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[LOGO] EXCELSIOR
FUNDS INC.
Emerging Markets Fund
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73 Tremont Street
Boston, Massachusetts 02108-3913
For initial purchase information, current pric-
es, performance information and existing account
information, call (800) 446-1012. (From over-
seas, call (617) 557-8280.)
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This Prospectus describes the Emerging Markets Fund (the "Fund"), a diversified
portfolio offered to investors by Excelsior Funds, Inc. ("Excelsior Fund"), an
open-end, management investment company. The Fund's investment objective and
policies are as follows:
EMERGING MARKETS FUND seeks long-term capital appreciation through investments
primarily in equity securities of emerging country issuers.
The Fund is sponsored and distributed by Edgewood Services, Inc. and advised
by United States Trust Company of New York and U.S. Trust Company of Connecti-
cut (collectively, the "Investment Adviser" or "U.S. Trust").
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated December 22, 1997 and containing additional information about
the Fund has been filed with the Securities and Exchange Commission. The cur-
rent Statement of Additional Information is available to investors without
charge by writing to Excelsior Fund at its address shown above or by calling
(800) 446-1012. The Statement of Additional Information, as it may be supple-
mented from time to time, is incorporated by reference in its entirety into
this Prospectus. The Securities and Exchange Commission maintains a World Wide
Web site (http://www.sec.gov) that contains the Statement of Additional Infor-
mation and other information regarding Excelsior Fund.
SHARES IN THE FUND ("SHARES") ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, U.S. TRUST, ITS PARENT OR AFFILIATES AND THE SHARES ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RE-
SERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
December 22, 1997
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PROSPECTUS SUMMARY
EXCELSIOR FUNDS, INC. is an investment company offering various diversified
and non-diversified investment portfolios with differing objectives and poli-
cies. Founded in 1984, Excelsior Fund currently offers 18 Funds with combined
assets of approximately $3 billion. See "Description of Capital Stock."
INVESTMENT ADVISER: United States Trust Company of New York ("U.S. Trust New
York") and U.S. Trust Company of Connecticut ("U.S. Trust Connecticut" and,
collectively with U.S. Trust New York, "U.S. Trust" or the "Investment Advis-
er") serve as the Fund's investment adviser. U.S. Trust offers a variety of
specialized financial and fiduciary services to high-net worth individuals,
institutions and corporations. Excelsior Fund offers investors access to U.S.
Trust's services. See "Management of the Fund--Investment Adviser."
INVESTMENT OBJECTIVE AND POLICIES: Generally, the Fund is a diversified in-
vestment portfolio which invests primarily in equity securities of emerging
country issuers. The Fund's investment objective and policies are summarized
on the cover and explained in greater detail later in this Prospectus. See
"Investment Objective and Policies," "Portfolio Instruments and Other Invest-
ment Information" and "Investment Limitations."
HOW TO INVEST: The Fund's Shares are offered at their net asset value. Ex-
celsior Fund does not impose a sales load on purchases of Shares. See "How to
Purchase and Redeem Shares."
The minimum to start an account in the Fund is $500, with a minimum of $50
for subsequent investments. The easiest way to invest is to complete the ac-
count application which accompanies this Prospectus and to send it with a
check to the address noted on the application. Investors may also invest by
wire and through investment dealers or institutional investors with appropri-
ate sales agreements with Excelsior Fund. See "How to Purchase and Redeem
Shares."
HOW TO REDEEM: Redemptions may be requested directly from Excelsior Fund by
mail, wire or telephone. Investors investing through another institution
should request redemptions through their Shareholder Organization. See "How to
Purchase and Redeem Shares."
INVESTMENT RISKS AND CHARACTERISTICS: Generally, the Fund is subject to mar-
ket risk. Market risk is the possibility that stock prices will decline over
short or even extended periods. The stock markets tend to be cyclical, with
periods of generally rising prices and periods of generally declining prices.
These cycles will affect the values of the Fund. In addition, because the Fund
will invest in securities of foreign issuers, it is subject to the risks of
fluctuations of the value of foreign currency relative to the U.S. dollar and
other risks associated with such investments. Investing in securities of is-
suers located in developing or emerging countries may impose greater risks not
typically associated with investing in more established markets. Although the
Fund generally seeks to invest for the long term, the Fund may engage in
short-term trading of portfolio securities. A high rate of portfolio turnover
may involve correspondingly greater transaction costs which must be borne di-
rectly by the Fund and ultimately by its shareholders. Investment in the Fund
should not be considered a complete investment program. See "Investment Objec-
tive and Policies."
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EXPENSE SUMMARY
<TABLE>
<CAPTION>
EMERGING
MARKETS
FUND
--------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Load................................................... None
Sales Load on Reinvested Dividends..................................... None
Deferred Sales Load.................................................... None
Redemption Fees........................................................ None
Exchange Fees.......................................................... None
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fees (after fee waivers)/1/................................... 1.00%
12b-1 Fees............................................................. None
Other Operating Expenses
Administrative Servicing Fee.......................................... 0.08%
Other Expenses........................................................ 0.57%
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Total Operating Expenses (after fee waivers)/1/........................ 1.65%
=====
</TABLE>
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1. The Investment Adviser and Administrators may, from time to time, voluntar-
ily waive part of their respective fees, which waivers may be terminated at
any time. Without such fee waivers, "Advisory Fees" would be 1.25%, and "To-
tal Operating Expenses" would be 1.90%.
Example: You would pay the following estimated expenses on a $1,000 investment,
assuming (1) 5% annual returns and (2) redemption of your investment at the end
of the following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
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<S> <C> <C>
Emerging Markets Fund............................................ $17 $52
</TABLE>
The foregoing expense summary and example are intended to assist investors in
understanding the costs and expenses that an investor in Shares of the Fund
will bear directly or indirectly. The expense summary sets forth estimated ad-
visory and other expenses payable with respect to Shares of the Fund for the
current fiscal year. For more complete descriptions of the Fund's operating ex-
penses, see "Management of the Fund" and "Description of Capital Stock" in this
Prospectus.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES AND RATE OF RETURN MAY BE
GREATER OR LOWER THAN THOSE SHOWN IN THE EXPENSE SUMMARY AND EXAMPLE.
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INVESTMENT OBJECTIVE AND POLICIES
The Investment Adviser will use its best efforts to achieve the investment
objective of the Fund, although its achievement cannot be assured. The Fund's
investment objective and policies may be changed by Excelsior Fund's Board of
Directors without shareholder approval. The Fund has also adopted certain
"fundamental" investment limitations that may not be changed without a vote of
the holders of a majority of the Fund's outstanding Shares (as defined under
"Miscellaneous"). The Fund's fundamental limitations are set forth below under
"Investment Limitations" and in the Statement of Additional Information.
The Fund's investment objective is to provide long-term capital appreciation
by investing primarily in equity securities of emerging country issuers. Under
normal conditions, at least 65% of the Fund's total assets will be invested in
emerging country equity securities. While there are no prescribed limits on
its geographic distribution, the Fund will normally invest in securities of
issuers from at least three different emerging countries. With respect to the
Fund, equity securities include common and preferred stocks, convertible secu-
rities, rights and warrants to purchase common stocks, and sponsored and
unsponsored depository receipts and other similar instruments. As used in this
Prospectus, the term "emerging country" applies to any country which, in the
opinion of U.S. Trust, is generally considered to be an emerging or developing
country by the international financial community, including the International
Bank for Reconstruction and Development (more commonly known as The World
Bank) and the International Finance Corporation. There are currently over 130
countries which, in the opinion of U.S. Trust, are generally considered to be
emerging or developing countries by the international financial community, ap-
proximately 40 of which currently have stock markets. These countries gener-
ally include every nation in the world except the United States, Canada, Ja-
pan, Australia, New Zealand and most nations located in Western Europe. Cur-
rently, investing in many emerging countries is not feasible or may involve
unacceptable political risks. The countries in which the Fund may invest in-
clude, but are not limited to: Argentina; Botswana; Brazil; Chile; China; Co-
lombia; Ghana; Greece; Hong Kong; Hungary; India; Indonesia; Israel; Jamaica;
Jordan; Kenya; Malaysia; Mexico; Morocco; Nigeria; Pakistan; Peru; Philip-
pines; Poland; Portugal; Russia; South Africa; South Korea; Sri Lanka; Taiwan;
Thailand; Turkey; Venezuela; and Zimbabwe.
As markets in other countries develop, the Fund may expand and further diver-
sify the emerging countries in which it invests. The Fund generally intends to
invest only in securities in countries where the currency is freely convert-
ible to U.S. dollars.
An emerging country security is one issued by a company that, in the opinion
of U.S. Trust, has one or more of the following characteristics: (i) its prin-
cipal securities trading market is in an emerging country; (ii) alone or on a
consolidated basis it derives 50% or more of its annual revenue from either
goods produced, sales made or services performed in emerging countries; or
(iii) it is organized under the laws of, and has a principal office in, an
emerging country. U.S. Trust will base determinations as to eligibility on
publicly available information and inquiries made to the companies.
To the extent that the Fund's assets are not invested in emerging country eq-
uity securities, the remainder of the assets may be invested in (i) debt secu-
rities denominated in the currency of an emerging country or issued or guaran-
teed by an emerging country company or the government of an emerging country;
(ii) equity or debt securities of corporate or governmental issuers located in
industrialized countries; (iii) short-term and medium-term debt securities;
and (iv) other securities described below under "Portfolio Instruments and
Other Investment Information." The Fund's assets may be invested in debt secu-
rities when U.S. Trust believes that, based upon factors such as relative in-
terest rate levels and foreign exchange rates, such debt secu-
4
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rities offer opportunities for long-term capital appreciation. It is likely
that many of the debt securities in which the Fund will invest will be
unrated, and whether or not rated, such securities may have speculative char-
acteristics. When deemed appropriate by U.S. Trust, the Fund may invest up to
10% of its total assets in lower quality debt securities. Lower quality debt
securities, also known as "junk bonds," are often considered to be speculative
and involve greater risk of default or price changes due to changes in the is-
suer's creditworthiness. The market prices of these securities may fluctuate
more than those of higher quality securities and may decline significantly in
periods of general economic difficulty, which may follow periods of rising in-
terest rates. Securities in the lowest quality category may present the risk
of default, or may be in default.
Debt securities in which the Fund may invest include, without limitation,
Brady Bonds, which are securities issued in various currencies (primarily the
dollar) that have been created through the exchange of existing commercial
bank loans to Latin American public and private entities for new bonds in con-
nection with debt restructurings under a debt restructuring plan announced by
former U.S. Secretary of the Treasury Nicholas F. Brady (the "Brady Plan").
Brady Bonds have been issued only recently and for that reason do not have a
long payment history. Brady Bonds may be collateralized or uncollateralized,
are issued in various currencies (primarily the U.S. dollar) and are actively
traded in the over-the-counter secondary market for Latin American debt in-
struments. Brady Bonds are neither issued nor guaranteed by the U.S. Govern-
ment. Additional information on Brady Bonds is included in the Statement of
Additional Information.
The Fund may invest in illiquid securities, non-publicly traded securities,
private placements and restricted securities. The Fund also may invest up to
5% of its total assets in gold bullion. Investments in gold will not produce
dividends or interest income, and the Fund can look only to price appreciation
for a return on such investments.
Under unusual economic and market conditions, the Fund may restrict the secu-
rities markets in which its assets are invested and may invest all or a major
portion of its assets in U.S. Government obligations or in U.S. dollar-denomi-
nated securities of U.S. companies. During normal market conditions, up to 25%
of the Fund's assets may also be held on a continuous basis in cash or in-
vested in U.S. money market instruments (see below under "Money Market Instru-
ments") to meet redemption requests or to take advantage of emerging invest-
ment opportunities.
RISK FACTORS
The Fund is subject to market risk and interest rate risk. Market risk is the
possibility that stock prices will decline over short or even extended peri-
ods. The stock markets tend to be cyclical, with periods of generally rising
prices and periods of generally declining prices. These cycles will affect the
values of the Fund. In addition, to the extent the Fund invests in debt in-
struments, the prices of debt instruments generally fluctuate inversely with
interest rate changes.
Investments in foreign securities involve certain risks not ordinarily asso-
ciated with investments in domestic securities. Such risks include fluctua-
tions in foreign exchange rates, future political and economic developments,
and the possible imposition of exchange controls or other foreign governmental
laws or restrictions. Because the Fund will invest heavily in securities de-
nominated or quoted in currencies other than the U.S. dollar, changes in for-
eign currency exchange rates will, to the extent the Fund does not adequately
hedge against such fluctuations, affect the value of securities in the portfo-
lio and the unrealized appreciation or depreciation of investments so far as
U.S. investors are concerned. In addition, with respect to certain countries
there is the possibility of expropriation of assets, confiscatory taxation,
political or social instability or diplomatic developments which could ad-
versely affect investments in those countries. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign
5
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companies may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to or as uniform as those of U.S.-based
companies. Foreign securities markets, while growing in volume, have, for the
most part, substantially less volume than U.S. markets, and securities of many
foreign companies are less liquid and their prices more volatile than securi-
ties of comparable U.S.-based companies. Transaction costs on foreign securi-
ties markets are generally higher than in the United States. There is gener-
ally less government supervision and regulation of foreign exchanges, brokers
and issuers than there is in the United States and the Fund might have greater
difficulty voting proxies, exercising shareholder rights or taking appropriate
legal action in a foreign court.
From time to time, the Fund may invest a significant portion of its total as-
sets in the securities of issuers located in the same country or geographic
region. Investment in a particular country or region of a significant portion
of the Fund's total assets will make the Fund's performance more dependent
upon the political and economic circumstances of a particular country or re-
gion than a mutual fund that is more geographically diversified.
Dividends and interest payable on the Fund's foreign portfolio securities may
be subject to foreign withholding taxes. To the extent such taxes are not off-
set by credits or deductions allowed to investors under the Federal income tax
provisions, they may reduce the net return to the shareholders. Investors
should also understand that the expense ratio of the Fund can be expected to
be higher than those of funds investing in domestic securities. The costs at-
tributable to investing abroad are usually higher for several reasons, such as
the higher cost of investment research, higher cost of custody of foreign se-
curities, higher commissions paid on comparable transactions on foreign mar-
kets, and additional costs arising from delays in settlements of transactions
involving foreign securities.
Investing in securities of issuers located in developing or emerging market
countries may impose greater risks not typically associated with investing in
more established markets. For example, in many emerging markets there is less
government supervision and regulation of business and industry practices,
stock exchanges, brokers and listed companies than in more established mar-
kets. The foreign securities markets of many of the countries in which the
Fund may invest are likely to be smaller, less liquid, and subject to greater
price volatility than those in more established markets. Securities traded in
certain emerging markets may also be subject to risks due to the inexperience
of financial intermediaries, the lack of modern technology, and the lack of a
sufficient capital base to expand business operations. Developing countries
may also impose restrictions on the Fund's ability to repatriate investment
income or capital. Even where there is no outright restriction on repatriation
of investment income or capital, the mechanics of repatriation may affect cer-
tain aspects of the operations of the Fund. Additionally, some of the curren-
cies in emerging markets have experienced devaluations relative to the U.S.
dollar, and major adjustments have been made periodically in certain of such
currencies. Certain developing countries also face serious exchange re-
straints.
Governments of some developing countries exercise substantial influence over
many aspects of the private sector. In some countries, the government owns or
controls many companies, including the largest in the country. As such, gov-
ernment actions in the future could have a significant effect on economic con-
ditions in developing countries, which could affect private sector companies,
the Fund and the value of its securities. The leadership or policies of emerg-
ing market countries may also halt the expansion of or reverse the liberaliza-
tion of foreign investment policies and adversely affect existing investment
opportunities. Certain developing countries are also among the largest debtors
to commercial banks and foreign governments. Trading in debt obligations is-
sued or guaranteed by such governments or their agencies and instrumentalities
involves a high degree of risk. Countries such as certain Eastern European
countries also involve the risk of reverting to a centrally planned economy.
6
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Foreign securities markets also have different registration, clearance and
settlement procedures. Registration, clearance and settlement of securities in
developing countries involve risks not associated with securities transactions
in the United States and other more developed markets. In certain markets
there have been times when settlements have been unable to keep pace with the
volume of securities transactions, making it difficult to conduct such trans-
actions. Delays in registration, clearance or settlement could result in tem-
porary periods when assets of the Fund are uninvested and no return is earned
thereon. The inability of the Fund to make intended security purchases due to
registration, clearance or settlement problems could cause the Fund to miss
attractive investment opportunities. Inability to dispose of portfolio securi-
ties due to registration, clearance or settlement problems could result either
in losses to the Fund due to subsequent declines in value of the portfolio se-
curity or, if the Fund has entered into a contract to sell the security, could
result in possible liability to the purchaser. As an example, the registra-
tion, clearing and settlement of securities transactions in Russia are subject
to significant risks not normally associated with securities transactions in
the United States and other more developed markets. Ownership of shares in
Russian companies is reflected by entries in share registers maintained by
registrar companies or the companies themselves, and the issuance of extracts
of the register, although the evidentiary value of such extracts is uncertain.
Formal share certificates may be obtained in certain limited cases. Russian
share registers may be unreliable, and the Fund could possibly lose its regis-
tration through oversight, negligence or fraud. Russia also lacks a central-
ized registry to record securities transactions and registrar companies are
located throughout Russia. There can be no assurance that registrar companies
will provide extracts to potential purchasers in a timely manner or at all and
are not necessarily subject to effective state supervision. In addition, while
registrar companies are liable under law for losses resulting from their er-
rors, it may be difficult for the Fund to enforce any rights it may have
against the registrar or issuer of the securities in the event of loss of
share registration. Although Russian companies with more than 1,000 sharehold-
ers are required by law to employ an independent company to maintain share
registers, in practice, such companies have not always followed this law. Be-
cause of this lack of independence of registrars, management of a Russian com-
pany may be able to exert considerable influence over who can purchase and
sell the company's shares by illegally instructing the registrar to refuse to
record transactions on the share register. These practices may also prevent
the Fund from investing in the securities of certain Russian companies deemed
suitable by U.S. Trust and could cause a delay in the sale of Russian securi-
ties by the Fund if the company deems a purchaser unsuitable, which may expose
the Fund to potential loss on its investment.
