EXCELSIOR INSTITUTIONAL TRUST, 485BPOS, 1996-09-30

EXCELSIOR INSTITUTIONAL TRUST
485BPOS, 1996-09-30

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<PAGE>

As filed with the Securities and Exchange Commission on September 30, 1996
File Nos. 33-78264, 811-8490

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 11
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 13

Excelsior Institutional Trust
(Exact Name of Registrant as Specified in Charter)
73 Tremont St., Boston, Massachusetts 02108
(Address of Principal Executive Offices)

Registrant's Telephone Number, including Area Code: 617-557-8000

W. Bruce McConnel, III, Esq.
Drinker Biddle & Reath
Philadelphia National Bank Building, 1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
(Name and Address of Agent for Service)

It is proposed that this filing will become effective (check appropriate box)

[X] Immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485.

If appropriate, check the following box:

[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Registrant has previously registered an indefinite number of shares of
beneficial interest under the Securities Act of 1933, as amended, pursuant to
Rule 24f-2 under the Investment Company Act of 1940, as amended. Registrant's
initial 24f-2 notice for the fiscal year ended May 31, 1996 was filed on July
29, 1996.

This Registration Statement has also been executed by Federated
Investment Portfolios.
<PAGE>

EXCELSIOR INSTITUTIONAL TRUST
CROSS-REFERENCE SHEET
(As Required by Rule 495)
Equity, Income, Total Return Bond, Bond Index, Balanced,
Equity Growth and International Equity Funds

PART A
ITEM NUMBER Prospectus Headings
- ----------- -------------------

1. COVER PAGE Cover Page.

2. SYNOPSIS Summary of Expenses.

3. CONDENSED FINANCIAL INFORMATION Not Applicable.

4. GENERAL DESCRIPTION OF REGISTRANT Cover Page;
Investment Objectives
and Policies.

5. MANAGEMENT OF THE FUND Management of the Trust.

5A. MANAGEMENT'S DISCUSSION
OF FUND PERFORMANCE Not applicable.

6. CAPITAL STOCK AND OTHER SECURITIES Cover Page;
Pricing of Shares;
How to Purchase, Exchange
and Redeem Shares;
Tax Matters;
Management of the Trust;
Dividends and Capital
Gains Distributions;
Description of Shares,
Voting Rights and Liabilities.

7. PURCHASE OF SECURITIES BEING OFFERED How to Purchase,
Exchange and Redeem Shares;
Investor Programs.

8. REDEMPTION OR REPURCHASE How to Purchase,
Exchange and Redeem Shares;
Investor Programs.

9. PENDING LEGAL PROCEEDINGS Not applicable.
<PAGE>

[LOGO] EXCELSIOR
INSTITUTIONAL TRUST

Excelsior Institutional Equity Fund
Excelsior Institutional Income Fund
Excelsior Institutional Total Return Bond Fund
Excelsior Institutional Bond Index Fund
Excelsior Institutional Balanced Fund
Excelsior Institutional Equity Growth Fund
Excelsior Institutional International Equity Fund

- -------------------------------------------------------------------------------
For initial purchase and existing account
Excelsior Institutional Trust information, call (800) 909-1989.
73 Tremont Street (From overseas, call (617) 557-1755)
Boston, Massachusetts 02108-3913 For current prices and yield information,
(617) 557-8000 call (800) 861-3430

- -------------------------------------------------------------------------------
This Prospectus describes seven mutual funds offered to institutional invest-
ors by Excelsior Institutional Trust (the "Trust"), an open-end diversified
management investment company. The mutual funds, Excelsior Institutional Eq-
uity Fund, Excelsior Institutional Income Fund, Excelsior Institutional Total
Return Bond Fund, Excelsior Institutional Bond Index Fund, Excelsior Institu-
tional Balanced Fund, Excelsior Institutional Equity Growth Fund and Excelsior
Institutional International Equity Fund (each, a "Fund"; collectively, the
"Funds"), are separate series of the Trust.

This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus carefully and retain it for future reference. A Statement of
Additional Information containing additional information about the Funds has
been filed with the Securities and Exchange Commission (the "SEC") and is
available upon request without charge by writing to the Trust at its address
shown above or by calling (800) 909-1989. The Statement of Additional Informa-
tion bears the same date as this Prospectus and is incorporated by reference
in its entirety into this Prospectus.

Each Fund has its own investment objective, as follows:

The investment objective of EXCELSIOR INSTITUTIONAL EQUITY FUND (the "Equity
Fund") is to provide long-term capital appreciation.

The investment objective of EXCELSIOR INSTITUTIONAL BOND INDEX FUND (the "Bond
Index Fund") is to provide investment results that correspond to the invest-
ment performance of the Lehman Brothers Aggregate Bond Index (the "Aggregate
Bond Index"), a broad market-weighted index which encompasses U.S. Treasury
and agency securities, corporate investment grade bonds, and mortgage-backed
securities each with maturities greater than one year.

The investment objective of EXCELSIOR INSTITUTIONAL BALANCED FUND (the "Bal-
anced Fund") is to provide a high total return from a diversified portfolio of
equity and fixed income securities.

SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR EN-
DORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY, GUARANTEED
BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE FEDERAL RESERVE
BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN A FUND IS SUBJECT TO
INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Prospectus dated September 30, 1996
<PAGE>

Unlike the Equity Fund, Income Fund, Total Return Bond Fund, Balanced Fund,
Equity Growth Fund and International Equity Fund, which directly acquire and
manage their own portfolios of securities, the Bond Index Fund seeks to
achieve its investment objective by investing all of its investable assets in
the Bond Index Portfolio, a series of Federated Investment Portfolios (the
"Federated Portfolios"), an open-end management investment company. The Bond
Index Portfolio has the same investment objective and policies as the Bond In-
dex Fund. The Bond Index Fund invests in the Bond Index Portfolio through a
two-tier master/feeder fund structure. See "Special Information Concerning Hub
and Spoke(R) Structure Applicable to the Bond Index Fund" at page 28. Because
the Bond Index Fund invests through the Bond Index Portfolio, all references
in this Prospectus to the Bond Index Fund and the Board of Trustees of the
Trust include the Bond Index Portfolio and the Board of Trustees of Federated
Portfolios, respectively, except as otherwise noted.

United States Trust Company of New York ("U.S. Trust") is the investment ad-
viser for the Equity Fund, Income Fund and Total Return Bond Fund.

United States Trust Company of The Pacific Northwest ("U.S. Trust Pacific") is
the investment adviser for the Balanced Fund, Equity Growth Fund and Interna-
tional Equity Fund. U.S. Trust Pacific has delegated the daily management of
the security holdings of these Funds to the investment managers named below,
acting as sub-advisers.

<TABLE>
<S> <C>
Balanced Fund................................. Becker Capital Management, Inc.
Equity Growth Fund............................ Luther King Capital Management
International Equity Fund..................... Harding, Loevner Management, L.P.
</TABLE>

Federated Research Corp. is the investment adviser for the Bond Index Portfo-
lio, which is the series of Federated Portfolios in which the assets of the
Bond Index Fund are invested. Federated Research Corp. has delegated the daily
management of the security holdings of the Bond Index Portfolio to U.S. Trust,
acting as sub-adviser. U.S. Trust Pacific, U.S. Trust, Federated Research
Corp. and the subadvisers are referred to collectively as the "investment man-
agers".

For more information on the investment advisers and subadvisers of the Funds,
please refer below to the section entitled "Management of the Trust--Invest-
ment Managers".
2
<PAGE>

EXCELSIOR INSTITUTIONAL TRUST

SUMMARY OF EXPENSES

The following table provides (i) a summary of expenses relating to purchases
and sales of shares of the Funds, and the aggregate annual operating expenses
for the Funds, as a percentage of average net assets of the Funds, and (ii) an
example illustrating the dollar cost of such estimated expenses on a $1,000
investment in each Fund.

The table illustrates that investors in the Funds incur no shareholder
transaction expenses imposed by the Trust, although in connection with pur-
chases and redemptions of shares of the Funds, some institutional investors
("Shareholder Organizations") may charge their customers account fees for in-
vestment and other cash management services. See "How to Purchase, Exchange
and Redeem Shares" below. Customers should contact their Shareholder Organiza-
tion directly for further information. Investments in a Fund are subject to
the operating expenses set forth below. Expenses of the Funds are discussed
below under "Management of the Trust".

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES*
Sales Load Imposed on Purchases............................................ None
Sales Load Imposed on Reinvested Dividends................................. None
Deferred Sales Load........................................................ None
Redemption Fees............................................................ None
Exchange Fees.............................................................. None
</TABLE>

EXPENSE TABLE

<TABLE>
<CAPTION>
TOTAL
RETURN BOND***
EQUITY INCOME BOND INDEX
FUND FUND FUND FUND
-------- ------ ------------- -------
<S> <C> <C> <C> <C>
ANNUAL OPERATING EXPENSES
Advisory Fees (after fee waivers)..... .36%* .15%* .21%* 0%*
12b-1 Fees............................ None None None None
Other Operating Expenses
Administration Fees................. .15* .15* .15* .15*,**
Administrative Servicing Fees....... 0 0 0 0
Other Expenses (after fee waivers
and expense reimbursements)........ .19 .20 .14 .15
---- ---- ---- ----
Total Other Operating Expenses.... .34 .35 .29 .30
---- ---- ---- ----
Total Operating Expenses (after fee
waivers and expense reimbursements).. .70% .50% .50% .30%
==== ==== ==== ====
<CAPTION>
EQUITY INTERNATIONAL
BALANCED GROWTH EQUITY
FUND FUND FUND
-------- ------ -------------
<S> <C> <C> <C>
Advisory Fees (after fee waivers)..... .44%* .31%* .39%*
12b-1 Fees............................ None None None
Other Operating Expenses
Administration Fees................. .15* .15* .20*
Administrative Servicing Fees....... 0 0 0
Other Expenses (after fee waivers
and expense reimbursements)........ .11 .24 .31
---- ---- ----
Total Other Operating Expenses.... .26 .39 .51
---- ---- ----
Total Operating Expenses (after fee
waivers and expense reimbursements).. .70% .70% .90%
==== ==== ====
</TABLE>

3
<PAGE>

Example: Investors would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return and (2) redemption of the investment at the
end of the following periods:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity Fund, Balanced Fund and Equity Growth
Fund.......................................... $ 7 $22 $39 $ 87
Income Fund and Total Return Bond Fund......... $ 5 $16 $28 $ 63
Bond Index Fund................................ $ 3 $10 $17 $ 38
International Equity Fund...................... $ 9 $29 $50 $111
</TABLE>
- -------

* Each investment adviser and administrator has agreed to waive certain
fees, which waivers may be terminated at any time. [Until further notice,
each investment adviser intends to voluntarily waive fees in an amount
equal to the administrative servicing fees.] Institutional investors may
enter into an asset management services agreement with U.S. Trust Pacific
pursuant to which the investor may agree to pay annual fees calculated as
a specified percentage of average net assets. In addition, Shareholder Or-
ganizations may charge their customers account fees for investment and
other cash management services. See "How to Purchase, Exchange and Redeem
Shares" below. Accordingly, the examples do not reflect an amount for any
such fees paid directly to U.S. Trust Pacific by an institutional investor
or to a Shareholder Organization by its customers.
** After waiver.
*** The expenses indicated for the Bond Index Fund include the Fund's pro rata
share of the aggregate annual operating expenses of the Bond Index Portfo-
lio, in which all of the investable assets of the Bond Index Fund are in-
vested. The Trustees of the Trust believe that the aggregate per share ex-
penses of the Bond Index Fund and the Fund's pro rata share of the ex-
penses for the Bond Index Portfolio will be less than or approximately
equal to the expenses which the Bond Index Fund would incur if the Trust
retained the services of an investment adviser and the assets of the Bond
Index Fund were invested directly in the type of securities being held by
the Bond Index Portfolio.

THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FU-
TURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RETURNS MAY BE GREATER OR
LESS THAN THOSE SHOWN. The purpose of the table is to assist investors in un-
derstanding the various costs and expenses that shareholders of each of the
Funds will bear directly or indirectly. The expense table sets forth advisory
and other expenses payable with respect to shares of the Funds for the fiscal
year ended May 31, 1996, as restated to reflect current fees and expenses. The
expense table and example reflect voluntary undertakings (i) by U.S. Trust,
U.S. Trust Pacific, Federated Research Corp., Federated Services Company and
the shareholder servicing agents to waive certain of their fees, and (ii) by
U.S. Trust to reimburse the Trust for certain expenses. After giving effect to
such waivers and reimbursements, the aggregate operating expenses (including
amortization of organizational expenses but exclusive of taxes, interest, bro-
kerage commissions and extraordinary expenses) of each Fund will be as shown
above. Without such fee waivers and expense reimbursements, (a) the advisory
fees paid would equal (x) 0.65% of the average daily net assets of the Equity,
Income, Total Return Bond, Balanced and Equity Growth Funds, (y) 0.25% of the
average daily net assets of the Bond Index Fund, and (z) 1.00% of the average
daily net assets of the International Equity Fund; (b) the administration fees
with respect to the Bond Index Fund would equal 0.46% of its average daily net
assets; (c) "Total Other Operating Expenses" would equal the following per-
centages of the average daily net assets of the Funds: Equity Fund, .59%, In-
come Fund, .60%, Total Return Bond Fund, .54%, Bond Index Fund, .66%, Balanced
Fund, .51%, Equity Growth Fund, .64%, and International Equity Fund, .76%; and
(d) the aggregate "Total Operating Expenses" would equal the following per-
centages of the average daily net assets of each Fund: Equity Fund, 1.24%, In-
come Fund, 1.25%, Total Return Bond Fund, 1.19%, Bond Index Fund, 1.53%, Bal-
anced Fund, 1.16%, Equity Growth Fund, 1.29%, and International Equity Fund,
1.76%. For more information with respect to the expenses of each of the Funds,
see "Management of the Trust". Fee waivers and expense reimbursements are ter-
minable at any time in the sole discretion of the service providers waiving
fees or reimbursing expenses.

4
<PAGE>

FINANCIAL HIGHLIGHTS

The following tables include selected data for a share outstanding throughout
each period and other performance information derived from the financial state-
ments included in the Trust's Annual Report to Shareholders for the year ended
May 31, 1996 (the "Financial Statements"). The information contained in the Fi-
nancial Highlights for each period has been audited by Ernst & Young LLP, the
Trust's independent auditors. The following tables should be read in conjunc-
tion with the Financial Statements and notes thereto. More information about
the performance of each Fund is also contained in the Annual Report to Share-
holders which may be obtained from the Trust without charge by calling the num-
ber on the front cover of this Prospectus.

<TABLE>
<CAPTION>
TOTAL RETURN BOND
EQUITY FUND INCOME FUND FUND BOND INDEX FUND
-------------------- -------------------- -------------------- -----------------
JANUARY 16, JANUARY 16, JANUARY 19, JULY 11,
YEAR 1995(A) YEAR 1995(A) YEAR 1995(A) YEAR 1994(A)
ENDED TO ENDED TO ENDED TO ENDED TO
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
1996 1995 1996 1995 1996 1995 1996 1995
------- ----------- ------- ----------- ------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................. $ 7.73 $ 7.00 $ 7.33 $ 7.00 $ 7.47 $ 7.00 $ 7.26 $ 7.00
------- ------- ------- ------- ------- ------- ------- -------
INVESTMENT OPERATIONS:
Net investment income..... 0.11 0.05 0.51 0.19 0.48 0.18 0.50 0.46
Net realized and
unrealized gain (loss)... 1.20 0.70 (0.27) 0.33 (0.17) 0.47 (0.20) 0.28
------- ------- ------- ------- ------- ------- ------- -------
TOTAL FROM INVESTMENT
OPERATIONS............... 1.31 0.75 0.24 0.52 0.31 0.65 0.30 0.74
------- ------- ------- ------- ------- ------- ------- -------
DISTRIBUTIONS:
From net investment
income................... (0.11) (0.02) (0.51) (0.19) (0.48) (0.18) (0.50) (0.46)
From net realized gains... -- -- (0.07) -- (0.12) -- (0.10) (0.02)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD.................... $ 8.93 $ 7.73 $ 6.99 $ 7.33 $ 7.18 $ 7.47 $ 6.96 $ 7.26
======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN............... 17.04% 10.80% 3.18% 7.51% 4.20% 9.40% 4.12% 11.03%
RATIOS AND SUPPLEMENTAL
DATA:
Ratios to Average Net
Assets
Expenses(c)............... 0.36% 0.12%(b) 0.26% 0.12%(b) 0.32% 0.12%(b) 0.11% 0.12%(b)
Net Investment Income(c).. 1.32% 2.44%(b) 6.99% 7.17%(b) 6.47% 7.09%(b) 6.91% 7.33%(b)
Portfolio Turnover Rate(d).. 113% 34% 67% 34% 127% 84% 43% 67%
Net Assets at end of Period
(000's omitted)........... $23,495 $15,409 $24,001 $33,230 $65,017 $24,913 $15,005 $15,565
- -------
(a)Commencement of operations
(b)Annualized
(c) Reflects the Fund's proportionate share of the expenses of the corresponding portfolio of the St.
James Portfolios (the "Portfolio Series") in which the Fund had invested its investable assets prior
to December 18, 1995 (January 2, 1996 in the case of the Bond Index Fund) as well as voluntary fee
waivers and reimbursements by agents of the Portfolio Series and a voluntary fee waiver and an
expense reimbursement by the investment adviser. If the voluntary waivers and expense reimbursements
had not been in place, the ratios of expenses and net investment income to average net assets would
have been as follows:
Expenses................ 1.49% 2.67%(b) 1.35% 1.65%(b) 1.33% 1.93%(b) 0.58% 1.23%(b)
Net Investment
Income(Loss)........... 0.19% (0.12)%(b) 5.90% 5.65%(b) 5.46% 5.28%(b) 6.44% 6.22%(b)
(d) Excludes in-kind transfers of securities (see notes to Financial Statements incorporated by
reference into the Statement of Additional Information).
</TABLE>

5
<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
INTERNATIONAL EQUITY
BALANCED FUND EQUITY GROWTH FUND FUND
------------------ --------------------- ----------------------
JULY
11,
1994(A) JULY 11, JANUARY 24,
YEAR ENDED TO YEAR ENDED 1994(A) YEAR ENDED 1995(A) TO
MAY 31, MAY 31, MAY 31, TO MAY 31, MAY 31, MAY 31,
1996 1995 1996 1995 1996 1995
---------- ------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................ $ 7.70 $ 7.00 $ 7.87 $ 7.00 $ 7.88 $ 7.00
------- ------- ------- ------- ------- ------
INVESTMENT OPERATIONS:
Net investment income.... 0.34 0.35 0.13 0.08 0.09 0.08
Net realized and
unrealized gain (loss).. 0.78 0.64 1.39 0.85 1.20 0.80
------- ------- ------- ------- ------- ------
TOTAL FROM INVESTMENT
OPERATIONS............. 1.12 0.99 1.52 0.93 1.29 0.88
------- ------- ------- ------- ------- ------
DISTRIBUTIONS:
From net investment
income.................. (0.36) (0.26) (0.13) (0.06) (0.12) --
From net realized gains.. (0.20) (0.03) (0.60) -- (0.06) --
------- ------- ------- ------- ------- ------
NET ASSET VALUE, END OF
PERIOD................... $ 8.26 $ 7.70 $ 8.66 $ 7.87 $ 8.99 $ 7.88
======= ======= ======= ======= ======= ======
TOTAL RETURN.............. 15.07% 14.59% 20.01% 13.38% 16.58% 12.57%
RATIOS AND SUPPLEMENTAL
DATA:
Ratios to Average Net
Assets
Expenses(c).............. 0.38% 0.12%(b) 0.28% 0.12%(b) 0.60% 0.25%(b)
Net Investment Income(c). 4.34% 5.55%(b) 1.64% 1.27%(b) 1.71% 3.47%(b)
Portfolio Turnover
Rate(d).................. 56% 57% 103% 122% 19% 8%
Net Assets at end of
Period (000's omitted)... $95,638 $74,478 $31,085 $52,347 $24,522 $8,804
- -------
(a) Commencement of
operations
(b)Annualized
(c) Reflects the Fund's proportionate share of the expenses of the corresponding portfolio of the St.
James Portfolios (the "Portfolio Series") in which the Fund had invested its investable assets prior
to December 18, 1995 as well as voluntary fee waivers and reimbursements by agents of the Portfolio
Series and a voluntary fee waiver and an expense reimbursement by the investment adviser. If the
voluntary waivers and expense reimbursements had not been in place, the ratios of expenses and net
investment income to average net assets would have been as follows:
Expenses................ 1.21% 1.32%(b) 1.28% 1.36%(b) 2.05% 3.32%(b)
Net Investment Income
(Loss).................. 3.51% 4.35%(b) 0.64% 0.03%(b) 0.26% 0.40%(b)
(d) Excludes in-kind transfers of securities (see notes to financial statements incorporated by reference
into the Statement of Additional Information).
</TABLE>

6
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

INTRODUCTION

Excelsior Institutional Trust was organized as a business trust under the laws
of the State of Delaware, with the Funds established as separate series of the
Trust, on April 27, 1994. Shares of the Funds are continuously sold to institu-
tional investors.

Unless otherwise stated, each of the investment objectives, policies and
strategies discussed herein and in the Statement of Additional Information are
deemed "non-fundamental", i.e., the approval of a Fund's shareholders is not
required to change its investment objective or any of its investment policies
and strategies. Likewise, the approval of the investors in the Bond Index Port-
folio is not required to change the Bond Index Portfolio's investment objective
or any of the Bond Index Portfolio's investment policies and strategies. Any
changes in a Fund's (or the Bond Index Portfolio's) investment objective, poli-
cies or strategies could result in such Fund having investment objectives, pol-
icies and strategies different from those applicable at the time of a share-
holder's investment in such Fund.

INVESTMENT OBJECTIVES

The investment objective of EXCELSIOR INSTITUTIONAL EQUITY FUND (the "Equity
Fund") is to provide long-term capital appreciation. The Trust seeks to achieve
this investment objective by investing in companies believed to represent good
long-term values not currently recognized in the market prices of their securi-
ties.

The investment objective of EXCELSIOR INSTITUTIONAL INCOME FUND (the "Income
Fund") is to provide as high a level of current interest income as is consis-
tent with moderate risk of capital and maintenance of liquidity. The Trust
seeks to achieve this investment objective by investing principally in a broad
range of investment-grade fixed income securities, including preferred stock,
bonds, notes and debentures, as well as money market instruments.

The investment objective of EXCELSIOR INSTITUTIONAL TOTAL RETURN BOND FUND
(the "Total Return Bond Fund") is to maximize the total rate of return consis-
tent with moderate risk of capital and maintenance of liquidity. The Trust
seeks to achieve this investment objective by investing principally in a broad
range of investment grade fixed income securities, including preferred stock,
bonds, notes and debentures, as well as money market instruments. In selecting
investment opportunities, the Total Return Bond Fund will balance yield, aver-
age maturity and risk in seeking to provide maximum preservation of purchase
power.

The investment objective of EXCELSIOR INSTITUTIONAL BOND INDEX FUND (the "Bond
Index Fund") is to provide investment results that correspond to the investment
performance of the Lehman Brothers Aggregate Bond Index (the "Aggregate Bond
Index"), a broad market-weighted index which encompasses U.S. Treasury and
agency securities, corporate investment grade bonds, and mortgage-backed secu-
rities, each with maturities greater than one year. The Trust seeks to achieve
the investment objective of the Fund by investing all the investable assets of
the Bond Index Fund in the Bond Index Portfolio, a series of Federated Invest-
ment Portfolios (the "Federated Portfolios"), a diversified open-end management
investment company that has the same investment objective, policies and limita-
tions as the Bond Index Fund. The Bond Index Portfolio seeks to achieve its in-
vestment objective by replicating the yield and total return of the Aggregate
Bond Index through a statistically selected sample of debt instruments. The Ag-
gregate Bond Index is a broad market-weighted index of U.S. investment grade
fixed income securities.

The investment objective of EXCELSIOR INSTITUTIONAL BALANCED FUND (the "Bal-
anced Fund") is to provide a high total return from a diversified portfolio of
equity and fixed income securities. The Trust seeks to achieve this investment
objective by investing in equity and fixed income securities, as described more
fully below.

7
<PAGE>

The investment objective of EXCELSIOR INSTITUTIONAL EQUITY GROWTH FUND (the
"Equity Growth Fund") is to provide a high level of capital appreciation
through investment in a diversified portfolio of common stocks with potential
for above-average growth in earnings and dividends. The Trust seeks to achieve
this investment objective by investing primarily in the common stocks of me-
dium and large capitalization companies which, in the opinion of the Fund's
subadviser, will present an opportunity for significant increases in earnings
and/or value, without consideration of current income.

The investment objective of EXCELSIOR INSTITUTIONAL INTERNATIONAL EQUITY FUND
(the "International Equity Fund") is to provide long-term capital appreciation
through investment in a diversified portfolio of marketable foreign securi-
ties. The Trust seeks to achieve this investment objective by investing pri-
marily in foreign equity securities of issuers that the subadviser believes to
have strong balance sheets, sustainable internal growth, superior financial
results, capable and forthright management and enduring competitive advan-
tages.

The following is a discussion of the various investment policies and strate-
gies employed by each Fund. Additional information about the investment poli-
cies and strategies of each Fund appears in the Statement of Additional Infor-
mation. There can be no assurance that the investment objective of any Fund
will be achieved. Because the Bond Index Fund invests through the Bond Index
Portfolio and has the same investment policies and strategies as the Bond In-
dex Portfolio, all references to the Bond Index Fund include the Bond Index
Portfolio, except as otherwise noted.

U.S. TRUST'S INVESTMENT PHILOSOPHY AND STRATEGIES

U.S. Trust, the adviser for the Equity, Income and Total Return Bond Funds,
and the subadviser for the Bond Index Portfolio, offers a variety of special-
ized fiduciary and financial services to high net worth individuals, institu-
tions and corporations. As one of the largest institutions of its type, U.S.
Trust prides itself in offering an attentive and high level of service to each
of its clients.

EQUITY FUND

Investment Philosophy. In managing investments for the Equity Fund, U.S.
Trust follows a long-term investment philosophy which generally does not
change with the short-term variability of financial markets or fundamental
conditions. U.S. Trust's approach begins with the conviction that all worth-
while investments are grounded in value. U.S. Trust believes that an investor
can identify fundamental values that eventually should be reflected in market
prices. U.S. Trust believes that over time a disciplined search for fundamen-
tal value will achieve better results than attempting to take advantage of
short-term price movements.

Implementation of this long-term value philosophy consists of searching for,
identifying and obtaining the benefits of present or future investment values.
For example, such values may be found in a company's future earnings potential
or in its existing resources and assets. Accordingly, U.S. Trust in managing
investments for the Equity Fund is constantly engaged in assessing, comparing
and judging the worth of companies, particularly in comparison to the price
the markets place on such companies' shares.

Strategies. In order to translate its investment philosophy into more spe-
cific guidance for selection of investments, U.S. Trust uses three specific
strategies. These strategies, while identified separately, may overlap so that
more than one may be applied in an investment decision.

U.S. Trust's "problem/opportunity strategy" seeks to identify industries and
companies with the capabilities to provide solutions to or benefit from com-
plex problems such as the changing demographics and aging of the U.S. popula-
tion or the need to enhance industrial productivity. U.S. Trust's second
strategy is a "transaction value" comparison of a company's real underlying
asset value with the market price of its shares and with the sale prices for
similar assets chang-

8
<PAGE>

ing ownership in public market transactions. Differences between a company's
real asset value and the price of its shares often are corrected over time by
restructuring of the assets or by market recognition of their value. U.S.
Trust's third strategy involves identifying "early life cycle" companies whose
products are in their earlier stages of development or that seek to exploit
new markets. Frequently such companies are smaller companies, but early life
cycle companies may also include larger established companies with new prod-
ucts or new markets for existing products. U.S. Trust believes that over time
the value of such companies should be recognized in the market.

Themes. To complete U.S. Trust's investment philosophy, the three portfolio
strategies discussed above are applied in concert with several "longer-term
investment themes" to identify investment opportunities. These themes include
the aging of America, the restructuring of business and industry, the conver-
gence of the communication and entertainment industries, the demand for envi-
ronmentally related products and services, the continued need for businesses
to become global competitors, investment in the long-term supply of energy and
the continued need to enhance productivity. U.S. Trust believes these longer-
term themes represent strong and inexorable trends. U.S. Trust also believes
that understanding the instigation, catalysts and effects of these longer-term
trends should help to identify companies that are beneficiaries of these
trends.

INCOME FUND AND TOTAL RETURN BOND FUND

Investment Philosophy. Generally, investors in fixed income securities are
best served in the long term by seeking to maximize total return. However,
some investors need to balance preservation of purchase power against the need
for current income.

As a result, the Trust is offering both objectives to investors. In the Total
Return Bond Fund, U.S. Trust will employ a total return strategy that balances
yield, average maturity and risk in seeking to provide maximum preservation of
purchase power. The Income Fund will seek to provide investors with maximum
current income commensurate with the credit quality of the Fund and moderate
risk of capital.

BOND INDEX FUND

Investment Philosophy. The Bond Index Fund is not managed pursuant to tradi-
tional methods of active investment management, which involve the buying and
selling of securities based upon economic, financial, and market analyses and
investment judgment. Instead, the Bond Index Fund, utilizing a passive or in-
dexing investment approach, will attempt to duplicate the investment perfor-
mance of the Aggregate Bond Index.

The Bond Index Fund seeks to duplicate the investment performance of the Ag-
gregate Bond Index through statistical sampling procedures, that is, the Fund
will invest in a selected group--not the entire universe--of securities in the
Aggregate Bond Index. This group of securities, when taken together, is ex-
pected to perform similarly to the Aggregate Bond Index as a whole. This sam-
pling technique is expected to enable the Bond Index Fund to track the price
movements and performance of the Aggregate Bond Index, while minimizing bro-
kerage, custodial and accounting costs.

The Trust expects that there will be a close correlation between the Bond In-
dex Fund's performance and that of the Aggregate Bond Index in both rising and
falling markets. The Bond Index Fund will attempt to maximize the correlation
between its performance and that of the Aggregate Bond Index. The investment
managers seek a correlation of 0.95 or better. In the event that a correlation
of 0.95 or better is not achieved, the Board of Trustees of the Trust will re-
view methods for increasing such correlation with the investment managers,
such as through adjustments in securities holdings of the Bond Index Fund. A
correlation of 1.0 would indicate a perfect correlation, which would be
achieved when the Bond Index Fund's net

9
<PAGE>

asset value, including the value of its dividend and capital gains distribu-
tions, increases or decreases in exact proportion to changes in the Aggregate
Bond Index. The investment managers monitor the correlation between the perfor-
mance of the Bond Index Fund and the Aggregate Bond Index on a regular basis.
Factors such as the size of the Bond Index Fund's securities holdings, transac-
tion costs, management fees and expenses, brokerage commissions and fees, the
extent and timing of cash flows into and out of the Bond Index Fund, and
changes in the securities markets and the index itself, are expected to account
for any differences between the Bond Index Fund's performance and that of the
Aggregate Bond Index.

INVESTMENT POLICIES

EQUITY FUND seeks to provide long-term capital appreciation by investing in
companies believed to represent good long-term values not currently recognized
in the market prices of their securities. U.S. Trust uses the investment phi-
losophy, strategies and themes discussed above to identify such investment val-
ues and to diversify the Fund's investments over a variety of industries and
types of companies.

Under normal market and economic conditions, the Fund will invest at least 65%
of its total assets in common stock, preferred stock and securities convertible
into common stock. Normally, not more than 35% of the Fund's total assets may
be invested in other securities and instruments including, e.g., investment-
grade debt securities, warrants, options, and futures instruments as described
in more detail below. See "Additional Investment Strategies and Techniques;
Risk Factors" below. The Fund may hold cash or invest without limitation in
U.S. Government securities, high quality money market instruments and repur-
chase agreements collateralized by the foregoing obligations, if deemed appro-
priate by U.S. Trust for temporary defensive purposes. For a description of
these securities, see "Bond Index Portfolio--U.S. Government and Agency Securi-
ties" and "Additional Investment Strategies and Techniques; Risk Factors--Short
Term Instruments" below, and the Statement of Additional Information.

In managing the Fund, U.S. Trust seeks to purchase securities having value
currently not recognized in the market price of a security, consistent with the
strategies discussed above.

Equity Fund holdings will include common stocks of companies having capital-
izations of varying amounts, and the Fund may invest a portion of its portfolio
in the securities of high growth, small companies where U.S. Trust expects
earnings and the price of the securities to grow at an above-average rate, such
as small capitalization issuers. The equity securities of small capitalization
issuers have historically been characterized by greater volatility of returns,
greater total returns, and lower dividend yields than equity securities of
large capitalization issuers. As a result, there may be a greater fluctuation
in the net asset value of the Equity Fund, and the Fund may be required, in or-
der to meet withdrawals by investors or for other reasons, to sell these secu-
rities at a discount from market prices, to sell during periods when such dis-
position is not desirable, or to make many small sales over a period of time.

The Equity Fund may invest in the securities of foreign issuers directly, or
indirectly through sponsored and unsponsored American Depository Receipts. See
"Additional Investment Strategies and Techniques; Risk Factors" below for fur-
ther information on foreign investments.

Because of the risks associated with common stock investments, the Equity Fund
is intended to be a long-term investment vehicle and is not designed to provide
investors with a means of speculating on short-term stock market movements. In-
vestors should not consider the Equity Fund a complete investment program.

INCOME FUND seeks as high a level of current interest income as is consistent
with moderate risk of

10
<PAGE>

capital and maintenance of liquidity. The Income Fund will implement this ob-
jective through a strategy of monitoring and adjusting as necessary the aver-
age maturity of its holdings in an attempt to maximize current income consis-
tent with what is believed to be prudent risk of capital. The Fund invests
principally in a broad range of investment-grade income securities, including
bonds, notes, debentures and preferred stock, as well as money market instru-
ments. See "Total Return Bond Fund" below for a description of these securi-
ties and a discussion of certain investment policies of Income Fund.

TOTAL RETURN BOND FUND seeks to maximize the total rate of return consistent
with moderate risk of capital and maintenance of liquidity. In selecting in-
vestment opportunities, the Total Return Bond Fund will balance yield, average
maturity and risk in seeking to provide maximum preservation of purchase pow-
er. The Total Return Bond Fund invests principally in a broad range of invest-
ment-grade income securities, including bonds, notes, debentures and preferred
stock, as well as money market instruments.

The Income and the Total Return Bond Funds may invest in the following types
of securities: corporate debt obligations such as bonds, debentures, obliga-
tions convertible into common stocks and money market instruments; preferred
stocks; and obligations issued or guaranteed by the U.S. Government and its
agencies or instrumentalities. The Income and the Total Return Bond Funds are
also permitted to enter into repurchase agreements, and may from time to time
invest in debt obligations exempt from Federal income tax and issued by or on
behalf of the states, territories or possessions of the United States, the
District of Columbia, and their authorities, agencies, instrumentalities and
political subdivisions ("Municipal Bonds").

The purchase of Municipal Bonds may be advantageous when, as a result of pre-
vailing economic, regulatory or other circumstances, the performance of such
securities, on a pre-tax basis, is comparable to that of corporate or U.S.
Government debt obligations. The two principal classifications of Municipal
Bonds which may be held by the Income and the Total Return Bond Funds are
"general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or
other specific revenue source such as the user of the facility being financed.
Private activity bonds held by the Funds are in most cases revenue securities
and are not payable from the unrestricted revenues of the issuer. Consequent-
ly, the credit quality of private activity revenue bonds is usually directly
related to the credit standing of the corporate user of the facility involved.

The Income and the Total Return Bond Funds may also purchase "moral obliga-
tion" securities, which are normally issued by special-purpose public authori-
ties. If the issuer of moral obligation securities is unable to meet its debt
service obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment, but not a legal obligation, of the
state or municipality which created the issuer. Subject to the quality and di-
versification requirements specified below, there is no limitation on the
amount of moral obligation securities that may be held by the Income and the
Total Return Bond Funds. U.S. Trust will consider investments in Municipal
Bonds for the Income and the Total Return Bond Funds when U.S. Trust believes
that the total return on such securities is attractive relative to that of
taxable securities.

Under normal market conditions, as a non-fundamental investment policy, at
least 65% of the Income and the Total Return Bond Funds' total assets will be
invested in investment-grade bonds. For the purposes of this policy, "invest-
ment-grade bonds" are bonds and other debt instruments that are rated within
the four highest ratings of Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Group ("S&P")/1// (or are unrated obligations con-
sidered to
- -------
1/ "Standard & Poor's(R)," "S&P(R)" and "Standard & Poor's 500" are trademarks
of Standard & Poor's Corporation.

11
<PAGE>

be of investment grade by U.S. Trust) and U.S. Government obligations and money
market instruments of the types listed at "Bond Index Portfolio--U.S. Govern-
ment and Agency Securities" and "Additional Investment Strategies and Tech-
niques; Risk Factors--Short Term Instruments" below. When, in the opinion of a
Fund, a defensive investment posture is warranted, each of these Funds may in-
vest temporarily and without limitation in high quality, short-term money mar-
ket instruments.

Unrated securities will be considered of investment grade if deemed to be com-
parable in quality to instruments so rated, as determined pursuant to proce-
dures established by the Board of Trustees of the Trust. With respect to secu-
rities rated Baa by Moody's or BBB by S&P, interest and principal payments are
regarded as adequate for the present; however, securities with these rankings
may have speculative characteristics, and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make in-
terest and principal payments than is the case with higher grade bonds. See the
Appendix to the Statement of Additional Information for a more detailed expla-
nation of these ratings.

The Income and the Total Return Bond Funds may invest up to 25% of their re-
spective total assets in (a) preferred stocks, and (b) U.S. dollar-denominated
debt obligations of (i) foreign issuers, including foreign corporations and
foreign governments, and (ii) U.S. companies issued outside the United States.
See "Additional Investment Strategies and Techniques; Risk Factors" below for
further information on these investments. The Income and the Total Return Bond
Funds will not invest in common stocks, and any common stocks received through
conversion of convertible debt obligations will be sold in an orderly manner as
soon as possible.

Each of the Income Fund and the Total Return Bond Fund is intended to be a
long-term investment vehicle and is not designed to provide investors with a
means of speculating on short-term bond market movements. Because of potential
share price fluctuations, these Funds may be inappropriate for investors who
have short-term objectives. Investors should not consider the Funds a complete
investment program.

BOND INDEX FUND invests at least 80% of its assets in a portfolio of securi-
ties consisting of a representative selection of debt instruments included in
the Lehman Brothers Aggregate Bond Index (the "Aggregate Bond Index"). The Fund
intends to remain fully invested, to the extent practicable, in a pool of secu-
rities that match the yield and total return of the Aggregate Bond Index.

LEHMAN BROTHERS AGGREGATE BOND INDEX. The Aggregate Bond Index is a broad mar-
ket-weighted index which encompasses three major classes of United States in-
vestment grade fixed income securities with maturities greater than one year:
U.S. Treasury and agency securities, corporate bonds, and mortgage-backed secu-
rities. The Index measures the total investment return (capital change plus in-
come) provided by a universe of fixed income securities, weighted by the market
value outstanding of each security. The securities included in the Index gener-
ally meet the following criteria, as defined by Lehman Brothers: an outstanding
market value of at least $100 million, and investment grade quality, rated a
minimum of Baa by Moody's or BBB by S&P.

The Aggregate Bond Index is composed of the following kinds of securities:
public obligations of the U.S. Government; publicly issued debt of U.S. Govern-
ment agencies and quasi-federal corporations; corporate debt guaranteed by the
U.S. Government; fixed rate nonconvertible dollar-denominated corporate debt;
15-year and 30-year fixed rate securities backed by mortgage pools of the Gov-
ernment National Mortgage Association (GNMA), the Federal Home Loan Mortgage
Corporation (FHLMC), and the Federal National Mortgage Association (FNMA); and
asset-backed pass-through securities representing pools of credit card receiv-
ables and auto or home equity loans.

As of June 30, 1996, the following classes of fixed income securities
represented the stated proportions of the total market value of the Aggregate
Bond Index:

12
<PAGE>

<TABLE>
<S> <C>
U.S. Treasury and government agency securities........................... 51.68%
Corporate bonds.......................................................... 17.45%
Mortgage-backed and asset-backed securities.............................. 30.87%
</TABLE>

The Fund has a policy of weighting its portfolio so as to approximate the
relative composition of the securities contained in the Aggregate Bond Index
under normal circumstances. Therefore, for each of the three classes of debt
instruments listed above, the variation in weighting between the assets held
by the Fund and the assets in the Index is not expected to be greater than
plus or minus 5%. These weightings will be monitored at the time that securi-
ties are purchased by the Fund. The prices of fixed income securities fluctu-
ate inversely to the direction of interest rates.

U.S. GOVERNMENT AND AGENCY SECURITIES. The Bond Index Fund may invest in U.S.
Government securities and securities issued or guaranteed by agencies or in-
strumentalities of the U.S. Government. Securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities include U.S. Treasury se-
curities, which differ only in their interest rates, maturities and times of
issuance: Treasury Bills have initial maturities of one year or less; Treasury
Notes have initial maturities of one to ten years; and Treasury Bonds gener-
ally have initial maturities of greater than ten years. Some obligations is-
sued or guaranteed by U.S. Government agencies and instrumentalities, such as
GNMA pass-through certificates, are supported by the full faith and credit of
the U.S. Treasury; other securities, such as those of the Federal Home Loan
Banks, are supported by the right of the issuer to borrow from the Treasury.
Securities issued by the FNMA are supported by discretionary authority of the
U.S. Government to purchase certain obligations of the agency or instrumental-
ity; other securities, such as those issued by the Student Loan Marketing As-
sociation, are supported only by the credit of the agency or instrumentality.
While the U.S. Government provides financial support to such U.S. Government-
sponsored agencies or instrumentalities, no assurance can be given that it
will always do so, since it is not so obligated by law. The Bond Index Fund
and its net asset value and yield, are not guaranteed by the U.S. Government
or any federal agency or instrumentality. For additional information on U.S.
Government securities, see the Statement of Additional Information.

CORPORATE BONDS. The Bond Index Fund may purchase debt securities of United
States corporations only if they are deemed investment grade, that is, they
carry a rating of at least Baa from Moody's or BBB from S&P or, if not rated
by these rating agencies, are judged by the investment managers of the Fund to
be of comparable quality. With respect to securities rated Baa by Moody's and
BBB by S&P, interest and principal payments are regarded as adequate for the
present; however, securities with these ratings may have speculative charac-
teristics, and changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity to make interest and principal payments
than is the case with higher grade bonds. The Fund intends to dispose in an
orderly manner of any security which is downgraded below investment grade sub-
sequent to its purchase. See the Appendix to the Statement of Additional In-
formation for a more detailed explanation of these ratings.

Corporate bonds are subject to call risk during periods of falling interest
rates. Securities with high stated interest rates may be prepaid (or called)
prior to maturity, requiring the Bond Index Fund to invest the proceeds at
generally lower interest rates. Call provisions, common in many corporate
bonds, allow bond issuers to redeem bonds prior to maturity (at a specific
price). When interest rates are falling, bond issuers often exercise these
call provisions, paying off bonds that carry high stated interest rates and
often issuing new bonds at lower rates. For the Bond Index Fund, the result
would be that bonds with high interest rates are called and must be replaced
with lower-yielding instruments. In these circumstances, the income of the
Bond Index Fund would decline.

MORTGAGE PASS-THROUGHS AND COLLATERALIZED MORTGAGE OBLIGATIONS. The Bond In-
dex Fund may pur-

13
<PAGE>

chase investment grade mortgage and mortgage-related securities such as pass-
throughs and collateralized mortgage obligations that meet the Bond Index
Fund's selection criteria and are investment grade or of comparable quality
(collectively, "Mortgage Securities"). Mortgage pass-throughs are securities
that pass through to investors an undivided interest in a pool of underlying
mortgages. These are issued or guaranteed by U.S. government agencies such as
GNMA, FNMA and FHLMC. Other mortgage pass-throughs consist of whole loans orig-
inated and issued by private limited purpose corporations or conduits. Collat-
eralized mortgage obligation bonds are obligations of special purpose corpora-
tions that are collateralized or supported by mortgages or mortgage securities
such as pass-throughs.

As a result of its investments in Mortgage Securities, the mortgage-backed se-
curities in the Bond Index Fund may be subject to a greater degree of market
volatility as a result of unanticipated prepayments of principal. During peri-
ods of declining interest rates, the principal invested in mortgage-backed se-
curities with high interest rates may be repaid earlier than scheduled, and the
Bond Index Fund will be forced to reinvest the unanticipated payments at gener-
ally lower interest rates. When interest rates fall and principal prepayments
are reinvested at lower interest rates, the income that the Bond Index Fund de-
rives from mortgage-backed securities is reduced. In addition, like other fixed
income securities, Mortgage Securities generally decline in price when interest
rates rise.

Because the Bond Index Fund will seek to represent all major sectors of the
investment grade fixed income securities market, the Bond Index Fund may be a
suitable vehicle for those investors seeking ownership in the "bond market" as
a whole, without regard to particular sectors. The Bond Index Fund is intended
to be a long-term investment vehicle and is not designed to provide investors
with a means of speculating on short-term bond market movements. Because of po-
tential share price fluctuations, the Fund may be inappropriate for investors
who have short-term objectives or who require stability of principal. Investors
should not consider the Fund a complete investment program.

