<PAGE>
[LOGO OF EXCELSIOR FUNDS APPEARS HERE]
Fixed Income Portfolios
ANNUAL REPORT
March 31, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LETTER TO SHAREHOLDERS.................................................... 1
ADVISER'S FIXED INCOME MARKET REVIEW...................................... 2
ADVISER'S INVESTMENT REVIEWS
Short-Term Government Securities Fund.................................... 3
Intermediate-Term Managed Income Fund.................................... 4
Managed Income Fund...................................................... 5
STATEMENTS OF ASSETS AND LIABILITIES...................................... 6
STATEMENTS OF OPERATIONS.................................................. 7
STATEMENTS OF CHANGES IN NET ASSETS....................................... 8
FINANCIAL HIGHLIGHTS--SELECTED PER SHARE DATA AND RATIOS.................. 10
PORTFOLIOS OF INVESTMENTS
Short-Term Government Securities Fund.................................... 12
Intermediate-Term Managed Income Fund.................................... 13
Managed Income Fund...................................................... 14
NOTES TO FINANCIAL STATEMENTS............................................. 15
INDEPENDENT AUDITORS' REPORT.............................................. 21
FEDERAL TAX INFORMATION................................................... 22
</TABLE>
For shareholder account information, current price and yield quotations, or to
make an initial purchase or obtain a prospectus, call the appropriate telephone
number listed below:
. Initial Purchase and Prospectus Information and Shareholder Services 1-800-
446-1012 (From overseas, call 617-557-8280)
. Current Price and Yield Information 1-800-446-1012
. Internet Address: http://www.excelsiorfunds.com
This report must be preceded or accompanied by a current prospectus.
Prospectuses containing more complete information including charges and
expenses regarding Excelsior Funds, Inc. and Excelsior Tax-Exempt Funds, Inc.
may be obtained by contacting the Funds at 1-800-446-1012.
Investors should read the current prospectus carefully prior to investing or
sending money.
Excelsior Funds, Inc. and Excelsior Tax-Exempt Funds, Inc. are distributed by
Edgewood Services, Inc.
You may write to Excelsior Funds, Inc. and Excelsior Tax-Exempt Funds, Inc. at
the following address:
Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
SHARES IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, UNITED STATES TRUST COMPANY OF NEW YORK, U.S. TRUST COMPANY OF
CONNECTICUT, THEIR PARENT AND AFFILIATES AND SHARES ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. INVESTMENTS IN THE FUNDS INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL. FUND SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT.
<PAGE>
LETTER TO SHAREHOLDERS
- -------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the annual report for the Excelsior Funds. Fiscal
1999 was an exciting year in the financial markets as a whole and for the fund
family.
Low interest rates and subdued inflation in tandem with turbulent Asian and
Latin American markets proved to be the catalysts for another year of strong--
though narrowly focused--domestic equity performance. At the same time, these
factors combined to constrain the returns on fixed-income investments to
modest levels. The search for consistency and predictability amidst
uncertainty--regarding heightened valuations here at home, international
economic crises, not to mention the course of the U.S. economy--created a
"flight to quality." Continuing the dominant trend of the past few years,
investors redirected much of their money to a relatively small group of
extremely large-capitalized growth companies within the Standard & Poor's 500
Index, leaving the broader market lagging well behind. As a result, small and
mid-sized companies as well as value-oriented investments underperformed
relative to growth-oriented investments. This environment made it difficult
for broadly diversified equity portfolios to meet or exceed the performance of
this narrowly focused market.
On the international front, economic crises and inflationary pressures in
Asia, Eastern Europe, and Latin America temporarily disrupted equity markets
around the world. Many of these troubled economies--and widespread investor
concerns about them--have begun to turn around and are showing sign of
recovery. In Western Europe, equity performance in general was strong, and the
conversion to a single currency, the Euro, was completed on time and without
disrupting the financial markets.
The financial markets will present many challenges and opportunities during
the coming year. U.S. fiscal policy continues to be effective in keeping
inflation under control, and we continue to be cautiously optimistic regarding
the domestic equity markets. International markets, while remaining attractive
on a long-term basis, will require continuous evaluation. In our new global
economy, events in international markets will have a direct impact on the U.S.
economy.
I am confident that the Excelsior fund family will continue to provide you
with the appropriate investment vehicles to respond to the always-changing
economic/financial market environment and to pursue your long-term investment
objectives.
/s/ Frederick S. Wonham
Frederick S. Wonham
Chairman of the Board and President
1
<PAGE>
EXCELSIOR FUNDS, INC.
ADVISER'S FIXED INCOME MARKET REVIEW
- -------------------------------------------------------------------------------
During the fiscal year ended March 31, 1999, the fixed-income markets were
again strong, though volatility was pronounced. The tug of war between
domestic inflationary forces and the crisis in Asia continued unabated in the
fiscal first quarter. The taxable market and the long end of the Treasury
market proved strong; municipals, however, underperformed, given a large
supply and lackluster interest from investors due to the low interest-rate
environment.
The fiscal second quarter saw a solid rally in the fixed-income markets
given global economic concerns combined with a lack of supply of U.S.
Treasuries. The yield on Treasury bonds actually reached a 30-year low, as
investors' rattled by crises in foreign markets and the prospect of slower
growth domestically, led to a flight to quality. The rally in Treasuries
marked a significant change in economic conditions and market sentiment. In
July, the Federal Reserve was close to raising rates, but finally lowered the
federal funds rate by 25 basis points. Shrinkage in the supply of Treasury
issues left the market with insufficient liquidity to hedge exposure
elsewhere, exacerbating demand. Consequently, Treasuries left other fixed-
income categories, such as municipals and mortgage-backed securities, far
behind in the rally.
In the fiscal third quarter, fears mounted that global problems would blow
up, that liquidity would dry up, and/or that the domestic economy would slow.
In response, the Federal Reserve elected to lower interest rates several
times. At the same time, many of the global problems were being acknowledged
and--if not solved--at least being addressed. Here at home, economic activity
(retailing, autos, housing starts, etc.) continued robust. Stocks, which had
stumbled earlier in the year, rallied. Bonds, which had already had an
excellent (if volatile) year, marked time.
In the fiscal fourth quarter, the fixed-income markets continued to mark
time. Treasury yields increased slightly, though more for longer maturities
than short. Municipal bond yields moved up and down, but in the end were
hardly changed from prior-quarter levels. On the taxable side, investors were
likely to find more opportunities--more spread products, newer products (new
TIPS issuance)--to produce yields. Municipal rates remained relatively
attractive.
The reasons? The economic situation remained much the same as it had in the
previous quarter. That is, the U.S. economy remained extremely strong with
very low inflation. Along with this, we noted a shortage of supply for both
Treasuries and municipals. Even as rates appeared to want to rise because of
the strong domestic economy, the consensus view at the start of the quarter
appeared to be that the U.S. economy would slow and the Federal Reserve would
ease interest rates. There were also concerns regarding Latin America and
Asia, and this bolstered the case for additional Fed easing of interest rates.
This view shifted gradually--as the U.S. economy continued to display strength
and emerging market concerns ebbed--toward a neutral Fed bias. In fact, the
Fed made no move to increase or decrease rates in the period. Rates basically
seemed to be adjusting to the Fed bias, the modest selloff a corrective to the
"easing" bias that had already been built into the market.
