampered by weakness in the Fund's
health care positions as well as general weakness from the small-
capitalization sector. Strong performances came from large-capitalization
consumer stocks. Financial stocks were a mixed bag. During the second half,
the Fund's health care and REIT holdings advanced strongly, and the financial
services positions picked up as well. We did become more defensive in our
investment approach as the year progressed, eliminating some of the Fund's
more volatile smaller capitalization holdings.
- -------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
- ----------------------------------------------------
Aging of America Fund+
- ----------------------------------------------------
Average Annual Total Return Ended on 3/31/97*
- ----------------------------------------------------
<S> <C>
Since inception
1 year (12/31/92)
- ----------------------------------------------------
8.18% 10.68%
- ----------------------------------------------------
</TABLE>
<TABLE>
Aging of Americas Fund Aging of Americas Fund The Standard & Poors 500
(exclusive of sales charge) (reflects maximum)
<S> <C> <C> <C>
12/31/92 10,000 9,550 10,000
3/31/93 10,014 9,563 10,440
10,105 9,650 10,760
3/31/94 10,027 9,576 10,590
10,486 10,014 11,150
3/31/95 11,311 10,802 12,240
12,763 12,189 14,470
3/31/96 14,229 13,589 16,160
3/31/97 15,393 14,701 19,365
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURNS
AND PRINCIPAL VALUES WILL VARY AND SHARES MAY BE WORTH MORE OR LESS AT
REDEMPTION THAN THEIR ORIGINAL COST.
The above illustration compares a $10,000 investment made in Aging of
America Fund and a broad-based index since 12/31/92 (inception date). All
dividends and capital gain distributions are reinvested. The Fund's
performance takes into account fees and expenses. The index does not take into
account charges, fees and other expenses. Further information relating to Fund
performance is contained in the Financial Highlights section of the Prospectus
and elsewhere in this report.
- --------
* Total return represents the change during the period in a hypothetical
account with dividends reinvested, without taking into account the 4.5%
maximum initial sales charge which was eliminated effective 2/14/97.
** Source: Standard & Poor's Corporation--Reflects the reinvestment of income
dividends and, where applicable, capital gain distributions. The Standard &
Poor's 500 Composite Stock Price Index is a widely accepted unmanaged index
of U.S. stock market performance.
+ The Fund is currently waiving certain fees. Had the Fund not waived fees,
returns would have been lower. This voluntary waiver may be modified or
terminated at any time.
++ Reflects 4.5% maximum sales charge on initial investment. The sales charge
was eliminated effective 2/14/97.
B-3
<PAGE>
EXCELSIOR FUNDS, INC.
ADVISER'S INVESTMENT REVIEW
COMMUNICATION AND ENTERTAINMENT FUND
- -------------------------------------------------------------------------------
For the twelve months ended March 31, 1997, the Fund realized a total return
of 0.34%*, versus 19.83%** for the Standard & Poor's 500 Composite Stock Price
Index. Despite undeniable and compelling long-term prospects, delays in
technology and murky competitive environments (a result of deregulation)
brought confusion to the communication and entertainment investment theme in
1996. As a result of these near-term concerns, cable, wireless (cellular and
paging), and large telecommunications stocks all underperformed the broader
market last year. During the first half of the fiscal year, we increased
representation in traditional media and larger-capitalization technology
concerns. We also broadened our focus away from essentially growth-oriented
companies to include several transaction value opportunities and strong free
cash flow generators. During the second half, we refocused on several broad
subthemes: premium consumer brands; mature franchises selling at a discount;
emerging brands; and enablers (technology, infrastructure builders). We also
attempted to reduce volatility by paring exposure to the technology group and
to the cable and Competitive Local Exchange Carriers (as asset class valued on
non-traditional measures of future cash flows which tends to underperform
during periods of rising interest rates).
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
- -----------------------------------------------------
Communication and Entertainment Fund+
- -----------------------------------------------------
Average Annual Total Return Ended on 3/31/97*
- -----------------------------------------------------
<S> <C>
1 year Since Inception (12/31/92)
- -----------------------------------------------------
0.34% 12.94%
- -----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Comm. & Entern Comm. & Entern The Standard & Poors 500**
(reflects maximum sales charge)++ (exclusive of sales charge)
<S> <C> <C> <C>
12/31/92 9,550 10,000 10,000
3/31/93 10,382 10,871 10,440
12,557 13,149 10,760
3/31/94 12,466 13,054 10,590
13,650 14,293 11,150
3/31/95 14,071 14,734 12,240
17,878 18,721 14,470
3/31/96 15,968 16,720 16,160
3/31/97 16,215 16,777 19,365
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURNS
AND PRINCIPAL VALUES WILL VARY AND SHARES MAY BE WORTH MORE OR LESS AT
REDEMPTION THAN THEIR ORIGINAL COST.
The above illustration compares a $10,000 investment made in Communication
and Entertainment Fund and a broad-based index since 12/31/92 (inception
date). All dividends and capital gain distributions are reinvested. The Fund's
performance takes into account fees and expenses. The index does not take into
account charges, fees and other expenses. Further information relating to Fund
performance is contained in the Financial Highlights section of the Prospectus
and elsewhere in this report.
- --------
* Total return represents the change during the period in a hypothetical
account with dividends reinvested, without taking into account the 4.5%
maximum initial sales charge which was eliminated effective 2/14/97.
** Source: Standard & Poor's Corporation--Reflects the reinvestment of income
dividends and, where applicable, capital gain distributions. The Standard &
Poor's 500 Composite Stock Price Index is a widely accepted unmanaged index
of U.S. stock market performance.
+ The Fund is currently waiving certain fees. Had the Fund not waived fees,
returns would have been lower. This voluntary waiver may be modified or
terminated at any time.
++ Reflects 4.5% maximum sales charge on initial investment. The sales charge
was eliminated effective 2/14/97.
B-4
<PAGE>
EXCELSIOR FUNDS, INC.
ADVISER'S INVESTMENT REVIEW
GLOBAL COMPETITORS FUND
- -------------------------------------------------------------------------------
For the twelve months ended March 31, 1997, the Fund realized a total return
of 6.64%*, versus 19.83%** for the Standard & Poor's 500 Composite Stock Price
Index. For the entire fiscal year, we maintained a broadly diversified
portfolio--both in terms of market sectors and investment strategies--
problem/opportunity (growth), value, and early life cycle (small
capitalization). Specifically, we continued to focus on identifying and owning
effective global competitors with above-average growth potential due to strong
product demand, effective capital allocation, and the ability to leverage
competitive advantages to gain market share. In the first fiscal quarter, the
Fund's consumer, financial, and energy stocks showed resilience, while
technology holdings proved a drag overall. The Fund picked up sharply in the
second fiscal quarter, driven by financials, food companies, and interest-rate
sensitive companies in general. Technology (once again) and telecommunications
holdings lagged. This pattern remained in place through the balance of the
year. Portfolio activity during this period involved a continued overweighting
of the financial sector, reducing our weighting in the telecommunications
sector, and shifting the Fund's technology component away from smaller, more
volatile concerns and toward later, well-established companies within the most
attractive technology sectors. We also continued to look favorably upon global
cosmetic and household products companies.
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
- -----------------------------------------------------
Global Competitors Fund+
- -----------------------------------------------------
Average Annual Total Return Ended on 3/31/97*
- -----------------------------------------------------
<S> <C>
1 year Since inception (12/31/92)
- -----------------------------------------------------
6.64% 13.18%
- -----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Global Competitors Global Competitors The Standard & Poors 500
(reflects maximum sales charge) (exclusive of sales charge)
<S> <C> <C> <C>
12/31/92 9,550 10,000 10,000
3/31/93 9,932 10,400 10,440
10,786 11,295 10,760
3/31/94 10,556 11,054 10,590
10,805 11,315 11,150
3/31/95 11,900 12,461 12,240
13,913 14,569 14,470
3/31/96 15,158 15,874 16,160
3/31/97 16,166 16,928 19,365
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURNS
AND PRINCIPAL VALUES WILL VARY AND SHARES MAY BE WORTH MORE OR LESS AT
REDEMPTION THAN THEIR ORIGINAL COST.
The above illustration compares a $10,000 investment made in Global
Competitors Fund and a broad-based index since 12/31/92 (inception date). All
dividends and capital gain distributions are reinvested. The Fund's
performance takes into account fees and expenses. The index does not take into
account charges, fees and other expenses. Further information relating to Fund
performance is contained in the Financial Highlights section of the Prospectus
and elsewhere in this report.
- --------
* Total return represents the change during the period in a hypothetical
account with dividends reinvested, without taking into account the 4.5%
maximum initial sales charge which was eliminated effective 2/14/97.
** Source: Standard & Poor's Corporation--Reflects the reinvestment of income
dividends and, where applicable, capital gain distributions. The Standard &
Poor's 500 Composite Stock Price Index is a widely accepted unmanaged index
of U.S. stock market performance.
+ The Fund is currently waiving certain fees. Had the Fund not waived fees,
returns would have been lower. This voluntary waiver may be modified or
terminated at any time.
++ Reflects 4.5% maximum sales charge on initial investment. The sales charge
was eliminated effective 2/14/97.
B-5
<PAGE>
EXCELSIOR FUNDS, INC.
ADVISER'S INVESTMENT REVIEW
EQUITY FUND
- -------------------------------------------------------------------------------
For the twelve months ended March 31, 1997, the Fund realized a total return
of 11.09%*, versus 19.83%** for the Standard & Poor's 500 Composite Stock
Price Index. Throughout the fiscal year, we maintained broad diversification
across strategies (growth, value, and small-capitalization) as well as longer-
term investment themes. Specifically, we maintained an underweight position in
technology, and generally little in the way of high-volatility small-
capitalization stocks. We maintained an overweight position in financial
service companies (though well diversified within the sector by type of
company), and a market weighting in the energy sector. As the year progressed,
we began to pay special attention to downside risk and keeping the portfolio
in balance. Purchases focused on high-quality, good business core holding
investments. Moving into the final quarter of the fiscal year, we began to
scale back our holdings in the financial area and to look toward consumer
staples and technology areas, and to large-capitalization growth companies in
general.
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
- ---------------------------------------------------
Equity Fund+
- ---------------------------------------------------
Average Annual Total Return Ended on 3/31/97*
- ---------------------------------------------------
<S> <C> <C>
1 year 5 years 10 years
- ---------------------------------------------------
11.09% 15.38% 11.45%
- ---------------------------------------------------
Trust Shares
- ---------------------------------------------------
Since inception (11/12/96)
- ------------------------------
0.23%
- ------------------------------
</TABLE>
<TABLE>
<CAPTION>
Equity (reflects maximum sales charge) Equity (exclusive of sales charge) The Standard & Poors 500
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mar 31, 87 9,550 10,000 10,000
Mar 31, 88 8,477 8,876 9,160
Mar 31, 89 10,047 10,520 10,830
Mar 31, 90 11,251 11,781 12,930
Mar 31, 91 11,415 11,953 14,790
Mar 31, 92 13,821 14,472 16,420
Mar 31, 93 16,483 17,259 18,920
Mar 31, 94 17,560 18,388 19,200
Mar 31, 95 20,132 21,081 22,180
Mar 31, 96 25,456 26,656 29,300
Mar 31, 97 28,281 29,613 35,100
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURNS
AND PRINCIPAL VALUES WILL VARY AND SHARES MAY BE WORTH MORE OR LESS AT
REDEMPTION THAN THEIR ORIGINAL COST.
The above illustration compares a $10,000 investment made in Equity Fund and
a broad-based index over the past ten fiscal years. All dividends and capital
gain distributions are reinvested. The Fund's performance takes into account
fees and expenses. The index does not take into account charges, fees and
other expenses. Further information relating to Fund performance is contained
in the Financial Highlights section of the Prospectus and elsewhere in this
report.
The graph presents the performance of the Equity Fund's shares which have
been in existence since the Fund's inception. The performance of the Equity
Fund's Trust shares will be lower based upon the different inception date and
fees assessed to that class.
- --------
* Total return represents the change during the period in a hypothetical
account with dividends reinvested, without taking into account the 4.5%
maximum initial sales charge which was eliminated effective 2/14/97.
** Source: Standard & Poor's Corporation--Reflects the reinvestment of income
dividends and, where applicable, capital gain distributions. The Standard &
Poor's 500 Composite Stock Price Index is a widely accepted unmanaged index
of U.S. stock market performance.
+ The Fund is currently waiving certain fees. Had the Fund not waived fees,
returns would have been lower. This voluntary waiver may be modified or
terminated at any time.
++ Reflects 4.5% maximum sales charge on initial investment. The sales charge
was eliminated effective 2/14/97.
B-6
<PAGE>
EXCELSIOR FUNDS, INC.
73 TREMONT STREET
BOSTON, MASSACHUSETTS 02108
STATEMENT OF ADDITIONAL INFORMATION
(1997 SPECIAL MEETING OF
SHAREHOLDERS OF THE PRODUCTIVITY ENHANCERS,
ENVIRONMENTALLY-RELATED PRODUCTS AND SERVICES,
AGING OF AMERICA, COMMUNICATION AND
ENTERTAINMENT AND GLOBAL COMPETITORS FUNDS)
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Combined Proxy Statement/Prospectus dated June 13,
1997 ("Combined Proxy Statement/Prospectus") for the Special Meeting of
Shareholders of the Productivity Enhancers, Environmentally-Related Products and
Services, Aging of America, Communication and Entertainment, and Global
Competitors Funds (the "Transferor Funds"), five investment portfolios offered
by Excelsior Funds, Inc. (the "Company") to be held on August 18, 1997. Copies
of the Combined Proxy Statement/Prospectus may be obtained at no charge by
calling (800) 446-1012.
Unless otherwise indicated, capitalized terms used herein and not otherwise
defined have the same meanings as are given to them in the Combined Proxy
Statement/Prospectus.
This Statement of Additional Information consists of (1) this Cover Page;
(2) General Information about the Reorganization and Miscellaneous Information;
(3) certain pro forma financial statements; (4) the Statement of Additional
Information dated August 1, 1996; and (5) the audited financial statements and
notes and related independent accountant's report of the Transferor Funds and
Surviving Fund for the fiscal year ended March 31, 1997 which are contained in
its Annual Report to Shareholders.
Further information about the Transferor Funds and the Surviving Fund is
contained in and incorporated by reference to said Funds' Statements of
Additional Information dated August 1, 1996.
The date of this Statement of Additional Information is June 13, 1997.
-1-
<PAGE>
TABLE OF CONTENTS
PAGE
----
General Information........................ 3
Miscellaneous Information.................. 3
Pro Forma Financial Statements............. PF-1 - PF-13
Audited Financial Statements for the Transferor
Funds and Surviving Fund dated March 31, 1997 FS-1 - FS-33
(includes audited financial statements for
the Income and Growth Fund, Business and
Industrial Restructuring Fund, Early Life
Cycle Fund, and Long-Term Supply of Energy
Fund which are not involved in the
Reorganization).
Statement of Additional Information dated
August 1, 1996........................... SAI-1 - SAI-A-12
-2-
<PAGE>
GENERAL INFORMATION
The shareholders of the Company's Productivity Enhancers,
Environmentally-Related Products and Services, Aging of America, Communication
and Entertainment, and Global Competitors Funds (the "Transferor Funds") are
being asked to approve or disapprove a Plan of Reorganization dated as of May
16, 1997 and the transactions contemplated thereby. The Plan contemplates the
transfer of all of the assets and liabilities of the Transferor Funds to the
Company's Equity Fund (the "Surviving Fund"). In exchange therefor, each
Transferor Fund will receive corresponding retail shares and trust shares of the
Surviving Fund, which will be distributed to the shareholders of the Transferor
Funds in connection with the Transferor Funds' liquidation, such that each
holder of retail and trust shares in a Transferor Fund at the Effective Time of
the Reorganization will receive the same aggregate dollar value of full and
fractional retail and trust shares in the Surviving Fund.
A Special Meeting of Shareholders of the Transferor Funds to consider
the Plan of Reorganization and the related transactions, will be held at the
offices of United States Trust Company of New York at 114 West 47th Street, New
York, New York at 10:00 a.m. Eastern time on August 18, 1997. For further
information about the transaction, see the Combined Proxy Statement/Prospectus.
MISCELLANEOUS
1. Brokerage.
---------
The Company 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 the Company as of the close of its most recent fiscal year. As
of March 31, 1997, the following Funds held the following securities of the
Company regular brokers or dealers or their parents: (a) the Equity Fund held
the following security: 122,360 shares of common stock of Morgan Stanley Group,
Inc.; (b) the Aging of the America Fund held the following security: 15,000
shares of common stock of Dean Witter Discover & Co. and (c) the Global
Competitors Fund held the following security: 45,600 shares of common stock of
Morgan Stanley Group, Inc. Morgan Stanley & Co., Inc. and Dean Witter Reynolds,
Inc. are considered to be regular brokers or dealers of the Company.
For the fiscal years ended March 31, 1997, the Equity Fund,
Productivity Enhancers, Environmentally-Related Products and Services, Aging of
America, Communication and Entertainment and Global Competitors Funds paid
brokerage commissions aggregating $271,411, $218,338, $24,709; $148,591, $97,519
and $64,033, respectively.
-3-
<PAGE>
2. Director's Compensation
-----------------------
The following chart provides certain information about the fees
received by the Company's directors for the fiscal year ended March 31, 1997.
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation from
Accrued as Excelsior Funds, Inc.
Aggregate Part of and Fund
Name of Compensation from Fund Complex* Paid
Person/Position Excelsior Funds, Inc. Expenses to Directors
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Donald L. Campbell $13,500 None $31,750(3)**
Director
Joseph H. Dugan $15,000 None $35,000(3)**
Director
Wolfe J. Frankl $15,000 None $35,000(3)**
Director
Robert A. Robinson $15,000 None $35,000(3)**
Director
Alfred C. Tannachion $20,000 None $45,000(3)**
Director
Frederick S. Wonham $15,000 None $35,000(4)**
Chairman of the Boards,
President and Treasurer
W. Wallace McDowell $ 2,250 None $ 9,250(4)**
Director
Jonathan Piel $ 3,750 None $12,500(4)**
Director
Rodman L. Drake $ 3,750 None $12,250(4)**
Director
</TABLE>
- ---------------------------
/*/ The "Fund Complex" consists of Excelsior Funds, Inc. Excelsior Tax-
Exempt Funds, Inc., UST Master Variable Series, Inc., Excelsior Funds
and Excelsior Institutional Trust.
/**/ Number of investment companies in the Fund Complex for which director
serves as director or trustee.
-4-
<PAGE>
<TABLE>
<CAPTION>
SHARES MARCH 31, 1997
- --------------------------------------------------------------------------------------------------------------
AGING OF COMMUNICATIONS ENVIRONMENTALLY GLOBAL PRODUCTIVITY PRO FORMA
AMERICA AND ENTERTAINMENT RELATED PRODUCTS COMPETITORS ENHANCERS EQUITY COMBINED
FUND FUND AND SERVICES FUND FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CAPITAL GOODS--10.76%
-- -- -- -- 7,500 -- 7,500 AAR Corp.............
-- -- -- -- 9,000 -- 9,000 AlliedSignal, Inc....
7,000 -- -- 14,500 3,700 -- 25,200 Boeing Co............
-- -- 5,000 -- 7,300 -- 12,300 Case Corp............
-- -- 5,000 -- 8,300 -- 13,300 Deere & Co...........
-- -- -- -- 10,000 -- 10,000 Dover Corp...........
Emerson Electric
-- -- -- -- 10,000 -- 10,000 Co..................
-- -- 4,000 -- -- -- 4,000 Fluor Corp...........
General Electric
-- -- 1,500 27,200 7,000 120,000 155,700 Co..................
Goodyear Tire and
-- -- -- 28,100 -- -- 28,100 Rubber Co...........
-- -- 7,400 -- -- -- 7,400 Harsco Corp..........
-- -- -- -- 18,700 -- 18,700 IDEX Corp............
Illinois Tool Works,
-- -- -- 29,100 7,000 101,533 137,633 Inc.................
-- -- 30,000 -- -- -- 30,000 +ITEQ, Inc...........
-- -- -- -- 12,000 -- 12,000 Kaydon Corp..........
-- -- -- -- 20,000 -- 20,000 +Lear Corp...........
+Philip
Environmental,
-- -- 30,000 -- -- -- 30,000 Inc.................
+Republic Industries,
-- -- 12,000 -- -- -- 12,000 Inc.................
+Thermo Electron
30,000 -- -- 53,350 11,000 135,961 230,311 Corp................
+Thermo Fibergen,
-- -- -- 65,000 -- -- 65,000 Inc.................
+Thermo Voltek
-- -- -- 22,500 -- -- 22,500 Corp................
+ThermoSpectra
-- -- -- 50,000 -- -- 50,000 Corp................
-- -- -- -- 6,300 -- 6,300 Thiokol Corp.........
-- -- 10,500 -- -- -- 10,500 +U.S. Filter Corp....
+U.S.A. Waste
-- -- 13,000 -- -- -- 13,000 Services, Inc.......
WMX Technologies,
-- -- 8,000 -- -- 220,000 228,000 Inc.................
CONSUMER CYCLICAL--
20.43%
Black & Decker
30,000 -- -- -- -- -- 30,000 Corp................
-- 15,000 -- -- -- -- 15,000 Callaway Golf Co.....
-- -- -- -- -- 178,200 178,200 Centex Corp..........
Comcast Corp., Class
-- 40,000 -- -- -- -- 40,000 A Special...........
-- -- -- -- -- 105,000 105,000 Dayton Hudson Corp...
Electronic Data
-- -- -- 32,000 -- -- 32,000 Systems Corp........
Fisher Scientific
27,500 -- -- -- -- -- 27,500 International.......
-- -- -- -- -- 200,000 200,000 Ford Motor Co........
+General Nutrition
43,000 -- -- -- -- -- 43,000 Cos., Inc...........
Harley-Davidson,
-- 12,000 -- -- -- -- 12,000 Inc.................
-- 15,000 -- -- -- -- 15,000 Harte-Hanks..........
-- -- -- -- -- 370,000 370,000 Heilig-Meyers Co.....
-- -- -- 43,600 -- -- 43,600 Hilton Hotels Corp...
Houghton Mifflin
15,000 10,000 -- -- -- 90,000 115,000 Co..................
International
Business Machines
-- 7,500 -- -- -- -- 7,500 Corp................
24,000 -- -- -- -- -- 24,000 Lowe's Cos., Inc.....
Luxottica Group
-- -- -- 37,800 -- 60,000 97,800 S.p.A. ADR..........
Marriott
International,
19,000 -- -- -- -- -- 19,000 Inc.................
-- -- -- 32,000 -- 152,834 184,834 McDonald's Corp......
-- 40,000 -- -- -- -- 40,000 Meredith Corp........
New York Times Co.,
-- 12,000 -- -- -- -- 12,000 Class A.............
+O'Reilly Automotive,
-- -- -- -- 15,200 175,000 190,200 Inc.................
</TABLE>
PF-1
<PAGE>
<TABLE>
<CAPTION>
VALUE (000)
- ------------------------------------------------------------------------------------------------
AGING OF COMMUNICATIONS ENVIRONMENTALLY GLOBAL PRODUCTIVITY PRO FORMA
AMERICA AND ENTERTAINMENT RELATED PRODUCTS COMPETITORS ENHANCERS EQUITY COMBINED
FUND FUND AND SERVICES FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
-- -- -- -- 225,000 -- $ 225,000
-- -- -- -- 641,250 -- 641,250
690,375 -- -- 1,430,063 364,913 -- 2,485,351
-- -- 253,750 -- 370,475 -- 624,225
-- -- 217,500 -- 361,050 -- 578,550
-- -- -- -- 525,000 -- 525,000
-- -- -- -- 450,000 -- 450,000
-- -- 210,000 -- -- -- 210,000
-- -- 148,875 2,699,600 694,750 11,910,000 15,453,225
-- -- -- 1,468,225 -- -- 1,468,225
-- -- 269,175 -- -- -- 269,175
-- -- -- -- 439,450 -- 439,450
-- -- -- 2,375,288 571,375 8,287,631 11,234,294
-- -- 195,000 -- -- -- 195,000
-- -- -- -- 502,500 -- 502,500
-- -- -- -- 667,500 -- 667,500
-- -- 453,750 -- -- -- 453,750
-- -- 417,000 -- -- -- 417,000
926,250 -- -- 1,647,181 339,625 4,197,796 7,110,852
-- -- -- 536,250 -- -- 536,250
-- -- -- 208,125 -- -- 208,125
-- -- -- 656,250 -- -- 656,250
-- -- -- -- 348,075 -- 348,075
-- -- 324,188 -- -- -- 324,188
-- -- 461,500 -- -- -- 461,500
-- -- 245,000 -- -- 6,737,500 6,982,500
- ------------------------------------------------------------------------------------------------
1,616,625 -- 3,195,738 11,020,982 6,500,963 31,132,927 53,467,235
- ------------------------------------------------------------------------------------------------
963,750 -- -- -- -- -- 963,750
-- 429,375 -- -- -- -- 429,375
-- -- -- -- -- 6,281,550 6,281,550
-- 675,000 -- -- -- -- 675,000
-- -- -- -- -- 4,383,750 4,383,750
-- -- -- 1,292,000 -- -- 1,292,000
1,213,438 -- -- -- -- -- 1,213,438
-- -- -- -- -- 6,275,000 6,275,000
870,750 -- -- -- -- -- 870,750
-- 406,500 -- -- -- -- 406,500
-- 436,875 -- -- -- -- 436,875
-- -- -- -- -- 5,873,750 5,873,750
-- -- -- 1,057,300 -- -- 1,057,300
810,000 540,000 -- -- -- 4,860,000 6,210,000
-- 1,030,313 -- -- -- -- 1,030,313
897,000 -- -- -- -- -- 897,000
-- -- -- 2,008,125 -- 3,187,500 5,195,625
945,250 -- -- -- -- -- 945,250
-- -- -- 1,512,000 -- 7,221,406 8,733,406
-- 925,000 -- -- -- -- 925,000
-- 529,500 -- -- -- -- 529,500
-- -- -- -- 558,600 6,431,250 6,989,850
</TABLE>
PF-2
<PAGE>
<TABLE>
<CAPTION>
SHARES MARCH 31, 1997
- --------------------------------------------------------------------------------------------------------------
AGING OF COMMUNICATIONS ENVIRONMENTALLY GLOBAL PRODUCTIVITY PRO FORMA
AMERICA AND ENTERTAINMENT RELATED PRODUCTS COMPETITORS ENHANCERS EQUITY COMBINED
FUND FUND AND SERVICES FUND FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
+Paging Network,
-- 38,500 -- -- -- -- 38,500 Inc.................
25,000 -- -- -- -- -- 25,000 +Proffitt's, Inc.....
Reuters Holdings plc
-- -- -- -- -- 70,000 70,000 ADR.................
25,000 -- -- -- -- -- 25,000 +Revco D.S., Inc.....
-- -- -- 20,000 -- -- 20,000 +Samsonite Corp......
Sears, Roebuck &
20,000 -- -- -- -- -- 20,000 Co..................
Stewart Enterprises,
Inc.,
30,000 -- -- -- -- -- 30,000 Class A.............
+Tele-Communications
Liberty Media Group,
-- 45,000 -- -- -- -- 45,000 Class A.............
Teleport
Communications
Group, Inc. Class
-- 40,000 -- -- -- -- 40,000 A...................
+Thermo Fibertek,
-- -- -- 89,200 -- -- 89,200 Inc.................
-- -- -- 65,000 -- -- 65,000 +ThermoLase Corp.....
-- -- -- 25,000 -- -- 25,000 ThermoQuest Corp.....
30,000 20,000 -- -- -- -- 50,000 Time Warner, Inc.....
Times Mirror Co.,
-- 20,000 -- -- -- -- 20,000 Class A..............
-- 25,000 -- -- -- -- 25,000 Tribune Co...........
Tyco International
-- -- 5,200 -- -- 131,220 136,420 Ltd..................
Univision
Communications,
-- 11,200 -- -- -- -- 11,200 Inc.................
30,000 -- -- -- -- -- 30,000 +Vencor, Inc.........
+Viacom, Inc., Class
-- 23,884 -- -- -- -- 23,884 B....................
Wal-Mart Stores,
30,000 -- -- -- -- 215,000 245,000 Inc..................
14,215 18,550 -- 24,250 -- -- 57,015 Walt Disney Co.......
Wiley (John) & Sons,
-- 37,800 -- -- -- -- 37,800 Inc., Class A.......
CONSUMER STAPLES--
17.03%
-- -- -- -- -- 210,000 210,000 Abbott Laboratories..
Air Products &
-- -- 4,900 -- -- -- 4,900 Chemicals, Inc......
+Alliance
Pharmaceutical
-- -- -- -- -- 298,600 298,600 Corp................
Assisted Living
40,000 -- -- -- -- -- 40,000 Concepts, Inc.......
-- -- -- 33,000 -- -- 33,000 Astra AB, Class B....
-- -- -- 24,250 -- -- 24,250 Avon Products, Inc...
-- -- -- -- -- 54,100 54,100 +Cerner Corp.........
Columbia/HCA
30,000 -- -- -- -- -- 30,000 Healthcare Corp.....
15,000 -- -- -- -- -- 15,000 Conagra, Inc.........
CPC International,
-- -- -- 19,400 -- -- 19,400 Inc..................
+CUC International,
-- 37,500 -- -- 16,000 -- 53,500 Inc..................
12,000 12,000 -- -- 6,500 -- 30,500 Eastman Kodak Co.....
Estee Lauder
-- -- -- 12,800 -- -- 12,800 Companies, Class A..
30,000 -- -- -- -- -- 30,000 First Brands Corp....
+Forest Laboratories,
-- -- -- -- -- 136,610 136,610 Inc..................
-- -- -- -- -- 130,000 130,000 +Genzyme Corp........
10,000 -- 4,400 43,000 -- -- 57,400 Gillette Co..........
51,700 -- -- -- -- -- 51,700 +Healthsouth Corp....
18,000 -- -- 38,800 13,300 220,000 290,100 Johnson & Johnson....
-- -- -- 3,300 -- -- 3,300 L'Oreal..............
+Learning Tree
-- 24,000 -- -- -- -- 24,000 International, Inc..
-- -- 3,700 -- -- -- 3,700 Lilly (Eli) & Co.....