BALANCED FUND seeks to provide a high total return from a diversified portfo-
lio of equity and fixed income securities. Total return will consist of income
plus realized and unrealized capital gains and losses. The Fund seeks to pro-
vide a total return that approaches that of the universe of equity securities
of large U.S. companies and that exceeds the return typical of a portfolio of
fixed income securities. The Fund attempts to achieve this return by investing
in equity and fixed income instruments, as described below.

The Balanced Fund is designed for investors who wish to invest for long term
objectives. The Balanced Fund may be appropriate for investors who seek to at-
tain appreciation in the market value of their investments over the long term,
but with somewhat less price fluctuation than a portfolio consisting only of
equity securities. The Balanced Fund may also be an attractive option for in-
vestors who want professional investment managers to decide how their invest-
ments should be allocated between equity and fixed income securities. Investors
should not consider the Balanced Fund a complete investment program.

The relative emphasis placed upon each asset class will vary based upon the
subadviser's assessment of their current attractiveness on a risk-adjusted ba-
sis. The precise allocation will depend upon numerous factors, including the
Fund investment managers' evaluation of the economy and financial markets as
well as government fiscal and monetary policies. Normally, the commitment to
stocks will range between 35% and 65% of portfolio assets. Similarly, the bond
allocation will usually fall between 35% and 65% of portfolio assets. However,
at least 25% of the total assets of the Fund are always invested in fixed in-
come senior securities including debt securities and preferred stock. The
subadviser may allocate the Fund's investments between these asset classes in a
manner it believes consistent with the Fund's investment objective and current
market conditions. Stocks may be over-weighted over the long term relative to
bonds given that histori-

14
<PAGE>

cally equity securities have provided superior returns. Within a shorter time
horizon, however, if stocks and bonds appear equally attractive, fixed income
securities may be favored given their greater certainty of return and lower
volatility.

The subadviser intends to manage the Fund actively in pursuit of its invest-
ment objective. While the Fund has a long-term investment perspective, it may
take advantage of short-term trading opportunities that are consistent with its
objective. To the extent the Fund engages in short-term trading, it may incur
increased transaction costs. See "Tax Matters" below.

EQUITY INVESTMENTS. For the equity portion of the Balanced Fund, the
subadviser seeks to achieve a high total return through fundamental analysis,
systematic stock valuation and disciplined portfolio construction. The Fund's
equity investments will be primarily the common stock of large- and medium-
sized U.S. companies with market capitalizations above $1.5 billion, including
common stock of any class or series or any similar equity interest, such as
trust or limited partnership interests. The Fund's equity investments may also
include preferred stock, warrants and similar rights. The Fund may also invest
in the equity securities of small companies and of foreign issuers. The small
company holdings of the Fund are primarily companies included in the Russell
2500 Index. The Russell 2500 Index consists of the smallest 2,500 companies
from the Russell 3000 Index. The Fund's equity securities may or may not pay
dividends and may or may not carry voting rights. For a discussion of the risks
of investments in small companies, see "Equity Fund" above.

FIXED INCOME INVESTMENTS. For the fixed income portion of the Fund, the
subadviser seeks to provide a high total return by actively managing the dura-
tion of the Fund's fixed income securities, the allocation of securities across
market sectors, and the selection of securities within sectors. Based on funda-
mental, economic and capital markets research, the subadviser adjusts the dura-
tion of the Fund's fixed income investments in light of market conditions. The
subadviser also actively allocates the Fund's fixed income investments among
the broad sectors of the fixed income market.

Duration is a measure of the weighted average time until receipt of the pay-
ments expected to be generated by the fixed income securities held in the Fund,
and can be used as a measure of the sensitivity of the Fund's market value to
changes in interest rates. For example, and for illustrative purposes only, a
hypothetical fund with a duration of 10 years will decrease 10% in value as a
result of a 1% increase in interest rates. Under normal market conditions, the
duration of the fixed income portion of the Fund will range between 80% and
120% of the Lehman Brothers Government/ Corporate Bond Index, which as of June
30, 1995, was approximately 5.1 years. The maturities of the individual fixed
income securities in the Fund may vary widely, however.

The Fund may purchase debt securities only if they are deemed investment
grade, that is, carry a rating of at least Baa from Moody's or BBB from S&P or,
if not rated by these rating agencies, are judged by the investment managers to
be of comparable quality. With respect to securities rated Baa by Moody's and
BBB by S&P, interest and principal payments are regarded as adequate for the
present; however, securities with these ratings may have speculative character-
istics, and changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity to make interest and principal payments
than is the case with higher grade bonds. The Fund intends to dispose in an or-
derly manner of any security which is downgraded below investment grade subse-
quent to its purchase. See the Appendix to the Statement of Additional Informa-
tion for a more detailed explanation of these ratings.

The Fund may invest in a broad range of debt securities of domestic and for-
eign issuers. These include debt securities of various types and maturities,
e.g., debentures, notes, mortgage securities, equipment trust certificates and
other collateralized securities and zero coupon securities. Collateralized se-
curities are backed

15
<PAGE>

by a pool of assets such as loans or receivables which generate cash flow to
cover the payments due on the securities. Collateralized securities are subject
to certain risks, including a decline in the value of the collateral backing
the security, failure of the collateral to generate the anticipated cash flow
or in certain cases more rapid prepayment because of events affecting the col-
lateral, such as accelerated prepayment of mortgages or other loans backing
these securities or destruction of equipment subject to equipment trust certif-
icates. In the event of any such prepayment the Fund will be required to rein-
vest the proceeds of prepayments at interest rates prevailing at the time of
reinvestment, which may be lower. In addition, the value of zero coupon securi-
ties which do not pay interest is more volatile than that of interest-bearing
debt securities with the same maturity. For more information on mortgage secu-
rities and associated risks, see "Bond Index Fund--Mortgage Pass-Throughs and
Collateralized Mortgage Obligations" above.

The Fund may invest in U.S. Government securities and securities issued or
guaranteed by agencies or instrumentalities of the U.S. Government. For a de-
scription of these securities, see "Bond Index Fund--U.S. Government and Agency
Securities" above and the Statement of Additional Information. The Fund may
also invest in municipal obligations which may be general obligations of the
issuer or payable only from specific revenue sources. However, the Fund will
invest only in municipal obligations that have been issued on a taxable basis
or have an attractive total return potential excluding tax considerations. In
addition, the Fund may invest in debt securities of foreign governments and
governmental entities denominated, in all cases, in U.S. dollars. See "Addi-
tional Investment Strategies and Techniques; Risk Factors" below for further
information on foreign investments.

EQUITY GROWTH FUND seeks to provide a high level of capital appreciation
through investment in a diversified portfolio of common stocks with potential
for above-average growth in earnings and dividends. The Equity Growth Fund
seeks to achieve this investment objective by investing primarily in the common
stocks of medium and large capitalization U.S. companies (i.e., companies with
stock market capitalizations of more than $1 billion) which, in the opinion of
the subadviser, will present an opportunity for significant increases in earn-
ings and/or value. Current dividend income is incidental to the Equity Growth
Fund's investment objective of increasing the value of a shareholder's invest-
ment. Investments will be selected based on their potential for above-average
growth in earnings and dividends, with no consideration given to current in-
come.

Under normal market conditions, the Fund will invest at least 65% of its total
assets in common stocks. The remainder of the Fund's assets will be invested in
other types of securities including convertible and nonconvertible bonds, war-
rants and short-term obligations, preferred stocks, debt securities, and repur-
chase agreements collateralized by these securities. The Fund may purchase debt
securities only if they are deemed investment grade, that is, carry a rating of
at least Baa from Moody's or BBB from S&P or, if not rated by these rating
agencies, are judged by the investment managers to be of comparable quality.
With respect to securities rated Baa by Moody's and BBB by S&P, interest and
principal payments are regarded as adequate for the present; however, securi-
ties with these ratings may have speculative characteristics, and changes in
economic conditions or other circumstances are more likely to lead to a weak-
ened capacity to make interest and principal payments than is the case with
higher grade bonds. The Fund intends to dispose in an orderly manner of any se-
curity which is downgraded below investment grade subsequent to its purchase.
See the Appendix to the Statement of Additional Information for an explanation
of these ratings. The Fund may invest without limitation in high quality money
market instruments if deemed appropriate by the subadviser for temporary defen-
sive purposes. See "Short-Term Instruments" below. While the Fund may invest in
foreign securities, it currently has no intention of purchasing foreign securi-
ties other than American Depository Receipts. See "Investment Strategies and
Techniques; Risk Factors--Foreign Investments" below and "Foreign Securities--
Equity Funds" in the

16
<PAGE>

Statement of Additional Information. The Fund may vary the percentage of assets
invested in any one type of security in accordance with the subadviser's inter-
pretation of economic and market conditions, fiscal and monetary policy, and
underlying security values.

The subadviser intends to manage the Fund actively in pursuit of its invest-
ment objective. While the Fund has a long-term investment perspective, it may
take advantage of any short-term trading opportunities that are consistent with
its objective. To the extent the Fund engages in short-term trading, it may in-
cur increased transaction costs. See "Tax Matters" below.

The Equity Growth Fund may be appropriate for a variety of investment pro-
grams. While the Fund is not a substitute for an investment Fund tailored to an
investor's particular investment needs and ability to tolerate risk, it may be
used to supplement and diversify an investment Fund. Securities which offer
above-average potential for growth in earnings and dividends may also involve
greater volatility of market value. Investors should not consider the Fund a
complete investment program.

INTERNATIONAL EQUITY FUND seeks long-term capital appreciation through invest-
ment in a diversified portfolio of marketable foreign securities. The Fund or-
dinarily will invest primarily in foreign equity securities of issuers that the
subadviser believes to have strong balance sheets, sustainable internal growth,
superior financial returns, capable and forthright management, and enduring
competitive advantages.

When evaluating foreign securities, the subadviser will seek to identify supe-
rior companies with excellent long-term growth prospects and to select from
among them those whose shares appear to offer attractive absolute returns. The
subadviser's investment criteria therefore include both growth and value con-
siderations. Growth stocks are those that the subadviser believes have the po-
tential for above-average growth in earnings. Value stocks are those that the
investment subadviser believes are undervalued by the market based on the in-
vestment managers' assessment of the company's current value and future earn-
ings prospects.

In determining investment strategy and allocating investments, the subadviser
will continuously analyze a broad range of international equity securities.
Country and sector portfolio weightings are expected to reflect the results of
a "bottom up" stock selection process, rather than the results of any "top
down" country or sector allocation process. The Fund generally will sell secu-
rities if the subadviser believes that such securities have become substan-
tially overvalued relative to alternative investments or if the subadviser be-
lieves that there is an unfavorable change in the issuer's long-term business
forecast.

The Fund's investments generally will be diversified among geographic regions
and countries. While there are no prescribed limits on geographic distribu-
tions, the Fund normally will hold securities of issuers collectively having
their principal place of business in no fewer than three foreign countries. The
subadviser expects that the Fund's assets ordinarily will be invested in secu-
rities of issuers located in the Pacific Basin (e.g., Japan, Hong Kong, Singa-
pore, Malaysia), Europe, Australia, Latin America and South Africa. The Fund
also may invest, from time to time, in other regions, seeking to capitalize on
investment opportunities emerging in other parts of the world. In purchasing
foreign equity securities, the Fund will look generally to large and small com-
panies in mature foreign markets as well as well-established companies in
emerging markets. Under unusual economic and market conditions, the Fund may
restrict the securities markets in which its assets are invested.

Under normal market and economic conditions, at least 75% of the Fund's assets
will be invested in foreign equity securities. For cash management purposes,
the Fund may invest up to 25% of its assets on a continuous basis in cash or
short term instruments such as commercial paper, bank obligations, U.S. Govern-
ment and agency securities maturing within one year, notes and other debt secu-
rities of various maturities, and repurchase agreements collateralized by these
securities. The Fund also may invest without limitation in any combination of
high quality domestic or foreign

17
<PAGE>

money market instruments if deemed appropriate by the subadviser for temporary
defensive purposes in response to unusual market and economic conditions. See
"Short-Term Instruments" below. To the extent described below under "Addi-
tional Investment Strategies and Techniques; Risk Factors," the Fund also may
purchase shares of other investment companies and may engage in other invest-
ment practices, including repurchase agreements, securities lending, forward
currency contracts and futures contracts and options.

Foreign equity securities purchased by the Fund may include common stock,
preferred stock, securities convertible into common or preferred stock, and
warrants issued by companies domiciled outside of the United States ("foreign
issuers"), and shares of U.S registered investment companies that invest pri-
marily in foreign securities. The Fund may purchase when-issued securities
otherwise eligible for purchase by the Fund and may invest indirectly in the
securities of foreign issuers through sponsored and unsponsored American De-
pository Receipts ("ADRs"), European Depository Receipts ("EDRs") and similar
securities of foreign issuers.

Convertible debt securities purchased by the Fund will be rated investment
grade by Moody's or S&P if such a rating is available. If unrated, as is the
case with most foreign securities, convertible debt securities purchased by
the Fund will be deemed to be comparable in quality to securities rated in-
vestment grade pursuant to procedures established by the Board of Trustees of
the Trust. With respect to securities rated Baa by Moody's or BBB by S&P (the
lowest of the top four investment rankings), or deemed to be comparable in
quality to such securities, interest and principal payments are regarded as
adequate for the present; however, these securities may have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make interest and principal pay-
ments than is the case with higher grade bonds.

The Fund may purchase securities both on recognized stock exchanges and in
over-the-counter markets. Most Fund transactions will be effected in the pri-
mary trading market for the given security. The Fund also may invest up to 5%
of its total assets in gold bullion. Investments in gold will not produce div-
idends or interest income, and the Fund can look only to price appreciation
for a return on such investments.

The relative performance of foreign currencies is an important element in the
Fund's performance. Although the subadviser does not expect to hedge foreign
currency exposure on a routine basis, it may do so when it has a strong view
on the prospects for a particular currency. Certain currency hedging tech-
niques that may be employed by the subadviser are described below in "Addi-
tional Investment Strategies and Techniques; Risk Factors: Foreign Currency
and Exchange Transactions." Although such techniques may reduce the risk of
loss to the Fund from adverse movements in foreign exchange rates, they also
may limit possible gains from favorable movements in such rates.

The Fund is designed for investors who desire to achieve international diver-
sification of their investments by participating in foreign securities mar-
kets. Because international investments generally involve risks in addition to
those associated with investments in the United States, the Fund should be
considered only as a vehicle for international diversification and not a com-
plete investment program. Before investing in the Fund, investors should be
familiar with the risks associated with foreign investments. These risks are
discussed below under "Additional Investment Strategies and Techniques; Risk
Factors."

ADDITIONAL INVESTMENT STRATEGIES AND TECHNIQUES; RISK FACTORS

The Funds may utilize the investment strategies and techniques described be-
low.

SAMPLING AND TRADING IN THE BOND INDEX FUND. The Bond Index Fund does not ex-
pect to hold all of the individual issues which comprise the Aggregate
Bond Index because of the large number of secu-

18
<PAGE>

rities involved. Instead, the Fund will hold a representative sample of securi-
ties, selecting one or two issues to represent entire classes or types of secu-
rities in the Index. This sampling technique is expected to be an effective
means of substantially duplicating the income and capital returns provided by
the Index.

To reduce transaction costs, the Bond Index Fund's securities holdings will
not be automatically traded or re-balanced to reflect changes in the Aggregate
Bond Index. The Fund will seek to buy round lots of securities and may trade
large blocks of securities. These policies may cause a particular security to
be over- or under-represented in the Fund relative to its Index weighting or
result in its continued ownership by the Fund after its deletion from the In-
dex, thereby reducing the correlation between the Fund and the Index. The Fund
is not required to buy or sell securities solely because the percentage of
their assets invested in Index securities changes when their market values in-
crease or decrease. In addition, in order to more closely correlate the return
of the Fund to the Index, the Fund may omit or remove Index securities from its
portfolio and substitute other Index securities if the investment managers be-
lieve the removed security to be insufficiently liquid or believe the merit of
the investment has been substantially impaired by extraordinary events or fi-
nancial conditions. The investment managers of the Fund seek a correlation of
0.95 or better between the performance of the Fund and that of the Aggregate
Bond Index. See "U.S. Trust's Investment Philosophy and Strategies--Bond Index
Fund" above.

CONVERTIBLE SECURITIES. Each of the Funds other than the Bond Index Fund may
invest in investment grade convertible securities of domestic and foreign is-
suers. See "Balanced Fund--Fixed Income Investments" for an explanation of in-
vestment grade ratings of debt securities, including convertible securities.
The convertible securities in which the Funds may invest include any debt secu-
rities or preferred stock which may be converted into common stock or which
carry the right to purchase common stock. Convertible securities entitle the
holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Funds may purchase securities
on a "when-issued" basis and may purchase or sell securities on a "forward com-
mitment" basis in order to hedge against anticipated changes in interest rates
and prices. These transactions involve a commitment by a Fund to purchase or
sell particular securities with payment and delivery taking place in the fu-
ture, beyond the normal settlement date, at a stated price and yield. Securi-
ties purchased on a forward commitment or when-issued basis are recorded as an
asset and are subject to changes in value based upon changes in the general
level of interest rates. When such transactions are negotiated, the price,
which is generally expressed in yield terms, is fixed at the time the commit-
ment is made, but delivery and payment for the securities take place at a later
date. Accordingly, the Funds may pay more or less than the market value of the
securities on the settlement date. When-issued securities and forward commit-
ments may be sold prior to the settlement date, but the Funds will enter into
when-issued and forward commitments only with the intention of actually receiv-
ing or delivering the securities, as the case may be. However, the Funds may
dispose of a commitment prior to settlement if the investment managers deem it
appropriate to do so. In addition, the Funds may enter into transactions to
sell its purchase commitments to third parties at current market values and si-
multaneously acquire other commitments to purchase similar securities at later
dates. The Funds may realize short-term profits or losses upon the sale of such
commitments. At the time a Fund enters into a transaction on a when-issued or
forward commitment basis, a segregated account consisting of cash or high grade
liquid debt securities equal to the value of the when-issued or forward commit-
ment securities will be established and maintained. There is a risk that the
securities may not be delivered and that the relevant Fund may incur a loss.

19
<PAGE>

In addition, the Income and the Total Return Bond Funds may acquire "stand-by
commitments" with respect to Municipal Bonds held by them. Under a stand-by
commitment, a dealer agrees to purchase at a Fund's option specified Municipal
Bonds at a specified price. The Funds will acquire stand-by commitments solely
to facilitate Fund liquidity and do not intend to exercise their rights there-
under for speculative purposes. Stand-by commitments acquired by a Fund will
be valued at zero in determining the Fund's net asset value.

INVESTMENTS BELOW INVESTMENT GRADE. As discussed above, investments by the
Income Fund in obligations rated below the four highest ratings of S&P and
Moody's (commonly called "junk bonds") have different risks than investments
in securities that are rated investment grade. Risk of loss upon default by
the borrower is significantly greater because lower-rated securities are gen-
erally unsecured and are often subordinated to other creditors of the issuer,
and because the issuers frequently have high levels of indebtedness and are
more sensitive to adverse economic conditions, such as recessions, individual
corporate developments and increasing interest rates, than are investment
grade issuers. As a result, the market price of such securities, and the net
asset value of the Income Fund's Shares, may be particularly volatile. Addi-
tional risks associated with lower-rated fixed-income securities are (a) the
relative youth and growth of the market for such securities, (b) the sensitiv-
ity of such securities to interest rate and economic changes, (c) the lower
degree of protection of principal and interest payments, (d) the relatively
low trading market liquidity for the securities, (e) the impact that legisla-
tion may have on the high yield bond market (and, in turn, on the Fund's net
asset value and investment practices), (f) the operation of mandatory sinking
fund or call/redemption provisions during periods of declining interest rates
whereby a Fund may be required to reinvest premature redemption proceeds in
lower yielding portfolio securities, and (g) the creditworthiness of the is-
suers of such securities. During an economic downturn or substantial period of
rising interest rates, highly leveraged issuers may experience financial
stress which would adversely affect their ability to service their principal
and interest payment obligations, to meet projected business goals and to ob-
tain additional financing. An economic downturn could also disrupt the market
for lower-rated bonds generally and adversely affect the value of outstanding
bonds and the ability of the issuers to repay principal and interest. If the
issuer of a lower-rated debt obligation held by a Fund defaulted, the Fund
could incur additional expenses to seek recovery. Adverse publicity and in-
vestor perceptions, whether or not based on fundamental analysis, may also de-
crease the values and liquidity of lower-rated securities, especially in a
thinly traded market. Finally, a Fund's trading in fixed-income securities to
achieve capital appreciation entails risks that capital losses rather than
gains will result.

Debt obligations rated "BB", "B" or "CCC" by S&P are regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" represents the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse con-
ditions. The rating "CC" is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" debt rating. The rating "C"
is applied to debt subordinated to a senior debt which is assigned an actual
or implied "CCC-" rating. The "C" rating may be used to cover a situation
where a bankruptcy petition has been filed, but debt service payments are con-
tinued. Debt obligations rated "D" are in default, and payments of interest
and/or repayment of principal are in arrears. The ratings from "AA" through
"CCC" are sometimes modified by the addition of a plus or minus sign to show
relative standing within the major rating categories. Moody's has a similar
classification scheme for non-investment grade debt obligations. Debt obliga-
tions rated "Ba", "B", "Caa", "Ca" and "C" provide questionable protection of
interest and principal. The rating "Ba" indicates that a debt obli-

20
<PAGE>

gation has some speculative characteristics. The rating "B" indicates a general
lack of characteristics of desirable investment. Debt obligations rated "Caa"
are of poor quality, while debt obligations rated "Ca" are considered highly
speculative. "C" represents the lowest rated class of debt obligations. Moody's
applies numerical modifiers 1, 2 and 3 in each generic classification from "Aa"
to "B" in its bond rating system. The modifier "1" indicates that a security
ranks in the higher end of its rating category; the modifier "2" reflects a
mid-range ranking; and the modifier "3" indicates that the security ranks at
the lower end of its generic rating category. See the Appendix to the Statement
of Additional Information for a more detailed explanation of these ratings.

REPURCHASE AGREEMENTS. Each of the Funds may engage in repurchase agreement
transactions with brokers, dealers or banks that meet the credit guidelines es-
tablished by the Trustees of the Trust. In a repurchase agreement, a Fund buys
a security from a seller that has agreed to repurchase it at a mutually agreed
upon date and price, reflecting the interest rate effective for the term of the
agreement. The term of these agreements is usually from overnight to one week.
A repurchase agreement may be viewed as a fully collateralized loan of money by
the Fund to the seller. The Fund always receives securities as collateral with
a market value at least equal to the purchase price plus accrued interest, and
this value is maintained during the term of the agreement. If the seller de-
faults and the collateral value declines, the Fund might incur a loss. If bank-
ruptcy proceedings are commenced with respect to the seller, the Fund's reali-
zation upon the disposition of collateral may be delayed or limited. Invest-
ments in certain repurchase agreements and certain other investments which may
be considered illiquid are limited. See "Illiquid Investments; Privately Placed
and other Unregistered Securities" below.

REVERSE REPURCHASE AGREEMENTS. Each of the Funds may borrow funds, in an
amount up to one-third of the value of its total assets, for temporary or emer-
gency purposes, such as meeting larger than anticipated redemption requests,
and not for leverage. Each of the Funds may also agree to sell portfolio secu-
rities to financial institutions such as banks and broker-dealers and to repur-
chase them at a mutually agreed date and price (a "reverse repurchase agree-
ment"). The SEC views reverse repurchase agreements as a form of borrowing. At
the time a Fund enters into a reverse repurchase agreement, it will place in a
segregated custodial account cash, U.S. Government securities or high-grade
debt obligations having a value equal to the repurchase price, including ac-
crued interest. Reverse repurchase agreements involve the risk that the market
value of the securities sold by the Fund may decline below the repurchase price
of those securities.

INVESTMENT COMPANY SECURITIES. In connection with the management of its daily
cash positions, each of the Funds may invest in securities issued by other in-
vestment companies which invest in high quality, short-term debt securities and
which determine their net asset value per share based on the amortized cost or
penny-rounding method. The International Equity Fund may also purchase shares
of investment companies investing primarily in foreign securities, including
so-called "country funds" which have portfolios consisting primarily of securi-
ties of issuers located in one foreign country. In addition to the advisory
fees and other expenses a Fund bears directly in connection with its own opera-
tions, as a shareholder of another investment company, such Fund would bear its
pro rata portion of the other investment company's advisory fees and other ex-
penses. As such, the corresponding Fund's shareholders would indirectly bear
the expenses of the other investment company, some or all of which would be du-
plicated. Securities of other investment companies may be acquired by the Funds
to the extent permitted under the 1940 Act, that is, a Fund may invest a maxi-
mum of up to 10% of its total assets in securities of other investment compa-
nies so long as not more than 3% of the total outstanding voting stock of any
one investment company is held by such Fund. In addition, not more than 5% of
the total assets of a Fund may be invested in the securities of

21
<PAGE>

any one investment company. The foregoing restrictions do not apply to the
Bond Index Fund, which invests all its investable assets in the Bond Index
Portfolio.

FOREIGN INVESTMENTS. In accordance with their respective investment objec-
tives and policies, the Equity, Balanced and Equity Growth Funds may invest,
and the International Equity Fund will invest, in common stocks of foreign
corporations, and each of such Funds and the Income and Total Return Bond
Funds may invest in convertible securities of foreign corporations as well as
fixed income securities of foreign government and corporate issuers. Other
than the International Equity Fund, which will invest under normal market and
economic conditions at least 75% of its total assets in foreign securities,
none of the Funds expects to invest more than 30% (25% in the case of the In-
come and Total Return Bond Funds) of their respective total assets at the time
of purchase in securities of foreign issuers.

All investments, domestic or foreign, involve certain risks. Investment in
securities of foreign issuers, and in obligations of foreign branches or sub-
sidiaries of domestic or foreign banks, may involve risks in addition to those
normally associated with investments in the securities of U.S. issuers. Over-
all, there may be limited publicly available information with respect to for-
eign issuers, and there may be less supervision of foreign stock exchanges and
market participants such as brokers and issuers. Moreover, available informa-
tion may not be as reliable as information regarding U.S. companies, because
foreign issuers often are not subject to uniform accounting, auditing and fi-
nancial standards and requirements comparable to those applicable to U.S. com-
panies.

Dividends and interest paid by foreign issuers may be subject to withholding
and other foreign taxes. To the extent that such taxes are not offset by cred-
its or deductions allowed to investors under the Federal income tax laws, they
may reduce the net return to investors. See "Tax Matters" below.

Investors should realize that the value of a Fund's investments in foreign
securities may be adversely affected by changes in political or social condi-
tions, diplomatic relations, confiscatory taxation, expropriation, national-
ization, limitation on the removal of funds or assets, or imposition of (or
changes in) exchange controls or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or depre-
ciation of Fund securities and could favorably or unfavorably affect a Fund's
operations. The economies of individual foreign nations may differ from the
U.S. economy in areas such as growth of gross national product, rate of infla-
tion, capital reinvestment, resource self-sufficiency and balance of payments
position; it may also be more difficult to obtain and enforce a judgment
against a foreign issuer. Any foreign investments made by a Fund must be made
in compliance with U.S. and foreign currency restrictions and tax laws re-
stricting the amounts and types of foreign investments.

While the volume of transactions effected on foreign stock exchanges has in-
creased in recent years, in most cases it remains appreciably below that of
domestic security exchanges. Accordingly, a Fund's foreign investments may be
less liquid and their prices may be more volatile than comparable investments
in securities of U.S. companies. Moreover, the settlement periods for foreign
securities, which are often longer than those for securities of U.S. issuers,
may affect Fund liquidity.

The costs attributable to investing abroad are usually higher than those of
funds investing in domestic securities for several reasons, such as the higher
cost of investment research, higher cost of custody of foreign securities,
higher commissions paid on comparable transactions in foreign markets and ad-
ditional costs arising from delays in settlements of transactions involving
foreign securities.

The Funds may invest in securities of foreign issuers directly or in the form
of American Depository Receipts ("ADRs"), European Depository Receipts

22
<PAGE>

("EDRs") or other similar securities of foreign issuers. These securities may
not necessarily be denominated in the same currency as the securities they rep-
resent. ADRs are receipts typically issued by a U.S. bank or trust company
which evidence ownership of the underlying foreign securities. Certain such in-
stitutions issue ADRs which may not be sponsored by the issuer of the under-
lying foreign securities. A non-sponsored depository may not provide the same
shareholder information that a sponsored depository is required to provide un-
der its contractual arrangements with the issuer of the underlying foreign se-
curities. EDRs are receipts issued by a European financial institution evidenc-
ing a similar arrangement. Generally, ADRs, in registered form, are designed
for use in the U.S. securities markets, and EDRs, in bearer form, are designed
for use in European securities markets.

Changes in foreign exchange rates will affect the value in U.S. dollars of all
foreign currency-denominated securities held by the Funds. Exchange rates are
influenced generally by the forces of supply and demand in the foreign currency
markets and by numerous other political and economic events, many of which may
be difficult, if not impossible, to predict.

FOREIGN CURRENCY EXCHANGE TRANSACTIONS. In accordance with their respective
investment objectives and policies, the Equity, Income, Total Return Bond, Bal-
anced and Equity Growth Funds may buy and sell, and the International Equity
Fund will buy and sell, securities (and receive interest and dividends pro-
ceeds) in currencies other than the U.S. dollar. Therefore, these Funds may en-
ter from time to time into foreign currency exchange transactions. The Funds
will either enter into these transactions on a spot (i.e., cash) basis at the
spot rate prevailing in the foreign currency exchange market, or use forward
contracts to purchase or sell foreign currencies. The cost of a Fund's spot
currency exchange transactions will generally be the difference between the bid
and offer spot rate of the currency being purchased or sold.

A forward foreign currency exchange contract is an obligation by a Fund to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. Forward foreign currency exchange
contracts establish an exchange rate at a future date. These contracts are
transferable in the interbank market directly between currency traders (usually
large commercial banks) and their customers. A forward foreign currency ex-
change contract generally has no deposit requirement, and is traded at a net
price without commission. The Funds will not enter into forward contracts for
speculative purposes. Neither spot transactions nor forward foreign currency
exchange contracts eliminate fluctuations in the prices of a Fund's securities
or in foreign exchange rates, or prevent loss if the prices of these securities
should decline.

The Funds may enter into foreign currency exchange transactions in an attempt
to protect against changes in foreign currency exchange rates between the trade
and settlement dates of specific securities transactions or anticipated securi-
ties transactions. The Funds may also enter into forward contracts to hedge
against a change in foreign currency exchange rates that would cause a decline
in the value of existing investments denominated or principally traded in a
foreign currency. To do this, a Fund would enter into a forward contract to
sell the foreign currency in which the investment is denominated or principally
traded in exchange for U.S. dollars or in exchange for another foreign curren-
cy. A Fund will only enter into forward contracts to sell a foreign currency in
exchange for another foreign currency if its investment manager expects the
foreign currency purchased to appreciate against the U.S. dollar.

Although these transactions are intended to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time they limit any
potential gain that might be realized should the value of the hedged currency
increase. In addition, forward contracts that convert a foreign currency into
another foreign currency will cause a Fund to assume the risk of fluctuations
in the value of the currency purchased vis a vis the hedged currency and the
U.S. dollar. The

23
<PAGE>

precise matching of the forward contract amounts and the value of the securi-
ties involved will not generally be possible because the future value of such
securities in foreign currencies will change as a consequence of market move-
ments in the value of such securities between the date the forward contract is
entered into and the date it matures. The projection of currency market move-
ments is extremely difficult, and the successful execution of a hedging strat-
egy is highly uncertain.

FUTURES CONTRACTS AND OPTIONS. Each Fund may purchase put and call options on
securities, indices of securities and futures contracts. The Funds may also
purchase and sell futures contracts. Futures contracts on securities and secu-
rities indices will be used primarily to accommodate cash flows or in antici-
pation of taking a market position when, in the opinion of the investment man-
agers, available cash balances do not permit economically efficient purchases
of securities. Moreover, a Fund may sell futures and options to "close out"
futures and options it may have purchased or to protect against a decrease in
the price of securities it owns but intends to sell. The Bond Index Fund will
not invest in futures or options as part of a defensive strategy to protect
against potential stock market declines. The Funds other than the Bond Index
Fund may use futures contracts and options for both hedging and risk manage-
ment purposes, although not for speculation. See "Futures Contracts and Op-
tions on Futures Contracts" in the Statement of Additional Information.

The Funds may (a) purchase exchange-traded and over the counter (OTC) put and
call options on securities and indexes of securities, (b) purchase and sell
futures contracts on securities and indexes of securities and (c) purchase put
and call options on futures contracts on securities and indexes of securities.
In addition, the Funds may sell (write) exchange-traded and OTC put and call
options on securities and indexes of securities and on futures contracts on
securities and indexes of securities. The staff of the SEC has taken the posi-
tion that OTC options are illiquid and, therefore, together with other illiq-
uid securities held by a Fund, cannot exceed 15% of such Fund's net assets.
The Funds intend to comply with this limitation.

The Funds (other than the Bond Index Fund) may use options and futures con-
tracts to manage their exposure to changing interest rates and/or security
prices. Some options and futures strategies, including selling futures con-
tracts and buying puts, tend to hedge a Fund's investments against price fluc-
tuations. Other strategies, including buying futures contracts, writing puts
and calls, and buying calls, tend to increase market exposure. Options and
futures contracts may be combined with each other or with forward contracts in
order to adjust the risk and return characteristics of a Fund's overall strat-
egy in a manner deemed appropriate by the Fund's investment managers and con-
sistent with its objective and policies. Because combined options positions
involve multiple trades, they result in higher transaction costs and may be
more difficult to open and close out.

The use of options and futures is a highly specialized activity which in-
volves investment strategies and risks different from those associated with
ordinary portfolio securities transactions, and there can be no guarantee that
their use will increase a Fund's return. While the use of these techniques by
a Fund may reduce certain risks associated with owning its portfolio securi-
ties, these investments entail certain other risks. If a Fund's investment
managers apply a strategy at an inappropriate time or judge market conditions
or trends incorrectly, options and futures strategies may lower such Fund's
return. Certain strategies limit a Fund's potential to realize gains as well
as limit its exposure to losses. A Fund could also experience losses if the
prices of its options and futures positions were poorly correlated with its
other investments, or if it could not close out its positions because of an
illiquid secondary market. In addition, a Fund will incur transaction costs,
including trading commissions and option premiums, in connection with its
futures and options transactions and

24
<PAGE>

these transactions could significantly increase the Fund's turnover rate. For
more information on these investment techniques, see the Statement of Addi-
tional Information.

Each of the Funds may purchase and sell put and call options on securities,
indexes of securities and futures contracts, or purchase and sell futures con-
tracts, only if such options are written by other persons and if (i) the aggre-
gate premiums paid on all such options which are held at any time do not exceed
20% of such Fund's total net assets, and (ii) the aggregate margin deposits re-
quired on all such futures and premium on options thereon held at any time do
not exceed 5% of such Fund's total assets. The Funds may also be subject to
certain limitations pursuant to the regulations of the Commodity Futures Trad-
ing Commission. None of the Funds has any current intention of purchasing
futures contracts or investing in put and call options on securities, indexes
of securities, or futures contracts if more than 5% of its net assets would be
at risk from such transactions.

ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED SECURITIES. Each
Fund may acquire investments that are illiquid or have limited liquidity, such
as private placements or investments that are not registered under the Securi-
ties Act of 1933, as amended (the "1933 Act"), and cannot be offered for public
sale in the United States without first being registered under the 1933 Act. An
illiquid investment is any investment that cannot be disposed of within seven
days in the normal course of business at approximately the amount at which it
is valued by the Fund. The price a Fund pays for illiquid securities or re-
ceives upon resale may be lower than the price paid or received for similar se-
curities with a more liquid market. Accordingly the valuation of these securi-
ties will reflect any limitations on their liquidity.

Acquisitions of illiquid investments by the Funds are subject to the following
non-fundamental policies. Each Fund may not invest in additional illiquid secu-
rities if, as a result, more than 15% of the market value of its net assets
would be invested in illiquid securities. Each of the Funds may also purchase
Rule 144A securities sold to institutional investors without registration under
the 1933 Act. These securities may be determined to be liquid in accordance
with guidelines established by the investment managers and approved by the
Trustees. The Trustees of the Trust will monitor the implementation of these
guidelines on a periodic basis. Because Rule 144A is relatively new, it is not
possible to predict how markets in Rule 144A securities will develop. If trad-
ing in Rule 144A securities were to decline, these securities could become il-
liquid after being purchased, increasing the level of illiquidity of a Fund. As
a result, a Fund holding these securities might not be able to sell these secu-
rities when the investment manager wishes to do so, or might have to sell them
at less than fair value.

SHORT-TERM INSTRUMENTS. Each Fund may invest in short-term income securities
in accordance with its investment objective and policies as described above.
The Funds may also make money market investments pending other investments or
settlement, or to maintain liquidity to meet shareholder redemptions. Although
the Bond Index Fund normally seeks to remain substantially fully invested in
securities selected to match the Aggregate Bond Index consistent with seeking a
correlation of 0.95 or better between the Fund's performance and that of the
Aggregate Bond Index, the Bond Index Fund may invest temporarily up to 20% of
its assets in certain short-term fixed income securities. In adverse market
conditions and for temporary defensive purposes only, each of the Funds other
than the Bond Index Fund may temporarily invest their respective assets without
limitation in short-term investments; the Bond Index Fund, on the other hand,
will not invest in short-term instruments as part of a defensive strategy to
protect against potential market declines. Short-term investments include: ob-
ligations of the U.S. Government and its agencies or instrumentalities; commer-
cial paper and other debt securities; variable and floating rate securities;
bank obligations; repurchase agreements collateralized by these securities;
shares of other investment companies that primarily invest in any of the above-
referenced securi-

25
<PAGE>

ties; and, in the case of the International Equity Fund, cash and bank instru-
ments denominated in foreign currencies. Commercial paper consists of short-
term, unsecured promissory notes issued to finance short-term credit needs.
Other corporate obligations in which the Funds may invest consist of high qual-
ity, U.S. dollar-denominated short-term bonds and notes (including variable
amount master demand notes) issued by domestic and foreign corporations. The
Funds may invest in commercial paper issued by major corporations in reliance
on the exemption from registration afforded by Section 3(a)(3) of the 1933 Act.
Such commercial paper may be issued only to finance current transactions and
must mature in nine months or less. Trading of such commercial paper is con-
ducted primarily by institutional investors through investment dealers, and in-
dividual investor participation in the commercial paper market is very limited.

Each Fund may invest in U.S. dollar-denominated certificates of deposit, time
deposits, bankers' acceptances and other short-term obligations issued by do-
mestic banks and domestic or foreign branches or subsidiaries of foreign banks.
Certificates of deposit are certificates evidencing the obligation of a bank to
repay funds deposited with it for a specified period of time. Such instruments
include Yankee Certificates of Deposit ("Yankee CDs"), which are certificates
of deposit denominated in U.S. dollars and issued in the United States by the
domestic branch of a foreign bank. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a stated
interest rate. Time deposits which may be held by the Funds are not insured by
the Federal Deposit Insurance Corporation or any other agency of the U.S. Gov-
ernment. The Funds will not invest, respectively, more than 15% of the value of
their net assets in time deposits maturing in longer than seven days and other
instruments which are deemed illiquid or not readily marketable. Bankers' ac-
ceptances are credit instruments evidencing the obligation of a bank to pay a
draft drawn on it by a customer. These instruments reflect the obligation both
of the bank and of the drawer to pay the face amount of the instrument upon ma-
turity. The other short-term obligations in which the Funds may invest include
uninsured, direct obligations which have either fixed, floating or variable in-
terest rates.

The Funds will limit their short-term investments to those U.S. dollar-denomi-
nated instruments which are determined by or on behalf of the Board of Trustees
of the Trust to present minimal credit risks and which are of "high quality" as
determined by a major rating service (i.e., rated P-1 by Moody's or A-1 by S&P)
or, in the case of instruments which are not rated, are deemed to be of compa-
rable quality pursuant to procedures established by the Board of Trustees of
the Trust. The Funds may invest in obligations of banks which at the date of
investment have capital, surplus and undivided profits (as of the date of their
most recently published financial statements) in excess of $100 million. In-
vestments 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 longer term.

SECURITIES LENDING. The Funds may seek to increase their income by lending se-
curities to banks, brokers or dealers and other recognized institutional in-
vestors. Such loans may not exceed 30% of the value of a Fund's total assets.
In connection with such loans, each Fund will receive collateral consisting of
cash, U.S. Government or other high quality securities, irrevocable letters of
credit issued by a bank, or any combination thereof. Such collateral will be
maintained at all times in an amount equal to at least 100% of the current mar-
ket value of the loaned securities. A Fund can increase its income through the
investment of any such collateral consisting of cash. Such Fund continues to be
entitled to payments in amounts equal to the interest or dividends payable on
the loaned security, and in addition, if the collateral received is other than
cash, receives a fee based on the amount of the loan. Such loans will be termi-
nable at any time upon specified notice. A Fund might experience risk of loss
if the institution with which it has engaged in a portfolio loan transaction
breaches its agreement with the Fund.

26
<PAGE>

For example, the loaned securities may not be available to the Fund on a
timely basis, and the Fund may, therefore, lose the opportunity to sell the
securities at a desirable price.

SHORT SALES "AGAINST THE BOX". In a short sale, a Fund sells a borrowed secu-
rity and has a corresponding obligation to the lender to return the identical
security. A Fund may engage in short sales only if at the time of the short
sale it owns or has the right to obtain, at no additional cost, an equal
amount of the security being sold short. This investment technique is known as
a short sale "against the box". A Fund may make a short sale as a hedge, when
it believes that the value of a security owned by it (or a security convert-
ible or exchangeable for such security) may decline, or when a Fund wants to
sell the security at an attractive current price but wishes to defer recogni-
tion of gain or loss for tax purposes. Not more than 40% of a Fund's total as-
sets would be involved in short sales "against the box".

CERTAIN OTHER OBLIGATIONS. Consistent with their respective investment objec-
tives, policies and restrictions, the Funds may also invest in participation
interests, guaranteed investment contracts and zero coupon obligations. See
the Statement of Additional Information. In order to allow for investments in
new instruments that may be created in the future, upon the Trust supplemen-
ting this Prospectus, a Fund may invest in obligations other than those listed
previously, provided such investments are consistent with the Fund's invest-
ment objective, policies and restrictions.

DERIVATIVE CONTRACTS AND SECURITIES. The term "derivative" has traditionally
been applied to certain contracts (including futures, forward, option and swap
contracts) that derive their value from changes in the value of an underlying
security, currency, commodity or index. Certain types of securities that in-
corporate the performance characteristics of these contracts are also referred
to as "derivatives." The term has also been applied to securities derived from
the cash flows from underlying securities, mortgages or other obligations.

Derivatives contracts and securities can be used to reduce or increase the
volatility of a Fund's total performance. While the response of certain deriv-
ative contracts and securities to market changes may differ from traditional
investments such as stocks and bonds, derivatives do not necessarily present
greater market risks than traditional investments. The Funds will only use de-
rivative contracts for the purposes disclosed in the applicable sections
above. To the extent that a Fund invests in securities that could be charac-
terized as derivatives, such as mortgage pass-throughs and collateralized
mortgage obligations, it will only do so in a manner consistent with its in-
vestment objective, policies and limitations.

PORTFOLIO TURNOVER RATE. Although the Funds generally seek to invest for the
long term, and the Bond Index Fund is managed to reflect the composition of
the Aggregate Bond Index, each Fund may sell securities irrespective of how
long such securities have been held. Ordinarily, securities will be sold from
the Bond Index Fund only to reflect certain administrative changes in the Ag-
gregate Bond Index (including mergers or changes in its composition) or to ac-
commodate cash flows into and out of the Fund while maintaining the similarity
of its portfolio to its benchmark Index. Each Fund may sell a portfolio in-
vestment immediately after its acquisition if the investment managers believe
that such a disposition is consistent with the investment objective of the
particular Fund. Portfolio investments may be sold for a variety of reasons,
such as a more favorable investment opportunity or other circumstances bearing
on the desirability of continuing to hold such investments.

Portfolio turnover will not be a limiting factor in making portfolio deci-
sions for the Income Fund and the Total Return Bond Fund, whose annual portfo-
lio turnover rates are not expected to exceed 400%. The annual portfolio turn-
over rate for each other Fund is not expected to exceed 100%. A rate of 100%
indi-

27
<PAGE>

cates that the equivalent of all of a Fund's assets have been sold and rein-
vested in a calendar year. A high rate of portfolio turnover may involve cor-
respondingly greater brokerage commission expenses and other transaction
costs, which must be borne directly by the Fund and ultimately by the share-
holders of the respective Funds. High portfolio turnover may result in the re-
alization of substantial net capital gains. To the extent net short-term capi-
tal gains are realized, any distributions resulting from such gains are con-
sidered ordinary income for Federal income tax purposes. See "Tax Matters" be-
low.

* * *

As diversified investment companies, 75% of the assets of each Fund are rep-
resented by cash and cash items (including receivables), government securi-
ties, securities of other investment companies, and other securities which for
purposes of this calculation are subject to the following fundamental limita-
tions: (a) the Fund may not invest more than 5% of its total assets in the se-
curities of any one issuer, and (b) the Fund may not own more than 10% of the
outstanding voting securities of any one issuer. In addition, each Fund may
not invest 25% or more of its assets in the securities of issuers in any one
industry, unless, for the Bond Index Fund, the securities in a single industry
were to comprise 25% or more of the Aggregate Bond Index, in which case the
Bond Index Fund will invest 25% or more of its assets in that industry. These
are fundamental investment policies of each Fund which may not be changed
without investor approval. For purposes of these policies and limitations,
each Fund considers certificates of deposit and demand and time deposits is-
sued by a U.S. branch of a domestic bank or savings association having capi-
tal, surplus and undivided profits in excess of $100,000,000 at the time of
investment to be "cash items."

