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As filed with the Securities and Exchange Commission on October 6, 2000
Registration Nos. 2-92665; 811-4088
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 41 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [X]
Amendment No. 43 [X]
Excelsior Funds, Inc.
(Exact Name of Registrant as Specified in Charter)
73 Tremont Street
Boston, Massachusetts 02108-3913
(Address of Principal Executive Offices)
Registrant's Telephone Number: (800) 446-1012
W. Bruce McConnel, III
Drinker Biddle & Reath LLP
One Logan Square
18/th/ and Cherry Streets
Philadelphia, Pennsylvania 19103-6996
(Name and Address of Agent for Service)
It is proposed that this post-effective amendment will become effective (check
appropriate box)
[_] Immediately upon filing pursuant to paragraph (b)
[_] on July 31, 2000 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[X] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities being Registered: Shares of Common Stock.
<PAGE>
Excelsior Biotechnology Fund
Prospectus
______________, 2000
Excelsior Funds, Inc.
Investment Adviser
United States Trust Company of New York
U.S. Trust Company
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
LOGO
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Table of Contents
Excelsior Funds, Inc. is a mutual fund family that offers shares in separate
investment portfolios which have individual investment goals and strategies.
This prospectus gives you important information about the Biotechnology Fund
(the Fund) that you should know before investing. The Biotechnology Fund offers
one class of shares, called Shares. Please read this prospectus and keep it for
future reference.
This prospectus has been arranged into different sections so that you can easily
review this important information. On the next page, there is some general
information you should know about the risk and returns of the Fund. For more
detailed information about the Fund, please see:
<TABLE>
<CAPTION>
Page
<S> <C>
Biotechnology Fund................................................... 1
More Information About Risk.......................................... 2
More Information About Fund Investments.............................. 3
Investment Adviser................................................... 3
Portfolio Managers................................................... 3
Purchasing, Selling and Exchanging Fund Shares....................... 3
Dividends and Distributions.......................................... 6
Taxes................................................................ 6
How to Obtain More Information About Excelsior Funds................. Back Cover
</TABLE>
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Biotechnology Fund
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FUND SUMMARY
Investment Goal Capital appreciation
Investment Focus Common stocks of biotechnology
companies
Share Price Volatility High
Principal Investment Strategy Invests in common
stocks of companies principally engaged in the
research, development and manufacture of various
biotechnological products, services and processes
Investor Profile Investors seeking capital
appreciation, and who are willing to accept the
risks of investing in a portfolio of biotechnology
companies
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Investment Objective
The Biotechnology Fund seeks superior, long-term capital appreciation.
Investment Strategy
The Fund seeks to achieve its objective by investing in companies principally
engaged in the research, development and manufacture of various biotechnological
products, services and processes, and whose long-term growth prospects, in the
Adviser's opinion, appear to exceed the overall market. For example, the Fund
may invest in companies involved with developments and applications in such
areas as human health care, pharmaceuticals, agriculture, chemicals,
medicine/surgery and industry. In addition, investments may include securities
of companies that: manufacture biotechnological and biomedial products,
including devices and instruments; provide biotechnological processes or
services; provide scientific and technological advances in biotechnology; and
develop new or experimental technologies, such as genetic engineering. The Fund
may also invest in securities of companies that distribute biotechnological and
biomedical products, including devices and instruments, and companies that
benefit significantly from scientific and technological advances in
biotechnology.
Under normal market conditions, the Biotechnology Fund invests at least 65% of
its assets in the equity securities of U.S., and to a lesser extent, foreign
biotechnology companies. The Fund may invest in companies of any size,
including small, high-growth companies and medium size companies.
In selecting investments for the Fund, the Adviser takes a long-term approach
and seeks to identify biotechnology companies whose value is not recognized in
the prices of their securities or with characteristics that will lead to above-
average earnings growth.
Principal Risks of Investing in the Fund
Biotechnology companies are often small, start-up ventures whose products are
only in the research stage. Only a limited number of biotechnology companies
have reached the point of approval of products by the FDA and subsequent
commercial production and distribution of such products. Therefore, the success
of investments in the biotechnology industry is often based on speculation and
expectations about future products, research progress and new product filings
with regulatory authorities. Such investments are speculative and may drop
sharply in value in response to regulatory or research setbacks.
The Fund is subject to the risk that the securities of issuers engaged in the
biotechnology sector of the economy that the Fund purchases will underperform
other market sectors or the market as a whole. To the extent that the Fund's
investments are concentrated in issuers conducting business in the biotechnology
sector, the Fund is subject to adverse market conditions, patent considerations,
intense competition and/or rapid technological change and obsolescence affecting
that sector. The biotechnology sector also is subject to extensive government
regulatory requirements, regulatory approval for new drugs and medical products,
product liability and similar matters. As these factors impact the biotechnology
sector, the value of securities of biotechnology companies may experience
dramatic price movements that have little or no basis in fundamental economic
conditions. In addition, biotechnology companies can have persistent losses
during a new product's transition from development to production, and revenue
patterns can be erratic. As a result, the Fund's investment in biotechnology
companies may subject it to more volatile price movements than a more
diversified securities portfolio.
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Since it purchases equity securities, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's equity
securities may fluctuate substantially from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund.
The Fund also may be subject to risks particular to its investments in foreign,
medium and smaller capitalization companies. These stocks may be more volatile
than other equity securities, and the risks associated with them are discussed
in greater detail in the section entitled "More Information About Risk."
Performance Information
There is no performance information for the Biotechnology Fund because the Fund
had not yet commenced operations as of the date of this prospectus.
Fund Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 1.00%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.25%
Total Other Expenses 0.65%
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Total Annual Fund Operating Expenses 1.65%*
Fee Waiver 0.40%
Net Annual Fund Operating Expenses 1.25%*
* The Fund's total annual fund operating expenses and net annual fund
operating expenses are estimated based on expenses expected to be incurred
in the current fiscal year. The Adviser has contractually agreed, for the
period commencing on the date of this prospectus and ending March 31, 2001,
to keep total annual fund operating expenses from exceeding 1.25%.
Example
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your investment has a 5% return, Fund
operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 Year 3 Years
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$127 $397
More Information About Risk
Equity Risk
Equity securities include public and privately issued equity securities, common
and preferred stocks, warrants, rights to subscribe to common stock and
convertible securities, as well as instruments that attempt to track the price
movement of equity indices. Investments in these types of equity securities in
general are subject to market risks that may cause their prices to fluctuate
over time. The value of securities convertible into equity securities, such as
warrants or convertible debt, is also affected by prevailing interest rates, the
credit quality of the issuer and any call provision.
Small Cap Risk
The smaller capitalization companies in which the Fund may invest may be more
vulnerable to adverse business or economic events than larger, more established
companies. In particular, these small companies may have limited product lines,
markets and financial resources, and may depend upon a relatively small
management group. Therefore, small cap stocks may be more volatile than those
of larger companies.
Mid Cap Risk
The medium capitalization companies that the Fund may invest in may be more
vulnerable to adverse business or economic events than larger companies. In
particular, these companies may have limited product lines, markets and
financial resources, and may depend on a relatively small management group.
Therefore, medium capitalization stocks may be more volatile than those of
larger companies.
Foreign Security Risks
Investments in securities of foreign companies or governments can be more
volatile than investments in U.S. companies or the U.S. government. Diplomatic,
political, or economic developments, including nationalization or appropriation,
could affect investments in foreign countries. Foreign securities markets
generally have less trading volume and less liquidity than U.S. markets. In
addition, the value of securities denominated in foreign currencies, and of
dividends from such securities, can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign companies or
governments generally are not subject to uniform accounting, auditing, and
financial reporting standards comparable to those applicable to domestic U.S.
companies or the U.S. government. Transaction costs are generally higher than
those in the U.S. and expenses for custodial arrangements of foreign securities
may be somewhat greater than typical expenses for custodial arrangements of
similar U.S. securities. Some foreign governments levy withholding taxes against
dividend and interest income. Although in some countries a portion of these
taxes is recoverable, the non-recovered portion will reduce the income received
from the securities comprising the portfolio.
Currency Risk
Investments in foreign securities denominated in foreign currencies involve
additional risks, including:
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. The Fund may incur substantial costs in connection with conversions between
various currencies.
. Only a limited market currently exists for hedging transactions relating to
currencies in certain emerging markets.
More Information About Fund Investments
In addition to the investments and strategies described in this prospectus, the
Fund also may invest in other securities, use other strategies and engage in
other investment practices. These investments and strategies, as well as those
described in this prospectus, are described in detail in our Statement of
Additional Information.
The investments and strategies described in this prospectus are those that we
use under normal conditions. During adverse economic, market or other
conditions, the Fund may take temporary defensive positions such as investing up
to 100% of its assets in investments that would not ordinarily be consistent
with the Fund's objective. The Fund may not achieve its objective when so
invested. The Fund will do so only if the Adviser believes that the risk of loss
outweighs the opportunity for capital gains or higher income. Of course, the
Fund cannot guarantee that it will achieve its investment goal.
Investment Adviser
United States Trust Company of New York and U.S. Trust Company (together, U.S.
Trust or the Adviser) serve as investment adviser to the Fund. United States
Trust Company of New York 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.
U. S. Trust Corporation is a wholly-owned subsidiary of The Charles Schwab
Corporation ("Schwab"). Charles R. Schwab is the founder, Chairman, Co-Chief
Executive Officer and a Director and significant shareholder of Schwab. As a
result of his positions and share ownership, Mr. Schwab may be deemed to be a
controlling person of Schwab and its subsidiaries. Through its principal
subsidiary Charles Schwab & Co., Inc., Schwab is one of the nation's largest
financial services firms and the nation's largest electronic brokerage firm, in
each case measured by customer assets. At December 31, 1999, Schwab served 6.6
million active accounts with $725 billion in customer assets.
U.S. Trust is one of the oldest investment management companies in the country.
Since 1853, U.S. Trust has been a leader in wealth management for sophisticated
investors providing 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 December 31, 1999,
U.S. Trust had approximately $86 billion in aggregate assets under management.
United States Trust Company of New York has its principal offices at 114 W. 47th
Street, New York, NY 10036. U.S. Trust Company has its principal offices at 225
High Ridge Road, East Building, Stamford, CT 06905.
The Adviser makes investment decisions for the Fund and continuously reviews,
supervises and administers the Fund's investment program.
U.S. Trust is entitled to receive advisory fees, as a percentage of daily net
assets, at the rate of 1.00%. U.S. Trust has contractually agreed to waive fees
and reimburse expenses of the Fund to the extent necessary to keep total Fund
operating expenses at 1.25% of the Fund's average daily net assets for the
period commencing on the date of this prospectus and ending March 31, 2001.
U.S. Trust and its affiliates advise and manage assets for their private clients
and funds, some of which have investment objectives and policies similar to
Excelsior Funds. U.S. Trust and its affiliates will not have any obligation to
make available or use any information regarding these proprietary investment
activities for the benefit of the Funds. The research department of U.S. Trust
prepares research reports that are utilized by these Funds, wealth managers of
U.S. Trust and Schwab and its affiliates. It is U.S. Trust's intention to
distribute this information as simultaneously as possible to all receipients.
However, where the investment manager of an Excelsior Fund prepares such
research, that Fund may and often does receive and act upon that information
before it is disseminated to other parties, which in turn may have a negative
effect on the price of the security subject to research.
The Board of Directors of Excelsior Funds, Inc. supervises the Adviser and
establishes policies that the Adviser must follow in its management activities.
Portfolio Managers
Maria L. Brisbane, CFA, and John F. Lafferty, CFA, serve as the Fund's portfolio
co-managers. Ms. Brisbane, a Senior Vice President and Senior Portfolio Manager
of the Personal Investment Division of U.S. Trust, has been with U.S. Trust
since 1994. Mr. Lafferty, a Senior Vice President and healthcare industry
analyst in U.S. Trust's Equity Research Division, has been with U.S. Trust since
1998. Prior to joining U.S. Trust, Mr. Lafferty was a Vice President and
healthcare industry analyst with J.P. Morgan & Co. Ms. Brisbane and Mr. Lafferty
are primarily responsible for the day-to-day management of the Fund's portfolio.
Research, analyses, trade execution and other facilities provided by U.S. Trust
and other personnel also play a significant role in portfolio management and
performance.
Purchasing, Selling and Exchanging Fund Shares
This section tells you how to purchase, sell (sometimes called "redeem") or
exchange shares of the Fund.
How to Purchase Fund Shares
You may purchase shares directly by:
. Mail
. Telephone
. Wire, or
. Automatic Investment Program
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<PAGE>
To purchase shares directly from us, please call (800) 446-1012 (from overseas,
call (617) 557-8280), or complete and send in the enclosed application to
Excelsior Funds, c/o Chase Global Funds Services Company, P.O. Box 2798, Boston,
MA 02208-2798. Unless you arrange to pay by wire or through the automatic
investment program, write your check, payable in U.S. dollars, to "Excelsior
Funds" and include the name of the Fund on the check. The Fund cannot accept
third-party checks, credit cards, credit card checks or cash. To purchase
shares by wire, please call us 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 Number 9102732915
For Further Credit To:
Excelsior Funds
Wire Control Number
Excelsior Funds Account Registration (including account number)
Investors making initial investments by wire must promptly complete the enclosed
application and forward it to the address indicated on the application.
Investors making subsequent investments by wire should follow the above
instructions.
You may also buy shares through accounts with brokers and other institutions
that are authorized to place trades in Fund shares for their customers. If you
invest through an authorized institution, you will have to follow its
procedures, which may be different from the procedures for investing directly.
Your broker or institution may charge a fee for its services, in addition to the
fees charged by the Fund. You will also generally have to address your
correspondence or questions regarding a Fund to your institution.
The Fund's distributor may institute promotional incentive programs for dealers,
which will be paid for by the distributor out of its own assets and not out of
the assets of the Fund. Under any such program, the distributor may provide
incentives, in the form of cash or other compensation, including merchandise,
airline vouchers, trips and vacation packages, to dealers selling shares of the
Fund. If any such program is made available to any dealer, it will be made
available to all dealers on the same terms.
General Information
You may purchase shares on any day that the New York Stock Exchange (NYSE) and
the Adviser are open for business (a "Business Day"). Presently, the only
Business Days on which the Adviser is closed and the NYSE is open are Veterans'
Day and Columbus Day. The Fund may reject any purchase request if it is
determined that accepting the request would not be in the best interests of the
Fund or its shareholders.
The price per share (the offering price) will be the net asset value per share
(NAV) next determined after the Fund receives your purchase request in good
order. We consider requests to be in "good order" when all required documents
are properly completed, signed and received.
The Fund calculates its NAV once each Business Day at the regularly-scheduled
close of normal trading on the NYSE (normally, 4:00 p.m., Eastern time). So,
for you to receive the current Business Day's NAV, the Fund must receive your
purchase request in good order before 4:00 p.m., Eastern time.
How We Calculate Nav
NAV for one Fund share is the value of that share's portion of all of the assets
in the Fund.
In calculating NAV, the Fund generally values its investment portfolio at market
price. If market prices are unavailable or the Adviser thinks that they are
unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Directors. Fixed income investments with remaining
maturities of 60 days or less generally are valued at their amortized cost which
approximates their market value.
The Fund may hold securities that are listed on foreign exchanges. These
securities may trade on weekends or other days when the Fund does not calculate
NAV. As a result, the market value of a Fund's investments may change on days
when you cannot purchase or sell Fund shares.
Minimum Purchases
To purchase shares for the first time, you must invest at least $500 ($250 for
IRAs) in the Fund.
Your subsequent investments must be made in amounts of at least $50.
The Fund may accept investments of smaller amounts at its discretion.
Automatic Investment Program
If you have a checking, money market or NOW account with a bank, you may
purchase shares automatically through regular deductions from your account in
amounts of at least $50 per transaction.
With a $50 minimum initial investment, you may begin regularly scheduled
investments once per month, on either the first or fifteenth day, or twice per
month, on both days.
How to Sell Your Fund Shares
You may sell shares directly by:
. Mail
. Telephone, or
. Systematic Withdrawal Plan
Holders of Fund shares may sell (sometimes called "redeem") shares by following
procedures established when they opened their account or accounts. If you have
questions, call (800) 446-1012 (from overseas, call (617) 557-8280).
You may sell your shares by sending a written request for redemption to:
Excelsior Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
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Boston, MA 02208-2798
Please be sure to indicate the number of shares to be sold, identify your
account number and sign the request.
If you own your shares directly and previously indicated on your account
application or arranged in writing to do so, you may sell your shares on any
Business Day by contacting the Fund directly by telephone at (800) 446-1012
(from overseas, call (617) 557-8280). The minimum amount for telephone
redemptions is $500. Shares will not be redeemed by the Fund unless all
required documents have been received by the Funds. Shares will not be redeemed
by the Fund unless all required documents have been received by the Fund.
If you own your shares through an account with a broker or other institution,
contact that broker or institution to sell your shares. Your broker or
institution may charge a fee for its services, in addition to the fees charged
by the Fund.
If you would like to sell $50,000 or more of your shares, or any amount if the
proceeds are to be sent to an address other than the address of record, please
notify the Fund in writing and include a signature guarantee by a bank or other
financial institution (a notarized signature is not sufficient).
The sale price of each share will be the next NAV determined after the Fund
receives your request in good order.
Systematic Withdrawal Plan
If you have at least $10,000 in your account, you may use the systematic
withdrawal plan. Under the plan you may arrange monthly, quarterly, semi-annual
or annual automatic withdrawals from the Fund. The proceeds of each withdrawal
will be mailed to you by check or, if you have a checking or savings account
with a bank, electronically transferred to your account.
Receiving Your Money
Normally, we will send your sale proceeds within five Business Days after we
receive your request in good order. Your proceeds can be wired to your bank
account (if more than $500) or sent to you by check. If you recently purchased
your shares by check, redemption proceeds may not be available until your check
has cleared (which may take up to 15 Business Days from your date of purchase).