The Fund may invest in lower quality securities, also known as junk bonds.
Lower quality securities have different risks than investments in securities
that are rated "investment grade." Risk of loss upon default by the borrower
is significantly greater because lower-rated securities are generally
unsecured and are often subordinated to other creditors of the issuer, and be-
cause the issuers frequently have high levels of indebtedness and are more
sensitive to adverse economic conditions, such as recessions, individual cor-
porate developments and increasing interest rates than are investment grade
issuers. As a result, the market price of such securities, and the net asset
value of the Fund's Shares, may be particularly volatile.
Additional risks associated with lower-rated fixed income securities are (a)
the relative youth and growth of the market for such securities, (b) the rela-
tively low trading market liquidity for the securities, (c) the impact that
legislation may have on the high-yield bond market (and, in turn, on the
Fund's net asset value and investment practices), (d) the operation of manda-
tory sinking fund or call/redemption provisions during periods of declining
interest rates whereby the Fund may be required to reinvest premature redemp-
tion proceeds in lower yielding portfolio securities, and (e) the
7
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creditworthiness of the issuers of such securities. During an economic down-
turn or substantial period of rising interest rates, highly-leveraged issuers
may experience financial stress which would adversely affect their ability to
service their principal and interest payment obligations, to meet projected
business goals and to obtain additional financing. An economic downturn could
also disrupt the market for lower-rated bonds generally and adversely affect
the value of outstanding bonds and the ability of the issuers to repay princi-
pal and interest. If the issuer of a lower-rated security held by the Fund de-
faulted, the Fund could incur additional expenses to seek recovery. Adverse
publicity and investor perceptions, whether or not based on fundamental analy-
sis, may also decrease the values and liquidity of lower-rated securities held
by the Fund, especially in a thinly traded market.
The Fund should not be considered a complete investment program. In view of
the specialized nature of its investment activities, investment in the Fund's
Shares may be suitable only for those investors who can invest without concern
for current income and are financially able to assume risk in search of long-
term capital gains.
Securities of companies held by the Fund are likely to be more volatile than
the overall market.
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION
MONEY MARKET INSTRUMENTS
The Fund may invest in "money market instruments," which include, among other
things, bank obligations, commercial paper and corporate bonds with remaining
maturities of 13 months or less. Bank obligations include bankers' accept-
ances, negotiable certificates of deposit, and non-negotiable time deposits
earning a specified return and issued by a U.S. bank which is a member of the
Federal Reserve System or insured by the Bank Insurance Fund of the Federal
Deposit Insurance Corporation ("FDIC"), or by a savings and loan association
or savings bank which is insured by the Savings Association Insurance Fund of
the FDIC. Bank obligations also include U.S. dollar-denominated obligations of
foreign branches of U.S. banks and obligations of domestic branches of foreign
banks. Investments in time deposits are limited to no more than 5% of the
value of the Fund's total assets at the time of purchase.
Investments by the Fund in commercial paper will consist of issues that are
rated "A-2" or better by Standard & Poor's Ratings Group ("S&P") or "Prime-2"
or better by Moody's Investors Service, Inc. ("Moody's"). In addition, the
Fund may acquire unrated commercial paper that is determined by the Investment
Adviser at the time of purchase to be of comparable quality to rated instru-
ments that may be acquired by the Fund.
Commercial paper may include variable and floating rate instruments. While
there may be no active secondary market with respect to a particular instru-
ment purchased by the Fund, the Fund may, from time to time as specified in
the instrument, demand payment of the principal of the instrument or may re-
sell the instrument to a third party. The absence of an active secondary mar-
ket, however, could make it difficult for the Fund to dispose of the instru-
ment if the issuer defaulted on its payment obligation or during periods that
the Fund is not entitled to exercise its demand rights, and the Fund could,
for this or other reasons, suffer a loss with respect to such instrument. Any
security which cannot be disposed of within seven days without taking a re-
duced price will be considered an illiquid security subject to the 15% limita-
tion discussed below under "Illiquid Securities, Non-Publicly Traded Securi-
ties, Private Placements and Restricted Securities."
ADRS, EDRS AND GDRS
The Fund may invest indirectly in the securities of foreign issuers through
sponsored and unsponsored depository receipts such as American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs"), Global Depository
Receipts ("GDRs") and through other similar instruments. ADRs typically are
8
<PAGE>
issued by an American bank or trust company and evidence ownership of under-
lying securities issued by a foreign corporation. EDRs, which are sometimes
referred to as Continental Depository Receipts, are receipts issued in Europe,
typically by foreign banks and trust companies, that evidence ownership of ei-
ther foreign or domestic underlying securities. GDRs are depository receipts
structured like global debt issues to facilitate trading on an international
basis. Unsponsored ADR, EDR, and GDR programs are organized independently and
without the cooperation of the issuer of the underlying securities. As a re-
sult, available information concerning the issuer may not be as current as for
sponsored ADRs, EDRs and GDRs, and the prices of unsponsored ADRs, EDRs and
GDRs may be more volatile than if such instruments were sponsored by the issu-
er.
REPURCHASE AGREEMENTS
The Fund may agree to purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually agreed upon date and price ("repur-
chase agreements"). The Fund will enter into repurchase agreements only with
financial institutions that are deemed to be creditworthy by the Investment
Adviser, pursuant to guidelines established by Excelsior Fund's Board of Di-
rectors. The Fund will not enter into repurchase agreements with the Invest-
ment Adviser or any of its affiliates. Repurchase agreements with remaining
maturities in excess of seven days will be considered illiquid securities and
will be subject to the 15% limit described below under "Illiquid Securities,
Non-Publicly Traded Securities, Private Placements and Restricted Securities."
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by the
Fund at not less than the repurchase price. Default or bankruptcy of the
seller would, however, expose the Fund to possible delay in connection with
the disposition of the underlying securities or loss to the extent that pro-
ceeds from a sale of the underlying securities were less than the repurchase
price under the agreement.
SECURITIES LENDING
To increase return on its portfolio securities, the Fund may lend its portfo-
lio securities to broker/dealers pursuant to agreements requiring the loans to
be continuously secured by collateral equal at all times in value to at least
the market value of the securities loaned. Collateral for such loans may in-
clude cash, securities of the U.S. Government, its agencies or instrumentali-
ties, or an irrevocable letter of credit issued by a bank, or any combination
thereof. Such loans will not be made if, as a result, the aggregate of all
outstanding loans of the Fund exceeds 30% of the value of its total assets.
There may be risks of delay in receiving additional collateral or in recover-
ing the securities loaned or even a loss of rights in the collateral should
the borrower of the securities fail financially. However, loans are made only
to borrowers deemed by the Investment Adviser to be of good standing and when,
in the Investment Adviser's judgment, the income to be earned from the loan
justifies the attendant risks.
FORWARD CURRENCY TRANSACTIONS
The Fund will conduct its currency exchange transactions either on a spot
(i.e. cash) basis at the rate prevailing in the currency exchange markets, or
by entering into forward currency contracts. A forward foreign currency con-
tract involves an obligation to purchase or sell a specific currency for a set
price at a future date. 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.
The Fund's participation in forward currency contracts will be limited to
hedging involving either specific transactions or portfolio positions. The
Fund's Investment Adviser does not expect to hedge positions as a routine in-
vestment technique, but anticipates hedging principally with respect to spe-
cific transactions. Transaction hedging involves the purchase or sale of for-
eign currency with respect to specific receivables or
9
<PAGE>
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 po-
sitions 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 the Fund's assets, but will be em-
ployed as necessary to correspond to particular transactions or positions. The
Fund may not hedge its currency positions to an extent greater than the aggre-
gate market value (at the time of entering into the forward contract) of the
securities held in its portfolio denominated, quoted in, or currently convert-
ible into that particular currency. When the Fund engages in forward currency
transactions, certain asset segregation requirements must be satisfied. When
the Fund takes a long position in a forward currency contract, it must main-
tain a segregated account containing liquid assets equal to the purchase price
of the contract, less any margin or deposit. When the Fund takes a short posi-
tion in a forward currency contract, the Fund must maintain a segregated ac-
count containing liquid assets in an amount equal to the market value of the
currency underlying such contract (less any margin or deposit), which amount
must be at least equal to the market price at which the short position was es-
tablished. Asset segregation requirements are not applicable when the Fund
"covers" a forward currency position generally by entering into an offsetting
position. Additional information on forward currency transactions, including a
discussion of risks involved in such transactions (which are similar to those
described below under "Futures Contracts"), is included in the Statement of
Additional Information.
OPTIONS
The Fund may enter into option transactions in accordance with its investment
objective and policies for the purpose of hedging or for speculative purposes
(i.e. to increase total return).
The Fund may purchase put and call options in an amount not exceeding 5% of
the Fund's net assets, as described further in the Statement of Additional In-
formation. Such options may relate to particular securities, various stock or
bond indices or foreign currencies. These options may or may not be listed on
a U.S. or foreign exchange and may or may not be issued by the Options Clear-
ing Corporation. Purchasing options is a specialized investment technique
which entails a substantial risk of a complete loss of the amounts paid as
premiums to the writer of the options. In addition, unlisted options are not
subject to the protections afforded purchasers of listed options issued by the
Options Clearing Corporation, which performs the obligations of its members if
they default.
In addition, the Fund may engage in writing covered call options (options on
securities owned by the Fund) and enter into closing purchase transactions
with respect to such options. Such options must be listed on a U.S. or foreign
exchange and may or may not be issued by the Options Clearing Corporation. The
aggregate value of the securities subject to options written by the Fund may
not exceed 25% of the value of its net assets. By writing a covered call op-
tion, the Fund forgoes the opportunity to profit from an increase in the mar-
ket price of the underlying security above the exercise price except insofar
as the premium represents such a profit, and it will not be able to sell the
underlying security until the option expires or is exercised or the Fund ef-
fects a closing purchase transaction by purchasing an option of the same se-
ries. The use of covered call options is not a primary investment technique of
the Fund and such options will normally be written on underlying securities as
to which the Investment Adviser does not anticipate significant short-term
capital appreciation. Additional information on option practices is provided
in the Fund's Statement of Additional Information.
FUTURES CONTRACTS
The Fund may also enter into interest rate futures contracts, foreign cur-
rency futures contracts, other types of financial futures contracts and re-
lated futures
10
<PAGE>
options, as well as any index or foreign market futures which are available on
recognized exchanges or in other established financial markets.
The Fund will not engage in futures transactions for speculation, but only as
a hedge against changes in market values of securities which the Fund holds or
intends to purchase. In addition, the Fund may enter into futures transactions
in order to offset an expected decrease in the value of its portfolio posi-
tions that might otherwise result from a currency exchange fluctuation. The
Fund will engage in futures transactions only to the extent permitted by the
Commodity Futures Trading Commission ("CFTC") and the Securities and Exchange
Commission ("SEC"). When investing in futures contracts, the Fund must satisfy
certain asset segregation requirements to ensure that the use of futures is
unleveraged. When the Fund takes a long position in a futures contract, it
must maintain a segregated account containing liquid assets equal to the pur-
chase price of the contract, less any margin or deposit. When the Fund takes a
short position in a futures contract, the Fund must maintain a segregated ac-
count containing liquid assets in an amount equal to the market value of the
securities or foreign currency underlying such contract (less any margin or
deposit), which amount must be at least equal to the market price at which the
short position was established. Asset segregation requirements are not appli-
cable when the Fund "covers" an options or futures position generally by en-
tering into an offsetting position. The Fund will limit its hedging transac-
tions in futures contracts and related options so that, immediately after any
such transaction, the aggregate initial margin that is required to be posted
by the Fund under the rules of the exchange on which the futures contract (or
futures option) is traded, plus any premiums paid by the Fund on its open
futures options positions, does not exceed 5% of the Fund's total assets, af-
ter taking into account any unrealized profits and unrealized losses on the
Fund's open contracts (and excluding the amount that a futures option is "in-
the-money" at the time of purchase). An option to buy a futures contract is
"in-the-money" if the then-current purchase price of the underlying futures
contract exceeds the exercise or strike price; an option to sell a futures
contract is "in-the-money" if the exercise or strike price exceeds the then-
current purchase price of the contract that is the subject of the option. In
addition, the use of futures contracts is further restricted to the extent
that no more than 10% of the Fund's total assets may be hedged.
Transactions in futures as a hedging device may subject the Fund to a number
of risks. Successful use of futures by the Fund is subject to the ability of
the Investment Adviser to correctly anticipate movements in the direction of
the market, currency exchange rates and other economic factors. 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. In addition, investments in futures may subject the
Fund to losses due to unanticipated market movements which are potentially un-
limited. Further, there is no assurance that a liquid market will exist for
any particular futures contract (or option) at any particular time. Conse-
quently, the Fund may realize a loss on a futures transaction that is not off-
set by a favorable movement in the price of securities which it holds or in-
tends to purchase or may be unable to close a futures position in the event of
adverse price movements.
INVESTMENT COMPANY SECURITIES
The Fund may invest in securities issued by other investment companies, in-
cluding so called "country funds" and funds that invest in securities included
in foreign security indices, such as World Equity Benchmark Shares SM
("WEBS"). In addition to the advisory fees and other expenses the Fund bears
directly in connection with its own operations, as a shareholder of another
investment company, the Fund would bear its pro rata portion of the other in-
vestment company's advisory fees and other expenses. As such, the Fund's
shareholders would indirectly bear the expenses of the Fund and the other in-
vestment company, some or all
11
<PAGE>
of which would be duplicative. Such securities will be acquired by the Fund
within the limits prescribed by the Investment Company Act of 1940, as amended
(the "1940 Act"), which include, subject to certain exceptions, a prohibition
against the Fund investing more than 10% of the value of its total assets in
such securities.
WHEN-ISSUED AND FORWARD TRANSACTIONS
The Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. These transac-
tions involve a commitment by the Fund to purchase or sell particular securi-
ties with payment and delivery taking place in the future, beyond the normal
settlement date, at a stated price and yield. Securities purchased on a "for-
ward commitment" or "when-issued" basis are recorded as an asset and are sub-
ject to changes in value based upon changes in the general level of interest
rates. It is expected that "forward commitments" and "when-issued" purchases
will not exceed 25% of the value of the Fund's total assets absent unusual
market conditions, and that the length of such commitments will not exceed 45
days. The Fund does not intend to engage in "when-issued" purchases and "for-
ward commitments" for speculative purposes, but only in furtherance of its in-
vestment objective.
BORROWING AND REVERSE REPURCHASE AGREEMENTS
The Fund may borrow funds, in an amount up to 10% of the value of its total
assets, for temporary or emergency purposes, such as meeting larger than an-
ticipated redemption requests, and not for leverage. The Fund may also agree
to sell portfolio securities to financial institutions such as banks and bro-
ker-dealers and to repurchase them at a mutually agreed date and price (a "re-
verse repurchase agreement"). The SEC views reverse repurchase agreements as a
form of borrowing. At the time the Fund enters into a reverse repurchase
agreement, it will place in a segregated custodial account liquid assets hav-
ing a value equal to the repurchase price, including accrued interest. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by the Fund may decline below the repurchase price of those securities.
ILLIQUID SECURITIES, NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND
RESTRICTED SECURITIES
The Fund will not knowingly invest more than 15% of the value of its net as-
sets in securities that are illiquid. The Fund may purchase securities which
are not registered under the Securities Act of 1933, as amended (the "Act"),
but which can be sold to "qualified institutional buyers" in accordance with
Rule 144A under the Act. Any such security will not be considered illiquid so
long as it is determined by the Investment Adviser, acting under guidelines
approved and monitored by the Board, that an adequate trading market exists
for that security. This investment practice could have the effect of increas-
ing the level of illiquidity in the Fund during any period that qualified in-
stitutional buyers become uninterested in purchasing these restricted securi-
ties.
The Fund may also purchase non-publicly traded securities, private placements
and other restricted securities. These securities may involve a higher degree
of business and financial risk that can result in substantial losses. As a re-
sult of the absence of a public trading market for these securities, they may
be less liquid than publicly traded securities. Although these securities may
be resold in privately negotiated transactions, the prices realized from these
sales could be less than those originally paid by the Fund or less than what
may be considered the fair value of such securities. Furthermore, companies
whose securities are not publicly traded may not be subject to the disclosure
and other investor protection requirements which might be applicable if their
securities were publicly traded. If such securities are required to be regis-
tered under the securities laws of one or more jurisdictions before being re-
sold, the Fund may be required to bear the expenses of registration.
PORTFOLIO TURNOVER
The Fund may sell a portfolio investment immediately after its acquisition if
the Investment Adviser believes that such a disposition is consistent with the
investment objective of the Fund. Portfolio investments
12
<PAGE>
may be sold for a variety of reasons, such as a more favorable investment op-
portunity or other circumstances bearing on the desirability of continuing to
hold such investments.
The annual portfolio turnover rate for the Fund is not expected to exceed
100%. A rate of 100% indicates that the equivalent of all of the Fund's assets
have been sold and reinvested in a calendar year. A high rate of portfolio
turnover may involve correspondingly greater brokerage commission expenses and
other transaction costs, which must be borne directly by the Fund and ulti-
mately by its shareholders. High portfolio turnover may result in the realiza-
tion of substantial net capital gains. To the extent net short-term capital
gains are realized, any distributions resulting from such gains are considered
ordinary income for Federal income tax purposes. (See "Taxes--Federal" below.)
INVESTMENT LIMITATIONS
The investment limitations enumerated below are matters of fundamental policy
and may not be changed with respect to the Fund without the vote of the holders
of a majority of the Fund's outstanding Shares (as defined under "Miscellane-
ous").