</TABLE>
PF-3
<PAGE>
<TABLE>
<CAPTION>
VALUE (000)
- -----------------------------------------------------------------------------------------------
AGING OF COMMUNICATIONS ENVIRONMENTALLY GLOBAL PRODUCTIVITY PRO FORMA
AMERICA AND ENTERTAINMENT RELATED PRODUCTS COMPETITORS ENHANCERS EQUITY COMBINED
FUND FUND AND SERVICES FUND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
-- 310,406 -- -- -- -- $ 310,406
943,750 -- -- -- -- -- 943,750
-- -- -- -- -- 4,068,750 4,068,750
1,012,500 -- -- -- -- -- 1,012,500
-- -- -- 865,000 -- -- 865,000
1,005,000 -- -- -- -- -- 1,005,000
1,087,500 -- -- -- -- -- 1,087,500
-- 894,375 -- -- -- -- 894,375
-- 915,000 -- -- -- -- 915,000
-- -- -- 808,375 -- -- 808,375
-- -- -- 739,375 -- -- 739,375
-- -- -- 350,000 -- -- 350,000
1,297,500 865,000 -- -- -- -- 2,162,500
-- 1,092,500 -- -- -- -- 1,092,500
-- 1,012,500 -- -- -- -- 1,012,500
-- -- 286,000 -- -- 7,217,100 7,503,100
-- 365,400 -- -- -- -- 365,400
1,136,250 -- -- -- -- -- 1,136,250
-- 791,157 -- -- -- -- 791,157
836,250 -- -- -- -- 5,993,125 6,829,375
1,037,695 1,354,150 -- 1,770,250 -- -- 4,162,095
-- 1,143,450 -- -- -- -- 1,143,450
- -----------------------------------------------------------------------------------------------
14,056,633 13,716,501 286,000 10,402,425 558,600 61,793,181 100,813,340
- -----------------------------------------------------------------------------------------------
-- -- -- -- -- 11,786,250 11,786,250
-- -- 332,587 -- -- -- 332,587
-- -- -- -- -- 3,583,200 3,583,200
840,000 -- -- -- -- -- 840,000
-- -- -- 1,554,184 -- -- 1,554,184
-- -- -- 1,273,125 -- -- 1,273,125
-- -- -- -- -- 696,538 696,538
1,008,750 -- -- -- -- -- 1,008,750
813,750 -- -- -- -- -- 813,750
-- -- -- 1,590,800 -- -- 1,590,800
-- 843,750 -- -- 360,000 -- 1,203,750
910,500 910,500 -- -- 493,188 -- 2,314,188
-- -- -- 619,200 -- -- 619,200
735,000 -- -- -- -- -- 735,000
-- -- -- -- -- 5,139,951 5,139,951
-- -- -- -- -- 2,892,500 2,892,500
726,250 -- 319,550 3,122,875 -- -- 4,168,675
988,763 -- -- -- -- -- 988,763
951,750 -- -- 2,051,550 703,237 11,632,500 15,339,037
-- -- -- 1,156,925 -- -- 1,156,925
-- 666,000 -- -- -- -- 666,000
-- -- 304,325 -- -- -- 304,325
</TABLE>
PF-4
<PAGE>
<TABLE>
<CAPTION>
SHARES MARCH 31, 1997
- --------------------------------------------------------------------------------------------------------------
AGING OF COMMUNICATIONS ENVIRONMENTALLY GLOBAL PRODUCTIVITY PRO FORMA
AMERICA AND ENTERTAINMENT RELATED PRODUCTS COMPETITORS ENHANCERS EQUITY COMBINED
FUND FUND AND SERVICES FUND FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
32,500 -- -- -- -- -- 32,500 Mattel, Inc..........
15,000 -- -- -- -- -- 15,000 Novartis AG ADR......
35,000 -- -- -- -- -- 35,000 PepsiCo, Inc.........
14,000 -- -- 30,000 -- 100,900 144,900 Pfizer, Inc..........
Pharmacia & Upjohn,
5,000 -- -- -- -- -- 5,000 Inc..................
Philip Morris
-- -- -- 14,500 -- -- 14,500 Companies, Inc......
25,000 -- -- -- -- -- 25,000 +Premier Parks Inc...
Procter & Gamble
-- -- -- 31,000 -- -- 31,000 Co...................
Schering-Plough
10,000 -- -- 35,000 -- -- 45,000 Corp.................
+Sylvan Learning
-- 28,700 -- -- -- -- 28,700 Systems, Inc........
ENERGY--8.10%
Anadarko Petroleum
-- -- -- 10,000 -- -- 10,000 Corp.................
-- -- -- 25,000 -- -- 25,000 Chevron Corp.........
-- -- 15,000 -- -- -- 15,000 +Cuno Inc............
Louisiana Land &
-- -- -- -- -- 110,103 110,103 Exploration Co......
-- -- -- 25,000 -- 92,000 117,000 Mobil Corp...........
+Newpark Resources,
-- -- 10,000 -- -- -- 10,000 Inc..................
Royal Dutch Petroleum
-- -- -- 16,500 -- -- 16,500 Co...................
+United Meridian
-- -- -- -- -- 95,500 95,500 Corp.................
-- -- -- -- -- 281,680 281,680 Unocal Corp..........
FINANCIAL--20.47%
15,000 -- -- -- -- -- 15,000 Allstate Corp........
American Express
19,000 -- -- -- -- -- 19,000 Co...................
American
International Group,
-- -- -- 24,250 -- -- 24,250 Inc. ...............
Arden Realty Group,
30,000 -- -- -- -- -- 30,000 Inc.................
Associates First
25,200 -- -- 51,400 14,000 131,200 221,800 Capital Corp........
Bank of Boston
-- -- -- 33,000 -- -- 33,000 Corp.................
Barnett Banks of
25,000 -- -- -- -- -- 25,000 Florida, Inc........
15,000 -- -- -- -- -- 15,000 Beneficial Corp......
-- -- -- 27,200 -- -- 27,200 Citicorp.............
Dean Witter Discover
15,000 -- -- -- -- -- 15,000 & Co.................
First Union Corp.
10,000 -- -- -- -- -- 10,000 (North Carolina)....
Fleet Financial
-- -- -- -- -- 185,000 185,000 Group, Inc...........
-- -- -- 14,550 -- 29,240 43,790 General Re Corp......
Health and Retirement
40,000 -- -- -- -- -- 40,000 Properties Trust....
Hospitality
30,000 -- -- -- -- -- 30,000 Properties Trust.....
-- -- -- -- -- 90,500 90,500 MBIA, Inc............
15,000 -- -- -- -- 136,038 151,038 Mellon Bank Corp.....
Morgan Stanley Group,
-- -- -- 45,600 -- 122,360 167,960 Inc..................
Nationwide Financial
Services, Inc.,
12,500 -- -- -- -- -- 12,500 Class A.............
-- -- -- -- 4,000 -- 4,000 Norwest Corp.........
State Street Boston
-- -- -- -- -- 120,000 120,000 Corp.................
Summit Bancorp (New
23,400 -- -- -- -- -- 23,400 Jersey).............
United Asset
-- -- -- -- -- 350,000 350,000 Management Corp.....
</TABLE>
PF-5
<PAGE>
<TABLE>
<CAPTION>
VALUE (000)
- -----------------------------------------------------------------------------------------------
AGING OF COMMUNICATIONS ENVIRONMENTALLY GLOBAL PRODUCTIVITY PRO FORMA
AMERICA AND ENTERTAINMENT RELATED PRODUCTS COMPETITORS ENHANCERS EQUITY COMBINED
FUND FUND AND SERVICES FUND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
780,000 -- -- -- -- -- $ 780,000
929,806 -- -- -- -- -- 929,806
1,141,875 -- -- -- -- -- 1,141,875
1,177,750 -- -- 2,523,750 -- 8,488,213 12,189,713
183,125 -- -- -- -- -- 183,125
-- -- -- 1,654,812 -- -- 1,654,812
650,000 -- -- -- -- -- 650,000
-- -- -- 3,565,000 -- -- 3,565,000
727,500 -- -- 2,546,250 -- -- 3,273,750
-- 695,975 -- -- -- -- 695,975
- -----------------------------------------------------------------------------------------------
12,564,819 3,116,225 956,462 21,658,471 1,556,425 44,219,152 84,071,554
- -----------------------------------------------------------------------------------------------
-- -- -- 561,250 -- -- 561,250
-- -- -- 1,740,625 -- -- 1,740,625
-- -- 230,625 -- -- -- 230,625
-- -- -- -- -- 5,216,130 5,216,130
-- -- -- 3,265,625 -- 12,017,500 15,283,125
-- -- 437,500 -- -- -- 437,500
-- -- -- 2,887,500 -- -- 2,887,500
-- -- -- -- -- 2,876,938 2,876,938
-- -- -- -- -- 10,739,050 10,739,050
- -----------------------------------------------------------------------------------------------
-- -- 668,125 8,455,000 -- 30,849,618 39,972,743
- -----------------------------------------------------------------------------------------------
890,625 -- -- -- -- -- 890,625
1,137,625 -- -- -- -- -- 1,137,625
-- -- -- 2,846,344 -- -- 2,846,344
817,500 -- -- -- -- -- 817,500
1,083,600 -- -- 2,210,200 602,000 5,641,600 9,537,400
-- -- -- 2,211,000 -- -- 2,211,000
1,162,500 -- -- -- -- -- 1,162,500
969,375 -- -- -- -- -- 969,375
-- -- -- 2,944,400 -- -- 2,944,400
523,125 -- -- -- -- -- 523,125
811,250 -- -- -- -- -- 811,250
-- -- -- -- -- 10,591,250 10,591,250
-- -- -- 2,298,900 -- 4,619,920 6,918,820
720,000 -- -- -- -- -- 720,000
918,750 -- -- -- -- -- 918,750
-- -- -- -- -- 8,676,688 8,676,688
1,091,250 -- -- -- -- 9,896,764 10,988,014
-- -- -- 2,679,000 -- 7,188,650 9,867,650
321,875 -- -- -- -- -- 321,875
-- -- -- -- 185,000 -- 185,000
-- -- -- -- -- 8,325,000 8,325,000
1,023,750 -- -- -- -- -- 1,023,750
-- -- -- -- -- 8,968,750 8,968,750
</TABLE>
PF-6
<PAGE>
<TABLE>
<CAPTION>
SHARES MARCH 31, 1997
- --------------------------------------------------------------------------------------------------------------
AGING OF COMMUNICATIONS ENVIRONMENTALLY GLOBAL PRODUCTIVITY PRO FORMA
AMERICA AND ENTERTAINMENT RELATED PRODUCTS COMPETITORS ENHANCERS EQUITY COMBINED
FUND FUND AND SERVICES FUND FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12,200 -- -- -- -- 120,000 132,200 UNUM Corp............
RAW/INTERMEDIATE
MATERIALS--2.09%
Crown Cork & Seal
-- -- -- 38,800 -- -- 38,800 Co., Inc............
Georgia Pacific
-- -- -- -- 5,100 -- 5,100 Corp.................
Minerals
-- -- 9,000 -- -- -- 9,000 Technologies, Inc....
-- -- 9,000 -- -- -- 9,000 Monsanto Co..........
-- -- 14,000 -- -- 190,000 204,000 Pall Corp............
Pioneer Hi-Bred
International,
-- -- 5,000 -- 3,000 -- 8,000 Inc.................
-- -- -- 58,200 -- -- 58,200 Sigma-Aldrich Corp...
Steel Dynamics,
-- -- -- -- 18,000 -- 18,000 Inc..................
TECHNOLOGY--13.08%
+Advanced Lighting
-- -- 15,000 -- -- -- 15,000 Technologies, Inc...
+Alliance
Pharmaceutical
45,000 -- -- -- -- -- 45,000 Corp................
+America On-Line,
-- 15,000 -- -- -- -- 15,000 Inc..................
+Analog Devices,
-- 41,667 -- -- 18,333 -- 60,000 Inc..................
+Cisco Systems,
-- 20,000 3,000 36,000 -- 74,570 133,570 Inc..................
+Compaq Computer
-- 20,000 -- -- 7,000 -- 7,000 Corp.................
Computer Associates
International,
-- -- -- 10,000 -- -- 10,000 Inc.................
Computer Learning
-- 20,000 -- -- -- -- 20,000 Centers, Inc........
ECI
Telecommunications
-- 45,900 -- -- -- -- 45,900 Limited Designs.....
-- -- -- -- 5,300 -- 5,300 First Data Corp......
-- 25,000 -- -- -- -- 25,000 GTE Corp.............
15,000 -- -- -- -- -- 15,000 Guidant Corp.........
-- -- -- -- 15,000 111,480 126,480 Hewlett-Packard Co...
-- -- 3,300 -- -- -- 3,300 Honeywell Corp.......
+Hyperion Software
-- -- -- 58,200 -- -- 58,200 Corp.................
+Incyte
Pharmaceuticals,
-- -- 1,000 -- -- -- 1,000 Inc..................
-- 25,000 -- 30,000 -- -- 55,000 +Informix Corp.......
-- -- 1,000 20,600 6,000 48,000 75,600 Intel Corp...........
International
Business Machines
-- -- -- 5,000 5,000 -- 10,000 Corp................
Lucent Technologies,
-- 14,740 -- -- -- 56,920 71,660 Inc..................
-- -- 12,500 -- -- -- 12,500 Memtec Ltd. ADR......
-- -- 1,500 -- 5,100 86,020 92,620 +Microsoft Corp......
-- -- -- 10,000 -- -- 10,000 Motorola, Inc........
Nokia Corp., Class A
-- 20,000 -- -- -- -- 20,000 ADR..................
+Oracle System
-- -- -- -- 5,000 -- 5,000 Corp.................
-- -- 4,000 -- -- -- 4,000 Perkin-Elmer Corp....
-- 10,000 -- -- -- -- 10,000 +Qualcomm, Inc.......
-- 45,000 -- -- -- -- 45,000 +SDL, Inc............
-- -- -- -- 9,000 200,000 209,000 Tektronix, Inc.......
Texas Instruments,
-- -- -- 8,000 -- -- 8,000 Inc..................
+Thermo Instrument
-- -- 5,625 -- -- -- 5,625 Systems, Inc. ......
-- 22,000 -- -- -- -- 22,000 +3Com Corp...........
-- 28,500 -- -- -- -- 28,500 +Unitrode Corp.......
</TABLE>
PF-7
<PAGE>
<TABLE>
<CAPTION>
VALUE (000)
- ------------------------------------------------------------------------------------------------
AGING OF COMMUNICATIONS ENVIRONMENTALLY GLOBAL PRODUCTIVITY PRO FORMA
AMERICA AND ENTERTAINMENT RELATED PRODUCTS COMPETITORS ENHANCERS EQUITY COMBINED
FUND FUND AND SERVICES FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
890,600 -- -- -- -- 8,760,000 $ 9,650,600
- ------------------------------------------------------------------------------------------------
12,361,825 -- -- 15,189,844 787,000 72,668,622 101,007,291
- ------------------------------------------------------------------------------------------------
-- -- -- 2,003,050 -- -- 2,003,050
-- -- -- -- 369,750 -- 369,750
-- -- 299,250 -- -- -- 299,250
-- -- 344,250 -- -- -- 344,250
-- -- 323,750 -- -- 4,393,750 4,717,500
-- -- 314,375 -- 188,625 -- 503,000
-- -- -- 1,782,375 -- -- 1,782,375
-- -- -- -- 315,000 -- 315,000
- ------------------------------------------------------------------------------------------------
-- -- 1,281,625 3,785,425 873,375 4,393,750 10,334,175
- ------------------------------------------------------------------------------------------------
-- -- 330,000 -- -- -- 330,000
540,000 -- -- -- -- -- 540,000
-- 635,625 -- -- -- -- 635,625
-- 937,497 -- -- 412,492 -- 1,349,989
-- 962,500 144,375 1,732,500 -- 3,588,681 6,428,056
-- -- -- -- 536,375 -- 536,375
-- -- -- 388,750 -- -- 388,750
-- 655,000 -- -- -- -- 655,000
-- 843,413 -- -- -- -- 843,413
-- -- -- -- 179,538 -- 179,538
-- 1,165,625 -- -- -- -- 1,165,625
922,500 -- -- -- -- -- 922,500
-- -- -- -- 798,750 5,936,310 6,735,060
-- -- 223,987 -- -- -- 223,987
-- -- -- 931,200 -- -- 931,200
-- -- 50,750 -- -- -- 50,750
-- 375,000 -- 450,000 -- -- 825,000
-- -- 139,000 2,863,400 834,000 6,672,000 10,508,400
-- -- -- 686,875 686,875 -- 1,373,750
-- 777,535 -- -- -- 3,002,530 3,780,065
-- -- 317,187 -- -- -- 317,187
-- -- 137,438 -- 467,287 7,881,582 8,486,307
-- -- -- 603,750 -- -- 603,750
-- 1,165,000 -- -- -- -- 1,165,000
-- -- -- -- 192,500 -- 192,500
-- -- 257,500 -- -- -- 257,500
-- 563,750 -- -- -- -- 563,750
-- 753,750 -- -- -- -- 753,750
-- -- -- -- 454,500 10,100,000 10,554,500
-- -- -- 599,000 -- -- 599,000
-- -- 163,125 -- -- -- 163,125
-- 717,750 -- -- -- -- 717,750
-- 926,250 -- -- -- -- 926,250
</TABLE>
PF-8
<PAGE>
<TABLE>
<CAPTION>
SHARES MARCH 31, 1997
- ---------------------------------------------------------------------------------------------------------------------
AGING OF COMMUNICATIONS ENVIRONMENTALLY GLOBAL PRODUCTIVITY PRO FORMA
AMERICA AND ENTERTAINMENT RELATED PRODUCTS COMPETITORS ENHANCERS EQUITY COMBINED
FUND FUND AND SERVICES FUND FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
-- -- -- -- 10,000 -- 10,000 +Xilinx, Inc.........
TRANSPORTATION--0.30%
-- -- -- -- 4,000 -- 4,000 CSX Corp.............
Norfolk Southern
-- -- -- -- 2,000 -- 2,000 Corp.................
-- -- -- 14,550 -- -- 14,550+ UAL Corp.............
-- -- -- -- 3,000 -- 3,000 Union Pacific Corp...
UTILITIES--5.08%
-- 24,000 -- -- -- -- 24,000 Ameritech Corp.......
-- -- -- -- -- 113,924 113,924 AT&T Corp............
-- 20,000 -- -- -- -- 20,000 BellSouth Corp.......
+California Energy
-- -- 9,000 -- -- -- 9,000 Co., Inc.............
-- -- -- -- -- 300,000 300,000 Enron Corp...........
+LCI International,
-- 30,000 -- 70,000 -- -- 100,000 Inc..................
MCI Communications
-- 41,600 -- -- -- -- 41,600 Corp.................
+NEXTEL
Communications,
-- 65,000 -- -- -- -- 65,000 Inc., Class A.......
SBC Communications,
-- 16,000 -- -- -- -- 16,000 Inc..................
Vodafone Group plc
-- -- -- 30,000 -- -- 30,000 ADR..................
-- 42,000 -- -- -- -- 42,000 +Worldcom, Inc.......
RIGHTS--0.05%
+Thermo Fibergen,
-- -- -- 65,000 -- -- 65,000 Inc.................
CONVERTIBLE PREFERRED
STOCK--0.18%
SunAmerica, Inc.,
Preferred Exchange
22,500 -- -- -- -- -- 22,500 $3.19...............
DEMAND NOTES--2.43%
Associates Corp. of
North America Master
-- -- $489,000 -- $ 31,000 $3,091,000 $3,611,000 Notes...............
General Electric Co.
1,084,000 -- 461,000 -- 1,246,000 5,612,000 8,403,000 Promissory Notes....
TOTAL INVESTMENTS--
100.00%
(Cost $34,173,700,
29,209,379,
8,051,827,
67,679,200,
16,471,895,
239,891,128, and
395,477,129,
respectively.)
</TABLE>
Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by
independent pricing services or, at fair value as
determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments
maturing within 60 days are valued at amortized cost
which approximates market value. All portfolio
transactions initially expressed in terms of foreign
currencies have been translated into U.S. dollars.
+ Non-income producing security
PF-9
<PAGE>
<TABLE>
<CAPTION>
VALUE (000)
- ---------------------------------------------------------------------------------------------------
AGING OF COMMUNICATIONS ENVIRONMENTALLY GLOBAL PRODUCTIVITY PRO FORMA
AMERICA AND ENTERTAINMENT RELATED PRODUCTS COMPETITORS ENHANCERS EQUITY COMBINED
FUND FUND AND SERVICES FUND FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
-- -- -- -- 486,250 -- $ 486,250
- ---------------------------------------------------------------------------------------------------
1,462,500 10,478,695 1,763,362 8,255,475 5,048,568 37,181,103 64,189,702
- ---------------------------------------------------------------------------------------------------
-- -- -- -- 186,000 -- 186,000
-- -- -- -- 170,500 -- 170,500
-- -- -- 942,112 -- -- 942,112
-- -- -- -- 170,250 -- 170,250
- ---------------------------------------------------------------------------------------------------
-- -- -- 942,112 526,750 -- 1,468,862
- ---------------------------------------------------------------------------------------------------
-- 1,476,000 -- -- -- -- 1,476,000
-- -- -- -- -- 3,958,859 3,958,859
-- 845,000 -- -- -- -- 845,000
-- -- 306,000 -- -- -- 306,000
-- -- -- -- -- 11,400,000 11,400,000
-- 502,500 -- 1,172,500 -- -- 1,675,000
-- 1,476,800 -- -- -- -- 1,476,800
-- 861,250 -- -- -- -- 861,250
-- 842,000 -- -- -- -- 842,000
-- -- -- 1,323,750 -- -- 1,323,750
-- 918,750 -- -- -- -- 918,750
- ---------------------------------------------------------------------------------------------------
-- 6,922,300 306,000 2,496,250 -- 15,358,859 25,083,409
- ---------------------------------------------------------------------------------------------------
-- -- -- 255,938 -- -- 255,938
- ---------------------------------------------------------------------------------------------------
888,750 -- -- -- -- -- 888,750
- ---------------------------------------------------------------------------------------------------
-- -- 489,000 -- 31,000 3,091,000 3,611,000
1,084,000 -- 461,000 -- 1,246,000 5,612,000 8,403,000
- ---------------------------------------------------------------------------------------------------
1,084,000 950,000 -- 1,277,000 8,703,000 12,014,000
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
$44,035,152 $34,233,721 $9,407,312 $82,461,922 $17,128,680 $306,300,212 $493,566,999
===================================================================================================
</TABLE>
PF-10
<PAGE>
EXCELSIOR FUNDS, INC.
PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
COMMUNICATION ENVIRONMENTALLY-
AGING OF AND RELATED PRODUCTS GLOBAL PRODUCTIVITY
EQUITY AMERICA ENTERTAINMENT AND SERVICES COMPETITORS ENHANCERS PRO FORMA
FUND FUND FUND FUND FUND FUND ADJUSTMENTS COMBINED
------------ ----------- ------------- ---------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at
cost--see
accompanying
portfolios...... $239,891,128 $34,173,700 $29,209,379 $8,051,827 $67,679,200 $16,471,895 $395,477,129
============ =========== =========== ========== =========== =========== ============
Investments, at
value........... $306,300,212 $44,035,152 $34,233,721 $9,407,312 $82,461,922 $17,128,680 $493,566,999
Cash............. 43 674 104 77 -- 172 (1,070)(a) 0
Dividends
receivable...... 437,580 41,575 49,624 7,384 49,020 14,941 600,124
Interest
receivable...... 83,283 4,995 1,328 2,824 4,070 2,302 98,802
Receivable for
investments
sold............ 3,186,837 1,128,883 881,681 -- 1,763,534 981,940 7,942,875
Receivable for
fund shares
sold............ 1,075,668 23,886 588 7,993 10,000 400 1,118,535
Receivable from
investment
advisor......... -- -- -- 666 -- 450 (1,116)(a) 0
Withholding tax
receivable...... -- -- -- -- 522 -- 522
Prepaid
expenses........ 11,945 1,773 1,640 316 3,538 782 19,994
Unamortized
organization
costs........... -- 3,171 3,171 3,171 3,171 3,171 15,855
------------ ----------- ----------- ---------- ----------- ----------- ------------
Total Assets.... 311,095,568 45,240,109 35,171,857 9,429,743 84,295,777 18,132,838 503,363,706
LIABILITIES:
Payable for
investments
purchased....... 3,211,712 -- -- 523,941 -- -- 3,735,653
Payable for fund
shares
redeemed........ 478,756 123,920 419,342 22,968 687,501 50,703 1,783,190
Investment
advisory fee
payable......... 199,898 22,366 18,600 -- 42,577 -- (1,116)(a) 282,325
Due to custodian
bank............ -- -- -- -- 1,595,443 -- (1,070)(a) 1,594,373
Accrued expenses
and other
payables........ 134,564 36,269 37,424 13,990 48,457 24,888 295,592
------------ ----------- ----------- ---------- ----------- ----------- ------------
Total
Liabilities.... 4,024,930 182,555 475,366 560,899 2,373,978 75,591 7,691,133
------------ ----------- ----------- ---------- ----------- ----------- ------------
NET ASSETS....... $307,070,638 $45,057,554 $34,696,491 $8,868,844 $81,921,799 $18,057,247 $495,672,573
============ =========== =========== ========== =========== =========== ============
NET ASSETS
consist of:
Undistributed net
investment
income.......... $639,545 $ 32,870 $ -- $ 1,263 $ 65,558 $ -- $ 739,236
Accumulated net
realized gain on
investments..... 7,037,544 1,153,902 754,828 194,299 1,657,958 606,446 11,404,977
Unrealized
appreciation of
investments and
foreign currency
translations.... 66,409,084 9,861,452 5,024,342 1,355,485 14,782,645 656,785 98,089,793
Par value........ 11,897 4,444 3,363 949 7,195 2,210 (10,857)(a) 19,201
Paid-in capital
in excess of par
value........... 232,972,568 34,004,886 28,913,958 7,316,848 65,408,443 16,791,806 10,857 (a) 385,419,366
------------ ----------- ----------- ---------- ----------- ----------- ------------
Total Net
Assets.......... $307,070,638 $45,057,554 $34,696,491 $8,868,844 $81,921,799 $18,057,247 $495,672,573
============ =========== =========== ========== =========== =========== ============
SHARES:
Net Assets....... $306,989,598 $45,057,554 $34,696,491 $8,868,844 $81,921,799 $18,057,247 $495,591,533
Shares of Common
Stock
Outstanding..... 11,893,854 4,444,010 3,363,248 949,105 7,194,476 2,209,782 (10,853,302)(a) 19,201,173
Net Asset Value
Per Share....... $25.81 $10.14 $10.32 $9.34 $11.39 $8.17 $25.81
------ ------ ------ ----- ------ ----- ------
TRUST SHARES:
Net Assets....... 81,040 -- -- -- -- -- 81,040
Shares of Common
Stock
Outstanding..... 3,144 -- -- -- -- -- 3,144
Net Asset Value
Per Share....... $25.78 -- -- -- -- -- $25.78
------ ------
</TABLE>
See Notes to Pro forma Combined Financial Statements
PF-11
<PAGE>
EXCELSIOR FUNDS, INC.
PROJECTED PRO FORMA COMBINED STATEMENT OF OPERATIONS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
COMMUNICATION ENVIRONMENTALLY-
AGING OF AND RELATED PRODUCTS GLOBAL PRODUCTIVITY
EQUITY AMERICA ENTERTAINMENT AND SERVICES COMPETITORS ENHANCERS
FUND FUND FUND FUND FUND FUND ADJUSTMENTS
----------- ---------- ------------- ---------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT IN-
COME:
Interest
income......... $ 833,687 $ 96,641 $182,191 $ 28,872 $ 166,985 $ 38,781
Dividend
income......... 3,956,821 669,224 282,639 49,058 1,045,610 172,753
Less: Foreign
taxes
withheld....... -- -- -- -- (3,359) --
----------- ---------- -------- ---------- ---------- ---------
Total Income... 4,790,508 765,865 464,830 77,930 1,209,236 211,534
EXPENSES:
Investment
advisory fees.. 2,087,344 282,456 290,211 40,858 503,823 153,391 321,489 (b)
Administration
fees........... 427,849 72,380 74,287 12,257 129,087 39,265
Administrative
service fees... 132,737 21,988 24,461 3,484 36,378 13,268
Shareholder
servicing agent
fees........... 115,810 33,810 50,982 9,005 38,222 16,308 (71,583)(d)
Custodian fees.. 90,204 17,945 19,367 6,347 27,397 26,558
Registration and
filing fees.... 16,929 18,843 18,831 12,617 17,763 12,813
Legal and audit
fees........... 33,574 8,473 8,165 975 13,493 4,153
Directors' fees
and expenses... 10,880 2,256 2,435 275 3,751 1,336
Shareholder
reports........ 30,601 6,100 6,519 581 10,433 2,655
Amortization of
organization
costs.......... -- 4,176 4,176 4,176 4,176 4,176
Distribution
fees--Trust
Shares......... 88 -- -- -- -- --
Miscellaneous
expenses....... 9,152 2,610 3,062 711 3,686 2,297
----------- ---------- -------- ---------- ---------- ---------
Total Ex-
penses........ 2,955,168 471,037 502,496 91,286 788,209 276,220
Fees waived by
investment
adviser and
administrators.. (132,737) (21,988) (24,461) (23,451) (36,378) (24,184) (321,489)(c)
----------- ---------- -------- ---------- ---------- ---------
Net Expenses... 2,822,431 449,049 478,035 67,835 751,831 252,036
----------- ---------- -------- ---------- ---------- ---------
NET INVESTMENT
INCOME (LOSS).. 1,968,077 316,816 (13,205) 10,095 457,405 (40,502)
----------- ---------- -------- ---------- ---------- ---------
REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVESTMENTS:
Net realized
gain (loss):
Security trans-
actions....... 13,470,108 3,293,736 754,828 678,387 2,417,099 1,237,947
Foreign
currency
translations.. -- -- -- -- (521) 237
----------- ---------- -------- ---------- ---------- ---------
Total net
realized gain.. 13,470,108 3,293,736 754,828 678,387 2,416,578 1,238,184
Change in
unrealized
appreciation/depreciation
on investments
and foreign
currency
translations
during the
year........... 11,035,720 132,436 237,949 345,106 2,778,098 (273,291)
----------- ---------- -------- ---------- ---------- ---------
Net realized and
unrealized gain
on
investments.... 24,505,828 3,426,172 992,777 1,023,493 5,194,676 964,893
----------- ---------- -------- ---------- ---------- ---------
Net increase in
net assets
resulting from
operations..... $26,473,905 $3,742,988 $979,572 $1,033,588 $5,652,081 $ 924,391
=========== ========== ======== ========== ========== =========
<CAPTION>
PRO FORMA
COMBINED
------------
<S> <C>
INVESTMENT IN-
COME:
Interest
income......... $ 1,347,157
Dividend
income......... 6,176,105
Less: Foreign
taxes
withheld....... (3,359)
------------
Total Income... 7,519,903
EXPENSES:
Investment
advisory fees.. 3,679,572
Administration
fees........... 755,125
Administrative
service fees... 232,316
Shareholder
servicing agent
fees........... 192,554
Custodian fees.. 187,818
Registration and
filing fees.... 97,796
Legal and audit
fees........... 68,833
Directors' fees
and expenses... 20,933
Shareholder
reports........ 56,889
Amortization of
organization
costs.......... 20,880
Distribution
fees--Trust
Shares......... 88
Miscellaneous
expenses....... 21,518
------------
Total Ex-
penses........ 5,334,322
Fees waived by
investment
adviser and
administrators.. (584,688)
------------
Net Expenses... 4,749,634
------------
NET INVESTMENT
INCOME (LOSS).. 2,770,269
------------
REALIZED AND
UNREALIZED GAIN
(LOSS) ON
INVESTMENTS:
Net realized
gain (loss):
Security trans-
actions....... 21,852,105
Foreign
currency
translations.. (284)
------------
Total net
realized gain.. 21,851,821
Change in
unrealized
appreciation/depreciation
on investments
and foreign
currency
translations
during the
year........... 14,256,018
------------
Net realized and
unrealized gain
on
investments.... 36,107,839
------------
Net increase in
net assets
resulting from
operations..... $38,878,108
============
</TABLE>
See Notes to Pro forma Combined Financial Statements
PF-12
<PAGE>
EXCELSIOR FUNDS, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS--(UNAUDITED)
MARCH 31, 1997
Pro forma information is intended to provide shareholders of Excelsior Funds
with information about the impact of the proposed merger by indicating how the
merger might have affected the information had the merger been consummated as
of March 31, 1997.