Redemptions In Kind
We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise, we might pay all or part of
your redemption proceeds in liquid securities with a market value equal to the
redemption price (redemption in kind). It is highly unlikely that your shares
would ever be redeemed in kind, but if they were you would probably have to pay
transaction costs to sell the securities distributed to you, as well as taxes on
any capital gains from the sale as with any redemption.
Involuntary Sales of Your Shares
If your account balance drops below $500 because of redemptions, you may be
required to sell your shares. But, we will always give you at least 60 days'
written notice to give you time to add to your account and avoid the sale of
your shares.
Suspension of Your Right to Sell Your Shares
The Fund may suspend your right to sell your shares if the NYSE restricts
trading, the SEC declares an emergency or when U.S. Trust and the custodian are
closed. More information about this is in our Statement of Additional
Information.
How to Exchange Your Shares
You may exchange your shares on any Business Day for shares of any portfolio of
Excelsior Funds, Inc. or Excelsior Tax-Exempt Funds, Inc., or for shares of
certain portfolios of Excelsior Institutional Trust. In order to protect other
shareholders, we may limit your exchanges to no more than six per year. We may
also reject any exchange request if we determine that such exchange is not in
the best interests of the Fund or its shareholders. Shares can be exchanged
directly by mail, or by telephone if you previously selected the telephone
exchange option on the account application.
You may also exchange shares through your financial institution. Exchange
requests must be for an amount of at least $500.
If you recently purchased shares by check you may not be able to exchange your
shares until your check has cleared (which may take up to 15 Business Days from
your date of purchase). This exchange privilege may be changed or canceled at
any time upon 60 days' notice.
When you exchange shares, you are really selling your shares and buying other
Fund shares. So, your sale price and purchase price will be based on the NAV
next calculated after the Fund receives your exchange request in good order.
Telephone Transactions
Purchasing, selling and exchanging Fund shares over the telephone is extremely
convenient, but not without risk. Although the Fund has certain safeguards and
procedures to confirm the identity of callers and the authenticity of
instructions, the Fund is not responsible for any losses or costs incurred by
following telephone instructions we reasonably believe to be genuine. If you or
your financial institution transact with a Fund over the telephone, you will
generally bear the risk of any loss.
Authorized Intermediaries
Certain intermediaries, such as brokers or other shareholder organizations, are
authorized to accept purchase, redemption and exchange requests for Fund shares.
These intermediaries may authorize other organizations to accept purchase,
redemption and exchange requests for Fund shares. These requests are normally
executed at the NAV next determined after the intermediary receives the request
in good order. Authorized intermediaries are responsible for transmitting
requests and delivering funds on a timely basis.
Shareholder Servicing
The Fund is permitted to pay an administrative shareholder servicing fee to
certain shareholder organizations for providing
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<PAGE>
services to their customers who hold shares of the Fund. These services may
include assisting in the processing of purchase, redemption and exchange
requests and providing periodic account statements. The shareholder servicing
fee may be up to 0.40% of the average daily net asset value of Fund shares held
by clients of a shareholder organization.
Dividends and Distributions
The Fund distributes dividends from its income quarterly.
The Fund makes distributions of capital gains, if any, at least annually. If
you own Fund shares on the Fund's record date, you will be entitled to receive
the distribution.
Dividends and distributions for shares held of record by U.S. Trust and its
affiliates or correspondent banks will be paid in cash. Otherwise, dividends and
distributions will be paid in the form of additional Fund shares unless you
elect to receive payment in cash. To elect cash payment, you must notify the
Fund in writing prior to the date of the distribution. Your election will be
effective for dividends and distributions paid after the Fund receives your
written notice. To cancel your election, simply send the Fund written notice.
Taxes
The Fund will distribute substantially all of its taxable income including its
net capital gain (the excess of long-term capital gain over short-term capital
loss), if any. Distributions you receive from the Fund will generally be
taxable regardless of whether they are paid in cash or reinvested in additional
shares. Distributions attributable to the net capital gain of the Fund will be
taxable to you as long-term capital gain, regardless of how long you have held
your shares. Other Fund distributions will generally be taxable as ordinary
income.
You should note that if you purchase shares just before a distribution, the
purchase price will reflect the amount of the upcoming distribution, but you
will be taxed on the entire amount of the distribution received, even though, as
an economic matter, the distribution simply constitutes a return of capital.
This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Fund, based on the
difference between your tax basis in the shares and the amount you receive for
them. To aid in computing your tax basis, you generally should retain your
account statements for the periods during which you held shares.
Any loss realized on shares held for six months or less will be treated as a
long-term capital loss to the extent of any capital gain dividends that were
received on the shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other tax-
qualified plan) will generally not be currently taxable.
Shareholders may also be subject to state and local taxes on distributions and
redemptions. State income taxes may not apply however, to the portions of each
Fund's distributions, if any, that are attributable to interest on federal
securities or interest on securities of the particular state or localities
within the state.
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. Shareholders who are nonresident
aliens, foreign trusts or estates, or foreign corporations or partnerships, may
be subject to different United States federal income tax treatment. YOU SHOULD
CONSULT YOUR TAX ADVISER FOR FURTHER INFORMATION REGARDING FEDERAL, STATE, LOCAL
AND/OR FOREIGN TAX CONSEQUENCES RELEVANT TO YOUR SPECIFIC SITUATION.
More information about taxes is in the Statement of Additional Information.
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Excelsior Funds, Inc.
Investment Adviser
United States Trust Company of New York
114 W. 47th Street
New York, New York 10036
U.S. Trust Company
225 High Ridge Road
East Building
Stamford, Connecticut 06905
Distributor
Edgewood Services, Inc.
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-5829
More information about the Fund is available without charge through the
following:
Statement of Additional Information (SAI)
The SAI, dated __________, 2000 includes detailed information about Excelsior
Funds, Inc. The SAI is on file with the SEC and is incorporated by reference
into this prospectus. This means that the SAI, for legal purposes, is a part of
this prospectus.
Annual and Semi-annual Reports
These reports contain additional information about the Fund's investments. The
Annual Report also lists the Fund's holdings and contains information from the
Fund's managers about strategies, and recent market conditions and trends and
their impact on Fund performance.
To Obtain an Sai, Annual or Semi-annual Report, or More Information:
By Telephone: Call (800) 466-1012 (from overseas, call (617) 557-8280)
By Mail: Excelsior Funds, Inc., 73 Tremont Street, Boston, Massachusetts 02108-
3913
By Internet: http://www.excelsiorfunds.com
From the SEC: You can also obtain the SAI or the Annual and Semi-Annual reports,
as well as other information about Excelsior Funds, Inc., from the EDGAR
Database on the SEC's website ("http://www.sec.gov"). You may review and copy
documents at the SEC Public Reference Room in Washington, DC (for information on
the operation of the Public Reference Room call 202-942-8090). You may request
documents by mail from the SEC, upon payment of a duplicating fee, by writing
to: Securities and Exchange Commission, Public Reference Section, Washington, DC
20549-0102. You may also obtain this information, upon payment of a duplicating
fee, by e-mailing the SEC at the following address: [email protected].
------------------
Excelsior Funds, Inc.'s Investment Company Act registration number is 811-4088.
<PAGE>
EXCELSIOR FUNDS, INC.
Biotechnology Fund
STATEMENT OF ADDITIONAL INFORMATION
________________, 2000
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current prospectus for the Biotechnology Fund (the
"Fund") of Excelsior Funds, Inc. ("the Company") dated ___________, 2000 (the
"Prospectus"). A copy of the Prospectus may be obtained by writing the Company
c/o Chase Global Funds Services Company, 73 Tremont Street, Boston, MA 02108-
3913 or by calling (800) 446-1012. Capitalized terms not otherwise defined have
the same meaning as in the Prospectus.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
<S> <C>
CLASSIFICATION AND HISTORY.............................. 2
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS.............. 2
Investment Philosophy and Strategies............... 2
Additional Investment Policies..................... 3
Additional Information on Portfolio Instruments.... 4
INVESTMENT LIMITATIONS.................................. 14
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.......... 16
Purchase of Shares................................. 17
Redemption Procedures.............................. 18
Other Redemption Information....................... 19
INVESTOR PROGRAMS....................................... 20
Systematic Withdrawal Plan......................... 20
Exchange Privilege................................. 20
Retirement Plans................................... 21
Automatic Investment Program....................... 22
Additional Information............................. 23
DESCRIPTION OF CAPITAL STOCK............................ 23
MANAGEMENT OF THE FUND.................................. 25
Directors and Officers............................. 25
Investment Advisory and Administration Agreements.. 30
Shareholder Organizations.......................... 32
Personal Trading................................... 32
Expenses........................................... 33
Custodian and Transfer Agent....................... 33
PORTFOLIO TRANSACTIONS.................................. 34
PORTFOLIO VALUATION..................................... 36
INDEPENDENT AUDITORS.................................... 37
COUNSEL................................................. 37
ADDITIONAL INFORMATION CONCERNING TAXES................. 37
PERFORMANCE INFORMATION................................. 38
MISCELLANEOUS........................................... 41
APPENDIX A.............................................. A-1
APPENDIX B.............................................. B-1
</TABLE>
<PAGE>
CLASSIFICATION AND HISTORY
--------------------------
Excelsior Funds, Inc. (the "Company") is an open-end management
investment company. The Fund is a separate series of the Company and is
classified as diversified under the Investment Company Act of 1940, as
amended (the "1940 Act"). The Company was organized as a Maryland corporation
on August 2, 1984. Prior to December 28, 1995, the Company was known as "UST
Master Funds, Inc."
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
-------------------------------------------
The following information supplements the description of the
investment objective, strategies and risks of the Fund as set forth in the
Prospectus. The investment objective of the Fund may not be changed without the
vote of the holders of a majority of its outstanding shares (as defined below).
Except as expressly noted below, the Fund's investment policies may be changed
without shareholder approval.
Investment Philosophy and Strategies
------------------------------------
The Fund will invest in companies principally engaged in the research
development and manufacture of various biotechnological products, services and
processes.
General Information About the Fund. The Fund is a mutual fund. A
----------------------------------
mutual fund pools shareholders' money and, using professional investment
managers, invests it in securities.
The Fund has its own investment goal, strategies and risks for
reaching that goal. The investment managers invest Fund assets in a way that
they believe will help the Fund achieve its goal. Still, investing in the Fund
involves risk and there is no guarantee that the Fund will achieve its goal. An
investment manager's judgments about the markets, the economy, or companies may
not anticipate actual market movements, economic conditions or company
performance, and these judgments may affect the return on your investment. In
fact, no matter how good a job an investment manager does, you could lose money
on your investment in the Fund, just as you could with other investments. A
Fund share is not a bank deposit and is not insured or guaranteed by the Federal
Deposit Insurance Corporation (FDIC) or any government agency.
The value of your investment in the Fund is based on the market value
of the securities the Fund holds. These prices change daily due to economic and
other events that affect particular companies and other issuers. These price
movements, sometimes called volatility, may be greater or lesser depending on
the types of securities the Fund owns and the markets in which they trade. The
effect on the Fund of a change in the value of a single security will depend on
how widely the Fund diversifies its holdings.
The Adviser's Equity Investment Philosophy. The Adviser manages the
------------------------------------------
Fund's investments with a view toward long-term success. To achieve this
success, the Adviser utilizes
2
<PAGE>
two fundamental investment strategies, value and growth. These strategies are
combined with "longer-term investment themes" to assess the investment potential
of individual companies. Specific investment selection is a "bottom-up"
approach, guided by these strategies and themes to ensure proper
diversification, risk control and market focus.
Value. This long-term strategy 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, the Adviser 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.
Growth. This long-term strategy consists of buying and holding equity
------
securities of companies which it believes to be of high quality and high growth
potential. Typically, these companies are industry leaders with the potential
to dominate their markets by being low-cost, high-quality producers of products
or services. Usually these companies have an identifiable competitive advantage.
The Adviser believes that the earnings growth rate of these companies is the
primary determinant of their stock prices and that efficient markets will reward
consistently above average earnings growth with greater-than-average capital
appreciation over the long-term.
Themes. To complete the Adviser's investment philosophy in managing
------
the Fund, the investment strategies discussed above are applied in concert with
long-term investment themes to identify investment opportunities. These longer-
term themes are strong and inexorable trends arising from time to time from
economic, social, demographic and cultural forces. The Adviser also believes
that understanding the instigation, catalysts and effects of these long-term
trends will enable it to identify companies that are currently or will soon
benefit from these trends.
Additional Investment Policies
------------------------------
Under normal market and economic conditions, the Fund will invest at
least 65% of its total assets in equity securities of biotechnology companies.
Biotechnology companies are those companies principally engaged in the research,
development and manufacture of various biotechnological products, services and
processes. Normally, up to 35% of the Fund's total assets may be invested in
other securities and instruments including, e.g., investment-grade debt
securities (i.e., debt obligations classified within the four highest ratings of
a nationally recognized statistical rating organization such as Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Services
("S&P") or, if unrated, determined by the Adviser to be of comparable quality),
warrants, options and futures instruments as described in more detail below.
During temporary defensive periods or when the Adviser believes that suitable
investments are unavailable, the Fund may hold cash and/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.
Portfolio holdings will include equity securities of companies having
capitalizations of varying amounts, and the Fund may invest in the securities of
high growth,
3
<PAGE>
small companies when the Adviser expects earnings and the price of the
securities to grow at an above-average rate. Certain securities owned by the
Fund may be traded only in the over-the-counter market or on a regional
securities 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 the Fund's shares, and the Fund may be
required, in order to satisfy redemption requests 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 Fund 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 evidence 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 Fund may also enter into foreign currency
exchange transactions for hedging purposes.
Additional Information on Portfolio Instruments
-----------------------------------------------
Borrowing and Reverse Repurchase Agreements
-------------------------------------------
The Fund may borrow funds, in an amount up to 10% of the value of its
total assets, for temporary or emergency purposes, such as meeting larger than
anticipated redemption requests, and not for leverage. The Fund may also agree
to sell portfolio securities to financial institutions such as banks and broker-
dealers and to repurchase them at a mutually agreed date and price (a "reverse
repurchase agreement"). The SEC views reverse repurchase agreements as a form
of borrowing. At the time the Fund enters into a reverse repurchase agreement,
it will place in a segregated custodial account liquid assets having a value
equal to the repurchase price, including accrued interest. Reverse repurchase
agreements involve the risk that the market value of the securities sold by the
Fund may decline below the repurchase price of those securities.
Debt Securities and Convertible Securities
------------------------------------------
The Fund may invest in investment grade debt and convertible
securities of domestic and foreign issuers. The convertible securities in which
the Fund may invest include any debt securities or preferred stock which may be
converted into common stock or which carry the right to purchase common stock.
Convertible securities entitle the holder to exchange the securities for a
specified number of shares of common stock, usually of the same company, at
specified prices within a certain period of time. Debt obligations rated in the
lowest of the top four investment grade ratings ("Baa" by Moody's and "BBB" by
S&P) are considered to have some speculative characteristics and may be more
sensitive to adverse economic change than
4
<PAGE>
higher rated securities. The Fund will sell in an orderly fashion as soon as
possible any convertible and non-convertible debt securities it holds if they
are downgraded below "Baa" by Moody's or below "BBB" by S&P. Foreign debt and
convertible securities are generally unrated.
Forward Currency Transactions
-----------------------------
The Fund will conduct its currency exchange transactions either on a
spot (i.e., cash) basis at the rate prevailing in the currency exchange markets,
or by entering into forward currency contracts. A forward foreign currency
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 exchanges, forward currency contracts
are traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. Also, forward currency
contracts usually involve delivery of the currency involved instead of cash
payment as in the case of futures contracts.
The Fund's participation in forward currency contracts will be limited
to hedging involving either specific transactions or portfolio positions.
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
the Fund's assets, but will be employed as necessary to correspond to particular
transactions or positions. The 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 Fund
engages in forward currency transactions, certain asset segregation requirements
must be satisfied to ensure that the use of foreign currency transactions is
unleveraged. When the 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 the
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 the Fund "covers" a forward currency position generally by
entering into an offsetting position.
The transaction costs to the Fund 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
5
<PAGE>
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 Adviser may be incorrect in its expectations as to
currency fluctuations, and the Fund may incur losses in connection with its
currency transactions that it would not otherwise incur. If a price movement in
a particular currency is generally anticipated, the Fund may not be able to
contract to sell or purchase that currency at an advantageous price.
At or before the maturity of a forward sale contract, the Fund may
sell a portfolio security and make delivery of the currency, or retain the
security and offset its contractual obligation to deliver the currency by
purchasing a second contract pursuant to which the Fund will obtain, on the same
maturity date, the same amount of the currency which it is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund, at the time of execution of the offsetting transaction,
will incur a gain or a loss to the extent that movement has occurred in forward
contract prices. Should forward prices decline during the period between the
Fund's entering into a forward contract for the sale of a currency and the date
it enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, the Fund will suffer a loss to the extent the price of
the currency it has agreed to sell is less than the price of the currency it has
agreed to purchase in the offsetting contract. The foregoing principles
generally apply also to forward purchase contracts.
Futures Contracts and Related Options
-------------------------------------
The Fund may invest in futures contracts and options thereon. The
Fund may enter into interest rate futures contracts and other types of financial
futures contracts, including foreign currency futures contracts, as well as any
index or foreign market futures which are available on recognized exchanges or
in other established financial markets. A futures contract on foreign currency
creates a binding obligation on one party to deliver, and a corresponding
obligation on another party to accept delivery of, a stated quantity of a
foreign currency for an amount fixed in U.S. dollars. Foreign currency futures,
which operate in a manner similar to interest rate futures contracts, may be
used by the Fund to hedge against exposure to fluctuations in exchange rates
between the U.S. dollar and other currencies arising from multinational
transactions.