The Fund may not:
1. Borrow money or mortgage, pledge or hypothecate its assets except to the
extent permitted under the 1940 Act;
2. Purchase securities of any one issuer, other than U.S. Government obliga-
tions, if immediately after such purchase more than 5% of the value of its
total assets would be invested in the securities of such issuer, except that
up to 25% of the value of its total assets may be invested without regard to
this 5% limitation;
3. Purchase any securities which would cause more than 25% of the value of
its total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry, provided that (a) there is no limitation with respect to secu-
rities issued or guaranteed by the U.S. Government, and (b) neither all fi-
nance companies, as a group, nor all utility companies, as a group, are con-
sidered a single industry for purposes of this policy; and
4. Make loans, except that (i) the Fund may purchase or hold debt securities
in accordance with its investment objective and policies, and may enter into
repurchase agreements with respect to obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, and (ii) the Fund may
lend portfolio securities in accordance with its investment objective and
policies.
In addition to the investment limitations described above, the Fund may not
invest in the securities of any single issuer if, as a result, the Fund holds
more than 10% of the outstanding voting securities of such issuer.
With respect to all investment policies, if a percentage limitation is satis-
fied at the time of investment, a later increase or decrease in such percentage
resulting from a change in value of the Fund's portfolio securities will not
constitute a violation of such limitation.
PRICING OF SHARES
The net asset value of the Fund is determined and the Shares of the Fund are
priced at the close of regular trading hours on the New York Stock Exchange
(the "Exchange"), currently 4:00 p.m. (Eastern Time). Net asset value and
pricing for the Fund are determined on each day the Exchange and the Investment
Adviser are open for trading ("Business Day"). Currently, the holidays which
the Fund observes are New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veterans Day, Thanksgiving Day and Christmas. The Fund's net asset value per
Share for purposes of
13
<PAGE>
pricing sales and redemptions is calculated by dividing the value of all
securities and other assets allocable to the Fund, less the liabilities
allocable to the Fund, by the number of its outstanding Shares.
The Fund's portfolio securities which are primarily traded on a domestic ex-
change are valued at the last sale price on that exchange or, if there is no
recent sale, at the last current bid quotation. Portfolio securities which are
primarily traded on foreign securities exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges, ex-
cept that when an event subsequent to the time when value was so established
is likely to have changed such value, then the fair value of those securities
will be determined by consideration of other factors under the direction of
the Board of Directors. A security which is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to be the pri-
mary market for such security. Investments in debt securities having a matu-
rity of 60 days or less are valued based upon the amortized cost method. An
option, futures or foreign currency futures contract is valued at the last
sales price quoted on the principal exchange or board of trade on which such
option or contract is traded, or in the absence of a sale, the mean between
the last bid and asked prices. A forward currency contract is valued based on
the last published forward currency rate which reflects the duration of the
contract and the value of the underlying currency. All other foreign securi-
ties are valued at the last current bid quotation if market quotations are
available, or at fair value as determined in accordance with guidelines
adopted by the Board of Directors. For valuation purposes, quotations of for-
eign securities in foreign currency are converted to U.S. dollars equivalent
at the prevailing market rate on the day of conversion. Some of the securities
acquired by the Fund may be traded on foreign exchanges or over-the-counter
markets on days which are not Business Days. In such cases, the net asset value
of the Shares may be significantly affected on days when investors can neither
purchase nor redeem the Fund's Shares. Excelsior Fund's administrators have
undertaken to price the securities in the Fund's portfolios, and may use one or
more independent pric-ing services in connection with this service.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are continuously offered for sale by Excelsior Fund's
sponsor and distributor, Edgewood Services, Inc. (the "Distributor"), a whol-
ly-owned subsidiary of Federated Investors. The Distributor is a registered
broker/dealer. Its principal business address is Clearing Operations, P.O. Box
897, Pittsburgh, PA 15230-0897.
At various times the Distributor may implement programs under which a deal-
er's sales force may be eligible to win nominal awards for certain sales ef-
forts or under which the Distributor will make payments to any dealer that
sponsors sales contests or recognition programs conforming to criteria estab-
lished by the Distributor, or that participates in sales programs sponsored by
the Distributor. The Distributor in its discretion may also from time to time,
pursuant to objective criteria established by the Distributor, pay fees to
qualifying dealers for certain services or activities which are primarily in-
tended to result in sales of Shares of the Fund. If any such program is made
available to any dealer, it will be made available to all dealers on the same
terms and conditions. Payments made under such programs will be made by the
Distributor out of its own assets and not out of the assets of the Fund.
In addition, the Distributor may offer to pay a fee from its own assets to
financial institutions for the continuing investment of customers' assets in
the Fund or for providing substantial marketing, sales and operational sup-
port. The support may include initiating customer accounts, participating in
sales, educational and training seminars, providing sales literature, and en-
gineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be pred-
14
<PAGE>
icated upon the amount of Shares the financial institution sells or may sell,
and/or upon the type and nature of sales or marketing support furnished by the
financial institution.
PURCHASE OF SHARES
Shares in the Fund are sold at their net asset value per Share next computed
after a purchase order is received in good order by the sub-transfer agent or
another entity on behalf of Excelsior Fund. The Distributor has established
several procedures for purchasing Shares in order to accommodate different
types of investors.
Shares may be purchased directly by individuals ("Direct Investors") or by in-
stitutions ("Institutional Investors" and, collectively with Direct Investors,
"Investors"). Shares may also be purchased by customers ("Customers") of the
Investment Adviser, its affiliates and correspondent banks, and other institu-
tions ("Shareholder Organizations") that have entered into agreements with Ex-
celsior Fund. A Shareholder Organization may elect to hold of record Shares for
its Customers and to record beneficial ownership of Shares on the account
statements provided by it to its Customers. If it does so, it is the Share-
holder Organization's responsibility to transmit to the Distributor all pur-
chase orders for its Customers and to transmit, on a timely basis, payment for
such orders to Chase Global Funds Services Company ("CGFSC"), the Fund's sub-
transfer agent, in accordance with the procedures agreed to by the Shareholder
Organization and the Distributor. Confirmations of all such Customer purchases
and redemptions will be sent by CGFSC to the particular Shareholder Organiza-
tion. As an alternative, a Shareholder Organization may elect to establish its
Customers' accounts of record with CGFSC. In this event, even if the Share-
holder Organization continues to place its Customers' purchase and redemption
orders with the Fund, CGFSC will send confirmations of such transactions and
periodic account statements directly to the shareholders of record. Shares in
the Fund bear the expense of fees payable to Shareholder Organizations for such
ser- vices. See "Management of the Fund--Shareholder Organizations."
Customers wishing to purchase Shares through their Shareholder Organization
should contact such entity directly for appropriate instructions. (For a list
of Shareholder Organizations in your area, call (800) 446-1012.) An Investor
purchasing Shares through a registered investment adviser or certified finan-
cial planner may incur transaction charges in connection with such purchases.
Such Investors should contact their registered investment adviser or certified
financial planner for further information on transaction fees. Investors may
also purchase Shares directly from the Distributor in accordance with proce-
dures described below under "Purchase Procedures."
PURCHASE PROCEDURES
General
Direct Investors may purchase Shares by completing the Application for pur-
chase of Shares accompanying this Prospectus and mailing it, together with a
check payable to Excelsior Funds, to:
Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
Subsequent investments in an existing account in the Fund may be made at any
time by sending to the above address a check payable to Excelsior Funds along
with: (a) the detachable form that regularly accompanies the confirmation of a
prior transaction; (b) a subsequent order form which may be obtained from
CGFSC; or (c) a letter stating the amount of the investment, the name of the
Fund and the account number in which the investment is to be made. Institu-
tional Investors may purchase Shares by transmitting their purchase orders to
CGFSC by telephone at (800) 446-1012 or by terminal access. Institutional
Investors must pay for Shares with Federal funds or funds immediately available
to CGFSC.
15
<PAGE>
Purchases by Wire
Investors may also purchase Shares by wiring Federal funds to CGFSC. Prior to
making an initial investment by wire, an Investor must telephone CGFSC at
(800) 446-1012 (from overseas, call (617) 557-8280) for instructions. Federal
funds and registration instructions should be wired through the Federal Reserve
System to:
The Chase Manhattan Bank
ARA #021000021
Excelsior Funds, Account No. 9102732915
For further credit to:
Excelsior Funds
Wire Control Number
Account Registration
(including account number)
Investors making initial investments by wire must promptly complete the Appli-
cation accompanying this Prospectus and forward it to CGFSC. Redemptions by In-
vestors will not be processed until the completed Application for purchase of
Shares has been received by CGFSC and accepted by the Distributor. Investors
making subsequent investments by wire should follow the above instructions.
OTHER PURCHASE INFORMATION
Except as provided in "Investor Programs" below, the minimum initial invest-
ment by an Investor or initial aggregate investment by a Shareholder Organiza-
tion investing on behalf of its Customers is $500 for the Fund. The minimum
subsequent investment for both types of investors is $50 for the Fund. Custom-
ers may agree with a particular Shareholder Organization to make a minimum pur-
chase with respect to their accounts. Depending upon the terms of the particu-
lar account, Shareholder Organizations may charge a Customer's account fees for
automatic investment and other cash management services provided. Excelsior
Fund reserves the right to reject any purchase order, in whole or in part, or
to waive any minimum investment requirements.
REDEMPTION PROCEDURES
Customers of Shareholder Organizations holding Shares of record may redeem all
or part of their investments in the Fund in accordance with procedures gov-
erning their accounts at the Shareholder Organizations. It is the responsibil-
ity of the Shareholder Organizations to transmit redemption orders to CGFSC and
credit such Customer accounts with the redemption proceeds on a timely basis.
Redemption orders for Institutional Investors must be transmitted to CGFSC by
telephone at (800) 446-1012 or by terminal access. No charge for wiring redemp-
tion payments to Shareholder Organizations or Institutional Investors is im-
posed by Excelsior Fund, although Shareholder Organizations may charge a Cus-
tomer's account for wiring redemption proceeds. Information relating to such
redemption services and charges, if any, is available from the Shareholder Or-
ganizations. An Investor redeeming Shares through a registered investment ad-
viser or certified financial planner may incur transaction charges in connec-
tion with such redemptions. Such Investors should contact their registered in-
vestment adviser or certified financial planner for further information on
transaction fees. Investors may redeem all or part of their Shares in accor-
dance with any of the procedures described below (these procedures also apply
to Customers of Shareholder Organizations for whom individual accounts have
been established with CGFSC).
REDEMPTION BY MAIL
Shares may be redeemed by a Direct Investor by submitting a written request
for redemption to:
Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
A written redemption request to CGFSC must (i) state the number of Shares to
be redeemed, (ii) identify the shareholder account number and tax identifica-
tion number, and (iii) be signed by each registered owner exactly as the Shares
are registered. If the Shares to be redeemed were issued in certificate form,
the certificates must be endorsed for transfer (or
16
<PAGE>
accompanied by a duly executed stock power) and must be submitted to CGFSC to-
gether with the redemption request. A redemption request for an amount in ex-
cess of $50,000 per account, or for any amount if the proceeds are to be sent
elsewhere than the address of record, must be accompanied by signature guaran-
tees from any eligible guarantor institution approved by CGFSC in accordance
with its Standards, Procedures and Guidelines for the Acceptance of Signature
Guarantees ("Signature Guarantee Guidelines"). Eligible guarantor institutions
generally include banks, broker/dealers, credit unions, national securities ex-
changes, registered securities associations, clearing agencies and savings as-
sociations. All eligible guarantor institutions must participate in the Securi-
ties Transfer Agents Medallion Program ("STAMP") in order to be approved by
CGFSC pursuant to the Signature Guarantee Guidelines. Copies of the Signature
Guarantee Guidelines and information on STAMP can be obtained from CGFSC at
(800) 446-1012 or at the address given above. CGFSC may require additional sup-
porting documents for redemptions made by corporations, executors, administra-
tors, trustees and guardians. A redemption request will not be deemed to be
properly received until CGFSC receives all required documents in proper form.
Payment for Shares redeemed will ordinarily be made by mail within five Busi-
ness Days after receipt by CGFSC of the redemption request in good order. Ques-
tions with respect to the proper form for redemption requests should be di-
rected to CGFSC at (800) 446-1012 (from overseas, call (617) 557-8280).
REDEMPTION BY WIRE OR TELEPHONE
Direct Investors who have so indicated on the Application, or have subse-
quently arranged in writing to do so, may redeem Shares by instructing CGFSC by
wire or telephone to wire the redemption proceeds directly to the Direct In-
vestor's account at any commercial bank in the United States. Direct Investors
who are shareholders of record may also redeem Shares by instructing CGFSC by
telephone to mail a check for redemption proceeds of $500 or more to the share-
holder of record at his or her address of record. Institutional Investors may
also redeem Shares by instructing CGFSC by telephone at (800) 446-1012 or by
terminal access. Only redemptions of $500 or more will be wired to a Direct In-
vestor's account. The redemption proceeds for Direct Investors must be paid to
the same bank and account as designated on the Application or in written in-
structions subsequently received by CGFSC.
In order to arrange for redemption by wire or telephone after an account has
been opened or to change the bank or account designated to receive redemption
proceeds, a Direct Investor must send a written request to Excelsior Fund, c/o
CGFSC, at the address listed above under "Redemption by Mail." Such requests
must be signed by the Direct Investor, with signatures guaranteed (see "Redemp-
tion by Mail" above, for details regarding signature guarantees). Further docu-
mentation may be requested.
CGFSC and the Distributor reserve the right to refuse a wire or telephone re-
demption if it is believed advisable to do so. Procedures for redeeming Shares
by wire or telephone may be modified or terminated at any time by Excelsior
Fund, CGFSC or the Distributor. EXCELSIOR FUND, CGFSC, AND THE DISTRIBUTOR WILL
NOT BE LIABLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR ACTING UPON TELE-
PHONE INSTRUCTIONS THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN ATTEMPTING TO
CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE, EXCELSIOR FUND WILL USE SUCH
PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING THOSE INSTRUCTIONS
AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION.
If any portion of the Shares to be redeemed represents an investment made by
personal check, Excelsior Fund and CGFSC reserve the right not to honor the re-
demption until CGFSC is reasonably satisfied that the check has been collected
in accordance with the applicable banking regulations which may take up to 15
days. A Direct Investor who anticipates the need for more immediate access to
his or her investment should purchase Shares by Federal funds or bank wire or
by certified
17
<PAGE>
or cashier's check. Banks normally impose a charge in connection with the use
of bank wires, as well as certified checks, cashier's checks and Federal
funds. If a Direct Investor's purchase check is not collected, the purchase
will be cancelled and CGFSC will charge a fee of $25.00 to the Direct Invest-
or's account.
During periods of substantial economic or market change, telephone redemp-
tions may be difficult to complete. If an Investor is unable to contact CGFSC
by telephone, the Investor may also deliver the redemption request to CGFSC in
writing at the address noted above under "How to Purchase and Redeem Shares--
Redemption by Mail."
OTHER REDEMPTION INFORMATION
Except as described in "Investor Programs" below, Investors may be required
to redeem Shares in the Fund after 60 days' written notice if due to investor
redemptions the balance in the particular account in the Fund remains below
$500. If a Customer has agreed with a particular Shareholder Organization to
maintain a minimum balance in his or her account at the institution with re-
spect to Shares of the Fund, and the balance in such account falls below that
minimum, the Customer may be obliged by the Shareholder Organization to redeem
all or part of his or her Shares to the extent necessary to maintain the re-
quired minimum balance.
GENERAL
Purchase and redemption orders for Shares which are received in good order
prior to the close of regular trading hours on the Exchange (currently 4:00
p.m., Eastern Time) on any Business Day are priced according to the net asset
value determined on that day. Purchase orders received in good order after the
close of regular trading hours on the Exchange are priced at the net asset
value per Share determined on the next Business Day.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Investors and Customers of Shareholder Organizations may, after appropriate
prior authorization and without an exchange fee imposed by Excelsior Fund, ex-
change Shares in the Fund having a value of at least $500 for shares of any
other portfolio offered by Excelsior Fund or Excelsior Tax-Exempt Funds, Inc.
("Excelsior Tax-Exempt Fund") or for Trust Shares of Excelsior Institutional
Trust, provided that such other shares may legally be sold in the state of the
Investor's residence.
Excelsior Fund currently offers 17 additional portfolios as follows:
Money Fund, a money market fund seeking as high a level of current income as
is consistent with liquidity and stability of principal through investments
in high-quality money market investments maturing within 13 months;
Government Money Fund, a money market fund seeking as high a level of cur-
rent income as is consistent with liquidity and stability of principal
through investments in obligations issued or guaranteed by the U.S. Govern-
ment, its agencies or instrumentalities and repurchase agreements collateral-
ized by such obligations;
Treasury Money Fund, a money market fund seeking current income generally
exempt from state and local income taxes through investments in direct short-
term obligations issued by the U.S. Treasury and certain agencies or instru-
mentalities of the U.S. Government;
Short-Term Government Securities Fund, a fund seeking a high level of cur-
rent income by investing principally in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase agree-
ments collateralized by such obligations, and having a dollar-weighted aver-
age portfolio maturity of 1 to 3 years;
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Intermediate-Term Managed Income Fund, a fund seeking a high level of cur-
rent interest income by investing principally in investment grade or better
debt obligations and money market instruments, and having a dollar-weighted
average portfolio maturity of 3 to 10 years;
Managed Income Fund, a fund seeking higher current income primarily through
investments in investment grade debt obligations, U.S. Government obligations
and money market instruments;
Blended Equity Fund, a fund seeking long-term capital appreciation through
investments in a diversified portfolio primarily of equity securities;
Income and Growth Fund, a fund seeking to provide moderate current income
and to achieve capital appreciation as a secondary objective by investing in
common stock, preferred stock and securities convertible into common stock;
Energy and Natural Resources Fund, a non-diversified fund seeking long-term
capital appreciation by investing in companies that are in the energy and
other natural resources groups of industries;
Value and Restructuring Fund, a fund seeking long-term capital appreciation
by investing in companies benefitting from their restructuring or redeploy-
ment of assets and operations in order to become more competitive or profit-
able;
Large Cap Growth Fund, a fund seeking superior, risk-adjusted total return
by investing in larger companies whose growth prospects, in the opinion of
the Investment Adviser, appear to exceed that of the overall market;
Real Estate Fund, a non-diversified fund seeking current income and long-
term capital appreciation by investing in real estate investment trusts and
other companies principally engaged in the real estate business;
Small Cap Fund, a fund seeking long-term capital appreciation by investing
primarily in companies with capitalization of $1 billion or less;
International Fund, a fund seeking total return derived primarily from in-
vestments in foreign equity securities;
Latin America Fund, a fund seeking long-term capital appreciation through
investments in companies and securities of governments based in all countries
in Central and South America;
Pacific/Asia Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments based in Asia and on the
Asian side of the Pacific Ocean; and
Pan European Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments based in Europe.