The pro forma combined statements of assets and liabilities and results of
operations as of March 31, 1997, have been prepared to reflect the merger of
Equity Fund, Aging of America Fund, Communication and Entertainment Fund,
Environmentally-Related Products and Services Fund, Global Competitors Fund
and Productivity Enhancers Fund after giving effect to pro forma adjustments
described in the notes listed below.
(a) Acquisition by Equity Fund of the net assets of Aging of America Fund,
Communication and Entertainment Fund, Environmentally-Related Products and
Services Fund, Global Competitors Fund and Productivity Enhancers Fund and
issuance of Equity Fund Shares in exchange for all the outstanding shares
of Aging of America Fund, Communication and Entertainment Fund,
Environmentally-Related Products and Services Fund, Global Competitors
Fund and Productivity Enhancers Fund.
(b) Investment Advisory Fee was adjusted to reflect the application of the fee
structure for the Equity Fund (0.75% of average net assets).
(c) Waiver of Advisory Fees reflects the Advisor's commitment to temporarily
waive a set amount of advisory fees ($321,489), representing the
incremental Advisory Fees provided for within the Equity Fund versus the
Transferor Funds (0.75% vs. 0.60% of average net assets).
(d) Actual expenses incurred by the individual funds, for various expenses
included on a pro forma basis, were reduced to reflect estimated savings
arising from the merger.
PF-13
<PAGE>
EXCELSIOR FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1997
<TABLE>
<CAPTION>
INCOME AND AGING OF
EQUITY GROWTH AMERICA
FUND FUND FUND
------------ ------------ -----------
<S> <C> <C> <C>
ASSETS:
Investments, at cost--see accompanying
portfolios........................... $239,891,128 $100,064,467 $34,173,700
============ ============ ===========
Investments, at value (Note 1)........ $306,300,212 $132,131,071 $44,035,152
Cash.................................. 43 412 674
Dividends receivable.................. 437,580 85,702 41,575
Interest receivable................... 83,283 734,480 4,995
Receivable for investments sold....... 3,186,837 -- 1,128,883
Receivable for fund shares sold....... 1,075,668 79,125 23,886
Receivable from investment advisor
(Note 2)............................. -- -- --
Withholding tax receivable............ -- 2,718 --
Prepaid expenses...................... 11,945 4,900 1,773
Unamortized organization costs (Note
5)................................... -- -- 3,171
------------ ------------ -----------
TOTAL ASSETS.......................... 311,095,568 133,038,408 45,240,109
LIABILITIES:
Payable for investments purchased..... 3,211,712 -- --
Payable for fund shares redeemed...... 478,756 126,692 123,920
Investment advisory fee payable (Note
2)................................... 199,898 78,059 22,366
Due to custodian bank................. -- -- --
Accrued expenses and other payables... 134,564 66,119 36,269
------------ ------------ -----------
TOTAL LIABILITIES..................... 4,024,930 270,870 182,555
------------ ------------ -----------
NET ASSETS............................. $307,070,638 $132,767,538 $45,057,554
============ ============ ===========
NET ASSETS consist of:
Undistributed net investment income .. $ 639,545 $ 571,900 $ 32,870
Accumulated net realized gain (loss)
on investments....................... 7,037,544 4,968,595 1,153,902
Unrealized appreciation (depreciation)
of investments and foreign currency
translations......................... 66,409,084 32,066,192 9,861,452
Par value (Note 4).................... 11,897 8,705 4,444
Paid-in capital in excess of par
value................................ 232,972,568 95,152,146 34,004,886
------------ ------------ -----------
TOTAL NET ASSETS....................... $307,070,638 $132,767,538 $45,057,554
============ ============ ===========
SHARES:
Net Assets............................ $306,989,598 $132,767,538 $45,057,554
Shares of Common Stock Outstanding.... 11,893,854 8,705,319 4,444,010
NET ASSET VALUE PER SHARE.............. $25.81 $15.25 $10.14
====== ====== ======
TRUST SHARES:
Net Assets............................ $ 81,040 -- --
Shares of Common Stock Outstanding.... 3,144 -- --
NET ASSET VALUE PER SHARE.............. $25.78 -- --
======
</TABLE>
See Notes to Financial Statements
FS-1
<PAGE>
<TABLE>
<CAPTION>
BUSINESS AND COMMUNICATION ENVIRONMENTALLY- LONG-TERM
INDUSTRIAL AND EARLY LIFE RELATED PRODUCTS GLOBAL SUPPLY PRODUCTIVITY
RESTRUCTURING ENTERTAINMENT CYCLE AND SERVICES COMPETITORS OF ENERGY ENHANCERS
FUND FUND FUND FUND FUND FUND FUND
------------- ------------- ----------- ---------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
$ 99,261,956 $29,209,379 $52,479,549 $8,051,827 $67,679,200 $26,885,433 $16,471,895
============ =========== =========== ========== =========== =========== ===========
$125,283,194 $34,233,721 $52,436,200 $9,407,312 $82,461,922 $33,943,203 $17,128,680
317 104 444 77 -- -- 172
185,062 49,624 8,120 7,384 49,020 18,827 14,941
6,478 1,328 1,821 2,824 4,070 5,733 2,302
1,359,955 881,681 1,092,075 -- 1,763,534 -- 981,940
108,767 588 15,142 7,993 10,000 26,743 400
-- -- -- 666 -- -- 450
4,693 -- -- -- 522 -- --
4,583 1,640 2,539 316 3,538 1,169 782
3,171 3,171 3,171 3,171 3,171 3,171 3,171
------------ ----------- ----------- ---------- ----------- ----------- -----------
126,956,220 35,171,857 53,559,512 9,429,743 84,295,777 33,998,846 18,132,838
1,957,749 -- -- 523,941 -- 444,507 --
813,664 419,342 216,788 22,968 687,501 96,822 50,703
61,463 18,600 27,897 -- 42,577 15,761 --
-- -- -- -- 1,595,443 27,215 --
60,275 37,424 48,738 13,990 48,457 21,450 24,888
------------ ----------- ----------- ---------- ----------- ----------- -----------
2,893,151 475,366 293,423 560,899 2,373,978 605,755 75,591
------------ ----------- ----------- ---------- ----------- ----------- -----------
$124,063,069 $34,696,491 $53,266,089 $8,868,844 $81,921,799 $33,393,091 $18,057,247
============ =========== =========== ========== =========== =========== ===========
$ 145,348 $ -- $ -- $ 1,263 $ 65,558 $ 49,837 $ --
1,881,036 754,828 (2,895,898) 194,299 1,657,958 509,900 606,446
26,020,674 5,024,342 (43,349) 1,355,485 14,782,645 7,057,770 656,785
7,787 3,363 6,031 949 7,195 3,002 2,210
96,008,224 28,913,958 56,199,305 7,316,848 65,408,443 25,772,582 16,791,806
------------ ----------- ----------- ---------- ----------- ----------- -----------
$124,063,069 $34,696,491 $53,266,089 $8,868,844 $81,921,799 $33,393,091 $18,057,247
============ =========== =========== ========== =========== =========== ===========
$124,011,153 $34,696,491 $53,258,036 $8,868,844 $81,921,799 $33,393,091 $18,057,247
7,783,856 3,363,248 6,030,747 949,105 7,194,476 3,002,398 2,209,782
$15.93 $10.32 $8.83 $9.34 $11.39 $11.12 $8.17
====== ====== ===== ===== ====== ====== =====
$ 51,916 -- $ 8,053 -- -- -- --
3,264 -- 914 -- -- -- --
$15.91 -- $8.81 -- -- -- --
====== =====
</TABLE>
See Notes to Financial Statements
FS-2
<PAGE>
EXCELSIOR FUNDS, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
INCOME AND AGING OF
EQUITY GROWTH AMERICA
FUND+ FUND FUND
----------- ----------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income....................... $ 833,687 $ 2,468,384 $ 96,641
Dividend income....................... 3,956,821 1,719,063 669,224
Less: Foreign taxes withheld.......... -- (2,348) --
----------- ----------- ----------
TOTAL INCOME.......................... 4,790,508 4,185,099 765,865
EXPENSES:
Investment advisory fees (Note 2)..... 2,087,344 982,751 282,456
Administration fees (Note 2).......... 427,849 201,381 72,380
Administrative service fees (Note 2).. 132,737 106,888 21,988
Shareholder servicing agent fees...... 115,810 69,461 33,810
Custodian fees........................ 90,204 46,731 17,945
Registration and filing fees.......... 16,929 11,745 18,843
Legal and audit fees.................. 33,574 15,832 8,473
Directors' fees and expenses (Note
2).................................... 10,880 5,569 2,256
Shareholder reports................... 30,601 6,192 6,100
Amortization of organization costs
(Note 5).............................. -- -- 4,176
Distribution fees--Trust Shares (Note
2).................................... 88 -- --
Miscellaneous expenses................ 9,152 5,988 2,610
----------- ----------- ----------
TOTAL EXPENSES........................ 2,955,168 1,452,538 471,037
Fees waived by investment adviser and
administrators (Note 2)............... (132,737) (106,888) (21,988)
----------- ----------- ----------
NET EXPENSES.......................... 2,822,431 1,345,650 449,049
----------- ----------- ----------
NET INVESTMENT INCOME (LOSS)........... 1,968,077 2,839,449 316,816
----------- ----------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 1):
Net realized gain (loss):
Security transactions................. 13,470,108 8,780,963 3,293,736
Foreign currency translations......... -- (7,539) --
----------- ----------- ----------
Total net realized gain (loss)........ 13,470,108 8,773,424 3,293,736
Change in unrealized
appreciation/depreciation on
investments and foreign currency
translations during the year......... 11,035,720 3,899,616 132,436
----------- ----------- ----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS................. 24,505,828 12,673,040 3,426,172
----------- ----------- ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS............. $26,473,905 $15,512,489 $3,742,988
=========== =========== ==========
</TABLE>
+ The Excelsior Fund began offering Trust Shares on November 12, 1996,
September 19, 1996, and September 6, 1996 for Equity Fund, Business and
Industrial Restructuring Fund, and Early Life Cycle Fund, respectively.
See Notes to Financial Statements
FS-3
<PAGE>
<TABLE>
<CAPTION>
BUSINESS AND COMMUNICATION ENVIRONMENTALLY- LONG-TERM
INDUSTRIAL AND EARLY LIFE RELATED PRODUCTS GLOBAL SUPPLY PRODUCTIVITY
RESTRUCTURING ENTERTAINMENT CYCLE AND SERVICES COMPETITORS OF ENERGY ENHANCERS
FUND+ FUND FUND+ FUND FUND FUND FUND
------------- ------------- ------------ ---------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
$ 73,760 $ 182,191 $ 171,656 $ 28,872 $ 166,985 $ 120,506 $ 38,781
1,720,957 282,639 358,990 49,058 1,045,610 404,006 172,753
(5,067) -- -- -- (3,359) -- --
----------- ----------- ------------ ---------- ---------- ---------- ----------
1,789,650 464,830 530,646 77,930 1,209,236 524,512 211,534
594,255 290,211 469,912 40,858 503,823 177,440 153,391
152,356 74,287 120,450 12,257 129,087 45,473 39,265
41,617 24,461 61,972 3,484 36,378 12,270 13,268
55,874 50,982 57,471 9,005 38,222 14,040 16,308
40,422 19,367 30,238 6,347 27,397 15,522 26,558
18,290 18,831 18,494 12,617 17,763 9,787 12,813
15,579 8,165 13,156 975 13,493 4,339 4,153
4,022 2,435 3,974 275 3,751 1,212 1,336
10,816 6,519 11,390 581 10,433 2,091 2,655
4,176 4,176 4,176 4,176 4,176 4,176 4,176
89 -- 10 -- -- -- --
3,555 3,062 4,413 711 3,686 2,519 2,297
----------- ----------- ------------ ---------- ---------- ---------- ----------
941,051 502,496 795,656 91,286 788,209 288,869 276,220
(41,617) (24,461) (61,972) (23,451) (36,378) (12,270) (24,184)
----------- ----------- ------------ ---------- ---------- ---------- ----------
899,434 478,035 733,684 67,835 751,831 276,599 252,036
----------- ----------- ------------ ---------- ---------- ---------- ----------
890,216 (13,205) (203,038) 10,095 457,405 247,913 (40,502)
----------- ----------- ------------ ---------- ---------- ---------- ----------
3,591,561 754,828 (1,252,061) 678,387 2,417,099 3,066,094 1,237,947
(2,769) -- -- -- (521) -- 237
----------- ----------- ------------ ---------- ---------- ---------- ----------
3,588,792 754,828 (1,252,061) 678,387 2,416,578 3,066,094 1,238,184
10,912,205 237,949 (10,176,904) 345,106 2,778,098 3,501,247 (273,291)
----------- ----------- ------------ ---------- ---------- ---------- ----------
14,500,997 992,777 (11,428,965) 1,023,493 5,194,676 6,567,341 964,893
----------- ----------- ------------ ---------- ---------- ---------- ----------
$15,391,213 $ 979,572 $(11,632,003) $1,033,588 $5,652,081 $6,815,254 $ 924,391
=========== =========== ============ ========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements
FS-4
<PAGE>
EXCELSIOR FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INCOME AND AGING OF
EQUITY GROWTH AMERICA
FUND+ FUND FUND
------------ ------------ -----------
<S> <C> <C> <C>
YEAR ENDED MARCH 31, 1997
Net investment income (loss)......... $ 1,968,077 $ 2,839,449 $ 316,816
Net realized gain (loss) on
investments......................... 13,470,108 8,773,424 3,293,736
Change in unrealized
appreciation/depreciation on
investments and foreign currency
translations during the year........ 11,035,720 3,899,616 132,436
------------ ------------ -----------
Net increase (decrease) in net assets
resulting from operations........... 26,473,905 15,512,489 3,742,988
Distributions to shareholders:
From net investment income:
Shares.............................. (1,439,009) (3,036,535) (314,773)
Trust Shares........................ (103) -- --
From net realized gain on
investments:
Shares.............................. (11,114,096) (5,519,778) (1,835,114)
Trust Shares........................ (27) -- --
In excess of net realized gain on
investments:
Shares.............................. -- -- --
------------ ------------ -----------
Total distributions................ (12,553,235) (8,556,313) (2,149,887)
------------ ------------ -----------
Increase (decrease) in net assets
from fund share transactions (Note
4)
Shares.............................. 104,492,129 (1,683,305) (1,327,320)
Trust Shares........................ 84,035 -- --
------------ ------------ -----------
Total from fund share
transactions...................... 104,576,164 (1,683,305) (1,327,320)
------------ ------------ -----------
Net increase (decrease) in net
assets.............................. 118,496,834 5,272,871 265,781
NET ASSETS:
Beginning of year................... 188,573,804 127,494,667 44,791,773
------------ ------------ -----------
End of year(1)...................... $307,070,638 $132,767,538 $45,057,554
============ ============ ===========
--------
(1) Including undistributed net
investment income.................. $ 639,545 $ 571,900 $ 32,870
============ ============ ===========
YEAR ENDED MARCH 31, 1996
Net investment income (loss)......... $ 892,355 $ 3,359,989 $ 179,442
Net realized gain on investments..... 12,290,132 3,102,820 229,173
Change in unrealized
appreciation/depreciation on
investments and foreign currency
translations during the year........ 24,331,637 19,139,107 7,454,373
------------ ------------ -----------
Net increase in net assets resulting
from operations..................... 37,514,124 25,601,916 7,862,988
Distributions to shareholders:
From net investment income: (775,213) (2,643,489) (162,762)
In excess of net investment income.. -- -- --
From net realized gain on
investments........................ (14,900,357) (495,121) --
In excess of net realized gain on
investments........................ -- -- --
Increase (decrease) in net assets
from fund share transactions (Note
4).................................. 29,318,351 5,106,774 14,917,963
------------ ------------ -----------
Net increase (decrease) in net
assets.............................. 51,156,905 27,570,080 22,618,189
NET ASSETS:
Beginning of year................... 137,416,899 99,924,587 22,173,584
------------ ------------ -----------
End of year(2)...................... $188,573,804 $127,494,667 $44,791,773
============ ============ ===========
--------
(2) Including
undistributed/(distributions in
excess of) net investment income.. $ 110,580 $ 992,864 $ 48,027
============ ============ ===========
</TABLE>
+ The Excelsior Fund began offering Trust Shares on November 12, 1996,
September 19, 1996 and September 6, 1996 for Equity Fund, Business and
Industrial Restructuring Fund, and Early Life Cycle Fund, respectively.
See Notes to Financial Statements
FS-5
<PAGE>
<TABLE>
<CAPTION>
BUSINESS AND COMMUNICATION ENVIRONMENTALLY- LONG-TERM
INDUSTRIAL AND EARLY LIFE RELATED PRODUCTS GLOBAL SUPPLY PRODUCTIVITY
RESTRUCTURING ENTERTAINMENT CYCLE AND SERVICES COMPETITORS OF ENERGY ENHANCERS
FUND+ FUND FUND+ FUND FUND FUND FUND
------------- ------------- ------------ ---------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
$ 890,216 $ (13,205) $ (203,038) $ 10,095 $ 457,405 $ 247,913 $ (40,502)
3,588,792 754,828 (1,252,061) 678,387 2,416,578 3,066,094 1,238,184
10,912,205 237,949 (10,176,904) 345,106 2,778,098 3,501,247 (273,291)
------------ ------------ ------------ ----------- ----------- ----------- ------------
15,391,213 979,572 (11,632,003) 1,033,588 5,652,081 6,815,254 924,391
(770,732) -- -- (8,832) (512,801) (236,119) --
(133) -- -- -- -- -- --
(2,941,935) (243,366) (760,083) -- (672,479) (2,816,614) (2,588,996)
(702) -- (98) -- -- -- --
-- -- (2,895,800) -- -- -- --
------------ ------------ ------------ ----------- ----------- ----------- ------------
(3,713,502) (243,366) (3,655,981) (8,832) (1,185,280) (3,052,733) (2,588,996)
------------ ------------ ------------ ----------- ----------- ----------- ------------
38,284,744 (12,989,055) (9,515,807) 3,897,322 6,150,507 6,336,079 (9,347,427)
48,311 -- 9,034 -- -- -- --
------------ ------------ ------------ ----------- ----------- ----------- ------------
38,333,055 (12,989,055) (9,506,773) 3,897,322 6,150,507 6,336,079 (9,347,427)
------------ ------------ ------------ ----------- ----------- ----------- ------------
50,010,766 (12,252,849) (24,794,757) 4,922,078 10,617,308 10,098,600 (11,012,032)
74,052,303 46,949,340 78,060,846 3,946,766 71,304,491 23,294,491 29,069,279
------------ ------------ ------------ ----------- ----------- ----------- ------------
$124,063,069 $ 34,696,491 $ 53,266,089 $ 8,868,844 $81,921,799 $33,393,091 $ 18,057,247
============ ============ ============ =========== =========== =========== ============
$ 145,348 $ -- $ -- $ 1,263 $ 65,558 $ 49,837 $ --
============ ============ ============ =========== =========== =========== ============
$ 430,247 $ 112,007 $ (110,895) $ (7,710) $ 327,789 $ 183,715 $ 53,347
2,629,951 2,474,867 3,934,385 31,865 721,363 521,934 5,861,616
11,536,487 1,240,983 6,178,733 923,672 9,216,453 3,435,626 (172,413)
------------ ------------ ------------ ----------- ----------- ----------- ------------
14,596,685 3,827,857 10,002,223 947,827 10,265,605 4,141,275 5,742,550
(345,537) (105,302) -- -- (257,433) (168,020) (53,347)
-- -- -- -- -- -- (50,322)
(987,000) (2,340,896) (4,027,696) -- (85,339) -- (4,101,238)
-- -- -- -- (86,658) -- --
30,605,398 15,653,291 24,303,965 (1,360,084) 35,973,688 3,508,362 9,266,366
------------ ------------ ------------ ----------- ----------- ----------- ------------
43,869,546 17,034,950 30,278,492 (412,257) 45,809,863 7,481,617 10,804,009
30,182,757 29,914,390 47,782,354 4,359,023 25,494,628 15,812,874 18,265,270
------------ ------------ ------------ ----------- ----------- ----------- ------------
$ 74,052,303 $ 46,949,340 $ 78,060,846 $ 3,946,766 $71,304,491 $23,294,491 $ 29,069,279
============ ============ ============ =========== =========== =========== ============
$ 137,328 $ (158) $ -- $ -- $ 121,474 $ 38,043 $ --
============ ============ ============ =========== =========== =========== ============
</TABLE>
See Notes to Financial Statements
FS-6
<PAGE>
EXCELSIOR FUNDS, INC.
FINANCIAL HIGHLIGHTS--SELECTED PER SHARE DATA AND RATIOS
For a Fund share outstanding throughout each period.
<TABLE>
<CAPTION>
NET REALIZED DIVIDENDS DISTRIBUTIONS
NET ASSET NET AND UNREALIZED DIVIDENDS IN EXCESS OF FROM NET
VALUE, INVESTMENT GAIN (LOSS) TOTAL FROM FROM NET NET REALIZED GAIN
BEGINNING INCOME ON INVESTMENTS INVESTMENT INVESTMENT INVESTMENT ON INVESTMENTS
OF PERIOD (LOSS) AND OPTIONS OPERATIONS INCOME INCOME AND OPTIONS
--------- ---------- -------------- ---------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
EQUITY FUND -- (4/25/85*)
Shares:
Year Ended March 31,
1993................... $16.28 $0.08 $3.01 $3.09 $(0.09) -- $(0.51)
1994................... 18.77 0.05 1.16 1.21 (0.08) -- (0.39)
1995................... 19.17 0.07 2.67 2.74 (0.04) -- (0.47)
1996................... 21.40 0.12 5.21 5.33 (0.11) -- (2.19)
1997................... 24.43 0.18 2.50 2.68 (0.14) -- (1.16)
Trust Shares --
(11/12/96*)
Period Ended March 31,
1997.................. 26.30 0.04 0.03 0.07 (0.03) -- (0.56)
INCOME AND GROWTH FUND -- (1/6/87*)
Year Ended March 31,
1993................... $ 9.10 $0.27 $2.43 $2.70 $(0.35) -- $ 0.00
1994................... 11.45 0.31 0.46 0.77 (0.27) -- (0.01)
1995................... 11.94 0.38 0.26 0.64 (0.35) -- (0.41)
1996................... 11.82 0.39 2.61 3.00 (0.31) -- (0.06)
1997................... 14.45 0.33 1.45 1.78 (0.35) -- (0.63)
AGING OF AMERICA FUND -- (12/31/92*)
Period Ended March 31,
1993.................. $ 7.00 $0.01 $0.00 $0.01 $ 0.00 -- $ 0.00
Year Ended March 31,
1994................... 7.01 0.03 (0.02) 0.01 (0.03) -- 0.00
1995................... 6.99 0.04 0.85 0.89 (0.04) -- 0.00
1996................... 7.84 0.05 1.97 2.02 (0.05) -- 0.00
1997................... 9.81 0.07 0.72 0.79 (0.07) -- (0.39)
BUSINESS AND INDUSTRIAL RESTRUCTURING FUND -- (12/31/92*)
Shares:
Period Ended March 31,
1993.................. $ 7.00 $0.02 $0.69 $0.71 $ 0.00 -- $ 0.00
Year Ended March 31,
1994................... 7.71 0.06 1.96 2.02 (0.07) -- (0.02)
1995................... 9.64 0.07 1.02 1.09 (0.06) -- (0.12)
1996................... 10.55 0.10 3.71 3.81 (0.09) -- (0.24)
1997................... 14.03 0.13 2.36 2.49 (0.12) -- (0.47)
Trust Shares --
(9/19/96*)
Period Ended March
31,1997............... 14.61 0.05 1.53 1.58 (0.05) -- (0.23)
COMMUNICATION AND ENTERTAINMENT FUND -- (12/31/92*)
Period Ended March 31,
1993.................. $ 7.00 $0.01 $0.60 $0.61 $ 0.00 -- $ 0.00
Year Ended March 31,
1994................... 7.61 0.02 1.52 1.54 (0.03) -- (0.37)
1995................... 8.75 0.04 1.06 1.10 (0.04) -- (0.17)
1996................... 9.64 0.03 1.30 1.33 (0.03) -- (0.62)
1997................... 10.32 0.00 0.05 0.05 0.00 -- (0.05)
</TABLE>
* Commencement of operations
** Not Annualized
*** Annualized
+ Expense ratios before waiver of fees and reimbursement of expenses (if any)
by adviser and administrators.
++ Total return data for periods prior to March 31, 1997 does not reflect the
sales load payable on purchases of shares. The sales load was eliminated
effective February 14, 1997.
# For fiscal years beginning on or after September 1, 1995, the Funds are
required to disclose the average commission rate per share it paid for
portfolio trades, on which commissions were charged, during the period.
See Notes to Financial Statements
FS-7
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTIONS RATIO RATIO RATIO
IN EXCESS OF OF NET OF GROSS OF NET
NET REALIZED NET ASSETS, OPERATING OPERATING INVESTMENT
GAIN ON NET ASSET END EXPENSES EXPENSES INCOME (LOSS) PORTFOLIO FEE
INVESTMENTS TOTAL VALUE, END TOTAL OF PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TURNOVER WAIVERS
AND OPTIONS DISTRIBUTIONS OF PERIOD RETURN++ (000) NET ASSETS NET ASSETS + NET ASSETS RATE (NOTE 2)
- ------------- ------------- ---------- -------- ----------- ---------- ------------ ------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- $(0.60) $18.77 19.26% $106,144 1.08% 1.08% 0.51% 24% $0.00
$(0.34) (0.81) 19.17 6.54% 122,262 1.14% 1.14% 0.25% 17% 0.00
-- (0.51) 21.40 14.65% 137,417 1.05% 1.08% 0.36% 23% 0.00
-- (2.30) 24.43 26.45% 188,574 1.05% 1.12% 0.55% 27% 0.02
-- (1.30) 25.81 11.09% 306,990 1.01% 1.06% 0.71% 39% 0.01
-- (0.59) 25.78 0.23%** 81 1.36%*** 1.41%*** 0.45%*** 39% 0.00
-- $(0.35) $11.45 30.45% $ 51,303 1.15% 1.15% 2.76% 28% $0.00
-- (0.28) 11.94 6.69% 96,682 1.17% 1.17% 2.77% 28% 0.00
-- (0.76) 11.82 5.74% 99,925 1.06% 1.09% 3.31% 36% 0.00
-- (0.37) 14.45 25.83% 127,495 1.05% 1.11% 2.95% 22% 0.01
-- (0.98) 15.25 12.61% 132,768 1.03% 1.11% 2.17% 25% 0.01
-- $ 0.00 $ 7.01 0.14%** $ 2,389 0.99%*** 3.87%*** 0.77%*** 14%*** $0.03
-- (0.03) 6.99 0.13% 10,583 0.99% 1.82% 0.59% 24% 0.04
-- (0.04) 7.84 12.80% 22,174 0.99% 1.26% 0.63% 14% 0.02
-- (0.05) 9.81 25.80% 44,792 0.93% 0.97% 0.54% 34% 0.00
-- (0.46) 10.14 8.18% 45,058 0.95% 1.00% 0.67% 86% 0.00
-- $ 0.00 $ 7.71 10.14%** $ 1,935 0.99%*** 5.85%*** 2.48%*** 9%*** $0.04
-- (0.09) 9.64 26.40% 14,440 0.99% 1.73% 0.77% 75% 0.06
-- (0.18) 10.55 11.49% 30,183 0.98% 1.08% 0.83% 82% 0.01
-- (0.33) 14.03 36.48% 74,052 0.91% 0.95% 0.88% 56% 0.00
-- (0.59) 15.93 18.09% 124,011 0.91% 0.95% 0.90% 62% 0.01
-- (0.28) 15.91 10.85%** 52 1.26%*** 1.30%*** 0.54%*** 62% 0.00
-- $ 0.00 $ 7.61 8.71%** $ 5,785 0.99%*** 2.20%*** 1.06%*** 25%*** $0.01
-- (0.40) 8.75 20.07% 21,024 0.98% 1.16% 0.29% 60% 0.01
-- (0.21) 9.64 12.87% 29,914 0.98% 1.06% 0.46% 56% 0.01
-- (0.65) 10.32 13.48% 46,949 0.92% 0.97% 0.28% 65% 0.00
-- (0.05) 10.32 0.34% 34,696 0.99% 1.04% (0.03)% 65% 0.01
<CAPTION>
DISTRIBUTIONS
IN EXCESS OF
NET REALIZED
GAIN ON AVERAGE
INVESTMENTS COMMISSION
AND OPTIONS RATE#
- ------------- ----------
<S> <C>
-- N/A
$(0.34) N/A
-- N/A
-- N/A
-- $0.0663
-- $0.0663
-- N/A
-- N/A
-- N/A
-- N/A
-- $0.0777
-- N/A
-- N/A
-- N/A
-- N/A
-- $0.0831
-- N/A
-- N/A
-- N/A
-- N/A
-- $0.0755
-- $0.0755
-- N/A
-- N/A
-- N/A
-- N/A
-- $0.0677
</TABLE>
See Notes to Financial Statements
FS-8
<PAGE>
EXCELSIOR FUNDS, INC.