Looking forward, we remain cautiously optimistic. We don't see much that
would drive interest rates much lower over the near term; the economy and
stock market remain strong, and it is hard to conceive of the Fed lowering
rates anytime soon. But neither do we see anything looming that would drive
rates much higher--barring a sudden pickup in the inflation rate. Essentially,
continued low inflation and favorable technical factors point toward a
relatively narrow trading range in the months ahead, and perhaps lower rates
looking further out.
2
<PAGE>
EXCELSIOR FUNDS, INC. SHORT-TERM GOVERNMENT SECURITIES FUND
- -------------------------------------------------------------------------------
The Fund's structure and strategy remained consistent throughout the fiscal
year ended March 31, 1999. The Fund utilizes a combination of federal
government and agency securities in a manner consistent with the Fund's
investment objective to seek a high level of current income consistent with
stability of principal. Reflecting our concerns regarding illiquidity and
credit quality in the marketplace, we emphasized both the highest quality and
the most liquid securities -- both of which proved to be the best places to be
during the year. The overweight in agency issues added substantially to the
yield and provided moderately better price performance than Treasuries. For
the twelve months ended March 31, 1999, the Fund achieved a total return of
5.54%.* For the five year period ended March 31, 1999, the Fund's cumulative
total return was 31.72%.* Looking ahead, we feel the yield advantage of
agencies over Treasuries continues to remain attractive.
- ---------------------------------------------
Short-Term Government Securities Fund+
- ---------------------------------------------
Average Annual Total Return Ended on 3/13/99*
- ---------------------------------------------
1 year 5 years Since Inception (12/31/92)
- ---------------------------------------------
5.54% 5.66% 5.14%
- ---------------------------------------------
[LINE GRAPH APPEARS HERE]
SHORT-TERM LEHMAN BROTHERS 1-3
GOVERNMENT SECURITIES YEAR GOVERNMENT
DATE FUND BOND INDEX**
12/31/92 $10,000 $10,000
3/31/93 $10,170 $10,220
3/31/94 $10,385 $10,490
3/31/95 $10,832 $10,950
3/31/96 $11,619 $11,790
3/31/97 $12,173 $12,420
3/31/98 $12,961 $13,350
3/31/99 $13,679 $14,164
Past performance is not predictive of future performance. Investment returns
and principal values will vary and shares may be worth more or less at
redemption than their original cost.
The above illustration compares a $10,000 investment made in Short-Term
Government Securities Fund and a broad-based index since 12/31/92 (inception
date). All dividends and capital gain distributions are reinvested. The Fund's
performance takes into account fees and expenses. The Lehman Brothers 1-3 Year
Government Bond Index is an unmanaged total return performance benchmark
composed of U.S. Government agencies and U.S. Treasury securities with
maturities of one to three years. The index does not take into account
charges, fees and other expenses. Further information relating to Fund
performance is contained in the Financial Highlights section of the Prospectus
and elsewhere in this report.
- --------
* Total return represents the change during the period in a hypothetical
account with dividends reinvested.
** Source: Lehman Brothers.
+ The Fund is currently waiving certain fees. Had the Fund not waived fees,
returns would have been lower. This voluntary waiver may be modified or
terminated at any time.
3
<PAGE>
EXCELSIOR FUNDS, INC. INTERMEDIATE-TERM MANAGED INCOME FUND
- -------------------------------------------------------------------------------
In the beginning months of the fiscal year, the Fund's overweight position
in slightly longer maturities (relative to its benchmark and most competitors)
contributed meaningfully to performance as long maturity issues outpaced
shorter maturities in the period. At that time, we increased the Fund's
representation among high-grade commercial and mortgage-backed corporate
securities with an eye toward boosting the portfolio's yield. The Fund
benefited as rates dropped and the yield curve grew steeper in the second
fiscal quarter. Throughout the period we worked within the intermediate-term
area (three to ten years, as per Fund guidelines), emphasizing high-quality
securities (nothing below A-rated). We also used agency paper more extensively
for greater yield potential. This positioning proved successful in the third
fiscal quarter, as the overweight position in agency, corporate and mortgage
securities provided increased income and price gains relative to Treasuries.
Heading into the final fiscal quarter, the third-quarter trend reversed, and
lower-quality securities outperformed their higher-quality peers. This
detracted from the Fund's performance, given its overallocation of high-
quality securities. Also, the Fund's slightly longer duration proved to be no
advantage for the three months, though its overweight in mortgage-backed and
commercial mortgages--which tightened relative to Treasuries--did prove a
positive. For the fiscal year ended March 31, 1999, the Fund achieved a total
return of 6.02%* and ranked 71 out of 257 funds, based on total return, in the
Lipper Intermediate Investment Grade Debt Funds category.*** The Fund also
performed well for the five year period ended March 31, 1999, ranking 35 out
of 119 funds in the same Lipper category with a cumulative total return of
42.19%*. Looking ahead to the new fiscal year, we remain cautiously optimistic
regarding market prospects in general, yet confident in the Fund's structure
and strategy.
- ---------------------------------------------
Intermediate-Term Managed Income Fund+
- ---------------------------------------------
Average Annual Total Return Ended on 3/31/99*
- ---------------------------------------------
1 year 5 years Since Inception (12/31/92)
- ---------------------------------------------
6.02% 7.29% 6.51%
- ---------------------------------------------
[LINE GRAPH APPEARS HERE]
Intermediate-Term Managed Lehman Brothers Intermediate
Income Fund Govt/Corp Bond Index**
12/31/92 $10,000 $10,000
03/31/93 $10,386 $10,400
03/31/94 $10,433 $10,660
03/31/95 $10,949 $11,140
03/31/96 $12,167 $12,220
03/31/97 $12,562 $12,790
03/31/98 $13,990 $14,020
03/31/99 $14,834 $14,941
Past performance is not predictive of future performance. Investment returns
and principal values will vary and shares may be worth more or less at
redemption than their original cost.
The above illustration compares a $10,000 investment made in Intermediate-
Term Managed Income Fund and a broad-based index since 12/31/92 (inception
date). All dividends and capital gain distributions are reinvested. The Fund's
performance takes into account fees and expenses. The Lehman Brothers
Intermediate Govt/Corp Bond Index is an unmanaged total return performance
benchmark composed of U.S. Government agencies and U.S. Treasury securities
and investment grade corporate debt, selected as representative of the market
with maturities of one to ten years. The index does not take into account
charges, fees and other expenses. Further information relating to Fund
performance is contained in the Financial Highlights section of the Prospectus
and elsewhere in this report.
- --------
* Total return represents the change during the period in a hypothetical
account with dividends reinvested.
** Source: Lehman Brothers.
*** Source: Lipper Analytical Services, Inc.--Lipper is an independent mutual
fund performance monitor.
+ The Fund is currently waiving certain fees. Had the Fund not waived fees,
returns would have been lower. This voluntary waiver may be modified or
terminated at any time.