Excelsior Tax-Exempt Fund currently offers 6 portfolios as follows:
Tax-Exempt Money Fund, a diversified tax-exempt money market fund seeking a
moderate level of current interest income exempt from Federal income taxes
through investing primarily in high-quality municipal obligations maturing
within 13 months;
Short-Term Tax-Exempt Securities Fund, a diversified fund seeking a high
level of current interest income exempt from Federal income taxes through in-
vestments in municipal obligations and having a dollar-weighted average port-
folio maturity of 1 to 3 years;
Intermediate-Term Tax-Exempt Fund, a diversified fund seeking a high level
of current income exempt from Federal income taxes through investments in mu-
nicipal obligations and having a dollar-weighted average portfolio maturity
of 3 to 10 years;
Long-Term Tax-Exempt Fund, a diversified fund seeking to maximize current
interest income exempt from Federal income taxes through investments in mu-
nicipal obligations and having a dollar-weighted average maturity of 10 to 30
years;
New York Intermediate-Term Tax-Exempt Fund, a non- diversified fund designed
to provide New York investors with a high level of current interest income
exempt from Federal and, to the extent possible,
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<PAGE>
New York state and New York City income taxes; this fund invests primarily in
New York municipal obligations and has a dollar-weighted average portfolio
maturity of 3 to 10 years; and
California Tax-Exempt Income Fund, a non-diversified fund designed to pro-
vide California investors with as high a level of current interest income ex-
empt from Federal and, to the extent possible, California state personal in-
come taxes as is consistent with relative stability of principal; this fund
invests primarily in California municipal obligations and has a dollar-
weighted average portfolio maturity of 3 to 10 years.
Excelsior Institutional Trust currently offers Trust Shares in the following
investment portfolios:
Optimum Growth Fund, a fund seeking superior, risk-adjusted total return
through investments in a diversified portfolio of equity securities whose
growth prospects, in the opinion of its investment adviser, appear to exceed
that of the overall market; and
Value Equity Fund, a fund seeking long-term capital appreciation through in-
vestments in a diversified portfolio of equity securities whose market value,
in the opinion of its investment adviser, appears to be undervalued relative
to the marketplace.
An exchange involves a redemption of all or a portion of the Shares in the
Fund and the investment of the redemption proceeds in shares of another port-
folio of Excelsior Fund, Excelsior Tax-Exempt Fund or Excelsior Institutional
Trust. The redemption will be made at the per Share net asset value of the
Shares being redeemed next determined after the exchange request is received
in good order. The shares of the portfolio to be acquired will be purchased at
the per share net asset value of those shares next determined after receipt of
the exchange request in good order.
Investors may find the exchange privilege useful if their investment objec-
tives or market outlook should change after they invest in the Fund. For fur-
ther information regarding exchange privileges, shareholders should call (800)
446-1012 (from overseas, call (617) 557-8280). Investors exercising the ex-
change privilege with the other portfolios of Excelsior Fund, Excelsior Tax-
Exempt Fund or Excelsior Institutional Trust should request and review the
prospectuses of such funds. Such prospectuses may be obtained by calling the
numbers listed above. In order to prevent abuse of this privilege to the dis-
advantage of other shareholders, Excelsior Fund, Excelsior Tax-Exempt Fund and
Excelsior Institutional Trust reserve the right to limit the number of ex-
change requests of Investors and Customers of Shareholder Organizations to no
more than six per year. Excelsior Fund may modify or terminate the exchange
program at any time upon 60 days' written notice to shareholders, and may re-
ject any exchange request.
For Federal income tax purposes, an exchange of Shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Be-
fore making an exchange, an investor should consult a tax or other financial
adviser to determine tax consequences.
Exchange by Telephone. For shareholders who have previously selected the tel-
ephone exchange option, an exchange order may be placed by calling (800) 446-
1012 (from overseas, please call (617) 557-8280). By establishing the tele-
phone exchange option, a shareholder authorizes CGFSC and the Distributor to
act upon telephone instructions believed to be genuine. EXCELSIOR FUND, EXCEL-
SIOR TAX-EXEMPT FUND, EXCELSIOR INSTITUTIONAL TRUST, CGFSC AND THE DISTRIBUTOR
ARE NOT RESPONSIBLE FOR THE AUTHENTICITY OF EXCHANGE REQUESTS RECEIVED BY TEL-
EPHONE THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN ATTEMPTING TO CONFIRM
THAT TELEPHONE INSTRUCTIONS ARE GENUINE, EXCELSIOR FUND, EXCELSIOR TAX-EXEMPT
FUND AND EXCELSIOR INSTITUTIONAL TRUST WILL USE SUCH PROCEDURES AS ARE CONSID-
ERED REASONABLE, INCLUDING RECORDING THOSE INSTRUCTIONS AND REQUESTING INFOR-
MATION AS TO ACCOUNT REGISTRATION.
SYSTEMATIC WITHDRAWAL PLAN
An Investor who owns Shares of the Fund with a value of $10,000 or more may
establish a Systematic
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<PAGE>
Withdrawal Plan. The Investor may request a declining-balance withdrawal, a
fixed-dollar withdrawal, a fixed-share withdrawal, or a fixed-percentage with-
drawal (based on the current value of Shares in the account) on a monthly,
quarterly, semi-annual or annual basis. To initiate the Systematic Withdrawal
Plan, an investor must complete the Supplemental Application contained in this
Prospectus and mail it to CGFSC at the address given above. Further informa-
tion on establishing a Systematic Withdrawal Plan may be obtained by calling
(800) 446-1012 (from overseas, call (617) 557-8280).
Shareholder Organizations may, at their discretion, establish similar system-
atic withdrawal plans with respect to the Shares held by their Customers. In-
formation about such plans and the applicable procedures may be obtained by
Customers directly from their Shareholder Organizations.
RETIREMENT PLANS
Shares are available for purchase by Investors in connection with the follow-
ing tax-deferred prototype retirement plans offered by United States Trust
Company of New York:
IRAs (including "rollovers" from existing retirement plans) for individuals
and their spouses;
Profit Sharing and Money-Purchase Plans for corporations and self-employed
individuals and their partners to benefit themselves and their employees; and
Keogh Plans for self-employed individuals.
Investors investing in the Fund pursuant to Profit Sharing and Money-Purchase
Plans and Keogh Plans are not subject to the minimum investment and forced re-
demption provisions described above. The minimum initial investment for IRAs
is $250 for the Fund and the minimum subsequent investment is $50 for the
Fund. Detailed information concerning eligibility, service fees and other mat-
ters related to these plans can be obtained by calling (800) 446-1012 (from
overseas, call (617) 557-8280). Customers of Shareholder Organizations may
purchase Shares of the Fund pursuant to retirement plans if such plans are of-
fered by their Shareholder Organizations.
AUTOMATIC INVESTMENT PROGRAM
The Automatic Investment Program permits Investors to purchase Shares (mini-
mum of $50 for the Fund per transaction) at regular intervals selected by the
Investor. The minimum initial investment for an Automatic Investment Program
account is $50 for the Fund. Provided the Investor's financial institution al-
lows automatic withdrawals, Shares are purchased by transferring funds from an
Investor's checking, bank money market or NOW account designated by the In-
vestor. At the Investor's option, the account designated will be debited in
the specified amount, and Shares will be purchased, once a month, on either
the first or fifteenth day, or twice a month, on both days.
The Automatic Investment Program is one means by which an Investor may use
"Dollar Cost Averaging" in making investments. Instead of trying to time mar-
ket performance, a fixed dollar amount is invested in Shares at predetermined
intervals. This may help Investors to reduce their average cost per Share be-
cause the agreed upon fixed investment amount allows more Shares to be pur-
chased during periods of lower Share prices and fewer Shares during periods of
higher prices. In order to be effective, Dollar Cost Averaging should usually
be followed on a sustained, consistent basis. Investors should be aware, how-
ever, that Shares bought using Dollar Cost Averaging are purchased without re-
gard to their price on the day of investment or to market trends. In addition,
while Investors may find Dollar Cost Averaging to be beneficial, it will not
prevent a loss if an Investor ultimately redeems his Shares at a price which
is lower than their purchase price.
To establish an Automatic Investment account permitting Investors to use the
Dollar Cost Averaging investment method described above, an Investor must com-
plete the Supplemental Application contained in
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<PAGE>
this Prospectus and mail it to CGFSC. An Investor may cancel his participation
in this Program or change the amount of purchase at any time by mailing writ-
ten notification to CGFSC, P.O. Box 2798, Boston, MA 02208-2798 and notifica-
tion will be effective three Business Days following receipt. Excelsior Fund
may modify or terminate this privilege at any time or charge a service fee,
although no such fee currently is contemplated. An Investor may also implement
the Dollar Cost Averaging method on his own initiative or through other enti-
ties.
DIVIDENDS AND DISTRIBUTIONS
Dividends from the net investment income of the Fund are declared and paid at
least annually. For dividend purposes, the Fund's investment income is reduced
by accrued expenses directly attributable to the Fund and the general expenses
of Excelsior Fund prorated to the Fund on the basis of its relative net as-
sets. Net realized capital gains are distributed at least annually. Dividends
and distributions will reduce the net asset value of the Fund by the amount of
the dividend or distribution. All dividends and distributions paid on Shares
held of record by the Investment Adviser and its affiliates or correspondent
banks will be paid in cash. Direct and Institutional Investors and Customers
of other Shareholder Organizations will receive dividends and distributions in
additional Shares of the Fund (as determined on the payable date), unless they
have requested in writing (received by CGFSC at Excelsior Fund's address prior
to the payment date) to receive dividends and distributions in cash. Rein-
vested dividends and distributions receive the same tax treatment as those
paid in cash.
TAXES
FEDERAL
The Fund intends to qualify as a "regulated investment company" under the
Code. Such qualification generally relieves the Fund of liability for Federal
income taxes to the extent its earnings are distributed in accordance with the
Code.
Qualification as a regulated investment company under the Code requires,
among other things, that the Fund distribute to its shareholders an amount
equal to at least 90% of its investment company taxable income for each tax-
able year. In general, the Fund's investment company taxable income will be
its income (including dividends and interest), subject to certain adjustments
and excluding the excess of any net long-term capital gain for the taxable
year over the net short-term capital loss, if any, for such year. The Fund in-
tends to distribute substantially all of its investment company taxable income
each year. Such dividends will be taxable as ordinary income to Fund share-
holders who are not currently exempt from Federal income taxes, whether such
income is received in cash or reinvested in additional Shares. (Federal income
taxes for distributions to IRAs and qualified pension plans are deferred under
the Code.) The dividends received deduction for corporations will apply to
such ordinary income distributions to the extent of the total qualifying divi-
dends received by the Fund from domestic corporations for the taxable year.
Distribution by the Fund of the excess of its net long-term capital gain over
its net short-term capital loss is taxable to shareholders as long-term capi-
tal gain, regardless of how long the shareholders have held their Shares and
whether such gains are received in cash or reinvested in additional Shares.
Such distributions are not eligible for the dividends received deduction.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to
have been received by shareholders and paid by the Fund on December 31 of such
year in the event such dividends are actually paid during January of the fol-
lowing year.
An investor considering buying Shares of the Fund on or just before the rec-
ord date of a dividend should
22
<PAGE>
be aware that the amount of the forthcoming dividend payment, although in ef-
fect a return of capital, will be taxable to him.
A taxable gain or loss may be realized by a shareholder upon his redemption,
transfer or exchange of Shares depending upon the tax basis of such Shares and
their price at the time of redemption, transfer or exchange. If a shareholder
holds Shares for six months or less and during that time receives a capital
gain dividend on those Shares, any loss recognized on the sale or exchange of
those Shares will be treated as a long-term capital loss to the extent of the
capital gain dividend. Generally, a shareholder may include sales charges in-
curred upon the purchase of Shares in his tax basis for such Shares for the
purpose of determining gain or loss on a redemption, transfer or exchange of
such Shares. However, if the shareholder effected an exchange of such Shares
for Shares of another Fund within 90 days of the purchase and was able to re-
duce the sales charges previously applicable to the new Shares (by virtue of
the exchange privilege), the amount equal to such reduction may not be in-
cluded in the tax basis of the shareholder's exchanged Shares for the purpose
of determining gain or loss, but may be included (subject to the same limita-
tion) in the tax basis of the new Shares.
It is expected that dividends and certain interest income earned by the Fund
from foreign securities will be subject to foreign withholding taxes or other
taxes. So long as more than 50% of the value of the Fund's total assets at the
close of any taxable year consists of stock or securities of foreign corpora-
tions, the Fund may elect, for U.S. Federal income tax purposes, to treat cer-
tain foreign taxes paid by it, including generally any withholding taxes and
other foreign income taxes, as paid by its shareholders. The Fund may make
this election. As a consequence, the amount of such foreign taxes paid by the
Fund will be included in its shareholders' income pro rata (in addition to
taxable distributions actually received by them), and each shareholder will be
entitled either (a) to credit his proportionate amounts of such taxes against
his U.S. Federal income tax liabilities, or (b) if he itemizes his deductions,
to deduct such proportionate amounts from his U.S. taxable income, should he
so choose.
Qualification as a regulated investment company under the Code also requires
that the Fund satisfy certain requirements with respect to the source of its
income for a taxable year. At least 90% of the gross income of the Fund must
be derived from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities or for-
eign currencies, and other income (including, but not limited to, gains from
options, futures, or forward contracts) derived with respect to the Fund's
business of investing in such stock, securities or currencies. The Treasury
Department may by regulation exclude from qualifying income foreign currency
gains which are not directly related to the Fund's principal business of in-
vesting in stock or securities, or options and futures with respect to stock
or securities. Any income derived by the Fund from a partnership or trust is
treated for this purpose as derived with respect to the Fund's business of in-
vesting in stock, securities or currencies only to the extent that such income
is attributable to items of income which would have been qualifying income if
realized by the Fund in the same manner as by the partnership or trust.
The foregoing summarizes some of the important tax considerations generally
affecting the Fund and its shareholders and is not intended as a substitute
for careful tax planning. Accordingly, potential investors in the Fund should
consult their tax advisers with specific reference to their own tax situa-
tions. Shareholders will be advised annually as to the Federal income tax con-
sequences of distributions made each year.
STATE AND LOCAL
Purchasers are advised to consult their tax advisers concerning the applica-
tion of state and local taxes, which may have different consequences from
those of the Federal income tax law described above.
23
<PAGE>
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of Ex-
celsior Fund's Board of Directors. The Statement of Additional Information
contains the names of and general background information concerning Excelsior
Fund's directors.
INVESTMENT ADVISER
United States Trust Company of New York ("U.S. Trust New York") and U.S.
Trust Company of Connecticut ("U.S. Trust Connecticut" and, collectively with
U.S. Trust New York, "U.S. Trust" or the "Investment Adviser") serve as the
Investment Adviser to the Fund. U.S. Trust New York is a state-chartered bank
and trust company and a member bank of the Federal Reserve System. U.S. Trust
Connecticut is a Connecticut state bank and trust company. U.S. Trust New York
and U.S. Trust Connecticut are wholly-owned subsidiaries of U.S. Trust Corpo-
ration, a registered bank holding company.
The Investment Adviser provides trust and banking services to individuals,
corporations, and institutions both nationally and internationally, including
investment management, estate and trust administration, financial planning,
corporate trust and agency banking, and personal and corporate banking. On
June 30, 1997, the Asset Management Groups of U.S. Trust New York and U.S.
Trust Connecticut had approximately $53 billion in aggregate assets under man-
agement. U.S. Trust New York has its principal offices at 114 W. 47th Street,
New York, New York 10036. U.S. Trust Connecticut has its principal offices at
225 High Ridge Road, East Building, Stamford, CT 06905.
The Investment Adviser manages the 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.
Donald Hoskins is the person primarily responsible for the day-to-day manage-
ment of the Fund's investment portfolio. Mr. Hoskins is a Senior Vice Presi-
dent in U.S. Trust's Global Investment Division, where he heads the Emerging
Markets investment team. Mr. Hoskins has been employed by U.S. Trust since
February 1997. Prior to joining U.S. Trust, he was Director of Research at
Globalvest, an advisory firm based in St. Thomas, V.I., where he specialized
in Latin American investments. From 1993 to 1995, Mr. Hoskins worked in Peru
for a local brokerage firm and as a Consultant to the World Bank. Prior to
1993, he was with Sanford Bernstein as an International Equities Analyst. Mr.
Hoskins has been the Fund's portfolio manager since its inception.
For the services provided and expenses assumed pursuant to its Investment Ad-
visory Agreement, the Investment Adviser is entitled to be paid a fee, com-
puted daily and paid monthly, at the annual rate of 1.25% of the average daily
net assets of the Fund.