The Statement of Additional Information includes further discussion of in-
vestment strategies and techniques, and a listing of other fundamental invest-
ment restrictions and non-fundamental investment policies which govern the in-
vestment policies of each Fund. Fundamental investment restrictions may not be
changed, in the case of each Fund, without the approval of that Fund's share-
holders. If a percentage restriction (other than a restriction as to borrow-
ing) or a rating restriction on investment or utilization of assets 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 a
Fund or a later change in the rating of a security held by a Fund is not con-
sidered a violation of the policy. Shareholders of the Bond Index Fund should
be aware that fundamental investment restrictions of the Bond Index Portfolio
may not be changed without the approval of the investors (including the Bond
Index Fund) in that Portfolio.

The investment objective of each Fund may be changed without the approval of
that Fund's shareholders, but not without written notice thereof to that
Fund's shareholders thirty days prior to implementing the change. If there
were a change in a Fund's investment objective, shareholders should consider
whether the Fund remains an appropriate investment in light of their then-cur-
rent financial position and needs. There can, of course, be no assurance that
the investment objective of a Fund will be achieved. See "Investment Objec-
tives, Policies and Restrictions" in the Statement of Additional Information
for a description of the fundamental investment policies and restrictions of
each Fund that cannot be changed without approval by the holders of a "major-
ity of the outstanding voting securities" (as defined in the Investment Com-
pany Act of 1940, as amended (the "1940 Act")) of that Fund. Except as stated
otherwise, all investment objectives, policies, strategies and restrictions
described herein and in the Statement of Additional Information are non-
fundamental.

SPECIAL INFORMATION CONCERNING HUB AND SPOKE STRUCTURE APPLICABLE TO THE BOND
INDEX FUND

Unlike the Equity, Income, Total Return Bond, Balanced, Equity Growth and In-
ternational Equity Funds, which directly acquire and manage their own

28
<PAGE>

portfolios of securities, the Bond Index Fund seeks to achieve its investment
objective by investing all of its investable assets in the Bond Index Portfo-
lio, a separate series of Federated Portfolios. The Bond Index Fund invests in
the Bond Index Portfolio through Signature Financial Group Inc.'s two-tier
master/feeder structure known as the Hub and Spoke(R) financial services meth-
od. Hub and Spoke(R) is a registered service mark of Signature Financial
Group, Inc. and is licensed to Federated Services Company ("FSC"). The Bond
Index Fund has the same investment objective and policies as the Bond Index
Portfolio. In addition to selling a beneficial interest to the Bond Index
Fund, the Bond Index Portfolio may sell beneficial interests to other mutual
funds or institutional investors. Such investors will invest in the Bond Index
Portfolio on the same terms and conditions and will pay a proportionate share
of the Bond Index Portfolio's expenses. However, the other investors investing
in the Bond Index Portfolio are not required to issue their shares at the same
public offering price as the Bond Index Fund due to variations in sales com-
missions and other operating expenses. Investors in the Bond Index Fund should
be aware that these differences may result in differences in returns experi-
enced by investors in the different funds that invest in the Bond Index Port-
folio. Such differences in returns are also present in other mutual fund
structures. Information concerning other holders of interests in the Bond In-
dex Portfolio (e.g., other Spoke(R) or feeder funds) is available from FSC at
(800) 245-5040.

As with the Funds, the investment objective of the Bond Index Portfolio may
be changed without the approval of the investors in the Bond Index Portfolio,
but not without written notice thereof to the Bond Index Portfolio's investors
(and notice by the Trust to the shareholders of the Bond Index Fund) thirty
days prior to implementing the change. There can, of course, be no assurance
that the investment objective of the Bond Index Fund or the Bond Index Portfo-
lio will be achieved. See "Investment Objectives, Policies and Restrictions"
in the Statement of Additional Information for a description of the fundamen-
tal investment policies and restrictions of the Bond Index Portfolio that can-
not be changed without approval by the holders of a "majority of the outstand-
ing voting securities" (as defined in the 1940 Act) of the Bond Index Portfo-
lio. Except as stated otherwise, the investment objective, policies, strate-
gies and restrictions described herein and in the Statement of Additional In-
formation are non-fundamental.

Smaller funds investing in the Bond Index Portfolio may be materially af-
fected by the actions of larger funds investing in the Portfolio. For example,
if a large fund withdraws from the Portfolio, the remaining funds may experi-
ence higher pro rata operating expenses, thereby producing lower returns. Ad-
ditionally, the Portfolio may become less diverse, resulting in increased
portfolio risk. (However, this possibility also exists for traditionally
structured funds which have large or institutional investors.) Also, funds
with a greater pro rata ownership in the Portfolio could have effective voting
control of the operations of the Portfolio. Whenever the Trust is requested to
vote on matters pertaining to the Bond Index Portfolio, the Bond Index Fund
will vote its shares without a meeting of its shareholders if the proposal is
one which, if made with respect to the Bond Index Fund, would not require the
vote of the Fund's shareholders, as long as such action is permissible under
applicable statutory and regulatory requirements. Conversely, except as per-
mitted by the SEC, whenever the Bond Index Fund is requested to vote as an in-
vestor in the Bond Index Portfolio on matters pertaining to the Bond Index
Portfolio which require shareholder approval under the 1940 Act, the Trust
will hold a meeting of shareholders of the Bond Index Fund and will cast all
of its votes as an investor in the Bond Index Portfolio in the same proportion
as directed by the votes of the Fund's shareholders. Bond Index Fund share-
holders who do not vote will not affect the votes cast by the Fund at the
meeting of the Bond Index Portfolio's shareholders. The percentage of the
Trust's votes representing Bond Index Fund shareholders not voting will be
voted by the Bond Index Fund in the same proportion as Bond Index Fund share-
holders who do, in fact, vote. Certain

29
<PAGE>

changes in the Bond Index Portfolio's investment objective, policies or re-
strictions may require the Trust to withdraw the Bond Index Fund's investment
in the Bond Index Portfolio. Any such withdrawal could result in a distribution
in kind of portfolio securities (as opposed to a cash distribution from the
Portfolio). If securities are distributed, the Bond Index Fund could incur bro-
kerage, tax or other charges in converting the securities to cash. In addition,
the distribution in kind may result in a less diversified portfolio of invest-
ments or adversely affect the liquidity of the Bond Index Fund. Notwithstanding
the above, there are other means for meeting shareholder redemption requests,
such as borrowing.

The Trust may withdraw the investment of the Bond Index Fund from the Bond In-
dex Portfolio at any time, if the Board of Trustees of the Trust determines
that it is in the best interests of the Bond Index Fund to do so. Upon any such
withdrawal, the Board of Trustees of the Trust would consider what action might
be taken, including investing all of the investable assets of the Bond Index
Fund in another pooled investment entity having the same investment objective
and policies as the Bond Index Fund or retaining an investment adviser to man-
age the Fund's assets in accordance with the investment policies described
above.

For descriptions of the investment objectives, policies and restrictions of
the Bond Index Portfolio, see "Investment Objectives and Policies" herein and
in the Statement of Additional Information. For descriptions of the management
of the Bond Index Portfolio, see "Management of the Trust" herein and in the
Statement of Additional Information. For descriptions of the expenses of the
Bond Index Portfolio, see "Management of the Trust" and "Expenses" below.

PRICING OF SHARES

The net asset value of each Fund is determined and the shares of each Fund
(the "Shares") are priced for purchases and redemptions at the close of regular
trading hours on the New York Stock Exchange (the "NYSE"), currently 4:00 p.m.
(Eastern time). Net asset value and pricing for each Fund are determined on
each day both the NYSE is open for trading and the Funds are open for business
("Business Day"). Currently, the days on which the Funds are closed (other than
weekends) are New Year's Day, Martin Luther King, Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Thanks-
giving Day and Christmas. Net asset value per Share for purposes of pricing
sales and redemptions is calculated by dividing the value of all securities and
other assets belonging to a Fund, less the liabilities charged to the Fund, by
the number of its outstanding Shares.

Assets in the Funds which are traded on a recognized domestic stock exchange
or are quoted on a national securities market are valued at the last sale price
on the securities exchange on which such securities are primarily traded or at
the last sale price on such national securities market. Securities in the Funds
other than the Bond Index Fund which are traded only on over-the-counter mar-
kets are valued on the basis of closing over-the-counter bid prices, and secu-
rities in such Funds for which there were no transactions are valued at the av-
erage of the most recent bid and asked prices. Securities in the Bond Index
Fund which are traded only on over-the-counter markets are valued on the basis
of closing over-the-counter bid prices. Restricted securities, securities for
which market quotations are not readily available, and other assets are valued
at fair value, pursuant to guidelines adopted by the Board of Trustees of the
Trust. Absent unusual circumstances, debt securities maturing in 60 days or
less are valued at amortized cost.

Securities of the Funds which are primarily traded on foreign securities ex-
changes are generally valued at the preceding closing values of such securities
on their respective exchanges, except that when an event subsequent to the time
when value was so established is likely to have changed such value, then the
fair value of those securities will be determined after considera-

30
<PAGE>

tion of such events and other material factors, all under the direction and
guidance of the Board of Trustees of the Trust. A security which is listed or
traded on more than one exchange is valued at the quotation on the exchange
determined to be the primary market for such security. Absent unusual circum-
stances, investments in foreign debt securities having a maturity of 60 days
or less are valued based upon the amortized cost method. All other foreign se-
curities are valued at the last current bid quotation if market quotations are
available, or at fair value as determined in accordance with policies estab-
lished by the Board of Trustees of the Trust. For valuation purposes, quota-
tions of foreign securities in foreign currency are converted to U.S. dollars
equivalent at the prevailing market rate on the day of conversion. Some of the
securities acquired by the Funds may be traded on foreign exchanges or over-
the-counter markets on days which are not Business Days. In such cases, the
net asset value of the Shares may be significantly affected on days when in-
vestors can neither purchase nor redeem a Fund's Shares. The administrators
have undertaken to price the securities held by the Funds, and may use one or
more independent pricing services in connection with this service. The methods
used by the pricing services and the valuations so established will be re-
viewed by each Fund's investment managers and the administrators under the
general supervision of the Board of Trustees of the Trust.

HOW TO PURCHASE, EXCHANGE AND REDEEM SHARES

PURCHASE OF SHARES

Shares of each Fund may be purchased without a sales charge on any Business
Day at the net asset value next determined after an order is transmitted to
the Trust's transfer agent, Chase Global Funds Services Company ("CGFSC"), and
accepted by the distributor, Edgewood Services, Inc. (the "Distributor").
There is no minimum amount for initial or subsequent investments. Purchase or-
ders for Shares received prior to the close of regular trading on the NYSE on
any day that a Fund's net asset value is calculated are priced according to
the net asset value determined on that day. Purchase orders received after the
close of regular trading on the NYSE are priced as of the time the net asset
value per share is next determined. The Distributor has established procedures
for purchasing Shares in order to accommodate different types of investors
(see "Purchase Procedures" below).

Shares of each Fund may be purchased only in those states where they may be
lawfully sold. The Trust reserves the right to cease offering Shares for sale
at any time and the Distributor and the Trust each reserve the right to reject
any order for the purchase of Shares.

PURCHASE PROCEDURES

Shares may be purchased directly only by institutional investors ("Institu-
tional Investors"). An Institutional Investor (a "Shareholder Organization")
may elect to hold of record Shares for its customers ("Customers") and to rec-
ord beneficial ownership of Shares on the account statements provided to its
Customers. In that case, it is each Shareholder Organization's responsibility
to transmit to the Distributor all purchase orders for its Customers and to
transmit, on a timely basis, payment for such orders to CGFSC in accordance
with the procedures agreed to by the Shareholder Organization and the Distrib-
utor. Confirmations of all such purchases and redemptions by Shareholder Orga-
nizations for the benefit of their customers will be sent by CGFSC to the par-
ticular Shareholder Organization. In the alternative, a Shareholder Organiza-
tion may elect to establish its Customers' accounts of record with CGFSC. In
this event, even if the Shareholder Organization continues to place its Cus-
tomers' purchase and redemption orders with the Funds, CGFSC will send confir-
mations of such transactions and periodic account statements directly to the
Customers.

CERTIFICATES WILL NOT BE ISSUED FOR SHARES.

Customers may agree with a particular Shareholder Organization to make a min-
imum purchase with re-

31
<PAGE>

spect to their accounts. Depending upon the terms of the particular account,
Shareholder Organizations may charge a Customer's account fees for automatic
investment and other cash management services provided. Customers should con-
tact their Shareholder Organization directly for further information.

The Trust enters into shareholder servicing agreements with Shareholder Orga-
nizations which agree to provide their Customers various shareholder adminis-
trative services with respect to their shares (hereinafter referred to as
"Service Organizations"). Shares in the Funds bear the expense of fees payable
to Service Organizations for such services. See "Management of the Trust--
Service Organizations."

Purchases by Wire

Institutional Investors may purchase Shares by wiring federal funds to CGFSC.
Prior to making an initial investment by wire, an investor must telephone
CGFSC at (800) 909-1989 (from overseas, please call (617) 557-1755) for in-
structions, including a Wire Control Number. Federal funds and registration
instructions should be wired through the Federal Reserve System to:

The Chase Manhattan Bank, N.A.
ABA #021000021
Excelsior Institutional Trust
Credit DDA #910-2-733046
[Account Registration]
[Account Number]
[Wire Control Number] *See Above*

Shares purchased by federal funds wire will be effected at the net asset
value per share next determined after acceptance of the order provided that
the federal funds wire has been received by the Fund's bank on that Business
Day.

It is intended that each Fund will be as fully invested at all times as is
reasonably practicable in order to enhance the yield on their respective as-
sets. Accordingly, in order to make investments which will immediately gener-
ate income, a Fund must have federal funds available. Purchase orders received
and accepted after 4:00 p.m. Eastern time will be effected at the net asset
value next determined even if a Fund received federal funds on that day.

Investors making initial investments by wire must promptly complete the ap-
plication accompanying this Prospectus and forward it to CGFSC. No account ap-
plication is required for subsequent purchases. Completed applications should
be directed to:

Excelsior Institutional Trust
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798

The application may also be sent via facsimile. Please contact CGFSC at (800)
909-1989 (from overseas, please call (617) 557-1755) for complete instruc-
tions. Redemptions by investors will not be processed until the completed ap-
plication for purchase of Shares has been received and accepted by CGFSC. In-
vestors making subsequent investments by wire should follow the above instruc-
tions.

Purchases by Telephone

For Institutional Investors who have previously selected the telephone pur-
chase option, a purchase order may be placed by calling CGFSC at (800) 909-
1989 (from overseas, please call (617) 557-1755). The purchase by telephone
will be effected at the net asset value per share next determined after ac-
ceptance of the order.

By establishing the telephone purchase option, the Institutional Investor
authorizes CGFSC and the Distributor to act upon telephone instructions be-
lieved to be genuine. CGFSC and the Distributor will not be held liable for
any loss, liability, cost or expense for acting upon such instruction. Accord-
ingly, Institutional Investors bear the risk of loss. The Trust will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine, including, without limitation, recording telephonic instruc-

32
<PAGE>

tions and/or requiring the caller to provide some form of personal identifica-
tion. Failure to employ reasonable procedures may make the Trust liable for
any losses due to unauthorized or fraudulent telephone instructions.

This option may be changed, modified or terminated at any time. The Trust
currently does not charge a fee for this service, although some Service Orga-
nizations may charge their customers fees. Customers should contact their
Service Organization directly for further information.

Exchange Privilege

Shares of a Fund may be exchanged without payment of any exchange fee for
shares of another Fund described herein, for shares of the same series ("In-
stitutional Shares") of other investment portfolios of the Trust offered under
another prospectus and for shares of any investment portfolio of Excelsior
Funds at their respective net asset values, provided that such other shares
may legally be sold in the state of the investor's residence.

The Trust currently offers Institutional Shares in two additional portfolios
as follows:

Optimum Growth Fund, a fund seeking superior, risk-adjusted total return
through investments in a diversified portfolio of equity securities whose
growth prospects, in the opinion of its investment adviser, appear to exceed
that of the overall market; and

Value Equity Fund, a fund seeking long-term capital appreciation through in-
vestments in a diversified portfolio of equity securities whose market value,
in the opinion of its investment adviser, appears to be undervalued relative
to the marketplace.

Excelsior Funds currently offers one investment portfolio as follows:

Institutional Money Fund, a money market fund which seeks to provide share-
holders with liquidity and as high a level of current income as is consistent
with the preservation of capital.

An exchange of shares is treated for federal and state income tax purposes as
a redemption (sale) of shares given in exchange by the shareholder, and an ex-
changing shareholder may, therefore, realize a taxable gain or loss in connec-
tion with the exchange. Shareholders exchanging shares of a Fund for shares of
another Fund should review the disclosure provided herein relating to the ex-
changed-for shares carefully prior to making an exchange.

The exchange option may be changed, modified or terminated at any time. The
Trust currently does not charge a fee for this service, although some Service
Organizations may charge their customers fees. Customers should contact their
Service Organization directly for further information.

Exchanges by Telephone

For Institutional Investors who have previously selected the telephone ex-
change option, an exchange order may be placed by calling CGFSC at (800) 909-
1989 (from overseas, please call (617) 557-1755). The exchange by telephone
will be effected at the net asset value per share next determined after ac-
ceptance of the order for each Fund.

By establishing the telephone exchange option, the Institutional Investor au-
thorizes CGFSC and the Distributor to act upon telephone instructions believed
to be genuine. THE TRUST, EXCELSIOR FUNDS, CGFSC AND THE DISTRIBUTOR ARE NOT
RESPONSIBLE FOR THE AUTHENTICITY OF EXCHANGE REQUESTS RECEIVED BY TELEPHONE
THAT ARE REASONABLY BELIEVED TO BE GENUINE. IN ATTEMPTING TO CONFIRM THAT TEL-
EPHONE INSTRUCTIONS ARE GENUINE, THE TRUST AND EXCELSIOR FUNDS WILL USE SUCH
PROCEDURES AS ARE CONSIDERED REASONABLE, INCLUDING RECORDING THOSE INSTRUC-
TIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION.

REDEMPTION OF SHARES

Institutional Investors may redeem all or any portion of the Shares in their
account at the net asset value next determined after proper receipt in good
form

33
<PAGE>

and acceptance of an order for redemption. Proceeds from redemption orders re-
ceived and accepted by 4:00 p.m. Eastern time will normally be sent the next
Business Day; proceeds are sent in any event within five Business Days.

It is necessary for Institutional Investors and other entities to have on file
appropriate documentation authorizing redemptions by the institution or entity
before a redemption request is considered in proper form. In some cases, addi-
tional documentation may be requested.

Investment return and principal value of an investment in each Fund will fluc-
tuate, so that the value of shares redeemed may be more or less than the share-
holder's cost. Redemptions of shares are taxable events on which a shareholder
may realize a gain or loss.

REDEMPTION PROCEDURES

Customers of Shareholder Organizations holding Shares of record may redeem all
or part of their investments in the Funds in accordance with the procedures
governing their accounts at their Shareholder Organization. It is the responsi-
bility of the Shareholder Organizations to transmit redemption orders to CGFSC
and credit such Customer accounts with the redemption proceeds on a timely ba-
sis.

Customers redeeming Shares through certain Shareholder Organizations or certi-
fied financial planners may incur transaction charges in connection with such
redemptions. Such Customers should contact their Shareholder Organization for
further information on transaction fees.

Institutional Investors may redeem all or part of their Shares in accordance
with any of the procedures described below. These procedures only apply to Cus-
tomers of Shareholder Organizations for whom individual accounts have been es-
tablished with CGFSC. Customers whose individual accounts are maintained by
Shareholder Organizations must contact their Shareholder Organization directly
to redeem Trust shares.

If any portion of the Shares to be redeemed represents an investment made by
check, the Trust and CGFSC reserve the right not to honor the redemption until
CGFSC is reasonably satisfied that the check has been collected in accordance
with the applicable banking regulations; such collection process may take up to
15 days. An Institutional Investor who anticipates the need for more immediate
access to its investment should purchase Shares by federal funds or bank wire
or by certified or cashier's check. Banks normally impose a charge in connec-
tion with the use of bank wires, as well as certified checks, cashier's checks
and Federal funds. If a check is not collected, the purchase will be canceled
and CGFSC will charge a fee of $25.00 to the Institutional Investor's account.

Redemption by Wire or Telephone

Institutional Investors who maintain an account at CGFSC and have so indicated
on their application, or have subsequently arranged in writing to do so, may
redeem Shares by instructing CGFSC, by wire or telephone, to wire the redemp-
tion proceeds directly to the investor's predesignated bank account at any com-
mercial bank in the United States. Institutional Investors may have their
Shares redeemed by wire by instructing CGFSC at (800) 909-1989 (from overseas,
please call (617) 557-1755). No charge is imposed by the Trust for wiring re-
demption payments to Institutional Investors although Shareholder Organizations
may charge Customers for wiring or crediting such redemption payments to their
accounts. Information relating to such redemption services and charges, if any,
is available to Customers directly from their Shareholder Organizations.

In order to arrange for redemption by wire or telephone after an account has
been opened or to change the bank account designated to receive redemption pro-
ceeds, an Institutional Investor must send a written request to the Trust at
the address listed below under "Redemption by Mail". Such requests must be
signed by the investor, with signatures guaranteed (see "Redemption by Mail"
below for details regarding signa-

34
<PAGE>

ture guarantees). Further documentation may be requested.

CGFSC and the Distributor reserve the right to refuse a wire or telephone re-
demption. Procedures for redeeming Shares by wire or telephone may be modified
or terminated at any time by the Trust or the Distributor. CGFSC, THE TRUST
AND THE DISTRIBUTOR WILL NOT BE LIABLE FOR ANY LOSS, LIABILITY, COST OR EX-
PENSE FOR ACTING UPON TELEPHONE INSTRUCTIONS BELIEVED TO BE GENUINE. ACCORD-
INGLY, SHAREHOLDERS WILL BEAR THE RISK OF LOSS. THE TRUST WILL EMPLOY REASON-
ABLE PROCEDURES TO CONFIRM THAT INSTRUCTIONS COMMUNICATED BY TELEPHONE ARE
GENUINE, INCLUDING, WITHOUT LIMITATION, RECORDING TELEPHONE INSTRUCTIONS
AND/OR REQUIRING THE CALLER TO PROVIDE SOME FORM OF PERSONAL IDENTIFICATION.
FAILURE TO EMPLOY REASONABLE PROCEDURES MAY MAKE THE TRUST LIABLE FOR ANY
LOSSES DUE TO UNAUTHORIZED OR FRAUDULENT TELEPHONE INSTRUCTIONS.

Redemption by Mail

Shares may be redeemed by an Institutional Investor by submitting a written
request for redemption to:

Excelsior Institutional Trust
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798

A written redemption request to CGFSC must (i) state the number of Shares to
be redeemed, (ii) identify the shareholder account number and tax identifica-
tion number, and (iii) be signed for each registered owner by its authorized
officer exactly as the Shares are registered.

A redemption request for an amount in excess of $5,000, or for any amount if
the proceeds are to be sent elsewhere than the address of record, must be ac-
companied by signature guarantees from any eligible guarantor institution ap-
proved by CGFSC in accordance with its Standards, Procedures and Guidelines
for the Acceptance of Signature Guarantees ("Signature Guarantee Guidelines").
Eligible guarantor institutions generally include banks, broker-dealers,
credit unions, national securities exchanges, registered securities associa-
tions, clearing agencies and savings associations. All eligible guarantor in-
stitutions must participate in the Securities Transfer Agents Medallion Pro-
gram ("STAMP") in order to be approved by CGFSC pursuant to the Signature
Guarantee Guidelines. Copies of the Signature Guarantee Guidelines and infor-
mation on STAMP can be obtained from CGFSC at (800) 909-1989 (from overseas,
please call (617) 557-1755) or at the address given above. CGFSC may require
additional supporting documents. A redemption request will not be deemed to be
properly received in good form until CGFSC receives all required documents in
proper form.

Questions with respect to the proper form for redemption requests should be
directed to CGFSC at (800) 909-1989 (from overseas, please call (617)
557-1755).

Other Redemption Information

Except as described in "Investor Programs" below, Institutional Investors may
be required to redeem Shares in a Fund after 60 days' written notice if due to
investor redemptions the balance in the particular account with respect to the
Fund remains below $500. If a Customer has agreed with a particular Share-
holder Organization to maintain a minimum balance with respect to Shares of a
Fund and the balance in such account falls below that minimum, the Customer
may be obliged by the Shareholder Organization to redeem all or part of its
Shares to the extent necessary to maintain the required minimum balance.

INVESTOR PROGRAMS

RETIREMENT PLANS

Shares are available for purchase by Institutional Investors in connection
with the following tax-deferred prototype retirement plans offered by United
States Trust Company of New York:

IRAs (including "rollovers" from existing retirement plans) for individuals
and their eligible non-working spouses;

35
<PAGE>

Profit Sharing and Money-Purchase Plans for corporations and self-employed in-
dividuals and their partners to benefit themselves and their employees; and

Keogh Plans for self-employed individuals.

Institutional Investors or Customers of Shareholder Organizations investing in
Shares pursuant to a retirement plan are not subject to the minimum investment
and mandatory redemption provisions described above. Detailed information con-
cerning eligibility, service fees and other matters related to these plans is
available from the Trust by calling CGFSC at (800) 909-1989 (from overseas,
please call (617) 557-1755). Customers of Shareholder Organizations may pur-
chase Shares pursuant to retirement plans if such plans are offered by their
Shareholder Organizations.

TAX MATTERS

Each year the Trust intends to qualify each Fund and elect that each Fund be
treated as a separate "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). Provided a Fund meets
all income, distribution and diversification requirements of the Code, and dis-
tributes all of its net investment income and net realized capital gains to
shareholders in accordance with the timing requirements imposed by the Code, no
federal income or excise taxes will be required to be paid from that Fund, al-
though foreign-source income of a Fund may be subject to foreign withholding
taxes. If a Fund fails to qualify as a "regulated investment company" in any
year, the Fund would incur a regular corporate federal income tax upon its in-
vestment company taxable income and the Fund's distributions would also gener-
ally be taxable as ordinary dividend income to shareholders. With respect to
the Bond Index Fund, the Bond Index Portfolio in which it invests is also not
expected to be required to pay any federal income or excise taxes.

Shareholders of a Fund normally will have to pay federal income taxes and any
state or local taxes on the dividends and net capital gain distributions, if
any, they receive from a Fund. Dividends from ordinary income and any distribu-
tions from net short-term capital gains are taxable to shareholders as ordinary
income for federal income tax purposes. Distributions of net capital gains are
taxable to shareholders as long-term capital gains without regard to the length
of time the shareholders have held their Shares. Dividends and distributions,
if any, paid to shareholders will be treated in the same manner for federal in-
come tax purposes whether received in cash or reinvested in additional Shares
of a Fund.

In the case of corporate shareholders, distributions (other than capital gain
dividends) will qualify for the dividends received deduction to the extent of
the gross amount of "qualifying dividends" received by a Fund for the year.
Generally, a "qualifying dividend" is a dividend that has been received from a
domestic corporation. Availability of the deduction for particular shareholders
is subject to certain limitations, and deducted amounts may be subject to the
alternative minimum tax and result in certain basis adjustments.

Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date before the end of the year will be
deemed for tax purposes to have been received by shareholders and paid by a
Fund on December 31 of such year in the event such dividends are actually paid
during January of the following year.

At the end of each calendar year, each shareholder receives information for
tax purposes on the dividends and other distributions received during that cal-
endar year, including the portion thereof taxable as ordinary income, the por-
tion taxable as long-term capital gains, the portion (if any) which constitutes
a return of capital (which is generally free of tax but results in a basis re-
duction), and the amount of dividends (if any) which may qualify for the divi-
dends-received deduction for corporations.

In general, any gain or loss realized upon a taxable disposition of Shares of
a Fund by a shareholder that holds such Shares as a capital asset will be
treated as

36
<PAGE>

long-term capital gain or loss if the Shares have been held for more than 12
months and otherwise as a short-term capital gain or loss. However, any loss
realized upon a redemption of Shares in a Fund held for six months or less
will be treated as a long-term capital loss to the extent of any distributions
of net capital gain made with respect to those Shares. Any loss realized upon
a disposition of Shares may also be disallowed under rules relating to wash
sales.

If more than 50% of the value of the International Equity Fund's total assets
at the close of any taxable year consists of stock or securities of foreign
corporations, the International Equity Fund may elect to "pass through" to
shareholders foreign income taxes paid by that Fund. Under those circumstanc-
es, the Fund will notify shareholders of their pro rata portion of the foreign
income taxes paid by the Fund, shareholders may be eligible for foreign tax
credits or deductions with respect to those taxes, but will be required to
treat the amount of the taxes as an amount distributed to them and thus
includable in their gross income for federal income tax purposes.

The Trust may be required to withhold federal income tax at the rate of 31%
from all taxable distributions and redemption proceeds payable to shareholders
who do not provide the Trust with their correct taxpayer identification number
or make required certifications, or who have been notified by the Internal
Revenue Service that they are subject to backup withholding. Such withholding
is not an additional tax. Any amounts withheld may be credited against the
shareholder's federal income tax liability.

Under current law, neither the Trust, as a Delaware business trust, nor any
of the Funds are liable for any income or franchise tax in the State of Dela-
ware as long as the Funds continue to qualify as "regulated investment compa-
nies" under the Code.

The foregoing discussion is intended for general information only. An in-
vestor should consult with its own tax advisor as to the tax consequences of
an investment in the Funds, including the status of distributions from the
Funds under applicable state and local laws.

MANAGEMENT OF THE TRUST

The Boards of Trustees of Excelsior Institutional Trust (the "Trust") provide
general supervision over the affairs of the Trust. The Trustees decide upon
matters of general policy and review the actions of service providers such as
the investment managers, service agent, distributor and others.

INVESTMENT MANAGERS

Equity Fund, Income Fund and Total Return Bond Fund

U.S. Trust is responsible for the management of the assets of the Equity
Fund, Income Fund and Total Return Bond Fund, pursuant to an investment advi-
sory agreement (the "Advisory Agreement") with the Trust on behalf of such
Funds. With respect to these Funds, U.S. Trust makes decisions with respect to
and places orders for all purchases and sales of portfolio securities, and
maintains records relating to such purchases and sales.

The following persons are primarily responsible for the day-to-day management
of the following Funds:

<TABLE>
<S> <C>
Equity Fund......................................... Leigh H. Weiss, Senior Vice
President and Senior
Portfolio Manager, U.S.
Trust (since ^ September,
1993); Portfolio Manager,
Goldman Sachs & Co. (from
1981 to 1993).
Income Fund......................................... Charles E. Rabus, Vice
President and Senior
Portfolio Manager, U.S.
Trust (since 1987).
Total Return Bond Fund..............................
Henry M. Milkewicz, Senior
Vice President and Senior
Portfolio Manager, U.S.
Trust (since 1986).
</TABLE>

For its services under the Advisory Agreement, U.S. Trust is entitled to re-
ceive from the Equity Fund, Income Fund and Total Return Bond Fund, a fee ac-
crued daily and paid monthly at an annual rate equal

37
<PAGE>

to 0.65% of each Fund's average daily net assets. U.S. Trust has agreed to
waive a portion of its investment advisory fees under the Advisory Agreement
which waiver may be terminated at any time. For the fiscal year ended May 31,
1996, U.S. Trust received advisory fees at the effective annual rates of .13%,
.05% and .08% of the average daily net assets of the Equity, Income and Total
Return Bond Funds, respectively. For the same period, U.S. Trust waived advi-
sory fees at the effective annual rates of .52%, .60% and .57% of the average
daily net assets of the Equity, Income and Total Return Bond Funds,
respectively. For the same period, U.S. Trust reimbursed expenses at the ef-
fective annual rates of .32%, .21% and .17% of the average daily net assets of
the Equity, Income and Total Return Bond Funds, respectively.

U.S. Trust is a state-chartered bank and trust company which provides trust
and banking services to individuals, corporations and institutions, both na-
tionally and internationally, including investment management, estate and
trust administration, financial planning, corporate trust and agency services,
and personal and corporate banking. U.S. Trust is a member bank of the Federal
Reserve System and the Federal Deposit Insurance Corporation and is one of the
twelve members of the New York Clearing House Association. On June 30, 1996,
U.S. Trust's Asset Management Group had approximately $50.3 billion in assets
under management. U.S. Trust, which has its principal offices at 114 West 47th
Street, New York, NY 10036, is a subsidiary of U.S. Trust Corporation, a reg-
istered bank holding company. U.S. Trust also serves as investment adviser to
Excelsior Funds, Inc. (formerly known as UST Master Funds, Inc.) and Excelsior
Tax-Exempt Funds, Inc. (formerly known as UST Master Tax-Exempt Funds, Inc.),
which are registered investment companies consisting of the following funds:
Equity Fund; Income and Growth Fund; Long-Term Supply of Energy Fund; Produc-
tivity Enhancers Fund; Environmentally-Related Products and Services Fund; Ag-
ing of America Fund; Communication and Entertainment Fund; Business and Indus-
trial Restructuring Fund; Global Competitors Fund; Early Life Cycle Fund; In-
ternational Fund, Emerging Americas Fund; Pan European Fund; Pacific/Asia
Fund; Money Fund; Government Money Fund; Treasury Money Fund; Short-Term Gov-
ernment Securities Fund; Intermediate-Term Managed Income Fund; Managed Income
Fund; Tax Exempt Money Fund; Short-Term Tax-Exempt Securities Fund; New York
Intermediate-Term Tax-Exempt Fund; Intermediate-Term Tax-Exempt Fund; Long-
Term Tax-Exempt Fund; and California Tax-Exempt Income Fund.

BALANCED FUND, EQUITY GROWTH FUND AND INTERNATIONAL EQUITY FUND

United States Trust Company of The Pacific Northwest ("U.S. Trust Pacific")
is responsible for the management of the assets of the Balanced Fund, Equity
Growth Fund and International Equity Fund pursuant to an investment advisory
agreement (the "Advisory Agreement") with the Trust on behalf of such Funds.
U.S. Trust Pacific has delegated the daily management of the investment port-
folios of these Funds to the investment managers named below, acting as sub-
advisers (the "Sub-Advisers"):

<TABLE>
<S> <C>
Balanced Fund...................................... Becker Capital Management,
Inc. ("Becker")
Equity Growth Fund.................................
Luther King Capital
Management ("Luther King")
International Equity Fund..........................
Harding, Loevner Management,
L.P. ("Harding Loevner")
</TABLE>

Subject to the general guidance and policies set by the Trustees of the
Trust, U.S. Trust Pacific provides general supervision over the investment
management functions performed by each of the Sub-Advisers. U.S. Trust Pacific
closely monitors the Sub-Advisers' application of these Funds' investment pol-
icies and strategies, and regularly evaluates the Sub-Advisers' investment re-
sults and trading practices.

For its services under the Advisory Agreement, U.S. Trust Pacific is entitled
to receive from each of the Balanced, Equity Growth and International Equity

38
<PAGE>

Funds, fees accrued daily and paid monthly at an annual rate equal to the per-
centages specified below of such Fund's average daily net assets: (a) 0.65%
for the each of Balanced Fund and Equity Growth Fund; and (b) 1.00% for the
International Equity Fund. U.S. Trust Pacific, which has its principal offices
at 4380 Southwest Macadam Avenue, Suite 450, Portland, OR 97201, is a subsidi-
ary of United States Trust Company of New York. Although the advisory fee paid
by the International Equity Fund is higher than advisory fees currently being
paid by most investment companies in general, the advisory fee paid by the In-
ternational Equity Fund is similar to fees currently being paid by other in-
vestment companies which also invest primarily in foreign issuers. U.S. Trust
Pacific has agreed to waive a portion of its investment advisory fees with re-
spect to each Fund listed above, which waiver may be terminated at any time.
For the fiscal year ended May 31, 1996, U.S. Trust Pacific received advisory
fees at the effective annual rates of .19%, .10% and .21% of the average daily
net assets of the Balanced, Equity Growth and International Equity Funds, re-
spectively. For the same period, U.S. Trust Pacific waived advisory fees at
the effective annual rates of .46%, .55% and .79% of the average daily net as-
sets of the Balanced, Equity Growth and International Equity Funds, respec-
tively. For the same period, U.S. Trust reimbursed expenses at the effective
annual rates of .11%, .18% and .37% of the average daily net assets of the
Balanced, Equity Growth and International Equity Funds, respectively.

Pursuant to the sub-advisory agreements, the Sub-Advisers make the day-to-day
investment decisions and portfolio selections for the Balanced, Equity Growth
and International Equity Funds, consistent with the general guidelines and
policies established by U.S. Trust Pacific and the Board of Trustees of the
Trust. For the investment management services they provide to the Funds, the
Sub-Advisers are compensated only by U.S. Trust Pacific, and receive no fees
directly from the Trust. For their services under the sub-advisory agreements,
the Sub-Advisers are entitled to receive from U.S. Trust Pacific fees at a
maximum annual rate equal to the percentages specified below of the Funds' av-
erage daily net assets: (a) 0.425% for the Balanced Fund, (b) 0.40% for the
Equity Growth Fund and (c) 0.50% for the International Equity Fund. Each Sub-
Adviser has agreed to waive a portion of its investment advisory fees with re-
spect to its respective Fund, which waivers may be terminated at any time. The
Sub-Advisers furnish at their own expense all services, facilities and person-
nel necessary in connection with managing the Funds' investments and effecting
securities transactions for the Funds. For the fiscal year ended May 31, 1996,
Becker, Luther King and Harding Loevner received sub-advisory fees at the ef-
fective annual rates of %, % and % of the average daily net assets of the
Balanced, Equity Growth and International Equity Funds, respectively. For the
same period, Becker, Luther King and Harding Loevner waived sub-advisory fees
at the effective annual rates of %, % and % of the average daily net assets
of the Balanced, Equity Growth and International Equity Funds, respectively.

Becker, the Sub-Adviser for the Balanced Fund, maintains its principal of-
fices at 2185 Pacwest Center, Portland, OR 97204. As of June 30, 1996, Becker
had approximately $1.4 billion in assets under management. The person primar-
ily responsible for the day-to-day management of the Balanced Fund is Donald
L. Wolcott, C.F.A., Vice President and Portfolio Manager of Becker. Mr. Wol-
cott joined Becker in 1987 and brings 20 years of experience in investment
management to his position.

Luther King, the Sub-Adviser for the Equity Growth Fund, maintains its prin-
cipal offices at 301 Commerce Street, Suite 1600, Fort Worth, TX 76102. As of
June 30, 1996, Luther King had approximately $4.7 billion in assets under man-
agement. Investment decisions for the Equity Growth Fund are made by committee
and no person(s) are primarily responsible for making recommendations to that
committee.

Harding Loevner, the Sub-Adviser for the International Equity Fund maintains
its principal offices at 50 Division Street, Suite 401, Somerville, NJ 08876.
As of June 30, 1996, Harding Loevner had approximately

39
<PAGE>

$1 billion in assets under management. All investment management decisions of
Harding Loevner are made by an investment group and not by portfolio managers
individually.

BOND INDEX FUND

The Trust seeks to achieve the investment objective of the Bond Index Fund by
investing all investable assets of that Fund in the Bond Index Portfolio,
which has the same investment objective, policies and limitations as the Bond
Index Fund. Federated Research Corp. is responsible for the management of the
assets of the Bond Index Portfolio, pursuant to an investment advisory agree-
ment (the "Federated Advisory Agreement") with Federated Portfolios on behalf
of the Bond Index Portfolio. Federated Research Corp. has delegated daily man-
agement of the security holdings of the Bond Index Portfolio to U.S. Trust,
acting as sub-adviser.

Subject to the general guidance and policies set by the Trustees of Federated
Portfolios, Federated Research Corp. provides general supervision over the in-
vestment management functions performed by U.S. Trust. Federated Research
Corp. closely monitors U.S. Trust's application of the Bond Index Portfolio's
investment policies and strategies, and regularly evaluates U.S. Trust's in-
vestment results and trading practices.

For its services under the Federated Advisory Agreement, Federated Research
Corp. is entitled to receive from the Bond Index Portfolio a fee, accrued
daily and paid monthly, at an annual rate equal to 0.25% of the Bond Index
Portfolio's average daily net assets. Federated Research Corp. has agreed to
waive all investment advisory fees with respect to the Bond Index Portfolio.
This waiver may be terminated at any time, although Federated Investors has
agreed to maintain total operating expenses (after fee waivers and expense re-
imbursements) of the Bond Index Portfolio at no greater than 0.20% of average
net assets for the twelve month period following January 2, 1996.

Federated Research Corp., which has its principal offices at Federated In-
vestors Tower, 1001 Liberty Avenue, Pittsburgh, Pennsylvania 15222, is a Mary-
land corporation. Federated Research Corp. is an indirect, wholly-owned sub-
sidiary of Federated Investors, a Delaware business trust which, together with
its affiliates, had approximately $86 billion in assets under management as of
June 30, 1996.

Pursuant to an investment sub-advisory agreement, U.S. Trust makes the day-
to-day investment decisions and portfolio selections for the Bond Index Port-
folio, consistent with general guidelines and policies established by Feder-
ated Research Corp. and the Board of Trustees of Federated Portfolios. For the
investment management services U.S. Trust provides to the Bond Index Portfo-
lio, U.S. Trust is compensated only by Federated Research Corp. and receives
no fees directly from Federated Portfolios. For its services under the sub-ad-
visory agreement, U.S. Trust is entitled to receive from Federated Research
Corp. a fee, accrued daily and paid monthly, at an annual rate equal to 0.12%
of the Bond Index Portfolio's average daily net assets. U.S. Trust has agreed
to waive all investment advisory fees with respect to the Bond Index Portfo-
lio, which waiver may be terminated at any time. U.S. Trust furnishes at its
own expense all services, facilities and personnel necessary in connection
with managing the Bond Index Portfolio's investments and effecting securities
transactions for the Portfolio. For information on U.S. Trust please see "In-
vestment Managers--Equity Fund, Income Fund and Total Return Bond Fund" above.

Bruce Tavel, Senior Vice President, and Cyril M. Theccanat, Vice President of
U.S. Trust, Structured Investment Management Department, are primarily respon-
sible for the day-to-day management of the Bond Index Portfolio. Mr. Theccanat
has been managing structured investment portfolios at U.S. Trust since January
1990. Prior to this, Mr. Theccanat was a Vice President of Drexel Burnham Lam-
bert, responsible for interest rate and foreign exchange risk management. Mr.
Tavel designs, develops and implements analytic

40
<PAGE>

procedures and services utilizing quantitative and financial information. He
has over 18 years of experience in the execution of decision support systems
at U.S. Trust and previously at Lehman Asset Management, where he was Director
of Institutional Computer Services.

Prior to December 29, 1995, the Bond Index Fund pursued its investment objec-
tive by investing all of its investable assets in the Bond Market Portfolio of
St. James Portfolios. U.S. Trust Pacific and U.S. Trust served as investment
adviser and sub-adviser, respectively, to the Bond Market Portfolio. For the
period from June 1, 1995 through December 29, 1995, U.S. Trust Pacific and
U.S. Trust waived all advisory and sub-advisory fees with respect to the Bond
Market Portfolio, and U.S. Trust reimbursed expenses at the effective annual
rate of % of the average daily net assets of the Bond Market Portfolio.

Prior to September 30, 1996, Federated Management served as investment ad-
viser to the Bond Index Portfolio. For the period from December 30, 1995
through May 31, 1996, Federated Management and U.S. Trust waived all advisory
and sub-advisory fees with respect to the Bond Index Portfolio.

ADMINISTRATORS

U.S. Trust, located at 114 West 47th Street, New York, NY 10036, Chase Global
Fund Services Company ("CGFSC"), located at 73 Tremont Street, Boston, Massa-
chusetts 02108, and Federated Administrative Services ("FAS"), a subsidiary of
Federated Investors located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, Pennsylvania, 15222-3779, serve as the Funds' administrators (the
"Administrators"). The Administrators supervise the affairs of the Trust, in-
cluding, 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; provide equipment and clerical personnel necessary for
maintaining the organization of the Trust; prepare and distribute all materi-
als in connection with meetings of Trustees and investors; prepare and file
all documents required for compliance by the Trust with applicable laws and
regulations; and arrange for the maintenance of Fund accounting and record-
keeping of the Trust.

[Federated Services Company ("FSC") serves as servicing agent and fund ac-
counting agent to the Trust with respect to the Bond Index Fund, pursuant to
an agreement between FSC and the Trust (the "Servicing Agent Agreement"),
which provides that FSC will perform or provide certain administrative and
fund accounting services to the Bond Index Fund. FSC is a subsidiary of Feder-
ated Investors.]

