<PAGE>
EXCELSIOR FUNDS
INSTITUTIONAL MONEY FUND
SUPPLEMENT TO PROSPECTUS DATED JANUARY 1, 1997
1. The new address of the Trust is 73 Tremont Street, Boston, Massachusetts
02108-3913. For initial purchase or existing account information, call (800)
909-1989 (from overseas, call (617) 557-1755).
2. The following replaces the first sentence of the sixth paragraph on the
cover page:
The Fund is distributed by Edgewood Services, Inc. ("Edgewood").
3. The following replaces the third sentence of the seventh paragraph on the
cover page:
Additional information about the Fund is contained in a Statement of
Additional Information, which has been filed with the Securities and
Exchange Commission and is available without charge upon request by writing
to the Trust at its address shown above or by calling (800) 909-1989.
4. The following replaces the second sentence of the second paragraph in the
section entitled "Summary of Expenses --Example" on page 1:
The Fund's administrators have voluntarily agreed to reimburse the
Fund for certain expenses, and the Investment Adviser and the Portfolio's
administrator have each voluntarily agreed to waive a portion of their fees
such that, following such waivers and reimbursements, the total operating
expenses for the current fiscal year (including amortization of
organization costs and the Fund's allocated portion of the Portfolio's
expenses, but exclusive of taxes, interest, brokerage commissions and
extraordinary expenses) of the Fund on an annual basis would not exceed
.25% of the average daily net assets of the Fund.
<PAGE>
5. The following replaces the fifth sentence of the first paragraph under the
heading "How to Purchase and Redeem Shares --Purchase of Shares" on page 9:
The Distributor, Edgewood Services, Inc. ("Edgewood"), has established
procedures for purchasing Shares in order to accommodate different types of
investors (see "Purchase Procedures" below).
6. The following replaces the first sentence of the first paragraph under the
heading "Management of the Trust and the Portfolio" on page 17:
The Trust has retained the services of U.S. Trust, CGFSC and
Federated Administrative Services ("FAS") (the "Trust Administrators")
as administrators.
7. The following replaces the sections entitled "Supplemental
Investment Management Services" and "Administrators" under the heading
"Management of the Trust and the Portfolio" on pages 17 and 18:
Pursuant to an Administration Agreement and an Administrative Services
Agreement, respectively, the Trust Administrators and Signature Financial
Group (Cayman), Ltd. (together with the Trust Administrators, the
"Administrators") provide the Trust and Cash Reserves Portfolio,
respectively, with general office facilities and supervise the overall
administration of the Trust and the Portfolio, respectively, including,
among other responsibilities, the negotiation of contracts and fees with,
and the monitoring of performance and billings of, the various service
providers of the Trust and the Portfolio; the preparation and filing of
certain documents required for compliance by the Trust and the Portfolio
with applicable laws and regulations; the preparation and distribution of
materials in connection with meetings of trustees and investors; and
arranging for the maintenance of books and records of the Trust and the
Portfolio. The Trust Administrators also assist in developing and
monitoring compliance procedures for the Fund, including procedures to
monitor compliance with the Fund's investment objective, policies and
restrictions. Signature Financial Group (Cayman), Ltd. provides persons
satisfactory to the Board of Trustees of the Portfolio to serve as trustees
and officers of the Portfolio. Such officers and trustees of the Portfolio
may be directors, officers or employees of Signature Financial Group
(Cayman), Ltd. or its affiliates.
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As compensation for providing these services and facilities to
the Trust and the Portfolio: (i) the Trust Administrators are jointly
entitled to an annual fee from the Fund, computed daily and paid
monthly, at the maximum annual rate of 0.10% of the Fund's average
daily net assets; and (ii) Signature Financial Group (Cayman), Ltd. is
entitled to an annual fee from Cash Reserves Portfolio, computed daily
and paid monthly, at the maximum annual rate of 0.05% of the
Portfolio's aggregate average daily net assets. Signature Financial
Group (Cayman), Ltd. has voluntarily agreed to waive the
administration fee payable by the Portfolio on a month-to-month basis,
and the Trust Administrators have voluntarily agreed to waive a
portion of their administration fees and to reimburse the Fund for
certain expenses.
Prior to April 1, 1997, Signature Broker-Dealer Services, Inc.
("SBDS") served as the Trust's administrator. For the year ended
August 31, 1996, the Fund paid SBDS administration fees at the annual
rate of 0.01% of the Fund's average daily net assets. For the same
period, Signature Financial Group (Cayman), Ltd. waived all
administration fees with respect to the Portfolio. SBDS and Signature
Financial Group (Cayman), Ltd. are subsidiaries of Signature Financial
Group, Inc.
8. The following replaces the paragraph under the caption "Distributor" on
page 19:
Shares are continuously offered for sale by the Trust's sponsor
and distributor, Edgewood Services, Inc. ("Edgewood"), a wholly-owned
subsidiary of Federated Investors and an affiliate of FAS. Edgewood
is a registered broker/dealer. Its principal business address is
Clearing Operations, P.O. Box 897, Pittsburgh, PA 15230-0897.
Edgewood receives no compensation for serving as the Trust's
distributor.
9. The words "Administrative Services Agreement" in the first sentence of the
second paragraph under the caption "Expenses" on page 20 are replaced by the
words "Administration Agreement."
The date of this Supplement is April 1, 1997.
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STATEMENT OF
ADDITIONAL INFORMATION
January 1, 1997
(as revised on April 1, 1997)
-----------------------------
EXCELSIOR INSTITUTIONAL MONEY FUND
Excelsior Institutional Money Fund (the "Fund") is a series of Excelsior
Funds (the "Trust"). This Statement of Additional Information describes the
Fund only and no other series of the Trust.
<TABLE>
<CAPTION>
Table of Contents Page
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<S> <C>
The Trust........................................ 3
Investment Objective, Policies and Restrictions.. 3
Securities Transactions.......................... 14
Yield Information................................ 15
Determination of Net Asset Value; Valuation of
Securities; Redemption in Kind................. 16
Additional Purchase and Redemption Information... 18
Management of the Trust and the Portfolio........ 19
Independent Accountants.......................... 32
Taxation......................................... 32
Description of the Trust; Fund Shares............ 35
Financial Statements............................. 37
</TABLE>
Excelsior Funds
73 Tremont Street, Boston, Massachusetts 02108
(617) 557-8000
This Statement of Additional Information sets forth information which may
be of interest to investors but which is not necessarily included in the Fund's
Prospectus, dated January 1, 1997 (as revised on April 1, 1997) (the
"Prospectus"), as the same may be amended from time to time. This Statement of
Additional Information should be read only in conjunction with the Prospectus, a
copy of which may be obtained by an investor without charge by contacting the
Trust at the address and telephone number shown above. Terms used but not
defined herein, which are defined in the Prospectus, are used herein as defined
in the Prospectus.
SHARES OF THE FUND ("SHARES") ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK AND THE SHARES ARE NOT FEDERALLY INSURED BY
GUARANTEED BY OR OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER GOVERNMENTAL AGENCY. THE FUND SEEKS TO MAINTAIN ITS NET ASSET VALUE PER
SHARE AT $1.00 FOR PURPOSES OF PURCHASES AND REDEMPTIONS, ALTHOUGH THERE CAN BE
NO ASSURANCE THAT IT WILL BE ABLE TO DO SO ON A CONTINUING BASIS. INVESTMENT IN
THE FUND
<PAGE>
INVOLVES INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVESTED.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
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<PAGE>
THE TRUST
The Trust is an open-end diversified management investment company which
was organized as a business trust under the laws of the State of Delaware on
October 25, 1993. Shares of the Trust have been divided into separate series.
This Statement of Additional Information describes the Excelsior Institutional
Money Fund (the "Fund" or "Institutional Money Fund"). As of the date hereof,
there are no other active series of the Trust, although new series may be added
from time to time.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The investment objective of the Institutional Money Fund is to provide
shareholders with liquidity and as high a level of current income as is
consistent with the preservation of capital. The Trust seeks to achieve the
investment objective of the Institutional Money Fund by investing all the
investable assets of the Fund in Cash Reserves Portfolio (the "Portfolio"), a
diversified open-end management investment company with the same investment
objective as the Institutional Money Fund. Cash Reserves Portfolio seeks to
achieve this investment objective by investing in U.S. dollar-denominated money
market obligations with maturities of 397 days or less issued by U.S. and non-
U.S. issuers.
Citibank, N.A. ("Citibank") is the investment adviser (the "Adviser") of
the Portfolio. The Adviser manages the investments of the Portfolio from day to
day in accordance with the Portfolio's investment objective and policies. The
selection and management of investments for the Portfolio and the way it is
managed depend on the conditions and trends in the economy and the financial
marketplaces.
The following discussion supplements the information contained in the
Prospectus concerning the investment objectives, policies and restrictions of
the Fund. Since the investment characteristics of the Fund correspond directly
to those of the Portfolio, references below to the Portfolio's investment
objective, strategies and techniques also include the Fund.
The Trust may withdraw the Fund's investment from the Portfolio at any
time, if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Fund's assets
would be invested in accordance with the investment objective, policies and
restrictions described below and in the Prospectus with respect to the
Portfolio. The approval of the Institutional Money Fund's shareholders is not
required to change the Fund's investment objective or any of its investment
policies.
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<PAGE>
CASH RESERVES PORTFOLIO
The approval of the investors in Cash Reserves Portfolio is not required to
change Cash Reserves Portfolio's investment objective or any of the Portfolio's
investment policies discussed below, including those concerning security
transactions, other than the Portfolio's concentration policy with respect to
bank obligations described in paragraph (1) below, which is fundamental and may
not be changed without investor approval.
Cash Reserves Portfolio seeks to achieve its investment objective through
investments limited to the following types of U.S. dollar-denominated money
market instruments. All investments by Cash Reserves Portfolio mature or will
be deemed to mature within 397 days from the date of acquisition, and the
average maturity of the investments held by Cash Reserves Portfolio (on a
dollar-weighted basis) will be 90 days or less. All investments by Cash
Reserves Portfolio are in high quality securities (i.e., rated in the highest
rating category for short term obligations by at least two nationally recognized
statistical rating organizations (each, an "NRSRO") assigning a rating to the
security or issuer, or if only one NRSRO assigned a rating, that NRSRO, or, in
the case of an investment which is not rated, of comparable quality as
determined by the Adviser, and are determined by the Adviser to present minimal
credit risks. Investments in high quality, short-term instruments may, in many
circumstances, result in a lower yield than would be available from investments
in instruments with a lower quality or a longer term. Under the Investment
Company Act of 1940 (the "1940 Act") the Institutional Money Fund and Cash
Reserves Portfolio are each classified as "diversified", although in the case of
the Fund, all of its assets are invested in the Portfolio. A "diversified
investment company" must invest at least 75% of its assets in cash and cash
items, U.S. Government securities, investment company securities and other
securities limited as to any one issuer to not more than 5% of the total assets
of the investment company and not more than 10% of the voting securities of the
issuer.