From time to time, the Investment Adviser may voluntarily waive all or a por-
tion of the advisory fees payable to it by the Fund, which waiver may be ter-
minated at any time. See "Management of the Fund--Shareholder Organizations"
for additional information on fee waivers.
In executing portfolio transactions for the Fund, the Investment Adviser may
use affiliated brokers in accordance with the requirements of the 1940 Act.
The Investment Adviser may also take into account the sale of Excelsior Fund's
shares in allocating brokerage transactions.
ADMINISTRATORS
CGFSC, Federated Administrative Services and U.S. Trust Connecticut serve as
the Fund's administrators (the "Administrators") and provide it with general
administrative and operational assistance. For the services provided to the
Fund, the Administrators are entitled jointly to annual fees, computed daily
and paid monthly, at an annual rate of .20% of the average daily net assets of
the Fund. From time to time, the Administrators may voluntarily waive all or a
portion of the
24
<PAGE>
administration fee payable to them by the Fund, which waivers may be termi-
nated at any time. See "Management of the Fund--Shareholder Organizations" for
additional information on fee waivers.
SHAREHOLDER ORGANIZATIONS
As described above under "Purchase of Shares," Excelsior Fund has agreements
with certain Shareholder Organizations--firms that provide services, which may
include acting as record shareholder, to their Customers who beneficially own
Shares. As a consideration for these services, the Fund will pay the Share-
holder Organization an administrative service fee up to the annual rate of
.40% of the average daily net asset value of its Shares held by the Share-
holder Organization's Customers. Such services, which are described more fully
in the Statement of Additional Information under "Management of the Fund--
Shareholder Organizations," may include assisting in processing purchase, ex-
change and redemption requests; transmitting and receiving funds in connection
with Customer orders to purchase, exchange or redeem Shares; and providing pe-
riodic statements. It is the responsibility of Shareholder Organizations to
advise Customers of any fees that they may charge in connection with a Custom-
er's investment. Until further notice, the Investment Adviser and Administra-
tors have voluntarily agreed to waive fees payable by the Fund in an aggregate
amount equal to administrative service fees payable by the Fund.
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company regis-
tered under the Federal Bank Holding Company Act of 1956 or any bank or non-
bank affiliate thereof from sponsoring, organizing or controlling a regis-
tered, open-end investment company continuously engaged in the issuance of its
shares, and prohibit banks generally from issuing, underwriting, selling or
distributing securities such as Shares of the Fund, but such banking laws and
regulations do not prohibit such a holding company or affiliate or banks gen-
erally from acting as investment adviser, transfer agent, or custodian to such
an investment company, or from purchasing shares of such company for and upon
the order of customers. The Investment Adviser, CGFSC and certain Shareholder
Organizations may be subject to such banking laws and regulations. State secu-
rities laws may differ from the interpretations of Federal law discussed in
this paragraph and banks and financial institutions may be required to regis-
ter as dealers pursuant to state law.
Should legislative, judicial, or administrative action prohibit or restrict
the activities of the Investment Adviser or other Shareholder Organizations in
connection with purchases of Fund Shares, the Investment Adviser and such
Shareholder Organizations might be required to alter materially or discontinue
the investment services offered by them to Customers. It is not anticipated,
however, that any resulting change in the Fund's method of operations would
affect their net asset values per Share or result in financial loss to any
shareholder.
DESCRIPTION OF CAPITAL STOCK
Excelsior Funds, Inc. (formerly UST Master Funds, Inc.) was organized as a
Maryland corporation on August 2, 1984. Currently, Excelsior Fund has autho-
rized capital of 35 billion shares of Common Stock, $.001 par value per share,
classified into 43 series of shares representing interests in 18 investment
portfolios. This Prospectus describes the Emerging Markets Fund.
Each Share in the Fund represents an equal proportionate interest in the 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 the Fund as
are declared in the discretion of Excelsior Fund's Board of Directors. Excel-
sior Fund's Charter authorizes the Board of Directors to classify or reclas-
sify any class of shares into one or more additional classes or series.
25
<PAGE>
Excelsior Fund's shareholders are entitled to one vote for each full share
held and fractional votes for fractional shares held and will vote in the ag-
gregate and not by class or series, except as otherwise expressly required by
law.
Certificates for Shares will not be issued unless expressly requested in
writing to CGFSC and will not be issued for fractional Shares.
As of September 25, 1997, U.S. Trust and its affiliates held of record sub-
stantially all of Excelsior Fund's outstanding shares as agent or custodian
for their customers, but did not own such shares beneficially because they did
not have voting or investment discretion with respect to such shares.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase"), a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as the custodian of the Fund's assets. Communi-
cations to the custodian should be directed to Chase, Mutual Funds Service Di-
vision, 3 Chase MetroTech Center, 8th Floor, Brooklyn, NY 11245.
U.S. Trust New York serves as the Fund's transfer and dividend disbursing
agent. U.S. Trust New York has also entered into a sub-transfer agency ar-
rangement with CGFSC, 73 Tremont Street, Boston, Massachusetts 02108-3913,
pursuant to which CGFSC provides certain transfer agent, dividend disbursement
and registrar services to the Fund.
EXPENSES
Except as otherwise noted, the Investment Adviser and the Administrators bear
all expenses in connection with the performance of their services. The Fund
bears the expenses incurred in its operations. Expenses of the Fund include
taxes; interest; fees (including fees paid to Excelsior Fund's Directors and
officers who are not affiliated with the Distributor or the Administrators);
SEC fees; state securities qualifications fees; costs of preparing and print-
ing prospectuses for regulatory purposes and for distribution to shareholders;
advisory, administration and administrative servicing fees; charges of the
custodian, transfer agent, and dividend disbursing agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports
and shareholder meetings; and any extraordinary expenses. The Fund also pays
for brokerage fees and commissions in connection with the purchase of portfo-
lio securities.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to shareholders, the per-
formance of the Fund may be quoted and compared to that of other mutual funds
with similar investment objectives and to stock or other relevant indices or
to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Fund may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds, the Morgan Stanley Capital Investments Emerging
Markets Free Index or other unmanaged foreign securities indexes.
Performance data as reported in national financial publications, including
but not limited to Money Magazine, Forbes, Barron's, The Wall Street Journal
and The New York Times, or in publications of a local or regional nature, may
also be used in comparing the performance of the Fund.
From time to time, the Fund may advertise its performance by using "average
annual total return" over various periods of time. Such total return figure
reflects the average percentage change in the value of an investment in the
Fund from the beginning date of the measuring period to the end of the measur-
ing period. Average total return figures will be given for the most recent
one-year period, and may be given for other
26
<PAGE>
periods as well (such as from the commencement of the Fund's operations, or on
a year-by-year basis). The Fund may also use aggregate total return figures
for various periods, representing the cumulative change in the value of an in-
vestment in the Fund for the specific period. Both methods of calculating to-
tal return assume that dividends and capital gain distributions made by the
Fund during the period are reinvested in Fund Shares.
Performance will fluctuate and any quotation of performance and yield should
not be considered as representative of the Fund's future performance. Share-
holders should remember that performance is generally a function of the kind
and quality of the instruments held in a portfolio, operating expenses, and
market conditions. Any fees charged by Shareholder Organizations with respect
to accounts of Customers that have invested in Shares will not be included in
calculations of performance.
MISCELLANEOUS
Shareholders will receive unaudited semiannual reports describing the Fund's
investment operations and annual financial statements audited by the Fund's
independent auditors.
As used in this Prospectus, a "vote of the holders of a majority of the out-
standing shares" of Excelsior Fund or the Fund means, with respect to the ap-
proval of an investment advisory agreement or a change in a fundamental in-
vestment policy, the affirmative vote of the lesser of (a) more than 50% of
the outstanding shares of Excelsior Fund or the Fund, or (b) 67% or more of
the shares of Excelsior Fund or the Fund present at a meeting if more than 50%
of the outstanding shares of Excelsior Fund or the Fund are represented at the
meeting in person or by proxy.
Inquiries regarding the Fund may be directed to the Distributor at the ad-
dress listed under "Distributor."
27
<PAGE>
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION
OPENING YOUR ACCOUNT:
Complete the Application(s) and mail to: FOR OVERNIGHT DELIVERY: send to:
Excelsior Funds Excelsior Funds
c/o Chase Global Funds c/o Chase Global Funds Services
Services Company Company
P.O. Box 2798 73 Tremont Street
Boston, MA 02208-2798 Boston, MA 02108-3913
Please enclose with the Application(s) your check made payable to the "Ex-
celsior Funds" in the amount of your investment.
For direct wire purchases please refer to the section of the Prospectus en-
titled "How to Purchase and Redeem Shares--Purchase Procedures."
MINIMUM INVESTMENTS:
Except as provided in the Prospectus, the minimum initial investment is
$500; subsequent investments must be in the minimum amount of $50. Investments
may be made in excess of these minimums.
REDEMPTIONS:
Shares can be redeemed in any amount and at any time in accordance with pro-
cedures described in the Prospectus. In the case of shares recently purchased
by check, redemption proceeds will not be made available until the transfer
agent is reasonably assured that the check has been collected in accordance
with applicable banking regulations.
Certain legal documents will be required from corporations or other organi-
zations, executors and trustees, or if redemption is requested by anyone other
than the shareholder of record. Written redemption requests in excess of
$50,000 per account must be accompanied by signature guarantees.
SIGNATURES: Please be sure to sign the Application(s).
If the shares are registered in the name of:
- an individual, the individual should sign.
- joint tenants, both tenants should sign.
- a custodian for a minor, the custodian should sign.
- a corporation or other organization, an authorized officer should sign
(please indicate corporate office or title).*
- a trustee or other fiduciary, the fiduciary or fiduciaries should sign
(please indicate capacity).*
* A corporate resolution or appropriate certificate may be required.
QUESTIONS:
If you have any questions regarding the Application or redemption require-
ments, please contact the sub-transfer agent at (800) 446-1012 between 9:00
a.m. and 5:00 p.m. (Eastern Time).
28
<PAGE>
-----------------------------------------------------------------------------
[LOGO] EXCELSIOR CHASE GLOBAL FUNDS SERVICES COMPANY NEW
FUNDS INC. CLIENT SERVICES ACCOUNT
P.O. Box 2798 APPLICATION
Boston, MA 02208-2798
(800) 446-1012
ACCOUNT REGISTRATION
[_] Individual [_] Joint Tenants [_] Trust [_] Gift/Transfer to Minor
[_] Other
----------------------------------
Note: Joint tenant registration will be as "joint tenants
with right of survivorship" unless otherwise specified. Trust
registrations should specify name of the trust, trustee(s),
beneficiary(ies), and the date of the trust instrument.
Registration for Uniform Gifts/Transfers to Minors should be
in the name of one custodian and one minor and include the
state under which the custodianship is created (using the
minor's Social Security Number ("SSN")). For IRA accounts a
different application is required.
------------------------------ -----------------------------
Name(s) (please print) Social Security # or Taxpayer
------------------------------ Identification #
Name ( )
------------------------------ -----------------------------
Address Telephone #
------------------------------
City/State/Zip Code [_] U.S. Citizen [_] Other (specify) _____
FUND SELECTION (THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT IS $500 AND
$50, RESPECTIVELY. MAKE CHECKS PAYABLE TO "EXCELSIOR FUNDS.")
<TABLE>
<S> <C> <C> <C>
FUND INITIAL INVESTMENT
[_] Emerging Markets
Fund $ ____________ 837 TOTAL INITIAL INVESTMENT: $_______________
[_] Other $ ____________
</TABLE>
NOTE: If investing A. BY MAIL: Enclosed is a check in the
by wire, you must amount of $ _____ payable to "Excelsior
obtain a Bank Wire Funds."
Control Number. To B. BY WIRE: A bank wire in the amount
do so, please call of $ has been sent to the Fund
(800) 446-1012 and ---------------
ask for the Wire from
Desk. ------------------ ---------------------
Name of Bank Wire Control Number
CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and
dividend distributions will be reinvested in additional
shares unless appropriate boxes below are checked:
All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash
ACCOUNT PRIVILEGES
TELEPHONE EXCHANGE AND AUTHORITY TO TRANSMIT
REDEMPTION REDEMPTION PROCEEDS TO PRE-
DESIGNATED ACCOUNT.
[_] I/We appoint CGFSC as I/We hereby authorize CGFSC to
my/our agent to act upon act upon instructions received
instructions received by by telephone to withdraw $500
telephone in order to effect or more from my/our account in
the telephone exchange and the Excelsior Funds and to
redemption privileges. I/We wire the amount withdrawn to
hereby ratify any the following commercial bank
instructions given pursuant account.
to this authorization and Title on Bank Account*_________
agree that Excelsior Fund, Name of Bank __________________
Excelsior Tax-Exempt Fund, Bank A.B.A. Number_____________
Excelsior Institutional Account Number ________________
Trust, CGFSC and their Bank Address __________________
directors, trustees, City/State/Zip Code ___________
officers and employees will (attach voided check here)
not be liable for any loss,
liability, cost or expense A corporation, trust or
for acting upon instructions partnership must also submit a
believed to be genuine and "Corporate Resolution" (or
in accordance with the "Certificate of Partnership")
procedures described in the indicating the names and
then current Prospectus. To titles of officers authorized
the extent that Excelsior to act on its behalf.
Fund, Excelsior Tax-Exempt * TITLE ON BANK AND FUND
Fund and Excelsior ACCOUNT MUST BE IDENTICAL.
Institutional Trust fail to
use reasonable procedures as
a basis for their belief,
they or their service
contractors may be liable
for instructions that prove
to be fraudulent or
unauthorized.
I/We further acknowledge
that it is my/our
responsibility to read the
Prospectus of any Fund into
which I/we exchange.
[_] I/We do not wish to have
the ability to exercise
telephone redemption and
exchange privileges. I/We
further understand that all
exchange and redemption
requests must be in writing.
SPECIAL PURCHASE AND
REDEMPTION PLANS
I/We have completed and attached the
Supplemental Application for:
[_] Automatic Investment Plan
[_] Systematic Withdrawal Plan
<PAGE>
AGREEMENT AND SIGNATURES
By signing this application, I/we hereby certify under
penalty of perjury that the information on this application
is complete and correct and that as required by Federal law:
[_] I/WE CERTIFY THAT (1) THE NUMBER(S) SHOWN ON THIS FORM
IS/ARE THE CORRECT TAXPAYER IDENTIFICATION NUMBER(S) AND (2)
I/WE ARE NOT SUBJECT TO BACKUP WITHHOLDING EITHER BECAUSE
I/WE HAVE NOT BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE
THAT I/WE ARE SUBJECT TO BACKUP WITHHOLDING, OR THE IRS HAS
NOTIFIED ME/US THAT I AM/WE ARE NO LONGER SUBJECT TO BACKUP
WITHHOLDING. (NOTE: IF ANY OR ALL OF PART 2 IS NOT TRUE,
PLEASE STRIKE OUT THAT PART BEFORE SIGNING.)
[_] IF NO TAXPAYER IDENTIFICATION NUMBER ("TIN") OR SSN HAS
BEEN PROVIDED ABOVE, I/WE HAVE APPLIED, OR INTEND TO APPLY,
TO THE IRS OR THE SOCIAL SECURITY ADMINISTRATION FOR A TIN OR
A SSN, AND I/WE UNDERSTAND THAT IF I/WE DO NOT PROVIDE THIS
NUMBER TO CGFSC WITHIN 60 DAYS OF THE DATE OF THIS
APPLICATION, OR IF I/WE FAIL TO FURNISH MY/OUR CORRECT SSN OR
TIN, I/WE MAY BE SUBJECT TO A PENALTY AND A 31% BACKUP
WITHHOLDING ON DISTRIBUTIONS AND REDEMPTION PROCEEDS. (PLEASE
PROVIDE THIS NUMBER ON FORM W-9. YOU MAY REQUEST THE FORM BY
CALLING CGFSC AT THE NUMBER LISTED ABOVE.)
I/We represent that I am/we are of legal age and capacity to
purchase shares of the Excelsior Funds. I/We have received,
read and carefully reviewed a copy of the Fund's current
Prospectus and agree to its terms and by signing below I/we
acknowledge that neither the Fund nor the Distributor is a
bank and that Fund Shares are not deposits or obligations of,
or guaranteed or endorsed by, U.S. Trust, its parent and
affiliates and the Shares are not federally insured by,
guaranteed by, obligations of or otherwise supported by the
U.S. Government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other governmental agency;
and that an investment in the Fund involves investment risks,
including possible loss of principal amount invested.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO
ANY PROVISIONS OF THIS FORM OTHER THAN THE CERTIFICATIONS
REQUIRED TO AVOID BACKUP WITHHOLDING.
X ___________________________ Date __________________________
Owner Signature
X ___________________________ Date __________________________
Co-Owner Signature
Sign exactly as name(s) of registered owner(s) appear(s) above
(including legal title if signing for a corporation, trust
custodial account, etc.).
- -----------------------------------------------------------------
FOR USE BY AUTHORIZED AGENT (BROKER/DEALER) ONLY
- -----------------------------------------------------------------
We hereby submit this application for the purchase of shares
in accordance with the terms of our selling agreement with
Edgewood Services, Inc., and with the Prospectus and
Statement of Additional Information of the Fund.
----------------------------- -------------------------------
Investment Dealer's Name Source of Business Code
----------------------------- -------------------------------
Main Office Address Branch Number
----------------------------- -------------------------------
Representative's Number Representative's Name
----------------------------- -------------------------------
Branch Address Telephone
----------------------------- -------------------------------
Investment Dealer's Title
Authorized Signature
<PAGE>
- -----------------------------------------------------------------------------
[LOGO] EXCELSIOR CHASE GLOBAL FUNDS SERVICES
FUNDS INC. COMPANY CLIENT SERVICES
P.O. Box 2798 SUPPLEMENTAL
Boston, MA 02208-2798 APPLICATION
(800) 446-1012 SPECIAL INVESTMENT AND
WITHDRAWAL OPTIONS
ACCOUNT REGISTRATION PLEASE SUPPLY THE FOLLOWING INFORMATION EXACTLY AS IT
APPEARS ON THE FUND'S RECORD.