4
<PAGE>
EXCELSIOR FUNDS, INC. MANAGED INCOME FUND
- --------------------------------------------------------------------------------
In comparison with its benchmark, the Fund maintained an overweight position
in longer-duration and higher credit quality securities throughout the fiscal
year ended March 31, 1999. This proved successful in the first three fiscal
quarters, as long-maturity issues and high-quality securities outperformed
shorter maturity and lower-quality securities. This situation reversed itself
in the final fiscal quarter, however, as lower-quality securities outperformed
their higher-quality counterparts. This had an understandably negative impact
on the Fund, given its large over allocation of very high-quality securities.
The Fund's slightly longer duration proved to be of no particular advantage
during the three-month period. On a positive note, the portfolio was
overweighted in mortgage-backed securities and commercial mortgages, which
tightened relative to Treasuries during the quarter. For the fiscal year ended
March 31, 1999, the Fund posted a total return of 5.95%* and ranked 31 out of
154 funds, based on total return, in the Lipper Corporate Debt A-Rated
category,** for the same period. The Fund has also performed well long-term,
ranking 18 and 10 among 83 and 42 funds, respectively, in the same Lipper
category for the five and ten years ended March 31, 1999, with cumulative total
returns of 43.50%* and 136.81%,* respectively. Looking ahead to the new fiscal
year, we remain confident in the Fund's structure and strategy.
- ---------------------------------------------
Managed Income Fund+
- ---------------------------------------------
Average Annual Total Return Ended on 3/31/99*
- ---------------------------------------------
1 year 5 years 10 years
- ---------------------------------------------
5.95% 7.48% 9.00%
- ---------------------------------------------
[LINE GRAPH APPEARS HERE]
Lehman Brothers Govt/Corp
Managed Income Fund Bond Index***
3/31/89 $10,000 $10,000
3/31/90 $11,203 $11,170
3/31/91 $12,700 $12,566
3/31/92 $14,016 $13,996
3/31/93 $16,222 $15,997
3/31/94 $16,502 $16,437
3/31/95 $17,172 $17,191
3/31/96 $19,251 $19,069
3/31/97 $19,816 $19,920
3/31/98 $22,352 $22,388
3/31/99 $23,681 $23,852
Past performance is not predictive of future performance. Investment returns
and principal values will vary and shares may be worth more or less at
redemption than their original cost.
The above illustration compares a $10,000 investment made in Managed Income
Fund and a broad-based index over the past ten fiscal years. All dividends and
capital gain distributions are reinvested. The Fund's performance takes into
account fees and expenses. The Lehman Brothers Govt/Corp Bond Index is an
unmanaged total return performance benchmark comprised of U.S. Government
agencies and U.S. Treasury securities and investment grade corporate debt,
selected as representative of the market. The index does not take into account
charges, fees and other expenses. Further information relating to Fund
performance is contained in the Financial Highlights section of the Prospectus
and elsewhere in this report.
- --------
* Total return represents the change during the period in a hypothetical
account with dividends reinvested.
** Source: Lipper Analytical Services, Inc.--Lipper is an independent mutual
fund performance monitor.
*** Source: Lehman Brothers.
+ The Fund is currently waiving certain fees. Had the Fund not waived fees,
returns would have been lower. This voluntary waiver may be modified or
terminated at any time.
5
<PAGE>
Excelsior Funds, Inc.
Statements of Assets and Liabilities
March 31, 1999
<TABLE>
<CAPTION>
Intermediate-
Short-Term Term
Government Managed Managed
Securities Income Income
Fund Fund Fund
----------- ------------- ------------
<S> <C> <C> <C>
ASSETS:
Investments, at cost--see
accompanying portfolios......... $52,327,317 $128,096,701 $218,486,407
=========== ============ ============
Investments, at value (Note 1)... $52,135,684 $127,328,754 $218,239,707
Interest receivable.............. 700,930 1,080,190 1,500,984
Receivable for fund shares sold.. -- 43,936 117,459
Prepaid expenses................. 167 2,573 4,409
----------- ------------ ------------
Total Assets..................... 52,836,781 128,455,453 219,862,559
LIABILITIES:
Payable for dividends declared... 156,529 564,061 763,173
Payable for investments
purchased....................... -- -- 2,986,638
Payable for fund shares redeemed. 49,271 55,985 141,811
Investment advisory fees payable
(Note 2)........................ 5,051 26,284 114,110
Administration fees payable
(Note 2)........................ 4,896 17,187 26,699
Administrative service fees
payable (Note 2)................ 4,189 7,060 6,142
Directors' fees payable (Note 2). 346 975 1,656
Accrued expenses and other
payables........................ 27,225 40,516 54,158
----------- ------------ ------------
Total Liabilities................ 247,507 712,068 4,094,387
----------- ------------ ------------
NET ASSETS........................ $52,589,274 $127,743,385 $215,768,172
=========== ============ ============
NET ASSETS consist of:
Undistributed net investment
income.......................... $ 19,896 $ 6,430 $ 91,559
Accumulated net realized gain
(loss) on investments........... 164,459 (266,124) 1,111,622
Unrealized depreciation of
investments..................... (191,633) (767,947) (246,700)
Par value (Note 4)............... 7,474 17,912 24,006
Paid-in capital in excess of par
value........................... 52,589,078 128,753,114 214,787,685
----------- ------------ ------------
Total Net Assets.................. $52,589,274 $127,743,385 $215,768,172
=========== ============ ============
Shares of Common Stock Outstanding
(Note 4)......................... 7,473,792 17,911,964 24,005,771
NET ASSET VALUE PER SHARE......... $7.04 $7.13 $8.99
===== ===== =====
</TABLE>
See Notes to Financial Statements
6
<PAGE>
Excelsior Funds, Inc.