FINANCIAL HIGHLIGHTS--SELECTED PER SHARE DATA AND RATIOS
For a Fund share outstanding throughout each period.
<TABLE>
<CAPTION>
NET REALIZED DIVIDENDS DISTRIBUTIONS
NET ASSET NET AND UNREALIZED DIVIDENDS IN EXCESS OF FROM NET
VALUE, INVESTMENT GAIN (LOSS) TOTAL FROM FROM NET NET REALIZED GAIN
BEGINNING INCOME ON INVESTMENTS INVESTMENT INVESTMENT INVESTMENT ON INVESTMENTS
OF PERIOD (LOSS) AND OPTIONS OPERATIONS INCOME INCOME AND OPTIONS
--------- ---------- -------------- ---------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
EARLY LIFE CYCLE FUND -- (12/31/92*)
Shares:
Period Ended March 31,
1993.................. $ 7.00 $ 0.00 $ 0.40 $ 0.40 $ 0.00 -- $ 0.00
Year Ended March 31,
1994................... 7.40 (0.01) 1.36 1.35 0.00 -- (0.09)
1995................... 8.66 (0.02) 1.31 1.29 0.00 -- (0.18)
1996................... 9.77 (0.02) 1.72 1.70 0.00 -- (0.69)
1997................... 10.78 (0.03) (1.43) (1.46) 0.00 -- (0.10)
Trust Shares --
(9/6/96*)
Period Ended March 31,
1997.................. 9.98 (0.03) (0.92) (0.95) 0.00 -- (0.22)
ENVIRONMENTALLY-RELATED PRODUCTS AND SERVICES FUND -- (12/31/92*)
Period Ended March 31,
1993.................. $ 7.00 $ 0.00 $(0.05) $(0.05) $ 0.00 -- $ 0.00
Year Ended March 31,
1994................... 6.95 0.00 (0.71) (0.71) 0.00 -- 0.00
1995................... 6.24 (0.01) (0.01) (0.02) 0.00 $(0.01) 0.00
1996................... 6.21 (0.02) 1.54 1.52 0.00 -- 0.00
1997................... 7.73 0.01 1.61 1.62 (0.01) -- 0.00
GLOBAL COMPETITORS FUND -- (12/31/92*)
Period Ended March 31,
1993.................. $ 7.00 $ 0.01 $ 0.27 $ 0.28 $ 0.00 -- $ 0.00
Year Ended March 31,
1994................... 7.28 0.05 0.41 0.46 (0.05) -- 0.00
1995................... 7.69 0.07 0.90 0.97 (0.07) -- 0.00
1996................... 8.59 0.07 2.27 2.34 (0.06) -- (0.02)
1997................... 10.83 0.06 0.66 0.72 (0.07) -- (0.09)
LONG-TERM SUPPLY OF ENERGY FUND -- (12/31/92*)
Period Ended March 31,
1993.................. $ 7.00 $ 0.01 $ 0.80 $ 0.81 $ 0.00 -- $ 0.00
Year Ended March 31,
1994................... 7.81 0.08 (0.12) (0.04) (0.07) -- 0.00
1995................... 7.70 0.09 0.24 0.33 (0.10) -- (0.01)
1996................... 7.92 0.07 1.63 1.70 (0.07) -- 0.00
1997................... 9.55 0.09 2.60 2.69 (0.09) -- (1.03)
PRODUCTIVITY ENHANCERS FUND -- (12/31/92*)
Period Ended March 31,
1993.................. $ 7.00 $ 0.01 $(0.07) $(0.06) $ 0.00 -- $ 0.00
Year Ended March 31,
1994................... 6.94 0.00 0.96 0.96 0.00 $(0.02) 0.00
1995................... 7.88 (0.01) 0.35 0.34 0.00 -- (0.10)
1996................... 8.12 0.02 2.12 2.14 (0.02) (0.01) (1.40)
1997................... 8.83 (0.02) 0.16 0.14 0.00 -- (0.80)
</TABLE>
* Commencement of operations
** Not Annualized
*** Annualized
+ Expense ratios before waiver of fees and reimbursement of expenses (if any)
by adviser and administrators.
++ Total return data for periods prior to March 31, 1997 does not reflect the
sales load payable on purchases of shares. The sales load was eliminated
effective February 14, 1997.
# For fiscal years beginning on or after September 1, 1995, the Funds are
required to disclose the average commission rate per share it paid for
portfolio trades, on which commissions were charged, during the period.
See Notes to Financial Statements
FS-9
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTIONS RATIO RATIO RATIO
IN EXCESS OF OF NET OF GROSS OF NET
NET REALIZED NET ASSETS, OPERATING OPERATING INVESTMENT
GAIN ON NET ASSET END EXPENSES EXPENSES INCOME (LOSS) PORTFOLIO FEE
INVESTMENTS TOTAL VALUE, END TOTAL OF PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TURNOVER WAIVERS
AND OPTIONS DISTRIBUTIONS OF PERIOD RETURN++ (000) NET ASSETS NET ASSETS + NET ASSETS RATE (NOTE 2)
- ------------- ------------- ---------- -------- ----------- ---------- ------------ ------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- $ 0.00 $ 7.40 5.71%** $ 5,512 0.99%*** 2.70%*** 0.12%*** 4%*** $0.01
-- (0.09) 8.66 18.27% 24,951 0.95% 1.15% (0.25)% 20% 0.01
-- (0.18) 9.77 15.16% 47,782 0.96% 1.04% (0.23)% 42% 0.01
-- (0.69) 10.78 18.29% 78,061 0.90% 0.98% (0.17)% 38% 0.01
$(0.39) (0.49) 8.83 (14.33)% 53,258 0.94% 1.02% (0.26)% 55% 0.01
-- (0.22) 8.81 (9.77)%** 8 1.29%*** 1.40%*** (0.87)%*** 55% 0.00
-- $ 0.00 $ 6.95 (0.71)%** $ 2,452 0.99%*** 2.83%*** 0.32%*** 0%*** $0.02
-- 0.00 6.24 (10.15)% 4,533 0.99% 2.20% (0.07)% 28% 0.05
-- (0.01) 6.21 (0.27)% 4,359 0.99% 2.42% (0.10)% 61% 0.09
-- 0.00 7.73 24.48% 3,947 0.99% 2.46% (0.18)% 64% 0.12
-- (0.01) 9.34 21.22% 8,869 0.99% 1.33% 0.15% 73% 0.03
-- $ 0.00 $ 7.28 4.00%** $ 2,037 0.99%*** 3.97%*** 0.82%*** 0%*** $0.03
-- (0.05) 7.69 6.29% 10,059 0.99% 1.72% 0.81% 19% 0.05
-- (0.07) 8.59 12.73% 25,495 0.97% 1.18% 1.04% 29% 0.01
$(0.02) (0.10) 10.83 27.39% 71,304 0.89% 0.93% 0.73% 17% 0.00
-- (0.16) 11.39 6.64% 81,922 0.89% 0.94% 0.54% 25% 0.00
-- $ 0.00 $ 7.81 11.57%** $ 1,457 0.99%*** 7.03%*** 1.69%*** 0%*** $0.05
-- (0.07) 7.70 (0.57)% 6,830 0.99% 2.03% 1.21% 6% 0.07
-- (0.11) 7.92 4.28% 15,813 0.98% 1.35% 1.18% 31% 0.03
-- (0.07) 9.55 21.60% 23,294 0.96% 1.09% 0.88% 43% 0.01
-- (1.12) 11.12 28.28% 33,393 0.93% 0.98% 0.84% 87% 0.00
-- $ 0.00 $ 6.94 (0.86)%** $ 3,369 0.99%*** 4.23%*** 1.29%*** 183%*** $0.03
-- (0.02) 7.88 13.81% 15,702 0.99% 1.49% 0.01% 198% 0.10
-- (0.10) 8.12 4.45% 18,265 0.99% 1.21% (0.10)% 276% 0.02
-- (1.43) 8.83 26.97% 29,069 0.98% 1.06% 0.20% 472% 0.01
-- (0.80) 8.17 1.02% 18,057 0.98% 1.08% (0.16)% 300% 0.01
<CAPTION>
DISTRIBUTIONS
IN EXCESS OF
NET REALIZED
GAIN ON AVERAGE
INVESTMENTS COMMISSION
AND OPTIONS RATE#
- ------------- ----------
<S> <C>
-- N/A
-- N/A
-- N/A
-- N/A
$(0.39) $0.0433
-- $0.0433
-- N/A
-- N/A
-- N/A
-- N/A
-- $0.0711
-- N/A
-- N/A
-- N/A
$(0.02) N/A
-- $0.0873
-- N/A
-- N/A
-- N/A
-- N/A
-- $0.0809
-- N/A
-- N/A
-- N/A
-- N/A
-- $0.0797
</TABLE>
See Notes to Financial Statements
FS-10
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS MARCH 31, 1997
EQUITY FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
-------- ------------
<C> <S> <C>
COMMON STOCKS -- 96.92%
FINANCIAL -- 23.67%
131,200 Associates First Capital Corp. ........................ $ 5,641,600
185,000 Fleet Financial Group, Inc. ........................... 10,591,250
29,240 General Re Corp. ...................................... 4,619,920
90,500 MBIA, Inc. ............................................ 8,676,688
136,038 Mellon Bank Corp. ..................................... 9,896,764
122,360 Morgan Stanley Group, Inc. ............................ 7,188,650
120,000 State Street Boston Corp. ............................. 8,325,000
350,000 United Asset Management Corp. ......................... 8,968,750
120,000 UNUM Corp. ............................................ 8,760,000
------------
72,668,622
------------
CONSUMER CYCLICAL -- 17.77%
178,200 Centex Corp. .......................................... 6,281,550
105,000 Dayton Hudson Corp. ................................... 4,383,750
200,000 Ford Motor Co. ........................................ 6,275,000
370,000 Heilig-Meyers Co. ..................................... 5,873,750
90,000 Houghton Mifflin Co. .................................. 4,860,000
60,000 Luxottica Group S.p.A. ADR............................. 3,187,500
152,834 McDonald's Corp. ...................................... 7,221,406
175,000 +O'Reilly Automotive, Inc. ............................ 6,431,250
70,000 Reuters Holdings plc ADR............................... 4,068,750
215,000 Wal-Mart Stores, Inc. ................................. 5,993,125
------------
54,576,081
------------
TECHNOLOGY -- 14.46%
74,570 +Cisco Systems, Inc. .................................. 3,588,681
111,480 Hewlett-Packard Co. ................................... 5,936,310
48,000 Intel Corp. ........................................... 6,672,000
56,920 Lucent Technologies, Inc. ............................. 3,002,530
86,020 +Microsoft Corp. ...................................... 7,881,582
200,000 Tektronix, Inc. ....................................... 10,100,000
131,220 Tyco International Ltd. ............................... 7,217,100
------------
44,398,203
------------
CONSUMER STAPLES -- 14.40%
210,000 Abbott Laboratories.................................... 11,786,250
298,600 +Alliance Pharmaceutical Corp. ........................ 3,583,200
54,100 +Cerner Corp. ......................................... 696,538
136,610 +Forest Laboratories, Inc. ............................ 5,139,951
130,000 +Genzyme Corp. ........................................ 2,892,500
220,000 Johnson & Johnson...................................... 11,632,500
100,900 Pfizer, Inc. .......................................... 8,488,213
------------
44,219,152
------------
CAPITAL GOODS -- 10.14%
120,000 General Electric Co. .................................. 11,910,000
101,533 Illinois Tool Works, Inc. ............................. 8,287,631
135,961 +Thermo Electron Corp. ................................ 4,197,796
220,000 WMX Technologies, Inc. ................................ 6,737,500
------------
31,132,927
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
---------- ------------
<C> <S> <C>
ENERGY -- 10.05%
110,103 Louisiana Land &
Exploration Co. ..................................... $ 5,216,130
92,000 Mobil Corp. ......................................... 12,017,500
95,500 +United Meridian Corp. .............................. 2,876,938
281,680 Unocal Corp. ........................................ 10,739,050
------------
30,849,618
------------
UTILITIES -- 5.00%
113,924 AT&T Corp. .......................................... 3,958,859
300,000 Enron Corp. ......................................... 11,400,000
------------
15,358,859
------------
RAW/INTERMEDIATE
MATERIALS -- 1.43%
190,000 Pall Corp. .......................................... 4,393,750
------------
TOTAL COMMON STOCKS
(Cost $231,188,128).................................. 297,597,212
------------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<C> <S> <C>
DEMAND NOTES -- 2.83%
$3,091,000 Associates Corp. of North
America Master Notes................................. 3,091,000
5,612,000 General Electric Co.
Promissory Notes..................................... 5,612,000
------------
TOTAL DEMAND NOTES
(Cost $8,703,000).................................... 8,703,000
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Cost $239,891,128*)....................................... 99.75% $306,300,212
OTHER ASSETS AND
LIABILITIES (NET).......................................... 0.25 770,426
------ ------------
NET ASSETS................................................. 100.00% $307,070,638
====== ============
</TABLE>
- --------
* For Federal tax purposes, the tax basis on investments aggregates
$239,893,069.
+ Non-income producing security.
ADR -- American Depositary Receipt.
See Notes to Financial Statements
FS-11
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS MARCH 31, 1997
INCOME AND GROWTH FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
---------- ------------
<C> <S> <C>
COMMON STOCKS -- 70.30%
CONSUMER CYCLICAL -- 17.58%
3,495 Bayerische Motoren Werke AG.......................... $ 2,858,707
40,000 Electronic Data Systems Corp......................... 1,615,000
80,000 Heilig-Meyers Co..................................... 1,270,000
50,000 Herman Miller, Inc................................... 3,412,500
45,000 Luxottica Group S.p.A. ADR........................... 2,390,625
75,000 McDonald's Corp...................................... 3,543,750
120,000 ServiceMaster Ltd. Partnership....................... 3,270,000
115,000 Smart & Final, Inc................................... 2,256,875
90,000 Wiley (John) & Sons, Inc., Class A................... 2,722,500
------------
23,339,957
------------
CONSUMER STAPLES -- 10.11%
43,000 Gillette Co.......................................... 3,122,875
60,000 Johnson & Johnson.................................... 3,172,500
32,000 Kellogg Co........................................... 2,152,000
65,000 Novo-Nordisk A.S., ADR............................... 3,282,500
3,040 SMH AG (Bearer)...................................... 1,690,415
------------
13,420,290
------------
TECHNOLOGY -- 9.65%
57,000 Adobe Systems, Inc................................... 2,280,000
153,334 +Analog Devices, Inc................................. 3,450,015
115,000 ECI Telecommunications Limited Designs............... 2,113,125
266,000 +Interleaf, Inc...................................... 399,000
79,000 +SDL, Inc............................................ 1,323,250
100,000 +Unitrode Corp....................................... 3,250,000
------------
12,815,390
------------
FINANCIAL -- 9.17%
21,750 American International
Group, Inc........................................... 2,552,906
26,000 Household International, Inc......................... 2,239,250
95,000 IPC Holdings Ltd..................................... 2,315,625
40,000 Morgan Stanley Group, Inc............................ 2,350,000
75,000 Mutual Risk Management Ltd. ......................... 2,718,750
------------
12,176,531
------------
ENERGY -- 7.38%
22,000 Exxon Corp........................................... 2,370,500
41,000 Norsk Hydro A.S., ADR................................ 2,003,875
40,000 +SEACOR Holdings, Inc. .............................. 2,145,000
65,000 +Transmontaigne Oil Co. ............................. 1,015,625
75,000 +United Meridian Corp................................ 2,259,375
------------
9,794,375
------------
RAW/INTERMEDIATE MATERIALS -- 5.70%
41,000 Nucor Corp........................................... 1,875,750
70,000 Pall Corp............................................ 1,618,750
</TABLE>
<TABLE>
VALUE
SHARES (NOTE 1)
---------- ------------
<C> <S> <C>
RAW/INTERMEDIATE
MATERIALS -- (CONTINUED)
36,000 Pioneer Hi-Bred
International, Inc. ................................. $ 2,263,500
95,000 Worthington Industries, Inc.......................... 1,816,875
------------
7,574,875
------------
CAPITAL GOODS -- 4.98%
42,000 Dover Corp. ......................................... 2,205,000
35,000 Raychem Corp. ....................................... 2,883,125
50,000 Trinity Industries, Inc. ............................ 1,518,750
------------
6,606,875
------------
UTILITIES -- 4.16%
45,000 +AES Corp. .......................................... 2,520,000
65,000 +NEXTEL Communications, Inc., Class A................ 861,250
90,000 UGI Corp. ........................................... 2,137,500
------------
5,518,750
------------
TRANSPORTATION -- 1.57%
40,000 +Federal Express Corp. .............................. 2,085,000
------------
TOTAL COMMON STOCKS
(Cost $62,982,301)................................... 93,332,043
------------
CONVERTIBLE PREFERRED STOCKS -- 5.88%
FINANCIAL -- 3.64%
325,000 Capstead Mortgage Corp.,
Series B, Preferred
Exchange $1.26....................................... 4,834,375
------------
ENERGY -- 2.24%
80,000 Callon Petroleum Co.,
Series A, Preferred
Exchange $2.13....................................... 2,980,000
------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $6,484,259).................................... 7,814,375
------------
PRINCIPAL
AMOUNT
----------
CORPORATE BONDS -- 4.61%
TRANSPORTATION -- 1.56%
$2,000,000 Greyhound Lines, Inc.,
Debenture,
10.00%, 07/31/01..................................... 2,070,000
------------
MATERIALS -- 1.55%
2,000,000 Fort Howard Sr. Notes,
9.25%, 03/15/01...................................... 2,060,000
------------
ENERGY -- 1.50%
2,000,000 Vintage Petroleum Sr. Sub-Notes,
9.00%, 12/15/05...................................... 1,990,000
------------
TOTAL CORPORATE BONDS
(Cost $5,807,883).................................... 6,120,000
------------
</TABLE>
See Notes to Financial Statements
FS-12
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS MARCH 31, 1997
INCOME AND GROWTH FUND -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
---------- ------------
<C> <S> <C>
CONVERTIBLE BONDS -- 14.09%
TECHNOLOGY -- 10.35%
$3,400,000 BBN Corp.,
6.00%, 4/01/12...................................... $ 3,043,000
4,236,000 Kollmorgen Corp., Sub-Debenture,
8.75%, 05/01/09..................................... 4,230,705
4,959,000 Network Equipment Technologies, Inc., Sub-Debenture,
7.25%, 05/15/14..................................... 4,103,573
2,500,000 VLSI Technology,
8.25%, 10/01/05..................................... 2,371,875
------------
13,749,153
------------
CONSUMER STAPLES -- 2.36%
3,400,000 Novacare, Inc., Sub-Debenture,
5.50%, 01/15/00..................................... 3,128,000
------------
TRANSPORTATION -- 1.38%
2,800,000 World Corp., Inc.,
7.00%, 05/15/04..................................... 1,830,500
------------
TOTAL CONVERTIBLE BONDS
(Cost $18,633,024).................................. 18,707,653
------------
DEMAND NOTES -- 4.64%
979,000 Associates Corp. of North America Master Notes...... 979,000
5,178,000 General Electric Co. Promissory Notes............... 5,178,000
------------
TOTAL DEMAND NOTES
(Cost $6,157,000)................................... 6,157,000
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Cost $100,064,467*)...................................... 99.52% $132,131,071
OTHER ASSETS AND LIABILITIES (NET)........................ 0.48 636,467
------ ------------
NET ASSETS................................................ 100.00% $132,767,538
====== ============
</TABLE>
- --------
* For Federal tax purposes, the tax basis of investments aggregates
$100,091,722.
+ Non-income producing security.
ADR -- American Depositary Receipt.
See Notes to Financial Statements
FS-13
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS MARCH 31, 1997
AGING OF AMERICA FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
-------- -----------
<C> <S> <C>
COMMON STOCKS -- 93.35%
CONSUMER CYCLICAL -- 31.20%
30,000 Black & Decker Corp. ................................... $ 963,750
27,500 Fisher Scientific International......................... 1,213,438
43,000 +General Nutrition Cos., Inc. .......................... 870,750
15,000 Houghton Mifflin Co. ................................... 810,000
24,000 Lowe's Cos., Inc. ...................................... 897,000
19,000 Marriott International, Inc. ........................... 945,250
25,000 +Proffitt's, Inc. ...................................... 943,750
25,000 +Revco D.S., Inc. ...................................... 1,012,500
20,000 Sears, Roebuck & Co. ................................... 1,005,000
30,000 Stewart Enterprises, Inc., Class A...................... 1,087,500
30,000 Time Warner, Inc. ...................................... 1,297,500
30,000 +Vencor, Inc. .......................................... 1,136,250
30,000 Wal-Mart Stores, Inc. .................................. 836,250
14,215 Walt Disney Co. ........................................ 1,037,695
-----------
14,056,633
-----------
CONSUMER STAPLES -- 27.89%
40,000 Assisted Living Concepts, Inc. ......................... 840,000
30,000 Columbia/HCA Healthcare Corp. .......................... 1,008,750
15,000 Conagra, Inc. .......................................... 813,750
12,000 Eastman Kodak Co. ...................................... 910,500
30,000 First Brands Corp. ..................................... 735,000
10,000 Gillette Co. ........................................... 726,250
51,700 +Healthsouth Corp. ..................................... 988,763
18,000 Johnson & Johnson....................................... 951,750
32,500 Mattel, Inc. ........................................... 780,000
15,000 Novartis AG ADR......................................... 929,806
35,000 PepsiCo, Inc. .......................................... 1,141,875
14,000 Pfizer, Inc. ........................................... 1,177,750
5,000 Pharmacia & Upjohn, Inc. ............................... 183,125
25,000 +Premier Parks Inc. .................................... 650,000
10,000 Schering-Plough Corp. .................................. 727,500
-----------
12,564,819
-----------
FINANCIAL -- 27.43%
15,000 Allstate Corp. ......................................... 890,625
19,000 American Express Co. ................................... 1,137,625
30,000 Arden Realty Group, Inc. ............................... 817,500
25,200 Associates First Capital Corp. ......................... 1,083,600
25,000 Barnett Banks of Florida, Inc. ......................... 1,162,500
15,000 Beneficial Corp. ....................................... 969,375
15,000 Dean Witter Discover & Co. ............................. 523,125
10,000 First Union Corp. (North Carolina)...................... 811,250
40,000 Health and Retirement Properties Trust.................. 720,000
30,000 Hospitality Properties Trust............................ 918,750
15,000 Mellon Bank Corp. ...................................... 1,091,250
12,500 Nationwide Financial Services, Inc., Class A............ 321,875
23,400 Summit Bancorp (New Jersey)............................. 1,023,750
12,200 UNUM Corp. ............................................. 890,600
-----------
12,361,825
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
---------- -----------
<C> <S> <C>
CAPITAL GOODS -- 3.59%
7,000 Boeing Co. ........................................... $ 690,375
30,000 +Thermo Electron Corp. ............................... 926,250
-----------
1,616,625
-----------
TECHNOLOGY -- 3.24%
45,000 +Alliance Pharmaceutical Corp. ....................... 540,000
15,000 Guidant Corp. ........................................ 922,500
-----------
1,462,500
-----------
TOTAL COMMON STOCKS
(Cost $32,184,950).................................... 42,062,402
-----------
CONVERTIBLE PREFERRED STOCKS -- 1.97%
FINANCIAL -- 1.97%
22,500 SunAmerica, Inc., Preferred
Exchange $3.19
(Cost $904,750)....................................... 888,750
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
---------
<C> <S> <C>
DEMAND NOTES -- 2.41%
$1,084,000 General Electric Co.
Promissory Notes
(Cost $1,084,000)..................................... 1,084,000
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Cost $34,173,700*)......................................... 97.73% $44,035,152
OTHER ASSETS AND
LIABILITIES (NET)........................................... 2.27 1,022,402
------ -----------
NET ASSETS.................................................. 100.00% $45,057,554
====== ===========
</TABLE>
- --------
* For Federal tax purposes, the tax basis of investments aggregates
$34,173,700.
+ Non-income producing security.
ADR -- American Depositary Receipt.
See Notes to Financial Statements
FS-14
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS MARCH 31, 1997
BUSINESS AND INDUSTRIAL RESTRUCTURING FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
-------- ------------
<C> <S> <C>
COMMON STOCKS -- 97.61%
FINANCIAL -- 23.97%
100,000 +Amerin Corp. ......................................... $ 1,987,500
35,500 Amvesco plc ADR........................................ 1,925,875
30,000 Aon Corp. ............................................. 1,837,500
30,000 Associates First Capital Corp. ........................ 1,290,000
141,250 Bank Plus Corp. ....................................... 1,465,469
8,000 Bankers Trust New York Corp. .......................... 656,000
18,000 Chase Manhattan Corp. ................................. 1,685,250
42,000 Donaldson, Lufkin & Jenrette, Inc. .................... 1,538,250
65,000 Everest Re Holdings, Inc. ............................. 1,909,375
62,000 FBL Financial Group, Inc.,
Class A................................................ 1,612,000
45,000 GCR Holdings Ltd. ..................................... 1,012,500
77,000 +ITLA Capital Corp. ................................... 1,097,250
25,000 Mellon Bank Corp. ..................................... 1,818,750
40,000 Mid Ocean Ltd. ........................................ 1,910,000
16,500 Morgan (J.P.) & Co., Inc. ............................. 1,621,125
38,000 PNC Bank Corp. ........................................ 1,520,000
105,539 Prime Retail, Inc. .................................... 1,358,815
17,500 Student Loan Marketing Association..................... 1,666,875
38,000 Travelers Group, Inc. ................................. 1,819,250
------------
29,731,784
------------
CONSUMER STAPLES -- 20.23%
30,000 +Amerisource Health Corp.,
Class A................................................ 1,312,500
80,000 +Apria Healthcare Group, Inc. ......................... 1,450,000
43,000 Avon Products, Inc. ................................... 2,257,500
35,000 Bristol-Myers Squibb Co. .............................. 2,065,000
23,000 CPC International, Inc. ............................... 1,886,000
26,000 Eastman Kodak Co. ..................................... 1,972,750
32,000 General Mills, Inc. ................................... 1,988,000
125,000 +Medaphis Corp. ....................................... 1,296,875
48,000 Pharmacia & Upjohn, Inc. .............................. 1,758,000
25,000 Philip Morris Companies, Inc. ......................... 2,853,125
84,500 Suiza Foods Corp. ..................................... 2,260,375
70,000 Sunbeam Corp. ......................................... 2,100,000
22,000 Warner Lambert Co. .................................... 1,903,000
------------
25,103,125
------------
TECHNOLOGY -- 16.70%
130,000 +Amdahl Corp. ......................................... 1,218,750
77,000 +Bell & Howell Holdings Co. ........................... 1,607,375
32,000 Computer Associates International, Inc. .............. 1,244,000
92,000 Digex, Inc. ........................................... 621,000
15,000 International Business Machines Corp. ................. 2,060,625
122,500 Medical Manager Corp. ................................. 1,133,125
30,000 Motorola, Inc. ........................................ 1,811,250
37,000 Nokia Corp., Class A, ADR.............................. 2,155,250
92,000 +Phoenix Technologies Ltd. ............................ 1,357,000
35,000 +Plantronics, Inc. .................................... 1,505,000
4,000 +Plasma-Therm, Inc. ................................... 19,750
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------- ------------
<C> <S> <C>
TECHNOLOGY -- (CONTINUED)
110,000 Smallworldwide plc ADR.................................. $ 1,787,500
31,000 Texas Instruments, Inc. ................................ 2,321,125
34,000 Thiokol Corp. .......................................... 1,878,500
------------
20,720,250
------------
CAPITAL GOODS -- 9.26%
12,500 ABB AB ADR.............................................. 1,353,125
26,000 AlliedSignal, Inc. ..................................... 1,852,500
43,000 +American Standard Cos., Inc. .......................... 1,935,000
20,000 Boeing Co. ............................................. 1,972,500
75,000 Chicago Bridge & Iron Co., N.V.--New York Shares........ 1,331,250
75,000 +Coltec Industries, Inc. ............................... 1,387,500
22,000 United Technologies Corp. .............................. 1,655,500
------------
11,487,375
------------
CONSUMER CYCLICAL -- 8.48%
132,000 +Data Documents, Inc. .................................. 1,320,000
67,300 Designer Holdings Ltd. ................................. 529,987
62,000 Ford Motor Co. ......................................... 1,945,250
26,000 General Motors Corp. ................................... 1,439,750
100,000 Viad Corp. ............................................. 1,600,000
89,000 Westinghouse Electric Corp. ............................ 1,579,750
37,000 XEROX Corp. ............................................ 2,104,375
------------
10,519,112
------------
ENERGY -- 6.81%
59,000 +Flores & Rucks, Inc. .................................. 2,389,500
16,000 Mobil Corp. ............................................ 2,090,000
111,000 +Nabors Industries, Inc. ............................... 2,164,500
68,000 YPF S.A. ADR............................................ 1,802,000
------------
8,446,000
------------
TRANSPORTATION -- 5.81%
50,000 +AMERCO................................................. 1,237,500
60,200 Coach USA, Inc. ........................................ 1,715,700
80,000 Hvide Marine, Inc., Class A............................. 1,820,000
126,000 Kitty Hawk, Inc. ....................................... 1,512,000
106,000 Smithway Motor Express, Class A......................... 927,500
------------
7,212,700
------------
RAW/INTERMEDIATE MATERIALS -- 4.34%
48,000 Cambrex Corp. .......................................... 1,608,000
57,000 +Fort Howard Corp. ..................................... 1,767,000
125,000 PalEx, Inc. ............................................ 1,015,625
21,000 W.R. Grace & Co. ....................................... 994,875
------------
5,385,500
------------
HOLDING COMPANY DIVERSIFIED -- 1.18%
48,000 Internatio-Muller N.V. ................................. 1,466,723
------------
UTILITIES -- 0.83%
47,000 +Worldcom, Inc. ........................................ 1,028,125
------------
TOTAL COMMON STOCKS
(Cost $95,191,250)...................................... 121,100,694
------------
</TABLE>
See Notes to Financial Statements
FS-15
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS MARCH 31, 1997
BUSINESS AND INDUSTRIAL RESTRUCTURING FUND -- (CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
--------- ------------
<C> <S> <C>
CONVERTIBLE PREFERRED STOCKS -- 2.66%
CONSUMER CYCLICAL -- 1.51%
35,000 Kmart Financing, Inc., Preferred
Exchange $3.88........................................ $ 1,872,500
------------
CONSUMER STAPLES -- 1.15%
220,000 RJR Nabisco Holdings,
Series C, Preferred
Exchange $0.60........................................ 1,430,000
------------
TOTAL CONVERTIBLE
PREFERRED STOCKS
(Cost $3,190,706)..................................... 3,302,500
------------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<C> <S> <C>
DEMAND NOTES -- 0.71%
$143,000 Associates Corp. of North
America Master Notes.................................. 143,000
737,000 General Electric Co.
