<PAGE>
[LOGO OF EXCELSIOR FUNDS]
Fixed Income Portfolios
ANNUAL REPORT
March 31, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LETTER TO SHAREHOLDERS.................................................... 1
ADVISER'S FIXED INCOME MARKET REVIEW...................................... 2
ADVISER'S INVESTMENT REVIEWS
Short-Term Government Securities Fund.................................... 3
Intermediate-Term Managed Income Fund.................................... 4
Managed Income Fund...................................................... 5
STATEMENTS OF ASSETS AND LIABILITIES...................................... 6
STATEMENTS OF OPERATIONS.................................................. 7
STATEMENTS OF CHANGES IN NET ASSETS....................................... 8
FINANCIAL HIGHLIGHTS--SELECTED PER SHARE DATA AND RATIOS.................. 9
PORTFOLIOS OF INVESTMENTS
Short-Term Government Securities Fund.................................... 11
Intermediate-Term Managed Income Fund.................................... 12
Managed Income Fund...................................................... 13
NOTES TO FINANCIAL STATEMENTS............................................. 14
INDEPENDENT AUDITORS' REPORT.............................................. 20
FEDERAL TAX INFORMATION................................................... 21
VOTING RESULTS OF SPECIAL MEETING OF SHAREHOLDERS......................... 21
</TABLE>
For shareholder account information, current price and yield quotations, or to
make an initial purchase or obtain a prospectus, call the appropriate telephone
number listed below:
. Initial Purchase and Prospectus Information and Shareholder Services 1-800-
446-1012 (From overseas, call 617-557-8280)
. Current Price and Yield Information 1-800-446-1012
. Internet Address: http://www.excelsiorfunds.com
This report must be preceded or accompanied by a current prospectus.
Prospectuses containing more complete information including charges and
expenses regarding Excelsior Funds, Inc. and Excelsior Tax-Exempt Funds, Inc.
may be obtained by contacting the Funds at 1-800-446-1012.
Investors should read the current prospectus carefully prior to investing or
sending money.
Excelsior Funds, Inc. and Excelsior Tax-Exempt Funds, Inc. are distributed by
Edgewood Services, Inc.
You may write to Excelsior Funds, Inc. and Excelsior Tax-Exempt Funds, Inc. at
the following address:
Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
SHARES IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, UNITED STATES TRUST COMPANY OF NEW YORK, U.S. TRUST COMPANY, THEIR
PARENT AND AFFILIATES AND SHARES ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
INVESTMENTS IN THE FUNDS INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL. FUND SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT.
<PAGE>
LETTER TO SHAREHOLDERS
--------------------------------------------------------------------------------
Dear Shareholder:
The fiscal year ended March 31, 2000 was exciting and rewarding both
domestically and abroad. In the U.S. and around the world, preparations for
"Y2K" and millennium celebrations consumed everyone's thoughts. The U.S.
economy was in the midst of an extraordinary expansion. Simultaneously, Europe
prepared for and converted to a new central currency, the Euro. Meanwhile, Asia
rebounded from fiscal turmoil in several key markets in early 1999.
All the major domestic equity indices exhibited strong performance. As the
fiscal year ended, the breadth of performance extended from the familiar large-
capitalization stocks to the mid-sized and small-cap stocks. Technology stocks
led all market sectors to new highs. This occurred, despite several interest
rate hikes by the Federal Reserve Board. The rising interest rate environment
and continued economic expansion seemed to temper only the performance of the
fixed-income markets.
Given the continued rate of expansion of the U.S. economy, we believe
interest rate increases are inevitable. This environment will make the coming
year a challenging one in the financial markets. We are confident that the
broad array of domestic and international equity as well as taxable and tax-
exempt fixed-income funds will help you meet your financial objectives.
On May 31, 2000, U.S. Trust Corporation, parent of the advisers to the
Excelsior Fund family ("U.S. Trust"), merged with a subsidiary of The Charles
Schwab Corporation. Earlier in the month, shareholders of the Excelsior Funds
approved new advisory contracts that will enable U.S. Trust to remain as the
investment adviser to the Excelsior Funds after the merger. We look forward to
participating in the benefits which the merger of such outstanding
organizations may bring to Excelsior Funds.
Sincerely,
/s/ Frederick S. Wonham
Frederick S. Wonham
Chairman of the Board and President
1
<PAGE>
EXCELSIOR FUNDS, INC. ADVISER'S FIXED INCOME MARKET REVIEW
-------------------------------------------------------------------------------
The fixed-income markets struggled during the first three quarters of the
fiscal year ended March 31, 2000. At the outset of the year, the bond market
came under increasing pressure in the second quarter, as inflation fears drove
the yield on the long bond to over 6.0%.
Continued signs of strength in the U.S. economy, rising oil prices, and an
improving global outlook fueled investor concerns about rising inflation and
led the Fed to announce a bias toward tightening monetary policy in May.
However, solid evidence of inflation remained elusive. True to its
indications, the Fed did in fact raise the federal funds rate by 25 basis
points at the end of June, and signaled a return to a neutral bias.
The challenging conditions persisted unabated in the second quarter. In the
period, the Treasury curve moved barely at all. In many ways, the quarter was
marked by uncertainty about interest rates, inflation, and economic growth.
Economic growth proved to be relatively low in the first fiscal quarter, but
stronger growth was expected in the second. Inflation concerns were propelled
by higher oil prices, strong employment and some glimpses of wage pressure.
Still, however, Producer Price Index and Consumer Price Index numbers remained
moderate in the period, but eventually data published in a National
Association of Purchasing Managers survey spooked the market. On the interest-
rate front, everyone believed that the Fed was on hold after the June increase
-- at least until its rate hike and return to a tightening bias late in the
quarter.
Municipal securities had a poor quarter as well, as the market showed
disdain for longer-maturity securities in particular.
Corporate, mortgage, asset-backed and government agency securities' yield to
Treasury spreads were volatile as well. This was the result of unusually large
issuance in the second quarter driven by concerns that liquidity would dry up
at calendar year end on Y2K fears.
The third quarter only saw more of the same challenges. Interest rates rose
across the board, though taxables rose more than municipal securities.
The fourth quarter, however, saw the fixed-income markets rally strongly --
though not across the board. While yields moved up at the short end of the
Treasury yield curve, 5-year Treasuries were basically flat, 10-year issues
were down, and the long bond declined.
Still, the quarter began with yield increases for all maturities due to
persistent concerns about economic growth and fear of additional Federal
Reserve interest-rate hikes. In February, however, the government announced a
$30 billion Treasury buyback, which ignited a rally -- though mostly at the
long end. When the Fed increased rates again in March, the market seemed to
take it as a sign that rate hikes were at (or nearing) an end, and the rally
continued.
Much the same was true for municipal securities, though as usual they lagged
Treasuries. There wasn't much demand for long munis in the period, but a
decline in supply kept the market in decent shape.
On the taxable side, spreads widened through the first half of the quarter.
Momentum picked up toward quarter end due to the announced Treasury buyback as
well as news of possible limits on Treasury backing of the Government
Sponsored Enterprises (FNMA, FHLMC, SLMA, FHLB, FFCB, and TVA).
