<PAGE>
As filed with the Securities and Exchange Commission on April 5, 1999.
Registration No.:
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[_] Pre-Effective Amendment No. ___ [_] Post-Effective Amendment No. __
(Check appropriate box or boxes)
Exact Name of Registrant as Specified in Charter:
EXCELSIOR FUNDS, INC.
Area Code and Telephone Number:
(800) 446-1012
Address of Principal Executive Offices:
73 Tremont Street
Boston, MA 02108-3913
Name and Address of Agent for Service:
W. Bruce McConnel, III
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
Approximate Date of Proposed Public Offering: As soon as practicable after the
Registration Statement becomes effective under the Securities Act of 1933.
Calculation of Registration Fee under the Securities Act of 1933: No filing fee
is required because an indefinite number of shares have previously been
registered on Form N-1A (Registration Nos. 2-92655; 811-4088) pursuant to Rule
24f-2 under the Investment Company Act of 1940. The Registrant's Rule 24f-2
Notice for the fiscal year ended March 31, 1998 was filed on June 25, 1998.
Pursuant to Rule 429 under the Securities Act of 1933, this Registration
Statement relates to the shares previously registered on the aforesaid
Registration Statement on Form N-1A.
It is proposed that this filing will become effective on May 5, 1999 pursuant to
Rule 488 under the Securities Act of 1933.
<PAGE>
EXCELSIOR FUNDS, INC.
73 Tremont Street
Boston, MA 02108-3913
(800) 446-1012
May 5, 1999
To the Shareholders of the
Income and Growth Fund:
Enclosed you will find a proxy statement in connection with the
solicitation of proxies by the Board of Directors of Excelsior Funds, Inc. (the
"Company") for a Special Meeting of Shareholders of the Income and Growth Fund
to be held on June 30, 1999.
The proxy statement relates to the approval or disapproval of a plan
of reorganization whereby the Income and Growth Fund would be reorganized into
the Company's Blended Equity Fund.
The Board of Directors recommends that shareholders vote in favor of
the proposal.
Frederick S. Wonham
Chairman, President and Treasurer
<PAGE>
EXCELSIOR FUNDS, INC.
73 TREMONT STREET
BOSTON, MASSACHUSETTS 02108-3913
(800) 446-1012
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF THE INCOME AND GROWTH FUND
TO BE HELD ON JUNE 30, 1999
To the Shareholders of the Income and Growth Fund:
NOTICE IS HEREBY GIVEN THAT a Special Meeting of Shareholders (the
"Meeting") of the Income and Growth Fund, an investment portfolio offered by
Excelsior Funds, Inc. (the "Company"), will be held at the offices of United
States Trust Company of New York at 114 West 47th Street, New York, New York on
June 30, 1999 at 10:00 a.m. (Eastern time). During the Meeting, the shareholders
will vote on the following proposals:
ITEM 1. To approve or disapprove a Plan of Reorganization and the
transactions contemplated thereby, including the transfer of
all of the assets and liabilities of the Company's Income
and Growth Fund (the "Transferor Fund") to the Company's
Blended Equity Fund (the "Surviving Fund"), the amendment of
the Company's Charter reclassifying all shares of the
Transferor Fund as shares of the Surviving Fund, and
accomplishment of the reclassification by the issuance of
such shares of the Surviving Fund to shareholders of the
Transferor Fund.
ITEM 2. To transact such other business as may properly come before
the Meeting or any adjournment(s) thereof.
THE DIRECTORS RECOMMEND THAT YOU VOTE IN FAVOR OF EACH PROPOSAL.
The proposed reorganization and related matters are described in the
attached Combined Proxy Statement/Prospectus. Appendix A to the Combined Proxy
Statement/Prospectus is a copy of the Plan of Reorganization.
Shareholders of record as of the close of business on April 9, 1999
are entitled to notice of, and to vote at, the Meeting or any adjournment
thereof.
SHAREHOLDERS ARE REQUESTED TO EXECUTE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE THE ACCOMPANYING PROXY CARD WHICH IS BEING SOLICITED BY THE
BOARD OF DIRECTORS OF THE COMPANY. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE
MEETING. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY
SUBMITTING TO THE COMPANY A WRITTEN NOTICE OF REVOCATION OR A SUBSEQUENTLY
EXECUTED PROXY OR BY ATTENDING THE MEETING AND ELECTING TO VOTE IN PERSON.
By the Order of the
Board of Directors
W. Bruce McConnel, III
Secretary
May 5, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SUMMARY............................................................................................. 3
Proposed Reorganization........................................................................ 3
Reasons For Reorganization..................................................................... 3
Federal Income Tax Consequences................................................................ 4
Comparison of the Investment Objectives and Policies of the Funds.............................. 4
Comparison of Other Features of the Funds...................................................... 4
Comparative Fee Table.......................................................................... 5
Expense Ratios................................................................................. 6
The Investment Advisers........................................................................ 6
The Administrators............................................................................. 7
The Distributor................................................................................ 8
Administrative Servicing Fee................................................................... 8
The Transfer Agent............................................................................. 8
The Custodian.................................................................................. 9
Fee Waivers and Expense Ratios................................................................. 9
Purchase and Redemption Procedures; Exchange Procedures; Dividends, Distributions and Pricing.. 9
Voting Information............................................................................. 9
Risk Factors................................................................................... 9
INFORMATION RELATING TO THE PROPOSED REORGANIZATION................................................. 10
Description of the Plan of Reorganization...................................................... 10
Board Consideration............................................................................ 12
Capitalization................................................................................. 12
Federal Income Tax Consequences................................................................ 13
COMPARISON OF THE FUNDS............................................................................. 13
Investment Objectives and Policies............................................................. 13
Fundamental Investment Limitations............................................................. 15
Performance.................................................................................... 15
Other Information.............................................................................. 15
INFORMATION RELATING TO VOTING MATTERS.............................................................. 16
General Information............................................................................ 16
Shareholder and Board Approval................................................................. 16
Appraisal Rights............................................................................... 17
Quorum......................................................................................... 17
Annual Meetings................................................................................ 18
ADDITIONAL INFORMATION ABOUT THE FUNDS.............................................................. 18
FINANCIAL HIGHLIGHTS................................................................................ 18
FINANCIAL STATEMENTS................................................................................ 21
OTHER BUSINESS...................................................................................... 21
LITIGATION.......................................................................................... 21
SHAREHOLDER INQUIRIES............................................................................... 21
APPENDIX A--PLAN OF REORGANIZATION.................................................................. A-1
APPENDIX B--MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE............................................. B-1
</TABLE>
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY COPY DATED
APRIL 5, 1999
EXCELSIOR FUNDS, INC.
73 TREMONT STREET
BOSTON, MASSACHUSETTS 02108-3913
(800) 446-1012
COMBINED PROXY STATEMENT/PROSPECTUS
DATED MAY 5, 1999
This Combined Proxy Statement/Prospectus is furnished in connection with
the solicitation of proxies by the Board of Directors of Excelsior Funds, Inc.
(the "Company") for use at a Special Meeting of Shareholders of the Company's
Income and Growth Fund (the "Transferor Fund") to be held at 10:00 a.m. (Eastern
time), on June 30, 1999 at the offices of United States Trust Company of New
York at 114 West 47th Street, New York, New York, or any adjournment thereof
(the "Meeting"). At the Meeting, shareholders of the Transferor Fund will be
asked to consider and approve a proposed Plan of Reorganization dated as of
April 8, 1999 and the transactions contemplated thereby. A copy of the Plan of
Reorganization is attached hereto as Appendix A.
The Company is an open-end management investment company registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), and currently
offers shares in eighteen investment portfolios. The Transferor Fund and the
Company's Blended Equity Fund (the "Surviving Fund") are separate investment
portfolios of the Company. Each of the Transferor Fund and the Surviving Fund
offers one class of shares. The investment objective of the Transferor Fund is
to seek moderate current income with capital appreciation as a secondary goal.
The investment objective of the Surviving Fund is to seek long-term capital
appreciation. The investment policies and fundamental limitations of the
Transferor Fund are generally similar to those of the Surviving Fund, and the
investment advisers have utilized similar investment strategies, policies and
themes in managing the Transferor Fund and Surviving Fund. In addition, the
distribution and purchase procedures, exchange rights, redemption procedures and
the service providers of the Transferor Fund and Surviving Fund are the same.
The Plan of Reorganization provides that the Transferor Fund will transfer
all of its assets and liabilities to the Surviving Fund, all shares of the
Transferor Fund will be reclassified as shares of the Surviving Fund, and each
holder of shares of the Transferor Fund will hold, immediately after the
effective time of the reorganization, full and fractional shares of the
Surviving Fund ("Corresponding Shares") with the same aggregate net asset value
as the shareholder had in the Transferor Fund immediately before the
transaction.
This Combined Proxy Statement/Prospectus sets forth the information that a
shareholder of the Transferor Fund should know before voting on the Plan of
Reorganization and should be retained for future reference. Additional
information is set forth in the Prospectus relating to
<PAGE>
shares of the Transferor Fund and the Surviving Fund (collectively, the "Funds")
dated August 1, 1998, the Statement of Additional Information dated August 1,
1998 relating to the Funds and the Statement of Additional Information dated May
5, 1999 relating to this Combined Proxy Statement/Prospectus. Each of these
documents is on file with the Securities and Exchange Commission (the "SEC") and
is available without charge upon oral or written request by writing or calling
the Company at the address or telephone number indicated above. The information
contained in the aforesaid Prospectus and Statements of Additional Information
is incorporated herein by reference.
This Combined Proxy Statement/Prospectus constitutes the Transferor Fund's
Proxy Statement for the Meeting, and the Prospectus for the Corresponding Shares
of the Surviving Fund that have been registered with the SEC and are to be
issued in connection with the reorganization.
This Combined Proxy Statement/Prospectus is expected to be sent to
shareholders of the Transferor Fund on or about May 5, 1999.
SHARES OF THE TRANSFEROR FUND AND THE SURVIVING FUND ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, UNITED STATES TRUST COMPANY OF NEW
YORK, U.S. TRUST COMPANY OF CONNECTICUT, THEIR PARENT OR AFFILIATES AND THE
SHARES ARE NOT FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE
SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL AMOUNT INVESTED.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
SHARES OF THE SURVIVING FUND OR PASSED UPON THE ADEQUACY OF THIS COMBINED PROXY
STATEMENT/ PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROXY
STATEMENT/PROSPECTUS AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY
REFERENCE AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
-2-
<PAGE>
SUMMARY
The following is a summary of certain information relating to the proposed
reorganization, the parties thereto and the related transactions, and is
qualified by reference to the more complete information contained elsewhere in
this Combined Proxy Statement/Prospectus, including the Plan of Reorganization
attached as Appendix A hereto, and in the Prospectus and Statement of Additional
Information of the Funds. The Company's Semi-Annual Report to Shareholders and
its Annual Report to Shareholders may be obtained free of charge by calling 1-
800-446-1012 or by writing the Company at its address given on the first page of
this Combined Proxy Statement/Prospectus.
PROPOSED REORGANIZATION. Based upon their evaluation of the relevant
information presented to them, and in light of their fiduciary duties under
federal and state law, the Company's Board of Directors, including the Directors
who are not "interested persons" within the meaning of the 1940 Act, have
determined that the proposed Plan of Reorganization is in the best interests of
the Transferor Fund's shareholders.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS THE APPROVAL OF THE PLAN OF
REORGANIZATION BY THE SHAREHOLDERS OF THE TRANSFEROR FUND AT THE MEETING.
Subject to shareholder approval, the Plan of Reorganization provides for
the acquisition by the Surviving Fund of all of the assets and liabilities of
the Transferor Fund (such assets subject to such liabilities are called the
"Assets"), the amendment of the Company's Charter to reclassify all shares of
the Transferor Fund as shares of the Surviving Fund, and the issuance of
Corresponding Shares to shareholders of the Transferor Fund.
As a result of the proposed reorganization, each shareholder of the
Transferor Fund will become a shareholder of the Surviving Fund and will hold,
immediately after the time the reorganization becomes effective (the "Effective
Time of the Reorganization"), the same aggregate dollar value of Corresponding
Shares of the Surviving Fund as the shareholder held in the Transferor Fund
immediately before the Effective Time of the Reorganization.
For further information, see "INFORMATION RELATING TO THE PROPOSED
REORGANIZATION--Description of the Plan of Reorganization."
REASONS FOR REORGANIZATION. The primary reason for the reorganization is to
streamline and simplify the Company's equity products. In connection with its
approval of the Plan of Reorganization, the Company's Board of Directors noted
that the investment policies and strategies of the Transferor Fund were
generally similar to those of the Surviving Fund; that the Surviving Fund's
performance record was stronger over the short and long-term than the
performance record of the Transferor Fund; that the Surviving Fund's total
operating expense ratio was lower than that of the Transferor Fund; that the
combined total assets of the Surviving Fund would be considerably greater than
those of the Transferor Fund; that the greater aggregate assets upon
consummation of the reorganization of the Transferor Fund into the Surviving
Fund would potentially allow the Surviving Fund to take advantage of the
possible benefits of a larger asset base such as economics of scale, lower fixed
expense ratios and greater leverage in the
-3-
<PAGE>
market; and that the service providers for the Transferor Fund and Surviving
Fund were the same. After consideration of the reasons for the proposed
reorganization and the proposed operations of the Surviving Fund after the
reorganization, and in consideration of the fact that the reorganization will be
tax-free and will not dilute the interests of the shareholders of the Transferor
Fund or the Surviving Fund, the Board of Directors has authorized the Plan of
Reorganization and recommended approval of the Plan of Reorganization by the
shareholders of the Transferor Fund. See "INFORMATION RELATING TO THE PROPOSED
REORGANIZATION--Board Consideration."
FEDERAL INCOME TAX CONSEQUENCES. Consummation of the reorganization will
not be a taxable event for federal income tax purposes for the Transferor Fund,
the Surviving Fund or their respective shareholders. See "INFORMATION RELATING
TO THE PROPOSED REORGANIZATION--Federal Income Tax Consequences."
COMPARISON OF THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS. The
investment objective of the Transferor Fund is to seek moderate current income
with capital appreciation as a secondary goal. In attempting to achieve these
two objectives, the Transferor Fund invests, during normal market and economic
conditions, a substantial portion of its assets in common stock, preferred stock
and securities convertible into common stock. The Transferor Fund's investments
in equity securities are income-oriented, and the Fund generally invests a
portion of its assets in debt obligations on a regular basis. The investment
objective of the Surviving Fund is to seek long-term capital appreciation. Under
normal market conditions, the Surviving Fund invests at least 65% of its total
assets in common stock, preferred stock and securities convertible into common
stock.
In managing the Funds, United States Trust Company of New York ("USTNY")
and U.S. Trust Company of Connecticut ("USTCT"), the Company's joint investment
advisers (collectively, "U.S. Trust" or the "Investment Advisers"), use the same
long-term value-based investment philosophy of investing in companies believed
to have value currently not recognized in the market prices of the companies'
securities. In order to translate its investment philosophy into more specific
guidance for selection of investments, U.S. Trust uses the same three strategies
for the Surviving Fund and the equity portion of the Transferor Fund: the
problem/opportunity strategy, the transaction value strategy, and early life
cycle strategy.
In applying these strategies to the Transferor Fund, U.S. Trust places
greater emphasis on the current and anticipated income of particular securities
and lesser emphasis on the potential for capital appreciation. As a result, the
Transferor Fund can be expected to have a relatively smaller portion of its
assets invested in common shares of early life cycle companies than the
Surviving Fund. In addition, the Transferor Fund generally invests more of its
assets in debt obligations than the Surviving Fund because of its primary
investment objective to seek moderate current income.
For further information, see "COMPARISON OF THE FUNDS--Investment
Objectives and Policies."
COMPARISON OF OTHER FEATURES OF THE FUNDS. The distribution and purchase
procedures, exchange rights, redemption procedures and service providers of the
Funds are the same.
-4-
<PAGE>
COMPARATIVE FEE TABLE. The following table sets forth: (1) the fees and
expenses of the shares of the Transferor Fund; (2) the fees and expenses of the
shares of the Surviving Fund; and (3) the estimated fees and expenses of the
shares of the Surviving Fund on a pro forma basis after giving effect to the
proposed reorganization. Hypothetical examples based on the table are shown
following the table.
<TABLE>
<CAPTION>
PRO FORMA COMBINED
INCOME AND BLENDED BLENDED EQUITY
GROWTH FUND EQUITY FUND FUND+
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Front-End Sales Load None None None
Sales Load on Reinvested
Dividends None None None
Deferred Sales Load None None None
Redemption Fees None None None
Exchange Fees None None None
ANNUAL FUND OPERATING
EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Advisory Fees (after fee
waivers)/1/ 0.66% 0.68% 0.68%
12b-1 Fees None None None
Other Operating Expenses
Administrative
Servicing Fee/1/ 0.09% 0.04% 0.04%
Other Expenses/1/ 0.30% 0.24% 0.24%
Total Operating Expenses
(after fee waivers)/1/ 1.05% 0.96% 0.96%
</TABLE>
- --------------------------------------------------------------------------------
+ The reorganization of the Transferor Fund into the Surviving Fund will
occur only if the shareholders of the Transferor Fund approve the
reorganization.
1. The Investment Advisers and administrators may, from time to time,
voluntarily waive part of their respective fees, which waivers may be
terminated at any time. Until further notice, the Investment Advisers
and/or administrators intend to voluntarily waive fees in an amount equal
to the Administrative Servicing Fee. Without such fee waivers, "Advisory
Fees" would be 0.75%, 0.75% and 0.75% for the Income and Growth Fund,
Blended Equity Fund and pro forma combined Blended Equity Fund,
respectively, and "Total Operating Expenses" would be 1.14%, 1.03% and
1.03% for the Income and Growth Fund, Blended Equity Fund and pro forma
combined Blended Equity Fund, respectively.
-5-
<PAGE>
Example: The following table illustrates the expenses on a $1,000 investment
- -------
based on the fees and expenses stated in the above Fee Table, assuming (1) a 5%
annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
INCOME AND BLENDED EQUITY PRO FORMA
GROWTH FUND FUND BLENDED EQUITY FUND
----------- ---- -------------------
<S> <C> <C> <C>
One Year After Purchase $ 11 $ 10 $ 10
Three Years After Purchase $ 33 $ 31 $ 31
Five Years After Purchase $ 58 $ 53 $ 53
Ten Years After Purchase $ 126 $ 118 $ 118
</TABLE>
The purpose of the Fee Table and the Example is to assist investors in
understanding the various costs and expenses of investing in shares of the
Funds. Amounts shown in the example should not be considered a representation
of past or future investment return or expenses. Actual expenses and rate of
return may be greater or lower than those shown in the expense summary and
example.
EXPENSE RATIOS. The following table sets forth the ratios of operating
expenses to average net assets of the shares of the pro forma combined Surviving
Fund, shares of the Transferor Fund and shares of the Surviving Fund for the
fiscal year ended March 31, 1998 (a) after fee waivers and (b) absent fee
waivers:
<TABLE>
<CAPTION>
RATIO OF OPERATING EXPENSES RATIO OF OPERATING EXPENSES
TO AVERAGE NET TO AVERAGE NET
ASSETS AFTER FEE WAIVERS ASSETS ABSENT FEE WAIVERS
------------------------ -------------------------
<S> <C> <C>
Pro Forma Combined 1.00% 1.07%
Blended Equity Fund:
Income and Growth Fund: 1.02% 1.10%
Blended Equity Fund: 0.99% 1.06%
</TABLE>
THE INVESTMENT ADVISERS. USTNY and USTCT serve as joint investment advisers
for each Fund and are entitled to receive advisory fees from them, computed
daily and paid monthly, at the annual rates set forth in the table below. U.S.
Trust manages each Fund, makes decisions with respect to and places orders for
all purchases and sales of its portfolio securities, and maintains records
relating to such purchases and sales.
The following table sets forth comparative data regarding the advisory fees
paid to USTNY and USTCT by the Transferor Fund and the Surviving Fund for the
fiscal year ended March 31, 1998:/1/
-6-
<PAGE>
<TABLE>
<CAPTION>
Annual Advisory Fee as a Advisory Fees Paid as a
Percentage of Average Percentage of Average
Fund Daily Net Assets Advisory Fees Paid Daily Net Assets
---- ---------------- ------------------ ----------------
<S> <C> <C> <C>
Income and Growth 0.75% $ 990,357 0.67%
[$110,502 Waived] [0.08% Waived]
Blended Equity 0.75% $ 3,139,705 0.68%
[$332,044 Waived] [0.07% Waived]
</TABLE>
_______________
1. Prior to May 16, 1997, USTNY served as the sole investment adviser to each
Fund.
THE ADMINISTRATORS. Administrative services are provided to the Transferor
Fund and to the Surviving Fund by Chase Global Funds Services Company ("CGFSC"),
Federated Administrative Services ("Federated") and USTCT (collectively, the
"Administrators"). The Administrators also provide administrative services to
the other investment portfolios of the Company and to all of the investment
portfolios of Excelsior Tax-Exempt Funds, Inc. and Excelsior Institutional Trust
which are also advised by U.S. Trust and its affiliates and distributed by the
Distributor (as defined below). For services provided to all of the investment
portfolios of the Company, Excelsior Tax-Exempt Funds, Inc. and Excelsior
Institutional Trust (except for the international portfolios of the Company and
Excelsior Institutional Trust), the Administrators are entitled jointly to fees,
computed daily and paid monthly, based on the combined aggregate average daily
net assets of the three companies (excluding the international portfolios of the
Company and Excelsior Institutional Trust) as follows:
COMBINED AGGREGATE AVERAGE DAILY NET ASSETS
OF THE COMPANY, EXCELSIOR TAX-EXEMPT FUNDS, INC. AND
EXCELSIOR INSTITUTIONAL TRUST (EXCLUDING
THE INTERNATIONAL PORTFOLIOS OF THE COMPANY
AND EXCELSIOR INSTITUTIONAL TRUST)
----------------------------------
ANNUAL FEE
----------
First $200 million...................................... 0.200%
Next $200 million....................................... 0.175%
Over $400 million....................................... 0.150%
Administration fees payable to the Administrators by each portfolio of the
Company, Excelsior Tax-Exempt Funds, Inc. and Excelsior Institutional Trust are
allocated in proportion to their relative average daily net assets at the time
of determination.
The following table sets forth comparative data regarding the
administration fees paid by the Transferor Fund and the Surviving Fund for the
fiscal year ended March 31, 1998:/1/
-7-
<PAGE>
<TABLE>
<CAPTION>
Administration Fees Paid
Administration as a Percentage of
Fund Fees Paid Average Daily Net Assets
---- --------- ------------------------
<S> <C> <C>
Income and Growth $223,661 0.152%
[$914 Waived] [0.0006% Waived]
Blended Equity $707,403 0.153%
[$834 Waived] [0.0002% Waived]
</TABLE>
_______________
1. Prior to May 16, 1997, CGFSC, Federated and USTNY served as the Funds' Co-
Administrators.
THE DISTRIBUTOR. Edgewood Services, Inc. (the "Distributor"), an affiliate
of Federated Administrative Services, serves as sponsor and underwriter of the
Transferor Fund and the Surviving Fund.
ADMINISTRATIVE SERVICING FEE. The Transferor Fund and the Surviving Fund
may enter into Servicing Agreements with Service Organizations which agree to
provide their customers with various administrative support services. Service
Organizations include customers of U.S. Trust, its affiliates and correspondent
banks, and other institutions. As consideration for the administrative services
provided, a Fund will pay each Service Organization an administrative service
fee at the annual rate of up to 0.40% of the average daily net asset value of
its shares held by the Service Organization's customers. Administrative services
may include but are not limited to assisting in processing purchase, exchange
and redemption requests; transmitting and receiving funds in connection with
customer orders to purchase, exchange or redeem shares; and providing periodic
statements. U.S. Trust and the Administrators have voluntarily agreed to waive
fees payable by a Fund in an amount equal to administrative service fees payable
by that Fund.
The following table sets forth comparative information regarding the
administrative service fees paid by the Transferor Fund and the Surviving Fund
for the fiscal year ended March 31, 1998:
<TABLE>
<CAPTION>
Percentage of Average Fees Paid to Service
Fund Daily Net Assets Organizations
---- ---------------- -------------
<S> <C> <C>
Income and Growth 0.08% $111,416
Blended Equity 0.04% $182,660
</TABLE>
THE TRANSFER AGENT. USTNY serves as the transfer and dividend disbursing
agent for both the Transferor Fund and the Surviving Fund. USTNY has entered
into a sub-transfer agency arrangement with CGFSC pursuant to which CGFSC
provides certain transfer agent, dividend disbursement and registrar services to
both the Transferor Fund and the Surviving Fund.
-8-
<PAGE>
THE CUSTODIAN. The Chase Manhattan Bank serves as custodian of the assets
for both the Transferor Fund and the Surviving Fund.
FEE WAIVERS AND EXPENSE RATIOS. Except as otherwise noted, the service
providers bear all expenses in connection with the performance of their
services, and the Funds each bear the expenses incurred in their operations.
From time to time, U.S. Trust and the Administrators may undertake to waive a
portion or all of the fees payable to them and may also reimburse the Funds for
a portion of other expenses.
PURCHASE AND REDEMPTION PROCEDURES; EXCHANGE PROCEDURES; DIVIDENDS,
DISTRIBUTIONS AND PRICING. The procedures for purchasing, redeeming and
exchanging shares of the Transferor Fund are the same as those of the Surviving
Fund. Additionally, dividends from net investment income are declared and paid
at least annually for both the Transferor Fund and the Surviving Fund, and net
realized gains (if any) for these Funds are also distributed at least annually.
The net asset value per share of each Fund is determined as of the close of
regular trading hours on the New York Stock Exchange. The procedures for
valuing the Assets of the Transferor Fund are the same as for those of the
Surviving Fund.
Additional information concerning each Fund's purchase, redemption,
exchange, dividends and distributions and pricing procedures is contained in the
Funds' Prospectus accompanying this Combined Proxy Statement/Prospectus.
VOTING INFORMATION. This Combined Proxy Statement/Prospectus is being
furnished in connection with the solicitation of proxies by the Company's Board
of Directors in connection with a Special Meeting of Shareholders to be held at
the offices of USTNY at 114 West 47th Street, New York, New York, on June 30,
1999 at 10:00 a.m. (Eastern time). Only shareholders of record at the close of
business on April 9, 1999 will be entitled to notice of and to vote at the
Meeting or any adjournment thereof. Each share or fraction thereof is entitled
to one vote or fraction thereof, respectively. Shares represented by a properly
executed proxy will be voted in accordance with the instructions thereon, or if
no specification is made, the persons named as proxies will vote in favor of
each proposal set forth in the Notice of Meeting. Proxies may be revoked at any
time before they are exercised by submitting to the Company a written notice of
revocation or a subsequently executed proxy or by attending the Meeting and
voting in person. For additional information, including a description of the
shareholder vote required for approval of the Plan of Reorganization and related
transactions contemplated thereby, see "INFORMATION RELATING TO VOTING MATTERS."
RISK FACTORS. The following discussion highlights the principal risk
factors associated with an investment in the Transferor Fund and the Surviving
Fund and is qualified in its entirety by the more extensive discussion in
"COMPARISON OF THE FUNDS--Investment Objectives and Policies."
Because of the similarities of the investment policies of the Transferor
Fund and the Surviving Fund, U.S. Trust believes that an investment in the
Surviving Fund involves risks that are similar to those of the Transferor Fund.
These investment risks include those typically associated with investing in a
portfolio of common stocks and securities convertible into common stock and the
risks associated with investing in debt securities. Generally, the Transferor
Fund and the Surviving Fund are subject to market risk and interest rate risk.
Market risk is the possibility that security prices will decline over short or
even extended periods. Stock
-9-
<PAGE>
markets tend to be cyclical, with periods of generally rising prices and periods
of generally declining prices. These cycles will affect the values of each Fund.
The prices of bonds and other debt instruments generally fluctuate inversely
with interest rate changes. Therefore, interest rate risk is the risk that the
prices of debt instruments held by a Fund will decrease as interest rates
increase.
The Transferor Fund is expected to invest a greater portion of its assets
in debt obligations under normal market conditions than the Surviving Fund.
Consequently, factors affecting debt securities generally will have a greater
impact on the Transferor Fund. The Transferor Fund may also invest up to 5% of
its total assets in non-investment grade debt obligations and up to 35% of its
total assets in non-investment grade convertible debt obligations. Non-
investment grade obligations (those that are rated "Ba" or lower by Moody's
Investors Service, Inc. ("Moody's") and, at the same time, "BB" or lower by
Standard and Poor's Ratings Services ("S&P") or unrated obligations), commonly
referred to as "junk bonds," have speculative characteristics.
The Transferor Fund may also invest up to 10% of its total assets in
instruments such as liquidating trust receipts; certificates of beneficial
ownership; limited partnership interests; creditor claims; and loan
participations. In certain instances, there may be no established market for
such instruments, and certain of these instruments may have speculative
characteristics.
The Transferor Fund and the Surviving Fund may invest in common stock;
securities convertible into common stock; investment grade debt securities;
warrants; U.S. government securities; high quality money market instruments;
repurchase agreements; and securities of foreign issuers, either directly or
indirectly through sponsored and unsponsored American Depository Receipts. In
addition, the Transferor Fund and the Surviving Fund may invest up to 10% of the
value of their respective total assets in money market fund securities; lend
their respective portfolio securities; purchase eligible securities on a "when-
issued" basis; purchase or sell securities on a "forward commitment" basis;
participate in forward currency contracts; invest in real estate investment
trusts; write covered call options and enter into closing purchase transactions
with respect to such options and invest up to 10% of their respective net assets
in illiquid securities.
A more detailed description of the risks associated with an investment in
the Transferor Fund and Surviving Fund is included in the Funds' Prospectus and
Statement of Additional Information dated August 1, 1998, which are incorporated
herein by reference.
INFORMATION RELATING TO THE PROPOSED REORGANIZATION
The terms and conditions under which the reorganization may be consummated
are set forth in the Plan of Reorganization. Significant provisions of the Plan
of Reorganization are summarized below; however, this summary is qualified in
its entirety by reference to the Plan of Reorganization, a copy of which is
attached as Appendix A to this Combined Proxy Statement/ Prospectus.
DESCRIPTION OF THE PLAN OF REORGANIZATION. The Plan of Reorganization
provides that prior to the Effective Time of the Reorganization, the Company
will execute and file with the Maryland State Department of Assessments and
Taxation Articles of Amendment to the Company's Charter (the form of which is
attached hereto as part of Appendix A). Such Articles
-10-
<PAGE>
of Amendment will, effective as of the Effective Time of the Reorganization,
reclassify all of the shares of the Transferor Fund as shares of the Surviving
Fund.
At the Effective Time of the Reorganization, all of the Assets of the
Transferor Fund will be transferred to the Surviving Fund, such that at and
after the Effective Time of the Reorganization, the Assets of the Transferor
Fund will become and be the assets (and liabilities) of the Surviving Fund. In
exchange for the transfer of Assets and in order to accomplish the
reclassification of shares described above, the Company will contemporaneously
issue to the shareholders of the Transferor Fund full and fractional
Corresponding Shares of the Surviving Fund. The number of Corresponding Shares
of the Surviving Fund so issued will have an aggregate net asset value equal to
the aggregate net asset value of the shares of the Transferor Fund that are
outstanding immediately prior to the Effective Time of the Reorganization. At
and after the Effective Time of the Reorganization, all debts, liabilities and
obligations of the Transferor Fund will attach to the Surviving Fund and may
thereafter be enforced against the Surviving Fund to the same extent as if they
had been incurred by it.
The Plan of Reorganization provides that the Board of Directors of the
Company will declare a dividend or dividends prior to the Effective Time of the
Reorganization which, together with all previous dividends, will have the effect
of distributing to the shareholders of the Transferor Fund all undistributed
ordinary income earned and net capital gains recognized up to and including the
Effective Time of the Reorganization.
The stock transfer books of the Company for the Transferor Fund will be
permanently closed as of the close of business on the day immediately preceding
the Effective Time of the Reorganization. Redemption requests received
thereafter by the Company with respect to the Transferor Fund will be deemed to
be redemption requests for the Surviving Fund. If any Transferor Fund shares
held by a Transferor Fund shareholder are represented by a share certificate,
the certificate must be surrendered to the Company's transfer agent for
cancellation before the Surviving Fund shares issued to the shareholder in the
reorganization will be redeemed.
The reorganization is subject to a number of conditions, including approval
of the Plan of Reorganization and the transactions contemplated therein by the
shareholders of the Transferor Fund, and the receipt of certain legal opinions
described in the Plan of Reorganization including a legal opinion of Drinker
Biddle & Reath LLP that the Corresponding Shares of the Surviving Fund issued to
shareholders of the Transferor Fund in accordance with the terms of the Plan of
Reorganization will be validly issued, fully paid and nonassessable. The
Company, by consent of its Board of Directors, may waive any condition to the
obligations of the Transferor Fund or Surviving Fund under the Plan of
Reorganization if, in its judgment, such waiver will not have a material adverse
affect on the interests of the shareholders of the Transferor Fund or the
Surviving Fund.
The expenses incurred in connection with the reorganization will be borne
by U.S. Trust.
Assuming satisfaction of the conditions in the Plan of Reorganization, the
Effective Time of the Reorganization will be on or about July 9, 1999,
or such other date as is scheduled by the Company.
-11-
<PAGE>
The Plan of Reorganization and the reorganization described therein may be
abandoned at any time for any reason prior to the Effective Time of the
Reorganization upon the vote of a majority of the Board of Directors of the
Company. The Plan of Reorganization provides further that at any time prior to
or (to the fullest extent permitted by law) after approval of the Plan of
Reorganization by the shareholders of the Transferor Fund, the Company may, upon
authorization by the Board of Directors of the Company, and with or without the
approval of the shareholders, amend any of the provisions of the Plan of
Reorganization.
BOARD CONSIDERATION. The Board of Directors of the Company considered the
proposed reorganization at meetings held on February 18, 1999 and April 8, 1999.
In considering the Plan of Reorganization, the Company's Board of Directors
considered the terms of the Plan of Reorganization; a comparison of the
Transferor Fund's expense ratios and performance history with those of the
Surviving Fund; the recommendation of U.S. Trust with respect to the proposed
reorganization; the fact that the proposed reorganization would be conducted on
a tax-free basis; and the fact that the interests of shareholders would not be
diluted as a result of the reorganization. In connection with its approval of
the Plan of Reorganization, the Company's Board of Directors noted that the
investment policies and strategies of the Transferor Fund were generally similar
to those of the Surviving Fund. The Board noted the advantage of simplifying
and streamlining the equity products offered by the Company, the decreasing
asset base of the Transferor Fund, the Transferor Fund's performance relative to
similar mutual funds and the Surviving Fund, and the lower total expense ratio
of the Surviving Fund as compared to that of the Transferor Fund. The Board of
Directors also reviewed the potential advantages of a larger asset base such as
economies of scale and lower expense ratios. The Board of Directors reviewed
the expected costs of the reorganization, and noted U.S. Trust's commitment to
pay all expenses in connection with the reorganization.
Based upon their evaluation of the relevant information presented to them,
and in light of their fiduciary duties under federal and state law, the
Company's Board of Directors unanimously determined that (i) the proposed
reorganization was in the best interests of the Transferor Fund and the
Surviving Fund, (ii) that the interests of existing shareholders of the Funds
will not be diluted as a result of the transaction, and recommended the approval
of the Plan of Reorganization by shareholders of the Transferor Fund at the
Meeting. The Plan of Reorganization in the form attached hereto as Appendix A
was approved by the Board of Directors on April 8, 1999.
CAPITALIZATION. Because the Transferor Fund will be combined with the
Surviving Fund in the reorganization, the total capitalization of the Surviving
Fund after the reorganization is expected to be greater than the current
capitalization of the Transferor Fund. The following table sets forth as of
March 1, 1999 (i) the capitalization of the Transferor Fund; (ii) the
capitalization of the Surviving Fund; and (iii) the pro forma capitalization of
the Surviving Fund as adjusted to give effect to the proposed reorganization of
the Transferor Fund. There is, of course, no assurance that the reorganization
will be consummated. Moreover, if consummated, the capitalization of each Fund
is likely to be different at the Effective Time of the Reorganization as a
result of daily share purchase and redemption activity in the Funds.
-12-
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
INCOME AND BLENDED BLENDED
GROWTH FUND EQUITY FUND EQUITY FUND
-------------------------- ------------------------ -------------------------
<S> <C> <C> <C>
Total Net Assets $62,863,637 $685,896,980 $748,760,617
Shares Outstanding 4,395,552 16,866,118 18,411,818
Net Asset Value Per Share $ 14.30 $ 40.67 $ 40.67
</TABLE>
FEDERAL INCOME TAX CONSEQUENCES. Consummation of the transaction is
subject to the condition that the Company receive an opinion from Drinker Biddle
& Reath LLP, subject to appropriate factual assumptions, to the effect that for
federal income tax purposes: (i) the transfer of all of the Assets of the
Transferor Fund to the Surviving Fund in exchange for shares of the Surviving
Fund and the distribution to shareholders of the Transferor Fund of the shares
of the Surviving Fund so received, as described in the Plan of Reorganization,
will constitute a "reorganization" within the meaning of Section 368(a)(1)(C) or
Section 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the
"Code"), and the Transferor Fund and the Surviving Fund each will be considered
"a party to a reorganization" within the meaning of Section 368(b) of the Code;
(ii) no gain or loss will be recognized by the Transferor Fund as a result of
such transactions; (iii) no gain or loss will be recognized by the Surviving
Fund as a result of such transactions; (iv) no gain or loss will be recognized
by the shareholders of the Transferor Fund on the distribution to them by the
Company of the Corresponding Shares of the Surviving Fund in exchange for their
shares of the Transferor Fund; (v) the tax basis of the Corresponding Shares
received by a shareholder of the Transferor Fund will be the same as the tax
basis of the shareholder's shares of the Transferor Fund immediately prior to
the reorganization; (vi) the tax basis of the Surviving Fund in the Assets of
the Transferor Fund received pursuant to the reorganization will be the same as
the tax basis of the Assets in the hands of the Transferor Fund immediately
before the reorganization; (vii) a shareholder's holding period for the
Corresponding Shares will be determined by including the period for which the
shareholder held the shares of the Transferor Fund exchanged therefor, provided
that the shareholder held such Transferor Fund's shares as capital assets; and
(viii) the Surviving Fund's holding period with respect to the Assets of the
Transferor Fund received in the reorganization will include the period for which
such Assets were held by the Transferor Fund.
The Company has not sought a tax ruling from the Internal Revenue Service
("IRS"). The tax opinion described in the preceding paragraph will not be
binding on the IRS and will not preclude the IRS from adopting a contrary
position. Shareholders should consult their own advisors concerning the
potential tax consequences to them, including state and local income tax
consequences.
COMPARISON OF THE FUNDS
INVESTMENT OBJECTIVES AND POLICIES. The investment objective of the
Transferor Fund is to seek moderate current income with capital appreciation as
a secondary goal. The investment objective of the Surviving Fund is to seek
long-term capital appreciation.
Under normal market and economic conditions, the Surviving Fund will invest
at least 65% of its total assets, and the Transferor Fund will invest a
substantial portion of its assets, in
-13-
<PAGE>
common stock, preferred stock and securities convertible into common stock. The
Transferor Fund's investments in equity securities are income-oriented, and the
Fund generally invests a portion of its assets in debt obligations on a regular
basis.
As discussed above under "SUMMARY--Comparison of the Investment Objectives
and Policies of the Funds," U.S. Trust utilizes its three-pronged investment
strategies in managing the Surviving Fund and the equity portion of the
Transferor Fund: the problem/opportunity strategy, the transaction value
strategy and the early life cycle strategy. In applying these strategies to the
Transferor Fund, however, U.S. Trust places greater emphasis on the current and
anticipated income of particular securities and lesser emphasis on the potential
for capital appreciation. As a result, the Transferor Fund can be expected to
have a relatively smaller proportion of its assets invested in common shares of
early life cycle companies than the Surviving Fund.
Normally, the Surviving Fund may invest up to 35% of its total assets in
securities other than common stock, preferred stock and securities convertible
into common stock, such as investment grade debt securities, warrants, options
and futures instruments. During temporary defensive periods or when U.S. Trust
believes that suitable stocks or convertible securities are unavailable, the
Surviving Fund may hold cash or invest some or all of its assets in U.S.
Government securities, high-quality money market instruments and repurchase
agreements collateralized by the foregoing obligations.
The Transferor Fund may acquire debt obligations to produce income and,
under certain conditions, capital appreciation, and such obligations may include
both convertible and non-convertible corporate and government bonds, debentures,
money market instruments, repurchase agreements collateralized by U.S.
Government obligations, and other types of instruments. Although the Transferor
Fund generally invests only in investment grade debt obligations, it may invest
up to 5% of its total assets in non-investment grade debt obligations and up to
35% of its total assets in non-investment grade convertible debt obligations.
The Transferor Fund may also invest up to 10% of its total assets in other types
of instruments, including warrants, options and other rights to purchase
securities, liquidating trust receipts, limited partnership interests,
certificates of beneficial ownership, creditor claims, and loan participations.
The Transferor Fund, unlike the Surviving Fund, may purchase put and call
options listed on a national securities exchange and issued by the Options
Clearing Corporation in an amount not exceeding 5% of the Transferor Fund's net
assets. Such options may relate to particular securities or to various stock or
bond indices. Purchasing options is a specialized investment technique which
entails a substantial risk of complete loss of the amounts paid as premiums to
the writer of the options.
The Surviving Fund, unlike the Transferor Fund, for hedging purposes, may
enter into interest rate futures contracts, other types of financial futures
contracts and related futures options, as well as any index or foreign market
futures which are available on recognized exchanges or in other established
financial markets. The use of futures contracts is restricted such that no more
than 10% of the Surviving Fund's total assets may be hedged.
Transactions in futures as a hedging device may subject the Surviving Fund
to a number of risks. Successful use of futures by the Fund is subject to the
ability of U.S. Trust to correctly anticipate movements in the direction of the
market. In addition, there may be an imperfect
-14-
<PAGE>
correlation, or no correlation at all, between movements in the price of the
futures contracts (or options) and movements in the price of the instruments
being hedged. Further, there is no assurance that a liquid market will exist for
any particular futures contract (or option) at any particular time.
Consequently, the Surviving Fund may realize a loss on a futures transaction
that is not offset by a favorable movement in the price of securities which it
holds or intends to purchase or may be unable to close a futures position in the
event of adverse price movements.
Each of the Transferor Fund and Surviving Fund may: invest in the
securities of foreign issuers directly or indirectly through sponsored and
unsponsored American Depository Receipts; invest in money market instruments;
invest up to 10% of the value of its total assets in investment company
securities; lend its portfolio securities; purchase eligible securities on a
"when-issued" basis; purchase or sell securities on a "forward commitment"
basis; enter into foreign currency exchange transactions for hedging purposes;
invest in real estate investment trusts; write covered call options and enter
into closing purchase transactions with respect to such options; enter into
repurchase agreements and reverse repurchase agreements; invest in U.S.
Government obligations; borrow funds for temporary purposes; and invest up to
10% of its net assets in illiquid securities.
FUNDAMENTAL INVESTMENT LIMITATIONS. The Funds have in place certain
fundamental investment limitations that cannot be changed for a Fund without the
approval of a majority of that Fund's outstanding voting securities (as defined
in the 1940 Act). The fundamental investment limitations of the Transferor Fund
and the Surviving Fund are substantially similar.
PERFORMANCE. The average annual total return for the periods ended
December 31, 1998 for the Transferor Fund and Surviving Fund were as follows:
<TABLE>
<CAPTION>
One Year Five Years Ten Years Since Inception
--------------- --------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Income and Growth Fund 0.97% 12.75% 12.72% 11.88%
(inception 1/6/87)
Blended Equity Fund 28.70% 20.93% 18.10% 17.69%
(inception 4/25/85)
</TABLE>
OTHER INFORMATION. The Company is organized as a Maryland corporation and,
as such, is subject to the provisions of its Articles of Incorporation and its
By-Laws. The Company is registered as an open-end management investment company
under the 1940 Act. Currently, the Company has authorized capital of 35 billion
shares of common stock, $.001 par value per share, classified into forty-three
series of shares representing interests in eighteen investment portfolios.
Each share in a Fund represents an equal proportionate interest in the
particular Fund with other shares of the same class, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
such Fund as are declared in the discretion of the Company's Board of Directors.
The Company's Charter authorizes the Board to classify or reclassify any
unissued shares into one or more additional classes or series.
-15-
<PAGE>
The Company's shareholders are entitled to one vote for each full share
held and fractional votes for fractional shares held and will vote in the
aggregate and not by class or series, except as otherwise expressly required by
law.
The foregoing is only a summary of certain material attributes of the Funds
and their shares. Shareholders may obtain copies of the Company's Articles of
Incorporation and By-Laws from the Company upon written request at the address
shown on the cover page of this Combined Proxy Statement/Prospectus.
INFORMATION RELATING TO VOTING MATTERS
GENERAL INFORMATION. This Combined Proxy Statement/Prospectus is being
furnished in connection with the solicitation of proxies by the Board of
Directors of the Company for use at the Meeting. It is expected that the
solicitation of proxies will be primarily by mail. The Company's officers and
service contractors may also solicit proxies by telephone, telegraph or personal
interview. Although not anticipated, the Company may retain the services of one
or more outside organizations to aid in the solicitation of proxies. Such
organizations normally charge a fee plus out-of-pocket charges.
Only shareholders of record at the close of business on April 9, 1999 will
be entitled to vote at the Meeting. On that date, there were outstanding and
entitled to be voted __________ shares of the Transferor Fund. Each share or
fraction thereof is entitled to one vote or fraction thereof.
If the accompanying proxy is executed and returned in time for the Meeting,
the shares covered thereby will be voted in accordance with the proxy on all
matters that may properly come before the Meeting. Any shareholder giving a
proxy may revoke it at any time before it is exercised by submitting to the
Company a written notice of revocation or a subsequently executed proxy or by
attending the Meeting and electing to vote in person.
SHAREHOLDER AND BOARD APPROVAL. The Plan of Reorganization and the
transactions contemplated therein (including the amendment to the Company's
Charter) are being submitted for approval at the Meeting by the holders of a
majority of the outstanding shares of the Transferor Fund in accordance with the
terms of the Plan and the Charter. The term "majority of the outstanding
shares" as used herein means more than 50% of all the votes entitled to be cast
on the matter.
The vote of the shareholders of the Surviving Fund is not being solicited,
because their approval or consent is not required for the reorganization.
The approval of the Plan of Reorganization by the Board of Directors of the
Company is discussed above under "INFORMATION RELATING TO THE PROPOSED
REORGANIZATION--Board Consideration."
On April 9, 1999, U.S. Trust and its affiliates held of record ___% and
____% of the Transferor Fund and the Surviving Fund, respectively, as agent or
custodian for their customers. In addition, on that date, U.S. Trust and its
affiliates held investment and/or voting power with respect to ___% of the
outstanding shares of the Transferor Fund on behalf of their customers.
-16-
<PAGE>
At April 9, 1999, the name, address and share ownership of each person who
owned beneficially or of record 5% or more of the outstanding shares of the
Transferor Fund and the Surviving Fund are listed in the following table. The
table also shows the percentage of each Fund that would be owned by these
persons upon the consummation of the reorganization based on their holdings at
that date.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE OF OWNERSHIP OF
OF OWNERSHIP THE SURVIVING FUND AFTER
NAME AND ADDRESS FUND OF FUND REORGANIZATION
- --------------------------- --------------------------- ------------------------- --------------------------
<S> <C> <C> <C>
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company.
At the record date for the Meeting, the Directors and officers of the
Company as a group owned beneficially less than 1% of the outstanding shares of
the Transferor Fund and the Surviving Fund.
APPRAISAL RIGHTS. Shareholders are not entitled to any rights of share
appraisal under the Company's Charter or the Maryland General Corporation Law in
connection with the Reorganization. Shareholders have, however, the right to
redeem from the Transferor Fund their shares at net asset value until the
effective time of the Reorganization, and thereafter, shareholders may redeem
from the Surviving Fund the Corresponding Shares acquired by them in connection
with the Reorganization at net asset value.
QUORUM. In the event that a quorum is not present at the Meeting, or in
the event that a quorum is present at the Meeting but sufficient votes to
approve the Plan of Reorganization are not received, the persons named as
proxies, or their substitutes, may propose one or more adjournments of the
Meeting to permit further solicitation of proxies. Any such adjournment will
require the affirmative vote of a majority of those shares represented at the
Meeting in person or by proxy. If a quorum is not present, the persons named as
proxies will vote the proxies FOR adjournment. If a quorum is present, the
persons named as proxies will vote those proxies which they are entitled to vote
FOR the Plan of Reorganization in favor of such adjournments, and will vote
those proxies required to be voted AGAINST such proposal against any
adjournment. A quorum is constituted with respect to the Transferor Fund by the
presence in person or by proxy of the holders of more than 50% of the
outstanding shares of the Fund entitled to vote at the Meeting. Abstentions and
shares represented by broker non-votes are treated as being present at the
meeting for purposes of determining a quorum. For purposes of determining the
affirmative vote of a "majority of the outstanding shares," an abstention or the
failure to vote, including a broker non-vote, will be the equivalent of voting
against approval of the Plan of Reorganization.
-17-
<PAGE>
ANNUAL MEETINGS. The Company does not presently intend to hold annual
meetings of shareholders except as required by the 1940 Act or other applicable
law. The Company will call a meeting of shareholders for the purpose of voting
upon the question of removal of a member of the Board of Directors upon written
request of shareholders owning at least 25% of the outstanding shares of the
Company entitled to vote.
ADDITIONAL INFORMATION ABOUT THE FUNDS
Information about the Transferor Fund and the Surviving Fund is included in
the Prospectus dated August 1, 1998 which is incorporated by reference herein.
Additional information about the Transferor Fund and the Surviving Fund is
included in the Statement of Additional Information dated August 1, 1998, which
has been filed with the SEC and is incorporated by reference herein. Copies of
the Prospectus and the Statement of Additional Information may be obtained
without charge by calling the Company at 1-800-446-1012. The Company is subject
to the informational requirements of the Securities Exchange Act of 1934 and the
1940 Act, as applicable, and, in accordance with such requirements, files proxy
materials, reports and other information with the SEC. These materials can be
inspected and copied at the Public Reference Facilities maintained by the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549. In addition, these materials
can be inspected and copied at the SEC's Regional Offices at 7 World Trade
Center, Suite 1300, New York, New York 10048, and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can also be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549, at prescribed rates.
FINANCIAL HIGHLIGHTS
The tables set forth below present unaudited financial information for the
shares of the Transferor Fund and the Surviving Fund. This information is
derived from the Company's unaudited financial statements presented in the Semi-
Annual Report to Shareholders for the period ended September 30, 1998, and
should be read in conjunction with the unaudited financial statements and
related notes, which are included in the Statement of Additional Information
related to this Combined Proxy Statement/Prospectus. Financial highlights for
the Transferor Fund and the Surviving Fund for prior periods are contained in
the Prospectus dated August 1, 1998, and financial statements for the Transferor
Fund and the Surviving Fund for the prior periods are contained in the Company's
Annual Report to Shareholders and are incorporated by reference into the Funds'
Statement of Additional Information dated August 1, 1998, which Prospectus and
Statement of Additional Information are incorporated herein by reference.
Additional information about the Funds' performance is included in Appendix B
attached hereto.
-18-
<PAGE>
INCOME AND GROWTH FUND
(for a share outstanding throughout the period indicated)
<TABLE>
<CAPTION>
For the Six-Month Period Ended
September 30, 1998
(Unaudited)
--------------------------------
<S> <C>
Net Asset Value, Beginning of Period......................... $ 17.95
--------
Net Investment Income........................................ 0.13
Net Realized and Unrealized Gain (Loss)
on Investments and Options................................. (3.88)
--------
Total from Investment Operations............................. (3.75)
--------
Dividends from Net Investment Income......................... (0.16)
Distributions from Net Realized Gain
on Investments and Options................................. 0.00
Total Distributions (0.16)
--------
Net Asset Value, End of Period $ 14.04
========
Total Return................................................. (21.08)%
Net Assets, End of Period
(000's omitted)............................................ $ 83,059
Ratio of Net Operating Expenses to
Average Net Assets......................................... 1.05%
Ratio of Gross Operating Expenses to
Average Net Assets*........................................ 1.14%
Ratio of Net Investment Income
to Average Net Assets...................................... 1.47%
Portfolio Turnover Rate...................................... 35.00%
Fee Waivers.................................................. $ 0.01
</TABLE>
______________________
* Expense ratio before waiver of fees and reimbursement of expenses (if any)
by U.S. Trust and the Administrators.
-19-
<PAGE>
BLENDED EQUITY FUND
(for a share outstanding throughout the period indicated)
<TABLE>
<CAPTION>
For the Six-Month Period Ended
September 30, 1998
(Unaudited)
--------------------------------
<S> <C>
Net Asset Value, Beginning of Period.................... $ 36.12
--------
Net Investment Income................................... 0.06
Net Realized and Unrealized Gain (Loss)
on Investments and Options (2.89)
--------
Total from Investment Operations........................ (2.83)
--------
Dividends from Net Investment Income.................... (0.08)
Distributions from Net Realized Gain
on Investments and Options............................ 0.00
Total Distributions..................................... (0.08)
--------
Net Asset Value, End of Period.......................... $ 33.21
========
Total Return............................................ (7.87)%
Net Assets, End of Period
(000's omitted)....................................... $549,976
Ratio of Net Operating Expenses to
Average Net Assets.................................... 0.96%
Ratio of Gross Operating Expenses to
Average Net Assets*................................... 1.04%
Ratio of Net Investment Income
to Average Net Assets................................. 0.35%
Portfolio Turnover Rate................................. 11.00%
Fee Waivers............................................. $ 0.01
</TABLE>
______________________
* Expense ratio before waiver of fees and reimbursement of expenses (if any)
by U.S. Trust and the Administrators.
-20-
<PAGE>
FINANCIAL STATEMENTS
The audited financial statements for the Transferor Fund and the Surviving
Fund for the fiscal year ended March 31, 1998 and the unaudited financial
statements for the Transferor Fund and the Surviving Fund for the six month
period ended September 30, 1998 are included in the Statement of Additional
Information related to this Combined Proxy Statement/Prospectus. The audited
financial highlights for the Transferor Fund and the Surviving Fund for the
fiscal year ended March 31, 1998, included in the Funds' Prospectus dated August
1, 1998, and the audited financial statements for the Transferor Fund and the
Surviving Fund set forth in the Company's Annual Report to Shareholders for the
fiscal year ended March 31, 1998, are incorporated by reference into the Funds'
Statement of Additional Information dated August 1, 1998, which Prospectus and
Statement of Additional Information are incorporated by reference into this
Combined Proxy Statement/Prospectus and are also included in the Statement of
Additional Information related to this Combined Proxy Statement/Prospectus.
Such audited financial highlights and audited financial statements have been
incorporated herein in reliance on the report of Ernst & Young LLP, independent
auditors, given on the authority of that firm as experts in accounting and
auditing.
OTHER BUSINESS
The Company's Board of Directors knows of no other business to be brought
before the Meeting with respect to the Transferor Fund. However, if any other
matters come before the Meeting, it is the intention of the Board that proxies
that do not contain specific restrictions to the contrary will be voted on such
matters in accordance with the judgment of the persons named in the enclosed
form of proxy.
LITIGATION
The Company is not involved in any litigation that would have any material
adverse financial effect upon the Funds.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Company in writing at the
address on the cover page of this Combined Proxy Statement/Prospectus or by
telephoning 1-800-446-1012.
* * *
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING ARE REQUESTED
TO DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
-21-
<PAGE>
APPENDIX A
PLAN OF REORGANIZATION
This PLAN OF REORGANIZATION (the "Plan") is dated as of the 8th day of
April, 1999, and has been adopted by the Board of Directors of Excelsior Funds,
Inc. (the "Company") to provide for the reorganization of its Income and Growth
Fund (the "Transferor Fund") into its Blended Equity Fund (the "Surviving
Fund").
A. BACKGROUND
The Transferor Fund and the Surviving Fund (individually, a "Fund" and
collectively, the "Funds") are separate investment portfolios of the Company.
The Company is organized as a Maryland corporation and is an open-end management
investment company registered with the Securities and Exchange Commission (the
"SEC") under the Investment Company Act of 1940, as amended (the "1940 Act").
The Board of Directors of the Company has determined that it is in the best
interests of the Transferor Fund and its shareholders to be reorganized through
the transfer of all of the Transferor Fund's assets and liabilities to the
Surviving Fund upon the terms set forth in this Plan (the "Reorganization").
B. THE REORGANIZATION
1. Prior to the Effective Time of the Reorganization (as defined below in
Section 6 of this Article B), the Company will execute and file Articles of
Amendment to the Company's Charter with the Maryland State Department of
Assessments and Taxation in substantially the form attached hereto as Annex I,
which Articles of Amendment will, effective as of the Effective Time of the
Reorganization: (a) reclassify all of the Company's issued and outstanding
shares of Class E Common Stock representing interests in the Transferor Fund as
shares of equal aggregate value of the Company's Class C Common Stock
representing interests in the Surviving Fund; and (b) reclassify all of the
authorized and unissued Class E Common Stock of the Transferor Fund as
authorized and unissued Class C Common Stock of the Surviving Fund.
2. At the Effective Time of the Reorganization, all property of every
description, and all interests, rights, privileges and powers of the Transferor
Fund, subject to all liabilities of the Transferor Fund, whether accrued,
absolute, contingent or otherwise (such assets subject to such liabilities are
herein referred to as the "Assets") will be transferred and conveyed by the
Transferor Fund to the Surviving Fund and will be assumed by the Surviving Fund,
such that at and after the Effective Time of the Reorganization, the Assets of
the Transferor Fund will become and be the Assets of the Surviving Fund. In
exchange for the transfer of the Assets of the Transferor Fund and in order to
accomplish the reclassification of shares as described above in Section 1 of
this Article B, the Surviving Fund will contemporaneously issue to shareholders
of the Transferor Fund full and fractional shares of the Surviving Fund (as
contemplated by Section 4 of this Article B) having an aggregate net asset value
equal to the value of the Assets
<PAGE>
of the Transferor Fund. For purposes of effecting such exchange, the value of
the Assets of the Transferor Fund and the net asset value of the shares of the
Surviving Fund shall be determined as of 4:00 p.m., Eastern time, on July 8,
1999, or at such other time as may be determined by the Board of Directors or an
authorized officer of the Company. Such values shall be computed in the manner
set forth in the Funds' then current prospectus under the Securities Act of
1933, as amended. At and after the Effective Time of the Reorganization, all
debts, liabilities, obligations and duties of the Transferor Fund will attach to
the Surviving Fund as aforesaid and may thenceforth be enforced against the
Surviving Fund to the same extent as if the same had been incurred by the
Surviving Fund.
3. Prior to the Effective Time of the Reorganization, the Transferor Fund
shall declare a dividend, with a record date and ex-dividend date prior to the
Effective Time of the Reorganization, which, together with all previous
dividends, shall have the effect of distributing to its shareholders all of the
Transferor Fund's investment company taxable income, if any, for the taxable
periods or years ended on or before March 31, 1999 and for the period from said
date to and including the Effective Time of the Reorganization, and all of the
Transferor Fund's net capital gain, if any, recognized in the taxable periods or
years ended on or before March 31, 1999 and in the period from said date to and
including the Effective Time of the Reorganization.
4. At the Effective Time of the Reorganization, the Company will liquidate
the Transferor Fund and issue full and fractional shares of the Surviving Fund
to the Transferor Fund's shareholders, such that the shares of the Surviving
Fund that are distributed to a shareholder of the Transferor Fund will have an
aggregate net asset value equal to the aggregate net asset value of the shares
of the Transferor Fund held by such shareholder immediately prior to the
Effective Time of the Reorganization. In addition, each shareholder of the
Transferor Fund will have the right to receive any unpaid dividends or other
distributions that were declared before the Effective Time of the Reorganization
with respect to the shares of the Transferor Fund held by such shareholder
immediately prior to the Effective Time of the Reorganization.
5. The stock transfer books of the Company with respect to the Transferor
Fund will be permanently closed as of the close of business on the day
immediately preceding the Effective Time of the Reorganization. Redemption
requests received thereafter by the Company with respect to the Transferor Fund
will be deemed to be redemption requests for shares of the Surviving Fund issued
pursuant to this Plan. If any shares of the Transferor Fund are represented by
a share certificate, the certificate must be surrendered to the Company's
transfer agent for cancellation before the Surviving Fund shares issuable to the
shareholder pursuant to this Plan will be redeemed.
6. The Effective Time of the Reorganization for purposes of this Plan
shall be the opening of business on July 9, 1999, or at such other time as may
be determined by the Board of Directors or an authorized officer of the Company.
-2-
<PAGE>
C. ACTIONS BY SHAREHOLDERS OF THE TRANSFEROR FUND
Prior to the Effective Time of the Reorganization and as a condition
thereto, the Board of Directors of the Company will call, and the Company will
hold, a meeting of the shareholders of the Transferor Fund to consider and vote
upon:
1. Approval of this Plan and the transactions contemplated hereby.
2. Such other matters as may be determined by the Board of Directors of
the Company.
D. CONDITIONS TO THE REORGANIZATION
Consummation of this Plan will be subject to:
1. The approval of the matters referred to in Article C of this Plan by
the shareholders of the Transferor Fund in the manner required by law and
otherwise deemed necessary or advisable by the Board of Directors of the
Company; and
2. The following additional conditions:
a. The Company will have received an opinion of Drinker Biddle &
Reath LLP to the effect that:
(i) the shares of the Surviving Fund issued pursuant to this
Plan will, when issued in accordance with the provisions hereof, be legally
issued, fully paid and non-assessable; and
(ii) for federal income tax purposes: (A) the acquisition of the
assets and assumption of the liabilities of the Transferor Fund by the Surviving
Fund in return for shares of the Surviving Fund followed by the distribution of
such shares to the shareholders of the Transferor Fund will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) or Section
368(a)(1)(D) of the Code and the Surviving Fund and the Transferor Fund will be
"a party to the reorganization" within the meaning of Section 368(b) of the
Code; (B) no gain or loss will be recognized by the Transferor Fund upon the
transfer of its assets and liabilities to the Surviving Fund; (C) no gain or
loss will be recognized by the Surviving Fund upon the receipt of the assets of
the Transferor Fund in exchange for shares of the Surviving Fund and the
assumption by the Surviving Fund of the liabilities of the Transferor Fund; (D)
no gain or loss will be recognized by the shareholders of the Transferor Fund
upon the receipt of the shares of the Surviving Fund in exchange for their
shares of the Transferor Fund; (E) the tax basis of the shares of the Surviving
Fund received by the shareholders of the Transferor Fund will be the same as the
tax basis of the shares of the Transferor Fund exchanged therefor; (F) the tax
basis of the assets of the Transferor Fund in the hands of the Surviving Fund
will be the same as the tax basis of such assets in the hands of the Transferor
Fund immediately prior to the transfer; (G) the holding period of the shares of
the Surviving Fund received by the shareholders of the Transferor Fund will
include the holding period of the shares of the Transferor Fund exchanged
therefor,
-3-
<PAGE>
provided that at the time of the exchange the shares of the Transferor Fund were
held as capital assets; and (H) the holding period of the Surviving Fund for the
assets of the Transferor Fund transferred to it will include the period during
which such assets were held by the Transferor Fund.
b. All necessary approvals, registrations and exemptions required
under federal and state laws will have been obtained.
E. MISCELLANEOUS
1. This Plan and the transactions contemplated hereby will be governed and
construed in accordance with the laws of the State of Maryland.
2. This Plan and the transactions contemplated hereby may be abandoned at
any time for any reason prior to the Effective Time of the Reorganization upon
the vote of a majority of the Board of Directors of the Company.
3. At any time prior to or (to the fullest extent permitted by law) after
approval of this Plan by the shareholders of the Transferor Fund, the Company
may, upon authorization by the Board of Directors and with or without the
approval of shareholders of the Transferor Fund, amend any of the provisions of
this Plan.
4. Notwithstanding Section 2 of Article B, unamortized organizational
expenses of the Transferor Fund shall not be transferred or assumed hereunder.
The Company has been advised that such expenses will be paid to the Transferor
Fund by one or more third parties and will be eliminated from the balance sheet
of the Transferor Fund prior to the Effective Time of the Reorganization.
5. The expenses incurred in connection with the Reorganization will be
borne by United States Trust Company of New York and U.S. Trust Company of
Connecticut.
6. The Company, by consent of its Board of Directors, or an officer
authorized by such Board of Directors, may waive any condition to the
obligations of the Transferor Fund or the Surviving Fund hereunder if, in its or
such officer's judgment, such waiver will not have a material adverse effect on
the interests of the shareholders of the Transferor Fund or the shareholders of
the Surviving Fund.
-4-
<PAGE>
ANNEX I
-------
EXCELSIOR FUNDS, INC.
ARTICLES OF AMENDMENT
EXCELSIOR FUNDS, INC., a Maryland corporation having its principal office
in the City of Baltimore, Maryland (the "Company"), certifies that:
FIRST: The Charter of the Company is amended by reclassifying all of the
-----
shares of the Company's Class E Common Stock as shares of the Company's Class C
Common Stock.
SECOND: Upon effectiveness of these Articles of Amendment:
------
(a) All of the assets and liabilities belonging to the Company's Class
E Common Stock shall be conveyed, transferred and delivered to the
Company's Class C Common Stock, and shall thereupon become and be assets
and liabilities belonging to Class C Common Stock.
(b) Each of the issued and outstanding shares (and fractions thereof)
of the Company's Class E Common Stock will automatically, and without the
need of any further act or deed, be reclassified and changed to full and
fractional issued and outstanding shares of the Company's Class C Common
Stock of equal aggregate net asset value, in such number of such Class C
Common Stock shares as shall be determined by multiplying one (1) times the
number obtained by dividing the net asset value of a share of the Class E
Common Stock by the net asset value of a share of the Class C Common Stock,
all determined as of 4:00 p.m., Eastern time, on the date immediately
preceding the effective date of these Articles of Amendment.
(c) Each unissued share (or fraction thereof) of the Company's Class E
Common Stock will automatically, and without the need of any further act or
deed, be reclassified and changed to such number of unissued shares (or
fractions thereof) of the Company's Class C Common Stock as shall result,
as of the effective time of these Articles of Amendment and as a result
hereof, in the total number of unissued shares of the Company's Class C
Common Stock being increased by 375,000,000 shares less the number of
issued and outstanding shares of the Company's Class C Common Stock
resulting from paragraph (b) above.
(d) Open accounts on the share records of the Company's Class C Common
Stock shall be established representing the appropriate number of shares of
Class C Common Stock owned by each former holder of Class E Common Stock as
a result of the reclassification.
THIRD: This amendment does not increase the authorized capital stock of
-----
the Company or the aggregate par value thereof. This amendment reclassifies and
changes the 375,000,000 authorized shares of Class E Common Stock to 375,000,000
additional authorized
<PAGE>
shares of Class C Common Stock but does not amend the description of any class
of stock as set forth in the Charter.
FOURTH: Outstanding certificates representing issued and outstanding
------
shares of Class E Common Stock immediately prior to these Articles of Amendment
becoming effective shall, upon these Articles becoming effective, be deemed to
represent the appropriate number of issued and outstanding shares of Class C
Common Stock, calculated as set forth in Article Second of these Articles.
Certificates representing shares of Class C Common Stock resulting from the
aforesaid change and reclassification need not be issued until certificates
representing the shares of Class E Common Stock so changed and reclassified, if
issued, have been received by the Company or its agent duly endorsed for
transfer.
FIFTH: This amendment has been duly authorized and advised by the Board
-----
of Directors of the Company and approved by the stockholders of the Company
entitled to vote thereon.
SIXTH: These Articles of Amendment shall be effective as of July 9,
-----
1999.
IN WITNESS WHEREOF, EXCELSIOR FUNDS, INC. has caused these Articles of
Amendment to be signed in its name and on its behalf by its President, and
attested by its Secretary, on the ___ day of _______________, 1999.
ATTEST: EXCELSIOR FUNDS, INC.
By: _____________________________ By: __________________________
-2-
<PAGE>
APPENDIX B
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<PAGE>
EXCELSIOR FUNDS, INC.
ADVISER'S INVESTMENT REVIEW
BLENDED EQUITY FUND (FORMERLY EQUITY FUND)
- -------------------------------------------------------------------------------
For the twelve months ended March 31, 1998, the Fund realized a total return
of 50.82%,* versus 48.00%** for the Standard & Poor's 500 Composite Stock
Price Index ("S&P 500"). Through the first three fiscal quarters, the Fund's
holdings of retail stocks were a source of strength. The portfolio's financial
stocks, which were overweighted, performed well due to a favorable interest-
rate environment and the market's willingness to assign higher relative
valuations. Leaders in this group included State Street, Morgan Stanley,
Mellon Bank, and Associates First Capital. Within the drug group, Pfizer and
Schering-Plough performed well. Other standouts included Ford, Centex, Lucent
Technologies, Tyco International, Microsoft, General Electric, Illinois Tool
Works and AT&T. The portfolio's energy group lagged, with declines in United
Meridian and Enron, both of which were sold. Other weak performers that were
sold include Scholastic, Pall, Waste Management, and Heilig Myers. Our basic
investment strategy did not change, we emphasized a long-term investment
horizon, as opposed to attempts at timing the market, broad portfolio
diversification across strategies and investment themes, and solid good
business values--that is, companies who have demonstrated and continue to
demonstrate solid growth in a volatile environment. During the fiscal third
quarter a portion of the portfolio began to be managed utilizing quantitative
analysis to complement the rest of the portfolio by further diversifying it in
relation to the S&P 500 and by improving the tax efficiency of the portfolio.
For the final quarter of the fiscal year, Lucent Technologies and Nokia, two
leading telecommunications equipment companies, were the portfolio's best
performers. Worldcom, which should complete its merger with MCI this year, was
also a very strong performer. Other strong performers included Microsoft and
Cisco Systems in technology; Pfizer and Schering-Plough in the drug group; and
Luxottica, Dayton-Hudson, and Wal-Mart in the retail sector.
Blended Equity Fund+
- --------------------------------------------------------------------------------
Average Annual Total Return Ended on 3/31/98*
- --------------------------------------------------------------------------------
1 year 5 years 10 Years
- --------------------------------------------------------------------------------
50.82% 20.92% 17.52%
[LINE GRAPH APPEARS HERE]
DATE S&P 500 INDEX
---- -------------
3/31/89 $11,820
3/31/90 $14,110
3/31/91 $16,140
3/31/92 $17,920
3/31/93 $20,650
3/31/94 $20,960
3/31/95 $24,210
3/31/96 $31,980
3/31/97 $38,300
3/31/98 $56,680
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 Blended Equity
Fund and a broad-based index over the past ten fiscal years. All dividends and
capital gain distributions are reinvested. The Fund's performance takes into
account fees and expenses. The index does not take into account charges, fees
and other expenses. Further information relating to Fund performance is
contained in the Financial Highlights section of the Prospectus and elsewhere
in this report.
- --------
* Total return represents the change during the period in a hypothetical
account with dividends reinvested.
** Source: Standard & Poor's Corporation--Reflects the reinvestment of income
dividends and, where applicable, capital gain distributions. The Standard &
Poor's 500 Composite Stock Price Index is a widely accepted unmanaged index
of U.S. stock market performance.
+ The Fund is currently waiving certain fees. Had the Fund not waived fees,
returns would have been lower. This voluntary waiver may be modified or
terminated at any time.
3
<PAGE>
EXCELSIOR FUNDS, INC.
ADVISER'S INVESTMENT REVIEW
INCOME AND GROWTH FUND
- -------------------------------------------------------------------------------
For the twelve months ended March 31, 1998, the Fund realized a total return
of 33.29%*, versus 48.00%** for the Standard & Poor's 500 Composite Stock
Price Index ("S&P 500"). To provide the income component of the Fund, we held
a variety of fixed-income and convertible securities. Within the equity
component of the Fund, which comprises the balance of the portfolio, we
emphasize thorough diversification across three investment strategies--growth,
value, and small cap--and longer-term investment themes. In all of our
investments, we focus on long term fundamental business value with special
attention to the breadth and depth of employee incentives (compensation,
safety, etc.). During the first half of the fiscal year, the Fund advanced
strongly, though it did underperform the S&P 500, due in part to the Fund's
income requirements. The Fund's structure and strategy remained essentially
unchanged in the period, and few modifications were made to the portfolio. As
the rest of the stock market began to catch up to the previously high-flying
larger capitalization stocks, the Fund, given its blend of strategies, themes,
and market capitalizations, was able to benefit. To maintain the Fund's income
level, we did add Treasuries given the narrowing yield spreads. In the second
half of the fiscal year, we increased the yield in the equity portion of the
portfolio, trimmed some of the Fund's biggest gainers, and harvested losses.
Among our new purchases, we would highlight International Flavors and
Fragrances (IFF) and HSB Group (Hartford Steam Boiler), both of which we feel
boast enviable financial strength and given our goal to increase yield, 3%-
plus dividend yields. We also purchased several high-yielding bonds.
Income and Growth Fund+
- --------------------------------------------------------------------------------
Average Annual Total Return Ended on 3/31/98*
- --------------------------------------------------------------------------------
1 year 5 years 10 years
33.29% 16.84% 14.58%
[LINE GRAPH APPEARS HERE]
DATE INCOME & GROWTH FUND S&P 500 INDEX
---- -------------------- -------------
3/31/89 $11,836 $11,820
3/31/90 $12,563 $14,110
3/31/91 $12,133 $16,140
3/31/92 $13,941 $17,920
3/31/93 $18,185 $20,650
3/31/94 $19,401 $20,960
3/31/95 $20,516 $24,210
3/31/96 $25,815 $31,980
3/31/97 $29,070 $38,300
3/31/98 $38,777 $56,680
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 Income and
Growth Fund and a broad-based index over the past ten fiscal years. All
dividends and capital gain distributions are reinvested. The Fund's
performance takes into account fees and expenses. The index does not take into
account charges, fees and other expenses. Further information relating to Fund
performance is contained in the Financial Highlights section of the Prospectus
and elsewhere in this report.
- --------
* Total return represents the change during the period in a hypothetical
account with dividends reinvested.
** Source: Standard & Poor's Corporation -- Reflects the reinvestment of
income dividends and, where applicable, capital gain distributions. The
Standard & Poor's 500 Composite Stock Price Index is a widely accepted
unmanaged index of U.S. stock market performance.
+ The Fund is currently waiving certain fees. Had the Fund not waived fees,
returns would have been lower. This voluntary waiver may be modified or
terminated at any time.
4
<PAGE>
EXCELSIOR FUNDS, INC.
73 TREMONT STREET
BOSTON, MASSACHUSETTS 02108
STATEMENT OF ADDITIONAL INFORMATION
(SPECIAL MEETING OF SHAREHOLDERS OF THE INCOME AND GROWTH FUND)
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Combined Proxy Statement/Prospectus dated May 5,
1999 ("Combined Proxy Statement/Prospectus") for the Special Meeting of
Shareholders of the Income and Growth Fund (the "Transferor Fund"), an
investment portfolio offered by Excelsior Funds, Inc. (the "Company") to be held
on June 30, 1999. Copies of the Combined Proxy Statement/Prospectus may be
obtained at no charge by calling (800) 446-1012.
Unless otherwise indicated, capitalized terms used herein and not otherwise
defined have the same meanings as are given to them in the Combined Proxy
Statement/Prospectus.
Further information about the Transferor Fund and the Blended Equity Fund
(the "Surviving Fund") is contained in and incorporated by reference to said
Funds' Statement of Additional Information dated August 1, 1998.
The date of this Statement of Additional Information is May 5, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information............................................... 3
Pro Forma Financial Information................................... PF1 - PF13
Audited Financial Statements for the Fiscal Year Ended March 31, 1998
Unaudited Financial Statements for the Six Months Ended September 30, 1998
</TABLE>
-2-
<PAGE>
GENERAL INFORMATION
The shareholders of the Transferor Fund are being asked to approve or
disapprove a Plan of Reorganization dated as of April 8, 1999, including a
related amendment to the Company's Charter, and the transactions contemplated
thereby. The Plan of Reorganization contemplates the transfer of all of the
assets and liabilities of the Transferor Fund to the Surviving Fund, the
amendment of the Company's Charter reclassifying all of the shares of the
Transferor Fund as shares of the Surviving Fund, and a liquidating distribution
of shares of the Surviving Fund to shareholders of the Transferor Fund, such
that each holder of shares in the Transferor Fund at the Effective Time of the
Reorganization will receive the same aggregate dollar value of full and
fractional shares in the Surviving Fund.
The Special Meeting of Shareholders of the Transferor Fund to consider the
Plan of Reorganization and the related transactions, including the amendment to
the Company's Charter, will be held at the offices of United States Trust
Company of New York at 114 West 47th Street, New York, New York at 10:00 a.m.
(Eastern time) on June 30, 1999. For further information about the transaction,
see the Combined Proxy Statement/Prospectus.
-3-
<PAGE>
Excelsior Funds, Inc.