Promissory Notes...................................... 737,000
------------
TOTAL DEMAND NOTES
(Cost $880,000)....................................... 880,000
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Cost $99,261,956*)....................................... 100.98% $125,283,194
OTHER ASSETS AND LIABILITIES (NET)........................ (0.98) (1,220,125)
------ ------------
NET ASSETS................................................ 100.00% $124,063,069
====== ============
</TABLE>
- --------
* For Federal tax purposes, the tax basis of investments aggregates
$99,282,015.
+ Non-income producing security.
ADR -- American Depositary Receipt.
See Notes to Financial Statements
FS-16
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS MARCH 31, 1997
COMMUNICATION AND ENTERTAINMENT FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
-------- -----------
<C> <S> <C>
COMMON STOCKS -- 98.67%
CONSUMER CYCLICAL -- 39.54%
15,000 Callaway Golf Co. ...................................... $ 429,375
40,000 Comcast Corp., Class A Special.......................... 675,000
12,000 Harley-Davidson, Inc. .................................. 406,500
15,000 Harte-Hanks............................................. 436,875
10,000 Houghton Mifflin Co. ................................... 540,000
7,500 International Business Machines Corp. .................. 1,030,313
40,000 Meredith Corp. ......................................... 925,000
12,000 New York Times Co., Class A............................. 529,500
38,500 +Paging Network, Inc. .................................. 310,406
45,000 +Tele-Communications Liberty Media Group, Class A....... 894,375
40,000 Teleport Communications Group, Inc., Class A............ 915,000
20,000 Time Warner, Inc. ...................................... 865,000
20,000 Times Mirror Co., Class A............................... 1,092,500
25,000 Tribune Co. ............................................ 1,012,500
11,200 Univision Communications, Inc. ......................... 365,400
23,884 +Viacom, Inc., Class B.................................. 791,157
18,550 Walt Disney Co. ........................................ 1,354,150
37,800 Wiley (John) & Sons, Inc., Class A...................... 1,143,450
-----------
13,716,501
-----------
TECHNOLOGY -- 30.20%
15,000 +America On-Line, Inc. ................................. 635,625
41,667 +Analog Devices, Inc. .................................. 937,497
20,000 +Cisco Systems, Inc. ................................... 962,500
20,000 +Computer Learning Centers, Inc. ....................... 655,000
45,900 ECI Telecommunications Limited Designs.................. 843,413
25,000 GTE Corp. .............................................. 1,165,625
25,000 +Informix Corp. ........................................ 375,000
14,740 Lucent Technologies, Inc. .............................. 777,535
20,000 Nokia Corp., Class A ADR................................ 1,165,000
10,000 +Qualcomm, Inc. ........................................ 563,750
45,000 +SDL, Inc. ............................................. 753,750
22,000 +3Com Corp. ............................................ 717,750
28,500 +Unitrode Corp. ........................................ 926,250
-----------
10,478,695
-----------
UTILITIES -- 19.95%
24,000 Ameritech Corp. ........................................ 1,476,000
20,000 BellSouth Corp. ........................................ 845,000
30,000 +LCI International, Inc. ............................... 502,500
41,600 MCI Communications Corp. ............................... 1,476,800
65,000 +NEXTEL Communications, Inc., Class A................... 861,250
16,000 SBC Communications, Inc. ............................... 842,000
42,000 +Worldcom, Inc. ........................................ 918,750
-----------
6,922,300
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
-------- -----------
<C> <S> <C>
CONSUMER STAPLES -- 8.98%
37,500 +CUC International, Inc. ............................... $ 843,750
12,000 Eastman Kodak Co. ...................................... 910,500
24,000 +Learning Tree International, Inc. ..................... 666,000
28,700 +Sylvan Learning Systems, Inc. ......................... 695,975
-----------
3,116,225
-----------
TOTAL COMMON STOCKS
(Cost $29,209,379)...................................... 34,233,721
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Cost $29,209,379*)......................................... 98.67% $34,233,721
OTHER ASSETS AND
LIABILITIES (NET)........................................... 1.33 462,770
------ -----------
NET ASSETS.................................................. 100.00% $34,696,491
====== ===========
</TABLE>
- --------
* For Federal tax purposes, the tax basis of investments aggregates
$29,209,379.
+ Non-income producing security.
ADR -- American Depositary Receipt.
See Notes to Financial Statements
FS-17
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS MARCH 31, 1997
EARLY LIFE CYCLE FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------- -----------
<C> <S> <C>
COMMON STOCKS -- 97.64%
CAPITAL GOODS -- 23.01%
80,700 +BE Aerospace, Inc....................................... $ 1,977,150
101,500 Juno Lighting, Inc....................................... 1,611,312
67,500 Lindsay Manufacturing Co................................. 2,143,125
136,000 +Morrison Knudsen Corp................................... 1,428,000
28,000 Teleflex, Inc............................................ 1,480,500
90,000 +Thermedics, Inc......................................... 1,406,250
40,000 Thiokol Corp............................................. 2,210,000
-----------
12,256,337
-----------
TECHNOLOGY -- 18.20%
15,000 +American Management
Systems, Inc. ........................................... 330,000
80,100 +Asyst Technologies, Inc................................. 1,561,950
10,000 +Cisco Systems, Inc...................................... 481,250
35,000 +Glenayre Technologies, Inc.............................. 341,250
70,000 +Hyperion Software Corp.................................. 1,120,000
43,000 +Informix Corp........................................... 645,000
295,200 +Interleaf, Inc. ........................................ 442,800
26,100 +MICROS Systems, Inc. ................................... 893,925
124,500 +Phoenix Technologies Ltd. .............................. 1,836,375
75,000 +Premenos Technology Corp. .............................. 459,375
94,500 +SDL, Inc. .............................................. 1,582,875
-----------
9,694,800
-----------
CONSUMER CYCLICAL -- 15.43%
50,000 +Custom Chrome, Inc...................................... 650,000
25,000 Factory Card Outlet Corp................................. 193,750
33,000 Fair Isaac & Co., Inc.................................... 1,192,125
60,000 +Perceptron, Inc......................................... 1,545,000
27,000 RDO Equipment Co., Class A............................... 472,500
76,000 +Recovery Engineering, Inc............................... 560,500
104,100 +Renters Choice, Inc. ................................... 1,470,413
60,000 +Scientific Games Holdings Corp.......................... 1,275,000
22,500 +WestPoint Stevens, Inc.................................. 857,812
-----------
8,217,100
-----------
FINANCIAL -- 11.74%
100,000 +Americredit Corp. ...................................... 1,737,500
55,000 Cullen/Frost Bankers, Inc. .............................. 1,952,500
30,000 First American Corp. (Tennessee)......................... 1,897,500
61,000 +Homestate Holdings, Inc. ............................... 343,125
12,500 Nationwide Financial Services, Inc., Class A............. 321,875
-----------
6,252,500
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
--------- -----------
<C> <S> <C>
CONSUMER STAPLES -- 11.44%
120,000 +Alliance Pharmaceutical Corp.......................... $ 1,440,000
100,000 +Ligand Pharmaceuticals,
Class B................................................ 1,112,500
227,400 +Pepsi-Cola Puerto Rico Bottling Co., Class B.......... 966,450
75,500 +Pharmacopeia, Inc..................................... 1,255,188
40,000 +Sunrise Medical, Inc. ................................ 520,000
20,000 +Vivus, Inc. .......................................... 797,500
-----------
6,091,638
-----------
TELECOMMUNICATION -- 6.07%
86,700 +Allen Telecom, Inc.................................... 1,517,250
75,000 Teleport Communications Group, Inc., Class A........... 1,715,625
-----------
3,232,875
-----------
RAW/INTERMEDIATE
MATERIALS -- 5.65%
120,200 NN Ball & Roller, Inc. ................................ 1,247,075
75,000 TriMas Corp............................................ 1,762,500
-----------
3,009,575
-----------
TRANSPORTATION -- 3.74%
63,000 Air Express International Corp......................... 1,992,375
-----------
ENERGY -- 2.36%
70,000 +Seagull Energy Corp. ................................. 1,260,000
-----------
TOTAL COMMON STOCKS
(Cost $52,050,549)..................................... 52,007,200
-----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<C> <S> <C>
DEMAND NOTES -- 0.80%
$429,000 General Electric Co.
Promissory Notes
(Cost $429,000)........................................ 429,000
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Cost $52,479,549*)........................................ 98.44% $52,436,200
OTHER ASSETS AND
LIABILITIES (NET).......................................... 1.56 829,889
------ -----------
NET ASSETS.................................................. 100.00% $53,266,089
====== ===========
</TABLE>
- --------
* For Federal tax purposes, the tax basis of investments aggregates
$52,479,549.
+ Non-income producing security.
See Notes to Financial Statements
FS-18
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS MARCH 31, 1997
ENVIRONMENTALLY-RELATED PRODUCTS AND SERVICES FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------- ----------
<C> <S> <C>
COMMON STOCKS -- 95.36%
CAPITAL GOODS -- 36.03%
5,000 Case Corp. ........................................... $ 253,750
5,000 Deere & Co. .......................................... 217,500
4,000 Fluor Corp. .......................................... 210,000
1,500 General Electric Co. ................................. 148,875
7,400 Harsco Corp. ......................................... 269,175
30,000 +ITEQ, Inc. .......................................... 195,000
30,000 +Philip Environmental, Inc. .......................... 453,750
12,000 +Republic Industries, Inc. ........................... 417,000
10,500 +U.S. Filter Corp. ................................... 324,188
13,000 +U.S.A. Waste Services, Inc. ......................... 461,500
8,000 WMX Technologies, Inc. ............................... 245,000
----------
3,195,738
----------
TECHNOLOGY -- 19.88%
15,000 +Advanced Lighting Technologies, Inc. ................ 330,000
3,000 +Cisco Systems, Inc. ................................. 144,375
3,300 Honeywell Corp. ...................................... 223,987
1,000 +Incyte Pharmaceuticals, Inc.......................... 50,750
1,000 Intel Corp. .......................................... 139,000
12,500 Memtec Ltd. ADR....................................... 317,187
1,500 +Microsoft Corp. ..................................... 137,438
4,000 Perkin-Elmer Corp. ................................... 257,500
5,625 +Thermo Instrument Systems, Inc. ..................... 163,125
----------
1,763,362
----------
RAW/INTERMEDIATE
MATERIALS -- 14.45%
9,000 Minerals Technologies, Inc. .......................... 299,250
9,000 Monsanto Co. ......................................... 344,250
14,000 Pall Corp. ........................................... 323,750
5,000 Pioneer Hi-Bred International, Inc. .................. 314,375
----------
1,281,625
----------
CONSUMER STAPLES -- 10.79%
4,900 Air Products & Chemicals, Inc. ....................... 332,587
4,400 Gillette Co. ......................................... 319,550
3,700 Lilly (Eli) & Co. .................................... 304,325
----------
956,462
----------
ENERGY -- 7.53%
15,000 +Cuno Inc. ........................................... 230,625
10,000 +Newpark Resources, Inc. ............................. 437,500
----------
668,125
----------
UTILITIES -- 3.45%
9,000 +California Energy Co., Inc. ......................... 306,000
----------
CONSUMER CYCLICAL -- 3.23%
5,200 Tyco International Ltd. .............................. 286,000
----------
TOTAL COMMON STOCKS
(Cost $7,101,827)..................................... 8,457,312
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
--------- ----------
<C> <S> <C>
DEMAND NOTES -- 10.71%
$489,000 Associates Corp. of North America Master Notes.......... $ 489,000
461,000 General Electric Co.
Promissory Notes........................................ 461,000
----------
TOTAL DEMAND NOTES
(Cost $950,000)......................................... 950,000
----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Cost $8,051,827*).......................................... 106.07% $9,407,312
OTHER ASSETS AND LIABILITIES (NET).......................... (6.07) (538,468)
------ ----------
NET ASSETS.................................................. 100.00% $8,868,844
====== ==========
</TABLE>
- --------
* For Federal tax purposes, the tax basis of investments aggregates
$8,051,827.
+ Non-income producing security.
ADR -- American Depositary Receipt.
See Notes to Financial Statements.
FS-19
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS MARCH 31, 1997
GLOBAL COMPETITORS FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ -----------
<C> <S> <C>
COMMON STOCKS -- 100.35%
CONSUMER STAPLES -- 26.44%
33,000 Astra AB, Class B......................................... $ 1,554,184
24,250 Avon Products, Inc. ...................................... 1,273,125
19,400 CPC International, Inc. .................................. 1,590,800
12,800 Estee Lauder Companies, Class A........................... 619,200
43,000 Gillette Co. ............................................. 3,122,875
38,800 Johnson & Johnson......................................... 2,051,550
3,300 L'Oreal................................................... 1,156,925
30,000 Pfizer, Inc. ............................................. 2,523,750
14,500 Philip Morris Companies, Inc. ............................ 1,654,812
31,000 Procter & Gamble Co. ..................................... 3,565,000
35,000 Schering-Plough Corp. .................................... 2,546,250
-----------
21,658,471
-----------
FINANCIAL -- 18.54%
24,250 American International Group, Inc. ....................... 2,846,344
51,400 Associates First Capital Corp. ........................... 2,210,200
33,000 Bank of Boston Corp. ..................................... 2,211,000
27,200 Citicorp.................................................. 2,944,400
14,550 General Re Corp. ......................................... 2,298,900
45,600 Morgan Stanley Group, Inc. ............................... 2,679,000
-----------
15,189,844
-----------
CAPITAL GOODS -- 13.45%
14,500 Boeing Co. ............................................... 1,430,063
27,200 General Electric Co. ..................................... 2,699,600
28,100 Goodyear Tire and Rubber Co. ............................. 1,468,225
29,100 Illinois Tool Works, Inc. ................................ 2,375,288
53,350 +Thermo Electron Corp. ................................... 1,647,181
65,000 +Thermo Fibergen, Inc. ................................... 536,250
50,000 +ThermoSpectra Corp. ..................................... 656,250
22,500 +Thermo Voltek Corp. ..................................... 208,125
-----------
11,020,982
-----------
CONSUMER CYCLICAL -- 12.70%
32,000 Electronic Data Systems Corp. ............................ 1,292,000
43,600 Hilton Hotels Corp. ...................................... 1,057,300
37,800 Luxottica Group S.p.A. ADR................................ 2,008,125
32,000 McDonald's Corp. ......................................... 1,512,000
20,000 +Samsonite Corp. ......................................... 865,000
89,200 +Thermo Fibertek, Inc. ................................... 808,375
65,000 +ThermoLase Corp. ........................................ 739,375
25,000 ThermoQuest Corp. ........................................ 350,000
24,250 Walt Disney Co. .......................................... 1,770,250
-----------
10,402,425
-----------
ENERGY -- 10.32%
10,000 Anadarko Petroleum Corp. ................................. 561,250
25,000 Chevron Corp. ............................................ 1,740,625
25,000 Mobil Corp. .............................................. 3,265,625
16,500 Royal Dutch Petroleum Co. ................................ 2,887,500
-----------
8,455,000
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ -----------
<C> <S> <C>
TECHNOLOGY -- 10.08%
36,000 +Cisco Systems, Inc. ..................................... $ 1,732,500
10,000 Computer Associates International, Inc. .................. 388,750
58,200 +Hyperion Software Corp. ................................. 931,200
30,000 +Informix Corp. .......................................... 450,000
20,600 Intel Corp. .............................................. 2,863,400
5,000 International Business Machines Corp. .................... 686,875
10,000 Motorola, Inc. ........................................... 603,750
8,000 Texas Instruments, Inc. .................................. 599,000
-----------
8,255,475
-----------
RAW/INTERMEDIATE
MATERIALS -- 4.62%
38,800 Crown Cork & Seal Co., Inc. .............................. 2,003,050
58,200 Sigma-Aldrich Corp. ...................................... 1,782,375
-----------
3,785,425
-----------
UTILITIES -- 3.05%
70,000 +LCI International, Inc. ................................. 1,172,500
30,000 Vodafone Group plc ADR.................................... 1,323,750
-----------
2,496,250
-----------
TRANSPORTATION -- 1.15%
14,550 +UAL Corp................................................. 942,112
-----------
TOTAL COMMON STOCKS
(Cost $67,484,200)........................................ 82,205,984
-----------
RIGHTS -- 0.31%
CAPITAL GOODS -- 0.31%
65,000 +Thermo Fibergen, Inc.
(Cost $195,000)........................................... 255,938
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Cost $67,679,200*)........................................ 100.66% $82,461,922
OTHER ASSETS AND LIABILITIES (NET)......................... (0.66) (540,123)
------ -----------
NET ASSETS................................................. 100.00% $81,921,799
====== ===========
</TABLE>
- --------
* For Federal tax purposes, the tax basis of investments aggregates
$67,688,110.
+ Non-income producing security.
ADR -- American Depositary Receipt.
See Notes to Financial Statements
FS-20
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS MARCH 31, 1997
LONG-TERM SUPPLY OF ENERGY FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------- -----------
<C> <S> <C>
COMMON STOCKS -- 91.51%
ENERGY -- 88.15%
15,000 Amoco Corp. ............................................. $ 1,299,375
12,000 Anadarko Petroleum Corp. ................................ 673,500
12,879 British Petroleum Co. plc ADR............................ 1,767,643
25,000 +Chesapeake Energy Corp. ................................ 521,875
12,000 Chevron Corp. ........................................... 835,500
24,000 +Crown Central Petroleum, Class B........................ 288,000
12,000 +Diamond Offshore Drilling, Inc. ........................ 822,000
17,000 Enron Corp. ............................................. 646,000
17,000 +ENSCO International, Inc. .............................. 837,250
18,000 ENI S.p.A. ADR........................................... 911,250
21,000 Exxon Corp. ............................................. 2,262,750
22,000 +Falcon Drilling Company, Inc. .......................... 814,000
19,000 +Flores & Rucks, Inc. ................................... 769,500
23,000 KN Energy, Inc. ......................................... 908,500
16,000 Louisiana Land & Exploration Co. ........................ 758,000
15,000 Mobil Corp. ............................................. 1,959,375
28,800 +Nabors Industries, Inc. ................................ 561,600
20,000 PanEnergy Corp. ......................................... 862,500
11,000 Royal Dutch Petroleum Co. ............................... 1,925,000
10,000 Schlumberger Ltd. ....................................... 1,072,500
13,000 +SEACOR Holdings, Inc. .................................. 697,125
17,000 Sonat, Inc. ............................................. 926,500
16,885 +Tejas Gas Corp. ........................................ 732,387
10,000 Texaco, Inc. ............................................ 1,095,000
24,000 Titan Exploration, Inc. ................................. 201,000
30,000 Tosco Corp. ............................................. 855,000
8,500 Total S.A. ADR........................................... 360,187
20,000 Transmontaigne Oil Co. .................................. 312,500
25,000 +United Meridian Corp. .................................. 753,125
20,000 Unocal Corp. ............................................ 762,500
35,000 USX-Marathon Group, Inc. ................................ 975,625
15,000 +Western Atlas, Inc. .................................... 909,375
20,000 Western Gas Resources, Inc. ............................. 360,000
-----------
29,436,442
-----------
UTILITIES -- 3.36%
20,000 +AES Corp. .............................................. 1,120,000
-----------
TOTAL COMMON STOCKS
(Cost $23,498,672)....................................... 30,556,442
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
---------- ----------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATIONS -- 10.14%
$3,391,000 U.S. Treasury Bill 5.00%#, 04/10/97 (Cost
$3,386,761)........................................... $3,386,761
----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Cost $26,885,433*)........................................ 101.65% $33,943,203
OTHER ASSETS AND LIABILITIES (NET)......................... (1.65) (550,112)
------ -----------
NET ASSETS................................................. 100.00% $33,393,091
====== ===========
</TABLE>
- --------
* For Federal tax purposes, the tax basis of investments aggregates
$26,885,433.
+ Non-income producing security.
# Discount Rate.
ADR -- American Depositary Receipt.
See Notes to Financial Statements.
FS-21
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS MARCH 31, 1997
PRODUCTIVITY ENHANCERS FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------- -----------
<C> <S> <C>
COMMON STOCKS -- 87.79%
CAPITAL GOODS -- 34.12%
7,500 AAR Corp. ............................................... $ 225,000
9,000 AlliedSignal, Inc. ...................................... 641,250
3,700 Boeing Co. .............................................. 364,913
7,300 Case Corp. .............................................. 370,475
8,300 Deere & Co. ............................................. 361,050
10,000 Dover Corp. ............................................. 525,000
10,000 Emerson Electric Co. .................................... 450,000
7,000 General Electric Co. .................................... 694,750
18,700 IDEX Corp. .............................................. 439,450
7,000 Illinois Tool Works, Inc. ............................... 571,375
12,000 Kaydon Corp. ............................................ 502,500
20,000 +Lear Corp. ............................................. 667,500
6,300 Thiokol Corp. ........................................... 348,075
-----------
6,161,338
-----------
TECHNOLOGY -- 29.84%
18,333 +Analog Devices, Inc. ................................... 412,492
7,000 +Compaq Computer Corp. .................................. 536,375
5,300 First Data Corp. ........................................ 179,538
15,000 Hewlett-Packard Co. ..................................... 798,750
6,000 Intel Corp. ............................................. 834,000
5,000 International Business Machines Corp. ................... 686,875
5,100 +Microsoft Corp. ........................................ 467,287
5,000 +Oracle System Corp. .................................... 192,500
9,000 Tektronix, Inc. ......................................... 454,500
11,000 +Thermo Electron Corp. .................................. 339,625
10,000 +Xilinx, Inc. ........................................... 486,250
-----------
5,388,192
-----------
CONSUMER STAPLES -- 6.62%
6,500 Eastman Kodak Co. ....................................... 493,188
13,300 Johnson & Johnson ....................................... 703,237
-----------
1,196,425
-----------
CONSUMER CYCLICAL -- 5.09%
16,000 +CUC International, Inc. ................................ 360,000
15,200 +O'Reilly Automotive, Inc. .............................. 558,600
-----------
918,600
-----------
RAW/INTERMEDIATE
MATERIALS -- 4.84%
5,100 Georgia Pacific Corp. ................................... 369,750
3,000 Pioneer Hi-Bred International, Inc. ..................... 188,625
18,000 Steel Dynamics, Inc. .................................... 315,000
-----------
873,375
-----------
FINANCIAL -- 4.36%
14,000 Associates First Capital Corp. .......................... 602,000
4,000 Norwest Corp. ........................................... 185,000
-----------
787,000
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
--------- -----------
<C> <S> <C>
TRANSPORTATION -- 2.92%
4,000 CSX Corp. ............................................. $ 186,000
2,000 Norfolk Southern Corp. ................................ 170,500
3,000 Union Pacific Corp. ................................... 170,250
-----------
526,750
-----------
TOTAL COMMON STOCKS
(Cost $15,194,895)..................................... 15,851,680
-----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<C> <S> <C>
DEMAND NOTES -- 7.07%
$ 31,000 Associates Corp. of North America Master Notes......... 31,000
1,246,000 General Electric Co. Promissory Notes.................. 1,246,000
-----------
TOTAL DEMAND NOTES
(Cost $1,277,000)...................................... 1,277,000
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Cost $16,471,895*)........................................ 94.86% $17,128,680
OTHER ASSETS AND LIABILITIES (NET)......................... 5.14 928,567
------ -----------
NET ASSETS 100.00% $18,057,247
====== ===========
</TABLE>
- --------
* For Federal tax purposes, the tax basis of investments aggregates
$16,517,114.
+ Non-income producing security.
See Notes to Financial Statements.
FS-22
<PAGE>
EXCELSIOR FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Excelsior Funds, Inc. ("Excelsior Fund") was incorporated under the laws of
the State of Maryland on August 2, 1984 and is registered under the Investment
Company Act of 1940 (the "1940 Act"), as amended, as an open-end management
investment company.
Excelsior Fund currently offers shares in twenty managed investment
portfolios, each having its own investment objectives and policies. The
Excelsior Fund offers two classes of shares in each of the Equity, Aging of
America, Communication and Entertainment, Business and Industrial
Restructuring, Global Competitors and Early Life Cycle Funds--Shares and Trust
Shares. Trust Shares bear the additional expense of distribution fees. As of
March 31, 1997, only the Equity, Business and Industrial Restructuring and
Early Life Cycle Funds had Trust Shares outstanding.
The following is a summary of significant accounting policies for Equity
Fund, Income and Growth Fund, Aging of America Fund, Business and Industrial
Restructuring Fund, Communication and Entertainment Fund, Early Life Cycle
Fund, Environmentally-Related Products and Services Fund, Global Competitors
Fund, Long-Term Supply of Energy Fund and Productivity Enhancers Fund (the
"Portfolios"). Such policies are in conformity with generally accepted
accounting principles and are consistently followed by Excelsior Fund in the
preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual
results could differ from these estimates. The financial statements for the
remaining portfolios of Excelsior Fund and Excelsior Tax-Exempt Fund, Inc.
("Excelsior Tax-Exempt Fund") are presented separately.
(A) PORTFOLIO VALUATION:
Investments in securities that are traded on a recognized stock exchange
are valued at the last sale price on the exchange on which such securities
are primarily traded or at the last sale price on the national securities
market. Securities traded over-the-counter are valued each business day on
the basis of the closing over-the-counter bid prices. Securities for which
there were no transactions are valued at the average of the most recent bid
prices (as calculated by an independent pricing service (the "Service")
based upon its evaluation of the market for such securities) when, in the
judgment of the Service, quoted bid prices for securities are readily
available and are representative of the bid side of the market. Portfolio
securities that 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 occurrence subsequent to
the time a value was so established is likely to have changed such value,
then a 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 traded on more than one exchange is valued at the quotation on the
exchange determined to be the primary market on which the security is
traded. Securities for which market quotations are not readily available
are valued at fair value, pursuant to guidelines adopted by Excelsior
Fund's Board of Directors. Short-term debt instruments with remaining
maturities of 60 days or less are valued at amortized cost, which
approximates market value.
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 policies established by the Board of
FS-23
<PAGE>
Directors. Investment valuations, other assets, and liabilities initially
expressed in foreign currencies are converted each business day into U.S.
dollars based upon current exchange rates. Purchases and sales of foreign
investments and income and expenses are converted into U.S. dollars based
upon currency exchange rates prevailing on the respective dates of such
transactions. Gains and losses attributable to foreign currency exchange
rates are recorded for financial statement purposes as net realized gains
and losses on investments. That portion of both realized and unrealized
gains and losses on investments that results from fluctuations in foreign
currency exchange rates is not separately disclosed.
Forward foreign currency exchange contracts: The Portfolios'
participation in forward currency exchange 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 a Portfolio generally
arising in connection with the purchase or sale of its portfolio
securities. Risk may arise upon entering into these contracts from the
potential inability of counterparties to meet the terms of their contracts
and is generally limited to the amount of unrealized gain on the contracts,
if any, at the date of default. Risk may also arise from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
Contracts are marked-to-market daily and the change in market value is
recorded as unrealized appreciation or depreciation. Realized gains or
losses arising from such transactions are included in net realized gains or
losses from foreign currency transactions.
(B) SECURITY TRANSACTIONS AND INVESTMENT INCOME:
Security transactions are recorded on a trade date basis. Realized gains
and losses on investments sold are recorded on the basis of identified
cost. Interest income, adjusted for amortization of premiums and, when
appropriate, discounts on investments, is recorded on the accrual basis.
Dividend income is recorded on the ex-dividend date.
(C) REPURCHASE AGREEMENTS:
Excelsior Fund may purchase portfolio securities from financial
institutions deemed to be creditworthy by the investment adviser subject to
the seller's agreement to repurchase and Excelsior Fund's agreement to
resell such securities at mutually agreed upon prices. Securities purchased
subject to such repurchase agreements are deposited with Excelsior Fund's
custodian or sub-custodian or are maintained in the Federal
Reserve/Treasury book-entry system and must have, at all times, an
aggregate market value greater than 102% of the repurchase price (including
accrued interest).
If the value of the underlying security, including accrued interest,
falls below the value of 102% of the repurchase price plus accrued
interest, Excelsior Fund will require the seller to deposit additional
collateral by the next business day. Default or bankruptcy of the seller
may, however, expose the applicable Portfolio of Excelsior 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.
(D) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income are declared and paid quarterly. Net
realized capital gains are distributed to shareholders at least annually.
FS-24
<PAGE>
Dividends and distributions are determined in accordance with Federal
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
net operating losses, foreign currency transactions, partnership income,
deferral of losses on wash sales and post-October losses.
In order to avoid a Federal excise tax, each Portfolio is required to
distribute certain minimum amounts of net realized capital gain and net
investment income for the respective periods ending October 31 and December
31 in each calendar year.
(E) FEDERAL TAXES:
It is the policy of Excelsior Fund that each Portfolio continue to
qualify as a regulated investment company, if such qualification is in the
best interest of the shareholders, by complying with the requirements of
the Internal Revenue Code applicable to regulated investment companies, and
by distributing substantially all of its taxable earnings to its
shareholders.
At March 31, 1997, the following Portfolios had approximate capital loss
carryforwards for Federal tax purposes available to offset future net
capital gains through the indicated expiration dates:
<TABLE>
<CAPTION>
EXPIRATION DATE
MARCH 31,
------------------------
2002 2003 2004 TOTAL
------- -------- ------- --------
<S> <C> <C> <C> <C>
Aging of America Fund.................... $32,000 $279,000 $ -- $311,000
Environmentally-Related Products and
Services Fund........................... 154,000 52,000 261,000 467,000
</TABLE>
Net capital losses incurred after October 31 and within the taxable year
are deemed to arise on the first business day of a Portfolio's next taxable
year. Business and Industrial Restructuring Fund and Early Life Cycle Fund
incurred, and elected to defer, net capital losses of approximately $2,000
and $2,862,000, respectively, for the year ended March 31, 1997.