2
<PAGE>
EXCELSIOR FUNDS, INC. SHORT-TERM GOVERNMENT SECURITIES FUND
-------------------------------------------------------------------------------
The Fund seeks to enhance income by investing in higher yielding sectors of
the government securities market. These sectors include non-current Treasury
issues and callable and non-callable Agency bonds. Specific sectors are
emphasized based on historic yield relationships and projected relative price
performance. This approach produces opportunity for income with a potential
for capital appreciation. During the first three quarters, interest rates rose
dramatically, and yields on Agency issues reached their widest levels in
nearly a year. The Fund maintained a defensive posture, as the duration of
security holdings was a short 1.6 years at the end of the second quarter and
1.4 at the end of the third -- which provided relative price stability in the
rising rate environment. Duration is a measure of a security's price
sensitivity to changes in interest rates. Securities with longer durations are
more sensitive to changes in interest rates than securities of shorter
durations. Holdings in U.S. Government Agency and Mortgage securities
represented about two thirds of assets and provided added income. In the
fourth quarter, the short end of the bond market under performed the rest of
the market. Yields on two-year issues moved higher along the Treasury maturity
spectrum. We increased the duration of the Fund slightly to 1.7 years to take
advantage of higher yields. Mortgage holdings were increased to 13% of assets
from 3% in December. Agency spreads widened, along with other spread sectors
and in the two-year term were at their widest levels in this cycle. These
securities are well represented in the portfolio and we believe they represent
good value going forward.
[GRAPH]
-------------------------------------------------------
Short-Term Government Securities Fund+
-------------------------------------------------------
Average Annual Total Return Ended on 3/31/00*
-------------------------------------------------------
1 Year 5 Years Since Inception (12/31/92)
-------------------------------------------------------
3.02% 5.39% 4.84%
-------------------------------------------------------
Short Term Government Lehman Bros. Government
Securities Fund 1-3 Yr. Bond Index
12/31/92 10,000 10,000
3/31/93 10,170 10,220
3/31/94 10,385 10,490
3/31/95 10,832 10,950
3/31/96 11,619 11,790
3/31/97 12,173 12,420
3/31/98 12,961 13,350
3/31/99 13,679 14,164
3/31/00 14,092 14,680
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 Short-Term
Government Securities Fund and a broad-based index since 12/31/92 (inception
date). All dividends and capital gain distributions are reinvested. The Fund's
performance takes into account fees and expenses. The Lehman Brothers 1-3 Year
Government Bond Index is an unmanaged total return performance benchmark
composed of U.S. Government agencies and U.S. Treasury securities with
maturities of one to three years. The index does not take into account
charges, fees and other expenses. Further information relating to Fund
performance is contained in the Financial Highlights section of the Prospectus
and elsewhere in this report.
--------
* Total return represents the change during the period in a hypothetical
account with dividends reinvested.
** Source: Lehman Brothers.
+ The Fund is currently waiving certain fees. Had the Fund not waived fees,
returns would have been lower. This voluntary waiver may be modified or
terminated at any time.
3
<PAGE>
EXCELSIOR FUNDS, INC. INTERMEDIATE-TERM MANAGED INCOME FUND
-------------------------------------------------------------------------------
Through the first three fiscal quarters, the Fund remained invested in high-
quality liquid securities. Corporates represented roughly a third of the
Fund's market value. The mortgage and asset-backed sector represented another
40% of assets. The balance of assets was held in cash equivalents and
government issues. The Fund maintained a duration slightly longer than its
peers did; this caused a drag on performance, though the overweighing in the
corporate and mortgage sectors in the third fiscal quarter resulted in above-
median returns. Duration is a measure of a security's price sensitivity to
changes in interest rates. Securities with longer durations are more sensitive
to changes in interest rates than securities of shorter durations. In the
final quarter, intermediate rates began to fall following a sharp decline in
bond yields. The resulting inversion of the curve pushed intermediate yields
above those of longer market benchmarks. In a slowing, low-inflation economy
the added yield and potential for relative price appreciation makes
intermediate securities attractive. The Fund remained invested in high quality
securities with an average rating of AAA. Government-backed issues and cash
reserves were 52% of assets. Corporates and AAA/AA-rated asset-backed and
commercial mortgage-backed securities made up the balance. We feel this
defensive structure gave the Fund a relatively lower risk level. The maturity
distribution was moved toward the five-year maturity range from both shorter
and longer holdings, reducing the "barbell" structure that the Fund has had.
We think that this should provide potential for higher income and the best
price action in anticipation of a slowing economy.
[GRAPH]
-------------------------------------------------------
Intermediate -Term Managed Income Fund+
-------------------------------------------------------
Average Annual Total Return Ended on 3/31/00*
-------------------------------------------------------
1 Year 5 Years Since Inception (12/31/92)
-------------------------------------------------------
0.59% 6.38% 5.67%
-------------------------------------------------------
Intermediate Term Lehman Bros. Government
MNGD Income Fund /Corporate Bond Index
12/31/92 10,000 10,000
3/31/93 10,386 10,400
3/31/94 10,433 10,660
3/31/95 10,949 11,140
3/31/96 12,167 12,220
3/31/97 12,562 12,790
3/31/98 13,990 14,020
3/31/99 14,832 14,941
3/31/00 14,922 15,250
Past performance is not predictive of future performance. Investment returns
and principal values will vary and shares may be worth more or less at
redemption than their original cost.
The above illustration compares a $10,000 investment made in Intermediate-
Term Managed Income Fund and a broad-based index since 12/31/92 (inception
date). All dividends and capital gain distributions are reinvested. The Fund's
performance takes into account fees and expenses. The Lehman Brothers
Intermediate Govt/Corp Bond Index is an unmanaged total return performance
benchmark composed of U.S. Government agencies and U.S. Treasury securities
and investment grade corporate debt, selected as representative of the market
with maturities of one to ten years. The index does not take into account
charges, fees and other expenses. Further information relating to Fund
performance is contained in the Financial Highlights section of the Prospectus
and elsewhere in this report.
--------
* Total return represents the change during the period in a hypothetical
account with dividends reinvested.
** Source: Lehman Brothers.
+ The Fund is currently waiving certain fees. Had the Fund not waived fees,
returns would have been lower. This voluntary waiver may be modified or
terminated at any time.
4
<PAGE>
EXCELSIOR FUNDS, INC. MANAGED INCOME FUND
--------------------------------------------------------------------------------
In the first fiscal quarter, fixed income spread products widened due to
heavy corporate bond supply and Federal Reserve tightening. The Fund was hurt
by an overexposure to mortgage and asset-backed securities. The Fund also
lagged with a slightly longer duration than the market as interest rates rose
by about 55 basis points for intermediate maturities. Duration is a measure of
a security's price sensitivity to changes in interest rates. Securities with
longer durations are more sensitive to changes in interest rates than
securities of shorter durations. We elected to maintain an overweighted
position in this type of high-quality spread product that provides a generous
yield pickup relative to Treasuries. In the second and third fiscal quarters,
Fund performance picked up thanks to the addition of mortgage and asset-backed
securities on spread widening, and favorable yield curve positioning. Given
interest-rate uncertainty, we kept the duration close to the benchmark, waiting
to extend until it appeared the Fed was approaching the end of its tightening
cycle. In the fiscal fourth quarter, the Fund continued to benefit from its
emphasis on high quality asset-backed securities, commercial mortgages, and
Ginnie Mae securities. From a credit perspective, we will continue to
overweight higher quality spread product until we feel lower quality bonds pay
enough yield to compensate investors for the additional risk.