Futures contracts will not be entered into for speculative purposes,
but to hedge risks associated with the Fund's securities investments. The Fund
will engage in futures transactions only to the extent permitted by the
Commodity Futures Trading Commission ("CFTC") and the Securities and Exchange
Commission ("SEC"). When investing in futures contracts, the Fund must satisfy
certain asset segregation requirements to ensure that the use of futures is
unleveraged. When the Fund takes a long position in a futures contract, it must
maintain a segregated account containing liquid assets equal to the purchase
price of the contract, less any margin or deposit. When the Fund takes a short
position in a futures contract, the Fund
6
<PAGE>
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
applicable when the Fund "covers" an options or futures position generally by
entering into an offsetting position. The Fund will limit its hedging
transactions 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, after
taking into account any unrealized profits and unrealized losses on the Fund's
open contracts (and excluding the amount that a futures option is "in-the-money"
at the time of purchase). An option to buy a futures contract is "in-the-money"
if the then-current purchase price of the underlying futures contract exceeds
the exercise or strike price; an option to sell a futures contract is "in-the-
money" if the exercise or strike price exceeds the then-current purchase price
of the contract that is the subject of the option. In addition, the use of
futures contracts is further restricted to the extent that no more than 10% of
the Fund's total assets may be hedged.
Positions in futures contracts may be closed out only on an exchange
which provides a secondary market for such futures. However, there can be no
assurance that a liquid secondary market will exist for any particular futures
contract at any specific time. Thus, it may not be possible to close a futures
position. In the event of adverse price movements, the Fund would continue to
be required to make daily cash payments to maintain its required margin. In
such situations, if the Fund has insufficient cash, it may have to sell
portfolio securities to meet daily margin requirements at a time when it may be
disadvantageous to do so. In addition, the Fund may be required to make
delivery of the instruments underlying futures contracts it holds. The
inability to close options and futures positions also could have an adverse
impact on the Fund's ability to effectively hedge.
Transactions in futures as a hedging device may subject the Fund to a
number of risks. Successful use of futures by the Fund is subject to the
ability of the Adviser to correctly predict movements in the direction of the
market. For example, if the Fund has hedged against the possibility of a
decline in the market adversely affecting securities held by it and securities
prices increase instead, the Fund will lose part or all of the benefit to the
increased value of its securities which it has hedged because it will have
approximately equal offsetting losses in its futures positions. There may be an
imperfect correlation, or no correlation at all, between movements in the price
of the futures contracts (or options) and movements in the price of the
instruments being hedged. In addition, investments in futures may subject the
Fund to losses due to unanticipated market movements which are potentially
unlimited. Further, there is no assurance that a liquid market will exist for
any particular futures contract (or option) at any particular time.
Consequently, the 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. In addition, in some situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily
7
<PAGE>
variation margin requirements at a time when it may be disadvantageous to do so.
Such sales of securities may be, but will not necessarily be, at increased
prices which reflect the rising market.
As noted above, the risk of loss in trading futures contracts in some
strategies can be substantial, due both to the low margin deposits required, and
the extremely high degree of leverage involved in futures pricing. As a result,
a relatively small price movement in a futures contract may result in immediate
and substantial loss (as well as gain) to the investor. For example, if at the
time of purchase, 10% of the value of the futures contract is deposited as
margin, a subsequent 10% decrease in the value of the futures contract would
result in a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15% decrease would
result in a loss equal to 150% of the original margin deposit, before any
deduction for the transaction costs, if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the contract.
Utilization of futures transactions by the Fund involves the risk of
loss of margin deposits in the event of bankruptcy of a broker with whom the
Fund has an open position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
See Exhibit B for a further discussion of futures contracts and
options.
Government Obligations
----------------------
The Fund 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
8
<PAGE>
Administration, the Central Bank for Cooperatives, the Federal Home Loan
Mortgage Corporation, the Federal Intermediate Credit Banks and the Maritime
Administration.
Illiquid Securities
-------------------
The Fund will not knowingly invest more than 15% of the value of its
net assets in securities that are illiquid. A security will be considered
illiquid if it may not be disposed of within seven days at approximately the
value at which the Fund has valued the security. The Fund may purchase
securities which are not registered under the Securities Act of 1933, as amended
(the "1933 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 Adviser, acting under
guidelines approved and monitored by the Board, that an adequate trading market
exists for that security. This investment practice could have the effect of
increasing the level of illiquidity in the Fund during any period that qualified
institutional buyers are no longer interested in purchasing these restricted
securities.
Investment Company Securities
-----------------------------
The Fund may invest in securities issued by other investment companies
that 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
method. In addition to the advisory fees and other expenses the Fund bears
directly in connection with its own operations, as a shareholder of another
investment company, the Fund would bear its pro rata portion of the other
investment company's advisory fees and other expenses. As such, the Fund's
shareholders would indirectly bear the expenses of the Fund and the other
investment company, some or all of which would be duplicative. Such securities
will be acquired by the Fund within the limits prescribed by the 1940 Act, which
include, subject to certain exceptions, a prohibition against the Fund investing
more than 10% of the value of its total assets in such securities.
The Fund may invest in SPDRs. SPDRs are interests in a unit investment
trust ("UIT") that may be obtained from the UIT or purchased in the secondary
market (SPDRs are listed on the American Stock Exchange). There is a 5% limit
based on total assets on investments by the Fund in SPDRs. The UIT will issue
SPDRs in aggregations known as "Creation Units" in exchange for a "Portfolio
Deposit" consisting of (a) a portfolio of securities substantially similar to
the component securities ("Index Securities") of the Standard & Poor's 500
Composite Stock Price Index (the "S&P Index"), (b) a cash payment equal to a pro
rata portion of the dividends accrued on the UIT's portfolio securities since
the last dividend payment by the UIT, net of expenses and liabilities, and (c) a
cash payment or credit ("Balancing Amount") designed to equalize the net asset
value of the S&P Index and the net asset value of a Portfolio Deposit.
SPDRs are not individually redeemable, except upon termination of the
UIT. To redeem, the Fund must accumulate enough SPDRs to reconstitute a Creation
Unit. The liquidity of small holdings of SPDRs, therefore, will depend upon the
existence of a secondary market. Upon redemption of a Creation Unit, the Fund
will receive Index Securities and cash identical to the Portfolio Deposit
required of an investor wishing to purchase a Creation Unit that day.
The price of SPDRs is derived from and based upon the securities held
by the UIT. Accordingly, the level of risk involved in the purchase or sale of a
SPDR is similar to the risk involved in the purchase or sale of traditional
common stock, with the exception that the pricing mechanism for SPDRs is based
on a basket of stocks. Disruptions in the markets for the securities underlying
SPDRs purchased or sold by the Fund could result in losses on SPDRs.
Money Market Instruments
------------------------
The Fund may invest in "money market instruments," which include,
among other things, bank obligations, commercial paper and corporate bonds with
remaining maturities of 13 months or less.
Bank obligations include bankers' acceptances, negotiable certificates
of deposit, and non-negotiable time deposits earning a specified return and
issued by a U.S. bank which is a member of the Federal Reserve System or insured
by the Bank Insurance Fund of the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the Savings Association Insurance Fund of the FDIC. Bank obligations also
include U.S. dollar-denominated obligations of foreign branches of U.S. banks
and obligations of domestic branches of foreign banks. Investments in bank
obligations 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 the Fund's total assets may be invested in any one branch, and no more
than 20% of the Fund's total assets at the time of purchase may be invested in
the aggregate
9
<PAGE>
in such obligations (see investment limitation No. 11 below under "Investment
Limitations"). Investments in time deposits are limited to no more than 5% of
the value of the Fund's total assets at the time of purchase.
Investments by the Fund in commercial paper will consist of issues
that are rated "A-2" or better by S&P or "Prime-2" or better by Moody's. In
addition, the Fund may acquire unrated commercial paper that is determined by
the Adviser at the time of purchase to be of comparable quality to rated
instruments that may be acquired by the Fund
Commercial paper may include variable and floating rate instruments.
While there may be no active secondary market with respect to a particular
instrument purchased by the Fund, the Fund may, from time to time as specified
in the instrument, demand payment of the principal of the instrument or may
resell the instrument to a third party. The absence of an active secondary
market, however, could make it difficult for the 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.
Options
-------
The Fund 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 the Fund's net assets. Such
options may relate to particular securities or to various stock and bond
indices. Purchase of options is a highly specialized activity which entails
greater than ordinary investment risks, including a substantial risk of a
complete loss of the amounts paid as premiums to the writer of the options.
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 Fund will be valued at the
last sale price or, in the absence of such a price, at the mean between bid and
asked prices.
The Fund may engage in writing covered call options (options on
securities owned by the Fund) and enter into closing purchase transactions with
respect to such options. Such options must be listed on a national securities
exchange and issued by the Options Clearing Corporation. The aggregate value of
the securities subject to options written by the Fund may not exceed 25% of the
value of its net assets. By writing a covered call option, the Fund forgoes
10
<PAGE>
the opportunity to profit from an increase in the market 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 effects a closing purchase
transaction by purchasing an option of the same series.
When the Fund writes a covered call option, it may terminate its
obligation to sell the underlying security prior to the expiration date of the
option by executing a closing purchase transaction, which is effected by
purchasing on an exchange an option of the same series (i.e., same underlying
security, exercise price and expiration date) as the option previously written.
Such a purchase does not result in the ownership of an option. A closing
purchase transaction will ordinarily be effected to realize a profit on an
outstanding call option, to prevent an underlying security from being called, to
permit the sale of the underlying security or to permit the writing of a new
call option containing different terms on such underlying security. The cost of
such a liquidation purchase plus transaction costs may be greater than the
premium received upon the original option, in which event the writer will have
incurred a loss on the transaction. An option position may be closed out only on
an exchange which provides a secondary market for an option of the same series.
There is no assurance that a liquid secondary market on an exchange will exist
for any particular option. A covered option writer, unable to effect a closing
purchase transaction, will not be able to sell the underlying security until the
option expires or the underlying security is delivered upon exercise, with the
result that the writer in such circumstances will be subject to the risk of
market decline in the underlying security during such period. The Fund will
write an option on a particular security only if the Adviser believes that a
liquid secondary market will exist on an exchange for options of the same
series, which will permit the Fund to make a closing purchase transaction in
order to close out its position.
When the Fund writes an option, an amount equal to the net premium
(the premium less the commission) received by the Fund is included in the
liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of the deferred credit will be subsequently marked
to market to reflect the current value of the option written. The current value
of the traded option is the last sale price or, in the absence of a sale, the
average of the closing bid and asked prices. If an option expires on the
stipulated expiration date, or if the Fund enters into a closing purchase
transaction, the Fund will realize a gain (or loss if the cost of a closing
purchase transaction exceeds the net premium received when the option is sold),
and the deferred credit related to such option will be eliminated. If an option
is exercised, the Fund may deliver the underlying security from its portfolio or
purchase the underlying security in the open market. In either event, the
proceeds of the sale will be increased by the net premium originally received,
and the Fund will realize a gain or loss. Premiums from expired call options
written by the Fund and net gains from closing purchase transactions are treated
as short-term capital gains for federal income tax purposes, and losses on
closing purchase transactions are short-term capital losses. The use of covered
call options is not a primary investment technique of the Fund and such options
will normally be written on underlying securities as to which the Adviser does
not anticipate significant short-term capital appreciation.
11
<PAGE>
Options on Futures Contracts
----------------------------
The Fund may purchase options on the futures contracts described
above. A futures option gives the holder, in return for the premium paid, the
right to buy (call) from or sell (put) to the writer of the option a futures
contract at a specified price at any time during the period of the option. Upon
exercise, the writer of the option is obligated to pay the difference between
the cash value of the futures contract and the exercise price. Like the buyer or
seller of a futures contract, the holder, or writer, of an option has the right
to terminate its position prior to the scheduled expiration of the option by
selling, or purchasing, an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
of an option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option
purchased. Depending on the pricing of the option compared to either the futures
contract upon which it is based, or upon the price of the instruments being
hedged, an option may or may not be less risky than ownership of the futures
contract or such instruments. In general, the market prices of options can be
expected to be more volatile than the market prices on the underlying futures
contract. Compared to the purchase or sale of futures contracts, however, the
purchase of call or put options on futures contracts may frequently involve less
potential risk to the Fund because the maximum amount at risk is the premium
paid for the options (plus transaction costs). Although permitted by its
fundamental investment policies, the Fund does not currently intend to write
futures options, and will not do so in the future absent any necessary
regulatory approvals.
Portfolio Turnover
------------------
The Fund may sell a portfolio investment immediately after its
acquisition if the Adviser believes that such a disposition is consistent with
the investment objective of the 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. The annual portfolio turnover rate for the Fund is not expected to
exceed 100%. A rate of 100% indicates that the equivalent of all of the Fund's
assets have been sold and reinvested in a calendar year. A high rate of
portfolio turnover may involve correspondingly greater brokerage commission
expenses and other transaction costs, which must be borne directly by the Fund
and 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 resulting from such gains are
considered ordinary income for federal income tax purposes. (See "Additional
Information Concerning Taxes.")
Repurchase Agreements
---------------------
The Fund may agree to purchase portfolio securities subject to the
seller's agreement to repurchase them at a mutually agreed upon date and price
("repurchase
12
<PAGE>
agreements"). The Fund will enter into repurchase agreements only with financial
institutions that are deemed to be creditworthy by the Adviser, pursuant to
guidelines established by the Company's Board of Directors. The Fund will not
enter into repurchase agreements with the Adviser or any of its affiliates.
Repurchase agreements with remaining maturities in excess of seven days will be
considered illiquid securities and will be subject to the limitations described
below under "Illiquid Securities." The repurchase price under a repurchase
agreement generally equals the price paid by the Fund plus interest negotiated
on the basis of current short-term rates (which may be more or less than the
rate on the securities underlying the repurchase agreement).
Securities subject to repurchase agreements are held by the Fund's
custodian (or sub-custodian) or in the Federal Reserve/Treasury book-entry
system. The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by the Fund
at not less than the repurchase price. Default or bankruptcy of the seller
would, however, expose the Fund to possible delay in connection with the
disposition of the underlying securities or loss to the extent that proceeds
from a sale of the underlying securities were less than the repurchase price
under the agreement. Repurchase agreements are considered loans by the Fund
under the 1940 Act.
Securities Lending
------------------
To increase return on its portfolio securities, the Fund may lend its
portfolio 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
instrumentalities, or an irrevocable letter of credit issued by a bank, or any
combination thereof. Such loans will not be made if, as a result, the aggregate
of all outstanding loans of the Fund exceeds 30% of the value of its total
assets. When the 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 the Fund if a material event affecting the investment is to occur.
There may be risks of delay in receiving additional collateral or in
recovering 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 Adviser to be of good standing and when, in the
Adviser's judgment, the income to be earned from the loan justifies the
attendant risks.
When-Issued and Forward Transactions
------------------------------------
The Fund may purchase eligible securities on a "when-issued" basis and
may purchase or sell securities on a "forward commitment" basis. These
transactions involve a commitment by a Fund to purchase or sell particular
securities with payment and delivery taking place in the future, beyond the
normal settlement date, at a stated price and yield. Securities
13
<PAGE>
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. When the Fund agrees to purchase securities on a "when-
issued" or "forward commitment" basis, the custodian will set aside cash or
liquid portfolio securities equal to the amount of the commitment in a separate
account. Normally, the custodian will set aside portfolio securities to satisfy
a purchase commitment and, in such case, the Fund may be required subsequently
to place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that the Fund's net assets will fluctuate to a greater degree
when it sets aside portfolio securities to cover such purchase commitments than
when it sets aside cash. Because the Fund will set aside cash or liquid assets
to satisfy its purchase commitments in the manner described above, its liquidity
and ability to manage its portfolio might be affected in the event its forward
commitments or commitments to purchase "when-issued" securities ever exceed 25%
of the value of its assets.
It is expected that "forward commitments" and "when-issued" purchases
will not exceed 25% of the value of the Fund's total assets absent unusual
market conditions, and that the length of such commitments will not exceed 45
days. The Fund does not intend to engage in "when-issued" purchases and "forward
commitments" for speculative purposes, but only in furtherance of its investment
objective.
The Fund will purchase securities on a "when-issued" or "forward
commitment" basis only with the intention of completing the transaction. If
deemed advisable as a matter of investment strategy, however, the Fund may
dispose of or renegotiate a commitment after it is entered into, and may sell
securities it has committed to purchase before those securities are delivered to
the Fund on the settlement date. In these cases, the Fund may realize a taxable
capital gain or loss.
When the Fund engages in "when-issued" or "forward commitment"
transactions, it relies on the other party to consummate the trade. Failure of
such other party to do so may result in the Fund incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a "when-issued" purchase
or a "forward commitment" to purchase securities and any subsequent fluctuations
in their market value are taken into account when determining the market value
of the Fund starting on the day the Fund agrees to purchase the securities. The
Fund does not earn interest on the securities it has committed to purchase until
they are paid for and delivered on the settlement date.
INVESTMENT LIMITATIONS
----------------------
The investment limitations enumerated below are matters of fundamental
policy. Fundamental investment limitations may be changed with respect to the
Fund only by a vote of the holders of a majority of the Fund's outstanding
shares. As used herein, a "vote of the holders of a majority of the outstanding
shares" of the Company or the Fund means, with respect to the approval of an
investment advisory agreement or a change in a fundamental investment policy,
14
<PAGE>
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Company or the Fund, or (b) 67% or more of the shares of the
Company or the Fund present at a meeting if more than 50% of the outstanding
shares of the Company or the Fund are represented at the meeting in person or by
proxy.
The following investment limitations are fundamental with respect to
the Fund. The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold debt
securities in accordance with its investment objective and policies, and may
enter into repurchase agreements with respect to obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities, and (ii)
the Fund may lend portfolio securities in accordance with its investment
objective and policies;
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) the Fund will concentrate its
investments in the securities of biotechnology companies, (b) there is no
limitation with respect to securities issued or guaranteed by the U.S.
government, any state, territory or possession of the United States, the
District of Columbia or any of their authorities, agencies, instrumentalities or
political subdivisions, and repurchase agreements secured by such securities,
and (c) neither all finance companies, as a group, nor all utility companies, as
a group, are considered a single industry for purposes of this policy;
3. 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;
4. Act as an underwriter of securities within the meaning of the 1933
Act, 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 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;
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
15
<PAGE>
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;
8. Invest in companies for the purpose of exercising management or
control; and
9. Acquire any other investment company or investment company
security, except in connection with a merger, consolidation, reorganization, or
acquisition of assets or where otherwise permitted by the 1940 Act.