Fund Name __________________ Account Number _________________
Owner Name _________________ Social Security or Taxpayer ID
Street Address _____________ Number _________________________
Resident City, State, Zip Code __________
of [_] U.S. [_] Other ____ [_] Check here if this is a change of address
DISTRIBUTION OPTIONS (DIVIDENDS AND CAPITAL GAINS WILL BE REINVESTED
UNLESS OTHERWISE INDICATED)
A. CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and dividend
distributions will be reinvested in additional shares unless appropriate
boxes below are checked:
All dividends are to be [_] reinvested [_] paid in cash
All capital gains are to be [_] reinvested [_] paid in cash
B. PAYMENT ORDER: Complete only if distribution checks are to be payable
to another party. Make distribution checks payable to:
Name of Your Bank ______________
Name _______________________ Bank Account Number ____________
Address ____________________ Address of Bank ________________
City, State, Zip Code ________________________________________
C. DISTRIBUTIONS REINVESTED-CROSS FUNDS: Permits all distributions from
one Fund to be automatically reinvested into another identically-
registered Excelsior Fund. (NOTE: You may NOT open a new Fund account with
this option.) Transfer all distributions earned:
From: ______________________ Account No. ____________________
(Fund)
To: ________________________ Account No. ____________________
(Fund)
AUTOMATIC INVESTMENT PLAN [_] YES [_] NO
I/We hereby authorize CGFSC to debit my/our personal checking account on
the designated dates in order to purchase shares in the Fund indicated at
the top of this application at the applicable public offering price
determined on that day.
[_] Monthly on the 1st day [_] Monthly on the 15th day
[_] Monthly on both the 1st and 15th days
Amount of each debit (minimum $50
per Fund) $ ________________________
NOTE: A Bank Authorization Form (below) and a voided personal check must
accompany the Automatic Investment Plan application.
--------------------------------------------------------------------------
EXCELSIOR FUNDS
CLIENT SERVICES
AUTOMATIC INVESTMENT PLAN
BANK AUTHORIZATION
-------------------- ----------------------------------------
Bank Name Bank Address Bank Account Number
I/We authorize you, the above named bank, to debit my/our
account for amounts drawn by CGFSC, acting as my agent for
the purchase of Fund shares. I/We agree that your rights in
respect to each withdrawal shall be the same as if it were a
check drawn upon you and signed by me/us. This authority
shall remain in effect until revoked in writing and received
by you. I/We agree that you shall incur no liability when
honoring debits, except a loss due to payments drawn against
insufficient funds. I/We further agree that you will incur no
liability to me if you dishonor any such withdrawal. This
will be so even though such dishonor results in the
cancellation of that purchase.
---------------------------- --------------------------------
Account Holder's Name Joint Account Holder's Name
X X
-------------- --------- ------------------ -----------
Signature Date Signature Date
<PAGE>
- -----------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN [_] YES [_] NONOT AVAILABLE FOR IRA'S
AVAILABLE TO SHAREHOLDERS WITH ACCOUNT BALANCES OF $10,000 OR MORE.
I/We hereby authorize CGFSC to redeem the necessary number of
shares from my/our Excelsior Fund Account on the designated
dates in order to make the following periodic payments:
[_] Monthly on the 24th day [_] Quarterly on the 24th day of
January, April, July and October
[_] Other_____________________
(This request for participation in the Plan must be received
by the 18th day of the month in which you wish withdrawals to
begin.)
Amount of each check ($100 minimum) $________________________
Please make Recipient ________________________________
check payable Street Address ___________________________
to: (To be City, State, Zip Code ____________________
completed only
if redemption
proceeds to be
paid to other
than account
holder of record
or mailed to
address other
than address of
record)
NOTE: If recipient of checks is not the registered shareholder, signature(s)
below must be guaranteed. A corporation, trust or partnership must also submit
a "Corporate Resolution" (or "Certification of Partnership") indicating the
names and titles of officers authorized to act on its behalf.
AGREEMENT AND SIGNATURES
The investor(s) certifies and agrees that the certifications, authorizations,
directions and restrictions contained herein will continue until CGFSC
receives written notice of any change or revocation. Any change in these
instructions must be in writing with all signatures guaranteed (if
applicable).
Date ______________________
X X
------------------------------- -----------------------------
Signature Signature
------------------------------- -----------------------------
Signature Guarantee* (if applicable) Signature Guarantee* (if applicable)
X X
------------------------------- -----------------------------
Signature Signature
------------------------------- -----------------------------
Signature Guarantee* (if applicable) Signature Guarantee* (if applicable)
*ELIGIBLE GUARANTORS: An Eligible Guarantor institution is a bank, trust
company, broker, dealer, municipal or government securities broker or dealer,
credit union, national securities exchange, registered securities association,
clearing agency or savings association, provided that such institution is a
participant in STAMP, the Securities Transfer Agents Medallion Program.
- -----------------------------------------------------------------------------
Attach Copy of Voided Check Here
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY......................................................... 2
EXPENSE SUMMARY............................................................ 3
INVESTMENT OBJECTIVE AND POLICIES.......................................... 4
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION..................... 8
INVESTMENT LIMITATIONS..................................................... 13
PRICING OF SHARES.......................................................... 13
HOW TO PURCHASE AND REDEEM SHARES.......................................... 14
INVESTOR PROGRAMS.......................................................... 18
DIVIDENDS AND DISTRIBUTIONS................................................ 22
TAXES...................................................................... 22
MANAGEMENT OF THE FUND..................................................... 24
DESCRIPTION OF CAPITAL STOCK............................................... 25
CUSTODIAN AND TRANSFER AGENT............................................... 26
EXPENSES................................................................... 26
PERFORMANCE INFORMATION.................................................... 26
MISCELLANEOUS.............................................................. 27
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION................................... 28
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF ADDI-
TIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OF-
FERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REP-
RESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY EXCELSIOR
FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY EX-
CELSIOR FUND OR BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
USTEMP1297
[LOGO] EXCELSIOR
FUNDS INC.
EMERGING MARKETS FUND
Prospectus
December 22, 1997
<PAGE>
EXCELSIOR FUNDS, INC.
Emerging Markets Fund
STATEMENT OF ADDITIONAL INFORMATION
December 22, 1997
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current prospectus for the Emerging Markets Fund (the
"Fund") of Excelsior Funds, Inc. ("Excelsior Fund") dated December 22, 1997
(the "Prospectus"). Much of the information contained in this Statement of
Additional Information expands upon the subjects discussed in the Prospectus.
No investment in shares of the Fund described herein (the "Shares") should be
made without reading the Prospectus. A copy of the Prospectus may be obtained
by writing Excelsior Fund c/o Chase Global Funds Services Company, 73 Tremont
Street, Boston, MA 02108-3913 or by calling (800) 446-1012.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
INVESTMENT OBJECTIVE AND POLICIES.................... 1
Other Investment Considerations.................... 1
Additional Information on Portfolio Instruments.... 2
Additional Investment Limitations.................. 10
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION....... 11
INVESTOR PROGRAMS.................................... 13
Systematic Withdrawal Plan......................... 13
Exchange Privilege................................. 14
Other Investor Programs............................ 14
DESCRIPTION OF CAPITAL STOCK......................... 15
MANAGEMENT OF THE FUND............................... 16
Directors and Officers............................. 16
Investment Advisory and Administration Agreements.. 22
Shareholder Organizations.......................... 22
Expenses........................................... 23
Custodian and Transfer Agent....................... 24
PORTFOLIO TRANSACTIONS............................... 25
INDEPENDENT AUDITORS................................. 27
COUNSEL.............................................. 27
ADDITIONAL INFORMATION CONCERNING TAXES.............. 27
PERFORMANCE INFORMATION.............................. 29
MISCELLANEOUS........................................ 31
APPENDIX A........................................... A-1
-i-
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
---------------------------------
The investment objective and policies of the Fund are described in the
Prospectus. The following information supplements the description of the
investment objective and policies as set forth in the Prospectus.
Other Investment Considerations
- -------------------------------
In determining the preferred allocation of investments of the Fund
among various geographic regions and countries, United States Trust Company of
New York ("U.S. Trust New York") and U.S. Trust Company of Connecticut ("U.S.
Trust Connecticut" and, collectively with U.S. Trust New York, the "Investment
Adviser" or "U.S. Trust") will consider, among other things, regional and
country-by-country prospects for economic growth, anticipated levels of
inflation, prevailing interest rates, the historical patterns of government
regulation of the economy and the outlook for currency relationships.
The transaction costs to the Fund 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 the 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, the 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, the Fund may
sell a portfolio security and make delivery of the currency, or retain the
security and offset its contractual obligation to deliver the currency by
purchasing a second contract pursuant to which the Fund will obtain, on the same
maturity date, the same amount of the currency which it is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund, at the time of execution of the offsetting transaction,
will incur a gain or a loss to the extent that movement has occurred in forward
<PAGE>
contract prices. Should forward prices decline during the period between the
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.
The Fund may purchase gold bars primarily of standard weight
(approximately 400 troy ounces) at the best available prices in the New York
bullion market. However, the Investment Adviser will have discretion to
purchase or sell gold bullion in other markets, including foreign markets, if
better prices can be obtained. Gold bullion is valued by the Fund at the mean
between the closing bid and asked prices in the New York bullion market as of
the close of the New York Stock Exchange each business day. When there is no
readily available market quotation for gold bullion, the bullion will be valued
by such method as determined by Excelsior Fund's Board of Directors to best
reflect its fair value. For purpose of determining net asset value, gold held
by the Fund, if any, will be valued in U.S. dollars.
Additional Information on Portfolio Instruments
- -----------------------------------------------
Repurchase Agreements
---------------------
The repurchase price under the repurchase agreements described in the
Prospectus generally equals the price paid by the 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 Fund's custodian (or sub-custodian) or
in the Federal Reserve/Treasury book-entry system. Repurchase agreements are
considered to be loans by the Fund under the Investment Company Act of 1940, as
amended (the "1940 Act").
Securities Lending
------------------
When the Fund lends its portfolio securities, it continues to receive
interest or dividends on the securities lent and may simultaneously earn
interest on the investment of the cash loan collateral, which will be invested
in readily marketable, high-quality, short-term obligations. Although voting
rights, or rights to consent, attendant to securities lent pass to the borrower,
such loans may be called at any time and will be called so that the securities
may be voted by the Fund if a material event affecting the investment is to
occur.
-2-
<PAGE>
Government Obligations
----------------------
Examples of the types of U.S. Government obligations that may be held
by the Fund include, in addition to U.S. Treasury Bills, the obligations of
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the
Federal Housing Administration, Farmers Home Administration, Export-Import Bank
of the United States, Small Business Administration, Government National
Mortgage Association, Federal National Mortgage Association, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks and Maritime Administration.
Options
-------
As stated in the Prospectus, the Fund may enter into options
transactions for hedging purposes or to increase total return. Such purchases
would be in an amount not exceeding 5% of the 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 or the value of a foreign currency 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 or currency, and therefore, on a percentage basis, an
investment in options may be subject to greater fluctuation than an investment
in the underlying securities or currency. A listed call option gives the
purchaser of the option the right to buy from a clearing corporation, and the
writer has the obligation to sell to the clearing corporation, the underlying
security or currency at the stated exercise price at any time prior to the
expiration of the option, regardless of the market price of the security or
currency. 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 or
currency at the stated exercise price at any time prior to the expiration date
of the option, regardless of the market price of the security or currency. Put
and call options purchased by the Fund 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 Prospectus, the Fund may engage in writing
covered call options and enter into closing purchase transactions with respect
to such options. When the Fund writes a covered call option, it may terminate
its obligation to sell the underlying security prior to the expiration date of
the option by executing a closing purchase transaction, which is effected by
purchasing on an exchange an option of the same series (i.e., same underlying
security, exercise price and
-3-
<PAGE>
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 Fund 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 Fund to make a closing purchase transaction in
order to close out its position.
When the 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 the Fund's statement of assets and liabilities as a
deferred credit. The amount of the deferred credit will be subsequently marked
to market to reflect the current value of the option written. The current value
of the traded option is the last sale price or, in the absence of a sale, the
average of the closing bid and asked prices. If an option expires on the
stipulated expiration date, or if the Fund 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 may deliver the underlying security from its portfolio or
purchase the underlying security in the open market. In either event, the
proceeds of the sale will be increased by the net premium originally received,
and the Fund will realize a gain or loss. Premiums from expired call options
written by the 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.
-4-
<PAGE>
Futures Contracts and Related Options
-------------------------------------
The Fund may invest in futures contracts and related options. The
Fund may enter into interest rate futures contracts and other types of financial
futures contracts, including foreign currency futures contracts, as well as any
index or foreign market futures which are available on recognized exchanges or
in other established financial markets. A futures contract on foreign currency
creates a binding obligation on one party to deliver, and a corresponding
obligation on another party to accept delivery of, a stated quantity of a
foreign currency for an amount fixed in U.S. dollars. Foreign currency futures,
which operate in a manner similar to interest rate futures contracts, may be
used by the Fund 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 the Fund's securities investments. Positions
in futures contracts may be closed out only on an exchange which provides a
secondary market for such futures. However, there can be no assurance that a
liquid secondary market will exist for any particular futures contract at any
specific time. Thus, it may not be possible to close a futures position. In
the event of adverse price movements, the 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 Fund is also subject to the ability
of the Investment Adviser to correctly predict movements in the direction of the
market. For example, if the 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 the 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.
-5-
<PAGE>
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 Fund involves the risk of
loss by the Fund of margin deposits in the event of bankruptcy of a broker with
whom the Fund has an open position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Options on Futures Contracts
----------------------------
The Fund may purchase options on the futures contracts described
above. A futures option gives the holder, in return for the premium paid, the
right to buy (call) from or sell (put) to the writer of the option a futures
contract at a specified
-6-
<PAGE>
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
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 the 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 the 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 the 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.
-7-
<PAGE>
The 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, the 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 the 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 the Fund starting on the day the Fund agrees to purchase the securities. The
Fund does not earn interest on the securities it has committed to purchase until
they are paid for and delivered on the settlement date.
Brady Bonds
-----------
The Fund may invest in Brady Bonds, which are securities created
through the exchange of existing commercial bank loans to Latin American public
and private entities for new bonds in connection with debt restructurings under
a debt restructuring plan announced by former U.S. Secretary of the Treasury
Nicholas F. Brady (the "Brady Plan"). Brady Bonds may be collateralized or
uncollateralized, are issued in various currencies (primarily the U.S. dollar)
and are currently actively traded in the over-the-counter secondary market for
Latin American debt instruments.
Dollar-denominated, collateralized Brady Bonds, which may be fixed
rate par bonds or floating rate discount bonds, are collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Interest payments on these Brady Bonds generally are collateralized by
cash or securities in an amount that, in the case of fixed rate bonds, is equal
to at least one year of rolling interest payments or, in the case of floating
rate bonds, initially is equal to at least one year's rolling interest payments
based on the applicable interest rate at that time and is adjusted at regular
intervals thereafter.
All Mexican Brady Bonds issued to date, except New Money Bonds, have
principal repayments at final maturity fully collateralized by U.S. Treasury
zero coupon bonds (or comparable
-8-
<PAGE>
collateral in other currencies) and interest coupon payments collateralized on
an 18-month rolling-forward basis by funds held in escrow by an agent for the
bondholders. Approximately half of the Venezuelan Brady Bonds issued to date
have principal repayments at final maturity collateralized by U.S. Treasury zero
coupon bonds (or comparable collateral in other currencies), while slightly more
than half have interest coupon payments collateralized on a 14-month rolling-
forward basis by securities held by the Federal Reserve Bank of New York as
collateral agent.
Brady Bonds are often viewed as having three or four valuation
components: the collateralized repayment of principal at final maturity; the
collateralized interest payments; the uncollateralized interest payments; and
any uncollateralized repayment of principal at maturity (these uncollateralized
amounts constituting the "residual risk").
ADRs, EDRs and GDRs
- -------------------
The Fund may invest indirectly in the securities of foreign issuers
through sponsored and unsponsored American Depository Receipts ("ADRs"),
European Depository Receipts ("EDRs"), Global Depository Receipts ("GDRs") and
other similar instruments. ADRs typically are issued by an American bank or
trust company and evidence ownership of underlying securities issued by a
foreign corporation. EDRs, which are sometimes referred to as Continental
Depository Receipts, are receipts issued in Europe, typically by foreign banks
and trust companies, that evidence ownership of either foreign or domestic
underlying securities. GDRs are depository receipts structured like global debt
issues to facilitate trading on an international basis. Unsponsored ADR, EDR
and GDR programs are organized independently and without the cooperation of the
issuer of the underlying securities. As a result, available information
concerning the issuer may not be as current as for sponsored ADRs, EDRs and
GDRs, and the prices of unsponsored ADRs, EDRs and GDRs may be more volatile
than if such instruments were sponsored by the issuer.
Each Fund may also invest indirectly in foreign securities through
share entitlement certificates. Share entitlement certificates are
transferrable securities similar to depository receipts which are structured
like global debt issues to facilitate trading on an international basis. The
holder of a share entitlement certificate holds a fully collateralized
obligation of the issuer the value of which is linked directly to that of the
underlying foreign security.
World Equity Benchmark Shares/SM/
- ------------------------------
The Fund may invest up to 5% of its total assets in World Equity
Benchmark Shares/SM/ issued by The Foreign Fund, Inc.