[GRAPH]
-------------------------------------------------------
Managed Income Fund+
-------------------------------------------------------
Average Annual Total Return Ended on 3/31/00*
-------------------------------------------------------
1 Year 5 Years 10 Years
-------------------------------------------------------
0.72% 6.78% 7.84%
-------------------------------------------------------
Lehman Brothers Govt/Corp Bond Index*** Managed Income Fund
3/31/90 10,000 10,000
3/31/91 11,249 11,336
3/31/92 12,529 12,511
3/31/93 14,321 14,480
3/31/94 14,716 14,730
3/31/95 15,392 15,328
3/31/96 17,072 17,184
3/31/97 17,834 17,688
3/31/98 20,043 19,952
3/31/99 21,354 21,138
3/31/00 21,713 21,290
Past performance is not predictive of future performance. Investment returns
and principal values will vary and shares may be worth more or less at
redemption than their original cost.
The above illustration compares a $10,000 investment made in Managed Income
Fund and a broad-based index over the past ten fiscal years. All dividends and
capital gain distributions are reinvested. The Fund's performance takes into
account fees and expenses. The Lehman Brothers Govt/Corp Bond Index is an
unmanaged total return performance benchmark comprised of U.S. Government
agencies and U.S. Treasury securities and investment grade corporate debt,
selected as representative of the market. The index does not take into account
charges, fees and other expenses. Further information relating to Fund
performance is contained in the Financial Highlights section of the Prospectus
and elsewhere in this report.
--------
* Total return represents the change during the period in a hypothetical
account with dividends reinvested.
** Source: Lehman Brothers
+ The Fund is currently waiving certain fees. Had the Fund not waived fees,
returns would have been lower. This voluntary waiver may be modified or
terminated at any time.
5
<PAGE>
Excelsior Funds, Inc.
Statements of Assets and Liabilities
March 31, 2000
<TABLE>
<CAPTION>
Intermediate-
Short-Term Term
Government Managed Managed
Securities Income Income
Fund Fund Fund
----------- ------------- ------------
<S> <C> <C> <C>
ASSETS:
Investments, at cost--see
accompanying portfolios......... $67,660,719 $158,416,901 $227,080,124
=========== ============ ============
Investments, at value (Note 1)... $66,787,573 $154,314,360 $221,362,115
Cash............................. 555 35,164 --
Interest receivable.............. 748,035 2,030,242 1,923,441
Receivable for fund shares sold.. 58,580 -- 4,465
Prepaid expenses................. 1,757 4,250 5,478
----------- ------------ ------------
Total Assets..................... 67,596,500 156,384,016 223,295,499
LIABILITIES:
Payable for dividends declared... 265,921 788,682 1,079,120
Payable for investments
purchased....................... 3,475,197 -- 1,508,855
Payable for fund shares redeemed. 4,506,039 3,973 --
Investment advisory fees payable
(Note 2)........................ 6,705 29,812 121,709
Administration fees payable (Note
2).............................. 4,337 16,160 22,648
Administrative service fees
payable (Note 2)................ 8,110 20,429 10,420
Directors' fees payable (Note 2). 451 1,083 1,626
Due to custodian bank............ -- -- 23,425
Accrued expenses and other
payables........................ 22,540 40,597 48,171
----------- ------------ ------------
Total Liabilities................ 8,289,300 900,736 2,815,974
----------- ------------ ------------
NET ASSETS........................ $59,307,200 $155,483,280 $220,479,525
=========== ============ ============
NET ASSETS consist of:
Undistributed (distributions in
excess of) net investment
income.......................... $ (1,884) $ (5,133) $ 173,040
Accumulated net realized loss on
investments..................... (496,224) (4,345,447) (4,495,285)
Unrealized depreciation of
investments..................... (873,146) (4,102,541) (5,718,009)
Par value (Note 4)............... 8,627 22,965 25,776
Paid in capital in excess of par
value........................... 60,669,827 163,913,436 230,494,003
----------- ------------ ------------
Total Net Assets.................. $59,307,200 $155,483,280 $220,479,525
=========== ============ ============
Shares of Common Stock Outstanding
(Note 4)......................... 8,626,895 22,964,650 25,775,929
NET ASSET VALUE PER SHARE......... $6.87 $6.77 $8.55
===== ===== =====
</TABLE>
See Notes to Financial Statements
6
<PAGE>
Excelsior Funds, Inc.
Statements of Operations
Year Ended March 31, 2000
<TABLE>
<CAPTION>
Intermediate-
Short-Term Term
Government Managed Managed
Securities Income Income
Fund Fund Fund
----------- ------------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income..................... $ 3,389,826 $ 9,253,551 $13,565,606
----------- ----------- -----------
EXPENSES:
Investment advisory fees (Note 2)... 181,049 508,004 1,616,419
Administration fees (Note 2)........ 91,826 220,953 328,120
Administrative servicing fees (Note
2)................................. 47,446 102,860 59,897
Custodian fees...................... 15,157 36,754 55,397
Registration and filing fees........ 12,670 13,204 14,478
Shareholder servicing agent fees.... 11,554 16,799 29,878
Legal and audit fees................ 6,395 15,293 19,271
Shareholder reports................. 4,868 10,386 18,458
Directors' fees and expenses (Note
2)................................. 1,655 3,814 5,822
Miscellaneous expenses.............. 2,133 16,036 16,362
----------- ----------- -----------
Total Expenses...................... 374,753 944,103 2,164,102
Fees waived and reimbursed by in-
vestment
adviser and administrators (Note
2)................................. (47,438) (102,860) (276,191)
----------- ----------- -----------
Net Expenses........................ 327,315 841,243 1,887,911
----------- ----------- -----------
NET INVESTMENT INCOME................ 3,062,511 8,412,308 11,677,695
----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 1):
Net realized loss on security trans-
actions............................ (518,006) (4,090,886) (4,413,800)
Change in unrealized
appreciation/depreciation of
investments during the year........ (681,513) (3,334,594) (5,471,309)
----------- ----------- -----------
Net realized and unrealized loss on
investments......................... (1,199,519) (7,425,480) (9,885,109)
----------- ----------- -----------
Net increase in net assets resulting
from operations..................... $ 1,862,992 $ 986,828 $ 1,792,586
=========== =========== ===========
</TABLE>
See Notes to Financial Statements
7
<PAGE>
Excelsior Funds, Inc.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Short-Term Intermediate-
Government Term Managed Managed
Securities Income Income
Fund Fund Fund
----------- ------------- ------------
<S> <C> <C> <C>
Year Ended March 31, 2000
Net investment income............... $ 3,062,511 $ 8,412,308 $ 11,677,695
Net realized loss on investments.... (518,006) (4,090,886) (4,413,800)
Change in unrealized
appreciation/depreciation of
investments during the year........ (681,513) (3,334,594) (5,471,309)
----------- ------------ ------------
Net increase in net assets resulting
from operations.................... 1,862,992 986,828 1,792,586
Distributions to shareholders:
From net investment income......... (3,062,511) (8,412,308) (11,677,695)
From net realized gain on
investments....................... (159,335) -- (757,970)
Increase in net assets from fund
share transactions (Note 4)........ 8,076,780 35,165,375 15,354,432
----------- ------------ ------------
Net increase in net assets.......... 6,717,926 27,739,895 4,711,353
NET ASSETS:
Beginning of year.................. 52,589,274 127,743,385 215,768,172
----------- ------------ ------------
End of year (1).................... $59,307,200 $155,483,280 $220,479,525
=========== ============ ============
(1) Including undistributed
(distributions in excess of) net
investment income................. $ (1,884) $ (5,133) $ 173,040
=========== ============ ============
Year Ended March 31, 1999
Net investment income............... $ 2,218,571 $ 5,917,776 $ 10,315,995
Net realized gain on investments.... 593,923 2,456,793 3,569,699
Change in unrealized
appreciation/depreciation of
investments during the year........ (422,604) (2,155,194) (1,914,414)
----------- ------------ ------------
Net increase in net assets resulting
from operations.................... 2,389,890 6,219,375 11,971,280
Distributions to shareholders:
From net investment income......... (2,233,996) (5,917,776) (10,412,635)
From net realized gain on
investments....................... -- (2,092,147) (5,832,403)
In excess of net realized gain on
investments....................... -- (266,124) --
Increase in net assets from fund
share transactions (Note 4)........ 19,886,756 34,864,828 23,945,143
----------- ------------ ------------
Net increase in net assets.......... 20,042,650 32,808,156 19,671,385
NET ASSETS:
Beginning of year.................. 32,546,624 94,935,229 196,096,787
----------- ------------ ------------
End of year (2).................... $52,589,274 $127,743,385 $215,768,172
=========== ============ ============
--------
(2) Including undistributed net
investment income................. $ 19,896 $ 6,430 $ 91,559
=========== ============ ============
</TABLE>
--------
See Notes to Financial Statements
8
<PAGE>
Excelsior Funds, Inc.