At March 31, 1997, aggregate gross unrealized appreciation for all
securities for which there was an excess of value over tax cost and
aggregate gross unrealized depreciation for all securities for which there
was an excess of tax cost over value is as follows:
<TABLE>
<CAPTION>
NET
TAX BASIS TAX BASIS UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
APPRECIATION (DEPRECIATION) (DEPRECIATION)
------------ -------------- --------------
<S> <C> <C> <C>
Equity Fund..................... $70,845,635 $(4,438,492) $66,407,143
Income and Growth Fund.......... 35,423,737 (3,384,388) 32,039,349
Aging of America Fund........... 10,033,680 (172,228) 9,861,452
Business and Industrial
Restructuring Fund............. 28,568,801 (2,567,622) 26,001,179
Communication and Entertainment
Fund........................... 6,122,799 (1,098,457) 5,024,342
Early Life Cycle Fund........... 8,711,513 (8,754,862) (43,349)
Environmentally-Related Products
and Services Fund.............. 1,584,650 (229,165) 1,355,485
Global Competitors Fund......... 17,424,151 (2,650,339) 14,773,812
Long-Term Supply of Energy
Fund........................... 7,224,438 (166,668) 7,057,770
Productivity Enhancers Fund..... 1,070,211 (458,645) 611,566
</TABLE>
FS-25
<PAGE>
(F) EXPENSE ALLOCATION:
Expenses directly attributable to a Portfolio or a class of shares in
such Portfolio are charged to that Portfolio or such share class. Other
expenses are allocated to the respective Portfolios based on average net
assets.
2. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE, DISTRIBUTION EXPENSES AND
RELATED PARTY TRANSACTIONS
United States Trust Company of New York ("U.S. Trust") serves as the
investment adviser to Excelsior Fund. For the services provided pursuant to
the Investment Advisory Agreement, U.S. Trust is entitled to receive a fee,
computed daily and paid monthly, at the annual rates of .75% of the average
daily net assets of the Equity Fund and Income and Growth Fund, and .60% of
the average daily net assets of the Aging of America Fund, Business and
Industrial Restructuring Fund, Communication and Entertainment Fund, Early
Life Cycle Fund, Environmentally-Related Products and Services Fund, Global
Competitors Fund, Long-Term Supply of Energy Fund and Productivity Enhancers
Fund.
U.S. Trust, Chase Global Funds Services Company ("CGFSC"), a subsidiary of
The Chase Manhattan Bank and Federated Administrative Services (collectively,
the "Administrators") provide administrative services to Excelsior Fund. For
the services provided to the Portfolios, the Administrators are entitled
jointly to annual fees, computed daily and paid monthly, based on the combined
aggregate average daily net assets of Excelsior Fund (excluding the
international equity portfolios of Excelsior Fund and Excelsior Institutional
Trust), Excelsior Tax-Exempt Fund and Excelsior Institutional Trust, all of
which are affiliated investment companies, as follows: .200% of the first $200
million, .175% of the next $200 million, and .150% over $400 million.
Administration fees payable by each Portfolio of the three investment
companies are determined in proportion to the relative average daily net
assets of the respective Portfolios for the period paid. For the year ended
March 31, 1997, Administration fees charged by U.S. Trust were as follows:
<TABLE>
<S> <C>
Equity Fund............................................................ $49,810
Income and Growth Fund................................................. 22,040
Aging of America Fund.................................................. 7,896
Business and Industrial Restructuring Fund............................. 17,583
Communication and Entertainment Fund................................... 7,918
Early Life Cycle Fund.................................................. 12,655
Environmentally-Related Products and Services Fund..................... 1,250
Global Competitors Fund................................................ 14,478
Long-Term Supply of Energy Fund........................................ 5,177
Productivity Enhancers Funds........................................... 4,085
</TABLE>
From time to time, as they may deem appropriate in their sole discretion, or
pursuant to applicable state expense limitations, U.S. Trust and the
Administrators may undertake to waive a portion or all of the fees payable to
them and also may reimburse the Portfolios for a portion of other expenses. In
addition, until further notice to Excelsior Fund, U.S. Trust intends to
voluntarily waive fees to the extent necessary for each of Aging of America
Fund, Business and Industrial Restructuring Fund, Communication and
Entertainment Fund, Early Life Cycle Fund, Environmentally-Related Products
and Services Fund, Global Competitors Fund, Long-Term Supply of Energy Fund
and Productivity
FS-26
<PAGE>
Enhancers Fund to maintain an annual expense ratio of not more than .99%. For
the year ended March 31, 1997, pursuant to this voluntary expense limitation
U.S. Trust waived fees as follows:
<TABLE>
<S> <C>
Environmentally-Related Products and Services Fund..................... $19,967
Productivity Enhancers Fund............................................ 10,916
</TABLE>
Excelsior Fund has also entered into administrative servicing agreements
with various service organizations (which may include affiliates of U.S.
Trust) requiring them to provide administrative support services to their
customers owning shares of the Portfolios. As a consideration for the
administrative services provided by each service organization to its
customers, each Portfolio will pay the service organization an administrative
service fee at the annual rate of up to .40% of the average daily net asset
value of its shares held by the service organizations' customers. Such
services may include assisting in processing purchase, exchange and redemption
requests; transmitting and receiving funds in connection with customer orders
to purchase, exchange or redeem shares; and providing periodic statements.
Until further notice to Excelsior Fund, U.S. Trust and the Administrators have
voluntarily agreed to waive investment advisory and administration fees
payable by each Portfolio in an amount equal to administrative service fees
payable by that Portfolio. For the year ended March 31, 1997, U.S. Trust and
the Administrators waived investment advisory and administration fees in
amounts equal to the administrative service fees for the Portfolios as
follows:
<TABLE>
<CAPTION>
U.S.
TRUST ADMINISTRATORS
-------- --------------
<S> <C> <C>
Equity Fund............................................ $127,393 $5,344
Income and Growth Fund................................. 105,756 1,132
Aging of America Fund.................................. 21,945 43
Business and Industrial Restructuring Fund............. 41,509 108
Communication and Entertainment Fund................... 24,418 43
Early Life Cycle Fund.................................. 61,885 87
Environmentally-Related Products and Services Fund..... 3,482 2
Global Competitors Fund................................ 36,364 14
Long-Term Supply of Energy Fund........................ 12,264 6
Productivity Enhancers Fund............................ 13,261 7
</TABLE>
Edgewood Services, Inc. (the "Distributor"), a wholly-owned subsidiary of
Federated Investors, serves as the sponsor and distributor of Excelsior Fund.
Effective February 14, 1997, shares of each Portfolio are sold without a sales
charge. Prior to February 14, 1997, certain sales of Excelsior Fund's shares
were subject to a maximum sales charge of 4.50% of the offering price.
Under the Excelsior Funds' Distribution Plan, adopted pursuant to Rule 12b-1
under the 1940 Act, the Trust Shares of each Fund bear the expense of
distributions fees at the maximum annual rate of .75% of the average daily net
asset value of the Fund's outstanding Trust Shares. Trust Shares of each
Excelsior 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.
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 for attending meetings. The Chairman receives an additional
annual fee of $5,000.
FS-27
<PAGE>
For the year ended March 31, 1997, brokerage commissions on investment
transactions were paid to U.S. Trust as follows:
<TABLE>
<S> <C>
Aging of America Fund............................................ $ 540
Business and Industrial Restructuring Fund....................... 13,069
Communications and Entertainment Fund............................ 450
Early Life Cycle Fund............................................ 7,047
Environmentally-Related Product and Services Fund................ 3,111
Global Competitors Fund.......................................... 1,490
Long-Term Supply of Energy Fund.................................. 3,330
Productivity Enhancers Fund...................................... 1,170
</TABLE>
3. PURCHASES AND SALES OF SECURITIES:
For the year ended March 31, 1997, purchases and sales of securities,
excluding short-term investments, for the Portfolios aggregated:
<TABLE>
<CAPTION>
CONTRIBUTIONS
PURCHASES IN-KIND SALES
------------ ------------- ------------
<S> <C> <C> <C>
Equity Fund........................... $114,865,681 $79,831,593 $102,632,761
Income and Growth Fund................ 30,597,310 -- 40,891,104
Aging of America Fund................. 38,590,534 -- 41,095,113
Business and Industrial Restructuring
Fund................................. 99,274,113 -- 60,697,300
Communication and Entertainment Fund.. 29,420,723 -- 40,129,527
Early Life Cycle Fund................. 30,553,370 10,267,561 50,776,855
Environmentally-Related Products and
Services Fund........................ 8,062,940 -- 4,625,703
Global Competitors Fund............... 30,103,896 -- 19,827,386
Long-Term Supply of Energy Fund....... 25,264,705 -- 23,753,267
Productivity Enhancers Fund........... 73,837,041 -- 87,512,892
</TABLE>
4. COMMON STOCK:
Excelsior Fund currently has authorized capital classified into forty classes
of shares, each representing interests in one of twenty separate portfolios.
Authorized capital for each Portfolio is as follows: With respect to each of
the Equity and Income and Growth Funds, 375 million shares of Common Stock and
500 million shares of Common Stock--Special Series 1 (Trust Shares); and with
respect to each of the Aging of America Fund, Business and Industrial
Restructuring Fund, Communication and Entertainment Fund, Early Life Cycle
Fund, Environmentally-Related Products and Services Fund, Global Competitors
Fund, Long-Term Supply of Energy Fund and Productivity Enhancers Fund, 500
million shares of Common Stock and 500 million shares of Common Stock--Special
Series 1 (Trust Shares).
Each share (irrespective of series designation) has a par value of $.001, and
represents an equal proportionate interest in the particular Portfolio with
other shares of the same Portfolio, and is entitled to such dividends and
distributions of taxable earnings on the assets belonging to such Portfolio as
are declared at the discretion of Excelsior Fund's Board of Directors.
FS-28
<PAGE>
<TABLE>
<CAPTION>
EQUITY FUND
---------------------------------------------------
YEAR ENDED YEAR ENDED
03/31/97 03/31/96
------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold:
Shares................. 2,986,879 $ 76,672,109 2,335,582 $ 53,181,056
Trust Shares........... 3,154 84,440 -- --
Contributions in-kind.... 3,211,246 79,831,593 -- --
Issued as reinvestment of
dividends
Shares................. 195,908 5,042,100 305,329 6,724,708
Trust Shares........... 5 129 -- --
Redeemed
Shares................. (2,218,612) (57,053,673) (1,343,291) (30,587,413)
Trust Shares........... (15) (534) -- --
---------- ------------ ---------- ------------
Net Increase............. 4,178,565 $104,576,164 1,297,620 $ 29,318,351
========== ============ ========== ============
<CAPTION>
INCOME AND GROWTH FUND
---------------------------------------------------
YEAR ENDED YEAR ENDED
03/31/97 03/31/96
------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 1,397,170 $ 21,067,243 2,141,034 $ 28,619,545
Issued as reinvestment of
dividends............... 175,558 2,635,563 67,047 859,603
Redeemed................. (1,688,433) (25,386,111) (1,842,621) (24,372,374)
---------- ------------ ---------- ------------
Net Increase (Decrease).. (115,705) $ (1,683,305) 365,460 $ 5,106,774
========== ============ ========== ============
<CAPTION>
AGING OF AMERICA FUND
---------------------------------------------------
YEAR ENDED YEAR ENDED
03/31/97 03/31/96
------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 1,152,870 $ 11,418,942 2,314,243 $ 20,136,308
Issued as reinvestment of
dividend................ 9,236 91,921 717 6,037
Redeemed................. (1,282,425) (12,838,183) (577,612) (5,224,382)
---------- ------------ ---------- ------------
Net Increase (Decrease).. (120,319) $ (1,327,320) 1,737,348 $ 14,917,963
========== ============ ========== ============
<CAPTION>
BUSINESS AND INDUSTRIAL RESTRUCTURING FUND
---------------------------------------------------
YEAR ENDED YEAR ENDED
03/31/97 03/31/96
------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold:
Shares................. 3,573,877 $ 54,756,284 2,885,350 $ 36,357,535
Trust Shares........... 3,212 47,503 -- --
Issued as reinvestment of
dividend:
Shares................. 23,121 351,922 8,050 103,087
Trust Shares........... 54 835 -- --
Redeemed:
Shares................. (1,090,887) (16,823,462) (476,976) (5,855,224)
Trust Shares........... (2) (27) -- --
---------- ------------ ---------- ------------
Net Increase............. 2,509,375 $ 38,333,055 2,416,424 $ 30,605,398
========== ============ ========== ============
</TABLE>
FS-29
<PAGE>
<TABLE>
<CAPTION>
COMMUNICATION AND ENTERTAINMENT FUND
---------------------------------------------------
YEAR ENDED YEAR ENDED
03/31/97 03/31/96
-------------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Sold..................... 869,723 $ 9,495,234 2,119,351 $22,797,588
Issued as reinvestment of
dividends............... 2,618 30,755 29,026 316,412
Redeemed................. (2,057,577) (22,515,044) (701,525) (7,460,709)
----------- ------------ ---------- -----------
Net Increase (Decrease).. (1,185,236) $(12,989,055) 1,446,852 $15,653,291
=========== ============ ========== ===========
<CAPTION>
EARLY LIFE CYCLE FUND
---------------------------------------------------
YEAR ENDED YEAR ENDED
03/31/97 03/31/96
-------------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Sold:
Shares................. 1,632,860 $ 17,229,638 3,520,395 $36,370,860
Trust Shares........... 934 9,231 -- --
Contributions in-kind.... 873,834 10,267,561 -- --
Issued as reinvestment of
dividends:
Shares................. 36,989 400,554 41,814 408,622
Trust Shares........... 10 97 -- --
Redeemed:
Shares................. (3,753,354) (37,413,560) (1,214,105) (12,475,517)
Trust Shares........... (30) (294) -- --
----------- ------------ ---------- -----------
Net Increase (Decrease).. (1,208,757) $ (9,506,773) 2,348,104 $24,303,965
=========== ============ ========== ===========
<CAPTION>
ENVIRONMENTALLY-RELATED PRODUCTS
AND SERVICES FUND
---------------------------------------------------
YEAR ENDED YEAR ENDED
03/31/97 03/31/96
-------------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Sold..................... 592,783 $ 5,313,037 186,141 $ 1,314,576
Issued as reinvestment of
dividends............... 32 300 -- --
Redeemed................. (154,610) (1,416,015) (377,073) (2,674,660)
----------- ------------ ---------- -----------
Net Increase (Decrease).. 438,205 $ 3,897,322 (190,932) $(1,360,084)
=========== ============ ========== ===========
<CAPTION>
GLOBAL COMPETITORS FUND
---------------------------------------------------
YEAR ENDED YEAR ENDED
03/31/97 03/31/96
-------------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Sold..................... 2,453,720 $ 27,414,389 4,254,987 $42,316,428
Issued as reinvestment of
dividends............... 5,021 57,433 1,393 13,702
Redeemed................. (1,848,157) (21,321,315) (640,495) (6,356,442)
----------- ------------ ---------- -----------
Net Increase............. 610,584 $ 6,150,507 3,615,885 $35,973,688
=========== ============ ========== ===========
</TABLE>
FS-30
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM SUPPLY OF ENERGY FUND
-------------------------------------------------
YEAR ENDED YEAR ENDED
03/31/97 03/31/96
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Sold....................... 1,183,409 $ 13,166,360 1,212,809 $10,257,682
Issued as reinvestment of
dividends................. 14,801 166,314 820 6,920
Redeemed................... (635,829) (6,996,595) (770,397) (6,756,240)
---------- ------------ ---------- -----------
Net Increase............... 562,381 $ 6,336,079 443,232 $ 3,508,362
========== ============ ========== ===========
<CAPTION>
PRODUCTIVITY ENHANCERS FUND
-------------------------------------------------
YEAR ENDED YEAR ENDED
03/31/97 03/31/96
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Sold....................... 749,379 $ 6,393,358 2,029,415 $18,271,102
Issued as reinvestment of
dividends................. 12,604 110,279 16,492 143,555
Redeemed................... (1,843,037) (15,851,064) (1,005,818) (9,148,291)
---------- ------------ ---------- -----------
Net Increase (Decrease).... (1,081,054) $ (9,347,427) 1,040,089 $ 9,266,366
========== ============ ========== ===========
</TABLE>
5. ORGANIZATION COSTS
Excelsior Fund has borne all costs in connection with the initial
organization of new portfolios, including the fees for registering and
qualifying its shares for distribution under Federal and state securities
regulations. All such costs are being amortized on the straight-line basis over
periods of five years from the dates on which each Portfolio commenced
operations.
FS-31
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of Directors Excelsior Funds, Inc.
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of the Equity, Income and Growth,
Aging of America, Business and Industrial Restructuring, Communication and
Entertainment, Early Life Cycle, Environmentally-Related Products and Services,
Global Competitors, Long-Term Supply of Energy and Productivity Enhancers
Portfolios (ten of the portfolios constituting the Excelsior Funds, Inc.) as of
March 31, 1997, and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
March 31, 1997 by correspondence with the custodian and brokers or other
appropriate auditing procedures where replies from brokers were not received.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the above mentioned Portfolios of Excelsior Funds, Inc. at March 31, 1997,
the results of their operations for the year then ended, the changes in their
net assets for each of the two years in the period then ended and financial
highlights for each of the periods indicated therein, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
May 9, 1997
FS-32
<PAGE>
FEDERAL TAX INFORMATION: (UNAUDITED)
For the year ended March 31, 1997, the percentage of dividends paid that
qualify for the 70.0% dividends received deduction for corporate shareholders
and the designation of long-term capital gain for the Portfolios are
approximated as follows:
<TABLE>
<CAPTION>
DIVIDENDS RECEIVED LONG-TERM
FUND DEDUCTION CAPITAL GAIN
---- ------------------ ------------
<S> <C> <C>
Equity Fund................................ 78.02% $10,777,978
Income and Growth Fund..................... 35.02% 4,590,976
Aging of America Fund...................... 100.00% 1,835,114
Business and Industrial Restructuring
Fund...................................... 62.67% 2,174,207
Communication and Entertainment Fund....... -- 243,366
Early Life Cycle Fund...................... 13.07% 2,420,034
Environmentally-Related Products and Serv-
ices Fund................................. 100.00% --
Global Competitors Fund.................... 100.00% 672,480
Long-Term Supply of Energy Fund............ 20.11% 1,373,733
Productivity Enhancers Fund................ 3.59% --
</TABLE>
FS-33
<PAGE>
EXCELSIOR FUNDS, INC.
Equity Fund
Income and Growth Fund
Long-Term Supply of Energy Fund
Productivity Enhancers Fund
Environmentally-Related Products and Services Fund
Aging of America Fund
Communication and Entertainment Fund
Business and Industrial Restructuring Fund
Global Competitors Fund
Early Life Cycle Fund
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1996
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current prospectuses for the Equity, Income and Growth,
Long-Term Supply of Energy, Productivity Enhancers, Environmentally-Related
Products and Services, Aging of America, Communication and Entertainment,
Business and Industrial Restructuring, Global Competitors and Early Life Cycle
Funds (individually, a "Fund" and collectively, the "Funds") of Excelsior Funds,
Inc. ("Excelsior Fund") dated August 1, 1996 (the "Prospectuses"). Much of the
information contained in this Statement of Additional Information expands upon
the subjects discussed in the Prospectuses. This Statement of Additional
Information relates to Trust Shares of the Equity, Aging of America,
Communication and Entertainment, Business and Industrial Restructuring, Global
Competitors and Early Life Cycle Funds and to the other series of shares in each
of the Funds that does not bear the expense of 12b-1 fees (the "Services Shares"
and, collectively with the Trust Shares, the "Shares"). No investment in Shares
of the Funds described herein (collectively, the "Shares") should be made
without reading the Prospectuses. A copy of the Prospectus may be obtained by
writing Excelsior Fund c/o Chase Global Funds Services Company, 73 Tremont
Street, Boston, MA 02108-3913 or by calling (800) 446-1012.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
INVESTMENT OBJECTIVES AND POLICIES............................... SAI 1
Other Investment Considerations -
Equity and Theme Funds....................................... SAI 1
Other Investment Considerations -
Income and Growth Fund....................................... SAI 3
Additional Information on Portfolio Instruments................ SAI 4
Additional Investment Limitations.............................. SAI 13
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................... SAI 15
INVESTOR PROGRAMS................................................ SAI 23
Systematic Withdrawal Plan..................................... SAI 23
Exchange Privilege............................................. SAI 23
Other Investor Programs........................................ SAI 24
DESCRIPTION OF CAPITAL STOCK..................................... SAI 24
MANAGEMENT OF THE FUNDS.......................................... SAI 26
Directors and Officers......................................... SAI 26
Investment Advisory and Administration Agreements.............. SAI 30
Service Organizations.......................................... SAI 33
Expenses....................................................... SAI 35
Custodian and Transfer Agent................................... SAI 36
PORTFOLIO TRANSACTIONS........................................... SAI 37
INDEPENDENT AUDITORS............................................. SAI 40
COUNSEL.......................................................... SAI 40
ADDITIONAL INFORMATION CONCERNING TAXES.......................... SAI 40
PERFORMANCE INFORMATION.......................................... SAI 42
MISCELLANEOUS.................................................... SAI 45
FINANCIAL STATEMENTS............................................. SAI 46
APPENDIX......................................................... SAI A-1
-i-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
----------------------------------
The investment objective of the Equity Fund and of the Long-Term
Supply of Energy, Productivity Enhancers, Environmentally-Related Products and
Services, Aging of America, Communication and Entertainment, Business and
Industrial Restructuring, Global Competitors and Early Life Cycle Funds
(collectively, the "Theme Funds") is to seek long-term capital appreciation.
The investment objective of the Income and Growth Fund is to seek to provide
moderate current income and to attempt to achieve capital appreciation. Under
normal market and economic conditions, each Fund invests a significant portion
of its assets in common stock, preferred stock and debt securities convertible
into common stock. The following policies supplement the Funds' investment
objectives and policies as set forth in the Prospectuses.
Other Investment Considerations - Equity Fund and Theme Funds
- -------------------------------------------------------------
The Equity Fund and the Theme Funds invest primarily in common stocks,
but each Fund may purchase both preferred stocks and securities convertible into
common stock at the discretion of United States Trust Company of New York (the
"Investment Adviser" or "U.S. Trust"). While current income is secondary to the
objective of long-term capital appreciation, Excelsior Fund expects that the
broad and diversified strategies utilized by the Investment Adviser will result
in somewhat more current income than would be generated if the Investment
Adviser utilized a single strategy more narrowly focused on rapid growth of
principal and involving exposure to higher levels of risk.
The Investment Adviser's investment philosophy is to identify
investment values available in the market at attractive prices. Investment
value arises from the ability to generate earnings or from the ownership of
assets or resources. Underlying earnings potential and asset values are
frequently demonstrable but not recognized in the market prices of the
securities representing their ownership. The Investment Adviser employs the
following three different but closely interrelated portfolio strategies to focus
and organize its search for investment values.
(a) Problem/Opportunity Companies. Important investment opportunities
-----------------------------
often occur where companies develop solutions to large, complex, fundamental
problems, such as declining industrial productivity; rising costs and declining
sources of energy; the economic imbalances and value erosion caused by years of
high inflation and interest rates; the soaring costs and competing priorities of
providing health care; and the accelerating interdependence and "shrinking size"
of the world.
<PAGE>
Solutions or parts of solutions to large problems may be generated by
established companies or comparatively new companies of all sizes through the
development of new products, technologies or services, or through new
applications of older ones.
Investment in such companies represents a very wide range of
investment potential, current income return rates, and exposure to fundamental
and market risks. Income generated by each Funds' investments in these
companies would be expected to be moderate, characterized by lesser rates than
those of a fund whose sole objective is current income, and somewhat higher
rates than those of a higher-risk growth fund.
(b) 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.
(c) 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
SAI-2-
<PAGE>
making new or different employment of assets. Because of the high risk level
involved, the ratio of success among such companies is lower than the average,
but for those companies which succeed, the magnitude of investment reward is
potentially higher.
Other Investment Considerations - Income and Growth Fund
- --------------------------------------------------------
The Income and Growth Fund is expected to have a greater portion of
its assets invested in debt obligations under normal market conditions than the
Equity Fund and Theme Funds. Further, although the Investment Adviser will
generally use the three strategies described above for the Equity and Theme
Funds, the Income and Growth Fund will generally invest in those companies which
are expected to generate the greater income. As a result, the Income and Growth
Fund is likely to have a relatively small portion of its assets invested in
Early Life Cycle companies.
As stated in the Prospectuses, the Income and Growth Fund may invest
up to 10% of its assets in instruments such as liquidating trust receipts;
certificates of beneficial ownership; limited partnership interests; creditor
claims; loan participations; and warrants, options and other rights to purchase
securities. Liquidating trust receipts, as well as certificates of beneficial
interest, acquired by the Income and Growth Fund represent interests in trusts
holding specific assets. In the case of a liquidating trust, such assets may
include airplanes, ships and trucks that have been leased to third parties.
Limited partnership interests acquired by the Fund may represent equitable
interests in enterprises engaged in activities related to leasing of electronic,
computer and other types of equipment. Normally, the profits and losses
attributable to the foregoing types of instruments pass directly to the holders
of the instruments and are not taxed at the trust or partnership level.
Creditor claims (which may be in the form of notes or debentures)
acquired by the Income and Growth Fund comprise debt obligations of companies
being reorganized under bankruptcy or insolvency laws. Creditor claims normally
sell at a substantial discount from their face value, may be convertible into
stock of the reorganized company, and have a high degree of potential risk and
reward. Loan participations acquired by the Income and Growth Fund represent
interests in either separate, privately negotiated loans that have been made by
lending institutions to third parties or pools of privately negotiated loans
maintained in the loan portfolios of lending institutions. Lending institutions
may sell loan participations to the Income and Growth Fund and other
institutional investors in order to achieve additional revenues and to reduce
their exposure on the loans involved, as well as for other reasons. Loan
participations are
SAI-3-
<PAGE>
considered to be illiquid securities subject to the 10% limitation on
investments in illiquid securities described in the Prospectuses.
The instruments described above may provide a higher than normal rate
of return but may also entail greater risks. These risks include the absence of
any secondary or other organized market for certain instruments that the Income
and Growth Fund may acquire; the likelihood that the transfer of certain
instruments will otherwise be restricted because they have not been registered
under Federal or state securities laws; the probability that certain instruments
will represent interests in a single asset or project and will be entirely
dependent upon market and economic factors affecting such asset or project and
upon the skill of project managers to produce value; the possibility of volatile
changes in the value of an instrument because of changes in the value of the
asset underlying the instrument; the possibility that certain instruments will
be subject to heavy cash flow dependency, defaults by borrowers, self-
liquidation and the risk that the underlying portfolio company will fail to
qualify for favorable tax treatment under the Internal Revenue Code of 1986, as
amended (the "Code"); the possibility that the Fund's loss with respect to an
instrument may exceed the amount of its investment; and, with respect to
creditor claims and other debt instruments, the quality of the credit extended.
In addition, as discussed in the Prospectuses, income from some of the
instruments described above may be non-qualifying income for purposes of the
Code and must be monitored by the Investment Adviser so that the amount of any
such non-qualifying income does not exceed the amount permitted by the Code.
The Investment Adviser will purchase such instruments only when it determines
that the expected return justifies the attendant risks.
Additional Information on Portfolio Instruments
- -----------------------------------------------
Options
-------
As stated in the Prospectuses, the Income and Growth Fund and the
Theme Funds may purchase put and call options listed on a national securities
exchange and issued by the Options Clearing Corporation. Such purchases would
be in an amount not exceeding 5% of each such Fund's net assets. Purchase of
options is a highly specialized activity which entails greater than ordinary
investment risks. Regardless of how much the market price of the underlying
security increases or decreases, the option buyer's risk is limited to the
amount of the original investment for the purchase of the option. However,
options may be more volatile than the underlying securities, and therefore, on a
percentage basis, an investment in options may be subject to greater fluctuation
than an investment in the underlying securities. A listed call option gives the
purchaser of the
SAI-4-
<PAGE>
option the right to buy from a clearing corporation, and the writer has the
obligation to sell to the clearing corporation, the underlying security at the
stated exercise price at any time prior to the expiration of the option,
regardless of the market price of the security. The premium paid to the writer
is in consideration for undertaking the obligations under the option contract.
A listed put option gives the purchaser the right to sell to a clearing
corporation the underlying security at the stated exercise price at any time
prior to the expiration date of the option, regardless of the market price of
the security. Put and call options purchased by the Income and Growth and Theme
Funds will be valued at the last sale price or, in the absence of such a price,
at the mean between bid and asked prices.
Also as stated in the Prospectuses, each Fund may engage in writing
covered call options and enter into closing purchase transactions with respect
to such options. When any of the Funds writes a covered call option, it may
terminate its obligation to sell the underlying security prior to the expiration
date of the option by executing a closing purchase transaction, which is
effected by purchasing on an exchange an option of the same series (i.e., same
underlying security, exercise price and expiration date) as the option
previously written. Such a purchase does not result in the ownership of an
option. A closing purchase transaction will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to permit the
writing of a new call option containing different terms on such underlying
security. The cost of such a liquidation purchase plus transaction costs may be
greater than the premium received upon the original option, in which event the
writer will have incurred a loss on the transaction. An option position may be
closed out only on an exchange which provides a secondary market for an option
of the same series. There is no assurance that a liquid secondary market on an
exchange will exist for any particular option. A covered option writer, unable
to effect a closing purchase transaction, will not be able to sell the
underlying security until the option expires or the underlying security is
delivered upon exercise, with the result that the writer in such circumstances
will be subject to the risk of market decline in the underlying security during
such period. The Funds will write an option on a particular security only if
the Investment Adviser believes that a liquid secondary market will exist on an
exchange for options of the same series, which will permit the Funds to make a
closing purchase transaction in order to close out its position.
When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by that Fund is included in the liability
section of that Fund's statement of assets and liabilities as a deferred credit.
The
SAI-5-
<PAGE>
amount of the deferred credit will be subsequently marked to market to reflect
the current value of the option written. The current value of the traded option
is the last sale price or, in the absence of a sale, the average of the closing
bid and asked prices. If an option expires on the stipulated expiration date,
or if the Fund involved enters into a closing purchase transaction, the Fund
will realize a gain (or loss if the cost of a closing purchase transaction
exceeds the net premium received when the option is sold), and the deferred
credit related to such option will be eliminated. If an option is exercised, the
Fund involved may deliver the underlying security from its portfolio or purchase
the underlying security in the open market. In either event, the proceeds of
the sale will be increased by the net premium originally received, and the Fund
involved will realize a gain or loss. Premiums from expired call options
written by the Funds and net gains from closing purchase transactions are
treated as short-term capital gains for Federal income tax purposes, and losses
on closing purchase transactions are short-term capital losses.
Repurchase Agreements
---------------------
The repurchase price under the repurchase agreements described in the
Prospectuses generally equals the price paid by a Fund plus interest negotiated
on the basis of current short-term rates (which may be more or less than the
rate on the securities underlying the repurchase agreement). Securities subject
to repurchase agreements are held by the Funds' custodian (or sub-custodian) or
in the Federal Reserve/Treasury book-entry system. Repurchase agreements are
considered loans by a Fund under the Investment Company Act of 1940 (the "1940
Act").