Cash Reserves Portfolio will limit its investments to the types of
instruments described below:
(1) BANK OBLIGATIONS. Cash Reserves Portfolio invests at least 25% of its
assets, and may invest up to 100% of its assets, in bank obligations.
These obligations include, but are not limited to, negotiable certificates
of deposit, bankers' acceptances and fixed time deposits. This
concentration policy is fundamental and may not be changed without the
approval of the investors in Cash Reserves Portfolio. Cash Reserves
Portfolio limits its investments in U.S. bank obligations (including their
non-U.S. branches) to banks having total assets in excess of $1 billion and
which are subject to regulation by an agency of the U.S.
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<PAGE>
Government. Cash Reserves Portfolio may also invest in certificates of deposit
issued by banks the deposits in which are insured by the Federal Deposit
Insurance Corporation ("FDIC"), through either the Bank Insurance Fund or the
Savings Association Insurance Fund, having total assets of less than $1 billion,
provided that Cash Reserves Portfolio at no time owns more than $100,000
principal amount of certificates of deposit (or any higher principal amount
which in the future may be fully insured by FDIC insurance) of any one of those
issuers. Fixed time deposits are obligations which are payable at a stated
maturity date and bear a fixed rate of interest. Generally, fixed time deposits
may be withdrawn on demand by Cash Reserves Portfolio, but they may be subject
to early withdrawal penalties which vary depending upon market conditions and
the remaining maturity of the obligation. Although fixed time deposits do not
have a market, there are no contractual restrictions on Cash Reserves
Portfolio's right to transfer a beneficial interest in the deposit to a third
party.
U.S. banks organized under federal law are supervised and examined by the
Comptroller of the Currency and are required to be members of the Federal
Reserve System and to be insured by the FDIC. U.S. banks organized under state
law are supervised and examined by state banking authorities and are members of
the Federal Reserve System only if they elect to join. However, state banks
which are insured by the FDIC are subject to federal examination and to a
substantial body of federal law and regulation. As a result of federal and state
laws and regulations, U.S. branches of U.S. banks, among other things, are
generally required to maintain specified levels of reserves, and are subject to
other supervision and regulation designed to promote financial soundness.
Cash Reserves Portfolio limits its investments in non-U.S. bank obligations
(i.e., obligations of non-U.S. branches and subsidiaries of U.S. banks, and U.S.
and non-U.S. branches of non-U.S. banks) to U.S. dollar-denominated obligations
of banks which at the time of investment are branches or subsidiaries of U.S.
banks which meet the criteria in the preceding paragraphs or are branches of
non-U.S. banks which (i) have more than $10 billion, or the equivalent in other
currencies, in total assets; (ii) in terms of assets are among the 75 largest
non-U.S. banks in the world; (iii) have branches or agencies in the United
States; and (iv) in the opinion of the Adviser, are of an investment quality
comparable with obligations of U.S. banks which may be purchased by Cash
Reserves Portfolio. These obligations may be general obligations of the parent
bank, in addition to the issuing branch or subsidiary, but the parent bank's
obligations may be limited by the terms of the specific obligation or by
governmental regulation. Cash Reserves Portfolio also limits its investments in
non-U.S. bank obligations to banks, branches and subsidiaries located in
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<PAGE>
Western Europe (United Kingdom, France, Germany, Belgium, the Netherlands,
Italy, Switzerland), Scandinavia (Denmark, Norway, Sweden), Australia, Japan,
the Cayman Islands, the Bahamas and Canada. Cash Reserves Portfolio does not
purchase any bank obligation of the Adviser or an affiliate of the Adviser.
Since Cash Reserves Portfolio may hold obligations of non-U.S. branches and
subsidiaries of U.S. banks, and U.S. and non-U.S. branches of non-U.S. banks, an
investment in the Institutional Money Fund involves certain additional risks.
Such investment risks include future political and economic developments, the
possible imposition of non-U.S. withholding taxes on interest income payable on
such obligations held by Cash Reserves Portfolio, the possible seizure or
nationalization of non-U.S. deposits and the possible establishment of exchange
controls or other non-U.S. governmental laws or restrictions applicable to the
payment of the principal of and interest on certificates of deposit or time
deposits that might affect adversely such payment on such obligations held by
Cash Reserves Portfolio. In addition, there may be less publicly-available
information about a non-U.S. branch or subsidiary of a U.S. bank or a U.S. or
non-U.S. branch of a non-U.S. bank than about a U.S. bank and such branches and
subsidiaries may not be subject to the same or similar regulatory requirements
that apply to U.S. banks, such as mandatory reserve requirements, loan
limitations and accounting, auditing and financial record-keeping standards and
requirements.
The provisions of federal law governing the establishment and operation of
U.S. branches do not apply to non-U.S. branches of U.S. banks. However, Cash
Reserves Portfolio will purchase obligations only of those non-U.S. branches of
U.S. banks which were established with the approval of the Board of Governors of
the Federal Reserve System (the "Board of Governors"). As a result of such
approval, these branches are subject to examination by the Board of Governors
and the Comptroller of the Currency. In addition, such non-U.S. branches of U.S.
banks are subject to the supervision of the U.S. bank, and creditors of the non-
U.S. branch are considered general creditors of the U.S. bank subject to
whatever defenses may be available under the governing non-U.S. law and to the
terms of the specific obligation. Nonetheless, Cash Reserves Portfolio generally
will be subject to whatever risk may exist that the non-U.S. country may impose
restrictions on payment of certificates of deposit or time deposits.
U.S. branches of non-U.S. banks are subject to the laws of the state in
which the branch is located or to the laws of the United States. Such branches
are therefore subject to many of the regulations, including reserve
requirements, to which U.S. banks are subject. In addition, Cash Reserves
Portfolio will purchase obligations only of those U.S. branches of non-U.S.
-6-
<PAGE>
banks which are located in states which impose the additional requirement that
the branch pledge to a designated bank within the state an amount of its assets
equal to 5% of its total liabilities.
Non-U.S. banks in whose obligations Cash Reserves Portfolio may invest may
not be subject to the laws and regulations referred to in the preceding two
paragraphs.
(2) OBLIGATIONS OF, OR GUARANTEED BY, NON-U.S. GOVERNMENTS. Cash Reserves
Portfolio limits its investments in non-U.S. government obligations to
obligations issued or guaranteed by the governments of Western Europe
(United Kingdom, France, Germany, Belgium, the Netherlands, Italy,
Switzerland), Scandinavia (Denmark, Norway, Sweden), Australia, Japan and
Canada. Generally, such obligations may be subject to the additional risks
described in paragraph 1 above in connection with the purchase of non-U.S.
bank obligations.
(3) COMMERCIAL PAPER rated Prime-1 by Moody's Investors Service, Inc.
("Moody's") or A-1 by Standard & Poor's Ratings Group ("Standard & Poor's")
or, if not rated, determined to be of comparable quality by or on behalf of
the Board of Trustees of Cash Reserves Portfolio, such as unrated
commercial paper issued by corporations having an outstanding unsecured
debt issue currently rated Aaa by Moody's or AAA by Standard & Poor's.
(For a description of these ratings see the Appendix to the Prospectus.)
(4) OBLIGATIONS OF, OR GUARANTEED BY, THE U.S. GOVERNMENT, ITS AGENCIES OR
INSTRUMENTALITIES. These include issues of the U.S. Treasury, such as
bills, certificates of indebtedness, notes and bonds, and issues of
agencies and instrumentalities established under the authority of an Act of
Congress. Some of the latter category of obligations are supported by the
full faith and credit of the United States, others are supported by the
right of the issuer to borrow from the U.S. Treasury, and still others are
supported only by the credit of the agency or instrumentality. Examples of
each of the three types of obligations described in the preceding sentence
are (i) obligations guaranteed by the Export-Import Bank of the United
States, (ii) obligations of the Federal National Mortgage Association, and
(iii) obligations of the Student Loan Marketing Association, respectively.
(5) REPURCHASE AGREEMENTS, providing for resale within 397 days or less,
covering obligations of, or guaranteed by, the U.S. Government, its
agencies or instrumentalities which may have maturities in excess of 397
days. A repurchase agreement arises when a buyer purchases an obligation
and simultaneously agrees with the vendor to resell the obligation to the
vendor at an agreed-upon price and time, which is usually not more than
seven days from the date of purchase. The resale price of a repurchase
-7-
<PAGE>
agreement is greater than the purchase price, reflecting an agreed-upon
market rate which is effective for the period of time the buyer's funds are
invested in the obligation and which is not related to the coupon rate on
the purchased obligation. Obligations serving as collateral for each
repurchase agreement are delivered to Cash Reserves Portfolio's custodian
either physically or in book entry form and the collateral is marked to the
market daily to ensure that each repurchase agreement is fully
collateralized at all times. A buyer of a repurchase agreement runs a risk
of loss if, at the time of default by the issuer, the value of the
collateral securing the agreement is less than the price paid for the
repurchase agreement. If the vendor of a repurchase agreement becomes
bankrupt, Cash Reserves Portfolio might be delayed, or may incur costs or
possible losses of principal and income, in selling the collateral. Cash
Reserves Portfolio may enter into repurchase agreements only with a vendor
which is a member bank of the Federal Reserve System or which is a "primary
dealer" (as designated by the Federal Reserve Bank of New York) in U.S.
Government obligations. Cash Reserves Portfolio will not enter into any
repurchase agreements with the Adviser or an affiliate of the Adviser. The
restrictions and procedures described above which govern Cash Reserves
Portfolio's investment in repurchase agreements are designed to minimize
Cash Reserves Portfolio's risk of losses in making those investments.