The following investment limitation may be changed by the Board of
Directors without shareholder approval. The Fund may not:
10. 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
obligations 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. In addition, the Fund will not purchase portfolio securities
while borrowings in excess of 5% of its total assets are outstanding.
The following investment limitation is an operating policy of the
Fund and may be changed by the Board of Directors without shareholder approval.
The Fund may not:
11. Purchase securities on margin (except in connection with purchases
of futures or options in compliance with its investment strategies), make short
sales of securities, or maintain a short position;
* * *
For the purpose of Investment Limitation No. 5, the prohibition of
purchases of real estate includes acquisition of limited partnership interests
in partnerships formed with a view toward investing in real estate, but does not
prohibit purchases of shares in real estate investment trusts.
In addition to the above investment limitations, the Fund currently
intends to refrain from entering into arbitrage transactions.
If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in value
of the Fund's securities will not constitute a violation of such limitation.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
----------------------------------------------
Shares are continuously offered for sale by Edgewood Services, Inc.
(the "Distributor"), a registered broker-dealer and the Company's sponsor and
distributor. The
16
<PAGE>
Distributor is a wholly-owned subsidiary of Federated Investors, Inc. and is
located at 5800 Corporate Drive, Pittsburgh, PA 15237-5829. The Distributor has
agreed to use appropriate efforts to solicit all purchase orders.
At various times the Distributor may implement programs under which a
dealer's sales force may be eligible to win nominal awards for certain sales
efforts or under which the Distributor will make payments to any dealer that
sponsors sales contests or recognition programs conforming to criteria
established 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
intended to result in sales of shares of the Fund. If any such program is made
available to any dealer, it will be made available to all dealers on the same
terms and conditions. Payments made under such programs will be made by the
Distributor out of its own assets and not out of the assets of the Fund.
In addition, the Distributor may offer to pay a fee from its own
assets to financial institutions for the continuing investment of customers'
assets in the Fund or for providing substantial marketing, sales and operational
support. The support may include initiating customer accounts, participating in
sales, educational and training seminars, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution.
Purchase of Shares
------------------
Shares of the Fund are offered for sale at their net asset value per
share next computed after a purchase request is received in good order by the
Company's sub-transfer agent or by an authorized broker or designated
intermediary. The Distributor has established several procedures for purchasing
shares in order to accommodate different types of investors.
Shares may be sold to customers ("Customers") of financial
institutions ("Shareholder Organizations"). Shares are also offered for sale
directly to institutional investors and to members of the general public.
Different types of Customer accounts at the Shareholder Organizations may be
used to purchase shares, including eligible agency and trust accounts. In
addition, Shareholder Organizations may automatically "sweep" a Customer's
account not less frequently than weekly and invest amounts in excess of a
minimum balance agreed to by the Shareholder Organization and its Customer in
shares selected by the Customer. Investors purchasing shares may include
officers, directors, or employees of the particular Shareholder Organization.
Shares may be purchased directly by individuals ("Direct Investors")
or by institutions ("Institutional Investors" and, collectively with Direct
Investors, "Investors"). Shares may also be purchased by Customers of the
Adviser, its affiliates and correspondent banks, and other Shareholder
Organizations that have entered into agreements with the Company. A
17
<PAGE>
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 requests for its
Customers and to transmit, on a timely basis, payment for such requests to Chase
Global Funds Services Company ("CGFSC"), the Fund's sub-transfer agent, in
accordance with the procedures agreed to by the Shareholder Organization and the
Distributor. Confirmations of all such Customer purchases (and redemptions) will
be sent by CGFSC to the particular Shareholder Organization. As an alternative,
a Shareholder Organization may elect to establish its Customers' accounts of
record with CGFSC. In this event, even if the Shareholder Organization continues
to place its Customers' purchase (and redemption) requests with the Fund, CGFSC
will send confirmations of such transactions and periodic account statements
directly to the shareholders of record. Shares in the Fund bear the expense of
fees payable to Shareholder Organizations for such services. See "Management of
the Fund - Shareholder Organizations."
Redemption Procedures
---------------------
Customers of Shareholder Organizations holding shares of record may
redeem all or part of their investments in the Fund in accordance with
procedures governing their accounts at the Shareholder Organizations. It is the
responsibility of the Shareholder Organizations to transmit redemption requests
to CGFSC and credit such Customer accounts with the redemption proceeds on a
timely basis. Redemption requests for Institutional Investors must be
transmitted to CGFSC by telephone at (800) 446-1012 or by terminal access. No
charge for wiring redemption payments to Shareholder Organizations or
Institutional Investors is imposed by the Company, although Shareholder
Organizations may charge a Customer's account for wiring redemption proceeds.
Information relating to such redemption services and charges, if any, is
available from the Shareholder Organizations. An Investor redeeming shares
through a registered investment adviser or certified financial planner may incur
transaction charges in connection with such redemptions. Such Investors should
contact their registered investment adviser or certified financial planner for
further information on transaction fees. Investors may redeem all or part of
their shares in accordance 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).
As discussed in the Prospectus, 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 securities associations, clearing agencies and
savings associations. All eligible guarantor institutions must participate in
the Securities Transfer Agents Medallion Program ("STAMP") in order to be
approved by CGFSC pursuant to the Signature Guarantee Guidelines. Copies of the
Signature Guarantee Guidelines and information on STAMP can be obtained from
18
<PAGE>
CGFSC at (800) 446-1012 or by sending a written request to CGFSC at P.O. Box
2798, Boston, MA 02208-2798.
CGFSC may require additional supporting documents for redemptions made
by corporations, executors, administrators, trustees and guardians. A redemption
request will not be deemed to be properly received until CGFSC receives all
required documents in good order. Payment for shares redeemed 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).
Direct Investors who have so indicated on the Application, or have
subsequently 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.
Institutional Investors may also redeem shares by instructing CGFSC by telephone
at (800) 446-1012 or by terminal access.
During periods of substantial economic or market change, telephone
redemptions 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.
Other Redemption Information
----------------------------
The Company may suspend the right of redemption or postpone the date
of payment for shares for more than seven days during any period when (a)
trading on the Exchange is restricted by applicable rules and regulations of the
SEC; (b) the Exchange is closed for other than customary weekend and holiday
closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC.
In the event that shares are redeemed in cash at their net asset
value, a shareholder may receive in payment for such shares an amount that is
more or less than his original investment due to changes in the market prices of
the Fund's portfolio securities.
The Company reserves the right to honor any request for redemption or
repurchase of the Fund's shares by making payment in whole or in part in
securities chosen by the Company and valued in the same way as they would be
valued for purposes of computing the Fund's net asset value (a "redemption in
kind"). If payment is made in securities, a shareholder may incur transaction
costs in converting these securities into cash. The Company has filed a notice
of election with the SEC under Rule 18f-1 of the 1940 Act. Therefore, the Fund
is obligated to redeem its shares solely in cash up to the lesser of $250,000 or
1% of its net asset value during any 90-day period for any one shareholder of
the Fund.
Under certain circumstances, the Company may, in its discretion,
accept securities as payment for shares. Securities acquired in this manner will
be limited to securities issued in
19
<PAGE>
transactions involving a bona fide reorganization or statutory merger, or other
transactions involving securities that meet the investment objective and
policies of the Fund when 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 CGFSC. Under this
Plan, dividends and distributions are automatically reinvested in additional
shares of the Fund. Amounts paid to investors under this Plan should not be
considered as income. Withdrawal payments represent proceeds from the sale of
shares, and there will be a reduction of the shareholder's equity in the Fund
involved if the amount of the withdrawal payments exceeds the dividends and
distributions paid on the shares and the appreciation of the Investor's
investment in the Fund. This in turn may result in a complete depletion of the
shareholder's investment. An Investor may not participate in a program of
systematic investing in the Fund while at the same time participating in the
Systematic Withdrawal Plan with respect to an account in the Fund. Customers of
Shareholder Organizations may obtain information on the availability of, and the
procedures and fees relating to, the Systematic Withdrawal Plan directly from
their Shareholder Organizations.
Exchange Privilege
------------------
Investors and Customers of Shareholder Organizations may exchange
Shares having a value of at least $500 for shares of the Shares Class of any
other portfolio of the Company or Excelsior Tax-Exempt Funds, Inc. ("Excelsior
Tax-Exempt Fund" and, collectively with the Company, the "Companies") or for
shares of the Shares Class of any portfolio of Excelsior Institutional Trust. An
exchange involves a redemption of all or a portion of the shares in the Fund and
the investment of the redemption proceeds in shares of another portfolio. 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
20
<PAGE>
purchased at the per share net asset value of those shares next determined after
receipt of the exchange request in good order.
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. 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.
Retirement Plans
----------------
Shares are available for purchase by Investors in connection with the
following tax-deferred prototype retirement plans offered by United States Trust
Company of New York ("U.S. Trust New York"):
. IRAs (including "rollovers" from existing retirement plans) for
individuals and their spouses;
. Profit Sharing and Money-Purchase Plans for corporations and
self-employed individuals and their partners to benefit
themselves and their employees; and
. Keogh Plans for self-employed individuals.
Investors investing in the Fund pursuant to Profit Sharing and Money-
Purchase Plans and Keogh Plans are not subject to the minimum investment and
forced redemption provisions described above. The minimum initial investment for
IRAs is $250 and the minimum subsequent investment is $50. Detailed information
concerning eligibility, service fees and other matters related to these plans
can be obtained by calling (800) 446-1012 (from overseas, call (617) 557-8280).
Customers of Shareholder Organizations may purchase shares of the Fund pursuant
to retirement plans if such plans are offered by their Shareholder
Organizations.
21
<PAGE>
Automatic Investment Program
----------------------------
The Automatic Investment Program permits Investors to purchase shares
(minimum of $50 per transaction) at regular intervals selected by the Investor.
The minimum initial investment for an Automatic Investment Program account is
$50. Provided the Investor's financial institution allows automatic withdrawals,
shares are purchased by transferring funds from an Investor's checking, bank
money market or NOW account designated by the Investor. 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
market performance, a fixed dollar amount is invested in shares at predetermined
intervals. This may help Investors to reduce their average cost per share
because the agreed upon fixed investment amount allows more shares to be
purchased 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,
however, that shares bought using dollar cost averaging are purchased without
regard 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. The Company may modify or terminate this
privilege at any time or charge a service fee, although no such fee currently is
contemplated. An Investor may also implement the dollar cost averaging method on
his own initiative or through other entities.
22
<PAGE>
Additional Information
----------------------
Customers of Shareholder Organizations may obtain information on the
availability of, and the procedures and fees relating to, the above programs
directly from their Shareholder Organizations.
DESCRIPTION OF CAPITAL STOCK
----------------------------
The Company's Charter authorizes its Board of Directors to issue up to
thirty-five billion full and fractional shares of common stock, $.001 par value
per share, and to classify or reclassify any unissued shares of the Company 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 Company's authorized common stock is currently
classified into 48 series of shares representing interests in 20 investment
portfolios.
Each share in the Fund represents an equal proportionate interest in
the Fund with other shares of the same class, and is entitled to such dividends
and distributions out of the income earned on the assets belonging to the Fund
as are declared in the discretion of the Company's Board of Directors.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Directors may grant in its discretion. When issued for
payment as described in the Prospectus, shares will be fully paid and non-
assessable. In the event of a liquidation or dissolution of the Fund, its
shareholders are entitled to receive the assets available for distribution
belonging to the Fund and a proportionate distribution, based upon the relative
asset values of the Company's portfolios, of any general assets of the Company
not belonging to any particular portfolio of the Company which are available for
distribution. In the event of a liquidation or dissolution of the Company, its
shareholders will be entitled to the same distribution process.
Shareholders of the Company 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
the Company's shares may elect all of the Company'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 the Company 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
23
<PAGE>
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 the Company voting
without regard to class.
The Company's Charter authorizes its Board of Directors, without
shareholder approval (unless otherwise required by applicable law), to: (a) sell
and convey the assets of the Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding shares of the Fund to be redeemed
at a price which is equal to their net asset value and which may be paid in cash
or by distribution of the securities or other consideration received from the
sale and conveyance; (b) sell and convert the Fund's assets into money and, in
connection therewith, to cause all outstanding shares of the Fund to be redeemed
at their net asset value; or (c) combine the assets belonging to the Fund with
the assets belonging to another portfolio of the Company, if the Board of
Directors reasonably determines that such combination will not have a material
adverse effect on shareholders of any portfolio participating in such
combination, and, in connection therewith, to cause all outstanding shares of
the Fund to be redeemed at their net asset value or converted into shares of
another class of the Company's common stock at net asset value. The exercise of
such authority by the Board of Directors will be subject to the provisions of
the 1940 Act, and the Board of Directors will not take any action described in
this paragraph unless the proposed action has been disclosed in writing to the
Fund's shareholders at least 30 days prior thereto.
Notwithstanding any provision of Maryland law requiring a greater vote
of the Company's common stock (or of the shares of the Fund voting separately as
a class) in connection with any corporate action, unless otherwise provided by
law (for example, by Rule 18f-2, discussed above) or by the Company's Charter,
the Company may take or authorize such action upon the favorable vote of the
holders of more than 50% of the outstanding common stock of the Company voting
without regard to class.
Certificates for shares will not be issued unless expressly requested
in writing to CGFSC and will not be issued for fractional shares.
24
<PAGE>
MANAGEMENT OF THE FUND
----------------------
Directors and Officers
----------------------
The business and affairs of the Fund are managed under the direction
of the Company's Board of Directors. The directors and executive officers of the
Company, their addresses, ages, principal occupations during the past five
years, and other affiliations are as follows:
<TABLE>
<CAPTION>
Principal Occupation
Position with During Past 5 Years and
Name and Address the Company Other Affiliations
---------------- ----------- ------------------
<S> <C> <C>
Frederick S. Wonham/1/ Chairman of the Retired; Chairman of the Boards (since 1997)
238 June Road Board, President and President, Treasurer and Director (since
Stamford, CT 06903 and Treasurer 1995) of the Company and Excelsior Tax-Exempt
Age: 69 Funds, Inc.; Chairman of the Board (since
1997), President, Treasurer and Trustee (since
1995) of Excelsior Institutional Trust;
President, Treasurer and Trustee of Excelsior
Funds (from 1995 to 1999); Vice Chairman of
U.S. Trust Corporation and U.S. Trust New York
(from February 1990 until September 1995); and
Chairman, U.S. Trust Company (from March 1993
to May 1997).
</TABLE>
_______________________
/1/ This director is considered to be an "interested person" of the Company as
defined in the 1940 Act.
25
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Position with During Past 5 Years and
Name and Address the Company Other Affiliations
---------------- ----------- ------------------
<S> <C> <C>
Rodman L. Drake Director Director of the Company and Excelsior
Continuation Investments Group, Inc. Tax-Exempt Funds, Inc. (since 1996); Trustee of
1251 Avenue of the Americas Excelsior Institutional Trust (since 1994);
9/th/ Floor Trustee of Excelsior Funds (from 1994 to 1999);
New York, NY 10020 Director, Parsons Brinkerhoff, Inc.
Age: 57 (engineering firm) (since 1995); President,
Continuation Investments Group, Inc. (since
1997); President, Mandrake Group (investment
and consulting firm) (1994-1997); Chairman,
MetroCashcard International Inc. (since 1999);
Director, Hotelivision, Inc. (since 1999);
Director, Alliance Group Services, Inc. (since
1998); Director, Hyperion Total Return Fund,
Inc. and three 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. (from 1993 to 1998); 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).
Joseph H. Dugan Director Retired; Director of the Company and Excelsior
913 Franklin Lake Road Tax-Exempt Fund (since 1984); Director of UST
Franklin Lakes, NJ 07417 Master Variable Series, Inc. (from 1994 to June
Age: 75 1997); and Trustee of Excelsior Institutional
Trust (since 1995).
Wolfe J. Frankl Director Retired; Director of the Company and Excelsior
2320 Cumberland Road Tax-Exempt Funds, Inc. (since 1986); Director
Charlottesville, VA 22901-7726 of UST Master Variable Series, Inc. (from 1994
Age: 79 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).
Morrill Melton Hall, Jr. Director Director of the Company and Excelsior
Comprehensive Health Services, Inc. Tax-Exempt Funds, Inc. (since July 30, 2000);
8229 Boone Blvd., Suite 700 Trustee of Excelsior Institutional Trust (since
Vienna, VA 22182 July 30, 2000); Chief Executive Officer,
Age: 55 Comprehensive Health Services, Inc. (health
care management and administration).
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Position with During Past 5 Years and
Name and Address the Company Other Affiliations
---------------- ----------- ------------------
<S> <C> <C>
Jonathan Piel Director Director of the Company and Excelsior
558 E. 87th Street Tax-Exempt Funds, Inc. (since 1996); Trustee of
New York, NY 10128 Excelsior Institutional Trust (since 1994);
Age: 61 Trustee of Excelsior Funds (from 1994 to
1999); 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).
Robert A. Robinson Director Director of the Company and Excelsior
Church Pension Group Tax-Exempt Funds, Inc. (since 1987); Director
445 Fifth Avenue of UST Master Variable Series, Inc. (from 1994
New York, NY 10016 to June 1997); Trustee of Excelsior
Age: 74 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. (from 1974 to 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 the Company and Excelsior
6549 Pine Meadows Drive Tax-Exempt Funds, Inc. (since 1985); Chairman
Spring Hill, FL 34606 of the Board of the Company and Excelsior
Age: 74 Tax-Exempt Funds, Inc. (from 1991 to 1997) and
Excelsior Institutional Trust (from 1996 to
1997); President and Treasurer of Excelsior
Funds, Inc. and Excelsior Tax-Exempt Funds,
Inc. (from 1994 to 1997) and Excelsior
Institutional Trust (from 1996 to 1997);
Chairman of the Board, President and Treasurer
of UST Master Variable Series, Inc. (from 1994
to 1997); and Trustee of Excelsior
Institutional Trust (since 1995).