Statements of Operations
Year Ended March 31, 1999
<TABLE>
<CAPTION>
Intermediate-
Short-Term Term
Government Managed Managed
Securities Income Income
Fund Fund Fund
---------- ------------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income...................... $2,488,273 $6,592,207 $12,179,465
---------- ---------- -----------
EXPENSES:
Investment advisory fees (Note 2).... 138,914 391,319 1,560,341
Administration fees (Note 2)......... 70,846 171,062 318,309
Administrative servicing fees
(Note 2)............................ 41,017 74,590 66,277
Custodian fees....................... 14,657 29,807 55,031
Registration and filing fees......... 12,033 12,859 13,721
Shareholder servicing agent fees..... 8,813 19,603 29,917
Legal and audit fees................. 5,545 14,397 37,644
Shareholder reports.................. 3,615 10,087 17,970
Directors' fees and expenses
(Note 2)............................ 1,612 4,444 8,158
Miscellaneous expenses............... 13,667 20,853 30,499
---------- ---------- -----------
Total Expenses....................... 310,719 749,021 2,137,867
Fees waived and reimbursed by
investment adviser
and administrators (Note 2)......... (41,017) (74,590) (274,397)
---------- ---------- -----------
Net Expenses......................... 269,702 674,431 1,863,470
---------- ---------- -----------
NET INVESTMENT INCOME................. 2,218,571 5,917,776 10,315,995
---------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 1):
Net realized gain on security trans-
actions............................. 593,923 2,456,793 3,569,699
Change in unrealized
appreciation/depreciation of
investments during the year......... (422,604) (2,155,194) (1,914,414)
---------- ---------- -----------
Net realized and unrealized gain on
investments.......................... 171,319 301,599 1,655,285
---------- ---------- -----------
Net increase in net assets resulting
from operations...................... $2,389,890 $6,219,375 $11,971,280
========== ========== ===========
</TABLE>
See Notes to Financial Statements
7
<PAGE>
Excelsior Funds, Inc.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Intermediate-
Short-Term Term
Government Managed Managed
Securities Income Income
Fund Fund Fund
----------- ------------- ------------
<S> <C> <C> <C>
Year Ended March 31, 1999
Net investment income............... $ 2,218,571 $ 5,917,776 $ 10,315,995
Net realized gain on investments.... 593,923 2,456,793 3,569,699
Change in unrealized
appreciation/depreciation of
investments during the year........ (422,604) (2,155,194) (1,914,414)
----------- ------------ ------------
Net increase in net assets resulting
from operations.................... 2,389,890 6,219,375 11,971,280
Distributions to shareholders:
From net investment income......... (2,233,996) (5,917,776) (10,412,635)
From net realized gain on
investments....................... -- (2,092,147) (5,832,403)
In excess of net realized gain on
investments....................... -- (266,124) --
Increase in net assets from fund
share transactions (Note 4)........ 19,886,756 34,864,828 23,945,143
----------- ------------ ------------
Net increase in net assets.......... 20,042,650 32,808,156 19,671,385
NET ASSETS:
Beginning of year.................. 32,546,624 94,935,229 196,096,787
----------- ------------ ------------
End of year (1).................... $52,589,274 $127,743,385 $215,768,172
=========== ============ ============
(1) Including undistributed net
investment income.............. $ 19,896 $ 6,430 $ 91,559
=========== ============ ============
Year Ended March 31, 1998
Net investment income............... $ 1,662,258 $ 4,917,994 $ 10,645,744
Net realized gain on investments.... 13,550 523,007 8,505,576
Change in unrealized
appreciation/depreciation of
investments during the year........ 313,752 3,735,347 3,888,688
----------- ------------ ------------
Net increase in net assets resulting
from operations.................... 1,989,560 9,176,348 23,040,008
Distributions to shareholders:
From net investment income......... (1,662,258) (4,917,994) (10,645,744)
From net realized gain on
investments....................... -- -- (257,074)
Increase (decrease) in net assets
from fund share
transactions (Note 4).............. 1,415,543 12,235,436 (1,936,571)
----------- ------------ ------------
Net increase in net assets.......... 1,742,845 16,493,790 10,200,619
NET ASSETS:
Beginning of year.................. 30,803,779 78,441,439 185,896,168
----------- ------------ ------------
End of year (2).................... $32,546,624 $ 94,935,229 $196,096,787
=========== ============ ============
--------
(2) Including undistributed net
investment income.............. $ 20,454 $ 1,212 $ 182,630
=========== ============ ============
</TABLE>
--------
See Notes to Financial Statements
8
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE>
Excelsior Funds, Inc.
Financial Highlights-Selected Per Share Data and Ratios
For a Fund share outstanding throughout each period.
<TABLE>
<CAPTION>
Distributions Distributions
Net Asset Net Realized Total Dividends From Net in Excess of
Value, Net and Unrealized From From Net Realized Net Realized
Beginning Investment Gain (Loss) Investment Investment Gain on Gain on
of Period Income on Investments Operations Income Investments Investments
--------- ---------- -------------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHORT-TERM GOVERNMENT SECURITIES FUND -- (12/31/92*)
Year Ended March 31,
1995................... $6.93 $0.33 $(0.04) $0.29 $(0.33) -- --
1996................... 6.89 0.40 0.09 0.49 (0.40) -- --
1997................... 6.98 0.38 (0.06) 0.32 (0.37) -- --
1998................... 6.93 0.37 0.07 0.44 (0.37) -- --
1999................... 7.00 0.34 0.04 0.38 (0.34) -- --
INTERMEDIATE-TERM MANAGED INCOME FUND -- (12/31/92*)
Year Ended March 31,
1995................... $6.83 $0.39 $(0.07) $0.32 $(0.39) -- $(0.01)
1996................... 6.75 0.43 0.31 0.74 (0.43) -- --
1997................... 7.06 0.41 (0.19) 0.22 (0.41) -- --
1998................... 6.87 0.41 0.36 0.77 (0.41) -- --
1999................... 7.23 0.39 0.04 0.43 (0.39) $(0.13) (0.01)
MANAGED INCOME FUND -- (1/9/86*)
Year Ended March 31,
1995................... $8.57 $0.51 $(0.18) $0.33 $(0.51) -- --
1996................... 8.39 0.55 0.44 0.99 (0.54) -- --
1997................... 8.84 0.51 (0.24) 0.27 (0.51) -- --
1998................... 8.60 0.49 0.58 1.07 (0.49) $(0.01) --
1999................... 9.17 0.46 0.08 0.54 (0.46) (0.26) --
</TABLE>
* Commencement of operations
+ Expense ratios before waiver of fees and reimbursement of expenses (if any)
by adviser and administrators.
++ Amount represents less than $0.01 per share.
See Notes to Financial Statements
10
<PAGE>
<TABLE>
<CAPTION>
Ratio of Ratio of Ratio of
Net Gross Net
Net Asset Net Assets, Operating Operating Investment
Value, End Expenses Expenses Income Portfolio Fee
Total End Total of Period to Average to Average to Average Turnover Waivers
Distributions of Period Return (000's) Net Assets Net Assets+ Net Assets Rate (Note 2)
------------- --------- ------ ----------- ---------- ----------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(0.33) $6.89 4.30% $ 25,216 0.61% 0.67% 4.80% 198% --
(0.40) 6.98 7.27% 25,068 0.61% 0.80% 5.72% 77% $0.01
(0.37) 6.93 4.77% 30,804 0.61% 0.70% 5.42% 82% 0.01
(0.37) 7.00 6.47% 32,547 0.62% 0.69% 5.28% 35% --
(0.34) 7.04 5.54% 52,589 0.58% 0.67% 4.79% 114% 0.01
$(0.40) $6.75 4.95% $ 47,928 0.66% 0.68% 5.91% 682% --
(0.43) 7.06 11.13% 68,640 0.64% 0.68% 6.06% 129% --
(0.41) 6.87 3.25% 78,441 0.63% 0.68% 5.91% 129% --
(0.41) 7.23 11.37% 94,935 0.61% 0.66% 5.68% 86% --
(0.53) 7.13 6.02% 127,743 0.60% 0.67% 5.29% 229% -- ++
$(0.51) $8.39 4.06% $ 86,024 1.00% 1.12% 6.09% 492% $0.01
(0.54) 8.84 11.86% 88,900 0.96% 1.12% 6.09% 165% 0.01
(0.51) 8.60 3.17% 185,896 0.90% 1.04% 5.90% 238% 0.01
(0.50) 9.17 12.79% 196,097 0.90% 1.02% 5.51% 538% 0.01
(0.72) 8.99 5.95% 215,768 0.90% 1.03% 4.96% 268% 0.01
</TABLE>
See Notes to Financial Statements
11
<PAGE>
Excelsior Funds, Inc.