As compensation for providing these services and facilities to the Trust, the
Administrators are jointly entitled to an annual fee, computed daily and paid
monthly from each of the Funds (other than the International Equity Fund),
based on the combined aggregate average daily net assets of the Funds, Excel-
sior Funds, Inc., and Excelsior Tax-Exempt Funds, Inc. (except the interna-
tional portfolios of the Trust and Excelsior Funds, Inc.) (collectively the
"Fund Complex") as follows:

<TABLE>
<CAPTION>
COMBINED AGGREGATE AVERAGE DAILY
NET ASSETS OF THE FUND COMPLEX ANNUAL FEE
-------------------------------- ----------
<S> <C>
first $200 million.................................................. 0.200%
next $200 million................................................... 0.175%
over $400 million................................................... 0.150%
</TABLE>

Administrative fees payable to the Administrators by each of the above Funds
are determined in proportion to their pro rata share of the total average
daily net assets of all of the funds in the Fund Complex at the time of deter-
mination. The Administrators are jointly entitled to an annual fee from the
International Equity Fund, computed daily and paid monthly, at the annual rate
of 0.20% of the average daily net assets of such Fund. From time to time one
or more of the Administrators may waive all or a portion of the administrative
fee payable to them by the Funds, which waiver may be terminated at any time.
For the period from December 18, 1995 (January 1, 1996 with respect to the
Bond Index Fund) through May 31, 1996, the Administra-

41
<PAGE>

tors received an aggregate administration fee at the effective annual rates of
.15%, .15%, .15%, .20%, .15%, .15% and .20% of the average daily net assets of
the Equity, Income, Total Return Bond, Bond Index, Balanced, Equity Growth and
International Equity Funds, respectively. For the same period, U.S. Trust reim-
bursed expenses at the effective annual rate of % of the average daily net
assets of the Bond Index Fund.

Prior to December 18, 1995 (January 1, 1996 with respect to the Bond Index
Fund), Signature Financial Services, Inc. ("SFSI"), the former servicing and
fund accounting agent, was entitled to receive servicing fees under the compen-
sation arrangements then in place for administrative services (other than fund
accounting services) at an annual rate of up to 0.07% of the average daily net
assets of each Fund and fund accounting fees of $12,000 per year per Fund. For
the period from June 1, 1995 thought December 18, 1995 (January 1, 1996 with
respect to the Bond Index Fund), SFSI received servicing and fund accounting
fees at the effective annual rates of .34%, .24%, .24%, .17%, .12%, .15% and
.56% of the average daily net assets of the Equity, Income, Total Return Bond,
Bond Index, Balanced, Equity Growth and International Equity Funds, respective-
ly.

DISTRIBUTOR

Pursuant to a Distribution Agreement, Edgewood Services, Inc. (the "Distribu-
tor"), Clearing Operations, P.O. Box 897, Pittsburgh, Pennsylvania 15230-0897,
acts as principal underwriter for the Shares. Edgewood Services, Inc., a regis-
tered broker-dealer and a wholly-owned subsidiary of Federated Investors, is
unaffiliated with U.S. Trust or any of its affiliates. The Distributor and its
affiliates act as distributor and serve as administrator to twenty-four bank
related mutual fund complexes.

SERVICE ORGANIZATIONS

The Trust will enter into an agreement ("Servicing Agreement") with each Serv-
ice Organization requiring it to provide administrative support services to its
Customers beneficially owning shares. As a consideration for the administrative
services provided to Customers, a Fund will pay the Service Organization an ad-
ministrative service fee at an annual rate of up to .40% of the average daily
net asset value of its shares held by the Service Organization's Customers.
Such services may include assisting in processing purchase, exchange and re-
demption requests; transmitting and receiving funds in connection with Customer
orders to purchase, exchange or redeem shares; and providing periodic state-
ments. Under the terms of the Servicing Agreement, Service Organizations will
be required to provide to Customers a schedule of any fees that they may charge
in connection with a Customer's investment. Until further notice, the Invest-
ment Adviser and Administrators have voluntarily agreed to waive fees payable
by a Fund in an amount equal to administrative service fees payable by that
Fund.

CUSTODIAN AND TRANSFER AGENT

The Chase Manhattan Bank, N.A. ("Chase") serves as custodian of the Funds' as-
sets. Communications to the custodian should be directed to The Chase Manhattan
Bank, N.A., Mutual Funds Service Division, 770 Broadway, New York, NY 10003.
Chase Global Funds Services Company ("CGFSC"), 73 Tremont Street, Boston, Mas-
sachusetts 02108, serves as the transfer agent for the Funds, providing trans-
fer agency, dividend disbursement and registrar services. CGFSC is a subsidiary
of Chase.

BOND INDEX PORTFOLIO--SERVICE PROVIDERS

Federated Services Company ("FSC"), a Pennsylvania corporation whose address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779,
maintains records of investors in Federated Portfolios though its subsidiary,
Federated Administrative Services, Inc. The fee paid to the transfer agent is
based upon the size, type and number of accounts and transactions made by
shareholders. FSC also maintains Federated Portfolio's accounting records. The
fee for this service (of which the Bond Index Portfolio bears

42
<PAGE>

its pro rata share) is based upon the level of Federated Portfolios' average
net assets for the period plus out-of-pocket expenses. FSC is a wholly-owned
subsidiary of Federated Investors.

Federated Securities Corp. is the placement agent for investments in the Bond
Index Portfolio. Federated Securities Corp. is located at Federated Investors
Tower, 1001 Liberty Avenue, Pittsburgh, Pennsylvania 15222-3779. It is a Penn-
sylvania corporation organized on November 14, 1969, and is the principal dis-
tributor for a number of investment companies. Federated Securities Corp. re-
ceives no fee for its services as placement agent for the Bond Index Portfo-
lio. Federated Securities Corp. is a wholly-owned subsidiary of Federated In-
vestors.

FSC, through its subsidiary, Federated Administrative Services, Inc., pro-
vides administrative personnel and services (including certain legal and fi-
nancial reporting services) necessary to operate the Bond Index Portfolio. FSC
is entitled to receive a fee from the Bond Index Portfolio accrued daily and
paid monthly at a annual rate of up to 0.05% of the average daily net assets
of the Bond Index Portfolio, subject to a minimum of $60,000 (unless waived).
From time to time FSC may waive all or a portion of the administrative fee,
and has agreed to waive a portion of the administrative fee for the twelve
month period following January 2, 1996.

State Street Bank & Trust Company, P.O. Box 8600, Boston, MA 02266-8600,
serves as custodian of the Bond Index Portfolio's assets.

EXPENSES

The expenses of the Trust include the compensation of its Trustees who are
not affiliated with the investment managers; governmental fees; interest
charges; taxes; fees and expenses of the Administrators, of independent audi-
tors, of legal counsel and of any transfer agent, custodian, registrar or div-
idend disbursing agent of the Trust; insurance premiums; and expenses of cal-
culating the net asset value of, and the net income on shares of the Funds.

Expenses of the Trust also include expenses of distributing and redeeming
shares and servicing shareholder accounts; expenses of preparing, printing and
mailing prospectuses, reports, notices, proxy statements and reports to share-
holders and to governmental offices and commissions; expenses of shareholder
and Trustee meetings; expenses relating to the issuance, registration and
qualification of shares of each Fund and the preparation, printing and mailing
of prospectuses for such purposes; and membership dues in the Investment Com-
pany Institute allocable to the Trust.

The Bond Index Fund invests through the Bond Index Portfolio, which is a se-
ries of Federated Portfolios. Expenses of Federated Portfolios (of which the
Bond Index Portfolio bears its pro rata share) include the compensation of its
Trustees who are not affiliated with the investment managers; governmental
fees, interest charges; taxes; fees and expenses of independent auditors, of
legal counsel and of any transfer agent, administrator, registrar or dividend
disbursing agent of Federated Portfolios; insurance premiums; and expenses of
calculating the net asset value of, and the net income or interests in the
Bond Index Portfolio.

Expenses of Federated Portfolios also include expenses connected with the ex-
ecution, recording and settlement of security transactions; fees and expenses
of Federated Portfolios' custodian for all services to Bond Index Portfolio,
including safekeeping of funds and securities and maintaining required books
and accounts; expenses of preparing and mailing reports to investors and to
governmental offices and commissions; expenses of meetings of investors and
Trustees; and the advisory fees, if any, payable to Federated Research Corp.
under the Federated Advisory Agreement.

Bank Regulatory Matters. The Glass-Steagall Act and applicable banking laws
and regulations generally prohibit certain financial institutions such as U.S.
Trust from engaging in the business of underwriting securities of open-end in-
vestment companies such as the

43
<PAGE>

Trust. Based on advice of its counsel, it is the position of U.S. Trust and
U.S. Trust Pacific that the investment advisory services performed by U.S.
Trust or U.S. Trust Pacific under the Advisory Agreements with the Trust, the
activities performed by U.S. Trust as one of the administrators for the Funds
and as sub-adviser for the Bond Index Portfolio, do not constitute underwrit-
ing activities and are consistent with the requirements of the Glass-Steagall
Act. In addition, counsel has advised that this combination of individually
permissible activities is consistent with the Glass-Steagall Act and other
federal or state legal and regulatory precedent. There is presently no con-
trolling precedent regarding the performance of a combination of investment
advisory, administrative and/or shareholder servicing activities by banks.
State laws on this issue may differ from the interpretations of relevant fed-
eral law and banks and financial institutions may be required to register as
dealers pursuant to state securities law. Future changes in either federal
statutes or regulations relating to the permissible activities of banks, as
well as future judicial or administrative decisions and interpretations of
present and future statutes and regulations, could prevent a bank from contin-
uing to perform all or part of its servicing or investment management activi-
ties. If a bank were prohibited from so acting, its shareholder customers
would be permitted to remain Fund shareholders and alternative means for con-
tinuing the servicing of such shareholders would be sought. In such event,
changes in the operation of the Funds might occur and a shareholder serviced
by such bank might no longer be able to avail himself of any automatic invest-
ment or other services then being provided by such bank. The Trustees of the
Trust do not expect that shareholders of the Funds would suffer any adverse
financial consequences as a result of these occurrences.

Certain Relationships and Activities. U.S. Trust, U.S. Trust Pacific and
their affiliates may have deposit, loan and other commercial banking relation-
ships with the issuers of securities which may be purchased on behalf of the
Funds including outstanding loans to such issuers which could be repaid in
whole or in part with the proceeds of securities so purchased. U.S. Trust and
U.S. Trust Pacific have informed the Trust that, in making investment deci-
sions, they do not obtain or use material inside information in their posses-
sion or in the possession of any of their affiliates. In making investment
recommendations U.S. Trust and U.S. Trust Pacific will not inquire or take
into consideration whether an issuer of securities proposed for purchase or
sale by a Fund is a customer of U.S. Trust or U.S. Trust Pacific, their par-
ents or their subsidiaries or affiliates. When dealing with its customers,
U.S. Trust, U.S. Trust Pacific, their parents, subsidiaries, and affiliates
will not inquire or take into consideration whether securities of such custom-
ers are held by any Fund managed by U.S. Trust, U.S. Trust Pacific or any such
affiliate.

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

Dividends equal to all or substantially all of each Fund's net investment in-
come will be declared and paid as follows: For the Equity, Balanced and Equity
Growth Funds, dividends will be declared and paid at least quarterly; for the
Income, Total Return Bond and Bond Index Funds, dividends will be declared
daily and paid at least monthly; for the International Equity Fund, dividends
will be declared and paid at least once a year.

Long-term capital gains, if any, for each Fund will be distributed once a
year, usually in December, if a Fund's profits during that year from the sale
of securities held for longer than the applicable period exceed losses during
such year from the sale of securities together with any net capital losses
carried forward from prior years (to the extent not used to offset short-term
capital gains). Net short-term capital gains realized during a Fund's fiscal
year will also be distributed during such year. Each Fund's net income for
dividend purposes consists of (i) all accrued income, whether taxable or tax-
exempt, plus discount earned on the Fund's assets, less (ii) amortization of
premium on

44
<PAGE>

such assets, accrued expenses directly attributable to the Fund, and the gen-
eral expenses or the expenses common to more than one Fund (e.g., legal, ad-
ministrative, accounting, and Trustees' fees) prorated to each Fund on the ba-
sis of its relative net assets. Dividends and distributions will reduce the
net asset value of each of the Funds by the amount of the dividend or distri-
bution.

Additional distributions will also be made to shareholders to the extent nec-
essary to avoid the application of non-deductible federal excise taxes on cer-
tain undistributed income and net capital gains of mutual Funds.

DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES

The Trust's Trust Instrument permits the Trustees of the Trust to issue an
unlimited number of full and fractional shares of beneficial interest (par
value $0.00001 per share) of each series and to divide or combine the shares
into a greater or lesser number of shares without thereby changing the propor-
tionate beneficial interests in each Fund. The Trust reserves the right to
create and issue any number of series; investments in each series participate
equally in the earnings, dividends and assets of the particular series only
and no other series. Currently, the Trust has seven active and two inactive
series. The active series include: Excelsior Institutional Equity Fund, Excel-
sior Institutional Income Fund, Excelsior Institutional Total Return Bond
Fund, Excelsior Institutional Bond Index Fund, Excelsior Institutional Bal-
anced Fund, Excelsior Institutional Equity Growth Fund and Excelsior Institu-
tional International Equity Fund. The seven active series are offered through
this Prospectus.

Each Share of a Fund represents an interest in that Fund that is proportion-
ate with the interest represented by each other Share. Shares have no prefer-
ence, preemptive, conversion or similar rights. Shares when issued are fully
paid and nonassessable, except as set forth below. Shareholders are entitled
to one vote for each Share held on matters on which they are entitled to vote.
The Trust is not required to and has no current intention to hold annual meet-
ings of shareholders, although the Trust will hold special meetings of share-
holders when in the judgment of the Board of Trustees of the Trust it is nec-
essary or desirable to submit matters for a shareholder vote. Shareholders
have the right to remove one or more Trustees of the Trust at a shareholders
meeting by vote of two-thirds of the outstanding Shares of the Trust. Share-
holders also have the right to remove one or more Trustees of the Trust with-
out a meeting by a declaration in writing by a specified number of sharehold-
ers. Upon liquidation or dissolution of a Fund, shareholders would be entitled
to share pro rata in the net assets of such Fund available for distribution to
shareholders.

The Trust is a business trust organized under the laws of the State of Dela-
ware. Under Delaware law, shareholders of Delaware business trusts are enti-
tled to the same limitation on personal liability 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 ex-
press 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 a
Fund solely by reason of his being or having been a shareholder. The Trust In-
strument also provides for the maintenance, by or on behalf of the Trust and
each Fund, of appropriate insurance (for example, fidelity bond 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
Delaware law did not

45
<PAGE>

apply, inadequate insurance existed and a Fund itself was unable to meet its
obligations.

Shareholders of all series of the Trust will vote together to elect Trustees
of the Trust and for certain other matters. Under certain circumstances, the
shareholders of one or more series of the Trust could control the outcome of
these votes.

The Bond Index Fund invests through Bond Index Portfolio, a series of Feder-
ated Portfolios, which is a business trust organized under the laws of the
Commonwealth of Massachusetts. The interests in Federated Portfolios are di-
vided into separate series or portfolios (each a "Portfolio", collectively,
the "Portfolios"). Investors in each Portfolio of Federated Portfolios will
vote separately or together in the same manner as shareholders of the Trust's
series. Federated Portfolios' Declaration of Trust provides that the Bond In-
dex Fund and other entities investing in the Bond Index Portfolio and the
other Portfolios of Federated Portfolios (e.g., other investment companies,
insurance company separate accounts and common and commingled trust funds)
will each be liable for all obligations of the portfolio in which they invest
and the overall obligations of Federated Portfolios. However, the Trustees of
the Trust believe that the risk of the Bond Index Fund incurring financial
loss on account of such liability is limited to circumstances in which nei-
ther the Bond Index Portfolio nor the Federated Portfolios were able to meet
their obligations, and that neither the Bond Index Fund nor its shareholders
will be exposed to a material risk of liability by reason of the Fund's in-
vestment in the Bond Index Portfolio.

For more information regarding the Trustees of the Trust and Federated Port-
folios, see "Management of the Trust" in the Statement of Additional Informa-
tion.

PERFORMANCE INFORMATION

From time to time, in advertisements, reports to shareholders, or other com-
munications to shareholders or prospective investors, the performance of the
Funds may be quoted and compared to those of other mutual funds with similar
investment objectives and to stock or other relevant indices or to rankings
prepared by independent services or other financial or industry publications
that monitor the performance of mutual funds. Performance information includes
the Fund's investment results and/or comparisons of its investment results to
various unmanaged indices, or results of other mutual funds or investment or
savings vehicles. A Fund's investment results as used in such communications
are calculated on a "yield" or "total rate of return" basis in the manner set
forth below.

The Trust provides period and annualized "total rates of return" and non-
standardized total return data for each Fund. The "total rate of return" re-
fers to the change in the value of an investment in a Fund over a stated pe-
riod which reflects any change in net asset value per share and includes the
value of any shares purchased with any dividends or capital gains declared
during such period. Period total rates of return may be annualized. An
annualized total rate of return is a compounded total rate of return which as-
sumes that the period total rate of return is generated over a one-year peri-
od, and that all dividends and capital gains distributions are reinvested.

The Trust provides annualized "yield" quotations for each Fund. The "yield"
of a Fund refers to the income generated by an investment in such Fund over a
thirty day or one month period. The dates of any such period are identified in
all advertisements or communications containing yield quotations. Income is
then annualized; that is, the amount of income generated by an investment in a
Fund over a period is assumed to be generated (or remain constant) over one
year and is shown as a percentage of the net asset value on the last day of
that year-long period. The Funds may also advertise the "effective yields",
which are calculated similarly but, when annualized, income is assumed to be
reinvested, thereby making the effective yields slightly higher because of the
compounding effect of the assumed reinvestment. See "Performance Information"
in the Statement of Additional Informa-

46
<PAGE>

tion. These methods of calculating "yield" and "total rate of return" are de-
termined by regulations of the Securities and Exchange Commission.

Since a Fund's yield and total rate of return quotations are based on histor-
ical earnings and since such yields and total rates of return fluctuate over
time, such quotations should not be considered as an indication or representa-
tion of the future performance of any Fund. Shareholders should remember that
performance is generally a function of the kind and quality of the instruments
held in a Fund, Fund maturity, operating expenses, and market conditions. Any
fees charged by Shareholder Organizations to Customers that have invested in
Shares and any charges to institutional investors for asset management and re-
lated services will not be included in calculations of performance. From time
to time, Fund rankings may be quoted from various sources, such as Lipper Ana-
lytical Services, Inc.

MISCELLANEOUS

Shareholders of record will receive unaudited semi-annual reports and annual
reports audited by the Funds' independent auditors.

The Funds' Statement of Additional Information bears the same date as this
Prospectus and contains more detailed information about the Funds and the Bond
Index Portfolio, including information related to (i) investment policies and
restrictions of the Funds and the Bond Index Portfolio, (ii) Trustees and of-
ficers of the Trust and Federated Portfolios, (iii) portfolio transactions and
brokerage commissions, (iv) rights and liabilities of shareholders of the
Trust and investors in Federated Portfolios, (v) additional performance infor-
mation, including methods used to calculate yield and total return, (vi) de-
termination of the net asset value of Shares of the Funds and (vii) the au-
dited financial statements of the Funds and the Bond Index Portfolio at May
31, 1996.

47
<PAGE>

- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --

CHASE GLOBAL FUNDS SERVICES COMPANY CLIENT SERVICES
[LOGO] EXCELSIOR NEW
INSTITUTIONAL TRUST ACCOUNT
APPLICATION
P.O. Box 2798 Boston, MA 02208-2798 (800) 909-1989
-----------------------------------------------------------------------------

-----------------------------------------------------------------------------
ACCOUNT REGISTRATION
-----------------------------------------------------------------------------

[_] Institutional [_] Trust [_] Other

Note: Trust registrations should specify name of the trust,
trustee(s), beneficiary(ies), and the date of the trust
instrument.
------------------------------ -----------------------------
Name(s) (please print) Social Security # or Taxpayer
------------------------------ Identification #
Name ( )
------------------------------ -----------------------------
Address Telephone #
------------------------------ [_] U.S. Citizen [_] Other
(specify) ___________________
City/State/Zip Code

-----------------------------------------------------------------------------
FUND SELECTION MAKE CHECKS PAYABLE TO "EXCELSIOR INSTITUTIONAL TRUST."
-----------------------------------------------------------------------------

<TABLE>
<S> <C> <C> <C>
FUND INITIAL INVESTMENT FUND INITIAL INVESTMENT
[_] Equity Fund $ ___________ 3100 [_] Value Equity Fund (Institutional Shares) $ ___________ 3122
[_] Equity Growth Fund $ ___________ 3110 [_] Total Return Bond Fund $ ___________ 3103
[_] Balanced Fund $ ___________ 3109 [_] Bond Index Fund $ ___________ 3107
[_] International Equity
Fund $ ___________ 3101 [_] Income Fund $ ___________ 3102
[_] Optimum Growth Fund
(Institutional Shares) $ ___________ 3123 [_] Other $ ___________
TOTAL INITIAL INVESTMENT: $ ___________
</TABLE>

NOTE: If investing A. BY MAIL: Enclosed is a check in the
by wire, you must amount of $ _____ payable to "Excelsior
obtain a Bank Wire Institutional Trust."
Control Number. To B. BY WIRE: A bank wire in the amount
do so, please call of $___ has been sent to the Fund from
(800) 909-1989 and ------------------ ---------------
ask for the Wire Name of Bank Wire Control
Desk. ((617) 557- Number
1755 from Overseas)

CAPITAL GAIN AND DIVIDEND DISTRIBUTIONS: All capital gain and
dividend distributions will be reinvested in additional
shares unless appropriate boxes below are checked:
All dividends are to be[_] reinvested[_] paid in cash
All capital gains are to be[_] reinvested[_] paid in cash

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ACCOUNT PRIVILEGES
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TELEPHONE EXCHANGE AND REDEMPTION

[_] I/We appoint CGFSC as my/our agent to act upon instructions received by
telephone in order to effect the telephone exchange and redemption
privileges. I/We hereby ratify any instructions given pursuant to this
authorization and agree that Excelsior Institutional Trust, Excelsior Funds,
CGFSC and their directors, trustees, officers and employees will not be
liable for any loss, liability, cost or expense for acting upon instructions
believed to be genuine and in accordance with the procedures described in
the then current prospectus. To the extent that Excelsior Institutional
Trust or Excelsior Funds fail to use reasonable procedures as a basis for
their belief, they or their service contractors may be liable for
instructions that prove to be fraudulent or unauthorized.

I/We further acknowledge that it is my/our responsibility to read a copy of
the Funds' current Prospectus. [_] I/We do not wish to have the ability to
exercise telephone redemption and exchange privileges. I/We further
understand that all exchange and redemption requests must be in writing.

AUTHORITY TO TRANSMIT REDEMPTION PROCEEDS TO PRE-DESIGNATED ACCOUNT.
I/We hereby authorize CGFSC to act upon instructions received by telephone
to withdraw from my/our account in the Excelsior Institutional Trust and to
wire the amount withdrawn to the following commercial bank account.

Title on Bank Account*____________________________________

Name of Bank _____________________________________________

Bank A.B.A. Number______________________Account Number _____________________

Bank Address ______________________________________________

City/State/Zip Code _______________________________________
(attach voided check here)

A corporation, trust or partnership must also submit a "Corporate
Resolution" (or "Certificate of Partnership") indicating the names and
titles of officers authorized to act on its behalf.

* TITLE ON BANK AND FUND ACCOUNT MUST BE IDENTICAL.
<PAGE>

- --------------------------------------------------------------------------------
AGREEMENTS AND SIGNATURES
- --------------------------------------------------------------------------------

By signing this application, I/we hereby certify under penalty of perjury that
the information on this application is complete and correct and that as
required by Federal law:

[_] I/WE CERTIFY THAT (1) THE NUMBER(S) SHOWN ON THIS FORM IS/ARE THE CORRECT
TAXPAYER IDENTIFICATION NUMBER(S) AND (2) I/WE ARE NOT SUBJECT TO BACKUP
WITHHOLDING EITHER BECAUSE I/WE HAVE NOT BEEN NOTIFIED BY THE INTERNAL REVENUE
SERVICE THAT I/WE ARE SUBJECT TO BACKUP WITHHOLDING, OR THE IRS HAS NOTIFIED
ME/US THAT I AM/WE ARE NO LONGER SUBJECT TO BACKUP WITHHOLDING. (NOTE: IF ANY
OR ALL OF PART 2 IS NOT TRUE, PLEASE STRIKE OUT THAT PART BEFORE SIGNING.)

[_] IF NO TAXPAYER IDENTIFICATION NUMBER ("TIN") OR SSN HAS BEEN PROVIDED
ABOVE, I/WE HAVE APPLIED, OR INTEND TO APPLY, TO THE IRS OR THE SOCIAL
SECURITY ADMINISTRATION FOR A TIN OR A SSN, AND I/WE UNDERSTAND THAT IF I/WE
DO NOT PROVIDE THIS NUMBER TO CGFSC WITHIN 60 DAYS OF THE DATE OF THIS
APPLICATION, OR IF I/WE FAIL TO FURNISH MY/OUR CORRECT SSN OR TIN, I/WE MAY BE
SUBJECT TO A PENALTY AND A 31% BACKUP WITHHOLDING ON DISTRIBUTIONS AND
REDEMPTION PROCEEDS. (PLEASE PROVIDE THIS NUMBER ON FORM W-9. YOU MAY REQUEST
THE FORM BY CALLING CGFSC AT THE NUMBER LISTED ABOVE).

I/We represent that I am/we are of legal age and capacity to purchase shares
indicated of the Excelsior Institutional Trust. I/We have received, read and
carefully reviewed a copy of the Trust's current Prospectus and agree to its
terms and by signing below I/we acknowledge that neither the Trust nor the
Distributor is a bank and that Fund shares are not deposits or obligations of,
or guaranteed or endorsed by United States Trust Company of New York, its
parent and affiliate; and the shares are not federally insured by, guaranteed
by, obligations of or otherwise supported by the U.S. Government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
governmental agency; and that an investment in the Funds involves investment
risks, including possible loss of principal amount invested.

THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISIONS
OF THIS FORM OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.

X ___________________________ Date __________________________
Owner Signature

X ___________________________ Date __________________________
Co-Owner Signature

Sign exactly as name(s) of registered owner(s) appear(s) above (including
legal title if signing for a corporation, trust custodial account, etc.).
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
FOR USE BY AUTHORIZED AGENT (BROKER/DEALER) ONLY
- --------------------------------------------------------------------------------

We hereby submit this application for the purchase of shares in accordance
with the terms of our selling agreement with Edgewood Services, Inc., and with
the Prospectus and Statement of Additional Information of the Funds.

----------------------------- -------------------------------
Investment Dealer's Name Source of Business Code
----------------------------- -------------------------------
Main Office Address Branch Number
----------------------------- -------------------------------
Representative's Number Representative's Name
----------------------------- -------------------------------
Branch Address Telephone
----------------------------- -------------------------------
Investment Dealer's Title
Authorized Signature
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY OF EXPENSES...................................................... 3
INVESTMENT OBJECTIVES AND POLICIES....................................... 7
Equity Fund............................................................. 8
Income Fund and Total Return Bond Fund.................................. 9
Bond Index Fund......................................................... 9
Balanced Fund........................................................... 14
Equity Growth Fund...................................................... 16
International Equity Fund............................................... 17
SPECIAL INFORMATION CONCERNING HUB AND SPOKE (R) STRUCTURE APPLICABLE TO
THE BOND INDEX FUND..................................................... 28
PRICING OF SHARES........................................................ 30
HOW TO PURCHASE, EXCHANGE AND REDEEM SHARES.............................. 31
INVESTOR PROGRAMS........................................................ 35
TAX MATTERS.............................................................. 36
MANAGEMENT OF THE TRUST.................................................. 37
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS................................ 44
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES..................... 45
PERFORMANCE INFORMATION.................................................. 46
MISCELLANEOUS............................................................ 47
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION................................. 48
</TABLE>

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' STATEMENT OF ADDI-
TIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OF-
FERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REP-
RESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY EXCELSIOR IN-
STITUTIONAL TRUST OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER BY EXCELSIOR INSTITUTIONAL TRUST OR ITS DISTRIBUTOR IN ANY JURISDICTION
IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.

[LOGO]EXCELSIOR
INSTITUTIONAL TRUST

EQUITY FUND
INCOME FUND
TOTAL RETURN BOND FUND
BOND INDEX FUND
BALANCED FUND
EQUITY GROWTH FUND
INTERNATIONAL EQUITY FUND

Prospectus

September 30, 1996
<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

SEPTEMBER 30, 1996

EXCELSIOR INSTITUTIONAL TRUST

EXCELSIOR INSTITUTIONAL EQUITY FUND
EXCELSIOR INSTITUTIONAL INCOME FUND
EXCELSIOR INSTITUTIONAL TOTAL RETURN BOND FUND
EXCELSIOR INSTITUTIONAL BOND INDEX FUND
EXCELSIOR INSTITUTIONAL BALANCED FUND
EXCELSIOR INSTITUTIONAL EQUITY GROWTH FUND
EXCELSIOR INSTITUTIONAL INTERNATIONAL EQUITY FUND

Excelsior Institutional Trust (the "Trust") is comprised of nine funds.
This Statement of Additional Information describes the shares of seven funds -
Excelsior Institutional Equity Fund (the "Equity Fund"), Excelsior
Institutional Income Fund (the "Income Fund"), Excelsior Institutional Total
Return Bond Fund (the "Total Return Bond Fund"), Excelsior Institutional Bond
Index Fund (the "Bond Index Fund"), Excelsior Institutional Balanced Fund (the
"Balanced Fund"), Excelsior Institutional Equity Growth Fund (the "Equity
Growth Fund") and Excelsior Institutional International Equity Fund (the
"International Equity Fund") (each, a "Fund"; collectively, the "Funds").

Table of Contents Page
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Excelsior Institutional Trust
Investment Objectives, Policies and Restrictions
Performance Information
Determination of Net Asset Value; Valuation of Securities
Additional Purchase, Exchange, and Redemption Information
Management of the Trust
Independent Auditors
Counsel
Taxation
Description of the Trust; Fund Shares
Financial Statements
Appendix A-1

Excelsior Institutional Trust
73 Tremont Street
Boston, Massachusetts 02108
(617) 557-8000
<PAGE>

This Statement of Additional Information sets forth information which may
be of interest to investors but which is not necessarily included in the
Funds' Prospectus as it may be amended from time to time (the "Prospectus").
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 its address shown above or by calling (800)
909-1989. Terms used but not defined herein, which are defined in the
Prospectus, are used herein as defined in the Prospectus.

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.

EXCELSIOR INSTITUTIONAL 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
April 27, 1994. The shares of the Trust are continuously sold to
institutional investors. Shares of the Trust are divided into nine separate
series, seven of which are described herein. Additional series may be added
to the Trust from time to time.

United States Trust Company of New York ("U.S. Trust") is the investment
adviser for the Equity Fund, Income Fund and Total Return Bond Fund. U.S.
Trust makes decisions with respect to and places orders for all purchases and
sales of portfolio securities for these Funds.

United States Trust Company of the Pacific Northwest ("U.S. Trust
Pacific") is the investment adviser for the Balanced Fund, Equity Growth Fund
and International Equity Fund. The daily management of the security holdings
of these Funds is performed by the investment managers named below, acting as
sub-advisers:

Balanced Fund...........................Becker Capital Management, Inc.

Equity Growth Fund..................Luther King Capital Management

International Equity Fund.........Harding, Loevner Management, L.P.

The Trust seeks to achieve the investment objective of the Bond
Index Fund by investing all of that Fund's investable assets in the Bond Index
Portfolio, a series of Federated Investment Portfolios (the "Federated
Portfolios"). Federated Research Corp. is the investment adviser for the Bond
Index Portfolio. The daily management of the security holdings of the Bond
Index Portfolio is performed by U.S. Trust, acting as sub-adviser. Because
the Bond Index Fund invests through the Bond Index Portfolio, all references
in this Statement of Additional Information to the Bond Index Fund and the
Board of Trustees of the Trust include the Bond Index Portfolio and the Board
of Trustees of Federated Portfolios, respectively, except as otherwise noted.
<PAGE>

INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS

INVESTMENT OBJECTIVES

The investment objective of each Fund is described in the Prospectus.
There can, of course, be no assurance that a Fund will achieve its investment
objective.

INVESTMENT POLICIES

The following supplements the discussions of the various investments of
and techniques employed by the Funds set forth in the Prospectus.

OTHER INVESTMENT CONSIDERATIONS - EQUITY FUND

The Equity Fund invests primarily in common stocks but may purchase both
preferred stocks and securities convertible into common stock at the
discretion of U.S. Trust. While current income is secondary to the Fund's
objective of long-term capital appreciation, the Trust expects that the broad
and diversified strategies utilized by U.S. Trust will result in somewhat more
current income than would be generated if U.S. Trust utilized a single
strategy more narrowly focused on rapid growth of principal and involving
exposure to higher levels of risk.

U.S. Trust's investment philosophy is to identify investment values
available in the market at attractive prices. Investment value arises from
the ability to generate earnings or from the ownership of assets or resources.
Underlying earnings potential and asset values are frequently demonstrable but
not recognized in the market prices of the securities representing their
ownership. U.S. Trust employs the following three different but closely
interrelated portfolio strategies to focus and organize its search for
investment values.

1. Problem/Opportunity Companies. Important investment opportunities
-----------------------------
often occur where companies develop solutions to large, complex, fundamental
problems, such as declining industrial productivity; rising costs and
declining sources of energy; the economic imbalances and value erosion caused
by years of high inflation and interest rates; the soaring costs and competing
priorities of providing health care; and the accelerating interdependence and
"shrinking size" of the world.

Solutions or parts of solutions to large problems may be generated by
established companies or comparatively new companies of all sizes through the
development of new products, technologies or services, or through new
applications of older ones.

Investment in such companies represents a wide range of investment
potential, current income return rates, and exposure to fundamental and market
risks. Income generated by the Equity Fund's investments in these companies
would be expected to be moderate, characterized by lesser rates than those of
a fund whose sole objective is current income, and somewhat higher rates than
those of a higher-risk growth fund.

2. Transaction Value Companies. In the opinion of U.S. Trust, the stock
---------------------------
market frequently values the aggregate ownership of a company at a
substantially lower figure than its

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<PAGE>

component assets would be worth if they were sold off separately over time.
Such assets may include intangible assets such as product and market
franchises, operating know-how, or distribution systems, as well as such
tangible properties as oil reserves, timber, real estate, or production
facilities. Investment opportunities in these companies are determined by the
magnitude of difference between economic worth and current market price.

Market undervaluations are often corrected by purchase and sale,
restructuring of the company, or market recognition of a company's actual
worth. The recognition process may well occur over time, however, incurring a
form of time-exposure risk. Success from investing in these companies is often
great, but may well be achieved only after a waiting period of inactivity.

Income derived from investing in undervalued companies is expected to be
moderately greater than that derived from investments in either the
problem/opportunity or early life cycle companies.

3. Early Life Cycle Companies. Investments in early life cycle
--------------------------
companies tend to be narrowly focused on an objective of higher rates of
capital appreciation. They correspondingly will involve a significantly
greater degree of risk and the reduction of current income to a negligible
level. Such investments will not be limited to new, small companies engaged
only in frontier technology, but will seek opportunities for maximum
appreciation through the full spectrum of business operations, products,
services, and asset values. Consequently, the Equity Fund's investments in
early life cycle companies are primarily in younger, small to medium-sized
companies in the early stages of their development. Such companies are
usually more flexible in trying new approaches to problem-solving and in
making new or different employment of assets. Because of the high risk level
involved, the ratio of success among such companies is lower than the average,
but for those companies which succeed, the magnitude of investment reward is
potentially higher.

INVESTMENTS AND INVESTMENT TECHNIQUES

GOLD BULLION - INTERNATIONAL EQUITY FUND

The International Equity Fund may purchase gold bars primarily of
standard weight (approximately 400 troy ounces) at the best available prices
in the New York bullion market. However, the sub-adviser will have discretion
to purchase or sell gold bullion in other markets, including foreign markets,
if better prices can be obtained. Gold bullion is valued by the Fund at the
mean between the closing bid and asked prices in the New York bullion market
as of the close of the New York Stock Exchange each business day. When there
is no readily available market quotation for gold bullion, the bullion will be
valued by such method as determined by the Trust's Board of Trustees to best
reflect its fair value. For purpose of determining net asset value, gold will
be valued in U.S. dollars.

BANK OBLIGATIONS

Domestic commercial 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. Domestic banks organized under state law are
supervised and examined by state banking authorities but are members of the
Federal Reserve System only if they elect to join.

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<PAGE>

In addition, state banks are subject to federal examination and to a
substantial body of federal law and regulation. As a result of federal or
state laws and regulations, domestic banks, among other things, generally are
required to maintain specified levels of reserves, are limited in the amounts
which they can loan to a single borrower, and are subject to other regulations
designed to promote financial soundness. However, not all of such laws and
regulations apply to the foreign branches of domestic banks.

Obligations of foreign branches and subsidiaries of domestic banks and
domestic and foreign branches of foreign banks, such as certificates of
deposit ("Cds") and time deposits ("Tds"), may be general obligations of the
parent banks in addition to the issuing branch, or may be limited by the terms
of a specific obligation and governmental regulation. Such obligations are
subject to different risks than are those of domestic banks. These risks
include foreign economic and political developments, foreign governmental
restrictions that may adversely affect payment of principal and interest on
the obligations, foreign exchange controls and foreign withholding and other
taxes on interest income. Foreign branches and subsidiaries are not
necessarily subject to the same or similar regulatory requirements that apply
to domestic banks, such as mandatory reserve requirements, loan limitations,
and accounting, auditing and financial record keeping requirements. In
addition, less information may be publicly available about a foreign branch of
a domestic bank or about a foreign bank than about a domestic bank.

Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by federal or state
regulation as well as governmental action in the country in which the foreign
bank has its head office. A domestic branch of a foreign bank with assets in
excess of $1 billion may be subject to reserve requirements imposed by the
Federal Reserve System or by the state in which the branch is located if the
branch is licensed in that state.

In addition, branches licensed by the Comptroller of the Currency and
branches licensed by certain states may be required to: (1) pledge to the
regulator, by depositing assets with a designated bank within the state, a
certain percentage of their assets as fixed from time to time by the
appropriate regulatory authority; and (2) maintain assets within the state in
an amount equal to a specified percentage of the aggregate amount of
liabilities of the foreign bank payable at or through all of its agencies or
branches within the state.

U.S. GOVERNMENT AND AGENCY SECURITIES

Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and times of issuance. Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one
to ten years; and Treasury Bonds generally have initial maturities of greater
than ten years. Some obligations issued or guaranteed by U.S. Government
agencies and instrumentalities, for example, Government National Mortgage
Association pass-through certificates, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal Home Loan
Banks, by the right of the issuer to borrow from the Treasury; others, such as
those issued by the Federal National Mortgage Association, by discretionary
authority of the U.S. Government to purchase certain obligations of the agency
or instrumentality; and others, such as those issued by the Student Loan
Marketing

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<PAGE>

Association, only by the credit of the agency or instrumentality. While the
U.S. Government provides financial support to such U.S. Government-sponsored
agencies or instrumentalities, no assurance can be given that it will always
do so, since it is not so obligated by law.

COMMERCIAL PAPER

Commercial paper consists of short-term (usually from 1 to 270 days)
unsecured promissory notes issued by corporations in order to finance their
current operations. A variable amount master demand note (which is a type of
commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under an agreement between a
commercial paper issuer and an institutional lender pursuant to which the
lender may determine to invest varying amounts.

Each Fund may purchase three types of commercial paper, as classified by
exemption from registration under the Securities Act of 1933, as amended (the
"1933 Act"). The three types include open market, privately placed, and
letter of credit commercial paper. Trading of such commercial paper is
conducted primarily by institutional investors through investment dealers or
directly through the issuers. Individual investor participation in the
commercial paper market is very limited.

OPEN MARKET. "Open market" commercial paper refers to the commercial
paper of any industrial, commercial, or financial institution which is openly
traded, including directly issued paper. "Open market" paper's 1933 Act
exemption is under Section 3(a)(3) which limits the use of proceeds to current
transactions, limits maturities to 270 days and requires that the paper
contain no provision for automatic rollovers.

PRIVATELY PLACED. "Privately placed" commercial paper relies on the
exemption from registration provided by Section 4(2) of the 1933 Act, which
exempts transactions by an issuer not involving any public offering. The
commercial paper may only be offered to a limited number of accredited
investors. "Privately placed" commercial paper has no maturity restriction
and may be considered illiquid. See "Illiquid Securities" below.

LETTER OF CREDIT. "Letter of credit" commercial paper is exempt from
registration under Section 3(a)(2) of the 1933 Act. It is backed by an
irrevocable or unconditional commitment by a bank to provide funds for
repayment of the notes. Unlike "open market" and "privately placed"
commercial paper, "letter of credit" paper has no limitations on purchases.

LENDING OF PORTFOLIO SECURITIES

Each Fund has the authority to lend portfolio securities to brokers,
dealers and other financial organizations. By lending its securities, a Fund
can increase its income by continuing to receive income on the loaned
securities as well as by either investing the cash collateral in short-term
securities subject to payment of a rebate fee to the borrower or by obtaining
a fee from the borrower when U.S. Government obligations are used as
collateral. There may be risks of delay in receiving additional collateral or
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. A Fund
will adhere to the following conditions whenever its securities are loaned:
(i) the Fund must receive at least 100% cash collateral or equivalent
securities from the borrower; (ii) the borrower must increase this collateral
whenever the market value of the loaned securities including accrued

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<PAGE>

interest exceeds the level of the collateral; (iii) the Fund must be able to
terminate the loan at any time subject to prior notice; (iv) the Fund must
receive a reasonable return on the loan, as well as any dividends, interest or
other distributions on the loaned securities, and any increase in market
value; (v) the Fund may pay only reasonable custodian fees in connection with
the loan; and (vi) voting rights on the loaned securities may pass to the
borrower. However, if a material event adversely affecting the loaned
securities were to occur, the Fund would terminate the loan and regain the
right to vote the securities.

VARIABLE RATE AND FLOATING RATE SECURITIES

Each Fund may purchase floating and variable rate demand notes and bonds,
which are obligations ordinarily having stated maturities in excess of 397
days, but which permit the holder to demand payment of principal at any time,
or at specified intervals not exceeding 397 days, in each case upon not more
than 30 days' notice. Variable rate demand notes include master demand notes
which are obligations that permit a Fund to invest fluctuating amounts, which
may change daily without penalty, pursuant to direct arrangements between the
Fund, as lender, and the borrower. The interest rates on these notes fluctuate
from time to time. The issuer of such obligations normally has a corresponding
right, after a given period, to prepay in its discretion the outstanding
principal amount of the obligations plus accrued interest upon a specified
number of days' notice to the holders of such obligations. The interest rate
on a floating rate demand obligation is based on a known lending rate, such as
a bank's prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable rate demand obligation is adjusted
automatically at specified intervals. Frequently, such obligations are
collateralized by letters of credit or other credit support arrangements
provided by banks. Because these obligations are direct lending arrangements
between the lender and borrower, it is not contemplated that such instruments
generally will be traded, and there generally is no established secondary
market for these obligations, although they are redeemable at face value.
Accordingly, where these obligations are not secured by letters of credit or
other credit support arrangements, a Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. Such
obligations frequently are not rated by credit rating agencies and a Fund may
invest in obligations which are not so rated only if its investment managers
determine that at the time of investment the obligations are of comparable
quality to the other obligations in which the Fund may invest. The respective
subadvisers of the Funds will consider on an ongoing basis the
creditworthiness of the issuers of the floating and variable rate demand
obligations held by the Funds. Each Fund will not invest more than 15% of the
value of its net assets in floating or variable rate demand obligations as to
which it cannot exercise the demand feature on not more than seven days'
notice if there is no secondary market available for these obligations, and in
other securities that are not readily marketable. See "Investment
Restrictions" below.

PARTICIPATION INTERESTS

Each Fund may purchase from financial institutions participation
interests in securities in which such Fund may invest. A participation
interest gives a Fund an undivided interest in the security in the proportion
that the Fund's participation interest bears to the total principal amount of
the security. These instruments may have fixed, floating or variable rates of
interest, with remaining maturities of 13 months or less. If the
participation interest is unrated, or has been

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<PAGE>

given a rating below that which is permissible for purchase by the Fund, the
participation interest will be backed by an irrevocable letter of credit or
guarantee of a bank, or the payment obligation otherwise will be
collateralized by U.S. Government securities, or, in the case of unrated
participation interests, the investment managers of a Fund must have
determined that the instrument is of comparable quality to those instruments
in which the Fund may invest. For certain participation interests, a Fund will
have the right to demand payment, on not more than seven days' notice, for all
or any part of the Fund's participation interest in the security, plus accrued
interest. As to these instruments, the Fund intends to exercise its right to
demand payment only upon a default under the terms of the security, as needed
to provide liquidity to meet redemptions, or to maintain or improve the
quality of its investment portfolio. Each Fund will not invest more than 15%
of its net assets in participation interests that do not have this demand
feature, and in other securities that are not readily marketable. Currently,
no Fund intends to invest more than 5% of its net assets in participation
interests during the current year. See "Investment Restrictions" below.

ILLIQUID SECURITIES

Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the 1933 Act, securities which are otherwise not readily
marketable and repurchase agreements having a maturity of longer than seven
days. Securities which have not been registered under the 1933 Act are
referred to as private placements or restricted securities and are purchased
directly from the issuer or in the secondary market. Mutual funds do not
typically hold a significant amount of these restricted or other illiquid
securities because of the potential for delays on resale and uncertainty in
valuation. Limitations on resale may have an adverse effect on the
marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted
securities in order to dispose of them which, if possible at all, would result
in additional expense and delay. Adverse market conditions could impede such
a public offering of securities.