Portfolio of Investments March 31, 1998
Blended Equity Fund and Income and Growth Fund
<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------------------------------------------------------------------
Blended Income and Pro Forma Blended Income and Pro Forma
Equity Growth Combined Equity Growth Combined
Fund Fund Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON STOCKS - 96.11%
CONSUMER STAPLES - 21.14%
210,000 - 210,000 Abbott Laboratories 15,815,625 - 15,815,625
55,000 - 55,000 + Alliance Pharmaceutical Corp. 409,062 - 409,062
42,000 - 42,000 Bestfoods, Inc. 4,908,750 - 4,908,750
- 100,000 100,000 + Carriage Services, Inc. - 2,393,750 2,393,750
187,500 - 187,500 Coca-Cola Company 14,519,531 - 14,519,531
10,000 - 10,000 Conagra, Inc. 321,250 - 321,250
10,500 - 10,500 + Corn Products International, Inc. 376,688 - 376,688
22,105 - 22,105 CVS Corp. 1,668,928 - 1,668,928
52,000 35,000 87,000 Gillette Co. 6,171,750 4,154,063 10,325,813
61,700 - 61,700 + Healthsouth Corp. 1,731,456 - 1,731,456
272,300 60,000 332,300 Johnson & Johnson 19,962,994 4,398,750 24,361,744
7,400 - 7,400 Lilly (Eli) & Co. 441,225 - 441,225
58,730 - 58,730 Mattel, Inc. 2,327,176 - 2,327,176
26,000 - 26,000 Merck & Co., Inc. 3,337,750 - 3,337,750
15,000 - 15,000 Novartis AG ADR 1,327,335 - 1,327,335
- 50,000 50,000 Novo-Nordisk A.S., ADR - 4,175,000 4,175,000
35,000 - 35,000 PepsiCo, Inc. 1,494,062 - 1,494,062
269,400 - 269,400 Pfizer, Inc. 26,855,813 - 26,855,813
229,100 - 229,100 Philip Morris Companies, Inc. 9,550,606 - 9,550,606
113,200 - 113,200 Procter & Gamble Co. 9,551,250 - 9,551,250
110,000 - 110,000 Schering-Plough Corp. 8,985,625 - 8,985,625
130,000 - 130,000 Stewart Enterprises, Inc., Class A 7,215,000 - 7,215,000
- 35,000 35,000 WM. Wrigley Jr. Co. - 2,861,250 2,861,250
- ---------------------------------- ----------------------------------------------
1,916,935 280,000 2,196,935 136,971,876 17,982,813 154,954,689
- ---------------------------------- ----------------------------------------------
FINANCIAL - 19.71%
15,000 - 15,000 Allstate Corp. 1,379,063 - 1,379,063
19,000 - 19,000 American Express Co. 1,744,437 - 1,744,437
37,500 25,000 62,500 American International Group, Inc. 4,722,656 3,148,437 7,871,093
225,400 - 225,400 Associates First Capital Corp. 17,806,600 - 17,806,600
37,800 - 37,800 Bank of Boston Corp. 4,167,450 - 4,167,450
20,000 - 20,000 Beneficial Corp. 2,486,250 - 2,486,250
40,200 - 40,200 Citicorp 5,708,400 - 5,708,400
20,000 - 20,000 First Union Corp. (North Carolina) 1,135,000 - 1,135,000
170,000 - 170,000 Fleet Financial Group, Inc. 14,460,625 - 14,460,625
21,790 12,000 33,790 General Re Corp. 4,807,419 2,647,500 7,454,919
6,790 - 6,790 Household International, Inc. 935,322 - 935,322
- 35,000 35,000 HSB Group, Inc. - 2,353,750 2,353,750
- 95,000 95,000 IPC Holdings Ltd. - 3,051,875 3,051,875
143,800 - 143,800 MBIA, Inc. 11,144,500 - 11,144,500
302,076 - 302,076 Mellon Bank Corp. 19,181,826 - 19,181,826
202,694 45,000 247,694 Morgan Stanley, Dean Witter & Co. 14,771,325 3,279,375 18,050,700
- 170,000 170,000 Mutual Risk Management Ltd. - 5,758,750 5,758,750
29,687 - 29,687 Nationsbank Corp. 2,165,296 - 2,165,296
32,600 - 32,600 Norwest Corp. 1,354,937 - 1,354,937
156,300 - 156,300 State Street Boston Corp. 10,638,169 - 10,638,169
102,200 - 102,200 UNUM Corp. 5,640,163 - 5,640,163
- ---------------------------------- ----------------------------------------------
1,582,837 382,000 1,964,837 124,249,438 20,239,687 144,489,125
- ---------------------------------- ----------------------------------------------
CONSUMER CYCLICAL - 19.47%
25,800 - 25,800 CBS Corp. 875,588 - 875,588
196,400 - 196,400 Centex Corp. 7,487,750 - 7,487,750
21,000 - 21,000 Chevron Corp. 1,686,562 - 1,686,562
40,000 - 40,000 Comcast Corp., Class A Special 1,412,500 - 1,412,500
105,000 - 105,000 Dayton Hudson Corp. 9,240,000 - 9,240,000
200,000 - 200,000 Ford Motor Co. 12,962,500 - 12,962,500
311,000 - 311,000 General Electric Co. 26,804,313 - 26,804,313
41,800 - 41,800 General Motors Corp. 2,818,887 - 2,818,887
25,000 - 25,000 Globecomm Systems, Inc. 340,625 - 340,625
</TABLE>
PF-1
<PAGE>
Excelsior Funds, Inc.
Portfolio of Investments March 31, 1998
Blended Equity Fund and Income and Growth Fund
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------------------------------------------------------------
Blended Income and Pro Forma Blended Income and Pro Forma
Equity Growth Combined Equity Growth Combined
Fund Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
17,000 - 17,000 Goodyear Tire and Rubber Co. 1,287,750 - 1,287,750
- 100,000 100,000 Herman Miller, Inc. - 3,350,000 3,350,000
66,000 40,000 106,000 Luxottica Group S.p.A. ADR 6,183,375 3,747,500 9,930,875
95,000 75,000 170,000 McDonald's Corp. 5,700,000 4,500,000 10,200,000
40,000 - 40,000 Meredith Corp. 1,685,000 - 1,685,000
17,000 - 17,000 New York Times Co., Class A 1,190,000 - 1,190,000
224,400 - 224,400 + O'Reilly Automotive, Inc. 6,142,950 - 6,142,950
5,100 - 5,100 + Proffitt's, Inc. 184,875 - 184,875
38,999 - 38,999 Reuters Holdings plc ADR 2,512,998 - 2,512,998
5,000 - 5,000 Sears, Roebuck & Co. 287,188 - 287,188
- 150,000 150,000 ServiceMaster Ltd. Partnership - 4,284,375 4,284,375
- 125,000 125,000 Smart & Final, Inc. - 2,421,875 2,421,875
111,450 - 111,450 Tektronix, Inc. 4,973,456 - 4,973,456
50,000 - 50,000 Time Warner, Inc. 3,600,000 - 3,600,000
25,000 - 25,000 Tribune Co. 1,762,500 - 1,762,500
250,000 - 250,000 Wal-Mart Stores, Inc. 12,703,125 - 12,703,125
57,015 - 57,015 Walt Disney Co. 6,086,351 - 6,086,351
37,800 80,000 117,800 Wiley (John) & Sons, Inc., Class A 2,081,363 4,405,000 6,486,363
- ---------------------------------- -------------------------------------------------
2,005,764 570,000 2,575,764 120,009,656 22,708,750 142,718,406
- ---------------------------------- -------------------------------------------------
TECHNOLOGY - 11.82%
- 120,000 120,000 + Analog Devices, Inc. - 3,990,000 3,990,000
227,355 - 227,355 + Cisco Systems, Inc. 15,545,398 - 15,545,398
49,800 - 49,800 Compaq Computer Corp. 1,288,575 - 1,288,575
26,400 - 26,400 Computer Associates International, Inc. 1,524,600 - 1,524,600
15,100 - 15,100 Emerson Electric, Co. 984,331 - 984,331
126,480 - 126,480 Hewlett-Packard Co. 8,015,670 - 8,015,670
3,300 - 3,300 Honeywell Corp. 272,869 - 272,869
150,000 - 150,000 Intel Corp. 11,700,000 - 11,700,000
- 695,200 695,200 + Interleaf, Inc. - 2,259,400 2,259,400
60,000 - 60,000 International Business Machines Corp. 6,232,500 - 6,232,500
46,660 - 46,660 Lucent Technologies, Inc. 5,966,647 - 5,966,647
169,240 - 169,240 + Microsoft Corp. 15,136,403 - 15,136,403
18,000 - 18,000 Nokia Corp., Class A, ADR 1,942,875 - 1,942,875
554 - 554 Raytheon Co., Class A 31,509 - 31,509
10,000 - 10,000 Reltec Corp. 354,375 - 354,375
60,000 - 60,000 SBC Communications, Inc. 2,617,500 - 2,617,500
- 103,500 103,500 + SDL, Inc. - 2,432,250 2,432,250
10,000 - 10,000 Texas Instruments, Inc. 541,250 - 541,250
46,000 - 46,000 Tyco International Ltd. 2,512,750 - 2,512,750
- 175,000 175,000 + Unitrode Corp. - 3,259,375 3,259,375
- ---------------------------------- -------------------------------------------------
1,018,889 1,093,700 2,112,589 74,667,252 11,941,025 86,608,277
- ---------------------------------- -------------------------------------------------
ENERGY - 7.92%
13,000 - 13,000 British Petroleum Company plc ADR 1,118,813 - 1,118,813
167,907 - 167,907 Burlington Resources, Inc. 8,049,042 - 8,049,042
120,100 44,000 164,100 Exxon Corp. 8,121,763 2,975,500 11,097,263
24,000 - 24,000 Minnesota Mining & Manufacturing 2,188,500 - 2,188,500
178,300 - 178,300 Mobil Corp. 13,662,237 - 13,662,237
36,000 - 36,000 + Newpark Resources, Inc. 657,000 - 657,000
- 60,000 60,000 Norsk Hydro A.S., ADR - 3,000,000 3,000,000
- 58,500 58,500 + Ocean Energy, Inc. - 1,378,406 1,378,406
162,100 - 162,100 Royal Dutch Petroleum Co. 9,209,306 - 9,209,306
- 60,000 60,000 + SEACOR Holdings, Inc. - 3,491,250 3,491,250
108,200 - 108,200 Unocal Corp. 4,185,987 - 4,185,987
- ---------------------------------- -------------------------------------------------
809,607 222,500 1,032,107 47,192,648 10,845,156 58,037,804
- ---------------------------------- -------------------------------------------------
UTILITIES - 6.90%
8,400 90,000 98,400 + AES Corp. 440,475 4,719,375 5,159,850
30,000 - 30,000 Ameritech Corp. 1,483,125 - 1,483,125
136,609 - 136,609 AT&T Corp. 8,964,965 - 8,964,965
81,500 - 81,500 Bell Atlantic Corp. 8,353,750 - 8,353,750
57,500 - 57,500 Duke Energy Corp. 3,424,844 - 3,424,844
80,000 100,000 180,000 + NEXTEL Communications, Inc., Class A 2,695,000 3,368,750 6,063,750
133,700 - 133,700 Southern Co. 3,701,819 - 3,701,819
38,000 - 38,000 + Teleport Communications Group,
Inc., Class A 2,230,125 - 2,230,125
116,400 - 116,400 Texas Utilities Co. 4,575,975 - 4,575,975
</TABLE>
PF-2
<PAGE>
Excelsior Funds, Inc.
Portfolio of Investments March 31, 1998
Blended Equity Fund and Income and Growth Fund
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------------------------------------------------------
Blended Income and Pro Forma Blended Income Pro Forma
Equity Growth Combined Equity and Growth Combined
Fund Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
154,000 - 154,000 + Worldcom, Inc. $6,622,000 - $6,622,000
- ------------------------------------- -----------------------------------------------
836,109 190,000 1,026,109 42,492,078 8,088,125 50,580,203
- ------------------------------------- -----------------------------------------------
CAPITAL GOODS - 5.62%
18,000 - 18,000 Allied Signal, Inc. 756,000 - 756,000
24,000 - 24,000 Boeing Co. 1,251,000 - 1,251,000
20,000 100,000 120,000 Dover Corp. 760,000 3,800,000 4,560,000
275,266 - 275,266 Illinois Tool Works, Inc. 17,823,473 - 17,823,473
30,000 - 30,000 ITEQ, Inc. 421,875 - 421,875
20,000 - 20,000 + Lear Corp. 1,127,500 - 1,127,500
96,650 80,000 176,650 Raychem Corp. 4,017,016 3,325,000 7,342,016
172,875 - 172,875 + Thermo Electron Corp. 6,979,828 - 6,979,828
12,600 - 12,600 Thiokol Corp. 608,738 - 608,738
8,000 - 8,000 + U.S.A. Waste Services, Inc. 356,500 - 356,500
- ------------------------------------- -----------------------------------------------
677,391 180,000 857,391 34,101,930 7,125,000 41,226,930
- ------------------------------------- -----------------------------------------------
RAW / INTERMEDIATE
MATERIALS - 3.24%
48,300 - 48,300 E.I. Du Pont de Nemours & Co. 3,284,400 - 3,284,400
35,400 - 35,400 Georgia-Pacific Corp. 2,292,150 - 2,292,150
5,100 - 5,100 Georgia-Pacific Timber Group 131,006 - 131,006
- 50,000 50,000 International Flavors &
Fragrances, Inc. - 2,356,250 2,356,250
62,100 - 62,100 Monsanto Co. 3,229,200 - 3,229,200
- 18,000 18,000 Nucor Corp. - 979,875 979,875
- 80,000 80,000 Pall Corp. - 1,720,000 1,720,000
35,000 30,000 65,000 Pioneer Hi-Bred International, Inc. 3,414,688 2,926,875 6,341,563
28,200 - 28,200 Sigma-Aldrich Corp. 1,052,212 - 1,052,212
- 130,000 130,000 Worthington Industries, Inc. - 2,331,875 2,331,875
- ------------------------------------- -----------------------------------------------
214,100 308,000 522,100 13,403,656 10,314,875 23,718,531
- ------------------------------------- -----------------------------------------------
TRANSPORTATION - 0.29%
30,000 30,000 + FDX Corp. - 2,133,750 2,133,750
- ------------------------------------- -----------------------------------------------
TOTAL COMMON STOCKS 593,088,534 111,379,181 704,467,715
CONVERTIBLE PREFERRED STOCKS - 0.66%
FINANCIAL - 0.66%
- 325,000 325,000 Capstead Mortgage Corp.,
- ------------------------------------- Series B, Preferred
Exchange $1.26
(Cost $4,484,259) - 4,834,375 4,834,375
-----------------------------------------------
Principal Value
Amount -----------------------------------------------
- ------------------------------------ CORPORATE BONDS - 0.87%
MATERIALS - 0.29%
- $2,000,000 2,000,000 AK Steel Corp.,
- ------------------------------------- 9,125%, 12/15/06 - $2,150,000 $2,150,000
-----------------------------------------------
TELECOMMUNICATIONS - 0.29%
- $2,000,000 2,000,000 Comeast Cellular
- ------------------------------------- 9.50%, 05/01/07 - 2,110,000 2,110,000
-----------------------------------------------
ENERGY - 0.29%
- $2,000,000 2,000,000 Vintage Petroleum Sr. Sub-Notes,
- ------------------------------------- 9,00%, 12/15/05 - 2,102,500 2,102,500
-----------------------------------------------
TOTAL CORPORATE BONDS
(Cost $6,208,773) - 6,362,500 6,362,500
-----------------------------------------------
CONVERTIBLE BONDS - 2.80%
TECHNOLOGY - 1.85%
- 2,550,000 2,550,000 Adaptec, Inc.,
4.75%, 02/01/04 - 2,122,875 2,122,875
- 4,024,000 4,024,000 Kollmorgen Corp., Sub-Debenture
8.75%, 05/01/09 - 4,215,140 4,215,140
- 4,959,000 4,959,000 Network Equipment
Technologies, Inc.
Sub-Debenture,
7.25%, 05/15/14 - 4,704,851 4,704,851
- 2,500,000 2,500,000 VLSI Technology, - 2,484,375 2,484,375
- ------------------------------------- -----------------------------------------------
- 14,033,000 14,033,000 8.25%, 10/01/05 - 13,527,241 13,527,241
- ------------------------------------- -----------------------------------------------
</TABLE>
PF-3
<PAGE>
Excelsior Funds, Inc.
Portfolio of Investments March 31, 1998
Blended Equity Fund and Income and Growth Fund
<TABLE>
<CAPTION>
Shares Value
- ---------------------------------------------------------------------------------------------------------------------
Blended Income and Pro Forma Blended Income and Pro Forma
Equity Growth Combined Equity Growth Combined
Fund Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CONSUMER STAPLES - 0.45%
- 3,400,000 3,400,000 Novacare, Inc.,
- ---------------------------------- Sub-Debenture,
5.50%, 01/15/00 - $3,293,750 $3,293,750
-------------------------------------------------
CONSUMER CYCLICAL - 0.29%
- 1,925,000 1,925,000 Avatar Holdings
- ---------------------------------- 7.00%, 04/01/05 - 2,112,688 2,112,688
-------------------------------------------------
TRANSPORTATION - 0.22%
- 3,500,000 3,500,000 World Corp., Inc.,
- ---------------------------------- 7.00%, 05/15/04 - 1,601,250 1,601,250
-------------------------------------------------
TOTAL CONVERTIBLE BONDS - 20,534,929 20,534,929
DEMAND NOTES - 0.24%
1,004,000 - 1,004,000 Associates Corp. of North
America, Master Notes 1,004,000 - 1,004,000
727,000 - 727,000 General Electric Co.,
Promissory Notes 727,000 - 727,000
- ---------------------------------- -------------------------------------------------
1,731,000 - 1,731,000 1,731,000 - 1,731,000
- ---------------------------------- -------------------------------------------------
TOTAL DEMAND NOTES 1,731,000 - 1,731,000
TOTAL INVESTMENTS (Cost
$323,025,087, $91,748,706
and 414,773,793) - 100%
-------------------------------------------------
$594,819,534 $143,110,985 $737,930,519
=================================================
</TABLE>
Securities in the Fund's portfolio are valued on the basis of market quotations,
valuations provided by independent pricing services or, at fair value as
determined in good faith in accordance with procedures approved by the Trustees.
Short-term debt investments maturing within 60 days are valued at amortized cost
which approximates market value.
+ Non-income producing security
ADR - American Depositary Receipt
PF-4
<PAGE>
EXCELSIOR FUNDS, INC.
Pro Forma Combined Statement of Assets and Liabilities
MARCH 31, 1998
<TABLE>
<CAPTION>
BLENDED INCOME AND
EQUITY GROWTH PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at cost-see
accompanying portfolios ................ $323,025,087 $ 91,748,706 $ 414,773,793
============ ============ ============
Investments, at value .................... $594,819,534 $143,110,985 $ 737,930,519
Cash ..................................... 900 -- 900
Dividends receivable ..................... 703,872 49,190 753,062
Interest receivable ...................... 17,233 752,490 769,723
Receivable for investments sold .......... -- 2,288,026 2,288,026
Receivable for fund shares sold........... 25,104 11,666 36,770
Withholding tax receivable ............... -- 2,566 2,566
Prepaid expenses ......................... 24,209 6,629 30,838
------------ ------------ -------------
TOTAL ASSETS .......................... 595,590,852 146,221,552 741,812,404
LIABILITIES:
Payable for investments purchased ....... -- 1,851,736 1,851,736
Payable for fund shares redeemed ......... 46,504 200,277 246,781
Investment advisory fees payable ......... 332,905 80,725 413,630
Administration fees payable .............. 62,614 15,607 78,221
Administrative service fees payable ...... 17,951 8,805 26,756
Directors' fees payable .................. 6,195 2,028 8,223
Due to custodian bank .................... -- 5,982,956 5,982,956
Accrued expenses and other payables ...... 216,113 26,634 242,747
------------ ------------ -------------
TOTAL LIABILITIES ..................... 682,282 8,168,768 8,851,050
------------ ------------ -------------
NET ASSETS ................................... 594,908,570 138,052,784 732,961,354
============ ============ =============
NET ASSETS consist of:
Undistributed net investment income ...... $ 914,191 $ 664,026 $ 1,578,217
Accumulated net realized gain (loss) on
investments ............................ 9,746,123 8,769,306 18,515,429
Unrealized appreciation of investments and
foreign currency translations ............ 271,794,552 51,361,715 323,156,267
Par value ................................ 16,471 7,692 (3,870)(a) 20,293
Paid-in capital in excess of par value ... 312,437,233 77,250,045 3,870 (a) 389,691,148
------------ ----------- -------------
TOTAL NET ASSETS.............................. $594,908,570 $138,052,784 $ 732,961,354
============ =========== =============
Shares of Common Stock Outstanding ........ 16,470,999 7,692,203 (3,870,000) (a) 20,293,202
NET ASSET VALUE PER SHARE................. $ 36.12 $17.95 $36.12
======= ====== ======
</TABLE>
See Notes to Pro Forma Combined Financial Statements
PF-5
<PAGE>
Excelsior Funds, Inc
Projected Pro Forma Combined Statement Of Operations
Year Ended March 31, 1998
<TABLE>
<CAPTION>
Blended Income And
Equity Growth Pro Forma
Fund Fund Adjustments Combined
-------------- ----------- ------------- ----------
INVESTMENT INCOME:
<S> <C> <C> <C> <C>
Interest income.............................................. $ 532,191 $2,699,016 $ 3,231,207
Dividend income.............................................. 6,631,276 1,801,187 8,432,463
Less: Foreign taxes withheld................................. -- (3,096) (3,096)
-------------- ------------ ----------
Total Income.............................................. 7,163,467 4,497,107 11,660,574
EXPENSES:
Investment advisory fees..................................... 3,471,749 1,100,859 4,572,608
Administration fees.......................................... 708,237 224,575 932,812
Administrative service fees.................................. 182,660 111,416 294,076
Shareholder servicing agent fees............................. 172,207 65,129 237,336
Custodian fees............................................... 140,402 40,483 180,885
Legal and audit fees......................................... 101,571 25,188 126,759
Shareholder reports.......................................... 43,172 8,815 51,987
Registration and filing fees................................. 22,066 12,133 34,199
Directors' fees and expenses................................. 26,142 8,008 34,150
Distribution fees-Trust Shares............................... 202 -- 202
Miscellaneous expenses....................................... 62,687 15,969 78,656
-------------- ----------- ----------
Total Expenses............................................. 4,931,095 1,612,575 6,543,670
Fees waived by investment adviser and administrators......... (332,878) (111,416) (444,294)
-------------- ----------- ----------
Net Expenses.............................................. 4,598,217 1,501,159 6,099,376
-------------- ----------- ----------
NET INVESTMENT INCOME........................................... 2,565,250 2,995,948 5,561,198
-------------- ----------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss):
Security transactions........................................ 41,083,134 19,221,367 60,304,501
Foreign currency translations................................ -- (13,460) (13,460)
-------------- ----------- -----------
Total net realized gain (loss).................................. 41,083,134 19,207,907 60,291,041
Change in unrealized appreciation/depreciation on investments
and foreign currency translations during the year.......... 205,385,468 19,295,523 224,680,991
-------------- ----------- ----------
Net realized and unrealized gain on investments.............. 246,468,602 38,503,430 284,972,032
-------------- ----------- ----------
Net decrease in net assets resulting from operations......... $ 249,033,852 $ 41,499,378 $290,533,230
-------------- ------------ ------------
</TABLE>
See Notes to Pro Forma Combined Financial Statements
PF-6
<PAGE>
Excelsior Funds, Inc.
Notes to Pro Forma Combined Financial Statements
March 31, 1998
Pro forma information is intended to provide shareholders of the Income and
Growth Fund with information about the impact of the proposed reorganization by
indicating how the reorganization might have affected the information had the
reorganization been consummated as of March 31, 1998.
The pro forma combined statements of assets and liabilities and results of
operations as of March 31, 1998 have been prepared to reflect the reorganization
of the Income and Growth Fund into the Blended Equity Fund after giving effect
to pro forma adjustments described in the note listed below.
(a) Acquisition by the Blended Equity Fund of the net assets of the
Income and Growth Fund and issuance of Blended Equity Fund shares in
exchange for all the outstanding shares of the Income and Growth
Fund.
PF-7
<PAGE>
<TABLE>
<CAPTION>
Excelsior Funds, Inc.
Combined Portfolio of Investments September 30, 1998 (Unaudited)
Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
Blended Income and Pro Forma Blended Income and Pro Forma
Equity Growth Combined Equity Growth Combined
Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <S> <C> <C> <C>
COMMON STOCKS - 97.24%
CONSUMER CYCLICAL - 21.40%
32,600 - 32,600 CBS Corp. 790,550 - 790,550
201,400 - 201,400 Centex Corp. 6,948,300 - 6,948,300
52,000 - 52,000 Chevron Corp. 4,371,250 - 4,371,250
40,000 - 40,000 Comcast Corp., Class A Special 1,877,500 - 1,877,500
212,500 - 212,500 Dayton Hudson Corp. 7,596,875 - 7,596,875
200,000 - 200,000 Ford Motor Co. 9,387,500 - 9,387,500
311,000 - 311,000 General Electric Co. 24,743,937 - 24,743,937
43,800 - 43,800 General Motors Corp. 2,395,313 - 2,395,313
38,500 - 38,500 Goodyear Tire and Rubber Co. 1,977,938 - 1,977,938
- 100,000 100,000 Herman Miller, Inc. - 1,975,000 1,975,000
330,000 73,000 403,000 Luxottica Group S.p.A. ADR 3,691,875 816,687 4,508,562
95,000 70,000 165,000 McDonald's Corp. 5,670,312 4,178,125 9,848,437
211,000 - 211,000 +MCI WorldCom, Inc. 10,312,625 - 10,312,625
40,000 - 40,000 Meredith Corp. 1,280,000 - 1,280,000
43,500 - 43,500 New York Times Co., Class A 1,196,250 - 1,196,250
224,400 - 224,400 +O'Reilly Automotive, Inc. 8,078,400 - 8,078,400
39,000 - 39,000 Reuters Group plc ADR 1,925,625 - 1,925,625
5,100 - 5,100 +Saks, Inc. 114,431 - 114,431
- 150,000 150,000 ServiceMaster Ltd. Partnership - 3,281,250 3,281,250
50,000 - 50,000 Time Warner, Inc. 4,378,125 - 4,378,125
25,000 - 25,000 Tribune Co. 1,257,813 - 1,257,813
250,000 - 250,000 Wal-Mart Stores, Inc. 13,656,250 - 13,656,250
171,045 - 171,045 Walt Disney Co. 4,329,577 - 4,329,577
37,800 80,000 117,800 Wiley (John) & Sons, Inc., Class A 2,322,337 4,915,000 7,237,337
- 280,000 280,000 +Ziff-Davis, Inc. - 2,030,000 2,030,000
- ----------------------------------------- ----------------------------------------------
2,653,645 753,000 3,406,645 118,302,783 17,196,062 135,498,845
- ----------------------------------------- ----------------------------------------------
CONSUMER STAPLES - 21.76%
420,000 - 420,000 Abbott Laboratories 18,243,750 - 18,243,750
84,000 - 84,000 Bestfoods, Inc. 4,068,750 - 4,068,750
187,500 - 187,500 Coca-Cola Company 10,804,687 - 10,804,687
10,500 - 10,500 Corn Products International, Inc. 265,125 - 265,125
44,210 - 44,210 CVS Corp. 1,936,951 - 1,936,951
104,000 60,000 164,000 Gillette Co. 3,978,000 2,295,000 6,273,000
61,700 - 61,700 +Healthsouth Corp. 651,706 - 651,706
272,300 40,000 312,300 Johnson & Johnson 21,307,475 3,130,000 24,437,475
7,400 - 7,400 Lilly (Eli) & Co. 579,512 - 579,512
98,730 - 98,730 Mattel, Inc. 2,764,440 - 2,764,440
49,000 15,000 64,000 Merck & Co., Inc. 6,348,562 1,943,438 8,292,000
15,000 - 15,000 Novartis AG ADR 1,202,222 - 1,202,222
- 40,000 40,000 Novo-Nordisk A.S., ADR - 2,400,000 2,400,000
30,000 - 30,000 PepsiCo, Inc. 883,125 - 883,125
269,400 - 269,400 Pfizer, Inc. 28,539,563 - 28,539,563
113,200 - 113,200 Procter & Gamble Co. 8,030,125 - 8,030,125
110,000 - 110,000 Schering-Plough Corp. 11,391,875 - 11,391,875
260,000 - 260,000 Stewart Enterprises, Inc., Class A 4,355,000 - 4,355,000
- 35,000 35,000 WM. Wrigley Jr. Co. - 2,657,812 2,657,812
- ----------------------------------------- ----------------------------------------------
2,136,940 190,000 2,326,940 125,350,868 12,426,250 137,777,118
- ----------------------------------------- ----------------------------------------------
TECHNOLOGY - 16.60%
- 200,000 200,000 +Analog Devices, Inc. - 3,212,500 3,212,500
341,033 30,000 371,033 +Cisco Systems, Inc. 21,080,071 1,854,375 22,934,446
50,000 - 50,000 Compaq Computer Corp. 1,581,250 - 1,581,250
30,000 - 30,000 Computer Associates International, Inc. 1,110,000 - 1,110,000
70,000 - 70,000 +Dell Computer Corp. 4,602,500 - 4,602,500
</TABLE>
PF-8
<PAGE>
<TABLE>
<CAPTION>
Excelsior Funds, Inc.
Combined Portfolio of Investments September 30, 1998 (Unaudited)
Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
Blended Income and Pro Forma Blended Income and Pro Forma
Equity Growth Combined Equity Growth Combined
Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
36,100 - 36,100 Emerson Electric, Co. 2,247,225 - 2,247,225
126,480 - 126,480 Hewlett-Packard Co. 6,695,535 - 6,695,535
30,300 - 30,300 Honeywell Corp. 1,941,094 - 1,941,094
150,000 - 150,000 Intel Corp. 12,862,500 - 12,862,500
- 695,200 695,200 +Interleaf, Inc. - 716,925 716,925
63,000 - 63,000 International Business Machines Corp. 8,064,000 - 8,064,000
69,000 - 69,000 L.M. Ericsson Telephone Co. ADR 1,267,875 - 1,267,875
93,320 - 93,320 Lucent Technologies, Inc. 6,444,913 - 6,444,913
169,240 15,000 184,240 +Microsoft Corp. 18,626,977 1,650,938 20,277,915
36,000 - 36,000 Nokia Corp., Class A, ADR 2,823,750 - 2,823,750
- 103,500 103,500 +SDL, Inc. - 1,293,750 1,293,750
60,000 - 60,000 SBC Communications, Inc. 2,666,250 - 2,666,250
25,500 - 25,500 Texas Instruments, Inc. 1,345,125 - 1,345,125
46,000 - 46,000 Tyco International Ltd. 2,541,500 - 2,541,500
- 41,800 41,800 +Unitrode Corp. - 444,125 444,125
- ------------------------------------------ --------------------------------------------------
1,395,973 1,085,500 2,481,473 95,900,565 9,172,613 105,073,178
- ------------------------------------------ --------------------------------------------------
FINANCIAL - 17.05%
30,000 - 30,000 Allstate Corp. 1,250,625 - 1,250,625
19,000 - 19,000 American Express Co. 1,474,875 - 1,474,875
56,250 20,000 76,250 American International Group, Inc. 4,331,250 1,540,000 5,871,250
277,817 - 277,817 Associates First Capital Corp. 18,127,559 - 18,127,559
75,600 - 75,600 BankBoston 2,494,800 - 2,494,800
40,200 - 40,200 Citicorp 3,736,087 - 3,736,087
20,000 - 20,000 First Union Corp. (North Carolina) 1,023,750 - 1,023,750
170,000 - 170,000 Fleet Financial Group, Inc. 12,484,375 - 12,484,375
21,790 - 21,790 General Re Corp. 4,423,370 - 4,423,370
81,702 - 81,702 Household International, Inc. 3,063,825 - 3,063,825
114,200 - 114,200 MBIA, Inc. 6,131,112 - 6,131,112
302,076 - 302,076 Mellon Bank Corp. 16,633,060 - 16,633,060
202,694 35,000 237,694 Morgan Stanley, Dean Witter & Co. 8,728,510 1,507,188 10,235,698
- 130,000 130,000 Mutual Risk Management Ltd. - 4,598,750 4,598,750
29,687 - 29,687 Nationsbank Corp. 1,588,255 - 1,588,255
32,600 - 32,600 Norwest Corp. 1,167,488 - 1,167,488
156,300 - 156,300 State Street Boston Corp. 8,528,119 - 8,528,119
102,200 - 102,200 UNUM Corp. 5,078,063 - 5,078,063
- ------------------------------------------ --------------------------------------------------
1,732,116 185,000 1,917,116 100,265,123 7,645,938 107,911,061
- ------------------------------------------ --------------------------------------------------
ENERGY - 7.91%
13,000 - 13,000 British Petroleum Company plc ADR 1,134,250 - 1,134,250
167,907 - 167,907 Burlington Resources, Inc. 6,275,524 - 6,275,524
120,100 44,000 164,100 Exxon Corp. 8,429,519 3,088,250 11,517,769
47,000 - 47,000 Minnesota Mining & Manufacturing 3,463,313 - 3,463,313
178,300 - 178,300 Mobil Corp. 13,539,656 - 13,539,656
162,100 - 162,100 Royal Dutch Petroleum Co. 7,720,012 - 7,720,012
- 90,000 90,000 +SEACOR Holdings, Inc. - 3,735,000 3,735,000
73,200 - 73,200 Unocal Corp. 2,653,500 - 2,653,500
- ------------------------------------------ --------------------------------------------------
761,607 134,000 895,607 43,215,774 6,823,250 50,039,024
- ------------------------------------------ --------------------------------------------------
UTILITIES - 6.59%
53,400 110,000 163,400 +AES Corp. 1,979,138 4,076,875 6,056,013
30,000 - 30,000 Ameritech Corp. 1,421,250 - 1,421,250
172,443 - 172,443 AT&T Corp. 10,077,138 - 10,077,138
163,000 - 163,000 Bell Atlantic Corp. 7,895,312 - 7,895,312
57,500 - 57,500 Duke Energy Corp. 3,805,781 - 3,805,781
60,000 94,000 154,000 +NEXTEL Communications, Inc., Class A 1,211,250 1,897,625 3,108,875
133,700 - 133,700 Southern Co. 3,935,794 - 3,935,794
116,400 - 116,400 Texas Utilities Co. 5,419,875 - 5,419,875
- ------------------------------------------ --------------------------------------------------
786,443 204,000 990,443 35,745,538 5,974,500 41,720,038
- ------------------------------------------ --------------------------------------------------
RAW / INTERMEDIATE MATERIALS - 2.31%
67,300 - 67,300 E.I. du Pont de Nemours & Co. 3,777,212 - 3,777,212
62,100 - 62,100 Monsanto Co. 3,500,888 - 3,500,888
- 100,000 100,000 Pall Corp. - 2,218,750 2,218,750
105,000 90,000 195,000 Pioneer Hi-Bred International, Inc. 2,756,250 2,362,500 5,118,750
- ------------------------------------------ --------------------------------------------------
234,400 190,000 424,400 10,034,350 4,581,250 14,615,600
- ------------------------------------------ --------------------------------------------------
</TABLE>
PF-9
<PAGE>
<TABLE>
<CAPTION>
Excelsior Funds, Inc.
Combined Portfolio of Investments September 30, 1998 (Unaudited)
Shares Value
- -----------------------------------------------------------------------------------------------------------------------------------
Blended Income and Pro Forma Blended Income and Pro Forma
Equity Growth Combined Equity Growth Combined
Fund Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
CAPITAL GOODS - 3.62%
24,000 - 24,000 Boeing Co. 823,500 - 823,500
12,600 - 12,600 Cordant Technologies, Inc. 533,137 - 533,137
20,000 100,000 120,000 Dover Corp. 617,500 3,087,500 3,705,000
275,266 - 275,266 Illinois Tool Works, Inc. 15,001,997 - 15,001,997
24,700 - 24,700 +Lear Corp. 1,080,625 - 1,080,625
2,000 - 2,000 Raychem Corp. 48,750 - 48,750
76,875 - 76,875 +Thermo Electron Corp. 1,157,930 - 1,157,930
11,700 - 11,700 Waste Management, Inc. 562,331 - 562,331
- ----------------------------------------- ---------------------------------------
447,141 100,000 547,141 19,825,770 3,087,500 22,913,270
- ----------------------------------------- ---------------------------------------
TOTAL COMMON STOCKS 548,640,771 66,907,363 615,548,134
Principal Amount Value
- ----------------------------------------- ---------------------------------------
CORPORATE BONDS - 0.32%
MATERIALS - 0.32%
- 2,000,000 2,000,000 AK Steel Corp.,
- -----------------------------------------
9.125%, 12/15/06
(Cost $2,080,000) - 2,015,000 2,015,000
---------------------------------------
CONVERTIBLE BONDS - 1.36%
TECHNOLOGY - 1.02%
- 2,810,000 2,810,000 Kollmorgen Corp., Sub-Debenture,
8.75%, 05/01/09 - 2,848,638 2,848,638
- 3,959,000 3,959,000 Network Equipment Technologies, Inc.,
Sub-Debenture,
- -----------------------------------------
- 6,769,000 6,769,000 7.25%, 05/15/14 - 3,597,741 3,597,741
- ----------------------------------------- ---------------------------------------
- 6,446,379 6,446,379
---------------------------------------
CONSUMER CYCLICAL - 0.28%
- 1,925,000 1,925,000 Avatar Holdings
- -----------------------------------------
7.00%, 04/01/05 - 1,766,187 1,766,187
---------------------------------------
TRANSPORTATION - 0.06%
- 3,500,000 3,500,000 World Corp., Inc.,
- -----------------------------------------
7.00%, 05/15/04 - 385,000 385,000
---------------------------------------
TOTAL CONVERTIBLE BONDS - 8,597,566 8,597,566
DEMAND NOTES - 0.91%
400,000 2,400,000 2,800,000 Associates Corp. of North America Master Notes 400,000 2,400,000 2,800,000
487,000 2,515,000 3,002,000 General Electric Co. Promissory Notes 487,000 2,515,000 3,002,000
- ----------------------------------------- ---------------------------------------
887,000 4,915,000 5,802,000 887,000 4,915,000 5,802,000
- ----------------------------------------- ---------------------------------------
TOTAL DEMAND NOTES 887,000 4,915,000 5,802,000
TOTAL INVESTMENTS -100.00%
---------------------------------------
(Cost $321,872,770, $63,631,120 and
$385,503,890, respectively) 549,527,771 82,434,929 631,962,700
=======================================
</TABLE>
Securities in the Fund's portfolio are valued on the basis of market quotations,
valuations provided by independent pricing services or, at fair value as
determined in good faith in accordance with procedures approved by the Trustees.
Short-term debt investments maturing within 60 days are valued at amortized cost
which approximates market value.
+ Non-income producing security
ADR-American Depositary Receipt
PF-10
<PAGE>
Excelsior Funds, Inc.
Pro Forma Combined Statement of Assets and Liabilities
September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Blended Income And
Equity Growth Pro Forma
Fund Fund Adjustments Combined
------------ ------------ ------------ ------------
ASSETS:
<S> <C> <C> <C> <C>
Investments, at cost-see
accompanying portfolios...................... $321,872,770 $ 63,631,120 $ 385,503,890
============ ============ ============
Investments, at value.......................... $549,527,771 $ 82,434,929 $ 631,962,700
Cash........................................... 492,860 -- 492,860
Dividends receivable........................... 613,230 83,598 696,828
Interest receivable............................ 9,355 480,830 490,185
Receivable for investments sold................ -- 3,882,391 3,882,391
Receivable for fund shares sold................ 107,781 2,745 110,526
Withholding tax receivable..................... -- 2,833 2,833
Prepaid expenses............................... 13,906 3,900 17,806
------------ ------------ ------------
Total Assets................................ 550,764,903 86,891,226 637,656,129
LIABILITIES:
Payable for investments purchased.............. -- 3,649,008 3,649,008
Payable for fund shares redeemed............... 100,624 60,557 161,181
Dividends Payable.............................. 48 181 229
Investment advisory fees payable............... 308,302 45,596 353,898
Administration fees payable.................... 57,147 8,873 66,020
Administrative service fees payable............ 37,387 15,897 53,284
Directors' fees payable........................ 8,941 2,363 11,304
Due to custodian bank.......................... -- 20,274 20,274
Accrued expenses and other payables............ 276,753 29,782 306,535
------------ ------------ ------------
Total Liabilities........................... 789,202 3,832,531 4,621,733
------------ ------------ ------------
NET ASSETS......................................... 549,975,701 83,058,695 633,034,396
============ ============ ============
NET ASSETS consist of:
Undistributed net investment income (loss)..... $ 708,211 $ 336,248 $ 1,044,459
Accumulated net realized gain (loss) on
investments................................. 4,614,692 15,932,956 20,547,648
Unrealized appreciation (depreciation) of
investments and foreign currency translations.. 227,655,105 18,803,511 246,458,616
Par value...................................... 16,559 5,970 (3,469) (a) 19,060
Paid-in capital in excess of par value......... 316,981,134 47,980,010 3,469 (a) 364,964,613
------------ ------------ ------------
Total Net Assets................................... $549,975,701 $ 83,058,695 $ 633,034,396
============ ============ ============
Shares of Common Stock Outstanding............ 16,559,384 5,914,029 (3,413,014) (a) 19,060,399
NET ASSET VALUE PER SHARE...................... $ 33.21 $ 14.04 $ 33.21
============ ============ ============
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
PF-11
<PAGE>
Excelsior Funds, Inc.
Projected Pro Forma Combined Statement of Operations
September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Blended Income and
Equity Growth Pro Forma
Fund Fund Adjustments Combined
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income............................................... $ 98,660 $ 773,514 $ 872,174
Dividend income............................................... 3,861,000 661,408 4,522,408
------------ ------------ ------------
Total Income............................................... 3,959,660 1,434,922 5,394,582
EXPENSES:
Investment advisory fees...................................... 2,260,166 428,900 2,689,066
Administration fees........................................... 461,074 87,495 548,569
Administrative service fees................................... 116,341 51,571 167,912
Shareholder servicing agent fees.............................. 98,357 33,226 131,583
Custodian fees................................................ 75,396 16,553 91,949
Legal and audit fees.......................................... 56,082 10,242 66,324
Shareholder reports........................................... 18,014 2,968 20,982
Registration and filing fees.................................. 17,962 7,334 25,296
Directors' fees and expenses.................................. 13,505 2,804 16,309
Miscellaneous expenses........................................ 29,943 7,554 37,497
------------ ------------ ------------
Total Expenses.............................................. 3,146,840 648,647 3,795,487
Fees waived by investment adviser and administrators.......... (243,684) (51,571) (295,255)
------------ ------------ ------------
Net Expenses............................................... 2,903,156 597,076 3,500,232
------------ ------------ ------------
NET INVESTMENT INCOME............................................ 1,056,504 837,846 1,894,350
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on security transactions............. (5,131,431) 7,163,650 2,032,219
------------ ------------ ------------
Change in unrealized appreciation/depreciation on investments
and foreign currency translations during the period......... (44,139,447) (32,558,204) (76,697,651)
------------ ------------ ------------
Net realized and unrealized gain (loss) on investments........ (49,270,878) (25,394,554) (74,665,432)
------------ ------------ ------------
Net decrease in net assets resulting from operations.......... $(48,214,374) $(24,556,708) $(72,771,082)
============ ============ ============
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
PF-12
<PAGE>
Excelsior Funds, Inc.
Notes to Pro Forma Combined Financial Statements
September 30, 1998 (Unaudited)
Pro forma information is intended to provide shareholders of the Income and
Growth Fund with information about the impact of the proposed reorganization by
indicating how the reorganization might have affected the information had the
reorganization been consummated as of September 30, 1998.
The pro forma combined statements of assets and liabilities and results of
operations as of September 30, 1998 have been prepared to reflect the
reorganization of the Income and Growth Fund into the Blended Equity Fund after
giving effect to pro forma adjustments described in the note listed below.
(a) Acquisition by the Blended Equity Fund of the net assets of the
Income and Growth Fund and issuance of Blended Equity Fund shares in
exchange for all the outstanding shares of the Income and Growth
Fund.
PF-13
<PAGE>
Audited Financial Statements for
the Fiscal Year Ended March 31, 1998
<PAGE>
Excelsior Funds, Inc.
Statements of Assets and Liabilities
March 31, 1998
<TABLE>
<CAPTION>
Blended Equity
Fund Income and
(formerly Growth
Equity Fund) Fund
-------------- ------------
<S> <C> <C>
ASSETS:
Investments, at cost-see accompanying
portfolios..................................... $323,025,087 $ 91,748,706
============ ============
Investments, at value (Note 1).................. $594,819,534 $143,110,985
Cash............................................ 900 --
Dividends receivable............................ 703,872 49,190
Interest receivable............................. 17,233 752,490
Receivable for investments sold................. -- 2,288,026
Receivable for fund shares sold................. 25,104 11,666
Withholding tax receivable...................... -- 2,566
Prepaid expenses................................ 24,209 6,629
Unamortized organization costs (Note 5)......... -- --
------------ ------------
Total Assets.................................... 595,590,852 146,221,552
LIABILITIES:
Payable for investments purchased............... -- 1,851,736
Payable for fund shares redeemed................ 46,504 200,277
Investment advisory fees payable (Note 2)....... 332,905 80,725
Administration fees payable (Note 2)............ 62,614 15,607
Administrative service fees payable (Note 2).... 17,951 8,805
Directors' fees payable (Note 2)................ 6,195 2,028
Due to custodian bank........................... -- 5,982,956
Accrued expenses and other payables............. 216,113 26,634
------------ ------------
Total Liabilities............................... 682,282 8,168,768
------------ ------------
NET ASSETS....................................... $594,908,570 $138,052,784
============ ============
NET ASSETS consist of:
Undistributed net investment income............. $ 914,191 $ 664,026
Accumulated net realized gain (loss) on
investments.................................... 9,746,123 8,769,306
Unrealized appreciation of investments and
foreign currency translations.................. 271,794,552 51,361,715
Par value (Note 4).............................. 16,471 7,692
Paid-in capital in excess of par value.......... 312,437,233 77,250,045
------------ ------------
Total Net Assets................................. $594,908,570 $138,052,784
============ ============
Shares of Common Stock Outstanding............... 16,470,999 7,692,203
NET ASSET VALUE PER SHARE........................ $36.12 $17.95
====== ======
</TABLE>
See Notes to Financial Statements
10
<PAGE>
<TABLE>
<CAPTION>
Value and Restructuring Energy and Natural
Fund (formerly Small Cap Fund Resources Fund Large Cap
Business and Industrial (formerly Early (formerly Long-Term Growth Real Estate
Restructuring Fund) Life Cycle Fund) Supply of Energy Fund) Fund Fund
----------------------- ---------------- ---------------------- ----------- -----------
<S> <C> <C> <C> <C>
$293,015,035 $56,288,895 $33,496,216 $41,735,015 $40,845,063
============ =========== =========== =========== ===========
$399,629,194 $68,572,462 $45,400,649 $47,919,875 $40,954,667
-- 279 777 225 1,014
313,284 10,112 25,239 12,850 236,572
63,297 27,910 6,528 414 185
-- -- 757,095 -- --
2,793,503 5,982 26,823 32,400 --
4,222 -- -- -- --
9,202 3,140 1,908 600 965
-- -- -- 41,375 27,568
------------ ----------- ----------- ----------- -----------
402,812,702 68,619,885 46,219,019 48,007,739 41,220,971
13,348,736 -- -- 413,192 --
66,123 1,460 -- 2,127 --
168,666 30,932 12,490 22,954 25,526
13,613 8,970 8,943 5,290 637
10,540 4,526 1,521 558 1,794
414 607 469 195 338
680,921 -- -- -- --
76,281 25,464 21,149 34,765 21,952
------------ ----------- ----------- ----------- -----------
14,365,294 71,959 44,572 479,081 50,247
------------ ----------- ----------- ----------- -----------
$388,447,408 $68,547,926 $46,174,447 $47,528,658 $41,170,724
============ =========== =========== =========== ===========
$ 274,591 $ -- $ 32,722 $ -- $ 26,291
3,631,511 628,702 (243,134) (214,016) 19,611
106,613,124 12,283,567 11,904,433 6,184,860 109,604
16,326 5,736 3,648 5,583 5,840
277,911,856 55,629,921 34,476,778 41,552,231 41,009,378
------------ ----------- ----------- ----------- -----------
$388,447,408 $68,547,926 $46,174,447 $47,528,658 $41,170,724
============ =========== =========== =========== ===========
16,325,679 5,735,910 3,648,375 5,583,405 5,840,242
$23.79 $11.95 $12.66 $8.51 $7.05
====== ====== ====== ===== =====
</TABLE>
See Notes to Financial Statements
11
<PAGE>
Excelsior Funds, Inc.
Statements of Operations
Year Ended March 31, 1998
<TABLE>
<CAPTION>
Blended Equity Income and
Fund (formerly Growth
Equity Fund) Fund
-------------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Interest income................................. $ 532,191 $ 2,699,016
Dividend income................................. 6,631,276 1,801,187
Less: Foreign taxes withheld.................... -- (3,096)
------------ -----------
Total Income.................................... 7,163,467 4,497,107
EXPENSES:
Investment advisory fees (Note 2)............... 3,471,749 1,100,859
Administration fees (Note 2).................... 708,237 224,575
Administrative servicing fees (Note 2).......... 182,660 111,416
Shareholder servicing agent fees................ 172,207 65,129
Custodian fees.................................. 140,402 40,483
Legal and audit fees............................ 101,571 25,188
Shareholder reports............................. 43,172 8,815
Amortization of organization costs (Note 5)..... -- --
Registration and filing fees.................... 22,066 12,133
Directors' fees and expenses (Note 2)........... 26,142 8,008
Distribution fees-- Trust Shares (Note 2)....... 202 --
Miscellaneous expenses.......................... 62,687 15,969
------------ -----------
Total Expenses.................................. 4,931,095 1,612,575
Fees waived by investment adviser and
administrators (Note 2)......................... (332,878) (111,416)
------------ -----------
Net Expenses.................................... 4,598,217 1,501,159
------------ -----------
NET INVESTMENT INCOME (LOSS)..................... 2,565,250 2,995,948
------------ -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Note 1):
Net realized gain (loss):
Security transactions........................... 41,083,134 19,221,367
Foreign currency translations................... -- (13,460)
------------ -----------
Total net realized gain (loss).................. 41,083,134 19,207,907
Change in unrealized appreciation/depreciation
on investments and foreign currency
translations during the year................... 205,385,468 19,295,523
------------ -----------
Net realized and unrealized gain on
investments..................................... 246,468,602 38,503,430
------------ -----------
Net increase in net assets resulting from
operations...................................... $249,033,852 $41,499,378
============ ===========
</TABLE>
* Large Cap Growth Fund and Real Estate Fund commenced operations on October 1,
1997.
See Notes to Financial Statements
12
<PAGE>
<TABLE>
<CAPTION>
Value and Restructuring Energy and Natural
Fund (formerly Small Cap Fund Resources Fund Large Cap
Business and Industrial (formerly Early (formerly Long-Term Growth Real Estate
Restructuring Fund) Life Cycle Fund) Supply of Energy Fund) Fund* Fund*
----------------------- ---------------- ---------------------- ---------- -----------
<S> <C> <C> <C> <C>
$ 246,500 $ 231,449 $ 132,357 $ 44,724 $ 69,427
2,733,206 250,498 582,085 52,962 788,400
-- -- -- -- --
----------- ----------- ---------- ---------- --------
2,979,706 481,947 714,442 97,686 857,827
1,248,447 362,392 255,917 82,152 137,933
318,354 92,410 65,259 16,759 20,453
88,070 41,897 29,091 1,501 1,794
74,335 40,564 33,683 2,210 1,468
67,141 23,457 14,146 10,559 11,162
29,706 9,370 7,661 1,699 2,381
10,342 3,118 16,056 744 1,119
3,171 3,171 3,171 2,231 2,943
37,445 19,583 19,974 1,968 2,127
7,976 3,051 2,290 383 562
49 29 -- -- --
48,637 8,481 7,534 11,487 11,280
----------- ----------- ---------- ---------- --------
1,933,673 607,523 454,782 131,693 193,222
(88,070) (41,897) (32,946) (16,680) (28,552)
----------- ----------- ---------- ---------- --------
1,845,603 565,626 421,836 115,013 164,670
----------- ----------- ---------- ---------- --------
1,134,103 (83,679) 292,606 (17,327) 693,157
----------- ----------- ---------- ---------- --------
4,634,390 3,491,186 3,347,027 (214,016) (749)
(38,046) -- -- -- --
----------- ----------- ---------- ---------- --------
4,596,344 3,491,186 3,347,027 (214,016) (749)
80,592,450 12,326,916 4,846,663 6,184,860 109,604
----------- ----------- ---------- ---------- --------
85,188,794 15,818,102 8,193,690 5,970,844 108,855
----------- ----------- ---------- ---------- --------
$86,322,897 $15,734,423 $8,486,296 $5,953,517 $802,012
=========== =========== ========== ========== ========
</TABLE>
See Notes to Financial Statements
13
<PAGE>
Excelsior Funds, Inc.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Blended Equity Income and
Fund (formerly Growth
Equity Fund) Fund
-------------- ------------
<S> <C> <C>
Year Ended March 31, 1998
Net investment income (loss)...................... $ 2,565,250 $ 2,995,948
Net realized gain (loss) on investments........... 41,083,134 19,207,907
Change in unrealized appreciation/depreciation on
investments and foreign currency translations
during the year.................................. 205,385,468 19,295,523
------------ ------------
Net increase in net assets resulting from opera-
tions............................................ 249,033,852 41,499,378
Distributions to shareholders:
From net investment income:
Shares........................................... (2,290,458) (2,916,488)
Trust Shares..................................... (146) --
From net realized gain on investments:
Shares........................................... (38,374,555) (15,371,776)
In excess of net realized gain on investments:
Shares........................................... -- --
------------ ------------
Total distributions............................. (40,665,159) (18,288,264)
------------ ------------
Increase (decrease) in net assets from fund share
transactions (Note 4)
Shares........................................... 79,577,598 (17,925,868)
Trust Shares..................................... (108,359) --
------------ ------------
Total from fund share transactions............. 79,469,239 (17,925,868)
------------ ------------
Net increase in net assets........................ 287,837,932 5,285,246
NET ASSETS:
Beginning of year................................ 307,070,638 132,767,538
------------ ------------
End of year (1).................................. $594,908,570 $138,052,784
============ ============
--------
(1) Including undistributed net investment
income......................................... $ 914,191 $ 664,026
============ ============
Year Ended March 31, 1997
Net investment income (loss)...................... $ 1,968,077 $ 2,839,449
Net realized gain (loss) on investments........... 13,470,108 8,773,424
Change in unrealized appreciation/depreciation on
investments and foreign currency translations
during the year.................................. 11,035,720 3,899,616
------------ ------------
Net increase (decrease) in net assets resulting
from operations.................................. 26,473,905 15,512,489
Distributions to shareholders:
From net investment income:
Shares........................................... (1,439,009) (3,036,535)
Trust Shares..................................... (103) --
From net realized gain on investments:
Shares........................................... (11,114,096) (5,519,778)
Trust Shares..................................... (27) --
In excess of net realized gain on investments:
Shares........................................... -- --
------------ ------------
Total distributions.............................. (12,553,235) (8,556,313)
------------ ------------
Increase (decrease) in net assets from fund share
transactions (Note 4)
Shares........................................... 104,492,129 (1,683,305)
Trust Shares..................................... 84,035 --
------------ ------------
Total from fund share transactions............... 104,576,164 (1,683,305)
------------ ------------
Net increase (decrease) in net assets............. 118,496,834 5,272,871
NET ASSETS:
Beginning of year................................ 188,573,804 127,494,667
------------ ------------
End of year (2).................................. $307,070,638 $132,767,538
============ ============
(2) Including undistributed/(distributions in
excess of) net investment income............... $ 639,545 $ 571,900
============ ============
</TABLE>
--------
* Large Cap Growth Fund and Real Estate Fund commenced operations on October 1,
1997.
See Notes to Financial Statements
14
<PAGE>
<TABLE>
<CAPTION>
Value and Restructuring Energy and Natural
Fund (formerly Small Cap Fund Resources Fund Large Cap
Business and Industrial (formerly Early (formerly Long-Term Growth Real Estate
Restructuring Fund) Life Cycle Fund) Supply of Energy Fund) Fund* Fund*
----------------------- ---------------- ---------------------- ----------- -----------
<S> <C> <C> <C> <C>
$ 1,134,103 $ (83,679) $ 292,606 $ (17,327) $ 693,157
4,596,344 3,491,186 3,347,027 (214,016) (749)
80,592,450 12,326,916 4,846,663 6,184,860 109,604
------------ ------------ ----------- ----------- -----------
86,322,897 15,734,423 8,486,296 5,953,517 802,012
(855,654) -- (309,721) -- (474,266)
(58) -- -- -- --
(2,883,915) -- (3,856,927) -- --
-- -- (243,134) -- --
------------ ------------ ----------- ----------- -----------
(3,739,627) -- (4,409,782) -- (474,266)
------------ ------------ ----------- ----------- -----------
181,862,594 (441,310) 8,704,842 41,575,141 40,842,978
(61,525) (11,276) -- -- --
------------ ------------ ----------- ----------- -----------
181,801,069 (452,586) 8,704,842 41,575,141 40,842,978
------------ ------------ ----------- ----------- -----------
264,384,339 15,281,837 12,781,356 47,528,658 41,170,724
124,063,069 53,266,089 33,393,091 -- --
------------ ------------ ----------- ----------- -----------
$388,447,408 $ 68,547,926 $46,174,447 $47,528,658 $41,170,724
============ ============ =========== =========== ===========
$ 274,591 $ -- $ 32,722 $ -- $ 26,291
============ ============ =========== =========== ===========
$ 890,216 $ (203,038) $ 247,913
3,588,792 (1,252,061) 3,066,094
10,912,205 (10,176,904) 3,501,247
------------ ------------ -----------
15,391,213 (11,632,003) 6,815,254
(770,732) -- (236,119)
(133) -- --
(2,941,935) (760,083) (2,816,614)
(702) (98) --
-- (2,895,800) --
------------ ------------ -----------
(3,713,502) (3,655,981) (3,052,733)
------------ ------------ -----------
38,284,744 (9,515,807) 6,336,079
48,311 9,034 --
------------ ------------ -----------
38,333,055 (9,506,773) 6,336,079
------------ ------------ -----------
50,010,766 (24,794,757) 10,098,600
74,052,303 78,060,846 23,294,491
------------ ------------ -----------
$124,063,069 $ 53,266,089 $33,393,091
============ ============ ===========
$ 145,348 $ -- $ 49,837
============ ============ ===========
</TABLE>
See Notes to Financial Statements
15
<PAGE>
Excelsior Funds, Inc.
Financial Highlights--Selected Per Share Data and Ratios
For a Fund share outstanding throughout each period.
<TABLE>
<CAPTION>
Net Realized Distributions Distributions in
Net Asset Net and Unrealized Dividends From Net Excess of Net
Value, Investment Gain (Loss) Total From From Net Realized Gain Realized Gain
Beginning Income on Investments Investment Investment on Investments on Investments
of Period (Loss) and Options Operations Income and Options and Options
--------- ---------- -------------- ---------- ---------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
BLENDED EQUITY FUND -- (4/25/85*)
(formerly Equity Fund)
Shares:
Year Ended March 31,
1994.................... $18.77 $ 0.05 $ 1.16 $ 1.21 $(0.08) $(0.39) $(0.34)
1995.................... 19.17 0.07 2.67 2.74 (0.04) (0.47) --
1996.................... 21.40 0.12 5.21 5.33 (0.11) (2.19) --
1997.................... 24.43 0.18 2.50 2.68 (0.14) (1.16) --
1998.................... 25.81 0.16 12.59 12.75 (0.16) (2.28) --
Trust Shares --
(11/12/96*)
Period ended March 31,
1997................... 26.30 0.04 0.03 0.07 (0.03) (0.56) --
Period from April 1,
1997 to October 27,
1997................... 25.78 0.02 4.67 4.69 (0.05) -- --
INCOME AND GROWTH FUND -- (1/6/87*)
Year Ended March 31,
1994.................... $11.45 $ 0.31 $ 0.46 $ 0.77 $(0.27) $(0.01) --
1995.................... 11.94 0.38 0.26 0.64 (0.35) (0.41) --
1996.................... 11.82 0.39 2.61 3.00 (0.31) (0.06) --
1997.................... 14.45 0.33 1.45 1.78 (0.35) (0.63) --
1998.................... 15.25 0.36 4.53 4.89 (0.34) (1.85) --
VALUE AND RESTRUCTURING FUND -- (12/31/92*)
(formerly Business and Industrial
Restructuring Fund)
Shares:
Year Ended March 31,
1994.................... $ 7.71 $ 0.06 $ 1.96 $ 2.02 $(0.07) $(0.02) --
1995.................... 9.64 0.07 1.02 1.09 (0.06) (0.12) --
1996.................... 10.55 0.10 3.71 3.81 (0.09) (0.24) --
1997.................... 14.03 0.13 2.36 2.49 (0.12) (0.47) --
1998.................... 15.93 0.10 8.12 8.22 (0.09) (0.27) --
Trust Shares --
(9/19/96*)
Period ended March 31,
1997................... 14.61 0.05 1.53 1.58 (0.05) (0.23) --
Period from April 1,
1997 to June 30, 1997.. 15.91 0.02 2.94 2.96 (0.02) -- --
SMALL CAP FUND -- (12/31/92*)
(formerly Early Life Cycle Fund)
Shares:
Year Ended March 31,
1994.................... $ 7.40 $(0.01) $ 1.36 $ 1.35 -- $(0.09) --
1995.................... 8.66 (0.02) 1.31 1.29 -- (0.18) --
1996.................... 9.77 (0.02) 1.72 1.70 -- (0.69) --
1997.................... 10.78 (0.03) (1.43) (1.46) -- (0.10) $(0.39)
1998.................... 8.83 (0.01) 3.13 3.12 -- -- --
Trust Shares --
(9/6/96*)
Period ended March 31,
1997................... 9.98 (0.03) (0.92) (0.95) -- (0.22) --
Period from April 1,
1997 to October 27,
1997................... 8.81 (0.03) 2.52 2.49 -- -- --
ENERGY AND NATURAL RESOURCES FUND --
(12/31/92*)
(formerly Long-Term Supply of Energy Fund)
Year Ended March 31,
1994.................... $ 7.81 $ 0.08 $(0.12) $(0.04) $(0.07) -- --
1995.................... 7.70 0.09 0.24 0.33 (0.10) $(0.01) --
1996.................... 7.92 0.07 1.63 1.70 (0.07) -- --
1997.................... 9.55 0.09 2.60 2.69 (0.09) (1.03) --
1998.................... 11.12 0.09 2.69 2.78 (0.10) (1.07) $(0.07)
LARGE CAP GROWTH FUND -- (10/1/97*)
Period Ended March 31,
1998................... $ 7.00 -- ++ $ 1.51 $ 1.51 -- -- --
REAL ESTATE FUND -- (10/1/97*)
Period Ended March 31,
1998................... $ 7.00 $ 0.15 $ 0.01 $ 0.16 $(0.11) -- --
</TABLE>
* Commencement of operations. **Not Annualized. ***Annualized
+ Expense ratios before waiver of fees and reimbursement of expenses (if
any) by adviser and administrators.
++ Amount represents less than $0.01 per share.
# For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose the average commission rate per share it paid for
portfolio trades, on which commissions were charged, during the period.
See Notes to Financial Statements
16
<PAGE>
<TABLE>
<CAPTION>
Ratio of Net Ratio of Gross Ratio of Net
Net Assets, Operating Operating Investment
Net Asset End Expenses Expenses Income (Loss) Portfolio Fee Average
Total Value, End Total of Period to Average to Average to Average Turnover Waivers Commission
Distributions of Period Return (000) Net Assets Net Assets + Net Assets Rate (Note 2) Rate#
------------- ---------- ------ ----------- ------------ -------------- ------------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$(0.81) $19.17 6.54% $122,262 1.14% 1.14% 0.25% 17% -- N/A
(0.51) 21.40 14.65% 137,417 1.05% 1.08% 0.36% 23% -- N/A
(2.30) 24.43 26.45% 188,574 1.05% 1.12% 0.55% 27% $0.02 N/A
(1.30) 25.81 11.09% 306,990 1.01% 1.06% 0.71% 39% 0.01 $0.0663
(2.44) 36.12 50.82% 594,909 0.99% 1.06% 0.55% 28% 0.02 $0.0420
(0.59) 25.78 0.23%** 81 1.36%*** 1.41%*** 0.45%*** 39% -- $0.0663
(0.05) 30.42 17.57%** -- 1.34%*** 1.41%*** 0.20%*** N/A 0.01 $0.0420
$(0.28) $11.94 6.69% $ 96,682 1.17% 1.17% 2.77% 28% -- N/A
(0.76) 11.82 5.74% 99,925 1.06% 1.09% 3.31% 36% -- N/A
(0.37) 14.45 25.83% 127,495 1.05% 1.11% 2.95% 22% $0.01 N/A
(0.98) 15.25 12.61% 132,768 1.03% 1.11% 2.17% 25% 0.01 $0.0777
(2.19) 17.95 33.29% 138,053 1.02% 1.10% 2.04% 32% 0.01 $0.0539
$(0.09) $ 9.64 26.40% $ 14,440 0.99% 1.73% 0.77% 75% $0.06 N/A
(0.18) 10.55 11.49% 30,183 0.98% 1.08% 0.83% 82% 0.01 N/A
(0.33) 14.03 36.48% 74,052 0.91% 0.95% 0.88% 56% -- N/A
(0.59) 15.93 18.09% 124,011 0.91% 0.95% 0.90% 62% 0.01 $0.0755
(0.36) 23.79 52.10% 388,447 0.89% 0.93% 0.54% 30% 0.01 $0.0624
(0.28) 15.91 10.85%** 52 1.26%*** 1.30%*** 0.54%*** 62% -- $0.0755
(0.02) 18.85 18.61%** -- 1.21%*** 1.25%*** 0.47%*** N/A -- $0.0624
$(0.09) $ 8.66 18.27% $ 24,951 0.95% 1.15% (0.25)% 20% $0.01 N/A
(0.18) 9.77 15.16% 47,782 0.96% 1.04% (0.23)% 42% 0.01 N/A
(0.69) 10.78 18.29% 78,061 0.90% 0.98% (0.17)% 38% 0.01 N/A
(0.49) 8.83 (14.33)% 53,258 0.94% 1.02% (0.26)% 55% 0.01 $0.0433
-- 11.95 35.33% 68,548 0.94% 1.01% (0.14)% 73% 0.01 $0.0490
(0.22) 8.81 (9.77)%** 8 1.29%*** 1.40%*** (0.87)%*** 55% -- $0.0433
-- 11.30 29.29%** -- 1.25%*** 1.31%*** (0.59)%*** N/A -- $0.0490
$(0.07) $ 7.70 (0.57)% $ 6,830 0.99% 2.03% 1.21% 6% $0.07 N/A
(0.11) 7.92 4.28% 15,813 0.98% 1.35% 1.18% 31% 0.03 N/A
(0.07) 9.55 21.60% 23,294 0.96% 1.09% 0.88% 43% 0.01 N/A
(1.12) 11.12 28.28% 33,393 0.93% 0.98% 0.84% 87% -- $0.0809
(1.24) 12.66 24.97% 46,174 0.99% 1.07% 0.69% 88% 0.01 $0.0768
-- $ 8.51 21.57%** $ 47,529 1.05%*** 1.20%*** (0.16)%*** 12%*** -- ++ $0.0384
$(0.11) $ 7.05 2.26%** $ 41,171 1.20%*** 1.40%*** 5.02%*** 30%*** $0.01 $0.0704
</TABLE>
See Notes to Financial Statements
17
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS MARCH 31, 1998
BLENDED EQUITY FUND (FORMERLY EQUITY FUND)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------- ------------
<C> <S> <C>
COMMON STOCKS -- 99.69%
CONSUMER STAPLES -- 23.03%
210,000 Abbott Laboratories..................................... $ 15,815,625
55,000 +Alliance Pharmaceutical Corp. ......................... 409,062
42,000 Bestfoods, Inc. ........................................ 4,908,750
187,500 Coca-Cola Company....................................... 14,519,531
10,000 Conagra, Inc. .......................................... 321,250
10,500 +Corn Products International, Inc. ..................... 376,688
22,105 CVS Corp. .............................................. 1,668,928
52,000 Gillette Co. ........................................... 6,171,750
61,700 +Healthsouth Corp. ..................................... 1,731,456
272,300 Johnson & Johnson....................................... 19,962,994
7,400 Lilly (Eli) & Co. ...................................... 441,225
58,730 Mattel, Inc. ........................................... 2,327,176
26,000 Merck & Co., Inc. ...................................... 3,337,750
15,000 Novartis AG ADR......................................... 1,327,335
35,000 PepsiCo, Inc. .......................................... 1,494,062
269,400 Pfizer, Inc. ........................................... 26,855,813
229,100 Philip Morris Companies, Inc. .......................... 9,550,606
113,200 Procter & Gamble Co. ................................... 9,551,250
110,000 Schering-Plough Corp. .................................. 8,985,625
130,000 Stewart Enterprises, Inc., Class A...................... 7,215,000
------------
136,971,876
------------
FINANCIAL -- 20.89%
15,000 Allstate Corp. ......................................... 1,379,063
19,000 American Express Co. ................................... 1,744,437
37,500 American International Group, Inc. ..................... 4,722,656
225,400 Associates First Capital Corp. ......................... 17,806,600
37,800 Bank of Boston Corp. ................................... 4,167,450
20,000 Beneficial Corp. ....................................... 2,486,250
40,200 Citicorp................................................ 5,708,400
20,000 First Union Corp. (North Carolina)...................... 1,135,000
170,000 Fleet Financial Group, Inc. ............................ 14,460,625
21,790 General Re Corp. ....................................... 4,807,419
6,790 Household International, Inc. .......................... 935,322
143,800 MBIA, Inc. ............................................. 11,144,500
302,076 Mellon Bank Corp. ...................................... 19,181,826
202,694 Morgan Stanley, Dean Witter & Co. ...................... 14,771,325
29,687 Nationsbank Corp. ...................................... 2,165,296
32,600 Norwest Corp. .......................................... 1,354,937
156,300 State Street Boston Corp. .............................. 10,638,169
102,200 UNUM Corp. ............................................. 5,640,163
------------
124,249,438
------------
CONSUMER CYCLICAL -- 20.17%
25,800 CBS Corp. .............................................. 875,588
196,400 Centex Corp. ........................................... 7,487,750
21,000 Chevron Corp. .......................................... 1,686,562
40,000 Comcast Corp., Class A Special.......................... 1,412,500
105,000 Dayton Hudson Corp. .................................... 9,240,000
200,000 Ford Motor Co. ......................................... 12,962,500
311,000 General Electric Co. ................................... 26,804,313
41,800 General Motors Corp. ................................... 2,818,887
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------- ------------
<C> <S> <C>
CONSUMER CYCLICAL -- (CONTINUED)
25,000 Globecomm Systems, Inc. ................................ $ 340,625
17,000 Goodyear Tire and Rubber Co. ........................... 1,287,750
66,000 Luxottica Group S.p.A. ADR.............................. 6,183,375
95,000 McDonald's Corp. ....................................... 5,700,000
40,000 Meredith Corp. ......................................... 1,685,000
17,000 New York Times Co., Class A............................. 1,190,000
224,400 +O'Reilly Automotive, Inc. ............................. 6,142,950
5,100 +Proffitt's, Inc. ...................................... 184,875
38,999 Reuters Holdings plc ADR................................ 2,512,998
5,000 Sears, Roebuck & Co. ................................... 287,188
111,450 Tektronix, Inc. ........................................ 4,973,456
50,000 Time Warner, Inc. ...................................... 3,600,000
25,000 Tribune Co. ............................................ 1,762,500
250,000 Wal-Mart Stores, Inc. .................................. 12,703,125
57,015 Walt Disney Co. ........................................ 6,086,351
37,800 Wiley (John) & Sons, Inc., Class A...................... 2,081,363
------------
120,009,656
------------
TECHNOLOGY -- 12.55%
227,355 +Cisco Systems, Inc. ................................... 15,545,398
49,800 Compaq Computer Corp. .................................. 1,288,575
26,400 Computer Associates International, Inc. ................ 1,524,600
15,100 Emerson Electric, Co. .................................. 984,331
126,480 Hewlett-Packard Co. .................................... 8,015,670
3,300 Honeywell Corp. ........................................ 272,869
150,000 Intel Corp. ............................................ 11,700,000
60,000 International Business Machines Corp. .................. 6,232,500
46,660 Lucent Technologies, Inc. .............................. 5,966,647
169,240 +Microsoft Corp. ....................................... 15,136,403
18,000 Nokia Corp., Class A, ADR............................... 1,942,875
554 Raytheon Co., Class A................................... 31,509
10,000 Reltec Corp. ........................................... 354,375
60,000 SBC Communications, Inc. ............................... 2,617,500
10,000 Texas Instruments, Inc. ................................ 541,250
46,000 Tyco International Ltd. ................................ 2,512,750
------------
74,667,252
------------
ENERGY -- 7.93%
13,000 British Petroleum Company plc ADR....................... 1,118,813
167,907 Burlington Resources, Inc. ............................. 8,049,042
120,100 Exxon Corp. ............................................ 8,121,763
24,000 Minnesota Mining & Manufacturing........................ 2,188,500
178,300 Mobil Corp. ............................................ 13,662,237
36,000 +Newpark Resources, Inc. ............................... 657,000
162,100 Royal Dutch Petroleum Co. .............................. 9,209,306
108,200 Unocal Corp. ........................................... 4,185,987
------------
47,192,648
------------
UTILITIES -- 7.14%
8,400 +AES Corp. ............................................. 440,475
30,000 Ameritech Corp. ........................................ 1,483,125
136,609 AT&T Corp. ............................................. 8,964,965
</TABLE>
See Notes to Financial Statements
18
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS MARCH 31, 1998
BLENDED EQUITY FUND (FORMERLY EQUITY FUND) -- (CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------- ------------
<C> <S> <C>
COMMON STOCKS -- (CONTINUED)
UTILITIES -- (CONTINUED)
81,500 Bell Atlantic Corp. .................................... $ 8,353,750
57,500 Duke Energy Corp. ...................................... 3,424,844
80,000 +NEXTEL Communications, Inc., Class A................... 2,695,000
133,700 Southern Co............................................. 3,701,819
38,000 +Teleport Communications Group, Inc., Class A........... 2,230,125
116,400 Texas Utilities Co. .................................... 4,575,975
154,000 +Worldcom, Inc. ........................................ 6,622,000
------------
42,492,078
------------
CAPITAL GOODS -- 5.73%
18,000 Allied Signal, Inc. .................................... 756,000
24,000 Boeing Co. ............................................. 1,251,000
20,000 Dover Corp. ............................................ 760,000
275,266 Illinois Tool Works, Inc. .............................. 17,823,473
30,000 ITEQ, Inc. ............................................. 421,875
20,000 +Lear Corp. ............................................ 1,127,500
96,650 Raychem Corp. .......................................... 4,017,016
172,875 +Thermo Electron Corp. ................................. 6,979,828
12,600 Thiokol Corp. .......................................... 608,738
8,000 +U.S.A. Waste Services, Inc. ........................... 356,500
------------
34,101,930
------------
RAW/INTERMEDIATE MATERIALS -- 2.25%
48,300 E.I. Du Pont de Nemours & Co. .......................... 3,284,400
35,400 Georgia-Pacific Corp. .................................. 2,292,150
5,100 Georgia-Pacific Timber Group............................ 131,006
62,100 Monsanto Co. ........................................... 3,229,200
35,000 Pioneer Hi-Bred International, Inc. .................... 3,414,688
28,200 Sigma-Aldrich Corp. .................................... 1,052,212
------------
13,403,656
------------
TOTAL COMMON STOCKS
(Cost $321,294,087)..................................... 593,088,534
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
--------- ------------
<C> <S> <C>
DEMAND NOTES -- 0.29%
$1,004,000 Associates Corp. of North America, Master Notes...... $ 1,004,000
727,000 General Electric Co., Promissory Notes............... 727,000
------------
TOTAL DEMAND NOTES
(Cost $1,731,000).................................... 1,731,000
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Cost $323,025,087*)...................................... 99.98% $594,819,534
OTHER ASSETS AND LIABILITIES (NET)........................ 0.02 89,036
------ ------------
NET ASSETS................................................ 100.00% $594,908,570
====== ============
</TABLE>
- --------
* For Federal tax purposes, the tax basis on investments aggregates
$323,025,087.
+ Non-income producing security.
ADR -- American Depositary Receipt.