Financial Highlights-Selected Per Share Data and Ratios
For a Fund share outstanding throughout each period.
<TABLE>
<CAPTION>
Distributions Distributions
Net Asset Net Realized Dividends From Net in Excess of
Value, Net and Unrealized Total From From Net Realized Gain Net Realized
Beginning Investment Gain (Loss) Investment Investment on Gain on
of Period Income on Investments Operations Income Investments Investments
--------- ---------- -------------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHORT-TERM GOVERNMENT SECURITIES FUND -- (12/31/92*)
Year Ended March 31,
1996................... $6.89 $0.40 $0.09 $0.49 $(0.40) -- --
1997................... 6.98 0.38 (0.06) 0.32 (0.37) -- --
1998................... 6.93 0.37 0.07 0.44 (0.37) -- --
1999................... 7.00 0.34 0.04 0.38 (0.34) -- --
2000................... 7.04 0.35 (0.15) 0.20 (0.35) $(0.02) --
INTERMEDIATE-TERM MANAGED INCOME FUND -- (12/31/92*)
Year Ended March 31,
1996................... $6.75 $0.43 $0.31 $0.74 $(0.43) -- --
1997................... 7.06 0.41 (0.19) 0.22 (0.41) -- --
1998................... 6.87 0.41 0.36 0.77 (0.41) -- --
1999................... 7.23 0.39 0.04 0.43 (0.39) $(0.13) $(0.01)
2000................... 7.13 0.40 (0.36) 0.04 (0.40) -- --
MANAGED INCOME FUND -- (1/9/86*)
Year Ended March 31,
1996................... $8.39 $0.55 $0.44 $0.99 $(0.54) -- --
1997................... 8.84 0.51 (0.24) 0.27 (0.51) -- --
1998................... 8.60 0.49 0.58 1.07 (0.49) $(0.01) --
1999................... 9.17 0.46 0.08 0.54 (0.46) (0.26) --
2000................... 8.99 0.47 (0.41) 0.06 (0.47) (0.03) --
</TABLE>
* Commencement of operations
+ Expense ratios before waiver of fees and reimbursement of expenses (if any)
by adviser and administrators.
++ Amount represents less than $0.01 per share.
See Notes to Financial Statements
9
<PAGE>
<TABLE>
<CAPTION>
Ratio of Ratio of Ratio of
Net Net Gross Net
Net Asset Assets, Operating Operating Investment
Value, End of Expenses Expenses Income Portfolio Fee
Total End Total Period to Average to Average to Average Turnover Waivers
Distributions of Period Return (000's) Net Assets Net Assets+ Net Assets Rate (Note 2)
------------- --------- ------ -------- ---------- ----------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(0.40) $6.98 7.27% $ 25,068 0.61% 0.80% 5.72% 77% $0.01
(0.37) 6.93 4.77% 30,804 0.61% 0.70% 5.42% 82% 0.01
(0.37) 7.00 6.47% 32,547 0.62% 0.69% 5.28% 35% --
(0.34) 7.04 5.54% 52,589 0.58% 0.67% 4.79% 114% 0.01
(0.37) 6.87 3.02% 59,307 0.54% 0.62% 5.07% 90% 0.01
$(0.43) $7.06 11.13% $ 68,640 0.64% 0.68% 6.06% 129% --
(0.41) 6.87 3.25% 78,441 0.63% 0.68% 5.91% 129% --
(0.41) 7.23 11.37% 94,935 0.61% 0.66% 5.68% 86% --
(0.53) 7.13 6.02% 127,743 0.60% 0.67% 5.29% 229% -- ++
(0.40) 6.77 0.59% 155,483 0.58% 0.65% 5.80% 122% -- ++
$(0.54) $8.84 11.86% $ 88,900 0.96% 1.12% 6.09% 165% $0.01
(0.51) 8.60 3.17% 185,896 0.90% 1.04% 5.90% 238% 0.01
(0.50) 9.17 12.79% 196,097 0.90% 1.02% 5.51% 538% 0.01
(0.72) 8.99 5.95% 215,768 0.90% 1.03% 4.96% 268% 0.01
(0.50) 8.55 0.72% 220,480 0.88% 1.00% 5.42% 112% 0.01
</TABLE>
See Notes to Financial Statements
10
<PAGE>
Excelsior Funds, Inc.
Portfolio of Investments March 31, 2000
Short-Term Government Securities Fund
<TABLE>
<CAPTION>
Principal Coupon Value
Amount Rate (Note 1)
--------- ------ -----------
<C> <S> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 104.98%
Federal Farm Credit Bank
$ 4,500,000 04/05/00.................................... 6.84%+ $ 4,496,582
Federal Home Loan Bank
9,000,000 02/26/02.................................... 5.13 8,711,739
Federal Home Loan Mortgage Corp.
10,080,000 05/15/02.................................... 5.50 9,791,692
Federal National Mortgage Association
2,000,000 04/10/00.................................... 5.93+ 1,997,035
4,000,000 06/12/00.................................... 5.65 3,993,636
2,500,000 08/10/00.................................... 5.55 2,491,878
5,150,000 12/26/02.................................... 6.15 5,026,858
3,000,000 07/23/03.................................... 5.96 2,901,870
2,000,000 08/06/03.................................... 5.94 1,932,774
1,150,000 02/13/04.................................... 5.13 1,074,891
2,500,000 05/06/04.................................... 5.74 2,379,178
Government National Mortgage Association
2,076,374 Pool #781036, 10/15/17...................... 8.00 2,100,493
2,228,629 Pool #8378, 07/20/18........................ 6.75 2,242,832
3,999,600 Pool #80385, 03/20/30....................... 6.00 3,914,996
Private Export Funding Corp.
320,000 03/15/01.................................... 5.50 316,567
U.S. Treasury Notes
3,300,000 11/15/00.................................... 5.75 3,289,687
2,500,000 06/30/02.................................... 6.25 2,484,375
3,150,000 07/31/02.................................... 6.00 3,114,562
-----------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost $63,134,791).......................... 62,261,645
-----------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ -----------
<C> <S> <C> <C>
OTHER SHORT-TERM INVESTMENTS -- 7.63%
2,262,958 Dreyfus Government Cash Management Fund...... $ 2,262,958
2,262,970 Fidelity U.S. Treasury II Fund............... 2,262,970
-----------
TOTAL OTHER SHORT-TERM INVESTMENTS
(Cost $4,525,928)............................ 4,525,928
-----------
TOTAL INVESTMENTS
(Cost $67,660,719*)..................................... 112.61% $66,787,573
OTHER ASSETS & LIABILITIES (NET)........................ (12.61) (7,480,373)
------ -----------
NET ASSETS.............................................. 100.00% $59,307,200
====== ===========
</TABLE>
--------
*Aggregate cost for Federal tax and book purposes.