Portfolio of Investments March 31, 1999
Short-Term Government Securities Fund
<TABLE>
<CAPTION>
Principal Coupon Value
Amount Rate (Note 1)
--------- ------ -----------
<C> <S> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 93.63%
Federal Home Loan Bank
$10,750,000 06/02/00..................................... 5.63% $10,798,257
3,000,000 02/26/02..................................... 5.13 2,979,237
Federal Home Loan Mortgage Corp.
15,140,000 12/14/01..................................... 4.75 14,912,855
Federal National Mortgage Association
2,000,000 04/01/99..................................... 4.72+ 2,000,000
4,000,000 06/12/00..................................... 5.65 4,022,172
2,500,000 08/10/00..................................... 5.55 2,511,990
2,000,000 08/06/03..................................... 5.94 2,007,306
1,098,612 Pool #190748, 04/01/01....................... 5.50 1,094,317
Private Export Funding Corp.
320,000 03/15/01..................................... 5.50 321,487
U.S. Treasury Notes
2,000,000 07/31/99..................................... 5.88 2,008,126
3,500,000 11/15/00..................................... 5.75 3,539,375
3,000,000 12/31/02..................................... 5.63 3,043,125
-----------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost $49,429,880)........................... 49,238,247
-----------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ -----------
<C> <S> <C> <C>
OTHER SHORT-TERM INVESTMENTS -- 5.51%
1,447,726 Dreyfus Government Cash Management Fund........ $ 1,447,726
1,449,711 Fidelity U.S. Treasury II Fund................. 1,449,711
-----------
TOTAL OTHER SHORT-TERM INVESTMENTS
(Cost $2,897,437).............................. 2,897,437
-----------
TOTAL INVESTMENTS
(Cost $52,327,317*)....................................... 99.14% $52,135,684
OTHER ASSETS & LIABILITIES (NET).......................... 0.86 453,590
------ -----------
NET ASSETS................................................ 100.00% $52,589,274
====== ===========
</TABLE>
- --------
*Aggregate cost for Federal tax and book purposes.
+Discount Rate
See Notes to Financial Statements
12
<PAGE>
Excelsior Funds, Inc.
Portfolio of Investments March 31, 1999
Intermediate-Term Managed Income Fund
<TABLE>
<CAPTION>
Principal Coupon Value
Amount Rate (Note 1)
--------- ------ -----------
<C> <S> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 48.59%
Federal Home Loan Bank
$ 1,825,000 11/25/08.................................... 5.88% $ 1,786,978
Federal Home Loan Mortgage Corp.
12,847 Pool #218374, 07/01/02...................... 10.50 13,238
2,000,000 04/25/21.................................... 6.75 2,047,580
Federal National Mortgage Association
3,000,000 04/06/99.................................... 4.72+ 2,998,005
10,000,000 12/24/07.................................... 6.48 10,067,810
5,466,418 Pool #380542, 08/01/08...................... 6.15 5,482,456
5,841,674 Pool #437416, 09/01/28...................... 6.00 5,684,907
1,279,657 Pool #439102, 09/01/28...................... 6.00 1,245,316
5,044,546 Pool #459648, 01/01/29...................... 5.50 4,771,430
Government National Mortgage Association
84,759 Pool #195801, 01/15/17...................... 8.50 89,626
139,282 Pool #195833, 04/15/17...................... 8.50 147,280
95,561 Pool #212760, 04/15/17...................... 8.50 101,049
71,755 Pool #334299, 05/15/23...................... 8.00 74,807
1,502,568 Pool #367412, 11/15/23...................... 6.00 1,461,776
3,143,572 Pool #366379, 12/15/23...................... 6.50 3,132,890
3,280,460 Pool #353454, 05/15/27...................... 7.50 3,380,413
2,915,566 Pool #460827, 06/15/28...................... 6.50 2,905,659
4,987,244 Pool #2699, 01/20/29........................ 6.00 4,826,912
U.S. Treasury Bond
4,710,000 08/15/17.................................... 8.88 6,279,019
U.S. Treasury Note
1,500,000 08/15/02.................................... 6.38 1,554,844
595,000 07/15/06.................................... 7.00 650,967
3,500,000 11/15/08.................................... 4.75 3,372,033
-----------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost $62,617,377).......................... 62,074,995
-----------
CORPORATE BONDS -- 21.46%
2,650,000 Associates Corp. of North America, 07/15/02. 6.38 2,702,743
2,750,000 Baker Hughes, Inc., 02/15/09................ 6.00 2,683,530
1,500,000 Bank One Corp., Series A, 02/17/09.......... 6.00 1,461,462
2,550,000 BB&T Corp., 06/30/05........................ 6.38 2,534,065
1,500,000 Comerica Bank, 10/15/02..................... 7.25 1,558,416
1,075,000 Daimler-Benz North America, Series A,
09/15/06.................................... 7.38 1,151,710
2,500,000 Emerson Electric Co., 03/15/09.............. 5.85 2,488,695
4,000,000 Ford Motor Credit Co., 02/23/04............. 5.75 3,971,232
3,600,000 General Motors Corp., 05/01/05.............. 6.25 3,607,934
3,000,000 Household Finance Corp., 07/15/02........... 6.13 2,999,481
2,230,000 McDonald's Corp., 05/11/01.................. 5.90 2,251,210
-----------
TOTAL CORPORATE BONDS (Cost $27,559,444).... 27,410,478
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal Coupon Value
Amount Rate (Note 1)
--------- ------ ------------
<C> <S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -- 15.37%
$ 4,844,406 Commercial Mortgage Acceptance Corp., 1998-
C2 A1, 03/15/06............................ 5.80% $ 4,773,120
2,000,000 Commercial Mortgage Asset Trust, 1999-C1 B,
07/17/13................................... 7.23 2,086,670
1,914,208 First Union-Lehman Brothers-Bank of
America, 1998-C2 A1, 06/18/07.............. 6.28 1,932,307
1,925,000 First Union-Lehman Brothers-Bank of
America, 1998-C2 A2, 11/18/08.............. 6.56 1,959,121
1,730,639 Mortgage Capital Funding, Inc., 1998-MC1
A1, 06/18/07............................... 6.42 1,756,729
2,300,000 Nationslink Funding Corp., 1998-2 A2,
07/20/08................................... 6.48 2,330,670
4,750,000 Nomura Asset Securities Corp., 1998-D6 A1B,
03/17/28................................... 6.59 4,791,871
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $19,606,923)......................... 19,630,488
------------
ASSET-BACKED SECURITIES -- 9.14%
2,000,000 Capital Auto Receivables Asset Trust, 1999-
1 A3, 08/15/04............................. 5.68 2,005,990
3,925,000 Caterpillar Financial Asset Trust, 1998-A
A3, 04/25/03............................... 5.85 3,935,421
2,500,000 Daimler-Benz Vehicle Trust, 1998-A A4,
12/22/03................................... 5.22 2,456,662
3,340,000 First USA Credit Card Master Trust, 1998-9
A, 09/18/06................................ 5.28 3,281,400
------------
TOTAL ASSET-BACKED SECURITIES
(Cost $11,758,543)......................... 11,679,473
------------
CERTIFICATE OF DEPOSIT -- 2.06%
2,650,000 Mercantile Safe Deposit & Trust, 02/15/01
(Cost $2,650,000).......................... 5.23 2,628,906
------------
<CAPTION>
Shares
------
<C> <S> <C> <C>
OTHER SHORT-TERM INVESTMENTS -- 3.06%
1,948,754 Dreyfus Government Cash Management Fund.... 1,948,754
1,955,660 Fidelity U.S. Treasury II Fund............. 1,955,660
------------
TOTAL OTHER SHORT-TERM INVESTMENTS
(Cost $3,904,414).......................... 3,904,414
------------
TOTAL INVESTMENTS (Cost $128,096,701*).................. 99.68% $127,328,754
OTHER ASSETS & LIABILITIES (NET)........................ 0.32 414,631
------ ------------
NET ASSETS.............................................. 100.00% $127,743,385
====== ============
</TABLE>
- --------
* For Federal income tax purposes, the tax basis of investments aggregates
$128,106,521.