(6) ASSET-BACKED SECURITIES, which may include securities such as Certificates
for Automobile Receivables ("CARS") and Credit Card Receivable Securities
("CARDS"), as well as other asset-backed securities that may be developed
in the future. CARS represent fractional interests in pools of car
installment loans, and CARDS represent fractional interests in pools of
revolving credit card receivables. The rate of return on asset-backed
securities may be affected by early prepayment of principal on the
underlying loans or receivables. Prepayment rates vary widely and may be
affected by changes in market interest rates. It is not possible to
accurately predict the average life of a particular pool of loans or
receivables. Reinvestment of principal may occur at higher or lower rates
than the original yield. Therefore, the actual maturity and realized yield
on asset-backed securities will vary based upon the prepayment experience
of the underlying pool of loans or receivables. (See "Asset-Backed
Securities" below.)
Cash Reserves Portfolio does not purchase securities which the Portfolio
believes, at the time of purchase, will be subject to exchange controls or non-
U.S. withholding taxes; however, there can be no assurance that such laws may
not become applicable to certain of Cash Reserves Portfolio's investments. In
the event exchange controls or non-U.S. withholding taxes are imposed with
respect to any of Cash Reserves Portfolio's
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<PAGE>
investments, the effect may be to reduce the income received by the Portfolio on
such investments.
ASSET-BACKED SECURITIES. As set forth above, Cash Reserves Portfolio may
purchase asset-backed securities that represent fractional interests in pools of
retail installment loans, both secured (such as CARS) and unsecured, or leases
or revolving credit receivables, both secured and unsecured (such as CARDS).
These assets are generally held by a trust and payments of principal and
interest or interest only are passed through monthly or quarterly to certificate
holders and may be guaranteed up to certain amounts by letters of credit issued
by a financial institution affiliated or unaffiliated with the trustee or
originator of the trust.
Underlying automobile sales contracts, leases or credit card receivables
are subject to prepayment, which may reduce the overall return to certificate
holders. Nevertheless, principal repayment rates tend not to vary much with
interest rates and the short-term nature of the underlying loans, leases or
receivables tends to dampen the impact of any change in the prepayment level.
Certificate holders may also experience delays in payment on the certificates if
the full amounts due on underlying loans, leases or receivables are not realized
by Cash Reserves Portfolio because of unanticipated legal or administrative
costs of enforcing the contracts or because of depreciation or damage to the
collateral (usually automobiles) securing certain contracts, or other factors.
If consistent with its investment objectives and policies, Cash Reserves
Portfolio may invest in other asset-backed securities that may be developed in
the future.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements and in order to generate income, Cash Reserves Portfolio may lend
its securities to broker-dealers and other institutional borrowers. Such loans
will usually be made only to member banks of the Federal Reserve System and to
member firms of the New York Stock Exchange (and subsidiaries thereof). Loans of
securities would be secured continuously by collateral in cash, cash equivalents
or U.S. Treasury obligations maintained on a current basis at an amount at least
equal to the market value of the securities loaned. The cash collateral would be
invested in high quality short-term instruments. The Portfolio would have the
right to call a loan and obtain the securities loaned at any time on customary
industry settlement notice (which will not usually exceed five days). During the
existence of a loan, the Portfolio would continue to receive the equivalent of
the interest or dividends paid by the issuer on the securities loaned and would
also receive compensation based on investment of the collateral. The Portfolio
would not, however, have the right to vote any securities having voting rights
during the existence of the loan, but would call the loan in anticipation of an
important vote to be taken among holders of the securities or of
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<PAGE>
the giving or withholding of their consent on a material matter affecting the
investment. As with other extensions of credit, there are risks of delay in
recovery or even loss of rights in the collateral should the borrower fail
financially. However, the loans would be made only to entities deemed by the
Adviser to be of good standing, and when, in the judgment of the Adviser, the
consideration which can be earned currently from loans of this type justifies
the attendant risk. If the Adviser determines to make loans, it is intended
that the value of the securities loaned by the Portfolio would not exceed 33
1/3% of the value of its net assets.
INVESTMENT RESTRICTIONS
The Trust, on behalf of the Fund, and the Portfolio have each adopted the
following policies which may not be changed without approval by holders of a
"majority of the outstanding shares" of the Fund or the Portfolio, which as used
in this Statement of Additional Information means the vote of the lesser of (i)
67% or more of the outstanding "voting securities" of the Fund or the Portfolio,
respectively, present at a meeting, if the holders of more than 50% of the
outstanding "voting securities" of the Fund or the Portfolio, respectively, are
present or represented by proxy, or (ii) more than 50% of the outstanding
"voting securities" of the Fund or the Portfolio, respectively. The term
"voting securities" as used in this paragraph has the same meaning as in the
1940 Act.
Except as described below, whenever the Fund is requested to vote on a
change in the investment restrictions of the Portfolio (or the concentration
policy described in paragraph (1) above), the Fund will hold a meeting of its
shareholders and will cast its vote proportionately as instructed by its
shareholders. However, subject to applicable statutory and regulatory
requirements, the Fund would not request a vote of its shareholders with respect
to (a) any proposal relating to the Portfolio, which proposal, if made with
respect to the Fund, would not require the vote of the shareholders of the Fund,
or (b) any proposal with respect to the Portfolio that is identical in all
material respects to a proposal that has previously been approved by
shareholders of the Fund. Any proposal submitted to holders in the Portfolio,
and that is not required to be voted on by shareholders of the Fund, would
nevertheless be voted on by the trustees of the Trust on behalf of the Fund.
The Trust, on behalf of the Institutional Money Fund, and Cash Reserves
Portfolio may not:
(1) borrow money, except that as a temporary measure for extraordinary or
emergency purposes either the Trust or the Portfolio may borrow from banks
in an amount not to exceed one third of the value of the net assets of the
Fund or the
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Portfolio, respectively, including the amount borrowed. Moreover, neither
the Trust (on behalf of the Fund) nor the Portfolio may purchase any
securities at any time at which borrowings exceed 5% of the total assets of
the Fund or the Portfolio, respectively (taken in each case at market
value). It is intended that the Portfolio would borrow money only from
banks and only to accommodate requests for the withdrawal of all or a
portion of a beneficial interest in the Portfolio while effecting an
orderly liquidation of securities); for additional related restrictions,
see clause (i) under the caption "Non-Fundamental Restrictions" below;
(2) purchase any security or evidence of interest therein on margin, except
that either the Trust, on behalf of the Fund, or the Portfolio may obtain
such short-term credit as may be necessary for the clearance of purchases
and sales of securities;
(3) underwrite securities issued by other persons, except that all the
assets of the Fund may be invested in the Portfolio and except insofar as
either the Trust or the Portfolio may technically be deemed an underwriter
under the Securities Act of 1933 in selling a security;
(4) make loans to other persons except (a) through the lending of
securities held by either the Fund or the Portfolio, but not in excess of
33 1/3% of the Fund's or the Portfolio's net assets, as the case may be,
(b) through the use of fixed time deposits or repurchase agreements or the
purchase of short-term obligations, or (c) by purchasing all or a portion
of an issue of debt securities of types commonly distributed privately to
financial institutions; for purposes of this paragraph 4 the purchase of
short-term commercial paper or a portion of an issue of debt securities
which are part of an issue to the public shall not be considered the making
of a loan; for additional related restrictions, see clause (x) under the
caption "Non-Fundamental Restrictions" below;
(5) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
in the ordinary course of business (the Fund and the Portfolio reserve the
freedom of action to hold and to sell real estate acquired as a result of
the ownership of securities by the Fund or the Portfolio);
(6) concentrate its investments in any particular industry, but if it is
deemed appropriate for the achievement of its investment objective, up to
25% of the assets of the Fund or the Portfolio, respectively (taken at
market value at the
-11-
<PAGE>
time of each investment) may be invested in any one industry, except that
the Portfolio will invest at least 25% of its assets and may invest up to
100% of its assets in bank obligations; provided that, if the Trust
withdraws the investment of the Fund from the Portfolio, the Trust will
invest the assets of the Fund in bank obligations to the same extent and
with the same reservation as the Portfolio; and provided further, that
nothing in this investment restriction is intended to affect the Fund's
ability to invest 100% of its assets in the Portfolio; or
(7) issue any senior security (as that term is defined in the 1940 Act) if
such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, except as appropriate to evidence a
debt incurred without violating Investment Restriction (1) above.
NON-FUNDAMENTAL RESTRICTIONS
The Trust, on behalf of the Fund, and the Portfolio will not, as a matter
of operating policy:
(i) borrow money for any purpose in excess of 10% of the total assets of
the Fund or the Portfolio, respectively (taken in each case at cost);
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of
the net assets of the Fund or the Portfolio, respectively (taken in each
case at market value);
(iii) sell any security which it does not own unless by virtue of its
ownership of other securities it has at the time of sale a right to obtain
securities, without payment of further consideration, equivalent in kind
and amount to the securities sold; and provided, that if such right is
conditional the sale is made upon the same conditions;
(iv) invest for the purpose of exercising control or management, except
that all of the assets of the Fund may be invested in the Portfolio;
(v) purchase securities issued by any registered investment company,
except that all of the assets of the Fund may be invested in the Portfolio,
and except by purchase in the open market where no commission or profit to
a sponsor or dealer results from such purchase other than the customary
broker's commission, and except when such purchase, though not made in the
open market, is part of a plan of merger or consolidation; provided,
however, that the Trust (on behalf of the Fund) and the Portfolio will not
purchase the securities of any registered investment company if such
-12-
<PAGE>
purchase at the time thereof would cause more than 10% of the total assets
of the Fund or the Portfolio, respectively (taken in each case at the
greater of cost or market value), to be invested in the securities of such
issuers or would cause more than 3% of the outstanding voting securities of
any such issuer to be held by the Portfolio; and provided further, that the
Portfolio shall not purchase securities issued by any open-end investment
company;
(vi) taken together with any investments described in clause (x) below,
invest more than 10% of the net assets of the Fund or the Portfolio,
respectively, in securities that are not readily marketable, including debt
securities for which there is no established market (and fixed time
deposits and repurchase agreements maturing in more than seven days),
except that all the assets of the Fund may be invested in the Portfolio;
(vii) purchase securities of any issuer if such purchase at the time
thereof would cause it to hold more than 10% of any class of securities of
such issuer, for which purposes all indebtedness of an issuer shall be
deemed a single class, except that all the assets of the Fund may be
invested in the Portfolio;
(viii) purchase or retain any securities issued by an issuer any of whose
officers, directors, trustees or security holders is an officer or Trustee
of the Trust or the Portfolio, or is an officer or director of the Adviser,
if after the purchase of the securities of such issuer by the Trust, on
behalf of the Fund, or the Portfolio one or more of such persons owns
beneficially more than 1/2 of 1% of the shares or securities, or both, all
taken at market value, of such issuer, and such persons owning more than
1/2 of 1% of such shares or securities together own beneficially more than
5% of such shares or securities, or both, all taken at market value;
(ix) write, purchase or sell any put or call option or any combination
thereof;
(x) taken together with any investments described in clause (vi) above,
invest in securities which are subject to legal or contractual restrictions
on resale (other than fixed time deposits and repurchase agreements
maturing in not more than seven days) if, as a result thereof, more than
10% of the net assets of the Fund or the Portfolio, respectively (in each
case taken at market value), would be so invested (including fixed time
deposits and repurchase agreements maturing in more than seven days),
except that all the assets of the Fund may be invested in the Portfolio;
-13-
<PAGE>
(xi) purchase securities of any issuer if such purchase at the time
thereof would cause more than 10% of the voting securities of such issuer
to be held by the Fund or the Portfolio, respectively, except that all the
assets of the Fund may be invested in the Portfolio;
(xii) make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without payment
of any further consideration, for securities of the same issue as, and
equal in amount to, the securities sold short, and unless not more than 10%
of the net assets of the Fund or the Portfolio, respectively (in each case
taken at market value), is held as collateral for such sales at any one
time (the Portfolio does not presently intend to make such sales); or
(xiii) purchase any security if as a result, the Fund would then have more
than 5% of its total assets invested in the securities of companies
(including predecessors) that have been in continuous operation for fewer
than three years.