See Notes to Financial Statements
19
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS MARCH 31, 1998
INCOME AND GROWTH FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------- ------------
<C> <S> <C>
COMMON STOCKS -- 80.68%
CONSUMER CYCLICAL -- 16.45%
100,000 Herman Miller, Inc. .................................... $ 3,350,000
40,000 Luxottica Group S.p.A. ADR.............................. 3,747,500
75,000 McDonald's Corp. ....................................... 4,500,000
150,000 ServiceMaster Ltd. Partnership.......................... 4,284,375
125,000 Smart & Final, Inc. .................................... 2,421,875
80,000 Wiley (John) & Sons, Inc., Class A...................... 4,405,000
------------
22,708,750
------------
FINANCIAL -- 14.66%
25,000 American International Group, Inc. ..................... 3,148,437
12,000 General Re Corp. ....................................... 2,647,500
35,000 HSB Group, Inc. ........................................ 2,353,750
95,000 IPC Holdings Ltd. ...................................... 3,051,875
45,000 Morgan Stanley, Dean Witter & Co. ...................... 3,279,375
170,000 Mutual Risk Management Ltd. ............................ 5,758,750
------------
20,239,687
------------
CONSUMER STAPLES -- 13.03%
100,000 +Carriage Services, Inc. ............................... 2,393,750
35,000 Gillette Co. ........................................... 4,154,063
60,000 Johnson & Johnson....................................... 4,398,750
50,000 Novo-Nordisk A.S., ADR.................................. 4,175,000
35,000 WM. Wrigley Jr. Co. .................................... 2,861,250
------------
17,982,813
------------
TECHNOLOGY -- 8.65%
120,000 +Analog Devices, Inc. .................................. 3,990,000
695,200 +Interleaf, Inc. ....................................... 2,259,400
103,500 +SDL, Inc. ............................................. 2,432,250
175,000 +Unitrode Corp. ........................................ 3,259,375
------------
11,941,025
------------
ENERGY -- 7.86%
44,000 Exxon Corp. ............................................ 2,975,500
60,000 Norsk Hydro A.S., ADR................................... 3,000,000
58,500 +Ocean Energy, Inc. .................................... 1,378,406
60,000 +SEACOR Holdings, Inc. ................................. 3,491,250
------------
10,845,156
------------
RAW/INTERMEDIATE
MATERIALS -- 7.47%
50,000 International Flavors & Fragrances, Inc. ............... 2,356,250
18,000 Nucor Corp. ............................................ 979,875
80,000 Pall Corp. ............................................. 1,720,000
30,000 Pioneer Hi-Bred International, Inc. .................... 2,926,875
130,000 Worthington Industries, Inc. ........................... 2,331,875
------------
10,314,875
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
---------- ------------
<C> <S> <C>
UTILITIES -- 5.86%
90,000 +AES Corp. .......................................... $ 4,719,375
100,000 +NEXTEL Communications, Inc., Class A................ 3,368,750
------------
8,088,125
------------
CAPITAL GOODS -- 5.16%
100,000 Dover Corp. ......................................... 3,800,000
80,000 Raychem Corp. ....................................... 3,325,000
------------
7,125,000
------------
TRANSPORTATION -- 1.54%
30,000 +FDX Corp. .......................................... 2,133,750
------------
TOTAL COMMON STOCKS
(Cost $60,905,562)................................... 111,379,181
------------
CONVERTIBLE PREFERRED STOCKS -- 3.50%
FINANCIAL -- 3.50%
325,000 Capstead Mortgage Corp.,
Series B, Preferred
Exchange $1.26
(Cost $4,484,259).................................... 4,834,375
------------
<CAPTION>
PRINCIPAL
AMOUNT
----------
<C> <S> <C>
CORPORATE BONDS -- 4.61%
MATERIALS -- 1.56%
$2,000,000 AK Steel Corp.,
9.125%, 12/15/06..................................... 2,150,000
------------
TELECOMMUNICATIONS -- 1.53%
2,000,000 Comcast Cellular
9.50%, 05/01/07...................................... 2,110,000
------------
ENERGY -- 1.52%
2,000,000 Vintage Petroleum Sr. Sub-Notes,
9.00%, 12/15/05...................................... 2,102,500
------------
TOTAL CORPORATE BONDS
(Cost $6,208,773).................................... 6,362,500
------------
CONVERTIBLE BONDS -- 14.87%
TECHNOLOGY -- 9.80%
2,550,000 Adaptec, Inc.,
4.75%, 02/01/04...................................... 2,122,875
4,024,000 Kollmorgen Corp.,
Sub-Debenture,
8.75%, 05/01/09...................................... 4,215,140
4,959,000 Network Equipment
Technologies, Inc.,
Sub-Debenture,
7.25%, 05/15/14...................................... 4,704,851
2,500,000 VLSI Technology,
8.25%, 10/01/05...................................... 2,484,375
------------
13,527,241
------------
</TABLE>
See Notes to Financial Statements
20
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS MARCH 31, 1998
INCOME AND GROWTH FUND -- (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
---------- ------------
<S> <C> <C>
CONVERTIBLE BONDS -- (CONTINUED)
CONSUMER STAPLES -- 2.38%
$3,400,000 Novacare, Inc.,
Sub-Debenture,
5.50%, 01/15/00........ $ 3,293,750
------------
CONSUMER CYCLICAL -- 1.53%
1,925,000 Avatar Holdings
7.00%, 04/01/05........ 2,112,688
------------
TRANSPORTATION -- 1.16%
3,500,000 World Corp., Inc.,
7.00%, 05/15/04........ 1,601,250
------------
TOTAL CONVERTIBLE BONDS
(Cost $20,150,112)..... 20,534,929
------------
TOTAL INVESTMENTS
(Cost $91,748,706)...........103.66% $143,110,985
OTHER ASSETS AND LIABILITIES
(NET)........................ (3.66) (5,058,201)
------ ------------
NET ASSETS................... 100.00% $138,052,784
====== ============
</TABLE>
- --------
* For Federal tax and book purposes, the tax basis of investments aggregates
$91,770,634.
+ Non-income producing security.
ADR--American Depositary Receipt.
See Notes to Financial Statements
21
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS MARCH 31, 1998
VALUE AND RESTRUCTURING FUND (FORMERLY BUSINESS AND INDUSTRIAL RESTRUCTURING
FUND)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------- ------------
<C> <S> <C>
COMMON STOCKS -- 97.33%
FINANCIAL -- 24.11%
131,657 +Akbank T.A.S. ADR...................................... $ 1,935,358
170,000 +Amerin Corp............................................ 5,100,000
37,500 Amvesco plc ADR......................................... 4,012,500
58,000 Aon Corp................................................ 3,755,500
85,600 Banc One Corp........................................... 5,414,200
40,000 Chase Manhattan Corp.................................... 5,395,000
130,300 +CIT Group, Inc., Class A............................... 4,251,037
105,614 Corporacion Bancaria de Espana S.p.A. ADR............... 4,343,376
60,000 Donaldson, Lufkin & Jenrette,Inc........................ 5,092,500
125,000 Everest Re Holdings, Inc................................ 5,140,625
71,000 Fannie Mae.............................................. 4,490,750
90,000 FBL Financial Group, Inc.,
Class A................................................. 4,556,250
160,000 +ITLA Capital Corp...................................... 3,260,000
77,000 Mellon Bank Corp........................................ 4,889,500
60,000 Mid Ocean Ltd........................................... 4,650,000
43,000 Morgan (J.P.) & Co., Inc................................ 5,775,437
80,000 PNC Bank Corp........................................... 4,795,000
229,200 Prime Retail, Inc....................................... 3,423,675
116,000 SLM Holding Corp........................................ 5,060,500
91,000 Travelers Group, Inc.................................... 5,460,000
110,000 +Waddell & Reed Financial,
Class A................................................. 2,860,000
------------
93,661,208
------------
TECHNOLOGY -- 21.10%
152,000 Alcatel Alsthom ADR..................................... 5,776,000
170,500 +Bell & Howell Holdings Co.............................. 4,678,094
125,000 Computer Associates International, Inc.................. 7,218,750
170,000 Frontier Corp........................................... 5,535,625
943 +Intermedia Communications, Inc......................... 75,087
65,000 International Business Machines Corp.................... 6,751,875
95,000 +IXC Communications, Inc................................ 5,391,250
56,000 Motorola, Inc........................................... 3,395,000
50,000 Nokia Corp., Class A, ADR............................... 5,396,875
100,000 +Plantronics, Inc....................................... 4,093,750
110,000 +Quanta Services, Inc................................... 1,821,875
70,252 Raytheon Co., Class A................................... 3,995,582
202,000 +Smallworldwide plc ADR................................. 3,812,750
250,000 +Telecom-TCI Ventures Group,
Class A................................................. 4,390,625
121,000 Texas Instruments, Inc.................................. 6,549,125
76,000 Thiokol Corp............................................ 3,671,750
235,000 +Unisys Corp............................................ 4,465,000
210,000 Vishay Intertechnology, Inc............................. 4,935,000
------------
81,954,013
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------- ------------
<C> <S> <C>
CONSUMER STAPLES -- 15.43%
55,000 +Amerisource Health Corp.,
Class A................................................. $ 3,306,875
76,000 Avon Products, Inc...................................... 5,928,000
57,200 +Benckiser N.V., Class B................................ 3,146,000
31,000 Bestfoods, Inc.......................................... 3,623,125
47,000 Bristol-Myers Squibb Co................................. 4,902,687
163,000 +Cultural Access Worldwide, Inc......................... 2,506,125
90,000 Eastman Kodak Co........................................ 5,838,750
91,375 Fort James Corp......................................... 4,186,117
55,000 General Mills, Inc...................................... 4,180,000
170,000 +MAPICS, Inc............................................ 2,996,250
125,000 Philip Morris Companies, Inc............................ 5,210,938
85,000 +Suiza Foods Corp....................................... 5,227,500
124,000 Sunbeam Corp............................................ 5,463,750
20,000 Warner Lambert Co....................................... 3,406,250
------------
59,922,367
------------
CONSUMER CYCLICAL -- 13.47%
130,000 CBS Corp................................................ 4,411,875
32,000 +CSK Auto Corp.......................................... 720,000
167,000 +Dollar Thrifty Automotive Group........................ 3,757,500
85,000 Ford Motor Co........................................... 5,509,062
75,000 General Motors Corp..................................... 5,057,812
110,000 +Newmark Homes Corp..................................... 1,196,250
90,000 Olin Corp............................................... 4,224,375
155,500 +Outdoor Systems, Inc................................... 5,452,219
235,000 +Paxson Communications Corp............................. 2,614,375
95,000 +QUALCOMM, Inc.......................................... 5,082,500
200,000 +TV Azteca, S.A. ADR.................................... 3,925,000
160,000 Viad Corp............................................... 3,880,000
61,000 XEROX Corp.............................................. 6,492,688
------------
52,323,656
------------
CAPITAL GOODS -- 8.70%
125,000 Allied Signal, Inc...................................... 5,250,000
66,000 +American Standard Cos., Inc............................ 3,027,750
100,000 AMP, Inc................................................ 4,381,250
100,000 Boeing Co............................................... 5,212,500
151,900 Chicago Bridge & Iron Co., N.V.--New York Shares........ 2,544,325
175,000 +Coltec Industries, Inc................................. 4,375,000
175,000 +National Semiconductor................................. 3,664,062
58,000 United Technologies Corp................................ 5,354,125
------------
33,809,012
------------
TRANSPORTATION -- 5.89%
145,000 Canadian Pacific Ltd.................................... 4,277,500
110,000 +Coach USA, Inc......................................... 4,785,000
182,500 +Hvide Marine, Inc., Class A............................ 3,193,750
152,000 +Kitty Hawk, Inc........................................ 3,230,000
177,000 +Trailer Bridge, Inc.................................... 1,758,938
100,000 Union Pacific Corp...................................... 5,618,750
------------
22,863,938
------------
</TABLE>
See Notes to Financial Statements
22
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS MARCH 31, 1998
VALUE AND RESTRUCTURING FUND (FORMERLY BUSINESS AND INDUSTRIAL RESTRUCTURING
FUND) -- (CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------- ------------
<C> <S> <C>
COMMON STOCKS -- (CONTINUED)
ENERGY -- 5.64%
250,000 +Miller Exploration, Co................................ $ 2,500,000
57,000 Mobil Corp............................................. 4,367,625
195,000 +Nabors Industries, Inc................................ 4,619,063
234,000 +Ocean Energy, Inc..................................... 5,513,625
145,000 YPF S.A., ADR.......................................... 4,930,000
------------
21,930,313
------------
RAW/INTERMEDIATE
MATERIALS -- 2.99%
95,000 Cambrex Corp........................................... 4,785,625
185,000 +PalEx, Inc............................................ 2,381,875
53,000 W.R. Grace & Co........................................ 4,435,437
------------
11,602,937
------------
TOTAL COMMON STOCKS
(Cost $273,063,835).................................... 378,067,444
------------
CONVERTIBLE PREFERRED STOCKS -- 1.98%
TRANSPORTATION -- 1.10%
80,000 Union Pacific Corp. Preferred, Exchange, 6.25%......... 4,260,000
------------
TECHNOLOGY -- 0.88%
55,000 ++Intermedia Communications Preferred Exchange, 7.00%.. 2,901,250
10,000 Intermedia Communications, Series D, Preferred,
Exchange, 7.00%........................................ 527,500
------------
3,428,750
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $6,078,200)... 7,688,750
------------
DEMAND NOTES -- 3.57%
$6,935,000 Associates Corp. of North America Master Notes....... $ 6,935,000
6,938,000 General Electric Co. Promissory Notes................ 6,938,000
------------
TOTAL DEMAND NOTES
(Cost $13,873,000)................................... 13,873,000
------------
TOTAL INVESTMENTS (Cost $293,015,035)..................... 102.88% $399,629,194
OTHER ASSETS AND LIABILITIES (NET)........................ (2.88) (11,181,786)
------ ------------
NET ASSETS................................................ 100.00% $388,447,408
====== ============
</TABLE>
- --------
* For Federal tax purposes, the tax basis of investments aggregates
$293,097,599.
+ Non-income producing security.
++ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At March 31, 1998
these securities amounted to $2,901,250, or 0.75% of net assets.
ADR -- American Depositary Receipt.
See Notes to Financial Statements
23
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS MARCH 31, 1998
SMALL CAP FUND (FORMERLY EARLY LIFE CYCLE FUND)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------- -----------
<C> <S> <C>
COMMON STOCKS -- 94.77%
TECHNOLOGY -- 23.05%
60,000 +Asyst Technologies, Inc. ............................... $ 1,380,000
95,000 BMC Industries, Inc. .................................... 1,846,562
67,500 +Cellstar Corp. ......................................... 2,155,781
40,000 First Data Corp. ........................................ 1,300,000
32,800 +ITI Technologies, Inc. ................................. 840,500
38,100 +MICROS Systems, Inc. ................................... 2,276,475
50,000 +Perceptron, Inc. ....................................... 993,750
110,000 +Phoenix Technologies Ltd. .............................. 1,313,125
50,000 +Respironics, Inc. ...................................... 1,446,875
40,000 +SDL, Inc. .............................................. 940,000
70,200 +Unitrode Corp. ......................................... 1,307,475
-----------
15,800,543
-----------
CONSUMER CYCLICAL -- 20.75%
90,500 Arctic Cat, Inc. ........................................ 831,469
60,000 Callaway Golf Co. ....................................... 1,740,000
30,000 Fair Isaac & Co., Inc. .................................. 1,132,500
50,000 +Global Motorsport Group Inc. ........................... 906,250
70,000 Oea, Inc. ............................................... 1,273,125
65,000 +O'Reilly Automotive, Inc. .............................. 1,779,375
114,800 +Paxar Corp. ............................................ 1,628,725
15,600 Polaris Industries, Inc. ................................ 577,200
91,300 +RDO Equipment Co., Class A.............................. 1,369,500
40,000 +Rural/Metro Corp. ...................................... 1,310,000
80,000 +Scientific Games Holdings Corp. ........................ 1,675,000
-----------
14,223,144
-----------
CAPITAL GOODS -- 17.90%
58,500 Baldor Electric Co. ..................................... 1,575,844
33,700 +BE Aerospace, Inc. ..................................... 943,600
55,000 Flowserve Corp. ......................................... 1,794,375
46,300 Juno Lighting, Inc. ..................................... 972,300
52,500 Lindsay Manufacturing Co. ............................... 2,392,031
100,000 +Morrison Knudsen Corp. ................................. 1,118,750
53,000 Teleflex, Inc. .......................................... 2,226,000
70,000 +Thermedics, Inc. ....................................... 1,246,875
-----------
12,269,775
-----------
FINANCIAL -- 13.45%
35,000 Cullen/Frost Bankers, Inc. .............................. 2,067,187
41,200 First American Corp. (Tennessee)......................... 2,008,500
36,000 Greenpoint Financial Corp. .............................. 1,293,750
70,000 Sirrom Capital Corp. .................................... 2,104,375
96,000 Sovereign Bancorp, Inc. ................................. 1,746,000
-----------
9,219,812
-----------
ENERGY -- 5.34%
84,500 +Ocean Energy, Inc. ..................................... 1,991,031
56,500 +R & B Falcon Corp. ..................................... 1,673,813
-----------
3,664,844
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
---------- -----------
<C> <S> <C>
CONSUMER STAPLES -- 5.22%
62,000 Arbor Drugs, Inc. .................................... $ 1,457,000
45,000 Natures Sunshine Products, Inc. ...................... 1,203,750
122,000 +Pepsi-Cola Puerto Rico Bottling Co., Class B......... 915,000
-----------
3,575,750
-----------
RAW/INTERMEDIATE MATERIALS -- 4.02%
60,000 +Steel Dynamics, Inc. ................................ 1,271,250
60,000 +TETRA Technologies, Inc. ............................ 1,485,000
-----------
2,756,250
-----------
TELECOMMUNICATION -- 2.65%
31,000 +Teleport Communications Group, Inc., Class A......... 1,819,313
-----------
TRANSPORTATION -- 2.12%
54,800 Air Express International Corp. ...................... 1,452,200
-----------
UTILITIES -- 0.27%
3,500 +AES Corp. ........................................... 183,531
-----------
TOTAL COMMON STOCKS (Cost $52,681,595)................ 64,965,162
-----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<C> <S> <C>
DEMAND NOTES -- 5.27%
$1,788,000 Associates Corp. of North America, Master Notes....... 1,788,000
1,819,300 General Electric Co., Promissory Notes................ 1,819,300
-----------
TOTAL DEMAND NOTES
(Cost $3,607,300)..................................... 3,607,300
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Cost $56,288,895*)....................................... 100.04% $68,572,462
OTHER ASSETS AND
LIABILITIES (NET)......................................... (0.04) (24,536)
------ -----------
NET ASSETS................................................. 100.00% $68,547,926
====== ===========
</TABLE>
- --------
* For Federal tax purposes, the tax basis of investments aggregates
$56,288,895.
+ Non-income producing security.
See Notes to Financial Statements
24
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS MARCH 31, 1998
ENERGY AND NATURAL RESOURCES FUND (FORMERLY LONG-TERM SUPPLY OF ENERGY FUND)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------- -----------
<C> <S> <C>
COMMON STOCKS -- 93.74%
ENERGY -- 81.60%
15,000 Anadarko Petroleum Corp. ................................ $ 1,035,000
15,000 +Atwood Oceanics, Inc. .................................. 810,938
26,000 +BJ Services Co. ........................................ 947,375
33,447 British Petroleum Company plc ADR........................ 2,878,532
12,000 CAMCO International, Inc. ............................... 726,000
22,000 Chevron Corp. ........................................... 1,766,875
16,000 Coastal Corp. ........................................... 1,042,000
10,000 +Cooper Cameron Corp. ................................... 603,750
15,000 Diamond Offshore Drilling, Inc. ......................... 680,625
30,888 Duke Energy Corp. ....................................... 1,839,766
17,000 Enron Corp. ............................................. 788,375
42,000 Exxon Corp. ............................................. 2,840,250
15,000 +Friede Goldman International, Inc. ..................... 431,250
45,000 +Global Industries Ltd. ................................. 908,438
25,000 +J. Ray McDermott, S.A. ................................. 1,053,125
23,000 KN Energy, Inc. ......................................... 1,358,437
26,000 Mobil Corp. ............................................. 1,992,250
20,000 +Nabors Industries, Inc. ................................ 473,750
105,300 +Ocean Energy, Inc. ..................................... 2,481,131
36,000 +R & B Falcon Corp. ..................................... 1,066,500
46,000 Royal Dutch Petroleum Co. ............................... 2,613,375
20,000 Schlumberger Ltd. ....................................... 1,515,000
20,000 Texaco, Inc. ............................................ 1,205,000
30,000 Tosco Corp. ............................................. 1,057,500
17,500 Total S.A. ADR........................................... 1,051,094
65,000 +Transmontaigne Oil Co. ................................. 910,000
20,000 +U.S. Filter Corp. ...................................... 702,500
35,000 +Varco International, Inc. .............................. 901,250
30,000 Vastar Resources, Inc. .................................. 1,303,125
9,000 Western Atlas, Inc. ..................................... 696,375
-----------
37,679,586
-----------
RAW/INTERMEDIATE
MATERIALS -- 7.07%
6,000 Aluminum Company Of America.............................. 412,875
35,000 Barrick Gold, Corp. ..................................... 756,875
10,000 E.I. du Pont de Nemours & Co. ........................... 680,000
15,000 Monsanto Co. ............................................ 780,000
7,000 Potash Corp. of Saskatchewan, Inc. ...................... 636,125
-----------
3,265,875
-----------
UTILITIES -- 2.84%
25,000 +AES Corp. .............................................. 1,310,938
-----------
TECHNOLOGY -- 2.23%
14,000 Mead Corp. .............................................. 501,375
14,000 Willamette Industries.................................... 525,875
-----------
1,027,250
-----------
TOTAL COMMON STOCKS
(Cost $31,379,216)....................................... 43,283,649
-----------
</TABLE>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
---------- -----------
DEMAND NOTES -- 4.58%
$1,053,000 Associates Corp. of North America
Master Notes..................... $ 1,053,000
1,064,000 General Electric Co. Promissory
Notes............................ 1,064,000
-----------
TOTAL DEMAND NOTES
(Cost $2,117,000)................ 2,117,000
-----------
TOTAL INVESTMENTS
(Cost $33,496,216*)........................................ 98.32% $45,400,649
OTHER ASSETS AND LIABILITIES
(NET)...................................................... 1.68 773,798
------ -----------
NET ASSETS................................................. 100.00% $46,174,447
====== ===========
- --------
* For Federal tax purposes, the tax basis of investments aggregates
$33,519,782.
+ Non-income producing security.
ADR -- American Depositary Receipt.
See Notes to Financial Statements
25
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS MARCH 31, 1998
LARGE CAP GROWTH FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ -----------
<C> <S> <C>
COMMON STOCKS -- 95.22%
TECHNOLOGY -- 37.34%
35,000 +America On-Line, Inc. ................................... $ 2,390,937
37,000 +Cisco Systems, Inc. ..................................... 2,529,875
32,000 +Dell Computer Corp. ..................................... 2,166,000
64,000 +EMC Corp. ............................................... 2,420,000
26,000 Intel Corp. .............................................. 2,028,000
40,000 Medtronic, Inc. .......................................... 2,075,000
29,000 +Microsoft Corp. ......................................... 2,593,688
23,000 +Tellabs, Inc. ........................................... 1,543,875
-----------
17,747,375
-----------
CONSUMER STAPLES -- 22.96%
54,000 +Cendant Corp. ........................................... 2,139,750
25,000 Coca-Cola Co. ............................................ 1,935,938
15,000 Gillette Co. ............................................. 1,780,313
23,000 Pfizer, Inc. ............................................. 2,292,812
27,000 Philip Morris Companies, Inc. ............................ 1,125,562
34,000 +Quintiles Transnational Corp. ........................... 1,636,250
-----------
10,910,625
-----------
FINANCIAL -- 19.75%
14,000 American International Group, Inc. ....................... 1,763,125
13,500 Citicorp.................................................. 1,917,000
25,000 Fannie Mae................................................ 1,581,250
25,000 Merrill Lynch & Co. ...................................... 2,075,000
54,000 Schwab (Charles) Corp. ................................... 2,052,000
-----------
9,388,375
-----------
CONSUMER CYCLICAL -- 15.17%
14,000 +BMC Software, Inc. ...................................... 1,173,375
30,000 Harley-Davidson, Inc. .................................... 990,000
30,000 Home Depot, Inc. ......................................... 2,023,125
28,000 +Sylvan Learning Systems, Inc. ........................... 1,316,000
16,000 Walt Disney Co. .......................................... 1,708,000
-----------
7,210,500
-----------
TOTAL COMMON STOCKS
(Cost $39,072,015)........................................ 45,256,875
-----------
</TABLE>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
---------- -----------
REPURCHASE AGREEMENT -- 5.60%
$2,663,000 Agreement with Chase Securities Inc., 5.60% dated
3/31/98, due 4/01/98, to be repurchased at
$2,663,414, collateralized by $2,665,000 U.S.
Treasury Notes, 5.50% due 11/15/98, valued at
$2,720,055 (Cost $2,663,000)......................... $ 2,663,000
-----------
TOTAL INVESTMENTS
(Cost $41,735,015*)........................................ 100.82% $47,919,875
OTHER ASSETS AND LIABILITIES
(NET)...................................................... (0.82) (391,217)
------ -----------
NET ASSETS................................................. 100.00% $47,528,658
====== ===========
- --------
* For Federal tax purposes, the tax basis of investments aggregates
$41,735,015.
+ Non-income producing security.
See Notes to Financial Statements
26
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS MARCH 31, 1998
REAL ESTATE FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
------ -----------
<C> <S> <C>
COMMON STOCKS -- 96.60%
REAL ESTATE -- 95.54%
60,500 Alexander Haagen Properties,
Inc. ............................ $ 1,013,375
35,000 Arden Realty Group, Inc. ........ 997,500
20,500 Associated Estates Realty,
Corp. ........................... 427,937
36,500 Avalon Properties, Inc. ......... 1,058,500
55,000 Bedford Property Investors,
Inc. ............................ 1,062,187
29,500 Boston Properties, Inc. ......... 1,038,031
47,000 Cabot Industrial Trust........... 1,119,187
52,000 +Catellus Development Corp. ..... 965,250
33,500 Chateau Communities, Inc. ....... 996,625
15,500 Crescent Real Estate Equity,
Co. ............................. 558,000
27,000 Developers Divers Realty,
Corp. ........................... 1,103,625
46,000 Duke Realty Investment, Inc. .... 1,121,250
34,203 Equity Office Properties Trust... 1,047,467
23,500 Equity Residential Properties
Trust............................ 1,180,875
38,000 First Washington Realty Trust.... 1,028,375
15,500 Forest City Enterprises, Inc.,
Class A.......................... 874,781
35,000 Glenborough Realty Trust, Inc. .. 1,019,375
43,500 Glimcher Realty Trust............ 951,563
35,500 Golf Trust of America, Inc. ..... 1,113,813
52,000 Health and Retirement Properties
Trust............................ 1,046,500
36,000 Health Care REIT, Inc. .......... 990,000
32,000 Highwoods Properties, Inc. ...... 1,130,000
29,000 Hospitality Properties Trust..... 1,027,688
32,000 KIMCO Realty Corp. .............. 1,132,000
18,900 Mack-Cali Realty Corp. .......... 738,281
36,500 Meditrust Corp. ................. 1,126,938
47,000 Merry Land & Investment
Companies, Inc. ................. 1,051,625
50,000 Pacific Gulf Properties, Inc. ... 1,146,875
40,000 Prentiss Properties Trust........ 1,045,000
46,000 Security Capital Industrial
Trust............................ 1,178,750
33,000 Shurgard Storage Centers, Class
A................................ 928,125
35,000 Simon Debartolo Group, Inc. ..... 1,198,750
29,000 Spieker Properties, Inc. ........ 1,196,250
21,000 Starwood Hotels & Resorts........ 1,122,188
84,000 Taubman Center, Inc. ............ 1,097,250
77,000 United Dominion Realty Trust..... 1,116,500
26,500 Vornado Realty Trust............. 1,154,406
27,500 Weingarten Realty Investors...... 1,230,625
-----------
39,335,467
-----------
FINANCIAL -- 1.06%
16,700 Waddell & Reed Financial, Class
A................................ 434,200
-----------
TOTAL COMMON STOCKS
(Cost $39,660,063).................. 39,769,667
-----------
</TABLE>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
---------- ----------
REPURCHASE AGREEMENT -- 2.88%
$1,185,000 Agreement with Chase Securities Inc., 5.60% dated
3/31/98, due 4/01/98, to be repurchased at $1,185,184,
collateralized by $1,185,000 U.S. Treasury Notes,
5.50% due 11/15/98, valued at 1,209,295 (Cost
$1,185,000)........................................... $1,185,000
----------
TOTAL INVESTMENTS
(Cost $40,845,063)......................................... 99.48% $40,954,667
OTHER ASSETS AND LIABILITIES (NET)......................... 0.52 216,057
------ -----------
NET ASSETS 100.00% $41,170,724
====== ===========
- --------
* For Federal tax purposes, the tax basis on investments aggregates
$40,875,331.
+ Non-income producing security.
REIT -- Real Estate Investment Trust
See Notes to Financial Statements
27
<PAGE>
EXCELSIOR FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies
Excelsior Funds, Inc. ("Excelsior Fund") was incorporated under the laws of
the State of Maryland on August 2, 1984 and is registered under the Investment
Company Act of 1940 (the "1940 Act"), as amended, as an open-end management
investment company.
Excelsior Fund currently offers shares in eighteen managed investment
portfolios, each having its own investment objectives and policies. The
following is a summary of significant accounting policies for the Blended
Equity Fund (formerly Equity Fund), Income and Growth Fund, Value and
Restructuring Fund (formerly Business and Industrial Restructuring Fund),
Small Cap Fund (formerly Early Life Cycle Fund), Energy and Natural Resources
Fund (formerly Long-Term Supply of Energy Fund), Large Cap Growth Fund and
Real Estate 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 Large Cap
Growth Fund and Real Estate Fund commenced operations on October 1, 1997. The
financial statements for the remaining portfolios of Excelsior Fund and
Excelsior Tax-Exempt Fund, Inc. ("Excelsior Tax-Exempt Fund") are presented
separately.
(a) Portfolio valuation:
Investments in securities that are traded on a recognized stock exchange
are valued at the last sale price on the exchange on which such securities
are primarily traded or at the last sale price on the national securities
market. Securities traded over-the-counter are valued each business day on
the basis of the closing over-the-counter bid prices. Securities for which
there were no transactions are valued at the average of the most recent bid
prices (as calculated by an independent pricing service (the "Service")
based upon its evaluation of the market for such securities) when, in the
judgment of the Service, quoted bid prices for securities are readily
available and are representative of the bid side of the market. Portfolio
securities that are primarily traded on foreign securities exchanges are
generally valued at the preceding closing values of such securities on
their respective exchanges, except that when an occurrence subsequent to
the time a value was so established is likely to have changed such value,
then a fair value of those securities will be determined by consideration
of other factors under the direction of the Board of Directors. A security
which is traded on more than one exchange is valued at the quotation on the
exchange determined to be the primary market on which the security is
traded. Securities for which market quotations are not readily available
are valued at fair value, pursuant to guidelines adopted by Excelsior
Fund's Board of Directors. Short-term debt instruments with remaining
maturities of 60 days or less are valued at amortized cost, which
approximates market value.
All other foreign securities are valued at the last current bid quotation
if market quotations are available, or at fair value as determined in
accordance with policies established by the Board of Directors. Investment
valuations, other assets, and liabilities initially expressed in foreign
currencies are converted each business day into U.S. dollars based upon
current exchange rates. Purchases and sales of foreign investments and
income and expenses are converted into U.S. dollars based upon
28
<PAGE>
currency exchange rates prevailing on the respective dates of such
transactions. Gains and losses attributable to foreign currency exchange
rates are recorded for financial statement purposes as net realized gains
and losses on investments. That portion of both realized and unrealized
gains and losses on investments that results from fluctuations in foreign
currency exchange rates is not separately disclosed.
Forward foreign currency exchange contracts: The Portfolios' participation
in forward currency exchange contracts will be limited to hedging involving
either specific transactions or portfolio positions. Transaction hedging
involves the purchase or sale of foreign currency with respect to specific
receivables or payables of a Portfolio generally arising in connection with
the purchase or sale of its portfolio securities. Risk may arise upon entering
into these contracts from the potential inability of counterparties to meet
the terms of their contracts and is generally limited to the amount of
unrealized gain on the contracts, if any, at the date of default. Risk may
also arise from unanticipated movements in the value of a foreign currency
relative to the U.S. dollar. Contracts are marked-to-market daily and the
change in market value is recorded as unrealized appreciation or depreciation.
Realized gains or losses arising from such transactions are included in net
realized gains or losses from foreign currency transactions.
(b) Security transactions and investment income:
Security transactions are recorded on a trade date basis. Realized gains
and losses on investments sold are recorded on the basis of identified
cost. Interest income, adjusted for amortization of premiums and, when
appropriate, discounts on investments, is recorded on the accrual basis.
Dividend income is recorded on the ex-dividend date except for certain
dividends from foreign securities, which are recorded as soon as the
Portfolios are informed of the dividend.
(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.
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 and paid quarterly. 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
29
<PAGE>
due to differing treatments for net operating losses, foreign currency
transactions, partnership income, deferral of losses on wash sales,
dividends received from real estate investment trusts (REITs) and, net
capital losses and net currency losses incurred after October 31 and within
the taxable year ("Post-October losses"). Due to the nature of
distributions that the Real Estate Fund receives from REITs, the Real
Estate Fund anticipates that it will have a tax basis return of capital.
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.
Post-October losses are deemed to arise on the first business day of a
Portfolio's next taxable year. Income and Growth Fund, Energy and Natural
Resources Fund and Large Cap Growth Fund incurred, and elected to defer,
net capital losses and net currency losses of approximately $6,000,
$220,000 and $214,000, respectively, for the year ended March 31, 1998.
At March 31, 1998, aggregate gross unrealized appreciation for all
securities for which there was an excess of value over tax cost and
aggregate gross unrealized depreciation for all securities for which there
was an excess of tax cost over value is as follows:
<TABLE>
<CAPTION>
Net
Tax Basis Tax Basis Unrealized
Unrealized Unrealized Appreciation
Appreciation (Depreciation) (Depreciation)
------------ -------------- --------------
<S> <C> <C> <C>
Blended Equity Fund............. $272,205,534 $ (411,087) $271,794,447
Income and Growth Fund.......... 53,026,396 (1,686,045) 51,340,351
Value and Restructuring Fund.... 108,194,539 (1,662,944) 106,531,595
Small Cap Fund.................. 13,615,895 (1,332,328) 12,283,567
Energy and Natural Resources
Fund........................... 12,132,033 (251,166) 11,880,867
Large Cap Growth Fund........... 6,288,924 (104,064) 6,184,860
Real Estate Fund................ 776,812 (697,476) 79,336
</TABLE>
(f) Expense allocation:
Expenses directly attributable to a Portfolio or a class of shares in
such Portfolio are charged to that Portfolio or such share class. Other
expenses are allocated to the respective Portfolios based on average net
assets.
2. Investment Advisory Fee, Administration Fee, Distribution Expenses and
Related Party Transactions
United States Trust Company of New York ("U.S. Trust 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
30
<PAGE>
advisers 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 0.75% of the average
daily net assets of the Blended Equity Fund, Income and Growth Fund and Large
Cap Growth Fund, 0.60% of the average daily net assets of the Value and
Restructuring Fund, Small Cap Fund, Energy and Natural Resources Fund and
1.00% of the average daily net assets of the Real Estate Fund. Prior to May
16, 1997, U.S. Trust NY served as the Portfolios' investment adviser pursuant
to investment advisory agreements substantially similar to those currently in
effect for the Portfolios. 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, Chase Global Funds Services Company ("CGFSC"), a corporate
affiliate of The Chase Manhattan Bank, and Federated Administrative Services
("FAS") (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: 0.200% of the first $200 million, 0.175% of the next $200 million,
and 0.150% 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.
Prior to May 16, 1997, U.S. Trust NY, CGFSC and FAS served as the Portfolios'
administrators pursuant to an administration agreement substantially similar
to the one currently in effect for the Portfolios. For the year ended March
31, 1998, administration fees charged by U.S. Trust were as follows:
<TABLE>
<S> <C>
Blended Equity Fund................................................... $133,639
Income and Growth Fund................................................ 41,414
Value and Restructuring Fund.......................................... 60,561
Small Cap Fund........................................................ 17,258
Energy and Natural Resources Fund..................................... 12,130
Large Cap Growth Fund................................................. 3,454
Real Estate Fund...................................................... 4,291
</TABLE>
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 to the extent necessary to maintain an
annual expense ratio of not more than 0.99% for Value and Restructuring Fund,
Small Cap Fund and Energy and Natural Resources Fund and not more than 1.05%
and 1.20% for Large Cap Growth Fund and Real Estate Fund, respectively. For
the year ended March 31, 1998, U.S. Trust waived fees as follows:
<TABLE>
<S> <C>
Blended Equity Fund................................................... $150,218
Energy and Natural Resources Fund..................................... 3,855
Large Cap Growth Fund................................................. 15,179
Real Estate Fund...................................................... 26,758
</TABLE>
Excelsior Fund has also entered into administrative servicing agreements
with various service organizations (which may include affiliates of U.S.
Trust) requiring them to provide administrative support services to their
customers owning shares of the Portfolios. As a consideration for the
31
<PAGE>
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 0.40% 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
$404,963, for the year ended March 31, 1998. Until further notice to Excelsior
Fund, U.S. Trust and the Administrators have voluntarily agreed to waive
investment advisory and administration fees payable by each Portfolio in an
amount equal to administrative service fees payable (including fees paid to
affiliates of U.S. Trust) by that Portfolio. For the year ended March 31,
1998, U.S. Trust and the Administrators waived investment advisory and
administration fees in amounts equal to the administrative service fees for
the Portfolios as follows:
<TABLE>
<CAPTION>
U.S. Trust Administrators
---------- --------------
<S> <C> <C>
Blended Equity Fund................................... $181,826 $ 834
Income and Growth Fund................................ 110,502 914
Value and Restructuring Fund.......................... 84,739 3,331
Small Cap Fund........................................ 41,845 52
Energy and Natural Resources Fund..................... 26,869 2,222
Large Cap Growth Fund................................. 1,501 --
Real Estate Fund...................................... 1,794 --
</TABLE>
Edgewood Services, Inc. (the "Distributor"), a wholly-owned subsidiary of
Federated Investors, serves as the sponsor and distributor of Excelsior Fund.
Shares of each Portfolio are sold on a continuous basis by the Distributor.
Under the Excelsior Funds' Distribution Plan, adopted pursuant to Rule 12b-1
under the 1940 Act, the Trust Shares of each Fund bear the expense of
distributions fees at the maximum annual rate of 0.75% of the average daily
net asset value of the Fund's outstanding Trust Shares. Trust Shares of each
Portfolio currently bear the expense of such distribution fees at the annual
rate of 0.35% of the average daily net asset value of the Fund's outstanding
Trust Shares. As of August 1, 1997 Trust Shares are no longer offered, and at
March 31, 1998 there were no Trust Shares outstanding.
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.
For the year ended March 31, 1998, brokerage commissions on investment
transactions were paid to UST Securities Corp. as follows:
<TABLE>
<S> <C>
Value and Restructuring Fund............................................ $26,847
Energy and Natural Resources Fund....................................... 630
</TABLE>
UST Securities Corp. is a wholly-owned subsidiary of U.S. Trust Company of
New Jersey which is a wholly-owned subsidiary of U.S. Trust Corporation.
32
<PAGE>
3. Purchases and Sales of Securities:
For the year ended March 31, 1998, purchases and sales of securities,
excluding short-term investments, for the Portfolios aggregated:
<TABLE>
<CAPTION>
Purchases Sales
------------ ------------
<S> <C> <C>
Blended Equity Fund.................................. $126,097,236 $191,814,633
Income and Growth Fund............................... 45,251,625 66,625,990
Value and Restructuring Fund......................... 238,743,472 62,617,783
Small Cap Fund....................................... 41,118,848 43,978,988
Energy and Natural Resources Fund.................... 39,483,382 34,950,055
Large Cap Growth Fund................................ 40,554,541 1,268,510
Real Estate Fund..................................... 43,269,891 3,609,079
</TABLE>
4. Common Stock:
Excelsior Fund has authorized capital of 35 billion shares of Common Stock,
23,875 of which is currently classified to represent interests in one of
eighteen separate portfolios. Authorized capital currently classified for each
Portfolio is as follows: 375 million shares of the Blended Equity and Income
and Growth Funds and 500 million shares each of Value and Restructuring Fund,
Small Cap Fund, Energy and Natural Resources Fund, Large Cap Growth Fund and
Real Estate Fund. As of August 1, 1997 Trust Shares are no longer offered.
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>
Blended Equity Fund (formerly Equity Fund)
---------------------------------------------------
Year Ended Year Ended
03/31/98 03/31/97
------------------------- ------------------------
Shares Amount Shares Amount
---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Sold:
Shares................................ 1,830,335 $ 59,664,729 2,986,879 $ 76,672,109
Trust Shares.......................... 454 -- 3,154 84,440
Issued in connection with reorganization
(Note 7)
Shares................................ 5,809,320 118,382,388 -- --
Contributions in-kind................... -- -- 3,211,246 79,831,593
Issued as reinvestment of dividends.....
Shares................................ 365,826 11,596,023 195,908 5,042,100
Trust Shares.......................... 6 146 5 129
Redeemed................................
Shares................................ (3,428,336) (110,065,542) (2,218,612) (57,053,673)
Trust Shares.......................... (3,604) (108,505) (15) (534)
---------- ------------- ---------- ------------
Net Increase............................ 4,574,001 $ 79,469,239 4,178,565 $104,576,164
========== ============= ========== ============
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Income and Growth Fund
----------------------------------------------------------
Year Ended Year Ended
03/31/98 03/31/97
---------------------------- ----------------------------
Shares Amount Shares Amount
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Sold.................... 1,061,028 $ 18,205,158 1,397,170 $ 21,067,243
Issued as reinvestment
of dividends........... 370,069 6,178,623 175,558 2,635,563
Redeemed................ (2,444,213) (42,309,649) (1,688,433) (25,386,111)
------------ -------------- ------------- -------------
Net Decrease............ (1,013,116) $ (17,925,868) (115,705) $ (1,683,305)
============ ============== ============= =============
<CAPTION>
Value and Restructuring Fund
(formerly Business and Industrial Restructuring Fund)
----------------------------------------------------------
Year Ended Year Ended
03/31/98 03/31/97
---------------------------- ----------------------------
Shares Amount Shares Amount
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Sold:
Shares................ 9,949,197 $ 210,533,502 3,573,877 $ 54,756,284
Trust Shares.......... -- -- 3,212 47,503
Issued as reinvestment
of dividends:
Shares................ 32,739 680,550 23,121 351,922
Trust Shares.......... 4 58 54 835
Redeemed:
Shares................ (1,440,113) (29,351,458) (1,090,887) (16,823,462)
Trust Shares.......... (3,268) (61,583) (2) (27)
------------ -------------- ------------- -------------
Net Increase............ 8,538,559 $ 181,801,069 2,509,375 $ 38,333,055
============ ============== ============= =============
</TABLE>
<TABLE>
<CAPTION>
Small Cap Fund
(formerly Early Life Cycle Fund)
-------------------------------------------------
Year Ended Year Ended
03/31/98 03/31/97
----------------------- ------------------------
Shares Amount Shares Amount
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Sold:
Shares................... 1,742,160 $19,925,198 1,632,860 $ 17,229,638
Trust Shares............. 991 10,266 934 9,231
Contributions in-kind...... -- -- 873,834 10,267,561
Issued as reinvestment of
dividends:
Shares................... 1 4 36,989 400,554
Trust Shares............. -- -- 10 97
Redeemed:
Shares................... (2,036,998) (20,366,512) (3,753,354) (37,413,560)
Trust Shares............. (1,905) (21,542) (30) (294)
---------- ----------- ---------- ------------
Net Decrease............... (295,751) $ (452,586) (1,208,757) $ (9,506,773)
========== =========== ========== ============
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Energy and Natural Resources Fund
(formerly Long-Term Supply of Energy Fund)
------------------------------------------------
Year Ended Year Ended
03/31/98 03/31/97
------------------------ ----------------------
Shares Amount Shares Amount
---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Sold........................ 1,589,555 $ 20,278,480 1,183,409 $13,166,360
Issued as reinvestment of
dividends.................. 57,892 738,380 14,801 166,314
Redeemed.................... (1,001,470) (12,312,018) (635,829) (6,996,595)
---------- ------------ --------- -----------
Net Increase................ 645,977 $ 8,704,842 562,381 $ 6,336,079
========== ============ ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Large Cap Growth Fund
----------------------
Period Ended
03/31/98*
----------------------
Shares Amount
--------- -----------
<S> <C> <C>
Sold.................................................... 5,724,639 $42,655,392
Issued as reinvestment of dividends..................... -- --
Redeemed................................................ (141,234) (1,080,251)
--------- -----------
Net Increase............................................ 5,583,405 $41,575,141
========= ===========
<CAPTION>
Real Estate Fund
----------------------
Period Ended
03/31/98*
----------------------
Shares Amount
--------- -----------
<S> <C> <C>
Sold.................................................... 5,989,568 $41,874,511
Issued as reinvestment of dividends..................... 481 3,364
Redeemed................................................ (149,807) (1,034,897)
--------- -----------
Net Increase............................................ 5,840,242 $40,842,978
========= ===========
</TABLE>
- --------
* Large Cap Growth Fund and Real Estate Fund commenced operations on October
1, 1997.
5. Organization Costs:
Excelsior Fund has borne all costs in connection with the initial
organization of new portfolios, including the fees for registering and
qualifying its shares for distribution under Federal and state securities
regulations. All such costs are being amortized on the straight-line basis over
periods of five years from the dates on which each Portfolio commenced
operations.
35
<PAGE>
6. 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, 1998, the Portfolios had no
borrowings under the agreement.
7. Plan of Reorganization:
On August 18, 1997, shareholders approved a tax-free Plan of Reorganization
(effective September 15, 1997) providing for the transfer of all of the assets
and liabilities of Aging of America Fund, Communication and Entertainment
Fund, Environmentally-Related Products and Services Fund, Global Competitors
Fund, and Productivity Enhancers Fund (the "Transferor Funds") to the Blended
Equity Fund, in exchange for shares of the Blended Equity Fund corresponding
to the same net assets and shares held in the respective Transferor Funds. The
corresponding shares, net assets and unrealized appreciation of the transferor
funds are as follows:
<TABLE>
<CAPTION>
Net Unrealized
Fund Shares Assets Appreciation
- ---- --------- ----------- ------------
<S> <C> <C> <C>
Aging of America Fund...................... 1,473,760 $47,071,887 $17,929,954
Communication and Entertainment Fund....... 890,996 28,458,420 10,140,533
Environmentally-Related Products and Serv-
ices Fund................................. 202,661 6,472,980 2,238,186
Global Competitors Fund.................... 2,736,914 87,417,040 29,483,610
Productivity Enhancers Fund................ 504,989 16,129,362 4,602,411
</TABLE>
The Blended Equity Fund's net assets immediately before the reorganization
were $376,819,118.
36
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of Directors Excelsior Funds, Inc.
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of the Blended Equity, Income and
Growth, Value and Restructuring, Small Cap, Energy and Natural Resources, Large
Cap and Real Estate Portfolios (seven of the portfolios constituting the
Excelsior Funds, Inc. (the "Fund")) as of March 31, 1998, and the related
statements of operations for the year then ended, the statements of changes in
net assets 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, 1998 by correspondence with the custodian and brokers or other
appropriate auditing procedures where replies from brokers were not received.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the above mentioned Portfolios of Excelsior Funds, Inc. at March 31, 1998,
the results of their operations for the year ended, the changes in their net
assets 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 8, 1998
- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION: (UNAUDITED)
For the year ended March 31, 1998, the percentage of dividends paid that
qualify for the 70.0% dividends received deduction for corporate shareholders,
the designation of long-term capital gain, and the percentage of income earned
from direct U.S. Treasury obligations for the Portfolios are approximated as
follows:
<TABLE>
<CAPTION>
20% 28% TREASURY
DIVIDENDS RECEIVED LONG-TERM LONG-TERM INCOME
FUND DEDUCTION CAPITAL GAIN CAPITAL GAIN PERCENTAGE
- ---- ------------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Blended Equity Fund..... 84.34% $31,101,000 $4,590,000 --
Income and Growth Fund.. 39.99% 10,185,000 5,077,000 26.31%
Value and Restructuring
Fund................... 100.00% 982,000 1,901,000 --
Small Cap Fund.......... -- -- -- --
Energy and Natural Re-
sources Fund........... 29.12% 1,873,000 1,075,000 33.54%
Large Cap Growth Fund... -- -- -- --
Real Estate Fund........ -- -- -- --
</TABLE>
37
<PAGE>
Unaudited Financial Statements for the Six
Months Ended September 30, 1998
<PAGE>
Excelsior Funds, Inc.
Statements of Assets and Liabilities
September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Income and
Blended Equity Growth
Fund Fund
-------------- -----------
<S> <C> <C>
ASSETS:
Investments, at cost--see accompanying portfo-
lios............................................ $321,872,770 $63,631,119
============ ===========
Investments, at value (Note 1)................... $549,527,771 $82,434,929
Cash............................................. 492,860 --
Dividends receivable............................. 613,230 83,598
Interest receivable.............................. 9,355 480,830
Receivable for investments sold.................. -- 3,882,391
Receivable for fund shares sold.................. 107,781 2,745
Withholding tax receivable....................... -- 2,833
Prepaid expenses................................. 13,906 3,900
Unamortized organization costs (Note 5).......... -- --
------------ -----------
Total Assets..................................... 550,764,903 86,891,226
LIABILITIES:
Payable for investments purchased................ -- 3,649,008
Payable for fund shares redeemed................. 100,624 60,557
Investment advisory fees payable (Note 2)........ 308,302 45,596
Administration fees payable (Note 2)............. 57,147 8,873
Administrative service fees payable (Note 2)..... 37,387 15,897
Directors' fees payable (Note 2)................. 8,941 2,363
Due to custodian bank............................ -- 20,274
Accrued expenses and other payables.............. 276,801 29,963
------------ -----------
Total Liabilities................................ 789,202 3,832,531
------------ -----------
NET ASSETS........................................ $549,975,701 $83,058,695
============ ===========
NET ASSETS consist of:
Undistributed net investment income (loss)....... $ 708,211 $ 336,248
Accumulated net realized gain (loss) on invest-
ments........................................... 4,614,692 15,932,956
Unrealized appreciation (depreciation) of
investments and foreign currency translations... 227,655,105 18,803,511
Par value (Note 4)............................... 16,559 5,970
Paid-in capital in excess of par value........... 316,981,134 47,980,010
------------ -----------
Total Net Assets.................................. $549,975,701 $83,058,695
============ ===========
Shares of Common Stock Outstanding................ 16,559,384 5,914,029
NET ASSET VALUE PER SHARE......................... $33.21 $14.04
====== ======
</TABLE>
See Notes to Financial Statements
1
<PAGE>
<TABLE>
<CAPTION>
VALUE AND ENERGY AND LARGE CAP
RESTRUCTURING SMALL CAP NATURAL RESOURCES GROWTH REAL ESTATE
FUND FUND FUND FUND FUND
------------- ----------- ----------------- ----------- -----------
<S> <C> <C> <C> <C>
$512,524,107 $41,880,218 $41,854,862 $81,163,612 $45,729,669
============ =========== =========== =========== ===========
$482,602,821 $35,623,300 $45,209,834 $86,437,188 $39,489,147
-- 82,126 104,755 1,647 --
526,737 6,402 38,954 7,050 310,331
1,886 8,616 23,258 188 200
11,002,593 48,817 -- -- --
747,571 266 107,575 164,788 --
4,672 -- -- -- --
79,349 1,977 1,110 467 691
-- -- -- 39,633 24,609
------------ ----------- ----------- ----------- -----------
494,965,629 35,771,504 45,485,486 86,650,961 39,824,978
335,950 139,630 964,119 93,140 337,924
707,963 50,813 41,144 4,993 104,305
197,679 15,997 12,562 49,651 22,409
23,565 4,945 8,946 10,833 4,122
129,251 7,501 2,471 3,663 5,776
384 610 521 146 328
9,830,230 -- -- -- 29,491
42,285 34,831 27,011 29,155 15,630
------------ ----------- ----------- ----------- -----------
11,267,307 254,327 1,056,774 191,581 519,985
------------ ----------- ----------- ----------- -----------
$483,698,322 $35,517,177 $44,428,712 $86,459,380 $39,304,993
============ =========== =========== =========== ===========
$ 587,952 $ (32,242) $ 127,883 $ (185,287) $ 347,467
2,394,413 (1,310,873) (479,349) (1,733,165) (313,555)
(29,921,870) (6,256,918) 3,354,972 5,273,576 (6,240,522)
25,935 4,411 4,239 10,161 6,483
510,611,892 43,112,799 41,420,967 83,094,095 45,505,120
------------ ----------- ----------- ----------- -----------
$483,698,322 $35,517,177 $44,428,712 $86,459,380 $39,304,993
============ =========== =========== =========== ===========
25,934,565 4,411,701 4,239,250 10,160,624 6,482,915
$18.65 $8.05 $10.48 $8.51 $6.06
====== ===== ====== ===== =====
</TABLE>
See Notes to Financial Statements
2
<PAGE>
Excelsior Funds, Inc.
Statements of Operations
Six Months Ended September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Income and
Blended Equity Growth
Fund Fund
-------------- ------------
<S> <C> <C>
INVESTMENT INCOME:
Interest income............................... $ 98,660 $ 773,514
Dividend income............................... 3,861,000 661,408
------------ ------------
Total Income.................................. 3,959,660 1,434,922
EXPENSES:
Investment advisory fees (Note 2)............. 2,260,166 428,900
Administration fees (Note 2).................. 461,074 87,495
Administrative servicing fees (Note 2)........ 116,341 51,571
Shareholder servicing agent fees.............. 98,357 33,226
Custodian fees................................ 75,396 16,553
Legal and audit fees.......................... 56,082 10,242
Shareholder reports........................... 18,014 2,968
Amortization of organization costs (Note 5)... -- --
Registration and filing fees.................. 17,962 7,334
Directors' fees and expenses (Note 2)......... 13,505 2,804
Miscellaneous expenses........................ 29,943 7,554
------------ ------------
Total Expenses................................ 3,146,840 648,647
Fees waived by investment adviser and
administrators (Note 2)...................... (243,684) (51,571)
------------ ------------
Net Expenses.................................. 2,903,156 597,076
------------ ------------
NET INVESTMENT INCOME (LOSS)................... 1,056,504 837,846
------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Note 1):
Net realized gain (loss):
Security transactions......................... (5,131,431) 7,163,650
Foreign currency translations................. -- --
------------ ------------
Total net realized gain (loss)................ (5,131,431) 7,163,650
Change in unrealized appreciation/depreciation
on investments
and foreign currency translations during the
period....................................... (44,139,447) (32,558,204)
------------ ------------
Net realized and unrealized gain (loss) on
investments.................................. (49,270,878) (25,394,554)
------------ ------------
Net decrease in net assets resulting from
operations................................... $(48,214,374) $(24,556,708)
============ ============
</TABLE>
See Notes to Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
Value and Energy and Large Cap
Restructuring Small Cap Natural Resources Growth Real Estate
Fund Fund Fund Fund Fund
------------- ------------ ----------------- ----------- -----------
<S> <C> <C> <C> <C>
$ 339,835 $ 62,289 $ 114,630 $ 56,958 $ 63,476
3,383,229 166,184 343,280 139,135 1,250,126
------------- ------------ ----------- ----------- -----------
3,723,064 228,473 457,910 196,093 1,313,602
1,570,803 165,637 135,990 281,786 207,011
400,555 42,238 34,677 57,484 31,712
326,149 25,322 18,135 12,462 13,339
113,039 19,541 19,764 5,466 2,596
74,898 11,658 7,720 12,627 9,096
26,567 4,732 2,978 2,644 2,723
8,654 1,496 7,466 2,859 5,497
-- -- -- 1,742 2,959
18,875 10,843 10,153 4,968 6,298
7,018 1,205 877 796 766
21,731 3,365 2,613 11,008 1,910
------------- ------------ ----------- ----------- -----------
2,568,289 286,037 240,373 393,842 283,907
(326,149) (25,322) (18,135) (12,462) (35,011)
------------- ------------ ----------- ----------- -----------
2,242,140 260,715 222,238 381,380 248,896
------------- ------------ ----------- ----------- -----------
1,480,924 (32,242) 235,672 (185,287) 1,064,706
------------- ------------ ----------- ----------- -----------
(1,221,083) (1,939,575) (236,215) (1,519,149) (333,166)
(16,015) -- -- -- --
------------- ------------ ----------- ----------- -----------
(1,237,098) (1,939,575) (236,215) (1,519,149) (333,166)
(136,534,994) (18,540,485) (8,549,461) (911,284) (6,350,126)
------------- ------------ ----------- ----------- -----------
(137,772,092) (20,480,060) (8,785,676) (2,430,433) (6,683,292)
------------- ------------ ----------- ----------- -----------
$(136,291,168) $(20,512,302) $(8,550,004) $(2,615,720) $(5,618,586)
============= ============ =========== =========== ===========
</TABLE>
See Notes to Financial Statements
4
<PAGE>
EXCELSIOR FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INCOME AND
BLENDED EQUITY GROWTH
FUND FUND
-------------- ------------
<S> <C> <C>
SIX MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
Net investment income (loss)...................... $ 1,056,504 $ 837,846
Net realized gain (loss) on investments........... (5,131,431) 7,163,650
Change in unrealized appreciation/depreciation on
investments and foreign currency translations
during the period................................ (44,139,447) (32,558,204)
------------ ------------
Net decrease in net assets resulting from
operations....................................... (48,214,374) (24,556,708)
Distributions to shareholders:
From net investment income....................... (1,262,484) (1,165,624)
Increase (decrease) in net assets from fund share
transactions (Note 4)............................ 4,543,989 (29,271,757)
------------ ------------
Net increase (decrease) in net assets............. (44,932,869) (54,994,089)
NET ASSETS:
Beginning of period.............................. 594,908,570 138,052,784
------------ ------------
End of period (1)................................ $549,975,701 $ 83,058,695
============ ============
--------
(1) Including undistributed net investment income
(loss).......................................... $ 708,211 $ 336,248
============ ============
YEAR ENDED MARCH 31, 1998
Net investment income (loss)...................... $ 2,565,250 $ 2,995,948
Net realized gain (loss) on investments........... 41,083,134 19,207,907
Change in unrealized appreciation/depreciation on
investments and foreign currency translations
during the year.................................. 205,385,468 19,295,523
------------ ------------
Net increase in net assets resulting from
operations....................................... 249,033,852 41,499,378
Distributions to shareholders:
From net investment income:
Shares........................................... (2,290,458) (2,916,488)
Trust Shares..................................... (146) --
From net realized gain on investments:
Shares........................................... (38,374,555) (15,371,776)
In excess of net realized gain on investments:
Shares........................................... -- --
------------ ------------
Total distributions............................. (40,665,159) (18,288,264)
------------ ------------
Increase (decrease) in net assets from fund share
transactions (Note 4)
Shares........................................... 79,577,598 (17,925,868)
Trust Shares..................................... (108,359) --
------------ ------------
Total from fund share transactions.............. 79,469,239 (17,925,868)
------------ ------------
Net increase in net assets........................ 287,837,932 5,285,246
NET ASSETS:
Beginning of year................................ 307,070,638 132,767,538
------------ ------------
End of year (2).................................. $594,908,570 $138,052,784
============ ============
--------
(2) Including undistributed net investment
income.......................................... $ 914,191 $ 664,026
============ ============
</TABLE>
* Large Cap Growth Fund and Real Estate Fund commenced operations on October 1,
1997.
See Notes to Financial Statements
5
<PAGE>
<TABLE>
<CAPTION>
Value and Energy and Large Cap
Restructuring Small Cap Natural Resources Growth Real Estate
Fund Fund Fund Fund* Fund*
------------- ------------ ----------------- ----------- -----------
<S> <C> <C> <C> <C>
$ 1,480,924 $ (32,242) $ 235,672 $ (185,287) $ 1,064,706
(1,237,098) (1,939,575) (236,215) (1,519,149) (333,166)
(136,534,994) (18,540,485) (8,549,461) (911,284) (6,350,126)
------------- ------------ ----------- ----------- -----------
(136,291,168) (20,512,302) (8,550,004) (2,615,720) (5,618,586)
(1,167,563) -- (140,511) -- (743,530)
232,709,645 (12,518,447) 6,944,780 41,546,442 4,496,385
------------- ------------ ----------- ----------- -----------
95,250,914 (33,030,749) (1,745,735) 38,930,722 (1,865,731)
388,447,408 68,547,926 46,174,447 47,528,658 41,170,724
------------- ------------ ----------- ----------- -----------
$ 483,698,322 $ 35,517,177 $44,428,712 $86,459,380 $39,304,993
============= ============ =========== =========== ===========
$ 587,952 $ (32,242) $ 127,883 $ (185,287) $ 347,467
============= ============ =========== =========== ===========
$ 1,134,103 $ (83,679) $ 292,606 $ (17,327) $ 693,157
4,596,344 3,491,186 3,347,027 (214,016) (749)
80,592,450 12,326,916 4,846,663 6,184,860 109,604
------------- ------------ ----------- ----------- -----------
86,322,897 15,734,423 8,486,296 5,953,517 802,012
(855,654) -- (309,721) -- (474,266)
(58) -- -- -- --
(2,883,915) -- (3,856,927) -- --
-- -- (243,134) -- --
------------- ------------ ----------- ----------- -----------
(3,739,627) -- (4,409,782) -- (474,266)
------------- ------------ ----------- ----------- -----------
181,862,594 (441,310) 8,704,842 41,575,141 40,842,978
(61,525) (11,276) -- -- --
------------- ------------ ----------- ----------- -----------
181,801,069 (452,586) 8,704,842 41,575,141 40,842,978
------------- ------------ ----------- ----------- -----------
264,384,339 15,281,837 12,781,356 47,528,658 41,170,724
124,063,069 53,266,089 33,393,091 -- --
------------- ------------ ----------- ----------- -----------
$ 388,447,408 $ 68,547,926 $46,174,447 $47,528,658 $41,170,724
============= ============ =========== =========== ===========
$ 274,591 $ -- $ 32,722 $ -- $ 26,291
============= ============ =========== =========== ===========
</TABLE>
See Notes to Financial Statements
6
<PAGE>
EXCELSIOR FUNDS, INC.
FINANCIAL HIGHLIGHTS--SELECTED PER SHARE DATA AND RATIOS
For a Fund share outstanding throughout each period.
<TABLE>
<CAPTION>
NET REALIZED DISTRIBUTIONS
NET ASSET NET AND UNREALIZED DIVIDENDS FROM NET
VALUE, INVESTMENT GAIN (LOSS) TOTAL FROM FROM NET REALIZED GAIN
BEGINNING INCOME ON INVESTMENTS INVESTMENT INVESTMENT ON INVESTMENTS
OF PERIOD (LOSS) AND OPTIONS OPERATIONS INCOME AND OPTIONS
--------- ---------- -------------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
BLENDED EQUITY FUND -- (4/25/85*)
Shares:
Year Ended March 31,
1994.................... $18.77 $ 0.05 $ 1.16 $ 1.21 $(0.08) $(0.39)
1995.................... 19.17 0.07 2.67 2.74 (0.04) (0.47)
1996.................... 21.40 0.12 5.21 5.33 (0.11) (2.19)
1997.................... 24.43 0.18 2.50 2.68 (0.14) (1.16)
1998.................... 25.81 0.16 12.59 12.75 (0.16) (2.28)
Six Months Ended
September 30, 1998
(Unaudited)............ 36.12 0.06 (2.89) (2.83) (0.08) --
Trust Shares --
(11/12/96*)
Period ended March 31,
1997................... 26.30 0.04 0.03 0.07 (0.03) (0.56)
Period from April 1,
1997 to October 27,
1997................... 25.78 0.02 4.67 4.69 (0.05) --
INCOME AND GROWTH FUND -- (1/6/87*)
Year Ended March 31,
1994.................... $11.45 $ 0.31 $ 0.46 $ 0.77 $(0.27) $(0.01)
1995.................... 11.94 0.38 0.26 0.64 (0.35) (0.41)
1996.................... 11.82 0.39 2.61 3.00 (0.31) (0.06)
1997.................... 14.45 0.33 1.45 1.78 (0.35) (0.63)
1998.................... 15.25 0.36 4.53 4.89 (0.34) (1.85)
Six Months Ended
September 30, 1998
(Unaudited)............ 17.95 0.13 (3.88) (3.75) (0.16) --
VALUE AND RESTRUCTURING FUND -- (12/31/92*)
Shares:
Year Ended March 31,
1994.................... $ 7.71 $ 0.06 $ 1.96 $ 2.02 $(0.07) $(0.02)
1995.................... 9.64 0.07 1.02 1.09 (0.06) (0.12)
1996.................... 10.55 0.10 3.71 3.81 (0.09) (0.24)
1997.................... 14.03 0.13 2.36 2.49 (0.12) (0.47)
1998.................... 15.93 0.10 8.12 8.22 (0.09) (0.27)
Six Months Ended
September 30, 1998
(Unaudited)............ 23.79 0.06 (5.14) (5.08) (0.06) --
Trust Shares --
(9/19/96*)
Period ended March 31,
1997................... 14.61 0.05 1.53 1.58 (0.05) (0.23)
Period from April 1,
1997 to June 30, 1997.. 15.91 0.02 2.94 2.96 (0.02) --
SMALL CAP FUND -- (12/31/92*)
Shares:
Year Ended March 31,
1994.................... $ 7.40 $(0.01) $ 1.36 $ 1.35 -- $(0.09)
1995.................... 8.66 (0.02) 1.31 1.29 -- (0.18)
1996.................... 9.77 (0.02) 1.72 1.70 -- (0.69)
1997.................... 10.78 (0.03) (1.43) (1.46) -- (0.10)
1998.................... 8.83 (0.01) 3.13 3.12 -- --
Six Months Ended
September 30, 1998
(Unaudited)............ 11.95 (0.01) (3.89) (3.90) -- --
Trust Shares --
(9/6/96*)
Period ended March 31,
1997................... 9.98 (0.03) (0.92) (0.95) -- (0.22)
Period from April 1,
1997 to October 27,
1997................... 8.81 (0.03) 2.52 2.49 -- --
ENERGY AND NATURAL RESOURCES FUND -- (12/31/92*)
Year Ended March 31,
1994.................... $ 7.81 $ 0.08 $(0.12) $(0.04) $(0.07) --
1995.................... 7.70 0.09 0.24 0.33 (0.10) $(0.01)
1996.................... 7.92 0.07 1.63 1.70 (0.07) --
1997.................... 9.55 0.09 2.60 2.69 (0.09) (1.03)
1998.................... 11.12 0.09 2.69 2.78 (0.10) (1.07)
Six Months Ended
September 30, 1998
(Unaudited)............ 12.66 0.06 (2.20) (2.14) (0.04) --
LARGE CAP GROWTH FUND -- (10/1/97*)
Period Ended March 31,
1998................... $ 7.00 -- ++ $ 1.51 $ 1.51 -- --
Six Months Ended
September 30, 1998
(Unaudited)............ 8.51 $(0.02) 0.02 -- -- --
REAL ESTATE FUND -- (10/1/97*)
Period Ended March 31,
1998................... $ 7.00 $ 0.15 $ 0.01 $ 0.16 $(0.11) --
Six Months Ended
September 30, 1998
(Unaudited)............ 7.05 0.17 (1.04) (0.87) (0.12) --
</TABLE>
* Commencement of operations ** Not Annualized *** Annualized
+ 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
7
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTIONS IN RATIO OF NET RATIO OF GROSS RATIO OF NET
EXCESS OF NET NET ASSETS, OPERATING OPERATING INVESTMENT
REALIZED GAIN NET ASSET END EXPENSES EXPENSES INCOME (LOSS) PORTFOLIO
ON INVESTMENTS TOTAL VALUE, END TOTAL OF PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TURNOVER
AND OPTIONS DISTRIBUTIONS OF PERIOD RETURN (000) NET ASSETS NET ASSETS + NET ASSETS RATE
---------------- ------------- ---------- ------ ----------- ------------ -------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(0.34) $(0.81) $19.17 6.54% $122,262 1.14% 1.14% 0.25% 17%
-- (0.51) 21.40 14.65% 137,417 1.05% 1.08% 0.36% 23%
-- (2.30) 24.43 26.45% 188,574 1.05% 1.12% 0.55% 27%
-- (1.30) 25.81 11.09% 306,990 1.01% 1.06% 0.71% 39%
-- (2.44) 36.12 50.82% 594,909 0.99% 1.06% 0.55% 28%
-- (0.08) 33.21 (7.87)%** 549,976 0.96%*** 1.04%*** 0.35%*** 11%***
-- (0.59) 25.78 0.23%** 81 1.36%*** 1.41%*** 0.45%*** 39%***
-- (0.05) 30.42 17.57%** -- 1.34%*** 1.41%*** 0.20%*** N/A
-- $(0.28) $11.94 6.69% $ 96,682 1.17% 1.17% 2.77% 28%
-- (0.76) 11.82 5.74% 99,925 1.06% 1.09% 3.31% 36%
-- (0.37) 14.45 25.83% 127,495 1.05% 1.11% 2.95% 22%
-- (0.98) 15.25 12.61% 132,768 1.03% 1.11% 2.17% 25%
-- (2.19) 17.95 33.29% 138,053 1.02% 1.10% 2.04% 32%
-- (0.16) 14.04 (21.08)%** 83,059 1.05%*** 1.14%*** 1.47%*** 35%***
-- $(0.09) $ 9.64 26.40% $ 14,440 0.99% 1.73% 0.77% 75%
-- (0.18) 10.55 11.49% 30,183 0.98% 1.08% 0.83% 82%
-- (0.33) 14.03 36.48% 74,052 0.91% 0.95% 0.88% 56%
-- (0.59) 15.93 18.09% 124,011 0.91% 0.95% 0.90% 62%
-- (0.36) 23.79 52.10% 388,447 0.89% 0.93% 0.54% 30%
-- (0.06) 18.65 (21.42)%** 483,698 0.86%*** 0.98%*** 0.57%*** 45%***
-- (0.28) 15.91 10.85%** 52 1.26%*** 1.30%*** 0.54%*** 62%***
-- (0.02) 18.85 18.61%** -- 1.21%*** 1.25%*** 0.47%*** N/A
-- $(0.09) $ 8.66 18.27% $ 24,951 0.95% 1.15% (0.25)% 20%
-- (0.18) 9.77 15.16% 47,782 0.96% 1.04% (0.23)% 42%
-- (0.69) 10.78 18.29% 78,061 0.90% 0.98% (0.17)% 38%
$(0.39) (0.49) 8.83 (14.33)% 53,258 0.94% 1.02% (0.26)% 55%
-- -- 11.95 35.33% 68,548 0.94% 1.01% (0.14)% 73%
-- -- 8.05 (32.64)%** 35,517 0.95%*** 1.04%*** (0.12)%*** 93%***
-- (0.22) 8.81 (9.77)%** 8 1.29%*** 1.40%*** (0.87)%*** 55%***
-- -- 11.30 29.29%** -- 1.25%*** 1.31%*** (0.59)%*** N/A
-- $(0.07) $ 7.70 (0.57)% $ 6,830 0.99% 2.03% 1.21% 6%
-- (0.11) 7.92 4.28% 15,813 0.98% 1.35% 1.18% 31%
-- (0.07) 9.55 21.60% 23,294 0.96% 1.09% 0.88% 43%
-- (1.12) 11.12 28.28% 33,393 0.93% 0.98% 0.84% 87%
$(0.07) (1.24) 12.66 24.97% 46,174 0.99% 1.07% 0.69% 88%
-- (0.04) 10.48 (16.97)%** 44,429 0.98%*** 1.06%*** 1.04%*** 51%***
-- -- $ 8.51 21.57%** $ 47,529 1.05%*** 1.20%*** (0.16)%*** 12%***
-- -- 8.51 0.00%** 86,459 1.02%*** 1.05%*** (0.49)%*** 7%***
-- $(0.11) $ 7.05 2.26%** $ 41,171 1.20%*** 1.40%*** 5.02%*** 30%***
-- (0.12) 6.06 (12.52)%** 39,305 1.20%*** 1.37%*** 5.14%*** 14%***
<CAPTION>
FEE
WAIVERS
(NOTE 2)
--------
<C>
--
--
$ 0.02
0.01
0.02
0.01
--
0.01
--
--
$ 0.01
0.01
0.01
0.01
$ 0.06
0.01
--
0.01
0.01
0.01
--
--
$ 0.01
0.01
0.01
0.01
0.01
0.01
--
--
$ 0.07
0.03
0.01
--
0.01
--
-- ++
-- ++
$ 0.01
0.01
</TABLE>
See Notes to Financial Statements
8
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED)
BLENDED EQUITY FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
---------- ------------
<C> <S> <C>
COMMON STOCKS -- 99.76%
CONSUMER STAPLES -- 22.79%
420,000 Abbott Laboratories.................................. $ 18,243,750
84,000 Bestfoods, Inc. ..................................... 4,068,750
187,500 Coca-Cola Company.................................... 10,804,687
10,500 Corn Products International, Inc. ................... 265,125
44,210 CVS Corp. ........................................... 1,936,951
104,000 Gillette Co. ........................................ 3,978,000
61,700 +Healthsouth Corp. .................................. 651,706
272,300 Johnson & Johnson.................................... 21,307,475
7,400 Lilly (Eli) & Co. ................................... 579,512
98,730 Mattel, Inc. ........................................ 2,764,440
49,000 Merck & Co., Inc. ................................... 6,348,562
15,000 Novartis AG ADR...................................... 1,202,222
30,000 PepsiCo, Inc. ....................................... 883,125
269,400 Pfizer, Inc. ........................................ 28,539,563
113,200 Procter & Gamble Co. ................................ 8,030,125
110,000 Schering-Plough Corp. ............................... 11,391,875
260,000 Stewart Enterprises, Inc., Class A................... 4,355,000
------------
125,350,868
------------
CONSUMER CYCLICAL -- 21.51%
32,600 CBS Corp. ........................................... 790,550
201,400 Centex Corp. ........................................ 6,948,300
52,000 Chevron Corp. ....................................... 4,371,250
40,000 Comcast Corp., Class A Special....................... 1,877,500
212,500 Dayton Hudson Corp. ................................. 7,596,875
200,000 Ford Motor Co. ...................................... 9,387,500
311,000 General Electric Co. ................................ 24,743,937
43,800 General Motors Corp. ................................ 2,395,313
38,500 Goodyear Tire and Rubber Co. ........................ 1,977,938
330,000 Luxottica Group S.p.A. ADR........................... 3,691,875
95,000 McDonald's Corp. .................................... 5,670,312
211,000 +MCI WorldCom, Inc. ................................. 10,312,625
40,000 Meredith Corp. ...................................... 1,280,000
43,500 New York Times Co., Class A.......................... 1,196,250
224,400 +O'Reilly Automotive, Inc. .......................... 8,078,400
39,000 Reuters Group plc ADR................................ 1,925,625
5,100 +Saks, Inc. ......................................... 114,431
50,000 Time Warner, Inc. ................................... 4,378,125
25,000 Tribune Co. ......................................... 1,257,813
250,000 Wal-Mart Stores, Inc. ............................... 13,656,250
171,045 Walt Disney Co. ..................................... 4,329,577
37,800 Wiley (John) & Sons, Inc., Class A................... 2,322,337
------------
118,302,783
------------
FINANCIAL -- 18.23%
30,000 Allstate Corp. ...................................... 1,250,625
19,000 American Express Co. ................................ 1,474,875
56,250 American International Group, Inc. .................. 4,331,250
277,817 Associates First Capital Corp. ...................... 18,127,559
75,600 BankBoston........................................... 2,494,800
40,200 Citicorp............................................. 3,736,087
COMMON STOCKS -- (CONTINUED)
FINANCIAL -- (CONTINUED)
20,000 First Union Corp. (North Carolina)................... $ 1,023,750
170,000 Fleet Financial Group, Inc. ......................... 12,484,375
21,790 General Re Corp. .................................... 4,423,370
81,702 Household International, Inc. ....................... 3,063,825
114,200 MBIA, Inc. .......................................... 6,131,112
302,076 Mellon Bank Corp. ................................... 16,633,060
202,694 Morgan Stanley, Dean Witter & Co. ................... 8,728,510
29,687 Nationsbank Corp. ................................... 1,588,255
32,600 Norwest Corp. ....................................... 1,167,488
156,300 State Street Boston Corp. ........................... 8,528,119
102,200 UNUM Corp. .......................................... 5,078,063
------------
100,265,123
------------
TECHNOLOGY -- 17.44%
341,033 +Cisco Systems, Inc. ................................ 21,080,071
50,000 Compaq Computer Corp. ............................... 1,581,250
30,000 Computer Associates International, Inc. ............. 1,110,000
70,000 +Dell Computer Corp. ................................ 4,602,500
36,100 Emerson Electric, Co. ............................... 2,247,225
126,480 Hewlett-Packard Co. ................................. 6,695,535
30,300 Honeywell Corp. ..................................... 1,941,094
150,000 Intel Corp. ......................................... 12,862,500
63,000 International Business Machines Corp. ............... 8,064,000
69,000 L.M. Ericsson Telephone Co. ADR ..................... 1,267,875
93,320 Lucent Technologies, Inc. ........................... 6,444,913
169,240 +Microsoft Corp. .................................... 18,626,977
36,000 Nokia Corp., Class A, ADR ........................... 2,823,750
60,000 SBC Communications, Inc. ............................ 2,666,250
25,500 Texas Instruments, Inc. ............................. 1,345,125
46,000 Tyco International Ltd. ............................. 2,541,500
------------
95,900,565
------------
ENERGY -- 7.86%
13,000 British Petroleum Company plc ADR.................... 1,134,250
167,907 Burlington Resources, Inc. .......................... 6,275,524
120,100 Exxon Corp. ......................................... 8,429,519
47,000 Minnesota Mining & Manufacturing..................... 3,463,313
178,300 Mobil Corp. ......................................... 13,539,656
162,100 Royal Dutch Petroleum Co. ........................... 7,720,012
73,200 Unocal Corp. ........................................ 2,653,500
------------
43,215,774
------------
UTILITIES -- 6.50%
53,400 +AES Corp. .......................................... 1,979,138
30,000 Ameritech Corp. ..................................... 1,421,250
172,443 AT&T Corp. .......................................... 10,077,138
163,000 Bell Atlantic Corp. ................................. 7,895,312
</TABLE>
See Notes to Financial Statements
9
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED)
BLENDED EQUITY FUND -- (CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
---------- ------------
<C> <S> <C>
COMMON STOCKS -- (CONTINUED)
UTILITIES -- (CONTINUED)
57,500 Duke Energy Corp. .................................. $ 3,805,781
60,000 +NEXTEL Communications, Inc., Class A............... 1,211,250
133,700 Southern Co. ....................................... 3,935,794
116,400 Texas Utilities Co. ................................ 5,419,875
------------
35,745,538
------------
CAPITAL GOODS -- 3.61%
24,000 Boeing Co. ......................................... 823,500
12,600 Cordant Technologies, Inc. ......................... 533,137
20,000 Dover Corp. ........................................ 617,500
275,266 Illinois Tool Works, Inc. .......................... 15,001,997
24,700 +Lear Corp. ........................................ 1,080,625
2,000 Raychem Corp. ...................................... 48,750
76,875 +Thermo Electron Corp. ............................. 1,157,930
11,700 Waste Management, Inc. ............................. 562,331
------------
19,825,770
------------
RAW/INTERMEDIATE MATERIALS -- 1.82%
67,300 E.I. du Pont de Nemours & Co. ...................... 3,777,212
62,100 Monsanto Co. ....................................... 3,500,888
105,000 Pioneer Hi-Bred International, Inc. ................ 2,756,250
------------
10,034,350
------------
TOTAL COMMON STOCKS
(Cost $320,985,770)................................. 548,640,771
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
--------- ------------
<C> <S> <C>
DEMAND NOTES -- 0.16%
$400,000 Associates Corp. of North America Master Notes....... $ 400,000
487,000 General Electric Co. Promissory Notes................ 487,000
------------
TOTAL DEMAND NOTES
(Cost $887,000)...................................... 887,000
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Cost $321,872,770*)...................................... 99.92% $549,527,771
OTHER ASSETS AND LIABILITIES (NET)........................ 0.08 447,930
------ ------------
NET ASSETS................................................ 100.00% $549,975,701
====== ============
</TABLE>
- --------
* Aggregate cost for Federal tax and book purposes.