+Discount Rate
See Notes to Financial Statements
11
<PAGE>
Excelsior Funds, Inc.
Portfolio of Investments March 31, 2000
Intermediate-Term Managed Income Fund
<TABLE>
<CAPTION>
Principal Coupon Value
Amount Rate (Note 1)
--------- ------ ------------
<C> <S> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 45.45%
Federal Home Loan Mortgage Corp.
$ 4,913 Pool #218374, 07/01/02..................... 10.50% $ 4,944
9,985,000 04/29/09................................... 6.45 9,295,975
2,000,000 04/25/21................................... 6.75 1,935,850
Federal National Mortgage Association
5,367,872 Pool #437416, 09/01/28..................... 6.00 4,885,805
1,261,695 Pool #439102, 09/01/28..................... 6.00 1,148,387
4,365,492 Pool #516791, 12/01/29..................... 7.50 4,292,999
3,313,196 Pool #525818, 12/01/29..................... 7.50 3,258,177
Government National Mortgage Association
42,882 Pool #195801, 01/15/17..................... 8.50 44,033
116,642 Pool #195833, 04/15/17..................... 8.50 119,771
49,070 Pool #212760, 04/15/17..................... 8.50 50,386
2,906,162 Pool #781036, 10/15/17..................... 8.00 2,939,920
54,169 Pool #334299, 05/15/23..................... 8.00 54,798
1,362,835 Pool #367412, 11/15/23..................... 6.00 1,248,110
2,813,340 Pool #366379, 12/15/23..................... 6.50 2,654,150
2,820,131 Pool #353454, 05/15/27..................... 7.50 2,796,213
2,685,456 Pool #460827, 06/15/28..................... 6.50 2,533,503
4,777,411 Pool #2699, 01/20/29....................... 6.00 4,351,357
U.S. Treasury Notes
7,200,000 05/15/04................................... 5.25 6,914,254
5,385,000 08/15/04................................... 6.00 5,316,007
17,125,000 11/15/04................................... 5.88 16,819,969
------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $72,997,928)......................... 70,664,608
------------
CORPORATE BONDS -- 27.75%
2,650,000 Associates Corp. of North America,
07/15/02................................... 6.38 2,589,636
3,000,000 Avnet, Inc., 02/15/05...................... 7.88 3,021,009
2,775,000 BankBoston N.A., 09/15/07.................. 7.00 2,630,125
3,550,000 BB&T Corp., 06/30/05....................... 6.38 3,356,866
3,900,000 Comerica Bank, 10/15/02.................... 7.25 3,871,343
5,000,000 Countrywide Home Loans, Inc., Series F,
10/08/02................................... 6.38 4,854,355
1,000,000 Dayton Hudson, 10/01/01.................... 6.80 993,667
4,000,000 Ford Motor Credit Co., 02/23/04............ 5.75 3,770,452
4,000,000 General Electric Capital Corp., Series A,
10/08/02................................... 6.52 3,945,984
3,600,000 General Motors Corp., 05/01/05............. 6.25 3,409,337
5,000,000 John Deere Capital Corp., 10/15/02......... 7.00 4,944,170
1,325,000 McDonald's Corp., 06/23/02................. 6.00 1,291,728
4,000,000 Morgan Stanley Dean Witter & Co., 01/15/03. 7.13 3,976,204
500,000 Times Mirror Co.,10/15/01.................. 6.65 494,521
------------
TOTAL CORPORATE BONDS
(Cost $44,295,184)......................... 43,149,397
------------
</TABLE>
<TABLE>
<CAPTION>
Principal Coupon Value
Amount Rate (Note 1)
--------- ------ ------------
<C> <S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -- 12.46%
$2,000,000 Commercial Mortgage Asset Trust, 1999-C1 B,
07/17/13.................................... 7.23% $ 1,936,409
1,900,000 Fannie Mae-Aces, 1997-M5 C, 08/25/07........ 6.74 1,845,137
2,121,763 LB Commercial Conduit Mortgage Trust, 1999-
C1 A1, 08/15/07............................. 6.41 2,036,021
2,964,162 Morgan Stanley Capital I, 1999-CAM1 A1,
04/15/04.................................... 6.54 2,904,212
1,600,779 Mortgage Capital Funding, Inc., 1998-MC1 A1,
06/18/07.................................... 6.42 1,545,128
2,500,000 Nationslink Funding Corp., 1999-2 B,
11/20/08.................................... 7.53 2,472,312
4,750,000 Nomura Asset Securities Corp., 1998-D6 A1B,
03/17/28.................................... 6.59 4,453,203
2,200,000 Paine Webber Mortgage Acceptance Corp.,
1995-M1 A, 01/15/07......................... 6.70 2,176,559
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $19,930,726).......................... 19,368,981
------------
ASSET-BACKED SECURITIES -- 5.55%
1,000,000 American Express Credit Account Master
Trust, 2000-1 A, 09/17/07................... 7.20 1,001,915
4,300,000 CIT RV Trust, 1999-A A4, 06/15/13........... 6.16 4,168,527
3,500,000 Ford Credit Auto Owner Trust, 1999-C A4,
09/16/02.................................... 6.08 3,463,828
------------
TOTAL ASSET-BACKED SECURITIES
(Cost $8,708,459)........................... 8,634,270
------------
CERTIFICATE OF DEPOSIT -- 3.23%
5,000,000 Mercantile Safe Deposit & Trust, 01/25/02
(Cost $5,000,000)........................... 7.22 5,012,500
------------
<CAPTION>
Shares
------
<C> <S> <C> <C>
OTHER SHORT-TERM INVESTMENTS -- 4.81%
3,742,339 Dreyfus Government Cash Management Fund..... 3,742,340
3,742,264 Fidelity U.S. Treasury II Fund.............. 3,742,264
------------
TOTAL OTHER SHORT-TERM INVESTMENTS
(Cost $7,484,604)........................... 7,484,604
------------
TOTAL INVESTMENTS (Cost $158,416,901*)................. 99.25% $154,314,360
OTHER ASSETS & LIABILITIES (NET)....................... 0.75 1,168,920
------ ------------
NET ASSETS............................................. 100.00% $155,483,280
====== ============
</TABLE>
--------
* For Federal income tax purposes, the tax basis of investments aggregates
$158,475,374.
See Notes to Financial Statements
12
<PAGE>
Excelsior Funds, Inc.