In recent years, however, a large institutional market has developed for
certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on
an efficient institutional market in which the unregistered security can be
readily resold or on an issuer's ability to honor a demand for repayment. The
fact that there are contractual or legal restrictions on resale of such
investments to the general public or to certain institutions may not be
indicative of their liquidity.

The Securities and Exchange Commission (the "SEC") has adopted Rule 144A,
which allows a broader institutional trading market for securities otherwise
subject to restriction on their resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the 1933 Act
for resales of certain securities to qualified institutional buyers.

Each Fund's investment managers will monitor the liquidity of Rule 144A
securities for that Fund under the supervision of the Trust's Board of
Trustees. In reaching liquidity decisions, the investment managers will
consider, among other things, the following factors: (1) the frequency of
trades and quotes for the security, (2) the number of dealers and other
potential purchasers wishing to purchase or sell the security, (3) dealer
undertakings to make a market in

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<PAGE>

the security and (4) the nature of the security and of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).

UNSECURED PROMISSORY NOTES

Each Fund may also purchase unsecured promissory notes ("Notes") which
are not readily marketable and have not been registered under the 1933 Act,
provided such investments are consistent with such Fund's investment
objectives and policies. Each Fund will invest no more than 15% of its net
assets in such Notes and in other securities that are not readily marketable
(which securities would include floating and variable rate demand obligations
as to which the Fund cannot exercise the demand feature described above and as
to which there is no secondary market). Currently, no Fund intends to invest
any of its assets in unsecured promissory notes during the coming year. See
"Investment Restrictions" below.

REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS

Repurchase agreements are agreements by which a person purchases a
security and simultaneously commits to resell that security to the seller
(which is usually a member bank of the Federal Reserve System or a member firm
of the New York Stock Exchange (or a subsidiary thereof)) at an agreed-upon
date within a number of days (usually not more than seven) from the date of
purchase. The resale price reflects the purchase price plus an agreed-upon
market rate of interest which is unrelated to the coupon rate or maturity of
the purchased security. A repurchase agreement involves the obligation of the
seller to pay the agreed-upon price, which obligation is in effect secured by
the value of the underlying security, usually U.S. Government or government
agency issues. Under the Investment Company Act of 1940, as amended (the
"1940 Act"), repurchase agreements may be considered to be loans by the buyer.
A Fund's risk is limited to the ability of the seller to pay the agreed upon
amount on the delivery date. If the seller defaults, the underlying security
constitutes collateral for the seller's obligation to pay although a Fund may
incur certain costs in liquidating this collateral and in certain cases may
not be permitted to liquidate this collateral. All repurchase agreements
entered into by the Funds are fully collateralized, with such collateral being
marked to market daily.

Each Fund may borrow funds for temporary or emergency purposes, such as
meeting larger than anticipated redemption requests, and not for leverage.
One means of borrowing is by agreeing to sell portfolio securities to
financial institutions such as banks and broker-dealers and to repurchase them
at a mutually agreed date and price (a "reverse repurchase agreement"). At
the time a Fund enters into a reverse repurchase agreement it will place in a
segregated custodial account cash, U.S. Government securities or high-grade
debt obligations having a value equal to the repurchase price, including
accrued interest. Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Fund may decline below the
repurchase price of those securities.

MUNICIPAL OBLIGATIONS - INCOME FUND AND TOTAL RETURN BOND FUND

The Income Fund and Total Return Bond Fund may, when deemed appropriate
by U.S. Trust in light of the Funds' investment objective, invest in municipal
obligations. Although yields

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<PAGE>

on municipal obligations can generally be expected under normal market
conditions to be lower than yields on corporate and U.S. Government
obligations, from time to time municipal securities have outperformed, on a
total return basis, comparable corporate and federal debt obligations as a
result of prevailing economic, regulatory or other circumstances. Dividends
paid by the Income Fund and Total Return Bond Fund that are derived from
interest on municipal securities would be taxable to the Funds' investors for
federal income tax purposes.

Municipal obligations include debt obligations issued by governmental
entities to obtain funds for various public purposes, including the
construction of a wide range of public facilities, the refunding of
outstanding obligations, the payment of general operating expenses, and the
extension of loans to public institutions and facilities. Private activity
bonds that are issued by or on behalf of public authorities to finance various
privately operated facilities are included within the term "municipal
obligations" only if the interest paid thereon is exempt from regular federal
income tax and not treated as a specific tax preference item under the federal
alternative minimum tax.

The two principal classifications of municipal obligations are "general
obligation" and "revenue" issues, but the Funds' securities holdings may
include "moral obligation" issues, which are normally issued by special-
purpose authorities. There are, of course, variations in the quality of
municipal obligations, both within a particular classification and between
classifications, and the yields on municipal obligations depend upon a variety
of factors, including general market conditions, the financial condition of
the issuer, conditions of the municipal bond market, the size of a particular
offering, the maturity of the obligation, and the rating of the issue. The
ratings of Moody's and S&P described in the Prospectus and Appendix A hereto
represent the opinion of the respective rating agencies as to the quality of
municipal obligations. It should be emphasized that these ratings are general
and are not absolute standards of quality, and municipal obligations with the
same maturity, interest rate, and rating may have different yields while
municipal obligations of the same maturity and interest rate with different
ratings may have the same yield.

The payment of principal and interest on most municipal obligations
purchased by the Funds will depend upon the ability of the issuers to meet
their obligations. Each state, the District of Columbia, each of their
political subdivisions, agencies, instrumentalities and authorities, and each
multistate agency of which a state is a member, is a separate "issuer" as that
term is used in this Statement of Additional Information and in the
Prospectus. The non-governmental user of facilities financed by private
activity bonds is also considered to be an "issuer". An issuer's obligations
are subject to the provisions of bankruptcy, insolvency, and other laws
affecting the rights and remedies of creditors, such as the Federal Bankruptcy
Code, and laws, if any, which may be enacted by federal or state legislatures
extending the time for payment of principal or interest, or both, or imposing
other constraints upon enforcement of such obligations or upon the ability of
municipalities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest on and principal of its municipal
obligations may be materially adversely affected by litigation or other
conditions.

Private activity bonds are or have been issued to obtain funds to
provide, among other things, privately operated housing facilities, pollution
control facilities, convention or trade show facilities, mass transit,
airport, port or parking facilities and certain local facilities for water
supply, gas, electricity or sewage or solid waste disposal. Private activity
bonds are also issued to privately held or publicly owned corporations in the
financing of commercial or industrial

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<PAGE>

facilities. State and local governments are authorized in most states to issue
private activity bonds for such purposes in order to encourage corporations to
locate within their communities. The principal and interest on these
obligations may be payable from the general revenues of the users of such
facilities.

Among other instruments, the Funds may purchase short-term general
obligation notes, tax anticipation notes, bond anticipation notes, revenue
anticipation notes, tax-exempt commercial paper, construction loan notes and
other forms of short-term loans. Such instruments are issued with a short-
term maturity in anticipation of the receipt of tax funds, the proceeds of
bond placements or other revenues. In addition, the Funds may invest in long-
term tax-exempt instruments, such as municipal bonds and private activity
bonds, to the extent consistent with the maturity restrictions applicable to
it.

Opinions relating to the validity of municipal obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Trust
nor U.S. Trust will review the proceedings relating to the issuance of
municipal obligations or the basis for such opinions.

STAND-BY COMMITMENTS - INCOME FUND AND TOTAL RETURN BOND FUND

The Income Fund and Total Return Bond Fund may acquire "stand-by
commitments" with respect to municipal obligations held by them. Under a
stand-by commitment, a dealer or bank agrees to purchase from a Fund, at the
Fund's option, specified municipal obligations at a specified price. The
amount payable to a Fund upon its exercise of a stand-by commitment is
normally (i) the Fund's acquisition cost of the municipal obligations
(excluding any accrued interest which the Fund paid on their acquisition),
less any amortized market premium or plus any amortized market or original
issue discount during the period the Fund owned the securities, plus (ii) all
interest accrued on the securities since the last interest payment date during
that period. Stand-by commitments are exercisable by a Fund at any time
before the maturity of the underlying municipal obligations, and may be sold,
transferred or assigned by the Fund only with the underlying instruments.

The Income Fund and Total Return Bond Fund expect that stand-by
commitments will generally be available without the payment of any direct or
indirect consideration. However, if necessary or advisable, either Fund may
pay for a stand-by commitment either separately in cash or by paying a higher
price for securities which are acquired subject to the commitment (thus
reducing the yield to maturity otherwise available for the same securities).
Where a Fund has paid any consideration directly or indirectly for a stand-by
commitment, its cost will be reflected as unrealized depreciation for the
period during which the commitment was held by the Fund.

The Income Fund and Total Return Bond Fund intend to enter into stand-by
commitments only with banks and broker/dealers which, in U.S. Trust's opinion,
present minimal credit risks. In evaluating the creditworthiness of the
issuer of a stand-by commitment, U.S. Trust will review periodically the
issuer's assets, liabilities, contingent claims and other relevant financial
information.

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<PAGE>

FOREIGN SECURITIES

If permitted pursuant to its investment objective and policies, each Fund
may invest its assets in securities of foreign issuers. Investing in
securities issued by companies whose principal business activities are outside
the United States may involve significant risks not present in domestic
investments. For example, there is generally less publicly available
information about foreign companies, particularly those not subject to the
disclosure and reporting requirements of the U.S. securities laws. Foreign
issuers are generally not bound by uniform accounting, auditing and financial
reporting requirements comparable to those applicable to domestic issuers.
Investments in foreign securities also involve the risk of possible adverse
changes in investment or exchange control regulations, expropriation or
confiscatory taxation, brokerage or other taxation, limitation on the removal
of funds or other assets of a Fund, political or financial instability or
diplomatic and other developments which would affect such investments.
Further, economies of particular countries or areas of the world may differ
from the economy of the United States.

It is anticipated that in most cases the best available market for
foreign securities would be on exchanges or in over-the-counter markets
located outside the United States. Foreign stock markets, while growing in
volume and sophistication, are generally not as developed as those in the
United States, and securities of some foreign issuers (particularly those
located in developing countries) may be less liquid and more volatile than
securities of comparable United States companies. Foreign security trading
practices, including those involving securities settlement where a Fund's
assets may be released prior to receipt of payment, may expose a Fund to
increased risk in the event of a failed trade or the insolvency of a foreign
broker-dealer. In addition, foreign brokerage commissions are generally higher
than commissions on securities traded in the United States and may be non-
negotiable. In general, there is less overall governmental supervision and
regulation of foreign securities exchanges, brokers and listed companies than
in the United States.

Each Fund may invest in foreign securities that impose restrictions on
transfer within the United States or to United States persons. Although
securities subject to such transfer restrictions may be marketable abroad,
they may be less liquid than foreign securities of the same class that are not
subject to such restrictions.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

Because each Fund, if consistent with its investment objectives and
policies, may buy and sell securities denominated in currencies other than the
U.S. dollar and receive interest, dividends and sale proceeds in currencies
other than the U.S. dollar, each such Fund from time to time may enter into
foreign currency exchange transactions to convert to and from different
foreign currencies and to convert foreign currencies to and from the U.S.
dollar. The Funds either enter into these transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market or
use forward contracts to purchase or sell foreign currencies.

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<PAGE>

currency exchange contract generally has no deposit requirement and is traded
at a net price without commission. A Fund maintains with its custodian a
segregated account of high grade liquid assets in an amount at least equal to
its obligations under each forward foreign currency exchange contract. Neither
spot transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Fund's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.

Each Fund may enter into forward foreign currency exchange contracts for
hedging purposes in an attempt to protect against changes in foreign currency
exchange rates between the trade and settlement dates of specific securities
transactions or changes in foreign currency exchange rates that would
adversely affect a portfolio position or an anticipated investment position.
Since consideration of the prospect for currency parities will be incorporated
into the investment managers' long-term investment decisions, the Funds will
not routinely enter into foreign currency hedging transactions with respect to
security transactions; however, the investment managers believe that it is
important to have the flexibility to enter into foreign currency hedging
transactions when they determine that the transactions would be in a Fund's
best interest. Although these transactions tend to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they
tend to limit any potential gain that might be realized should the value of
the hedged currency increase. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be
possible because the future value of such securities in foreign currencies
will change as a consequence of market movements in the value of such
securities between the date the forward contract is entered into and the date
it matures. The projection of currency market movements is extremely
difficult, and the successful execution of a hedging strategy is highly
uncertain.

At or before the maturity of a forward foreign currency exchange contract
when a Fund has agreed to deliver a foreign currency, the Fund may sell a
portfolio security and make delivery of the currency, or retain the security
and offset its contractual obligation to deliver the currency by purchasing a
second contract pursuant to which the Fund will obtain, on the same maturity
date, the same amount of the currency which it is obligated to deliver. If
the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund, at the time of execution of the offsetting transaction,
will incur a gain or a loss to the extent that movement has occurred in
forward contract prices. Should forward prices decline during the period
between a Fund's entering into a forward contract for the sale of a currency,
and the date it enters into an offsetting contract for the purchase of the
currency, the Fund will realize a gain to the extent the price of the currency
it has agreed to sell exceeds the price of the currency it has agreed to
purchase. Should forward prices increase, the Fund will suffer a loss to the
extent of the price of the currency it has agreed to sell is less than the
price of the currency it has agreed to purchase in the offsetting contract.

While these contracts are not presently regulated by the Commodity
Futures Trading Commission ("CFTC"), the CFTC may in the future assert
authority to regulate forward contracts. In such event a Fund's ability to
utilize forward contracts in the manner set forth in the Prospectus may be
restricted. Forward contracts may reduce the potential gain from a positive
change in the relationship between the U.S. dollar and foreign currencies.
Unanticipated changes in currency prices may result in poorer overall
performance for a Fund than if it had not entered into such contracts. The
use of foreign currency forward contracts may not eliminate

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<PAGE>

fluctuations in the underlying U.S. dollar equivalent value of the prices of
or rates of return on a Fund's foreign currency denominated portfolio
securities and the use of such techniques will subject the Fund to certain
risks.

The matching of the increase in value of a forward contract and the
decline in the U.S. dollar-equivalent value of the foreign currency-
denominated asset that is the subject of the hedge generally will not be
precise. In addition, a Fund may not always be able to enter into foreign
currency forward contracts at attractive prices and this will limit a Fund's
ability to use such contract to hedge or cross-hedge its assets. Also, with
regard to a Fund's use of cross-hedges, there can be no assurance that
historical correlations between the movement of certain foreign currencies
relative to the U.S. dollar will continue. Thus, at any time poor correlation
may exist between movements in the exchange rates of the foreign currencies
underlying a Fund's cross-hedges and the movements in the exchange rates of
the foreign currencies in which the Fund's assets that are the subject of such
cross-hedges are denominated.

GUARANTEED INVESTMENT CONTRACTS

Each Fund may invest in guaranteed investment contracts ("GICs") issued
by insurance companies. Pursuant to such contracts, a Fund makes cash
contributions to a deposit fund of the insurance company's general account.
The insurance company then credits to the fund guaranteed interest. The GICs
provide that this guaranteed interest will not be less than a certain minimum
rate. The insurance company may assess periodic charges against a GIC for
expenses and service costs allocable to it, and the charges will be deducted
from the value of the deposit fund. Because a Fund may not receive the
principal amount of a GIC from the insurance company on seven days' notice or
less, the GIC is considered an illiquid investment and, together with other
instruments in a Fund which are not readily marketable, will not exceed 15% of
the Fund's net assets. The term of a GIC will be 13 months or less. In
determining average weighted portfolio maturity, a GIC will be deemed to have
a maturity equal to the longer of the period of time remaining until the next
readjustment of the guaranteed interest rate or the period of time remaining
until the principal amount can be recovered from the issuer through demand.
Currently, each Fund intends to invest 5% or less of its respective net assets
in GICs during the current year.

WHEN-ISSUED SECURITIES

If permitted pursuant to its investment objectives and policies, a Fund
may purchase securities on a "when-issued" or on a "forward delivery" basis.
It is expected that, under normal circumstances, such Fund would take delivery
of such securities. Prior to committing to the purchase of a security on a
when-issued or on a forward delivery basis, the Funds will establish
procedures consistent with the relevant policies of the SEC. Those policies
currently recommend that an amount of a Fund's assets equal to the amount of
the purchase commitment be held aside or segregated to be used to pay for the
commitment. Therefore, the Funds expect always to have cash, cash
equivalents, or high quality debt securities sufficient to cover any purchase
commitments or to limit any potential risk. Although the Funds do not intend
to make such purchases for speculative purposes and intend to adhere to SEC
policies, purchases of securities on a when issued or forward delivery basis
may involve additional risks than other types of securities purchases. For
example, a Fund may have to sell assets which have been set aside in order to
meet redemptions. Also, if a Fund determines it is advisable as a matter of
investment strategy to sell the when-issued or forward delivery securities,
the Fund would be required to

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<PAGE>

meet its obligations from its then available cash flow or the sale of
securities, or, although it would not normally expect to do so, from the sale
of the when-issued or forward delivery securities themselves (which may have a
value greater or less than the Fund's payment obligation).

When a Fund engages in when-issued or forward delivery transactions, it
relies on the other party to consummate the trade. Failure of such other
party to do so may result in the Fund's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.

The market value of the securities underlying a when-issued purchase or a
forward commitment to purchase securities and any subsequent fluctuations in
their market value are taken into account when determining the market value of
a Fund starting on the day the Fund agrees to purchase the securities. The
Fund does not earn interest on the securities it has committed to purchase
until they are paid for and delivered on the settlement date.

ZERO COUPON OBLIGATIONS

A Fund may acquire zero coupon obligations when consistent with its
investment objective and policies. Such obligations have greater price
volatility than coupon obligations and will not result in payment of interest
until maturity. Since interest income is accrued throughout the term of the
zero coupon obligation but is not actually received until maturity, a Fund,
which is required for tax purposes to distribute to its shareholders a certain
percentage of its income, may have to sell other securities to distribute the
income prior to maturity of the zero coupon obligation.

ASSET-BACKED SECURITIES

If permitted pursuant to its investment objectives and policies, a Fund
may invest in asset-backed securities including, but not limited to, interests
in pools of receivables, such as motor vehicle installment purchase
obligations and credit card receivables, equipment leases, manufactured
housing (mobile home) leases, or home equity loans. These securities may be in
the form of pass-through instruments or asset-backed bonds. The securities are
issued by non-governmental entities and carry no direct or indirect government
guarantee.

The credit characteristics of asset-backed securities differ in a number
of respects from those of traditional debt securities. The credit quality of
most asset-backed securities depends primarily upon the credit quality of the
assets underlying such securities, how well the entity issuing the securities
is insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement to such
securities.

Credit card receivables are generally unsecured and debtors are entitled
to the protection of a number of state and federal consumer credit laws, many
of which give such debtors the right to set off certain amounts owed on the
credit cards, thereby reducing the balance due. Most issuers of asset-backed
securities backed by motor vehicle installment purchase obligations permit the
servicer of such receivable to retain possession of the underlying
obligations. If the servicer sells these obligations to another party, there
is a risk that the purchaser would acquire

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<PAGE>

an interest superior to that of the holders of the related asset-backed
securities. Further, if a vehicle is registered in one state and is then re-
registered because the owner and obligor moves to another state, such re-
registration could defeat the original security interest in the vehicle in
certain cases. In addition, because of the large number of vehicles involved
in a typical issuance and technical requirements under state laws, the trustee
for the holders of asset-backed securities backed by automobile receivables
may not have a proper security interest in all of the obligations backing such
receivables. Therefore, there is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support
payments on these securities.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

General. The successful use of such instruments by a Fund may depend in
-------
part upon its investment managers' skill and experience with respect to such
instruments. Should interest or exchange rates move in an unexpected manner,
the Fund may not achieve the anticipated benefits of futures contracts or
options on futures contracts or may realize losses and thus will be in a worse
position than if such strategies had not been used. In addition, the
correlation between movements in the price of futures contracts or options on
futures contracts and movements in the price of the securities and currencies
hedged or used for cover will not be perfect and could produce unanticipated
losses.

Futures Contracts. If permitted pursuant to its investment objectives
-----------------
and policies, a Fund may enter into contracts for the purchase or sale for
future delivery of securities or foreign currencies, or contracts based on
financial indices. U.S. futures contracts have been designed by exchanges
which have been designated "contracts markets" by the CFTC, and must be
executed through a futures commission merchant, or brokerage firm, which is a
member of the relevant contract market. Futures contracts trade on a number
of exchange markets, and, through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing members of the
exchange. A Fund may enter into futures contracts which are based on debt
securities that are backed by the full faith and credit of the U.S.
Government, such as long-term U.S. Treasury Bonds, Treasury Notes, Government
National Mortgage Association modified pass-through mortgage-backed securities
and three-month U.S. Treasury Bills. A Fund may also enter into futures
contracts which are based on fixed income securities issued by entities other
than the U.S. Government, including foreign government securities, corporate
debt securities, or contracts based on financial indices including any index
of U.S. Government securities, foreign government securities or corporate debt
securities.

Purchases or sales of stock index futures contracts are used to attempt
to protect a Fund's current or intended stock investments from broad
fluctuations in stock prices. For example, the Fund may sell stock index
futures contracts in anticipation of or during a decline in the market value
of the Fund's securities. If such decline occurs, the loss in value of
portfolio securities may be offset, in whole or part, by gains on the futures
position. When a Fund is not fully invested in the securities market and
anticipates a significant market advance, it may purchase stock index futures
contracts in order to gain rapid market exposure that may, in part or
entirely, offset increases in the cost of securities that the Fund intends to
purchase. As such purchases are made, the corresponding positions in stock
index futures contracts will be closed out. In a substantial majority of
these transactions, the Fund will purchase such securities upon termination of
the futures position, but under unusual market conditions, a long futures
position may be terminated without a related purchase of securities.

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<PAGE>

At the same time a futures contract is purchased or sold, the Fund must
allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and
the payment of "variation margin" may be required, since each day the Fund
would provide or receive cash that reflects any decline or increase in the
contract's value.

At the time of delivery of securities pursuant to such a contract,
adjustments are made to recognize differences in value arising from the
delivery of securities with a different interest rate from that specified in
the contract. In some (but not many) cases, securities called for by a futures
contract may not have been issued when the contract was written.

Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is
fulfilled before the date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts are traded,
a Fund will incur brokerage fees when it purchases or sells futures contracts.

The purpose of the acquisition or sale of a futures contract, in the case
of a Fund which holds or intends to acquire fixed-income securities, is to
attempt to protect the Fund from fluctuations in interest or foreign exchange
rates without actually buying or selling fixed-income securities or foreign
currencies. For example, if interest rates were expected to increase, a Fund
might enter into futures contracts for the sale of debt securities. Such a
sale would have much the same effect as selling an equivalent value of the
debt securities owned by the Fund. If interest rates did increase, the value
of the debt security in a Fund would decline, but the value of the futures
contracts to the Fund would increase at approximately the same rate, thereby
keeping the net asset value of the Fund from declining as much as it otherwise
would have. The Fund could accomplish similar results by selling debt
securities and investing in bonds with short maturities when interest rates
are expected to increase. However, since the futures market is more liquid
than the cash market, the use of futures contracts as an investment technique
allows a Fund to maintain a defensive position without having to sell its
portfolio securities.

Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases
of debt securities at higher prices. Since the fluctuations in the value of
futures contracts should be similar to those of debt securities, a Fund could
take advantage of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that time, the
futures contracts could be liquidated and the Fund could then buy debt
securities on the cash market. To the extent a Fund enters into futures
contracts for this purpose, the assets in the segregated asset account
maintained to cover the Fund's obligations with respect to such futures
contracts will consist of cash, cash equivalents or high quality liquid debt
securities from its portfolio in an amount equal to the difference between the
fluctuating market value of such futures contracts and the aggregate value of
the initial and variation margin payments made by the Fund with respect to
such futures contracts.

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<PAGE>

The ordinary spreads between prices in the cash and futures market, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit
and variation margin requirements. Rather than meeting additional variation
margin requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or
taking delivery. To the extent participants decide to make or take delivery,
liquidity in the futures market could be reduced, thus producing distortion.
Third, from the point of view of speculators, the margin deposit requirements
in the futures market are less onerous than margin requirements in the
securities market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility
of distortion, a correct forecast of general interest rate trends by the
investment managers may still not result in a successful transaction.

In addition, futures contracts entail risks. Although the investment
managers believe that use of such contracts will benefit the Funds, if the
judgment of the investment managers about the general direction of interest
rates is incorrect, a Fund's overall performance would be poorer than if it
had not entered into any such contract. For example, if a Fund has hedged
against the possibility of an increase in interest rates which would adversely
affect the price of debt securities held by it and interest rates decrease
instead, the Fund will lose part or all of the benefit of the increased value
of its debt securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if a Fund
has insufficient cash, it may have to sell debt securities to meet daily
variation margin requirements. Such sales of bonds may be, but will not
necessarily be, at increased prices which reflect the rising market. A Fund
may have to sell securities at a time when it may be disadvantageous to do so.

Options on Futures Contracts. If permitted pursuant to its investment
----------------------------
objectives and policies, a Fund may purchase and write options on futures
contracts for hedging purposes. The purchase of a call option on a futures
contract is similar in some respects to the purchase of a call option on an
individual security. Depending on the pricing of the option compared to either
the price of the futures contract upon which it is based or the price of the
underlying debt securities, it may or may not be less risky than ownership of
the futures contract or underlying debt securities. As with the purchase of
futures contracts, when a Fund is not fully invested it may purchase a call
option on a futures contract to hedge against a market advance due to
declining interest rates.

The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, a Fund will retain the
full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Fund's portfolio holdings. The writing
of a put option on a futures contract constitutes a partial hedge against
increasing prices of the security or foreign currency which is deliverable
upon exercise of the futures contract. If the futures price at expiration of
the option is higher than the exercise price, the Fund will retain the full
amount of the option premium which provides a partial hedge against any
increase in the price of securities which the Fund intends to purchase. If a
put or call option the Fund has written is exercised, the Fund will incur a
loss which will be reduced by the amount of the premium it receives.
Depending on the degree of correlation between changes in the value of its
portfolio securities and changes in the value of its futures positions, the
Fund's losses from existing options

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<PAGE>

on futures may to some extent be reduced or increased by changes in the value
of portfolio securities.

The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities.
For example, a Fund may purchase a put option on a futures contract to hedge
its portfolio against the risk of rising interest rates.

The amount of risk a Fund assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of
an option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option
purchased.

The Board of Trustees of the Trust has adopted the requirement that
futures contracts and options on futures contracts be used either (i) as a
hedge without regard to any quantitative limitation, or (ii) for other
purposes to the extent that immediately thereafter the aggregate amount of
initial margin deposits on all (non-hedge) futures contracts of the Fund and
premiums paid on outstanding (non-hedge) options on futures contracts owned by
the Fund does not exceed 5% of the market value of the net assets of the Fund.
In addition, the aggregate market value of the outstanding futures contracts
purchased by the Fund may not exceed 50% of the market value of the total
assets of the Fund. Neither of these restrictions will be changed by the
Trust's Board of Trustees without considering the policies and concerns of the
various applicable federal and state regulatory agencies.

Options on Foreign Currencies. If permitted pursuant to its investment
-----------------------------
objectives and policies, a Fund may purchase and write options on foreign
currencies for hedging purposes in a manner similar to that in which futures
contracts on foreign currencies, or forward contracts, will be utilized. For
example, a decline in the dollar value of a foreign currency in which
portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio
securities, the Fund may purchase put options on the foreign currency. If the
value of the currency does decline, a Fund will have the right to sell such
currency for a fixed amount in dollars and will thereby offset, in whole or in
part, the adverse effect on its portfolio which otherwise would have resulted.

Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Fund may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of
options, however, the benefit to the Fund deriving from purchases of foreign
currency options will be reduced by the amount of the premium and related
transaction costs. In addition, where currency exchange rates do not move in
the direction or to the extent anticipated, the Fund could sustain losses on
transactions in foreign currency options which would require it to forego a
portion or all of the benefits of advantageous changes in such rates.

A Fund may write options on foreign currencies for the same types of
hedging purposes. For example, where a Fund anticipates a decline in the
dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of

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<PAGE>

purchasing a put option, write a call option on the relevant currency. If the
expected decline occurs, the options will most likely not be exercised, and
the diminution in value of portfolio securities will be offset by the amount
of the premium received.

Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the Fund
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the Fund to hedge such
increased cost up to the amount of the premium. As in the case of other types
of options, however, the writing of a foreign currency option will constitute
only a partial hedge up to the amount of the premium, and only if rates move
in the expected direction. If this does not occur, the option may be
exercised and the Fund would be required to purchase or sell the underlying
currency at a loss which may not be offset by the amount of the premium.
Through the writing of options on foreign currencies, the Fund also may be
required to forego all or a portion of the benefits which might otherwise have
been obtained from favorable movements in exchange rates.

Each Fund may write covered call options on foreign currencies. A call
option written on a foreign currency by a Fund is "covered" if the Fund owns
the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other foreign
currency held by it. A call option is also covered if the Fund has a call on
the same foreign currency and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less than the
exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Fund in cash, U.S.
Government securities and other high quality liquid debt securities in a
segregated account with its custodian.

Each Fund may write call options on foreign currencies that are not
covered for cross-hedging purposes. A call option on a foreign currency is
for cross-hedging purposes if it is not covered, but is designed to provide a
hedge against a decline in the U.S. dollar value of a security which the Fund
owns or has the right to acquire and which is denominated in the currency
underlying the option due to an adverse change in the exchange rate. In such
circumstances, the Fund collateralizes the option by maintaining in a
segregated account with its custodian, cash or U.S. Government securities or
other high quality liquid debt securities in an amount not less than the value
of the underlying foreign currency in U.S. dollars marked to market daily.

Additional Risks of Options on Futures Contracts, Forward Contracts and
-----------------------------------------------------------------------
Options on Foreign Currencies. Unlike transactions entered into by a Fund in
-----------------------------
futures contracts, options on foreign currencies and forward contracts are not
traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the SEC. To the contrary, such
instruments are traded through financial institutions acting as market-makers,
although foreign currency options are also traded on certain national
securities exchanges, such as the Philadelphia Stock Exchange and the Chicago
Board Options Exchange, subject to SEC regulation. Similarly, options on
currencies may be traded over-the-counter. In an over-the-counter trading
environment, many of the protections afforded to exchange participants will
not be available. For example, there are no daily price fluctuation limits,
and adverse market movements could therefore continue to an unlimited extent
over a period of time. Although the purchaser of an option cannot lose more
than the amount of the premium plus related

-20-
<PAGE>

transaction costs, this entire amount could be lost. Moreover, the option
writer and a trader of forward contracts could lose amounts substantially in
excess of their initial investments, due to the margin and collateral
requirements associated with such positions.

Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on
organized exchanges will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the Options Clearing
Corporation ("OCC"), thereby reducing the risk of counterparty default.
Further, a liquid secondary market in options traded on a national securities
exchange may be more readily available than in the over-the-counter market,
potentially permitting a Fund to liquidate open positions at a profit prior to
exercise or expiration, or to limit losses in the event of adverse market
movements.

The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market
movements, margining of options written, the nature of the foreign currency
market, possible intervention by governmental authorities and the effects of
other political and economic events. In addition, exchange-traded options on
foreign currencies involve certain risks not presented by the over-the-counter
market. For example, exercise and settlement of such options must be made
exclusively through the OCC, which has established banking relationships in
applicable foreign countries for this purpose. As a result, the OCC may, if
it determines that foreign governmental restrictions or taxes would prevent
the orderly settlement of foreign currency option exercises, or would result
in undue burdens on the OCC or its clearing member, impose special procedures
on exercise and settlement, such as technical changes in the mechanics of
delivery of currency, the fixing of dollar settlement prices or prohibitions
on exercise.

As in the case of forward contracts, certain options on foreign
currencies are traded over-the-counter and involve liquidity and credit risks
which may not be present in the case of exchange-traded currency options. A
Fund's ability to terminate over-the-counter options will be more limited than
with exchange-traded options. It is also possible that broker-dealers
participating in over-the-counter options transactions will not fulfill their
obligations. Until such time as the staff of the SEC changes its position,
each Fund will treat purchased over-the-counter options and assets used to
cover written over-the-counter options as illiquid securities. With respect
to options written with primary dealers in U.S. Government securities pursuant
to an agreement requiring a closing purchase transaction at a formula price,
the amount of illiquid securities may be calculated with reference to the
repurchase formula.

In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign
exchanges. Such transactions are subject to the risk of governmental actions
affecting trading in or the prices of foreign currencies or securities. The
value of such positions also could be adversely affected by (i) other complex
foreign political and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in a
Fund's ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States, (iv) the imposition of different
exercise

-21-
<PAGE>

and settlement terms and procedures and margin requirements than in the United
States, and (v) lesser trading volume.

OPTIONS ON SECURITIES

If permitted pursuant to its investment objectives and policies, a Fund
may write (sell) covered call and put options to a limited extent on its
portfolio securities ("covered options"). However, a Fund may forgo the
benefits of appreciation on securities sold or may pay more than the market
price on securities acquired pursuant to call and put options written by the
Fund.

When a Fund writes a covered call option, it gives the purchaser of the
option the right to buy the underlying security at the price specified in the
option (the "exercise price") by exercising the option at any time during the
option period. If the option expires unexercised, the Fund will realize
income in an amount equal to the premium received for writing the option. If
the option is exercised, a decision over which a Fund has no control, the Fund
must sell the underlying security to the option holder at the exercise price.
By writing a covered call option, a Fund forgoes, in exchange for the premium
less the commission ("net premium"), the opportunity to profit during the
option period from an increase in the market value of the underlying security
above the exercise price.

When a Fund writes a covered put option, it gives the purchaser of the
option the right to sell the underlying security to the Fund at the specified
exercise price at any time during the option period. If the option expires
unexercised, the Fund will realize income in the amount of the premium
received for writing the option. If the put option is exercised, a decision
over which a Fund has no control, the Fund must purchase the underlying
security from the option holder at the exercise price. By writing a covered
put option, a Fund, in exchange for the net premium received, accepts the risk
of a decline in the market value of the underlying security below the exercise
price. A Fund will only write put options involving securities for which a
determination is made at the time the option is written that the Fund wishes
to acquire the securities at the exercise price.

A Fund may terminate its obligation as the writer of a call or put option
by purchasing an option with the same exercise price and expiration date as
the option previously written. This transaction is called a "closing purchase
transaction." Where a Fund cannot effect a closing purchase transaction, it
may be forced to incur brokerage commissions or dealer spreads in selling
securities it receives or it may be forced to hold underlying securities until
an option is exercised or expires.

When a Fund writes an option, an amount equal to the net premium received
by the Fund is included in the liability section of the Fund's Statement of
Assets and Liabilities as a deferred credit. The amount of the deferred
credit will be subsequently marked to market to reflect the current market
value of the option written. The current market value of a traded option is
the last sale price or, in the absence of a sale, the mean between the closing
bid and asked price. If an option expires on its stipulated expiration date or
if the Fund enters into a closing purchase transaction, the Fund will realize
a gain (or loss if the cost of a closing purchase transaction exceeds the
premium received when the option was sold), and the deferred credit related to
such option will be eliminated. If a call option is exercised, the Fund will
realize a gain or loss from the sale of the underlying security and the
proceeds of the sale will be increased by the premium originally received. The
writing of covered call options may be

-22-
<PAGE>

deemed to involve the pledge of the securities against which the option is
being written. Securities against which call options are written will be
segregated on the books of the custodian for the Fund.

A Fund may purchase call and put options on any securities in which it
may invest. A Fund would normally purchase a call option in anticipation of
an increase in the market value of such securities. The purchase of a call
option would entitle the Fund, in exchange for the premium paid, to purchase a
security at a specified price during the option period. A Fund would
ordinarily have a gain if the value of the securities increased above the
exercise price sufficiently to cover the premium and would have a loss if the
value of the securities remained at or below the exercise price during the
option period.

A Fund would normally purchase put options in anticipation of a decline
in the market value of securities in its portfolio ("protective puts") or
securities of the type in which it is permitted to invest. The purchase of a
put option would entitle a Fund, in exchange for the premium paid, to sell a
security, which may or may not be held in the Fund's portfolio, at a specified
price during the option period. The purchase of protective puts is designed
merely to offset or hedge against a decline in the market value of the Fund's
portfolio securities. Put options also may be purchased by a Fund for the
purpose of affirmatively benefiting from a decline in the price of securities
which the Fund does not own. A Fund would ordinarily recognize a gain if the
value of the securities decreased below the exercise price sufficiently to
cover the premium and would recognize a loss if the value of the securities
remained at or above the exercise price. Gains and losses on the purchase of
protective put options would tend to be offset by countervailing changes in
the value of underlying portfolio securities.

Each Fund has adopted certain other non-fundamental policies concerning
option transactions which are discussed below. A Fund's activities in options
may also be restricted by the requirements of the Internal Revenue Code of
1986, as amended (the "Code"), for its qualification as a regulated investment
company.

The hours of trading for options on securities may not conform to the
hours during which the underlying securities are traded. To the extent that
the option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying
securities markets that cannot be reflected in the option markets. It is
impossible to predict the volume of trading that may exist in such options,
and there can be no assurance that viable exchange markets will develop or
continue.

Each Fund may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present, approximately
ten broker-dealers, including several of the largest primary dealers in U.S.
Government securities, make these markets. The ability to terminate over-the-
counter option positions is more limited than with exchange-traded option
positions because the predominant market is the issuing broker rather than an
exchange, and may involve the risk that broker-dealers participating in such
transactions will not fulfill their obligations. To reduce this risk, a Fund
will purchase such options only from broker-dealers who are primary government
securities dealers recognized by the Federal Reserve Bank of New York and who
agree to (and are expected to be capable of) entering into closing
transactions, although there can be no guarantee that any such option will be
liquidated at a favorable price prior to

-23-
<PAGE>

expiration. The investment managers will monitor the creditworthiness of
dealers with whom a Fund enters into such options transactions, under the
general supervision of the Trust's Trustees.

OPTIONS ON SECURITIES INDICES

In addition to options on securities, and if permitted pursuant to its
investment objectives and policies, a Fund may also purchase and write (sell)
call and put options on securities indices. Such options give the holder the
right to receive a cash settlement during the term of the option based upon
the difference between the exercise price and the value of the index. Such
options will be used for the purposes described above under "Options on
Securities."

Options on securities indices entail risks in addition to the risks of
options on securities. The absence of a liquid secondary market to close out
options positions on securities indices is more likely to occur, although a
Fund generally will only purchase or write such an option if its investment
managers believe the option can be closed out.

Use of options on securities indices also entails the risk that trading
in such options may be interrupted if trading in certain securities included
in the index is interrupted. A Fund will not purchase such options unless its
investment managers believe the market is sufficiently developed such that the
risk of trading in such options is no greater than the risk of trading in
options on securities.

Price movements in the Fund's securities may not correlate precisely with
movements in the level of an index and, therefore, the use of options on
indices cannot serve as a complete hedge. Because options on securities
indices require settlement in cash, the investment managers may be forced to
liquidate portfolio securities to meet a Fund's settlement obligations.

SHORT SALES "AGAINST THE BOX"

In a short sale, a Fund sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. A Fund may engage
in short sales only if at the time of the short sale it owns or has the right
to obtain, at no additional cost, an equal amount of the security being sold
short. This investment technique is known as a short sale "against the box".

In a short sale, the seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If a Fund engages in a short sale, the collateral for the short
position will be maintained by its custodian or qualified sub-custodian.
While the short sale is open, a Fund maintains in a segregated account an
amount of securities equal in kind and amount to the securities sold short or
securities convertible into or exchangeable for such equivalent securities.
These securities constitute the Fund's long position.

A Fund will not engage in short sales against the box for investment
purposes. A Fund may, however, make a short sale as a hedge, when it believes
that the price of a security may decline, causing a decline in the value of a
security (or a security convertible or exchangeable for such security), or
when a Fund wants to sell the security at an attractive current price, but
also wishes to defer recognition of gain or loss for federal income tax
purposes or for purposes of satisfying certain tests applicable to regulated
investment companies under the Code. In such case, any future losses in a
Fund's long position should be reduced by a gain in the short

-24-
<PAGE>

position. Conversely, any gain in the long position should be reduced by a
loss in the short position. The extent to which such gains or losses are
reduced depends upon the amount of the security sold short relative to the
amount a Fund owns. There are certain additional transaction costs associated
with short sales against the box, but a Fund will endeavor to offset these
costs with the income from the investment of the cash proceeds of short sales.

As a non-fundamental operating policy, not more than 40% of a Fund's
total assets would be involved in short sales against the box.

CERTAIN OTHER OBLIGATIONS

In order to allow for investments in new instruments that may be created
in the future, upon the Trust supplementing the Funds' Prospectus, a Fund may
invest in obligations other than those listed previously, provided such
investments are consistent with such Fund's investment objective, policies and
restrictions.

RATING SERVICES

Ratings represent the opinions of rating services as to the quality of
the securities that they undertake to rate. It should be emphasized, however,
that ratings are relative and subjective and are not absolute standards of
quality. Although these ratings are an initial criterion for selection of
portfolio investments, the investment managers also make their own evaluations
of these securities, subject to review by the Board of Trustees of the Trust.
After purchase by a Fund, an obligation may cease to be rated or its rating
may be reduced below the minimum required for purchase by the Fund. Neither
event would require a Fund to dispose of the obligation, but its adviser or
subadviser will consider such an event in its determination of whether the
Fund should continue to hold the obligation. A description of the ratings
used herein and in the Funds' Prospectus is set forth in the Appendix to this
Statement of Additional Information.

Except as stated otherwise, all investment policies and restrictions
described herein are non-fundamental, and may be changed without prior
shareholder approval.

INVESTMENT RESTRICTIONS

The following investment restrictions are "fundamental policies" of each
Fund and may not be changed with respect to a Fund without the approval of a
"majority of the outstanding voting securities" of the Fund. "Majority of the
outstanding voting securities" under the 1940 Act and as used in this
Statement of Additional Information and the Prospectus means, with respect to
a Fund, the lesser of (i) 67% or more of the outstanding voting securities of
the Fund present at a meeting, if the holders of more than 50% of the
outstanding voting securities of the Fund are present or represented by proxy,
or (ii) more than 50% of the outstanding voting securities of the Fund.

Shareholders of the Bond Index Fund, which invests through the Bond Index
Portfolio, should be aware that the fundamental policies of the Bond Index
Portfolio may not be changed without the approval of a "majority of the
outstanding voting securities" of such Portfolio, i.e.,

-25-
<PAGE>

the holders of the beneficial interests of the Portfolio. Whenever the Trust
is requested to vote on a fundamental policy of the Bond Index Portfolio, the
Trust will hold a meeting of the Bond Index Fund's shareholders and will cast
its vote as instructed by that Fund's shareholders.

With respect to each fundamental investment restriction and each non-
fundamental investment policy listed below, if a percentage restriction (other
than a restriction as to borrowing) or a rating restriction on investment or
utilization of assets is adhered to at the time an investment is made or
assets are so utilized, a later change in such percentage resulting from
changes in a Fund's total assets or the value of a Fund's securities, or a
later change in the rating of a portfolio security, will not be considered a
violation of the relevant restriction or policy.

As a matter of fundamental policy, each Fund may not (except that no
investment restriction of a Fund shall prevent a Fund from investing all of
its investable assets in an open-end management investment company with
substantially the same investment objective and policies as the Fund):

(1) borrow money or mortgage or hypothecate assets of the Fund, except
that in an amount not to exceed 1/3 of the current value of the Fund's assets
(including such borrowing) less liabilities (not including such borrowing), it
may borrow money, enter into reverse repurchase agreements, and purchase when-
issued securities, and except that it may pledge, mortgage or hypothecate its
assets to secure such borrowings, reverse repurchase agreements, or when-
issued securities, provided that collateral arrangements with respect to
options and futures, including deposits of initial margin and variation
margin, are not considered a pledge of assets for purposes of this
restriction, and except that assets may be pledged to secure letters of credit
solely for the purpose of participating in a captive insurance company
sponsored by the Investment Company Institute. The Fund will not purchase
securities while borrowings exceed 5% of the Fund's total assets;

(2) underwrite securities issued by other persons except insofar as the
Trust or a Fund may technically be deemed an underwriter under the 1933 Act in
selling a portfolio security;

(3) make loans to other persons except (a) through the lending of the
Fund's portfolio securities and provided that any such loans not exceed 30% of
the Fund's total assets (taken at market value), (b) through the use of
repurchase agreements or the purchase of short-term obligations, or (c) by
purchasing debt securities of types distributed publicly or privately;

(4) purchase or sell real estate (including limited partnership interests
in partnerships substantially all of whose assets consist of real estate but
excluding securities secured by real estate or interests therein), interests
in oil, gas or mineral leases, commodities or commodity contracts (except
futures and option contracts) in the ordinary course of business (the Trust
may hold and sell, for a Fund's portfolio, real estate acquired as a result of
the Fund's ownership of securities);

(5) invest 25% or more of its assets in any one industry (excluding U.S.
Government securities), unless, in the case of the Bond Index Fund, the bonds
issued by companies in a single industry were to comprise 25% or more of
Lehman Brothers Aggregate Bond Index, in which case such Fund will invest 25%
or more of its assets in that industry; or

-26-
<PAGE>

(6) 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, provided that collateral arrangements with
respect to options and futures, including deposits of initial deposit and
variation margin, are not considered to be the issuance of a senior security
for purposes of this restriction.