+ Non-income producing security
ADR -- American Depositary Receipt
See Notes to Financial Statements
10
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED)
INCOME AND GROWTH FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
---------- ------------
<C> <S> <C>
COMMON STOCKS -- 80.55%
CONSUMER CYCLICAL -- 20.70%
100,000 Herman Miller, Inc. ................................. $ 1,975,000
73,000 Luxottica Group S.p.A. ADR........................... 816,687
70,000 McDonald's Corp. .................................... 4,178,125
150,000 ServiceMaster Ltd. Partnership....................... 3,281,250
80,000 Wiley (John) & Sons, Inc., Class A................... 4,915,000
280,000 +Ziff-Davis, Inc. ................................... 2,030,000
------------
17,196,062
------------
CONSUMER STAPLES -- 14.96%
60,000 Gillette Co. ........................................ 2,295,000
40,000 Johnson & Johnson.................................... 3,130,000
15,000 Merck & Co., Inc. ................................... 1,943,438
40,000 Novo-Nordisk A.S., ADR............................... 2,400,000
35,000 WM. Wrigley Jr. Co. ................................. 2,657,812
------------
12,426,250
------------
TECHNOLOGY -- 11.04%
200,000 +Analog Devices, Inc. ............................... 3,212,500
30,000 +Cisco Systems, Inc. ................................ 1,854,375
695,200 +Interleaf, Inc. .................................... 716,925
15,000 +Microsoft Corp. .................................... 1,650,938
103,500 +SDL, Inc. .......................................... 1,293,750
41,800 +Unitrode Corp. ..................................... 444,125
------------
9,172,613
------------
FINANCIAL -- 9.21%
20,000 American International Group, Inc. .................. 1,540,000
35,000 Morgan Stanley, Dean Witter & Co. ................... 1,507,188
130,000 Mutual Risk Management Ltd. ......................... 4,598,750
------------
7,645,938
------------
ENERGY -- 8.21%
44,000 Exxon Corp. ......................................... 3,088,250
90,000 +SEACOR Holdings, Inc. .............................. 3,735,000
------------
6,823,250
------------
UTILITIES -- 7.19%
110,000 +AES Corp. .......................................... 4,076,875
94,000 +NEXTEL Communications, Inc., Class A................ 1,897,625
------------
5,974,500
------------
RAW/INTERMEDIATE
MATERIALS -- 5.52%
100,000 Pall Corp. .......................................... 2,218,750
90,000 Pioneer Hi-Bred International, Inc. ................. 2,362,500
------------
4,581,250
------------
CAPITAL GOODS -- 3.72%
100,000 Dover Corp. ......................................... 3,087,500
------------
TOTAL COMMON STOCKS (Cost $45,934,477)............... 66,907,363
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
---------- ------------
<C> <S> <C>
CORPORATE BONDS -- 2.43%
MATERIALS -- 2.43%
$2,000,000 AK Steel Corp.,
9.125%, 12/15/06
(Cost $2,080,000)................................... $ 2,015,000
-----------
CONVERTIBLE BONDS -- 10.35%
TECHNOLOGY -- 7.76%
2,810,000 Kollmorgen Corp.,
Sub-Debenture,
8.75%, 05/01/09..................................... 2,848,638
3,959,000 Network Equipment Technologies, Inc.,
Sub-Debenture,
7.25%, 05/15/14..................................... 3,597,741
-----------
6,446,379
-----------
CONSUMER CYCLICAL -- 2.13%
1,925,000 Avatar Holdings 7.00%, 04/01/05..................... 1,766,187
-----------
TRANSPORTATION -- 0.46%
3,500,000 World Corp., Inc., 7.00%, 05/15/04.................. 385,000
-----------
TOTAL CONVERTIBLE BONDS (Cost $10,701,642).......... 8,597,566
-----------
DEMAND NOTES -- 5.92%
2,400,000 Associates Corp. of North America Master Notes...... 2,400,000
2,515,000 General Electric Co. Promissory Notes............... 2,515,000
-----------
TOTAL DEMAND NOTES
(Cost $4,915,000)................................... 4,915,000
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (Cost $63,631,119*)...................... 99.25% $82,434,929
OTHER ASSETS AND LIABILITIES (NET)......................... 0.75 623,766
------ -----------
NET ASSETS................................................. 100.00% $83,058,695
====== ===========
</TABLE>
- --------
* Aggregate cost for Federal tax and book purposes.
+ Non-income producing security
ADR -- American Depositary Receipt
See Notes to Financial Statements
11
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED)
VALUE AND RESTRUCTURING FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
---------- ------------
<C> <S> <C>
COMMON STOCKS -- 97.53%
TECHNOLOGY -- 23.96%
308,000 Alcatel Alsthom ADR.................................. $ 5,236,000
160,000 BCE, Inc. ........................................... 4,470,000
250,000 +Bell & Howell Holdings Co. ......................... 6,484,375
130,300 Computer Associates International, Inc. ............. 4,821,100
120,000 Cordant Technologies, Inc. .......................... 5,077,500
270,000 Frontier Corp. ...................................... 7,391,250
335,000 +Industri-Matematik International Corp. ............. 1,695,938
3,001 +Intermedia Communications, Inc. .................... 73,524
106,800 International Business Machines Corp. ............... 13,670,400
165,000 +IXC Communications, Inc. ........................... 4,908,750
138,000 Nokia Corp., Class A, ADR............................ 10,824,375
136,800 +Plantronics, Inc. .................................. 6,592,050
165,000 Raytheon Co., Class A................................ 8,549,062
6,314 +Sensormatics Electronics Corp. ..................... 37,095
262,000 +Smallworldwide plc ADR.............................. 2,849,250
425,000 +Telecom-TCI Ventures Group, Class A................. 7,596,875
190,000 Texas Instruments, Inc. ............................. 10,022,500
420,000 +TriStar Aerospace Co. .............................. 4,042,500
330,000 +Unisys Corp. ....................................... 7,507,500
334,050 +Vishay Intertechnology, Inc. ....................... 4,029,478
------------
115,879,522
------------
FINANCIAL -- 21.12%
291,235 ++Akbank T.A.S. ADR.................................. 793,616
270,000 +Amerin Corp. ....................................... 5,011,875
110,000 Amvescap plc ADR..................................... 3,190,000
280,000 ARM Financial Group, Inc., Class A................... 4,970,000
135,000 Astoria Financial Corp. ............................. 5,686,875
147,000 Banc One Corp. ...................................... 6,265,875
150,000 Canadian Imperial Bank of Commerce................... 2,756,250
170,000 Chase Manhattan Corp. ............................... 7,352,500
130,614 Corporacion Bancaria de Espana S.p.A. ADR............ 5,118,436
237,000 Donaldson, Lufkin & Jenrette, Inc. .................. 6,058,312
150,000 Everest Re Holdings, Inc. ........................... 5,596,875
71,505 EXEL Ltd. ........................................... 4,504,815
157,000 Fannie Mae........................................... 10,087,250
215,000 FBL Financial Group, Inc., Class A................... 4,958,438
110,000 Mellon Bank Corp. ................................... 6,056,875
105,000 Morgan Stanley, Dean Witter & Co. ................... 4,521,563
125,000 PNC Bank Corp. ...................................... 5,625,000
205,000 SLM Holding Corp. ................................... 6,649,687
185,000 Travelers Group, Inc. ............................... 6,937,500
------------
102,141,742
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
---------- ------------
<C> <S> <C> <C>
COMMON STOCKS -- (CONTINUED)
CONSUMER STAPLES -- 16.84%
290,000 Avon Products, Inc. .......................... $8,138,125
108,000 Bestfoods, Inc. .............................. 5,231,250
104,000 Bristol-Myers Squibb Co. ..................... 10,803,000
220,000 Deluxe Corp. ................................. 6,256,250
168,000 Eastman Kodak Co. ............................ 12,988,500
180,000 Fort James Corp. ............................. 5,906,250
102,000 General Mills, Inc. .......................... 7,140,000
225,000 +MAPICS, Inc. ................................ 4,921,875
300,000 Philip Morris Companies, Inc. ................ 13,818,750
200,000 +Suiza Foods Corp. ........................... 6,250,000
----------
81,454,000
----------
CONSUMER CYCLICAL -- 15.91%
170,000 +American Standard Cos., Inc. ................ 4,483,750
300,000 CBS Corp. .................................... 7,275,000
140,000 Ford Motor Co. ............................... 6,571,250
135,000 General Motors Corp. ......................... 7,382,813
130,000 Harman International Industries, Inc. ........ 4,769,375
250,000 +LandCARE USA, Inc. .......................... 1,687,500
305,000 +Newmark Homes Corp. ......................... 2,058,750
275,000 News Corp. Ltd. ADR........................... 7,046,875
210,000 Olin Corp. ................................... 6,024,375
370,000 +Outdoor Systems, Inc. ....................... 7,215,000
430,000 +Paxson Communications Corp. ................. 3,950,625
160,000 +QUALCOMM, Inc. .............................. 7,670,000
128,000 XEROX Corp. .................................. 10,848,000
----------
76,983,313
----------
CAPITAL GOODS -- 6.36%
225,000 AlliedSignal, Inc. ........................... 7,959,375
245,000 Boeing Co. ................................... 8,406,563
320,000 +Coltec Industries, Inc. ..................... 4,840,000
125,000 United Technologies Corp. .................... 9,554,687
----------
30,760,625
----------
TRANSPORTATION -- 5.29%
230,000 Canadian Pacific Ltd. ........................ 4,758,125
160,000 +Coach USA, Inc. ............................. 3,950,000
202,500 +Hvide Marine, Inc., Class A.................. 1,417,500
185,000 Kansas City Southern Industries, Inc. ........ 6,475,000
180,000 +Trailer Bridge, Inc. ........................ 393,750
202,000 Union Pacific Corp. .......................... 8,610,250
----------
25,604,625
----------
</TABLE>
See Notes to Financial Statements
12
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED)
VALUE AND RESTRUCTURING FUND -- (CONTINUED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
---------- ------------
<C> <S> <C>
COMMON STOCKS -- (CONTINUED)
ENERGY -- 5.12%
425,000 Dynegy, Inc. ....................................... $ 5,710,938
13,700 +Miller Exploration, Co. ........................... 65,931
82,000 Mobil Corp. ........................................ 6,226,875
260,000 +Nabors Industries, Inc. ........................... 3,948,750
285,000 +Ocean Energy, Inc. ................................ 3,740,625
195,000 YPF S.A., ADR....................................... 5,070,000
------------
24,763,119
------------
RAW/INTERMEDIATE MATERIALS -- 2.89%
270,000 Cambrex Corp. ...................................... 6,361,875
115,000 E.I. du Pont de Nemours & Co. ...................... 6,454,375
139,500 +PalEx, Inc. ....................................... 1,150,875
------------
13,967,125
------------
UTILITIES -- 0.04%
40,000 +Leap Wireless International, Inc. ................. 185,000
------------
TOTAL COMMON STOCKS
(Cost $497,649,662)................................. 471,739,071
------------
CONVERTIBLE PREFERRED STOCKS -- 2.24%
TECHNOLOGY -- 1.51%
45,000 ++Intermedia Communications, Inc., Preferred
Exchange, 7.00%..................................... 1,546,875
65,000 Intermedia Communications, Inc., Series D, Preferred
Exchange, 7.00%..................................... 2,234,375
260,000 ++Sensormatic Electronics Corp., Preferred Exchange,
6.50%............................................... 3,542,500
------------
7,323,750
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
---------- ------------
<C> <S> <C>
CONVERTIBLE PREFERRED STOCKS -- (CONTINUED)
TRANSPORTATION -- 0.73%
80,000 ++Union Pacific Capital Trust,
Preferred Exchange, 6.25%............................ $ 3,540,000
------------
TOTAL CONVERTIBLE
PREFERRED STOCKS
(Cost $14,874,445)................................... 10,863,750
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Cost $512,524,107*)...................................... 99.77% $482,602,821
OTHER ASSETS AND LIABILITIES (NET)........................ 0.23 1,095,501
------ ------------
NET ASSETS................................................ 100.00% $483,698,322
====== ============
</TABLE>
- --------
* Aggregate cost for Federal tax and book purposes.
+ Non-income producing security
++ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At September 30,
1998 these securities amounted to $9,422,991, or 1.95% of net assets.
ADR -- American Depositary Receipt
See Notes to Financial Statements
13
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED)
SMALL CAP FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
---------- -----------
<C> <S> <C> <C>
COMMON STOCKS -- 96.08%
CONSUMER CYCLICAL -- 32.62%
39,000 +Big Flower Holdings, Inc. ....................... $ 911,625
16,000 +CD Radio, Inc. .................................. 304,000
36,900 +Children's Place Retail Stores, Inc. ............ 369,000
50,000 Claire's Stores, Inc. ............................ 900,000
20,000 +CONMED Corp. .................................... 457,500
11,300 Fair Isaac & Co., Inc. ........................... 377,138
31,000 +Linens'n Things, Inc. ........................... 852,500
26,700 +Men's Wearhouse, Inc. ........................... 457,237
81,000 +Natural MicroSystems Corp. ...................... 840,375
35,000 +O'Reilly Automotive, Inc. ....................... 1,260,000
40,300 +Paxar Corp. ..................................... 357,663
15,600 Polaris Industries, Inc. ......................... 483,600
54,000 +PSS World Medical, Inc. ......................... 999,000
46,300 +RDO Equipment Co., Class A....................... 419,594
26,500 +Scientific Games Holdings Corp. ................. 518,406
22,250 +Sunrise Assisted Living, Inc. ................... 763,453
13,500 Tiffany & Co. .................................... 423,562
24,850 +Travel Services International, Inc. ............. 337,028
32,000 +Ventana Medical Systems, Inc. ................... 552,000
-----------
11,583,681
-----------
FINANCIAL -- 19.46%
34,000 ARM Financial Group, Inc., Class A................ 603,500
7,400 Associates First Capital Corp., Class A........... 482,850
21,500 Cabot Industrial Trust............................ 454,188
15,300 Cullen/Frost Bankers, Inc. ....................... 738,225
9,400 Executive Risk, Inc. ............................. 423,588
13,900 First American Corp. (Tennessee).................. 533,412
76,300 Freedom Securities Corp. ......................... 1,010,975
14,400 Greenpoint Financial Corp. ....................... 459,000
15,000 Mutual Risk Management Ltd. ...................... 530,625
52,600 Sovereign Bancorp, Inc. .......................... 693,662
11,000 UNUM Corp. ....................................... 546,562
10,600 Weingarten Realty Investors....................... 434,600
-----------
6,911,187
-----------
TECHNOLOGY -- 17.54%
29,000 +Boole & Babbage, Inc. ........................... 659,750
21,000 First Data Corp. ................................. 493,500
19,000 Hughes Supply, Inc. .............................. 541,500
9,100 +Human Genome Sciences, Inc. ..................... 267,313
20,300 +Incyte Pharmaceuticals, Inc. .................... 426,300
32,800 +ITI Technologies, Inc. .......................... 787,200
29,200 +MICROS Systems, Inc. ............................ 874,175
17,600 +Newbridge Networks, Corp. ....................... 315,700
50,000 +Perceptron, Inc. ................................ 293,750
12,250 +Phoenix Technologies Ltd. ....................... 68,906
33,200 +Rock of Ages Corp. .............................. 365,200
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
---------- -----------
<C> <S> <C>
COMMON STOCKS -- (CONTINUED)
TECHNOLOGY -- (CONTINUED)
40,000 +SDL, Inc. ........................................... $ 500,000
10,000 Timberline Software Corp. ............................ 187,500
42,200 +Unitrode Corp. ...................................... 448,375
-----------
6,229,169
-----------
CONSUMER STAPLES -- 10.23%
11,000 Avon Products, Inc. .................................. 308,688
19,000 Carnival Corp., Class A............................... 604,438
21,000 CVS Corp. ............................................ 920,062
34,600 +Hain Food Group, Inc. ............................... 514,675
21,250 +IDEXX Laboratories, Inc. ............................ 502,031
36,000 Schweitzer-Mauduit International, Inc. ............... 783,000
-----------
3,632,894
-----------
ENERGY -- 9.08%
84,500 +Ocean Energy, Inc. .................................. 1,109,063
56,500 +R & B Falcon Corp. .................................. 678,000
24,000 +Silicon Valley Bancshares............................ 381,000
30,900 +TETRA Technologies, Inc. ............................ 370,800
82,000 +Varco International, Inc. ........................... 686,750
-----------
3,225,613
-----------
CAPITAL GOODS -- 6.21%
24,400 Baldor Electric Co. .................................. 533,750
26,500 Juno Lighting, Inc. .................................. 586,312
34,450 Lindsay Manufacturing Co. ............................ 512,444
16,400 Teleflex, Inc. ....................................... 574,000
-----------
2,206,506
-----------
RAW/INTERMEDIATE
MATERIALS -- 0.94%
18,000 Millenium Chemicals, Inc. ............................ 335,250
-----------
TOTAL COMMON STOCKS
(Cost $40,381,218).................................... 34,124,300
-----------
<CAPTION>
PRINCIPAL
AMOUNT
----------
<C> <S> <C>
DEMAND NOTES -- 4.22%
$700,000 Associates Corp. of North America Master Notes........ 700,000
799,000 General Electric Co. Promissory Notes................. 799,000
-----------
TOTAL DEMAND NOTES
(Cost $1,499,000)..................................... 1,499,000
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Cost $41,880,218*)........................................ 100.30% $35,623,300
OTHER ASSETS AND LIABILITIES (NET)......................... (0.30) (106,123)
------ -----------
NET ASSETS................................................. 100.00% $35,517,177
====== ===========
</TABLE>
- --------
* Aggregate cost for Federal tax and book purposes.
+ Non income producing security
See Notes to Financial Statements
14
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED)
ENERGY AND NATURAL RESOURCES FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
---------- ------------
<C> <S> <C>
COMMON STOCKS -- 95.58%
ENERGY -- 71.88%
26,000 Anadarko Petroleum Corp. ............................ $ 1,022,125
20,000 +Atwood Oceanics..................................... 416,250
41,000 +BJ Services Co. .................................... 666,250
33,986 British Petroleum Company plc ADR.................... 2,965,278
25,000 Burlington Resources, Inc. .......................... 934,375
40,000 +Cal Dive International, Inc. ....................... 710,000
22,000 Chevron Corp. ....................................... 1,849,375
30,000 +Cooper Cameron Corp. ............................... 843,750
40,000 Exxon Corp. ......................................... 2,807,500
95,000 +Global Industries Ltd. ............................. 1,092,500
10,000 +Marine Drilling Cos., Inc. ......................... 114,375
26,000 Mobil Corp. ......................................... 1,974,375
30,000 +Nabors Industries, Inc. ............................ 455,625
50,000 +Newfield Exploration Co. ........................... 1,125,000
30,000 +Newpark Resources, Inc. ............................ 206,250
10,000 Noble Affiliates, Inc. .............................. 318,750
135,300 +Ocean Energy, Inc. ................................. 1,775,812
73,000 +R & B Falcon Corp. ................................. 876,000
55,000 Royal Dutch Petroleum Co. ........................... 2,619,375
18,000 Schlumberger Ltd. ................................... 905,625
100,000 +Superior Energy Services, Inc. ..................... 343,750
20,000 Texaco, Inc. ........................................ 1,253,750
37,000 Tosco Corp. ......................................... 795,500
17,500 Total S.A. ADR....................................... 1,099,219
65,000 +Transmontaigne Oil Co. ............................. 901,875
30,000 +U.S. Filter Corp. .................................. 480,000
25,000 Valero Energy Corp. ................................. 496,875
95,000 +Varco International, Inc. .......................... 795,625
32,000 Vastar Resources, Inc. .............................. 1,440,000
30,000 +Weatherford International, Inc. .................... 648,750
------------
31,933,934
------------
BASIC MATERIALS -- 6.82%
50,000 Barrick Gold, Corp. ................................. 1,000,000
10,000 E.I. du Pont de Nemours & Co. ....................... 561,250
20,000 Fort James Corp. .................................... 656,250
14,000 Mead Corp. .......................................... 412,125
14,000 Willamette Industries................................ 401,625
------------
3,031,250
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
---------- ------------
<C> <S> <C>
COMMON STOCKS -- (CONTINUED)
UTILITIES -- 16.88%
25,000 +AES Corp. ......................................... $ 926,562
42,000 Coastal Corp. ...................................... 1,417,500
30,888 Duke Energy Corp. .................................. 2,044,400
23,000 Enron Corp. ........................................ 1,214,688
23,000 KN Energy, Inc. .................................... 1,178,750
25,000 Williams Cos., Inc. ................................ 718,750
-----------
7,500,650
-----------
TOTAL COMMON STOCKS
(Cost $39,110,862).................................. 42,465,834
-----------
<CAPTION>
PRINCIPAL
AMOUNT
----------
<C> <S> <C>
DEMAND NOTES -- 6.18%
$1,505,000 Associates Corp. of North America Master Notes...... 1,505,000
1,239,000 General Electric Co. Promissory Notes............... 1,239,000
-----------
TOTAL DEMAND NOTES
(Cost $2,744,000)................................... 2,744,000
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Cost $41,854,862*)........................................ 101.76% $45,209,834
OTHER ASSETS AND LIABILITIES (NET)......................... (1.76) (781,122)
------ -----------
NET ASSETS................................................. 100.00% $44,428,712
====== ===========
</TABLE>
- --------
* Aggregate cost for Federal tax and book purposes.
+ Non income producing security
ADR -- American Depositary Receipt
See Notes to Financial Statements
15
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED)
LARGE CAP GROWTH FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
---------- ------------
<C> <S> <C>
COMMON STOCKS -- 98.48%
TECHNOLOGY -- 42.38%
47,000 America On-Line, Inc. ............................... $ 5,228,750
72,000 +Cisco Systems, Inc. ................................ 4,450,500
90,000 +Dell Computer Corp. ................................ 5,917,500
90,000 +EMC Corp. .......................................... 5,146,875
53,000 Intel Corp. ......................................... 4,544,750
77,000 Medtronic, Inc. ..................................... 4,456,375
41,000 +Microsoft Corp. .................................... 4,512,562
60,000 +Tellabs, Inc. ...................................... 2,388,750
------------
36,646,062
------------
FINANCIAL -- 20.59%
48,000 American International Group, Inc. .................. 3,696,000
30,000 Citicorp............................................. 2,788,125
64,000 Fannie Mae........................................... 4,112,000
54,000 Merrill Lynch & Co. ................................. 2,558,250
118,000 Schwab (Charles) Corp. .............................. 4,646,250
------------
17,800,625
------------
CONSUMER CYCLICAL -- 20.24%
67,000 +BMC Software, Inc. ................................. 4,020,000
83,000 Harley-Davidson, Inc. ............................... 2,438,125
101,000 Home Depot, Inc. .................................... 3,989,500
69,000 +PeopleSoft, Inc. ................................... 2,251,125
91,000 +Sylvan Learning Systems, Inc. ...................... 2,093,000
107,000 Walt Disney Co. ..................................... 2,708,438
------------
17,500,188
------------
CONSUMER STAPLES -- 15.27%
49,000 Coca-Cola Co. ....................................... 2,823,625
72,000 Gillette Co. ........................................ 2,754,000
41,000 Pfizer, Inc. ........................................ 4,343,438
75,000 +Quintiles Transnational Corp. ...................... 3,281,250
------------
13,202,313
------------
TOTAL COMMON STOCKS
(Cost $79,875,612)................................... 85,149,188
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 1)
---------- ------------
<C> <S> <C>
REPURCHASE AGREEMENTS -- 1.49%
$1,288,000 Agreement with Chase Securities Inc., 5.25%, dated
9/30/98, due 10/01/98, to be repurchased at
$1,288,188, collateralized by $1,085,000 U.S.
Treasury Notes, 7.875% due 11/15/04, valued at
$1,319,524
(Cost $1,288,000)................................... $ 1,288,000
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Cost $81,163,612*)........................................ 99.97% $86,437,188
OTHER ASSETS AND LIABILITIES (NET)......................... 0.03 22,192
------ -----------
NET ASSETS................................................. 100.00% $86,459,380
====== ===========
</TABLE>
- --------
* Aggregate cost for Federal tax and book purposes.
+ Non-income producing security
See Notes to Financial Statements
16
<PAGE>
EXCELSIOR FUNDS, INC.
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1998 (UNAUDITED)
REAL ESTATE FUND
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
---------- -----------
<C> <S> <C>
COMMON STOCKS -- 96.98%
REAL ESTATE -- 94.47%
38,000 Arden Realty Group, Inc. ............................ $ 847,875
31,884 Avalon Bay Communities, Inc. ........................ 1,086,049
55,000 Bedford Property Investors, Inc. .................... 990,000
36,000 Boston Properties, Inc. ............................. 1,026,000
57,000 Cabot Industrial Trust............................... 1,204,125
62,000 +Catellus Development Corp. ......................... 806,000
70,500 CenterTrust Retail Properties, Inc. ................. 916,500
35,500 Chateau Communities, Inc. ........................... 991,781
33,000 Crescent Real Estate Equity, Co. .................... 833,250
60,000 Developers Divers Realty, Corp. ..................... 1,095,000
55,000 Duke Realty Investment, Inc. ........................ 1,275,312
44,203 Equity Office Properties Trust ...................... 1,082,974
47,500 First Washington Realty Trust........................ 1,128,125
37,000 Forest City Enterprises, Inc., Class A............... 777,000
38,000 Glenborough Realty Trust, Inc. ...................... 807,500
53,500 Glimcher Realty Trust................................ 916,188
35,500 Golf Trust of America, Inc. ......................... 1,056,125
39,000 Health Care REIT, Inc. .............................. 1,038,375
35,000 Healthcare Realty Trust, Inc. ....................... 892,500
32,000 Highwoods Properties, Inc. .......................... 888,000
38,000 Hospitality Properties Trust......................... 1,130,500
54,000 HRPT Properties Trust................................ 870,750
32,000 KIMCO Realty Corp. .................................. 1,216,000
31,900 Mack-Cali Realty Corp. .............................. 957,000
36,500 Meditrust Corp. ..................................... 622,781
52,000 Merry Land & Investment Companies, Inc. ............. 1,163,500
54,000 Pacific Gulf Properties, Inc. ....................... 1,086,750
40,000 Prentiss Properties Trust............................ 955,000
46,000 ProLogis Trust....................................... 1,040,750
44,000 Public Storage, Inc. ................................ 1,179,750
37,000 Simon Property Group, Inc. .......................... 1,100,750
29,000 Spieker Properties, Inc. ............................ 1,065,750
26,000 Starwood Hotels & Resorts............................ 793,000
90,000 Taubman Center, Inc. ................................ 1,260,000
77,000 United Dominion Realty Trust......................... 875,875
28,500 Vornado Realty Trust................................. 944,062
29,500 Weingarten Realty Investors.......................... 1,209,500
-----------
37,130,397
-----------
COMMON STOCKS -- (CONTINUED)
FINANCIAL -- 2.51%
20,000 Freddie Mac.......................................... $ 988,750
-----------
TOTAL COMMON STOCKS
(Cost $44,359,669)................................... 38,119,147
-----------
<CAPTION>
PRINCIPAL
AMOUNT
----------
<C> <S> <C>
REPURCHASE AGREEMENT -- 3.49%
$1,370,000 Agreement with Chase Securities Inc., 5.25%, dated
9/30/98, due 10/01/98, to be repurchased at
$1,370,200, collateralized by $1,155,000 U.S.
Treasury Notes, 7.875% due 11/15/04, valued at
$1,404,655
(Cost $1,370,000).................................... 1,370,000
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Cost $45,729,669*)........................................ 100.47% $39,489,147
OTHER ASSETS AND LIABILITIES (NET)......................... (0.47) (184,154)
------ -----------
NET ASSETS................................................. 100.00% $39,304,993
====== ===========
</TABLE>
- --------
* Aggregate cost for Federal tax and book purposes.
+ Non-income producing security
REIT -- Real Estate Investment Trust
See Notes to Financial Statements
17
<PAGE>
EXCELSIOR FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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 the Blended
Equity Fund, Income and Growth Fund, Value and Restructuring Fund, Small Cap
Fund, Energy and Natural Resources Fund, Large Cap Growth Fund and Real Estate
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 the closing over-the-counter bid prices. Securities for which
there were no transactions are valued at the average of the most recent bid
prices (as calculated by an independent pricing service (the "Service")
based upon its evaluation of the market for such securities) when, in the
judgment of the Service, quoted bid prices for securities are readily
available and are representative of the bid side of the market. Portfolio
securities that are primarily traded on foreign securities exchanges are
generally valued at the preceding closing values of such securities on
their respective exchanges, except that when an occurrence subsequent to
the time a value was so established is likely to have changed such value,
then a fair value of those securities will be determined by consideration
of other factors under the direction of the Board of Directors. A security
which is traded on more than one exchange is valued at the quotation on the
exchange determined to be the primary market on which the security is
traded. Securities for which market quotations are not readily available
are valued at fair value, pursuant to guidelines adopted by Excelsior
Fund's Board of Directors. Short-term debt instruments with remaining
maturities of 60 days or less are valued at amortized cost, which
approximates market value.
All other foreign securities are valued at the last current bid quotation
if market quotations are available, or at fair value as determined in
accordance with policies established by the Board of Directors. Investment
valuations, other assets, and liabilities initially expressed in foreign
currencies are converted each business day into U.S. dollars based upon
current exchange rates. Purchases and sales of foreign investments and
income and expenses are converted into U.S. dollars based upon currency
exchange rates prevailing on the respective dates of such transactions.
Gains and losses attributable to foreign currency exchange rates are
recorded for financial statement purposes as net realized gains and losses
on investments. That portion of both realized and unrealized gains and
18
<PAGE>
losses on investments that results from fluctuations in foreign currency
exchange rates is not separately disclosed.
Forward foreign currency exchange contracts: The Portfolios'
participation in forward currency exchange contracts will be limited to
hedging involving either specific transactions or portfolio positions.
Transaction hedging involves the purchase or sale of foreign currency with
respect to specific receivables or payables of a Portfolio generally
arising in connection with the purchase or sale of its portfolio
securities. Risk may arise upon entering into these contracts from the
potential inability of counterparties to meet the terms of their contracts
and is generally limited to the amount of unrealized gain on the contracts,
if any, at the date of default. Risk may also arise from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
Contracts are marked-to-market daily and the change in market value is
recorded as unrealized appreciation or depreciation. Realized gains or
losses arising from such transactions are included in net realized gains or
losses from foreign currency transactions.
(B) SECURITY TRANSACTIONS AND INVESTMENT INCOME:
Security transactions are recorded on a trade date basis. Realized gains
and losses on investments sold are recorded on the basis of identified
cost. Interest income, adjusted for amortization of premiums and, when
appropriate, discounts on investments, is recorded on the accrual basis.
Dividend income is recorded on the ex-dividend date except for certain
dividends from foreign securities, which are recorded as soon as the
Portfolios are informed of the dividend.
(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.
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 and paid quarterly. Net
realized capital gains, unless offset by any available capital loss
carryforward, are distributed to shareholders at least annually. Dividends
and distributions are recorded on the ex-dividend date.
Dividends and distributions are determined in accordance with Federal
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
net operating losses, foreign currency transactions, partnership income,
deferral of losses on wash sales, dividends received from real estate
investment trusts (REITs) and net capital losses and net currency losses
incurred after October 31 and within the
19
<PAGE>
taxable year ("Post-October losses"). Due to the nature of distributions
that the Real Estate Fund receives from REITs, the Real Estate Fund
anticipates that it will have a tax basis return of capital.
In order to avoid a Federal excise tax, each Portfolio is required to
distribute certain minimum amounts of net realized capital gain and net
investment income for the respective periods ending October 31 and December
31 in each calendar year.
(E) FEDERAL TAXES:
It is the policy of Excelsior Fund that each Portfolio continue to
qualify as a regulated investment company, if such qualification is in the
best interest of the shareholders, by complying with the requirements of
the Internal Revenue Code applicable to regulated investment companies, and
by distributing substantially all of its taxable earnings to its
shareholders.
At September 30, 1998, aggregate gross unrealized appreciation for all
securities for which there was an excess of value over tax cost and
aggregate gross unrealized depreciation for all securities for which there
was an excess of tax cost over value is as follows:
<TABLE>
<CAPTION>
TAX BASIS TAX BASIS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
APPRECIATION (DEPRECIATION) (DEPRECIATION)
------------ -------------- --------------
<S> <C> <C> <C>
Blended Equity Fund............. $232,622,673 $ (4,967,672) $227,655,001
Income and Growth Fund.......... 25,465,243 (6,661,433) 18,803,810
Value and Restructuring Fund ... 43,674,450 (73,595,736) (29,921,286)
Small Cap Fund.................. 2,518,576 (8,775,494) (6,256,918)
Energy and Natural Resources
Fund........................... 8,249,656 (4,894,684) 3,354,972
Large Cap Growth Fund........... 14,615,243 (9,341,667) 5,273,576
Real Estate Fund................ 390,236 (6,630,758) (6,240,522)
</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, DISTRIBUTION EXPENSES 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 0.75% of the average daily net assets of the Blended Equity Fund,
Income and Growth Fund and Large Cap Growth Fund, 0.60% of the average daily
net assets of the Value and Restructuring Fund, Small Cap Fund and Energy and
Natural Resources Fund, and 1.00% of the average daily net assets of the Real
Estate 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
20
<PAGE>
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: 0.200% of the first $200 million, 0.175% of the next $200 million,
and 0.150% 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 six months ended September 30, 1998, Administration fees charged by U.S.
Trust CT were as follows:
<TABLE>
<S> <C>
Blended Equity Fund................................................... $107,796
Income and Growth Fund................................................ 20,405
Value and Restructuring Fund.......................................... 93,637
Small Cap Fund........................................................ 9,839
Energy and Natural Resources Fund..................................... 8,144
Large Cap Growth Fund................................................. 13,466
Real Estate Fund...................................................... 7,413
</TABLE>
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. Until further notice to Excelsior Fund, U.S. Trust intends
to voluntarily waive fees to the extent necessary to maintain an annual
expense ratio of not more than 0.99% for Value and Restructuring Fund, Small
Cap Fund and Energy and Natural Resources Fund, and not more than 1.05% and
1.20% for Large Cap Growth Fund and Real Estate Fund, respectively. For the
six months ended September 30, 1998, U.S. Trust waived fees as follows:
<TABLE>
<S> <C>
Blended Equity Fund.................................................... $127,343
Real Estate Fund....................................................... 21,672
</TABLE>
Excelsior Fund has also entered into administrative servicing agreements
with various service organizations (which may include affiliates of U.S.
Trust) requiring them to provide administrative support services to their
customers owning shares of the Portfolios. As a consideration for the
administrative services provided by each service organization to its
customers, each Portfolio will pay the service organization an administrative
service fee at the annual rate of up to 0.40% of the average daily net asset
value of its shares held by the service organizations' customers. Such
services may include assisting in processing purchase, exchange and redemption
requests; transmitting and receiving funds in connection with customer orders
to purchase, exchange or redeem shares; and providing periodic statements.
Administrative service fees paid to affiliates of U.S. Trust amounted to
$300,380 for the six months ended September 30, 1998. Until further notice to
Excelsior Fund, U.S. Trust and the Administrators have voluntarily agreed to
waive investment advisory and administration fees payable by each Portfolio in
an amount equal to administrative service fees payable (including fees paid to
affiliates of U.S. Trust) by that Portfolio. For the six months ended
September 30, 1998, U.S. Trust and the Administrators
21
<PAGE>
waived investment advisory and administration fees in amounts equal to the
administrative service fees for the Portfolios as follows:
<TABLE>
<CAPTION>
U.S.
TRUST ADMINISTRATORS
-------- --------------
<S> <C> <C>
Blended Equity Fund..................................... $115,491 $ 850
Income and Growth Fund.................................. 51,323 248
Value and Restructuring Fund............................ 276,461 49,688
Small Cap Fund.......................................... 25,303 19
Energy and Natural Resources Fund....................... 16,256 1,879
Large Cap Growth Fund................................... 12,372 90
Real Estate............................................. 13,336 3
</TABLE>
Edgewood Services, Inc. (the "Distributor"), a wholly-owned subsidiary of
Federated Investors, Inc. serves as the sponsor and distributor of Excelsior
Fund. Shares of each Portfolio are sold 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.
3. PURCHASES AND SALES OF SECURITIES:
For the six months ended September 30, 1998, purchases and sales of
securities, excluding short-term investments, for the Portfolios aggregated:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Blended Equity Fund.................................. $ 37,593,295 $ 32,770,179
Income and Growth Fund............................... 19,454,833 59,698,389
Value and Restructuring Fund......................... 345,908,056 111,304,900
Small Cap Fund....................................... 24,086,564 34,447,367
Energy and Natural Resources Fund.................... 18,459,811 10,491,950
Large Cap Growth Fund................................ 44,799,827 2,477,082
Real Estate Fund..................................... 7,708,630 2,675,858
</TABLE>
4. COMMON STOCK:
Excelsior Fund has authorized capital of 35 billion shares of Common Stock,
23.875 billion of which is currently classified to represent interests in one
of eighteen separate portfolios. Authorized capital currently classified for
each Portfolio is as follows: 375 million shares of the Blended Equity and
Income and Growth Funds and 500 million shares each of Value and Restructuring
Fund, Small Cap Fund, Energy and Natural Resources Fund, Large Cap Growth Fund
and Real Estate Fund. As of August 1, 1997 Trust Shares are no longer offered,
and at September 30, 1998 there were no Trust Shares outstanding.
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
22
<PAGE>
taxable earnings on the assets belonging to such Portfolio as are declared at
the discretion of Excelsior Fund's Board of Directors.
<TABLE>
<CAPTION>
Blended Equity Fund
----------------------------------------------------
Six Months Ended Year Ended
09/30/98 03/31/98
------------------------- -------------------------
Shares Amount Shares Amount
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Sold:
Shares................ 1,835,245 $ 66,227,633 1,830,335 $ 59,664,729
Trust Shares.......... -- -- 454 --
Issued in connection
with previous
reorganization
Shares................ -- -- 5,809,320 118,382,388
Issued as reinvestment
of dividends:
Shares................ 9,496 353,114 365,826 11,596,023
Trust Shares.......... -- -- 6 146
Redeemed:
Shares................ (1,756,356) (62,036,758) (3,428,336) (110,065,542)
Trust Shares.......... -- -- (3,604) (108,505)
---------- ------------- ---------- -------------
Net Increase............ 88,385 $ 4,543,989 4,574,001 $ 79,469,239
========== ============= ========== =============
<CAPTION>
Income and Growth Fund
----------------------------------------------------
Six Months Ended Year Ended
09/30/98 03/31/98
------------------------- -------------------------
Shares Amount Shares Amount
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Sold.................... 342,298 $ 5,593,585 1,061,028 $ 18,205,158
Issued as reinvestment
of dividends........... 22,747 405,482 370,069 6,178,623
Redeemed................ (2,143,219) (35,270,824) (2,444,213) (42,309,649)
---------- ------------- ---------- -------------
Net Decrease............ (1,778,174) $ (29,271,757) (1,013,116) $ (17,925,868)
========== ============= ========== =============
<CAPTION>
Value and Restructuring Fund
----------------------------------------------------
Six Months Ended Year Ended
09/30/98 03/31/98
------------------------- -------------------------
Shares Amount Shares Amount
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Sold
Shares................ 14,919,350 $ 342,693,196 9,949,197 $ 210,533,502
Issued as reinvestment
of dividends:
Shares................ 22,992 550,389 32,739 680,550
Trust Shares.......... -- -- 4 58
Redeemed:
Shares................ (5,333,456) (110,533,940) (1,440,113) (29,351,458)
Trust Shares.......... -- -- (3,268) (61,583)
---------- ------------- ---------- -------------
Net Increase............ 9,608,886 $ 232,709,645 8,538,559 $ 181,801,069
========== ============= ========== =============
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
SMALL CAP FUND
-------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
09/30/98 03/31/98
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Sold:
Shares................... 2,133,506 $ 19,500,764 1,742,160 $19,925,198
Trust Shares............. -- -- 991 10,266
Issued as reinvestment of
dividends
Shares................... -- -- 1 4
Redeemed:
Shares................... (3,457,715) (32,019,211) (2,036,998) (20,366,512)
Trust Shares............. -- -- (1,905) (21,542)
---------- ------------ ---------- -----------
Net Decrease............... (1,324,209) $(12,518,447) (295,751) $ (452,586)
========== ============ ========== ===========
<CAPTION>
ENERGY AND NATURAL RESOURCES FUND
-------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
09/30/98 03/31/98
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Sold....................... 1,364,986 $ 15,938,400 1,589,555 $20,278,480
Issued as reinvestment of
dividends................. 2,665 32,245 57,892 738,380
Redeemed................... (776,776) (9,025,865) (1,001,470) (12,312,018)
---------- ------------ ---------- -----------
Net Increase............... 590,875 $ 6,944,780 645,977 $ 8,704,842
========== ============ ========== ===========
<CAPTION>
LARGE CAP GROWTH FUND
-------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
09/30/98 03/31/98*
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Sold....................... 5,679,608 $ 51,211,417 5,724,639 $42,655,392
Issued as reinvestment of
dividends................. -- -- -- --
Redeemed................... (1,102,389) (9,664,975) (141,234) (1,080,251)
---------- ------------ ---------- -----------
Net Increase............... 4,577,219 $ 41,546,442 5,583,405 $41,575,141
========== ============ ========== ===========
<CAPTION>
REAL ESTATE FUND
-------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
09/30/98 03/31/98*
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Sold....................... 1,747,749 $ 11,513,412 5,989,568 $41,874,511
Issued as reinvestment of
dividends................. 1,260 8,381 481 3,364
Redeemed................... (1,106,336) (7,025,408) (149,807) (1,034,897)
---------- ------------ ---------- -----------
Net Increase............... 642,673 $ 4,496,385 5,840,242 $40,842,978
========== ============ ========== ===========
</TABLE>
- --------
* For the period 10/1/97 (commencement of operations) through 3/31/98.
24
<PAGE>
5. ORGANIZATION COSTS:
Excelsior Fund has borne all costs in connection with the initial
organization of new portfolios, including the fees for registering and
qualifying its shares for distribution under Federal and state securities
regulations. All such costs are being amortized on the straight-line basis
over periods of five years from the dates on which each Portfolio commenced
operations.
6. 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 six months ended September 30, 1998, the Portfolios had
no borrowings under the agreement.
25
<PAGE>
EXCELSIOR FUNDS, INC.
FORM N-14
---------
PART C. OTHER INFORMATION
Item 15. Indemnification
---------------
Article VII, Section 3 of Registrant's Articles of Incorporation,
incorporated herein by reference to Exhibit (1)(a) hereto, and Article VI,
Section 2 of Registrant's Amended and Restated Bylaws, incorporated herein by
reference to Exhibit (2)(a) hereto, provide for the indemnification of
Registrant's directors and officers. Indemnification of Registrant's principal
underwriter, custodian, transfer agent and co-administrators is provided for,
respectively, in Section 1.11 of the Amended and Restated Distribution Contract
incorporated herein by reference to Exhibit (7)(a) hereto, Section 12 of the
Custody Agreement incorporated herein by reference to Exhibit (9)(a) hereto,
Section 7 of the Amended and Restated Mutual Funds Transfer Agency Agreement
incorporated herein by reference to Exhibit (13)(e) hereto, and Section 6 of the
Amended and Restated Administration Agreement incorporated herein by reference
to Exhibit (13)(b) hereto. Registrant has obtained from a major insurance
carrier a directors' and officers' liability policy covering certain types of
errors and omissions. In no event will Registrant indemnify any of its
directors, officers, employees, or agents against any liability to which such
person would otherwise be subject by reason of his willful misfeasance, bad
faith or gross negligence in the performance of his duties, or by reason of his
reckless disregard of the duties involved in the conduct of his office or
arising under his agreement with Registrant. Registrant will comply with Rule
484 under the Securities Act of 1933 and Release No. 11330 under the Investment
Company Act of 1940 in connection with any indemnification.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a director, officer, or controlling person of Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
-1-
<PAGE>
Item 16.
Exhibits:
(1) (a) Articles of Incorporation of Registrant dated August 1, 1984
(4).
(b) Articles Supplementary of Registrant dated October 29, 1985
(4).
(c) Articles Supplementary of Registrant dated September 30,
1986 (4).
(d) Articles Supplementary of Registrant dated April 10, 1987
(4).
(e) Articles Supplementary of Registrant dated April 27, 1990
(4).
(f) Articles Supplementary of Registrant dated October 26, 1990
(4).
(g) Articles Supplementary of Registrant dated January 29, 1991
(4).
(h) Articles Supplementary of Registrant dated December 23, 1992
(4).
(i) Articles Supplementary of Registrant dated August 31, 1995
(1).
(j) Articles Supplementary of Registrant dated December 28, 1995
(1).
(k) Articles Supplementary of Registrant dated September 11,
1997 (3).
(l) Articles Supplementary of Registrant dated December 22, 1997
(4).
(m) Articles Supplementary of Registrant dated November 13, 1998
(5).
(2) (a) Amended and Restated By-Laws of Registrant dated February 2,
1995 (3).
(b) Amendment No. 1 to Amended and Restated By-Laws of
Registrant dated May 16, 1997 (3).
(3) None.
(4) Plan of Reorganization filed herewith as Appendix A to the
Combined Prospectus/Proxy Statement.
-2-
<PAGE>
(5) (a) Articles VI, VII, VIII and X of Registrant's Articles of
Incorporation dated August 1, 1984 are incorporated herein
by reference to Exhibit 1(a) hereto.
(b) Articles I, II, IV and VI of Registrant's Amended and
Restated By-Laws are incorporated herein by reference to
Exhibit 2(a) hereto.
(6) (a) Investment Advisory Agreement among Registrant, U.S. Trust
Company of Connecticut and United States Trust Company of
New York dated May 16, 1997 with respect to the Money Fund,
Government Money Fund, Blended Equity Fund, Small Cap Fund,
Long-Term Supply of Energy Fund, Productivity Enhancers
Fund, Environmentally-Related Products and Services Fund,
Aging of America Fund, Communication and Entertainment Fund,
Value and Restructuring Fund, Global Competitors Fund, Latin
America Fund, Pacific/Asia Fund, Pan European Fund, Short-
Term Government Securities Fund and Intermediate-Term
Managed Income Fund (2).
(b) Amendment No. 1 dated July 25, 1997 to the Investment
Advisory Agreement among Registrant, U.S. Trust Company of
Connecticut and United States Trust Company of New York
dated May 16, 1997 (adding the Large Cap Growth and Real
Estate Funds) (3).
(c) Amendment No. 2 dated November 14, 1997 to the Investment
Advisory Agreement among Registrant, U.S. Trust Company of
Connecticut and United States Trust Company of New York
dated May 16, 1997 (adding the Emerging Markets Fund) (4).
(d) Investment Advisory Agreement among Registrant, U.S. Trust
Company of Connecticut and United States Trust Company of
New York dated May 16, 1997 with respect to the Managed
Income Fund (2).
(e) Investment Advisory Agreement among Registrant, U.S. Trust
Company of Connecticut and United States Trust Company of
New York dated May 16, 1997 with respect to the Income and
Growth Fund (2).
(f) Investment Advisory Agreement among Registrant, U.S. Trust
Company of Connecticut and United States Trust Company of
New York dated May 16, 1997 with respect to the
International Fund (2).
(g) Investment Advisory Agreement among Registrant, U.S. Trust
Company of Connecticut and United States Trust Company of
New York dated May 16, 1997 with respect to the Treasury
Money Fund (2).
-3-
<PAGE>
(7) (a) Amended and Restated Distribution Contract dated July 31,
1998 between Registrant and Edgewood Services, Inc. (5).
(8) None.
(9) (a) Custody Agreement between Registrant and The Chase Manhattan
Bank dated September 1, 1995 (as amended and restated on
August 1, 1997) (3).
(b) Amended Exhibit A dated November 28, 1997 to the Custody
Agreement dated September 1, 1995 (as amended and restated
on August 1, 1997) (4).
(c) Amendment No. 1 dated May 22, 1998 to the Custody Agreement
dated September 1, 1995 (as amended and restated on August
1, 1997)(5).
(d) Amendment No. 2 dated May 22, 1998 to the Custody Agreement
dated September 1, 1995 (as amended and restated on August
1, 1997)(5).
(e) Amendment No. 3 dated July 31, 1998 to the Custody Agreement
dated September 1, 1995 (as amended and restated on August
1, 1997) (5).
(10) None.
(11) Opinion of Drinker Biddle & Reath LLP (5).
(12) Opinion of Drinker Biddle & Reath LLP as to tax consequences
(including consent of the firm) (5).
(13) (a) Amended and Restated Administrative Services Plan and
Related Form of Shareholder Servicing Agreement (3).
(b) Amended and Restated Administration Agreement dated July 31,
1998 among Registrant, Chase Global Funds Services Company,
Federated Administrative Services and U.S. Trust Company of
Connecticut (5).
(c) Amended and Restated Exhibit A dated July 31, 1998 to the
Administration Agreement dated July 31, 1998 (5).
(d) Amended and Restated Exhibit B dated July 31, 1998 to the
Administration Agreement dated July 31, 1998 (5).
(e) Amended and Restated Mutual Funds Transfer Agency Agreement
dated as of July 31, 1998 between Registrant and United
States Trust Company of New York (5).
-4-
<PAGE>
(f) Amended and Restated Mutual Funds Sub-Transfer Agency
Agreement dated as of July 31, 1998 between United States
Trust Company of New York and Chase Global Funds Services
Company (5).
(14) (a) Consent of Ernst & Young LLP (5).
(b) Consent of Drinker Biddle & Reath LLP (5).
(15) None.
(16) None.
(17) (a) Form of Proxy (5).
(b) Prospectus dated August 1, 1998 for the Blended Equity,
Income and Growth, Value and Restructuring, Small Cap and
Large Cap Growth Funds (5).
(c) Statement of Additional Information dated August 1, 1998 for
the Blended Equity, Income and Growth, Value and
Restructuring, Small Cap and Large Cap Growth Funds (5).
-5-
<PAGE>
Notes:
- -----
(1) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 23 to its Registration Statement on Form N-1A filed July 31, 1996.
(2) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 29 to its Registration Statement on Form N-1A filed July 31, 1997.
(3) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 30 to its Registration Statement on Form N-1A filed October 8, 1997.
(4) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 31 to its Registration Statement on Form N-1A filed March 16, 1998.
(5) Filed herewith.
Item 17. Undertakings
------------
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this registration statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act of 1933, as amended
(the "1933 Act"), the reoffering prospectus will contain the
information called for by the applicable registration form for
reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the
applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an
amendment to the registration statement and will not be used
until the amendment is effective, and that, in determining any
liability under the 1933 Act, each post-effective amendment shall
be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
-6-
<PAGE>
SIGNATURES
----------
As required by the Securities Act of 1933, this registration statement
has been signed on behalf of the Registrant, in the City of Vero Beach and the
State of Florida on the 5th day of April, 1999.
EXCELSIOR FUNDS, INC.
Registrant
/s/ Frederick S. Wonham
--------------------------------------------
Frederick S. Wonham, President and Treasurer
(Signature and Title)
As required by the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/ Frederick S. Wonham Chairman of the Board,
- ------------------------------
Frederick S. Wonham President and Treasurer April 5, 1999
/s/ Joseph H. Dugan
- ------------------------------
Joseph H. Dugan Director April 5, 1999
- ------------------------------
Donald L. Campbell Director
/s/ Wolfe J. Frankl
- ------------------------------
Wolfe J. Frankl Director April 5, 1999
/s/ Robert A. Robinson
- ------------------------------
Robert A. Robinson Director April 5, 1999
5
/s/ Alfred Tannachion
- ------------------------------
Alfred Tannachion Director April 5, 1999
/s/ W. Wallace McDowell, Jr.
- ------------------------------
W. Wallace McDowell, Jr. Director April 5, 1999
/s/ Jonathan Piel
- ------------------------------
Jonathan Piel Director April 5, 1999
/s/ Rodman L. Drake
- ------------------------------
Rodman L. Drake Director April 5, 1999
-7-
<PAGE>
Exhibit Index
-------------
(1) (m) Articles Supplementary of Registrant
dated November 13, 1998.
(4) Plan of Reorganization, filed herewith as Appendix A to the
Combined Prospectus/Proxy Statement.
(7) (a) Amended and Restated Distribution Contract dated July 31, 1998
between Registrant and Edgewood Services, Inc.
(9) (c) Amendment No. 1 dated May 22, 1998 to the Custody Agreement dated
September 1, 1995 (as amended and restated on August 1, 1997).
(9) (d) Amendment No. 2 dated May 22, 1998 to the Custody Agreement dated
September 1, 1995 (as amended and restated on August 1, 1997).
(9) (e) Amendment No. 3 dated July 31, 1998 to the Custody Agreement
dated September 1, 1995 (as amended and restated on August 1,
1997).
(11) Opinion of Drinker Biddle & Reath LLP.
(12) Opinion of Drinker Biddle & Reath LLP as to tax consequences
(including consent of the firm).
(13) (b) Amended and Restated Administration Agreement dated July 31, 1998
among Registrant, Chase Global Funds Services Company, Federated
Administrative Services and U.S. Trust Company of Connecticut.
(13) (c) Amended and Restated Exhibit A dated July 31, 1998 to the
Administration Agreement dated July 31, 1998.
(13) (d) Amended and Restated Exhibit B dated July 31, 1998 to the
Administration Agreement dated July 31, 1998.
(13) (e) Amended and Restated Mutual Funds Transfer Agency Agreement dated
as of July 31, 1998 between Registrant and United States Trust
Company of New York.
(13) (f) Amended and Restated Mutual Funds Sub-Transfer Agency Agreement
dated as of July 31, 1998 between United States Trust Company of
New York and Chase Global Funds Services Company.
(14) (a) Consent of Ernst & Young LLP.
(b) Consent of Drinker Biddle & Reath LLP.
(17) (a) Form of Proxy.
(b) Prospectus dated August 1, 1998 for the Blended Equity, Income
and Growth, Value and Restructuring, Small Cap and Large Cap
Growth Funds.
-8-
<PAGE>
(c) Statement of Additional Information dated August 1, 1998 for the
Blended Equity, Income and Growth, Value and Restructuring, Small
Cap and Large Cap Growth Funds.
-9-
<PAGE>
EXHIBIT (1)(m)
EXCELSIOR FUNDS, INC.
ARTICLES SUPPLEMENTARY
Excelsior Funds, Inc., a Maryland Corporation having its principal
office in the City of Baltimore, Maryland (hereinafter called the "Company"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: Pursuant to Section 2-208 of the Maryland General Corporation
Law, the Board of Directors of the Company (the "Board") has classified an
additional One Billion Five Hundred Million (1,500,000,000) shares of the
Company's authorized but unissued and unclassified shares of capital stock, of
the par value of One Mill ($.001) per share, as Class G Common Stock, of the par
value of One Mill ($.001) per share; an additional Five Hundred Million
(500,000,000) shares of the Company's authorized but unissued and unclassified
shares of capital stock, of the par value of One Mill ($.001) per share, as
Class A Common Stock, of the par value of One Mill ($.001) per share; and an
additional Five Hundred Million (500,000,000) shares of the Company's authorized
but unissued and unclassified shares of capital stock, of the par value of One
Mill ($.001) per share, as Class B Common Stock, of the par value of One Mill
($.001) per share, pursuant to the following resolutions adopted at a regular
meeting of the Board held on November 13, 1998:
RESOLVED, that pursuant to the authority expressly given to the
Board in Article VI of the Company's Charter, the Board hereby
classifies an additional One Billion Five Hundred Million
(1,500,000,000) of the Company's authorized but unissued and
unclassified shares as Class G Common Stock (with an aggregate par value
of One Million Five Hundred Thousand Dollars ($1,500,000));
FURTHER RESOLVED, that each share of Class G Common Stock shall
have all the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption as set forth in the Company's Charter;
FURTHER RESOLVED, that pursuant to the authority expressly given to
the Board in Article VI of the Company's Charter, the Board hereby
classifies an additional Five Hundred Million (500,000,000) of the
Company's authorized but unissued and unclassified shares as Class A
Common Stock (with an aggregate par value of Five Hundred Thousand
Dollars ($500,000));
FURTHER RESOLVED, that each share of Class A Common Stock shall
have all the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption as set forth in the Company's Charter;
FURTHER RESOLVED, that pursuant to the authority expressly given to
the Board in Article VI of the Company's Charter, the Board hereby
classifies an additional
<PAGE>
Five Hundred Million (500,000,000) of the Company's authorized but
unissued and unclassified shares as Class B Common Stock (with an
aggregate par value of Five Hundred Thousand Dollars ($500,000));
FURTHER RESOLVED, that each share of Class B Common Stock shall
have all the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption as set forth in the Company's Charter; and
FURTHER RESOLVED, that the officers of the Company be, and each of
them hereby is, authorized and empowered to execute, seal, deliver and
file any and all documents, instruments, papers and writings, including
but not limited to Articles Supplementary to be filed with the State
Department of Assessments and Taxation of Maryland, and to do any and
all other acts, including but not limited to changing the foregoing
resolutions upon advice of Company counsel prior to filing said Articles
Supplementary, in the name of the Company and on its behalf, as any
officer determines is necessary or desirable in connection with or in
furtherance of the foregoing resolutions, such determination to be
conclusively evidenced by said officer taking any such actions.
SECOND: The shares of capital stock of the Company classified pursuant
to the resolutions set forth herein have been classified by the Board under the
authority contained in the Charter of the Company.
THIRD: These Articles Supplementary do not increase the total number of
shares that the Company is authorized to issue or the aggregate par value
thereof. The total number of shares of capital stock which the Company is
presently authorized to issue remains Thirty-Five Billion (35,000,000,000)
shares of capital stock of the par value of One Mill ($0.001) per share and of
the aggregate par value of Thirty-Five Million Dollars ($35,000,000), classified
or remaining unclassified as follows:
Class A Common Stock: Two Billion (2,000,000,000) shares of
--------------------
capital stock of the Company of the par value of One Mill ($0.001) per
share and of the aggregate par value of Two Million Dollars
($2,000,000);
Class A Common Stock -- Special Series 1: One Billion
----------------------------------------
(1,000,000,000) shares of capital stock of the Company of the par value
of One Mill ($0.001) per share and of the aggregate par value of One
Million Dollars ($1,000,000);
Class B Common Stock: Two Billion (2,000,000,000) shares of
--------------------
capital stock of the Company of the par value of One Mill ($0.001) per
share and of the aggregate par value of Two Million Dollars
($2,000,000);
Class B Common Stock -- Special Series 1: One Billion
----------------------------------------
(1,000,000,000) shares of capital stock of the Company of the par value
of One Mill ($0.001) per share and of the aggregate par value of One
Million Dollars ($1,000,000);
-2-
<PAGE>
Class C Common Stock: Three Hundred Seventy Five Million
--------------------
(375,000,000) shares of capital stock of the Company of the par value of
One Mill ($0.001) per share and of the aggregate par value of Three
Hundred Seventy Five Thousand Dollars ($375,000);
Class C Common Stock -- Special Series 1: Five Hundred
----------------------------------------
Million (500,000,000) shares of capital stock of the Company of the par
value of One Mill ($0.001) per share and of the aggregate par value of
Five Hundred Thousand Dollars ($500,000);
Class D Common Stock: Three Hundred Seventy Five Million
--------------------
(375,000,000) shares of capital stock of the Company of the par value of
One Mill ($0.001) per share and of the aggregate par value of Three
Hundred Seventy Five Thousand Dollars ($375,000);
Class D Common Stock -- Special Series 1: Three Hundred
----------------------------------------
Seventy Five Million (375,000,000) shares of capital stock of the
Company of the par value of One Mill ($0.001) per share and of the
aggregate par value of Three Hundred Seventy Five Thousand Dollars
($375,000);
Class E Common Stock: Three Hundred Seventy Five Million
--------------------
(375,000,000) shares of capital stock of the Company of the par value of
One Mill ($0.001) per share and of the aggregate par value of Three
Hundred Seventy Five Thousand Dollars ($375,000);
Class E Common Stock -- Special Series 1: Five Hundred
----------------------------------------
Million (500,000,000) shares of capital stock of the Company of the par
value of One Mill ($0.001) per share and of the aggregate par value of
Five Hundred Thousand Dollars ($500,000);
Class F Common Stock: Three Hundred Seventy Five Million
--------------------
(375,000,000) shares of capital stock of the Company of the par value of
One Mill ($0.001) per share and of the aggregate par value of Three
Hundred Seventy Five Thousand Dollars ($375,000);
Class F Common Stock -- Special Series 1: Five Hundred
----------------------------------------
Million (500,000,000) shares of capital stock of the Company of the par
value of One Mill ($0.001) per share and of the aggregate par value of
Five Hundred Thousand Dollars ($500,000);
Class G Common Stock: Two Billion (2,000,000,000) shares of
--------------------
capital stock of the Company of the par value of One Mill ($0.001) per
share and of the aggregate par value of Two Million Dollars
($2,000,000);
Class G Common Stock -- Special Series 1: Five Hundred
----------------------------------------
Million (500,000,000) shares of capital stock of the Company of the par
value of One Mill ($0.001) per share and of the aggregate par value of
Five Hundred Thousand Dollars ($500,000);
-3-
<PAGE>
Class H Common Stock: Five Hundred Million (500,000,000)
--------------------
shares of capital stock of the Company of the par value of One Mill
($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
Class H Common Stock -- Special Series 1: Five Hundred
----------------------------------------
Million (500,000,000) shares of capital stock of the Company of the par
value of One Mill ($0.001) per share and of the aggregate par value of
Five Hundred Thousand Dollars ($500,000);
Class I Common Stock: Five Hundred Million (500,000,000)
--------------------
shares of capital stock of the Company of the par value of One Mill
($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
Class I Common Stock -- Special Series 1: Five Hundred
----------------------------------------
Million (500,000,000) shares of capital stock of the Company of the par
value of One Mill ($0.001) per share and of the aggregate par value of
Five Hundred Thousand Dollars ($500,000);
Class J Common Stock: Five Hundred Million (500,000,000)
--------------------
shares of capital stock of the Company of the par value of One Mill
($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
Class J Common Stock -- Special Series 1: Five Hundred
----------------------------------------
Million (500,000,000) shares of capital stock of the Company of the par
value of One Mill ($0.001) per share and of the aggregate par value of
Five Hundred Thousand Dollars ($500,000);
Class K Common Stock: Five Hundred Million (500,000,000)
--------------------
shares of capital stock of the Company of the par value of One Mill
($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
Class K Common Stock -- Special Series 1: Five Hundred
----------------------------------------
Million (500,000,000) shares of capital stock of the Company of the par
value of One Mill ($0.001) per share and of the aggregate par value of
Five Hundred Thousand Dollars ($500,000);
Class L Common Stock: Five Hundred Million (500,000,000)
--------------------
shares of capital stock of the Company of the par value of One Mill
($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
Class L Common Stock -- Special Series 1: Five Hundred
----------------------------------------
Million (500,000,000) shares of capital stock of the Company of the par
value of One Mill ($0.001) per share and of the aggregate par value of
Five Hundred Thousand Dollars ($500,000);
Class M Common Stock: Five Hundred Million (500,000,000)
--------------------
shares of capital stock of the Company of the par value of One Mill
($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
-4-
<PAGE>
Class M Common Stock -- Special Series 1: Five Hundred
----------------------------------------
Million (500,000,000) shares of capital stock of the Company of the par
value of One Mill ($0.001) per share and of the aggregate par value of
Five Hundred Thousand Dollars ($500,000);
Class N Common Stock: Five Hundred Million (500,000,000)
--------------------
shares of capital stock of the Company of the par value of One Mill
($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
Class N Common Stock -- Special Series 1: Five Hundred
----------------------------------------
Million (500,000,000) shares of capital stock of the Company of the par
value of One Mill ($0.001) per share and of the aggregate par value of
Five Hundred Thousand Dollars ($500,000);
Class O Common Stock: Five Hundred Million (500,000,000)
--------------------
shares of capital stock of the Company of the par value of One Mill
($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
Class O Common Stock -- Special Series 1: Five Hundred
----------------------------------------
Million (500,000,000) shares of capital stock of the Company of the par
value of One Mill ($0.001) per share and of the aggregate par value of
Five Hundred Thousand Dollars ($500,000);
Class P Common Stock: Five Hundred Million (500,000,000)
--------------------
shares of capital stock of the Company of the par value of One Mill
($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
Class P Common Stock -- Special Series 1: Five Hundred
----------------------------------------
Million (500,000,000) shares of capital stock of the Company of the par
value of One Mill ($0.001) per share and of the aggregate par value of
Five Hundred Thousand Dollars ($500,000);
Class Q Common Stock: Five Hundred Million (500,000,000)
--------------------
shares of capital stock of the Company of the par value of One Mill
($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
Class Q Common Stock -- Special Series 1: Five Hundred
----------------------------------------
Million (500,000,000) shares of capital stock of the Company of the par
value of One Mill ($0.001) per share and of the aggregate par value of
Five Hundred Thousand Dollars ($500,000);
Class R Common Stock: Five Hundred Million (500,000,000)
--------------------
shares of capital stock of the Company of the par value of One Mill
($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
Class R Common Stock -- Special Series 1: Five Hundred
----------------------------------------
Million (500,000,000) shares of capital stock of the Company of the par
value of One Mill ($0.001) per share and of the aggregate par value of
Five Hundred Thousand Dollars ($500,000);
-5-
<PAGE>
Class S Common Stock: Five Hundred Million (500,000,000)
--------------------
shares of capital stock of the Company of the par value of One Mill
($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
Class S Common Stock -- Special Series 1: Five Hundred
----------------------------------------
Million (500,000,000) shares of capital stock of the Company of the par
value of One Mill ($0.001) per share and of the aggregate par value of
Five Hundred Thousand Dollars ($500,000);
Class T Common Stock: Five Hundred Million (500,000,000)
--------------------
shares of capital stock of the Company of the par value of One Mill
($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
Class T Common Stock -- Special Series 1: Five Hundred
----------------------------------------
Million (500,000,000) shares of capital stock of the Company of the par
value of One Mill ($0.001) per share and of the aggregate par value of
Five Hundred Thousand Dollars ($500,000);
Class U Common Stock: Five Hundred Million (500,000,000)
--------------------
shares of capital stock of the Company of the par value of One Mill
($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000);
Class V Common Stock: Five Hundred Million (500,000,000)
--------------------
shares of capital stock of the Company of the par value of One Mill
($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000); and
Class W Common Stock: Five Hundred Million (500,000,000)
--------------------
shares of capital stock of the Company of the par value of One Mill
($0.001) per share and of the aggregate par value of Five Hundred
Thousand Dollars ($500,000).
The total number of authorized and unclassified shares of capital stock
of the Company remaining after the actions described above is Eight Billion Six
Hundred Twenty-Five Million (8,625,000,000) shares of capital stock of the par
value of One Mill ($0.001) per share and of the aggregate par value of Eight
Million Six Hundred Twenty-Five Thousand Dollars ($8,625,000).
-6-
<PAGE>
IN WITNESS WHEREOF, Excelsior Funds, Inc. has caused these presents to be
signed in its name and on its behalf by its President and its Corporate Seal to
be herewith affixed and attested to by its Assistant Secretary as of November
13, 1998.
EXCELSIOR FUNDS, INC.
[SEAL]
Attest:
/s/ Michael P. Malloy By: /s/ F. S. Wonham
- ---------------------------
Michael P. Malloy Frederick S. Wonham
Assistant Secretary President
-7-
<PAGE>
CERTIFICATE
THE UNDERSIGNED, President of Excelsior Funds, Inc., who executed on behalf
of said Corporation the attached Articles Supplementary of said Corporation, of
which this Certificate is made a part, hereby acknowledges, in the name and on
behalf of said Corporation, the attached Articles Supplementary to be the
corporate act of said Corporation, and certifies that to the best of his
knowledge, information and belief the matters and facts set forth in the
attached Articles Supplementary with respect to authorization and approval are
true in all material respects, under the penalties for perjury.
/s/ Frederick S. Wonham
---------------------------------------
Frederick S. Wonham
President
Dated as of: November 13, 1998
<PAGE>
EXHIBIT (7)(a)
AMENDED AND RESTATED
DISTRIBUTION CONTRACT
Edgewood Services, Inc.
Clearing Operations
P.O. Box 897
Pittsburgh, Pennsylvania 15230-0897
Gentlemen:
This is to confirm that, in consideration of the agreements hereinafter
contained, the undersigned, Excelsior Funds, Inc. (the "Company"), a Maryland
corporation, has agreed that Edgewood Services, Inc. (the "Distributor"), a
subsidiary of Federated Investors ("Federated"), shall be, for the period of
this Contract, a distributor of shares (the "Shares") of the Company's Common
Stock of one or more classes and series representing interests in the Company's
investment portfolios (individually, a "Fund," collectively, "Funds"), as
described and set forth on one or more exhibits to this Contract. In the event
that the Company establishes one or more additional investment portfolios other
than the Funds with respect to which it decides to retain the Distributor to act
as a distributor hereunder, the Company shall so notify the Distributor in
writing. If the Distributor is willing to render such services to a new
investment portfolio, it will notify the Company in writing whereupon such
investment portfolio will become a Fund under this Contract.
1. Services as Distributor.
-----------------------
1.1 The Distributor will act as agent for the distribution of Shares
in accordance with the instructions of the Company's Board of Directors and the
Company's registration statement and prospectuses then in effect under the
Securities Act of 1933, as amended, and will transmit promptly any orders
received by it for the purchase or redemption of Shares to the Company's
transfer agent or to any qualified broker/dealer for transmittal to said agent.
1.2 The Distributor agrees to use its best efforts to solicit orders
for the sale of Shares and will undertake such advertising and promotion as it
believes appropriate in connection with such solicitation. The Company
understands that the Distributor may in the future be the distributor of shares
of other investment company portfolios ("Portfolios") including Portfolios
having investment objectives similar to those of the Funds. The Company further
understands that existing and future investors in the Funds may invest in shares
of such other Portfolios. The Company agrees that the Distributor's duties to
such Portfolios shall not be deemed in conflict with its duties to the Company
under this Paragraph 1.2.
1.3 Except to the extent that any plan adopted by the Company
pursuant to Rule 12b-1 under the Investment Company Act of 1940 provides
otherwise, the
<PAGE>
Distributor shall, at its own expense, finance such activities as it deems
reasonable and which are primarily intended to result in the sale of Shares,
including, but not limited to, advertising, compensation of underwriters,
dealers and sales personnel, the printing and mailing of prospectuses to other
than current shareholders, and the printing and mailing of sales literature. In
addition, the Distributor will provide one or more persons, during normal
business hours, to respond to telephone questions with respect to the Funds. It
is contemplated that the Distributor will enter into selling agreements with
qualified broker/dealers and other persons with respect to the offering of
Shares to the public, and in so doing will act only on its own behalf as
principal.
1.4 All Shares offered for sale by the Distributor shall be offered
for sale to the public at a price per share (the "offering price") equal to (a)
their net asset value (determined in the manner set forth in the Company's
charter documents and the then current prospectus) plus, except to those classes
of persons or transactions described in the then current Prospectus, (b) a sales
charge which shall be the percentage of the offering price of such Shares as set
forth in the Company's then current prospectus. The offering price, if not an
exact multiple of one cent, shall be adjusted to the nearest cent. Concessions
by the Distributor to broker/dealers and other persons shall be set forth in
either the selling agreements between the Distributor and such broker/dealers
and persons, as from time to time amended, or if such concessions are described
in the Company's then current prospectus, shall be as so set forth. No
broker/dealer or other person who enters into a selling agreement with the
Distributor shall be authorized to act as agent for the Company in connection
with the offering or sale of the Shares to the public or otherwise.
1.5 If any Shares sold by the Company are redeemed or repurchased by
the Company or by the Distributor as agent or are tendered for redemption within
seven business days after the date of confirmation of the original purchase of
said Shares, the Distributor shall forfeit the amount above the net asset value
received by the Distributor in respect of such Shares, provided that the
portion, if any, of such amount re-allowed by the Distributor to broker/dealers
or other persons shall be repayable to the Company only to the extent recovered
by the Distributor from the broker/dealer or other person involved. The
Distributor shall include in each selling agreement with such broker/dealers and
other persons a corresponding provision for the forfeiture by them of their
concession with respect to Shares sold by them or their principals and redeemed
or repurchased by the Company or by the Distributor as agent (or tendered for
redemption) within seven business days after the date of confirmation of such
initial purchases.
1.6 All activities by the Distributor and its agents and employees as
distributor of Shares shall comply with all applicable laws, rules and
regulations, including, without limitation, all rules and regulations made or
adopted pursuant to the Investment Company Act of 1940 by the Securities and
Exchange Commission or any securities association registered under the
Securities Exchange Act of 1934.
-2-
<PAGE>
1.7 Whenever in their judgment such action is warranted by unusual
market, economic or political conditions, or by abnormal circumstances of any
kind, the Company's officers may decline to accept any orders for or make any
sales of Shares until such time as those officers deem it advisable to accept
such orders and to make such sales.
1.8 The Company agrees at its own expense to execute any and all
documents and to furnish any and all information and otherwise to take all
actions that may be reasonably necessary in connection with the qualification of
Shares for sale in such states as the Company may approve, and the Company shall
pay all fees and other expenses incurred in connection with such qualification.
The Distributor agrees to pay all expenses related to its own qualification as a
broker or dealer required by any federal or state law or self-regulatory
organization and, except as otherwise specifically provided in this Contract,
all other expenses incurred by the Distributor in connection with the offering
of Shares as contemplated by this Contract.
1.9 The Company shall timely furnish from time to time, for use in
connection with the sale of Shares, such information with respect to the Funds
and Shares as the Distributor may reasonably request; and the Company warrants
that the statements contained in any such information shall fairly show or
represent what they purport to show or represent. The Company shall also
furnish the Distributor upon request with : (a) audited annual and unaudited
semi-annual statements of the Company's books and accounts with respect to each
Fund, and, (b) from time to time such additional information regarding the
Funds' financial condition as the Distributor may reasonably request.
1.10 The Company represents to the Distributor that all registration
statements and prospectuses filed by the Company with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, with respect
to Shares have been prepared in conformity with the requirements of said Act and
rules and regulations of the Securities and Exchange Commission thereunder. As
used in this Contract, the terms "registration statement" and "prospectus" shall
mean any registration statement, prospectus (together with the related statement
of additional information) filed with respect to Shares with the Securities and
Exchange Commission, and any amendments and supplements thereto which at any
time shall have been filed with said Commission. The Company represents and
warrants to the Distributor that any registration statement and prospectus, when
such become effective, will contain all statements required to be stated therein
in conformity with said Act and the rules and regulations of said Commission;
that all statements of fact contained in any such registration statement and
prospectus will be true and correct when such registration statement and
prospectus become effective; and that neither any registration statement nor any
prospectus, when they become effective, will include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading to a purchaser of
Shares. The Company may but shall not be obligated to propose from time to time
such amendment or amendments to any registration statement
-3-
<PAGE>
and such supplement or supplements to any prospectus which, in the light of
future developments, may, in the opinion of the Company's counsel, be necessary
or advisable. The Company shall promptly notify the Distributor of any advice
given to it by the Company's counsel regarding the necessity or advisability so
to amend or supplement such registration statement or prospectus. If the Company
shall not propose such amendment or amendments and/or supplement or supplements
within fifteen days after receipt by the Company of a written request from the
Distributor to do so, the Distributor may, at its option, terminate this
Contract. The Company shall not file any amendment to any registration statement
or supplement to any prospectus without giving the Distributor reasonable notice
thereof in advance; provided, however, that nothing contained in this Contract
shall in any way limit the Company's right to file at any time such amendments
to any registration statements and/or supplements to any prospectus, of whatever
character, as the Company may deem advisable, such right being in all respects
absolute and unconditional.