Futures Contracts and Related Options
-------------------------------------
The Theme Funds may invest in futures contracts and options thereon.
The Theme Funds may enter into interest rate futures contracts and other types
of financial futures contracts, including foreign currency futures contracts, as
well as any index or foreign market futures which are available on recognized
exchanges or in other established financial markets. A futures contract on
foreign currency creates a binding obligation on one party to deliver, and a
corresponding obligation on another party to accept delivery of, a stated
quantity of a foreign currency for an amount fixed in U.S. dollars. Foreign
currency futures, which operate in a manner similar to interest rate futures
contracts may be used by the Theme Funds to hedge against exposure to
fluctuations in exchange rates between the U.S. dollar and other currencies
arising from multinational transactions.
Futures contracts will not be entered into for speculative purposes,
but to hedge risks associated with a Fund's
SAI-6-
<PAGE>
securities investments. Positions in futures contracts may be closed out only
on an exchange which provides a secondary market for such futures. However,
there can be no assurance that a liquid secondary market will exist for any
particular futures contract at any specific time. Thus, it may not be possible
to close a futures position. In the event of adverse price movements, a Fund
would continue to be required to make daily cash payments to maintain its
required margin. In such situations, if the Fund has insufficient cash, it may
have to sell portfolio securities to meet daily margin requirements at a time
when it may be disadvantageous to do so. In addition, the Fund may be required
to make delivery of the instruments underlying futures contracts it holds. The
inability to close options and futures positions also could have an adverse
impact on the Fund's ability to effectively hedge.
Successful use of futures by the Theme Funds is also subject to the
Investment Adviser's ability to correctly predict movements in the direction of
the market. For example, if a Fund has hedged against the possibility of a
decline in the market adversely affecting securities held by it and securities
prices increase instead, the Fund will lose part or all of the benefit to the
increased value of its securities which it has hedged because it will have
approximately equal offsetting losses in its futures positions. In addition, in
some situations, if a Fund has insufficient cash, it may have to sell securities
to meet daily variation margin requirements. Such sales of securities may be,
but will not necessarily be, at increased prices which reflect the rising
market. The Fund may have to sell securities at a time when it may be
disadvantageous to do so.
The risk of loss in trading futures contracts in some strategies can
be substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit, before any deduction for the
transaction costs, if the contract were closed out. Thus, a purchase or sale of
a futures contract may result in losses in excess of the amount invested in the
contract.
Utilization of futures transactions by the Theme Funds involves the
risk of loss by a Fund of margin deposits in the event of bankruptcy of a broker
with whom such Fund has an open position in a futures contract or related
option.
SAI-7-
<PAGE>
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Options on Futures Contracts
----------------------------
The Theme Funds may purchase options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer,
of an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing, an option of the same
series, at which time the person entering into the closing transaction will
realize a gain or loss.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
of an option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option
purchased. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the instruments
being hedged, an option may or may not be less risky than ownership of the
futures contract or such instruments. In general, the market prices of options
SAI-8-
<PAGE>
can be expected to be more volatile than the market prices on the underlying
futures contract. Compared to the purchase or sale of futures contracts,
however, the purchase of call or put options on futures contracts may frequently
involve less potential risk to the Fund because the maximum amount at risk is
the premium paid for the options (plus transaction costs). Although permitted
by its fundamental investment policies, the Fund does not currently intend to
write futures options, and will not do so in the future absent any necessary
regulatory approvals.
When-Issued and Forward Transactions
------------------------------------
When a Fund agrees to purchase securities on a "when-issued" or
forward commitment basis, the custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment and, in such case, the Fund may be required subsequently to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that a Fund's net assets will fluctuate to a greater degree when
it sets aside portfolio securities to cover such purchase commitments than when
it sets aside cash. Because a Fund will set aside cash or liquid assets to
satisfy its purchase commitments in the manner described, its liquidity and
ability to manage its portfolio might be affected in the event its forward
commitments or commitments to purchase "when-issued" securities ever exceed 25%
of the value of its assets.
A Fund will purchase securities on a "when-issued" or forward
commitment basis only with the intention of completing the transaction. If
deemed advisable as a matter of investment strategy, however, a Fund may dispose
of or renegotiate a commitment after it is entered into, and may sell securities
it has committed to purchase before those securities are delivered to the Fund
on the settlement date. In these cases, the Fund may realize a taxable capital
gain or loss.
When a Fund engages in "when-issued" or forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such other party to do so may result in the Fund incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a "when-issued" purchase
or a forward commitment to purchase securities and any subsequent fluctuations
in their market value are taken into account when determining the market value
of a Fund starting
SAI-9-
<PAGE>
on the day the Fund agrees to purchase the securities. The Fund does not earn
interest on the securities it has committed to purchase until they are paid for
and delivered on the settlement date.
Forward Currency Transactions
-----------------------------
Each Fund will conduct its currency exchange transactions either on a
spot (i.e., cash) basis at the rate prevailing in the currency exchange markets,
or by entering into forward currency contracts. A forward foreign currency
contract involves an obligation to purchase or sell a specific currency for a
set price at a future date. In this respect, forward currency contracts are
similar to foreign currency futures contracts; however, unlike futures contracts
which are traded on recognized commodities exchange, forward currency contracts
are traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. Also, forward currency
contracts usually involve delivery of the currency involved instead of cash
payment as in the case of futures contracts.
A Fund's participation in forward currency contracts will be limited
to hedging involving either specific transactions or portfolio positions.
Transaction hedging involves the purchase or sale of foreign currency with
respect to specific receivables or payables of the Fund generally arising in
connection with the purchase or sale of its portfolio securities. The purpose
of transaction hedging is to "lock in" the U.S. dollar equivalent price of such
specific securities. Position hedging is the sale of foreign currency with
respect to portfolio security positions denominated or quoted in that currency.
The Fund will not speculate in foreign currency exchange transactions.
Transaction and position hedging will not be limited to an overall percentage of
a Fund's assets, but will be employed as necessary to correspond to particular
transactions or positions. A Fund may not hedge its currency positions to an
extent greater than the aggregate market value (at the time of entering into the
forward contract) of the securities held in its portfolio denominated, quoted
in, or currently convertible into that particular currency. When the Funds
engage in forward currency transactions, certain asset segregation requirements
must be satisfied to ensure that the use of foreign currency transactions is
unleveraged. When a Fund takes a long position in a forward currency contract,
it must maintain a segregated account containing cash and/or certain liquid
assets equal to the purchase price of the contract, less any margin or deposit.
When a Fund takes a short position in a forward currency contract, the Fund must
maintain a segregated account containing cash and/or certain liquid assets in an
amount equal to the market value of the currency underlying such contract (less
any margin or deposit), which amount must be at least equal to the market price
SAI-10-
<PAGE>
at which the short position was established. Asset segregation requirements are
not applicable when a Fund "covers" a forward currency position generally by
entering into an offsetting position.
The transaction costs to the Funds of engaging in forward currency
transactions described in the Prospectus vary with factors such as the currency
involved, the length of the contract period and prevailing currency market
conditions. Because currency transactions are usually conducted on a principal
basis, no fees or commissions are involved. The use of forward currency
contracts does not eliminate fluctuations in the underlying prices of the
securities being hedged, but it does establish a rate of exchange that can be
achieved in the future. Thus, although forward currency contracts used for
transaction or position hedging purposes may limit the risk of loss due to an
increase in the value of the hedged currency, at the same time they limit
potential gain that might result were the contracts not entered into. Further,
the Investment Adviser may be incorrect in its expectations as to currency
fluctuations, and a Fund may incur losses in connection with its currency
transactions that it would not otherwise incur. If a price movement in a
particular currency is generally anticipated, a Fund may not be able to contract
to sell or purchase that currency at an advantageous price.
At or before the maturity of a forward sale contract, a Fund may sell
a portfolio security and make delivery of the currency, or retain the security
and offset its contractual obligation to deliver the currency by purchasing a
second contract pursuant to which the Fund will obtain, on the same maturity
date, the same amount of the currency which it is obligated to deliver. If the
Fund retains the portfolio security and engages in an offsetting transaction,
the Fund, at the time of execution of the offsetting transaction, will incur a
gain or a loss to the extent that movement has occurred in forward contract
prices. Should forward prices decline during the period between a Fund's
entering into a forward contract for the sale of a currency and the date it
enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, the Fund will suffer a loss to the extent the price of
the currency it has agreed to sell is less than the price of the currency it has
agreed to purchase in the offsetting contract. The foregoing principles
generally apply also to forward purchase contracts.
Real Estate Investment Trusts
-----------------------------
Each Fund may invest in equity real estate investment trusts
("REITs"). REITs pool investors' funds for investment
SAI-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.
Restricted Securities
---------------------
The Productivity Enhancers Fund may invest in restricted securities
(privately placed securities) and other securities without readily available
market quotations. The Fund's investments in securities without readily
available market quotations will not exceed 5% of its total assets at the time
of purchase. Restricted securities may be sold only in private transactions or
in a public offering with respect to which a registration statement is in effect
under the Securities Act of 1933 (the "1933 Act"). Where registration may be
required, the Fund may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of the decision
to sell and the time the Fund may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, the Fund might obtain a less favorable price than
prevailed when it decided to sell. Certain transactions in restricted
securities may qualify for the registration exemption provided in Rule 144A
under the 1933 Act.
SAI-12-
<PAGE>
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.
The following investment limitations are fundamental with respect to
the Equity and Income and Growth Funds, but are operating policies with respect
to the Theme Funds. No Fund may:
4. Purchase securities on margin, make short sales of securities, or
maintain a short position;
5. Invest in or sell put options, call options, straddles, spreads,
or any combination thereof; provided, however, that each Fund may write covered
call options with respect to its portfolio securities that are traded on a
national securities exchange, and may enter into closing purchase transactions
with respect to such options if, at the time of the writing of such option, the
aggregate value of the securities subject to the options written by the Fund
involved does not exceed 25% of the value of its total assets; and provided that
the Income and Growth Fund and Theme Funds may purchase options and other rights
in accordance with their investment objectives and policies;
SAI-13-
<PAGE>
6. Invest in companies for the purpose of exercising management or
control;
7. Invest more than 5% of its total assets in securities issued by
companies which, together with any predecessor, have been in continuous
operation for fewer than three years; and
8. Acquire any other investment company or investment company
security, except in connection with a merger, consolidation, reorganization, or
acquisition of assets or where otherwise permitted by the 1940 Act.
The following investment limitation is fundamental with respect to the
Equity and Income and Growth Funds. The Equity and Income and Growth Funds may
not:
9. Purchase or sell commodities futures contracts or invest in oil,
gas, or other mineral exploration or development programs; provided, however,
that this shall not prohibit either Fund from purchasing publicly traded
securities of companies engaging in whole or in part in such activities or the
Income and Growth Fund from investing in liquidating trust receipts,
certificates of beneficial ownership or other instruments in accordance with its
investment objectives and policies.
The following investment limitation is fundamental with respect to the
Theme Funds. Each Theme Fund may not:
10. Purchase or sell commodities or commodities futures contracts or
invest in oil, gas, or other mineral exploration or development programs;
provided, however, that i) this shall not prohibit any Theme Fund from
purchasing publicly traded securities of companies engaging in whole or in part
in such activities or from investing in liquidating trust receipts, certificates
of beneficial ownership or other instruments in accordance with its investment
objectives and policies, and ii) each Theme Fund may enter into futures
contracts and futures options.
* * *
For the purpose of Investment Limitation No. 2, the prohibition of
purchases of real estate includes acquisition of limited partnership interests
in partnerships formed with a view toward investing in real estate, but does not
prohibit purchases of shares in real estate investment trusts.
In addition to the above investment limitations, Excelsior Fund
currently intends to limit the Funds' investments in warrants so that, valued at
the lower of cost or market value, they do not exceed 5% of the net assets of
the Fund involved.
SAI-14-
<PAGE>
Included within that amount, but not to exceed 2% of the value of a Fund's net
assets, may be warrants which are not listed on the New York or American Stock
Exchanges. For the purpose of this limitation, warrants acquired by a Fund in
units or attached to securities will be deemed to be without value. The Funds
also intend to refrain from entering into arbitrage transactions.
Each of the Equity and Income and Growth Funds may not purchase or
sell commodities except as provided in Investment Limitation No. 9 above.
Pursuant to the requirements of state securities laws, each Fund
currently intends to limit its option transactions so that they do not exceed,
at the time when they are written, 25% of the net (rather than total) assets of
the particular Fund involved. See Investment Limitation No. 5 above.
If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in value
of a Fund's securities will not constitute a violation of such limitation.
In order to permit the sale of Shares in certain states, Excelsior
Fund may make on behalf of the Funds other commitments more restrictive than the
investment policies and limitations described above and in the Prospectuses.
Should Excelsior Fund determine that any such commitment is no longer in the
Funds' best interests, it will revoke the commitment by terminating sales of
Shares to investors residing in the state involved.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
----------------------------------------------
Shares are continuously offered for sale by Edgewood Services, Inc.
(the "Distributor"), a wholly-owned subsidiary of Federated Investors, and the
Distributor has agreed to use appropriate efforts to solicit all purchase
orders. As described in the Prospectuses, Shares may be sold to customers
("Customers") of financial institutions ("Shareholder Organizations"). Service
Shares are also offered for sale directly to institutional investors and to
members of the general public. Different types of Customer accounts at the
Shareholder Organizations may be used to purchase Shares, including eligible
agency and trust accounts. In addition, Shareholder Organizations may
automatically "sweep" a Customer's account not less frequently than weekly and
invest amounts in excess of a minimum balance agreed to by the Shareholder
Organization and its Customer in Shares selected by the Customer. Investors
purchasing Shares may include officers, directors, or employees of the
particular Shareholder Organization.
SAI-15-
<PAGE>
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.
The Distribution Plan provides that each Fund will reimburse the
Distributor for distribution expenses in an amount not to exceed the annual rate
of .75% of the average daily net asset value of outstanding Trust Shares of the
Fund. The Trust Shares of the Equity, Aging of America, Communication and
Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds currently bear the expense of such payments at the annual
rate of .35% of the average daily net asset value of each such Fund's
outstanding Trust Shares. Distribution expenses payable by the Distributor
pursuant to the Distribution Plan include direct and indirect costs and expenses
incurred in connection with advertising and marketing a Fund's Distribution
Shares, and direct and indirect costs and expenses of preparing, printing and
distributing its prospectuses to other than current shareholders and payments to
financial institutions that are not affiliated with the Distributor
("Distribution Organizations").
The Distribution Plan will continue in effect for successive one year
periods, provided that such continuance is specifically approved by the vote of
a majority of the directors who are not parties to the Distribution Plan or
interested
SAI-16-
<PAGE>
persons of any such party and who have no direct or indirect financial interest
in the Distribution Plan or any related agreement and the vote of a majority of
the entire Board of Directors.
Any material amendment to Excelsior Fund's arrangements with
Distribution Organizations must be approved by a majority of Excelsior Fund's
Board of Directors (including a majority of the disinterested directors). So
long as the Distribution Plan is in effect, the selection and nomination of the
members of Excelsior Fund's Board of Directors who are not "interested persons"
(as defined in the 1940 Act) of Excelsior Fund will be committed to the
discretion of such non-interested directors.
Shares of the Funds are offered for sale with a maximum sales charge
of 4.50%. An illustration of the computation of the offering price per share of
the Funds, using the value of each Fund's net assets and number of outstanding
securities at the close of business on March 31, 1996 and the value of the
initial capitalization of each Fund's Trust Shares prior to the commencement of
operations, is as follows:
SAI-17-
<PAGE>
<TABLE>
<CAPTION>
Income
Equity & Growth
Fund Fund
Service Shares Service Shares
-------------- --------------
<S> <C> <C>
Net Assets.................. $188,573,804 $127,494,667
Outstanding Shares.......... 7,718,433 8,821,024
Net Asset Value Per Share... $ 24.43 $ 14.45
Sales Charge (4.50% of the
offering price)........... $ 1.15 $ 0.68
Offering to Public.......... $ 25.58 $ 15.13
</TABLE>
<TABLE>
<CAPTION>
Environmentally-
Long-Term Related
Supply of Products
Energy Fund Productivity and Services Aging of
Service Enhancers Fund Fund Service America Fund
Shares Service Shares Shares Service Shares
----------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Net Assets.................. $ 23,294,491 $29,069,279 $3,946,766 $44,791,773
Outstanding Shares.......... 2,440,017 3,290,836 510,900 4,564,329
Net Asset Value Per Share... $ 9.55 $ 8.83 $ 7.73 $ 9.81
Sales Charge (4.50% of the
offering price)........... $ 0.45 $ 0.42 $ 0.36 $ 0.46
Offering to Public.......... $ 10.00 $ 9.25 $ 8.09 $ 10.27
</TABLE>
SAI-18-
<PAGE>
<TABLE>
<CAPTION>
Business and
Communication Industrial
and Restructuring Global Early Life
Entertainment Fund Service Fund Service Competitors Fund Cycle Fund
Shares Shares Service Shares Service Shares
--------------------------- ----------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Net Assets.................. $46,949,340 $74,052,303 $71,304,491 $78,060,846
Outstanding Shares.......... 4,548,484 5,277,747 6,583,892 7,240,420
Net Asset Value Per Share... $ 10.32 $ 14.03 $ 10.83 $ 10.78
Sales Charge (4.50% of the
offering price)........... $ 0.49 $ 0.63 $ 0.51 $ 0.51
Offering to Public.......... $ 10.81 $ 14.69 $ 11.34 $ 11.29
</TABLE>
Equity
Fund
Trust
Shares
------
Net Assets.................. $100.00
Outstanding Shares.......... 10
Net Asset Value Per Share... $ 10.00
Sales Charge (4.50% of the
offering price)........... $ .47
Offering to Public.......... $ 10.47
Aging of
--------
America
-------
Fund
----
Trust
-----
Shares
------
Net Assets.................. $100.00
Outstanding Shares.......... 10
Net Asset Value Per Share... $10.00
Sales Charge (4.50% of the $ .47
offering price)...........
Offering to Public.......... $10.47
SAI-19-
<PAGE>
<TABLE>
<CAPTION>
Business and Early Life
Communication and Industrial Global Cycle
Entertainment Fund Restructuring Competitors Fund Trust
Trust Shares Fund Trust Shares Fund Trust Shares Shares
--------------------------- ------------------ ------------------ ----------------
<S> <C> <C> <C> <C>
Net Assets.................. $ 100.00 $ 100.00 $ 100.00 $ 100.00
Outstanding Shares.......... 10 10 10 10
Net Asset Value Per Share... $ 10.00 $ 10.00 $ 10.00 $ 10.00
Sales Charge (4.50% of the
offering price)........... $ .47 $ .47 $ .47 $ .47
Offering to Public.......... $ 10.47 $ 10.47 $ 10.47 $ 10.47
</TABLE>
As stated in the Prospectuses, the sales load described above will not be
applicable to: (a) purchases of Shares by customers of the Investment Adviser
or its affiliates; (b) trust, agency or custodial accounts opened through the
trust department of a bank, trust company or thrift institution, provided that
appropriate notification of such status is given at the time of investment; (c)
companies, corporations and partnerships (excluding full service broker/dealers
and financial planners, registered investment advisers and depository
institutions not covered by the exemptions in (d) and (e) below); (d) financial
planners and registered investment advisers not affiliated with or clearing
purchases through full service broker/dealers; (e) purchases of Shares by
depository institutions for their own account as principal; (f) exchange
transactions (described below under "Investor Programs -- Exchange Privilege")
where the Shares being exchanged were acquired in connection with the
distribution of assets held in trust, agency or custodial accounts maintained
with the trust department of a bank; (g) corporate/business retirement plans
(such as 401(k), 403(b)(7), 457 and Keogh accounts) sponsored by the Distributor
and IRA accounts sponsored by the Investment Adviser; (h) company-sponsored
employee pension or retirement plans making direct investments in the Funds; (i)
purchases of Shares by officers, trustees, directors, employees, former
employees and retirees of Excelsior Fund, Excelsior Tax-Exempt Funds, Inc.
("Excelsior Tax-Exempt Fund"), Excelsior Institutional Trust, Excelsior Funds,
the Investment Adviser, the Distributor or of any direct or indirect affiliate
of any of them; (j) purchases of Shares by all beneficial shareholders of
Excelsior Fund or Excelsior Tax-Exempt Fund as of May 22, 1989; (k) purchases of
Shares by investment advisers registered under the Investment Advisers Act of
1940 for their customers through an omnibus account established with United
States Trust Company of New York; (l) purchases of Shares by directors, officers
and employees of brokers and dealers selling shares pursuant to a selling
agreement with Excelsior Fund, Excelsior Tax-Exempt Fund, Excelsior
Institutional Trust or Excelsior Funds; (m) purchase of shares by investors who
are members of affinity groups serviced
SAI-20-
<PAGE>
by USAffinity Investments Limited Partnership; and (n) customers of certain
financial institutions who purchase shares through a registered representative
of UST Financial Services Corp. on the premises of their financial institutions.
In addition, no sales load is charged on the reinvestment of dividends or
distributions or in connection with certain share exchange transactions.
Investors who have previously redeemed shares in a portfolio of Excelsior Fund
or Excelsior Tax-Exempt Fund on which a sales load has been paid also have a
one-time privilege of purchasing shares of another portfolio of either company
at net asset value without a sales charge, provided that such privilege will
apply only to purchases made within 30 calendar days from the date of redemption
and only with respect to the amount of the redemption.
Total sales charges paid by shareholders of the Equity and Income and Growth
Funds during the fiscal years ended March 31, 1996, 1995 and 1994 were $2,725,
$7,492 and $10,877, respectively, and $1,223, $1,713 and $5,866, respectively.
Of these respective amounts, UST Distributors, Inc., the Funds' former
distributor, retained $473, $7,092 and $9,249 with respect to the Equity Fund
and $298, $1,703 and $5,037 with respect to the Income and Growth Fund for the
period April 1, 1995 through July 31, 1995 and for the fiscal years ended March
31, 1995 and 1994, respectively. The balance was paid to selling dealers.
Edgewood Services, Inc., the Funds' distributor, retained none of the foregoing
sales charges with respect to the Equity and Income and Growth Funds for the
period August 1, 1995 through March 31, 1996.
For the fiscal years ended March 31, 1996, 1995 and 1994, total sales
charges paid by shareholders of the Long-Term Supply of Energy, Productivity
Enhancers, Environmentally-Related Products and Services, Aging of America,
Communication and Entertainment, Business and Industrial Restructuring, Global
Competitors and Early Life Cycle Funds were $0, $84 and $315; $347, $143 and
$181; $325, $0, and $45; $1,662, $357 and $272; $1,728, $438 and $2,453; $3,970,
$779 and $1,672; $405, $353 and $136; and $961, $1,107 and $840, respectively.
Of these respective amounts, UST Distributors, Inc., the Funds' former
distributor, retained $0, $84 and $280 with respect to the Long-Term Supply of
Energy Fund; $0, $143 and $160 with respect to the Productivity Enhancers Fund;
$0, $0 and $0 with respect to the Environmentally-Related Products and Services
Fund; $0, $37 and $200 with respect to the Aging of America Fund; $74, $438 and
$2,175 with respect to the Communication and Entertainment Fund; $42, $779 and
$1,282 with respect to the Business and Industrial Restructuring Fund; $0, $353
and $120 with respect to the Global Competitors Fund; and $0, $1,107 and $744
with respect to the Early Life Cycle Fund for the period April 1, 1995 through
July 31, 1995 and for the fiscal years ended March 31, 1995 and 1994,
respectively. Edgewood Services, Inc. retained none of the foregoing sales
charges with respect to the Long-Term Supply of
SAI-21-
<PAGE>
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 and Early
Life Cycle Fund for the period August 1, 1995 through March 31, 1996. The
balance was paid to selling dealers.
Excelsior Fund may suspend the right of redemption or postpone the date of
payment for Shares for more than 7 days during any period when (a) trading on
the New York Stock Exchange (the "Exchange") is restricted by applicable rules
and regulations of the Securities and Exchange Commission; (b) the Exchange is
closed for other than customary weekend and holiday closings; (c) the Securities
and Exchange Commission has by order permitted such suspension; or (d) an
emergency exists as determined by the Securities and Exchange Commission.
In the event that Shares are redeemed in cash at their net asset value, a
shareholder may receive in payment for such Shares an amount that is more or
less than his original investment due to changes in the market prices of that
Fund's portfolio securities.
Excelsior Fund reserves the right to honor any request for redemption or
repurchase of a Fund's Shares by making payment in whole or in part in
securities chosen by Excelsior Fund and valued in the same way as they would be
valued for purposes of computing a Fund's net asset value. If payment is made
in securities, a shareholder may incur transaction costs in converting these
securities into cash. Such redemptions in kind will be governed by Rule 18f-1
under the 1940 Act so that a Fund is obligated to redeem its Shares solely in
cash up to the lesser of $250,000 or 1% of its net asset value during any 90-day
period for any one shareholder of a Fund.
Under limited circumstances, Excelsior Fund may accept securities as payment
for Shares. Securities acquired in this manner will be limited to securities
issued in transactions involving a bona fide reorganization or statutory merger,
---------
or will be limited to other securities (except for municipal debt securities
issued by state political subdivisions or their agencies or instrumentalities)
that: (a) meet the investment objective and policies of any Fund acquiring such
securities; (b) are acquired for investment and not for resale; (c) are liquid
securities that are not restricted as to transfer either by law or liquidity of
market; and (d) have a value that is readily ascertainable (and not established
only by evaluation procedures) as evidenced by a listing on the American Stock
Exchange, New York Stock Exchange or NASDAQ, or as evidenced by their status as
U.S. Government securities, bank certificates of deposit, banker's acceptances,
corporate and other debt securities that
SAI-22-
<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 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
SAI-23-
<PAGE>
or Excelsior Institutional Trust. As of the date of this Statement of
Additional Information, Trust Shares were available only in the Equity, Global
Competitors, Aging of America, Communication and Entertainment, Business and
Industrial Restructuring and Early Life Cycle Funds of Excelsior Fund and the
Value Equity and Optimum Growth Funds of Excelsior Institutional Trust. In
order to prevent abuse of this privilege to the disadvantage of other
shareholders, the Companies and Excelsior Institutional Trust reserve the right
to limit the number of exchange requests of investors to no more than six per
year. The Companies may modify or terminate the exchange program at any time
upon 60 days' written notice to shareholders, and may reject any exchange
request. Customers of Shareholder Organizations may obtain information on the
availability of, and the procedures relating to, such programs directly from
their Shareholder Organizations.
For Federal income tax purposes, exchanges are treated as sales on
which the shareholder will realize a gain or loss, depending upon whether the
value of the Shares to be given up in exchange is more or less than the basis in
such Shares at the time of the exchange. Generally, a shareholder may include
sales loads incurred upon the purchase of Shares in his or her tax basis for
such Shares for the purpose of determining gain or loss on a redemption,
transfer or exchange of such Shares. However, if the shareholder effects an
exchange of Shares for shares of another portfolio of the Companies within 90
days of the purchase and is able to reduce the sales load applicable to the new
shares (by virtue of the Companies' exchange privilege), the amount equal to
such reduction may not be included in the tax basis of the shareholder's
exchanged Shares but may be included (subject to the limitation) in the tax
basis of the new shares.
Other Investor Programs
- -----------------------
As described in the Prospectuses, Shares of the Funds may be purchased
in connection with the Automatic Investment Program, and certain Retirement
Programs. Customers of Shareholder Organizations may obtain information on the
availability of, and the fees and procedures relating to, such programs directly
from their Shareholder Organizations.
DESCRIPTION OF CAPITAL STOCK
----------------------------
Excelsior Fund's Charter authorizes its Board of Directors to issue up
to thirty-five billion full and fractional shares of capital stock, and to
classify or reclassify any unissued shares of Excelsior Fund into one or more
classes or series by setting or changing in any one or more respects their
respective preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends,
SAI-24-
<PAGE>
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 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
SAI-25-
<PAGE>
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:
SAI-26-
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupation
with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ---------------- ---------------- -----------------------------
<S> <C> <C>
Alfred C. Tannachion/1/ Chairman of the Retired; Chairman of the
1135 Hyde Park Court Board, President Boards, President and
Mahwah, NJ 07430 and Treasurer Treasurer of Excelsior Fund
Age: 70 and Excelsior Tax-Exempt;
Chairman of the Board,
President and Treasurer of UST
Master Variable Series, Inc.
(since 1994); Chairman of the
Board, President and Treasurer
of Excelsior Institutional
Trust (since 1995).
Donald L. Campbell Director Retired; Director of
333 East 69th Street Excelsior Fund and Excelsior
Apt. 10-H Tax-Exempt; Director of UST
New York, NY 10021 Master Variable Series, Inc.
Age: 70 (since 1994); Trustee of
Excelsior Institutional Trust
(since 1995); Director, Royal
Life Insurance Co. of NY
(since 1991).
Joseph H. Dugan Director Retired; Director of
913 Franklin Lakes Road Excelsior Fund and Excelsior
Franklin Lakes, NJ 07417 Tax-Exempt; Director of UST
Age: 71 Master Variable Series, Inc.
(since 1994); Trustee of
Excelsior Institutional Trust
(since 1995).
Wolfe J. Frankl Director Retired; Director of
2320 Cumberland Road Excelsior Fund and Excelsior
Charlottesville, VA 22901 Tax-Exempt; Director of UST
Age: 75 Master Variable Series, Inc. (since
1994); Trustee of Excelsior
Institutional Trust (since 1995);
Director, Deutsche Bank Financial, Inc.
(since 1989); Director, The Harbus
Corporation (since 1951); Trustee, HSBC
Funds Trust and HSBC Mutual Funds Trust
(since 1995).
</TABLE>
- --------------------
1. This director is considered to be an "interested person" of Excelsior Fund
as defined in the 1940 Act.
SAI-27-
<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 Director of UST Master
New York, NY 10017 Variable Series, Inc. (since
Age: 70 1994); Trustee of Excelsior
Institutional Trust (since 1995);
President Emeritus, The Church Pension
Fund and its affiliated companies
(since 1968); Trustee, H.B. and F.H.
Bugher Foundation and Director of its
wholly owned subsidiaries -- Rosiclear
Lead and Flourspar Mining Co. and The
Pigmy Corporation (since 1984);
Director, Morehouse Publishing Co.
(since 1974); Trustee, HSBC Funds Trust
and HSBC Mutual Funds Trust (since
1982); Director, Infinity Funds, Inc.
(since 1995).
Frederick S. Wonham/1/ Director Retired; Director of Excelsior Fund
238 June Road and Excelsior Tax-Exempt; Trustee of
Stamford, CT 06903 Excelsior Funds and Excelsior
Age: 65 Institutional Trust (since 1995);
Vice Chairman of U.S. Trust Corporation
and U.S. Trust Company of New York
(until September, 1995); Chairman, U.S.