Portfolio of Investments March 31, 2000
Managed Income Fund
<TABLE>
<CAPTION>
Principal Coupon Value
Amount Rate (Note 1)
--------- ------ ------------
<C> <S> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 47.79%
Federal National Mortgage Association
$ 6,600,000 09/15/09................................... 6.63% $ 6,358,037
10,000,000 06/01/17................................... 0.00 3,020,450
5,611,993 Pool #516791, 12/01/29..................... 7.50 5,518,800
8,422,229 Pool #525909, 12/01/29..................... 7.50 8,282,369
Government National Mortgage Association
4,583,667 Pool #2562, 03/20/28....................... 6.00 4,174,891
5,391,468 Pool #2576, 04/20/28....................... 6.00 4,910,651
2,846,919 Pool #2687, 12/20/28....................... 6.00 2,593,028
6,879,930 Pool #80311, 08/20/29...................... 5.50 6,665,448
4,000,000 Pool #80385, 03/20/30...................... 6.00 3,915,388
U.S. Treasury Bonds
2,000,000 05/15/16................................... 7.25 2,211,250
30,165,000 08/15/17................................... 8.88 38,592,347
U.S. Treasury Notes
3,050,000 02/15/10................................... 6.50 3,157,705
9,300,000 02/15/10................................... 11.75 11,290,786
U.S.Treasury Inflation Index Bond
4,713,117 04/15/29................................... 3.88 4,674,823
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost $107,361,840)........................ 105,365,973
------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 18.10%
6,000,000 Commercial Mortgage Asset Trust, 1999-C1 B,
07/17/13................................... 7.23 5,809,227
9,000,000 DLJ Mortgage Acceptance Corp., 1997-CF2 A3,
09/15/07................................... 6.99 8,570,999
6,039,710 Government National Mortgage Association,
1999-19 A, 08/16/25........................ 6.50 5,768,429
8,855,964 LB Commercial Conduit Mortgage Trust, 1999-
C1 A1, 08/15/07............................ 6.41 8,498,088
5,000,000 Morgan Stanley Capital I, 1999-WF1 B,
10/15/08................................... 6.32 4,643,225
2,586,545 Mortgage Capital Funding, Inc., 1998-MC1
A1, 06/18/07............................... 6.42 2,496,623
4,400,000 Nomura Asset Securities Corp., 1998-D6 A1B,
03/17/28................................... 6.59 4,125,072
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $41,458,307)......................... 39,911,663
------------
</TABLE>
<TABLE>
<CAPTION>
Principal Coupon Value
Amount Rate (Note 1)
--------- ------ ------------
<C> <S> <C> <C>
ASSET-BACKED SECURITIES -- 17.15%
$ 3,000,000 California Infrastructure SDG&E 1997-1 A5,
09/25/05................................... 6.19% $ 2,924,985
4,000,000 Caterpillar Financial Asset Trust, 1998-A
A3, 04/25/03............................... 5.85 3,963,300
8,000,000 CIT RV Trust, 1999-A A4, 06/15/13.......... 6.16 7,755,400
6,965,000 Citibank Credit Card Master Trust I, 1998-9
A, 01/09/06................................ 5.30 6,528,469
8,075,000 Green Tree Home Equity Loan Trust, 1999-A
A2, 02/15/14............................... 5.78 7,999,458
5,000,000 Peco Energy Transition Trust, 1999-A A4,
03/01/07................................... 5.80 4,722,025
3,975,000 PP&L Transition Bond Co., LLC, 1999-1 A6,
12/26/07................................... 6.96 3,917,382
------------
TOTAL ASSET-BACKED SECURITIES
(Cost $38,873,490)......................... 37,811,019
------------
CORPORATE BONDS -- 11.32%
5,000,000 Associates Corp. of North America,
04/20/04................................... 5.80 4,708,385
5,000,000 Associates Corp. of North America, Series
H, 09/27/02................................ 6.71 4,918,190
8,000,000 Ford Motor Credit Co., 02/23/04............ 5.75 7,540,904
3,000,000 Lehman Brothers Holdings, 04/01/04......... 6.63 2,891,928
5,000,000 Morgan Stanley Dean Witter & Co., 08/01/02. 6.38 4,892,025
------------
TOTAL CORPORATE BONDS
(Cost $25,779,459)......................... 24,951,432
------------
CERTIFICATE OF DEPOSIT -- 2.59%
6,000,000 Mercantile Safe Deposit & Trust, 05/17/04
(Cost $6,000,000).......................... 6.10 5,715,000
------------
<CAPTION>
Shares
------
<C> <S> <C> <C>
OTHER SHORT-TERM INVESTMENTS -- 3.45%
3,802,442 Dreyfus Government Cash Management Fund.... 3,802,441
3,804,587 Fidelity U.S. Treasury II Fund............. 3,804,587
------------
TOTAL OTHER SHORT-TERM INVESTMENTS
(Cost $7,607,028).......................... 7,607,028
------------
TOTAL INVESTMENTS (Cost $227,080,124*)................. 100.40% $221,362,115
OTHER ASSETS & LIABILITIES (NET)....................... (0.40) (882,590)
------ ------------
NET ASSETS............................................. 100.00% $220,479,525
====== ============
</TABLE>
--------
* For Federal income tax purposes, the tax basis of investments aggregates
$227,209,627.
See Notes to Financial Statements
13
<PAGE>
EXCELSIOR FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies
Excelsior Funds, Inc. ("Excelsior Fund") was incorporated under the laws of
the State of Maryland on August 2, 1984 and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
Excelsior Fund currently offers shares in eighteen managed investment
portfolios, each having its own investment objectives and policies. The
following is a summary of significant accounting policies for Short-Term
Government Securities Fund, Intermediate-Term Managed Income Fund and Managed
Income Fund (the "Portfolios"). Such policies are in conformity with generally
accepted accounting principles and are consistently followed by Excelsior Fund
in the preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual
results could differ from these estimates. The financial statements for the
remaining portfolios of Excelsior Fund and Excelsior Tax-Exempt Funds, Inc.
("Excelsior Tax-Exempt Fund") are presented separately.
(a) Portfolio Valuation:
Investments in securities that are traded on a recognized stock exchange
are valued at the last sale price on the exchange on which such securities
are primarily traded or at the last sale price on the national securities
market. Securities traded over-the-counter are valued each business day on
the basis of closing over-the-counter bid prices. Securities for which
there were no transactions are valued at the average of the most recent bid
prices (as calculated by an independent pricing service (the "Service")
based upon its evaluation of the market for such securities) when, in the
judgment of the Service, quoted bid prices for securities are readily
available and are representative of the bid side of the market. Short-term
debt instruments with remaining maturities of 60 days or less are valued at
amortized cost, which approximates market value. Securities and other
assets for which market quotations are not readily available are valued at
fair value pursuant to guidelines adopted by Excelsior Fund's Board of
Directors.
Portfolio securities that are primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on their respective exchanges, except that when an occurrence
subsequent to the time a value was so established is likely to have changed
such value, then the fair value of those securities will be determined by
consideration of other factors under the direction of the Board of
Directors. A security which is listed or traded on more than one exchange
is valued at the quotation on the exchange determined to be the primary
market for such security.
Investment in foreign debt securities having maturities of 60 days or
less are valued at amortized cost, which approximates market value. All
other foreign securities are valued at the last current bid quotation if
market quotations are available, or at fair value as determined in
accordance with policies established by the Board of Directors. For
valuation purposes, quotations of foreign securities in foreign currency
are converted to United States dollars equivalent at the prevailing market
rate on the day of conversion.
14
<PAGE>
(b) Security transactions and investment income:
Security transactions are recorded on a trade date basis. Realized gains
and losses on investments sold are recorded on the basis of identified
cost. Interest income, adjusted for amortization of premiums and, when
appropriate, discounts on investments, is earned from settlement date and
is recorded on the accrual basis.
(c) Repurchase agreements:
Excelsior Fund may purchase portfolio securities from financial
institutions deemed to be creditworthy by the investment adviser subject to
the seller's agreement to repurchase and Excelsior Fund's agreement to
resell such securities at mutually agreed upon prices. Securities purchased
subject to such repurchase agreements are deposited with Excelsior Fund's
custodian or sub-custodian or are maintained in the Federal
Reserve/Treasury book-entry system and must have, at all times, an
aggregate market value not less than the repurchase price (including
accrued interest).