-9-
<PAGE>
("WEBS"), closed-end funds and similar securities of other issuers. WEBS are
shares of an investment company that invests substantially all of its assets in
securities included in the Morgan Stanley Capital International ("MSCI") indices
for specific countries. Because the expense associated with an investment in
WEBS may be substantially lower than the expense of small investments directly
in the securities comprising the indices they seek to track, U.S. Trust believes
that investments in WEBS may provide a cost-effective means of diversifying the
Fund's assets across a broad range of equity securities.
The market prices of WEBS are expected to fluctuate in accordance with
both changes in the net asset values of their underlying indices and the supply
and demand of WEBS on the exchanges on which they are traded. To date, WEBS
have traded at relatively modest discounts and premiums to their net assets
values. However, WEBS have a limited operating history, and information is
lacking regarding the actual performance and trading liquidity of WEBS for
extended periods or over complete market cycles. In addition, there is no
assurance that the requirements of the exchanges necessary to maintain the
listing of WEBS will continue to be met or will remain unchanged. In the event
substantial market or other disruptions affecting WEBS should occur in the
future, the liquidity and value of the Fund's Shares could be adversely
affected.
Additional Investment Limitations
- ---------------------------------
In addition to the investment limitations disclosed in the Prospectus,
the Fund is subject to the investment limitations enumerated below. Fundamental
investment limitations may be changed with respect to the Fund only by a vote of
a majority of the holders of the Fund's outstanding Shares (as defined under
"Miscellaneous" in the Prospectus). However, investment limitations which are
"operating policies" may be changed by Excelsior Fund's Board of Directors
without a shareholder vote.
The following investment limitations are fundamental with respect to
the Fund. The Fund may not:
1. Act as an underwriter of securities within the meaning of the
Securities Act of 1933, except insofar as it might be deemed to be an
underwriter upon disposition of certain portfolio securities acquired within the
limitation on purchases of restricted securities;
2. Purchase or sell real estate, except that the Fund may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by interests in real estate;
-10-
<PAGE>
3. Issue any senior securities, except insofar as any borrowing in
accordance with the Fund's investment limitation contained in the Prospectus
might be considered to be the issuance of a senior security; and
4. Purchase or sell commodities or commodities futures contracts or
invest in oil, gas, or other mineral exploration or development programs;
provided, however, that (i) this shall not prohibit the Fund from purchasing
publicly traded securities of companies engaging in whole or in part in such
activities; and (ii) the Fund may enter into forward currency contracts, futures
contracts and related options and may invest up to 5% of its total assets in
gold bullion.
The following investment limitations are operating policies with
respect to the Fund. The Fund may not:
5. Purchase securities on margin, make short sales of securities, or
maintain a short position;
6. Invest in companies for the purpose of exercising management or
control; and
7. Acquire any other investment company or investment company
security, except in connection with a merger, consolidation, reorganization, or
acquisition of assets or where otherwise permitted by the 1940 Act.
* * *
For the purpose of Investment Limitation No. 2, the prohibition of
purchases of real estate includes acquisition of limited partnership interests
in partnerships formed with a view toward investing in real estate, but does not
prohibit purchases of shares in real estate investment trusts.
In addition to the above investment limitations, the Fund currently
intends to refrain from entering into arbitrage transactions.
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 the Fund's portfolio securities will not constitute a violation of such
limitation.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
----------------------------------------------
Shares are continuously offered for sale by Edgewood Services, Inc.
(the "Distributor"), a wholly-owned subsidiary of Federated Investors, and the
Distributor has agreed to use appropriate efforts to solicit all purchase
orders. As described
-11-
<PAGE>
in the Prospectus, Shares may be sold to customers ("Customers") of financial
institutions ("Shareholder Organizations"). Shares are also offered for sale
directly to institutional investors and to members of the general public.
Different types of Customer accounts at the Shareholder Organizations may be
used to purchase Shares, including eligible agency and trust accounts. In
addition, Shareholder Organizations may automatically "sweep" a Customer's
account not less frequently than weekly and invest amounts in excess of a
minimum balance agreed to by the Shareholder Organization and its Customer in
Shares selected by the Customer. Investors purchasing Shares may include
officers, directors, or employees of the particular Shareholder Organization.
Shares of the Fund are offered for sale at their net asset value per
Share next computed after a purchase order is received by Excelsior Fund's sub-
transfer agent.
Excelsior Fund may suspend the right of redemption or postpone the
date of payment for Shares for more than 7 days during any period when (a)
trading on the New York Stock Exchange (the "Exchange") is restricted by
applicable rules and regulations of the Securities and Exchange Commission (the
"SEC"); (b) the Exchange is closed for other than customary weekend and holiday
closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC.
In the event that Shares are redeemed in cash at their net asset
value, a shareholder may receive in payment for such Shares an amount that is
more or less than his original investment due to changes in the market prices of
the Fund's portfolio securities.
Excelsior Fund reserves the right to honor any request for redemption
or repurchase of the 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 the 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 the 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 the 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
-12-
<PAGE>
agencies or instrumentalities) that: (a) meet the investment objective and
policies of the Fund; (b) are acquired for investment and not for resale; (c)
are liquid securities that are not restricted as to transfer either by law or
liquidity of market; and (d) have a value that is readily ascertainable (and not
established only by evaluation procedures) as evidenced by a listing on the
American Stock Exchange, New York Stock Exchange or NASDAQ, or as evidenced by
their status as U.S. Government securities, bank certificates of deposit,
banker's acceptances, corporate and other debt securities that are actively
traded, money market securities and other similar securities with a readily
ascertainable value.
INVESTOR PROGRAMS
-----------------
Systematic Withdrawal Plan
- --------------------------
An investor who owns Shares with a value of $10,000 or more may begin
a Systematic Withdrawal Plan. The withdrawal can be on a monthly, quarterly,
semiannual or annual basis. There are four options for such systematic
withdrawals. The investor may request:
(1) A fixed-dollar withdrawal;
(2) A fixed-share withdrawal;
(3) A fixed-percentage withdrawal (based on the current value of the
account); or
(4) A declining-balance withdrawal.
Prior to participating in a Systematic Withdrawal Plan, the investor must
deposit any outstanding certificates for Shares with Chase Global Funds Services
Company, the Fund's sub-transfer agent. Under this Plan, dividends and
distributions are automatically reinvested in additional Shares of the 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 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 the Fund while at the
same time participating in the Systematic Withdrawal Plan with respect to an
account in the Fund. Customers of Shareholder Organizations may obtain
information on the availability of, and the procedures and fees relating to, the
Systematic Withdrawal Plan directly from their Shareholder Organizations.
-13-
<PAGE>
Exchange Privilege
- ------------------
Investors and Customers of Shareholder Organizations may exchange
Shares having a value of at least $500 for shares of any other portfolio of
Excelsior Fund or Excelsior Tax-Exempt Funds, Inc. ("Excelsior Tax-Exempt Fund"
and, collectively with Excelsior Fund, the "Companies") or for Trust Shares of
Excelsior Institutional Trust. Shares may be exchanged by wire, telephone or
mail and must be made to accounts of identical registration. There is no
exchange fee imposed by the Companies or Excelsior Institutional Trust. In
order to prevent abuse of this privilege to the disadvantage of other
shareholders, the Companies and Excelsior Institutional Trust reserve the right
to limit the number of exchange requests of investors to no more than six per
year. The Companies and Excelsior Institutional Trust may modify or terminate
the exchange program at any time upon 60 days' written notice to shareholders,
and may reject any exchange request. Customers of Shareholder Organizations may
obtain information on the availability of, and the procedures and fees relating
to, such program directly from their Shareholder Organizations.
For Federal income tax purposes, exchanges are treated as sales on
which the shareholder will realize a gain or loss, depending upon whether the
value of the Shares to be given up in exchange is more or less than the basis in
such Shares at the time of the exchange. Generally, a shareholder may include
sales loads incurred upon the purchase of Shares in his or her tax basis for
such Shares for the purpose of determining gain or loss on a redemption,
transfer or exchange of such Shares. However, if the shareholder effected an
exchange of Shares for shares of another portfolio of the Companies within 90
days of the purchase and was able to reduce the sales load previously applicable
to the new shares (by virtue of the Companies' exchange privilege), the amount
equal to such reduction may not be included in the tax basis of the
shareholder's exchanged Shares but may be included (subject to the limitation)
in the tax basis of the new shares.
Other Investor Programs
- -----------------------
As described in the Prospectus, Shares of the Fund may be purchased in
connection with the Automatic Investment Program and certain Retirement
Programs. Customers of Shareholder Organizations may obtain information on the
availability of, and the procedures and fees relating to, such programs directly
from their Shareholder Organizations.
-14-
<PAGE>
DESCRIPTION OF CAPITAL STOCK
----------------------------
Excelsior Fund's Charter authorizes its Board of Directors to issue up
to thirty-five billion full and fractional shares of capital stock, and to
classify or reclassify any unissued shares of Excelsior Fund into one or more
classes or series by setting or changing in any one or more respects their
respective preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption. The Prospectus describes 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 Prospectus, Shares will be fully paid and non-
assessable. In the event of a liquidation or dissolution of the Fund,
shareholders of the Fund are entitled to receive the assets available for
distribution belonging to that Fund and a proportionate distribution, based upon
the relative asset values of Excelsior Fund's portfolios, of any general assets
of Excelsior Fund not belonging to any particular portfolio of Excelsior Fund
which are available for distribution. In the event of a liquidation or
dissolution of Excelsior Fund, its shareholders will be entitled to the same
distribution process.
Shareholders of Excelsior Fund are entitled to one vote for each full
share held, and fractional votes for fractional shares held, and will vote in
the aggregate and not by class, except as otherwise required by the 1940 Act or
other applicable law or when the matter to be voted upon affects only the
interests of the shareholders of a particular class. Voting rights are not
cumulative and, accordingly, the holders of more than 50% of the aggregate of
Excelsior Fund's shares may elect all of Excelsior Fund's directors, regardless
of 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
-15-
<PAGE>
public accountants 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 the Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding Shares of the Fund to be redeemed
at a price which is equal to their net asset value and which may be paid in cash
or by distribution of the securities or other consideration received from the
sale and conveyance; (b) sell and convert the Fund's assets into money and, in
connection therewith, to cause all outstanding Shares of the Fund to be redeemed
at their net asset value; or (c) combine the assets belonging to the 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 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 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 the Fund voting separately
as a class) in connection with any corporate action, unless otherwise provided
by law (for example, by Rule 18f-2, discussed above) or by Excelsior Fund's
Charter, Excelsior Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of the outstanding Common Stock of
Excelsior Fund voting without regard to class.
MANAGEMENT OF THE FUND
----------------------
Directors and Officers
- ----------------------
The directors and executive officers of Excelsior Fund, their
addresses, ages, principal occupations during the past five years, and other
affiliations are as follows:
-16-
<PAGE>
Position Principal Occupation
with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ------------------------ -------------------------- -------------------------
Frederick S. Wonham/1/ Chairman of the Retired; Director of
238 June Road Board, President Excelsior Fund and
Stamford, CT 06903 and Treasurer Excelsior Tax-Exempt Fund
Age: 66 (since 1995); Trustee of
Excelsior Funds and
Excelsior Institutional
Trust (since 1995); Vice
Chairman of U.S. Trust
Corporation and U.S. Trust
New York (from February
1990 until September
1995); and Chairman, U.S.
Trust Connecticut (from
March 1993 to May 1997).
Donald L. Campbell Director Retired; Director of
333 East 69th Street Excelsior Fund and
Apt. 10-H Excelsior Tax-Exempt Fund
New York, NY 10021 (since 1984); Director of
Age: 71 UST Master Variable
Series, Inc. (from 1994 to
June 1997); Trustee of
Excelsior Institutional
Trust(since 1995); and
Director, Royal Life
Insurance Co. of New York
(since 1991).
Rodman L. Drake Director Director, Excelsior Fund
485 Park Avenue and Excelsior Tax-Exempt
New York, NY 10022 Fund (since 1996);
Age: 54 Trustee, and Excelsior
Funds (since 1994);
Director, Parsons
Brinkerhoff Energy
Services Inc. (since
1996); Director, Parsons
Brinkerhoff, Inc.
(engineering firm) (since
1995); President, Mandrake
Group (investment and
consulting firm) (since
1994); Director, Hyperion
Total Return Fund, Inc.
and four other funds for
which Hyperion Capital
Management, Inc. serves as
investment adviser (since
1991); Co-Chairman, KMR
Power Corporation (power
plants) (from 1993 to
1996); Director, The Latin
American Growth Fund
(since 1993); Member of
Advisory Board, Argentina
Private Equity Fund L.P.
(from 1992 to 1996) and
- ----------
/1/ This director is considered to be an "interested person" of Excelsior Fund
as defined in the 1940 Act.
-17-
<PAGE>
Position Principal Occupation
with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ------------------------ -------------------------- -------------------------
Garantia L.P. (Brazil)
(from 1993 to 1996); and
Director, Mueller
Industries, Inc. (from
1992 to 1994).
Joseph H. Dugan Director Retired; Director of
913 Franklin Lakes Road Excelsior Fund and
Franklin Lakes, NJ 07417 Excelsior Tax-Exempt Fund
Age: 72 (since 1984); Director of
UST Master Variable
Series, Inc. (from 1994 to
June 1997); and Trustee of
Excelsior Institutional
Trust (since 1995).
Wolfe J. Frankl Director Retired; Director of
2320 Cumberland Road Excelsior Fund and
Charlottesville, VA 22901 Excelsior Tax-Exempt Fund
Age: 76 (since 1986);
Director of UST Master
Variable Series, Inc.
(from 1994 to June 1997);
Trustee of Excelsior
Institutional Trust (since
1995); Director, Deutsche
Bank Financial, Inc.
(since 1989); Director,
The Harbus Corporation
(since 1951); and Trustee,
HSBC Funds Trust and HSBC
Mutual Funds Trust (since
1988).
W. Wallace McDowell, Jr. Director Director, Excelsior Fund
c/o Prospect Capital Corp. and Excelsior Tax-Exempt
43 Arch Street Fund (since 1996);
Greenwich, CT 06830 Trustee, Excelsior
Age: 60 Institutional Trust and
Excelsior Funds (since
1994); Private Investor
(since 1994); Managing
Director, Morgan Lewis
Githens & Ahn (from 1991
to 1994); and Director,
U.S. Homecare Corporation
(since 1992), Grossmans,
Inc. (from 1993 to 1996),
Children's Discovery
Centers (since 1984), ITI
Technologies, Inc. (since
1992) and Jack Morton
Productions (since 1987).
Jonathan Piel Director Director, Excelsior Fund
558 E. 87th Street and Excelsior Tax-Exempt
New York, NY 10128 Fund (since 1996);
Age: 58 Trustee, Excelsior
Institutional Trust and
Excelsior Funds (since
1994); Vice President and
Editor, Scientific
American, Inc. (from 1986
to 1994); Director, Group
for The South Fork,
Bridgehampton, New York
(since 1993); and Member,
Advisory Committee, Knight
Journalism Fellowships,
Massachusetts Institute of
Technology (since 1984).
-18-
<PAGE>
Position Principal Occupation
with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ------------------------ -------------------------- -------------------------
Robert A. Robinson Director Director of Excelsior Fund
Church Pension Fund and Excelsior Tax-Exempt
800 Second Avenue Fund (since 1987);
New York, NY 10017 Director of UST Master
Age: 71 Variable Series, Inc.
(from 1994 to June 1997);
Trustee of Excelsior
Institutional Trust (since
1995); President Emeritus,
The Church Pension Fund
and its affiliated
companies (since 1966);
Trustee, H.B. and F.H.
Bugher Foundation and
Director of its wholly
owned subsidiaries --
Rosiclear Lead and
Flourspar Mining Co. and
The Pigmy Corporation
(since 1984); Director,
Morehouse Publishing Co.
(since 1974); Trustee,
HSBC Funds Trust and HSBC
Mutual Funds Trust (since
1982); and Director,
Infinity Funds, Inc.
(since 1995).
Alfred C. Tannachion/1/ Director Retired; Director of
6549 Pine Meadows Drive Excelsior Fund and
Spring Hill, FL 34606 Excelsior Tax-Exempt Fund
Age: 71 (since 1985); Chairman
of the Board, President
and Treasurer of UST
Master Variable Series,
Inc. (from 1994 to June
1997); and Trustee of
Excelsior Institutional
Trust (since 1995).
W. Bruce McConnel, III Secretary Partner of the law firm
Philadelphia National of Drinker Biddle &
Bank Building Reath LLP.
1345 Chestnut Street
Philadelphia, PA 19107
Age: 54
Michael P. Malloy Assistant Partner of the law firm
Philadelphia National Secretary of Drinker Biddle &
Bank Building Reath LLP.
1345 Chestnut Street
Philadelphia, PA 19107-3496
Age: 37
Gregory Sackos Assistant Second Vice President,
Chase Global Funds Secretary Senior Manager of Blue
Services Company Sky Compliance and
73 Tremont Street Financial Reporting,
Boston, MA 02108-3913 Chase GlobalFunds
Services Company (March
1997to present); Second
Vice President,
- ----------
/1/ This director is considered to be an "interested person" of Excelsior Fund
as defined in the 1940 Act.
-19-
<PAGE>
Position Principal Occupation
with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ------------------------ -------------------------- -------------------------
Age: 32 Senior Manager of
Financial Reporting, Chase
Global Funds Services
Company (September 1996 to
March 1997); and Assistant
Vice President, Assistant
Manager of Financial
Reporting, Scudder,
Stevens & Clark, Inc.
(October 1992 to September
1996).
John M. Corcoran Assistant Vice President, Director
Chase Global Funds Treasurer of Administration Client
Services Company Group, Chase Global Funds
73 Tremont Street Services Company (since
Boston, MA 02108-3913 July 1996); Second Vice
Age: 32 President, Manager of
Administration, Chase
Global Funds Services
Company (from October1993
to July 1996); and Audit
Manager, Ernst & Young LLP
(from August 1987 to
September 1993).