These policies are not fundamental and may be changed by the Trust with
respect to the Fund without approval by the Fund's shareholders or by the
Portfolio without approval by the Fund or the Portfolio's other investors.
PERCENTAGE AND RATING RESTRICTIONS. If a percentage restriction or a
rating restriction on investment or utilization of assets set forth above or
referred to in the Prospectus is adhered to at the time an investment is made or
assets are so utilized, a later change in percentage resulting from changes in
the value of the securities held by the Fund or the Portfolio or a later change
in the rating of a security held by the Fund or the Portfolio will not be
considered a violation of policy.
SECURITIES TRANSACTIONS
The Portfolio's purchases and sales of portfolio securities usually are
principal transactions. Portfolio securities are normally purchased directly
from the issuer or from an underwriter or market maker for the securities. There
usually are no brokerage commissions paid for such purchases. The Portfolio does
not anticipate paying brokerage commissions. Any transaction for which the
Portfolio pays a brokerage commission will be effected at the best price and
execution available. Purchases from underwriters of securities include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market makers include the spread between the bid and
asked price.
-14-
<PAGE>
Allocation of transactions, including their frequency, to various dealers
is determined by the Adviser in its best judgment and in a manner deemed to be
in the best interest of investors in the Portfolio, rather than by any formula.
The primary consideration is prompt execution of orders in an effective manner
at the most favorable price.
Investment decisions for the Portfolio will be made independently from
those for any other account or investment company that is or may in the future
become managed by the Adviser or its affiliates. If, however, the Portfolio and
other investment companies or accounts managed by the Adviser are
contemporaneously engaged in the purchase or sale of the same security, the
transactions may be averaged as to price and allocated equitably to each
account. In some cases, this policy might adversely affect the price paid or
received by the Portfolio or the size of the position obtainable for the
Portfolio. In addition, when purchases or sales of the same security for the
Portfolio and for other investment companies managed by the Adviser occur
contemporaneously, the purchase or sale orders may be aggregated in order to
obtain any price advantages available to large denomination purchases or sales.
No transactions are executed with the Adviser, or with any affiliate of the
Adviser, acting either as principal or as broker.
YIELD INFORMATION
Yield is computed in accordance with a standardized method which involves
determining the net change in the value of a hypothetical pre-existing Fund
account having a balance of one share at the beginning of a seven calendar day
period for which yield is to be quoted, dividing the net change by the value of
the account at the beginning of the period to obtain the base period return, and
annualizing the results (i.e., multiplying the base period return by 365/7).
----
The net change in the value of the account reflects the value of additional
shares purchased with dividends declared on the original share and any such
additional shares and fees that may be charged to shareholder accounts, in
proportion to the length of the base period and the Fund's average account size,
but does not include realized gains and losses or unrealized appreciation and
depreciation. Effective annualized yield is computed by adding 1 to the base
period return (calculated as described above), raising that sum to a power equal
to 365 divided by 7, and subtracting 1 from the result.
Yields will fluctuate and are not necessarily representative of future
results. The investor should remember that yield is a function of the type and
quality of the instruments held by the Portfolio, portfolio maturity and
operating expenses. An
-15-
<PAGE>
investor's principal in the Fund is not guaranteed. See "Determination of Net
Asset Value" for a discussion of the manner in which the Fund's price per share
is determined.
From time to time, the Trust in its advertising and sales literature for
the Fund may refer to the growth of assets managed or administered by the
Adviser over certain time periods. Comparative performance information may be
used from time to time in advertising or marketing the Fund's shares, including
data from Lipper Analytical Services, Inc., IBC/Donoghue's Money Fund Report and
other publications.
The annualized current seven-day yield of the Institutional Money Fund for
the period ended August 31, 1996 was 5.27%. For the same period, the annualized
effective seven-day yield of the Institutional Money Fund, based upon dividends
declared daily and reinvested monthly, was 5.40%.
DETERMINATION OF NET ASSET VALUE; VALUATION
OF SECURITIES; REDEMPTION IN KIND
The Prospectus discusses when the net asset value of the Fund is determined
for purposes of sales and redemptions. The net asset value of the Fund's
investment in the Portfolio is equal to the Fund's pro rata share of the total
assets of the Portfolio less the Fund's pro rata share of the Portfolio's
liabilities. The following is a description of the procedures used by the
Portfolio in valuing its assets.
The valuation of the Portfolio's securities is based on their amortized
cost, which does not take into account unrealized capital gains or losses.
Amortized cost valuation involves initially valuing an instrument at its cost
and thereafter assuming a constant amortization to maturity of any discount or
premium, generally without regard to the impact of fluctuating interest rates on
the market value of the instrument. Although this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Portfolio would receive if
it sold the instrument.
The Portfolio's use of the amortized cost method of valuing its securities
is permitted by Rule 2a-7 under the 1940 Act ("Rule 2a-7"). The Portfolio will
also maintain a dollar-weighted average portfolio maturity of 90 days or less,
purchase only instruments having or deemed to have remaining maturities of 397
days or less (or instruments subject to a repurchase agreement having a duration
of 397 days or less), and invest only in securities determined by or under the
supervision of its Board of Trustees to be of high quality and to present
minimal credit risks.
-16-
<PAGE>
Pursuant to Rule 2a-7, the Board of Trustees of the Portfolio also has
established procedures designed to allow the Fund (and other investors in the
Portfolio) to stabilize, to the extent reasonably possible, the Fund's price per
share at $1.00, as computed for the purpose of sales and redemptions. These
procedures include review of the Portfolio's holdings by its Board of Trustees,
at such intervals as each Board deems appropriate, to determine whether the
value of the Portfolio's assets calculated by using available market quotations
or market equivalents deviates from such valuation based on amortized cost.
Rule 2a-7 also provides that the extent of any deviation between the value
of the Portfolio's assets based on available market quotations or market
equivalents and such valuation based on amortized cost must be examined by the
Portfolio's Board of Trustees. In the event the Portfolio's Board of Trustees
determines that a deviation exists that may result in material dilution or other
unfair results to new or existing investors, pursuant to the rule, the
Portfolio's Board of Trustees must cause the Portfolio to take such corrective
action as the Board of Trustees regards as necessary and appropriate, including:
selling portfolio instruments prior to maturity to realize capital gains or
losses or to shorten average portfolio maturity; or valuing the Portfolio's
assets by using available market quotations.
The Trust, on behalf of the Fund, and the Portfolio reserve the right, if
conditions exist which make cash payments undesirable, to honor any request for
redemption or repurchase order by making payment in whole or in part in readily
marketable securities chosen by the Trust or the Portfolio, as the case may be,
and valued as they are for purposes of computing the Fund's or the Portfolio's
net asset value, as the case may be (a redemption in kind). If payment is made
in securities by the Portfolio or the Fund, an investor, including the Fund, may
incur transaction expenses in converting these securities into cash. The Trust
will redeem in kind Fund shares only if it has received a redemption in kind
from the Portfolio and therefore shareholders of the Fund that receive
redemptions in kind will receive portfolio securities of the Portfolio. The
Portfolio has advised the Trust that it will not redeem in kind except in
circumstances in which the Fund is permitted to redeem in kind.
Each investor in the Portfolio, including the Fund, may add to or reduce
its investment in the Portfolio on each day that the New York Stock Exchange
(the "Exchange") is open for business. As of 3:00 P.M. (Eastern time) on each
such day, the value of each investor's interest in the Portfolio will be
determined by multiplying the net asset value of the Portfolio by the percentage
representing that investor's share of the aggregate beneficial interests in the
Portfolio. Any additions or reductions which are to be effected on that day
will then be
-17-
<PAGE>
effected. The investor's percentage of the aggregate beneficial interests in the
Portfolio will then be recomputed as the percentage equal to the fraction (i)
the numerator of which is the value of such investor's investment in the
Portfolio as of such time of valuation on such day plus or minus, as the case
may be, the amount of net additions to or reductions in the investor's
investment in the Portfolio effected on such day, and (ii) the denominator of
which is the aggregate net asset value of the Portfolio as of such time of
valuation on such day plus or minus, as the case may be, the amount of the net
additions to or reductions in the aggregate investments in the Portfolio by all
investors in the Portfolio. The percentage so determined will then be applied to
determine the value of the investor's interest in the Portfolio as of the time
of valuation on the following day the Exchange is open for trading.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares are continuously offered for sale by Edgewood Services, Inc.
("Edgewood" or the "Distributor"), a wholly-owned subsidiary of Federated
Investors. As described in the Prospectus, Shares are offered for sale directly
only to institutional investors ("Institutional Investors"). Different types of
customer accounts at certain Institutional Investors (a "Shareholder
Organization") may be used to purchase Shares, including eligible agency and
trust accounts. In addition, a Shareholder Organization may automatically
"sweep" the accounts of its customers ("Customers") not less frequently than
weekly and invest amounts in excess of a minimum balance agreed to by the
Shareholder Organization and its Customers in shares selected by its Customers.