+ Discount Rate
See Notes to Financial Statements
13
<PAGE>
Excelsior Funds, Inc.
Portfolio of Investments March 31, 1999
Managed Income Fund
<TABLE>
<CAPTION>
Principal Coupon Value
Amount Rate (Note 1)
--------- ------ ------------
<C> <S> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 50.75%
Federal National Mortgage Association
$38,675,000 02/13/04.................................... 5.13% $ 38,006,232
Government National Mortgage Association
4,873,507 Pool #2562, 03/20/28........................ 6.00 4,716,833
5,787,176 Pool #2576, 04/20/28........................ 6.00 5,601,130
2,990,688 Pool #2687, 12/20/28........................ 6.00 2,894,544
5,000,000 Pool #457999, 01/15/29...................... 6.00 4,864,260
U.S. Treasury Bonds
35,040,000 08/15/17.................................... 8.88 46,712,700
5,320,000 08/15/19.................................... 8.13 6,699,875
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost $109,669,062)......................... 109,495,574
------------
ASSET-BACKED SECURITIES -- 20.94%
3,000,000 California Infrastructure SDG&E, 1997-1 A5,
09/25/05.................................... 6.19 3,045,345
7,000,000 Capital Auto Receivables Asset Trust, 1999-1
A2, 06/15/02................................ 5.58 7,023,205
4,000,000 Caterpillar Financial Asset Trust, 1998-A
A3, 04/25/03................................ 5.85 4,010,620
6,965,000 Citibank Credit Card Master Trust I, 1998-9
A, 01/09/06................................. 5.30 6,795,298
3,500,000 ContiMortgage Home Equity Loan Trust, 1998-2
A5, 09/15/16................................ 6.28 3,519,267
5,580,000 First USA Credit Card Master Trust, 1998-9
A, 09/18/06................................. 5.28 5,482,099
6,250,000 Green Tree Home Equity Loan Trust, 1999-A
A2, 02/15/14................................ 5.78 6,220,344
4,150,000 MBNA Master Credit Card Trust, 1998-J A,
02/15/06.................................... 5.25 4,092,668
5,000,000 Peco Energy Transition Trust, 1999-A A4,
03/01/07.................................... 5.80 5,000,725
------------
TOTAL ASSET-BACKED SECURITIES
(Cost $45,435,594).......................... 45,189,571
------------
</TABLE>
<TABLE>
<CAPTION>
Principal Coupon Value
Amount Rate (Note 1)
--------- ------ ------------
<C> <S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -- 17.55%
$ 4,812,964 Bear Stearns Commercial Mortgage
Securities, 1998-C1 A1, 10/16/07.......... 6.34% $ 4,870,407
6,000,000 Commercial Mortgage Asset Trust, 1999-C1
B, 07/17/13............................... 7.23 6,260,010
3,182,371 First Union-Lehman Brothers-Bank of
America, 1998-C2 A1, 06/18/07............. 6.28 3,212,460
5,000,000 Morgan Stanley Capital I, 1999-WF1 B,
10/15/08.................................. 6.32 4,956,675
3,850,000 Mortgage Capital Funding, Inc., 1997-MC2
A2, 09/20/07.............................. 6.66 3,921,552
2,796,374 Mortgage Capital Funding, Inc., 1998-MC1
A1, 06/18/07.............................. 6.42 2,838,529
3,524,411 Nationslink Funding Corp., 1998-2 A1,
11/20/07.................................. 6.00 3,512,798
4,000,000 Nationslink Funding Corp., 1998-2 A2,
07/20/08.................................. 6.48 4,053,340
4,200,000 Nomura Asset Securities Corp., 1998-D6
A1B, 03/17/28............................. 6.59 4,237,023
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $37,844,805)........................ 37,862,794
------------
CORPORATE BONDS -- 8.42%
5,000,000 Associates Corp. of North
America, Series H, 09/27/02............... 6.71 5,141,205
8,000,000 Ford Motor Credit Co., 02/23/04........... 5.75 7,942,464
5,000,000 Morgan Stanley Dean Witter & Co.,
08/01/02.................................. 6.38 5,075,735
------------
TOTAL CORPORATE BONDS (Cost $18,004,582).. 18,159,404
------------
<CAPTION>
Shares
------
<C> <S> <C> <C>
OTHER SHORT-TERM INVESTMENTS -- 3.49%
3,766,184 Dreyfus Government Cash Management Fund... 3,766,184
3,766,180 Fidelity U.S. Treasury II Fund............ 3,766,180
------------
TOTAL OTHER SHORT-TERM INVESTMENTS
(Cost $7,532,364)......................... 7,532,364
------------
TOTAL INVESTMENTS (Cost $218,486,407*)................. 101.15% $218,239,707
OTHER ASSETS & LIABILITIES (NET)....................... (1.15) (2,471,535)
------ ------------
NET ASSETS............................................. 100.00% $215,768,172
====== ============
</TABLE>
- --------
* Aggregate cost for Federal tax and book purposes.
See Notes to Financial Statements
14
<PAGE>
EXCELSIOR FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies
Excelsior Funds, Inc. ("Excelsior Fund") was incorporated under the laws of
the State of Maryland on August 2, 1984 and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
Excelsior Fund currently offers shares in eighteen managed investment
portfolios, each having its own investment objectives and policies. The
following is a summary of significant accounting policies for Short-Term
Government Securities Fund, Intermediate-Term Managed Income Fund and Managed
Income Fund (the "Portfolios"). Such policies are in conformity with generally
accepted accounting principles and are consistently followed by Excelsior Fund
in the preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual
results could differ from these estimates. The financial statements for the
remaining portfolios of Excelsior Fund and Excelsior Tax-Exempt Funds, Inc.
("Excelsior Tax-Exempt Fund") are presented separately.
(a) Portfolio Valuation:
Investments in securities that are traded on a recognized stock exchange
are valued at the last sale price on the exchange on which such securities
are primarily traded or at the last sale price on the national securities
market. Securities traded over-the-counter are valued each business day on
the basis of closing over-the-counter bid prices. Securities for which
there were no transactions are valued at the average of the most recent bid
prices (as calculated by an independent pricing service (the "Service")
based upon its evaluation of the market for such securities) when, in the
judgment of the Service, quoted bid prices for securities are readily
available and are representative of the bid side of the market. Short-term
debt instruments with remaining maturities of 60 days or less are valued at
amortized cost, which approximates market value. Securities and other
assets for which market quotations are not readily available are valued at
fair value pursuant to guidelines adopted by Excelsior Fund's Board of
Directors.