State and Federal Restrictions. In order to comply with certain state
------------------------------
and federal statutes and policies each Fund will not as a matter of operating
policy (except that no operating policy shall prevent a Fund from investing
all of its investable assets in an open-end investment company with
substantially the same investment objective and policies as the Fund):

(i) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the
clearance of purchases and sales of securities may be obtained and
except that deposits of initial deposit and variation margin may be
made in connection with the purchase, ownership, holding or sale of
futures;

(ii) invest for the purpose of exercising control or management;

(iii) purchase securities issued by any other investment company 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, or except when such purchase, though
not made in the open market, is part of a plan of merger or
consolidation; provided, however, that securities of any investment
company will not be purchased for the Fund if such purchase at the
time thereof would cause (a) more than 10% of the Fund's total
assets (taken at the greater of cost or market value) to be invested
in the securities of such issuers; (b) more that 5% of the Fund's
total assets (taken at the greater of cost or market value) to be
invested in any one investment company; or (c) more than 3% of the
outstanding voting securities of any such issuer to be held for the
Fund;

(iv) purchase securities of any issuer if such purchase at the time
thereof would cause the Fund 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 and all preferred stock of an
issuer shall be deemed a single class, except that futures or option
contracts shall not be subject to this restriction;

(v) purchase or retain in the Fund's portfolio any securities issued by
an issuer any of whose officers, directors, trustees or security
holders is an officer or Trustee of the Trust, or is an officer or
partner of the investment adviser or subadviser of the Fund, if
after the purchase of the securities of such issuer for the Fund 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;

-27-
<PAGE>

(vi) invest more than 5% of the Fund's net assets in warrants (valued at
the lower of cost or market), but not more than 2% of the Fund's net
assets, to be included in the overall 5% limit on investments in
warrants, may be invested in warrants which are not listed on the
New York Stock Exchange or the American Stock Exchange;

(vii) make short sales of securities or maintain a short position
(excluding short sales if the Fund owns an equal amount of such
securities or securities convertible into or exchangeable for,
without payment of any further consideration, securities of
equivalent kind and amount) if such short sales represent more than
25% of the Fund's net assets (taken at market value); provided,
however, that the value of the Fund's short sales of securities
(excluding U.S. Government securities) of any one issuer may not be
greater than 2% of the value (taken at market value) of the Fund's
net assets or more than 2% of the securities of any class of any
issuer;

(viii) enter into repurchase agreements providing for settlement in more
than seven days after notice, or purchase securities which are not
readily marketable, if, in the aggregate, more than 15% of its net
assets would be so invested; or

(ix) purchase puts, calls, straddles, spreads or any combination thereof,
if by reason of such purchase the value of its aggregate investment
in such securities would exceed 5% of the Fund's total assets.

(x) with respect to the Bond Index Fund, invest more than 10% of its
total assets in securities subject to restrictions on resale under
the Securities Act of 1933, except for commercial paper issued under
Section 4(2) of the Securities Act of 1933 and certain other
restricted securities which meet the criteria for liquidity as
established by the Trustees of Federated Portfolios.

(xi) with respect to the Bond Index Fund invest more than 5% of the value
of its total assets in securities of issuers which have records of
less than three years of continuous operations, including the
operations, including the operation of any predecessor.

Policies (i) through (xi) may be changed by the Board of Trustees of the
Trust.

PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS

Except as may be required to ensure satisfaction of certain tests
applicable to regulated investment companies under the Code, portfolio changes
are made without regard to the length of time a security has been held, or
whether a sale would result in the recognition of a profit or loss. Each Fund
may engage in short-term trading to achieve its investment objective(s).
Portfolio turnover may vary greatly from year to year as well as within a
particular year. It is expected that the Income Fund's and Total Return Bond
Fund's turnover rates may remain higher than those of many other investment
companies with similar investment objectives and policies; however, since
brokerage commissions are not normally paid on instruments purchased by these
Funds, portfolio turnover is not expected to have a material effect on the net
asset value of either Fund. Each Fund's portfolio turnover rate may also be
affected by cash requirements for redemptions of shares and by regulatory
provisions which enable a Fund to receive certain

-28-
<PAGE>

favorable tax treatment. Portfolio turnover will not be a limiting factor in
making portfolio decisions. Portfolio trading is engaged in for a Fund if its
investment managers believe that a transaction net of costs (including
custodian charges) will help achieve the Fund's investment objective.

A Fund's purchase and sales of securities may be principal transactions,
that is, securities may be 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 and, therefore, the Funds do not
anticipate paying brokerage commissions in such transactions. Purchases and
sales of the Bond Index Fund's, Income Fund's and Total Return Bond Fund's
portfolio securities will usually be principal transactions without brokerage
commissions. Any transactions for which a Fund 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 the asked price.

Allocations of transactions, including their frequency, to various
dealers is determined by the investment managers in their best judgment and in
a manner deemed to be in the best interest of the investors in the applicable
Fund rather than by any formula. The primary consideration is prompt
execution of orders in an effective manner at the most favorable price.

The Advisory and Subadvisory Agreements provide that, in executing
portfolio transactions and selecting brokers or dealers, the investment
managers will seek to obtain the best net price and the most favorable
execution. The investment managers shall consider factors they deem relevant,
including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any, for the specific
transaction and on a continuing basis.

In addition, the Advisory and Subadvisory Agreements authorize the
investment managers, to the extent permitted by law and subject to the review
of the Trust's Board of Trustees (or Federated Portfolios' Board of Trustees,
in the case of the Bond Index Portfolio), to cause the Funds to pay a broker
which furnishes brokerage and research services a higher commission than that
which might be charged by another broker for effecting the same transaction,
provided that the investment managers determine in good faith that such
commission is reasonable in relation to the value of the brokerage and
research services provided by such broker, viewed in terms of either that
particular transaction or the overall responsibilities of the investment
managers to the accounts as to which it exercises investment discretion. Such
brokerage and research services might consist of reports and statistics on
specific companies or industries, general summaries of groups of stocks and
their comparative earnings, or broad overviews of the stock market and the
economy. Such services might also include reports on global, regional, and
country-by-country prospects for economic growth, anticipated levels of
inflation, prevailing and expected interest rates, and the outlook for
currency relationships.

Supplementary research information so received is in addition to and not
in lieu of services required to be performed by the investment managers and
does not reduce the investment advisory fees (if any) payable by the Funds.
Such information may be useful to the investment managers in serving the Funds
and other clients and, conversely, supplemental

-29-
<PAGE>

information obtained by the placement of business of other clients may be
useful to the investment managers in carrying out their obligations to the
Funds.

Investment decisions for a Fund will be made independently from those for
any other account or investment company that is or may in the future become
managed by its investment managers or any of their affiliates. If, however, a
Fund and other investment companies or accounts managed by the same investment
manager 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 a Fund or the size of the position obtainable for the
Fund. In addition, when purchases or sales of the same security for a Fund
and for other investment companies managed by the same investment manager
occur contemporaneously, the purchase or sale orders may be aggregated in
order to obtain any price advantages available to large denomination purchases
or sales. Furthermore, in certain circumstances affiliates of the investment
managers whose investment portfolios are managed internally, rather than by
the investment managers, might seek to purchase or sell the same type of
investments at the same time as a Fund. Such an event might also adversely
affect that Fund.

For the year ended May 31, 1996, the following Funds /1/ paid the
following approximate brokerage commissions: Equity Fund: $60,370.29; Balanced
Fund: $62,956.65; Equity Growth Fund: $163,322.08; and International Equity
Fund: $70,768.78.

The following Funds /1/ paid the following approximate brokerage
commissions for their respective fiscal periods from commencement of
operations /2/ through May 31, 1995: Equity Fund: $27,636; Balanced Fund:
$43,886; Equity Growth Fund: $163,537; International Equity Fund: $33,014;
Bond Index, Income and Total Return Bond Funds: $0.

The Trust is required to identify any securities of its regular brokers
or dealers (as defined in Rule 10b-1 under the 1940 Act) or their parents held
by the Funds as of the close of the most recent fiscal year. As of May 31,
1996, the following Funds owned the following securities of the Trust's
regular brokers or dealers or their parents:

FUND SECURITY VALUE
---- -------- -----

Bond Index
----------

---------------------
/1/
Each of the Funds paid such brokerage commissions through the
corresponding portfolio of the St. James Portfolios (the "Portfolio Series")
in which such Fund had invested all of its investable assets prior to December
18, 1995 (January 2, 1996, in the case of the Bond Index Fund).

/2/
The Funds commenced operations on the following dates: Equity and Income
Funds, January 16, 1995; Total Return Bond Fund, January 19, 1995; Bond Index,
Balanced and Equity Growth Funds, July 11, 1994; and International Equity
Fund, January 24, 1995.

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<PAGE>

Lehman Brothers, Inc. [Corporate Bond] $ 514,000

Total Return Bond
-----------------
Dillon, Read & Co., Inc. Repurchase Agreement $2,200,000

PORTFOLIO TURNOVER

Set forth below are the portfolio turnover rates for the Funds for the
fiscal year ended May 31, 1996. A rate of 100% indicates that the equivalent
of all of a Fund's assets have been sold and reinvested in a year. High
portfolio turnover may result in the realization of substantial net capital
gains or losses. To the extent net short term capital gains are realized, any
distributions resulting from such gains are considered ordinary income for
federal income tax purposes. See Taxation below. Portfolio turnover rates
for the fiscal year ended May 31, 1996 were as follows: Equity Fund, 113%;
Income Fund, 67%; Total Return Bond Fund, 127%; Bond Index Fund, 43%; Balanced
Fund, 56%; Equity Growth Fund, 103%; International Equity Portfolio, 19%.
Portfolio turnover rates from commencement of operations /1/ through May 31,
1995 were as follows: Equity Fund, 34%; Income Fund, 34%; Total Return Bond
Fund, 84%; Bond Index Fund, 67%; Balanced Fund, 57%; Equity Growth Fund, 122%;
International Equity Portfolio, 8%.

PERFORMANCE INFORMATION

STANDARD PERFORMANCE INFORMATION

From time to time, quotations of the Funds' performance may be included
in advertisements, sales literature or shareholder reports. These performance
figures are calculated in the following manner:

YIELD. The Bond Index, Income and Total Return Bond Funds may quote the
standardized effective 30-day (or one month) yield for their respective
shares, calculated in accordance with the method prescribed by the Securities
and Exchange Commission for mutual funds. Such yield will be calculated for
such Fund's shares according to the following formula:

Yield = 2 (ab/cd + 1)/6/

Where: a = dividends and interest earned during the period.

b = expenses accrued for the period (net of reimbursements).

- -----------------------
/1/
The Funds commenced operations on the following dates: Equity and Income
Funds, January 16, 1995; Total Return Bond Fund, January 19, 1995; Bond Index,
Balanced and Equity Growth Funds, July 11, 1994; and International Equity
Fund, January 24, 1995.

-31-
<PAGE>

c = average daily number of shares outstanding that were entitled to
receive dividends.

d = maximum offering price per share on the last day of the period.

For the purpose of determining interest earned during the period
(variable "a" in the formula), each Fund computes the yield to maturity of any
debt obligation held by it based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during
the month, the purchase price (plus actual accrued interest). Such yield is
then divided by 360, and the quotient is multiplied by the market value of the
obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent month that
the obligation is in the portfolio. It is assumed in the above calculation
that each month contains 30 days. Also, the maturity of a debt obligation with
a call provision is deemed to be the next call date on which the obligation
reasonably may be expected to be called or, if none, the maturity date. Each
Fund calculates interest gained on tax-exempt obligations issued without
original issue discount and having a current market discount by using the
coupon rate of interest instead of the yield to maturity. In the case of tax-
exempt obligations with original issue discount, where the discount based on
the current market value exceeds the then-remaining portion of original issue
discount, the yield to maturity is the imputed rate based on the original
issue discount calculation. Conversely, where the discount based on the
current market value is less than the remaining portion of the original issue
discount, the yield to maturity is based on the market value.

Expenses accrued for the period (variable "b" in the formula) include all
recurring fees charged by a Fund to all shareholder accounts in proportion to
the length of the base period and that Fund's mean (or median) account size.
Undeclared earned income will be subtracted from the maximum offering price
per share (variable "d" in the formula).

The Balanced Fund may quote standardized effective 30-day (or one month)
yield for the fixed income portion of its portfolio, calculated in the same
manner as specified above.

For the 30-day period ended May 31, 1996, the standardized effective
yield for the Bond Index, Income and Total Return Bond Funds was as follows:
Bond Index Fund, 6.68%; Income Fund, 6.75%; and Total Return Bond Fund, 6.46%.
For the same 30-day period, the standardized effective yield for the fixed
income component of the Balanced Fund was 3.61%.

TOTAL RETURN. Each Fund's "average annual total return" may be quoted,
and such return is computed by determining the average annual compounded rate
of return during specified periods that equates the initial amount invested to
the ending redeemable value of such investment according to the following
formula:

T = [(ERV/P)/1/n/ - 1]

Where: T = average annual total return.

ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1-, 5- or 10-year (or other)
periods at the end of the applicable period (or a fractional
portion thereof).

-32-
<PAGE>

P = hypothetical initial payment of $1,000.

n = period covered by the computation, expressed in years.

The calculation is made assuming that (1) all dividends and capital gains
distributions are reinvested on the reinvestment dates at the price per share
existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during
the periods is reflected. The ending redeemable value (variable "ERV", in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period.

Based on the foregoing calculations, the average annual total returns for
each of the Funds for periods ended May 31, 1996 were as follows:

For the Year Since Commencement
Funds Ended 5/31/96 of Operations /(*)/
----- ------------- -------------------

Equity Fund 17.04% 20.85%
----- -----

Income Fund 3.18% 7.85%
----- -----

Total Return Bond Fund 4.20% 10.07%
----- -----

Bond Index Fund 4.12% 7.98%
----- -----

Balanced Fund 15.07% 15.73%
----- -----

Equity Growth Fund 20.01% 17.67%
----- -----

International Equity Fund 16.58% 22.24%
----- -----

PERFORMANCE RESULTS. Any yield or total return quotation provided for a
Fund should not be considered as representative of the performance of that
Fund in the future since the net asset value of shares of that Fund will vary
based not only on the type, quality and maturities of the securities held by
it, but also on changes in the current value of such securities and on changes
in the expenses of the Fund. These factors and possible differences in the
methods used to calculate yields and total return should be considered when
comparing the yield and total return of a Fund to yields and total rates of
return published for other investment companies or other investment vehicles.
Total return reflects the performance of both principal and income.

DISTRIBUTION RATE. Each Fund may also quote its distribution rate.
Distribution rate is calculated by annualizing the per share distribution for
the most recent calendar month and dividing such annualized distribution by
the net asset value per share on the last day of such month. The distribution
rate of a Fund will not be used in advertising unless accompanied by standard
performance measures.

-33-
<PAGE>

COMPARISON OF FUND PERFORMANCE

Comparisons of non-standardized performance measures of various
investments are valid only if performance is calculated in the same manner for
each measure in the comparison. Since there are different methods of
calculating performance, investors should consider the effect of the methods
used to calculate performance when comparing the performance of a Fund with
performance quoted with respect to other investment companies or types of
investments.

---------------------

/(*)/ The Funds commenced operations on the following dates: Equity and Income
Funds, January 16, 1995; Total Return Bond Fund, January 19, 1995; Bond Index,
Balanced and Equity Growth Funds, July 11, 1994; and International Equity
Fund, January 24, 1995.

In connection with communicating its performance to current or
prospective shareholders, each Fund also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs. Some Funds
may invest in some instruments not eligible for inclusion in such an index,
and may be prohibited from investing in some instruments included in this
index. Evaluations of a Fund's performance made by

independent sources may also be used in advertisements concerning such Fund.
Sources for a Fund's performance information may include, but are not limited
to, the following:

Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
-------------------------
mutual funds investing internationally.

Barron's, a Dow Jones and Company, Inc. business and financial weekly that
--------
periodically reviews mutual fund performance data.

Business Week, a national business weekly that periodically reports the
-------------
performance rankings and ratings of a variety of mutual funds investing
abroad.

Changing Times, The Kiplinger Magazine, a monthly investment advisory
--------------------------------------
publication that periodically features the performance of a variety of
securities.

Consumer Digest, a monthly business/financial magazine that includes a "Money
---------------
Watch" section featuring financial news.

Donoghue's Money Fund Report, a weekly publication of the Donoghue
----------------------------
Organization, Inc., of Holliston, Massachusetts, reporting on the performance
of the nation's money market funds, summarizing money market fund activity,
and including certain averages as performance benchmarks, specifically
"Donoghue's Money Fund Average" and "Donoghue's Government Money Fund
Average."

Financial Times, Europe's business newspaper, which features from time to time
---------------
articles on international or country-specific funds.

Financial World, a general business/financial magazine that includes a "Market
---------------
Watch" department reporting on activities in the mutual fund industry.

-34-
<PAGE>

Forbes, a national business publication that from time to time reports the
------
performance of specific investment companies in the mutual fund industry.

Fortune, a national business publication that periodically rates the
-------
performance of a variety of mutual funds.

Investor's Daily, a daily newspaper that features financial, economic and
----------------
business news.

Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
-------------------------------------------------------------------
publication of industry-wide mutual fund averages by type of fund.

Money, a monthly magazine that from time to time features both specific funds
-----
and the mutual fund industry as a whole.

New York Times, a nationally distributed newspaper which regularly covers
--------------
financial news.

Personal Investing News, a monthly news publication that often reports on
-----------------------
investment opportunities and market conditions.

Personal Investor, a monthly investment advisory publication that includes a
-----------------
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.

Success, a monthly magazine targeted to the world of entrepreneurs and growing
-------
business, often featuring mutual fund performance data.

U.S. News and World Report, a national business weekly that periodically
--------------------------
reports mutual fund performance data.

Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
-------------------
covers financial news.

Weisenberger Investment Companies Services, an annual compendium of
------------------------------------------
information about mutual funds and other investment companies, including
comparative data on funds' backgrounds, management policies, salient features,
management results, income and dividend records, and price ranges.

Working Women, a monthly publication that features a "Financial Workshop"
-------------
section reporting on the mutual fund/financial industry.

World Investor, a European publication that periodically reviews the
--------------
performance of U.S. mutual funds investing internationally.

DETERMINATION OF NET ASSET VALUE; VALUATION OF SECURITIES

The Trust determines the net asset value of the shares of each Fund each
day both the New York Stock Exchange (the "NYSE") is open for business and
the Funds are open for business

-35-
<PAGE>

(a "Business Day"). As a result, each Fund will normally determine its net
asset value every weekday except for the following holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Thanksgiving Day and Christmas.
Daily determinations of net asset value for each Fund are made at 4:00 p.m.
(Eastern time) by dividing the total assets of a Fund less all of its
liabilities, by the total number of shares of the Fund outstanding at the time
the determination is made. Purchases and redemptions will be effected at the
time of determination of net asset value next following the receipt of any
purchase or redemption order deemed to be in good order. See "How To Purchase,
Exchange and Redeem Shares" in the Prospectus.

Portfolio securities are valued on the basis of market quotations when
they are readily available. Each Fund values mortgage-backed and other debt
securities for which market quotations are not readily available at their fair
value as determined in good faith, utilizing procedures approved by the Board
of Trustees of the Trust, on the basis of valuations provided either by
dealers or a pricing service. Absent unusual circumstances, debt securities
having a remaining maturity of sixty days or less when purchased, and debt
securities originally purchased with maturities in excess of sixty days but
which currently have maturities of sixty days or less, are valued at cost
adjusted for amortization of premiums and accretion of discounts.

Interest rate futures contracts held by a Fund are valued on the basis of
closing market quotations, which are normally available daily. When market
quotations are not readily available, the fair value of these contracts will
be determined in good faith utilizing procedures approved by the Board of
Trustees of the Trust.

A determination of value used in calculating net asset value must be a
fair value determination made in good faith utilizing procedures approved by
the Trust's Board of Trustees. While no single standard for determining fair
value exists, as a general rule, the current fair value of a security would
appear to be the amount which a Fund could expect to receive upon its current
sale. Some, but not necessarily all, of the general factors which may be
considered in determining fair value include: (i) the fundamental analytical
data relating to the investment; (ii) the nature and duration of restrictions
on disposition of the securities; and (iii) an evaluation of the forces which
influence the market in which these securities are purchased and sold.
Without limiting or including all of the specific factors which may be
considered in determining fair value, some of the specific factors include:
type of security, financial statements of the issuer, cost at date of
purchase, size of holding, discount from market value, value of unrestricted
securities of the same class at the time of purchase, special reports prepared
by analysts, information as to any transactions or offers with respect to the
security, existence of merger proposals or tender offers affecting the
securities, price and extent of public trading in similar securities of the
issuer or comparable companies, and other relevant matters.

The Bond Index Fund, as an investor in the Federated Portfolios, may add
to or reduce its investment in the Bond Index Portfolio on each Business Day.
As of 4:00 p.m. (Eastern time) on each such day, the value of each investor's
interest in the Bond Index Portfolio will be determined by multiplying the net
asset value of that 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 effected. The
investor's percentage of the aggregate beneficial interests in the Bond Index
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 that
Portfolio as of 4:00 p.m. on such day plus or minus, as the case may be, the

-36-
<PAGE>

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 4:00 p.m. 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 that Portfolio as of 4:00 p.m. on the following
Business Day (as adjusted for any additions or reductions which are to be
effected on the following Business Day).

ADDITIONAL PURCHASE, EXCHANGE, AND REDEMPTION INFORMATION

Shares are continuously offered for sale by Edgewood Services, Inc. (the
"Distributor"). 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. Investors purchasing Shares may include officers,
directors, or employees of the particular Shareholder Organization.

As stated in the Prospectus, no sales charge is imposed by the Trust on
the purchase of Shares or reinvestment of dividends or distributions.
Additionally, the Trust does not currently charge any fees for the exchange of
shares of one Fund for another Fund.

Shareholders should be aware, however, that certain Shareholder
Organizations may charge a Customer's account fees for exchange orders and
other cash management services provided. Customers should contact their
Shareholder Organization directly for further information.

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 NYSE is restricted by applicable rules and regulations of the Securities
and Exchange Commission; (b) the NYSE is closed for other than customary
weekend and holiday closings; (c) the Securities and Exchange Commission has
by order permitted such suspension; or (d) an emergency exists as determined
by the Securities and Exchange Commission.

In the event that Shares are redeemed in cash at their net asset value, a
shareholder may receive in payment for such Shares an amount that is more or
less than his original investment due to changes in the market prices of that
Fund's portfolio securities.

OTHER INVESTOR PROGRAMS

As described in the Prospectus, Shares of the Funds may be purchased in
connection with certain Retirement Programs. Customers of Shareholder
Organizations should contact their Shareholder Organization directly to
determine their participation in certain services and programs.

-37-
<PAGE>

MANAGEMENT OF THE TRUST

TRUSTEES AND OFFICERS OF THE TRUST

Trustees and Officers
---------------------

The trustees and officers of the Companies, 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>
Alfred C. Tannachion/*/ Chairman of the Board, Retired; Chairman of the Boards,
1135 Hyde Park Court President and Treasurer President and Treasurer of Excelsior
Mahwah, NJ 07430 Funds, Inc., and Excelsior Tax-Exempt
Age 70 Funds, Inc. (since 1985); Chairman of

the Board, President and Treasurer of
UST Master
Variable Series, Inc. (since 1994).

Donald L. Campbell Trustee Retired; Director of Excelsior Funds,
333 East 69th Street Inc. and Excelsior Tax-Exempt Funds,
Apt. 10-H Inc. (Since 1984); Director of UST
New York, NY 10021 Master Variable Series, Inc. (since
Age: 70 1994); Director, Royal Life Insurance
Co. of NY (since 1991).

Rodman L. Drake Trustee Trustee, Excelsior Funds (since 1994);
c/o KMR Power Corp. Director, Parsons Brinkerhoff, Inc.
30 Rockefeller Plaza (engineering firm) (since 1995);
Suite 5425 President, Mandrake Group (investment
New York, NY 10112 and consulting firm) (since 1994);
Age: 53 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 Garantia
L.P (Brazil) (from 1993 to 1996); and
Director, Mueller Industries, Inc (from
1992 to 1994).
</TABLE>

/*/ This trustee is considered to be an "interested person" of the Trust as
defined in the 1940 Act.

-38-
<PAGE>

<TABLE>
<CAPTION>
Position Principal Occupation
with the During Past 5 Years and
Name and Address Trust Other Affiliations
- ---------------- ----- ------------------
<S> <C> <C>
Joseph H. Dugan Trustee Retired; Director of Excelsior Funds,
913 Franklin Lakes Road Inc. and Excelsior Tax-Exempt Funds,
Franklin Lakes, NJ 07417 Inc. (since 1984); Director of UST
Age: 71 Master Variable Series, Inc. (since
1994).

Wolfe J. Frankl Trustee Retired; Director of Excelsior Funds,
2320 Cumberland Road Inc. and Excelsior Tax-Exempt Funds,
Charlottesville, VA 22901 Inc. (since 1986); Director of UST
Age: 75 Master Variable Series, Inc. (since
1994); Director, Deutsche Bank
Financial, Inc. (since 1989); Director,
The Harbus Corporation (since 1951);
Trustee, HSBC Funds Trust and HSBC
Mutual Funds Trust (since 1988).

W. Wallace McDowell Trustee Trustee, Excelsior Funds (Since 1994);
c/o Prospect Capital Private Investor (since 1994); Managing
Corp. Director, Morgan Lewis Githens & Ahn
43 Arch Street (from 1991 to 1994) and Director, U.S.
Greenwich, CT 06830 Homecare Corporation (since 1992),
Age: 59 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 Trustee, Excelsior Funds (since 1994);
558 E. 87th Street Vice President and Editor, Scientific
New York, NY 10128 American, Inc. (from 1986 to 1994);
Age: 57 Director, Group for The South Fork,
Bridgehampton, New York (since 1993);
and Member, Advisory Committee,
Knight Journalism Fellowships,
Massachusetts Institute of Technology
(since 1984).

Robert A. Robinson Trustee Director of Excelsior Funds, Inc. and
Church Pension Fund Excelsior Tax-Exempt Funds, Inc.
800 Second Avenue (since 1987); Director of UST Master
New York, NY 10017 Variable Series, Inc. (since 1994);
Age: 70 President Emeritus, The Church Pension
Fund and its affiliated companies (since
</TABLE>

-39-
<PAGE>

<TABLE>
<CAPTION>
Position Principal Occupation
with the During Past 5 Years and
Name and Address Trust Other Affiliations
- ---------------- ----- ------------------
<S> <C> <C>
1968); Trustee, H.B. and F.H. Bugher
Foundation and Director of its wholly
owned subsidiaries -- Rosiclear Lead
and Flourspar Mining Co. and The
Pigmy Corporation (since 1984);
Director, Morehouse Publishing Co.
(since 1974); Trustee, HSBC Funds
Trust and HSBC Mutual Funds Trust
(since 1982); Director, Infinity Funds,
Inc. (since 1995).

Frederick S. Wonham/*/ Retired; Director of Excelsior Funds,
238 June Road Inc. and Excelsior Tax-Exempt Funds,
Stamford, CT 06903 Inc. (since 1995); Vice Chairman of
Age: 65 U.S. Trust Corporation and U.S. Trust
Company of New York (until 1995);
Chairman, U.S. Trust of Connecticut.

W. Bruce McConnel, III Secretary Partner of the law firm of Drinker
Philadelphia National Biddle & Reath.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age: 53

Sherry Aramini Assistant Second Vice President, Blue Sky
Chase Global Funds Secretary Compliance Manager, Chase Global
Services Company Funds Services Company (since May
73 Tremont Street 1996); Technical Resource Manager,
Boston, MA 02108-3913 Chase Global Funds Services Company
Age: 32 (from 1995 to 1996); Financial
Reporting Supervisor, Chase Global
Funds Services Company (from 1993 to
1995); Audit Supervisor, Coopers &
Lybrand L.L.P., (from 1990 to 1993).

John M. Corcoran Assistant Vice President, Director of
Chase Global Funds Treasurer Administration, Client Group, Chase
Services Company Global Funds Services Company (since
73 Tremont Street July 1996); Second Vice President,
Boston, MA 02108-3913 Manager of Administration, Chase
Age: 31 Global Funds Services Company (from
October 1993 to July 1996); Audit
</TABLE>

-40-
<PAGE>

<TABLE>
<CAPTION>
Position Principal Occupation
with the During Past 5 Years and
Name and Address Trust Other Affiliations
- ---------------- ----- ------------------

<S> <C> <C>
Manager, Ernst & Young LLP (from
1987 to 1993).
</TABLE>

Each Trustee is paid an annual fee as follows for serving as Trustee
of the Trust, and is reimbursed for expenses incurred in connection with service
as a Trustee. The compensation paid to the Trustees for the fiscal year ended
May 31, 1996 is set forth below. The Trustees may hold various other
directorships unrelated to these funds.

- -----------------------
/*/ This trustee is considered to be an "interested person" of the Trust as
defined in the 1940 Act

<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL
BENEFITS COMPENSATION
ACCRUED AS ESTIMATED FROM THE TRUST
AGGREGATE FROM PART OF ANNUAL AND FUND
COMPENSATION TRUST BENEFITS UPON COMPLEX* PAID
THE TRUST EXPENSES RETIREMENT TO TRUSTEES
-------------- ---------- ------------- --------------
<S> <C> <C> <C> <C>
Rodman L. Drake $ 10,000 None None (2)**$10,000
W. Wallace McDowell $ 10,000 None None (2)**$10,000
Jonathan Piel $ 10,000 None None (2)**$10,000
Alfred Tannachion*** $ 1,500 None None (4)**$51,500
Donald L. Campbell*** $ 1,500 None None (4)**$39,500
Joseph C. Dugan*** $ 1,500 None None (4)**$39,500
Wolfe J. Frankl*** $ 1,500 None None (4)**$39,500
Robert A. Robinson*** $ 1,500 None None (4)**$39,500
Frederick S. Wonham*** $ 1,674 None None (4)**$14,424
</TABLE>

* The "Fund Complex" consists of the Trust, Excelsior Funds, Inc., Excelsior
Tax-Exempt Funds, Inc. 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.

*** Messrs. Campbell, Dugan, Frankl, Robinson, Tannachion and Wonham were
elected to the Board of Trustees of the Trust on ____________, 1995.

TRUSTEES AND OFFICERS OF THE FEDERATED PORTFOLIOS

The Trustees and officers of the Federated Portfolios, their dates of birth
and principal occupations during the past five years are set forth below. Their
titles may have varied during that

-41-
<PAGE>

period. Asterisks indicate those Trustees who are "interested persons" (as
defined in the 1940 Act) of the Federated Portfolios.

TRUSTEES
--------

JOHN F. DONAHUE* -- Chairman of the Board and Trustee of Federated Portfolios;
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, Federated Research; Chairman and Director, Federated Research Corp.
and Federated Global Research Corp.; Chairman, Passport Research, Ltd.; Chief
Executive Officer and Director or Trustee of investment companies for which
subsidiaries of Federated Investors serve as investment adviser, administrator
and/or distributor (the "Federated Fund Complex"). Mr. Donahue is the father of
J. Christopher Donahue, Trustee and President of Federated Portfolios. His date
of birth is July 28, 1924. His address is Federated Investors Tower,
Pittsburgh, PA.

THOMAS G. BIGLEY -- Chairman of the Board, Children's Hospital of Pittsburgh;
Director or Trustee, of investment companies within the Federated Fund Complex;
formerly, Senior Partner, Ernst & Young LLP; MED 3000 Group, Inc.; Trustee,
University of Pittsburgh. His date of birth is February 3, 1934 His address is
28th Floor, One Oxford Centre, Pittsburgh, PA.

JOHN T. CONROY, JR. -- President, Investment Properties Corporation; Senior
Vice President, John R. Wood and Associates, Inc., Realtors; Partner or Trustee
in private real estate ventures in Southwest Florida; Director or Trustee of
investment companies within the Federated Fund Complex; formerly, President,
Naples Property Management, Inc. and formerly, President, Northgate Village
Development Corporation. His date of birth is June 23, 1937. His address is
Wood/IPC Commercial Department, John R. Wood and Associates, Inc., Realtors,
3255 Tamiami Trail North, Naples, FL.

WILLIAM J. COPELAND -- Director and member of the Executive Committee, Michael
Baker, Inc; Director or Trustee of investment companies within the Federated
Fund Complex; formerly, Vice Chairman and Director, PNC Bank, N.A. and PNC Bank
Corp. and Director, Ryan Homes, Inc. His date of birth is July 4, 1918. His
address is One PNC Plaza, 23rd Floor, Pittsburgh, PA.

JAMES E. DOWD -- Attorney-at-law; Director, The Emerging Germany Fund, Inc.;
Director or Trustee of investment companies within the Federated Fund Complex.
His date of birth is May 18, 1922. His address is 571 Hayward Mill Road,
Concord, MA.

LAWRENCE D. ELLIS, M.D.* -- Professor of Medicine, University of Pittsburgh;
Medical Director, University of Pittsburgh Medical Center Downtown; Member,
Board of Directors, University of Pittsburgh Medical Center; formerly
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals;
Director or Trustee of investment companies within the Federated Fund Complex.
His date of birth is October 11, 1932. His address is 3471 Fifth Avenue, Suite
1111, Pittsburgh, PA.

EDWARD L. FLAHERTY, JR. -- Attorney of Counsel, Miller, Ament, Henny &
Kochuba; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of
investment companies within the Federated Fund Complex; formerly, Counsel,
Horizon Financial, F.A., Western Region. His date of birth is June 18, 1924.
His address is Miller, Ament, Henny & Kochuba, 205 Ross Street, Pittsburgh, PA.

PETER E. MADDEN -- Consultant; Former State Representative, Commonwealth of
Massachusetts; Director or Trustee of investment companies within the Federated
Fund Complex; formerly President,

-42-
<PAGE>

State Street Bank and Trust Company and State Street Boston Corporation. His
date of birth is March 16, 1942. His address is One Royal Palm Way, 100 Royal
Palm Way, Palm Beach, FL.

GREGOR F. MEYER -- Attorney, Member of Miller, Ament, Henny & Kochuba;
Chairman, Meritcar, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or
Trustee of investment companies within the Federated Fund Complex. His date of
birth is October 6, 1926. His address is Miller, Ament, Henny & Kochuba, 205
Ross Street, Pittsburgh, PA.

JOHN E. MURRAY, JR., J.D., S.J.D. -- President, Law Professor, Duquesne
University; Consulting Partner, Mollica, Murray and Hogue; Director or Trustee
of investment companies within the Federated Fund Complex. His date of birth is
December 20, 1932. His address is Duquesne University, Pittsburgh, PA.

WESLEY W. POSVAR -- Professor, International Politics; Management Consultant;
Trustee, Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University, U.S. Space
Foundation and Czech Management Center; Director or Trustee of investment
companies within the Federated Fund Complex; President Emeritus, University of
Pittsburgh; founding Chairman, National Advisory Council for Environmental
Policy, Technology; Federal Emergency Management Advisory Board; and Czech
Management Center. His date of birth is September 14, 1925. His address is 1202
Cathedral of Learning, University of Pittsburgh, Pittsburgh, PA.

MARJORIE P. SMUTS -- Public Relations/Marketing/Conference Planning,
Manchester Craftsmen's Guild; Restaurant Consultant, Frick Art & History Center;
Conference Coordinator, University of Pittsburgh Art History Department;
Director or Trustee of investment companies within the Federated Fund Complex.
Her date of birth is June 21, 1935. Her address is 4905 Bayard Street,
Pittsburgh, PA.

J. CHRISTOPHER DONAHUE* -- President and Trustee, Federated Portfolios;
President and Trustee, Federated Investors, Federated Advisers, Federated
Management and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services Company and Federated Shareholder
Services; Director, Federated Services Company and Federated Administrative
Services, Inc.; President or Executive Vice President of investment companies
within the Federated Fund Complex; Director or Trustee of certain investment
companies within the Federated Fund Complex. Mr. Donahue is the son of John F.
Donahue, Chairman and Trustee of the Federated Portfolios. His date of birth is
April 11, 1949. His address is Federated Investors Tower, Pittsburgh, PA.

* This Trustee is deemed to be an "interested person" as defined in the 1940
Act.

EXECUTIVE OFFICERS OF FEDERATED PORTFOLIOS
- ------------------------------------------

RICHARD B. FISHER -- Vice President, Federated Portfolios; Executive Vice
President and Trustee, Federated Investors; Chairman and Director, Federated
Securities Corp.; President or Vice President of certain investment companies
within the Federated Fund Complex; Director or Trustee of certain investment
companies within the Federated Fund Complex. His address is Federated Investors
Tower, Pittsburgh, PA.

EDWARD C. GONZALEZ -- Executive Vice President, Federated Portfolios; Vice
Chairman, Treasurer and Trustee, Federated Investors; Vice President, Federated
Advisers, Federated

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<PAGE>

Management, Federated Research, Federated Research Corp., Federal Global
Research Corp. and Passport Research Ltd.; Executive Vice President and
Director, Federated Securities Corp.; Trustee, Federated Shareholder Services
Company, Chairman, Treasurer and Trustee, Federated Administrative Services;
Trustee or Director of certain investment companies within the Federated Fund
Complex; Executive Vice President and Treasurer of investment companies within
the Federated Fund Complex. His address is Federated Investors Tower,
Pittsburgh, PA.

JOHN W. MCGONIGLE -- Executive Vice President, Secretary and Treasurer,
Federated Portfolios; Executive Vice President, Secretary, General Counsel and
Trustee, Federated Investors; Trustee, Federated Advisers, Federated Management
and Federated Research; Director, Federated Research Corp., and Federated Global
Research Corp.; Trustee, Federated Shareholder Services Company; Director,
Federated Services Company and Federated Administrative Services, Inc.;
President and Trustee, Federated Shareholder Services; Director, Federated
Securities Corp.; Executive Vice President and Secretary of investment companies
within the Federated Fund Complex. His address is Federated Investors Tower,
Pittsburgh, PA.

Messrs. John F. Donahue, J. Christoper Donahue, Richard B. Fisher, Edward C.
Gonzalez and John W. McGonigle may also hold similar positions for other
investment companies affiliated with Federal Investors.

The compensation paid to the Trustees of Federated Portfolios for the year
ended December 31, 1995 is set forth below. The Trustees may hold various other
directorships unrelated to the Federated Portfolios.

<TABLE>
<CAPTION>
PENSION OR TOTAL
RETIREMENT COMPENSATION
BENEFITS FROM FEDERATED
AGGREGATE ACCRUED AS ESTIMATED PORTFOLIOS AND
COMPENSATION PART OF ANNUAL FUND COMPLEX
FROM FEDERATED FEDERATED BENEFITS PAID TO
PORTFOLIOS PORTFOLIO'S UPON TRUSTEES
------------- EXPENSES RETIREMENT ------------
----------- ----------
<S> <C> <C> <C> <C>
John F. Donahue None None None $ 0
Thomas G. Bigley None None None $ 86,331
John T. Conroy, Jr. None None None $115,760
William J. Copeland None None None $115,760
James E. Dowd None None None $115,760
Lawrence D. Ellis, M.D. None None None $104,898
Edward L. Flaherty, Jr. None None None $115,760
</TABLE>

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<PAGE>

<TABLE>
<S> <C> <C> <C> <C>
Peter E. Madden None None None $104,898
Gregor F. Meyer None None None $104,898
John E. Murray, Jr., S.D., None None None $104,898
S.J.D.
Wesley W. Posvar None None None $104,898
Marjorie P. Smuts None None None $104,898
J. Christopher Donahue None None None $ 0
</TABLE>

As used in the above compensation table, the term "Fund Complex" shall
collectively refer to Federated Portfolios and up to 54 other mutual funds for
which subsidiaries of Federated Investors serve as investment adviser.
Federated Portfolios has no pension plan. It is expected that each of the
Trustees who is not an "interested person" will not receive compensation from
the Federated Portfolios for service as Trustees during the first fiscal year of
the Federated Portfolios, and thereafter shall be paid such amounts as shall be
fixed by the Board of Trustees of Federated Portfolios.

* * * * *

The Trust Instrument of the Trust 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 Federated Portfolios provides that Federated
Portfolios 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 Federated Portfolios unless it is finally

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<PAGE>

adjudicated that they engaged in willful malfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in their offices.

As of September ___, 1996, U.S. Trust held of record substantially all of the
outstanding shares in each of the Funds, but did not own such shares
beneficially because it did not have discretion to vote or invest such shares.
As of the same date, the officers and Trustees of the Trust and Federated
Portfolios as a group owned less than 1% of the shares of each Fund and the Bond
Index Portfolio. Shareholders owning 25% or more of the outstanding shares of a
Fund may have the ability to take actions without the approval of any other
investor in that Fund.

INVESTMENT ADVISORY SERVICES

U.S. Trust Pacific is responsible for the management of the assets of the
Balanced, Equity Growth and International Equity Funds pursuant to an investment
advisory agreement with the Trust on behalf of such Funds, subject to the
general supervision and guidance of the Board of Trustees of the Trust. U.S.
Trust is responsible for the management of the assets of the Equity, Income and
Total Return Bond Funds pursuant to an investment advisory agreement with the
Trust on behalf of such Funds, subject to the general supervision and guidance
of the Board of Trustees of the Trust. Federated Research Corp. is responsible
for the management of the assets of the Bond Index Portfolio, in which the
assets of the Bond Index Fund are invested, pursuant to an investment advisory
agreement with Federated Portfolios, subject to the general supervision and
guidance of the Trustees of the Trust and Federated Portfolios. The investment
advisory agreements described above are referred to herein as "Advisory
Agreements," each an "Advisory Agreement."

Each Advisory Agreement will continue in effect with respect to each Fund (or
the Bond Index Portfolio) as long as such continuance is specifically approved
at least annually by the Board of Trustees of the Trust (or Federated
Portfolios, as the case may be) or by a majority vote of the shareholders in the
applicable Fund (or the Bond Index Portfolio, as the case may be) and, in either
case, by a majority of the Trustees of the Trust (or Federated Portfolios, as
the case may be) 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. Each Advisory Agreement was approved by the Trust's Board
of Trustees on August 19, 1995. The Bond Index Portfolio's current Advisory and
Sub-Advisory Agreements were approved by the Board of Trustees of Federated
Portfolios and are effective as of September 30, 1996. Each investment adviser
and administrator has agreed to waive certain fees. Shareholder Organizations
may charge their customers account fees for investment and other cash management
services.

Each Advisory Agreement provides that the investment adviser may render
services to others, and each Advisory Agreement is terminable by the Trust (or
Federated Portfolios) without penalty on not more than 60 days' nor less than 30
days' written notice when authorized either by majority vote of the Fund (or, in
the case of the Bond Index Fund, a majority vote

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<PAGE>

of the Fund and the other investors in the Bond Index Portfolio, with the vote
of each being in proportion to the amount of its investment) or by a vote of a
majority of the Board of Trustees of the Trust (or Federated Portfolios), or by
the respective investment adviser on not more than 60 days' nor less than 30
days' written notice, and will automatically terminate in the event of its
assignment. Each Advisory Agreement provides that neither the investment adviser
nor its personnel shall be liable for any error of 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 a Fund (or the Bond Index Portfolio),
except for willful misfeasance, bad faith, gross negligence or reckless
disregard of its or their obligations and duties under the Advisory Agreement.

The Prospectus contains a description of the fees payable to the investment
advisers under the Advisory Agreements. Each investment adviser, if required by
applicable state law, shall reimburse a Fund or waive all or part of its fees up
to, but not exceeding, its investment advisory fees from the Fund. Such
reimbursement, if required, will be equal to the annual expenses of the
appropriate Fund (in the case of the Bond Index Fund, the Fund and the Bond
Index Portfolio) which exceed that expense limitation with the lowest threshold
prescribed by any state in which such Fund is qualified for offer or sale.
Management of the Trust has been advised that the lowest such threshold
currently in effect is 2 1/2% of net assets up to $30,000,000, 2% of the next
$70,000,000 of net assets and 1/2% of net assets in excess of that amount.

For the fiscal year ended May 31, 1996, U.S. Trust received advisory fees of
$28,097, $14,373 and $31,440 with respect to the Equity, Income and Total Return
Bond Funds, respectively. For the same period, U.S. Trust waived advisory fees
of $109,889, $189,870 and $223,015 and reimbursed expenses totalling $68,274,
$64,906 and $67,299 with respect to the Equity, Income and Total Return Bond
Funds, respectively.

For the fiscal year ended May 31, 1995, U.S. Trust waived its entire advisory
fee totalling $23,905, $67,732 and $43,478 and reimbursed expenses totalling
$52,689, $57,377 and $52,905 with respect to the Equity, Income and Total Return
Bond Funds, respectively.

For the fiscal year ended May 31, 1996, U.S. Trust Pacific received advisory
fees of $167,588, $44,533 and $38,181 with respect to the Balanced, Equity
Growth and International Equity Funds, respectively. For the same period, U.S.
Trust Pacific waived advisory fees of $395,766, $254,830 and $143,820 and U.S.
Trust reimbursed expenses totalling $97,439, $81,407 and $66,499 with respect to
the Balanced, Equity Growth and International Equity Funds, respectively.

For the fiscal year ended May 31, 1995, U.S. Trust Pacific waived its entire
advisory fee totalling $365,664, $285,384 and $26,276 and U.S. Trust reimbursed
expenses totalling $153,882, $132,785

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<PAGE>

and $40,377 with respect to the Balanced, Equity Growth and International Equity
Funds, respectively.