Investors purchasing shares may include officers, directors, or employees of the
particular Shareholder Organization. Check writing privileges are available to
investors upon request to the Trust.
As stated in the Prospectus, no sales charge is imposed by the Trust on the
purchase of shares or reinvestment of dividends or distributions.
The Trust may suspend the right of redemption or postpone the date of
payment for shares for more than 7 days during any period when (a) trading on
the Exchange is restricted by applicable rules and regulations of the Securities
and Exchange Commission (the "SEC"); (b) the Exchange is closed for other than
customary weekend and holiday closings; (c) the SEC has by order permitted such
suspension; or (d) an emergency exists as determined by the SEC.
In the event that shares are redeemed in cash at their net asset value, a
shareholder may receive in payment for such shares an amount that is more or
less than the shareholder's original
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<PAGE>
investment due to changes in the market prices of the portfolio securities of
the Fund or the Portfolio.
OTHER INVESTOR PROGRAMS
As described in the Prospectus, shares of the Fund may be exchanged for
Institutional Shares of any investment portfolio of Excelsior Institutional
Trust. Shares of the Fund may be purchased in connection with Unit Investment
Trust Automatic Dividend Reinvestment Plans, the Automatic Investment Program,
and certain Retirement Programs.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO
The trustees and officers of the Trust and the Portfolio and their
principal occupations during the past five years are set forth below. Unless
otherwise indicated below, the address of each trustee and officer is 73 Tremont
Street, Boston, Massachusetts.
TRUSTEES AND OFFICERS OF THE TRUST
Trustees and Officers
- ---------------------
The trustees and officers of the Trust, their addresses, ages,
principal occupations during the past five years, and other affiliations are as
follows:
<TABLE>
<CAPTION>
Position Principal Occupation
with the During Past 5 Years and
Name and Address Trust Other Affiliations
- ------------------------ -------- --------------------------------
<S> <C> <C>
Rodman L. Drake Trustee Director, Excelsior Funds,
c/o KMR Power Corp. Inc. and Excelsior Tax-Exempt
30 Rockefeller Plaza Funds, Inc. (since 1996);
Suite 5425 Trustee, Excelsior
New York, NY 10112 Institutional Trust (since
Age: 53 1994); Director, Parsons
Brinkerhoff, Inc. (engineering
firm) (since 1995); President,
Mandrake Group (investment and
consulting firm) (since 1994);
Director, Hyperion Total
Return Fund, Inc. and four
other funds for which Hyperion
Capital Management, Inc.
serves as investment adviser
(since 1991); Co-chairman, KMR
Power Corporation (power
plants) (since 1993);
Director, The Latin American
Growth Fund (since 1993);
Member of Advisory Board,
Argentina Private Equity Fund
L.P. (from 1992 to 1996)
and
</TABLE>
-19-
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupation
with the During Past 5 Years and
Name and Address Trust Other Affiliations
- ------------------------ -------- --------------------------------
<S> <C> <C>
Garantia L.P (Brazil) (from
1993 to 1996); and Director,
Mueller Industries, Inc. (from
1992 to 1994).
W. Wallace McDowell Trustee Director, Excelsior Funds,
c/o Prospect Capital Inc. and Excelsior Tax-Exempt
Corp. Funds, Inc. (since 1996);
43 Arch Street Trustee, Excelsior
Greenwich, CT 06830 Institutional Trust (since
Age: 60 1994); Private Investor (since
1994); Managing Director,
Morgan Lewis Githens & Ahn
(from 1991 to 1994) and
Director, U.S. Homecare
Corporation (since 1992),
Grossmans, Inc. (from 1993 to
1996), Children's Discovery
Centers (since 1984),
ITI Technologies, Inc. (since
1992) and Jack Morton
Productions (since 1987).
Jonathan Piel Trustee Director, Excelsior Funds,
558 E. 87th Street Inc. and Excelsior Tax-Exempt
New York, NY 10128 Funds, Inc. (since 1996); Vice
Age: 58 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).
Frederick S. Wonham/*/ Trustee Retired; Director of Excelsior
238 June Road Funds, Inc. and Excelsior Tax-
Stamford, CT 06903 Exempt Funds, Inc. and
Age: 66 Excelsior Institutional Trust
(since 1995); Vice Chairman of
U.S. Trust Corporation and
U.S. Trust Company of New York
(until 1995); Chairman, U.S.
Trust of Connecticut.
</TABLE>
______________________
* This trustee is considered to be an "interested person" of the Trust as
defined in the 1940 Act.
-20-
<PAGE>
Position Principal Occupation
with the During Past 5 Years and
Name and Address Trust Other Affiliations
- ------------------------ -------- --------------------------------
W. Bruce McConnel, III Secretary Partner of the law firm of
Philadelphia National Drinker Biddle & Reath.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age: 54
Linda T. Gibson Assistant Legal Counsel and Assistant
Age: 31 Secretary Secretary, Signature Financial
Group, Inc. (since June 1991);
Assistant Secretary, Signature
Broker-Dealer Services, Inc.
(since November 1992); law
student, Boston University
School of Law (prior to May
1992).
John R. Elder Treasurer Vice President, Signature
Age: 48 Financial Group, Inc. (since
April 1995); Treasurer,
Phoenix Family of Mutual Funds
(Phoenix Home Life Mutual
Insurance Company)
(from 1983 to March 1995).
Molly S. Mugler Assistant Legal Counsel and Assistant
Age: 45 Secretary Secretary of Signature
Financial Group, Inc. (since
December 1988); Assistant
Secretary of Signature
Broker-Dealer Services, Inc.
since April 1989.
Each trustee receives an annual fee of $4,000 plus a meeting fee of $250
for each meeting attended and is reimbursed for expenses incurred in attending
meetings. Drinker Biddle & Reath, of which Mr. McConnel is a partner, receives
legal fees as counsel to the Trust. The employees of Signature Broker-Dealer
Services, Inc. do not receive any compensation from the Trust for acting as
officers of the Trust. As of December 28, 1996, U.S. Trust held of record
substantially all of the outstanding shares of the Institutional Money Fund, but
did not own such shares beneficially and did not have discretion to vote or
invest such shares. As of December 28, 1996, all trustees and officers of the
Trust and the Portfolio as a group owned less than 1% of the outstanding shares
of the Fund.
The compensation paid to the trustees for the fiscal year ended August 31,
1996 is set forth in the chart below.
-21-
<PAGE>
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
BENEFITS ESTIMATED TOTAL COMPENSATION
AGGREGATE ACCRUED AS PART ANNUAL FROM THE TRUST AND
COMPENSATION OF TRUST BENEFITS UPON FUND COMPLEX* PAID
FROM THE TRUST EXPENSES RETIREMENT TO TRUSTEES
-------------- -------- ---------- -----------
<S> <C> <C> <C> <C>
Rodman L. Drake $10,000 None None (4)**$10,000
W. Wallace McDowell $10,000 None None (4)**$10,000
Jonathan Piel $10,000 None None (4)**$10,000
Frederick S. Wonham*** $ 1,660 None None (4)**$14,424
</TABLE>
* The "Fund Complex" consists of the Trust, Excelsior Funds, Inc., Excelsior
Tax-Exempt Funds, Inc., Excelsior Institutional Trust and UST Master Variable
Series, Inc. The Trust has no pension plan.
** Number of investment companies in the Fund Complex for which trustee serves
as director or trustee.
*** Mr. Wonham was elected to the Board of Trustees of the Trust on December
15, 1995.
TRUSTEES AND OFFICERS OF THE PORTFOLIO
The trustees and officers of Cash Reserves Portfolio, their ages and principal
occupations during the past five years are set forth below.
TRUSTEES OF THE PORTFOLIO
The Trustees of Cash Reserves Portfolio are:
ELLIOTT J. BERV - Chairman and Director, Catalyst, Inc. (Management
Consultants) (since August 1992); President, Chief Operating Officer and
Director, Deven International, Inc. (International Consultants) (June 1991 to
July 1992); President and Director, Elliott J. Berv & Associates (Management
Consultants) (since May 1984). His address is 15 Stornoway Drive, Cumberland
Foreside, Maine 04110. His age is 53.
WALTER E. ROBB, III - President, Benchmark Advisors, Inc. (Corporate Financial
Advisors) (since 1989); Trustee of certain registered investment companies in
the Landmark and MFS families of funds. His address is 35 Farm Road, Sherborn,
Massachusetts 01770. His age is 70.
-22-
<PAGE>
MARK T. FINN - President and Director, Delta Financial, Inc. (since June
1983); Chairman of the Board and Chief Executive Officer, FX 500 Ltd. (Commodity
Trading Advisory Firm) (since April 1990); Director, Vantage Consulting Group,
Inc. (since October 1988). His address is 3500 Pacific Avenue, P.O. Box 539,
Virginia Beach, Virginia 23451. His age is 53.
PHILIP W. COOLIDGE* - President of the Portfolio; Chairman, Chief Executive
Officer and President, Signature Financial Group, Inc. (since December 1988) and
Signature Broker-Dealer Services, Inc. (since April 1989). His age is 45.
__________
* This Trustee is considered to be an "interested person" of the Portfolio as
defined in the 1940 Act.
OFFICERS OF THE PORTFOLIO
In addition to Messrs. Coolidge and Elder, who hold similar positions with the
Portfolio, the following are officers of Cash Reserves Portfolio:
SAMANTHA M. BURGESS; 27/*/ -- Assistant Secretary and Assistant Treasurer of
the Trust and the Portfolios; Assistant Vice President, Signature Financial
Group, Inc. (since November 1995); Graduate Student, Loyola University (prior to
August 1995).
PHILIP W. COOLIDGE; 45/*/ -- President of the Trust and the Portfolios;
Chairman, Chief Executive Officer and President, Signature Financial Group,
Inc., and The Landmark Funds Broker-Dealer Services, Inc. (since December,
1988).
CHRISTINE A. DRAPEAU; 26/*/ -- Assistant Secretary and Assistant Treasurer;
Assistant Vice President, Signature Financial Group, Inc. (since January 1996);
Paralegal and Compliance Officer, various financial companies (July 1992 to
January 1996); Graduate Student, Bentley College (prior to December 1994).