</TABLE>
__________________________
/2/ This director is considered to be an "interested person" of the Company as
defined in the 1940 Act.
27
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Position with During Past 5 Years and
Name and Address the Company Other Affiliations
---------------- ----------- ------------------
<S> <C> <C>
W. Bruce McConnel, III Secretary Partner of the law firm of Drinker
One Logan Square Biddle & Reath LLP.
18/th/ and Cherry Streets
Philadelphia, PA 19103-6996
Age: 57
Michael P. Malloy Assistant Secretary Partner of the law firm of Drinker Biddle &
One Logan Square Reath LLP.
18/th/ and Cherry Streets
Philadelphia, PA 19103-6996
Age: 41
Eddie 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 (from
Boston, MA 02108-3913 January 1991 to November 1996).
Age: 39
Patricia M. Leyne Assistant Vice President, Senior Manager of Fund
Chase Global Funds Treasurer Administration, Chase Global Funds Services
Services Company Company (since August 1999); Assistant Vice
73 Tremont Street President, Senior Manager of Fund
Boston, MA 02108-3913 Administration, Chase Global Funds Services
Age: 33 Company (from July 1998 to August 1999);
Assistant Treasurer, Manager of Fund
Administration, Chase Global Funds Services
Company (from November 1996 to July 1998);
Supervisor, Chase Global Funds Services Company
(from September 1995 to November 1996); Fund
Administrator, Chase Global Funds Services
Company (from February 1993 to September 1995).
</TABLE>
Each director receives an annual fee of $9,000 from each of Excelsior
Funds, Inc. and Excelsior Tax-Exempt Funds, Inc. and $4,000 from Excelsior
Institutional Trust plus a meeting fee of $1,500 from each of Excelsior Funds,
Inc. and Excelsior Tax-Exempt Funds, Inc. and $250 from Excelsior Institutional
Trust 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 from each of the foregoing Companies for services in
such capacity. Prior to December 1999, each of Messrs. Drake, Piel and Wonham
received $4,000 from Excelsior Funds plus a per-Company meeting fee of $250 and
each of these persons was reimbursed for expenses incurred in attending meetings
of Excelsior Funds. The Chairman of the Board of Excelsior Funds received $5,000
per annum for services in such capacity. In addition, Messrs. Drake, Piel and
Robinson each receive $2,000 per annum for their services on the Company's
Nominating Committee. Drinker Biddle & Reath LLP, of which Messrs. McConnel and
Malloy are partners, receives legal fees as counsel to the Company. The
28
<PAGE>
employees of CGFSC do not receive any compensation from the Company for acting
as officers of the Company. No person who is currently an officer, director or
employee of the Adviser serves as an officer, director or employee of the
Company. As of September 30, 2000, the directors and officers of the Company as
a group owned beneficially less than 1% of the outstanding shares of each fund
of the Company, and less than 1% of the outstanding shares of all funds of the
Company in the aggregate.
The following chart provides certain information about the fees
received by the Company's directors in the most recently completed fiscal year.
<TABLE>
<CAPTION>
Aggregate Pension or Total Compensation
Compensation Retirement Benefits Estimated Annual from the Company
Name of from Accrued as Part of Benefits Upon and Fund Complex*
Person/Position the Company Fund Expenses Retirement Paid to Directors
--------------- ----------- ------------- ---------- -----------------
<S> <C> <C> <C> <C>
Donald L. Campbell*** $ 9,000 None None $22,000(3)**
Director
Rodman L. Drake $15,500 None None $38,750(4)**
Director
Joseph H. Dugan $16,500 None None $38,250(3)**
Director
Wolfe J. Frankl $15,000 None None $35,000(3)**
Director
Morrill Melton Hall, Jr. 0 None None 0
Director****
Jonathan Piel $17,000 None None $42,000(4)**
Director
Robert A. Robinson $17,000 None None $39,500(3)**
Director
Alfred C. Tannachion $16,500 None None $38,250(3)**
Director
Frederick S. Wonham $21,500 None None $52,000(4)**
Chairman of the Board,
President and Treasurer
</TABLE>
29
<PAGE>
_______
* The "Fund Complex" consists of the Company, Excelsior Tax-Exempt Fund and
Excelsior Institutional Trust, and, until December 15, 1999, Excelsior
Funds.
** Number of investment companies in the Fund Complex for which director
served as director or trustee.
*** Mr. Campbell resigned as a director of the Companies as of July 31, 2000.
**** Mr. Hall became a director/trustee of the Companies on July 31, 2000.
Investment Advisory and Administration Agreements
-------------------------------------------------
U.S. Trust of New York and U.S. Trust Company (collectively with U.S.
Trust New York, "U.S. Trust" or the "Adviser") serve as investment advisers to
the Fund. In the Investment Advisory Agreement, the Adviser has agreed to
provide the services described in the Prospectus. The Adviser has also agreed to
pay all expenses incurred by it in connection with its activities under the
Agreement other than the cost of securities, including brokerage commissions,
purchased for the Fund.
For the services provided and expenses assumed pursuant to the
Investment Advisory Agreement, the Adviser is entitled to be paid a fee computed
daily and paid monthly, at the annual rate of 1.00% of the average daily net
assets of the Fund.
From time to time, the Adviser may voluntarily or contractually waive
all or a portion of the advisory fees payable to it by the Fund, which waiver
may be terminated at any time.
The Investment Advisory Agreement provides that the Adviser shall not
be liable for any error of judgment or mistake of law or for any loss suffered
by the Fund in connection with the performance of such Agreement, except that
U.S. Trust New York and U.S. Trust Company 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 in the performance of their duties or
from reckless disregard by them of their duties and obligations thereunder. In
addition, the Adviser has undertaken in the Investment Advisory Agreement to
maintain its policy and practice of conducting its Asset Management Group
independently of its Banking Group.
U.S. Trust Corporation is a wholly-owned subsidiary of The Charles
Schwab Corporation ("Schwab"). Charles R. Schwab is the founder, Chairman and
Co-Chief Executive Officer and a Director and significant shareholder of Schwab.
As a result of his positions and share ownership, Mr. Schwab may be deemed to be
a controlling person of Schwab and its subsidiaries. Through its principal
subsidiary Charles Schwab & Co., Inc., Schwab is the nation's fourth largest
financial services firm and the nation's largest electronic brokerage firm, in
each case measured by customer assets.
30
<PAGE>
CGFSC, Federated Services Company (an affiliate of the Distributor)
and U.S. Trust Company (collectively, the "Administrators") serve as the
Company's administrators and provide the Fund with general administrative and
operational assistance. Until July 31, 2000, Federated Services Company's
subsidiary, Federated Administrative Services, served as the Company's
administrator. On July 31, 2000, Federated Services Company assumed all of its
subsidiary's rights and obligations under the Administration Agreement. Under
the Administration Agreement, the Administrators have agreed to maintain office
facilities for the Fund, furnish the Fund with statistical and research data,
clerical, accounting and bookkeeping services, and certain other services
required by the Fund, and to compute the net asset value, net income and
realized capital gains or losses, if any, of the Fund. The Administrators
prepare semiannual reports to the SEC, prepare federal and state tax returns,
prepare filings with state securities commissions, arrange for and bear the cost
of processing share purchase and redemption orders, maintain the Fund's
financial accounts and records, and generally assist in the Fund's operations.
Prior to May 16, 1997, CGFSC, Federated Administrative Services and
U.S. Trust New York served as the Company's administrators pursuant to an
administration agreement substantially similar to the Administration Agreement
currently in effect for the Company.
The Administrators also provide administrative services to the other
investment portfolios of the Company and to all of the investment portfolios of
Excelsior Tax-Exempt Fund and Excelsior Institutional Trust which are also
advised by U.S. Trust and its affiliates and distributed by the Distributor. For
services provided to all of the investment portfolios of the Company, Excelsior
Tax-Exempt Fund and Excelsior Institutional Trust (except for the international
portfolios of the Company and Excelsior Institutional Trust), the Administrators
are entitled jointly to fees, computed daily and paid monthly, based on the
combined aggregate average daily net assets of the three companies (excluding
the international portfolios of the Company and Excelsior Institutional Trust)
as follows:
Combined Aggregate Average Daily Net Assets
of the Company, Excelsior Tax-Exempt Fund and
Excelsior Institutional Trust (excluding
the international portfolios of the Company
and Excelsior Institutional Trust)
----------------------------------
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 Fund and Excelsior Institutional Trust are
allocated in proportion to their relative average daily net assets at the time
of determination. From time to
31
<PAGE>
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.
Shareholder Organizations
-------------------------
The Company has entered into agreements with certain Shareholder
Organizations. Such agreements require the Shareholder Organizations to provide
shareholder administrative services to their Customers who beneficially own
shares in consideration for the Fund's payment of not more than the annual rate
of 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) transmitting and receiving funds in connection
with Customer orders to purchase, exchange or redeem shares; (d) providing
periodic statements showing a Customer's account balances and confirmations of
transactions by the Customer; (e) providing tax and dividend information to
shareholders as appropriate; (f) transmitting proxy statements, annual reports,
updated prospectuses and other communications from the Company to Customers; and
(g) providing or arranging for the provision of other related services. It is
the responsibility of Shareholder Organizations to advise Customers of any fees
that they may charge in connection with a Customer's investment.
The Company's agreements with Shareholder Organizations are governed
by an Administrative Services Plan (the "Plan") adopted by the Company. Pursuant
to the Plan, the Company's Board of Directors will review, at least quarterly, a
written report of the amounts expended under the Company'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 the Company's directors, including a majority of the
directors who are not "interested persons" of the Company as defined in the 1940
Act and have no direct or indirect financial interest in such arrangements (the
"Disinterested Directors").
Any material amendment to the Company's arrangements with Shareholder
Organizations must be approved by a majority of the Company's Board of Directors
(including a majority of the Disinterested Directors). So long as the Company's
arrangements with Shareholder Organizations are in effect, the selection and
nomination of the members of the Company's Board of Directors who are not
"interested persons" (as defined in the 1940 Act) of the Company will be
committed to the discretion of such Disinterested Directors.
Personal Trading
----------------
The Company, the Adviser and the Distributor have adopted written
codes of ethics under Rule 17j-1 of the 1940 Act, which prescribes general rules
of conduct and sets forth guidelines with respect to personal securities trading
by "Access Persons" thereof. An Access Person, as defined in the Code of Ethics
of the Company, is an individual who is (1) a director or officer of the
Company, (2) an employee of the Company or of any Company in a control
relationship to the Company who, in connection with his or her regular functions
or duties,
32
<PAGE>
makes, participates in, or obtains information regarding the purchase or sale of
a security by the Company or whose functions relate to the making of any
recommendations with respect to such purchases or sales; and (3) any natural
person in a control relationship to the Company who obtains information
concerning recommendations made to the Company with regard to the purchase or
sale of a security. The guidelines contain restrictions on personal securities
trading including restrictions on: (i) securities being considered for purchase
or sale, or purchased or sold, by any investment company advised by the Adviser,
(ii) initial public offerings, (iii) private placements, (iv) blackout periods
and (v) short-term trading profits. These guidelines are substantially similar
to those contained in the Report of the Advisory Group on Personal Investing
issued by the Investment Company Institute's Advisory Panel. CGFSC and the
Adviser report to the Board of Directors on a quarterly basis, as to whether
there were any violations of the Code of Ethics by Access Persons of the Company
or the Adviser during the quarter.
Expenses
--------
Except as otherwise noted, the Adviser and the Administrators bear all
expenses in connection with the performance of their services. The Fund bears
the expenses incurred in its operations. Expenses of the Fund include: taxes;
interest; fees (including fees paid to the Company'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; costs of independent pricing services;
costs of shareholder reports and shareholder meetings; and any extraordinary
expenses. The Fund also pays for brokerage fees and commissions in connection
with the purchase of portfolio securities.
Custodian and Transfer Agent
----------------------------
The Chase Manhattan Bank ("Chase"), a wholly-owned subsidiary of The
Chase Manhattan Corporation, serves as custodian of the Fund's assets. Under the
Custodian Agreement, Chase has agreed to: (i) maintain a separate account or
accounts in the name of the Fund; (ii) make receipts and disbursements of money
on behalf of the Fund; (iii) collect and receive all income and other payments
and distributions on account of the Fund's portfolio securities; (iv) respond to
correspondence from securities brokers and others relating to its duties; (v)
maintain certain financial accounts and records; and (vi) make periodic reports
to the Company's Board of Directors concerning the Fund's operations. Chase may,
at its own expense, open and maintain custody accounts with respect to the Fund
with other banks or trust companies, provided that Chase shall remain liable for
the performance of all its custodial duties under the Custodian Agreement,
notwithstanding any delegation. Communications to the custodian should be
directed to Chase, Mutual Funds Service Division, 3 Chase MetroTech Center, 8th
Floor, Brooklyn, NY 11245.
33
<PAGE>
U.S. Trust New York serves as the Fund's transfer agent and dividend
disbursing agent. In such capacity, U.S. Trust New York has agreed to: (i) issue
and redeem shares; (ii) address and mail all communications by the Fund to its
shareholders, including reports to shareholders, dividend and distribution
notices, and proxy materials for its meetings of shareholders; (iii) respond to
correspondence by shareholders and others relating to its duties; (iv) maintain
shareholder accounts; and (v) make periodic reports to the Company's Board of
Directors concerning the Fund's operations. For its transfer agency, dividend
disbursing, and subaccounting services, U.S. Trust New York is entitled to
receive $15.00 per annum per account and subaccount. In addition, U.S. Trust New
York is entitled to be reimbursed for its out-of-pocket expenses for the cost of
forms, postage, processing purchase and redemption orders, handling of proxies,
and other similar expenses in connection with the above services. U.S. Trust New
York is located at 114 W. 47/th/ Street, New York, New York 10036.
U.S. Trust New York may, at its own expense, delegate its transfer
agency obligations to another transfer agent registered or qualified under
applicable law, provided that U.S. Trust New York shall remain liable for the
performance of all of its transfer agency duties under the Transfer Agency
Agreement, notwithstanding any delegation. Pursuant to this provision in the
agreement, U.S. Trust New York has entered into a sub-transfer agency
arrangement with CGFSC, an affiliate of Chase, with respect to accounts of
shareholders who are not Customers of U.S. Trust New York. CGFSC is located at
73 Tremont Street, Boston, Massachusetts 02108-3913. 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 the Company 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 the Company's Board of Directors,
the Adviser is responsible for, makes decisions with respect to, and places
orders for all purchases and sales of all portfolio securities of the Fund.
The Fund may engage in short-term trading to achieve its investment
objective. Portfolio turnover may vary greatly from year to year as well as
within a particular year. The Fund's portfolio turnover rate may also be
affected by cash requirements for redemptions of shares and by regulatory
provisions which enable the Fund to receive certain favorable tax treatment.
Portfolio turnover will not be a limiting factor in making portfolio decisions.
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. In executing portfolio
transactions for the Fund, the Adviser may use affiliated brokers in accordance
with the requirements of the 1940 Act. The Adviser may also take into account
the sale of Fund shares in allocating brokerage transactions.
34
<PAGE>
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 Fund, where possible, will deal directly with the
dealers who make a market in the securities involved, except in those
circumstances where better prices and execution are available elsewhere.
The Investment Advisory Agreement between the Company and the Adviser
provides that, in executing portfolio transactions and selecting brokers or
dealers, the Adviser will seek to obtain the best net price and the most
favorable execution. The 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 the Company, and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing basis.
In addition, the Investment Advisory Agreement authorizes the Adviser,
to the extent permitted by law and subject to the review of the Company's Board
of Directors from time to time with respect to the extent and continuation of
the policy, to cause the Fund to pay a broker which furnishes brokerage and
research services a higher commission than that which might be charged by
another broker for effecting the same transaction, provided that the 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 Adviser to the accounts as to which it exercises investment discretion. Such
brokerage and research services might consist of reports and statistics on
specific companies or industries, general summaries of groups of stocks and
their comparative earnings, or broad overviews of the stock market and the
economy.
Supplementary research information so received is in addition to and
not in lieu of services required to be performed by the Adviser and does not
reduce the investment advisory fees payable by the Fund. Such information may be
useful to the Adviser in serving the Fund and other clients and, conversely,
supplemental information obtained by the placement of business of other clients
may be useful to the Adviser in carrying out its obligations to the Fund.
Portfolio securities will not be purchased from or sold to the
Adviser, Distributor, or any of their affiliated persons (as such term is
defined in the 1940 Act) acting as principal, except to the extent permitted by
the SEC.
Investment decisions for the Fund are made independently from those
for other investment companies, common trust funds and other types of funds
managed by the Adviser. Such other investment companies and funds may also
invest in the same securities as the Fund. When a purchase or sale of the same
security is made at substantially the same time on behalf of the Fund and
another investment company or common trust fund, the transaction will be
averaged as to price, and available investments allocated as to amount, in a
manner which the Adviser believes to be equitable to the Fund and such other
investment company or common trust fund. In some instances, this investment
procedure may adversely affect the price paid or received by the Fund or the
size of the position obtained by the Fund. To the extent permitted by
35
<PAGE>
law, the Adviser may aggregate the securities to be sold or purchased for the
Fund 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 the Fund effects brokerage transactions with any
broker-dealer affiliated directly or indirectly with U.S. Trust, such
transactions, including the frequency thereof, the receipt of any commissions
payable in connection therewith, and the selection of the affiliated broker-
dealer effecting such transactions, will be fair and reasonable to the
shareholders of the Fund.
PORTFOLIO VALUATION
-------------------
Assets in the Fund which are traded on a recognized domestic stock
exchange are valued at the last sale price on the securities exchange on which
such securities are primarily traded or at the last sale price on the national
securities 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 the Company's Board of Directors.