Portfolio securities that are primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on their respective exchanges, except that when an occurrence
subsequent to the time a value was so established is likely to have changed
such value, then the fair value of those securities will be determined by
consideration of other factors under the direction of the Board of
Directors. A security which is listed or traded on more than one exchange
is valued at the quotation on the exchange determined to be the primary
market for such security.
Investment in foreign debt securities having maturities of 60 days or
less are valued at amortized cost, which approximates market value. All
other foreign securities are valued at the last current bid quotation if
market quotations are available, or at fair value as determined in
accordance with policies established by the Board of Directors. For
valuation purposes, quotations of foreign securities in foreign currency
are converted to United States dollars equivalent at the prevailing market
rate on the day of conversion.
15
<PAGE>
(b) Security transactions and investment income:
Security transactions are recorded on a trade date basis. Realized gains
and losses on investments sold are recorded on the basis of identified
cost. Interest income, adjusted for amortization of premiums and, when
appropriate, discounts on investments, is earned from settlement date and
is recorded on the accrual basis.
(c) Repurchase agreements:
Excelsior Fund may purchase portfolio securities from financial
institutions deemed to be creditworthy by the investment adviser subject to
the seller's agreement to repurchase and Excelsior Fund's agreement to
resell such securities at mutually agreed upon prices. Securities purchased
subject to such repurchase agreements are deposited with Excelsior Fund's
custodian or sub-custodian or are maintained in the Federal
Reserve/Treasury book-entry system and must have, at all times, an
aggregate market value not less than the repurchase price (including
accrued interest).
If the value of the underlying security falls below the value of the
repurchase price, Excelsior Fund will require the seller to deposit
additional collateral by the next business day. Default or bankruptcy of
the seller may, however, expose the applicable Portfolio of Excelsior Fund
to possible delay in connection with the disposition of the underlying
securities or loss to the extent that proceeds from a sale of the
underlying securities were less than the repurchase price under the
agreement.
(d) Dividends and distributions to shareholders:
Dividends from net investment income are declared daily and paid monthly.
Net realized capital gains, unless offset by any available capital loss
carryforward, are distributed to shareholders at least annually.
Dividends and distributions are determined in accordance with Federal
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
deferral of losses on wash sales and net capital losses incurred after
October 31 and within the taxable year ("Post-October losses").
In order to avoid a Federal excise tax, each Portfolio is required to
distribute certain minimum amounts of net realized capital gain and net
investment income for the respective periods ending October 31 and December
31 in each calendar year.
(e) Federal taxes:
It is the policy of Excelsior Fund that each Portfolio continue to
qualify as a regulated investment company, if such qualification is in the
best interest of the shareholders, by complying with the requirements of
the Internal Revenue Code applicable to regulated investment companies, and
by distributing substantially all of its taxable earnings to its
shareholders.
To the extent that such carryforwards are utilized, no capital gain
distributions will be made. During the year ended March 31, 1999, Short-
Term Government Securities Fund and Intermediate-Term Managed Income Fund
utilized capital loss carryforwards for Federal tax purposes totaling
approximately $407,000 and $335,000, respectively.
16
<PAGE>
Post-October losses are deemed to arise on the first business day of a
Portfolio's next taxable year. Intermediate-Term Managed Income Fund
incurred, and elected to defer, net capital losses of approximately
$256,000 for the year ended March 31, 1999.
At March 31, 1999, aggregate gross unrealized appreciation for all
securities for which there was an excess of value over tax cost and
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over value were as follows:
<TABLE>
<CAPTION>
Net
Tax Basis Tax Basis Unrealized
Unrealized Unrealized Appreciation
Appreciation (Depreciation) (Depreciation)
------------ -------------- --------------
<S> <C> <C> <C>
Short-Term Government Securities
Fund........................... $130,498 $ (322,131) $(191,633)
Intermediate-Term Managed Income
Fund........................... 331,662 (1,109,429) (777,767)
Managed Income Fund............. 646,086 (892,786) (246,700)
</TABLE>
(f) Expense Allocation:
Expenses directly attributable to a Portfolio are charged to that
Portfolio. Other expenses are allocated to the respective Portfolios based
on average daily net assets.
2. Investment Advisory Fee, Administration Fee and Related Party Transactions
United States Trust Company of New York ("U.S. Trust NY") and U.S. Trust
Company of Connecticut ("U.S. Trust CT" and, collectively with U.S. Trust NY,
"U.S. Trust") serve as the investment adviser to the Portfolios. For the
services provided pursuant to the Investment Advisory Agreements, U.S. Trust
is entitled to receive a fee, computed daily and paid monthly, at the annual
rates of .30% of the average daily net assets of the Short-Term Government
Securities Fund, .35% of the average daily net assets of the Intermediate-Term
Managed Income Fund and .75% of the average daily net assets of the Managed
Income Fund. U.S. Trust NY and U.S. Trust CT are wholly-owned subsidiaries of
U.S. Trust Corporation, a registered bank holding company.
U.S. Trust CT, Chase Global Funds Services Company, a corporate affiliate of
The Chase Manhattan Bank, and Federated Administrative Services (collectively,
the "Administrators") provide administrative services to Excelsior Fund. For
the services provided to the Portfolios, the Administrators are entitled
jointly to annual fees, computed daily and paid monthly, based on the combined
aggregate average daily net assets of Excelsior Fund, Excelsior Tax-Exempt
Fund and Excelsior Institutional Trust (excluding the international equity
portfolios of Excelsior Fund and Excelsior Institutional Trust), all of which
are affiliated investment companies, as follows: .200% of the first $200
million, .175% of the next $200 million, and .150% over $400 million.
Administration fees payable by each Portfolio of the three investment
companies are determined in proportion to the relative average daily net
assets of the respective Portfolios for the period paid. For the year ended
March 31, 1999, administration fees charged by U.S. Trust CT were as follows:
<TABLE>
<S> <C>
Short-Term Government Securities Fund............................. $17,293
Intermediate-Term Managed Income Fund............................. 41,702
Managed Income Fund............................................... 77,398
</TABLE>
17
<PAGE>
From time to time, as they may deem appropriate in their sole discretion,
U.S. Trust and the Administrators may undertake to waive a portion or all of
the fees payable to them and also may reimburse the Portfolios for a portion
of other expenses. In addition, until further notice to Excelsior Fund, U.S.
Trust intends to voluntarily waive fees and reimburse expenses to the extent
necessary for Short-Term Government Securities Fund and Intermediate-Term
Managed Income Fund to maintain an annual expense ratio of not more than .62%
and .72%, respectively. For the year ended March 31, 1999, no expenses were
reimbursed pursuant to these voluntary actions. In addition, currently, U.S.
Trust is voluntarily limiting its investment advisory fee to .65% of the
average daily net assets for Managed Income Fund. For the year ended March 31,
1999, U.S. Trust waived investment advisory fees totaling $208,120 for Managed
Income Fund.
Excelsior Fund has also entered into administrative servicing agreements
with various service organizations (which may include affiliates of U.S.