JOHN R. ELDER; 48/*/ -- Treasurer of the Trust and the Portfolios; Vice
President, Signature Financial Group, Inc. (since April 1995); Treasurer, The
Landmark Funds Broker-Dealer Services, Inc. (since April 1995); Treasurer,
Phoenix Family of Mutual Funds (Phoenix Home Life Mutual Insurance Company)
(from 1983 to March 1995).
LINDA T. GIBSON; 31/*/ -- Secretary of the Trust and the Portfolios; Vice
President, Signature Financial Group, Inc. (since May 1992); Assistant
Secretary, The Landmark Funds Broker-Dealer Services, Inc. (since October 1992);
law student, Boston University School of Law (from September 1989 to May 1992).
-23-
<PAGE>
JOAN A. GULINELLO; 41/*/ -- Assistant Secretary and Assistant Treasurer of the
Trust and the Portfolios; Vice President, Signature Financial Group, Inc. (since
October 1993); Secretary, The Landmark Funds Broker-Dealer Services, Inc. (since
October 1995); Vice President and Assistant General Counsel, Massachusetts
Financial Services Company (prior to October 1993).
JAMES E. HOOLAHAN; 49/*/ -- Vice President, Assistant Secretary and Assistant
Treasurer of the Trust and the Portfolios; Senior Vice President, Signature
Financial Group, Inc.
SUSAN JAKUBOSKI; 32/*/ -- Vice President, Assistant Treasurer and Assistant
Secretary of Cash Reserves Portfolio and Assistant Secretary of the Trust (since
August, 1994); Vice President, Signature Financial Group (Cayman) Ltd. (since
August, 1994); Senior Fund Administrator, Signature Financial Group, Inc. (since
August, 1994); Assistant Treasurer, Signature Broker-Dealer Services, Inc.
(since September, 1994); Fund Compliance Administrator, Concord Financial Group
(November, 1990 to August, 1994) Her address is Elizabethan Square, George Town,
Grand Cayman Islands, BWI.
MOLLY S. MUGLER; 45/*/ -- Assistant Secretary of the Trust and the Portfolios;
Vice President, Signature Financial Group, Inc.; Assistant Secretary, The
Landmark Funds Broker-Dealer Services, Inc. (since December, 1988).
KARYN A. NOKE; 25/*/ -- Vice President, Assistant Secretary and Assistant
Treasurer of the Trust and the Portfolios; Vice President, Signature Financial
Group (Cayman) Ltd. (since September, 1996); Assistant Vice President, Signature
Financial Group, Inc. (May 1993 to August 1996); Student, University of
Massachusetts (prior to May, 1993).
SHARON M. WHITSON; 48/*/ -- Assistant Secretary and Assistant Treasurer of the
Trust and the Portfolios; Assistant Vice President, Signature Financial Group,
Inc. (since November, 1992); Associate Trader, Massachusetts Financial Services
Company (prior to November, 1992).
JULIE J. WYETZNER; 37/*/ -- Vice President, Assistant Secretary and Assistant
Treasurer of the Trust and the Portfolios; Vice President, Signature Financial
Group, Inc.
Mesdames. Gibson, Mugler and Jakuboski and Messrs. Coolidge and Elder and Lenz
may also hold similar positions for other investment companies for which
Signature Financial Group (Cayman), Ltd. or an affiliate serves as the principal
underwriter.
-24-
<PAGE>
The compensation paid to the trustees of Cash Reserves Portfolio for the year
ended August 31, 1996 is set forth in the table below.
<TABLE>
<CAPTION>
PENSION OR TOTAL
RETIREMENT COMPENSATION
BENEFITS FROM CASH
AGGREGATE ACCRUED AS ESTIMATED RESERVES
COMPENSATION PART OF CASH ANNUAL PORTFOLIO AND
FROM CASH RESERVES BENEFITS FUND COMPLEX
RESERVES PORTFOLIO'S UPON PAID TO
PORTFOLIO EXPENSES RETIREMENT TRUSTEES*
--------- -------- ---------- --------
<S> <C> <C> <C> <C>
Elliott J. Berv $4,820.78 None None $42,000
Philip W. Coolidge None None None $42,000
Mark T. Finn $4,072.98 None None $42,000
Walter E. Robb, III $7,495.67 None None $46,500
</TABLE>
- ----------
* Messrs. Coolidge, Berv, Finn and Robb are trustees of 28, 12, 14 and 12 funds,
respectively, of the Landmark Family of Funds.
-25-
<PAGE>
INDEMNIFICATION
The Trust's Trust Instrument provides that it will indemnify its trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Trust unless it
is finally adjudicated that they engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in their offices,
or unless it is finally adjudicated that they did not act in good faith in the
reasonable belief that their actions were in the best interests of the Trust.
In the case of settlement, such indemnification will not be provided unless it
has been determined by a court or other body approving the settlement or other
disposition, or by a reasonable determination, based upon a review of readily
available facts, by vote of a majority of disinterested trustees, or in a
written opinion of independent counsel , that such officers or trustees have not
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of their duties. The Declaration of Trust of the Portfolio provides
for similar indemnification of the trustees and officers of the Portfolio.
INVESTMENT ADVISER
Citibank manages the assets of the Portfolio pursuant to an investment
advisory agreement (the "Advisory Agreement"). Subject to such policies as the
Portfolio's Board of Trustees may determine, the Adviser manages the securities
of the Portfolio and makes investment decisions for the Portfolio. The Adviser
furnishes at its own expense all services, facilities and personnel necessary in
connection with managing the Portfolio's investments and effecting securities
transactions for the Portfolio. The Advisory Agreement will continue in effect
as long as such continuance is specifically approved at least annually by the
Portfolio's Board of Trustees or by a vote of a majority of the outstanding
voting securities of the Portfolio, and, in either case, by a majority of the
trustees of the Portfolio who are not parties to the Advisory Agreement or
interested persons of any such party, at a meeting called for the purpose of
voting on the Advisory Agreement.
The Advisory Agreement provides that the Adviser may render services to
others. The Advisory Agreement is terminable without penalty on not more than
60 days' nor less than 30 days' written notice by the Portfolio when authorized
either by vote of a majority of the outstanding voting securities of the
Portfolio or by a vote of a majority of the Portfolio's Board of Trustees, or by
the Adviser on not more than 60 days' nor less than 30 days' written notice, and
will automatically terminate in the event of its assignment. The Advisory
Agreement provides that neither the Adviser nor its personnel shall be liable
for any error of
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<PAGE>
judgment or mistake of law or for any loss arising out of any investment or for
any act or omission in the execution of security transactions for the Portfolio,
except for willful misfeasance, bad faith, gross negligence or reckless
disregard of its or their obligations and duties under the Advisory Agreement.
Cash Reserves Portfolio commenced investment operations on May 3, 1990. The
Institutional Money Fund commenced investment operations (and its investments in
the Portfolio) on November 8, 1993.
The Prospectus contains a description of the fees payable to the Adviser under
the Advisory Agreement. For the fiscal years ended August 31, 1994, 1995 and
1996 the fees paid to the Adviser under the Advisory Agreement were $1,806,314,
$4,097,854 and $6,140,512, respectively (of which $943,419, $2,306,161 and
$3,426,821 was voluntarily waived for the fiscal years ended August 31, 1994,
1995 and 1996, respectively).
The Glass-Steagall Act prohibits certain financial institutions, such as
Citibank or U.S. Trust, from engaging in the business of underwriting securities
of open-end investment companies, such as the Trust or the Portfolio. Based on
advice of counsel, it is the position of Citibank that the investment advisory
services and the sub-administrative activities performed by Citibank with
respect to the Portfolio do not constitute underwriting activities and are
consistent with the requirements of the Glass-Steagall Act. In addition,
counsel for Citibank has advised Citibank that the combination of individually
permissible activities by Citibank is consistent with the Glass-Steagall Act and
other relevant federal or state legal and regulatory precedent. It is the
position of U.S. Trust that (a) the services performed by U.S. Trust with
respect to the Trust do not constitute underwriting activities and are
consistent with the requirements of the Glass-Steagall Act, and (b) the
combination of individually permissible activities by U.S. Trust is consistent
with the Glass-Steagall Act and other relevant federal or state legal and
regulatory precedent. There is presently no controlling precedent regarding the
performance of the combination of investment advisory and sub-administrative
activities by banks. State laws on this issue may differ from applicable federal
laws and banks and financial institutions may be required to register as dealers
pursuant to state securities laws. Future changes in either federal or state
statutes or regulations relating to the permissible activities of banks, as well
as future judicial or administrative decisions and interpretations of present
and future federal or state statutes and regulations, could prevent Citibank or
U.S. Trust from continuing to perform such services for the Trust or the
Portfolio. If Citibank were to be prevented from acting as the Adviser or sub-
administrator for the Portfolio, or if U.S. Trust were to be similarly prevented
from providing administrative services
-27-
<PAGE>
to the Trust with respect to the Fund, the Trust and the Portfolio would seek
alternative means for providing such services. The Trust does not expect that
the Fund's shareholders would suffer any adverse financial consequences as a
result of any such occurrence.
ADMINISTRATORS
The Portfolio has adopted an Administrative Services Plan (the "Administrative
Plan") which provides that the Portfolio may obtain the services of an
administrator, a transfer agent and a custodian, and may enter into agreements
providing for the payment of fees for such services. Under the Administrative
Plan, the administrative services fee payable to Signature Financial Group
(Cayman), Ltd. ("SFG Cayman") may not exceed 0.05% of the Portfolio's average
daily net assets on an annualized basis for its then-current fiscal year. The
Administrative Plan continues in effect if such continuance is specifically
approved at least annually by a vote of both a majority of the Portfolio's
Trustees and a majority of the Portfolio's Trustees who are not "interested
persons" of the Portfolio and who have no direct or indirect financial interest
in the operation of the Administrative Plan or in any agreement related to such
Plan ("Qualified Trustees"). The Administrative Plan requires that the
Portfolio provide to its Board of Trustees and the Board of Trustees review, at
least quarterly, a written report of the amounts expended (and the purposes
therefor) under the Administrative Plan. The Administrative Plan may be
terminated at any time by a vote of a majority of the outstanding voting
securities of the Portfolio. The Administrative Plan may not be amended to
increase materially the amount of permitted expenses thereunder without the
approval of a majority of the outstanding voting securities of the Portfolio and
may not be materially amended in any case without a vote of the majority of both
the Trustees and the Qualified Trustees.