Portfolio securities which are primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on their respective exchanges, 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. Investments 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 Directors. 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 Fund may be traded on foreign
exchanges or over-the-counter markets on days which are not Business Days. In
such cases, the net asset value of the shares may be significantly affected on
days when investors can neither purchase nor redeem the Fund's shares. The
Company's Administrators have undertaken to price the securities in the Fund,
and may use one or more independent pricing services in connection with this
service.
36
<PAGE>
INDEPENDENT AUDITORS
--------------------
Ernst & Young LLP, independent auditors, 200 Clarendon Street, Boston,
MA 02116, serve as auditors of the Company.
COUNSEL
-------
Drinker Biddle & Reath LLP (of which Mr. McConnel, Secretary of the
Company, and Mr. Malloy, Assistant Secretary of the Company, are partners), One
Logan Square, 18/th/ and Cherry Streets, Philadelphia, Pennsylvania 19103, is
counsel to the Company 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.
For federal income tax purposes, the Fund is treated as a separate
corporate entity and has qualified and intends to continue to qualify as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"). Such qualification generally relieves the Fund of liability for
federal income taxes to the extent its earnings are distributed in accordance
with applicable requirements. If, for any reason, the Fund does not qualify for
a taxable year for the special federal tax treatment afforded regulated
investment companies, the Fund would be subject to federal tax on all of its
taxable income at regular corporate rates, without any deduction for
distributions to shareholders. In such event, dividend distributions would be
taxable as ordinary income to shareholders to the extent of the Fund's current
and accumulated earnings and profits and would be eligible for the dividends
received deduction in the case of corporate shareholders. Moreover, if the Fund
were to fail to make sufficient distributions in a year, the Fund would be
subject to corporate income taxes and/or excise taxes in respect of the
shortfall or, if the shortfall is large enough, the Fund could be disqualified
as a regulated investment company.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income (excess
of capital gains over capital losses). The Fund intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and any
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
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.
37
<PAGE>
The Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends or gross proceeds realized upon sale
paid to shareholders who have failed to provide a correct tax identification
number in the manner required, who are subject to withholding by the Internal
Revenue Service for failure properly to include on their return payments of
taxable interest or dividends, or who have failed to certify to the Fund when
required to do so either that they are not subject to backup withholding or that
they are "exempt recipients."
The Fund's transactions in options, futures contracts, and forward
currency exchange contracts will be subject to special tax rules that may affect
the amount, timing, and character of Fund income and distribution to
shareholders. In addition, foreign exchange gains or losses realized by the Fund
will generally be treated as ordinary income or losses realized by the Fund will
generally be treated as ordinary income or loss by the Fund. Investment by the
Fund in certain "passive foreign investment companies" may also have to be
limited in order to avoid a tax on the Fund. Such Fund may elect (if such
election is available) to mark to market any investments in "passive foreign
investment companies" on the last day of each year. This election may cause the
Fund to recognize income prior to the receipt of cash payments with respect to
those investments; in order to distribute this income and avoid tax on the Fund,
the Fund may be required to liquidate portfolio securities that it might
otherwise have continued to hold.
The tax principles applicable to transactions in financial instruments
and futures contacts and options that may be engaged in by the Fund, and
investments in passive foreign investment companies ("PFICs"), are complex and,
in some cases, uncertain. Such transactions and investments may cause a Fund to
recognize taxable in come prior to the receipt of cash, thereby requiring the
Fund to liquidate other positions, or to borrow money, so as to make sufficient
distributions to shareholders to avoid corporate level tax. Moreover, some or
all of the taxable income recognized may be ordinary income or short-term
capital gain, so that the distributions may be taxable to Shareholders as
ordinary income. In addition, in the case of any shares of a PFIC in which the
Fund invests, it may be liable for corporate-level tax on any ultimate gain or
distributions on the shares if the Fund fails to make an election to recognize
income annually during the period of its ownership of the PFIC shares.
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, local and foreign taxes.
PERFORMANCE INFORMATION
-----------------------
The Fund may advertise the "average annual total return" for its
shares. Such total return figure reflects the average percentage change in the
value of an investment in the Fund from the beginning date of the measuring
period to the end of the measuring period.
38
<PAGE>
Average annual 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
commencement of the Fund's operations, or on a year-by-year basis). The average
annual return is computed by determining the average annual compounded rate of
return during specified periods that equates the initial amount invested to the
ending redeemable value of such investment according to the following formula:
ERV 1/n
T = [(-----) - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10 year
(or other) periods at the end of the applicable period
(or a fractional portion thereof).
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in years.
The Fund may also advertise the "aggregate total return" for its
shares for various periods, representing the cumulative change in the value of
an investment in the Fund for the specific period. The aggregate total return 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:
ERV
Aggregate Total Return = [(-----)] - 1
P
The above calculations are made assuming that (1) all dividends and
capital gain distributions are reinvested on the reinvestment dates at the price
per share existing on the reinvestment date, (2) all recurring fees charged to
all shareholder accounts are included, and (3) for any account fees that vary
with the size of the account, a mean (or median) account size in the Fund during
the periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period.
The Fund may also from time to time include in advertisements, sales
literature and communications to shareholders a total return figure that is not
calculated according to the formula set forth above in order to compare more
accurately the Fund's performance with other measures of investment return. For
example, in comparing the Fund's total return with data
39
<PAGE>
published by Lipper Inc., CDA Investment Technologies, Inc. or Weisenberger
Investment Company Service, or with the performance of an index, the Fund may
calculate its aggregate total return for the period of time specified in the
advertisement 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 the Fund may be compared to that of
other mutual funds with similar investment objectives and to other relevant
indices or to ratings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
the total return of the Fund may be compared to data prepared by Lipper Inc.,
CDA Investment Technologies, Inc. and Weisenberger Investment Company Service.
Total return and yield data as reported in national financial publications such
as Money Magazine, Forbes, Barron's, The Wall Street Journal and The New York
Times, or in publications of a local or regional nature, may also be used in
comparing the performance of the Fund. Advertisements, sales literature or
reports to shareholders may from time to time also include a discussion and
analysis of the Fund's performance, including, without limitation, those
factors, strategies and techniques that, together with market conditions and
events, materially affected the Fund's performance.
The Fund may also from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on the Fund
investment are reinvested by being paid in additional Fund shares, any future
income or capital appreciation of the Fund would increase the value, not only of
the original Fund investment, but also of the additional Fund shares received
through reinvestment. As a result, the value of a Fund investment would increase
more quickly than if dividends or other distributions had been paid in cash. The
Fund may also include discussions or illustrations of the potential investment
goals of a prospective investor, investment management techniques, policies or
investment suitability of the Fund, economic conditions, the effects of
inflation and historical performance of various asset classes, including but not
limited to, stocks, bonds and Treasury bills. From time to time advertisements,
sales literature or communications to shareholders may summarize the substance
of information contained in shareholder reports (including the investment
composition of the Fund), as well as the views of the Adviser as to current
market, economy, trade and interest rate trends, legislative, regulatory and
monetary developments, investment strategies and related matters believed to be
of relevance to the Fund. The Fund may also include in advertisements charts,
graphs or drawings which illustrate the potential risks and rewards of
investment in various investment vehicles, including but not limited to, stocks,
bonds, Treasury bills and shares of the Fund. In addition, advertisements, sales
literature or shareholder communications may include a discussion of certain
attributes or benefits to be derived by an investment in the Fund. Such
advertisements or communications may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
therein.
40
<PAGE>
Performance will fluctuate and any quotation of performance should not
be considered as representative of the Fund's future performance. Shareholders
should remember that performance is generally a function of the kind and quality
of the instruments held in a portfolio, operating expenses, and market
conditions. Any fees charged by Shareholder Organizations with respect to
accounts of Customers that have invested in shares will not be included in
calculations of performance.
MISCELLANEOUS
-------------
As used herein, "assets allocable to the Fund" means the consideration
received upon the issuance of shares in the Fund, together with all income,
earnings, profits, and proceeds derived from the investment thereof, including
any proceeds from the sale of such investments, any funds or payments derived
from any reinvestment of such proceeds, and a portion of any general assets of
the Company not belonging to a particular portfolio of the Company. In
determining the Fund's net asset value, assets allocable to the Fund are charged
with the direct liabilities in respect of the Fund and with a share of the
general liabilities of the Company which are normally allocated in proportion to
the relative asset values of the Company's portfolios at the time of allocation.
Subject to the provisions of the Company's Charter, determinations by the Board
of Directors as to the direct and allocable liabilities, and the allocable
portion of any general assets with respect to the Fund, are conclusive.
41
<PAGE>
APPENDIX A
----------
Commercial Paper Ratings
------------------------
A Standard & Poor's commercial paper rating is a current opinion of
the creditworthiness of an obligor with respect to financial obligations 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 on the obligation 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 in
higher rating categories. 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 upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the 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 Standard & Poor's believes that
such payments will be made during such grace period. The "D" rating will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
A-1
<PAGE>
Local Currency and Foreign Currency Risks
-----------------------------------------
Country risk considerations are a standard part of Standard & Poor's
analysis for credit ratings on any issuer or issue. Currency of repayment is a
key factor in this analysis. An obligor's capacity to repay foreign obligations
may be lower than its capacity to repay obligations in its local currency due to
the sovereign government's own relatively lower capacity to repay external
versus domestic debt. These sovereign risk considerations are incorporated in
the debt ratings assigned to specific issues. Foreign currency issuer ratings
are also distinguished from local currency issuer ratings to identify those
instances where sovereign risks make them different for the same issuer.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually senior 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 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.
Fitch 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 for short-term obligations:
A-2
<PAGE>
"F1" - Securities possess the highest credit quality. This
designation indicates the best 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 the higher ratings.
"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 a capacity for meeting financial commitments which is highly uncertain
and solely reliant upon a sustained, favorable business and economic
environment.
"D" - Securities are in actual or imminent payment default.
Thomson Financial 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 Financial BankWatch:
"TBW-1" - This designation represents Thomson Financial 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 Financial 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 Financial BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to 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 Financial BankWatch's
lowest rating category and indicates that the obligation is regarded as non-
investment grade and therefore speculative.
A-3
<PAGE>
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.
Obligations rated "BB," "B," "CCC," "CC" and "C" are 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" - An obligation rated "BB" is less vulnerable to nonpayment 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" - An obligation rated "B" is more vulnerable to nonpayment 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.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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
nonpayment.
A-4
<PAGE>
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action taken, but payments on this
obligation are being continued.
"D" - An obligation rated "D" is 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 Standard & Poor's
believes that such payments will be made during such grace period. The "D"
rating also will be used upon the filing of a bankruptcy petition or the taking
of a 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" - The "r" highlights obligations that Standard & Poor's believes
have significant noncredit risks. Examples of such obligations are securities
with principal or interest return 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.
- N.R. Indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular obligation as a matter of policy.
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 risk appear somewhat larger than in the "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations, (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate
A-5
<PAGE>
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" - Bonds are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate, and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
"B" - Bonds are generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
"Caa " - Bonds are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
"Ca" - Bonds represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
"C" - Bonds are the lowest rated class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
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 operating 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: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from "Aa" through "Caa". The modifier 1 indicates that
the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
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 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 credit risk and
are assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
A-6
<PAGE>
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit 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 credit risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for 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
credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. This is the lowest
investment grade 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 change 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.
"CCC," "CC" and "C" - Bonds have high default risk. Default is a real
possibility, and capacity for meeting financial commitments is solely 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. The ratings of
obligations in this category are based on their prospects for achieving partial
or full recovery in a reorganization or liquidation of the obligor. While
expected recovery values are highly speculative and cannot be estimated with any
precision, the following serve as general guidelines. "DDD" obligations have
the highest potential for recovery, around 90% - 100% of outstanding amounts and
accrued interest. "DD" indicates potential recoveries in the range of 50% -
90%, and "D" the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely
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to satisfy a higher portion of their outstanding obligations, while entities
rated "D" have a poor prospect for repaying all obligations.
To provide more detailed indications of credit quality, the Fitch IBCA
ratings from and including "AA" to "CCC" may be modified by the addition of a
plus (+) or minus (-) sign to denote relative standing within these major rating
categories.
- "NR" indicates the Fitch IBCA does not rate the issuer or issue in
question.
- "Withdrawn": A rating is withdrawn when Fitch IBCA deems the amount
of information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
- Rating Alert: Ratings are placed on RatingAlert to notify investors
that there is a reasonable probability of a rating change and the likely
direction of such change. These are designated as "Positive", indicating a
potential upgrade, "Negative", for a potential downgrade, or "Evolving", if
ratings may be raised, lowered or maintained. RatingAlert is typically resolved
over a relatively short period.
Thomson Financial 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 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 the lowest investment-grade
category and indicates an acceptable capacity to repay principal and interest.
Issues rated "BBB" are more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
"BB" - A rating of BB suggests that the likelihood of default is
considerably less than for lower-rated issues, although there are significant
uncertainties that could affect the ability to adequately service debt
obligations.
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"B" - Issues rated B show a higher degree of uncertainty and therefore
greater likelihood of default than higher-rated issues. Adverse developments
could negatively affect the payment of interest and principal on a timely basis.
"CCC" - Issues rated CCC clearly have a high likelihood of default,
with little capacity to address further adverse changes in financial
circumstances.
"CC" - This rating is applied to issues that are subordinate to other
obligations rated CCC and are afforded less protection in the event of
bankruptcy or reorganization.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
Municipal Note Ratings
----------------------
A Standard and Poor's note rating reflects the liquidity factors and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's 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 a
very strong capacity to pay debt service 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. There is
present 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. Margins of
protection are ample although not so large as in the preceding group.
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"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.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt instruments
in this category lack margins of protection.
Fitch uses the short-term ratings described under Commercial Paper
Ratings for municipal notes.
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APPENDIX B
----------
The High Yield Fund may enter into futures contracts and options.
Such transactions are described in this Appendix.
I. Interest Rate Futures Contracts.
--------------------------------
Use of Interest Rate Futures Contracts. Bond prices are established
--------------------------------------
in both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Fund may use interest rate futures
contracts as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
The Fund presently could accomplish a similar result to that which it
hopes to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because
of the liquidity that is often available in the futures market the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Fund, by using futures contracts.
Description of Interest Rate Futures Contracts. An interest rate
----------------------------------------------
futures contract sale would create an obligation by the Fund, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by the Fund, as purchaser, to take delivery of the specific
type of financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until at or near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
Although interest rate futures contracts by their terms call for
actual delivery or acceptance of securities, in most cases the contracts are
closed out before the settlement date without the making or taking of delivery
of securities. Closing out a futures contract sale is effected by the Fund
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
of the sale exceeds the price of the offsetting purchase, the Fund is
immediately paid the difference and thus realizes a gain. If the offsetting
purchase price exceeds the sale price, the Fund pays the difference and realizes
a loss. Similarly, the closing out of a futures contract purchase is effected
by the Fund entering into a futures contract sale. If the offsetting sale price
exceeds the purchase
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price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment
on the floors of several exchanges -- principally, the Chicago Board of Trade
and the Chicago Mercantile Exchange and the New York Futures Exchange. The Fund
would deal only in standardized contracts on recognized exchanges. Each
exchange guarantees performance under contract provisions through a clearing
corporation, a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term Treasury Bonds and Notes; Government
National Mortgage Association ("GNMA") modified pass-through mortgage-backed
securities, three-month Treasury Bills; and ninety-day commercial paper. The
Fund may trade in any futures contract for which there exists a public market,
including, without limitation, the foregoing instruments.
II. Stock Index Futures Contracts.
------------------------------
General. A stock index assigns relative values to the stocks included
-------
in the index and the index fluctuates with changes in the market values of the
stocks included. Some stock index futures contracts are based on broad market
indexes, such as the Standard & Poor's 500 or the New York Stock Exchange
Composite Index. In contrast, certain exchanges offer futures contracts on
narrower market indexes, such as the Standard & Poor's 100 or indexes based on
an industry or market segment, such as oil and gas stocks. Futures contracts
are traded on organized exchanges regulated by the Commodity Futures Trading
Commission. Transactions on such exchanges are cleared through a clearing
corporation, which guarantees the performance of the parties to each contract.
The Fund will sell index futures contracts in order to offset a
decrease in market value of its portfolio securities that might otherwise result
from a market decline. The Fund may do so either to hedge the value of its
portfolio as a whole, or to protect against declines, occurring prior to sales
of securities, in the value of the securities to be sold. Conversely, the Fund
will purchase index futures contracts in anticipation of purchases of
securities. In a substantial majority of these transactions, the Fund will
purchase such securities upon termination of the long futures position, but a
long futures position may be terminated without a corresponding purchase of
securities.
In addition, the Fund may utilize stock index futures contracts in
anticipation of changes in the composition of its holdings. For example, in the
event that the Fund expects to narrow the range of industry groups represented
in its holdings it may, prior to making purchases of the actual securities,
establish a long futures position based on a more restricted index, such as an
index comprised of securities of a particular industry group. The Fund may also
sell futures contracts in connection with this strategy, in order to protect
against the possibility that the value of the securities to be sold as part of
the restructuring of its portfolio will decline prior to the time of sale.
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III. Futures Contracts on Foreign Currencies.
----------------------------------------
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 may be used by the Fund to hedge against
exposure to fluctuations in exchange rates between the U.S. dollar and other
currencies arising from multinational transactions.
IV. Margin Payments.
----------------
Unlike when the Fund purchases or sells a security, no price is paid
or received by the Fund upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit with the broker or in a
segregated account with the Fund's custodian an amount of cash or cash
equivalents, the value of which may vary but is generally equal to 10% or less
of the value of the contract. This amount is known as initial margin. The
nature of initial margin in futures transactions is different from that of
margin in security transactions in that futures contract margin does not involve
the borrowing of funds by the customer to finance the transactions. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Fund upon termination of the futures
contract assuming all contractual obligations have been satisfied. Subsequent
payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying instrument fluctuates making the long
and short positions in the futures contract more or less valuable, a process
known as "marking-to-market." For example, when the Fund has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Fund will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where the Fund has purchased a
futures contract and the price of the future contract has declined in response
to a decrease in the underlying instruments, the position would be less valuable
and the Fund would be required to make a variation margin payment to the broker.