If the value of the underlying security falls below the value of the
repurchase price, Excelsior Fund will require the seller to deposit
additional collateral by the next business day. Default or bankruptcy of
the seller may, however, expose the applicable Portfolio of Excelsior Fund
to possible delay in connection with the disposition of the underlying
securities or loss to the extent that proceeds from a sale of the
underlying securities were less than the repurchase price under the
agreement.
(d) Dividends and distributions to shareholders:
Dividends from net investment income are declared daily and paid monthly.
Net realized capital gains, unless offset by any available capital loss
carryforward, are distributed to shareholders at least annually.
Dividends and distributions are determined in accordance with Federal
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
deferral of losses on wash sales and net capital losses incurred after
October 31 and within the taxable year ("Post-October losses").
In order to avoid a Federal excise tax, each Portfolio is required to
distribute certain minimum amounts of net realized capital gain and net
investment income for the respective periods ending October 31 and December
31 in each calendar year.
(e) Federal taxes:
It is the policy of Excelsior Fund that each Portfolio continue to
qualify as a regulated investment company, if such qualification is in the
best interest of the shareholders, by complying with the requirements of
the Internal Revenue Code applicable to regulated investment companies, and
by distributing substantially all of its taxable earnings to its
shareholders.
At March 31, 2000, the following Portfolios had approximate capital loss
carryforwards for Federal tax purposes available to offset future net
capital gains through the indicated expiration dates:
<TABLE>
<CAPTION>
Expiration Date
March 31,
2008
---------------
<S> <C>
Short-Term Government Securities Fund........................ $ 381,000
Intermediate-Term Managed Income Fund........................ 2,113,000
Managed Income Fund.......................................... 2,229,000
</TABLE>
15
<PAGE>
Post-October losses are deemed to arise on the first business day of a
Portfolio's next taxable year. Short-Term Government Securities Fund,
Intermediate-Term Managed Income Fund and Managed Income Fund incurred, and
elected to defer, net capital losses of approximately $115,000, $2,174,000
and $2,137,000, respectively, for the year ended March 31, 2000.
At March 31, 2000, aggregate gross unrealized appreciation for all
securities for which there was an excess of value over tax cost and
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over value were as follows:
<TABLE>
<CAPTION>
Tax Basis Tax Basis Net
Unrealized Unrealized Unrealized
Appreciation (Depreciation) Depreciation
------------ -------------- ------------
<S> <C> <C> <C>
Short-Term Government Securities
Fund............................. -- $ (873,146) $ (873,146)
Intermediate-Term Managed Income
Fund............................. $290,928 (4,451,942) (4,161,014)
Managed Income Fund............... 351,040 (6,198,552) (5,847,512)
</TABLE>
(f) Expense Allocation:
Expenses directly attributable to a Portfolio are charged to that
Portfolio. Other expenses are allocated to the respective Portfolios based
on average daily net assets.
2. Investment Advisory Fee, Administration Fee and Related Party Transactions
United States Trust Company of New York ("U.S. Trust NY") and U.S. Trust
Company (collectively with U.S. Trust NY, "U.S. Trust") serve as the
investment adviser to the Portfolios. For the services provided pursuant to
the Investment Advisory Agreements, U.S. Trust is entitled to receive a
fee, computed daily and paid monthly, at the annual rates of .30% of the
average daily net assets of the Short-Term Government Securities Fund, .35%
of the average daily net assets of the Intermediate-Term Managed Income
Fund and .75% of the average daily net assets of the Managed Income Fund.
U.S. Trust NY is a state-chartered bank and trust company and a member bank
of the Federal Reserve System. U.S. Trust Company is a Connecticut state
bank and trust company. Each is a wholly-owned subsidiary of U.S. Trust
Corporation, a registered bank holding company.
On January 12, 2000, The Charles Schwab Corporation ("Schwab") and U.S.
Trust Corporation entered into a definitive agreement to merge (the
"Merger"). After the Merger, U.S. Trust Corporation will be a wholly-owned
subsidiary of Schwab. The Merger is subject to the approval of U.S. Trust
Corporation shareholders. The Merger is expected to take place on or about
May 31, 2000, but could occur later.
As a consequence of the Merger and in order to provide continuity of
investment advisory services, the Board of Directors of Excelsior Fund
proposed for the approval of its shareholders a new advisory agreement with
U.S. Trust. The new proposed advisory agreement was submitted to and
approved by a vote of Excelsior Fund shareholders -- see "Voting Results of
Special Meeting of Shareholders". The new advisory agreement will become
effective on the date of the Merger.
U.S. Trust Company, Chase Global Funds Services Company, a corporate
affiliate of The Chase Manhattan Bank, and Federated Administrative
Services (collectively, the "Administrators")
16
<PAGE>
provide administrative services to Excelsior Fund. For the services provided
to the Portfolios, the Administrators are entitled jointly to annual fees,
computed daily and paid monthly, based on the combined aggregate average daily
net assets of Excelsior Fund, Excelsior Tax-Exempt Fund and Excelsior
Institutional Trust (excluding the international equity portfolios of
Excelsior Fund and Excelsior Institutional Trust), all of which are affiliated
investment companies, as follows: .200% of the first $200 million, .175% of
the next $200 million, and .150% over $400 million. Administration fees
payable by each Portfolio of the three investment companies are determined in
proportion to the relative average daily net assets of the respective
Portfolios for the period paid. For the year ended March 31, 2000,
administration fees charged by U.S. Trust Company were as follows:
<TABLE>
<S> <C>
Short-Term Government Securities Fund............................. $26,233
Intermediate-Term Managed Income Fund............................. 62,632
Managed Income Fund............................................... 93,531
</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. For the period from April 1, 1999 through November 18,
1999, U.S. Trust voluntarily waived fees and reimbursed expenses to the extent
necessary for Short-Term Government Securities Fund and Intermediate-Term
Managed Income Fund to maintain an annual expense ratio of not more than .62%
and .72%, respectively. Beginning November 19, 1999, U.S. Trust contractually
agreed to waive investment advisory fees and to reimburse other ordinary
operating expenses through March 31, 2000 to the extent necessary to keep
total operating expenses from exceeding certain annual percentages of each
Portfolio's average daily net assets specified below. U.S. Trust has extended
this contractual agremeent through the fiscal year ended March 31, 2001.
<TABLE>
<S> <C>
Short-Term Government Securities Fund................................ 0.60%
Intermediate-Term Managed Income Fund................................ 0.65%
Managed Income Fund.................................................. 0.90%
</TABLE>
In addition, currently, U.S. Trust is voluntarily limiting its investment
advisory fee to .65% of the average daily net assets for Managed Income Fund.
For the year ended March 31, 2000, no reimbursements were required for
Short-Term Government Securities Fund and Intermediate-Term Managed Income
Fund and U.S Trust waived investment advisory fees totaling $216,294 for
Managed Income Fund.
Excelsior Fund has also entered into administrative servicing agreements
with various service organizations (which may include affiliates of U.S.
Trust) requiring them to provide administrative support services to their
customers owning shares of the Portfolios. As a consideration for the
administrative services provided by each service organization to its
customers, each Portfolio will pay the service organization an administrative
service fee at the annual rate of up to .40% of the average daily net asset
value of its shares held by the service organization's customers. Such
services may include assisting in processing purchase, exchange and redemption
requests; transmitting and receiving funds in connection with customer orders
to purchase, exchange or redeem shares; and providing periodic statements.