Trust of Connecticut.
W. Bruce McConnel, III Secretary Partner of the law firm of Drinker
Philadelphia National Biddle & Reath.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age: 53
Sherry Aramini Assistant Second Vice President, Blue
Chase Global Funds Secretary Sky Compliance Manager,
Services Company Chase Global Funds Services
73 Tremont Street Company since May 1996;
Boston, MA 02108-3913 Technical Resource Manager,
Age: 32 Chase Global Funds Services
Company, April 1995-May 1996; Financial
Reporting Supervisor, Chase Global
Funds Services Company, September 1993-
April 1995; Audit Supervisor, Coopers &
Lybrand L.L.P., July 1990-August 1993.
</TABLE>
- -----------------------
1. This director is considered to be an "interested person" of Excelsior Fund
as defined in the 1940 Act.
SAI-28-
<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 (July 1996-present);
Boston, MA 02108-3913 Second Vice President, Manager
Age: 31 of Administration, Chase Global
Funds Services Company (October
1993-July 1996); Audit Manager,
Ernst & Young LLP (from August 1987
to September 1993).
</TABLE>
Each director of Excelsior Fund receives an annual fee of $9,000 plus
a per-Company meeting fee of $1,500 for each meeting attended and is reimbursed
for expenses incurred in attending meetings. The Chairman of the Board is
entitled to receive an additional $5,000 per annum with respect to each Company
for services in such capacity. Drinker Biddle & Reath, of which Mr. McConnel is
a partner, receives legal fees as counsel to Excelsior Fund. The employees of
Chase Global Funds Services Company do not receive any compensation from
Excelsior Fund for acting as officers of Excelsior Fund. No person who is
currently an officer, director or employee of the Investment Adviser serves as
an officer, director or employee of Excelsior Fund. As of July 15, 1996, the
directors and officers of Excelsior Fund as a group owned beneficially less than
1% of the outstanding Shares of each Fund of the Company, and less than 1% of
the outstanding Shares of all Funds of the Company in the aggregate.
The following chart provides certain information about the fees
received by Excelsior Fund's directors in the most recently completed fiscal
year.
SAI-29-
<PAGE>
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Accrued as from Excelsior Fund
Aggregate Part of and Fund
Name of Compensation from Fund Complex* Paid
Person/Position Excelsior Fund Expenses to Directors
- ------------------------- ----------------- -------- -------------------
<S> <C> <C> <C>
Donald L. Campbell $16,500 None $39,500(4)**
Director
Joseph H. Dugan $16,500 None $39,500(4)**
Director
Wolfe J. Frankl $16,500 None $39,500(4)**
Director
Robert A. Robinson $16,500 None $39,500(4)**
Director
Alfred C. Tannachion $21,500 None $51,500(4)**
Chairman of the Boards,
President and Treasurer
Frederick S. Wonham+ $ 6,375 None $ 14,424**
</TABLE>
- ---------------------------
/*/ The "Fund Complex" consists of Excelsior Fund, Excelsior Tax-Exempt
Funds, Inc., UST Master Variable Series, Inc., Excelsior Funds and
Excelsior Institutional Trust.
/**/ Number of investment companies in the Fund Complex for which director
serves as director or trustee.
/+/ Frederick S. Wonham was elected to the Board of Directors of Excelsior
Funds, Inc. and Excelsior Tax-Exempt Funds, Inc. on November 17, 1995.
Investment Advisory and Administration Agreements
- -------------------------------------------------
United States Trust Company of New York serves as Investment Adviser
to the Funds. In the Investment Advisory Agreement, the Investment Adviser has
agreed to provide the services described in the Prospectuses. The Investment
Adviser has also agreed to pay all expenses incurred by it in connection with
its activities under the respective agreements other than the cost of
securities, including brokerage commissions, purchased for the Funds.
For the fiscal year ended March 31, 1994, Excelsior Fund paid the
Investment Adviser $870,735, $555,404, $599, $12,682, $0, $2,216, $59,196,
$4,566, $5,162 and $53,036 with respect to the Equity, Income and Growth, Long-
Term Supply of
SAI-30-
<PAGE>
Energy, Productivity Enhancers, Environmentally-Related Products and Services,
Aging of America, Communication and Entertainment, Business and Industrial
Restructuring, Global Competitors and Early Life Cycle Funds, respectively. For
the same period, the Investment Adviser waived fees totalling $1,516, $1,179,
$22,139, $30,754, $18,247, $32,626, $22,594, $29,394, $26,625 and $23,696 with
respect to the Equity, Income and Growth, Long-Term Supply of Energy,
Productivity Enhancers, Environmentally-Related Products and Services, Aging of
America, Communication and Entertainment, Business and Industrial Restructuring,
Global Competitors and Early Life Cycle Funds, respectively.
For the fiscal year ended March 31, 1995, Excelsior Fund paid the
Investment Adviser advisory fees of $880,638, $726,295, $48,882, $79,570, $0,
$68,122, $136,328, $120,783, $79,924 and $194,501 with respect to the Equity,
Income and Growth, Long-Term Supply of Energy, Productivity Enhancers,
Environmentally-Related Products and Services, Aging of America, Communication
and Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds, respectively. For the same period, the Investment
Adviser waived fees totalling $26,987, $24,620, $20,193, $22,983, $26,278,
$24,503, $17,130, $18,380, $15,637 and $26,625 with respect to the Equity,
Income and Growth, Long-Term Supply of Energy, Productivity Enhancers,
Environmentally-Related Products and Services, Aging of America, Communication
and Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds, respectively.
For the fiscal year ended March 31, 1996, Excelsior Fund paid the
Investment Adviser advisory fees of $1,111,127; $785,037; $114,497; $147,036;
$0; $185,180; $222,009; $273,025; $253,937; and $336,194 with respect to the
Equity, Income and Growth, Long-Term Supply of Energy, Productivity Enhancers,
Environmentally-Related Products and Services, Aging of America, Communication
and Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds, respectively. For the same period, the Investment
Adviser waived fees totalling $106,377, $69,637, $10,935, $11,813, $25,855,
$15,937, $18,360, $21,119, $16,714, and $57,942 with respect to the Equity,
Income and Growth, Long-Term Supply of Energy, Productivity Enhancers,
Environmentally-Related Products and Services, Aging of America, Communication
and Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds, respectively.
The Investment Advisory Agreement provides that the Investment Adviser
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Funds in connection with the performance of such agreements,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from
SAI-31-
<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 (the
"Administrators") serve as the Funds' administrators. Under the Administration
Agreement, the Administrators have agreed to maintain office facilities for the
Funds, furnish the Funds with statistical and research data, clerical,
accounting and bookkeeping services, and certain other services required by the
Funds, and to compute the net asset value, net income and realized capital gains
or losses, if any, of the respective Funds. The Administrators prepare
semiannual reports to the Securities and Exchange Commission, prepare Federal
and state tax returns, prepare filings with state securities commissions,
arrange for and bear the cost of processing Share purchase and redemption
orders, maintain the Funds' financial accounts and records, and generally assist
in the Funds' operations.
Prior to August 1, 1995, administrative services were provided to the
Funds by CGFSC and Concord Holding Corporation (collectively, the "former
administrators") under an administration agreement having substantially the same
terms as the Administration Agreement currently in effect.
For the fiscal year ended March 31, 1994, Excelsior Fund paid the
former administrators $179,398, $114,452, $5,826, $17,527, $4,739, $7,444,
$22,881, $10,016, $10,462 and $21,420 in the aggregate with respect to the
Equity, Income and Growth, Long-Term Supply of Energy, Productivity Enhancers,
Environmentally-Related Products and Services, Aging of America, Communication
and Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds, respectively. For the same period, the former
administrators waived fees totalling $17,424, $5,723, $18,511, $15,806, $2,360,
$13,234, $12,788 and $1,861 with respect to the Long-Term Supply of Energy,
Productivity Enhancers, Environmentally-Related Products and Services, Aging of
America, Communication and Entertainment, Business and Industrial Restructuring,
Global Competitors and Early Life Cycle Funds, respectively.
For the fiscal year ended March 31, 1995, Excelsior Fund paid the
former administrators $186,366, $154,582, $19,660, $26,357, $5,451, $24,003,
$39,403, $35,765, $24,816 and $56,809 in the aggregate with respect to the
Equity, Income and Growth, Long-Term Supply of Energy, Productivity Enhancers,
SAI-32-
<PAGE>
Environmentally-Related Products and Services, Aging of America, Communication
and Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds, respectively. For the same period, the former
administrators waived fees totalling $22,090, $15,393, $36,299, $17,747, $2,347,
$5,985 and $16,934 with respect to the Long-Term Supply of Energy, Productivity
Enhancers, Environmentally-Related Products and Services, Aging of America,
Communication and Entertainment, Business and Industrial Restructuring and
Global Competitors Funds, respectively.
For the period April 1, 1995 through July 31, 1995, Excelsior Fund
paid the former administrators $72,709, $53,296, $9,318, $11,203, $6,000,
$13,476, $16,964, $18,319, $16,756 and $27,350 in the aggregate with respect to
the Equity, Income and Growth, Long-Term Supply of Energy, Productivity
Enhancers, Environmentally-Related Products and Services, Aging of America,
Communication and Entertainment, Business and Industrial Restructuring, Global
Competitors and Early Life Cycle Funds, respectively. For the same period, the
former administrators waived fees totalling $1,640, $575, $9, $10, $0, $13, $37,
$34, $16 and $75 with respect to the Equity, Income and Growth, Long-Term Supply
of Energy, Productivity Enhancers, Environmentally-Related Products and
Services, Aging of America, Communication and Entertainment, Business and
Industrial Restructuring, Global Competitors and Early Life Cycle Funds,
respectively.
For the period August 1, 1995 through March 31, 1996, Excelsior Fund
paid the Administrators $171,595, $120,732, $22,976, $29,686, $6,494, $38,285,
$44,871, $57,370, $52,911 and $74,016 in the aggregate with respect to the
Equity, Income and Growth, Long-Term Supply of Energy, Productivity Enhancers,
Environmentally-Related Products and Services, Aging of America, Communication
and Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds, respectively. For the same period, the Administrators
waived fees totalling $4,809, $1,416, $17,697, $9,101, $37,506, $13, $16, $19,
$7 and $40 with respect to the Equity, Income and Growth, Long-Term Supply of
Energy, Productivity Enhancers, Environmentally-Related Products and Services,
Aging of America, Communication and Entertainment, Business and Industrial
Restructuring, Global Competitors and Early Life Cycle Funds, respectively.
Service Organizations
- ---------------------
As stated in the Prospectuses, Excelsior Fund will enter into
agreements with Service Organizations. Such shareholder servicing agreements
will require the Service Organizations to provide shareholder administrative
services to their Customers who beneficially own Shares in consideration for
SAI-33-
<PAGE>
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 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
SAI-34-
<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, 1996, 1995 and 1994, payments to
Service Organizations totalled $112,827, $26,987 and $1,516; $71,628, $24,620
and $1,179; $10,946, $3,576 and $124; $11,169, $4,525 and $239; $4,404, $1,660
and $83; $15,685, $4,051 and $180; $18,414, $7,168 and $382; $21,172, $5,189 and
$196; $16,737, $3,243 and $117; and $58,058, $17,091 and $779 with respect to
the Equity, Income and Growth, Long-Term Supply of Energy, Productivity
Enhancers, Environmentally-Related Products and Services, Aging of America,
Communication and Entertainment, Business and Industrial Restructuring, Global
Competitors and Early Life Cycle Funds, respectively. Of these amounts,
$97,209, $18,606 and $1,516; $66,022, $22,697 and $1,179; $10,945, $3,525 and
$124; $11,169, $4,446 and $239; $4,403, $1,626 and $83; $15,685, $3,902 and
$180; $18,385, $6,707 and $382; $21,149, $4,851 and $196; $16,737, $3,163 and
$717; and $58,039, $16,428 and $779 were paid to affiliates of U.S. Trust with
respect to the Equity, Income and Growth, Long-Term Supply of Energy,
Productivity Enhancers, Environmentally-Related Products and Services, Aging of
America, Communication and Entertainment, Business and Industrial Restructuring,
Global Competitors and Early Life Cycle Funds, respectively.
Expenses
- --------
Except as otherwise noted, the Investment Adviser and the
Administrators bear all expenses in connection with the performance of their
services. The Funds bear the expenses incurred in their operations. Expenses
of the Funds include taxes; interest; fees (including fees paid to Excelsior
Fund's Directors and officers who are not affiliated with the Distributor or the
Administrators); Securities and Exchange Commission fees; state securities
qualifications fees; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to shareholders; expenses related to the
Distribution Plan; advisory, administration and administrative servicing fees;
charges of the custodian, transfer agent, and dividend disbursing agent; certain
insurance premiums; outside auditing and legal expenses; costs of shareholders
reports and shareholder meetings; and any extraordinary expenses. The Funds
also pay for brokerage fees and commissions in connection with the purchase of
portfolio securities.
If the expenses borne by a Fund in any fiscal year exceed expense
limitations imposed by applicable state securities regulations, the Investment
Adviser and the Administrators will reimburse such Fund for a portion of any
such
SAI-35-
<PAGE>
excess to the extent required by such regulations in proportion to the fees
received by them in such year up to the amount of the fees payable to them,
provided, however, to the extent required by such state regulations, the
Investment Adviser and the Administrators have agreed to effect such
reimbursement regardless of the fees payable to them. The amounts of the above
reimbursements, if any, will be estimated, reconciled and paid on a monthly
basis. To Excelsior Fund's knowledge, of the applicable expense limitations in
effect on the date of this Statement of Additional Information, none is more
restrictive than the following: 2 1/2% of the first $30 million of average
annual net assets, 2% of the next $70 million of average annual net assets and
1/2% of average annual net assets in excess of $100 million.
Custodian and Transfer Agent
- ----------------------------
The Chase Manhattan Bank, N.A. ("Chase") serves as custodian of the
Funds' assets. Under the custodian
agreement, Chase has agreed to (i) maintain a separate account or accounts in
the name of the Funds; (ii) make receipts and disbursements of money on behalf
of the Funds; (iii) collect and receive all income and other payments and
distributions on account of the Funds' portfolio securities; (iv) respond to
correspondence from securities brokers and others relating to its duties; (v)
maintain certain financial accounts and records; and (vi) make periodic reports
to Excelsior Fund's Board of Directors concerning the Funds' operations. Chase
may, at its own expense, open and maintain custody accounts with respect to the
Funds with other banks or trust companies, provided that Chase shall remain
liable for the performance of all its custodial duties under the Custodian
Agreement, notwithstanding any delegation.
U.S. Trust also serves as the Funds' transfer agent and dividend
disbursing agent. In such capacity, U.S. Trust has agreed to (i) issue and
redeem Shares; (ii) address and mail all communications by the Funds to their
shareholders, including reports to shareholders, dividend and distribution
notices, and proxy materials for its meetings of shareholders; (iii) respond to
correspondence by shareholders and others relating to its duties; (iv) maintain
shareholder accounts; and (v) make periodic reports to Excelsior Fund concerning
the Funds' operations. For its transfer agency, dividend disbursing, and
subaccounting services, U.S. Trust is entitled to receive $15.00 per annum per
account and subaccount. In addition, U.S. Trust is entitled to be reimbursed
for its out-of-pocket expenses for the cost of forms, postage, processing
purchase and redemption orders, handling of proxies, and other similar expenses
in connection with the above services.
U.S. Trust may, at its own expense, delegate its transfer agency
obligations to another transfer agent registered
SAI-36-
<PAGE>
or qualified under applicable law, provided that U.S. Trust shall remain liable
for the performance of all of its transfer agency duties under the Transfer
Agency Agreement, notwithstanding any delegation. Pursuant to this provision in
the agreement, U.S. Trust has entered into a sub-transfer agency arrangement
with CGFSC, an affiliate of Chase, with respect to accounts of shareholders who
are not Customers of U.S. Trust. For the services provided by CGFSC, U.S. Trust
has agreed to pay CGFSC $15.00 per annum per account or subaccount plus out-of-
pocket expenses. CGFSC receives no fee directly from Excelsior Fund for any of
its sub-transfer agency services. U.S. Trust may, from time to time, enter into
sub-transfer agency arrangements with third party providers of transfer agency
services.
PORTFOLIO TRANSACTIONS
----------------------
Subject to the general control of Excelsior Fund's Board of Directors,
the Investment Adviser is responsible for, makes decisions with respect to, and
places orders for all purchases and sales of all portfolio securities of each of
the Funds.
The Funds may engage in short-term trading to achieve their investment
objectives. Portfolio turnover may vary greatly from year to year as well as
within a particular year. The Funds' portfolio turnover rate may also be
affected by cash requirements for redemptions of Shares and by regulatory
provisions which enable the Funds to receive certain favorable tax treatment.
Portfolio turnover will not be a limiting factor in making portfolio decisions.
See "Financial Highlights" in the Funds' Prospectuses for the Funds' portfolio
turnover rates.
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. For the fiscal years
ended March 31, 1994, March 31, 1995 and March 31, 1996, the Equity Fund paid
brokerage commissions aggregating $61,608, $123,112 and $174,492, respectively,
and the Income and Growth Fund paid brokerage commissions aggregating $140,168,
$89,218 and $89,512, respectively.
For the fiscal years ended March 31, 1994, March 31, 1995, and March
31, 1996, the Long-Term Supply of Energy, Productivity Enhancers,
Environmentally-Related Products and Services, Aging of America, Communication
and Entertainment, Business and Industrial Restructuring, Global Competitors and
Early Life Cycle Funds paid brokerage commissions aggregating $15,871, $36,759
and $46,678; $40,563, $141,290 and $353,788; $13,602, $16,669 and $18,680;
$20,905, $28,296 and $67,494; $40,593, $50,724 and $68,004; $46,444, $121,755
and $152,269;
SAI-37-
<PAGE>
$17,428, $41,638 and $79,458; and $40,397, $73,534 and $95,108, respectively.
Transactions in domestic over-the-counter markets are generally
principal transactions with dealers, and the costs of such transactions involve
dealer spreads rather than brokerage commissions. With respect to over-the-
counter transactions, the Funds, where possible, will deal directly with the
dealers who make a market in the securities involved, except in those
circumstances where better prices and execution are available elsewhere.
The Investment Advisory Agreement between Excelsior Fund and the
Investment Adviser provides that, in executing portfolio transactions and
selecting brokers or dealers, the Investment Adviser will seek to obtain the
best net price and the most favorable execution. The Investment Adviser shall
consider factors it deems relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer and whether such broker or dealer is selling
shares of Excelsior Fund, and the reasonableness of the commission, if any, for
the specific transaction and on a continuing basis.
In addition, the Investment Advisory Agreement authorizes the
Investment Adviser, to the extent permitted by law and subject to the review of
Excelsior Fund's Board of Directors from time to time with respect to the extent
and continuation of the policy, to cause the Funds to pay a broker which
furnishes brokerage and research services a higher commission than that which
might be charged by another broker for effecting the same transaction, provided
that the Investment Adviser determines in good faith that such commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker, viewed in terms of either that particular transaction
or the overall responsibilities of the Investment Adviser to the accounts as to
which it exercises investment discretion. Such brokerage and research services
might consist of reports and statistics on specific companies or industries,
general summaries of groups of stocks and their comparative earnings, or broad
overviews of the stock market and the economy.
Supplementary research information so received is in addition to and
not in lieu of services required to be performed 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.
SAI-38-
<PAGE>
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, 1996, the following Funds held the following securities of
Excelsior Fund's regular brokers or dealers or their parents: (a) the Equity
held the following security: 88,000 shares of common stock of Morgan Stanley &
Co., Inc.; (b) the Income & Growth Fund held the following security: 48,000
shares of common stock of Morgan Stanley & Co., Inc.; (c) the Business and
Industrial Restructuring Fund held the following security: 18,000 shares of
common stock of First National Bank of Chicago; (d) the Aging of America Fund
held the following security: 16,000 shares of common stock of Dean Witter
Reynolds; (e) the Global Competitors Fund held the following security: 45,000
shares of common stock of Morgan Stanley & Co., Inc. Morgan Stanley & Co.,
Inc., First National Bank of Chicago and Dean Witter Reynolds, Inc. are
considered to be regular brokers or dealers of Excelsior Fund.
SAI-39-
<PAGE>
INDEPENDENT AUDITORS
--------------------
Ernst & Young LLP, independent auditors, 200 Clarendon Street, Boston,
MA 02116, serve as auditors of Excelsior Fund. The Funds' Financial Highlights
included in the Prospectuses and the financial statements for the period ended
March 31, 1996 incorporated by reference in this Statement of Additional
Information have been audited by Ernst & Young LLP for the periods included in
their reports thereon which appear therein.
COUNSEL
-------
Drinker Biddle & Reath (of which Mr. McConnel, Secretary of Excelsior
Fund, is a partner), Philadelphia National Bank Building, 1345 Chestnut Streets,
Philadelphia, Pennsylvania 19107, is counsel to Excelsior Fund and will pass
upon the legality of the Shares offered by the Prospectuses.
ADDITIONAL INFORMATION CONCERNING TAXES
---------------------------------------
The following supplements the tax information contained in the
Prospectuses.
Each Fund is treated as a separate corporate entity under the Internal
Revenue Code of 1986, as amended (the "Code"), and intends to qualify as a
regulated investment company. If, for any reason, a Fund does not qualify for a
taxable year for the special Federal tax treatment afforded regulated investment
companies, such Fund would be subject to Federal tax on all of its taxable
income at regular corporate rates, without any deduction for distributions to
shareholders. In such event, dividend distributions (whether or not derived
from interest on Municipal Securities) would be taxable as ordinary income to
shareholders to the extent of the Fund's current and accumulated earnings and
profits and would be eligible for the dividends received deduction in the case
of corporate shareholders.
A Fund will designate any distribution of the excess of net long-term
capital gain over net short-term capital loss as a capital gain dividend in a
written notice mailed to shareholders within 60 days after the close of the
Fund's taxable year. Upon the sale or exchange of Shares, if the shareholder
has not held such Shares for more than six months, any loss on the sale or
exchange of those Shares will be treated as long-term capital loss to the extent
of the capital gain dividends received with respect to the Shares.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income
SAI-40-
<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
SAI-41-
<PAGE>
be netted for purposes of determining whether the 30% test is met.
Each Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends or gross proceeds realized upon sale
paid to shareholders who have failed to provide a correct tax identification
number in the manner required, who are subject to withholding by the Internal
Revenue Service for failure properly to include on their return payments of
taxable interest or dividends, or who have failed to certify to the Fund when
required to do so either that they are not subject to backup withholding or that
they are "exempt recipients."
The foregoing discussion is based on Federal tax laws and regulations
which are in effect on the date of this Statement of Additional Information;
such laws and regulations may be changed by legislative or administrative
action. Shareholders are advised to consult their tax advisers concerning their
specific situations and the application of state and local taxes.
PERFORMANCE INFORMATION
-----------------------
The Funds may advertise the "average annual total return" for its
Service Shares and Trust Shares. Such return is computed by determining the
average annual compounded rate of return during specified periods that equates
the initial amount invested to the ending redeemable value of such investment
according to the following formula:
ERV /1/n/
T = [(-----) - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10 year
(or other) periods at the end of the applicable period
(or a fractional portion thereof).
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in years.
SAI-42-
<PAGE>
Each Fund that advertises an "aggregate total return" for its Service
Shares and Trust 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 (reflecting any sales load charged
upon such reinvestment), (2) all recurring fees charged to all shareholder
accounts are included, and (3) for any account fees that vary with the size of
the account, a mean (or median) account size in a Fund during the periods is
reflected. The ending redeemable value (variable "ERV" in the formula) is
determined by assuming complete redemption of the hypothetical investment after
deduction of all nonrecurring charges at the end of the measuring period. In
addition, the Funds' average annual total return and aggregate total return
quotations will reflect the deduction of the maximum sales load charged in
connection with the purchase of Shares.
Based on the foregoing calculations, the total returns for the Service
Shares of the Equity, Income and Growth, Long-Term Supply of Energy,
Productivity Enhancers, Environmentally-Related Products and Services, Aging of
America, Communication and Entertainment, Business and Industrial Restructuring,
Global Competitors and Early Life Cycle Funds for the one year period ended
March 31, 1996 were 20.75%, 20.14%, 16.17%, 21.30%, 18.92%, 20.14%, 8.42%,
30.31%, 21.72% and 12.97%, respectively. The average annual total returns for
the Service Shares of the Equity Fund and the Income and Growth Fund for the
five year period ended March 31, 1996 were 15.49% and 14.73%, respectively. The
average annual total return for the Service Shares of the Equity Fund for the
ten year period ended March 31, 1996 was 11.58%. The average annual total
returns for the Service Shares of the Income and Growth Fund for the period
January 6, 1987 (the commencement of operations) to March 31, 1996 was 10.93%
The average annual total returns for the Service Shares of the Long-Term Supply
of Energy, Productivity Enhancers, Environmentally-Related Products and
Services, Aging of America, Communication and Entertainment, Business and
Industrial Restructuring, Global Competitors and Early Life Cycle Funds for the
period from December 31, 1992 (commencement of operations) to March 31, 1996
were 9.52%, 11.63%, 1.74%, 9.91%, 15.51%, 24.24%, 13.67% and
SAI-43-
<PAGE>
16.16%, respectively. No Trust Shares of the Funds had been issued as of March
31, 1996.
The Funds may also from time to time include in advertisements, sales
literature and communications to shareholders a total return figure that is not
calculated according to the formula set forth above in order to compare more
accurately a Fund's performance with other measures of investment return. For
example, in comparing a Fund's total return with data published by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. or Weisenberger
Investment Company Service, or with the performance of an index, a Fund may
calculate its aggregate total return for the period of time specified in the
advertisement or communication by assuming the investment of $10,000 in Shares
and assuming the reinvestment of each dividend or other distribution at net
asset value on the reinvestment date. Percentage increases are determined by
subtracting the initial value of the investment from the ending value and by
dividing the remainder by the beginning value. A Fund does not, for these
purposes, deduct from the initial value invested any amount representing sales
charges. A Fund will, however, disclose the maximum sales charge and will also
disclose that the performance data does not reflect sales charges and that
inclusion of sales charges would reduce the performance quoted.
The total return of Shares of a Fund may be compared to those of other
mutual funds with similar investment objectives and to other relevant indices or
to ratings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
total return of a Fund may be compared to data prepared by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc. and Weisenberger Investment
Company Service. Total return and yield data as reported in national financial
publications such as Money Magazine, Forbes, Barron's, The Wall Street Journal
----- -------- ------ -------- --- ---- ------ -------
and The New York Times, or in publications of a local or regional nature, may
--- --- ---- -----
also be used in comparing the performance of a Fund. Advertisements, sales
literature or reports to shareholders may from time to time also include a
discussion and analysis of each Fund's performance, including without
limitation, those factors, strategies and techniques that together with market
conditions and events, materially affected each Fund's performance.
The Funds may also from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on a Fund
investment are reinvested by being paid in additional Fund Shares, any future
income or capital appreciation of a Fund would increase the value, not only of
the original Fund investment, but also of the additional Fund Shares received
through reinvestment. As a result, the value of the Fund investment would
increase more
SAI-44-
<PAGE>
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 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 25, 1996, U.S. Trust held of record substantially all of
the Shares in the Funds, in each case as agent or custodian for its customers,
but did not own such Shares beneficially because it did not have discretion to
vote or invest such Shares.
SAI-45-
<PAGE>
As of July 25, 1996, the name, address and percentage ownership of
each person, in addition to U.S. Trust, that beneficially owned 5% or more of
the outstanding shares of a Fund were as follows: Equity Fund: United States
-----------
Trust Company Retirement Fund, 114 West 47th Street, New York, New York 10036,
18.6%.
FINANCIAL STATEMENTS
--------------------
Excelsior Fund's Annual Report to Shareholders for the fiscal year
ended March 31, 1996 (the "Annual Report") for the domestic equity portfolios
accompanies this Statement of Additional Information. The financial statements
in the Annual Report for the Equity, Income and Growth, Long-Term Supply of
Energy, Productivity Enhancers, Environmentally-Related Products and Services,
Aging of America, Communication and Entertainment, Business and Industrial
Restructuring, Global Competitors and Early Life Cycle Funds (the "Financial
Statements") are incorporated in this Statement of Additional Information by
reference. The Financial Statements included in the Annual Report for the
fiscal year ended March 31, 1996 have been audited by Excelsior Fund's
independent auditors, Ernst & Young LLP, whose reports thereon also appear in
such Annual Report and are incorporated herein by reference. The Financial
Statements in such Annual Report have been incorporated herein in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing. Additional copies of the Annual Report may be obtained at no charge
by telephoning CGFSC at the telephone number appearing on the front page of this
Statement of Additional Information.
SAI-46-
<PAGE>
APPENDIX A
----------
COMMERCIAL PAPER RATINGS
- ------------------------
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the rating categories used by Standard and
Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory. However,
the relative degree of safety is not as high as for issues designated "A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are considered
to have a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity.
SAI-A-1
<PAGE>
"Prime-2" - Issuer or related supporting institutions are considered
to have a strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment. Short-
term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk
SAI-A-2
<PAGE>
factors are larger and subject to more variation. Nevertheless, timely payment
is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years. The
following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one
SAI-A-3
<PAGE>
year or less which is issued by United States commercial banks, thrifts and non-
bank banks; non-United States banks; and broker-dealers. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded as non-
investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations which possess a particularly strong credit feature
are supported by the highest capacity for timely repayment.
"A1" - Obligations are supported by the highest capacity for timely
repayment.
"A2" - Obligations are supported by a satisfactory capacity for timely
repayment.
"A3" - Obligations are supported by a satisfactory capacity for timely
repayment.
"B" - Obligations for which there is an uncertainty as to the capacity
to ensure timely repayment.
"C" - Obligations for which there is a high risk of default or which
are currently in default.
SAI-A-4
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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.
SAI-A-5
<PAGE>
"CCC" - Debt has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no interest
is being paid.
"D" - Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes such payments
will be made during such grace period. "D" rating is also used upon the filing
of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are
SAI-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.
SAI-A-7
<PAGE>
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1 and B1.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA"
SAI-A-8
<PAGE>
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "BBB" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in
SAI-A-9
<PAGE>
business, economic or financial conditions are more likely to lead to increased
investment risk than for obligations in higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to
denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
SAI-A-10
<PAGE>
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection
SAI-A-11
<PAGE>
commonly regarded as required of an investment security and not distinctly or
predominantly speculative.
"SG" - Loans bearing this designation are of speculative quality and
lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
SAI-A-12