At any time prior to expiration of the futures contract, the Fund may elect to
close the position by taking an opposite position, subject to the availability
of a secondary market, which will operate to terminate the Fund's position in
the futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the Fund, and the Fund
realizes a loss or gain.
V. Risks of Transactions in Futures Contracts.
-------------------------------------------
There are several risks in connection with the use of futures by the
Fund as a hedging device. One risk arises because of the imperfect correlation
between movements in the price of the futures and movements in the price of the
securities which are the subject of the hedge. The price of the future may move
more than or less than the price of the securities being hedged. If the price
of the futures moves less than the price of the securities which are the subject
of the hedge, the hedge will not be fully effective but, if the price of the
securities being hedged has moved in an unfavorable direction, the Fund would be
in a better position than if it
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had not hedged at all. If the price of the securities being hedged has moved in
a favorable direction, this advantage will be partially offset by the loss on
the future. If the price of the future moves more than the price of the hedged
securities, the Fund involved will experience either a loss or gain on the
future which will not be completely offset by movements in the price of the
securities which are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of securities being hedged and movements
in the price of futures contracts, the Fund may buy or sell futures contracts in
a greater dollar amount than the dollar amount of securities being hedged if the
volatility over a particular time period of the prices of such securities has
been greater than the volatility over such time period of the future, or if
otherwise deemed to be appropriate by the Fund. Conversely, the Fund may buy or
sell fewer futures contracts if the volatility over a particular time period of
the prices of the securities being hedged is less than the volatility over such
time period of the future contract being used, or if otherwise deemed to be
appropriate by the Fund. It is also possible that, where the Fund has sold
futures to hedge its portfolio against a decline in the market, the market may
advance and the value of securities held in the Fund may decline. If this
occurred, the Fund would lose money on the future and also experience a decline
in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in
the price of securities or a currency before the Fund is able to invest its cash
(or cash equivalents) in securities (or options) in an orderly fashion, it is
possible that the market may decline instead; if the Fund then concludes not to
invest in securities or options at that time because of concern as to possible
further market decline or for other reasons, the Fund will realize a loss on the
futures contract that is not offset by a reduction in the price of securities to
be purchased.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the Fund may still not
result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Fund
intends to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade
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<PAGE>
will exist for any particular contract or at any particular time. In such event,
it may not be possible to close a futures investment position, and in the event
of adverse price movements, the Funds would continue to be required to make
daily cash payments of variation margin. However, in the event futures contracts
have been used to hedge portfolio securities, such securities will not be sold
until the futures contract can be terminated. In such circumstances, an increase
in the price of the securities, if any, may partially or completely offset
losses on the futures contract. However, as described above, there is no
guarantee that the price of the securities will in fact correlate with the price
movements in the futures contract and thus provide an offset on a futures
contract.
Further, it should be noted that the liquidity of a secondary market
in a futures contract may be adversely affected by "daily price fluctuation
limits" established by commodity exchanges which limit the amount of fluctuation
in a futures contract price during a single trading day. Once the daily limit
has been reached in the contract, no trades may be entered into at a price
beyond the limit, thus preventing the liquidation of open futures positions.
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.
Successful use of futures by the Fund is also subject to the Fund's
ability to predict correctly movements in the direction of the market. For
example, if the Fund has hedged against the possibility of a decline in the
market adversely affecting securities held in its Portfolio 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
offsetting losses in its futures positions. In addition, in such situations, if
the Fund has insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising market. The Fund
may have to sell securities at a time when it may be disadvantageous to do so.
VI. Options on Futures Contracts
----------------------------
The Fund may purchase options on the futures contracts described
above. A futures option gives the holder, in return for the premium paid, the
right to buy (call) from or sell (put) to the writer of the option a futures
contract at a specified 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
or sale of an option also entails the risk that
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<PAGE>
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 securities being hedged, an option may or may not be less risky
than ownership of the futures contract or such securities. In general, the
market prices of options can be expected to be more volatile than the market
prices on the underlying futures contract. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to the Fund because the
maximum amount at risk is the premium paid for the options (plus transaction
costs). The writing of an option on a futures contract involves risks similar to
those risks relating to the sale of futures contracts. Although permitted by
their fundamental investment policies, the Fund does not currently intend to
write futures options during the current fiscal year, and will not do so in the
future absent any necessary regulatory approvals.
VII. Accounting and Tax Treatment.
-----------------------------
Accounting for futures contracts and options will be in accordance
with generally accepted accounting principles.
Generally, futures contracts held by the Fund at the close of the
Fund's taxable year will be treated for federal income tax purposes as sold for
their fair market value on the last business day of such year, a process known
as "mark-to-market." Forty percent of any gain or loss resulting from such
constructive sale will be treated as short-term capital gain or loss and sixty
percent of such gain or loss will be treated as long-term capital gain or loss
without regard to the length of time the Fund holds the futures contract ("the
40-60 rule"). The amount of any capital gain or loss actually realized by the
Fund in a subsequent sale or other disposition of those futures contracts will
be adjusted to reflect any capital gain or loss taken into account by the Fund
in a prior year as a result of the constructive sale of the contracts. With
respect to futures contracts to sell, which will be regarded as parts of a
"mixed straddle" because their values fluctuate inversely to the values of
specific securities held by the Fund, losses as to such contracts to sell will
be subject to certain loss deferral rules which limit the amount of loss
currently deductible on either part of the straddle to the amount thereof which
exceeds the unrecognized gain (if any) with respect to the other part of the
straddle, and to certain wash sales regulations. Under short sales rules, which
will also be applicable, the holding period of the securities forming part of
the straddle will (if they have not been held for the long-term holding period)
be deemed not to begin prior to termination of the straddle. With respect to
certain futures contracts, deductions for interest and carrying charges will not
be allowed. Notwithstanding the rules described above, with respect to futures
contracts to sell which are properly identified as such, the Fund may make an
election which will exempt (in whole or in part) those identified futures
contracts from being treated for federal income tax purposes as sold on the last
business day of the Fund's taxable year, but gains and losses will be subject to
such short sales, wash sales, loss deferral rules and the requirement to
capitalize interest and carrying charges. Under temporary regulations, the Fund
would be allowed (in lieu of the foregoing) to elect either (1) to offset gains
or losses from portions which are part of a mixed straddle by separately
identifying each mixed straddle to which such treatment applies, or (2) to
establish a mixed straddle account for which gains and losses would be
recognized and offset on a periodic
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basis during the taxable year. Under either election, the 40-60 rule will apply
to the net gain or loss attributable to the futures contracts, but in the case
of a mixed straddle account election, no more than 50% of any net gain may be
treated as long-term and no more than 40% of any net loss may be treated as
short-term. Options on futures contracts generally receive federal tax treatment
similar to that described above.
Certain foreign currency contracts entered into by the Fund may be
subject to the "mark-to-market" process. If the Fund makes a Capital Asset
Election with respect to such contracts, the contracts will be subject to the
40-60 rule, described above. Otherwise, such gain or loss will be treated as
100% ordinary gain or loss. To receive such federal income tax treatment, a
foreign currency contract must meet the following conditions: (1) the contract
must require delivery of a foreign currency of a type in which regulated futures
contracts are traded or upon which the settlement value of the contract depends;
(2) the contract must be entered into at arm's length at a price determined by
reference to the price in the interbank market; and (3) the contract must be
traded in the interbank market. The Treasury Department has broad authority to
issue regulations under the provisions respecting foreign currency contracts.
As of the date of this Statement of Additional Information, the Treasury has not
issued any such regulations. Foreign currency contracts entered into by the
Fund may result in the creation of one or more straddles for federal income tax
purposes, in which case certain loss deferral, short sales, and wash sales rules
and the requirement to capitalize interest and carrying charges may apply.
Some investments may be subject to special rules which govern the
federal income tax treatment of certain transactions denominated in terms of a
currency other than the U.S. dollar or determined by reference to the value of
one or more currencies other than the U.S. dollar. The types of transactions
covered by the special rules include the following: (i) the acquisition of, or
becoming the obligor under, a bond or other debt instrument (including, to the
extent provided in Treasury regulations, preferred stock); (ii) the accruing of
certain trade receivables and payables; and (iii) the entering into or
acquisition of any forward contract, futures contract, option and similar
financial instrument. However, regulated futures contracts and non-equity
options are generally not subject to the special currency rules if they are or
would be treated as sold for their fair market value at year-end under the
"mark-to-market" rules, unless an election is made to have such currency rules
apply. The disposition of a currency other than the U.S. dollar by a U.S.
taxpayer is also treated as a transaction subject to the special currency rules.
With respect to transactions covered by the special rules, foreign currency gain
or loss is calculated separately from any gain or loss on the underlying
transaction and is normally taxable as ordinary gain or loss. A taxpayer may
elect to treat as capital gain or loss foreign currency gain or loss arising
from certain identified forward contracts, futures contracts and options that
are capital assets in the hands of the taxpayer and which are not part of a
straddle. In accordance with Treasury regulations, certain transactions subject
to the special currency rules that are part of a "section 988 hedging
transaction" (as defined in the Code and the Treasury regulations) will be
integrated and treated as a single transaction or otherwise treated consistently
for purposes of the Code. "Section 988 hedging transactions" are not subject to
the mark-to-market or loss deferral rules under the Code. It is anticipated
that some of the non-U.S. dollar denominated investments and foreign currency
contracts that the Fund may make or may enter into will be subject to the
special currency rules described above. Gain or loss attributable to the
foreign
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currency component of transactions engaged in by the Fund which are not subject
to special currency rules (such as foreign equity investments other than certain
preferred stocks) will be treated as capital gain or loss and will not be
segregated from the gain or loss on the underlying transaction.
Under the federal income tax provisions applicable to regulated
investment companies, less than 30% of a company's gross income must be derived
from gains realized on the sale or other disposition of securities held for less
than three months. With respect to futures contracts and other financial
instruments subject to the "mark-to-market" rules, the Internal Revenue Service
has ruled in private letter rulings that a gain realized from such a futures
contract or financial instrument will be treated as being derived from a
security held for three months or more (regardless of the actual period for
which the contract or instrument is held) if the gain arises as a result of a
constructive sale under the "mark-to-market" rules, and will be treated as being
derived from a security held for less than three months only if the contract or
instrument is terminated (or transferred) during the taxable year (other than by
reason of the mark-to-market rules) and less than three months have elapsed
between the date the contract or instrument is acquired and the termination
date. In determining whether the 30% test is met for a taxable year, increases
and decreases in the value of the Fund's futures contracts and other investments
that qualify as part of a "designated hedge," as defined in the Code, may be
netted.
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EXCELSIOR FUNDS, INC.
FORM N-1A
---------
PART C. OTHER INFORMATION
Item 23. Exhibits
(a) (1) Articles of Incorporation of Registrant dated
August 1, 1984 (4).
(2) Articles Supplementary of Registrant dated
October 29, 1985 (4).
(3) Articles Supplementary of Registrant dated
September 30, 1986 (4).
(4) Articles Supplementary of Registrant dated April
10, 1987 (4).
(5) Articles Supplementary of Registrant dated April
27, 1990 (4).
(6) Articles Supplementary of Registrant dated
October 26, 1990 (4).
(7) Articles Supplementary of Registrant dated
January 29, 1991 (4).
(8) Articles Supplementary of Registrant dated
December 23, 1992 (4).
(9) Articles Supplementary of Registrant dated
August 31, 1995 (1).
(10) Articles Supplementary of Registrant dated
December 28, 1995 (1).
(11) Articles Supplementary of Registrant dated
September 11, 1997 (3).
(12) Articles Supplementary of Registrant dated
December 22, 1997 (4).
<PAGE>
(13) Articles Supplementary of Registrant dated
November 13, 1998 (5).
(14) Articles of Amendment of Registrant dated July
1, 1999 (8).
(15) Articles Supplementary of Registrant dated
January 3, 2000 (8).
(16) Articles Supplementary of Registrant dated
March 7, 2000 (12).
(17) Articles Supplementary of Registrant dated July
18, 2000 (13).
(b) (1) Amended and Restated By-Laws of Registrant
dated February 2, 1995 (3).
(2) Amendment No. 1 to Amended and Restated By-Laws
of Registrant dated May 16, 1997 (3).
(c) (1) Articles VI, VII, VIII and X of Registrant's
Articles of Incorporation dated August 1, 1984 (4).
(2) Articles I, II, IV and VI of Registrant's
Amended and Restated By-Laws dated February 2, 1995
(3).
(d) (1) Investment Advisory Agreement among Registrant,
U.S. Trust Company and United States Trust Company of
New York dated May 31, 2000 with respect to the Latin
America, Pacific/Asia, Pan European, Emerging Markets
and International Funds (13).
(2) Investment Advisory Agreement among Registrant,
U.S. Trust Company and United States Trust Company of
New York dated May 31, 2000 with respect to the
Money, Government Money, Blended Equity, Small Cap,
Energy and Natural Resources, Value and
Restructuring, Treasury Money, Managed Income, Short-
Term Government Securities, Intermediate-Term Managed
Income, Real Estate and Large Cap Growth Funds (13).
(3) Investment Advisory Agreement among Registrant,
U.S. Trust Company and United States Trust Company of
New York dated May 31, 2000 with respect to the
Technology Fund (13).
-2-
<PAGE>
(e) (1) Amended and Restated Distribution Contract
dated July 31, 1998 between the Registrant and
Edgewood Services, Inc. (5).
(2) Exhibit A dated March 31, 2000 to the Amended
and Restated Distribution Contract (adding the
Technology Fund) (13).
(f) None.
(g) (1) Custody Agreement between the Registrant and
The Chase Manhattan Bank dated September 1, 1995 (as
amended and restated on August 1, 1997) (3).
(2) Amendment No. 1 dated May 22, 1998 to the
Custody Agreement dated September 1, 1995 (as amended
and restated on August 1, 1997) between the
Registrant and The Chase Manhattan Bank (5).
(3) Amendment No. 2 dated May 22, 1998 to the
Custody Agreement dated September 1, 1995 (as amended
and restated on August 1, 1997, between the
Registrant and The Chase Manhattan Bank (5).
(4) Amendment No. 3 dated July 31, 1998 to the
Custody Agreement dated September 1, 1995 (as amended
and restated on August 1, 1997) between the
Registrant and The Chase Manhattan Bank (5).
(5) Amended Exhibit A dated November 28, 1997 to
the Custody Agreement dated September 1, 1995 (as
amended and restated on August 1, 1997) (4).
(6) Form of Amended Exhibit A to the Custody
Agreement dated September 1, 1995 (as amended and
restated on August 1, 1997) adding the Technology
Fund (9).
(h) (1) Amended and Restated Administration Agreement
dated July 31, 1998 among the Registrant, Chase
Global Funds Services Company, Federated
Administrative Services and U.S. Trust Company of
Connecticut (5).
(2) Form of Exhibit A to the Amended and Restated
Administration Agreement dated July 31, 1998 among
the Registrant, Chase Global Funds Services Company,
Federated Administrative Services and U.S. Trust
Company (adding the Technology Fund) (9).
-3-
<PAGE>
(3) Form of Exhibit B to the Amended and Restated
Administration Agreement dated July 31, 1998 among
the Registrant, Chase Global Funds Services Company,
Federated Administrative Services and U.S. Trust
Company (adding the Technology Fund) (9).
(4) Assumption Agreement dated July 31, 2000
between Federated Services Company and the Registrant
(14).
(5) Amended and Restated Mutual Funds Transfer
Agency Agreement dated as of July 31, 1998 between
the Registrant and United States Trust Company of New
York (5).
(6) Letter Agreement dated September 11, 1997 with
respect to the Mutual Funds Transfer Agency Agreement
dated September 1, 1995 (4).
(7) Letter Agreement dated November 14, 1997 with
respect to the Mutual Funds Transfer Agency Agreement
dated September 1, 1995 (4).
(8) Letter Agreement dated March 31, 2000 with
respect to the Amended and Restated Mutual Funds
Transfer Agency Agreement dated July 31, 1998 (13).
(9) 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).
(10) Letter Agreement dated September 11, 1997 with
respect to the Mutual Funds Sub-Transfer Agency
Agreement dated September 1, 1995 (4).
(11) Letter Agreement dated November 14, 1997 with
respect to the Mutual Funds Sub-Transfer Agency
Agreement dated September 1, 1995 (4).
(12) Letter Agreement dated March 31, 2000 with
respect to the Mutual Funds Sub-Transfer Agency
Agreement dated July 31, 1998 (13).
(13) Amended and Restated Administrative Services
Plan and Related Form of Shareholder Servicing
Agreement (3).
-4-
<PAGE>
(14) Administrative Services Plan and Related Form
of Servicing Agreement with Respect to the
Institutional Shares of the Money Fund (7).
(15) Administrative Services Plan and Related Form
of Servicing Agreement with Respect to the
Institutional Shares of the Government Money Fund
(12).
(16) Administrative Services Plan and Related Form
of Servicing Agreement with Respect to the Advisor
Shares Class of the Value and Restructuring, Large
Cap Growth, Blended Equity and Intermediate-Term
Managed Income Funds (8).
(17) Revised Appendix A to the Shareholder Servicing
Agreement (adding the Technology Fund) (9).
(18) Credit Agreement dated December 27, 1999 by and
among Registrant, Excelsior Tax-Exempt Funds, Inc.,
Excelsior Institutional Trust, The Chase Manhattan
Bank and the other lenders thereunder (8).
(19) Waiver and Reimbursement Agreement among
Registrant, United States Trust Company of New York
and U.S. Trust Company dated July 28, 2000 (13).
(i) Opinion of counsel (15).
(j) (1) Consent of Counsel (15).
(2) None.
(k) None.
(l) (1) Purchase Agreement between Registrant and
Shearson Lehman Brothers Inc. dated February 6, 1985
(4).
(2) Purchase Agreement between Registrant and UST
Distributors, Inc. dated December 29, 1992 (4).
(3) Purchase Agreement between Registrant and
Edgewood Services, Inc. dated November 17, 1995 (1).
(4) Purchase Agreement between Registrant and
Edgewood Services, Inc. dated September 25, 1997 (3).