1.11 The Company authorizes the Distributor and dealers to use any
prospectus in the form furnished from time to time in connection with the sale
of Shares. The Company agrees to indemnify, defend and hold the Distributor,
its several officers and directors, and any person who controls the Distributor
within the meaning of Section 15 of the Securities Act of 1933, as amended, free
and harmless from and against any and all claims, demands, liabilities and
reasonable expenses (as those expenses are incurred) (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Distributor, its officers and
directors, or any such controlling person may incur under the Securities Act of
1933, as amended, or under common law or otherwise, arising out of or based upon
any untrue statement, or alleged untrue statement, of a material fact contained
in any registration statement or any prospectus or arising out of or based upon
any omission, or alleged omission, to state a material fact required to be
stated in any registration statement or prospectus or necessary to make any
statement in such documents not misleading; provided, however, that the
-------- -------
Company's agreement to indemnify the Distributor, its officers or directors, and
any such controlling person shall not be deemed to cover any claims, demands,
liabilities or expenses arising out of any untrue statement or alleged untrue
statement or omission or alleged omission made in any registration statement or
prospectus or in any financial or other statements in reliance upon and in
conformity with any information furnished to the Company by the Distributor and
used in the preparation thereof; and further provided that the Company's
------- --------
agreement to indemnify the Distributor and the Company's representations and
warranties herein set forth shall not be deemed to cover any liability to the
Company or its shareholders to which the Distributor would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of the Distributor's reckless disregard
of its obligations and duties under this Contract. The Company's agreement to
indemnify the Distributor, its officers and directors, and any such controlling
person, as aforesaid, is expressly conditioned upon the Company's being notified
of any action brought against the Distributor, its officers or directors, or any
such controlling person, such notification to be given by letter or by telegram
addressed to the Company at its principal office in
-4-
<PAGE>
Boston, Massachusetts and sent to the Company by the person against whom such
action is brought within 20 days after the summons or other first legal process
shall have been served. The failure to so notify the Company of any such action
shall not relieve the Company from any liability which the Company may have to
the person against whom such action is brought by reason of any such untrue, or
allegedly untrue, statement or omission, or alleged omission, otherwise than on
account of the Company's indemnity agreement contained in this paragraph 1.11.
The Company will be entitled to assume the defense of any suit brought to
enforce any such claim, demand or liability, but, in such case, such defense
shall be conducted by counsel of good standing chosen by the Company and
approved by the Distributor, which approval shall not unreasonably be withheld.
In the event the Company elects to assume the defense of any such suit and
retain counsel of good standing approved by the Distributor, the defendant or
defendants in such suit shall bear the fees and expenses of any additional
counsel retained by any of them; but in case the Company does not elect to
assume the defense of any such suit, or in case the Distributor reasonably does
not approve of counsel chosen by the Company, the Company will reimburse the
Distributor, its officers and directors, or the controlling person or persons
named as defendant or defendants in such suit, for the reasonable fees and
expenses of any counsel retained by the Distributor or them. The Company's
indemnification agreement contained in this paragraph 1.11 and the Company's
representations and warranties in this Contract shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
the Distributor, its officers and directors, or any controlling person and shall
survive the delivery of any Shares. This agreement of indemnity will inure
exclusively to the Distributor's benefit, to the benefit of its several officers
and directors, and their respective estates, and to the benefit of the
controlling persons and their successors. The Company agrees promptly to notify
the Distributor of the commencement of any litigation or proceedings against the
Company or any of its officers or directors in connection with the issue and
sale of any Shares.
1.12 The Distributor agrees to indemnify, defend and hold the
Company, its several officers and directors, and any person who controls the
Company within the meaning of Section 15 of the Securities Act of 1933, as
amended, free and harmless from and against any and all claims, demands,
liabilities and reasonable expenses (as those expenses are incurred) (including
the costs of investigating or defending such claims, demands or liabilities and
any counsel fees incurred in connection therewith) which the Company, its
officers or directors or any such controlling person may incur under the
Securities Act of 1933, as amended, or under common law or otherwise, but only
to the extent that such liability or expense incurred by the Company, its
officers or directors, or such controlling person resulting from such claims or
demands, shall arise out of or be based upon any untrue, or alleged untrue,
statement of a material fact contained in information furnished by the
Distributor to the Company or its counsel and used in the Company's registration
statement or corresponding statement made in the prospectus, or shall arise out
of or be based upon any omission, or alleged omission, to state a material fact
in connection with such information furnished by the Distributor to the Company
or its counsel required to be stated in such answers or necessary to make such
information
-5-
<PAGE>
not misleading. The Distributor's agreement to indemnify the Company, its
officers and directors, and any such controlling person, as aforesaid, is
expressly conditioned upon the Distributor being notified of any action brought
against the Company, its officers or directors, or any such controlling person,
such notification to be given by letter or telegram addressed to the Distributor
at its principal office in Pittsburgh, Pennsylvania and sent to the Distributor
by the person against whom such action is brought, within 20 days after the
summons or other first legal process shall have been served. The failure to so
notify the Distributor of any such action shall not relieve the Distributor from
any liability which the Distributor may have to the Company, its officers or
directors, or to such controlling person by reason of any such untrue or alleged
untrue statement, or omission or alleged omission, otherwise than on account of
the Distributor's indemnity agreement contained in this paragraph 1.12. The
Distributor shall have the right to control the defense of such action, with
counsel of its own choosing, satisfactory to the Company, if such action is
based solely upon such alleged misstatement or omission on the Distributor's
part, and in any other event the Company, its officers or directors or such
controlling person shall each have the right to participate in the defense or
preparation of the defense of any such action. In the event the Distributor
elects to assume the defense of any such suit and retain counsel of good
standing approved by the Company, the defendant or defendants in such suit shall
bear the fees and expenses of any additional counsel retained by any of them;
but in case the Distributor does not elect to assume the defense of any such
suit, or in case the Company reasonably does not approve of counsel chosen by
the Distributor, the Distributor will reimburse the Company, its officers and
directors, or the controlling person or persons named as defendant or defendants
in such suit, for the reasonable fees and expenses of any counsel retained by
the Company or them. The Distributor's indemnification agreement contained in
this paragraph 1.12 and the Distributor's representations and warranties in this
Contract shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Company, its officers and directors,
or any controlling person and shall survive the delivery of any Shares. This
agreement of indemnity will inure exclusively to the Company's benefit, to the
benefit of its several officers and directors, and their respective estates, and
to the benefit of the controlling persons and their successors. The Distributor
agrees promptly to notify the Company of the commencement of any litigation or
proceedings against the Distributor or any of its officers or directors in
connection with the issue and sale of any Shares.
1.13 No Shares shall be offered by either the Distributor or the
Company under any of the provisions of this Contract and no orders for the
purchase or sale of Shares hereunder shall be accepted by the Company if and so
long as effectiveness of the registration statement then in effect or any
necessary amendments thereto shall be suspended under any of the provisions of
the Securities Act of 1933, as amended, or if and so long as a current
prospectus, as required by Section 10(b) of said Act, as amended, is not on file
with the Securities and Exchange Commission; provided, however, that nothing
contained in this paragraph 1.13 shall in any way restrict or have any
application to or bearing upon the Company's obligation to repurchase Shares
from any shareholder in accordance with the provisions of the Company's
prospectus or charter documents.
-6-
<PAGE>
1.14 The Company agrees to advise the Distributor as soon as
reasonably practical:
(a) of any request by the Securities and Exchange Commission for
amendments to the registration statement or prospectus then in effect;
(b) in the event of the issuance by the Securities and Exchange
Commission of any stop order suspending the effectiveness of the
registration statement or prospectus then in effect or the initiation
of any proceeding for that purpose;
(c) of the happening of any event that makes untrue any statement
of a material fact made in the registration statement or prospectus
then in effect or which requires the making of a change in such
registration statement or prospectus in order to make the statements
therein not misleading; and
(d) of all actions of the Securities and Exchange Commission with
respect to any amendment to any registration statement or prospectus
which may from time to time be filed with the Securities and Exchange
Commission.
For purposes of this section, informal requests by or acts of the
Staff of the Securities and Exchange Commission shall not be deemed actions of
or requests by the Securities and Exchange Commission.
1.15 The Distributor agrees on behalf of itself and its employees to
treat confidentially and as proprietary information of the Company all records
and other information relative to the Funds and its prior, present or potential
shareholders, and not to use such records and information for any purpose other
than performance of its responsibilities and duties hereunder, except after
prior notification to and approval in writing by the Company, which approval
shall not be unreasonably withheld and may not be withheld where the Distributor
may be exposed to civil or criminal contempt proceedings for failure to comply,
when requested to divulge such information by duly constituted authorities, or
when so requested by the Company.
2. Term.
----
This Contract shall become effective on July 31, 1998 and, unless
sooner terminated as provided herein, shall continue until July 31, 1999, and
thereafter shall continue automatically with respect to each Fund for successive
annual periods ending on July 31 of each year, provided such continuance is
specifically approved at least annually by (i) the Company's Board of Directors
or (ii) by a vote of a majority (as defined in the Investment Company Act of
1940) of the outstanding voting securities of the Fund, and
-7-
<PAGE>
provided that in either event the continuance is also approved by the majority
- --------
of the Company's directors who are not parties to this Contract or interested
persons (as defined in the Investment Company Act 1940) of any such party, by
vote cast in person at a meeting called for the purpose of voting on such
approval. This Contract is not assignable and is terminable with respect to each
Fund, without penalty, on not less than forty-five days' notice by the Company's
Board of Directors or by vote of a majority (as defined in the Investment
Company Act 1940) of the outstanding voting securities of such Fund, or, on not
less than ninety days' notice, by the Distributor. This Contract will terminate
automatically in the event of its "assignment" (as defined in the Investment
Company Act 1940). The parties agree that an assignment includes the transfer of
"control" of more than 25% of the outstanding voting securities of the
Distributor to a company that is not a subsidiary of Federated.
3. Miscellaneous.
-------------
3.1 No provision of this Contract may be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which an enforcement of the change, waiver, discharge or termination is
sought. This Contract may be executed in one or more counterparts and all such
counterparts will constitute one and the same instrument.
3.2 This Contract shall be governed by the laws of the Commonwealth
of Pennsylvania.
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Yours very truly,
EXCELSIOR FUNDS, INC.
By: /s/ F. S. Wonham
--------------------------------
Name: Frederick S. Wonham
Title: President and Treasurer
Accepted:
EDGEWOOD SERVICES, INC.
By: /s/ Kenneth W. Pegher, Jr.
---------------------------
Name: Kenneth W. Pegher, Jr.
Title: Treasurer
-8-
<PAGE>
Exhibit A to the
Amended and Restated
Distribution Contract
EXCELSIOR FUNDS, INC.
---------------------
Money Fund
Government Money Fund
Treasury Money Fund
Short-Term Government Securities Fund
Intermediate-Term Managed Income Fund
Managed Income Fund
Blended Equity Fund
Income and Growth Fund
Energy and Natural Resources Fund
Value and Restructuring Fund
Global Competitors Fund
Small Cap Fund
International Fund
Latin America Fund
Pacific/Asia Fund
Pan European Fund
Large Cap Growth Fund
Real Estate Fund
Emerging Markets Fund
In consideration of the mutual covenants set forth in the Distribution
Contract dated as of August 1, 1995, as amended and restated on July 31, 1998,
between Excelsior Funds, Inc. and Edgewood Services, Inc., Excelsior Funds, Inc.
and Edgewood Services, Inc. execute and deliver this intending to be legally
bound and intending this to be Exhibit A to said Distribution Contract.
Witness the due execution hereof this 31st day of July, 1998.
EXCELSIOR FUNDS, INC.
/s/ F. S. Wonham
---------------------------------------
Name: Frederick S. Wonham
Title: President and Treasurer
EDGEWOOD SERVICES, INC.
/s/ Keneth W. Pegher, Jr.
---------------------------------------
Name: Kenneth W. Pegher, Jr.
Title: Treasurer
-9-
<PAGE>
Exhibit 9(c)
AMENDMENT No. 1, dated as of May 22, 1998 to the September 1, 1995 custody
agreement ("Agreement") (as amended and restated on August 1, 1997), between
Excelsior Funds, Inc. ("Customer"), having a place of business at 73 Tremont
St., Boston, MA 02108, and The Chase Manhattan Bank ("Bank"), having a place of
business at 270 Park Ave., New York, N.Y. 10017-2070.
It is hereby agreed as follows:
Section 1. Except as modified hereby, the Agreement is confirmed in all
respects. Capitalized terms used herein without definition shall have the
meanings ascribed to them in the Agreement.
Section 2. The Agreement is amended as follows by adding the following
as new (S)24:
"Unless the context clearly requires otherwise, the following words shall
have the meanings set forth below when used herein:
(a) "CMBI" shall mean Chase Manhattan Bank International, an indirect wholly-
owned subsidiary of Bank, located in Moscow, Russia, and any nominee
companies appointed by it.
(b) "International Financial Institution" shall mean any bank in the top 1,000
(together with their affiliated companies) as measured by "Tier 1" capital
or any broker/dealer in the top 100 as measured by capital.
(c) "Negligence" shall mean the failure to exercise "Reasonable Care".
(d) "No-Action Letter" shall mean the response of the Securities and Exchange
Commission's Office of Chief Counsel of Investment Management, dated April
18, 1995, in respect of the Templeton Russia Fund, Inc. (SEC Ref. No. 95-
151-CC, File No. 811-8788) providing "no-action" relief under (S)17(f) of
The Investment Company Act of 1940, as amended, and SEC Rule 17f-5
thereunder, in connection with custody of such Templeton Russia Fund,
Inc.'s investments in Russian Securities.
(e) "Reasonable Care" shall mean the use of reasonable custodial practices
under the applicable circumstances as measured by the custodial practices
then prevailing in Russia of International Financial Institutions acting as
custodians for their institutional investor clients in Russia.
(f) "Registrar Company" shall mean any entity providing share registration
services to an issuer of Russian Securities.
(g) "Registrar Contract" shall mean a contract between CMBI and a Registrar
Company (and as the same may be amended from time to time) containing,
inter alia, the contractual provisions described at paragraphs (a)-(e) on
----- ----
pps. 5-6 of the No-Action Letter.
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<PAGE>
(h) "Russian Security" shall mean an equity Security issued by a Russian
issuer.
(i) "Share Extract" shall mean: (1) an extract of its share registration books
issued by a Registrar Company indicating an investor's ownership of a
security; and (2) a form prepared by CMBI or its agent in those cases where
a Registrar Company is unwilling to issue a Share Extract.
Section 3. Section 6 of the Agreement is amended by adding the following
paragraph at the end thereof: "With respect to Russia, payment for Russian
Securities shall not be made prior to the issuance and receipt of the Share
Extract (as defined in Section 24(i)(1)) relating to such Russian Security.
Delivery of Russian Securities may be made in accordance with the customary or
established securities trading or securities processing practices and procedures
in Russia. Delivery of Russian Securities may also be made in any manner
specifically required by Instructions acceptable to the Bank. Customer shall
promptly supply such transaction and settlement information as may be requested
by Bank or CMBI in connection with particular transactions."
Section 4. Section 12(a)(i) of the Agreement is amended with respect to
Russian custody by deleting the phrase "reasonable care" wherever it appears and
substituting, in lieu thereof, the phrase "Reasonable Care".
Section 5. Section 12(a)(i) of the Agreement is further amended with
respect to Russian custody only by only inserting the following at the end of
the first sentence thereof: "; provided that, with respect to Russian
Securities, Bank's responsibilities shall be limited to safekeeping relevant
Share Extracts."
Section 6. Section 12(a)(i) of the Agreement is further amended with
respect to Russian custody by inserting the following after the second sentence
thereof: "Delegation by Bank to CMBI shall not relieve Bank of any
responsibility to Customer for any loss due to such delegation, and Bank shall
be liable for any loss or claim arising out of or in connection with the
performance by CMBI of such delegated duties to the same extent as if Bank had
itself provided the custody services hereunder. In connection with the
foregoing, neither Bank nor CMBI shall assume responsibility for, and neither
shall be liable for, any action or inaction of any Registrar Company not
affiliated with Bank or CMBI and no Registrar Company shall be, or shall be
deemed to be, Bank, CMBI, a Subcustodian, a securities depository or the
employee, agent or personnel of any of the foregoing. To the extent that CMBI
employs agents unaffiliated with CMBI to perform any of the functions to be
performed by Bank or CMBI with respect to Russian Securities, neither Bank nor
CMBI shall be responsible for any act, omission, default or for the solvency of
any such agent unless the appointment of such agent was made with Negligence or
in bad faith, except that where Bank or CMBI uses (i) an affiliated nominee or
(ii) an agent to perform the share registration or share confirmation functions
described in paragraphs (a)-(e) on pps. 5-6 of the No-Action Letter, and, to the
extent applicable to CMBI, the share registration functions described on pps. 2-
3 of the No-Action Letter, Bank and CMBI shall be liable to Customer as if CMBI
were responsible for performing such services itself."
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<PAGE>
Section 7. Section 12(a)(ii) is amended with respect to Russian custody
by deleting the word "negligently" and substituting, in lieu thereof, the word
"Negligently".
Section 8. Section 12(a)(iii) is amended with respect to Russian custody
by deleting the word "negligence" and substituting, in lieu thereof, the word
"Negligence".
Section 9. Section 14(b) of the Agreement is amended by adding a new
subparagraph to the end thereof as follows: "(iv) It is understood and agreed
that Bank need only use its reasonable efforts with respect to performing the
functions described in this (S)14(b) with respect to Russian Securities (except
that Bank shall use Reasonable Care with respect to its duties to transmit
information to Customer).
Section 10. Add a new Section 25 to the Agreement as follows:
(a) Bank will advise Customer (and will update such advice from time to time as
changes occur) of those Registrar Companies with which CMBI has entered
into a Registrar Contract. Bank shall cause CMBI both to monitor each
Registrar Company and to promptly advise Customer and its investment
advisor when CMBI has actual knowledge of the occurrence of any one or more
of the events described in paragraphs (i)-(v) on pps. 8-9 of the No-Action
Letter with respect to a Registrar Company that serves in that capacity for
any issuer the shares of which are held by Customer.
(b) Where Customer is considering investing in the Russian Securities of an
issuer as to which CMBI does not have a Registrar Contract with the
issuer's Registrar Company, Customer may request that Bank ask that CMBI
both consider whether it would be willing to attempt to enter into such a
Registrar Contract and to advise Customer of its willingness to do so.
Where CMBI has agreed to make such an attempt, Bank will advise Customer of
the occurrence of any one or more of the events described in paragraphs
(i)-(iv) on pps. 8-9 of the No-Action Letter of which CMBI has actual
knowledge.
(c) Where Customer is considering investing in the Russian Securities of an
issuer as to which CMBI has a Registrar Contract with the issuer's
Registrar Company, Customer may advise Bank of its interest in investing in
such issuer and, in such event, Bank will advise Customer of the occurrence
of any one or more of the events described in paragraphs (i)-(v) on pps. 8-
9 of the No-Action Letter of which CMBI has actual knowledge."
Section 11. Add a new Section 26 to the Agreement as follows: "Customer
shall pay for and hold Bank and CMBI harmless from any liability or loss
resulting from the imposition or assessment of any taxes (including, but not
limited to, state, stamp and other duties) or other governmental charges, and
any related expenses incurred by Bank, CMBI or their respective agents with
respect to income on Customer's Russian Securities.
Section 12. Add a new Section 27 to the Agreement as follows: "Customer
acknowledges and agrees that CMBI may not be able, in given cases and despite
its reasonable efforts, to obtain a Share Extract from a Registrar Company and
CMBI shall not be liable in any such event including with respect to any losses
resulting from such failure."
-3-
<PAGE>
Section 13. Add a new Section 28 to the Agreement as follows: "Customer
acknowledges that it has received, reviewed and understands Bank's market report
for Russia, including, but not limited to, the risks described therein."
Section 14. Add a new Section 29 to the Agreement as follows: "Subject
to the cooperation of a Registrar Company, for at least the first two years
following CMBI's first use of a Registrar Company, Bank shall cause CMBI to
conduct share confirmations on at least a quarterly basis, although thereafter
confirmations may be conducted on a less frequent basis if Customer's Board of
Directors, in consultation with CMBI, determines it to be appropriate."
Section 15. Add a new Section 30 to the Agreement as follows: "Bank
shall cause CMBI to prepare for distribution to Customer's Board of Directors a
quarterly report identifying: (i) any concerns it has regarding the Russian
share registration system that should be brought to the attention of the Board
of Directors; and (ii) the steps CMBI has taken during the reporting period to
ensure that Customer's interests continue to be appropriately recorded."
Section 16. Add a new Section 31 to the Agreement as follows: "Except as
provided in new (S)25(b), the services to be provided by Bank hereunder with
respect to Russian Securities will be provided only in relation to Russian
Securities for which CMBI has entered into a Registrar Contract with the
relevant Registrar Company."
Section 17. Add a new Section 32 to the Agreement as follows: "Bank
confirms that its procedures and arrangements as set forth herein are designed
to comply with the No-Action Letter."
*********************************************
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
EXCELSIOR FUNDS, INC. THE CHASE MANHATTAN BANK
By: /s/ Frederick S. Wonham By: /s/ Robert Boyles
------------------------- ---------------------------
Name: Frederick S. Wonham Name: Robert Boyles
Title: President and Treasurer Title: Chairman and CEO
-4-
<PAGE>
Exhibit 9(d)
AMENDMENT No. 2, dated as of May 22, 1998, to the September 1, 1995 custody
agreement (as amended and restated on August 1, 1997) ("Agreement"), between
Excelsior Funds, Inc. ("Fund") on behalf of the investment portfolios of the
Fund listed on Exhibit A to the Agreement (each a "Portfolio" and collectively
the "Portfolios"), having a place of business at 73 Tremont St., Boston, MA
02108 and The Chase Manhattan Bank ("Bank"), having a place of business at 270
Park Ave., New York, N.Y. 10017-2070.
It is hereby agreed as follows:
Section 1. Except as modified hereby, the Agreement is confirmed in all
respects. Capitalized terms used herein without definition shall have the
meanings ascribed to them in the Agreement.
Section 2. The Agreement is amended as follows:
A. Delete the phrase "the second paragraph of" in the seventh line of
Section 1 of the Agreement.
B. Section 3 of the Agreement is amended and restated as follows:
3. Eligible Foreign Custodians and Securities Depositories
-------------------------------------------------------
(a) Fund's board of directors (hereinafter "Board") on behalf of each
Portfolio hereby delegates to Bank, and Bank hereby accepts the delegation to
it, of the obligation to perform as Fund's "Foreign Custody Manager" (as that
term is defined in SEC rule 17f-5(a)(2)), both for the purpose of selecting
Eligible Foreign Custodians (as that term is defined in SEC rule 17f-5(a)(1),
and as the same may be amended from time to time, or that have otherwise been
made exempt pursuant to an SEC exemptive order) to hold Property and of
evaluating the contractual arrangements with such Eligible Foreign Custodians
(as set forth in SEC rule 17f-5(c)(2)); provided that, the term Eligible Foreign
Custodian shall not include any "Compulsory Depository." A Compulsory Depository
shall mean a securities depository or clearing agency the use of which is
compulsory because: (1) its use is required by law or regulation, (2) securities
cannot be withdrawn from the depository, or (3) maintaining securities outside
the depository is not consistent with prevailing custodial practices in the
country which the depository serves. For each Compulsory Depository used or
intended to be used by Fund of which Bank is advised, Bank shall provide Fund
from time to time with information addressing the factors set forth in SEC Rule
17f-5(c)(1) to the extent reasonably available to Bank, together with Bank's
analysis of the same (an example of which is set forth in Appendix I-C hereto)
to assist Fund in determining the appropriateness of placing Assets therein.
Compulsory Depositories used by Bank as of the date hereof are set forth in
Appendix 1-A hereto, and as the same may be amended on notice to Fund from time
to time.
(b) In connection with the foregoing, Bank shall:
(i) provide written reports notifying Fund's Board of the placement of
Property with particular Eligible Foreign Custodians and of any
material change in the arrangements
<PAGE>
with such Eligible Foreign Custodians, with such reports to be
provided to Fund's Board at such times as the Board deems
reasonable and appropriate based on the circumstances of Fund's
foreign custody arrangements (and until further notice from Fund
such reports shall be provided not less than quarterly with respect
to the placement of Property with particular Eligible Foreign
Custodians and with reasonable promptness (but not less than
quarterly) upon the occurrence of any material change in the
contracts or arrangements with or procedures or practices of such
Eligible Foreign Custodians);
(ii) exercise such reasonable care, prudence and diligence in performing
as Fund's Foreign Custody Manager as a person having responsibility
for the safekeeping of Property would exercise;
(iii) in selecting an Eligible Foreign Custodian, first have determined
that Property placed and maintained in the safekeeping of such
Eligible Foreign Custodian shall be subject to reasonable care,
based on the standards applicable to custodians in the relevant
market, after having considered all factors relevant to the
safekeeping of such Property, including, without limitation, those
factors set forth in SEC rule 17f-5(c)(1)(i)-(iv);
(iv) determine that the written contract with the Eligible Foreign
Custodian (or, in the case of an Eligible Foreign Custodian that is
a securities depository or clearing agency, such contract, the
rules or established practices or procedures of the depository, or
any combination of the foregoing) requires that the Eligible
Foreign Custodian will provide reasonable care for Property based
on the standards applicable to custodians in the relevant market;
and
(v) have established a system to monitor the continued appropriateness
of maintaining Property with particular Eligible Foreign Custodians
and of the governing contractual arrangements.
Subject to (b)(i)-(v) above, Bank is hereby authorized to place and maintain
Property on behalf of Fund with Eligible Foreign Custodians pursuant to a
written contract deemed appropriate by Bank.
(c) Except as expressly provided herein, Fund shall be solely
responsible to assure that the maintenance of Property hereunder complies with
the rules, regulations, interpretations and exemptive orders promulgated by or
under the authority of the SEC.
(d) Bank represents to Fund that it is a U.S. Bank as defined in Rule
17f-5(a)(7). Fund, on behalf of each Portfolio, represents to Bank that: (1) the
Property being placed and maintained in Bank's custody are subject to the
Investment Company Act of 1940, as amended (the "1940 Act"), as the same may be
amended from time to time; (2) its Board has determined that it is reasonable to
rely on Bank to perform as Fund's Foreign Custody Manager; and (3) its Board or
its investment adviser shall have determined that Fund may maintain Property in
each country in which Fund's Property shall be held hereunder and determined to
accept the risks arising therefrom (including, but not limited to, a country's
financial infrastructure (and including any Compulsory Depository operating in
such country), prevailing custody and settlement practices, laws applicable to
the safekeeping and recovery of Property held in custody, and the likelihood
-2-
<PAGE>
of nationalization, currency controls and the like) (collectively, "Country
Risk"). Nothing contained herein shall require Bank to make any selection or to
engage in any monitoring on behalf of Fund that would entail consideration of
Country Risk.
(e) Bank shall provide to Fund such information relating to Country Risk
as is specified in Appendix I-B hereto. Fund hereby acknowledges that: (i) such
information is solely designed to inform Fund of market conditions and
procedures and is not intended as a recommendation to invest or not invest in
particular markets; and (ii) Bank has gathered the information from sources it
considers reliable, but that Bank shall have no responsibility for inaccuracies
or incomplete information.
(f) At the request of Fund, Bank may, but need not, add an Eligible
Foreign Custodian that is either a bank or a non-Compulsory Depository where
Bank has not acted as Foreign Custody Manager with respect to the selection
thereof. Bank shall notify Fund in the event that it elects to add any such
entity.
(g) The term "subcustodian" as used herein shall mean the following:
(i) a "U.S. Bank," which shall mean a U.S. bank as defined in SEC rule
17f-5(a)(7); and
(ii) an "Eligible Foreign Custodian," which shall mean (i) a banking
institution or trust company, incorporated or organized under the
laws of a country other than the United States, that is regulated
as such by that country's government or an agency thereof, (ii) a
majority-owned direct or indirect subsidiary of a U.S. bank or bank
holding company which subsidiary is incorporated or organized under
the laws of a country other than the United States; (iii) a
securities depository or clearing agency (other than a Compulsory
Depository), incorporated or organized under the laws of a country
other than the United States, that acts as a system for the central
handling of securities or equivalent book-entries in that country
and that is regulated by a foreign financial regulatory authority
as defined under section 2(a)(50) of the 1940 Act, (iv) a
securities depository or clearing agency organized under the laws
of a country other than the United States when acting as a
transnational system ("Transnational Depository") for the central
handling of securities or equivalent book-entries, and (v) any
other entity that shall have been so qualified by exemptive order,
rule or other appropriate action of the SEC.
C. In the fourth line of Section 4(e) of the Agreement replace the word
"its" with "their" and after the word "administration" add the following
language: "or, in the case of cash deposits, except for liens or rights in favor
of creditors of the subcustodian arising under bankruptcy, insolvency or similar
laws."
D. Insert the following language at the beginning of the second
sentence of Section 12(a)(i): "Except with respect to those countries as to
which the parties may from time to time in the future agree in writing
otherwise."
E. Insert the following at the beginning of Section 12(a)(ii) of the
Agreement: "Absent negligence, bad faith or willful misconduct in performing as
Fund's Foreign Custody Manager
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<PAGE>
with respect to the affected subcustodian, Bank shall not be responsible for the
insolvency of any subcustodian which is not a branch or affiliate of Bank."
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
EXCELSIOR FUNDS, INC. THE CHASE MANHATTAN BANK
By: /s/ Frederick S. Wonham By: /s/ Robert Boyles
---------------------------- --------------------------------
Name: Frederick S. Wonham Name: Robert Boyles
Title: President and Treasurer Title: Chairman & CEO
-4-
<PAGE>
Appendix 1-A
COMPULSORY DEPOSITORIES
<PAGE>
Appendix 1-B
Information Regarding Country Risk
----------------------------------
1. To aid Fund's board in its determinations regarding Country Risk, Bank
shall furnish board annually and upon the initial placing of Property into a
country the following information (check items applicable):
A. Opinions of local counsel concerning:
____ i. Whether applicable foreign law would restrict the access afforded
Fund's independent public accountants to books and records kept by an
eligible foreign custodian located in that country.
____ ii. Whether applicable foreign law would restrict the Fund's ability to
recover its Property in the event of the bankruptcy of an Eligible
Foreign Custodian located in that country.
____ iii. Whether applicable foreign law would restrict the Fund's ability to
recover Property that are lost while under the control of an Eligible
Foreign Custodian located in the country.
B. Written information concerning:
____ i. The likelihood of expropriation, nationalization, freezes, or
confiscation of Fund's Property.
____ ii. Whether difficulties in converting Fund's cash and cash equivalents to
U.S. dollars are reasonably foreseeable.
C. A market report with respect to the following topics:
(i) securities regulatory environment, (ii) foreign ownership restrictions,
(iii) foreign exchange, (iv) securities settlement and registration, (v)
taxation, and (vi) compulsory depositories (including depository
evaluation).
2. Bank shall furnish the following additional information:
Market flashes, including with respect to changes in the information in
market reports.
-1-
<PAGE>
EXHIBIT (9)(e)
EXCELSIOR FUNDS, INC.
AMENDMENT NO. 3
TO
CUSTODY AGREEMENT
WHEREAS, Excelsior Funds, Inc. ("the Fund") and The Chase Manhattan Bank
("the Bank") desire to amend the Custody Agreement (the "Agreement") dated as of
September 1, 1995 (as amended and restated on August 1, 1997) by and between
them to change the time period required for notice of termination of the
Agreement from 60 to 45 days.
NOW THEREFORE, the parties hereto, intending to be legally bound hereby,
agree that the Agreement is amended as follows:
1. Paragraph No. 17 shall henceforth read:
"17. Termination. This Agreement may be terminated by the Fund or
-----------
the Bank by 45 days' written notice to the other, sent by registered mail.
If notice of termination is given by the Bank, the Fund shall, within 60
days following the giving of such notice, deliver to the Bank a certified
copy of a resolution of the Board of Directors of the Fund specifying the
names of the persons to whom the Bank shall deliver such Securities and
cash, after deducting therefrom any amounts which the Bank determines to be
owed to it under Section 15 hereof. If within 60 days following the giving
of a notice of termination by the Bank, the Bank does not receive from the
Fund a certified copy of a resolution of the Board of Directors of the Fund
specifying the names of the persons to whom the cash in each Deposit
Account shall be paid and to whom the Securities in each Custody Account
shall be delivered, the Bank, at its election, may deliver such Securities
and pay such cash to a bank or trust company doing business in the State of
New York and qualified as a custodian under the Investment Company Act of
1940 and other applicable rules and regulations to be held and disposed of
pursuant to the provisions of this Agreement, or to Authorized Persons, or
may continue to hold such Securities and cash until a certified copy of one
or more resolutions as aforesaid is delivered to the Bank. The obligations
of the parties hereto regarding the use of reasonable care, indemnities and
payment of fees and expenses shall survive the termination of this
Agreement, and the obligations of each Portfolio of the Fund to indemnify
and/or hold harmless other persons or entities under this Agreement shall
be the several (and not the joint or joint and several) obligation of each
Portfolio of the Fund."
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of July 31, 1998.
EXCELSIOR FUNDS, INC.
By: /s/ F. S. Wonham
------------------------------
Title: President and Treasurer
---------------------------
THE CHASE MANHATTAN BANK
By: /s/ Donald P. Hearn
------------------------------
Title: Senior Vice President
---------------------------
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<PAGE>
Exhibit (11)
Law Offices
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
Telephone: (215) 988-2700
Fax: (215) 988-2757
April 5, 1999
Excelsior Funds, Inc.
73 Tremont Street
Boston, MA 02108-3913
Dear Sir or Madam:
We have acted as counsel for Excelsior Funds, Inc. ("Excelsior"), a
Maryland corporation in connection with the proposed acquisition of
substantially all of the assets and liabilities of Excelsior's Income and Growth
Fund by Excelsior's Blended Equity Fund in exchange for shares of the Blended
Equity Fund.
The aforementioned proposed acquisition is referred to herein as the
"Reorganization." The Income and Growth Fund is referred to herein as the
"Transferor Fund." The Blended Equity Fund is referred to herein as the
"Surviving Fund." This opinion relates to shares of common stock of the
Surviving Fund (par value $0.001 per share) (the "Shares") to be issued in the
Reorganization and is furnished in connection with Excelsior's Registration
Statement on Form N-14 under the Securities Act of 1933, as amended (the
"Registration Statement").
As counsel for Excelsior, we are familiar with the proceedings taken by it
in connection with the authorization, issuance and sale of the Shares. In
addition, we have examined and are familiar with the Articles of Incorporation
of Excelsior, as amended and supplemented, the By-laws of Excelsior, as amended,
Excelsior's Registration Statement and the combined proxy statement and
prospectus (the "Proxy Statement and Prospectus") contained therein, and other
factual matters we deemed relevant.
In our examination, we have assumed that: (i) all documents submitted to us
as originals are authentic, the signatures thereon are genuine and the persons
signing the same were of legal capacity; (ii) all documents submitted to us as
certified or photostatic copies conform to the original documents and that such
originals are authentic; and (iii) all certificates of public
<PAGE>
Excelsior Funds, Inc.
April 5, 1999
Page 2
officials upon which we have relied have been duly and properly given and that
any public records reviewed by us are complete.
We have made such examination of law as in our judgment is necessary and
appropriate for the purposes of this opinion. We express no opinion concerning
the laws of any jurisdiction other than the General Corporation Law of the State
of Maryland.
On the basis of and subject to the foregoing and such other considerations
as we deem relevant, we are of the opinion that upon (i) approval by the
Excelsior Board of Directors and shareholders of the Income and Growth Fund of
the Plan of Reorganization and the issuance of Shares in connection with the
Plan, and (ii) the prior satisfaction of the conditions contained in the Plan of
Reorganization, a copy of which is set forth in the Proxy Statement and
Prospectus constituting a part of the Registration Statement, the Shares of the
Surviving Fund, when issued pursuant to the Plan of Reorganization and in the
manner referred to in the Registration Statement, will be validly issued, fully
paid and non-assessable by Excelsior.
This opinion is solely for the use of Excelsior and may not be referred to
or used for any other purpose or relied on by any other persons without our
prior written approval. This opinion is limited to the matters set forth in
this letter and no other opinions should be inferred beyond the matters
expressly stated.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ DRINKER BIDDLE & REATH LLP
<PAGE>
EXHIBIT (12)
April 5, 1999
Excelsior Funds, Inc.
73 Tremont Street
Boston, MA 02108-3913
Re: Plan of Reorganization with respect to Income
and Growth Fund and Blended Equity Fund
---------------------------------------------
Dear Ladies and Gentlemen:
You have asked for our opinion as to certain Federal income tax
consequences of the transactions contemplated in the above-referenced Plan of
Reorganization (the "Plan").
Background
- ----------
Excelsior Funds, Inc. (the "Company") is an open-end management
investment company registered with the Securities and Exchange Commission (the
"SEC") under the Investment Company Act of 1940, as amended. The Company
currently offers shares in a number of investment portfolios, including the
Income and Growth Fund (the "Transferor Fund") and the Blended Equity Fund (the
"Surviving Fund").
At the Effective Time of the Reorganization (as defined in the Plan),
it is contemplated that the Transferor Fund will transfer all of its assets and
liabilities to the Surviving Fund. In exchange for such transfer and in order to
accomplish the reclassification of the Transferor Fund's shares (as described in
the Plan), the Surviving Fund will contemporaneously issue to shareholders of
the Transferor Fund full and fractional shares of the Surviving Fund having an
aggregate net asset value equal to the value of the assets and liabilities of
the Transferor Fund, and the existence of the Transferor Fund will be
terminated. All of the above steps constitute the "Transactions."
For purposes of this opinion, we have relied on certain written
representations of an officer of the Company, a copy of which is attached
hereto, and have assumed such representations to be true. We have also assumed
that the Plan substantially in the form included as Appendix A to the Combined
Proxy Statement/Prospectus (the "Proxy Statement"), a draft of which is part of
the Registration Statement (the "Registration Statement") being filed this day
with the SEC on Form N-14, will be duly authorized by the Company's Board of
Directors and approved by the shareholders of the Transferor Fund, and the
appropriate documents will be filed with the appropriate government agencies.
<PAGE>
Conclusions
- -----------
Based upon the Internal Revenue Code of 1986, as amended (the "Code"),
applicable Treasury Department regulations in effect as of the date hereof,
current published administrative positions of the Internal Revenue Service
contained in revenue rulings and procedures, and judicial decisions, and upon
the assumptions and representations referred to herein and the documents
provided to us by you (including the Proxy Statement and the Plan), it is our
opinion for Federal income tax purposes that:
(i) the acquisition of the assets and assumption of the liabilities
of the Transferor Fund by the Surviving Fund in return for shares of the
Surviving Fund followed by the distribution of such shares to the shareholders
of the Transferor Fund, as provided in the Plan, will constitute a
"reorganization" within the meaning of section 368(a)(1)(C) or 368(a)(1)(D) of
the Code, and each such Fund will be "a party to the reorganization" within the
meaning of section 368(b) of the Code;
(ii) in accordance with sections 361(a), 361(c)(1) and 357(a) of the
Code, no gain or loss will be recognized by the Transferor Fund as a result of
the Transactions;
(iii) in accordance with section 1032(a) of the Code, no gain or loss
will be recognized by the Surviving Fund as a result of the Transactions;
(iv) in accordance with section 354(a)(1) of the Code, no gain or
loss will be recognized by the shareholders of the Transferor Fund upon the
receipt of the shares of the Surviving Fund in exchange for their shares of the
Transferor Fund;
(v) in accordance with section 358(a)(1) of the Code, the tax basis
of the shares of the Surviving Fund received by the shareholders of the
Transferor Fund will be the same as the tax basis of the shares of the
Transferor Fund exchanged therefor in the Transactions;
(vi) in accordance with section 362(b) of the Code, the tax basis of
the assets received by the Surviving Fund in the Transactions will be the same
as the tax basis of such assets in the hands of the Transferor Fund immediately
before the Transactions;
(vii) in accordance with section 1223(1) of the Code, the holding
period of the shares of the Surviving Fund received by the shareholders of the
Transferor Fund will include the holding period of the shares of the Transferor
Fund exchanged therefor, provided that at the time of the exchange the shares of
the Transferor Fund were held as capital assets;
(viii) in accordance with section 1223(2) of the Code, the holding
period of the Surviving Fund with respect to the assets acquired in the
Transactions will include the period during which such assets were held by the
Transferor Fund; and
(ix) in accordance with section 381(a) of the Code, the Surviving
Fund will succeed to the tax attributes of the Transferor Fund described in
section 381(c) of the Code.
-2-
<PAGE>
This opinion represents our best legal judgment, but it has no binding
effect or official status of any kind, and no assurance can be given that
contrary positions may not be taken by the Internal Revenue Service or a court
concerning the issues. We express no opinion relating to any Federal income tax
matter except on the basis of the facts described above. Additionally, we
express no opinion on the tax consequences under foreign, state or local laws.
In issuing our opinion, we have relied solely upon existing provisions of the
Code, existing and proposed regulations thereunder, and current administrative
positions and judicial decisions. Such laws, regulations, administrative
positions and judicial decisions are subject to change at any time. Any such
change could affect the validity of the opinion set forth above. Also, future
changes in Federal income tax laws and the interpretation thereof can have
retroactive effect.
We hereby consent to the filing of this opinion with the SEC as an
exhibit to the Registration Statement. We also consent to the references to our
firm under the caption "Information Relating to the Proposed Reorganization--
Federal Income Tax Consequences" in the Proxy Statement. In consenting to such
references to our firm, we have not certified any part of the Registration
Statement, and such consent does not establish that we come within the
categories of persons whose consent is required under section 7 of the
Securities Act of 1933 or under the rules and regulations of the SEC issued
thereunder.
Very truly yours,
/s/ Drinker Biddle & Reath
-----------------------------
DRINKER BIDDLE & REATH LLP
-3-
<PAGE>
EXCELSIOR FUNDS, INC.
73 Tremont Street
Boston, MA 02108-3913
April 5, 1999
Drinker Biddle & Reath LLP
1345 Chestnut Street
Philadelphia, PA 19107
Re: Excelsior Funds, Inc. (the "Company")
Plan of Reorganization with respect to Income
and Growth Fund and Blended Equity Fund
--------------------------------------------
Gentlemen:
We have requested your opinion as to certain Federal income tax
matters in connection with the proposed reorganization (the "Reorganization") of
the Company's Income and Growth Fund (the "Transferor Fund") into the Company's
Blended Equity Fund (the "Surviving Fund") pursuant to the above-referenced Plan
of Reorganization (the "Plan"). At the Effective Time of the Reorganization (as
defined in the Plan), it is contemplated that the Transferor Fund will transfer
all of its assets and liabilities to the Surviving Fund. In exchange for such
transfer and in order to accomplish the reclassification of the Transferor
Fund's shares (as described in the Plan), the Surviving Fund will
contemporaneously issue to shareholders of the Transferor Fund full and
fractional shares of the Surviving Fund having an aggregate net asset value
equal to the value of the assets and liabilities of the Transferor Fund, and the
existence of the Transferor Fund will be terminated. All of the above steps
constitute the "Transactions." To enable you to render such opinion, we are
furnishing the following representations:
1. Both the Transferor Fund and the Surviving Fund qualified as a
"regulated investment company" under Part I of Subchapter M of Subtitle A,
Chapter 1, of the Internal Revenue Code of 1986, as amended, for their most
recently ended fiscal year and will so qualify for their current fiscal year.
2. The Transferor Fund will transfer to the Surviving Fund assets
consisting of at least 90% of the fair market value of the Transferor Fund's net
assets and at least 70% of the fair market value of its gross assets immediately
prior to the Transactions. For purposes of this assumption, all of the following
shall be considered as assets of the Transferor Fund held immediately prior to
the Transactions: (a) amounts used by the Transferor Fund to pay its expenses in
connection with the Transactions; and (b) all amounts used to make redemptions
of or distributions on such Transferor Fund's shares (except for redemptions in
the ordinary course
<PAGE>
of its business, as required by section 22(e) of the Investment Company Act of
1940, as amended, pursuant to a demand for redemption by a shareholder of the
Transferor Fund, and distributions of net investment income and net capital
gains, other than net capital gains resulting from sales of assets for the
purpose of satisfying the investment objectives of the Surviving Fund, if any,
that differ from the existing investment objectives of the Transferor Fund).
Redemptions, if any, that appear to be initiated by such shareholders (or their
successors) in connection with or as a result of the Plan or the Transactions
will be considered to be assets of the Transferor Fund that were not transferred
to the Surviving Fund.
3. The Transferor Fund, as promptly as practicable, will distribute the
Surviving Fund shares received in the Transactions to its shareholders in
complete liquidation of the Transferor Fund and, having made such distributions,
will take all necessary steps to terminate its existence.
4. Prior to the Transactions, the Transferor Fund will continue its
historic business within the meaning of Treasury Regulations section 1.368-1(d)
and will not dispose of more than fifty percent (50%) of the fair market value
of its assets for the purpose of satisfying the investment objectives of the
Surviving Fund, if any, that differ from the existing investment objectives of
the Transferor Fund.
5. At the time of the Transactions, the adjusted income tax basis and the
fair market value of the assets to be transferred by the Transferor Fund to the
Surviving Fund will each equal or exceed the sum of the liabilities to be
assumed by the Surviving Fund or to which such transferred assets are subject.
6. At the time of the Transactions, there will be no plan or intention by
the shareholders of the Transferor Fund who own five percent (5%) or more of the
Transferor Fund's stock and, to the best of the knowledge of the management of
the Trust, no plan or intention on the part of the remaining shareholders of the
Transferor Fund, to sell, exchange or otherwise dispose of a number of shares of
the Surviving Fund's stock to be received in the Transactions that would reduce
the Transferor Fund shareholders' ownership of Surviving Fund stock to a number
of shares having a value, as of the time of the Transactions, of less than fifty
percent (50%) of the value of all of the formerly outstanding stock of the
Transferor Fund immediately prior to the Transactions. For purposes of this
assumption, Surviving Fund shares or Transferor Fund shares surrendered by
Transferor Fund shareholders in redemption or sold where such redemptions or
sales, if any, appear to be initiated by Transferor Fund shareholders in
connection with or as a result of the Plan or the Transactions, will be treated
as outstanding Transferor Fund shares on the date of the Transactions. Moreover,
for purposes of making this assumption, the Company has taken into account the
fact that Transferor Fund shares and Surviving Fund shares held by Transferor
Fund shareholders and otherwise sold, redeemed or disposed of prior or
subsequent to the Transactions may be considered as outstanding Transferor Fund
shares on the date of the Transactions, which were sold, redeemed or disposed of
in connection with the Transactions.
-2-
<PAGE>
7. The Transferor Fund is not and will not be under the jurisdiction of a
court in a case under Title 11 of the United States Code or a receivership,
foreclosure or similar proceeding in any federal or state court.
8. Following the Transactions, the Surviving Fund will use a significant
portion of the Transferor Fund's historic business assets in a business, in an
amount equal to at least 50% of the assets in the Transferor Fund's portfolio at
the time of the Transactions, as increased by the amounts, if any, that the
Transferor Fund paid to its shareholders in redemption of its shares, where such
redemptions, if any, appear to have been initiated by such shareholders in
connection with or as a result of the Plan or Transactions. In making this
determination, dispositions made in the ordinary course of the Surviving Fund's
business as an open-end investment company (i.e., dispositions made in the
---
ordinary course of business and independent of the Transactions) shall not be
taken into account. In addition, following the Transactions, the Surviving Fund
will continue the historic business of the Transferor Fund as a series of an
open-end investment company investing primarily in domestic equity securities.
9. At the time of the Transactions, the Surviving Fund will not have any
plan or intention to reacquire any of its shares issued in the Transactions,
except in the ordinary course of business.
10. At the time of the Transactions, the Surviving Fund will not have any
plan or intention to sell or otherwise to dispose of any of the assets of the
Transferor Fund acquired in the Transactions, except for dispositions made in
the ordinary course of business or, in order to conform with the Surviving
Fund's criteria for the selection of investments and the reinvestment of the
proceeds in a manner consistent with the historic investment policies of both
the Transferor Fund and the Surviving Fund ("Realignment Dispositions"), which
Realignment Dispositions shall be limited to the extent required by the above
representation relating to the continuation by the Surviving Fund of the
historic business of the Transferor Fund. For purposes of this representation,
Realignment Dispositions made by the Transferor Fund, if any, will be considered
to have been made by the Surviving Fund.
11. All fees and expenses incurred and borne by any party to the
Transactions shall be solely and directly related to the Transactions and shall
be paid directly by such party to the relevant providers of services or other
payees, in accordance with the principles set forth in Rev. Rul. 73-54, 1973-1
C.B. 187. Transferor Fund shareholders will pay their respective expenses, if
any, incurred in connection with the Transactions.
12. The liabilities of the Transferor Fund that will be assumed by the
Surviving Fund and the liabilities, if any, to which the transferred assets will
be subject were incurred by the Transferor Fund in the ordinary course of its
business.
13. There is and will be no interfund indebtedness between the Surviving
Fund and the Transferor Fund that was issued, acquired or will be settled at a
discount.
-3-
<PAGE>
14. The Surviving Fund does not own, has not owned during the past five
years, and will not own, any stock of the Transferor Fund, directly or
indirectly.
15. The Transactions have been proposed for the purposes set forth in the
Combined Proxy Statement/Prospectus, a draft of which is part of the
Registration Statement being filed this day with the Securities and Exchange
Commission.
We understand that you will, and expressly authorize you to, rely upon each
of the foregoing representations in rendering your opinion of even date
herewith. We undertake to advise you promptly if we become aware of any facts or
circumstances that would cause any representation that we have given to be
incorrect.
Very truly yours,
EXCELSIOR FUNDS, INC.
By: /s/ Frederick S. Wonham
-----------------------
Chairman, President and Treasurer
-4-
<PAGE>
EXHIBIT (13)(b)
AMENDED AND RESTATED
ADMINISTRATION AGREEMENT
This AGREEMENT made as of July 31, 1998 by and among EXCELSIOR FUNDS,
INC., a Maryland corporation (the "Company"), CHASE GLOBAL FUNDS SERVICES
COMPANY, a Delaware corporation ("CGFSC"), FEDERATED ADMINISTRATIVE SERVICES
("FAS"), a Delaware trust, and U.S. TRUST COMPANY OF CONNECTICUT ("U.S. Trust"),
a Connecticut state bank and trust company (CGFSC, FAS and U.S. Trust are
collectively referred to as the "Administrators").
WITNESSETH:
WHEREAS, the Company is registered as an open-end, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Company wishes to retain the Administrators to provide,
as co-administrators, certain administration services with respect to one or
more of the Company's investment portfolios (individually, a "Fund," and
collectively, the "Funds"), as described and set forth on one or more exhibits
to this Agreement, and the Administrators are willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Company hereby appoints the Administrators to
-----------
provide administration services to the Funds for the period and on the terms set
forth in this Agreement. The Administrators accept such appointment and agree
to furnish the services herein set forth in return for the compensation as
provided in Section 4 of this Agreement. In the event that the Company
establishes one or more investment portfolios other than the Funds with respect
to which it decides to retain the Administrators to act as co-administrators
hereunder, the Company shall notify the Administrators in writing. If the
Administrators are willing to render such services to a new investment
portfolio, they shall so notify the Company in writing whereupon such investment
portfolio shall become a Fund hereunder and shall be subject to the provisions
of this Agreement to the same extent as the Funds, except to the extent that
said provisions (including those relating to the compensation payable by the
Company) may be modified with respect to such investment portfolio in writing by
the Company and the Administrators at the time of the addition of such new
investment portfolio.
2. Delivery of Documents. The Company has furnished each of the
---------------------
Administrators with copies, properly certified or authenticated, of each of the
following:
(a) Resolutions of the Company's Board of Directors authorizing the
appointment of the Administrators to provide certain administration services to
the Company and approving this Agreement;
<PAGE>
(b) The Company's Articles of Incorporation ("Charter");
(c) The Company's Bylaws ("Bylaws");
(d) The Company's Notification of Registration on Form N-8A under the
1940 Act as filed with the Securities and Exchange Commission ("SEC") on August
8, 1984;
(e) The Company's most recent Post-Effective Amendment to its
Registration Statement on Form N-1A (No. 2-92665) (the "Registration Statement")
under the Securities Act of 1933 and the 1940 Act, as filed with the SEC;
(f) The Company's Amended and Restated Administrative Services Plan;
and
(g) The Company's most recent Prospectuses and Statements of
Additional Information and all amendments and supplements thereto (such
Prospectuses and Statements of Additional Information and supplements thereto,
as presently in effect and as from time to time amended and supplemented, herein
called the "Prospectus").
The Company will timely furnish each of the Administrators from time
to time with copies, properly certified or authenticated, of all amendments of
or supplements to the foregoing, if any.
3. Services and Duties. Subject to the supervision and control of the
-------------------
Company's Board of Directors, and as delineated on one or more Exhibit to the
Agreement, the Administrators agree to assist in supervising various aspects of
each Fund's administrative operations, including the performance of the
following specific services for each Fund:
(a) Providing office facilities (which may be in the offices of any of
the Administrators or a corporate affiliate of any of them, but shall be in such
location as the Company shall reasonably approve);
(b) Furnishing statistical and research data, clerical services, and
stationery and office supplies;
(c) Keeping and maintaining all financial accounts and records (other
than those required to be maintained by the Company's Custodian and Transfer
Agent);
(d) Computing each Fund's net asset value, net income and net capital
gain (loss) in accordance with the Company's Prospectus and resolutions of its
Board of Directors;
-2-
<PAGE>
(e) Compiling data for and preparing for execution and filing with the
SEC required reports and notices to shareholders of record and the SEC
including, without limitation, Semi-Annual and Annual Reports to Shareholders,
Semi-Annual Reports on Form N-SAR and timely Rule 24f-2 Notices;
(f) Compiling data for, and preparing for execution and filing all
reports or other documents required by Federal, state and other applicable laws
and regulations, including those required by applicable laws and regulations,
including those required by applicable Federal and state tax laws (other than
those required to be filed by the Company's Custodian or Transfer Agent);
(g) Reviewing and providing advice with respect to all sales
literature (advertisements, brochures and shareholder communications) for each
of the Funds and any class or series thereof;
(h) Assisting in developing and monitoring compliance procedures for
each Fund and any class or series thereof, including, without limitation,
procedures to monitor compliance with applicable law and regulations, each
Fund's investment objectives, policies and restrictions, its continued
qualification as a regulated investment company under the Internal Revenue Code
of 1986, as amended, and other tax matters;
(i) Monitoring the Company's arrangements with respect to services
provided by certain organizations ("Service Organizations") under its Amended
and Restated Administrative Services Plan, provided that each Administrator will
only be responsible for monitoring arrangements with Service Organizations with
whom the Administrator has established the servicing relationship on behalf of
the Company. With respect to such Service Organizations, the Administrators
shall specifically monitor and review the services rendered by Service
Organizations to their customers who are the beneficial owners of shares,
pursuant to agreements between the Company and such Service Organizations
("Servicing Agreements"), including, without limitation, reviewing the
qualifications of financial institutions wishing to be Service Organizations,
assisting in the execution and delivery of Servicing Agreements, reporting to
the Company's Board of Directors with respect to the amounts paid or payable by
the Company from time to time under the Servicing Agreements and the nature of
the services provided by Service Organizations, and maintaining appropriate
records in connection with such duties;
(j) Determining, together with the Company's Board of Directors, the
jurisdictions in which the Company's shares shall be registered or qualified for
sale and, in connection therewith, maintaining the registration or
qualification of shares for sale under the securities laws of any state.
Payment of share registration fees and any fees for qualifying or continuing the
qualification of any Fund as a dealer or broker, if applicable, shall be made by
that Fund;
-3-
<PAGE>
(k) Assisting to the extent requested by the Company and its outside
counsel with the preparation of the Company's Registration Statement on Form N-
1A or any replacement therefor; and
(l) Assisting in the monitoring of regulatory and legislative
developments which may affect the Company and, in response to such developments,
counseling and assisting the Company in routine regulatory examinations or
investigations of the Company, and working with outside counsel to the Company
in connection with regulatory matters or litigation.
In performing their duties as co-administrators of the Company, the
Administrators (a) will act in accordance with the Company's Charter, Bylaws,
Prospectus and the instructions and directions of the Company's Board of
Directors and will conform to, and comply with, the requirements of the 1940 Act
and all other applicable Federal or state laws and regulations, and (b) will
consult with outside legal counsel to the Company, as necessary or appropriate.
The Administrators will preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records required to be maintained by Rule 31a-1 under
said Act in connection with the services required to be performed hereunder. The
Administrators further agree that all such records which they maintain for the
Company are the property of the Company and further agree to surrender promptly
to the Company any of such records upon the Company's request.
4. Fees; Expenses; Expense Reimbursement.
-------------------------------------
For the services rendered pursuant to this Agreement for all Funds
(except the International, Pacific/Asia, Pan European, Latin America and
Emerging Markets Funds), the Administrators shall be entitled jointly to a fee
based on the average net assets of the Company, determined at the following
annual rates applied to the average combined daily net assets of all of the
Funds (except the International, Pacific/Asia, Pan European, Latin America and
Emerging Markets Funds) and all of the investment portfolios of Excelsior Tax-
Exempt Funds, Inc. and Excelsior Institutional Trust (the "Trust")(except the
International Equity Fund of the Trust): .20% of the first $200 million; .175%
of the next $200 million; and .15% of any amount in excess of $400 million.
Each Fund (except the International, Pacific/Asia, Pan European, Latin America
and Emerging Markets Funds) will pay a portion of the total fee payable by the
Company in an amount equal to the proportion that such Fund's average daily net
assets bears to the total average daily net assets of all the Funds of the
Company (except the International, Pacific/Asia, Pan European, Latin America and
Emerging Markets Funds). For the services provided to the International,
Pacific/Asia, Pan European, Latin America and Emerging Markets Funds, the
Administrators shall be entitled jointly to a fee, at the annual rate of .20% of
the average daily net assets of each such Fund. The fee attributable to each
Fund shall be the several (and not joint or joint and several) obligation of
each Fund. Such fees are to be computed daily and paid monthly on the first
business day of the following month. Upon any termination of this Agreement
before the end of any month, the fee for such part of the month shall be pro-
rated according to the proportion which such period bears to the full monthly
period and shall be payable upon the date of termination of this Agreement.
-4-
<PAGE>
For purposes of determining fees payable to the Administrators, the
value of each Fund's net assets shall be computed as required by its Prospectus,
generally accepted accounting principles, and resolutions of the Company's Board
of Directors.
The Administrators will from time to time employ or associate with
themselves such person or persons as they may believe to be fitted to assist
them in the performance of this Agreement. Such person or persons may be
officers and employees who are employed by both the Administrators and the
Company. The compensation of such person or persons for such employment shall
be paid by the Administrators and no obligation may be incurred on behalf of the
Company in such respect.
The Administrators will bear all expenses in connection with the
performance of their services under this Agreement except as otherwise expressly
provided herein. Other expenses to be incurred in the operation of the Funds,
including taxes, interest, brokerage fees and commissions, if any, salaries and
fees of officers and directors who are not officers, directors, shareholders or
employees of the Administrators, or the Company's investment adviser or
distributor for the Funds, Securities and Exchange Commission fees and state
Blue Sky qualification fees, advisory and administration fees, charges of
custodians, transfer and dividend disbursing agents' fees, certain insurance
premiums, outside auditing and legal expenses, payments to Service
Organizations, costs of maintenance of corporate existence, typesetting and
printing of prospectuses for regulatory purposes and for distribution to current
shareholders of the Funds, costs of shareholders' reports and corporate meetings
and any extraordinary expenses, will be borne by the Company, provided, however,
-------- -------
that, except pursuant to a distribution plan, the Company will not bear,
directly or indirectly, the cost of any activity which is primarily intended to
result in the distribution of shares of the Funds, and further provided that the
----------------
Administrators may utilize one or more independent pricing services, approved
from time to time by the Board of Directors of the Company, to obtain securities
prices in connection with determining the net asset value of each Fund and that
each Fund will reimburse the Administrators for its share of the cost of such
services based upon its actual use of the services.
If in any fiscal year any Fund's aggregate expenses (as defined under
the securities regulations of any state having jurisdiction over the Fund)
exceed the expense limitations of any such state, the Administrators agree to
reimburse such Fund for a portion of any such excess expenses in an amount equal
to the proportion that the fees otherwise payable to the Administrators bears to
the total amount of investment advisory and administration fees otherwise
payable by the Fund. The expense reimbursement obligation of the Administrators
is limited to the amount of their fees hereunder for such fiscal year, provided,
--------
however, that notwithstanding the foregoing, the Administrators shall reimburse
- -------
such Fund for a portion of any such excess expenses in an amount equal to the
proportion that the fee otherwise payable to the Administrators bears to the
total amount of investment advisory and administration fees otherwise payable by
the Fund regardless of the amount of fees paid to the Administrators during such
fiscal year to the extent that the securities regulations of any state having
jurisdiction over the Funds so require. Such expense reimbursement, if any,
will be estimated, reconciled and paid on a monthly basis. With respect to the
amounts required to be reimbursed under this Section 4 in any fiscal year, the
parties to this Agreement agree that U.S. Trust alone shall
-5-
<PAGE>
reimburse such amounts up to the amount of fees received by CGFSC and U.S. Trust
under this Agreement for such year. FAS shall only be obligated to reimburse
expenses to the extent that the amounts required to be reimbursed under this
Section 4 in any fiscal year exceed the amount of fees received by CGFSC and
U.S. Trust under this Agreement for such year and to the extent that U.S. Trust
makes reimbursements equaling the amount of all such fees received by CGFSC and
U.S. Trust, provided that the reimbursement obligation of FAS shall be limited
to the amount of fees received by it under this Agreement for such year.
5. Proprietary and Confidential Information. The Administrators agree on
----------------------------------------
behalf of themselves and their employees to treat confidentially and as
proprietary information of the Company all records and other information
relative to the Funds and prior, present or potential shareholders, and not to
use such records and information for any purpose other than performance of their
responsibilities and duties hereunder, except after prior notification to and
approval in writing by the Company, which approval shall not be unreasonably
withheld and may not be withheld where the Administrators may be exposed to
civil or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so requested
by the Company.
6. Limitation of Liability. Each Administrator shall not be liable for
-----------------------
any error of judgment or mistake of law or for any loss or expense suffered by
the Company in connection with the matters to which this Agreement relates,
except for a loss or expense resulting from willful misfeasance, bad faith or
gross negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement. Any person,
even though also an officer, partner, employee or agent of any of the
Administrators, who may be or become an officer, director, employee or agent of
the Company shall be deemed when rendering services to the Company or acting on
any business of the Company (other than services or business in connection with
the Administrators' duties hereunder) to be rendering such services to or acting
solely for the Company and not as an officer, partner, employee or agent or one
under the control or direction of the Administrators even though paid by any of
them. The Administrators agree that this Agreement shall not create any joint
and/or several liability among the Administrators with respect to services
provided by any particular Administrator as set forth herein.
-6-
<PAGE>
7. Term. This Agreement shall become effective on July 31, 1998 and,
----
unless sooner terminated as provided herein, shall continue until July 31, 1999,
and thereafter shall continue automatically with respect to each Fund for
successive annual periods ending on July 31 of each year, provided such
continuance is specifically approved at least annually by the Company's Board of
Directors. This Agreement is terminable with respect to each Fund, without
penalty, on not less than forty-five (45) days' notice by the Company's Board of
Directors or by CGFSC, FAS or U.S. Trust. This Agreement will terminate
automatically in the event of its "assignment" (as defined in the Investment
Company Act 1940). The parties agree that an assignment includes the transfer
of "control" of more than 25% of the outstanding voting securities of FAS to a
company that is not a subsidiary of Federated Investors, Inc. The parties also
agree that the merger between The Chase Manhattan Corporation and Chemical
Banking Corporation and the merger between The Chase Manhattan Bank, N.A. and
Chemical Bank will not constitute an assignment under this Agreement.
8. Governing Law. This Agreement shall be governed by New York law.
-------------
9. Notices. All notices required or permitted herein shall be in writing
-------
and shall be deemed to be properly given when delivered personally or by
telecopier to the party entitled to receive the notice or when sent by certified
or registered mail, postage prepaid, or delivered to an internationally
recognized overnight courier service, in each case properly addressed to the
party entitled to receive such notice at the address or telecopier number stated
below or to such other address or telecopier number as may hereafter be
furnished in writing by notice similarly given by one party to the other party
hereto:
If to the Company:
Excelsior Funds, Inc.
73 Tremont Street
Boston, Massachusetts 02108-3913
Telecopier Number: (617) 557-8617
With copies to:
W. Bruce McConnel, III, Esq.
Drinker Biddle & Reath LLP
1345 Chestnut Street, Suite 1100
Philadelphia, Pennsylvania 19107
Telecopier Number: (215) 988-2757
If to CGFSC:
Chase Global Funds Services Company
73 Tremont Street
Boston, Massachusetts 02108-3913
Telecopier Number: (617) 557-8617
-7-
<PAGE>
If to FAS:
Federated Administrative Services
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Telecopier Number: (412) 288-8141
If to U.S. Trust:
U.S. Trust Company of Connecticut
225 High Ridge Road
East Building
Stamford, CT 06905
Telecopier Number: (203) 352-4488
10. Miscellaneous. No provisions of this Agreement may be changed,
-------------
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, discharge or termination is
sought. If a change or discharge is sought against the Company, the instrument
must be signed by each Administrator. This Agreement may be executed in one or
more counterparts and all such counterparts will constitute one and the same
instrument.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below as of the date indicated above.
EXCELSIOR FUNDS, INC.
/s/ F. S. Wonham
------------------------------------------
Name: F. S. Wonham
Title: President and Treasurer
CHASE GLOBAL FUNDS SERVICES
COMPANY
/s/ Donald P. Hearn
--------------------------------------------
Name: Donald P. Hearn
Title: Vice Chairman
FEDERATED ADMINISTRATIVE
SERVICES
/s/ Joseph A. Machi
-------------------------------------------
Name:
Title:
U.S. TRUST COMPANY OF
CONNECTICUT
/s/ W. Michael Funck
-------------------------------------------
Name: W. Michael Funck
Title: President and CEO
-9-
<PAGE>
EXHIBIT (13)(c)
Exhibit A
to the
Amended and Restated Administration Agreement
EXCELSIOR FUNDS, INC.
---------------------
Money Fund
Government Money Fund
Treasury Money Fund
Short-Term Government Securities Fund
Intermediate-Term Managed Income Fund
Managed Income Fund
Blended Equity Fund
Income and Growth Fund
Energy and Natural Resources Fund
Value and Restructuring Fund
Small Cap Fund
International Fund
Latin America Fund
Pacific/Asia Fund
Pan European Fund
Large Cap Growth Fund
Real Estate Fund
Emerging Markets Fund
In consideration of the mutual covenants set forth in the Amended and
Restated Administration Agreement dated as of July 31, 1998 among Excelsior
Funds, Inc. (the "Company"), Chase Global Funds Services Company ("CGFSC"),
Federated Administrative Services ("FAS") and U.S. Trust Company of Connecticut
("U.S. Trust"), Excelsior Funds, Inc. executes and delivers this Exhibit on
behalf of the Funds, and with respect to any class or series thereof, first set
forth in this Exhibit.
Pursuant to Section 3 of the Agreement, FAS agrees to provide facilities,
equipment, and personnel to carry out the following administrative services to
the Funds, with the understanding that CGFSC will provide all other services and
duties set forth in said Section 3 but not otherwise listed below:
(a) Performing a due diligence review of SEC required reports and notices
to shareholders of record and to the SEC including, without limitation, Semi-
Annual and Annual Reports to Shareholders, Semi-Annual Reports on Form N-SAR,
Proxy Statements and SEC share registration notices;
(b) Reviewing the Company's Registration Statement on Form N-1A or any
replacement therefor;
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(c) Reviewing and filing with the National Association of Securities
Dealers, Inc. all sales literature (advertisements, brochures and shareholder
communications) for each of the Funds and any class or series thereof;
(d) Preparing distributor's reports to the Company's Board of Directors;
(e) Performing internal audit examinations in accordance with a charter to
be adopted by FAS and the Company;
(f) Upon request, providing individuals reasonably acceptable to the
Company's Board of Directors for nomination, appointment, or election as
officers of the Company, who will be responsible for the management of certain
of the Funds' affairs as determined by the Company;
(g) Consulting with the Funds and the Company's Board of Directors, as
appropriate, on matters concerning the distribution of Funds;
(h) Monitoring the Company's arrangements with respect to services provided
by certain organizations ("Service Organizations") under its Amended and
Restated Administrative Services Plan, provided that FAS will only be
responsible for monitoring arrangements with Service Organizations with whom FAS
has established the servicing relationship on behalf of the Company. With
respect to such Service Organizations, FAS shall specifically monitor and review
the services rendered by Service Organizations to their customers who are the
beneficial owners of shares, pursuant to agreements between the Company and such
Service Organizations ("Servicing Agreements"), including, without limitation,
reviewing the qualifications of financial institutions wishing to be Service
Organizations, assisting in the execution and delivery of Servicing Agreements,
reporting to the Company's Board of Directors with respect to the amounts paid
or payable by the Company from time to time under the Servicing Agreements and
the nature of the services provided by Service Organizations, and maintaining
appropriate records in connection with such duties; and
(i) Consulting with CGFSC and the Company regarding the jurisdictions in
which the Company's shares shall be registered or qualified for sale and, in
connection therewith, reviewing and monitoring the actions of CGFSC in
maintaining the registration or qualification of shares for sale under the
securities laws of any state. Payment of share registration fees and any fees
for qualifying or continuing the qualification of any Fund as a dealer or
broker, if applicable, shall be made by that Fund.
This Exhibit A may be executed in one or more counterparts and all such
counterparts will constitute one and the same instrument.
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Witness the due execution hereof this 31st day of July, 1998.
EXCELSIOR FUNDS, INC.
/s/ F. S. Wonham
----------------
Name: F. S. Wonham
Title: President and Treasurer
FEDERATED ADMINISTRATIVE SERVICES
/s/ Joseph A. Machi
-------------------
Name:
Title:
CHASE GLOBAL FUNDS SERVICES COMPANY
/s/ Donald P. Hearn
-------------------
Name: Donald P. Hearn
Title: Vice Chairman
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<PAGE>
EXHIBIT (13)(d)
Exhibit B
to the
Amended and Restated Administration Agreement
EXCELSIOR FUNDS, INC.
---------------------
Money Fund
Government Money Fund
Treasury Money Fund
Short-Term Government Securities Fund
Intermediate-Term Managed Income Fund
Managed Income Fund
Blended Equity Fund
Income and Growth Fund
Energy and Natural Resources Fund
Value and Restructuring Fund
Small Cap Fund
International Fund
Latin America Fund
Pacific/Asia Fund
Pan European Fund
Large Cap Growth Fund
Real Estate Fund
Emerging Markets Fund
In consideration of the mutual covenants set forth in the Amended and
Restated Administration Agreement dated as of July 31, 1998 among Excelsior
Funds, Inc. (the "Company"), Chase Global Funds Services Company ("CGFSC"),
Federated Administrative Services ("FAS") and U.S. Trust Company of Connecticut
("U.S. Trust"), Excelsior Funds, Inc. executes and delivers this Exhibit on
behalf of the Funds, and with respect to any class or series thereof, first set
forth in this Exhibit.
Pursuant to Section 3 of the Agreement, U.S. Trust agrees to provide
facilities, equipment, and personnel to carry out the following administrative
services to the Funds:
(a) Providing guidance and assistance in the preparation of SEC required
reports and notices to shareholders of record and to the SEC including, without
limitation, Semi-Annual and Annual Reports to Shareholders, Semi-Annual Reports
on Form N-SAR, Proxy Statements and SEC share registration notices;
(b) Reviewing the Company's Registration Statement on Form N-1A or any
replacement therefor;
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(c) Consulting with the Funds and the Company's Board of Directors, as
appropriate, on matters concerning the administration and operation of the
Funds;
(d) Monitoring the Company's arrangements with respect to services provided
by certain organizations ("Service Organizations") under its Amended and
Restated Administrative Services Plan, provided that U.S. Trust will only be
responsible for monitoring arrangements with Service Organizations with whom
U.S. Trust has established the servicing relationship on behalf of the Company.
With respect to such Service Organizations, U.S. Trust shall specifically
monitor and review the services rendered by Service Organizations to their
customers who are the beneficial owners of shares, pursuant to agreements
between the Company and such Service Organizations ("Servicing Agreements"),
including, without limitation, reviewing the qualifications of financial
institutions wishing to be Service Organizations, assisting in the execution and
delivery of Servicing Agreements, reporting to the Company's Board of Directors
with respect to the amounts paid or payable by the Company from time to time
under the Servicing Agreements and the nature of the services provided by
Service Organizations, and maintaining appropriate records in connection with
such duties.
This Exhibit B may be executed in one or more counterparts and all such
counterparts will constitute one and the same instrument.
Witness the due execution hereof this 31st day of July, 1998.
EXCELSIOR FUNDS, INC.
/s/ F. S. Wonham
------------------------------------------
Name: F. S. Wonham
Title: President and Treasurer
U.S. TRUST COMPANY OF CONNECTICUT
/s/ W. Michael Funck
------------------------------------------
Name: W. Michael Funck
Title: President and CEO
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<PAGE>
EXHIBIT (13)(e)
AMENDED AND RESTATED MUTUAL FUNDS
TRANSFER AGENCY AGREEMENT
AGREEMENT made as of July 31, 1998 by and between Excelsior Funds,
Inc. (the "Company") a Maryland corporation, and United States Trust Company of
New York ("U.S. Trust"), a New York state-chartered bank and trust company.
W I T N E S S E T H:
WHEREAS, the Company is registered as an open-end investment company
under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Company is authorized to issue shares of Common Stock in
separate series and classes representing interests in separate portfolios of
securities and other assets;
WHEREAS, the Company wishes to retain U.S. Trust to serve as the
Company's transfer agent, registrar and dividend disbursing agent;
WHEREAS, U.S. Trust desires to assign its duties and obligations with
respect to the provision of such services to Chase Global Funds Services Company
("CGFSC"), and the Company acknowledges the right of U.S. Trust to make such
assignment provided U.S. Trust shall be as fully responsible to the Company for
the acts and omissions of CGFSC as U.S. Trust is for its own acts and omissions;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Company hereby appoints U.S. Trust to serve as
transfer agent, registrar and dividend disbursing agent for each class and/or
series of Common Stock of the Company with respect to its existing Funds (as
hereinafter defined) for the period and on the
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terms set forth in this Agreement. In the event that the Company establishes
additional classes or series other than the Common Stock of the Funds covered by
this Agreement with respect to which it desires to retain U.S. Trust to serve as
transfer agent, registrar and dividend disbursing agent hereunder, the Company
shall notify U.S. Trust in writing, whereupon such fund shall become a Fund
hereunder and shall be subject to the provisions of this Agreement to the same
extent as the Funds (except to the extent that said provisions, including the
compensation payable on behalf of such new Fund, may be modified in writing by
the Company and U.S. Trust at the time). U.S. Trust accepts such appointment and
agrees to furnish the services herein set forth in return for the compensation
as provided in Paragraph 5 of this Agreement.
2. REPRESENTATIONS AND WARRANTIES.
(a) U.S. Trust represents and warrants to the Company that:
(i) U.S. Trust is a state chartered bank and trust company
organized and existing under the laws of the State of New York;
(ii) U.S. Trust is empowered under applicable laws and by
its charter and by-laws to enter into and perform this Agreement;
(iii) all requisite corporate proceedings have been taken to
authorize U.S. Trust to enter into and perform this Agreement;
(iv) U.S. Trust is duly registered as a transfer agent under
Section 17A of the Securities Exchange Act of 1934, as amended (the "1934 Act").
U.S. Trust shall promptly give written notice to the Company in the event that
its registration is revoked or a proceeding is commenced that could result in
such revocation;
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(v) U.S. Trust has been in, and shall continue to be in,
compliance with all provisions of law, including Section 17A(c) of the 1934 Act,
required in connection with the performance of its duties under this Agreement;
(vi) U.S. Trust has, and will continue to have, access to
the facilities, personnel and equipment required to fully perform its duties and
obligations hereunder;
(vii) no legal or administrative proceedings have been
instituted or threatened which would impair U.S. Trust's ability to perform its
duties and obligations under this Agreement; and
(viii) U.S. Trust's entrance into this Agreement shall not
cause a material breach or be in material conflict with any other agreement or
obligation of U.S. Trust or any law or regulation applicable to U.S. Trust;
(b) The Company represents and warrants to U.S. Trust that:
(i) the Company is a Maryland corporation, duly organized
and existing and in good standing under the laws of Maryland;
(ii) the Company is empowered under applicable laws and by
its Articles of Incorporation, as supplemented ("Charter"), and By-Laws, as
amended ("By-Laws"), to enter into and perform this Agreement;
(iii) all requisite proceedings have been taken to authorize
the Company to enter into and perform this Agreement;
(iv) the Company is an investment company properly
registered under the 1940 Act;
(v) a registration statement under the Securities Act of
1933, as amended (the "1933 Act") and the 1940 Act on Form N-1A has been filed
and will be effective
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<PAGE>
and will remain effective during the term of this Agreement, and all necessary
filings under the laws of the states will have been made and will be current
during the term of this Agreement;
(vi) no legal or administrative proceedings have been
instituted or threatened which would impair the Company's ability to perform its
duties and obligations under this Agreement;
(vii) the Company's registration statement complies in all
material respects with the 1933 Act and the 1940 Act (including the rules and
regulations thereunder) and none of the Company's prospectuses contain any
untrue statement of material fact or omit to state a material fact necessary to
make the statements therein not misleading; and
(viii) the Company's entrance into this Agreement shall not
cause a material breach or be in material conflict with any other agreement or
obligation of the Company or any law or regulation applicable to it.
3. DELIVERY OF DOCUMENTS. The Company has furnished U.S. Trust with
copies properly certified or authenticated of each of the following:
(a) Resolutions of the Company's Board of Directors authorizing the
appointment of U.S. Trust as transfer agent, registrar and dividend disbursing
agent for each class and/or series of Common Stock of the Company and approving
this Agreement;
(b) Incumbency and signature certificates identifying and
containing the signatures of the Company's officers and/or the persons
authorized to sign Written Instructions, as hereafter defined, on behalf of the
Company;
(c) The Company's Charter;
(d) The Company's By-Laws;
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<PAGE>
(e) Resolutions of the Company's Board of Directors appointing U.S.