With respect to the Balanced, Equity Growth, Value Equity Income and
International Equity Funds, U.S. Trust Pacific has entered into an investment
sub-advisory agreement (each a "Sub-Advisory Agreement") with each of the sub-
advisers listed below opposite the name of the Fund. For their services under
the Sub-Advisory Agreements, the sub-advisers are entitled to receive from U.S.
Trust Pacific, fees at a maximum annual rate equal to the percentages specified
in the table below of the Fund's average daily net assets.

Compensation Rate for
Fund Name Sub-Adviser Sub-Adviser (%)
- --------------------------- --------------- ------------------------

Balanced Fund Becker 0.425%
Equity Growth Fund Luther King 0.40%
International Equity Fund Harding Loevner 0.50%

It is the responsibility of each of the above sub-advisers to make the day-to-
day investment decisions for its respective Fund, and to place the purchase and
sales orders for securities transactions of such Fund, subject in all cases to
the general supervision of U.S. Trust Pacific. Each sub-adviser furnishes at
its own expense all services, facilities and personnel necessary in connection
with managing its respective Fund's investments and effecting securities
transactions for such Fund.

For the fiscal year ended May 31, 1996, Becker, Luther King and Harding
Loevner received sub-advisory fees of $_______, $_______ and $_______ with
respect to the Balanced, Equity Growth and International Equity Funds,
respectively. For the same period, Becker, Luther King and Harding Loevner
waived sub-advisory fees of $________, $________ and $__________ with respect to
the Balanced, Equity Growth and International Equity Funds, respectively.

For the fiscal year ended May 31, 1995, Becker, Luther King and Harding
Loevner received sub-advisory fees of $239,088, $175,621 and $11,824 with
respect to the Balanced, Equity Growth and International Equity Funds,
respectively.

With respect to the Bond Index Portfolio, in which all of the investable
assets of the Bond Index Fund have been invested, Federated Research Corp. has
entered into an investment subadvisory agreement (the "Sub-Advisory Agreement")
with U.S. Trust as sub-adviser. For its services under the

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<PAGE>

Sub-Advisory Agreement, U.S. Trust is entitled to receive from Federated
Research Corp. fees at a maximum annual rate equal to 0.12% of the Bond Index
Portfolio's average daily net assets.

It is the responsibility of U.S. Trust in its capacity as sub-adviser to make
the day-to-day investment decisions for the Bond Index Portfolio, and to place
the purchase and sales orders for securities transactions of such Portfolio,
subject to the general supervision of Federated Research Corp. U.S. Trust
furnishes at its own expense all services, facilities and personnel necessary in
connection with managing the Bond Index Portfolio's investments and effecting
securities transactions for the Portfolio.

Prior to September 30, 1996, Federated Management and U.S. Trust provided
advisory and sub-advisory services to the Bond Index Portfolio pursuant to
agreements which were substantially identical to the current Advisory and Sub-
Advisory Agreements relating to the Bond Index Portfolio. For the period from
January 2, 1996 through May 31, 1996, Federated Management and U.S. Trust waived
all advisory and sub-advisory fees with respect to the Bond Index Portfolio,
which amounted to $17,632 and $8,463, respectively.

Prior to December 29, 1995, the Bond Index Fund pursued its investment
objective by investing all of its investible assets in the Bond Market Portfolio
of St. James Portfolios. U.S. Trust Pacific and U.S. Trust served as investment
adviser and sub-adviser, respectively, to the Bond Market Portfolio. For the
period from June 1, 1995 through December 29, 1995, U.S. Trust Pacific and U.S.
Trust waived their entire advisory and sub-advisory fees totalling $23,111 and
$_______, respectively, and U.S. Trust reimbursed expenses totalling $55,998
with respect to the Bond Market Portfolio. For the fiscal year ended May 31,
1995, U.S. Trust Pacific and U.S. Trust waived their entire advisory and sub-
advisory fees totalling $47,955 and $_______, respectively, and U.S. Trust
reimbursed expenses totalling $83,454 with respect to the Bond Market
Portfolio and U.S. Trust reimbursed expenses totalling $16,494 with respect to
the Bond Index Fund.

ADMINISTRATORS

U.S. Trust, Chase Global Funds Services Company ("CGFSC") and Federated
Administrative Services ("FAS") serve as the Funds' administrators (the
"Administrators") pursuant to an agreement between the Administrators and the
Trust (the "Administrative Agreement"). The Prospectus contains a description
of the compensation payable to the Administrators under the Administrative
Agreement.

Under the Administrative Agreement, the Administrators have agreed to maintain
office facilities for the Funds, furnish the Funds with statistical and research
data, clerical, accounting and bookkeeping services, and certain other services
required by the Funds, and to compute the net asset value, net income and
realized capital gains or losses, if any, of the respective Funds. The
Administrators prepare annual and semiannual reports to the Securities and
Exchange Commission, prepare Federal and state tax returns, prepare filings with
state securities commissions, arrange for and bear the cost of processing Share
purchase and redemption orders, maintain the Funds' financial accounts and
records, and generally assist in the Funds' operations. Pursuant to the
Administrative Agreement, the Administrators may render fund accounting and
other services to others. The Administrative Agreement terminates automatically
if assigned and may be terminated, without penalty by any party on not less than
90 days' notice. The Administrative Agreements also 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, except for willful misfeasance, bad faith or gross negligence in the
performance of their duties, or by reason of reckless disregard of its or their
obligations and duties under said agreement.

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<PAGE>

For the period from December 18, 1995 (January 1, 1996 with respect to the
Bond Index Fund) through May 31, 1996, the Administrators received
administration fees of $15,122, $19,853, $33,627, $9,951, $65,113, $22,731 and
$20,897 with respect to the Equity, Income, Total Return Bond, Bond Index,
Balanced, Equity Growth and International Equity Funds, respectively. For the
same period, U.S. Trust reimbursed expenses totalling $26,527 with respect to
the Bond Index Fund.

Prior to December 18, 1995 (January 1, 1996 with respect to the Bond Index
Fund), Signature Financial Services, Inc. ("SFSI") served as servicing agent and
fund accounting agent to each of the Funds. For its services as servicing
agent, SFSI was entitled to fees at the annual rate of up to .07% of the average
daily net assets of each Fund. For its fund accounting services, SFSI was
entitled to receive a per annum fee of $12,000 from each Fund. For period from
June 1, 1995 through December 18, 1995 (December 29, 1995 with respect to the
Bond Index Fund), SFSI received fund accounting and servicing agent fees of
$38,777, $44,400, $42,518, $15,694, $54,933, $48,144 and $41,496 with respect to
the Equity, Income, Total Return Bond, Bond Index, Balanced, Equity Growth and
International Equity Funds, respectively.

For the fiscal year ended May 31, 1995, SFSI received fund accounting and
servicing agent fees of $24,861, $28,302, $25,798, $64,946, $82,822, $76,841 and
$23,227 with respect to the Equity, Income, Total Return Bond, Bond Index,
Balanced, Equity Growth and International Equity Funds, respectively.

TRANSFER AGENT AND CUSTODIAN

The Chase Manhattan Bank, N.A. ("Chase") serves as custodian of the Funds'
assets pursuant to a custody agreement between Chase and the Trust.

Under such agreement and acting as the Funds' custodian, Chase has agreed to
(i) maintain a separate account or accounts for each of the Funds (ii) make
receipts and disbursements of money on behalf of the Funds; (iii) collect and
receive income and other payments and distributions on account of the Funds'
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 Funds' operations. For
the services provided by Chase under the custody agreements, the Trust has
agreed to pay Chase a fee as agreed upon from time to time.

Chase may, at its own expense, open and maintain custody accounts with respect
to the Funds with other banks or trust companies, provided that Chase shall
remain liable under the custody agreement for the performance of all of its
duties under such agreement, notwithstanding any such delegation.

Chase Global Funds Services Company ("CGFSC") serves as transfer agent for the
Funds pursuant to a transfer agency agreement. Under this agreement, CGFSC will
perform the following functions, among others: (i) issue and redeem shares of
the Funds; (ii) address and mail all communications by the Funds to their
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 Funds' operations. For its transfer agency and dividend
disbursement services, CGFSC is entitled to receive from the Trust such
compensation as may be agreed upon from time to time between the Trust and
CGFSC. In addition, CGFSC is entitled to be reimbursed for its out-of-pocket
expenses for the cost of forms, postage, processing purchase and redemption
orders, handling of proxies, and other similar expenses in connection with the
above services.

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<PAGE>

CGFSC may delegate its transfer agency obligations to another transfer agent
registered or qualified under applicable law, provided that CGFSC shall remain
liable for the performance of all of its transfer agency duties under the
transfer agency agreement, notwithstanding any such delegation.

BOND INDEX PORTFOLIO - SERVICE PROVIDERS

The Bond Index Fund, as an investor in the Bond Index Portfolio, bears its pro
rata share of the fees and expeses of the Bond Index Portfolio.

State Street Bank and Trust Company, P.O. Box 8600, Boston, Massachusetts
02266-8600, is Custodian for the cash and securities of the Bond Index
Portfolio.

Federated Securities Corp., Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, Pennsylvania, 15222-3779, is Placement Agent for Federated
Portfolio.

Federated Services Company ("FSC"), Federated Investors Tower, 1001 Liberty
Avenue, Pittsburgh, Pennsylvania, 15222-3779, has contracted on behalf of its
subsidiary Federated Administrative Services, Inc. to serve as Portfolio
Accountant for Federated Portfolios and to provide administrative personnel and
services (including certain legal and financial reporting services) necessary to
operate Federated Portfolios. The fee for portfolio accounting is based on the
level of Federated Portfolios' average net assets for the period, plus out-of-
pocket expeses. The fee for administrative personnel and services is at an
annual rate as specified below:

Average Aggregate Daily Net
Maximum Administrative Fee Assets of the Bond Index Portfolio
- -------------------------- --------------------------------------

0.050 of 1% on the first $1 billion
0.045 of 1% on the next $1 billion
0.040 of 1% on the next $1 billion
0.025 of 1% on the next $1 billion
0.010 of 1% on the next $1 billion
0.005 of 1% on assets in excess of $5 billion

The minimum administrative fee is $60,000 annually for the Bond Index
Portfolio. FSC may choose voluntarily to waive a portion of its fee, and has
agreed to waive a portion of its fee for the twelve month period following
January 2, 1996. For the period from January 2, 1996 through May 31, 1996, FSC
waived all servicing agent and fund accounting fees with respect to the Bond
Index Portfolio, which amounted to $24,754.

INDEPENDENT AUDITORS

Ernst & Young LLP are the independent auditors for Excelsior Institutional
Trust and Federated Investment Portfolios, and in each case provides audit
services and assistance and consultation with respect to the preparation of
filings with the Securities and Exchange Commission.

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<PAGE>

COUNSEL

Drinker Biddle & Reath (of which Mr. McConnel, Secretary of the Trust is a
partner), Philadelphia National Bank Building, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107-3496, is counsel to the Trust and will pass
upon the legality of the shares offered by the Trust's Prospectuses.

TAXATION

TAXATION OF THE FUNDS

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").
Each Fund has elected to be treated 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
distributions, and the composition and holding period of the Fund's portfolio
assets. Because each 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, although a Fund's foreign
source income may be subject to foreign withholding taxes. If a Fund fails to
qualify as a RIC in any year, the Fund would incur a regular corporate federal
income tax upon its investment company taxable income, and the Fund's
distributions would generally be taxable as ordinary dividend income to
shareholders.

The Trust anticipates that under interpretations of the Internal Revenue
Service, (1) the Bond Index Portfolio will be treated for federal income tax
purposes as a partnership and (2) for purposes of determining whether the Bond
Index Fund satisfies the income and diversification requirements to maintain its
status as a RIC, the Bond Index Fund, as an investor in the Bond Index
Portfolio, will be deemed to own a proportionate share of that Portfolio's
assets and will be deemed to be entitled to that Portfolio's income or loss
attributable to that share. The Bond Index Portfolio has advised the Bond Index
Fund that it intends to conduct its operations so as to enable its investors,
including the Bond Index Fund, to satisfy those requirements.

Any Fund distribution (or, in the case of the Income, Total Return Bond and
Bond Index Funds any distribution of net capital gains or net short-term capital
gains) will have the effect of reducing the per share net asset value of shares
in the Fund by the amount of the distribution. Shareholders purchasing shares
shortly before the record date of any distribution may thus pay the full price
for the shares and then effectively receive a portion of the purchase price back
as a taxable distribution.

Any investment by a Fund in zero coupon bonds, certain securities purchased at
a market discount, and similar instruments will cause a Fund to recognize income
prior to the receipt of cash payments with respect to those securities. In
order to distribute this income and avoid a tax on the Fund, a Fund may be
required to liquidate portfolio securities that it might otherwise have
continued to hold.

While certain of the Funds might invest in municipal securities, the interest
on which might otherwise be exempt from tax, it is generally not expected that
any Fund will satisfy the requirements under the Code to pass-through such
exempt income to shareholders as tax-exempt dividends.

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<PAGE>

Any Fund's transactions in options, futures contracts, and forward currency
exchange contracts will be subject to special tax rules that may affect the
amount, timing, and character of Fund income and distributions to shareholders.
In addition, foreign exchange gains or losses realized by any Fund will
generally be treated as ordinary income or loss by the Fund. Investment by a
Fund in certain "passive foreign investment companies" may also have to be
limited in order to avoid a tax on the Fund. Such a Fund may elect (if such
election is available) to mark to market any investments in "passive foreign
investment companies" on the last day of each year. This election may cause a
Fund to recognize income prior to the receipt of cash payments with respect to
those investments; in order to distribute this income and avoid tax on the Fund,
the Fund may be required to liquidate portfolio securities that it might
otherwise have continued to hold.

Investment income of a Fund from foreign securities may be subject to foreign
income tax withheld at the source. No Fund (other than the International Equity
Fund, as discussed below) expects to be able to pass through to shareholders
foreign tax credits with respect to such foreign taxes. The United States has
entered into tax treaties with many foreign countries that may entitle a Fund to
a reduced rate of tax or an exemption from tax on such income; each Fund intends
to qualify for treaty-reduced rates where available. It is not possible,
however, to determine a Fund's effective rate of foreign tax in advance since
the amount of the Fund's assets invested within various countries is not known.

TAXATION OF THE BOND INDEX PORTFOLIO

The Trust anticipates that the Bond Index 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 Bond Index Fund must take into
account, in computing its federal income tax liability, its share of the Bond
Index Portfolio's income, gains, losses, deductions, credits and tax preference
items, without regard to whether it has received any cash distributions from
that Portfolio.

TAXATION OF DISTRIBUTIONS

Dividends from ordinary 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 gains over net short-term capital losses), if any, are taxable to
shareholders as long-term capital gains without regard to the length of time the
shareholders have held their shares. In the case of corporate shareholders,
distributions (other than capital gains dividends) will qualify for the amount
of "qualifying dividends" received by a Fund for the year. Generally, a
"qualifying dividend" is a dividend that has been received from a domestic
corporation. Availability of the deduction for particular shareholders is
subject to certain limitations, and deducted amounts may be subject to the
alternative minimum tax and result in certain basis adjustments. Distributions
are taxable as described above whether paid in cash or reinvested 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, each Fund must, and intends to, distribute
during each calendar year substantially all of its 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 Fund dividend declared by a Fund
in October, November or December with a record date before the end of the year
will be deemed for tax purposes to have been paid by the Fund and received by
the shareholder during that year, so long as the dividends are actually paid
during

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<PAGE>

January of the following calendar year. Accordingly, those distributions will be
taxable to shareholders for the taxable year in which that December 31 falls.

If the International Equity Fund holds more than 50% of its assets in foreign
stock and securities at the close of its taxable year, the Fund may elect to
"pass through" to the Fund's shareholders foreign income taxes paid. If the
Fund so elects, shareholders will be required to treat their pro rata portion of
the foreign income taxes paid by the Fund as part of the amounts distributed to
them by the Fund and thus includable in their gross income for federal income
tax purposes. Shareholders who itemize deductions would then be allowed to
claim a deduction or credit (but not both) on their federal income tax returns
for such amounts, subject to certain limitations. Shareholders who do not
itemize deductions would (subject to such limitations) be able to claim a credit
but not a deduction. No deduction will be permitted to individuals in computing
their alternative minimum tax liability. If the International Equity Fund does
not qualify or elect to "pass through" to the Fund's shareholders foreign income
taxes paid, shareholders will not be able to claim any deduction or credit for
any part of the foreign income taxes paid by the Fund.

Withdrawals by the Bond Index Fund from the Bond Index Portfolio generally
will not result in that Fund recognizing any gain or loss for federal income tax
purposes, except that (1) gain will be recognized to the extent that any cash
distributed exceeds the basis of the Fund's interest in the Bond Index Portfolio
prior to the distribution, (2) gain or loss will be realized if the withdrawal
is in liquidation of all or part of the Fund's entire interest in the Bond Index
Portfolio and includes a disproportionate share of any unrealized receivables
held by that Portfolio, and (3) gain or loss will be recognized if the
distribution is in liquidation of that entire interest in the Portfolio and
consists solely of cash and/or unrealized receivables. The basis of the Bond
Index Fund's interest in the Bond Index Portfolio generally equals the amount of
cash and the basis of any property that the Fund invests in the Bond Index
Portfolio, increased by the Fund's share of income from that Portfolio and
decreased by the Fund's share of losses from that Portfolio and the amount of
any cash distributions and the basis of any property distributed to the Fund
from that Portfolio.

OTHER TAXATION

The Trust is organized as a Delaware business trust and, under current law,
neither the Trust nor the Funds are liable for any income or franchise tax in
the State of Delaware, provided that the Funds continue to qualify as RICs for
federal income tax purposes.

The Bond Index Portfolio is organized as series of Federated Investment
Portfolios (the "Federated Portfolios"), a business trust organized under the
laws of the Commonwealth of Massachusetts. The Bond Index Portfolio is not
subject to any income or franchise tax in the Commonwealth of Massachusetts or
the State of Delaware. The investment by the Bond Index Fund in the Bond Index
Portfolio does not cause the Fund to be liable for any income or franchise tax
in the Commonwealth of Massachusetts.

Fund shareholders may be subject to state and local taxes on Fund
distributions to them by a Fund. Shareholders are advised to consult their own
tax advisers with respect to the particular tax consequences to them of an
investment in a Fund.

DESCRIPTION OF THE TRUST; FUND SHARES

The Trust is a Delaware business trust established under a Trust Instrument
dated April 27, 1994. Its authorized capital consists of an unlimited number of
shares of beneficial interest of $0.00001

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<PAGE>

par value, which may be issued in separate series. Currently, the Trust has
seven active and two 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 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 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 a 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 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 Trust Instrument contains an express disclaimer of
shareholder liability for acts or obligations of the Trust and provides

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<PAGE>

for indemnification and reimbursement of expenses out of Fund property for any
shareholder held personally liable for the obligations of a 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.

DESCRIPTION OF FEDERATED PORTFOLIOS - BENEFICIAL INTERESTS

The Bond Index Portfolio is a series of Federated Portfolios, which is
organized as a trust having separate series under the laws of the Commonwealth
of Massachusetts. Under the Declaration of Trust, the Trustees are authorized
to issue beneficial interests in one or more series (each a "Portfolio").
Currently, there is one Portfolio of Federated Portfolios, the Bond Index
Portfolio. The Trustees have established five other series, none of which are
being offered presently: Bond Portfolio, Connecticut Municipal Money Market
Portfolio, Florida Municipal Money Market Portfolio, Max Cap Portfolio and New
Jersey Municipal Money Market Portfolio. Investors in the Bond Index Portfolio
will be held personally liable for the obligations and liabilities of Federated
Portfolios and of the Bond Index Portfolio but not the obligations and
liabilities of any other Portfolio, subject, however, to indemnification by
Federated Portfolios in the event that there is imposed upon an investor any
obligation or liability of the Bond Index Portfolio or Federated Portfolios.
The Declaration of Trust also provides that Federated Portfolios may maintain
appropriate insurance for the protection of Federated Portfolios, its Trustees,
officers, employees and agents, and covering possible tort and other
liabilities. The risk of an investor incurring financial loss on account of
investor liability is limited to circumstances in which neither the Bond Index
Portfolio nor Federated Portfolios were able to meet their obligations.

Investors in a Portfolio are entitled to participate pro rata in distributions
of taxable income, loss, gain and credit of their respective Portfolio only.
Upon liquidation or dissolution of a Portfolio, investors are entitled to share
pro rata in that Portfolio's (and no other Portfolio's) net assets available for
distribution to its investors. Federated Portfolios reserves the right to
create and issue additional Portfolios of beneficial interests, in which case
the beneficial interests in each new Portfolio would participate equally in the
earnings, dividends and assets of that Portfolio only (and no other Portfolio).
Investments in a Portfolio have no preference, preemptive, conversion or similar
rights and are fully paid and nonassessable, except as set forth below.
Investments in a Portfolio may not be transferred.

Each investor is entitled to a vote in proportion to the amount of its
investment in each Portfolio. Investors in a Portfolio do not have cumulative
voting rights, and a plurality of the aggregate beneficial interests in all
outstanding series of Federated Portfolios may elect all of the Trustees if they
choose to do so and in such event other investors would not be able to elect any
Trustees. Investors in each Portfolio will vote as a separate class except as
to voting for the election or removal of Trustees, the termination of Federated
Portfolios, as otherwise required by the 1940 Act, or if the matter is
determined by the Trustees to be a matter which adversely affects all
Portfolios. Federated Portfolios' Declaration of Trust may be amended without
the vote of investors, except that investors have the right to approve by
affirmative majority vote any amendment which would adversely affect their
voting rights, alter the procedures to amend the Declaration of Trust of
Federated Portfolios, as required by law or by Federated Portfolios'
registration statement, or as submitted to them by the Trustees.

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<PAGE>

Federated Portfolios or any Portfolio may enter into a merger or
consolidation, or sell all or substantially all of its assets, if approved (a)
at a meeting of investors by investors representing the lesser or (i) 67% or
more of the beneficial interests in the affected Portfolio present or
represented at such meeting, if investors in more than 50% of all such
beneficial interests are present or represented by proxy, or (ii) more than 50%
of all such beneficial interests are present by proxy, or (b) by an instrument
in writing without a meeting, consented to by investors of the beneficial
interests in the affected Portfolio.

Federated Portfolios' Declaration of Trust provides that obligations of
Federated Portfolios are not binding upon the Trustees individually but only
upon the property of Federated Portfolios and that the Trustees will not be
liable for any action or failure to act, but nothing in the Declaration of Trust
protects a Trustee against any liability to which he would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.

Federated Portfolios' Declaration of Trust further provides that it will
indemnify its Trustees, officers, employees and agents against liabilities and
expenses incurred in connection with litigation in which they may be involved
because of their offices with Federated Portfolios, unless, as to liability to
the Federated Portfolios or its investors, it is finally adjudicated that they
engage in willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in their offices. In the case of settlement,
the By-Laws of Federated Portfolios provide that 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 a vote of a majority of disinterested
Trustees or by 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.

As of September ___, 1996. U.S. Trust and its affiliates held of record
substantially all of the outstanding shares in the Funds, but did not own such
shares beneficially because it did not have discretion to vote or invest such
shares. [CONFIRM AND SUPPLY DATE]

MISCELLANEOUS

As of September ___, 1996, the name, address and percentage ownership of each
person, in addition to U.S. Trust, that beneficially owned 5% or more of the
outstanding shares of a Fund were as follows: [ADD DATA ON 5% SHAREHOLDERS]

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS OF THE TRUST.

The audited financial statements and notes thereto in the Trust's Annual
Report to Shareholders for the fiscal year ended May 31, 1996 (the "1996 Annual
Report") are incorporated into 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 Ernst & Young 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

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<PAGE>

Annual Report may be obtained at no charge by telephoning the Distributor at the
telephone number appearing on the front page of this Statement of Additional
Information.

FINANCIAL STATEMENTS OF THE BOND INDEX PORTFOLIO.

The audited financial statements relating to the Bond Index Portfolio and
notes thereto in Federated Portfolios' Annual Report to Shareholders for the
fiscal year ended May 31, 1996 (the "1996 Federated Annual Report") are
incorporated into this Statement of Additional Information by reference. No
other parts of the 1996 Federated Annual Report are incorporated by reference
herein. The financial statements included in the 1996 Federated Annual Report
have been audited by Ernst & Young 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 Federated Annual Report may be
obtained at no charge by telephoning Federated Portfolios at (800) 245-4270.

Prior to December 18, 1995 (January 2, 1996 in the case of the Bond Index
Fund) each of the Funds invested substantially all of its investable assets in
the corresponding portfolio of the St. James Portfolios as follows:

<TABLE>
<CAPTION>
Portfolio of
------------
Fund St. James Portfolios
---- --------------------
<S> <C>

Excelsior Institutional Equity Fund Equity Portfolio
Excelsior Institutional Income Fund Income Portfolio
Excelsior Institutional Total Return Bond Fund Total Return Bond Portfolio
Excelsior Institutional Bond Index Fund Bond Market Portfolio
Excelsior Institutional Balanced Fund Balanced Portfolio
Excelsior Institutional Equity Growth Fund Equity Growth Portfolio
Excelsior Institutional International Equity Fund International Equity Portfolio
</TABLE>

Effective December 18, 1995, each of the Equity, Income, Total Return Bond,
Balanced, Equity Growth and International Equity Funds withdrew its interest in
the corresponding portfolio of the St. James Portfolios, receiving all of each
portfolio's securities, and substantially all of the other net assets of each
portfolio, as of that date. Each of those Funds now directly acquires and
manages its own portfolio of securities.

Effective January 2, 1996, the Bond Index Fund withdrew its interest in the
Bond Market Portfolio of St. James Portfolio, receiving all of that portfolio's
securities, and substantially all of its other net assets, as of that date, and
the Fund invested those securities and other net assets in the Bond Index
Portfolio, a series of Federated Investment Portfolios.

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<PAGE>

APPENDIX A
----------

COMMERCIAL PAPER RATINGS
- ------------------------

A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the rating categories used by Standard and
Poor's for commercial paper:

"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted "A-1+."

"A-2" - Issue's capacity for timely payment is satisfactory. However,
the relative degree of safety is not as high as for issues designated "A-1."

"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.

"B" - Issue has only a speculative capacity for timely payment.

"C" - Issue has a doubtful capacity for payment.

"D" - Issue is in payment default.

Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of 9 months. The following summarizes the rating categories used by
Moody's for commercial paper:

"Prime-1" - Issuer or related supporting institutions are considered to
have a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity.

"Prime-2" - Issuer or related supporting institutions are considered to
have a strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternative liquidity is
maintained.

"Prime-3" - Issuer or related supporting institutions have an acceptable
capacity for repayment of short-term promissory obligations. The effects of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.

A-1
<PAGE>

"Not Prime" - Issuer does not fall within any of the Prime rating
categories.

The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:

"D-1+" - Debt possesses highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.

"D-1" - Debt possesses very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection factors.
Risk factors are minor.

"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.

"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.

"D-3" - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.

"D-4" - Debt possesses speculative investment characteristics. Liquidity
is not sufficient to ensure against disruption in debt service. Operating
factors and market access may be subject to a high degree of variation.

"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.

Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years. The
following summarizes the rating categories used by Fitch for short-term
obligations:

"F-1+" - Securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.

"F-1" - Securities possess very strong credit quality. Issues assigned
this rating reflect an assurance of timely payment only slightly less in degree
than issues rated "F-1+."

"F-2" - Securities possess good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" categories.

"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.

A-2
<PAGE>

"F-S" - Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.

"D" - Securities are in actual or imminent payment default.

Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.

Thomson BankWatch short-term ratings assess the likelihood of an untimely
or incomplete payment of principal or interest of unsubordinated instruments
having a maturity of one year or less which is issued by United States
commercial banks, thrifts and non-bank banks; non-United States banks; and
broker-dealers. The following summarizes the ratings used by Thomson BankWatch:

"TBW-1" - This designation represents Thomson BankWatch's highest rating
category and indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.

"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."

"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.

"TBW-4" - This designation indicates that the debt is regarded as non-
investment grade and therefore speculative.

IBCA assesses the investment quality of unsecured debt with an original
maturity of less than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the rating
categories used by IBCA for short-term debt ratings:

"A1+" - Obligations which posses a particularly strong credit feature are
supported by the highest capacity for timely repayment.

"A1" - Obligations are supported by the highest capacity for timely
repayment.

"A2" - Obligations are supported by a satisfactory capacity for timely
repayment.

"A3" - Obligations are supported by a satisfactory capacity for timely
repayment.

"B" - Obligations for which there is an uncertainty as to the capacity to
ensure timely repayment.

A-3
<PAGE>

"C" - Obligations for which there is a high risk of default or which are
currently in default.

CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------

The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:

"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.

"AA" - Debt is considered to have a very strong capacity to pay interest
and repay principal and differs from AAA issues only in small degree.

"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.

"BBB" - Debt is regarded as having an adequate capacity to pay interest
and repay principal. Whereas such issues normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.

"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.

"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.

"B" - Debt has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.

"CCC" - Debt has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.

A-4
<PAGE>

"CC" - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.

"C" - This rating is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.

"CI" - This rating is reserved for income bonds on which no interest is
being paid.

"D" - Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes such payments
will be made during such grace period. "D" rating is also used upon the filing
of a bankruptcy petition if debt service payments are jeopardized.

PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.

"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.

The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:

"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.

"Aa" - Bonds are judged to be of high quality by all standards. Together
with the "Aaa" group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in "Aaa" securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in "Aaa" securities.

"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

"Baa" - Bonds considered medium-grade obligations, i.e., they are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.

A-5
<PAGE>

"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these ratings
provide questionable protection of interest and principal ("Ba" indicates some
speculative elements; "B" indicates a general lack of characteristics of
desirable investment; "Caa" represents a poor standing; "Ca" represents
obligations which are speculative in a high degree; and "C" represents the
lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in default.

Con. (---) - Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.

(P) ... - When applied to forward delivery bonds, indicates that the
rating is provisional pending delivery of the bonds. The rating may be raised
prior to delivery if changes occur in the legal documents or the underlying
credit quality of the bonds.

Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1 and B1.

The following summarizes the long-term debt ratings used by Duff & Phelps
for corporate and municipal long-term debt:

"AAA" - Debt is considered to be of the highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.

"AA" - Debt is considered of high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.

"A" - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.

"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.

"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.

To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.

A-6
<PAGE>

The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:

"AAA" - Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.

"AA" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1+."

"A" - Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.

To provide more detailed indications of credit quality, the Fitch ratings
from and including "AA" to "BBB" may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within these major rating
categories.

IBCA assesses the investment quality of unsecured debt with an original
maturity of more than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the rating
categories used by IBCA for long-term debt ratings:

"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.

"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions may increase investment risk albeit not very significantly.

"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.

"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in

A-7
<PAGE>

business, economic or financial conditions are more likely to lead to increased
investment risk than for obligations in higher categories.

"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of these
ratings where it is considered that speculative characteristics are present.
"BB" represents the lowest degree of speculation and indicates a possibility of
investment risk developing. "C" represents the highest degree of speculation
and indicates that the obligations are currently in default.

IBCA may append a rating of plus (+) or minus (-) to a rating to denote
relative status within major rating categories.

Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:

"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.

"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.

"A" - This designation indicates that the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.

"BBB" - This designation represents Thomson BankWatch's lowest investment
grade category and indicates an acceptable capacity to repay principal and
interest. Issues rated "BBB" are, however, more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.

"BB," "B," "CCC," and "CC," - These designations are assigned by Thomson
BankWatch to non-investment grade long-term debt. Such issues are regarded as
having speculative characteristics regarding the likelihood of timely payment of
principal and interest. "BB" indicates the lowest degree of speculation and
"CC" the highest degree of speculation.

"D" - This designation indicates that the long-term debt is in default.

PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may include a
plus or minus sign designation which indicates where within the respective
category the issue is placed.

MUNICIPAL NOTE RATINGS
- ----------------------

A-8
<PAGE>

A Standard and Poor's rating reflects the liquidity concerns and market
access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:

"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.

"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.

"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.

Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:

"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.

"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.

"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.

"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.

"SG" - Loans bearing this designation are of speculative quality and lack
margins of protection.

Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.

A-9
<PAGE>

PART C

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.

(a) Financial Statements:

(1) Included in Part A of the Registration Statement are the following
tables:

(i) Audited financial highlights for the Equity, Income, Total Return
Bond, Bond Index, Balanced, Equity Growth and International
Equity Funds for the fiscal years ended May 31, 1996 and May 31,
1995.

(2) Incorporated by reference into Part B of the Registration Statement
are the following audited financial statements:

(i) With respect to the Equity, Income, Total Return Bond, Balanced,
Equity Growth and International Equity Funds:

Schedule of Investments - May 31, 1996;

Statement of Operations for the Year ended May 31, 1996;

Statement of Assets and Liabilities - May 31, 1996;

Statement of Changes in Net Assets for the Year ended May 31,
1996;

Report of Ernst & Young LLP, Independent Auditors, for the
Fiscal Year Ended May 31, 1996;

Notes to Financial Statements.

(ii) With respect to the Bond Index Fund:

Statement of Assets and Liabilities - May 31, 1996;

Statement of Operations for the Year Ended May 31, 1996;

Statement of Changes in Net Assets for the Year Ended May 31,
1996;

Report of Ernst & Young LLP, Independent Auditors, for the
Fiscal Year Ended May 31, 1996;
<PAGE>

Notes to Financial Statements.

(iii) With respect to the Bond Index Portfolio of Federated
Investment Portfolios:

Portfolio of Investments - May 31, 1996;

Statement of Assets and Liabilities for the Fiscal Year Ended
May 31, 1996;

Statement of Operations for the Fiscal Year Ended May 31, 1996;

Statement of Changes in Net Assets for the Fiscal Year Ended
May 31, 1996;

Report of Ernst & Young LLP, Independent Auditors, for the
Fiscal Year Ended May 31, 1996;

Notes to Financial Statements.

(b) Exhibits:

1. Trust Instrument of the Registrant. 5

1(a). Amended and Restated Schedule A to Trust
Instrument of the Registrant. 5

2. By-Laws of the Registrant. 5

5(a). Investment Advisory Agreement dated
November 15, 1995 between the Registrant
and United States Trust Company of New York
with respect to the Equity, Income and
Total Return Bond Funds. 10

5(b). Investment Advisory Agreement dated
November 15, 1995 between the Registrant
and United States Trust Company of The
Pacific Northwest with respect to the
Balanced, Equity Growth and International
Equity Funds. 10

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<PAGE>

5(c). Form of Investment Advisory Agreement between
the Registrant and United States Trust Company
of New York with respect to the Optimum Growth
and Value Equity Funds. 8

5(d). Investment Sub-Advisory Agreement dated
November 15, 1995 between United States
Trust Company of The Pacific Northwest
and Luther King Capital Management
Corporation with respect to the Equity
Growth Fund. 10

5(e). Investment Sub-Advisory Agreement dated
November 15, 1995 between United States
Trust Company of The Pacific Northwest and
Harding, Loevner Management, L.P. with
respect to the International Equity Fund. 10

5(f). Investment Sub-Advisory Agreement dated
November 15, 1995 between United States Trust
Company of The Pacific Northwest and Becker
Capital Management, Inc. with respect to
the Balanced Fund. 10

6(a). Distribution Agreement dated August 1, 1995
between the Registrant and Edgewood Services, Inc. 6

6(b). Schedule I to Distribution Agreement between
the Registrant and Edgewood Services, Inc. 10

8(a). Form of Custodian Agreement dated
December 18, 1995 between the Registrant
and The Chase Manhattan Bank, N.A. 8

8(b). Form of Exhibit A to the Custodian
Agreement dated December 18, 1995 between the
Registrant and The Chase Manhattan Bank, N.A. 10

9(a). Form of Administration Agreement dated
February 9, 1996 among the Registrant
and United States Trust Company of
New York, Chase Global Funds Services Company
and Federated Administrative Services. 7

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<PAGE>

9(b). Form of Fund Accounting and Servicing Agreement
dated February 2, 1996 between the Registrant and
Federated Services Company. 8

9(c). Mutual Funds Transfer Agency Agreement dated June 22, 1994
between the Registrant and Chase Global Funds
Services Company. 0

9(d). Form of Schedule B dated February 9, 1996 to the
Mutual Funds Transfer Agency Agreement dated
June 22, 1994 between the Registrant and Chase
Global Funds Services Company. 0

9(e). Administrative Services Plan and Related Form
of Shareholder Servicing Agreement. 8

10. Opinion of Counsel./1/

11(a). Consent of Counsel. 10

11(b). Consent of Ernst & Young LLP. 10

13(a). Investor Representation Letter of Initial
Shareholder. 2

13(b). Purchase Agreement between the Registrant and
Edgewood Services, Inc. dated May 1, 1996
relating to shares of the Optimum Growth and
Value Equity Funds. 10

15. Distribution Plan and Form of Distribution Agreement. 8

16. Schedule for Computation of Performance Quotations. 2

18. Plan Pursuant to Rule 18f-3 for Operation of a Multi-Class
System. 9

24(a). Registrant's Annual Report dated May 31, 1996 is
incorporated herein by reference to Registrant's filing
including such Annual Report and filed on August 9,
1996 (Accession No. 0000950116-96-000767).

- ---------------
/1/Filed on July 29, 1996 under Rule 24f-2 as part of Registrant's Rule 24f-2
Notice.

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<PAGE>

24(b). Annual Report for Federated Investment Portfolios
(File No. 811-07461) dated May 31, 1996 with respect to
the Bond Index Portfolio is incorporated herein by
reference to Federated Investment Portfolios' filing
including such Annual Report and filed on September 11,
1996 (Accession No. 0001001525-96-000007).

1 Incorporated herein by reference from the Registrant's Registration
Statement on Form N-1A (File Nos. 33-78264 and 811-8490) (the "Registration
Statement"), as filed with the Securities and Exchange Commission (the "SEC") on
April 28, 1994.

2 Incorporated herein by reference from Pre-Effective Amendment No. 2 to
the Registration Statement, as filed with the SEC on June 22, 1994.

3 Incorporated herein by reference from Post-Effective Amendment No. 1 to
the Registration Statement, as filed with the SEC on July 13, 1994.

4 Incorporated herein by reference from Post-Effective Amendment No. 2 to
the Registration Statement, as filed with the SEC on September 28, 1994.

5 Incorporated herein by reference from Post-Effective Amendment No. 3 to
the Registration Statement, as filed with the SEC on June 13, 1995.

6 Incorporated herein by reference from Post-Effective Amendment No. 4 to
the Registration Statement, as filed with the SEC on October 2, 1995.

7 Incorporated herein by reference from Post-Effective Amendment No. 5 to
the Registration Statement, as filed with the SEC on December 19, 1995.

8 Incorporated herein by reference from Post-Effective Amendment No. 7 to
the Registration Statement, as filed with the SEC on February 23, 1996.

9 Incorporated herein by reference from Post-Effective Amendment No. 10 to
the Registration Statement, as filed with the SEC on May 7, 1996.

10 Filed herewith.

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

Registrant is controlled by its Board of Trustees.

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<PAGE>

ITEM 26. NUMBER OF HOLDERS OF SECURITIES.

Shares of Beneficial Interest (par value $.00001).

The following information is as of September 26, 1996:

Title of Class: Number of Record Holders

Excelsior Institutional Equity Fund: 115
Excelsior Institutional Income Fund: 25
Excelsior Institutional Total Return Bond Fund: 140
Excelsior Institutional Bond Index Fund: 37
Excelsior Institutional Balanced Fund: 110
Excelsior Institutional Equity Growth Fund: 65
Excelsior Institutional International Equity Fund: 128
Excelsior Institutional Value Equity Fund: 1
Excelsior Institutional Optimum Growth Fund: 7

ITEM 27. INDEMNIFICATION.

Reference is hereby made to Article IX of the Registrant's Trust Instrument,
filed as an exhibit to this Registration Statement.

Indemnification of Registrant's principal underwriter against certain losses
is provided for in Section IV of the Distribution Agreement filed herein as
Exhibit 6. Limitations on the liability of the investment advisers to the
Registrant are provided for in Section 9 of the Investment Advisory Agreements
filed herein as Exhibits 5(a), 5(b) and 5(c). Indemnification of Registrant's
sub-advisers against certain losses is provided for in Section 9 of the
Investment Sub-Advisory Agreements filed herein as Exhibits 5(d), 5(e) and 5(f).

The trustees and officers of the Registrant and the personnel of the
Registrant's administrator are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940,
as amended (the "1940 Act").

Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "1933 Act"), may be permitted to directors, trustees,
officers and controlling persons of the Registrant and the principal underwriter
pursuant to the foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, trustee,
officer, or controlling person of the Registrant and the principal underwriter
in connection with the successful defense of any action, suite or proceeding) is
asserted against the

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<PAGE>

Registrant by such director, trustee, officer or controlling person or principal
underwriter in connection with the shares being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS.

(a) United States Trust Company of New York

United States Trust Company of New York ("U.S. Trust") is a full-service
state-chartered bank located in New York, New York. The name, position with U.S.
Trust, address, principal occupation and type of business are set forth below
for the trustees and certain senior executive officers of U.S. Trust, including
those who are engaged in any other business, profession, vocation, or employment
of a substantial nature.

Position
with U.S. Principal Type of
Trust Name Occupation Business
- --------- ---- ----------- --------

Director Eleanor Baum Dean of School Academic
Cooper Union for the of Engineering
Advancement of Science
and Art
51 Astor Place
New York, NY 10003

Director Samuel C. Butler Partner in Cravath, Law Firm
Cravath, Swaine Swaine & Moore
& Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019

Director Peter O. Crisp Chairman Venture
Venrock Inc. Capital
Room 5600
30 Rockefeller Plaza
New York, NY 10112

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<PAGE>

Position
with U.S. Principal Type of
Trust Name Occupation Business
- --------- ---- ----------- --------

Director Antonia M. Grumbach Partner in Patter- Law Firm
Patterson, Belknap, son, Belknap, Webb
Webb & Tyler & Tyler
1133 Avenue of the
Americas
New York, NY 10036

Director, H. Marshall Schwarz Chairman of the Bank
Chairman of United States Trust Board & Chief Exe-
the Board Co. of New York cutive Officer of
and Chief 114 West 47th Street U.S. Trust Corp. and
Executive New York, NY 10036 U.S. Trust Company of
Officer N.Y.

Director Philippe de Montebello Director of the Art Museum
Metropolitan Museum of Metropolitan
Art Museum of Art
1000 Fifth Avenue
New York, NY 10028-0198

Director Paul W. Douglas Retired Executive Coal Mining,
250 Park Avenue Transportation
Room 1900 and Security
New York, NY 10117 Services

Director Frederic C. Hamilton Chairman of the Investment and
The Hamilton Companies Board Venture
1560 Broadway Capital
Suite 2000
Denver, CO 80202

Director John H. Stookey
Landmark Volunteers
749 A Main Street
Route 7, Box 455
Sheffield, MA 01257

-8-
<PAGE>

Position
with U.S. Principal Type of
Trust Name Occupation Business
- --------- ---- ----------- --------

Director Robert N. Wilson Vice Chairman of Health Care
Johnson & Johnson the Board of Products
One Johnson & Johnson & Johnson
Johnson Plaza
New Brunswick, NJ 08933

Director Peter L. Malkin Chairman of Wein, Law Firm
Wein, Malkin & Bettex Malkin & Bettex
Lincoln Building
60 East 42nd Street
New York, NY 10165

Director Richard F. Tucker Retired-Mobil Petroleum and
11 Over Rock Lane Oil Corporation Chemicals
Westport, CT 06880

Director Carroll L. Wainright, Consulting Partner Law Firm
Jr. of Milbank, Tweed,
Milbank, Tweed, Hadley Hadley & McCloy
& McCloy
One Chase Manhattan Plaza
New York, NY 10005

Director Ruth A. Wooden President and Not for
The Advertising CEO Profit Public
Council, Inc. Service
261 Madison Avenue Advertising
11th Floor
New York, NY 10016

Trustee/ Frederick B. Taylor Vice Chairman and Bank
Director, United States Trust Chief Investment
Vice Chair- Company of New York Officer of U.S. Trust
man and 114 West 47th Street Corporation and United
Chief Invest- New York, NY 10036 States Trust Company
ment Officer of New York

-9-
<PAGE>

Position
with U.S. Principal Type of
Trust Name Occupation Business
- --------- ---- ----------- --------

Trustee/ Jeffrey S. Maurer President of U.S. Bank
Director and United States Trust Trust Corporation
President Company of New York and United States
114 West 47th Street Trust Company of
New York, NY 10036 New York

Trustee/ Daniel P. Davison Chairman, Christie, Fine Art
Director Christie, Manson Manson & Woods Auctioneer
& Woods International, International, Inc.
Inc.
502 Park Avenue
New York, NY 10021

Trustee/ Orson D. Munn Chairman and Investment
Director Munn, Bernhard & Director of Munn, Advisory
Associates, Inc. Bernhard & Asso- Firm
6 East 43rd Street ciates, Inc.
28th Floor
New York, NY 10017

Trustee/ Philip L. Smith Corporate Director
Director P.O. Box 386 and Trustee
Ponte Verde Beach,
FL 32004

(b) United States Trust Company of The Pacific Northwest

United States Trust Company of The Pacific Northwest ("U.S. Trust
Northwest") is a subsidiary of United States Trust Company of New York located
in Portland, Oregon. The name, position with U.S. Trust Northwest, address,
principal occupation and type of business are set forth below for the trustees
and certain senior executive officers of U.S. Trust Northwest including those
who are engaged in any other business, profession, vocation, or employment of a
substantial nature.

RALPH C. RITTENOUR, JR. -- Trustee/Director; United States Trust
Company of the Pacific Northwest, 4380 SW Macadam Avenue, Suite 450, Portland,
OR 97201; Chairman and Chief Executive Officer of United States Trust Company of
the Pacific Northwest (bank).