U.S. Trust, Chase Global Funds Services Company ("CGFSC") and Federated
Administrative Services ("FAS") (the "Trust Administrators") provide the Trust,
and SFG Cayman (together with the Trust Administrators, the "Administrators")
provides the Portfolio, with general office facilities, equipment and clerical
personnel. The Administrators supervise the overall administration of the Trust
and the Portfolio. These administrative services include, among other
responsibilities, the negotiation of contracts and fees with, and the monitoring
of performance and billings of, the various service providers of the Trust and
the Portfolio; the preparation and filing of certain documents required for
compliance by the Trust and the Portfolio with applicable laws and regulations;
the preparation and distribution of materials in connection with meetings of
trustees and investors; and arranging for the maintenance of books and records
of the Trust and the Portfolio. The Trust Administrators also assist in
developing and monitoring compliance procedures for the Fund, including
procedures to monitor compliance with the Fund's investment objective, policies
and restrictions. SFG Cayman
-28-
<PAGE>
provides persons satisfactory to the Board of Trustees of the Portfolio to serve
as trustees and officers of the Portfolio. Such officers, as well as certain
other employees and trustees of the Portfolio, may be directors, officers or
employees of SFG Cayman or its affiliates.
The Administration Agreement, with respect to the Trust, and the
Administrative Services Agreement, with respect to the Portfolio, provide that
the Administrators may render administrative services to others. Each Agreement
terminates automatically if it is assigned. The Administrative Services
Agreement may be terminated without penalty by vote of a majority of the
outstanding voting securities of the Portfolio, or by either party, on not more
than 60 days' nor less than 30 days' written notice. The Administration
Agreement may be terminated without penalty by any party on not less than 90
days' notice. The Agreements provide that neither the Administrators nor
their personnel shall be liable for any error of judgment or mistake of law or
for any act or omission in the administration or management of the Trust or the
Portfolio, except for willful misfeasance, bad faith or gross negligence in the
performance of their duties or by reason of reckless disregard of their
obligations and duties under said Agreements. The Trust's Administration
Agreement also provides that the Trust Administrators shall not be liable for
any indirect, incidental, special or consequential losses or indirect,
incidental, special or consequential damages, even if they had been advised of
the likelihood of such losses or damages.
The Prospectus contains a description of the fees payable to the
Administrators under their respective Agreements. Prior to April 1, 1997,
Signature Broker-Dealer Services, Inc. ("SBDS") served as the Fund's
administrator. For the period ended August 31, 1994, the Fund accrued
administration fees totalling $22,578, and for the fiscal years ended August 31,
1995 and 1996, the Fund accrued administration fees totalling $47,453 and
$44,937, respectively. For the fiscal years ended August 31, 1994, 1995 and
1996, the administration fees payable to SFG Cayman under the Administrative
Services Agreement were $602,105, $1,365,951 and $2,046,838, respectively. All
such administration fees payable by the Portfolio for the fiscal years ended
August 31, 1994, 1995 and 1996 were voluntarily waived. SBDS and SFG Cayman are
wholly-owned subsidiaries of Signature Financial Group, Inc.
SUB-ADMINISTRATOR
Pursuant to a Sub-Administrative Services Agreement, Citibank performs such
subadministrative duties for the Portfolio, as may from time to time be agreed
upon by The Landmark Funds Broker-Dealer Services, Inc., or by Citibank and SFG
Cayman.
SERVICE ORGANIZATIONS
As stated in the Prospectus, the Trust will enter into agreements with Service
Organizations. Such shareholder servicing agreements will require the Service
Organizations to provide shareholder administrative services to their Customers
-29-
<PAGE>
who beneficially own Shares in consideration for the Fund's payment (on an
annualized basis) of up to .40% of the average daily net assets of the Fund's
shares beneficially owned by Customers of the Service Organization. Such
services may include: (a) assisting Customers in designating and changing
dividend options, account designations and addresses; (b) providing necessary
personnel and facilities to establish and maintain certain shareholder accounts
and records, as may reasonably be requested from time to time by the Trust; (c)
assisting in processing purchases, exchange and redemption transactions; (d)
arranging for the wiring of funds; (e) transmitting and receiving funds in
connection with Customer orders to purchase, exchange or redeem Shares; (f)
verifying and guaranteeing Customer signatures in connection with redemption
orders, transfers among and changes in Customer-designated accounts; (g)
providing periodic statements showing a Customer's account balances and, to the
extent practicable, integrating such information with information concerning
other client transactions otherwise effected with or through the Service
Organization; (h) furnishing on behalf of the Trust's distributor (either
separately or on an integrated basis with other reports sent to a Customer by
the Service Organization) periodic statements and confirmations of all
purchases, exchanges and redemptions of shares in a Customer's account required
by applicable federal or state law; (i) transmitting proxy statements, annual
reports, updating prospectuses and other communications from the Trust to
Customers; (j) receiving, tabulating and transmitting to the Trust proxies
executed by Customers with respect to annual and special meetings of
shareholders of the Trust; (k) providing reports (at least monthly, but more
frequently if so requested by the Trust's distributor) containing state-by-state
listings of the principal residences of the beneficial owners of the shares; and
(l) providing or arranging for the provision of such other related services as
the Trust or a Customer may reasonably request.
The Trust's agreements with Service Organizations are governed by an
Administrative Services Plan (the "Plan") adopted by the Trust. Pursuant to the
Plan, the Trust's Board of Trustees will review, at least quarterly, a written
report of the amounts expended under the Trust's agreements with Service
Organizations and the purpose for which the expenditures were made. In
addition, the arrangements with Service Organizations will be approved annually
by a majority of the Trust's trustees, including a majority of the trustees who
are not "interested persons" of the Trust as defined in the 1940 Act and have no
direct or indirect financial interest in such arrangements (the "Disinterested
Trustees").
Any material amendment to the Trust's arrangements with Service
Organizations must be approved by a majority of the Trust's Board of Trustees
(including a majority of the
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<PAGE>
Disinterested Trustees). So long as the Trust's arrangements with Service
Organizations are in effect, the selection and nomination of the members of the
Trust's Board of Trustees who are not "interested persons" (as defined in the
1940 Act) of the Trust will be committed to the discretion of such non-
interested Trustees.
For the period November 8, 1993 (commencement of operations) through August
31, 1994, and for the fiscal years ended August 31, 1995 and 1996, payments to
Service Organizations under the Plan and a predecessor administrative services
plan totalled $70,263, $444,522 and $421,706, respectively.
TRANSFER AGENTS AND CUSTODIANS
U.S. Trust serves as custodian of the Fund's assets. U.S. Trust is a
subsidiary of U.S. Trust Corporation, a registered bank holding company. CGFSC
serves as the Trust's transfer and dividend disbursing agent. CGFSC is a
wholly-owned subsidiary of The Chase Manhattan Bank, N.A.
Under such agreement and as the Fund's custodian, U.S. Trust has agreed to (i)
maintain a separate account or accounts for the Fund; (ii) make receipts and
disbursements of money on behalf of the Fund; (iii) collect and receive 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 Trust concerning the Fund's operations. As
the Fund's transfer agent and dividend disbursement agent, CGFSC has agreed to
(i) issue and redeem shares of the Fund; (ii) address and mail all
communications by the Fund to its shareholders, including reports to
shareholders, dividend and distribution notices, and proxy materials for their
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 Trust concerning the Fund's operations. For their
custody, transfer agency and dividend disbursement services, U.S. Trust and
CGFSC are entitled to receive from the Trust such compensation as may be agreed
upon from time to time by the Trust, U.S. Trust and CGFSC. In addition, U.S.
Trust and CGFSC are entitled to be reimbursed for their 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 may, at its own expense, open and maintain custody accounts with
respect to the Fund with other banks or trust companies, provided that U.S.
Trust shall remain liable for the performance of all of its custodial duties
under the Custody Agreement, notwithstanding any delegation.
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<PAGE>
Cash Reserves Portfolio has entered into a Transfer Agency and Service
Agreement with State Street Bank & Trust Company ("State Street"), pursuant to
which State Street (or its affiliate State Street Canada, Inc.) acts as transfer
agent for Cash Reserves Portfolio. The transfer agent maintains an account for
each investor in the Portfolio and performs other transfer agency functions.
Pursuant to Custodian Contracts, State Street also acts as custodian (the
"Portfolio Custodian") of the Portfolio's assets. The Portfolio Custodian's
responsibilities include safeguarding and controlling the Portfolio's cash and
securities, handling the receipt and delivery of securities, determining income
and collecting interest on the Portfolio's investments, maintaining books of
original entry for Portfolio accounting and other required books and accounts,
and calculating the daily net asset value of beneficial interests in the
Portfolio. Securities held by the Portfolio may be deposited into the Federal
Reserve-Treasury Department Book Entry System or the Depositary Trust Company
and may be held by a sub-custodian bank if such arrangements are reviewed and
approved by the Trustees of the Portfolio. The Portfolio Custodian does not
determine the investment policies of the Portfolio or decide which securities
the Portfolio will buy or sell. The Portfolio may, however, invest in
securities of the Portfolio Custodian and may deal with the Portfolio Custodian
as principal in securities transactions. For its services to the Portfolio,
State Street receives such compensation as may from time to time be agreed upon
by State Street and the Portfolio. The principal business address of State
Street is 225 Franklin Street, Boston, Massachusetts 02110.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP and Price Waterhouse are the independent accountants and
chartered accountants for the Fund and Cash Reserves Portfolio, respectively.
Price Waterhouse LLP provides audit services and assistance and consultation
with respect to the preparation of filings with the SEC. The principal business
address of Price Waterhouse LLP is 160 Federal Street, Boston, Massachusetts
02110. The principal business address of Price Waterhouse is Suite 3000, Box
190, 1 First Canadian Place, Toronto, Ontario M5X1H7.
TAXATION
TAXATION OF THE FUND
Each series of the Trust is treated as a separate entity for federal income
tax purposes under the Internal Revenue Code of 1986, as amended (the "Code").
The Fund has elected and intends to qualify each year as a "regulated investment
company" under Subchapter M of the Code (a "RIC") by meeting all applicable
requirements of Subchapter M, including requirements as to the nature of the
Fund's gross income, the amount of the Fund's
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<PAGE>
distributions, and the composition and holding period of the Fund's portfolio
assets. Because the Fund intends to distribute all of its net investment income
and net realized capital gains to its shareholders in accordance with the timing
requirements imposed by the Code, it is not expected that the Fund will be
required to pay any federal income or excise taxes. If the Fund fails to
qualify as a RIC in any year, the Fund would incur a regular corporate federal
income tax upon its taxable income, and the Fund's distributions would continue
to be taxable as ordinary dividend income to shareholders.