Trust as the investment adviser to the Company's Money, Government Money,
Equity, Managed Income, Income and Growth, International, Treasury Money, Early
Life Cycle, Long-Term Supply of Energy, Productivity Enhancers, Environmentally-
Related Products and Services, Aging of America, Communication and
Entertainment, Business and Industrial Restructuring, Global Competitors,
Emerging Americas, Pacific/Asia, Pan European, Short-Term Government Securities
and Intermediate-Term Managed Income Funds (herein "the Funds") and resolutions
of the Company's Board of Directors and Fund shareholders ("Shareholders")
approving an Investment Advisory Agreement between U.S. Trust and the Company
dated February 6, 1985, as amended; an Investment Advisory Agreement between
U.S. Trust and the Company dated November 26, 1985, as amended; an Investment
Advisory Agreement between U.S. Trust and the Company dated December 16, 1986,
as amended; an Investment Advisory Agreement between U.S. Trust and the Company
dated May 27, 1987, as amended; an Investment Advisory Agreement between U.S.
Trust and the Company dated February 1, 1991; a Sub-Advisory Agreement dated May
27, 1987 between U.S. Trust and Foreign and Colonial Asset Management ("FACAM");
a Sub-Advisory Agreement dated December 15, 1992 between U.S. Trust and FACAM;
and a Sub-Advisory Agreement dated February 16, 1994 between U.S. Trust and
Foreign and Colonial Emerging Markets Limited (the "Advisory Agreements");
(f) Resolutions of the Company's Board of Directors appointing
Edgewood Services, Inc. (the "Distributor") as the Company's distributor for the
Funds and approving a Distribution Agreement between the Distributor and the
Company dated as of August 1, 1995 (the "Distribution Agreement");
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<PAGE>
(g) Resolutions of the Company's Board of Directors appointing
Federated Administrative Services ("Federated") and Mutual Funds Service Company
("MFSC") as the administrators for the Funds and approving an Administration
Agreement among Federated, MFSC and the Company dated as of August 1, 1995 (the
"Administration Agreement");
(h) The Advisory Agreements, the Distribution Agreement and the
Administration Agreement;
(i) The Company's Notification of Registration filed pursuant to
Section 8(a) of the 1940 Act on Form N-8A with the Securities and Exchange
Commission ("SEC") on August 8, 1984;
(j) Post-Effective Amendment No. 21 to the Company's Registration
Statement on Form N-1A under the 1940 Act and the 1933 Act, as filed with the
SEC on August 1, 1995 (File No. 2-92665) relating to shares of the Company's
Class A Common Stock, $.001 par value per share, which represent interests in
the Money Fund; Class B Common Stock, $.001 par value per share, which
represents interests in the Government Money Fund; Class C Common Stock and
Class C Common Stock - Special Series 1, $.001 par value per share, which
represent interests in the Equity Fund; Class D Common Stock, $.001 par value
per share, which represent interests in the Managed Income Fund; Class E Common
Stock and Class E Common Stock - Special Series 1, $.001 par value per share,
which represent interests in the Income and Growth Fund; Class F Common Stock,
$.001 par value per share, which represent interests in the International Fund;
Class G Common Stock, $.001 par value per share, which represent interests in
the Treasury Money Fund; Class H Common Stock and Class H Common Stock - Special
Series 1, $.001 par value per share, which represent interests in the Early Life
Cycle Fund; Class I Common Stock and Class I Common Stock - Special Series 1,
$.001 par value per share, which
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<PAGE>
represent interests in the Long-Term Supply of Energy Fund; Class J Common Stock
and Class J Common Stock - Special Series 1, $.001 par value per share, which
represent interests in the Productivity Enhancers Fund; Class K Common Stock and
Class K Common Stock - Special Series 1, $.001 par value per share, which
represent interests in the Environmentally-Related Products and Services Fund;
Class L Common Stock and Class L Common Stock - Special Series 1, $.001 par
value per share, which represent interests in the Aging of America Fund; Class M
Common Stock and Class M Common Stock -Special Series 1, $.001 par value per
share, which represent interests in the Communication and Entertainment Fund;
Class N Common Stock and Class N Common Stock - Special Series 1, $.001 par
value per share, which represent interests in the Business and Industrial
Restructuring Fund; Class O Common Stock and Class O Common Stock - Special
Series 1, $.001 par value per share, which represent interests in the Global
Competitors Fund; Class P Common Stock, $.001 par value per share, which
represent interests in the Emerging Americas Fund; Class Q Common Stock, $.001
par value per share, which represent interests in the Pacific/Asia Fund; Class R
Common Stock, $.001 par value per share, which represent interests in the Pan
European Fund; Class S Common Stock, $.001 par value per share, which represent
interests in the Short-Term Government Securities Fund; and Class T Common
Stock, $.001 par value per share, which represent interests in the Intermediate-
Term Managed Income Fund (such shares and shares of the Company hereafter
classified by the Company's Board of Directors are hereinafter collectively
called "Shares"), and all amendments thereto; and
(k) The Company's most recent prospectuses (such prospectuses, as
currently in effect, and all amendments and supplements thereto and future
versions thereof are herein called the "Prospectuses").
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<PAGE>
The Company will furnish U.S. Trust from time to time with copies of
all amendments of or supplements to the foregoing, if any, and with comparable
documents with respect to any Fund of the Company organized after the date of
this Agreement that is covered by this Agreement. The Company shall also
deliver to U.S. Trust the following documents on or before the effective date of
any increase or decrease in the total number of Shares authorized to be issued
by the Company: (a) a certified copy of the amendment of the Articles of
Incorporation giving effect to such increase or decrease, and (b) in the case of
an increase, if the appointment of U.S. Trust was theretofore expressly limited,
a certified copy of a resolution of the Board of Directors of the Company
increasing the authority of U.S. Trust.
4. SERVICES PROVIDED
(a) U.S. Trust will provide the following services subject to the
control, direction and supervision of the Board of Directors and in compliance
with the objectives, policies and limitations set forth in the Company's
Registration Statement, Charter and By-Laws; applicable laws and regulations;
and all resolutions and policies implemented by the Board of Directors.
The following is a general description of the transfer agency services
U.S. Trust shall provide to the Company.
A. Shareholder Recordkeeping. Maintain records showing for each Fund
shareholder the following: (i) name, address, appropriate tax
certification and tax identifying number; (ii) number of shares
of each Fund; (iii) historical information including, but not
limited to, dividends paid and date and price of all transactions
including individual purchase and redemptions and appropriate
supporting documents; and (iv) any dividend
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<PAGE>
reinvestment order, application, dividend to a specific address
and correspondence relating to the current maintenance of the
account.
B. Share Issuance. Record the issuance of shares of each Fund.
Except as specifically agreed in writing between U.S. Trust and
the Company, U.S. Trust shall have no obligation when
countersigning and issuing and/or crediting shares to take
cognizance of any other laws relating to the issue and sale of
such shares except insofar as policies and procedures of the
Stock Transfer Association recognize such laws. U.S. Trust shall
notify the Company in case any proposed issue of shares by the
Company shall result in an over-issuance. In case any issue of
shares would result in such an over-issue, U.S. Trust shall
refuse to issue said shares and shall not countersign and issue
certificates (if any) for such shares.
C. Purchase Orders. Process all orders for the purchase of shares
of the Company in accordance with the Company's Prospectuses,
including electronic transmissions, which the Company
acknowledges it has authorized. Upon receipt of any check or
other payment for purchase of shares of the Company from an
investor, U.S. Trust will (i) stamp the order or other
documentation with the date and time of receipt, (ii) forthwith
process the same for collection, (iii) determine the amounts
thereof due the Company, and notify the Company of such
determination and deposit, such notification to be given on a
daily basis of the total amounts determined and deposited to the
Company's custodian bank account during such day. U.S. Trust
shall then credit the share account of
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<PAGE>
the investor with the number of Fund shares to be purchased made
on the date such payment is received by U.S. Trust, as set forth
in the Company's Prospectus and shall promptly mail a
confirmation of said purchase to the investor, all subject to any
instructions which the Company may give to U.S. Trust with
respect to the timing or manner of acceptance of orders for
shares relating to payments so received by it. Any purchase order
received by U.S. Trust, which is not in good order will be
rejected immediately.
D. Redemption Orders. Receive and stamp with the date and time of
receipt all requests for redemptions or repurchase of shares held
in certificate or non-certificate form, and process redemptions
and repurchase requests as follows: (i) if such certificate or
redemption request complies with the applicable standards
approved by the Company, U.S. Trust shall on each business day
notify the Company of the total number of shares presented and
covered by such requests received by U.S. Trust on such day; (ii)
within the time specified in the Prospectus and if not so
specified on or prior to the seventh calendar day succeeding any
such requests received by U.S. Trust, shall notify The Chase
Manhattan Bank, N.A. (the "Custodian"), subject to instructions
from the Company, to transfer monies to such account as
designated by U.S. Trust for such payment to the redeeming
shareholder of the applicable redemption or repurchase price;
(iii) if any such certificate or request for redemption of
repurchase does not comply with applicable standards, U.S. Trust
shall promptly notify the investor of such fact, together with
the reason therefor, and shall effect
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<PAGE>
such redemption at the Company's price next determined after
receipt of documents complying with said standards.
E. Telephone Orders. Process redemptions, exchanges and transfers
of Fund shares upon telephone instructions from qualified
shareholders in accordance with the procedures set forth in the
Company's Prospectuses. The administrator shall be permitted to
redeem, exchange and/or transfer Fund shares from any account for
which such services have been authorized, including electronic
transmissions.
F. Transfer of Shares. Upon receipt by U.S. Trust of documentation
in proper form to effect a transfer of shares, including in the
case of shares for which certificates have been issued the share
certificates in proper form for transfer, U.S. Trust will
register such transfer on the Company's shareholder records
maintained by U.S. Trust pursuant to instructions received from
the transferor, cancel the certificates representing such shares,
if any, and if so requested, countersign, register, issue and
mail by first class mail new certificates for the same or a
smaller whole number of shares.
G. Shareholder Communications. Address and mail all communications
by the Company to its shareholders promptly following the
delivery by the Company of the material to be mailed.
H. Proxy Materials. Prepare shareholder lists, mail and certify as
to the mailing of proxy materials, receive the tabulated proxy
cards, render periodic reports to the Company on the progress of
such tabulation, and
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<PAGE>
provide the Company with inspectors of election at any meeting of
shareholders.
I. Share Certificates. If a shareholder of the Company requests a
certificate representing his shares, U.S. Trust as Transfer Agent
or CGFSC as sub-transfer agent, will countersign and mail, a
share certificate to the investor at his/her address as it
appears on the Company's transfer books. U.S. Trust shall supply,
at the expense of the Company a supply of blank share
certificates. The certificates shall be properly signed, manually
or by facsimile, as authorized by the Company, and shall bear the
Company's seal or facsimile; and notwithstanding the death,
resignation or removal of any officers of the Company authorized
to sign certificates, U.S. Trust and/or CGFSC may, until
otherwise directed by the Company, continue to countersign
certificates which bear the manual or facsimile signature of such
officer.
J. Returned Checks. In the event that any check or other order for
the payment of money is returned unpaid for any reason, U.S.
Trust will take such steps, including redepositing the check for
collection or returning the check to the investor, as U.S. Trust
may, at its discretion, deem appropriate and notify the Company
of such action, or as the Company may instruct. However, subject
to Paragraph 7(b) below, the Company remains ultimately liable
for any returned checks of its shareholders.
K. Shareholder Correspondence. Acknowledge all correspondence from
shareholders relating to their share accounts and undertake such
other
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<PAGE>
shareholder correspondence as may from time to time be mutually
agreed upon.
L. Tax Reporting. U.S. Trust shall issue appropriate shareholder
tax forms on an annual basis.
M. Dividend Disbursing. U.S. Trust will serve as the Company's
dividend disbursing agent. U.S. Trust will prepare and mail
checks, place wire transfers of credit income and capital gain
payments to shareholders. The Company will advise U.S. Trust of
the declaration of any dividend or distribution and the record
and payable date thereof at least five (5) days prior to the
record date. U.S. Trust will, on or before the payment date of
any such dividend or distribution, notify the Company's Custodian
of the estimated amount required to pay any portion of such
dividend or distribution payable in cash, and on or before the
payment date of such distribution, the Company will instruct its
Custodian to make available to U.S. Trust sufficient funds for
the cash amount to be paid out. If a shareholder is entitled to
receive additional shares by virtue of any such distribution or
dividend, appropriate credits will be made to each shareholder's
account.
(b) U.S. Trust will also:
(i) provide office facilities with respect to the provision
of the services contemplated herein (which may be in the offices of U.S. Trust
or a corporate affiliate of U.S. Trust);
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(ii) provide the services of individuals to serve as
officers of the Company who will be designated by U.S. Trust and elected by the
Board of Directors subject to reasonable Board approval;
(iii) provide or otherwise obtain personnel sufficient, in
U.S. Trust's sole discretion, for provision of the services contemplated herein;
(iv) furnish equipment and other materials, which U.S.
Trust, in its sole discretion, believes are necessary or desirable for provision
of the services contemplated herein; and
(v) keep records relating to the services provided
hereunder in accordance with the 1940 Act and the rules thereunder. To the
extent required by the 1940 Act and the rules thereunder, U.S. Trust agrees that
all such records prepared or maintained by U.S. Trust relating to the services
provided hereunder are the property of the Company and will be preserved for the
periods prescribed under the 1940 Act and the rules thereunder, maintained at
the Company's expense, and made available in accordance with such Act and rules.
U.S. Trust further agrees to surrender promptly to the Company upon its request
and cease to retain in its records and files those records and documents created
and maintained by U.S. Trust pursuant to this Agreement.
5. FEES; EXPENSES; EXPENSE REIMBURSEMENT.
(a) As compensation for the services rendered to the Company pursuant
to this Agreement, the Company shall pay U.S. Trust monthly $15.00 per account
and subaccount of each Fund of the Company per year or for any portion of a year
plus U.S. Trust's out-of-pocket expenses relating to such services, including,
but not limited to, expenses of postage, telephone, TWX rental and line charges,
communication forms, and checks and check processing. Such
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<PAGE>
fees are to be billed monthly and shall be due and payable upon receipt of the
invoice. The Company shall also pay U.S. Trust monthly any fees and expenses
charged by any sub-transfer agent other than CGFSC provided that the sub-
transfer agent and the fees and expenses charged by that sub-transfer agent have
been approved by the Company's Board of Directors. Upon any termination of this
Agreement before the end of any month, the fee for the part of the month before
such termination shall be prorated according to the proportion which such part
bears to the full monthly period and shall be payable upon the date of
termination of this Agreement.
(b) For the purpose of determining fees calculated as a function of
the Company's assets, the value of the Company's assets and net assets shall be
computed as required by its Prospectuses, generally accepted accounting
principles, and resolutions of the Board of Directors.
(c) U.S. Trust may, in its sole discretion, from time to time employ
or associate with such person or persons as may be appropriate to assist U.S.
Trust in the performance of this Agreement. Such person or persons may be
officers and employees who are employed or designated as officers by both U.S.
Trust and the Company. The compensation of such person or persons for such
employment shall be paid by U.S. Trust and no obligation will be incurred by or
on behalf of the Company in such respect.
(d) The Company may request additional services, additional
processing, or special reports. The Company shall submit such requests in
writing together with such specifications and documentation as may be reasonably
required by U.S. Trust. If U.S. Trust elects to provide such services or arrange
for their provision, it shall be entitled to additional fees and expenses at its
customary rates and charges as approved by the Company's Board of Directors.
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<PAGE>
(e) U.S. Trust will bear all of its own expenses in connection with
the performance of the services under this Agreement except as otherwise
expressly provided herein. The Company agrees to promptly reimburse U.S. Trust
for any equipment and supplies specially ordered by or for the Company through
U.S. Trust, and for any other expenses not contemplated by this Agreement that
U.S. Trust may incur on the Company's behalf, as consented to by the Company
from time to time. Expenses to be incurred in the operation of the Company and
to be borne by the Company, include, but are not limited to: taxes; interest;
brokerage fees and commissions, salaries and fees of officers and directors who
are not officers, directors, shareholders or employees of U.S. Trust, or the
Company's investment adviser, or distributor or other service providers; SEC and
state Blue Sky registration and qualification fees, levies, fines and other
charges; EDGAR filing fees, processing services and related fees; advisory and
administration fees; charges and expenses of pricing and data services,
independent public accountants and custodians; insurance premiums including
fidelity bond premiums; legal expenses; costs of maintenance of corporate
existence; expenses of typesetting and printing of prospectuses for regulatory
purposes and for distribution to current shareholders of the Company (the
Company's distributor to bear the expense of all other printing, production, and
distribution of prospectuses, statements of additional information, and
marketing materials except as otherwise approved by the Board of Directors of
the Company); expenses of printing and production costs of shareholders' reports
and proxy statements and materials; costs and expenses of Fund stationery and
forms; costs and expenses of special telephone and data lines and devices; costs
associated with corporate, shareholder, and Board meetings; trade association
dues and expenses; and any extraordinary expenses and other customary Fund
expenses. In addition, U.S. Trust may utilize one or more independent pricing
services, approved from time to time by the
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Board, to obtain securities prices and to act as backup to the primary pricing
services, in connection with determining the net asset values of the Company,
and the Company will reimburse U.S. Trust for the Company's share of the cost of
such services based upon the actual usage, or a pro rata estimate of the use, of
the services for the benefit of the Company.
(f) All fees, out-of-pocket expenses, or additional charges of U.S.
Trust shall be billed on a monthly basis and shall be due and payable upon
receipt of the invoice.
U.S. Trust will render, after the close of each month in which
services have been furnished, a statement reflecting all of the charges for such
month.
6. PROPRIETARY AND CONFIDENTIAL INFORMATION. U.S. Trust agrees on behalf
of itself and its employees to treat confidentially and as proprietary
information of the Company, all records and other information relative to the
Company's prior, present or potential shareholders, and to not use such records
and information for any purpose other than performance of U.S. Trust's
responsibilities and duties hereunder. U.S. Trust may seek a waiver of such
confidentiality provisions by furnishing reasonable prior notice to the Company
and obtaining approval in writing from the Company, which approval shall not be
unreasonably withheld and may not be withheld where U.S. Trust may be exposed to
civil or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities. Waivers of
confidentiality are automatically effective without further action by U.S. Trust
with respect to Internal Revenue Service levies, subpoenas and similar actions,
or with respect to any request by the Company.
7. DUTIES, RESPONSIBILITIES, AND LIMITATION OF LIABILITY.
(a) In the performance of its duties hereunder, U.S. Trust shall be
obligated to act in good faith in performing the services provided for under
this Agreement. In performing its
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services hereunder, U.S. Trust shall be entitled to rely on any oral or written
instructions, notices or other communications, including electronic
transmissions, from the Company and its custodians, officers and directors,
investors, agents and other service providers which U.S. Trust reasonably
believes to be genuine, valid and authorized. U.S. Trust shall also be entitled
to consult with and rely on the advice and opinions of outside legal counsel
retained by the Company, as necessary or appropriate.
(b) Except as provided herein, U.S. Trust shall not be liable for any
error of judgment or mistake of law or for any loss or expense suffered by the
Company, in connection with the matters to which this Agreement relates, except
for a loss or expense caused by or resulting from willful misfeasance, bad faith
or negligence on U.S. Trust's part in the performance of its duties or from
reckless disregard by U.S. Trust of its obligations and duties under this
Agreement. Any person, even though also an officer, director, partner, employee
or agent of U.S. Trust, who may be or become an officer, director, partner,
employee or agent of the Company, shall be deemed when rendering services to the
Company in that capacity or acting on any business of the Company in that
capacity (other than services or business in connection with U.S. Trust's duties
hereunder) to be rendering such services to or acting solely for the Company and
not as an officer, director, partner, employee or agent or person under the
control or direction of U.S. Trust even though paid by U.S. Trust.
(c) Subject to Paragraphs 7(b) and (d), U.S. Trust shall not be
responsible for, and the Company shall indemnify and hold U.S. Trust harmless
from and against, any and all losses, damages, costs, reasonable attorneys' fees
and expenses, payments, expenses and liabilities arising out of or attributable
to:
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(i) all actions of U.S. Trust or its officers or agents
required to be taken pursuant to this Agreement;
(ii) the reliance on or use by U.S. Trust or its officers or
agents of information, records, or documents which are received by U.S. Trust or
its officers or agents and furnished to it or them by or on behalf of the
Company, and which have been prepared or maintained by the Company or any third
party on behalf of the Company other than U.S. Trust or any of its affiliates;
(iii) the Company's refusal or failure to comply with the
terms of this Agreement or the Company's lack of good faith, or its actions, or
lack thereof, involving gross negligence or willful misfeasance;
(iv) the material breach of any representation or warranty
of the Company hereunder;
(v) the legal taping or other form of legal recording of
telephone conversations or other legal forms of electronic communications with
investors and shareholders, or reliance by U.S. Trust or its officers or agents
on telephone or other electronic instructions of any person acting on behalf of
a shareholder or shareholder account for which telephone or other electronic
services have been authorized;
(vi) the reliance on or the carrying out by U.S. Trust or
its officers or agents of any proper instructions reasonably believed to be duly
authorized, or requests of the Company or recognition by U.S. Trust or its
officers or agents of any share certificates which are reasonably believed to
bear the proper signatures of the officers of the Company and the proper
countersignature of any transfer agent or registrar of the Company;
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(vii) any delays, inaccuracies, errors in or omissions from
data provided to U.S. Trust or its officers or agents by data and pricing
services;
(viii) the offer or sale of shares by the Company in violation
of any requirement under the Federal securities laws or regulations or the
securities laws or regulations of any state, or in violation of any stop order
or other determination or ruling by any Federal agency or any state agency with
respect to the offer or sale of such shares in such state (1) resulting from
activities, actions, or omissions by the Company or its other service providers
and agents other than U.S. Trust or its officers or agents or any of their
affiliates, or (2) existing or arising out of activities, actions or omissions
by or on behalf of the Company other than by U.S. Trust or its officers or
agents or any of their affiliates prior to the effective date of this Agreement;
(ix) any failure of the Company's registration statement to
comply with the 1933 Act and the 1940 Act (including the rules and regulations
thereunder) and any other applicable laws, or any untrue statement of a material
fact or omission of a material fact necessary to make any statement therein not
misleading in a Fund's prospectus, unless such failure, misstatement or omission
relates to, results from or otherwise arises in connection with, actions,
inactions and/or information provided by U.S. Trust or its officers or agents;
and
(x) the actions taken by the Company, its investment
adviser (other than U.S. Trust or its officers or agents or any of their
affiliates), and its distributor in compliance with applicable securities, tax,
commodities and other laws, rules and regulations, or the failure to so comply.
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(d) Notwithstanding anything herein to the contrary, U.S. Trust shall
be as fully responsible to the Company for the acts and omissions of any sub-
transfer agent as U.S. Trust is for its own acts and omissions.
8. TERM. This Agreement shall become effective on the date first
hereinabove written. This Agreement may be modified or amended from time to
time by mutual agreement between the parties hereto. This Agreement shall
continue in effect unless terminated by either party on forty-five (45) days'
prior written notice provided that should U.S. Trust fail to be registered
pursuant to Section 17A of the 1934 Act as a transfer agent at any time, the
Company may, on written notice to U.S. Trust, immediately terminate this
Agreement. Upon termination of this Agreement, the Company shall pay to U.S.
Trust such compensation and any out-of-pocket or other reimbursable expenses
which may become due or payable under the terms hereof as of the date of
termination or after the date that the provision of services ceases, whichever
is later.
9. NOTICES. Any notice required or permitted hereunder shall be in
writing and shall be deemed to have been given when delivered in person or by
certified mail, return receipt requested, to the parties at the following
address (or such other address as a party may specify by notice to the other):
If to the Company:
Excelsior Funds, Inc.
73 Tremont Street
Boston, MA 02108-8816
Attn: Assistant Treasurer
Fax: (617) 557-8816
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With a copy to:
Drinker Biddle & Reath LLP
1345 Chestnut Street, Suite 1100
Philadelphia, PA 19107
Attn: W. Bruce McConnel, III
Fax: (215) 988-2757
If to U.S. Trust:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
Attn: Francis J. Hearn, Jr., Esq.
Fax: (212) 852-1310
Notice shall be effective upon receipt if by mail, on the date of personal
delivery (by private messenger, courier service or otherwise) or upon confirmed
receipt of telex or facsimile, whichever occurs first.
10. ASSIGNMENT AND DELEGATION. This Agreement shall not be assigned and
the rights, duties and obligations of the parties hereunder may not be
subcontracted or delegated by either of the parties hereto without the prior
consent in writing of the other party.
11. WAIVER. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver nor
shall it deprive such party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver must be in
writing signed by the waiving party.
12. FORCE MAJEURE. U.S. Trust shall not be responsible or liable for any
failure or delay in performance of its obligations under this Agreement arising
out of or caused, directly or indirectly, by circumstances beyond its control,
including without limitation, acts of God, earthquakes, fires, floods, wars,
acts of civil or military authorities, or governmental actions, nor
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shall any such failure or delay give the Company the right to terminate this
Agreement. During the term of this Agreement, at no additional cost to the
Company, U.S. Trust shall provide a facility capable of safeguarding the
transfer agency and dividend disbursing records of the Company in case of damage
to the primary facility providing those services (the "Back-Up Facility").
Transfer of the transfer agency and dividend records of the Company to the Back-
Up Facility shall be at U.S. Trust's expense, shall commence immediately after
damage to the primary facility results in an inability to provide the transfer
agency and dividend disbursing services, and shall be completed within 72 hours
of commencement. After the primary facility has recovered, U.S. Trust shall
again utilize it to provide the transfer agency and dividend disbursing services
to the Company at no additional cost to the Company. U.S. Trust shall use
reasonable efforts to provide the services described in this Agreement from the
Back-Up Facility.
13. USE OF NAME. The Company and U.S. Trust agree not to use the other's
name nor the names of such other's affiliates, designees, or assignees in any
prospectus, sales literature, or other printed material written in a manner not
previously approved by the other or such other's affiliates, designees, or
assignees except where required by the SEC or other regulatory authorities.
14. AMENDMENTS. This Agreement may be modified or amended from time to
time by mutual written agreement between the parties. No provision of this
Agreement may be changed, discharged, or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, discharge or termination is sought.
15. SEVERABILITY. If any provision of this Agreement is invalid or
unenforceable, the balance of the Agreement shall remain in effect, and if any
provision is
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inapplicable to any person or circumstance it shall nevertheless remain
applicable to all other persons and circumstances.
16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE SUBSTANTIVE
LAWS OF THE STATE OF NEW YORK, INCLUDING THE DETERMINATION OF WHEN AN
"ASSIGNMENT" HAS OCCURRED.
This Agreement may be executed in one or more counterparts and all
such counterparts will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below as of the date first written
above.
EXCELSIOR FUNDS, INC.
/s/ F. S. Wonham
----------------------------------------------
Name: F. S. Wonham
Title: President and Treasurer
UNITED STATES TRUST COMPANY
OF NEW YORK
/s/ Kenneth G. Walsh
----------------------------------------------
Name: Kenneth G. Walsh
Title: Executive Vice President
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<PAGE>
EXHIBIT (13)(f)
AMENDED AND RESTATED MUTUAL FUNDS
SUB-TRANSFER AGENCY AGREEMENT
AGREEMENT made as of July 31, 1998 by and between United States Trust
Company of New York ("U.S. Trust"), and Chase Global Funds Services Company
("Sub-Transfer Agent").
W I T N E S S E T H:
WHEREAS, Excelsior Funds, Inc. (the "Company"), a Maryland
corporation, is registered as an open-end investment company under the
Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Company is authorized to issue shares of Common Stock in
separate series and classes representing interests in separate portfolios of
securities and other assets;
WHEREAS, the Company has retained U.S. Trust to serve as the Company's
transfer agent, registrar and dividend disbursing agent;
WHEREAS, U.S. Trust desires to assign its duties and obligations with
respect to the provision of such services to Sub-Transfer Agent, and the Company
has acknowledged the right of U.S. Trust to make such assignment provided U.S.
Trust shall be as fully responsible to the Company for the acts and omissions of
Sub-Transfer Agent as U.S. Trust is for its own acts and omissions;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. U.S. Trust hereby appoints Sub-Transfer Agent to serve
as sub-transfer agent, sub-registrar and sub-dividend disbursing agent for each
class and/or series of
<PAGE>
Common Stock of the Company with respect to its existing Funds (as hereinafter
defined) for the period and on the terms set forth in this Agreement. In the
event that the Company establishes additional classes or series other than the
Common Stock of the Funds covered by this Agreement with respect to which U.S.
Trust desires to retain Sub-Transfer Agent to serve as sub-transfer agent, sub-
registrar and sub-dividend disbursing agent hereunder, U.S. Trust shall notify
Sub-Transfer Agent in writing, whereupon such fund shall become a Fund hereunder
and shall be subject to the provisions of this Agreement to the same extent as
the Funds (except to the extent that said provisions, including the compensation
payable on behalf of such new Fund, may be modified in writing by U.S. Trust and
Sub-Transfer Agent at the time). Sub-Transfer Agent accepts such appointment and
agrees to furnish the services herein set forth in return for the compensation
as provided in Paragraph 5 of this Agreement.
2. REPRESENTATIONS AND WARRANTIES.
(a) U.S. Trust and Sub-Transfer Agent represent and warrant to each
other that:
(i) it is empowered under applicable laws and by its
charter and by-laws to enter into and perform this Agreement;
(ii) all requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement;
(iii) it is duly registered as a transfer agent under Section
17A of the Securities Exchange Act of 1934, as amended (the "1934 Act"). Each
shall promptly give written notice to the other and the Company in the event
that its registration is revoked or a proceeding is commenced that could result
in such revocation;
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<PAGE>
(iv) it has been in, and shall continue to be in, compliance
with all provisions of law, including Section 17A(c) of the 1934 Act, required
in connection with the performance of its duties under this Agreement;
(v) it has, and will continue to have, access to the
facilities, personnel and equipment required to fully perform its duties and
obligations hereunder;
(vi) no legal or administrative proceedings have been
instituted or threatened which would impair its ability to perform its duties
and obligations under this Agreement; and
(vii) its entrance into this Agreement shall not cause a
material breach or be in material conflict with any other agreement or
obligation of it or any law or regulation applicable to it;
U.S. Trust represents and warrants to Sub-Transfer Agent that:
(i) U.S. Trust is a state chartered bank and trust company
organized and existing under the laws of the State of New York;
(c) Sub-Transfer Agent represents and warrants to U.S. Trust that:
(i) Sub-Transfer Agent is a Delaware corporation, duly
organized and existing and in good standing under the laws of Delaware;
3. DELIVERY OF DOCUMENTS. U.S. Trust has furnished Sub-Transfer Agent
with copies properly certified or authenticated of each of the following:
(a) Resolutions of the Company's Board of Directors authorizing the
appointment of U.S. Trust as transfer agent, registrar and dividend disbursing
agent for each class and/or series of Common Stock of the Company and approving
the Mutual Funds Transfer Agency Agreement made as of September 1, 1995 by and
between the Company and U.S. Trust;
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(b) Incumbency and signature certificates identifying and containing
the signatures of the Company's officers and/or the persons authorized to sign
Written Instructions, as hereafter defined, on behalf of the Company;
(c) The Company's Charter;
(d) The Company's By-Laws;
(e) Resolutions of the Company's Board of Directors appointing U.S.
Trust as the investment adviser to the Company's Money, Government Money,
Equity, Managed Income, Income and Growth, International, Treasury Money, Early
Life Cycle, Long-Term Supply of Energy, Productivity Enhancers, Environmentally-
Related Products and Services, Aging of America, Communication and
Entertainment, Business and Industrial Restructuring, Global Competitors,
Emerging Americas, Pacific/Asia, Pan European, Short-Term Government Securities
and Intermediate-Term Managed Income Funds (herein "the Funds") and resolutions
of the Company's Board of Directors and Fund shareholders ("Shareholders")
approving an Investment Advisory Agreement between U.S. Trust and the Company
dated February 6, 1985, as amended; an Investment Advisory Agreement between
U.S. Trust and the Company dated November 26, 1985, as amended; an Investment
Advisory Agreement between U.S. Trust and the Company dated December 16, 1986,
as amended; an Investment Advisory Agreement between U.S. Trust and the Company
dated May 27, 1987, as amended; an Investment Advisory Agreement between U.S.
Trust and the Company dated February 1, 1991; a Sub-Advisory Agreement dated May
27, 1987 between U.S. Trust and Foreign and Colonial Asset Management ("FACAM");
a Sub-Advisory Agreement dated December 15, 1992 between U.S Trust and FACAM;
and a Sub-Advisory Agreement dated February 16, 1994 between U.S. Trust and
Foreign and Colonial Emerging Markets Limited (the "Advisory Agreements");
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(f) Resolutions of the Company's Board of Directors appointing
Edgewood Services, Inc. (the "Distributor") as the Company's distributor for the
Funds and approving a Distribution Agreement between the Distributor and the
Company dated as of August 1, 1995 (the "Distribution Agreement");
(g) Resolutions of the Company's Board of Directors appointing
Federated Administrative Services ("Federated") and Mutual Funds Service Company
("MFSC") as the administrators for the Funds and approving an Administration
Agreement among Federated, MFSC and the Company dated as of August 1, 1995 (the
"Administration Agreement");
(h) The Advisory Agreements, the Distribution Agreement and the
Administration Agreement;
(i) The Company's Notification of Registration filed pursuant to
Section 8(a) of the 1940 Act on Form N-8A with the Securities and Exchange
Commission ("SEC") on August 8, 1984;
(j) Post-Effective Amendment No. 21 to the Company's Registration
Statement on Form N-1A under the 1940 Act and the 1933 Act, as filed with the
SEC on August 1, 1995 (File No. 2-92665) relating to shares of the Company's
Class A Common Stock, $.001 par value per share, which represent interests in
the Money Fund; Class B Common Stock, $.001 par value per share, which
represents interests in the Government Money Fund; Class C Common Stock and
Class C Common Stock - Special Series 1, $.001 par value per share, which
represent interests in the Equity Fund; Class D Common Stock, $.001 par value
per share, which represent interests in the Managed Income Fund; Class E Common
Stock and Class E Common Stock - Special Series 1, $.001 par value per share,
which represent interests in the Income and Growth Fund; Class F Common Stock,
$.001 par value per share, which represent interests in the
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International Fund; Class G Common Stock, $.001 par value per share, which
represent interests in the Treasury Money Fund; Class H Common Stock and Class H
Common Stock - Special Series 1, $.001 par value per share, which represent
interests in the Early Life Cycle Fund; Class I Common Stock and Class I Common
Stock - Special Series 1, $.001 par value per share, which represent interests
in the Long-Term Supply of Energy Fund; Class J Common Stock and Class J Common
Stock - Special Series 1, $.001 par value per share, which represent interests
in the Productivity Enhancers Fund; Class K Common Stock and Class K Common
Stock - Special Series 1, $.001 par value per share, which represent interests
in the Environmentally-Related Products and Services Fund; Class L Common Stock
and Class L Common Stock - Special Series 1, $.001 par value per share, which
represent interests in the Aging of America Fund; Class M Common Stock and Class
M Common Stock -Special Series 1, $.001 par value per share, which represent
interests in the Communication and Entertainment Fund; Class N Common Stock and
Class N Common Stock - Special Series 1, $.001 par value per share, which
represent interests in the Business and Industrial Restructuring Fund; Class O
Common Stock and Class O Common Stock - Special Series 1, $.001 par value per
share, which represent interests in the Global Competitors Fund; Class P Common
Stock, $.001 par value per share, which represent interests in the Emerging
Americas Fund; Class Q Common Stock, $.001 par value per share, which represent
interests in the Pacific/Asia Fund; Class R Common Stock, $.001 par value per
share, which represent interests in the Pan European Fund; Class S Common Stock,
$.001 par value per share, which represent interests in the Short-Term
Government Securities Fund; and Class T Common Stock, $.001 par value per share,
which represent interests in the Intermediate-Term Managed Income Fund (such
shares and shares of the Company
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<PAGE>
hereafter classified by the Company's Board of Directors are hereinafter
collectively called "Shares"), and all amendments thereto; and
(k) The Company's most recent prospectuses (such prospectuses, as
currently in effect, and all amendments and supplements thereto and future
versions thereof are herein called the "Prospectuses").
U.S. Trust will furnish Sub-Transfer Agent from time to time with
copies of all amendments of or supplements to the foregoing, if any, and with
comparable documents with respect to any Fund of the Company organized after the
date of this Agreement that is covered by this Agreement. U.S. Trust shall also
deliver to Sub-Transfer Agent the following documents on or before the effective
date of any increase or decrease in the total number of Shares authorized to be
issued by the Company: (a) a certified copy of the amendment of the Articles of
Incorporation giving effect to such increase or decrease, and (b) in the case of
an increase, if the appointment of U.S. Trust was theretofore expressly limited,
a certified copy of a resolution of the Board of Directors of the Company
increasing the authority of U.S. Trust.
4. SERVICES PROVIDED
(a) Sub-Transfer Agent will provide the following services subject to
the control, direction and supervision of U.S. Trust and in compliance with the
objectives, policies and limitations set forth in the Company's Registration
Statement, Charter and By-Laws; applicable laws and regulations; and all
resolutions and policies implemented by the Board of Directors.
The following is a general description of the transfer agency services
Sub-Transfer Agent shall provide to the Company.
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<PAGE>
A. Shareholder Recordkeeping. Maintain records showing for each
Fund shareholder the following: (i) name, address, appropriate
tax certification and tax identifying number; (ii) number of
shares of each Fund; (iii) historical information including, but
not limited to, dividends paid and date and price of all
transactions including individual purchase and redemptions and
appropriate supporting documents; and (iv) any dividend
reinvestment order, application, dividend to a specific address
and correspondence relating to the current maintenance of the
account.
B. Share Issuance. Record the issuance of shares of each Fund.
Except as specifically agreed in writing between U.S. Trust and
Sub-Transfer Agent, Sub-Transfer Agent shall have no obligation
when countersigning and issuing and/or crediting shares to take
cognizance of any other laws relating to the issue and sale of
such shares except insofar as policies and procedures of the
Stock Transfer Association recognize such laws. Sub-Transfer
Agent shall notify U.S. Trust and the Company in case any
proposed issue of shares by the Company shall result in an over-
issuance. In case any issue of shares would result in such an
over-issue, Sub-Transfer Agent shall refuse to issue said shares
and shall not countersign and issue certificates (if any) for
such shares.
C. Purchase Orders. Process all orders for the purchase of shares
of the Company in accordance with the Company's Prospectuses,
including electronic transmissions, which the Company has
acknowledged it has authorized. Upon receipt of any check or
other payment for purchase of
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<PAGE>
shares of the Company from an investor, Sub-Transfer Agent will
(i) stamp the order or other documentation with the date and
time of receipt, (ii) forthwith process the same for collection,
(iii) determine the amounts thereof due the Company, and notify
U.S Trust and the Company of such determination and deposit,
such notification to be given on a daily basis of the total
amounts determined and deposited to the Company's custodian bank
account during such day. Sub-Transfer Agent shall then credit
the share account of the investor with the number of Fund shares
to be purchased made on the date such payment is received by
Sub-Transfer Agent, as set forth in the Company's Prospectus and
shall promptly mail a confirmation of said purchase to the
investor, all subject to any instructions which the Company or
U.S. Trust may give to Sub-Transfer Agent with respect to the
timing or manner of acceptance of orders for shares relating to
payments so received by it. Any purchase order received by Sub-
Transfer Agent, which is not in good order will be rejected
immediately.
D. Redemption Orders. Receive and stamp with the date and time of
receipt all requests for redemptions or repurchase of shares
held in certificate or non-certificate form, and process
redemptions and repurchase requests as follows: (i) if such
certificate or redemption request complies with the applicable
standards approved by the Company, Sub-Transfer Agent shall on
each business day notify the Company of the total number of
shares presented and covered by such requests received by Sub-
Transfer Agent
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on such day; (ii) within the time specified in the Prospectus
and if not so specified on or prior to the seventh calendar day
succeeding any such requests received by Sub-Transfer Agent,
shall notify The Chase Manhattan Bank, N.A. (the "Custodian"),
subject to instructions from the Company or U.S. Trust, to
transfer monies to such account as designated by Sub-Transfer
Agent for such payment to the redeeming shareholder of the
applicable redemption or repurchase price; (iii) if any such
certificate or request for redemption of repurchase does not
comply with applicable standards, Sub-Transfer Agent shall
promptly notify the investor of such fact, together with the
reason therefor, and shall effect such redemption at the
Company's price next determined after receipt of documents
complying with said standards.
E. Telephone Orders. Process redemptions, exchanges and transfers
of Fund shares upon telephone instructions from qualified
shareholders in accordance with the procedures set forth in the
Company's Prospectuses. The administrator shall be permitted to
redeem, exchange and/or transfer Fund shares from any account
for which such services have been authorized, including
electronic transmissions.
F. Transfer of Shares. Upon receipt by Sub-Transfer Agent of
documentation in proper form to effect a transfer of shares,
including in the case of shares for which certificates have been
issued the share certificates in proper form for transfer, Sub-
Transfer Agent will register such transfer on the Company's
shareholder records maintained by Sub-
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Transfer Agent pursuant to instructions received from the
transferor, cancel the certificates representing such shares, if
any, and if so requested, countersign, register, issue and mail
by first class mail new certificates for the same or a smaller
whole number of shares.
G. Shareholder Communications. Address and mail all communications
by the Company to its shareholders promptly following the
delivery by the Company or U.S. Trust of the material to be
mailed.
H. Proxy Materials. Prepare shareholder lists, mail and certify as
to the mailing of proxy materials, receive the tabulated proxy
cards, render periodic reports to the Company and U.S. Trust on
the progress of such tabulation, and provide the Company with
inspectors of election at any meeting of shareholders.
I. Share Certificates. If a shareholder of the Company requests a
certificate representing his shares, Sub-Transfer Agent as sub-
transfer agent will countersign and mail, a share certificate to
the investor at his/her address as it appears on the Company's
transfer books. Sub-Transfer Agent shall supply, at the expense
of the Company a supply of blank share certificates. The
certificates shall be properly signed, manually or by facsimile,
as authorized by the Company, and shall bear the Company's seal
or facsimile; and notwithstanding the death, resignation or
removal of any officers of the Company authorized to sign
certificates, Sub-Transfer Agent may, until otherwise directed
by the Company or U.S. Trust,
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continue to countersign certificates which bear the manual or
facsimile signature of such officer.
J. Returned Checks. In the event that any check or other order for
the payment of money is returned unpaid for any reason, Sub-
Transfer Agent will take such steps, including redepositing the
check for collection or returning the check to the investor, as
Sub-Transfer Agent may, at its discretion, deem appropriate and
notify the Company and U.S. Trust of such action, or as the
Company or U.S. Trust may instruct. However, subject to
Paragraph 7(b) below, the Company remains ultimately liable for
any returned checks of its shareholders.
K. Shareholder Correspondence. Acknowledge all correspondence from
shareholders relating to their share accounts and undertake such
other shareholder correspondence as may from time to time be
mutually agreed upon.
L. Tax Reporting. Sub-Transfer Agent shall issue appropriate
shareholder tax forms on an annual basis.
M. Dividend Disbursing. Sub-Transfer Agent will serve as the
Company's dividend disbursing agent. Sub-Transfer Agent will
prepare and mail checks, place wire transfers of credit income
and capital gain payments to shareholders. The Company or U.S.
Trust will advise Sub-Transfer Agent of the declaration of any
dividend or distribution and the record and payable date thereof
at least five (5) days prior to the record date. Sub-Transfer
Agent will, on or before the payment date of any such dividend
or
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<PAGE>
distribution, notify the Company's Custodian of the estimated
amount required to pay any portion of such dividend or
distribution payable in cash, and on or before the payment date
of such distribution, the Company will instruct its Custodian to
make available to Sub-Transfer Agent sufficient funds for the
cash amount to be paid out. If a shareholder is entitled to
receive additional shares by virtue of any such distribution or
dividend, appropriate credits will be made to each shareholder's
account.
(b) Sub-Transfer Agent will also:
(i) provide office facilities with respect to the provision
of the services contemplated herein (which may be in the offices of Sub-Transfer
Agent or a corporate affiliate of Sub-Transfer Agent);
(ii) provide the services of individuals to serve as officers
of the Company who will be designated by Sub-Transfer Agent and elected by the
Company's Board of Directors subject to reasonable Board approval;
(iii) provide or otherwise obtain personnel sufficient, in
Sub-Transfer Agent's sole discretion, for provision of the services contemplated
herein;
(iv) furnish equipment and other materials, which Sub-
Transfer Agent, in its sole discretion, believes are necessary or desirable for
provision of the services contemplated herein; and
(v) keep records relating to the services provided hereunder
in accordance with the 1940 Act and the rules thereunder. To the extent required
by the 1940 Act and the rules thereunder, Sub-Transfer Agent agrees that all
such records prepared or maintained by Sub-Transfer Agent relating to the
services provided hereunder are the property of the
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<PAGE>
Company and will be preserved for the periods prescribed under the 1940 Act and
the rules thereunder, maintained at the Company's expense, and made available in
accordance with such Act and rules. Sub-Transfer Agent further agrees to
surrender promptly to the Company upon its request and cease to retain in its
records and files those records and documents created and maintained by Sub-
Transfer Agent pursuant to this Agreement.
5. FEES; EXPENSES; EXPENSE REIMBURSEMENT.
(a) As compensation for the services rendered to the Company for U.S.
Trust pursuant to this Agreement, U.S. Trust shall pay Sub-Transfer Agent
monthly $15.00 per account and subaccount of each Fund of the Company per year
or for any portion of a year plus Sub-Transfer Agent's out-of-pocket expenses
relating to such services, including, but not limited to, expenses of postage,
telephone, TWX rental and line charges, communication forms, and checks and
check processing. Such fees are to be billed monthly and shall be due and
payable upon receipt of the invoice. Upon any termination of this Agreement
before the end of any month, the fee for the part of the month before such
termination shall be prorated according to the proportion which such part bears
to the full monthly period and shall be payable upon the date of termination of
this Agreement.
(b) For the purpose of determining fees calculated as a function of
the Company's assets, the value of the Company's assets and net assets shall be
computed as required by its Prospectuses, generally accepted accounting
principles, and resolutions of the Board of Directors.
(c) Sub-Transfer Agent may, in its sole discretion, from time to time
employ or associate with such person or persons as may be appropriate to assist
Sub-Transfer Agent in the performance of this Agreement. Such person or persons
may be officers and employees who
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<PAGE>
are employed or designated as officers by both Sub-Transfer Agent and the
Company. The compensation of such person or persons for such employment shall be
paid by Sub-Transfer Agent and no obligation will be incurred by or on behalf of
the Company or U.S. Trust in such respect.
(d) U.S. Trust may request additional services, additional processing,
or special reports. U.S. Trust shall submit such requests in writing together
with such specifications and documentation as may be reasonably required by Sub-
Transfer Agent. If Sub-Transfer Agent elects to provide such services or arrange
for their provision, it shall be entitled to additional fees and expenses at its
customary rates and charges as approved by U.S. Trust.
(e) Sub-Transfer Agent will bear all of its own expenses in connection
with the performance of the services under this Agreement except as otherwise
expressly provided herein. U.S. Trust agrees to promptly reimburse Sub-Transfer
Agent for any equipment and supplies specially ordered by or for the Company
through Sub-Transfer Agent, and for any other expenses not contemplated by this
Agreement that Sub-Transfer Agent may incur on the Company's behalf, as
consented to by U.S. Trust and the Company from time to time. Expenses to be
incurred in the operation of the Company and to be borne by the Company,
include, but are not limited to: taxes; interest; brokerage fees and
commissions, salaries and fees of officers and directors who are not officers,
directors, shareholders or employees of U.S. Trust, or the Company's investment
adviser, or distributor or other service providers; SEC and state Blue Sky
registration and qualification fees, levies, fines and other charges; EDGAR
filing fees, processing services and related fees; advisory and administration
fees; charges and expenses of pricing and data services, independent public
accountants and custodians; insurance premiums including fidelity bond premiums;
legal expenses; costs of maintenance of corporate existence; expenses of
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typesetting and printing of prospectuses for regulatory purposes and for
distribution to current shareholders of the Company (the Company's distributor
to bear the expense of all other printing, production, and distribution of
prospectuses, statements of additional information, and marketing materials
except as otherwise approved by the Board of Directors of the Company); expenses
of printing and production costs of shareholders' reports and proxy statements
and materials; costs and expenses of Fund stationery and forms; costs and
expenses of special telephone and data lines and devices; costs associated with
corporate, shareholder, and Board meetings; trade association dues and expenses;
and any extraordinary expenses and other customary Fund expenses. In addition,
Sub-Transfer Agent may utilize one or more independent pricing services,
approved from time to time by the Board, to obtain securities prices and to act
as backup to the primary pricing services, in connection with determining the
net asset values of the Company, and U.S. Trust will reimburse Sub-Transfer
Agent for the Company's share of the cost of such services based upon the actual
usage, or a prorata estimate of the use, of the services for the benefit of the
Company.
(f) All fees, out-of-pocket expenses, or additional charges of Sub-
Transfer Agent shall be billed on a monthly basis and shall be due and payable
upon receipt of the invoice.
Sub-Transfer Agent will render, after the close of each month in which
services have been furnished, a statement reflecting all of the charges for such
month.
6. PROPRIETARY AND CONFIDENTIAL INFORMATION. Sub-Transfer Agent agrees
on behalf of itself and its employees to treat confidentially and as proprietary
information of the Company, all records and other information relative to the
Company's prior, present or potential shareholders, and to not use such records
and information for any purpose
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<PAGE>
other than performance of Sub-Transfer Agent's responsibilities and duties
hereunder. Sub-Transfer Agent may seek a waiver of such confidentiality
provisions by furnishing reasonable prior notice to the Company and obtaining
approval in writing from the Company, which approval shall not be unreasonably
withheld and may not be withheld where Sub-Transfer Agent may be exposed to
civil or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities. Waivers of
confidentiality are automatically effective without further action by Sub-
Transfer Agent with respect to Internal Revenue Service levies, subpoenas and
similar actions, or with respect to any request by the Company.
7. DUTIES, RESPONSIBILITIES, AND LIMITATION OF LIABILITY.
(a) In the performance of its duties hereunder, Sub-Transfer Agent
shall be obligated to act in good faith in performing the services provided for
under this Agreement. In performing its services hereunder, Sub-Transfer Agent
shall be entitled to rely on any oral or written instructions, notices or other
communications, including electronic transmissions, from the Company and its
custodians, officers and directors, investors, agents and other service
providers which Sub-Transfer Agent reasonably believes to be genuine, valid and
authorized. Sub-Transfer Agent shall also be entitled to consult with and rely
on the advice and opinions of outside legal counsel retained by the Company, as
necessary or appropriate.
(b) Sub-Transfer Agent shall not be liable for any error of judgment
or mistake of law or for any loss or expense suffered by the Company or U.S.
Trust, in connection with the matters to which this Agreement relates, except
for a loss or expense caused by or resulting from willful misfeasance, bad faith
or negligence on Sub-Transfer Agent's part in the performance of its duties or
from reckless disregard by Sub-Transfer Agent of its obligations and
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<PAGE>
duties under this Agreement. Any person, even though also an officer, director,
partner, employee or agent of Sub-Transfer Agent, who may be or become an
officer, director, partner, employee or agent of the Company, shall be deemed
when rendering services to the Company in that capacity or acting on any
business of the Company in that capacity (other than services or business in
connection with Sub-Transfer Agent's duties hereunder) to be rendering such
services to or acting solely for the Company and not as an officer, director,
partner, employee or agent or person under the control or direction of Sub-
Transfer Agent even though paid by Sub-Transfer Agent.
(c) Subject to Paragraphs 7(b) and (d), Sub-Transfer Agent shall not
be responsible for, and U.S. Trust shall indemnify and hold Sub-Transfer Agent
harmless from and against, any and all losses, damages, costs, reasonable
attorneys' fees and expenses, payments, expenses and liabilities arising out of
or attributable to:
(i) all actions of Sub-Transfer Agent or its officers or
agents required to be taken pursuant to this Agreement;
(ii) the reliance on or use by Sub-Transfer Agent or its
officers or agents of information, records, or documents which are received by
Sub-Transfer Agent or its officers or agents and furnished to it or them by or
on behalf of the Company, and which have been prepared or maintained by the
Company or any third party on behalf of the Company other than Sub-Transfer
Agent or any of its affiliates;
(iii) U.S. Trust's refusal or failure to comply with the
terms of this Agreement or U.S. Trust's lack of good faith, or its actions, or
lack thereof, involving gross negligence or willful misfeasance;
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<PAGE>
(iv) the material breach of any representation or warranty of
U.S. Trust hereunder;
(v) the legal taping or other form of legal recording of
telephone conversations or other legal forms of electronic communications with
investors and shareholders, or reliance by Sub-Transfer Agent or its officers or
agents on telephone or other electronic instructions of any person acting on
behalf of a shareholder or shareholder account for which telephone or other
electronic services have been authorized;
(vi) the reliance on or the carrying out by Sub-Transfer Agent
or its officers or agents of any proper instructions reasonably believed to be
duly authorized, or requests of U.S. Trust or the Company or recognition by Sub-
Transfer Agent or its officers or agents of any share certificates which are
reasonably believed to bear the proper signatures of the officers of the Company
and the proper countersignature of any transfer agent or registrar of the
Company;
(vii) any delays, inaccuracies, errors in or omissions from data
provided to Sub-Transfer Agent or its officers or agents by data and pricing
services;
(viii) the offer or sale of shares by the Company in violation of
any requirement under the Federal securities laws or regulations or the
securities laws or regulations of any state, or in violation of any stop order
or other determination or ruling by any Federal agency or any state agency with
respect to the offer or sale of such shares in such state (1) resulting from
activities, actions, or omissions by the Company or its other service providers
and agents other than Sub-Transfer Agent or its officers or agents or any of
their affiliates, or (2) existing or arising out of activities, actions or
omissions by or on behalf of the Company other
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<PAGE>
than by Sub-Transfer Agent or its officers or agents or any of their affiliates
prior to the effective date of this Agreement;
(ix) any failure of the Company's registration statement to
comply with the 1933 Act and the 1940 Act (including the rules and regulations
thereunder) and any other applicable laws, or any untrue statement of a material
fact or omission of a material fact necessary to make any statement therein not
misleading in a Fund's prospectus, unless such failure, misstatement or omission
relates to, results from or otherwise arises in connection with, actions,
inactions and/or information provided by Sub-Transfer Agent or its officers or
agents; and
(x) the actions taken by the Company, its investment adviser,
and its distributor in compliance with applicable securities, tax, commodities
and other laws, rules and regulations, or the failure to so comply.
(d) Notwithstanding anything herein to the contrary, U.S. Trust shall
be as fully responsible to the Company for the acts and omissions of any sub-
transfer agent as U.S. Trust is for its own acts and omissions.
8. TERM. This Agreement shall become effective on the date first
hereinabove written. This Agreement may be modified or amended from time to
time by mutual agreement between the parties hereto. This Agreement shall
continue in effect unless terminated by either party on forty-five (45) days'
prior written notice provided that should Sub-Transfer Agent fail to be
registered pursuant to Section 17A of the 1934 Act as a transfer agent at any
time, the Company or U.S. Trust may, on written notice to Sub-Transfer Agent,
immediately terminate this Agreement. Upon termination of this Agreement, U.S.
Trust shall pay to Sub-Transfer Agent such compensation and any out-of-pocket or
other reimbursable expenses which may
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<PAGE>
become due or payable under the terms hereof as of the date of termination or
after the date that the provision of services ceases, whichever is later.
9. NOTICES. Any notice required or permitted hereunder shall be in
writing and shall be deemed to have been given when delivered in person or by
certified mail, return receipt requested, to the parties at the following
address (or such other address as a party may specify by notice to the other):
If to the Company:
Excelsior Funds, Inc.
73 Tremont Street
Boston, MA 02108-3913
Attn: Assistant Treasurer
Fax: (617) 557-8816
With a copy to:
Drinker Biddle & Reath LLP
1345 Chestnut Street, Suite 1100
Philadelphia, PA 19107
Attn: W. Bruce McConnel, III
Fax: (215) 988-2757
If to U.S. Trust:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
Attn: Francis J. Hearn, Jr., Esq.
Fax: (212) 852-1310
If to Sub-Transfer Agent:
Chase Global Funds Services Company
73 Tremont Street
Boston, MA 02108-3913
Attn: President
Fax: (617) 557-8616
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<PAGE>
Notice shall be effective upon receipt if by mail, on the date of personal
delivery (by private messenger, courier service or otherwise) or upon confirmed
receipt of telex or facsimile, whichever occurs first.
10. ASSIGNMENT AND DELEGATION. This Agreement shall not be assigned and
the rights, duties and obligations of the parties hereunder may not be
subcontracted or delegated by either of the parties hereto without the prior
consent in writing of the other party.
11. WAIVER. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver nor
shall it deprive such party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver must be in
writing signed by the waiving party.
12. FORCE MAJEURE. Sub-Transfer Agent shall not be responsible or liable
for any failure or delay in performance of its obligations under this Agreement
arising out of or caused, directly or indirectly, by circumstances beyond its
control, including without limitation, acts of God, earthquakes, fires, floods,
wars, acts of civil or military authorities, or governmental actions, nor shall
any such failure or delay give the Company the right to terminate this
Agreement. During the term of this Agreement, at no additional cost to the
Company or U.S. Trust, Sub-Transfer Agent shall provide a facility capable of
safeguarding the transfer agency and dividend disbursing records of the Company
in case of damage to the primary facility providing those services (the "Back-Up
Facility"). Transfer of the transfer agency and dividend records of the Company
to the Back-Up Facility shall be at Sub-Transfer Agent's expense, shall commence
immediately after damage to the primary facility results in an inability to
provide the transfer agency and dividend disbursing services, and shall be
completed within 72 hours of commencement. After the primary facility has
recovered, Sub-Transfer Agent shall again utilize
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<PAGE>
it to provide the transfer agency and dividend disbursing services to the
Company at no additional cost to the Company. Sub-Transfer Agent shall use
reasonable efforts to provide the services described in this Agreement from the
Back-Up Facility.
13. USE OF NAME. Sub-Transfer Agent and U.S. Trust agree not to use the
other's name nor the name of the Company nor the names of such other's nor the
Company's affiliates, designees, or assignees in any prospectus, sales
literature, or other printed material written in a manner not previously
approved by the other or the Company or such other's or the Company's
affiliates, designees, or assignees except where required by the SEC or other
regulatory authorities.
14. AMENDMENTS. This Agreement may be modified or amended from time to
time by mutual written agreement between the parties. No provision of this
Agreement may be changed, discharged, or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, discharge or termination is sought.
15. SEVERABILITY. If any provision of this Agreement is invalid or
unenforceable, the balance of the Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance it shall nevertheless
remain applicable to all other persons and circumstances.
16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE SUBSTANTIVE
LAWS OF THE STATE OF NEW YORK, INCLUDING THE DETERMINATION OF WHEN AN
"ASSIGNMENT" HAS OCCURRED.
17. THIRD PARTY BENEFICIARY. U.S. Trust and Sub-Transfer Agent expressly
agree that the Company is a third party beneficiary hereof and expressly agree
that the Company may enforce the provisions hereof.
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This Agreement may be executed in one or more counterparts and all
such counterparts will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below as of the date first written
above.
CHASE GLOBAL FUNDS SERVICES
COMPANY
/s/ Donald P. Hearn
----------------------------------------
Name: Donald P. Hearn
Title: Vice Chairman
UNITED STATES TRUST COMPANY
OF NEW YORK
/s/ Kenneth G. Walsh
----------------------------------------
Name: Kenneth G. Walsh
Title: Executive Vice President
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<PAGE>
EXHIBIT 14(a)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the caption "Financial
Statements" in the preliminary Copy dated April 5, 1999 of the Combined
Prospectus/Proxy Statement dated May 5, 1999 in the Registration Statement on
Form N-14 dated April 5, 1999, of Excelsior Funds, Inc (the "Company"), and to
the inclusion of our report on the financial statements and financial highlights
of the Company's Income and Growth Fund and Blended Equity Fund (collectively,
the "Funds") for the year ended March 31, 1998, dated May 8, 1998, included in
the 1998 Annual Report to Shareholders, which is included in the Statement of
Additional Information included in the Registration Statement on Form N-14,
dated May 5, 1999, of Excelsior Funds, Inc.
/s/ Ernst & Young LLP
------------------------
ERNST & YOUNG LLP
Boston, Massachusetts
April 1, 1999
<PAGE>
Exhibit (14)(b)
CONSENT OF COUNSEL
------------------
We hereby consent to the use of our name and to the references to our Firm
included in the Registration Statement on Form N-14 under the Securities Act of
1933, as amended (the "1933 Act"), and the Investment Company Act of 1940, as
amended, respectively. This consent does not constitute a consent under section
7 of the 1933 Act, and in consenting to the use of our name and the references
to our Firm we have not certified any part of the Registration Statement and do
not otherwise come within the categories of persons whose consent is required
under said section 7 or the rules and regulations of the Securities and Exchange
Commission thereunder.
/s/ DRINKER BIDDLE & REATH LLP
------------------------------
DRINKER BIDDLE & REATH LLP
Philadelphia, Pennsylvania
April 5, 1999
<PAGE>
Exhibit 17(a)
PRELIMINARY COPY
----------------
EXCELSIOR FUNDS, INC.
This proxy is solicited by the Board of Directors of Excelsior Funds, Inc.
(the "Company") for use at a special meeting of shareholders of the Company's
Income and Growth Fund (the "Fund") to be held on June 30, 1999, at 10:00 a.m.
(eastern time), at the offices of United States Trust Company of New York, 114
West 47th Street, New York, New York 10036.
The undersigned hereby appoints Frank Bruno, Mark Dari, Patricia Leyne,
Michael Malloy and Daniel Moonay, and each of them, with full power of
substitution, as proxies of the undersigned to vote at the above-stated special
meeting, and at all adjournments or postponements thereof, all shares of capital
stock representing interests in the FUND held of record by the undersigned on
April 9, 1999, the record date for the meeting, upon the following matter and
upon any other matter that may come before the meeting, in their discretion:
(1) Proposal to approve or disapprove a Plan of Reorganization and the
transactions contemplated thereby, including the transfer of all of the
assets and liabilities of the Company's Income and Growth Fund (the
"Transferor Fund") to the Company's Blended Equity Fund (the "Surviving
Fund"), the amendment of the Company's Charter reclassifying all shares of
the Transferor Fund as shares of the Surviving Fund, and accomplishment of
the reclassification by the issuance of such shares of the Surviving Fund
to shareholders of the Transferor Fund.
[_] For [_] Against [_] Abstain
(2) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
Please sign, date and return the proxy card promptly using the enclosed
envelope. every properly signed proxy will be voted in the manner specified
hereon and, in the absence of specification, will be treated as granting
authority to vote "for" the proposal.
Please sign exactly as name appears hereon. when shares are held by joint
tenants, both should sign. when signing as attorney or executor, administrator,
trustee or guardian, please give full title as such. if a corporation, please
sign in full corporate name by president or other authorized officer. if a
partnership, please sign in partnership name by authorized person.
- -------------------------------- ------------------------------------------
SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE
<PAGE>
Exhibit 17(B)
LOGO EXCELSIOR
FUNDS INC.
Excelsior Equity Funds
- -------------------------------------------------------------------------------
73 Tremont Street For initial purchase information, current
Boston, MA 02108-3913 prices, performance information and existing
account information, call (800) 446-1012.
(From overseas, call (617) 557-8280.)
- -------------------------------------------------------------------------------
This Prospectus describes five separate portfolios offered to investors by Ex-
celsior Funds, Inc. ("Excelsior Fund"), an open-end, management investment
company. Each portfolio (individually, a "Fund" and collectively, the "Funds")
has its own investment objective and policies as follows:
BLENDED EQUITY FUND seeks long-term capital appreciation by investing in com-
panies believed by the Investment Adviser to represent good long-term values
not currently recognized in the market prices of their securities.
INCOME AND GROWTH FUND seeks moderate current income with capital apprecia-
tion as a secondary goal by investing in common stock, preferred stock and se-
curities convertible into common stock.
VALUE AND RESTRUCTURING FUND seeks long-term capital appreciation by invest-
ing in companies which the Investment Adviser believes will benefit from their
restructuring or redeployment of assets and operations in order to become more
competitive or profitable.
SMALL CAP FUND seeks long-term capital appreciation by investing primarily in
companies with capitalization of $1 billion or less.
LARGE CAP GROWTH FUND seeks 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.
Each of the Funds is sponsored and distributed by Edgewood Services, Inc. and
advised by United States Trust Company of New York and U.S. Trust Company of
Connecticut (collectively, the "Investment Adviser" or "U.S. Trust").
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated August 1, 1998 and containing additional information about
the Funds has been filed with the Securities and Exchange Commission. The cur-
rent Statement of Additional Information is available to investors without
charge by writing to Excelsior Fund at its address shown above or by calling
(800) 446-1012. The Statement of Additional Information, as it may be supple-
mented from time to time, is incorporated by reference in its entirety into
this Prospectus. 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 FUNDS ("SHARES") ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARAN-
TEED OR ENDORSED BY, U.S. TRUST, ITS PARENT OR AFFILIATES AND THE SHARES ARE
NOT FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED
BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
August 1, 1998
<PAGE>
PROSPECTUS SUMMARY
EXCELSIOR FUNDS, INC. is an investment company offering various investment
portfolios with differing objectives and policies. Founded in 1984, Excelsior
Fund currently offers 18 Funds with combined assets of approximately $4 bil-
lion. See "Description of Capital Stock."
INVESTMENT ADVISER: United States Trust Company of New York and U.S. Trust
Company of Connecticut (collectively, "U.S. Trust" or the "Investment Advis-
er") serve as the Funds' investment adviser. U.S. Trust offers a variety of
specialized financial and fiduciary services to high-net worth individuals,
institutions and corporations. Excelsior Fund offers investors access to U.S.
Trust's services. See "Management of the Funds--Investment Adviser."
INVESTMENT OBJECTIVES AND POLICIES: Generally, each Fund is a diversified
investment portfolio which invests in equity securities. The Income and Growth
Fund also may invest significantly in bonds. The Funds' investment objectives
and policies are summarized on the cover and explained in greater detail later
in this Prospectus. See "Investment Objectives and Policies," "Portfolio In-
struments and Other Investment Information" and "Investment Limitations."
HOW TO INVEST: The Funds' Shares are offered at their net asset value. Ex-
celsior Fund does not impose a sales load on purchases of Shares. See "How to
Purchase and Redeem Shares."
The minimum to start an account is $500 per Fund, with a minimum of $50 per
Fund for subsequent investments. The easiest way to invest is to complete the
account application which accompanies this Prospectus and to send it with a
check to the address noted on the application. Investors may also invest by
wire and through investment dealers or institutional investors with appropri-
ate sales agreements with Excelsior Fund. See "How to Purchase and Redeem
Shares."
HOW TO REDEEM: Redemptions may be requested directly from Excelsior Fund by
mail, wire or telephone. Investors investing through another institution
should request redemptions through their Shareholder Organization. See "How to
Purchase and Redeem Shares."
INVESTMENT RISKS AND CHARACTERISTICS: Generally, each Fund is subject to
market and industry risk. Market risk is the possibility that stock prices
will decline over short or even extended periods. The stock markets tend to be
cyclical, with periods of generally rising prices and periods of generally de-
clining prices. These cycles will affect the values of each Fund. Because the
Funds may invest in securities of foreign issuers, they are subject to the
risks of fluctuations of the value of foreign currency relative to the U.S.
dollar and other risks associated with such investments. Because the Income
and Growth Fund also invests in bonds and other fixed-income securities, it
will also be affected directly by fluctuations in interest rates and the
credit markets. Investments in non-investment grade obligations may subject
the Income and Growth Fund to increased risk of loss upon default. Such secu-
rities are generally unsecured, are often subordinated debt and are often is-
sued by entities with high levels of indebtedness and that are more sensitive
to adverse economic conditions. Although each Fund generally seeks to invest
for the long term, each Fund may engage in short-term trading of portfolio se-
curities. A high rate of portfolio turnover may involve correspondingly
greater transaction costs which must be borne directly by a Fund and ulti-
mately by its shareholders. Investment in the Funds should not be considered a
complete investment program. See "Investment Objectives and Policies."
2
<PAGE>
EXPENSE SUMMARY
<TABLE>
<CAPTION>
Blended Value and Large Cap
Equity Income and Restructuring Small Cap Growth
Fund Growth Fund Fund Fund Fund
------- ----------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Front-End Sales Load..... None None None None None
Sales Load on Reinvested
Dividends............... None None None None None
Deferred Sales Load...... None None None None None
Redemption Fees.......... None None None None None
Exchange Fees............ None None None None None
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of
average net assets)
Advisory Fees (after fee
waivers)/1/............. .68% .67% .56% .53% .68%
12b-1 Fees............... None None None None None
Other Operating Expenses
Administrative Servicing
Fee/1/................. .04% .08% .04% .07% .02%
Other Expenses.......... .27% .27% .29% .34% .35%
----- ----- ---- ---- -----
Total Operating Expenses
(after fee waivers)/1/ . .99% 1.02% .89% .94% 1.05%
===== ===== ==== ==== =====
</TABLE>
- --------
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. Until further notice, the Investment Adviser and/or administra-
tors intend to voluntarily waive fees in an amount equal to the Administra-
tive Servicing Fee; and to further waive fees and reimburse expenses to the
extent necessary for Shares of the Value and Restructuring, Small Cap and
Large Cap Growth Funds to maintain an annual expense ratio of not more than
.99%, .99% and 1.05%, respectively. Without such fee waivers, "Advisory
Fees" would be .75%, .75%, .60%, .60% and .75%, and "Total Operating Ex-
penses" would be 1.06%, 1.10%, .93%, 1.01% and 1.12% for the Blended Equi-
ty, Income and Growth, Value and Restructuring, Small Cap and Large Cap
Growth Funds, respectively.
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual returns and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Blended Equity Fund............................. $10 $32 $55 $121
Income and Growth Fund.......................... 10 32 56 125
Value and Restructuring Fund.................... 9 28 49 110
Small Cap Fund.................................. 10 30 52 115
Large Cap Growth Fund........................... 11 33 58 128
</TABLE>
The foregoing expense summary and example are intended to assist investors
in understanding the costs and expenses that an investor in Shares of the
Funds will bear directly or indirectly. The expense summary sets forth advi-
sory and other expenses payable with respect to Shares of the Blended Equity,
Income and Growth, Value and Restructuring and Small Cap Funds for the fiscal
year ended March 31, 1998, and the estimated advisory and other expenses pay-
able with respect to Shares of the Large Cap Growth Fund for the current fis-
cal year. For more complete descriptions of the Funds' operating expenses, see
"Management of the Funds" and "Description of Capital Stock" in this Prospec-
tus and the financial statements and notes incorporated by reference in the
Statement of Additional Information.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATE OF RETURN. ACTUAL EXPENSES AND RATE OF RETURN MAY BE
GREATER OR LOWER THAN THOSE SHOWN IN THE EXPENSE SUMMARY AND EXAMPLE.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables include selected data for a Share outstanding throughout
each period and other performance information derived from the financial
statements included in Excelsior Fund's Annual Report to Shareholders for
the year ended March 31, 1998 (the "Financial Statements"). The information
contained in the Financial Highlights for each period has been audited by Ernst
& Young LLP, Excelsior Fund's independent auditors. The following tables should
be read in conjunction with the Financial Statements and notes thereto. More
information about the performance of each Fund is also contained in the Annual
Report to Shareholders, which may be obtained from Excelsior Fund without
charge by calling the number on the front cover of this Prospectus.
BLENDED EQUITY FUND
(formerly, the Equity Fund)
<TABLE>
<CAPTION>
Year Ended March 31,
------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year...... $ 25.81 $ 24.43 $ 21.40 $ 19.17 $ 18.77 $ 16.28 $14.13 $13.87 $13.22 $11.32
------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Income From Investment
Operations
Net Investment Income.. 0.16 0.18 0.12 0.07 0.05 0.08 0.13 0.28 0.34 0.19
Net Gains or (Losses)
on Securities (both
realized and
unrealized)........... 12.59 2.50 5.21 2.67 1.16 3.01 2.23 0.39 1.26 1.88
------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Total From Investment
Operations............ 12.75 2.68 5.33 2.74 1.21 3.09 2.36 0.67 1.60 2.07
------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Less Distributions
Dividends From Net
Investment Income..... (0.16) (0.14) (0.11) (0.04) (0.08) (0.09) (0.21) (0.23) (0.34) (0.17)
Distributions From Net
Realized Gain on
Investments and
Options............... (2.28) (1.16) (2.19) (0.47) (0.39) (0.51) 0.00 (0.18) (0.61) 0.00
Distributions in Excess
of Net Realized Gain
on Investments and
Options............... 0.00 0.00 0.00 0.00 (0.34) 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Total Distributions.... (2.44) (1.30) (2.30) (0.51) (0.81) (0.60) (0.21) (0.41) (0.95) (0.17)
------- ------- ------- ------- ------- ------- ------ ------ ------ ------
Net Asset Value, End of
Year................... $ 36.12 $ 25.81 $ 24.43 $ 21.40 $ 19.17 $ 18.77 $16.28 $14.13 $13.87 $13.22
======= ======= ======= ======= ======= ======= ====== ====== ====== ======
Total Return ........... 50.82% 11.09% 26.45% 14.65% 6.54% 19.26% 16.87% 5.11% 11.98% 18.52%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions).. $594.91 $306.99 $188.57 $137.42 $122.26 $106.14 $71.62 $29.87 $25.98 $17.61
Ratio of Net Operating
Expenses to Average
Net Assets............ 0.99% 1.01% 1.05% 1.05% 1.14% 1.08% 1.15% 1.23% 1.22% 1.16%
Ratio of Gross
Operating Expenses to
Average Net Assets/1/
...................... 1.06% 1.06% 1.12% 1.08% 1.14% 1.08% 1.15% 1.23% 1.22% 1.16%
Ratio of Net Investment
Income to Average
Net Assets............ 0.55% 0.71% 0.55% 0.36% 0.25% 0.51% 0.87% 2.21% 2.45% 1.62%
Portfolio Turnover
Rate.................. 28.0% 39.0% 27.0% 23.0% 17.0% 24.0% 20.0% 41.0% 53.0% 46.0%
Average Commission Rate
Paid/2/............... $0.0420 $0.0663 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- --------
NOTES:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
2. Only required for fiscal years beginning on or after September 1, 1995.
4
<PAGE>
INCOME AND GROWTH FUND
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------ ------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year...... $ 15.25 $ 14.45 $ 11.82 $11.94 $11.45 $ 9.10 $ 8.36 $ 8.84 $ 9.09 $ 8.12
------- ------- ------- ------ ------ ------ ------ ------- ------ ------
Income From Investment
Operations
Net Investment Income.. 0.36 0.33 0.39 0.38 0.31 0.27 0.30 0.29 0.40 0.28
Net Gains or (Losses)
on Securities (both
realized and
unrealized)........... 4.53 1.45 2.61 0.26 0.46 2.43 0.72 (0.43) 0.19 1.15
------- ------- ------- ------ ------ ------ ------ ------- ------ ------
Total From Investment
Operations............ 4.89 1.78 3.00 0.64 0.77 2.70 1.02 (0.14) 0.59 1.43
------- ------- ------- ------ ------ ------ ------ ------- ------ ------
Less Distributions
Dividends From Net
Investment Income..... (0.34) (0.35) (0.31) (0.35) (0.27) (0.35) (0.28) (0.34) (0.39) (0.46)
Distributions From Net
Realized Gain on
Investments and
Options............... (1.85) (0.63) (0.06) (0.41) (0.01) 0.00 0.00 0.00 (0.45) 0.00
------- ------- ------- ------ ------ ------ ------ ------- ------ ------
Total Distributions.... (2.19) (0.98) (0.37) (0.76) (0.28) (0.35) (0.28) (0.34) (0.84) (0.46)
------- ------- ------- ------ ------ ------ ------ ------- ------ ------
Net Asset Value, End of
Year................... $ 17.95 $ 15.25 $ 14.45 $11.82 $11.94 $11.45 $ 9.10 $ 8.36 $ 8.84 $ 9.09
======= ======= ======= ====== ====== ====== ====== ======= ====== ======
Total Return............ 33.29% 12.61% 25.83% 5.74% 6.69% 30.45% 12.42% (1.30)% 6.14% 18.36%
Ratios/Supplemental Data
Net Assets, End of
Period
(in millions)......... $138.05 $132.77 $127.50 $99.93 $96.68 $51.30 $23.25 $ 19.59 $23.66 $14.62
Ratio of Net Operating
Expenses to Average
Net Assets............ 1.02% 1.03% 1.05% 1.06% 1.17% 1.15% 1.23% 1.28% 1.24% 1.22%
Ratio of Gross
Operating Expenses to
Average Net
Assets/1/............. 1.10% 1.11% 1.11% 1.09% 1.17% 1.15% 1.23% 1.28% 1.24% 1.22%
Ratio of Net Investment
Income to Average Net
Assets................ 2.04% 2.17% 2.95% 3.31% 2.77% 2.76% 3.52% 3.64% 4.47% 4.09%
Portfolio Turnover
Rate.................. 32.0% 25.0% 22.0% 36.0% 28.0% 28.0% 81.0% 148.0% 29.0% 24.0%
Average Commission Rate
Paid/2/............... $0.0539 $0.0777 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- --------
NOTES:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
2. Only required for fiscal years beginning on or after September 1, 1995.
5
<PAGE>
VALUE AND RESTRUCTURING FUND
(formerly, the Business and Industrial Restructuring Fund)
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------------------- Period Ended
1998 1997 1996 1995 1994 March 31, 1993/1/
------- ------- ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 15.93 $ 14.03 $10.55 $ 9.64 $ 7.71 $ 7.00
------- ------- ------ ------ ------ -------
Income From Investment
Operations
Net Investment Income. 0.10 0.13 0.10 0.07 0.06 0.02
Net Gains or (Losses)
on Securities (both
realized and
unrealized).......... 8.12 2.36 3.71 1.02 1.96 0.69
------- ------- ------ ------ ------ -------
Total From Investment
Operations........... 8.22 2.49 3.81 1.09 2.02 0.71
------- ------- ------ ------ ------ -------
Less Distributions
Dividends From Net
Investment Income.... (0.09) (0.12) (0.09) (0.06) (0.07) 0.00
Distributions From Net
Realized Gain on
Investments and
Options.............. (0.27) (0.47) (0.24) (0.12) (0.02) 0.00
------- ------- ------ ------ ------ -------
Total Distributions... (0.36) (0.59) (0.33) (0.18) (0.09) 0.00
------- ------- ------ ------ ------ -------
Net Asset Value, End of
Period................. $ 23.79 $ 15.93 $14.03 $10.55 $ 9.64 $ 7.71
======= ======= ====== ====== ====== =======
Total Return............ 52.10% 18.09% 36.48% 11.49% 26.40% 10.14%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions). $388.45 $124.01 $74.05 $30.18 $14.44 $ 1.94
Ratio of Net Operating
Expenses to Average
Net Assets........... 0.89% 0.91% 0.91% 0.98% 0.99% 0.99%/2/
Ratio of Gross
Operating Expenses to
Average
Net Assets/3/........ 0.93% 0.95% 0.95% 1.08% 1.73% 5.85%/2/
Ratio of Net
Investment Income to
Average Net Assets... 0.54% 0.90% 0.88% 0.83% 0.77% 2.48%/2/
Portfolio Turnover
Rate................. 30.0% 62.0% 56.0% 82.0% 75.0% 9.0%/2/
Average Commission
Rate Paid/4/......... $0.0624 $0.0755 N/A N/A N/A N/A
</TABLE>
- --------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Annualized.
3. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
4. Only required for fiscal years beginning on or after September 1, 1995.
6
<PAGE>
SMALL CAP FUND
(formerly, the Early Life Cycle Fund)
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------------------- Period Ended
1998 1997 1996 1995 1994 March 31, 1993/1/
------- -------- ------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 8.83 $ 10.78 $ 9.77 $ 8.66 $ 7.40 $7.00
------- -------- ------- ------- ------- -----
Income From Investment
Operations
Net Investment Income
(Loss)............... (0.01) (0.03) (0.02) (0.02) (0.01) 0.00
Net Gains or (Losses)
on Securities (both
realized and
unrealized).......... 3.13 (1.43) 1.72 1.31 1.36 0.40
------- -------- ------- ------- ------- -----
Total From Investment
Operations........... 3.12 (1.46) 1.70 1.29 1.35 0.40
------- -------- ------- ------- ------- -----
Less Distributions
Dividends From Net
Investment Income.... 0.00 0.00 0.00 0.00 0.00 0.00
Distributions From Net
Realized Gain on
Investments and
Options.............. 0.00 (0.10) (0.69) (0.18) (0.09) 0.00
Distributions in
Excess of Net
Realized Gain on
Investments and
Options.............. 0.00 (0.39) 0.00 0.00 0.00 0.00
------- -------- ------- ------- ------- -----
Total Distributions... 0.00 (0.49) (0.69) (0.18) (0.09) 0.00
------- -------- ------- ------- ------- -----
Net Asset Value, End of
Period................. $ 11.95 $ 8.83 $ 10.78 $ 9.77 $ 8.66 $7.40
======= ======== ======= ======= ======= =====
Total Return............ 35.33% (14.33)% 18.29% 15.16% 18.27% 5.71%
Ratios/Supplemental Data
Net Assets, End of
Period (in millions). $ 68.55 $ 53.26 $ 78.06 $ 47.78 $ 24.95 $5.51
Ratio of Net Operating
Expenses to Average
Net Assets........... 0.94% 0.94% 0.90% 0.96% 0.95% 0.99%/2/
Ratio of Gross
Operating Expenses to
Average Net
Assets/3/............ 1.01% 1.02% 0.98% 1.04% 1.15% 2.70%/2/
Ratio of Net
Investment
Income/(Loss) to
Average Net Assets... (0.14)% (0.26)% (0.17)% (0.23)% (0.25)% 0.12%/2/
Portfolio Turnover
Rate................. 73.0% 55.0% 38.0% 42.0% 20.0% 4.0%/2/
Average Commission
Rate Paid/4/......... $0.0490 $ 0.0433 N/A N/A N/A N/A
</TABLE>
- --------
NOTES:
1. Inception date of the Fund was December 31, 1992.
2. Annualized.
3. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
4. Only required for fiscal years beginning on or after September 1, 1995.
7
<PAGE>
LARGE CAP GROWTH FUND
<TABLE>
<CAPTION>
Period Ended
March 31, 1998/1/
-----------------
<S> <C>
Net Asset Value, Beginning of Period......................... $ 7.00
-------
Income From Investment Operations
Net Investment Income...................................... 0.00/2/
Net Gains or (Losses) on Securities (both realized and
unrealized)............................................... 1.51
-------
Total From Investment Operations........................... 1.51
-------
Less Distributions
Dividends From Net Investment Income....................... 0.00
Distributions From Net Realized Gain on Investments and
Options................................................... 0.00
-------
Total Distributions........................................ 0.00
-------
Net Asset Value, End of Period............................... $ 8.51
=======
Total Return................................................. 21.57%/3/
Ratios/Supplemental Data
Net Assets, End of Period (in millions).................... $ 47.53
Ratio of Net Operating Expenses to Average Net Assets...... 1.05%/4/
Ratio of Gross Operating Expenses to Average
Net Assets/5/............................................. 1.20%4
Ratio of Net Investment Income/(Loss) to Average
Net Assets................................................ (0.16)%/4/
Portfolio Turnover Rate.................................... 12%/4/
Average Commission Rate Paid............................... $0.0384
</TABLE>
- --------
NOTES:
1. Inception date of the Fund was October 1, 1997.
2. Amount represents less than $0.01 per share.
3. Not annualized.
4. Annualized.
5. Expense ratio before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.
8
<PAGE>
U.S. TRUST'S INVESTMENT PHILOSOPHY AND STRATEGIES
U.S. Trust offers a variety of specialized fiduciary and financial services
to high-net worth individuals, institutions and corporations. As one of the
largest institutions of its type, U.S. Trust prides itself in offering an at-
tentive and high level of service to each of its clients. The Excelsior Funds
offer individual investors access to U.S. Trust's services.
Philosophy. In managing investments for the Blended Equity, Income and
Growth, Value and Restructuring and Small Cap Funds, U.S. Trust follows a
long-term investment philosophy which generally does not change with the
short-term variability of financial markets or fundamental conditions. U.S.
Trust's approach begins with the conviction that all worthwhile investments
are grounded in value. The Investment Adviser believes that an investor can
identify fundamental values that eventually should be reflected in market
prices. U.S. Trust believes that over time, a disciplined search for fundamen-
tal value will achieve better results than attempting to take advantage of
short-term price movements.
Implementation of this long-term value philosophy consists of searching for,
identifying and obtaining the benefits of present or future investment values.
For example, such values may be found in a company's future earnings potential
or in its existing resources and assets. Accordingly, U.S. Trust in managing
investments for the Funds is constantly engaged in assessing, comparing and
judging the worth of companies, particularly in comparison to the price the
markets place on such companies' shares.
In managing investments for the Large Cap Growth Fund, U.S. Trust expects to
follow a long-term investment philosophy of buying and holding equity securi-
ties of companies which it believes to be of high quality and of high growth
potential. Typically, these companies are industry leaders with the potential
to dominate their markets by being the low cost, high quality producers of
products or services. U.S. Trust believes that earnings growth is the primary
determinant of stock prices and that efficient financial markets will reward
consistently above-average earnings growth with greater than average capital
appreciation over the long term.
Strategies. In order to translate its investment philosophy into more spe-
cific guidance for selection of investments, the Investment Adviser uses three
specific strategies. These strategies, while identified separately, may over-
lap so that more than one may be applied in an investment decision.
U.S. Trust's "problem/opportunity strategy" seeks to identify industries and
companies with the capabilities to provide solutions to or benefit from com-
plex problems such as the changing demographics and aging of the U.S. popula-
tion or the need to enhance industrial productivity. U.S. Trust's second
strategy is a "transaction value" comparison of a company's real underlying
asset value with the market price of its shares and with the sale prices for
similar assets changing ownership in public market transactions. Differences
between a company's real asset value and the price of its shares often are
corrected over time by restructuring of the assets or by market recognition of
their value. U.S. Trust's third strategy involves identifying "early life cy-
cle" companies whose products are in their earlier stages of development or
that seek to exploit new markets. Frequently such companies are smaller compa-
nies, but early life cycle companies may also include larger established com-
panies with new products or markets for existing products. The Investment Ad-
viser believes that over time the value of such companies should be recognized
in the market.
Themes. To complete U.S. Trust's investment philosophy in managing the Funds,
the three portfolio strategies discussed above are applied in concert with
other "longer-term investment themes" to identify investment opportunities.
The Investment Adviser believes these longer-term themes represent strong and
inexorable trends. The Investment Adviser also believes that understanding the
instigation, catalysts and effects of these longer-term trends should help to
identify companies that are beneficiaries of these trends.
9
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Investment Adviser will use its best efforts to achieve the investment
objective of each Fund, although their achievement cannot be assured. The in-
vestment objective of each of the Blended Equity, Income and Growth, Value and
Restructuring and Small Cap Funds is "fundamental," meaning that it may not be
changed without a vote of the holders of a majority of the particular Fund's
outstanding Shares (as defined under "Miscellaneous"). The investment objec-
tive of the Large Cap Growth Fund may be changed by Excelsior Fund's Board of
Directors without shareholder approval. Except as noted below in "Investment
Limitations," the investment policies of each Fund may be changed without a
vote of the holders of a majority of the outstanding Shares of such Fund.
Blended Equity Fund
The Blended Equity Fund's investment objective is to seek long-term capital
appreciation. The Blended Equity Fund invests in companies which the Invest-
ment Adviser believes have value currently not recognized in the market prices
of the companies' securities. The Investment Adviser uses the investment phi-
losophy, strategies and themes discussed above to identify such investment
values and to diversify the Fund's investments over a variety of industries
and types of companies. See "Investment Policies Common to the Blended Equity,
Value and Restructuring, Small Cap and Large Cap Growth Funds" for a discus-
sion of various investment policies applicable to the Blended Equity Fund.
Value and Restructuring Fund
The Value and Restructuring Fund seeks long-term capital appreciation by in-
vesting in companies which the Investment Adviser believes will benefit from
their restructuring or redeployment of assets and operations in order to be-
come more competitive or profitable. Such companies may include those involved
in prospective mergers, consolidations, liquidations, spin-offs, financial
restructurings and reorganizations. The business activities of such companies
are not limited in any way. Under normal conditions, at least 65% of the
Fund's total assets will be invested in companies of the type described in
this paragraph. The Investment Adviser's focus is to find companies whose re-
structuring activities offer significant value and investment potential. For
the past several years, leveraged buy-outs and mergers have been prominent
trends. Currently, a great deal of value is being created as companies
deleverage, recapitalize, and rationalize their operations in order to in-
crease profitability. There is risk in these types of investments. For exam-
ple, should a company be unsuccessful in reducing its debt, it may be forced
into default on its debt, increasing its debt or bankruptcy.
Small Cap Fund
The Small Cap Fund seeks long-term capital appreciation by investing primar-
ily in smaller companies which are in the earlier stages of their development,
yet which have demonstrated or are expected to achieve substantial long-term
earnings growth. In selecting companies for investment, the Investment Adviser
looks for innovative companies whose potential has not yet been fully recog-
nized by the securities markets. Under normal conditions, at least 65% of the
Fund's total assets will be invested in companies with capitalization of $1
billion or less. The risk and venture oriented nature of such companies natu-
rally entails greater risk for investors when contrasted with investing in
more established companies. The Fund may also invest in larger or more mature
companies engaged in new and higher growth potential operations. These compa-
nies may also be positioned for accelerating earnings because of rejuvenated
management, new products, new markets for existing products or structural
changes in the economy.
Large Cap Growth Fund
The Large Cap Growth Fund's investment objective is to seek superior, long-
term total return. The Fund attempts to achieve this objective through invest-
ments primarily in companies with capitalizations
10
<PAGE>
in excess of $5 billion, whose growth prospects, in the opinion of U.S. Trust,
appear to exceed that of the overall market. Under normal conditions, at least
65% of the Fund's total assets will be invested in such companies.
Investment Policies Common to the Blended Equity, Value and Restructuring,
Small Cap and Large Cap Growth Funds
Under normal market and economic conditions, each of the Blended Equity,
Value and Restructuring, Small Cap and Large Cap Growth Funds will invest at
least 65% of its total assets in common stock, preferred stock and securities
convertible into common stock. Normally, up to 35% of each such Fund's total
assets may be invested in other securities and instruments including, e.g.,
other investment-grade debt securities, warrants, options, and futures instru-
ments as described in more detail below. During temporary defensive periods or
when the Investment Adviser believes that suitable stocks or convertible secu-
rities are unavailable, each Fund may hold cash or invest some or all of its
assets in U.S. Government securities, high-quality money market instruments
and repurchase agreements collateralized by the foregoing obligations.
In managing the Blended Equity, Value and Restructuring, Small Cap and Large
Cap Growth Funds, the Investment Adviser seeks to purchase securities having
value currently not recognized in the market price of a security, consistent
with the strategies discussed above.
Portfolio holdings will include common stocks of companies having capitaliza-
tions of varying amounts, and all Funds may invest in the securities of high
growth, small companies where the Investment Adviser expects earnings and the
price of the securities to grow at an above-average rate. As discussed above,
the Small Cap Fund emphasizes such companies. Certain securities owned by the
Funds may be traded only in the over-the-counter market or on a regional secu-
rities exchange, may be listed only in the quotation service commonly known as
the "pink sheets," and may not be traded every day or in the volume typical of
trading on a national securities exchange. As a result, there may be a greater
fluctuation in the value of a Fund's Shares, and a Fund may be required, in
order to meet redemptions or for other reasons, to sell these securities at a
discount from market prices, to sell during periods when such disposition is
not desirable, or to make many small sales over a period of time.
The Blended Equity, Value and Restructuring, Small Cap and Large Cap Growth
Funds may invest in the securities of foreign issuers directly or indirectly
through sponsored and unsponsored American Depository Receipts ("ADRs"). ADRs
represent receipts typically issued by a U.S. bank or trust company which evi-
dence ownership of underlying securities of foreign issuers. Investments in
unsponsored ADRs involve additional risk because financial information based
on generally accepted accounting principles ("GAAP") may not be available for
the foreign issuers of the underlying securities. ADRs may not necessarily be
denominated in the same currency as the underlying securities into which they
may be converted. The Funds may also enter into foreign currency exchange
transactions for hedging purposes.
Income and Growth Fund
The Income and Growth Fund has two investment objectives. Its primary invest-
ment objective is to seek to provide moderate current income and then, as a
secondary objective, to achieve capital appreciation from its investments. In
attempting to achieve these two objectives, the Income and Growth Fund in-
vests, during normal market and economic conditions, a substantial portion of
its assets in common stock, preferred stock and securities convertible into
common stock. The Fund's investments in equity securities will be income-ori-
ented, and it is expected that a portion of its assets will be invested on a
regular basis in debt obligations.
The Fund may invest in the securities of foreign issuers directly or indi-
rectly through sponsored and unsponsored ADRs. For information on ADRs, see
"Investment Policies Common to the Blended Equity,
11
<PAGE>
Value and Restructuring, Small Cap and Large Cap Growth Funds." The Fund may
also enter into foreign currency exchange transactions for hedging purposes.
In managing the equity portion of the Income and Growth Fund, the Investment
Adviser will generally select securities that are expected to pay dividends
and other distributions which will result in moderate current income when
added to the income from the Fund's non-equity investments. As a general mat-
ter, the Investment Adviser will use the three strategies described above in
"U.S. Trust's Investment Philosophy and Strategies"--problem/opportunity,
transaction value, and early life cycle. In applying these strategies, howev-
er, the Investment Adviser will place greater emphasis on the current and an-
ticipated income of particular securities and lesser emphasis on the potential
for capital appreciation. As a result, the Income and Growth Fund can be ex-
pected to have a relatively smaller proportion of its assets invested in com-
mon shares of early life cycle companies than the Blended Equity, Value and
Restructuring and Small Cap Funds. The Investment Adviser may also purchase
equity securities for the Income and Growth Fund from time to time without re-
gard to the strategies outlined above if it determines that the purchase is in
furtherance of the Fund's investment objectives.
Debt obligations may be acquired by the Income and Growth Fund to produce in-
come and (under certain conditions) capital appreciation, and may include both
convertible and non-convertible corporate and government bonds, debentures,
money market instruments, repurchase agreements collateralized by U.S. Govern-
ment obligations, and other types of instruments listed in the next paragraph.
Except as stated below, investments in debt obligations will be limited to
those that are considered to be investment grade-i.e., debt obligations clas-
sified within the four highest ratings of Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Services ("S&P") or, if unrated,
which are determined by the Investment Adviser to be of comparable quality.
However, the Investment Adviser may at any time acquire other, non-investment
grade obligations when it believes that their investment characteristics make
them desirable acquisitions for the Income and Growth Fund in light of its in-
vestment objectives and current portfolio mix, so long as, under normal market
and economic conditions, no more than 5% of the Fund's total assets are in-
vested in non-investment grade debt obligations. Notwithstanding the forego-
ing, the Fund may invest up to 35% of its total assets in non-investment grade
convertible debt obligations. Non-investment grade obligations (those that are
rated "Ba" or lower by Moody's and, at the same time, "BB" or lower by S&P or
unrated obligations), commonly referred to as "junk bonds," have speculative
characteristics. Risks associated with lower-rated debt securities are (a) the
relative youth and growth of the market for such securities, (b) the sensitiv-
ity of such securities to interest rate and economic changes, (c) the lower
degree of protection of principal and interest payments, (d) the relatively
low trading market liquidity for the securities, (e) the impact that legisla-
tion may have on the high yield bond market (and, in turn, on the Fund's net
asset value and investment practices), and (f) the creditworthiness of the is-
suers of such securities. During an economic downturn or substantial period of
rising interest rates, highly leveraged issuers may experience financial
stress which would adversely effect their ability to service their principal
and interest payment obligations, to meet projected business goals and to ob-
tain additional financing. An economic downturn could also disrupt the market
for lower-rated bonds and adversely effect the value of outstanding bonds and
the ability of the issuers to repay principal and interest. If the issuer of a
debt obligation held by the Fund defaulted, the Fund could incur additional
expenses to seek recovery. Adverse publicity and investor perceptions, whether
or not based on fundamental analysis, may also decrease the values and liquid-
ity of lower-rated securities held by the Fund, especially in a thinly traded
market.
Debt obligations rated "BB," "B" or "CCC" by S&P are regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" represents the
lowest degree of speculation and "CCC" the highest degree of speculation.
While such debt will likely have some quality and protective characteristics,
these may be outweighed by large uncertainties or major risk exposures to ad-
verse conditions. The rating "CC" is typically applied to a debt obligation
that is highly vulnerable to non-payment. The rating "C" is typi-
12
<PAGE>
cally used to cover a situation where a bankruptcy petition has been filed,
but debt service payments are continued. Debt obligations rated "D" are in de-
fault, and payments of interest and/or repayment of principal is in arrears.
The ratings from "AA" through "CCC" are sometimes modified by the addition of
a plus or minus sign to show relative standing within the major rating catego-
ries. Moody's has a similar classification scheme for non-investment grade
debt obligations. Debt obligations rated "Ba," "B," "Caa," "Ca" and "C" pro-
vide questionable protection of interest and principal. The rating "Ba" indi-
cates that a debt obligation has some speculative characteristics. The rating
"B" indicates a general lack of characteristics of desirable investment. Debt
obligations rated "Caa" are of poor quality, while debt obligations rated "Ca"
are considered highly speculative. "C" represents the lowest rated class of
debt obligations. Moody's applies numerical modifiers 1, 2 and 3 in each ge-
neric classification from "Aa" to "B" in its bond rating system. The modifier
"1" indicates that a security ranks in the higher end of its rating category;
the modifier "2" reflects a mid-range ranking; and the modifier "3" indicates
that the security ranks at the lower end of its generic rating category.
In addition, the Income and Growth Fund may invest up to 10% of its total as-
sets in other types of instruments, including warrants, options and other
rights to purchase securities; liquidating trust receipts; limited partnership
interests; certificates of beneficial ownership; creditor claims; and loan
participations. Such instruments may represent ownership or creditor interests
in a wide range of assets or businesses, and may be acquired by the Income and
Growth Fund for either income purposes (as would normally be the case with in-
struments such as liquidating trust receipts) or capital appreciation (as
would be the case with warrants and options). In certain instances, there may
be no established market for such instruments. The Income and Growth Fund
will, however, at no time invest more than 10% of the value of its net assets
in securities that are illiquid or for which market quotations are not readily
available. Further, certain of these instruments may have speculative charac-
teristics. For example, certain instruments may be issued by companies that
are insolvent or have otherwise defaulted on their debt obligations. Such com-
panies may be involved in bankruptcy reorganization proceedings. Warrants and
options acquired by the Income and Growth Fund are subject to the possible
loss of the entire premium paid by the Fund if the market price of the under-
lying security falls below the exercise price. The Investment Adviser will
purchase such obligations only when it determines that the potential return
justifies the attendant risks. The investment features of the foregoing in-
struments and investment risks involving their acquisition are described fur-
ther in the Statement of Additional Information. Additionally, some of the
instruments described above may not be "securities" or may not produce quali-
fying income for purposes of the provisions of the Internal Revenue Code of
1986, as amended, applicable to investment companies. See "Taxes--Federal" be-
low for a discussion of such provisions.
Risk Factors
Each Fund is subject to market risk and interest rate risk. Market risk is
the possibility that stock prices will decline over short or even extended pe-
riods. The stock markets tend to be cyclical, with periods of generally rising
prices and periods of generally declining prices. These cycles will affect the
values of each Fund. In addition, the prices of bonds and other debt instru-
ments generally fluctuate inversely with interest rate changes. Factors af-
fecting debt securities will affect all of the Funds' debt holdings.
Smaller capitalized companies may have limited product lines, markets, or fi-
nancial resources, or may be dependent upon a small management group, and
their securities may be subject to more abrupt or erratic market movements
than larger capitalized or more established companies, both because their se-
curities typically are traded in lower volume and because the issuers typi-
cally are subject to a greater degree to changes in their earnings and
prospects.
All Funds may invest in the securities of foreign issuers. Investments in
foreign securities involve certain risks not ordinarily associated with in-
vestments in domestic securities. Such risks include fluctuations in foreign
exchange rates, future political and economic developments, and the possible
imposition of exchange controls or other foreign governmental laws or restric-
tions. In addition, with respect
13
<PAGE>
to certain countries there is the possibility of expropriation of assets, con-
fiscatory taxation, political or social instability or diplomatic developments
which could adversely affect investments in those countries. There may be less
publicly available information about a foreign company than about a U.S. com-
pany, and foreign companies may not be subject to accounting, auditing and fi-
nancial reporting standards and requirements comparable to or as uniform as
those of U.S.-based companies. Foreign securities markets, while growing in
volume, have, for the most part, substantially less volume than U.S. markets,
and securities of many foreign companies are less liquid and their prices more
volatile than securities of comparable U.S.-based companies. Transaction costs
on foreign securities markets are generally higher than in the United States.
There is generally less government supervision and regulation of foreign ex-
changes, brokers and issuers than there is in the United States and a Fund
might have greater difficulty taking appropriate legal action in a foreign
court. Dividends and interest payable on a Fund's foreign portfolio securities
may be subject to foreign withholding taxes. To the extent such taxes are not
offset by credits or deductions allowed to investors under the Federal income
tax provisions, they may reduce the net return to the shareholders.
Because of the risks associated with common stock investments, the Funds are
intended to be long-term investment vehicles and are not designed to provide
investors with a means of speculating on short-term stock market movements.
The Funds should not be considered a complete investment program. In view of
the specialized nature of their investment activities, investment in the
Blended Equity, Value and Restructuring, Small Cap and Large Cap Growth Funds'
Shares may be suitable only for those investors who can invest without concern
for current income and are financially able to assume risk in search of long-
term capital gains.
Securities of companies discussed in this section may be more volatile than
the overall market.
Year 2000. Like other investment companies, financial and business organiza-
tions and individuals around the world, the Funds could be affected adversely
if the computer systems used by the Investment Adviser and Funds' other serv-
ice 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 Adviser and the Funds' other service providers
have informed Excelsior Fund that they are taking steps to address the Year
2000 Problem with respect to the computer systems that they use. At this time,
however, there can be no assurance that these steps will be sufficient to
avoid any adverse impact on the Funds as a result of the Year 2000 Problem.
PORTFOLIO INSTRUMENTS AND OTHER
INVESTMENT INFORMATION
Money Market Instruments
All Funds may invest in "money market instruments," which include, among
other things, bank obligations, commercial paper and corporate bonds with re-
maining maturities of 13 months or less.
Bank obligations include bankers' acceptances, negotiable certificates of de-
posit, and non-negotiable time deposits earning a specified return and issued
by a U.S. bank which is a member of the Federal Reserve System or insured by
the Bank Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC"),
or by a savings and loan association or savings bank which is insured by the
Savings Association Insurance Fund of the FDIC. Bank obligations also include
U.S. dollar-denominated obligations of foreign branches of U.S. banks and ob-
ligations of domestic branches of foreign banks. Investments in bank obliga-
tions of foreign branches of domestic financial institutions or of domestic
branches of foreign banks are limited so that no more than 5% of the value of
a Fund's total assets may be invested in any one branch, and no more than 20%
of a particular Fund's total assets at the time of purchase may be invested in
the aggregate in such obligations (see investment limitation No. 5 below under
"Invest-
14
<PAGE>
ment Limitations"). Investments in time deposits are limited to no more than
5% of the value of a Fund's total assets at the time of purchase.
Investments by the Funds in commercial paper will consist of issues that are
rated "A-2" or better by S&P or "Prime-2" or better by Moody's. In addition,
each Fund may acquire unrated commercial paper that is determined by the In-
vestment Adviser at the time of purchase to be of comparable quality to rated
instruments that may be acquired by the particular Fund.
Commercial paper may include variable and floating rate instruments. While
there may be no active secondary market with respect to a particular instru-
ment purchased by a Fund, the Fund may, from time to time as specified in the
instrument, demand payment of the principal of the instrument or may resell
the instrument to a third party. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if
the issuer defaulted on its payment obligation or during periods that the Fund
is not entitled to exercise its demand rights, and the Fund could, for this or
other reasons, suffer a loss with respect to such instrument.
Government Obligations
All Funds may invest in U.S. Government obligations, including U.S. Treasury
Bills and the obligations of Federal Home Loan Banks, Federal Farm Credit
Banks, Federal Land Banks, the Federal Housing Administration, the Farmers
Home Administration, the Export-Import Bank of the United States, the Small
Business Administration, the Government National Mortgage Association, the
Federal National Mortgage Association, the General Services Administration,
the Central Bank for Cooperatives, the Federal Home Loan Mortgage Corporation,
the Federal Intermediate Credit Banks and the Maritime Administration.
Repurchase Agreements
Each Fund may agree to purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually agreed upon date and price ("re-
purchase agreements"). Each Fund will enter into repurchase agreements only
with financial institutions that are deemed to be creditworthy by the Invest-
ment Adviser, pursuant to guidelines established by Excelsior Fund's Board of
Directors. No Fund will enter into repurchase agreements with the Investment
Adviser or any of its affiliates. Repurchase agreements with remaining maturi-
ties in excess of seven days will be considered illiquid securities and will
be subject to the limitations described below under "Illiquid Securities."
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund
at not less than the repurchase price. Default or bankruptcy of the seller
would, however, expose a Fund to possible delay in connection with the dispo-
sition of the underlying securities or loss to the extent that proceeds from a
sale of the underlying securities were less than the repurchase price under
the agreement.
Securities Lending
To increase return on its portfolio securities, each Fund may lend its port-
folio securities to broker/ dealers pursuant to agreements requiring the loans
to be continuously secured by collateral equal at all times in value to at
least the market value of the securities loaned. Collateral for such loans may
include cash, securities of the U.S. Government, its agencies or instrumental-
ities, or an irrevocable letter of credit issued by a bank, or any combination
thereof. Such loans will not be made if, as a result, the aggregate of all
outstanding loans of a Fund exceeds 30% of the value of its total assets.
There may be risks of delay in receiving additional collateral or in recover-
ing the securities loaned or even a loss of rights in the collateral should
the borrower of the securities fail financially. However, loans are made only
to borrowers deemed by the Investment Adviser to be of good standing and when,
in the Investment Adviser's judgment, the income to be earned from the loan
justifies the attendant risks.
15
<PAGE>
Options
To further increase return on their portfolio securities in accordance with
their respective investment objectives and policies, the Funds may enter into
option transactions as described below.
The Income and Growth, Value and Restructuring, Small Cap and Large Cap
Growth Funds may purchase put and call options listed on a national securities
exchange and issued by the Options Clearing Corporation in an amount not ex-
ceeding 5% of a Fund's net assets, as described further in the Statement of
Additional Information. Such options may relate to particular securities or to
various stock or bond indices. Purchasing options is a specialized investment
technique which entails a substantial risk of a complete loss of the amounts
paid as premiums to the writer of the options.
In addition, each Fund may engage in writing covered call options (options on
securities owned by the particular Fund) and enter into closing purchase
transactions with respect to such options. Such options must be listed on a
national securities exchange and issued by the Options Clearing Corporation.
The aggregate value of the securities subject to options written by each Fund
may not exceed 25% of the value of its net assets. By writing a covered call
option, a Fund forgoes the opportunity to profit from an increase in the mar-
ket price of the underlying security above the exercise price except insofar
as the premium represents such a profit, and it will not be able to sell the
underlying security until the option expires or is exercised or the Fund ef-
fects a closing purchase transaction by purchasing an option of the same se-
ries. The use of covered call options is not a primary investment technique of
the Funds and such options will normally be written on underlying securities
as to which the Investment Adviser does not anticipate significant short-term
capital appreciation. Additional information on option practices, including
particular risks thereof, is provided in the Funds' Statement of Additional
Information.
Futures Contracts
The Blended Equity, Value and Restructuring, Small Cap and Large Cap Growth
Funds may also enter into interest rate futures contracts, other types of fi-
nancial futures contracts and related futures options, as well as any index or
foreign market futures which are available on recognized exchanges or in other
established financial markets.
The Blended Equity, Value and Restructuring, Small Cap and Large Cap Growth
Funds will not engage in futures transactions for speculation, but only as a
hedge against changes in market values of securities which a Fund holds or in-
tends to purchase. The Funds will engage in futures transactions only to the
extent permitted by the Commodity Futures Trading Commission ("CFTC") and the
Securities and Exchange Commission ("SEC"). When investing in futures con-
tracts, the Funds must satisfy certain asset segregation requirements to en-
sure that the use of futures is unleveraged. When a Fund takes a long position
in a futures contract, it must maintain a segregated account containing liquid
assets equal to the purchase price of the contract, less any margin or depos-
it. When a Fund takes a short position in a futures contract, the Fund must
maintain a segregated account containing liquid assets in an amount equal to
the market value of the securities underlying such contract (less any margin
or deposit), which amount must be at least equal to the market price at which
the short position was established. Asset segregation requirements are not ap-
plicable when a Fund "covers" an options or futures position generally by en-
tering into an offsetting position. Each Fund will limit its hedging transac-
tions in futures contracts and related options so that, immediately after any
such transaction, the aggregate initial margin that is required to be posted
by the Fund under the rules of the exchange on which the futures contract (or
futures option) is traded, plus any premiums paid by the Fund on its open
futures options positions, does not exceed 5% of the Fund's total assets, af-
ter taking into account any unrealized profits and unrealized losses on the
Fund's open contracts (and excluding the amount that a futures option is "in-
the-money" at the time of purchase). An option to buy a futures contract is
"in-the-money" if the then-current purchase price of the underlying futures
contract exceeds the exercise or strike price; an option to sell a futures
contract is "in-the-money" if the exercise or strike price exceeds the then-
current pur -
16
<PAGE>
chase price of the contract that is the subject of the option. In addition,
the use of futures contracts is further restricted to the extent that no more
than 10% of a Fund's total assets may be hedged.
Transactions in futures as a hedging device may subject a Fund to a number of
risks. Successful use of futures by a Fund is subject to the ability of the
Investment Adviser to correctly anticipate movements in the direction of the
market. There may be an imperfect correlation, or no correlation at all, be-
tween movements in the price of the futures contracts (or options) and move-
ments in the price of the instruments being hedged. In addition, investments
in futures may subject a Fund to losses due to unanticipated market movements
which are potentially unlimited. Further, there is no assurance that a liquid
market will exist for any particular futures contract (or option) at any par-
ticular time. Consequently, a Fund may realize a loss on a futures transaction
that is not offset by a favorable movement in the price of securities which it
holds or intends to purchase or may be unable to close a futures position in
the event of adverse price movements.
Investment Company Securities
Each Fund may invest in securities issued by other investment companies which
invest in high-quality, short-term debt securities and which determine their
net asset value per share based on the amortized cost or penny-rounding meth-
od. The Income and Growth Fund may also purchase securities of unit investment
trusts registered with the SEC as investment companies. In addition to the ad-
visory fees and other expenses a Fund bears directly in connection with its
own operations, as a shareholder of another investment company, a Fund would
bear its pro rata portion of the other investment company's advisory fees and
other expenses. As such, the Fund's shareholders would indirectly bear the ex-
penses of the Fund and the other investment company, some or all of which
would be duplicative. Such securities will be acquired by each Fund within the
limits prescribed by the Investment Company Act of 1940, as amended (the "1940
Act"), which include, subject to certain exceptions, a prohibition against a
Fund investing more than 10% of the value of its total assets in such securi-
ties.
When-Issued and Forward Transactions
Each Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. These transac-
tions involve a commitment by a Fund to purchase or sell particular securities
with payment and delivery taking place in the future, beyond the normal set-
tlement date, at a stated price and yield. Securities purchased on a "forward
commitment" or "when-issued" basis are recorded as an asset and are subject to
changes in value based upon changes in the general level of interest rates. It
is expected that "forward commitments" and "when-issued" purchases will not
exceed 25% of the value of a Fund's total assets absent unusual market condi-
tions, and that the length of such commitments will not exceed 45 days. The
Funds do not intend to engage in "when-issued" purchases and "forward commit-
ments" for speculative purposes, but only in furtherance of their investment
objectives.
Borrowing and Reverse Repurchase Agreements
Each Fund may borrow funds, in an amount up to 10% of the value of its total
assets, for temporary or emergency purposes, such as meeting larger than an-
ticipated redemption requests, and not for leverage. Each Fund may also agree
to sell portfolio securities to financial institutions such as banks and bro-
ker-dealers and to repurchase them at a mutually agreed date and price (a "re-
verse repurchase agreement"). The SEC views reverse repurchase agreements as a
form of borrowing. At the time a Fund enters into a reverse repurchase agree-
ment, it will place in a segregated custodial account liquid assets having a
value equal to the repurchase price, including accrued interest. Reverse re-
purchase agreements involve the risk that the market value of the securities
sold by a Fund may decline below the repurchase price of those securities.
17
<PAGE>
Illiquid Securities
No Fund will knowingly invest more than 10% (15%, with respect to the Large
Cap Growth Fund) of the value of its net assets in securities that are illiq-
uid. A security will be considered illiquid if it may not be disposed of
within seven days at approximately the value at which the particular Fund has
valued the security. Each Fund may purchase securities which are not regis-
tered 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 secu-
rity. This investment practice could have the effect of increasing the level
of illiquidity in a Fund during any period that qualified institutional buyers
are no longer interested in purchasing these restricted securities.
Portfolio Turnover
Each Fund may sell a portfolio investment immediately after its acquisition
if the Investment Adviser believes that such a disposition is consistent with
the investment objective of the particular Fund. Portfolio investments may be
sold for a variety of reasons, such as a more favorable investment opportunity
or other circumstances bearing on the desirability of continuing to hold such
investments. A high rate of portfolio turnover may involve correspondingly
greater brokerage commission expenses and other transaction costs, which must
be borne directly by a Fund and ultimately by its shareholders. High portfolio
turnover may result in the realization of substantial net capital gains. To
the extent net short-term capital gains are realized, any distributions re-
sulting from such gains are considered ordinary income for Federal income tax
purposes. (See "Financial Highlights" and "Taxes--Federal.")
INVESTMENT LIMITATIONS
The investment limitations enumerated below are matters of fundamental policy
and may not be changed with respect to a Fund without the vote of the holders
of a majority of a Fund's outstanding Shares (as defined under "Miscellane-
ous").
A Fund may not:
1. Make loans, except that (i) each Fund may purchase or hold debt securi-
ties in accordance with its investment objective and policies, and may enter
into repurchase agreements with respect to obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, (ii) each of the
Blended Equity, Income and Growth, Value and Restructuring and Small Cap
Funds may lend portfolio securities in an amount not exceeding 30% of its
total assets, (iii) the Large Cap Growth Fund may lend portfolio securities
in accordance with its investment objective and policies, and (iv) the Income
and Growth Fund may purchase or hold creditor claims, loan participations and
other instruments in accordance with its investment objectives and policies;
and
2. Purchase any securities which would cause more than 25% of the value of
its total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry, provided that (a) with respect to the Blended Equity and In-
come and Growth Funds, there is no limitation with respect to securities is-
sued or guaranteed by the U.S. Government or domestic bank obligations, (b)
with respect to the Value and Restructuring and Small Cap Funds, there is no
limitation with respect to securities issued or guaranteed by the U.S. Gov-
ernment, (c) with respect to the Large Cap Growth Fund, there is no limita-
tion with respect to securities issued or guaranteed by the U.S. Government,
any state, territory or possession of the United States, the District of Co-
lumbia or any of their authorities, agencies, instrumentalities or political
subdivisions, and repurchase agreements secured by such securities, and (d)
neither all finance companies, as a group, nor all utility companies, as a
group, are considered a single industry for purposes of this policy.
18
<PAGE>
Each of the Blended Equity, Income and Growth, Value and Restructuring and
Small Cap Funds may not:
3. Purchase securities of any one issuer, other than U.S. Government obliga-
tions, if immediately after such purchase more than 5% of the value of its
total assets would be invested in the securities of such issuer, except that
up to 25% of the value of its total assets may be invested without regard to
this 5% limitation; and
4. Borrow money except from banks for temporary purposes, and then in
amounts not in excess of 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any assets except in con-
nection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed and 10% of the value of its total assets at the
time of such borrowing. (This borrowing provision is included solely to fa-
cilitate the orderly sale of portfolio securities to accommodate abnormally
heavy redemption requests and is not for leverage purposes.) A Fund will not
purchase portfolio securities while borrowings in excess of 5% of its total
assets are outstanding. Optioned stock held in escrow is not deemed to be a
pledge.
Each of the Blended Equity and Income and Growth Funds may not:
5. Invest in obligations of foreign branches of financial institutions or in
domestic branches of foreign banks, if immediately after such purchase
(i) more than 5% of the value of its total assets would be invested in obli-
gations of any one foreign branch of the financial institution or domestic
branch of a foreign bank; or (ii) more than 20% of its total assets would be
invested in foreign branches of financial institutions or in domestic
branches of foreign banks; and
6. Knowingly invest more than 10% of the value of its total assets in illiq-
uid securities, including repurchase agreements with remaining maturities in
excess of seven days, restricted securities, and other securities for which
market quotations are not readily available.
The Large Cap Growth Fund may not:
7. Borrow money or mortgage, pledge or hypothecate its assets except to the
extent permitted under the 1940 Act. Optioned stock held in escrow is not
deemed to be a pledge; and
8. Purchase securities of any one issuer, other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or other
investment companies 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 with-
out regard to this 5% limitation.
* * *
In addition to the investment limitations described above, no Fund may invest
in the securities of any single issuer if, as a result, the Fund holds more
than 10% of the outstanding voting securities of such issuer.
The Value and Restructuring, Small Cap and Large Cap Growth Funds may not in-
vest in obligations of foreign branches of financial institutions or in domes-
tic branches of foreign banks if immediately after such purchase (i) more than
5% of the value of their respective total assets would be invested in obliga-
tions of any one foreign branch of the financial institution or domestic
branch of a foreign bank; or (ii) more than 20% of their respective total as-
sets would be invested in foreign branches of financial institutions or in do-
mestic branches of foreign banks. In addition, the Large Cap Growth Fund will
not purchase portfolio securities while borrowings in excess of 5% of its to-
tal assets are outstanding. These investment policies may be changed by Excel-
sior Fund's Board of Directors without shareholder approval.
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The Blended Equity and Income and Growth Funds will not invest more than 25%
of the value of their respective total assets in domestic bank obligations.
With respect to all investment policies, if a percentage limitation is satis-
fied at the time of investment, a later increase or decrease in such percent-
age resulting from a change in value of a Fund's portfolio securities will not
constitute a violation of such limitation.
PRICING OF SHARES
The net asset value of each Fund is determined and the Shares of each Fund
are priced at the close of regular trading hours on the New York Stock Ex-
change (the "Exchange"), currently 4:00 p.m. (Eastern Time). Net asset value
and pricing for each Fund are determined on each day the Exchange and the In-
vestment Adviser are open for trading ("Business Day"). Currently, the holi-
days which the Funds observe are New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans Day, Thanksgiving Day and Christmas. A Fund's net asset
value per Share for purposes of pricing sales and redemptions is calculated by
dividing the value of all securities and other assets allocable to the Fund,
less the liabilities allocable to the Fund, by the number of its outstanding
Shares.
Assets in the Funds which are traded on a recognized domestic stock exchange
are valued at the last sale price on the securities exchange on which such se-
curities are primarily traded or at the last sale price on the national secu-
rities market. Securities traded only on over-the-counter markets are valued
on the basis of closing over-the-counter bid prices. Securities for which
there were no transactions are valued at the average of the most recent bid
and asked prices. An option or futures contract is valued at the last sales
price quoted on the principal exchange or board of trade on which such option
or contract is traded, or in the absence of a sale, the mean between the last
bid and asked prices. Restricted securities and securities or 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 which are primarily traded on foreign securities ex-
changes are generally valued at the preceding closing values of such securi-
ties on their respective exchanges, except that when an event subsequent to
the time where value was so established is likely to have changed such value,
then the fair value of those securities will be determined by consideration of
other factors under the direction of the Board of Directors. A security which
is listed or traded on more than one exchange is valued at the quotation on
the exchange determined to be the primary market for such security. Invest-
ments in debt securities having a maturity of 60 days or less are valued based
upon the amortized cost method. All other foreign securities are valued at the
last current bid quotation if market quotations are available, or at fair
value as determined in accordance with guidelines adopted by the Board of Di-
rectors. For valuation purposes, quotations of foreign securities in foreign
currency are converted to U.S. dollars equivalent at the prevailing market
rate on the day of conversion. Some of the securities acquired by the Funds
may be traded on foreign exchanges or over-the-counter markets on days which
are not Business Days. In such cases, the net asset value of the Shares may be
significantly affected on days when investors can neither purchase nor redeem
a Fund's Shares. Excelsior Fund's administrators have undertaken to price the
securities in the Funds' portfolios, and may use one or more independent pric-
ing services in connection with this service.
20
<PAGE>
HOW TO PURCHASE AND REDEEM SHARES
Distributor
Shares in each Fund are continuously offered for sale by Excelsior Fund's
sponsor and distributor, Edgewood Services, Inc. (the "Distributor"), a whol-
ly-owned subsidiary of Federated Investors, Inc. The Distributor is a
registered broker/dealer. Its principal business address is 5800 Corporate
Drive, Pittsburgh, PA 15237-5829.
At various times the Distributor may implement programs under which a deal-
er's sales force may be eligible to win nominal awards for certain sales ef-
forts or under which the Distributor will make payments to any dealer that
sponsors sales contests or recognition programs conforming to criteria estab-
lished by the Distributor, or that participates in sales programs sponsored by
the Distributor. The Distributor in its discretion may also from time to time,
pursuant to objective criteria established by the Distributor, pay fees to
qualifying dealers for certain services or activities which are primarily in-
tended to result in sales of Shares of the Funds. If any such program is made
available to any dealer, it will be made available to all dealers on the same
terms and conditions. Payments made under such programs will be made by the
Distributor out of its own assets and not out of the assets of the Funds.
In addition, the Distributor may offer to pay a fee from its own assets to
financial institutions for the continuing investment of customers' assets in
the Funds 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
Funds. Such payments will be predicated upon the amount of Shares the finan-
cial 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 each 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
institutions ("Institutional Investors" and, collectively with Direct Invest-
ors, "Investors"). Shares may also be purchased by customers ("Customers") of
the Investment Adviser, its affiliates and correspondent banks, and other in-
stitutions ("Shareholder Organizations") that have entered into agreements
with Excelsior Fund. A Shareholder Organization may elect to hold of record
Shares for its Customers and to record beneficial ownership of Shares on the
account statements provided by it to its Customers. If it does so, it is the
Shareholder Organization's responsibility to transmit to the Distributor all
purchase orders for its Customers and to transmit, on a timely basis, payment
for such orders to Chase Global Funds Services Company ("CGFSC"), the Funds'
sub-transfer agent, in accordance with the procedures agreed to by the Share-
holder Organization and the Distributor. Confirmations of all such Customer
purchases and redemptions will be sent by CGFSC to the particular Shareholder
Organization. As an alternative, a Shareholder Organization may elect to es-
tablish its Customers' accounts of record with CGFSC. In this event, even if
the Shareholder Organization continues to place its Customers' purchase and
redemption orders with the Funds, CGFSC will send confirmations of such trans-
actions and periodic account statements directly to the shareholders of rec-
ord. Shares in the Funds bear the expense of fees payable to Shareholder Orga-
nizations for such services. See "Management of the Funds--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
21
<PAGE>
(800) 446-1012.) An Investor purchasing Shares through a registered investment
adviser or certified financial planner may incur transaction charges in connec-
tion with such purchases. Such Investors should contact their registered in-
vestment adviser or certified financial planner for further information on
transaction fees. Investors may also purchase Shares directly from the Distrib-
utor in accordance with procedures described below under "Purchase Procedures."
Purchase Procedures
General
Direct Investors may purchase Shares by completing the Application for pur-
chase of Shares accompanying this Prospectus and mailing it, together with a
check payable to Excelsior Funds, to:
Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
Subsequent investments in an existing account in any Fund may be made at any
time by sending to the above address a check payable to Excelsior Funds along
with: (a) the detachable form that regularly accompanies the confirmation of a
prior transaction; (b) a subsequent order form which may be obtained from
CGFSC; or (c) a letter stating the amount of the investment, the name of the
Fund and the account number in which the investment is to be made. Institu-
tional Investors may purchase Shares by transmitting their purchase orders to
CGFSC by telephone at (800) 446-1012 or by terminal access. Institutional In-
vestors must pay for Shares with Federal funds or funds immediately available
to CGFSC.
Purchases by Wire
Investors may also purchase Shares by wiring Federal funds to CGFSC. Prior to
making an initial investment by wire, an Investor must telephone CGFSC at
(800) 446-1012 (from overseas, call (617) 557-8280) for instructions. Federal
funds and registration instructions should be wired through the Federal Reserve
System to:
The Chase Manhattan Bank
ABA #021000021
Excelsior Funds, Account No. 9102732915
For further credit to:
Excelsior Funds
Wire Control Number
Account Registration (including account number)
Investors making initial investments by wire must promptly complete the Appli-
cation accompanying this Prospectus and forward it to CGFSC. Redemptions by In-
vestors will not be processed until the completed Application for purchase of
Shares has been received by CGFSC and accepted by the Distributor. Investors
making subsequent investments by wire should follow the above instructions.
Other Purchase Information
Except as provided in "Investor Programs" below, the minimum initial invest-
ment by an Investor or initial aggregate investment by a Shareholder Organiza-
tion investing on behalf of its Customers is $500 per Fund. The minimum subse-
quent investment for both types of investors is $50 per Fund. Customers may
agree with a particular Shareholder Organization to make a minimum purchase
with respect to their accounts. Depending upon the terms of the particular ac-
count, Shareholder Organizations may
22
<PAGE>
charge a Customer's account fees for automatic investment and other cash man-
agement services provided. Excelsior Fund reserves the right to reject any pur-
chase order, in whole or in part, or to waive any minimum investment require-
ments. Third party checks will not be accepted as payment for Fund Shares.
REDEMPTION PROCEDURES
Customers of Shareholder Organizations holding Shares of record may redeem all
or part of their investments in the Funds in accordance with procedures gov-
erning their accounts at the Shareholder Organizations. It is the responsibil-
ity of the Shareholder Organizations to transmit redemption orders to CGFSC and
credit such Customer accounts with the redemption proceeds on a timely basis.
Redemption orders for Institutional Investors must be transmitted to CGFSC by
telephone at (800) 446-1012 or by terminal access. No charge for wiring redemp-
tion payments to Shareholder Organizations or Institutional Investors is im-
posed by Excelsior Fund, although Shareholder Organizations may charge a Cus-
tomer's account for wiring redemption proceeds. Information relating to such
redemption services and charges, if any, is available from the Shareholder Or-
ganizations. An Investor redeeming Shares through a registered investment ad-
viser or certified financial planner may incur transaction charges in connec-
tion with such redemptions. Such Investors should contact their registered in-
vestment adviser or certified financial planner for further information on
transaction fees. Investors may redeem all or part of their Shares in accor-
dance with any of the procedures described below (these procedures also apply
to Customers of Shareholder Organizations for whom individual accounts have
been established with CGFSC).
REDEMPTION BY MAIL
Shares may be redeemed by a Direct Investor by submitting a written request
for redemption to:
Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
A written redemption request to CGFSC must (i) state the number of Shares to
be redeemed, (ii) identify the shareholder account number and tax identifica-
tion number, and (iii) be signed by each registered owner exactly as the Shares
are registered. If the Shares to be redeemed were issued in certificate form,
the certificates must be endorsed for transfer (or accompanied by a duly exe-
cuted stock power) and must be submitted to CGFSC together with the redemption
request. A redemption request for an amount in excess of $50,000 per account,
or for any amount if the proceeds are to be sent elsewhere than the address of
record, must be accompanied by signature guarantees from any eligible guarantor
institution approved by CGFSC in accordance with its Standards, Procedures and
Guidelines for the Acceptance of Signature Guarantees ("Signature Guarantee
Guidelines"). Eligible guarantor institutions generally include banks,
broker/dealers, credit unions, national securities exchanges, registered secu-
rities associations, clearing agencies and savings associations. All eligible
guarantor institutions must participate in the Securities Transfer Agents Me-
dallion Program ("STAMP") in order to be approved by CGFSC pursuant to the Sig-
nature Guarantee Guidelines. Copies of the Signature Guarantee Guidelines and
information on STAMP can be obtained from CGFSC at (800) 446-1012 or at the ad-
dress given above. CGFSC may require additional supporting documents for re-
demptions made by corporations, executors, administrators, trustees and guardi-
ans. A redemption request will not be deemed to be properly received until
CGFSC receives all required documents in proper form. Payment for Shares re-
deemed will ordinarily be made by mail within five Business Days after receipt
by CGFSC of the redemption request in good order. Questions with respect to the
proper form for redemption requests should be directed to CGFSC at (800) 446-
1012 (from overseas, call (617) 557-8280).
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<PAGE>
Redemption by Wire or Telephone
Direct Investors who have so indicated on the Application, or have subse-
quently arranged in writing to do so, may redeem Shares by instructing CGFSC
by wire or telephone to wire the redemption proceeds directly to the Direct
Investor's account at any commercial bank in the United States. Direct Invest-
ors who are shareholders of record may also redeem Shares by instructing CGFSC
by telephone to mail a check for redemption proceeds of $500 or more to the
shareholder of record at his or her address of record. Institutional Investors
may also redeem Shares by instructing CGFSC by telephone at (800) 446-1012 or
by terminal access. Only redemptions of $500 or more will be wired to a Direct
Investor's account. The redemption proceeds for Direct Investors must be paid
to the same bank and account as designated on the Application or in written
instructions subsequently received by CGFSC.
In order to arrange for redemption by wire or telephone after an account has
been opened or to change the bank or account designated to receive redemption
proceeds, a Direct Investor must send a written request to Excelsior Fund, c/o
CGFSC, at the address listed above under "Redemption by Mail." Such requests
must be signed by the Direct Investor, with signatures guaranteed (see "Re-
demption by Mail" above, for details regarding signature guarantees). Further
documentation may be requested.
CGFSC and the Distributor reserve the right to refuse a wire or telephone re-
demption if it is believed advisable to do so. Procedures for redeeming Shares
by wire or telephone may be modified or terminated at any time by Excelsior
Fund, CGFSC or the Distributor. Excelsior Fund, CGFSC, and the Distributor
will not be liable for any loss, liability, cost or expense for acting upon
telephone instructions that are reasonably believed to be genuine. In attempt-
ing to confirm that telephone instructions are genuine, Excelsior Fund will
use such procedures as are considered reasonable, including recording those
instructions and requesting information as to account registration.
If any portion of the Shares to be redeemed represents an investment made by
personal check, Excelsior Fund and CGFSC reserve the right not to honor the
redemption until CGFSC is reasonably satisfied that the check has been col-
lected in accordance with the applicable banking regulations which may take up
to 15 days. A Direct Investor who anticipates the need for more immediate ac-
cess to his or her investment should purchase Shares by Federal funds or bank
wire or by certified or cashier's check. Banks normally impose a charge in
connection with the use of bank wires, as well as certified checks, cashier's
checks and Federal funds. If a Direct Investor's purchase check is not col-
lected, the purchase will be cancelled and CGFSC will charge a fee of $25.00
to the Direct Investor's account.
During periods of substantial economic or market change, telephone redemp-
tions may be difficult to complete. If an Investor is unable to contact CGFSC
by telephone, the Investor may also deliver the redemption request to CGFSC in
writing at the address noted above under "How to Purchase and Redeem Shares--
Redemption by Mail."
Other Redemption Information
Except as described in "Investor Programs" below, Investors may be required
to redeem Shares in a Fund after 60 days' written notice if due to investor
redemptions the balance in the particular account with respect to the Fund re-
mains below $500. If a Customer has agreed with a particular Shareholder Or-
ganization to maintain a minimum balance in his or her account at the institu-
tion with respect to Shares of a Fund, and the balance in such account falls
below that minimum, the Customer may be obliged by the Shareholder Organiza-
tion to redeem all or part of his or her Shares to the extent necessary to
maintain the required minimum balance.
General
Purchase and redemption orders for Shares which are received 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
24
<PAGE>
after the close of regular trading hours on the Exchange are priced at the net
asset value per Share determined on the next Business Day.
INVESTOR PROGRAMS
Exchange Privilege
Investors and Customers of Shareholder Organizations may, after appropriate
prior authorization and without an exchange fee imposed by Excelsior Fund, ex-
change Shares in a Fund having a value of at least $500 for shares of 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 13 additional portfolios as follows:
Money Fund, a money market fund seeking as high a level of current income as
is consistent with liquidity and stability of principal through investments
in high-quality money market investments maturing within 13 months;
Government Money Fund, a money market fund seeking as high a level of cur-
rent income as is consistent with liquidity and stability of principal
through investments in obligations issued or guaranteed by the U.S. Govern-
ment, its agencies or instrumentalities and repurchase agreements collateral-
ized by such obligations;
Treasury Money Fund, a money market fund seeking current income generally
exempt from state and local income taxes through investments in direct short-
term obligations issued by the U.S. Treasury and certain agencies or instru-
mentalities of the U.S. Government;
Short-Term Government Securities Fund, a fund seeking a high level of cur-
rent income by investing principally in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase agree-
ments collateralized by such obligations, and having a dollar-weighted aver-
age portfolio maturity of 1 to 3 years;
Intermediate-Term Managed Income Fund, a fund seeking a high level of cur-
rent interest income by investing principally in investment grade or better
debt obligations and money market instruments, and having a dollar-weighted
average portfolio maturity of 3 to 10 years;
Managed Income Fund, a fund seeking higher current income primarily through
investments in investment grade debt obligations, U.S. Government obligations
and money market instruments;
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;
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;
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;
Pan European Fund, a fund seeking long-term capital appreciation through in-
vestments in companies and securities of governments based in Europe; and
25
<PAGE>
Emerging Markets Fund, a fund seeking long-term capital appreciation through
investments primarily in equity securities of emerging country issuers.
Excelsior Tax-Exempt Fund currently offers 7 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 investments primarily in high-quality municipal obligations maturing
within 13 months;
New York Tax-Exempt Money Fund, a non-diversified tax-exempt money market
fund seeking a moderate level of current interest income exempt from Federal
and, to the extent possible, New York State and New York City income taxes
through investments primarily in New York 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, New York State and New York
City income taxes; this fund invests primarily in New York municipal obliga-
tions 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 a Fund
and the investment of the redemption proceeds in shares of another portfolio of
Excelsior Fund, Excelsior Tax-Exempt Fund or Excelsior Institutional Trust. The
redemption will be made at the per Share net asset value of the Shares being
redeemed next determined after the exchange request is received 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 a Fund. For further
information regarding exchange privileges, shareholders should call (800) 446-
1012 (from overseas, call (617) 557-8280). Investors exercising the ex-
26
<PAGE>
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
disadvantage 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.
Exchanges by Telephone. For shareholders who have previously selected the
telephone exchange option, an exchange order may be placed by calling (800)
446-1012 (from overseas, please call (617) 557-8280). By establishing the
telephone exchange option, a shareholder authorizes CGFSC and the Distributor
to act upon telephone instructions believed to be genuine. Excelsior Fund,
Excelsior Tax-Exempt Fund, Excelsior Institutional Trust, CGFSC and the
Distributor are not responsible for the authenticity of exchange requests
received by telephone that are reasonably believed to be genuine. In
attempting to confirm that telephone instructions are genuine, Excelsior Fund,
Excelsior Tax-Exempt Fund and Excelsior Institutional Trust will use such
procedures as are considered reasonable, including recording those
instructions and requesting information as to account registration.
Systematic Withdrawal Plan
An Investor who owns Shares of a Fund with a value of $10,000 or more may es-
tablish a Systematic Withdrawal Plan. The Investor may request a declining-
balance withdrawal, a fixed-dollar withdrawal, a fixed-share withdrawal, or a
fixed-percentage withdrawal (based on the current value of Shares in the ac-
count) on a monthly, quarterly, semi-annual or annual basis. To initiate the
Systematic Withdrawal Plan, an Investor must complete Section 9 of the New Ac-
count Application contained in this Prospectus and mail it to CGFSC at the ad-
dress given above. Further information on establishing a Systematic Withdrawal
Plan may be obtained by calling (800) 446-1012 (from overseas, call (617) 557-
8280.)
Shareholder Organizations may, at their discretion, establish similar system-
atic withdrawal plans with respect to the Shares held by their Customers. In-
formation about such plans and the applicable procedures may be obtained by
Customers directly from their 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 Funds pursuant to Profit Sharing and Money-Pur-
chase Plans and Keogh Plans are not subject to the minimum investment and
forced redemption provisions described above. The minimum initial investment
for IRAs is $250 per Fund and the minimum subsequent investment is $50 per
Fund. Detailed information concerning eligibility, service fees and other mat-
ters related to these plans can be obtained by calling (800) 446-1012 (from
overseas, call (617) 557-8280). Customers of Shareholder Organizations may
purchase Shares of the Funds pursuant to retirement plans if such plans are
offered by their Shareholder Organizations.
27
<PAGE>
Automatic Investment Program
The Automatic Investment Program permits Investors to purchase Shares (mini-
mum of $50 per Fund per transaction) at regular intervals selected by the In-
vestor. The minimum initial investment for an Automatic Investment Program ac-
count is $50 per Fund. Provided the Investor's financial institution allows
automatic withdrawals, Shares are purchased by transferring funds from an In-
vestor's checking, bank money market or NOW account designated by the Invest-
or. At the Investor's option, the account designated will be debited in the
specified amount, and Shares will be purchased, once a month, on either the
first or fifteenth day, or twice a month, on both days.
The Automatic Investment Program is one means by which an Investor may use
"Dollar Cost Averaging" in making investments. Instead of trying to time mar-
ket performance, a fixed dollar amount is invested in Shares at predetermined
intervals. This may help Investors to reduce their average cost per Share be-
cause the agreed upon fixed investment amount allows more Shares to be pur-
chased during periods of lower Share prices and fewer Shares during periods of
higher prices. In order to be effective, Dollar Cost Averaging should usually
be followed on a sustained, consistent basis. Investors should be aware, how-
ever, that Shares bought using Dollar Cost Averaging are purchased without re-
gard to their price on the day of investment or to market trends. In addition,
while Investors may find Dollar Cost Averaging to be beneficial, it will not
prevent a loss if an Investor ultimately redeems his Shares at a price which
is lower than their purchase price.
To establish an Automatic Investment account permitting Investors to use the
Dollar Cost Averaging investment method described above, an Investor must com-
plete Section 8 of the New Account Application contained in this Prospectus
and mail it to CGFSC. An Investor may cancel his participation in this Program
or change the amount of purchase at any time by mailing written notification
to CGFSC, P.O. Box 2798, Boston, MA 02208-2798 and notification will be effec-
tive three Business Days following receipt. Excelsior Fund may modify or ter-
minate 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 entities.
DIVIDENDS AND DISTRIBUTIONS
Dividends from the net investment income of the Funds are declared and paid
at least annually. For dividend purposes, a Fund's investment income is re-
duced by accrued expenses directly attributable to that Fund and the general
expenses of Excelsior Fund prorated to that Fund on the basis of its relative
net assets. Net realized capital gains are distributed at least annually. Div-
idends and distributions will reduce the net asset value of each of the Funds
by the amount of the dividend or distribution. All dividends and distributions
paid on Shares held of record by the Investment Adviser and its affiliates or
correspondent banks will be paid in cash. Direct and Institutional Investors
and Customers of other Shareholder Organizations will receive dividends and
distributions in additional Shares of the Fund on which the dividend or dis-
tribution is paid (as determined on the payable date), unless they have re-
quested in writing (received by CGFSC at Excelsior Fund's address prior to the
payment date) to receive dividends and distributions in cash. Reinvested divi-
dends and distributions receive the same tax treatment as those paid in cash.
TAXES
Federal
Each of the Funds qualified for its last taxable year as a "regulated invest-
ment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Each Fund expects to so qualify in future years. Such qualification
generally relieves a Fund of liability for Federal income taxes to the extent
its earnings are distributed in accordance with the Code.
28
<PAGE>
Qualification as a regulated investment company under the Code requires,
among other things, that a Fund distribute to its shareholders an amount equal
to at least 90% of its investment company taxable income for each taxable
year. In general, a Fund's investment company taxable income will be its in-
come (including dividends and interest), subject to certain adjustments and
excluding the excess of any net long-term capital gain for the taxable year
over the net short-term capital loss, if any, for such year. Each Fund intends
to distribute substantially all of its investment company taxable income each
year. Such dividends will be taxable as ordinary income to Fund shareholders
who are not currently exempt from Federal income taxes, whether such income is
received in cash or reinvested in additional Shares. (Federal income taxes for
distributions to IRAs and qualified pension plans are deferred under the
Code.) The dividends received deduction for corporations will apply to such
ordinary income distributions to the extent of the total qualifying dividends
received by a Fund from domestic corporations for the taxable year.
Distributions by a Fund of the excess of its net long- term capital gain over
its net short-term capital loss are taxable to shareholders as long-term capi-
tal gain, regardless of how long the shareholders have held their Shares and
whether such gains are received in cash or reinvested in additional Shares.
Such distributions are not eligible for the dividends received deduction.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to
have been received by shareholders and paid by a Fund on December 31 of such
year if such dividends are actually paid during January of the following year.
An Investor considering buying Shares of a Fund on or just before the record
date of a dividend should be aware that the amount of the forthcoming dividend
payment, although in effect a return of capital, will be taxable to him.
A taxable gain or loss may be realized by a shareholder upon his redemption,
transfer or exchange of Shares depending upon the tax basis of such Shares and
their price at the time of redemption, transfer or exchange. If a shareholder
holds Shares for six months or less and during that time receives a capital
gain dividend on those Shares, any loss recognized on the sale or exchange of
those Shares will be treated as a long-term capital loss to the extent of the
capital gain dividend. Generally, a shareholder may include sales charges in-
curred upon the purchase of Shares in his tax basis for such Shares for the
purpose of determining gain or loss on a redemption, transfer or exchange of
such Shares. However, if the shareholder effects an exchange of such Shares
for Shares of another Fund within 90 days of the purchase and is able to re-
duce the sales charges otherwise applicable to the new Shares (by virtue of
the exchange privilege), the amount equal to such reduction may not be in-
cluded in the tax basis of the shareholder's exchanged Shares for the purpose
of determining gain or loss, but may be included (subject to the same limita-
tion) in the tax basis of the new Shares.
Qualification as a regulated investment company under the Code also requires
that each Fund satisfy certain requirements with respect to the source of its
income for a taxable year. At least 90% of the gross income of each Fund must
be derived from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities or for-
eign currencies, and other income (including, but not limited to, gains from
options, futures, or forward contracts) derived with respect to the Fund's
business of investing in such stock, securities or currencies. The Treasury
Department may by regulation exclude from qualifying income foreign currency
gains which are not directly related to a Fund's principal business of invest-
ing in stock or securities, or options and futures with respect to stock or
securities. Any income derived by a Fund from a partnership or trust is
treated for this purpose as derived with respect to the Fund's business of in-
vesting in stock, securities or currencies only to the extent that such income
is attributable to items of income which would have been qualifying income if
realized by the Fund in the same
29
<PAGE>
manner as by the partnership or trust. Some of the investments that the Income
and Growth Fund may make (such as liquidating trust receipts and creditor
claims) may not be securities or may not produce qualifying income. Therefore,
it may be necessary for the Investment Adviser to restrict the investments of
that Fund to ensure that non-qualifying income does not exceed 10% of that
Fund's total gross income for a taxable year.
The foregoing summarizes some of the important tax considerations generally
affecting the Funds and their shareholders and is not intended as a substitute
for careful tax planning. Accordingly, potential investors in the Funds should
consult their tax advisers with specific reference to their own tax situa-
tions. Shareholders will be advised annually as to the Federal income tax con-
sequences of distributions made each year.
State and Local
Purchasers are advised to consult their tax advisers concerning the applica-
tion of state and local taxes, which may have different consequences from
those of the Federal income tax law described above.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of Ex-
celsior Fund's Board of Directors. The Statement of Additional Information
contains the names of and general background information concerning Excelsior
Fund's directors.
Investment Adviser
United States Trust Company of New York ("U.S. Trust New York") and U.S.
Trust Company of Connecticut ("U.S. Trust Connecticut" and, collectively with
U.S. Trust New York, "U.S. Trust" or the "Investment Adviser") serve as the
Investment Adviser to the Funds. U.S. Trust New York is a state-chartered bank
and trust company and a member bank of the Federal Reserve System. U.S. Trust
Connecticut is a Connecticut state bank and trust company. U.S. Trust New York
and U.S. Trust Connecticut are wholly-owned subsidiaries of U.S. Trust Corpo-
ration, a registered bank holding company.
The Investment Adviser provides trust and banking services to individuals,
corporations, and institutions both nationally and internationally, including
investment management, estate and trust administration, financial planning,
corporate trust and agency banking, and personal and corporate banking. On De-
cember 31, 1997, the Asset Management Groups of U.S. Trust New York and U.S.
Trust Connecticut had approximately $61.2 billion in aggregate assets under
management. 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 of-
fices at 225 High Ridge Road, East Building, Stamford, CT 06905.
The Investment Adviser manages each Fund, makes decisions with respect to and
places orders for all purchases and sales of its portfolio securities, and
maintains records relating to such purchases and sales.
The Blended Equity Fund's portfolio co-managers, Leigh H. Weiss and Bruce
Tavel, are the persons primarily responsible for the day-to-day management of
the Fund's investment portfolio. Mr. Weiss, a Managing Director and Senior
Portfolio Manager, has been with U.S. Trust since 1993 and has managed the
Fund since August 1997. Prior to joining U.S. Trust, Mr. Weiss was a portfolio
manager with Goldman, Sachs & Co. Mr. Tavel, a Senior Vice President and head
of U.S. Trust's Structured Investments Division, has been with U.S. Trust
since 1980 and has managed the Fund since August 1997.
The Income and Growth Fund's portfolio manager, Richard L. Bayles, is the
person primarily responsible for the day-to-day management of the investment
portfolio. Mr. Bayles, a Managing Director and Senior Portfolio Manager of the
Personal Investment Division of U.S. Trust, has been with U.S. Trust since
1990 and has managed the Fund since 1990.
30
<PAGE>
The Value and Restructuring Fund's portfolio manager, David J. Williams, is
the person primarily responsible for the day-to-day management of the Fund's
investment portfolio. Mr. Williams, a Managing Director and Senior Portfolio
Manager of the Personal Investment Division of U.S. Trust, has been with U.S.
Trust since 1987 and has managed the Fund since its inception.
The Small Cap Fund's portfolio co-managers are Timothy Pettee and Margaret
Doyle. Mr. Pettee, a Managing Director and Director of Equity Research with
U.S. Trust, has managed the Fund since August 1998. Prior to joining U.S.
Trust, Mr. Pettee was a Vice President and fund manager with Alliance Capital
Management in New York from 1993 to 1998. Ms. Doyle, a Vice President in U.S.
Trust's Equity Research Division, has managed the Fund since August 1998. From
1996 to 1998, Ms. Doyle was a Vice President and Investment Officer with J & W
Seligman & Co. in New York. Prior to 1996, Ms. Doyle was an Equity Research
Analyst with Solomon Brothers, Inc. in New York.
All investment decisions for the Large Cap Growth Fund are made by a commit-
tee of investment professionals and no persons are primarily responsible for
making recommendations to that committee. U.S. Trust New York provides its in-
vestment advisory services to the Large Cap Growth Fund primarily through its
Campbell Cowperthwait division.
For the services provided and expenses assumed pursuant to its Investment Ad-
visory Agreements, the Investment Adviser is entitled to be paid a fee, com-
puted daily and paid monthly, at the annual rates of: .75% of the average
daily net assets of the Blended Equity, Income and Growth and Large Cap Growth
Funds; and .60% of the average daily net assets of the Value and Restructuring
and Small Cap Funds.
Prior to May 16, 1997, U.S. Trust New York served as investment adviser to
the Blended Equity, Income and Growth, Value and Restructuring and Small Cap
Funds pursuant to advisory agreements substantially similar to the Investment
Advisory Agreements currently in effect for the Funds. For the fiscal year or
period ended March 31, 1998, U.S. Trust received an advisory fee at the effec-
tive annual rates of .68%, .67%, .56%, .53% and .60% of the average daily net
assets of the Blended Equity, Income and Growth, Value and Restructuring,
Small Cap and Large Cap Growth Funds, respectively. For the same period, U.S
Trust waived advisory fees at the effective annual rates of .07%, .08%, .04%,
.07% and .15% of the average daily net assets of the Blended Equity, Income
and Growth, Value and Restructuring, Small Cap and Large Cap Growth Funds, re-
spectively.
From time to time, the Investment Adviser may voluntarily waive all or a por-
tion of the advisory fees payable to it by a Fund, which waiver may be termi-
nated at any time. See "Management of the Funds--Shareholder Organizations"
for additional information on fee waivers.
In executing portfolio transactions for the Funds, the Investment Adviser may
use affiliated brokers in accordance with the requirements of the 1940 Act.
The Investment Adviser may also take into account the sale of Excelsior Fund's
shares in allocating brokerage transactions.
Administrators
CGFSC, Federated Administrative Services and U.S. Trust Connecticut serve as
the Funds' administrators (the "Administrators") and provide them with general
administrative and operational assistance. The Administrators also serve as
administrators of the other portfolios of Excelsior Fund and of all the port-
folios of Excelsior Tax-Exempt Fund and Excelsior Institutional Trust, which
are also advised by the Investment Adviser and its affiliates and distributed
by the Distributor. For the services provided to all portfolios of Excelsior
Fund, Excelsior Tax-Exempt Fund and Excelsior Institutional Trust (except the
31
<PAGE>
international portfolios of Excelsior Fund and Excelsior Institutional Trust),
the Administrators are entitled jointly to annual fees, computed daily and
paid monthly, based on the combined aggregate average daily net assets of the
three companies (excluding the international portfolios of Excelsior Fund and
Excelsior Institutional Trust) as follows:
<TABLE>
<CAPTION>
Combined Aggregate Average Daily Net
Assets
of Excelsior Fund, Excelsior Tax-
Exempt Fund and Excelsior
Institutional Trust (excluding the
international
portfolios of Excelsior Fund and Annual
Excelsior Institutional Trust) Fee
------------------------------------ ------
<S> <C>
first $200 million.................... .200%
next $200 million..................... .175%
over $400 million..................... .150%
</TABLE>
Administration fees payable to the Administrators by each portfolio of Excel-
sior Fund, Excelsior Tax-Exempt Fund and Excelsior Institutional Trust are al-
located in proportion to their relative average daily net assets at the time
of determination. From time to time, the Administrators may voluntarily waive
all or a portion of the administration fee payable to them by a Fund, which
waivers may be terminated at any time. See "Management of the Funds--Share-
holder Organizations" for additional information on fee waivers.
Prior to May 16, 1997, CGFSC, Federated Administrative Services and U.S.
Trust New York served as Excelsior Fund's administrators pursuant to an admin-
istration agreement substantially similar to the administration agreement cur-
rently in effect for Excelsior Fund. For the fiscal year or period ended March
31, 1998, CGFSC, Federated Administrative Services and U.S. Trust received an
aggregate administration fee at the effective annual rates of .153%, .152%,
.151%, .153% and .153% of the average daily net assets of the Blended Equity,
Income and Growth, Value and Restructuring, Small Cap and Large Cap Growth
Funds, respectively, and waived administration fees at the effective annual
rates of .001% and .002% of the average daily net assets of the Income and
Growth and Value and Restructuring Funds, respectively.
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, a Fund will pay the Shareholder
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 Shareholder Orga-
nization's Customers. Such services, which are described more fully in the
Statement of Additional Information under "Management of the Funds--Share-
holder Organizations," 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. It is the responsibility of Shareholder Organizations to advise
Customers of any fees that they may charge in connection with a Customer's in-
vestment. Until further notice, the Investment Adviser and Administrators have
voluntarily agreed to waive fees payable by a Fund in an aggregate amount
equal to administrative service fees payable by that Fund.
Banking Laws
Banking laws and regulations currently prohibit a bank holding company regis-
tered under the Federal Bank Holding Company Act of 1956 or any bank or non-
bank affiliate thereof from sponsoring, organizing or controlling a regis-
tered, open-end investment company continuously engaged in the issuance of its
shares, and prohibit banks generally from issuing, underwriting, selling or
distributing securities such as Shares of the Funds, but such banking laws and
regulations do not prohibit such a holding company or affiliate or banks gen-
erally from acting as investment adviser, transfer agent, or custodian to such
an investment company, or from purchasing shares of such company for and upon
the order of customers. The Investment Adviser, CGFSC and certain Shareholder
Organizations may be subject to
32
<PAGE>
such banking laws and regulations. State securities laws may differ from the
interpretations of Federal law discussed in this paragraph and banks and fi-
nancial institutions may be required to register as dealers pursuant to state
law.
Should legislative, judicial, or administrative action prohibit or restrict
the activities of the Investment Adviser or other Shareholder Organizations in
connection with purchases of Fund Shares, the Investment Adviser and such
Shareholder Organizations might be required to alter materially or discontinue
the investment services offered by them to Customers. It is not anticipated,
however, that any resulting change in the Funds' method of operations would
affect their net asset values per Share or result in financial loss to any
shareholder.
DESCRIPTION OF CAPITAL STOCK
Excelsior Fund was organized as a Maryland corporation on August 2, 1984.
Currently, Excelsior Fund has authorized capital of 35 billion shares of Com-
mon Stock, $.001 par value per share, classified into 43 series of shares rep-
resenting interests in 18 investment portfolios. This Prospectus describes the
Blended Equity, Income and Growth, Small Cap, Value and Restructuring and
Large Cap Growth Funds.
Each Share in a Fund represents an equal proportionate interest in the par-
ticular Fund with other shares of the same class, and is entitled to such div-
idends and distributions out of the income earned on the assets belonging to
such Fund as are declared in the discretion of Excelsior Fund's Board of Di-
rectors. Excelsior Fund's Charter authorizes the Board of Directors to clas-
sify or reclassify any class of shares into one or more additional classes or
series.
Excelsior Fund's shareholders are entitled to one vote for each full share
held and fractional votes for fractional shares held and will vote in the ag-
gregate and not by class, except as otherwise expressly required by law.
Certificates for Shares will not be issued unless expressly requested in
writing to CGFSC and will not be issued for fractional Shares.
As of July 8, 1998, U.S. Trust and its affiliates held of record substan-
tially all of Excelsior Fund's outstanding shares as agent or custodian for
their customers, but did not own such shares beneficially because they did not
have voting or investment discretion with respect to such shares.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase"), a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as the custodian of the Funds' assets. Communi-
cations to the custodian should be directed to Chase, Mutual Funds Service Di-
vision, 3 Chase MetroTech Center, 8th Floor, Brooklyn, NY 11245.
U.S. Trust New York serves as the Funds' transfer and dividend disbursing
agent. U.S. Trust New York has also entered into a sub-transfer agency ar-
rangement with CGFSC, 73 Tremont Street, Boston, Massachusetts 02108-3913,
pursuant to which CGFSC provides certain transfer agent, dividend disbursement
and registrar services to the Funds.