(5) Purchase Agreement between Registrant and
Edgewood Services, Inc. dated December 30, 1997 (4).
-5-
<PAGE>
(6) Form of Purchase Agreement between Registrant
and Edgewood Services, Inc. (Advisor Shares) (8).
(7) Purchase Agreement between Registrant and
Edgewood Services, Inc. dated March 31, 2000 on
behalf of the Technology Fund (13).
(m) Distribution Plan and Related Form of Distribution
Agreement relating to Advisor Shares of the Value and
Restructuring, Blended Equity, Large Cap Growth and
Intermediate-Term Managed Income Funds (8).
(n) Amended and Restated Plan Pursuant to Rule 18f-3 for
Operation of a Multi-Class System (12).
(p) (1) Code of Ethics of Registrant (13).
(2) Code of Ethics of U.S. Trust Corporation
(including U.S. Trust Company and United States
Trust Company of New York) (12).
(3) Code of Ethics of Edgewood Services, Inc. (12).
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 13, 1998.
(5) Incorporated herein by reference to Registrant's Registration Statement on
Form N-14 filed April 5, 1999.
(6) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 33 to its Registration Statement on Form N-1A filed May 28, 1999.
(7) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 34 to its Registration Statement on Form N-1A filed July 29, 1999.
-6-
<PAGE>
(8) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 35 to its Registration Statement on Form N-1A filed January 4, 2000.
(9) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 36 to its Registration Statement on Form N-1A filed February 8, 2000.
(10) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 37 to its Registration Statement on Form N-1A filed March 29, 2000.
(11) Incorporated herein by reference to Registrant's Definitive Proxy Statement
pursuant to Section 14 (a) of the Securities and Exchange Act of 1934 filed
March 22, 2000.
(12) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 38 to its Registration Statement on Form N-1A filed May 26, 2000.
(13) Incorporated herein by reference to Registrant's Post-Effective Amendment
No. 40 to its Registration Statement on Form N-1A filed on July 31, 2000.
(14) Filed herewith.
(15) To be filed by Amendment.
Item 24. Persons Controlled By or Under
Common Control with Registrant
------------------------------
Registrant is controlled by its Board of Directors.
Item 25. Indemnification
---------------
Article VII, Section 3 of Registrant's Articles of Incorporation,
incorporated herein by reference to Exhibit (a)(1) hereto, and Article VI,
Section 2 of Registrant's Amended and Restated Bylaws, incorporated herein by
reference to Exhibit (b)(1) 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 (e) hereto, Section 12 of the
Custody Agreement incorporated herein by reference to Exhibit (g)(1) hereto,
Section 7 of the Amended and Restated Mutual Funds Transfer Agency Agreement
incorporated herein by reference to Exhibit (h)(5) hereto, and Section 6 of the
Amended and Restated Administration Agreement incorporated herein by reference
to Exhibit (h)(1) 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, 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.
-7-
<PAGE>
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.
Item 26. Business and Other Connections of the Investment Adviser
--------------------------------------------------------
(a) U.S. Trust Company:
U.S. Trust Company ("U.S. Trust") is a Connecticut state bank and
trust company located in Stamford, Connecticut. Set forth below are the names
and principal businesses of the directors and certain senior executive officers
of U.S. Trust, including those who are engaged in any other business,
profession, vocation or employment of a substantial nature.
Position
with U.S. Principal Type of
Trust Name Occupation Business
----- ---- ---------- --------
Director Tucker H. Warner Co-Founder, Consulting Firm
The Nutmeg Financial Partner &
Group, LLC Director
1157 Highland Avenue
West Cheshire, CT 06903
Director Thomas C. Clark Managing Director, Asset Management,
United States Trust United States Trust Investment and
Company of New York Company of New York Fiduciary Services
11 West 54th Street
New York, NY 10019
Director, Maribeth S. Rahe Vice Chairman, Asset Management,
Chairman United States Trust United States Trust Investment and
of Board Company of New York Company of New York Fiduciary Services
114 West 47th Street
New York, NY 10036
-8-
<PAGE>
Position
with U.S. Principal Type of
Trust Name Occupation Business
----- ---- ---------- --------
Director Frederick B. Taylor Vice Chairman, Asset Management,
United States Trust United States Trust Investment and
Company of New York Company of New York Fiduciary Services
114 West 47th Street
New York, NY 10036
Director Robert C. Bodine Chairman Asset Management,
U.S. Trust Company Investment and
100 West Lancaster Avenue Fiduciary Services
Suite 200
Wayne, PA 19087
Director Howard E.N. Wilson Chairman Asset Management,
U.S. Trust Company Investment and
100 West Lancaster Avenue Fiduciary Services
Suite 200
Wayne, PA 19087
Director Kenneth G. Walsh Executive Vice Asset Management,
United States Trust President, Investment and
Company of New York United States Fiduciary Services
114 West 47th Street Trust Company of
New York, NY 10036 New York
Director, William V. Ferdinand Managing Director Asset Management,
Managing U.S. Trust Company & CIO Fiduciary Services
Director & 225 High Ridge Road & Private Banking
CIO, CT Stamford, CT 06905
Offices
Director, W. Michael Funck President & CEO Asset Management,
President & U.S. Trust Company Fiduciary Services
CEO, CT 225 High Ridge Road & Private Banking
Offices Stamford, CT 06905
(b) United States Trust Company of New York:
United States Trust Company of New York ("U.S. Trust NY") is a
full-service state-chartered bank located in New York, New York. Set forth below
are the names and principal businesses of the trustees and certain senior
executive officers of U.S. Trust NY, including those who are engaged in any
other business, profession, vocation, or employment of a substantial nature.
-9-
<PAGE>
Position
with U.S. Principal Type of
Trust NY Name Occupation Business
-------- ---- ---------- --------
Director Eleanor Baum Dean of School Academic
4 Arleigh Road of Engineering,
Great Neck, NY 11021 The Cooper Union for
the Advancement of
Science & Art
Director Samuel C. Butler Partner in Cravath, Law Firm
Cravath, Swaine Swaine & Moore
& Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Director Peter O. Crisp Retired Chairman of Venture
103 Horseshoe Road Venrock, Inc. Capital
Mill Neck, NY 11765
Director Antonia M. Grumbach Partner in Patterson, Law Firm
Patterson, Belknap, Belknap, Webb
Webb & Tyler, LLP & Tyler
1133 Avenue of the
Americas
New York, NY 10036
Director, H. Marshall Schwarz Chairman of the Asset Management,
Chairman United States Trust Board & Chief Investment and
of the Board Company of New York Executive Officer of Fiduciary Services
and Chief 114 West 47th Street U.S. Trust Corp. and
Executive New York, NY 10036 U.S. Trust Company of
Officer New York
Director Philippe de Montebello Director of the Art Museum
The Metropolitan Museum Metropolitan
of Art Museum of Art
1000 Fifth Avenue
New York, NY 10028-0198
Director John H. Stookey Chairman of Petrochemicals and
Suburban Propane Pts. Suburban Propane Pts. Propane
P.O. Box 455
Sheffield, MA 01257
-10-
<PAGE>
<TABLE>
<CAPTION>
Position
with U.S. Principal Type of
Trust Name Occupation Business
----- ---- ---------- --------
<S> <C> <C> <C>
Director Robert N. Wilson Vice Chairman of Health Care
Johnson & Johnson the Board of Johnson Products
One Johnson & & Johnson
Johnson Plaza
New Brunswick, NJ 08933
Director Peter L. Malkin Chairman of Law Firm
Wien & Malkin LLP Wien & Malkin LLP
Lincoln Building
60 East 42nd Street
New York, NY 10165
Director David A. Olsen Retired Chairman of Risk & Insurance
1120 Park Avenue Johnson & Higgins Services
New York, NY 10128
Director Ruth A. Wooden President and CEO of Not-for-Profit
60 Gramercy Park North National Parenting
Apt. 2M Association
New York, NY 10016
Executive Paul K. Napoli Executive Asset Management,
Vice United States Trust Vice President of Investment and
President Company of New York U.S. Trust Corporation Private Banking
114 West 47th Street and United States Trust Fiduciary Services
New York, NY 10036 Company of New York
Director and Maribeth S. Rahe Vice Chairman Asset Management,
Vice Chair- United States Trust of U.S. Trust Corporation Investment and
man Company of New York and United States Trust Fiduciary Services
114 West 47th Street Company of New York
New York, NY 10036
Director, Frederick B. Taylor Vice Chairman and Asset Management,
Vice Chair- United States Trust Chief Investment Of- Investment and
man and Company of New York ficer of U.S. Trust Fiduciary Services
Chief Invest- 114 West 47/th/ Street Corporation and United
ment Officer New York, NY 10036 States Trust Company
of New York
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
Position
with U.S. Principal Type of
Trust Name Occupation Business
----- ---- ---------- --------
<S> <C> <C> <C>
Director, Jeffrey S. Maurer President and Asset Management,
President, United States Trust Chief Operating Investment and
and Chief Company of New York Officer of U.S. Trust Fiduciary Services
Operating 114 West 47th Street Corporation and United
Officer New York, NY 10036 States Trust Company of
New York
Executive John L. Kirby Executive Asset Management,
Vice United States Trust Vice President and Investment and
President Company of New York Chief Financial Fiduciary Services
and Chief 114 West 47th Street Officer of U.S. Trust
Financial New York, NY 10036 Corporation and United
Officer States Trust Company of
New York
Executive Kenneth G. Walsh Executive Asset Management,
Vice United States Trust Vice President of Investment and
President Company of New York U.S. Trust Corporation Fiduciary Services
114 West 47th Street and United States Trust
New York, NY 10036 Company of New York
Director Philip L. Smith Corporate Director and Consumer Goods
P.O. Box 386 Trustee
Ponte Verde Beach, FL 32004
Director Robert E. Denham Partner in Manger, Tolls Law Firm
Manger, Tolls & & Olson LLP
Olson LLP
355 South Grand Avenue
35/th/ Floor
Los Angeles, CA 90071-1560
Director Carl H. Pforzheimer, II Managing Partner Broker-Dealer,
Carl H. Pforzheimer & Co. Investment
650 Madison Avenue Adviser
23/rd/ Floor
New York, NY 10022
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
Position
with U.S. Principal Type of
Trust Name Occupation Business
----- ---- ---------- --------
<S> <C> <C> <C>
Executive John M. Deignan Executive Investment
Vice United States Trust Vice President Management and
President Company of New York Fiduciary Services;
114 West 47th Street Private Banking
New York, NY 10036
</TABLE>
-13-
<PAGE>
Item 27. Principal Underwriter
(a) Edgewood Services, Inc., the Distributor for shares of the
Registrant, also acts as principal underwriter for the following open-end
investment companies: Excelsior Tax-Exempt Funds, Inc., Excelsior Institutional
Trust, FTI Funds, Great Plains Funds, Old Westbury Funds, Inc., The Riverfront
Funds, Robertsons Stephens Investment Trust and WesMark Funds.
<TABLE>
<CAPTION>
(b) Names and Principal Positions and Offices with Offices with
Business Addresses The Distributor Registrant
------------------ --------------- ----------
<S> <C> <C>
Lawrence Caracciolo Director and President, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-7002
Arthur L. Cherry Director, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-7002
J. Christopher Donahue Director, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-7002
Ernest L. Linane Vice President, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-7002
Christine T. Johnson Vice President, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-7002
Denis McAuley, III Treasurer, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-7002
Timothy S. Johnson Secretary, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-7002
Victor R. Siclari Assistant Secretary, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-7002
</TABLE>
-14-
<PAGE>
(c) Not Applicable.
Item 28. Location of Accounts and Records
--------------------------------
1. United States Trust Company of New York, 114 W. 47th Street, New
York, NY 10036 (records relating to its functions as investment adviser and
transfer agent).
2. U.S. Trust Company, 225 High Ridge Road, East Building, Stamford,
Connecticut 06905 (records relating to its function as investment adviser and
co-administrator).
3. Edgewood Services, Inc., Clearing Operations, 5800 Corporate
Drive, Pittsburgh, PA 15237-5829 (records relating to its function as
distributor).
4. Chase Global Funds Services Company, 73 Tremont Street, Boston,
Massachusetts 02108-3913 (records relating to its function as co-administrator
and sub-transfer agent).
5. Federated Services Company, Federated Investors Tower, Pittsburgh,
PA 15222-3799 (records relating to its function as co-administrator).
6. The Chase Manhattan Bank, 3 Chase MetroTech Center, 8th Floor,
Brooklyn, NY 11245 (records relating to its function as custodian).
7. Drinker Biddle & Reath LLP, One Logan Square, 18th and Cherry
Streets, Philadelphia, Pennsylvania 19103-6996 (Registrant's Articles of
Incorporation, Bylaws, and Minute Books).
Item 29. Management Services
-------------------
Not Applicable.
Item 30. Undertakings
------------
Not Applicable.
-15-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 (the "1933
Act") and the Investment Company Act of 1940, Excelsior Funds, Inc. has duly
caused this Post-Effective Amendment No. 41 to its Registration Statement on
Form N-1A to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York and the State of New York on the 6/th/ day
of October, 2000.
EXCELSIOR FUNDS, INC.
Registrant
/s/ Frederick S. Wonham
-----------------------------------
Frederick S. Wonham, President and
Treasurer
(Signature and Title)
Pursuant to the requirements of the 1933 Act, this Post-Effective
Amendment No. 41 to Excelsior Funds, Inc.'s Registration Statement on Form N-1A
has been signed below by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
/s/ Frederick S. Wonham Chairman of the Board, October 6, 2000
--------------------------
Frederick S. Wonham President and Treasurer
* Joseph H. Dugan Director October 6, 2000
-----------------
Joseph H. Dugan
*Morrill Melton Hall Director October 6, 2000
--------------------
Morrill Melton Hall
* Wolfe J. Frankl Director October 6, 2000
-----------------
Wolfe J. Frankl
* Robert A. Robinson Director October 6, 2000
--------------------
Robert A. Robinson
* Alfred Tannachion Director October 6, 2000
-------------------
Alfred Tannachion
* Jonathan Piel Director October 6, 2000
---------------
Jonathan Piel
*Rodman L. Drake Director October 6, 2000
----------------
Rodman L. Drake
*By: /s/ Michael P. Malloy
-----------------------------------
Michael P. Malloy, Attorney-in-Fact
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s and Excelsior Institutional Trust's
(collectively, the "Companies") respective Registration Statements on Form N-1A
pursuant to the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended (the "Acts") and all instruments necessary or incidental
in connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and said attorney
shall have full power and authority, to do and perform in the name and on behalf
of the undersigned in any and all capacities, every act whatsoever requisite or
necessary to be done, as fully and to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorney may
lawfully do or cause to be done by virtue hereof.
Dated: May 19, 2000 /s/ Alfred C. Tannachion
------------------------
Alfred C. Tannachion
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s and Excelsior Institutional Trust's
(collectively, the "Companies") respective Registration Statements on Form N-1A
pursuant to the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended (the "Acts") and all instruments necessary or incidental
in connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that either
of said attorneys may lawfully do or cause to be done by virtue hereof.
Dated: July 30, 2000 /s/ Mel Hall
---------------
Mel Hall
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s and Excelsior Institutional Trust's
(collectively, the "Companies") respective Registration Statements on Form N-1A
pursuant to the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended (the "Acts") and all instruments necessary or incidental
in connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that either
of said attorneys may lawfully do or cause to be done by virtue hereof.
Dated: May 19, 2000 /s/ Joseph H. Dugan
-------------------
Joseph H. Dugan
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s and Excelsior Institutional Trust's
(collectively, the "Companies") respective Registration Statements on Form N-1A
pursuant to the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended (the "Acts") and all instruments necessary or incidental
in connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that either
of said attorneys may lawfully do or cause to be done by virtue hereof.
Dated: May 19, 2000 /s/ Robert A. Robinson
----------------------
Robert A. Robinson
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s and Excelsior Institutional Trust's
(collectively, the "Companies") respective Registration Statements on Form N-1A
pursuant to the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended (the "Acts") and all instruments necessary or incidental
in connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that either
of said attorneys may lawfully do or cause to be done by virtue hereof.
Dated: May 19, 2000 /s/ Wolfe J. Frankl
-------------------
Wolfe J. Frankl
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints W.
Bruce McConnel, III his true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution, for him and in his name, place and
stead, in his capacity as director/trustee or officer, or both, to execute
amendments to Excelsior Funds, Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s and
Excelsior Institutional Trust's (collectively, the "Companies") respective
Registration Statements on Form N-1A pursuant to the Investment Company Act of
1940, as amended, and the Securities Act of 1933, as amended (the "Acts") and
all instruments necessary or incidental in connection therewith pursuant to said
Acts and any rules, regulations, or requirements of the Securities and Exchange
Commission in respect thereof, and to file the same with the Securities and
Exchange Commission, and said attorney shall have full power and authority, to
do and perform in the name and on behalf of the undersigned in any and all
capacities, every act whatsoever requisite or necessary to be done, as fully and
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney may lawfully do or cause to be done by
virtue hereof.
Dated: May 19, 2000 /s/ Frederick S. Wonham
-----------------------
Frederick S. Wonham
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s and Excelsior Institutional Trust's
(collectively, the "Companies") respective Registration Statements on Form N-1A
pursuant to the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended (the "Acts") and all instruments necessary or incidental
in connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that either
of said attorneys may lawfully do or cause to be done by virtue hereof.
Dated: May 19, 2000 /s/ Rodman L. Drake
---------------------
Rodman L. Drake
<PAGE>
EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s and Excelsior Institutional Trust's
(collectively, the "Companies") respective Registration Statements on Form N-1A
pursuant to the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended (the "Acts") and all instruments necessary or incidental
in connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that either
of said attorneys may lawfully do or cause to be done by virtue hereof.
Dated: May 19, 2000 /s/ Jonathan Piel
-------------------
Jonathan Piel
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Description
------- -----------
(h)(4) Assumption Agreement between Federated Services
Company and Registrant.