Trust) requiring them to provide administrative support services to their
customers owning shares of the Portfolios. As a consideration for the
administrative services provided by each service organization to its
customers, each Portfolio will pay the service organization an administrative
service fee at the annual rate of up to .40% of the average daily net asset
value of its shares held by the service organization's customers. Such
services may include assisting in processing purchase, exchange and redemption
requests; transmitting and receiving funds in connection with customer orders
to purchase, exchange or redeem shares; and providing periodic statements.
Administrative service fees paid to affiliates of U.S. Trust amounted to
$178,404 for the year ended March 31, 1999. Until further notice to Excelsior
Fund, U.S. Trust and the Administrators have voluntarily agreed to waive
investment advisory and administration fees payable by each Portfolio in an
amount equal to the administrative service fees payable (including fees paid
to affiliates of U.S. Trust) by such Portfolio. For the year ended March 31,
1999, U.S. Trust and the Administrators waived investment advisory and
administration fees in amounts equal to the administrative service fees for
the Portfolios as set forth below:
<TABLE>
<CAPTION>
U.S. Trust Administrators
---------- --------------
<S> <C> <C>
Short-Term Government Securities Fund............ $40,855 $ 162
Intermediate-Term Managed Income Fund............ 74,201 389
Managed Income Fund.............................. 64,413 1,864
</TABLE>
Edgewood Services, Inc. ("the Distributor"), a wholly-owned subsidiary of
Federated Investors, Inc., serves as the distributor of Excelsior Fund. Shares
of each Portfolio are sold without a sales charge on a continuous basis by the
Distributor.
Each Director of Excelsior Fund receives an annual fee of $9,000, plus a
meeting fee of $1,500 for each meeting attended, and is reimbursed for
expenses incurred for attending meetings. The Chairman receives an additional
annual fee of $5,000.
18
<PAGE>
3. Purchases and Sales of Securities:
For the year ended March 31, 1999, purchases and sales of securities,
excluding short-term investments, for the Portfolios aggregated:
<TABLE>
<CAPTION>
Purchases Sales
------------ ------------
<S> <C> <C>
Short-Term Government Securities Fund........... $ 68,421,451 $ 46,338,591
Intermediate-Term Managed Income Fund........... 277,376,370 235,371,823
Managed Income Fund............................. 577,714,691 522,497,296
</TABLE>
4. Common Stock:
Excelsior Fund has authorized capital of 35 billion shares of Common Stock,
26.375 billion of which is currently classified to represent interests in one
of eighteen separate investment portfolios. Authorized capital currently
classified for each Portfolio is as follows: 375 million shares of the Managed
Income Fund, and 500 million shares each of the Short-Term Government
Securities Fund and the Intermediate-Term Managed Income Fund.
Each share has a par value of $.001 and represents an equal proportionate
interest in the particular Portfolio with other shares of the same Portfolio,
and is entitled to such dividends and distributions of taxable earnings on the
assets belonging to such Portfolio as are declared at the discretion of
Excelsior Fund's Board of Directors.
<TABLE>
<CAPTION>
Short-Term Government Securities Fund
--------------------------------------------------
Year Ended 03/31/99 Year Ended 03/31/98
------------------------ ------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold....................... 4,313,755 $ 30,390,997 1,570,677 $ 10,975,144
Issued as reinvestment of
dividends................. 77,059 543,382 44,519 311,065
Redeemed................... (1,565,745) (11,047,623) (1,412,887) (9,870,666)
---------- ------------ ---------- ------------
Net Increase............... 2,825,069 $ 19,886,756 202,309 $ 1,415,543
========== ============ ========== ============
<CAPTION>
Intermediate-Term Managed Income Fund
--------------------------------------------------
Year Ended 03/31/99 Year Ended 03/31/98
------------------------ ------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold....................... 7,225,482 $ 52,716,314 4,118,110 $ 29,395,499
Issued as reinvestment of
dividends................. 60,786 444,096 35,038 249,767
Redeemed................... (2,507,271) (18,295,582) (2,443,880) (17,409,830)
---------- ------------ ---------- ------------
Net Increase............... 4,778,997 $ 34,864,828 1,709,268 $ 12,235,436
========== ============ ========== ============
<CAPTION>
Managed Income Fund
--------------------------------------------------
Year Ended 03/31/99 Year Ended 03/31/98
------------------------ ------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold....................... 6,445,954 $ 59,579,168 3,432,506 $ 30,874,198
Issued as reinvestment of
dividends................. 308,474 2,850,516 185,721 1,667,354
Redeemed................... (4,143,351) (38,484,541) (3,847,425) (34,478,123)
---------- ------------ ---------- ------------
Net Increase (Decrease).... 2,611,077 $ 23,945,143 (229,198) $ (1,936,571)
========== ============ ========== ============
</TABLE>
19
<PAGE>
5. Line of Credit:
The Portfolios and other affiliated funds participate in a $250 million
unsecured line of credit provided by a syndication of banks under a line of
credit agreement. Borrowings may be made to temporarily finance the repurchase
of Portfolio shares. Interest is charged to each Portfolio, based on its
borrowings, at a rate equal to the Federal Funds Rate plus 2% per year. In
addition, a commitment fee, based on the average daily unused portion of the
line of credit, is allocated among the participating Portfolios at the end of
each quarter. For the year ended March 31, 1999, the Portfolios had no
borrowings under the agreement.
6. Year 2000 Risk (Unaudited):
Like other investment companies, financial and business organizations and
individuals around the world, the Portfolios could be affected adversely if
the computer systems used by the investment managers and the Portfolios' other
service providers do not properly process and calculate date-related
information and data from and after January 1, 2000. This is commonly known as
the "Year 2000 Problem." The investment managers and the Portfolios' other
service providers have informed the Excelsior Fund that they are taking steps
to address the Year 2000 Problem with respect to the computer systems that
they use. Currently, they do not anticipate that the transition to the 21st
Century will have any material impact on their ability to continue to service
the Portfolios at current levels. At this time, however, there can be no
assurance that their efforts will be sufficient to avoid any adverse impact on
the Portfolios as a result of the Year 2000 Problem.
20
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders
and Board of Directors of
Excelsior Funds, Inc.
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of the Short-Term Government
Securities, Intermediate-Term Managed Income and Managed Income Portfolios
(three of the portfolios constituting the Excelsior Funds, Inc. (the "Fund"))
as of March 31, 1999, and the related statements of operations for the year
then ended, the statements of changes in net assets for each of the two years
in the period then ended and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
March 31, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
above mentioned Portfolios of Excelsior Funds, Inc. at March 31, 1999, the
results of their operations for the year then ended, the changes in their net
assets for each of the two years in the period then ended and the financial
highlights for each of the periods indicated therein, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
May 7, 1999
21
<PAGE>
Federal Tax Information: (Unaudited)
For the year ended March 31, 1999, the designation for the Intermediate-Term
Managed Income Fund and the Managed Income Fund of 20% long-term capital gains
are approximately $1,232,000 and $136,000, respectively.
For the year ended March 31, 1999, the percentage of income earned from
direct treasury obligations was as follows:
<TABLE>
<CAPTION>
Interest
Earned
--------
<S> <C>
Short-Term Government Securities Fund............................... 82.13%
Intermediate-Term Managed Income Fund............................... 30.37%
Managed Income Fund................................................. 30.84%
</TABLE>
USTFIA399
22