Each director of Excelsior Fund receives an annual fee of $9,000 plus
a meeting fee of $1,500 for each meeting attended and is reimbursed for expenses
incurred in attending meetings. The Chairman of the Board is entitled to
receive an additional $5,000 per annum for services in such capacity. Drinker
Biddle & Reath LLP, of which Mr. McConnel is a partner, receives legal fees as
counsel to Excelsior Fund. The employees of Chase Global Funds Services Company
do not receive any compensation from Excelsior Fund for acting as officers of
Excelsior Fund. No person who is currently an officer, director or employee of
the Investment Adviser serves as an officer, director or employee of Excelsior
Fund. As of September 25, 1997, the directors and officers of Excelsior Fund as
a group owned beneficially less than 1% of the outstanding shares of each fund
of Excelsior Fund, and less than 1% of the outstanding shares of all funds of
Excelsior Fund in the aggregate.
The following chart provides certain information about the fees
received by Excelsior Fund's directors in the most recently completed fiscal
year.
-20-
<PAGE>
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
- ----------------------------- ----------------- -------- -------------------
Donald L. Campbell $13,500 None $31,750(4)**
Director
Rodman L. Drake*** $ 3,750 None $12,250(4)**
Director
Joseph H. Dugan $15,000 None $35,000(4)**
Director
Wolfe J. Frankl $15,000 None $35,000(4)**
Director
W. Wallace McDowell, Jr.*** $ 2,250 None $ 9,250(4)**
Director
Jonathan Piel*** $ 3,750 None $12,500(4)**
Director
Robert A. Robinson $15,000 None $35,000(4)**
Director
Alfred C. Tannachion**** $20,000 None $45,000(4)**
Director
Frederick S. Wonham**** $15,000 None $35,000(4)**
Chairman of the Board,
President and Treasurer
- ---------------------------
/*/ The "Fund Complex" consists of Excelsior Fund, Excelsior Tax-Exempt
Fund, UST Master Variable Series, Inc., Excelsior Funds and Excelsior
Institutional Trust.
/**/ Number of investment companies in the Fund Complex for which director
served as director or trustee.
/***/ Messrs. Drake, McDowell and Piel were elected to the Board of
Excelsior Fund and Excelsior Tax-Exempt Fund on December 9, 1996.
/****/ Mr. Tannachion served as Excelsior Fund's Chairman of the Board,
President and Treasurer until February 13, 1997. On that date, Mr.
Wonham was elected to serve as Excelsior Fund's Chairman of the Board,
President and Treasurer.
-21-
<PAGE>
Investment Advisory and Administration Agreements
- -------------------------------------------------
United States Trust Company of New York ("U.S. Trust New York") and
U.S. Trust Company of Connecticut ("U.S. Trust Connecticut" and, collectively
with U.S. Trust New York, "U.S. Trust" or the "Investment Adviser") serve as
Investment Adviser to the Fund. In the Investment Advisory Agreement, the
Investment Adviser has agreed to provide the services described in the
Prospectus. The Investment Adviser has also agreed to pay all expenses incurred
by it in connection with its activities under the agreement other than the cost
of securities, including brokerage commissions, purchased for the Fund.
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 Fund in connection with the performance of such agreement,
except that the Investment Adviser shall be jointly, but not severally, liable
for a loss resulting from a breach of fiduciary duty with respect to the receipt
of compensation for advisory services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Investment Adviser
in the performance of its duties or from reckless disregard by it of its duties
and obligations thereunder. In addition, the Investment Adviser has undertaken
in the Investment Advisory Agreement to maintain its policy and practice of
conducting its Asset Manage ment Group independently of its Banking Group.
Chase Global Funds Services Company ("CGFSC"), Federated
Administrative Services (an affiliate of the Distributor) and U.S. Trust
Connecticut (collectively, the "Administrators") serve as the Fund's
administrators. Under the Administration Agreement, the Administrators have
agreed to maintain office facilities for the Fund, furnish the Fund with
statistical and research data, clerical, accounting and bookkeeping services,
and certain other services required by the Fund, and to compute the net asset
value, net income and realized capital gains or losses, if any, of the Fund.
The Administrators prepare semiannual reports to the SEC, prepare Federal and
state tax returns, prepare filings with state securities commissions, arrange
for and bear the cost of processing Share purchase and redemption orders,
maintain the Fund's financial accounts and records, and generally assist in the
Fund's operations.
Shareholder Organizations
- -------------------------
As stated in the Prospectus, Excelsior Fund has entered into
agreements with certain Shareholder Organizations. Such agreements require the
Shareholder Organizations to provide shareholder administrative services to
their Customers who beneficially own Shares in consideration for the Fund's
payment of not more than the annual rate of .40% of the average daily net
-22-
<PAGE>
assets of the Fund's Shares beneficially owned by Customers of the Shareholder
Organization. Such services may include: (a) acting as recordholder of Shares;
(b) assisting in processing purchase, exchange and redemption transactions; (c)
providing periodic statements showing a Customer's account balances and
confirmations of transactions by the Customer; (d) providing tax and dividend
information to shareholders as appropriate; (e) transmitting proxy statements,
annual reports, updated prospectuses and other communications from Excelsior
Fund to Customers; and (f) providing or arranging for the provision of other
related services.
Excelsior Fund's agreements with Shareholder 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 Shareholder Organizations and the purposes for which the
expenditures were made. In addition, the arrangements with Shareholder
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
Shareholder Organizations must be approved by a majority of Excelsior Fund's
Board of Directors (including a majority of the Disinterested Directors). So
long as Excelsior Fund's arrangements with Shareholder 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 Disinterested
Directors.
Expenses
- --------
Except as otherwise noted, the Investment Adviser and the
Administrators bear all expenses in connection with the performance of their
services. The Fund bears the expenses incurred in its operations. Expenses of
the Fund include taxes; interest; fees (including fees paid to Excelsior Fund's
directors and officers who are not affiliated with the Distributor or the
Administrators); SEC fees; state securities qualifications fees; costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to shareholders; advisory, administration and administrative servicing fees;
charges of the custodian, transfer agent, and dividend disbursing agent; certain
insurance premiums; outside auditing and legal expenses; cost of independent
pricing services; costs of shareholder reports and shareholder meetings; and any
extraordinary expenses. The Fund
-23-
<PAGE>
also pays for brokerage fees and commissions in connection with the purchase of
portfolio securities.
Custodian and Transfer Agent
- ----------------------------
The Chase Manhattan Bank ("Chase") serves as custodian of the Fund's
assets. Under the Custodian Agreement, Chase has agreed to (i) maintain a
separate account or accounts in the name of the Fund; (ii) make receipts and
disbursements of money on behalf of the Fund; (iii) collect and receive all
income and other payments and distributions on account of the Fund's 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
Fund's operations. Chase may, at its own expense, open and maintain custody
accounts with respect to the Fund with other banks or trust companies, provided
that Chase shall remain liable for the performance of all its custodial duties
under the Custodian Agreement, notwithstanding any delegation.
U.S. Trust New York serves as the Fund's transfer agent and dividend
disbursing agent. In such capacity, U.S. Trust New York has agreed to (i) issue
and redeem Shares; (ii) address and mail all communications by the Fund to its
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's Board of
Directors concerning the Fund's operations. For its transfer agency, dividend
disbursing, and subaccounting services, U.S. Trust New York is entitled to
receive $15.00 per annum per account and subaccount. In addition, U.S. Trust
New York is entitled to be reimbursed for its out-of-pocket expenses for the
cost of forms, postage, processing purchase and redemption orders, handling of
proxies, and other similar expenses in connection with the above services.
U.S. Trust New York may, at its own expense, delegate its transfer
agency obligations to another transfer agent registered or qualified under
applicable law, provided that U.S. Trust New York shall remain liable for the
performance of all of its transfer agency duties under the Transfer Agency
Agreement, notwithstanding any delegation. Pursuant to this provision in the
agreement, U.S. Trust New York has entered into a sub-transfer agency
arrangement with CGFSC, an affiliate of Chase, with respect to accounts of
shareholders who are not Customers of U.S. Trust New York. For the services
provided by CGFSC, U.S. Trust New York has agreed to pay CGFSC $15.00 per annum
per account or subaccount plus out-of-pocket expenses. CGFSC receives no fee
directly from Excelsior Fund for any of its sub-
-24-
<PAGE>
transfer agency services. U.S. Trust New York may, from time to time, enter
into sub-transfer agency arrangements with third party providers of transfer
agency services.
PORTFOLIO TRANSACTIONS
----------------------
Subject to the general control of Excelsior Fund's Board of Directors,
the Investment Adviser is responsible for, makes decisions with respect to, and
places orders for all purchases and sales of all portfolio securities of the
Fund.
The Fund may engage in short-term trading to achieve its investment
objective. Portfolio turnover may vary greatly from year to year as well as
within a particular year. The Fund's portfolio turnover rate may also be
affected by cash requirements for redemptions of Shares and by regulatory
provisions which enable the Fund to receive certain favorable tax treatment.
Portfolio turnover will not be a limiting factor in making portfolio decisions.
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers.
Transactions on foreign stock exchanges involve payment of brokerage
commissions which are generally fixed. Transactions in both foreign and
domestic over-the-counter markets are generally principal transactions with
dealers, and the costs of such transactions involve dealer spreads rather than
brokerage commissions. With respect to over-the-counter transactions, the Fund,
where possible, will deal directly with the dealers who make a market in the
securities involved, except in those circumstances where better prices and
execution are available elsewhere. The cost of securities purchased from
underwriters includes an underwriting commission or concession.
The Investment Advisory 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.
-25-
<PAGE>
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 Fund to pay a broker which
furnishes brokerage and research services a higher commission than that which
might be charged by another broker for effecting the same transaction, provided
that the Investment Adviser determines in good faith that such commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker, viewed in terms of either that particular transaction
or the overall responsibilities of the Investment Adviser to the accounts as to
which it exercises investment discretion. Such brokerage and research services
might consist of reports and statistics on specific companies or industries,
general summaries of groups of stocks and their comparative earnings, or broad
overviews of the stock market and the economy. Such services might also include
reports on global, regional, and country by country prospects for economic
growth, anticipated levels of inflation, prevailing and expected interest rates,
and the outlook for currency relationships.
Supplementary research information so received is in addition to and
not in lieu of services required to be performed by the Investment Adviser and
does not reduce the investment advisory fees payable by the Fund. Such
information may be useful to the Investment Adviser in serving the Fund 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 Fund.
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 SEC.
Investment decisions for the Fund 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 Fund. When a purchase or sale of
the same security is made at substantially the same time on behalf of the 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 Fund
or the size of the position obtained by the Fund. To the extent permitted by
law, the Investment Adviser may aggregate the securities to be sold or purchased
for the Fund with those to be sold or purchased for
-26-
<PAGE>
other investment companies or common trust funds in order to obtain best
execution.
To the extent that the 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.
INDEPENDENT AUDITORS
--------------------
Ernst & Young LLP, independent auditors, 200 Clarendon Street, Boston,
MA 02116, serve as auditors of Excelsior Fund.
COUNSEL
-------
Drinker Biddle & Reath LLP (of which Mr. McConnel, Secretary of
Excelsior Fund, is a partner), Philadelphia National Bank Building, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107, is counsel to Excelsior Fund
and will pass upon the legality of the Shares offered by the Prospectus.
ADDITIONAL INFORMATION CONCERNING TAXES
---------------------------------------
The following supplements the tax information contained in the
Prospectus.
The 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, the Fund does not qualify for
a taxable year for the special Federal tax treatment afforded regulated
investment companies, the Fund would be subject to Federal tax on all of its
taxable income at regular corporate rates, without any deduction for
distributions to shareholders. In such event, dividend distributions would be
taxable as ordinary income to shareholders to the extent of the Fund's current
and accumulated earnings and profits and would be eligible for the dividends
received deduction in the case of corporate shareholders.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income (excess
of capital gains over capital losses). The Fund intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and any
-27-
<PAGE>
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
For fiscal years beginning before August 5, 1997, the 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 "Short-Short Test"): (1) stock and securities (as defined in
section 2(a)(36) of the 1940 Act); (2) options, futures and forward contracts
other than those on foreign currencies; and (3) foreign currencies (and options,
futures and forward contracts on foreign currencies) that are not directly
related to the Fund's principal business of investing in stock and securities
(and options and futures with respect to stocks and securities). Interest
(including original issue discount and accrued market discount) received by the
Fund upon maturity or disposition of a security held for less than three months
will not be treated as gross income derived from the sale or other disposition
of such security within the meaning of this requirement. However, any other
income which is attributable to realized market appreciation will be treated as
gross income from the sale or other disposition of securities for this purpose.
With respect to 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 the Fund and net gains from closing purchase transactions are treated as
short-term capital gains for Federal income tax purposes, and losses on closing
purchase transactions are short-term capital losses. With respect to forward
contracts, futures contracts, options on futures contracts, and other financial
instruments subject to the "mark-to-market" rules, the Internal Revenue Service
has ruled in private letter rulings that a gain realized from such a contract,
option or financial instrument will be treated as being derived from a security
held for three months or more (regardless of the actual period for which the
contract, option or instrument is held) if the gain arises as a result of a
constructive sale under the mark-to-market rules, and will be treated as being
derived from a security held for less than three months only if the contract,
option or instrument is terminated (or transferred) during the taxable year
(other than by reason of mark-to-market) and less than three months has elapsed
between the date the contract, option or instrument was acquired and the
termination date. Increases and decreases in the value of the forward
contracts, futures contracts, options on futures contracts and other investments
that qualify as part of a "designated hedge," as defined in Section 851(g) of
the Code, may be netted for purposes of determining whether the Short-Short Test
is met.
-28-
<PAGE>
The 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 Fund may advertise the "average annual total return" for its
Shares. Such return is computed by determining the average annual compounded
rate of return during specified periods that equates the initial amount invested
to the ending redeemable value of such investment according to the following
formula:
ERV to the power of one divided by 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.
The Fund may also advertise the "aggregate total return" for its
Shares which is computed by determining the aggregate compounded rates of return
during specified periods that likewise equate the initial amount invested to the
ending
-29-
<PAGE>
redeemable value of such investment. The formula for calculating aggregate
total return is as follows:
ERV
Aggregate Total Return = [(------)] - 1
P
The above calculations are made assuming that (1) all dividends and
capital gain distributions are reinvested on the reinvestment dates at the price
per Share existing on the reinvestment date, (2) all recurring fees charged to
all shareholder accounts are included, and (3) for any account fees that vary
with the size of the account, a mean (or median) account size in the Fund during
the periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period.
The Fund 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 the Fund's performance with other measures of investment return. For
example, in comparing the 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, the Fund may
calculate its aggregate total return for the period of time specified in the
advertisement, sales literature or communication by assuming the investment of
$10,000 in Shares and assuming the reinvestment of each dividend or other
distribution at net asset value on the reinvestment date. Percentage increases
are determined by subtracting the initial value of the investment from the
ending value and by dividing the remainder by the beginning value.
The total return of the Fund may be compared to that of other mutual
funds with similar investment objectives and to other relevant indices or to
ratings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
total return of the Fund may be compared to data prepared by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc. and Weisenberger Investment
Company Service. Total return 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 the Fund. Advertisements, sales literature or
reports to shareholders may from time to time also include a discussion and
analysis of the
-30-
<PAGE>
Fund's performance, including, without limitation, those factors, strategies and
techniques that, together with market conditions and events, materially affected
the Fund's performance.
The Fund 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 the Fund
investment are reinvested by being paid in additional Fund Shares, any future
income or capital appreciation of the Fund would increase the value, not only of
the original Fund investment, but also of the additional Fund Shares received
through reinvestment. As a result, the value of the Fund investment would
increase more quickly than if dividends or other distributions had been paid in
cash. The Fund may also include discussions or illustrations of the potential
investment goals of a prospective investor, investment management techniques,
policies or investment suitability of the 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 the 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 the Fund. The Fund 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 the
Fund. In addition, advertisements, sales literature or shareholder
communications may include a discussion of certain attributes or benefits to be
derived by an investment in the Fund. Such advertisements or communications may
include symbols, headlines or other material which highlight or summarize the
information discussed in more detail therein.
MISCELLANEOUS
-------------
As used in the Prospectus, "assets belonging to the 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 the 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
-31-
<PAGE>
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 the Fund, are conclusive.
-32-
<PAGE>
APPENDIX A
----------
COMMERCIAL PAPER RATINGS
- ------------------------
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the rating categories used by Standard and
Poor's for commercial paper:
"A-1" - The highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
"A-2" - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
"A-3" - Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
"B" - Issues are regarded as having only a speculative capacity for
timely payment.
"C" - This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
"D" - Issues are in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuers or related supporting institutions have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earning coverage of fixed financial
charges and high internal cash generation; and well established access to a
range of financial markets and assured sources of alternate liquidity.
A-1
<PAGE>
"Prime-2" - Issuers or related supporting institutions have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
"Prime-3" - Issuers or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment. Short-
term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issue as investment grade. Risk
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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 IBCA 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 IBCA 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 highest credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" ratings.
"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
"B" - Securities are speculative. 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.
"C" - Default is a real possibility for these securities. Capacity for
meeting financial commitments is solely reliant upon a sustained, favorable
business and economic environment.
"D" - Securities are in actual or imminent payment default.
Fitch IBCA 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
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year or less which are issued by United States commercial banks, thrifts and
non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded as non-
investment grade and therefore speculative.
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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.
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"CCC" - Debt has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no interest
is being paid.
"D" - Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon
the filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are
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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.
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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 IBCA
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
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as bonds rated "AAA." Because bonds rated in the "AAA" and "AA" categories are
not significantly vulnerable to foreseeable future developments, short-term debt
of these issuers is generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of good 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 IBCA
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.
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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
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principal and interest. "BB" indicates the lowest degree of speculation and
"CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
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"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative quality and
lack margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
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