EXPENSES
Except as otherwise noted, the Investment Adviser and the Administrators bear
all expenses in connection with the performance of their services. The Funds
bear the expenses incurred in their operations. Expenses of the Funds include
taxes; interest; fees (including fees paid to Excelsior Fund's Directors and
officers who are not affiliated with the Distributor or the Administrators);
SEC fees; state securities qualifi -
33
<PAGE>
cations fees; costs of preparing and printing prospectuses for regulatory pur-
poses and for distribution to shareholders; advisory, administration and ad-
ministrative servicing fees; charges of the custodian, transfer agent, and
dividend disbursing agent; certain insurance premiums; outside auditing and
legal expenses; costs of shareholder reports and shareholder meetings; and any
extraordinary expenses. The Funds also pay for brokerage fees and commissions
in connection with the purchase of portfolio securities.
PERFORMANCE INFORMATION
From time to time, in advertisements or in reports to shareholders, the per-
formance of the Funds may be quoted and compared to that of other mutual funds
with similar investment objectives and to stock or other relevant indices or
to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of a Fund may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds. The performance of the Blended Equity, Value and
Restructuring, Small Cap and Large Cap Growth Funds also may be compared to
the Standard & Poor's 500 Stock Index ("S&P 500"), an unmanaged index of com-
mon stocks of 500 companies, most of which are listed on the Exchange, the
Consumer Price Index, or the Dow Jones Industrial Average, a recognized unman-
aged index of common stocks of 30 industrial companies listed on the Exchange.
Performance data as reported in national financial publications, including
but not limited to Money Magazine, Forbes, Barron's, The Wall Street Journal
and The New York Times, or in publications of a local or regional nature, may
also be used in comparing the performance of the Funds.
From time to time, each Fund may advertise its performance by using "average
annual total return" over various periods of time. Such total return figure
reflects the average percentage change in the value of an investment in a Fund
from the beginning date of the measuring period to the end of the measuring
period. Average total return figures will be given for the most recent one-
year period, and may be given for other periods as well (such as from the com-
mencement of a Fund's operations, or on a year-by-year basis). Each Fund may
also use aggregate total return figures for various periods, representing the
cumulative change in the value of an investment in the Fund for the specific
period. Both methods of calculating total return assume that dividends and
capital gain distributions made by a Fund during the period are reinvested in
Fund Shares.
Performance will fluctuate and any quotation of performance should not be
considered as representative of a Fund's future performance. Shareholders
should remember that performance is generally a function of the kind and qual-
ity of the instruments held in a portfolio, operating expenses, and market
conditions. Any fees charged by Shareholder Organizations with respect to ac-
counts of Customers that have invested in Shares will not be included in cal-
culations of performance.
MISCELLANEOUS
Shareholders will receive unaudited semiannual reports describing the Funds'
investment operations and annual financial statements audited by the Funds'
independent auditors.
As used in this Prospectus, a "vote of the holders of a majority of the out-
standing shares" of Excelsior Fund or a particular Fund means, with respect to
the approval of an investment advisory agreement or a change in a fundamental
investment policy, the affirmative vote of the lesser of (a) more than 50% of
the outstanding shares of Excelsior Fund or such Fund, or (b) 67% or more of
the shares of Excelsior Fund or such Fund present at a meeting if more than
50% of the outstanding shares of Excelsior Fund or such Fund are represented
at the meeting in person or by proxy.
Inquiries regarding any of the Funds may be directed to the Distributor at
the address listed under "Distributor."
34
<PAGE>
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION
Opening Your Account:
For Overnight Delivery: send to:
Complete the Application and mail to:
Excelsior Funds Excelsior Funds
c/o Chase Global Funds Services Company c/o Chase Global Funds Services
P.O. Box 2798 Company
Boston, MA 02208-2798 73 Tremont Street
Boston, MA 02108-3913
Please enclose with the Application your check made payable to the "Excel-
sior Funds" in the amount of your investment.
For direct wire purchases please refer to the section of the Prospectus en-
titled "How to Purchase and Redeem Shares--Purchase Procedures."
Minimum Investments:
Except as provided in the Prospectus, the minimum initial investment is $500
per Fund; subsequent investments must be in the minimum amount of $50 per
Fund. Investments may be made in excess of these minimums.
Redemptions:
Shares can be redeemed in any amount and at any time in accordance with pro-
cedures described in the Prospectus. In the case of shares recently purchased
by check, redemption proceeds will not be made available until the transfer
agent is reasonably assured that the check has been collected in accordance
with applicable banking regulations.
Certain legal documents will be required from corporations or other organi-
zations, executors and trustees, or if redemption is requested by anyone other
than the shareholder of record. Written redemption requests in excess of
$50,000 per account must be accompanied by signature guarantees.
Signatures: Please be sure to sign the Application.
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).
35
<PAGE>
PROSPECTUS AUGUST 1, 1998
Blended Equity Fund
Income and Growth Fund
Value and Restructuring Fund
Small Cap Fund
Large Cap Growth Fund
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................................................... 2
EXPENSE SUMMARY....................................................... 3
FINANCIAL HIGHLIGHTS.................................................. 4
U.S. TRUST'S INVESTMENT PHILOSOPHY AND STRATEGIES..................... 9
INVESTMENT OBJECTIVES AND POLICIES.................................... 10
PORTFOLIO INSTRUMENTS AND OTHER INVESTMENT INFORMATION................ 14
INVESTMENT LIMITATIONS................................................ 18
PRICING OF SHARES..................................................... 20
HOW TO PURCHASE AND REDEEM SHARES..................................... 21
INVESTOR PROGRAMS..................................................... 25
DIVIDENDS AND DISTRIBUTIONS........................................... 28
TAXES................................................................. 28
MANAGEMENT OF THE FUNDS............................................... 30
DESCRIPTION OF CAPITAL STOCK.......................................... 33
CUSTODIAN AND TRANSFER AGENT.......................................... 33
EXPENSES.............................................................. 33
PERFORMANCE INFORMATION............................................... 34
MISCELLANEOUS......................................................... 34
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION.............................. 35
</TABLE>
No person has been authorized to give any information or to make any represen-
tations not contained in this Prospectus, or in the Funds' Statement of Addi-
tional Information incorporated herein by reference, in connection with the of-
fering made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by Excelsior
Fund or its Distributor. This Prospectus does not constitute an offering by
Excelsior Fund or by its Distributor in any jurisdiction in which such offering
may not lawfully be made.
USTEQP898
<PAGE>
EXHIBIT (17)(c)
EXCELSIOR FUNDS, INC.
Blended Equity Fund
Income and Growth Fund
Value and Restructuring Fund
Small Cap Fund
Large Cap Growth Fund
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1998
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current prospectus for the Blended Equity, Income and
Growth, Value and Restructuring, Small Cap and Large Cap Growth Funds
(individually, a "Fund" and collectively, the "Funds") of Excelsior Funds, Inc.
("Excelsior Fund") dated August 1, 1998 (the "Prospectus"). Much of the
information contained in this Statement of Additional Information expands upon
the subjects discussed in the Prospectus. No investment in shares of the Funds
described herein (collectively, the "Shares") should be made without reading the
Prospectus. A copy of the Prospectus may be obtained by writing Excelsior Fund
c/o Chase Global Funds Services Company, 73 Tremont Street, Boston, MA 02108-
3913 or by calling (800) 446-1012.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES............................................... 1
Other Investment Considerations - Blended Equity, Value and Restructuring,
Small Cap and Large Cap Growth Funds 1
Other Investment Considerations - Income and Growth Fund.................... 2
Additional Information on Portfolio Instruments............................. 4
Additional Investment Limitations........................................... 10
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................... 13
INVESTOR PROGRAMS................................................................ 14
Systematic Withdrawal Plan.................................................. 14
Exchange Privilege.......................................................... 15
Other Investor Programs..................................................... 15
DESCRIPTION OF CAPITAL STOCK..................................................... 16
MANAGEMENT OF THE FUNDS.......................................................... 17
Directors and Officers...................................................... 17
Investment Advisory and Administration Agreements........................... 23
Shareholder Organizations................................................... 25
Expenses.................................................................... 26
Custodian and Transfer Agent................................................ 26
PORTFOLIO TRANSACTIONS........................................................... 27
INDEPENDENT AUDITORS............................................................. 30
COUNSEL.......................................................................... 30
ADDITIONAL INFORMATION CONCERNING TAXES.......................................... 30
PERFORMANCE INFORMATION.......................................................... 31
MISCELLANEOUS.................................................................... 33
FINANCIAL STATEMENTS............................................................. 34
APPENDIX A....................................................................... A-1
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
----------------------------------
The investment objectives and policies of the Blended Equity (prior to
August 1, 1997, the "Equity"), Income and Growth, Value and Restructuring (prior
to August 1, 1997, the "Business and Industrial Restructuring"), Small Cap
(prior to August 1, 1997, the "Early Life Cycle") and Large Cap Growth Funds are
described in the Prospectus. The following information supplements the
description of the investment objectives and policies as set forth in the
Prospectus.
Other Investment Considerations - Blended Equity, Value and Restructuring, Small
- --------------------------------------------------------------------------------
Cap and Large Cap Growth Funds
- ------------------------------
The Blended Equity, Value and Restructuring, Small Cap and Large Cap
Growth Funds invest primarily in common stocks, but each Fund may also purchase
both preferred stocks and securities convertible into common stock at the
discretion of United States Trust Company of New York ("U.S. Trust New York")
and U.S. Trust Company of Connecticut ("U.S. Trust Connecticut" and,
collectively, with U.S. Trust New York, the "Investment Adviser" or "U.S.
Trust"). While current income is secondary to the objective of long-term
capital appreciation, the Investment Adviser expects that the broad and
diversified strategies utilized by it will result in somewhat more current
income than would be generated if the Investment Adviser utilized a single
strategy more narrowly focused on rapid growth of principal and involving
exposure to higher levels of risk.
The Investment Adviser's investment philosophy is to identify
investment values available in the market at attractive prices. Investment
value arises from the ability to generate earnings or from the ownership of
assets or resources. Underlying earnings potential and asset values are
frequently demonstrable but not recognized in the market prices of the
securities representing their ownership. The Investment Adviser employs the
following three different but closely interrelated portfolio strategies to focus
and organize its search for investment values.
1. Problem/Opportunity Companies. Important investment opportunities often
-----------------------------
occur where companies develop solutions to large, complex, fundamental problems,
such as declining industrial productivity; rising costs and declining sources of
energy; the economic imbalances and value erosion caused by years of high
inflation and interest rates; the soaring costs and competing priorities of
providing health care; and the accelerating interdependence and "shrinking size"
of the world.
Solutions or parts of solutions to large problems may be generated by
established companies or comparatively new companies of all sizes through the
development of new products, technologies or services, or through new
applications of older ones.
Investment in such companies represents a very wide range of
investment potential, current income return rates, and exposure to fundamental
and market risks. Income generated by each Fund's investments in these
companies would be expected to be moderate,
<PAGE>
characterized by lesser rates than those of a fund whose sole objective is
current income, and somewhat higher rates than those of a higher-risk growth
fund.
2. Transaction Value Companies. In the opinion of the Investment Adviser, the
---------------------------
stock market frequently values the aggregate ownership of a company at a
substantially lower figure than its component assets would be worth if they were
sold off separately over time. Such assets may include intangible assets such
as product and market franchises, operating know-how, or distribution systems,
as well as such tangible properties as oil reserves, timber, real estate, or
production facilities. Investment opportunities in these companies are
determined by the magnitude of difference between economic worth and current
market price.
Market undervaluations are very often corrected by purchase and sale,
restructuring of the company, or market appreciation to recognize the actual
worth. The recognition process may well occur over time, however, incurring a
form of time-exposure risk. Success from investing in these companies is often
great, but may well be achieved only after a waiting period of inactivity.
Income derived from investing in undervalued companies is expected to
be moderately greater than that derived from investments in either the
Problem/Opportunity or Early Life Cycle companies.
3. Early Life Cycle Companies. Investments in Early Life Cycle companies tend
--------------------------
to be narrowly focused on an objective of higher rates of capital appreciation.
They correspondingly will involve a significantly greater degree of risk and the
reduction of current income to a negligible level. Such investments will not be
limited to new, small companies engaged only in frontier technology, but will
seek opportunities for maximum appreciation through the full spectrum of
business operations, products, services, and asset values. Consequently, the
Funds' investments in Early Life Cycle companies are primarily in younger,
small- to medium- sized companies in the early stages of their development.
Such companies are usually more flexible in trying new approaches to problem-
solving and in making new or different employment of assets. Because of the
high risk level involved, the ratio of success among such companies is lower
than the average, but for those companies which succeed, the magnitude of
investment reward is potentially higher.
Other Investment Considerations - Income and Growth Fund
- --------------------------------------------------------
The Income and Growth Fund is expected to have a greater portion of
its assets invested in debt obligations under normal market conditions than the
Blended Equity, Value and Restructuring, Small Cap and Large Cap Growth Funds.
Further, although the Investment Adviser will generally use the three strategies
described above for the Blended Equity, Value and Restructuring, Small Cap and
Large Cap Growth Funds, the Income and Growth Fund will generally invest in
those companies which are expected to generate the greater income. As a result,
the Income and Growth Fund is likely to have a relatively small portion of its
assets invested in Early Life Cycle companies.
- 2 -
<PAGE>
As stated in the Prospectus, the Income and Growth Fund may invest up
to 10% of its assets in instruments such as liquidating trust receipts;
certificates of beneficial ownership; limited partnership interests; creditor
claims; loan participations; and warrants, options and other rights to purchase
securities. Liquidating trust receipts, as well as certificates of beneficial
interest, acquired by the Income and Growth Fund represent interests in trusts
holding specific assets. In the case of a liquidating trust, such assets may
include airplanes, ships and trucks that have been leased to third parties.
Limited partnership interests acquired by the Fund may represent equitable
interests in enterprises engaged in activities related to leasing of electronic,
computer and other types of equipment. Normally, the profits and losses
attributable to the foregoing types of instruments pass directly to the holders
of the instruments and are not taxed at the trust or partnership level.
Creditor claims (which may be in the form of notes or debentures)
acquired by the Income and Growth Fund comprise debt obligations of companies
being reorganized under bankruptcy or insolvency laws. Creditor claims normally
sell at a substantial discount from their face value, may be convertible into
stock of the reorganized company, and have a high degree of potential risk and
reward. Loan participations acquired by the Income and Growth Fund represent
interests in either separate, privately negotiated loans that have been made by
lending institutions to third parties or pools of privately negotiated loans
maintained in the loan portfolios of lending institutions. Lending institutions
may sell loan participations to the Income and Growth Fund and other
institutional investors in order to achieve additional revenues and to reduce
their exposure on the loans involved, as well as for other reasons. Loan
participations are considered to be illiquid securities subject to the 10%
limitation on investments in illiquid securities described in the Prospectus.
The instruments described above may provide a higher than normal rate
of return but may also entail greater risks. These risks include the absence of
any secondary or other organized market for certain instruments that the Income
and Growth Fund may acquire; the likelihood that the transfer of certain
instruments will otherwise be restricted because they have not been registered
under Federal or state securities laws; the probability that certain instruments
will represent interests in a single asset or project and will be entirely
dependent upon market and economic factors affecting such asset or project and
upon the skill of project managers to produce value; the possibility of volatile
changes in the value of an instrument because of changes in the value of the
asset underlying the instrument; the possibility that certain instruments will
be subject to heavy cash flow dependency, defaults by borrowers, self-
liquidation and the risk that the underlying portfolio company will fail to
qualify for favorable tax treatment under the Internal Revenue Code of 1986, as
amended (the "Code"); the possibility that the Fund's loss with respect to an
instrument may exceed the amount of its investment; and, with respect to
creditor claims and other debt instruments, the quality of the credit extended.
In addition, as discussed in the Prospectus, income from some of the instruments
described above may be non-qualifying income for purposes of the Code and must
be monitored by the Investment Adviser so that the amount of any such non-
qualifying income does not exceed the amount permitted by the Code. The
Investment Adviser will purchase such instruments only when it determines that
the expected return justifies the attendant risks.
- 3 -
<PAGE>
Additional Information on Portfolio Instruments
- -----------------------------------------------
Options
-------
As stated in the Prospectus, the Income and Growth, Value and
Restructuring, Small Cap and Large Cap Growth Funds may purchase put and call
options listed on a national securities exchange and issued by the Options
Clearing Corporation. Such purchases would be in an amount not exceeding 5% of
each such Fund's net assets. Purchase of options is a highly specialized
activity which entails greater than ordinary investment risks. Regardless of
how much the market price of the underlying security increases or decreases, the
option buyer's risk is limited to the amount of the original investment for the
purchase of the option. However, options may be more volatile than the
underlying securities, and therefore, on a percentage basis, an investment in
options may be subject to greater fluctuation than an investment in the
underlying securities. A listed call option gives the purchaser of the option
the right to buy from a clearing corporation, and the writer has the obligation
to sell to the clearing corporation, the underlying security at the stated
exercise price at any time prior to the expiration of the option, regardless of
the market price of the security. The premium paid to the writer is in
consideration for undertaking the obligations under the option contract. A
listed put option gives the purchaser the right to sell to a clearing
corporation the underlying security at the stated exercise price at any time
prior to the expiration date of the option, regardless of the market price of
the security. Put and call options purchased by the Income and Growth, Value
and Restructuring, Small Cap and Large Cap Growth Funds will be valued at the
last sale price or, in the absence of such a price, at the mean between bid and
asked prices.
Also as stated in the Prospectus, each Fund may engage in writing
covered call options and enter into closing purchase transactions with respect
to such options. When any of the Funds writes a covered call option, it may
terminate its obligation to sell the underlying security prior to the expiration
date of the option by executing a closing purchase transaction, which is
effected by purchasing on an exchange an option of the same series (i.e., same
underlying security, exercise price and expiration date) as the option
previously written. Such a purchase does not result in the ownership of an
option. A closing purchase transaction will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to permit the
writing of a new call option containing different terms on such underlying
security. The cost of such a liquidation purchase plus transaction costs may be
greater than the premium received upon the original option, in which event the
writer will have incurred a loss on the transaction. An option position may be
closed out only on an exchange which provides a secondary market for an option
of the same series. There is no assurance that a liquid secondary market on an
exchange will exist for any particular option. A covered option writer, unable
to effect a closing purchase transaction, will not be able to sell the
underlying security until the option expires or the underlying security is
delivered upon exercise, with the result that the writer in such circumstances
will be subject to the risk of market decline in the underlying security during
such period. The Funds will write an option on a particular security only if
the Investment Adviser believes that a liquid secondary market will exist on an
exchange for options of the same series, which will permit the Funds to make a
closing purchase transaction in order to close out its position.
- 4 -
<PAGE>
When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by that Fund is included in the liability
section of that Fund's statement of assets and liabilities as a deferred credit.
The amount of the deferred credit will be subsequently marked to market to
reflect the current value of the option written. The current value of the
traded option is the last sale price or, in the absence of a sale, the average
of the closing bid and asked prices. If an option expires on the stipulated
expiration date, or if the Fund involved enters into a closing purchase
transaction, the Fund will realize a gain (or loss if the cost of a closing
purchase transaction exceeds the net premium received when the option is sold),
and the deferred credit related to such option will be eliminated. If an option
is exercised, the Fund involved may deliver the underlying security from its
portfolio or purchase the underlying security in the open market. In either
event, the proceeds of the sale will be increased by the net premium originally
received, and the Fund involved will realize a gain or loss. Premiums from
expired call options written by the Funds and net gains from closing purchase
transactions are treated as short-term capital gains for Federal income tax
purposes, and losses on closing purchase transactions are short-term capital
losses.
Repurchase Agreements
---------------------
The repurchase price under the repurchase agreements described in the
Prospectus generally equals the price paid by a Fund plus interest negotiated on
the basis of current short-term rates (which may be more or less than the rate
on the securities underlying the repurchase agreement). Securities subject to
repurchase agreements are held by the Funds' custodian (or sub-custodian) or in
the Federal Reserve/Treasury book-entry system. Repurchase agreements are
considered loans by a Fund under the Investment Company Act of 1940, as amended
(the "1940 Act").
Futures Contracts and Related Options
-------------------------------------
The Value and Restructuring, Small Cap and Large Cap Growth Funds may
invest in futures contracts and options thereon. They 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 Value and
Restructuring, Small Cap and Large Cap Growth Funds to hedge against exposure to
fluctuations in exchange rates between the U.S. dollar and other currencies
arising from multinational transactions.
Futures contracts will not be entered into for speculative purposes,
but to hedge risks associated with a Fund's securities investments. Positions
in futures contracts may be closed out only on an exchange which provides a
secondary market for such futures. However, there can be no assurance that a
liquid secondary market will exist for any particular futures contract at any
specific time. Thus, it may not be possible to close a futures position. In
the
- 5 -
<PAGE>
event of adverse price movements, a Fund would continue to be required to make
daily cash payments to maintain its required margin. In such situations, if the
Fund has insufficient cash, it may have to sell portfolio securities to meet
daily margin requirements at a time when it may be disadvantageous to do so. In
addition, the Fund may be required to make delivery of the instruments
underlying futures contracts it holds. The inability to close options and
futures positions also could have an adverse impact on the Fund's ability to
effectively hedge.
Successful use of futures by the Value and Restructuring, Small Cap
and Large Cap Growth Funds is also subject to the Investment Adviser's ability
to correctly predict movements in the direction of the market. For example, if
a Fund has hedged against the possibility of a decline in the market adversely
affecting securities held by it and securities prices increase instead, the Fund
will lose part or all of the benefit to the increased value of its securities
which it has hedged because it will have approximately equal offsetting losses
in its futures positions. In addition, in some situations, if a Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Fund may have to sell
securities at a time when it may be disadvantageous to do so.
The risk of loss in trading futures contracts in some strategies can
be substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit, before any deduction for the
transaction costs, if the contract were closed out. Thus, a purchase or sale of
a futures contract may result in losses in excess of the amount invested in the
contract.
Utilization of futures transactions by the Value and Restructuring,
Small Cap and Large Cap Growth Funds involves the risk of loss by a Fund of
margin deposits in the event of bankruptcy of a broker with whom such Fund has
an open position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
- 6 -
<PAGE>
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 Value and Restructuring, Small Cap and Large Cap Growth Funds may
purchase options on the futures contracts described above. A futures option
gives the holder, in return for the premium paid, the right to buy (call) from
or sell (put) to the writer of the option a futures contract at a specified
price at any time during the period of the option. Upon exercise, the writer of
the option is obligated to pay the difference between the cash value of the
futures contract and the exercise price. Like the buyer or seller of a futures
contract, the holder, or writer, of an option has the right to terminate its
position prior to the scheduled expiration of the option by selling, or
purchasing, an option of the same series, at which time the person entering into
the closing transaction will realize a gain or loss.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
of an option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option
purchased. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the instruments
being hedged, an option may or may not be less risky than ownership of the
futures contract or such instruments. In general, the market prices of options
can be expected to be more volatile than the market prices on the underlying
futures contract. Compared to the purchase or sale of futures contracts,
however, the purchase of call or put options on futures contracts may frequently
involve less potential risk to a Fund because the maximum amount at risk is the
premium paid for the options (plus transaction costs). Although permitted by
their fundamental investment policies, the Funds do not currently intend to
write futures options, and will not do so in the future absent any necessary
regulatory approvals.
When-Issued and Forward Transactions
------------------------------------
When a Fund agrees to purchase securities on a "when-issued" or
"forward commitment" basis, the custodian will set aside cash or liquid
portfolio securities equal to the amount of the commitment in a separate
account. Normally, the custodian will set aside portfolio securities to satisfy
a purchase commitment and, in such case, the Fund may be required subsequently
to place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that a Fund's net assets will fluctuate to a greater degree when
it sets aside portfolio securities to cover such purchase commitments than when
it sets aside cash. Because a Fund will set aside cash or liquid assets to
satisfy its purchase commitments in the manner described, its liquidity
- 7 -
<PAGE>
and ability to manage its portfolio might be affected in the event its forward
commitments or commitments to purchase "when-issued" securities ever exceed 25%
of the value of its assets.
A Fund will purchase securities on a "when-issued" or "forward
commitment" basis only with the intention of completing the transaction. If
deemed advisable as a matter of investment strategy, however, a Fund may dispose
of or renegotiate a commitment after it is entered into, and may sell securities
it has committed to purchase before those securities are delivered to the Fund
on the settlement date. In these cases, the Fund may realize a taxable capital
gain or loss.
When a Fund engages in "when-issued" or "forward commitment"
transactions, it relies on the other party to consummate the trade. Failure of
such other party to do so may result in the Fund incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a "when-issued" purchase
or a forward commitment to purchase securities and any subsequent fluctuations
in their market value are taken into account when determining the market value
of a Fund starting on the day the Fund agrees to purchase the securities. The
Fund does not earn interest on the securities it has committed to purchase until
they are paid for and delivered on the settlement date.
Forward Currency Transactions
-----------------------------
Each Fund will conduct its currency exchange transactions either on a
spot (i.e., cash) basis at the rate prevailing in the currency exchange markets,
or by entering into forward currency contracts. A forward foreign currency
contract involves an obligation to purchase or sell a specific currency for a
set price at a future date. In this respect, forward currency contracts are
similar to foreign currency futures contracts; however, unlike futures contracts
which are traded on recognized commodities exchange, forward currency contracts
are traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. Also, forward currency
contracts usually involve delivery of the currency involved instead of cash
payment as in the case of futures contracts.
A Fund's participation in forward currency contracts will be limited
to hedging involving either specific transactions or portfolio positions.
Transaction hedging involves the purchase or sale of foreign currency with
respect to specific receivables or payables of the Fund generally arising in
connection with the purchase or sale of its portfolio securities. The purpose
of transaction hedging is to "lock in" the U.S. dollar equivalent price of such
specific securities. Position hedging is the sale of foreign currency with
respect to portfolio security positions denominated or quoted in that currency.
The Fund will not speculate in foreign currency exchange transactions.
Transaction and position hedging will not be limited to an overall percentage of
a Fund's assets, but will be employed as necessary to correspond to particular
transactions or positions. A Fund may not hedge its currency positions to an
extent greater than the aggregate market value (at the time of entering into the
forward contract) of the securities held in its portfolio denominated, quoted
in, or currently convertible into that particular currency. When the Funds
engage in forward currency transactions, certain asset segregation requirements
- 8 -
<PAGE>
must be satisfied to ensure that the use of foreign currency transactions is
unleveraged. When a Fund takes a long position in a forward currency contract,
it must maintain a segregated account containing liquid assets equal to the
purchase price of the contract, less any margin or deposit. When a Fund takes a
short position in a forward currency contract, the Fund must maintain a
segregated account containing liquid assets in an amount equal to the market
value of the currency underlying such contract (less any margin or deposit),
which amount must be at least equal to the market price at which the short
position was established. Asset segregation requirements are not applicable
when a Fund "covers" a forward currency position generally by entering into an
offsetting position.
The transaction costs to the Funds of engaging in forward currency
transactions vary with factors such as the currency involved, the length of the
contract period and prevailing currency market conditions. Because currency
transactions are usually conducted on a principal basis, no fees or commissions
are involved. The use of forward currency contracts does not eliminate
fluctuations in the underlying prices of the securities being hedged, but it
does establish a rate of exchange that can be achieved in the future. Thus,
although forward currency contracts used for transaction or position hedging
purposes may limit the risk of loss due to an increase in the value of the
hedged currency, at the same time they limit potential gain that might result
were the contracts not entered into. Further, the Investment Adviser may be
incorrect in its expectations as to currency fluctuations, and a Fund may incur
losses in connection with its currency transactions that it would not otherwise
incur. If a price movement in a particular currency is generally anticipated, a
Fund may not be able to contract to sell or purchase that currency at an
advantageous price.
At or before the maturity of a forward sale contract, a Fund may sell
a portfolio security and make delivery of the currency, or retain the security
and offset its contractual obligation to deliver the currency by purchasing a
second contract pursuant to which the Fund will obtain, on the same maturity
date, the same amount of the currency which it is obligated to deliver. If the
Fund retains the portfolio security and engages in an offsetting transaction,
the Fund, at the time of execution of the offsetting transaction, will incur a
gain or a loss to the extent that movement has occurred in forward contract
prices. Should forward prices decline during the period between a Fund's
entering into a forward contract for the sale of a currency and the date it
enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, the Fund will suffer a loss to the extent the price of
the currency it has agreed to sell is less than the price of the currency it has
agreed to purchase in the offsetting contract. The foregoing principles
generally apply also to forward purchase contracts.
Real Estate Investment Trusts
-----------------------------
Each Fund may invest in equity real estate investment trusts
("REITs"). REITs pool investors' funds for investment primarily in commercial
real estate properties. Investments in REITs may subject a Fund to certain
risks. REITs may be affected by changes in the value of the underlying property
owned by the trust. REITs are dependent upon specialized management skill, may
not be diversified and are subject to the risks of financing projects. REITs
are also
- 9 -
<PAGE>
subject to heavy cash flow dependency, defaults by borrowers, self liquidation
and the possibility of failing to qualify for the beneficial tax treatment
available to REITs under the Code, and to maintain exemption from the 1940 Act.
As a shareholder in a REIT, a Fund would bear, along with other shareholders,
its pro rata portion of the REIT's operating expenses. These expenses would be
in addition to the advisory and other expenses a Fund bears directly in
connection with its own operations.
Securities Lending
------------------
When a Fund lends its securities, it continues to receive interest or
dividends on the securities lent and may simultaneously earn interest on the
investment of the cash loan collateral, which will be invested in readily
marketable, high-quality, short-term obligations. Although voting rights, or
rights to consent, attendant to lent securities pass to the borrower, such loans
may be called at any time and will be called so that the securities may be voted
by a Fund if a material event affecting the investment is to occur.
Additional Investment Limitations
- ---------------------------------
In addition to the investment limitations disclosed in the Prospectus,
the Funds are subject to the investment limitations enumerated below.
Fundamental investment limitations may be changed with respect to a Fund only by
a vote of a majority of the holders of such Fund's outstanding Shares (as
defined under "Miscellaneous" in the Prospectus). However, investment
limitations which are "operating policies" with respect to a Fund may be changed
by Excelsior Fund's Board of Directors without shareholder approval.
The following investment limitations are fundamental with respect to
each of the Blended Equity, Income and Growth, Value and Restructuring and Small
Cap Funds. Each such Fund may not:
1. Act as an underwriter of securities within the meaning of the Securities
Act of 1933, except insofar as it might be deemed to be an underwriter upon
disposition of certain portfolio securities acquired within the limitation on
purchases of restricted securities;
2. Purchase or sell real estate, except that each Fund may purchase securities
of issuers which deal in real estate and may purchase securities which are
secured by interests in real estate; and
3. Issue any senior securities, except insofar as any borrowing in accordance
with a Fund's investment limitation contained in the Prospectus might be
considered to be the issuance of a senior security.
The following investment limitations are fundamental with respect to
the Large Cap Growth Fund. The Fund may not:
4. 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
- 10 -
<PAGE>
disposition of certain portfolio securities acquired within the limitation on
purchases of restricted securities and except to the extent that the purchase of
obligations directly from the issuer thereof in accordance with its investment
objective, policies and limitations may be deemed to be underwriting;
5. Purchase or sell real estate, except that (a) the Fund may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by real estate or interests therein, and (b) the Fund may hold
and sell any real estate it acquires as a result of the Fund's ownership of such
securities;
6. Issue any senior securities, except insofar as any borrowing in accordance
with the Fund's investment limitations might be considered to be the issuance of
a senior security; and
7. Purchase or sell commodities or commodities futures contracts or invest in
oil, gas, or other mineral exploration or development programs; provided,
however, that the Fund may: (a) purchase publicly traded securities of
companies engaging in whole or in part in such activities or invest in
liquidating trust receipts, certificates of beneficial ownership or other
instruments in accordance with its investment objective and policies, and (b)
purchase and sell options, forward contracts, futures contracts and futures
options.
The following investment limitations are fundamental with respect to
the Blended Equity and Income and Growth Funds, but are operating policies with
respect to the Value and Restructuring, Small Cap and Large Cap Growth Funds.
No Fund may:
8. Purchase securities on margin, make short sales of securities, or maintain
a short position;
9. Invest in companies for the purpose of exercising management or control;
and
10. Acquire any other investment company or investment company security, except
in connection with a merger, consolidation, reorganization, or acquisition of
assets or where otherwise permitted by the 1940 Act.
The following investment limitations are fundamental with respect to
the Blended Equity and Income and Growth Funds. Neither the Blended Equity nor
the Income and Growth Funds may:
11. Invest in or sell put options, call options, straddles, spreads, or any
combination thereof; provided, however, that each Fund may write covered call
options with respect to its portfolio securities that are traded on a national
securities exchange, and may enter into closing purchase transactions with
respect to such options if, at the time of the writing of such option, the
aggregate value of the securities subject to the options written by the Fund
involved does not exceed 25% of the value of its total assets; and provided that
the Income and
- 11 -
<PAGE>
Growth Fund may purchase options and other rights in accordance with its
investment objective and policies;
12. Invest more than 5% of its total assets in securities issued by companies
which, together with any predecessor, have been in continuous operation for
fewer than three years; and
13. Purchase or sell commodities futures contracts or invest in oil, gas, or
other mineral exploration or development programs; provided, however, that this
shall not prohibit either Fund from purchasing publicly traded securities of
companies engaging in whole or in part in such activities or the Income and
Growth Fund from investing in liquidating trust receipts, certificates of
beneficial ownership or other instruments in accordance with its investment
objectives and policies.
The following investment limitation is fundamental with respect to the
Value and Restructuring and Small Cap Funds. The Value and Restructuring and
Small Cap Funds may not:
14. Purchase or sell commodities or commodities futures contracts or invest in
oil, gas, or other mineral exploration or development programs; provided,
however, that (i) this shall not prohibit either Fund from purchasing publicly
traded securities of companies engaging in whole or in part in such activities
or from investing in liquidating trust receipts, certificates of beneficial
ownership or other instruments in accordance with their investment objectives
and policies, and (ii) each Fund may enter into futures contracts and futures
options.
* * *
For the purpose of Investment Limitation No. 2, the prohibition of
purchases of real estate includes acquisition of limited partnership interests
in partnerships formed with a view toward investing in real estate, but does not
prohibit purchases of shares in real estate investment trusts.
In addition to the above investment limitations, each Fund currently
intends to limit its investments in warrants so that, valued at the lower of
cost or market value, they do not exceed 5% of the Fund's net assets. For the
purpose of this limitation, warrants acquired by a Fund in units or attached to
securities will be deemed to be without value. Each Fund also intends to
refrain from entering into arbitrage transactions.
Each of the Blended Equity and Income and Growth Funds may not
purchase or sell commodities except as provided in Investment Limitation No. 9
above.
If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in value
of a Fund's securities will not constitute a violation of such limitation.
- 12 -
<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
----------------------------------------------
Shares are continuously offered for sale by Edgewood Services, Inc.
(the "Distributor"), a wholly-owned subsidiary of Federated Investors, Inc., and
the Distributor has agreed to use appropriate efforts to solicit all purchase
orders. As described in the Prospectus, Shares may be sold to customers
("Customers") of financial institutions ("Shareholder Organizations"). Shares
are also offered for sale directly to institutional investors and to members of
the general public. Different types of Customer accounts at the Shareholder
Organizations may be used to purchase Shares, including eligible agency and
trust accounts. In addition, Shareholder Organizations may automatically
"sweep" a Customer's account not less frequently than weekly and invest amounts
in excess of a minimum balance agreed to by the Shareholder Organization and its
Customer in Shares selected by the Customer. Investors purchasing Shares may
include officers, directors, or employees of the particular Shareholder
Organization.
Excelsior Fund has authorized certain brokers to accept on its behalf
purchase, exchange and redemption orders. Such brokers are authorized to
designate other intermediaries to accept purchase, exchange and redemption
orders on behalf of Excelsior Fund. Excelsior Fund will be deemed to have
received a purchase, exchange or redemption order when such an authorized broker
or designated intermediary accepts the order.
Shares of the Funds are offered for sale at their net asset value per
Share next computed after a purchase order is received in good order by
Excelsior Fund's sub-transfer agent or after a purchase order is accepted by an
authorized broker or designated intermediary. Similarly, an order for the
exchange or redemption of Shares will receive the net asset value per Share next
computed after the order is received in good order by Excelsior Fund's sub-
transfer agent or after the order is accepted by an authorized broker or
designated intermediary.
Prior to February 14, 1997, Shares of the Funds were offered for sale
with a maximum sales charge of 4.50%. For the fiscal years ended March 31, 1997
and 1996, total sales charges paid by shareholders of the Blended Equity, Income
and Growth, Value and Restructuring and Small Cap Funds were $3,806 and $2,725;
$1,241 and $1,223; $8,716 and $3,970; and $698 and $961, respectively. The
Distributor retained none of the foregoing sales charges with respect to the
Funds for the fiscal year ended March 31, 1997 and for the period August 1, 1995
through March 31, 1996. UST Distributors, Inc., Excelsior Fund's former
distributor, retained $473 with respect to the Blended Equity Fund; $298 with
respect to the Income and Growth Fund; $42 with respect to the Value and
Restructuring Fund; and $0 with respect to the Small Cap Fund for the period
April 1, 1995 through July 31, 1995. The balance was paid to selling
dealers.
Excelsior Fund may suspend the right of redemption or postpone the
date of payment for Shares for more than 7 days during any period when (a)
trading on the New York Stock Exchange (the "Exchange") is restricted by
applicable rules and regulations of the Securities and Exchange Commission (the
"SEC"); (b) the Exchange is closed for other than
- 13 -
<PAGE>
customary weekend and holiday closings; (c) the SEC has by order permitted such
suspension; or (d) an emergency exists as determined by the SEC.
In the event that Shares are redeemed in cash at their net asset
value, a shareholder may receive in payment for such Shares an amount that is
more or less than his original investment due to changes in the market prices of
that Fund's portfolio securities.
Excelsior Fund reserves the right to honor any request for redemption
or repurchase of a Fund's Shares by making payment in whole or in part in
securities chosen by Excelsior Fund and valued in the same way as they would be
valued for purposes of computing a Fund's net asset value. If payment is made
in securities, a shareholder may incur transaction costs in converting these
securities into cash. Such redemptions in kind will be governed by Rule 18f-1
under the 1940 Act so that a Fund is obligated to redeem its Shares solely in
cash up to the lesser of $250,000 or 1% of its net asset value during any 90-day
period for any one shareholder of a Fund.
Under certain circumstances, Excelsior Fund may, in its discretion,
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 other transactions involving securities
that meet the investment objective and policies of any Fund acquiring such
securities.
INVESTOR PROGRAMS
-----------------
Systematic Withdrawal Plan
- --------------------------
An investor who owns Shares with a value of $10,000 or more may begin
a Systematic Withdrawal Plan. The withdrawal can be on a monthly, quarterly,
semiannual or annual basis. There are four options for such systematic
withdrawals. The investor may request:
(1) A fixed-dollar withdrawal;
(2) A fixed-share withdrawal;
(3) A fixed-percentage withdrawal (based on the current value of the account);
or
(4) A declining-balance withdrawal.
Prior to participating in a Systematic Withdrawal Plan, the investor
must deposit any outstanding certificates for Shares with Chase Global Funds
Services Company, the Funds' sub-transfer agent. Under this Plan, dividends and
distributions are automatically reinvested in additional Shares of a Fund.
Amounts paid to investors under this Plan should not be considered as income.
Withdrawal payments represent proceeds from the sale of Shares, and there will
be a reduction of the shareholder's equity in the Fund involved if the amount of
the withdrawal
- 14 -
<PAGE>
payments exceeds the dividends and distributions paid on the Shares and the
appreciation of the investor's investment in the Fund. This in turn may result
in a complete depletion of the shareholder's investment. An investor may not
participate in a program of systematic investing in a Fund while at the same
time participating in the Systematic Withdrawal Plan with respect to an account
in the same Fund. Customers of Shareholder Organizations may obtain information
on the availability of, and the procedures and fees relating to, the Systematic
Withdrawal Plan directly from their Shareholder Organizations.
Exchange Privilege
- ------------------
Investors and Customers of Shareholder Organizations may exchange
Shares having a value of at least $500 for shares of any other portfolio of
Excelsior Fund or Excelsior Tax-Exempt 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 effects an
exchange of Shares for shares of another portfolio of the Companies within 90
days of the purchase and is able to reduce the sales load otherwise 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 Funds may be purchased
in connection with the Automatic Investment Program and certain Retirement
Programs. Customers of Shareholder Organizations may obtain information on the
availability of, and the procedures and fees relating to, such programs directly
from their Shareholder Organizations.
- 15 -
<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. Prior to December 28, 1995,
Excelsior Fund was known as "UST Master Funds, Inc."
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 a Fund, its
shareholders 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 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 a Fund to another management investment company
for consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding Shares of the Fund involved to be
redeemed at a price which is equal to their net asset value and which
- 16 -
<PAGE>
may be paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert a Fund's assets into
money and, in connection therewith, to cause all outstanding Shares of the Fund
involved to be redeemed at their net asset value; or (c) combine the assets
belonging to a Fund with the assets belonging to another portfolio of Excelsior
Fund, if the Board of Directors reasonably determines that such combination will
not have a material adverse effect on shareholders of any portfolio
participating in such combination, and, in connection therewith, to cause all
outstanding Shares of the Fund involved to be redeemed at their net asset value
or converted into shares of another class of Excelsior Fund's capital stock at
net asset value. The exercise of such authority by the Board of Directors will
be subject to the provisions of the 1940 Act, and the Board of Directors will
not take any action described in this paragraph unless the proposed action has
been disclosed in writing to the particular Fund's shareholders at least 30 days
prior thereto.
Notwithstanding any provision of Maryland law requiring a greater vote
of Excelsior Fund's Common Stock (or of the Shares of a Fund voting separately
as a class) in connection with any corporate action, unless otherwise provided
by law (for example, by Rule 18f-2, discussed above) or by Excelsior Fund's
Charter, Excelsior Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of the outstanding Common Stock of
Excelsior Fund voting without regard to class.
MANAGEMENT OF THE FUNDS
-----------------------
Directors and Officers
- ----------------------
The directors and executive officers of Excelsior Fund, their
addresses, ages, principal occupations during the past five years, and other
affiliations are as follows:
- 17 -
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Position with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ---------------- -------------- ------------------
<S> <C> <C>
Frederick S. Wonham/1/ Chairman of the Retired; Director of
238 June Road Board, President Excelsior Fund and Excelsior
Stamford, CT 06903 and Treasurer Tax-Exempt Fund (since 1995);
Age: 67 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 Excelsior
Apt. 10-H Tax-Exempt Fund (since 1984);
New York, NY 10021 Director of UST Master
Age: 72 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 and Excelsior
Continuation Investments Group, Inc. Tax-Exempt Fund (since 1996); Trustee of
1251 Avenue of the Americas Excelsior Institutional Trust and Excelsior
9th Floor Funds (since 1994); Director, Parsons
New York, NY 10020 Brinkerhoff Energy Services Inc. (since 1996);
Age: 55 Director, Parsons Brinkerhoff, Inc.
(engineering firm) (since 1995); President,
Continuation Investments Group, Inc. (since
1997); President, Mandrake Group (investment
and consulting firm) (1994-1997); 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 America Smaller Companies Fund, Inc.
(since 1993); Member of Advisory Board,
Argentina Private Equity Fund L.P. (from 1992
to 1996) and Garantia L.P. (Brazil) (from 1993
to 1996); and Director, Mueller Industries,
Inc. (from 1992 to 1994).
</TABLE>
- -----------------------------
/1/ This director is considered to be an "interested person" of Excelsior Fund
as defined in the 1940 Act.
- 18 -
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Position with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ---------------- -------------- ------------------
<S> <C> <C>
Joseph H. Dugan Director Retired; Director of
913 Franklin Lake Road Excelsior Fund and Excelsior
Franklin Lakes, NJ 07417 Tax-Exempt Fund (since 1984);
Age: 73 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 Excelsior Fund and
2320 Cumberland Road Excelsior Tax-Exempt Fund (since 1986);
Charlottesville, VA 22901 Director of UST Master Variable Series, Inc.
Age: 77 (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 of Excelsior Fund and Excelsior
c/o Prospect Capital Tax-Exempt Fund (since 1996); Trustee of
Corp. Excelsior Institutional Trust and Excelsior
43 Arch Street Funds (since 1994); Private Investor (since
Greenwich, CT 06830 1994); Managing Director, Morgan Lewis Githens
Age: 61 & 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 of Excelsior Fund and Excelsior
558 E. 87th Street Tax-Exempt Fund (since 1996); Trustee of
New York, NY 10128 Excelsior Institutional Trust and Excelsior
Age: 59 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).
</TABLE>
- 19 -
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Position with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ---------------- -------------- ------------------
<S> <C> <C>
Robert A. Robinson Director Director of Excelsior Fund
Church Pension Fund and Excelsior Tax-Exempt Fund
800 Second Avenue (since 1987); Director of UST
New York, NY 10017 Master Variable Series, Inc.
Age: 72 (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. (1974-1998); Trustee, HSBC Funds
Trust and HSBC Mutual Funds Trust (since 1982);
and Director, Infinity Funds, Inc. (since 1995).
Alfred C. Tannachion/2/ Director Retired; Director of Excelsior Fund and
6549 Pine Meadows Drive Excelsior Tax-Exempt Fund (since 1985);
Spring Hill, FL 34606 Chairman of the Board of Excelsior Fund and
Age: 72 Excelsior Tax-Exempt Fund (1991-1997) and
Excelsior Institutional Trust (1996-1997);
President and Treasurer of Excelsior Fund and
Excelsior Tax-Exempt Fund (1994-1997) and
Excelsior Institutional Trust (1996-1997);
Chairman of the Board, President and Treasurer
of UST Master Variable Series, Inc.
(1994-1997); and Trustee of Excelsior
Institutional Trust (since 1995).
W. Bruce McConnel, III Secretary Partner of the law firm of Drinker
Philadelphia National Biddle & Reath LLP.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age: 55
Michael P. Malloy Assistant Secretary Partner of the law firm of Drinker Biddle &
Philadelphia National Reath LLP.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age: 39
</TABLE>
- -------------------------
/2/ This director is considered to be an "interested person" of Excelsior Fund
as defined in the 1940 Act.
- 20 -
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Position with During Past 5 Years and
Name and Address Excelsior Fund Other Affiliations
- ---------------- -------------- ------------------
<S> <C> <C>
Edward Wang Assistant Manager of Blue Sky Compliance, Chase Global
Chase Global Funds Secretary Funds Services Company (November 1996 to
Services Company present); and Officer and Manager of Financial
73 Tremont Street Reporting, Investors Bank & Trust Company
Boston, MA 02108-3913 (January 1991 to November 1996).
Age: 37
John M. Corcoran Assistant Vice President, Director of Fund
Chase Global Funds Treasurer Administration, Chase Global Funds Services
Services Company Company (since April 1998); Vice President,
73 Tremont Street Senior Manager of Fund Administration, Chase
Boston, MA 02108-3913 Global Funds Services Company (from July 1996
Age: 33 to April 1998); Second Vice President, Manager
of Fund Administration, Chase Global Funds
Services Company (from October 1993 to July
1996); and Audit Manager, Ernst & Young LLP
(from August 1987 to September 1993).
</TABLE>
Each director of Excelsior Fund receives an annual fee of $9,000 plus
a meeting fee of $1,500 for each meeting attended and is reimbursed for expenses
incurred in attending meetings. The Chairman of the Board is entitled to
receive an additional $5,000 per annum for services in such capacity. Drinker
Biddle & Reath LLP, of which Messrs. McConnel and Malloy are partners, receives
legal fees as counsel to Excelsior Fund. The employees of Chase Global Funds
Services Company do not receive any compensation from Excelsior Fund for acting
as officers of Excelsior Fund. No person who is currently an officer, director
or employee of the Investment Adviser serves as an officer, director or employee
of Excelsior Fund. As of July 8, 1998, 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.
- 21 -
<PAGE>
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Accrued as from Excelsior Fund
Aggregate Part of and Fund
Name of Compensation from Fund Complex* Paid
Person/Position Excelsior Fund Expenses to Directors
--------------- ----------------- ---------- --------------
<S> <C> <C> <C>
Donald L. Campbell $18,000 None $38,000(3)**
Director
Rodman L. Drake $16,500 None $39,500(4)**
Director
Joseph H. Dugan $18,000 None $38,000(3)**
Director
Wolfe J. Frankl $16,500 None $36,500(3)**
Director
W. Wallace McDowell, Jr. $15,000 None $38,000(4)**
Director
Jonathan Piel $18,000 None $43,000(4)**
Director
Robert A. Robinson $18,000 None $38,000(3)**
Director
Alfred C. Tannachion $18,000 None $38,000(3)**
Director
Frederick S. Wonham $23,000 None $53,000(4)**
Chairman of the Board,
President and Treasurer
</TABLE>
- ---------------------------
* The "Fund Complex" consists of Excelsior Fund, Excelsior Tax-Exempt
Fund, Excelsior Funds and Excelsior Institutional Trust.
** Number of investment companies in the Fund Complex for which director
served as director or trustee.
- 22 -
<PAGE>
Investment Advisory and Administration Agreements
- -------------------------------------------------
United States Trust Company of New York ("U.S. Trust New York") and
U.S. Trust Company of Connecticut ("U.S. Trust Connecticut" and, collectively
with U.S. Trust New York, "U.S. Trust" or the "Investment Adviser") serve as
Investment Adviser to the Funds. In the Investment Advisory Agreements, 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 respective agreements other
than the cost of securities, including brokerage commissions, purchased for the
Funds.
Prior to May 16, 1997, U.S. Trust New York served as investment
adviser to the Blended Equity, Income and Growth, Value and Restructuring and
Small Cap Funds pursuant to advisory agreements substantially similar to the
Investment Advisory Agreements currently in effect for such Funds.
For the fiscal year or period ended March 31, 1998, Excelsior Fund
paid U.S. Trust advisory fees of $3,139,705, $990,357, $1,163,708, $320,547 and
$65,472 with respect to the Blended Equity, Income and Growth, Value and
Restructuring, Small Cap and Large Cap Growth Funds, respectively. For the same
period, U.S. Trust waived advisory fees totaling $332,044, $110,502, $84,739,
$41,845 and $16,680 with respect to the Blended Equity, Income and Growth, Value
and Restructuring, Small Cap and Large Cap Growth Funds, respectively.
For the fiscal year ended March 31, 1997, Excelsior Fund paid U.S.
Trust New York advisory fees of $1,954,607, $876,995, $552,746 and $408,027 with
respect to the Blended Equity, Income and Growth, Value and Restructuring and
Small Cap Funds, respectively. For the same period, U.S. Trust New York waived
advisory fees totaling $132,737, $105,756, $41,509 and $61,885 with respect to
the Blended Equity, Income and Growth, Value and Restructuring and Small Cap
Funds, respectively.
For the fiscal year ended March 31, 1996, Excelsior Fund paid U.S.
Trust New York advisory fees of $1,111,127, $785,037, $273,025, and $336,194
with respect to the Blended Equity, Income and Growth, Value and Restructuring
and Small Cap Funds, respectively. For the same period, U.S. Trust New York
waived fees totaling $106,377, $69,637, $21,119 and $57,942 with respect to the
Blended Equity, Income and Growth, Value and Restructuring and Small Cap Funds,
respectively.
The Investment Advisory Agreements provide that the Investment Adviser
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Funds in connection with the performance of such agreements,
except 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
- 23 -
<PAGE>
duties or from reckless disregard by it of its duties and obligations
thereunder. In addition, the Investment Adviser has undertaken in the Investment
Advisory Agreements to maintain its policy and practice of conducting its Asset
Management Group independently of its Banking Group.
Chase Global Funds Services Company ("CGFSC"), Federated
Administrative Services (an affiliate of the Distributor) and U.S. Trust
Connecticut (collectively, the "Administrators") serve as Excelsior Fund's
administrators. Under the Administration Agreement, the Administrators have
agreed to maintain office facilities for the Funds, furnish the Funds with
statistical and research data, clerical, accounting and bookkeeping services,
and certain other services required by the Funds, and to compute the net asset
value, net income and realized capital gains or losses, if any, of the
respective Funds. The Administrators prepare semiannual reports to the SEC,
prepare Federal and state tax returns, prepare filings with state securities
commissions, arrange for and bear the cost of processing Share purchase and
redemption orders, maintain the Funds' financial accounts and records, and
generally assist in the Funds' operations.
Prior to May 16, 1997, CGFSC, Federated Administrative Services and
U.S. Trust New York served as Excelsior Fund's administrators pursuant to an
administration agreement substantially similar to the Administration Agreement
currently in effect for Excelsior Fund. Prior to August 1, 1995, administrative
services were provided to Excelsior Fund by CGFSC and Concord Holding
Corporation (collectively, the "former administrators") under an administration
agreement having substantially the same terms as the Administration Agreement
currently in effect.
For the fiscal year or period ended March 31, 1998, Excelsior Fund
paid CGFSC, Federated Administrative Services and U.S. Trust $707,403, $223,661,
$315,023, $92,358 and $16,759 in the aggregate with respect to the Blended
Equity, Income and Growth, Value and Restructuring, Small Cap and Large Cap
Growth Funds, respectively. For the same period, CGFSC, Federated
Administrative Services and U.S. Trust waived administration fees totaling $834,
$914, $3,331 and $52 with respect to the Blended Equity, Income and Growth,
Value and Restructuring and Small Cap Funds.
For the fiscal year ended March 31, 1997, Excelsior Fund paid CGFSC,
Federated Administrative Services and U.S. Trust New York $422,505, $200,249,
$152,248 and $120,363 in the aggregate with respect to the Blended Equity,
Income and Growth, Value and Restructuring and Small Cap Funds, respectively.
For the same period, CGFSC, Federated Administrative Services and U.S. Trust New
York waived administration fees totaling $5,344, $1,132, $108 and $87 with
respect to the Blended Equity, Income and Growth, Value and Restructuring and
Small Cap Funds, respectively.
For the period August 1, 1995 through March 31, 1996, Excelsior Fund
paid CGFSC, Federated Administrative Services and U.S. Trust New York $171,595,
$120,732, $57,370 and $74,016 in the aggregate with respect to the Blended
Equity, Income and Growth, Value and Restructuring and Small Cap Funds,
respectively. For the same period, CGFSC, Federated Administrative Services and
U.S. Trust New York waived administration fees
- 24 -
<PAGE>
totaling $4,809, $1,416, $19 and $40 with respect to the Blended Equity, Income
and Growth, Value and Restructuring and Small Cap Funds, respectively.
For the period April 1, 1995 through July 31, 1995, Excelsior Fund
paid the former administrators $72,709, $53,296, $18,319 and $27,350 in the
aggregate with respect to the Blended Equity, Income and Growth, Value and
Restructuring and Small Cap Funds, respectively. For the same period, the
former administrators waived administration fees totaling $1,640, $575, $34 and
$75 with respect to the Blended Equity, Income and Growth, Value and
Restructuring and Small Cap Funds, respectively.
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 a Fund's
payment of not more than the annual rate of 0.40% of the average daily net
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.
For the fiscal years or periods ended March 31, 1998, 1997 and 1996,
payments to Shareholder Organizations totaled $182,660, $132,737 and $112,827;
$111,416, $106,888 and $71,628; $88,070, $41,617 and $21,172; $41,897, $61,972
and $58,058; and $1,501, $0 and $0 with respect to the Blended Equity, Income
and Growth, Value and Restructuring, Small Cap and Large Cap Growth Funds,
respectively. Of these amounts,
- 25 -
<PAGE>
$175,989, $118,778 and $97,209; $107,369, $103,262 and $66,022; $55,667, $41,514
and $21,149; $41,636, $61,952 and $58,039; and $1,501, $0 and $0 were paid to
affiliates of U.S. Trust with respect to the Blended Equity, Income and Growth,
Value and Restructuring, Small Cap and Large Cap Growth Funds,
respectively.
Expenses
- --------
Except as otherwise noted, the Investment Adviser and the
Administrators bear all expenses in connection with the performance of their
services. The Funds bear the expenses incurred in their operations. Expenses
of the Funds include: taxes; interest; fees (including fees paid to Excelsior
Fund's directors and officers who are not affiliated with the Distributor or the
Administrators); 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 Funds also pay for brokerage fees and commissions
in connection with the purchase of portfolio securities.
Custodian and Transfer Agent
- ----------------------------
The Chase Manhattan Bank ("Chase") serves as custodian of the Funds'
assets. Under the Custodian Agreement, Chase has agreed to: (i) maintain a
separate account or accounts in the name of the Funds; (ii) make receipts and
disbursements of money on behalf of the Funds; (iii) collect and receive all
income and other payments and distributions on account of the Funds' portfolio
securities; (iv) respond to correspondence from securities brokers and others
relating to its duties; (v) maintain certain financial accounts and records; and
(vi) make periodic reports to Excelsior Fund's Board of Directors concerning the
Funds' operations. Chase may, at its own expense, open and maintain custody
accounts with respect to the Funds with other banks or trust companies, provided
that Chase shall remain liable for the performance of all its custodial duties
under the Custodian Agreement, notwithstanding any delegation.
U.S. Trust New York serves as the Funds' transfer agent and dividend
disbursing agent. In such capacity, U.S. Trust New York has agreed to: (i)
issue and redeem Shares; (ii) address and mail all communications by the Funds
to their shareholders, including reports to shareholders, dividend and
distribution notices, and proxy materials for its meetings of shareholders;
(iii) respond to correspondence by shareholders and others relating to its
duties; (iv) maintain shareholder accounts; and (v) make periodic reports to
Excelsior Fund's Board of Directors concerning the Funds' operations. For its
transfer agency, dividend disbursing, and subaccounting services, U.S. Trust New
York is entitled to receive $15.00 per annum per account and subaccount. In
addition, U.S. Trust New York is entitled to be reimbursed for its out-of-pocket
expenses for the cost of forms, postage, processing purchase and redemption
orders, handling of proxies, and other similar expenses in connection with the
above services.
U.S. Trust New York may, at its own expense, delegate its transfer
agency obligations to another transfer agent registered or qualified under
applicable law, provided that
- 26 -
<PAGE>
U.S. Trust New York shall remain liable for the performance of all of its
transfer agency duties under the Transfer Agency Agreement, notwithstanding any
delegation. Pursuant to this provision in the agreement, U.S. Trust New York has
entered into a sub-transfer agency arrangement with CGFSC, an affiliate of
Chase, with respect to accounts of shareholders who are not Customers of U.S.
Trust New York. For the services provided by CGFSC, U.S. Trust New York has
agreed to pay CGFSC $15.00 per annum per account or subaccount plus out-of-
pocket expenses. CGFSC receives no fee directly from Excelsior Fund for any of
its sub-transfer agency services. U.S. Trust New York may, from time to time,
enter into sub-transfer agency arrangements with third party providers of
transfer agency services.
PORTFOLIO TRANSACTIONS
----------------------
Subject to the general control of Excelsior Fund's Board of Directors,
the Investment Adviser is responsible for, makes decisions with respect to, and
places orders for all purchases and sales of all portfolio securities of the
Funds.
The Funds may engage in short-term trading to achieve their investment
objectives. Portfolio turnover may vary greatly from year to year as well as
within a particular year. The Funds' portfolio turnover rate may also be
affected by cash requirements for redemptions of Shares and by regulatory
provisions which enable the Funds to receive certain favorable tax treatment.
Portfolio turnover will not be a limiting factor in making portfolio decisions.
See "Financial Highlights" in the Funds' Prospectus for the Funds' portfolio
turnover rates.
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers.
For the fiscal years ended March 31, 1998, 1997 and 1996, the Blended
Equity Fund paid brokerage commissions aggregating $288,470, $271,411 and
$174,492, respectively, none of which was paid to affiliates of U.S. Trust.
For the fiscal years ended March 31, 1998, 1997 and 1996, the Income
and Growth Fund paid brokerage commissions aggregating $113,280, $74,499 and
$89,512, respectively, none of which was paid to affiliates of U.S. Trust.
For the fiscal years ended March 31, 1998 and 1997, the Value and
Restructuring Fund paid brokerage commissions aggregating $412,406 and $271,334,
respectively, of which $26,847 and $13,069, respectively, was paid to UST
Securities Corp., an affiliate of U.S. Trust. For the same periods, the
percentages of total commissions paid by the Fund to UST Securities Corp. were
6.51% and 4.82%, respectively, and the percentages of the total amount of the
Fund's brokerage transactions involving the payment of commissions that was
effected through UST Securities Corp. were 7.74% and 5.76%, respectively. For
the same periods, the average commissions per Share paid by the Fund to UST
Securities Corp. and other unaffiliated brokers were $0.09 and $0.06, and $0.09
and
- 27 -
<PAGE>
$0.08, respectively. For the fiscal year ended March 31, 1996, the Fund paid
brokerage commissions aggregating $152,269, none of which was paid to affiliates
of U.S. Trust.
For the fiscal year ended March 31, 1998, the Small Cap Fund paid
brokerage commissions aggregating $131,936, none of which was paid to affiliates
of U.S. Trust. For the fiscal year ended March 31, 1997, the Small Cap Fund
paid brokerage commissions aggregating $122,184, of which $7,047 was paid to UST
Securities Corp. For the same period, the percentage of total commissions paid
by the Fund to UST Securities Corp. was 5.77%, and the percentage of the total
amount of the Fund's brokerage transactions involving the payment of commissions
that was effected through UST Securities Corp. was 1.83%. For the same period,
the average commissions per Share paid by the Fund to UST Securities Corp. and
other unaffiliated brokers were $0.03 and $0.04, respectively. For the fiscal
year ended March 31, 1996, the Fund paid brokerage commissions aggregating
$95,108, none of which was paid to affiliates of U.S. Trust.
For the fiscal period ended March 31, 1998, the Large Cap Growth Fund
paid brokerage commissions aggregating $25,680, none of which was paid to
affiliates of U.S. Trust.
Transactions in domestic over-the-counter markets are generally
principal transactions with dealers, and the costs of such transactions involve
dealer spreads rather than brokerage commissions. With respect to over-the-
counter transactions, the Funds, where possible, will deal directly with the
dealers who make a market in the securities involved, except in those
circumstances where better prices and execution are available elsewhere.
The Investment Advisory Agreements between Excelsior Fund and the
Investment Adviser provide that, in executing portfolio transactions and
selecting brokers or dealers, the Investment Adviser will seek to obtain the
best net price and the most favorable execution. The Investment Adviser shall
consider factors it deems relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer and whether such broker or dealer is selling
shares of Excelsior Fund, and the reasonableness of the commission, if any, for
the specific transaction and on a continuing basis.
In addition, the Investment Advisory Agreements authorize the
Investment Adviser, to the extent permitted by law and subject to the review of
Excelsior Fund's Board of Directors from time to time with respect to the extent
and continuation of the policy, to cause the Funds to pay a broker which
furnishes brokerage and research services a higher commission than that which
might be charged by another broker for effecting the same transaction, provided
that the Investment Adviser determines in good faith that such commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker, viewed in terms of either that particular transaction
or the overall responsibilities of the Investment Adviser to the accounts as to
which it exercises investment discretion. Such brokerage and research services
might consist of reports and statistics on specific companies or industries,
general summaries of groups of stocks and their comparative earnings, or broad
overviews of the stock market and the economy.
- 28 -
<PAGE>
Supplementary research information so received is in addition to and
not in lieu of services required to be performed by the Investment Adviser and
does not reduce the investment advisory fees payable by the Funds. Such
information may be useful to the Investment Adviser in serving the Funds and
other clients and, conversely, supplemental information obtained by the
placement of business of other clients may be useful to the Investment Adviser
in carrying out its obligations to the Funds.
Portfolio securities will not be purchased from or sold to the
Investment Adviser, Distributor, or any affiliated person of either of them (as
such term is defined in the 1940 Act) acting as principal, except to the extent
permitted by the SEC.
Investment decisions for the Funds are made independently from those
for other investment companies, common trust funds and other types of funds
managed by the Investment Adviser. Such other investment companies and funds
may also invest in the same securities as the Funds. When a purchase or sale of
the same security is made at substantially the same time on behalf of a Fund and
another investment company or common trust fund, the transaction will be
averaged as to price, and available investments allocated as to amount, in a
manner which the Investment Adviser believes to be equitable to the Fund and
such other investment company or common trust fund. In some instances, this
investment procedure may adversely affect the price paid or received by the
Funds or the size of the position obtained by the Funds. To the extent
permitted by law, the Investment Adviser may aggregate the securities to be sold
or purchased for the Funds with those to be sold or purchased for other
investment companies or common trust funds in order to obtain best execution.
To the extent that a Fund effects brokerage transactions with any
broker-dealer affiliated directly or indirectly with U.S. Trust, such
transactions, including the frequency thereof, the receipt of any commissions
payable in connection therewith, and the selection of the affiliated broker-
dealer effecting such transactions, will be fair and reasonable to the
shareholders of the Fund.
Excelsior Fund is required to identify any securities of its regular
brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or their
parents held by the Funds as of the close of the most recent fiscal year. As of
March 31, 1998, the following Funds held the following securities of Excelsior
Fund's regular brokers or dealers or their parents: the Blended Equity Fund held
202,694 shares of common stock of Morgan Stanley Dean Witter & Co.; the Income &
Growth Fund held 45,000 shares of common stock of Morgan Stanley Dean Witter &
Co.; and the Value and Restructuring Fund held 43,000 shares of common stock of
J.P. Morgan & Co., Inc.
- 29 -
<PAGE>
INDEPENDENT AUDITORS
--------------------
Ernst & Young LLP, independent auditors, 200 Clarendon Street, Boston,
MA 02116, serve as auditors of Excelsior Fund. The Funds' Financial Highlights
included in the Prospectus and the financial statements for the period ended
March 31, 1998 incorporated by reference in this Statement of Additional
Information have been audited by Ernst & Young LLP for the periods included in
their reports thereon which appear therein.
COUNSEL
-------
Drinker Biddle & Reath LLP (of which Mr. McConnel, Secretary of
Excelsior Fund, and Mr. Malloy, Assistant Secretary of Excelsior Fund, are
partners), 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.
Each Fund is treated as a separate corporate entity under the Code,
and intends to qualify as a regulated investment company. If, for any reason, a
Fund does not qualify for a taxable year for the special Federal tax treatment
afforded regulated investment companies, such Fund would be subject to Federal
tax on all of its taxable income at regular corporate rates, without any
deduction for distributions to shareholders. In such event, dividend
distributions 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.
Each Fund will designate any distribution of the excess of net long-
term capital gain over net short-term capital loss as a capital gain dividend in
a written notice mailed to shareholders within 60 days after the close of the
Fund's taxable year. Upon the sale or exchange of Shares, if the shareholder
has not held such Shares for more than six months, any loss on the sale or
exchange of those Shares will be treated as long-term capital loss to the extent
of the capital gain dividends received with respect to the Shares.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income (excess
of capital gains over capital losses). The Funds intend to make sufficient
distributions or deemed distributions of their ordinary taxable income and any
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
- 30 -
<PAGE>
Each Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends or gross proceeds realized upon sale
paid to shareholders who have failed to provide a correct tax identification
number in the manner required, who are subject to withholding by the Internal
Revenue Service for failure properly to include on their return payments of
taxable interest or dividends, or who have failed to certify to the Fund when
required to do so either that they are not subject to backup withholding or that
they are "exempt recipients."
The foregoing discussion is based on Federal tax laws and regulations
which are in effect on the date of this Statement of Additional Information;
such laws and regulations may be changed by legislative or administrative
action. Shareholders are advised to consult their tax advisers concerning their
specific situations and the application of state and local taxes.
PERFORMANCE INFORMATION
-----------------------
The Funds may advertise the "average annual total return" for their
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 1 divided by the nth power
T = [(-----) - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10
year (or other) periods at the end of the
applicable period (or a fractional portion
thereof).
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in years.
Each Fund may also advertise the "aggregate total return" for its Shares
which is computed by determining the aggregate compounded rates of return during
specified periods that likewise equate the initial amount invested to the ending
redeemable value of such investment. The formula for calculating aggregate
total return is as follows:
- 31 -
<PAGE>
ERV
Aggregate Total Return = [(------)] - 1
P
The above calculations are made assuming that (1) all dividends and
capital gain distributions are reinvested on the reinvestment dates at the price
per Share existing on the reinvestment date, (2) all recurring fees charged to
all shareholder accounts are included, and (3) for any account fees that vary
with the size of the account, a mean (or median) account size in a Fund during
the periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period.
Based on the foregoing calculations, the average annual total returns
for the Shares of the Blended Equity, Income and Growth, Value and Restructuring
and Small Cap Funds for the one year period ended March 31, 1998 were 50.82%,
33.29%, 52.10% and 35.33%, respectively. The average annual total returns for
the Shares of the Blended Equity, Income and Growth, Value and Restructuring and
Small Cap Funds for the five year period ended March 31, 1998 were 20.92%,
16.84%, 28.11% and 13.30%, respectively. The average annual total returns for
the Shares of the Blended Equity and Income and Growth Funds for the ten year
period ended March 31, 1998 were 17.52% and 14.58%, respectively. The average
annual total returns for the Shares of the Value and Restructuring and Small Cap
Funds for the period from December 31, 1992 (commencement of operations) to
March 31, 1998 were 28.97% and 13.83%, respectively. The aggregate total return
for the Shares of the Large Cap Growth Fund for the period October 1, 1997
(commencement of operations) to March 31, 1998 was 21.57%.
The Funds may also from time to time include in advertisements, sales
literature and communications to shareholders a total return figure that is not
calculated according to the formula set forth above in order to compare more
accurately a Fund's performance with other measures of investment return. For
example, in comparing a Fund's total return with data published by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. or Weisenberger
Investment Company Service, or with the performance of an index, a Fund may
calculate its aggregate total return for the period of time specified in the
advertisement or communication by assuming the investment of $10,000 in Shares
and assuming the reinvestment of each dividend or other distribution at net
asset value on the reinvestment date. Percentage increases are determined by
subtracting the initial value of the investment from the ending value and by
dividing the remainder by the beginning value.
The total return of Shares of a Fund may be compared to that of other
mutual funds with similar investment objectives and to other relevant indices or
to ratings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
total return of a Fund may be compared to data prepared by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc. and Weisenberger Investment
Company Service. Total return and yield data as reported in national financial
publications such as Money Magazine, Forbes, Barron's, The Wall Street Journal
----- -------- ------ -------- --- ---- ------ -------
and The New York Times, or in publications of a local or regional nature, may
--- --- ---- -----
also be used in comparing the
- 32 -
<PAGE>
performance of a Fund. Advertisements, sales literature or reports to
shareholders may from time to time also include a discussion and analysis of
each Fund's performance, including, without limitation, those factors,
strategies and techniques that, together with market conditions and events,
materially affected each Fund's performance.
The Funds may also from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on a Fund
investment are reinvested by being paid in additional Fund Shares, any future
income or capital appreciation of a Fund would increase the value, not only of
the original Fund investment, but also of the additional Fund Shares received
through reinvestment. As a result, the value of the Fund investment would
increase more quickly than if dividends or other distributions had been paid in
cash. The Funds may also include discussions or illustrations of the potential
investment goals of a prospective investor, investment management techniques,
policies or investment suitability of a Fund, economic conditions, the effects
of inflation and historical performance of various asset classes, including but
not limited to, stocks, bonds and Treasury bills. From time to time
advertisements, sales literature or communications to shareholders may summarize
the substance of information contained in shareholder reports (including the
investment composition of a Fund), as well as the views of the Investment
Adviser as to current market, economy, trade and interest rate trends,
legislative, regulatory and monetary developments, investment strategies and
related matters believed to be of relevance to a Fund. The Funds may also
include in advertisements charts, graphs or drawings which illustrate the
potential risks and rewards of investment in various investment vehicles,
including but not limited to, stocks, bonds, Treasury bills and Shares of a
Fund. In addition, advertisements, sales literature or shareholder
communications may include a discussion of certain attributes or benefits to be
derived by an investment in a Fund. Such advertisements or 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 a Fund" means the
consideration received upon the issuance of Shares in the Fund, together with
all income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale of such investments, any funds or payments
derived from any reinvestment of such proceeds, and a portion of any general
assets of Excelsior Fund not belonging to a particular portfolio of Excelsior
Fund. In determining a Fund's net asset value, assets belonging to the Fund are
charged with the direct liabilities in respect of the Fund and with a share of
the general liabilities of Excelsior Fund which are normally allocated in
proportion to the relative asset values of Excelsior Fund's portfolios at the
time of allocation. Subject to the provisions of Excelsior Fund's Charter,
determinations by the Board of Directors as to the direct and allocable
liabilities, and the allocable portion of any general assets with respect to a
particular Fund, are conclusive.
As of July 8, 1998, U.S. Trust and its affiliates held of record
substantially all of Excelsior Fund's outstanding shares as agent or custodian
for their customers, but did not own
- 33 -
<PAGE>
such shares beneficially because they did not have voting or investment
discretion with respect to such shares.
As of July 8, 1998, the name, address and percentage ownership of each
person that owned beneficially or of record 5% or more of the outstanding Shares
of a Fund were as follows: Blended Equity Fund: U.S. Trust Retirement Fund,
-------------------
c/o United States Trust Company of New York, 114 West 47th Street, New York, New
York 10036, 11.41%; and United States Trust Company of New York Trustee FBO U.S.
Trust Plan, U.S. Trust Company of The Pacific Northwest, Attn: Jill Williams,
4380 SW Macadam Avenue, Suite 2700, Portland, Oregon 97201, 6.7%; Income and
----------
Growth Fund: U.S. Trust Company of California, N.A. Trustee For Crucible Fund,
- -----------
U.S. Trust Company of The Pacific Northwest, Attn: Jill Williams, 4380 SW
Macadam Avenue, Suite 450, Portland, Oregon 97201, 5.38%; Value and
---------
Restructuring Fund: Charles Schwab & Co., Inc., Special Custody A/C For Benefit
- ------------------
of Customers, Attn: Mutual Funds, 101 Montgomery Street, San Francisco,
California 94104, 20.13%; and Small Cap Fund: U.S. Trust Retirement Fund, c/o
--------------
United States Trust Company of New York, 114 West 47th Street, New York, New
York 10036, 16.00%.
FINANCIAL STATEMENTS
--------------------
The audited financial statements and notes thereto in Excelsior Fund's
Annual Report to Shareholders for the fiscal year ended March 31, 1998 (the
"1998 Annual Report") for the Funds are incorporated in this Statement of
Additional Information by reference. No other parts of the 1998 Annual Report
are incorporated by reference herein. The financial statements included in the
1998 Annual Report for the Funds have been audited by Excelsior Fund's
independent auditors, Ernst & Young LLP, whose reports thereon also appear in
the 1998 Annual Report and are incorporated herein by reference. Such financial
statements have been incorporated herein in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
Additional copies of the 1998 Annual Report may be obtained at no charge by
telephoning CGFSC at the telephone number appearing on the front page of this
Statement of Additional Information.
- 34 -
<PAGE>
APPENDIX A
----------
Commercial Paper Ratings
- ------------------------
A Standard & Poor's ("S&P") commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment is strong. Within this
category, certain obligations are designated with a plus sign (+). This
indicates that the obligor's capacity to meet its financial commitment on these
obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations
rated "A-1". However, the obligor's capacity to meet its financial commitment on
the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are
dependent on favorable business, financial, and economic conditions for the
obligor to meet its financial obligation.
"D" - Obligations are in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes such payments will
be made during such grace period. The "D" rating will also be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually debt obligations not having an original maturity in
excess of one year, unless explicitly noted. The following summarizes the
rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established
A-1
<PAGE>
industries; high rates of return on funds employed; conservative capitalization
structure with moderate reliance on debt and ample asset protection; broad
margins in earnings 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.
"Prime-2" - Issuers (or supporting institutions) have a strong ability
for repayment of senior short-term debt 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, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require 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 the 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 issues as investment grade. Risk 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 insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
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"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch IBCA short-term ratings apply to debt obligations that have time
horizons of less than 12 months for most obligations, or up to three years for
U.S. public finance securities. The following summarizes the rating categories
used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of securities rated
"F1".
"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to non-
investment grade.
"B" - Securities possess speculative credit quality. this designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
"C" - Securities possess high default risk. This designation
indicates that the 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.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
category and indicates a very high likelihood that principal and interest will
be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's second-
highest category and indicates that while the degree of safety regarding timely
repayment 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 Thomson BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to
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adverse developments (both internal and external) than those with higher
ratings, the capacity to service principal and interest in a timely fashion is
considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
"B" - Debt is more vulnerable to non-payment than obligations rated
"BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
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"CCC" - Debt is currently vulnerable to non-payment, and is dependent
upon favorable business, financial and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to non-
payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. This rating is
used when payments on an obligation 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 or the taking of similar action if payments
on an obligation 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 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.
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"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 are considered as 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 speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of 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.
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.
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"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 ratings used by Fitch IBCA for corporate
and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of investment risk
and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is very unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of investment risk and
indicate very strong capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of investment risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to adverse changes in circumstances or in
economic conditions than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
investment risk. The capacity for timely payment of financial commitments is
adequate, but adverse changes in circumstances and in economic conditions are
more likely to impair this category.
"BB" - Bonds considered to be speculative. These ratings indicate
that there is a possibility of credit risk developing, particularly as the
result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings indicate
that significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
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"CCC", "CC", "C" - Bonds have high default risk. Capacity for meeting
financial commitments is reliant upon sustained, favorable business or economic
developments. "CC" ratings indicate that default of some kind appears probable,
and "C" ratings signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery on these securities, and "D" represents the lowest
potential for recovery.
To provide more detailed indications of credit quality, the Fitch IBCA
ratings from and including "AA" to "B" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
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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 a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
"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" - This designation denotes 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" - This designation denotes high quality, with margins
of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with
all security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality, carrying
specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack of
margins of protection.
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Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
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