Investment income received by the Fund from non-U.S. investments may be
subject to foreign income taxes withheld at the source; the Fund does not expect
to be able to pass through to shareholders any foreign tax credits with respect
to those foreign taxes. The United States has entered into tax treaties with
many foreign countries that may entitle the Fund to a reduced rate of tax or an
exemption from tax on these investments. It is not possible to determine the
Fund's effective rate of foreign tax in advance since that rate depends upon the
proportion of the Portfolio's assets ultimately invested within various
countries.
Under interpretations of the Internal Revenue Service, (1) the Portfolio will
be treated for federal income tax purposes as a partnership and (2) for purposes
of determining whether the Fund satisfies the income and diversification
requirements to maintain its status as a RIC, the Fund, as an investor in the
Portfolio, will be deemed to own a proportionate share of the Portfolio's assets
and will be deemed to be entitled to the Portfolio's income attributable to that
share. The Portfolio has advised the Trust that it intends to conduct its
operations so as to enable its investors, including the Fund, to satisfy those
requirements.
TAXATION OF THE PORTFOLIO
The Trust anticipates that the Portfolio will be treated as a partnership for
federal income tax purposes. As such, the Portfolio is not subject to federal
income taxation. Instead, the Fund must take into account, in computing its
federal income tax liability, its share of the Portfolio's income, gains,
losses, deductions, credits and tax preference items, without regard to whether
it has received any cash distributions from the Portfolio.
TAXATION OF DISTRIBUTIONS
Dividends from income and any distributions from net short-term capital gains
are taxable to shareholders as ordinary income for federal income tax purposes.
Distributions of net capital gains (the excess of net long-term capital gain
over net short-term capital loss), if any, are taxable to shareholders as long-
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<PAGE>
term capital gains without regard to the length of time the shareholders have
held their shares. The Fund's distributions are not expected to qualify for the
dividends-received deduction available to corporations. Distributions are
taxable as described above whether paid in cash or in additional shares.
Shareholders will be notified annually as to the federal tax status of
distributions.
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax. To
prevent imposition of the excise tax, the Trust must, and intends to, distribute
during each calendar year substantially all of the Fund's ordinary income for
that year and substantially all of its capital gain in excess of its capital
losses for that year, plus any undistributed ordinary income and capital gains
from previous years. For this and other purposes, a distribution will be
treated as paid on December 31 if it is declared in December with a record date
in such a month and paid by the Fund during January of the following calendar
year. Accordingly, those distributions will be taxable to shareholders for the
taxable year in which that December 31 falls.
Withdrawals by the Fund from the Portfolio generally will not result in the
Fund recognizing any gain or loss for federal income tax purposes, except that
to the extent the cash proceeds of any withdrawal or distribution exceed the
Fund's adjusted tax basis in its interest in the Portfolio, the Fund will
generally realized gain for federal income tax purposes. In addition, if, upon
a complete withdrawal (i.e., a redemption of its entire interest in its
corresponding Portfolio), the Fund's adjusted tax basis in its interest in the
Portfolio exceeds the proceeds of the withdrawal, the Fund will generally
realize a loss for federal income tax purposes. The Fund's adjusted tax basis
in its interest in its corresponding Portfolio will generally be the aggregate
price paid therefor, increased by the amounts of its distributive share of items
of realized net income (including income, if any, exempt from Federal income
tax) and gain, and reduced, but not below zero, by the amounts of its
distributive share of items of net loss and the amounts of any distributions
received by the Fund.
OTHER TAXATION
The Trust is organized as a Delaware business trust and, under current law,
neither the Trust nor the Fund are liable for any income or franchise tax in the
State of Delaware, provided that the Fund continues to qualify as a RIC for
federal income tax purposes. The investment by the Fund in the Portfolio does
not cause the Fund to be liable for any income or franchise tax in the State of
New York.
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<PAGE>
The Portfolio is organized as a New York trust. The Portfolio is not subject
to any income or franchise tax in the State of New York or the State of
Delaware.
Fund shareholders may be subject to state and local taxes on Fund
distributions to them by the Fund. Shareholders are advised to consult their
own tax advisers with respect to the particular tax consequences to them of an
investment in the Fund.
DESCRIPTION OF THE TRUST; FUND SHARES
The Trust is a Delaware business trust established under a Trust Instrument
dated October 25, 1993. Its authorized capital consists of an unlimited number
of shares of beneficial interest of $0.00001 par value, which may be issued in
separate series. Currently, the Trust has one active and thirteen inactive
series, although additional series may be established from time to time. Each
share of each series represents an equal proportionate interest in that series
with each other share in that series.
The assets of the Trust received for the issue or sale of the shares of each
series and all income, earnings, profits and proceeds thereof, subject only to
the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account, and are to be charged with the
liabilities in respect to such series and with such a share of the general
liabilities of the Trust. Expenses with respect to any two or more series are
to be allocated in proportion to the asset value of the respective series except
where allocations of direct expenses can otherwise be fairly made. The officers
of the Trust, subject to the general supervision of the trustees, have the power
to determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Trust or any series, the holders of the shares of any series
are entitled to receive as a class the value of the underlying assets of such
shares available for distribution to shareholders.
The Trust's trustees may amend the Trust Instrument without shareholder
approval, except shareholder approval is required for any amendment (a) which
affects the voting rights of shareholders under the Trust Instrument, (b) which
affects shareholders' rights to approve certain amendments to the Trust
Instrument, (c) required to be approved by shareholders by law or the
Registration Statement, or (d) submitted to shareholders for their approval by
the trustees in their discretion. Pursuant to Delaware business trust law and
the Trust Instrument, the trustees may, without shareholder approval, (x) cause
the Trust to merge or consolidate with one or more entities, if the surviving or
resulting entity is the Trust or another open-end
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<PAGE>
management investment company registered under the 1940 Act, or a series
thereof, that will succeed to or assume the Trust's registration under the 1940
Act, or (y) cause the Trust to incorporate under the laws of the State of
Delaware.
Shares of the Fund entitle their holder to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series. For example, a change in investment policy for a series would be voted
upon only by shareholders of the series involved.
The Trust's Trust Instrument provides that obligations of the Trust are not
binding upon the trustees individually but only upon the property of the Trust,
that the trustees and officers will not be liable for errors of judgment or
mistakes of fact or law, and that the Trust will indemnify its trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Trust unless it
is finally adjudicated that they engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in their offices,
or unless it is finally adjudicated that they did not act in good faith in the
reasonable belief that their actions were in the best interests of the Trust.
In the case of settlement, such indemnification will not be provided unless it
has been determined by a court or other body approving the settlement or other
disposition, or by a reasonable determination, based upon a review of readily
available facts, by vote of a majority of disinterested trustees, or in a
written opinion of independent counsel, that such officers or trustees have not
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of their duties.
Under Delaware law, shareholders of a Delaware business trust are entitled to
the same limitation on personal liability which is extended to shareholders of
private for profit corporations organized under the general corporation law of
the State of Delaware; the courts of other states may not apply Delaware law,
however, and shareholders may, under certain circumstances, be held personally
liable for the obligations of the Trust. The Trust Instrument contains an
express disclaimer of shareholder liability for acts or obligations of the Trust
and provides for indemnification and reimbursement of expenses out of Fund
property for any shareholder held personally liable for the obligations of the
Fund solely by reason of his being or having been a shareholder. The Trust
Instrument also provides for the maintenance, by or on behalf of the Trust and
each Fund, of appropriate insurance (for example, fidelity bonding and errors
and omissions insurance) for the protection of the Trust and each Fund, their
shareholders, trustees, officers, employees and agents, covering possible tort
and other liabilities. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances in which
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Delaware law did not apply, inadequate insurance existed and the Fund itself was
unable to meet its obligations.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto in the Trust's Annual
Report to Shareholders for the fiscal year ended August 31, 1996 (the "1996
Annual Report") are incorporated in this Statement of Additional Information by
reference. No other parts of the 1996 Annual Report are incorporated by
reference herein. The financial statements included in the 1996 Annual Report
have been audited by the Trust's independent accountants, Price Waterhouse LLP,
whose reports thereon are incorporated herein by reference. Such financial
statements have been incorporated herein in reliance upon such reports given
upon their authority as experts in accounting and auditing. Additional copies
of the 1996 Annual Report may be obtained at no charge by telephoning the Trust
at the number appearing on the front page of this Statement of Additional
Information.
The audited financial statements and notes thereto relating to the Portfolio
and presented with the Trust's Annual Report to Shareholders for the fiscal year
ended August 31, 1996 are incorporated in this Statement of Additional
Information by reference. These financial statements have been audited by the
Portfolio's chartered accountants, Price Waterhouse, whose reports thereon are
incorporated herein by reference. Such financial statements have been
incorporated herein in reliance upon such reports given upon their authority as
experts in accounting and auditing.
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<PAGE>
DISTRIBUTOR OF THE FUND
Edgewood Services, Inc.
Clearing Operations
P.O. Box 897
Pittsburgh, PA 15230
INVESTMENT ADVISER OF THE PORTFOLIO EXCELSIOR FUNDS
Citibank, N.A. EXCELSIOR INSTITUTIONAL
153 East 53rd Street MONEY FUND
New York, NY 10043
CO-ADMINISTRATOR OF THE FUND
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
CUSTODIAN AND TRANSFER AGENT STATEMENT OF
OF THE PORTFOLIO ADDITIONAL INFORMATION
JANUARY 1, 1997
State Street Bank & Trust Company (AS REVISED ON APRIL 1,
225 Franklin Street 1997)
Boston, MA 02110
TRANSFER AGENT AND CO-ADMINISTRATOR
OF THE FUND
Chase Global Funds Services Company
73 Tremont Street
Boston, MA 02108
CO-ADMINISTRATOR OF THE FUND
Federated Administrative Services
Federated Investors Tower
Pittsburgh, PA 15222
INDEPENDENT ACCOUNTANTS OF THE FUND
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
-38-
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INDEPENDENT ACCOUNTANTS OF THE PORTFOLIO
Price Waterhouse
Suite 3000, Box 190
1 First Canadian Place
Toronto, Ontario M5X1H7
-39-