17
<PAGE>
Administrative service fees paid to affiliates of U.S. Trust amounted to
$205,265 for the year ended March 31, 2000. Through the year ended March 31,
2000, U.S. Trust and the Administrators voluntarily agreed to waive investment
advisory and administration fees payable by each Portfolio in an amount equal
to the administrative service fees expense (including fees paid to affiliates
of U.S. Trust) by such Portfolio. They will continue to do so through July 31,
2000. Effective August 1, 2000, U.S. Trust has voluntarily agreed to continue
waiving investment advisor and administration fees payable by each portfolio
in an amount equal to the administrative services fees expense paid to
subsidiaries of U.S. Trust Corporation. For the year ended March 31, 2000,
U.S. Trust and the Administrators waived investment advisory and
administration fees in amounts equal to the administrative service fees for
the Portfolios as set forth below:
<TABLE>
<CAPTION>
U.S. Trust Administrators
---------- --------------
<S> <C> <C>
Short-Term Government Securities Fund............ $ 46,764 $674
Intermediate-Term Managed Income Fund............ 102,520 340
Managed Income Fund.............................. 59,713 184
</TABLE>
Edgewood Services, Inc. ("the Distributor"), a wholly-owned subsidiary of
Federated Investors, Inc., serves as the distributor of Excelsior Fund. Shares
of each Portfolio are sold without a sales charge on a continuous basis by the
Distributor.
Each Director of Excelsior Fund receives an annual fee of $9,000, plus a
meeting fee of $1,500 for each meeting attended, and is reimbursed for
expenses incurred for attending meetings. The Chairman receives an additional
annual fee of $5,000. Effective March 3, 2000, each member of the Nominating
Committee receives an annual fee of $2,000 for services in connection with
this committee.
3. Purchases and Sales of Securities:
For the year ended March 31, 2000, purchases and sales of securities,
excluding short-term investments, for the Portfolios aggregated:
<TABLE>
<CAPTION>
Purchases Sales
------------ ------------
<S> <C> <C>
Short-Term Government Securities Fund........... $ 59,468,848 $ 49,685,070
Intermediate-Term Managed Income Fund........... 203,321,607 169,502,176
Managed Income Fund............................. 243,316,696 230,225,777
</TABLE>
4. Common Stock:
Excelsior Fund has authorized capital of 35 billion shares of Common Stock,
28.875 billion of which is currently classified to represent interests in one
of eighteen separate investment portfolios. Authorized capital currently
classified for each Portfolio is as follows: 375 million shares of the Managed
Income Fund, and 500 million shares each of the Short-Term Government
Securities Fund and the Intermediate-Term Managed Income Fund.
Each share has a par value of $.001 and represents an equal proportionate
interest in the particular Portfolio with other shares of the same Portfolio,
and is entitled to such dividends and distributions of taxable earnings on the
assets belonging to such Portfolio as are declared at the discretion of
Excelsior Fund's Board of Directors.
18
<PAGE>
<TABLE>
<CAPTION>
Short-Term Government Securities Fund
----------------------------------------------------
Year Ended 03/31/00 Year Ended 03/31/99
-------------------------- ------------------------
Shares Amount Shares Amount
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 19,559,354 $ 135,260,251 4,313,755 $ 30,390,997
Issued as reinvestment of
dividends............... 84,441 585,766 77,059 543,382
Redeemed................. (18,490,692) (127,769,237) (1,565,745) (11,047,623)
----------- ------------- ---------- ------------
Net Increase............. 1,153,103 $ 8,076,780 2,825,069 $ 19,886,756
=========== ============= ========== ============
<CAPTION>
Intermediate-Term Managed Income Fund
----------------------------------------------------
Year Ended 03/31/00 Year Ended 03/31/99
-------------------------- ------------------------
Shares Amount Shares Amount
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 12,866,252 $ 88,475,071 7,225,482 $ 52,716,314
Issued as reinvestment of
dividends............... 51,115 351,757 60,786 444,096
Redeemed................. (7,864,681) (53,661,453) (2,507,271) (18,295,582)
----------- ------------- ---------- ------------
Net Increase............. 5,052,686 $ 35,165,375 4,778,997 $ 34,864,828
=========== ============= ========== ============
<CAPTION>
Managed Income Fund
----------------------------------------------------
Year Ended 03/31/00 Year Ended 03/31/99
-------------------------- ------------------------
Shares Amount Shares Amount
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 8,709,982 $ 75,343,096 6,445,954 $ 59,579,168
Issued as reinvestment of
dividends............... 208,735 1,805,948 308,474 2,850,516
Redeemed................. (7,148,559) (61,794,612) (4,143,351) (38,484,541)
----------- ------------- ---------- ------------
Net Increase............. 1,770,158 $ 15,354,432 2,611,077 $ 23,945,143
=========== ============= ========== ============
</TABLE>
5. Line of Credit:
The Portfolios and other affiliated funds participate in a $250 million
unsecured line of credit provided by a syndication of banks under a line of
credit agreement. Borrowings may be made to temporarily finance the repurchase
of Portfolio shares. Interest is charged to each Portfolio, based on its
borrowings, at a rate equal to the Federal Funds Rate plus up to 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, 2000, the Portfolios had no
borrowings under the agreement.
19
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders
and Board of Directors of
Excelsior Funds, Inc.
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of the Short-Term Government
Securities, Intermediate-Term Managed Income, and Managed Income Portfolios
(three of the portfolios constituting the Excelsior Funds, Inc.) (the "Funds")
as of March 31, 2000, and the related statements of operations for the year
then ended, the statements of changes in net assets for each of the two years
in the period then ended and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Funds' 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 auditing standards generally
accepted in the United States. 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 and financial highlights. Our procedures included
confirmation of securities owned as of March 31, 2000, by correspondence with
the custodian and brokers or by 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 above
mentioned Portfolios of Excelsior Funds, Inc. at March 31, 2000, the results of
their operations for the year then ended, the changes in their net assets for
each of the two years in the period then ended and the financial highlights for
each of the periods indicated therein, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Boston, Massachusetts
May 24, 2000
20
<PAGE>
Federal Tax Information: (Unaudited)
For the year ended March 31, 2000, the designation for the Short-Term
Government Securities Fund and the Managed Income Fund of 20% long-term capital
gains are approximately $159,000 and $758,000, respectively.
For the year ended March 31, 2000, the percentage of income earned from
direct treasury obligations was as follows:
<TABLE>
<CAPTION>
Interest
Earned
--------
<S> <C>
Short-Term Government Securities Fund............................... 54.75%
Intermediate-Term Managed Income Fund............................... 23.98%
Managed Income Fund................................................. 33.19%
</TABLE>
--------------------------------------------------------------------------------
Voting Results of Special Meeting of Shareholders: (Unaudited)
The proposal described below was submitted to a vote of shareholders of
Excelsior Fund at a special meeting of shareholders held on May 3, 2000 (the
"Meeting"):
Proposal -- Approval of a new investment advisory agreement between the
Portfolios and U.S. Trust:
At the Meeting, the shareholders of each Portfolio approved the Proposal as
follows:
<TABLE>
<CAPTION>
Portfolio For Against Abstain
--------- ---------- ------- -------
<S> <C> <C> <C>
Short-Term Government Securities Fund 4,868,677 15,343 45,770
Intermediate-Term Managed Income Fund 13,639,051 294,077 239,132
Managed Income Fund 19,624,409 19,366 61,780
</TABLE>
USTFIA300
21