CHARLES J. SWINDELLS -- Trustee/Director; United States Trust Company
of the Pacific Northwest, 4380 SW Macadam Avenue, Suite 450, Portland, OR 97201;
President of United States Trust Company of the Pacific Northwest (bank).

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<PAGE>

NANCY L. JACOB, PH.D. -- Trustee/Director; United States Trust Company
of the Pacific Northwest, 4380 SW Macadam Avenue, Suite 450, Portland, OR 97201;
Executive Vice President of United States Trust of the Pacific Northwest (bank).

RICHARD ACKERMAN -- Trustee/Director; United States Trust Company of
the Pacific Northwest, 4380 SW Macadam Avenue, Suite 450, Portland, OR 97201;
Chief Administrative Officer and Senior Vice President of United States Trust
Company of the Pacific Northwest (bank).

STEPHEN BRINK -- Trustee/Director; United States Trust Company of the
Pacific Northwest, 4380 SW Macadam Avenue, Suite 450, Portland, OR 97201 ;
Senior Vice President and Chief Investment Officer of United States Trust
Company of the Pacific Northwest (bank).

MARCIA BENNETT -- Trustee/Director; United States Trust Company of the
Pacific Northwest, 4380 SW Macadam Avenue, Suite 450, Portland, OR 97201; Senior
Vice President, Trust Officer and Operations Officer of United States Trust
Company of the Pacific Northwest (bank).

MARV VUKOVICH -- Trustee/Director; United States Trust Company of the
Pacific Northwest, 4380 SW Macadam Avenue, Suite 450, Portland, OR 97201; Vice
President and Chief Financial Officer of United States Trust Company of the
Pacific Northwest (bank).

CAROL HIBBS -- Trustee/Director; Tonkon Torp, Galen, Marmaduke &
Booth, 1600 Pioneer Tower, 888 SW Fifth Avenue, Portland, OR 97204; Attorney at
Tonkon Torp, Galen, Marmaduke & Booth (law firm).

Becker Capital Management, Inc. ("Becker") is a registered Investment
Adviser located in Portland, Oregon. The name, position with Becker, address,
principal occupation and type of business are set forth below for the trustees
and certain senior executive officers of Becker, including those who are engaged
in any other business, profession, vocation, or employment of a substantial
nature.

PATRICK E. BECKER -- Director; Chairman and Chief Investment Officer;
Becker Capital Management, Inc., 1211 SW Fifth Avenue, Suite 2185, Portland, OR
97204; Chairman and Chief Investment Officer of Becker Capital Management, Inc.
(investment advisory).

JANEEN S. MCANINCH -- Director; President; Becker Capital Management,
Inc., 1211 SW Fifth Avenue, Suite 2185, Portland, OR 97204; President of Becker
Capital Management, Inc. (investment advisory).

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<PAGE>

MICHAEL C. MALONE -- Vice President - Marketing; Becker Capital
Management, Inc., 1211 SW Fifth Avenue, Suite 2185, Portland, OR 97204 ; Vice
President - Marketing of Becker Capital Management, Inc. (investment advisory).

DONALD L. WOLCOTT -- Vice President - Equity Portfolio Manager; Becker
Capital Management, Inc., 1211 SW Fifth Avenue, Suite 2185, Portland, OR 97204;
Vice President -Equity Portfolio Manager of Becker Capital Management, Inc.
(investment advisory).

ROBERT N. SCHAEFFER -- Director; Vice President - Equity Portfolio
Manager; Becker Capital Management, Inc., 1211 SW Fifth Avenue, Suite 2185,
Portland, OR 97204; Vice President - Equity Portfolio Manager of Becker Capital
Management, Inc. (investment advisory).

MICHAEL F. MCCOY -- Vice President - Quantitative Research; Becker
Capital Management, Inc., 1211 SW Fifth Avenue, Suite 2185, Portland, OR 97204;
Vice President --Quantitative Research of Becker Capital Management, Inc.
(investment advisory).

WARREN HASTINGS III -- Vice President - Fixed Income; Becker Capital
Management, Inc., 1211 SW Fifth Avenue, Suite 2185, Portland, OR 97204; Vice
President --Fixed Income of Becker Capital Management, Inc. (investment
advisory).

(d) Harding, Loevner Management, L.P.

Harding, Loevner Management, L.P. ("Harding Loevner") is a registered
Investment Advisor located in Somerville, New Jersey. The name, position with
Harding Loevner, address, principal occupation and type of business are set
forth below for the trustees and certain senior executive officers of Harding
Loevner, including those who are engaged in any other business, profession,
vocation, or employment of a substantial nature.

DANIEL D. HARDING -- Director/Chief Investment Officer; Harding,
Loevner Management, L.P., 50 Division Street, Suite 401, Somerville, NJ 08876;
Chief Investment Officer of Harding, Loevner Management, L.P. (investment
advisory).

DAVID R. LOEVNER -- Director/Chief Executive Officer; Harding, Loevner
Management, L.P., 50 Division Street, Suite 401, Somerville, NJ 08876; Chief
Executive Officer of Harding, Loevner Management, L.P. (investment advisory).

SIMON HALLETT -- Director/Senior Portfolio Manager; Harding, Loevner
Management, L.P., 50 Division Street, Suite 401, Somerville, NJ 08876; Senior
Portfolio Investment Manager of Harding, Loevner Management, L.P. (investment
advisory).

(e) Luther King Capital Management

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<PAGE>

Luther King Capital Management ("Luther King") is a registered
Investment Advisor located in Fort Worth, Texas. The name, position with Luther
King, address, principal occupation and type of business are set forth below for
the trustees and certain senior executive officers of Luther King, including
those who are engaged in any other business, profession, vocation, or employment
of a substantial nature.

J. LUTHER KING, JR. -- President; Luther King Capital Management, 301
Commerce Street, Suite 1600, Ft. Worth, TX 76102; Chief Investment Officer of
Luther King Capital Management (investment advisory).

EMMETT M. MURPHY -- Vice President/Principal; Luther King Capital
Management, 301 Commerce Street, Suite 1600, Ft. Worth, TX 76102; Portfolio
Manager of Luther King Capital Management (investment advisory).

PAUL W. GREENWELL -- Vice President/Principal; Luther King Capital
Management, 301 Commerce Street, Suite 1600, Ft. Worth, TX 76102; Portfolio
Manager of Luther King Capital Management (investment advisory).

ROBERT M. HOLT, JR. -- Vice President/Principal; Luther King Capital
Management, 301 Commerce Street, Suite 1600, Ft. Worth, TX 76102; Portfolio
Manager of Luther King Capital Management (investment advisory).

SCOT C. HOLLMANN -- Vice President/Principal; Luther King Capital
Management, 301 Commerce Street, Suite 1600, Ft. Worth, TX 76102; Portfolio
Manager of Luther King Capital Management (investment advisory).

DAVID L. DOWLER -- Vice President/Principal; Luther King Capital
Management, 301 Commerce Street, Suite 1600, Ft. Worth, TX 76102; Portfolio
Manager of Luther King Capital Management (investment advisory).

BARBARA S. GARCIA -- Treasurer/Principal; Luther King Capital
Management, 301 Commerce Street, Suite 1600, Ft. Worth, TX 76102; Officer
Manager of Luther King Capital Management (investment advisory).

ITEM 29. PRINCIPAL UNDERWRITERS.

(a) Edgewood Services, Inc. (the "Distributor") currently serves as
distributor for Registrant and acts as principal underwriter or distributor for
Excelsior Funds, Inc. and Excelsior Tax-Exempt Funds, Inc.

-13-
<PAGE>

(b) Names and Principal Positions and Offices with Offices with
Business Addresses Edgewood Services, Inc. Registrant
--------------------- ------------------------------ -------------

James J. Dolan Trustee and President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779

R. Jeffrey Niss Senior Vice President and --
Federated Investors Tower Trustee,
Pittsburgh, PA 15222-3779 Edgewood Services, Inc.

Douglas L. Hein Trustee, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779

Frank E. Polefrone Trustee, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779

Newton Heston, III Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779

Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779

S. Elliott Cohan Secretary, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779

Jeannette Fisher-Garber Assistant Secretary, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779

Kenneth W. Pegher, Jr. Treasurer, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779

-14-
<PAGE>

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.

All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder will be maintained at the
offices of:

(1) UNITED STATES TRUST COMPANY OF NEW YORK, 114 West 47th Street, New York,
New York 10036 (records relating to its function as investment adviser and
co-administrator).

(2) UNITED STATES TRUST COMPANY OF THE PACIFIC NORTHWEST, 4380 S.W. Macadam
Avenue, Suite 450, Portland, Oregon 97201 (records relating to its function
as investment adviser).

(3) BECKER CAPITAL MANAGEMENT, INC., 2185 PacWest Center, Portland, Oregon
97204 (records relating to its function as investment sub-adviser).

(4) LUTHER KING CAPITAL MANAGEMENT, INC., 301 Commerce Street, Suite 1600, Fort
Worth, Texas 76102 (records relating to its function as investment sub-
adviser).

(5) HARDING, LOEVNER MANAGEMENT, L.P., 50 Division Street, Suite 401,
Somerville, New Jersey 08876 (records relating to its function as
investment sub-adviser).

(6) EDGEWOOD SERVICES, INC., Clearing Operations, P.O. Box 897, Pittsburgh, PA
15230-0897 (records relating to its function as distributor).

(7) FEDERATED ADMINISTRATIVE SERVICES, Federated Investors Tower, Pittsburgh,
PA 15222-3779 (records relating to its function as co-administrator).

(8) CHASE GLOBAL FUNDS SERVICES COMPANY, 73 Tremont Street, Boston, MA 02108-
3913; (records relating to its functions as co-administrator and transfer
agent).

(9) THE CHASE MANHATTAN BANK, N.A., 770 Broadway, New York, New York 10003
(records relating to its function as custodian).

(10) STATE STREET BANK & TRUST COMPANY, P.O. Box 8600, Boston, Massachusetts
02266-8600 (custodian of Bond Index Portfolio of Federated Investment
Portfolios).

(11) DRINKER BIDDLE & REATH, Philadelphia National Bank Building, 1345 Chestnut
Street, Philadelphia, Pennsylvania 19107-3496 (Registrant's Articles of
Incorporation, Bylaws, and Minute Books).

-15-
<PAGE>

ITEM 31. MANAGEMENT SERVICES.

Inapplicable.

ITEM 32. UNDERTAKINGS.

Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest available Annual Report to
Shareholders which includes Management's Discussion of Registrant's performance,
upon request and without charge.

-16-
<PAGE>

SIGNATURES
----------

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Excelsior Institutional Trust certifies that it
meets all of the requirements for effectiveness for this Post-Effective
Amendment No. 11 to its Registration Statement ("Amendment No. 11") pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment
No. 11 to its Registration Statement on Form N-1A to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Philadelphia and the
Commonwealth of Pennsylvania, on the 30th day of September, 1996.

EXCELSIOR INSTITUTIONAL TRUST
Registrant

*/s/ Alfred Tannachion
----------------------------
Alfred Tannachion, President
(Signature and Title)

Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 11 to Excelsior Institutional Trust's Registration
Statement on Form N-1A has been signed below by the following persons in the
capacities and on the dates indicated.

Signature Title Date
--------- ----- ----

*/s/ Alfred Tannachion
- ------------------------
Alfred Tannachion Chairman of the September 30, 1996
Board, President
and Treasurer

*/s/ Joseph H. Dugan
- -------------------------
Joseph H. Dugan Trustee September 30, 1996

*/s/ Donald L. Campbell
- -------------------------
Donald L. Campbell Trustee September 30, 1996

*/s/ Wolfe J. Frankl
- -------------------------
Wolfe J. Frankl Trustee September 30, 1996

*/s/ Robert A. Robinson
- -------------------------
Robert A. Robinson Trustee September 30, 1996

*/s/ Frederick S. Wonham
- -------------------------
Frederick S. Wonham Trustee September 30, 1996

*/s/ Rodman L. Drake
- -------------------------
Rodman L. Drake Trustee September 30, 1996

*/s/ W. Wallace McDowell
- -------------------------
W. Wallace McDowell Trustee September 30, 1996

*/s/ Jonathan Piel
- -------------------------
Jonathan Piel Trustee September 30, 1996

*By: /s/ W. Bruce McConnel, III
---------------------------
W. Bruce McConnel, III
Attorney-in-Fact

-17-
<PAGE>

EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST

POWER OF ATTORNEY
-----------------

KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints W.
Bruce McConnel, III, and his true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for him and in his name, place
and stead, in his capacity as director/trustee or officer, or both, to execute
amendments to Excelsior Funds, Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s and
Excelsior Institutional Trust's (collectively, the "Companies") respective
Registration Statements on Form N-1A pursuant to the Investment Company Act of
1940, as amended, and the Securities Act of 1933, as amended (the "Acts") and
all instruments necessary or incidental in connection therewith pursuant to said
Acts and any rules, regulations, or requirements of the Securities and Exchange
Commission in respect thereof, and to file the same with the Securities and
Exchange Commission, and said attorney shall have full power and authority, to
do and perform in the name and on behalf of the undersigned in any and all
capacities, every act whatsoever requisite or necessary to be done, as fully and
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney may lawfully do or cause to be done by
virtue hereof.

Dated: July 26, 1996 /s/ Alfred C. Tannachion
--------------------------
Alfred C. Tannachion
<PAGE>

EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST

POWER OF ATTORNEY
-----------------

KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Alfred Tannachion and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s and Excelsior Institutional Trust's
(collectively, the "Companies") respective Registration Statements on Form N-1A
pursuant to the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended (the "Acts") and all instruments necessary or incidental
in connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that either
of said attorneys may lawfully do or cause to be done by virtue hereof.

Dated: July 26, 1996 /s/ Donald L. Campbell
------------------------
Donald L. Campbell
<PAGE>

EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST

POWER OF ATTORNEY
-----------------

Dated: July 26, 1996 /s/ Joseph H. Dugan
---------------------
Joseph H. Dugan
<PAGE>

EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST

POWER OF ATTORNEY
-----------------

Dated: July 26, 1996 /s/ Robert A. Robinson
------------------------
Robert A. Robinson
<PAGE>

EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST

POWER OF ATTORNEY
-----------------

Dated: July 26, 1996 /s/ Wolfe J. Frankl
---------------------
Wolfe J. Frankl
<PAGE>

EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST
EXCELSIOR FUNDS

POWER OF ATTORNEY
-----------------

KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints W.
Bruce McConnel, III his true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution, for him and in his name, place and
stead, in his capacity as director/trustee or officer, or both, to execute
amendments to Excelsior Funds, Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s,
Excelsior Institutional Trust's and Excelsior Funds' (collectively, the
"Companies") respective Registration Statements on Form N-1A pursuant to the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended (the "Acts") and all instruments necessary or incidental in connection
therewith pursuant to said Acts and any rules, regulations, or requirements of
the Securities and Exchange Commission in respect thereof, and to file the same
with the Securities and Exchange Commission, and said attorney shall have full
power and authority, to do and perform in the name and on behalf of the
undersigned in any and all capacities, every act whatsoever requisite or
necessary to be done, as fully and to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorney may
lawfully do or cause to be done by virtue hereof.

Dated: July 26, 1996 /s/ Frederick S. Wonham
-------------------------
Frederick S. Wonham
<PAGE>

EXCELSIOR INSTITUTIONAL TRUST
EXCELSIOR FUNDS

POWER OF ATTORNEY
-----------------

KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, to execute amendments to Excelsior Institutional
Trust's and Excelsior Funds' (collectively, the "Companies") respective
Registration Statements on Form N-1A pursuant to the Investment Company Act of
1940, as amended, and the Securities Act of 1933, as amended (the "Acts") and
all instruments necessary or incidental in connection therewith pursuant to said
Acts and any rules, regulations, or requirements of the Securities and Exchange
Commission in respect thereof, and to file the same with the Securities and
Exchange Commission, and either of said attorneys shall have full power and
authority, to do and perform in the name and on behalf of the undersigned in any
and all capacities, every act whatsoever requisite or necessary to be done, as
fully and to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that either of said attorneys may lawfully do or
cause to be done by virtue hereof.

Dated: July 26, 1996 /s/ Rodman L. Drake
---------------------
Rodman L. Drake
<PAGE>

EXCELSIOR INSTITUTIONAL TRUST
EXCELSIOR FUNDS

POWER OF ATTORNEY
-----------------

Dated: July 26, 1996 /s/ W. Wallace McDowell
-------------------------
W. Wallace McDowell
<PAGE>

EXCELSIOR INSTITUTIONAL TRUST
EXCELSIOR FUNDS

POWER OF ATTORNEY
-----------------

Dated: July 26, 1996 /s/ Jonathan Piel
-------------------
Jonathan Piel
<PAGE>

SIGNATURES

As it relates to the Bond Index Fund only, Federated Investment
Portfolios consents to the filing of this Amendment to the Registration
Statement of Excelsior Institutional Trust which is signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Pittsburgh and the
Commonwealth of Pennsylvania on this 30th day of September, 1996.

FEDERATED INVESTMENT PORTFOLIOS

*/Victor R. Siclari
------------------------------------
Victor R. Siclari, Assistant Secretary and
Attorney-in-Fact for John F. Donahue,
Chairman and Chief Executive Officer

The undersigned Trustees and Principal Officers of Federated
Investment Portfolios consent to the filing of this Amendment to the
Registration Statement of Excelsior Institutional Trust as it relates to the
Bond Index Fund only, on the dates indicated.

Signature Title Date
- --------- ----- -----

*/John F. Donahue Chairman, Chief Executive
- --------------------------- Officer and September 30, 1996

John F. Donahue Trustee

*/J. Christopher Donahue President and Trustee September 30, 1996
- ---------------------------
J. Christopher Donahue

*/John W. McGonigle Executive Vice President,
Secretary, September 30, 1996
- ---------------------------
John W. McGonigle Treasurer (Principal
Financial and
Accounting Officer)

*/Thomas G. Bigley Trustee September 30, 1996
- ---------------------------
Thomas G. Bigley

*/John T. Conroy, Jr. Trustee September 30, 1996
- ---------------------------
John T. Conroy, Jr.

*/William J. Copeland Trustee September 30, 1996
- ---------------------------
William J. Copeland

*/James E. Dowd Trustee September 30, 1996
- ---------------------------
James E. Dowd

*/Lawrence D. Ellis, M.D. Trustee September 30, 1996
- ---------------------------
Lawrence D. Ellis, M.D.

*/Edward L. Flaherty, Jr. Trustee September 30, 1996
- ---------------------------
Edward L. Flaherty, Jr.

*/Peter E. Madden Trustee September 30, 1996
- ---------------------------
Peter E. Madden

*/Gregor F. Meyer Trustee September 30, 1996
- ---------------------------
Gregor F. Meyer

*/John E. Murray, Jr. Trustee September 30, 1996
- ---------------------------
John E. Murray, Jr.

*/Wesley W. Posvar Trustee September 30, 1996
- ---------------------------
Wesley W. Posvar

*/Marjorie P. Smuts Trustee September 30, 1996
- ---------------------------
Marjorie P. Smuts

*By: /s/ Victor R. Siclari
-----------------------
Victor R. Siclari
Attorney-in-fact
<PAGE>

POWER OF ATTORNEY

Each person whose signature appears below hereby constitutes and
appoints the Secretary and Assistant Secretary of FEDERATED INVESTMENT
PORTFOLIOS and the Deputy General Counsel of Federated Services Company, and
each of them, their true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for them and in their names, place and
stead, in any and all capacities, to sign any and all documents to be filed with
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940, by
means of the Securities and Exchange Commission's electronic disclosure system
know as EDGAR; and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to sign and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.

SIGNATURES TITLE DATE
- ---------- ----- ----

/s/ Chairman and Trustee June 6, 1996
- ------------------------ (Chief Executive Officer
John F. Donahue

/s/ President and Trustee June 6, 1996
- ------------------------
J. Christopher Donahue

/s/ Treasurer and Executive June 6, 1996
- ------------------------ Vice President
John W. McGonigle (Principal Financial and
Accounting Officer)

/s/ Trustee June 6, 1996
- ------------------------
Thomas G. Bigley

/s/ Trustee June 6, 1996
- ------------------------
John T. Conroy, Jr.

/s/ Trustee June 6, 1996
- ------------------------
William J. Copeland
<PAGE>

SIGNATURES TITLE DATE
- ---------- ----- ----

/s/ Trustee June 6, 1996
- ----------------------------
James E. Dowd

/s/ Trustee June 6, 1996
- ----------------------------
Lawrence D. Ellis, M.D.

/s/ Trustee June 6, 1996
- ----------------------------
Edward L. Flaherty, Jr.

/s/ Trustee June 6, 1996
- ----------------------------
Peter E. Madden

/s/ Trustee June 6, 1996
- ----------------------------
Gregor F. Meyer

/s/ Trustee June 6, 1996
- ----------------------------
John E. Murray, Jr.

/s/ Trustee June 6, 1996
- ----------------------------
Wesley W. Posvar

/s/ Trustee June 6, 1996
- ----------------------------
Marjorie P. Smuts

Sworn to and subscribed before me this 6th day of June, 1996.

(NOTARY SEAL)
<PAGE>

EXHIBIT INDEX

Exhibit
No. Description of Exhibit

5(a). Investment Advisory Agreement dated November 15, 1995 between the
Registrant and United States Trust Company of New York with respect
to the Equity, Income and Total Return Bond Funds.

5(b). Investment Advisory Agreement dated November 15, 1995 between the
Registrant and United States Trust Company of The Pacific Northwest
with respect to the Balanced, Equity Growth and International Equity
Funds.

5(d). Investment Sub-Advisory Agreement dated November 15, 1995 between
United States Trust Company of The Pacific Northwest and Luther King
Capital Management Corporation with respect to the Equity Growth
Fund.

5(e). Investment Sub-Advisory Agreement dated November 15, 1995 between
United States Trust Company of The Pacific Northwest and Harding,
Loevner Management, L.P. with respect to the International Equity
Fund.

5(f). Investment Sub-Advisory Agreement dated November 15, 1995 between
United States Trust Company of The Pacific Northwest and Becker
Capital Management, Inc with respect to the Balanced Fund.

6(b). Schedule I to Distribution Agreement between the Registrant and
Edgewood Services, Inc.

8(b). Form of Exhibit A to the Custodian Agreement dated December 18, 1995
between the Registrant and The Chase Manhattan Bank, N.A.

9(c). Mutual Funds Transfer Agency Agreement dated June 22, 1994 between
the Registrant and Chase Global Funds Services Company

9(d). Form of Schedule B dated February 9, 1996 to the Mutual Funds
Transfer Agency Agreement dated June 22, 1994 between the Registrant
and Chase Global Funds Services Company.

11(a). Consent of Counsel.

11(b). Consent of Ernst & Young LLP.

<PAGE>

13(b). Purchase Agreement between the Registrant and Edgewood Services,
Inc. dated May 1, 1996 relating to shares of the Optimum Growth and
Value Equity Funds.

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> EQUITY FUND
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 20,936
<INVESTMENTS-AT-VALUE> 23,467
<RECEIVABLES> 53
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 4
<TOTAL-ASSETS> 23,524
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 29
<TOTAL-LIABILITIES> 29
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19,458
<SHARES-COMMON-STOCK> 2,631
<SHARES-COMMON-PRIOR> 1,993
<ACCUMULATED-NII-CURRENT> 79
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,427
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,531
<NET-ASSETS> 23,495
<DIVIDEND-INCOME> 291
<INTEREST-INCOME> 67
<OTHER-INCOME> 0
<EXPENSES-NET> (77)
<NET-INVESTMENT-INCOME> 281
<REALIZED-GAINS-CURRENT> 1,711
<APPREC-INCREASE-CURRENT> 1,272
<NET-CHANGE-FROM-OPS> 3,264
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (263)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,274
<NUMBER-OF-SHARES-REDEEMED> (638)
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> 8,087
<ACCUMULATED-NII-PRIOR> 62
<ACCUMULATED-GAINS-PRIOR> (284)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 138
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 317
<AVERAGE-NET-ASSETS> 21,229
<PER-SHARE-NAV-BEGIN> 7.73
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> 1.20
<PER-SHARE-DIVIDEND> (0.11)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.93
<EXPENSE-RATIO> 0.36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> INCOME FUND
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 24,277
<INVESTMENTS-AT-VALUE> 23,833
<RECEIVABLES> 334
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 5
<TOTAL-ASSETS> 24,172
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 171
<TOTAL-LIABILITIES> 171
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,921
<SHARES-COMMON-STOCK> 3,436
<SHARES-COMMON-PRIOR> 4,536
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 523
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (444)
<NET-ASSETS> 24,001
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,278
<OTHER-INCOME> 0
<EXPENSES-NET> (82)
<NET-INVESTMENT-INCOME> 2,196
<REALIZED-GAINS-CURRENT> 729
<APPREC-INCREASE-CURRENT> (1,695)
<NET-CHANGE-FROM-OPS> 1,230
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,195)
<DISTRIBUTIONS-OF-GAINS> (300)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 668
<NUMBER-OF-SHARES-REDEEMED> (1,768)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (9,228)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 95
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 204
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 424
<AVERAGE-NET-ASSETS> 31,422
<PER-SHARE-NAV-BEGIN> 7.33
<PER-SHARE-NII> 0.51
<PER-SHARE-GAIN-APPREC> (0.27)
<PER-SHARE-DIVIDEND> (0.51)
<PER-SHARE-DISTRIBUTIONS> (0.07)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.99
<EXPENSE-RATIO> 0.26
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> TOTAL RETURN BOND FUND
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 65,754
<INVESTMENTS-AT-VALUE> 64,776
<RECEIVABLES> 615
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 4
<TOTAL-ASSETS> 65,395
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 378
<TOTAL-LIABILITIES> 378
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 65,921
<SHARES-COMMON-STOCK> 9,060
<SHARES-COMMON-PRIOR> 3,334
<ACCUMULATED-NII-CURRENT> 13
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 61
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (978)
<NET-ASSETS> 65,017
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,657
<OTHER-INCOME> 0
<EXPENSES-NET> (125)
<NET-INVESTMENT-INCOME> 2,532
<REALIZED-GAINS-CURRENT> 497
<APPREC-INCREASE-CURRENT> (2,190)
<NET-CHANGE-FROM-OPS> 839
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,524)
<DISTRIBUTIONS-OF-GAINS> (558)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,054
<NUMBER-OF-SHARES-REDEEMED> (340)
<SHARES-REINVESTED> 12
<NET-CHANGE-IN-ASSETS> 40,104
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 127
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 255
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 522
<AVERAGE-NET-ASSETS> 39,147
<PER-SHARE-NAV-BEGIN> 7.47
<PER-SHARE-NII> 0.48
<PER-SHARE-GAIN-APPREC> (0.17)
<PER-SHARE-DIVIDEND> (0.48)
<PER-SHARE-DISTRIBUTIONS> (0.12)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.18
<EXPENSE-RATIO> 0.32
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> BOND INDEX FUND
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 15,145
<INVESTMENTS-AT-VALUE> 15,122
<RECEIVABLES> 1
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 7
<TOTAL-ASSETS> 15,130
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 125
<TOTAL-LIABILITIES> 125
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,947
<SHARES-COMMON-STOCK> 2,154
<SHARES-COMMON-PRIOR> 2,145
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 81
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (23)
<NET-ASSETS> 15,005
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,100
<OTHER-INCOME> 0
<EXPENSES-NET> (17)
<NET-INVESTMENT-INCOME> 1,083
<REALIZED-GAINS-CURRENT> 228
<APPREC-INCREASE-CURRENT> (634)
<NET-CHANGE-FROM-OPS> 677
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,082)
<DISTRIBUTIONS-OF-GAINS> (223)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,514
<NUMBER-OF-SHARES-REDEEMED> (1,505)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (559)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 76
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 21
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 91
<AVERAGE-NET-ASSETS> 15,679
<PER-SHARE-NAV-BEGIN> 7.26
<PER-SHARE-NII> 0.50
<PER-SHARE-GAIN-APPREC> (0.20)
<PER-SHARE-DIVIDEND> (0.50)
<PER-SHARE-DISTRIBUTIONS> (0.10)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.96
<EXPENSE-RATIO> 0.11
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> BALANCED FUND
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 84,294
<INVESTMENTS-AT-VALUE> 94,596
<RECEIVABLES> 1,124
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 28
<TOTAL-ASSETS> 95,748
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 110
<TOTAL-LIABILITIES> 110
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 82,757
<SHARES-COMMON-STOCK> 11,578
<SHARES-COMMON-PRIOR> 9,673
<ACCUMULATED-NII-CURRENT> 864
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,715
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,302
<NET-ASSETS> 95,638
<DIVIDEND-INCOME> 1,202
<INTEREST-INCOME> 2,891
<OTHER-INCOME> 0
<EXPENSES-NET> (328)
<NET-INVESTMENT-INCOME> 3,765
<REALIZED-GAINS-CURRENT> 3,058
<APPREC-INCREASE-CURRENT> 5,263
<NET-CHANGE-FROM-OPS> 12,086
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,770)
<DISTRIBUTIONS-OF-GAINS> (2,142)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,348
<NUMBER-OF-SHARES-REDEEMED> (5,443)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 21,160
<ACCUMULATED-NII-PRIOR> 905
<ACCUMULATED-GAINS-PRIOR> 796
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 563
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,047
<AVERAGE-NET-ASSETS> 86,670
<PER-SHARE-NAV-BEGIN> 7.70
<PER-SHARE-NII> 0.34
<PER-SHARE-GAIN-APPREC> 0.78
<PER-SHARE-DIVIDEND> (0.36)
<PER-SHARE-DISTRIBUTIONS> (0.20)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.26
<EXPENSE-RATIO> 0.38
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> EQUITY GROWTH FUND
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 26,049
<INVESTMENTS-AT-VALUE> 30,029
<RECEIVABLES> 1,089
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 17
<TOTAL-ASSETS> 31,135
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 50
<TOTAL-LIABILITIES> 50
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22,035
<SHARES-COMMON-STOCK> 3,588
<SHARES-COMMON-PRIOR> 6,655
<ACCUMULATED-NII-CURRENT> 85
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,985
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,980
<NET-ASSETS> 31,085
<DIVIDEND-INCOME> 664
<INTEREST-INCOME> 217
<OTHER-INCOME> 0
<EXPENSES-NET> (128)
<NET-INVESTMENT-INCOME> 753
<REALIZED-GAINS-CURRENT> 6,461
<APPREC-INCREASE-CURRENT> 972
<NET-CHANGE-FROM-OPS> 8,186
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (816)
<DISTRIBUTIONS-OF-GAINS> (4,130)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,291
<NUMBER-OF-SHARES-REDEEMED> (6,358)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (21,262)
<ACCUMULATED-NII-PRIOR> 147
<ACCUMULATED-GAINS-PRIOR> 2,654
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 299
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 588
<AVERAGE-NET-ASSETS> 46,056
<PER-SHARE-NAV-BEGIN> 7.87
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> 1.39
<PER-SHARE-DIVIDEND> (0.13)
<PER-SHARE-DISTRIBUTIONS> (0.60)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.66
<EXPENSE-RATIO> 0.28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> INTERNATIONAL EQUITY FUND
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 21,158
<INVESTMENTS-AT-VALUE> 24,421
<RECEIVABLES> 141
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 4
<TOTAL-ASSETS> 24,566
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 44
<TOTAL-LIABILITIES> 44
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20,965
<SHARES-COMMON-STOCK> 2,727
<SHARES-COMMON-PRIOR> 1,117
<ACCUMULATED-NII-CURRENT> 150
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 144
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,263
<NET-ASSETS> 24,522
<DIVIDEND-INCOME> 337
<INTEREST-INCOME> 83
<OTHER-INCOME> 0
<EXPENSES-NET> (109)
<NET-INVESTMENT-INCOME> 311
<REALIZED-GAINS-CURRENT> 271
<APPREC-INCREASE-CURRENT> 2,448
<NET-CHANGE-FROM-OPS> 3,030
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (260)
<DISTRIBUTIONS-OF-GAINS> (129)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,953
<NUMBER-OF-SHARES-REDEEMED> (343)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 15,718
<ACCUMULATED-NII-PRIOR> 91
<ACCUMULATED-GAINS-PRIOR> 10
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 182
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 373
<AVERAGE-NET-ASSETS> 18,200
<PER-SHARE-NAV-BEGIN> 7.88
<PER-SHARE-NII> 0.09
<PER-SHARE-GAIN-APPREC> 1.20
<PER-SHARE-DIVIDEND> (0.12)
<PER-SHARE-DISTRIBUTIONS> (0.06)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.99
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>

EXHIBIT 99.5A

INVESTMENT ADVISORY AGREEMENT

AGREEMENT made as of November 15, 1995 by and between EXCELSIOR
INSTITUTIONAL TRUST (the "Trust"), a Delaware business trust registered as an
open-end diversified management investment company under the Investment Company
Act of 1940, as amended (the "Investment Company Act"), and UNITED STATES TRUST
COMPANY OF NEW YORK, a New York corporation (the "Adviser").

In consideration of the promises and the mutual covenants herein contained,
the Trust and the Adviser agree as follows:

1. Appointment. The Trust appoints the Adviser to act as investment
adviser to the Trust with respect to the series of the Trust listed on Exhibit A
hereto (the "Series") for the period and on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to provide an
investment program for the compensation provided by this Agreement. In
providing the services and assuming the obligations set forth herein, the
Adviser may, at its own expense, employ one or more sub-advisers; provided that
the Adviser understands and agrees that it shall remain fully responsible for
the performance of all the duties set forth in this Agreement and that it shall
supervise the activities of each sub-adviser. Any agreement between the Adviser
and a sub-adviser shall be subject to the renewal, termination and amendment
provisions applicable to this Agreement.

2. Duties of the Adviser. Subject to the direction and control of the
Board of Trustees of the Trust, the Adviser shall:

(a) prepare (or otherwise obtain) and evaluate on both a macroeconomic and
microeconomic level any pertinent research; statistical, financial and economic
data; and other information necessary or appropriate for the performance of its
duties under this Agreement;

(b) formulate and continuously review, supervise, and administer an
investment program for the Series;

(c) determine the securities to be purchased by the Series, and
continuously monitor such securities and the issuers thereof to determine
whether and when to sell, exchange, or take any other action concerning such
securities;

(d) determine whether and how to exercise warrants, voting rights, or other
rights with respect to the Series' securities;
<PAGE>

(e) provide valuations with respect to the securities held by the Series if
so requested by the Trustees of the Trust;

(f) render regular reports to the Trust's officers and the Board of
Trustees concerning the investment performance of the Trust, the Adviser's
discharge of its responsibilities under this Agreement, and any other subject as
the Trust's officers or Board of Trustees reasonably may request; and

(g) assist the Trust's officers in connection with the operation of the
Trust and perform any further acts that may be necessary to effectuate the
purposes of this Agreement.

3. Supervision and compliance. The activities of the Adviser shall be
subject at all times to the direction and control of the Board of Trustees of
the Trust and shall comply with: (a) the Trust Instrument and By-Laws of the
Trust; (b) the Registration Statement of the Trust, as it may be amended from
time to time, including the investment objectives and policies set forth
therein; (c) the Investment Company Act and the regulations thereunder; (d) the
Internal Revenue Code of 1986 and the regulations thereunder applicable to
regulated investment companies; (e) any other applicable laws or regulations;
and (f) such other limitations as the Board of Trustees may adopt.

4. Purchase and Sale of Securities. The Adviser shall, at its own
expense, place orders for the purchase, sale or loan of securities by the Trust
either directly with the issuer or with any broker and/or dealer who deals in
such securities.

(a) In placing orders with brokers and/or dealers, the Adviser shall use
its best efforts to obtain the best net price and the most favorable execution
of its orders, after taking into account all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker and/or dealer,
and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis.

Consistent with this obligation, the Adviser may, to the extent permitted by
law, purchase and sell portfolio securities to and from brokers who provide
brokerage and research services (within the meaning of Section 28(e) of the
Securities Exchange Act of 1934) to or for the benefit of the Trust and/or other
accounts over which the Adviser exercises investment discretion. The Adviser is
authorized to pay a broker who provides such brokerage and research services a
commission for effecting a securities transaction which is in excess of the
amount of commission another broker would have charged for effecting that
transaction, if the Adviser determines in good faith that such commission was
reasonable in relation to the value of brokerage and research services provided
by such broker. This determination may be viewed in

-2-
<PAGE>

terms of either that particular transaction or of the overall responsibilities
of the Adviser with respect to the accounts as to which it exercises investment
discretion.

(b) The Adviser may execute transactions through itself and its affiliates
on a securities exchange provided that the commissions paid by the Trust are
"reasonable and fair" compared to commissions received by other brokers having
comparable execution capability and provided that the transactions are effected
pursuant to procedures established by the Board of Trustees of the Trust. An
affiliated broker may transmit, clear and settle transactions for the Trust that
are executed on a securities exchange provided that the affiliated broker
arranges for unaffiliated brokers to execute the transactions.

(c) Notwithstanding the foregoing, the Board of Trustees periodically shall
review the commissions paid by the Trust and determine whether those commissions
were reasonable in relation to the brokerage and research services received. In
addition, the Board of Trustees of the Trust, in its discretion, may instruct
the Adviser to effect all or a portion of its securities transactions with one
or more brokers and/or dealers selected by the Board of Trustees, if it
determines that the use of such brokers and/or dealers is in the best interest
of the Trust.

(d) When the Adviser deems the purchase or sale of a security to be in the
best interest of the Trust as well as other customers, the Adviser, to the
extent permitted by applicable law, may aggregate the securities to be so sold
or purchased in order to obtain the best execution or lower brokerage
commissions. The Adviser also may purchase or sell a particular security for
one or more customers in different amounts. Allocation of the securities
purchased or sold in either manner, as well as the expenses incurred in the
transactions, will be made by the Adviser in a manner that is equitable and
consistent with applicable law and regulations and with its fiduciary
obligations to the Trust and to such other customers.

5. Expenses.

(a) The Adviser shall furnish at its own expense all office space, office
facilities, equipment and personnel necessary or appropriate to the performance
of its duties under this Agreement. The Adviser also shall pay the salaries and
fees of all personnel of the Trust or the Adviser performing services related to
the Adviser's duties under this Agreement.

-3-
<PAGE>

Series), transfer agent and registrar and dividend disbursing agent of the
Trust; expenses of preparing and mailing reports to investors and regulatory
agencies; expenses relating to the issuance, registration and qualification of
shares of the Series, and the preparation, printing and mailing of prospectuses
for such purposes; insurance premiums; brokerage and other expenses of executing
portfolio transactions; expenses of investors' and Trustees' meetings;
organization expenses; and extraordinary expenses.

6. Compensation of the Adviser. In consideration of the services to be
rendered by the Adviser under this Agreement, the Trust shall pay the Adviser a
fee accrued daily and paid monthly from the Series at an annual rate equal to
that specified in Exhibit A to this Agreement for the Series' average daily net
assets. The fee for any period in which the Adviser serves as investment
adviser pursuant to this Agreement for less than one full month shall be paid
for that portion of the month accrued. For purposes of calculating fees, the
value of the net assets of the Series shall be computed in the manner specified
in its Registration Statement on Form N-1A.

7. Services to Others. The services of the Adviser to the Trust are not
to be deemed exclusive, and the Adviser is free to render services to others and
to engage in other activities, provided, however, that those services and
activities do not adversely affect the Adviser's ability to perform its
obligations under this Agreement.

8. Books, Records, and Information. The Adviser shall provide the Trust
with all records concerning the Adviser's activities that the Trust is required
by law to maintain. Any records required to be maintained and preserved
pursuant to the provisions of Rule 31a-l and Rule 31a-2 under the Investment
Company Act which are prepared or maintained by the Adviser on behalf of the
Trust are the property of the Trust and will be surrendered promptly to the
Trust on request. The Trust also shall comply with all reasonable requests for
information by the Trust's officers or Board of Trustees, including information
required for the Trust's filings with the Securities and Exchange Commission and
state securities commissions.

9. Limitations on Liability.

(a) The Adviser hereby is notified expressly of the limitation of
shareholder liability as set forth in the Trust Instrument and agrees that any
obligation of the Trust or the Series arising in connection with this Agreement
shall be limited in all cases to the Series and its assets, and the Adviser
shall not seek satisfaction of any such obligation from any Trustee or
shareholder of the Series.

(b) The Adviser shall give the Trust the benefit of its best judgment and
efforts in rendering services under this Agreement. In the absence of willful
malfeasance, bad faith, gross negligence or reckless disregard of obligations or
duties

-4-
<PAGE>

hereunder on the part of the Adviser, the Adviser shall not be liable to
the Trust or to any shareholder of the Series for any act or omission in the
course of, or connected with, rendering services under this Agreement or for any
losses that may be sustained in the purchase, holding or sale of any security.

10. Effective Date; Termination; Amendments.

(a) This Agreement shall be effective as to the Series on the date the
Series commences investment operations, and, unless terminated sooner as
provided herein, shall continue until the second anniversary of the execution of
this Agreement. Thereafter, unless terminated sooner as provided herein, this
Agreement shall continue in effect as to the Series for successive annual
periods, provided that such continuance is specifically approved at least
annually by the vote of a majority of the Board of Trustees of the Trust who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such continuance, and
either: (i) the vote of a majority of the outstanding voting securities of the
Series; or (ii) the vote of a majority of the full Board of Trustees.

(b) This Agreement may be terminated at any time, without the payment of
any penalty, either by: (i) the Trust, by action of the Board of Trustees or by
vote of a majority of the outstanding voting securities of the Series, on 60
days' written notice to the Adviser; or (ii) the Adviser, on 90 days' written
notice to the Trust. This Agreement shall terminate immediately in the event of
its assignment.

(c) This Agreement may be amended only if such amendment is approved by the
vote of a majority of the outstanding voting securities of the Series or by vote
of a majority of the Board of Trustees of the Trust who are not parties to this
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such amendment.

(d) As used in this Agreement, the terms "specifically approved at least
annually," "majority of the outstanding voting securities," "interested persons"
and "assignment" shall have the same meanings as such terms have in the
Investment Company Act and the regulations thereunder.

11. Governing Law. This Agreement shall be construed in accordance with
the laws of the Commonwealth of Massachusetts without giving effect to the
choice of law provisions thereof, to the extent that such laws are consistent
with provisions of the Investment Company Act and the regulations thereunder.

12. Miscellaneous. The captions in this Agreement are included for the
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. Should any
part of this

-5-
<PAGE>

Agreement be held or made invalid by a court decision, statute, regulation, or
otherwise, the remainder of this Agreement shall not be affected thereby. This
Agreement shall be binding and shall inure to the benefit of the parties hereto
and their respective successors, to the extent permitted by law.

IN WITNESS WHEREOF, the Trust and the Adviser have caused this Agreement to
be executed and delivered in their names and on their behalf by the undersigned,
duly authorized officers, all as of the day and year first above written.

Attest: EXCELSIOR INSTITUTIONAL
TRUST

/s/ Sharon Whitson By:/s/ Philip Coolidge
- ------------------ -------------------
Name: Philip Coolidge
Title: President

Attest: UNITED STATES TRUST COMPANY
OF NEW YORK

/s/ Frnacis J. Hearn, Jr. By:/s/ Brian F. Schmidt
- ------------------------- --------------------
Name: Brian F. Schmidt
Title: Vice President

-6-
<PAGE>

Exhibit A
to Investment
Advisory Agreement

SCHEDULE OF SERIES AND FEES UNDER INVESTMENT
ADVISORY AGREEMENT

Annual Fee (as a percentage of the
average daily net assets of the
Series Names Series)
- ------------ -------

Excelsior Institutional
Equity Fund 0.65%

Excelsior Institutional
Income Fund 0.65%

Excelsior Institutional
Total Return Bond Fund 0.65%

Excelsior Institutional
Value Equity Fund 0.65%

Excelsior Institutional
Optimum Growth Fund 0.65%

Agreed to and accepted on February 9, 1996;

EXCELSIOR INSTITUTIONAL TRUST

By: /s/ A. C. Tannachion
--------------------

UNITED STATES TRUST COMPANY OF NEW YORK

By: /s/ Brian F. Schmidt
--------------------

-7-

<PAGE>

EXHIBIT 99.5B

INVESTMENT ADVISORY AGREEMENT

In consideration of the promises and the mutual covenants herein contained,
the Trust and the Adviser agree as follows:

2. Duties of the Adviser. Subject to the direction and control of the
Board of Trustees of the Trust, the Adviser shall:

(a) prepare (or otherwise obtain) and evaluate on both a macroeconomic
and microeconomic level any pertinent research; statistical, financial and
economic data; and other information necessary or appropriate for the
performance of its duties under this Agreement;

(b) formulate and continuously review, supervise, and administer an
investment program for the Series;

(d) determine whether and how to exercise warrants, voting rights, or
<PAGE>

other rights with respect to the Series' securities;

(e) provide valuations with respect to the securities held by the
Series if so requested by the Trustees of the Trust;

(g) assist the Trust's officers in connection with the operation of the
Trust and perform any further acts that may be necessary to effectuate the
purposes of this Agreement.

(a) In placing orders with brokers and/or dealers, the Adviser shall
use its best efforts to obtain the best net price and the most favorable
execution of its orders, after taking into account all factors it deems
relevant, including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker and/or
dealer, and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis.

2
<PAGE>

research services provided by such broker. This determination may be viewed in
terms of either that particular transaction or of the overall responsibilities
of the Adviser with respect to the accounts as to which it exercises investment
discretion.

(b) The Adviser may execute transactions through itself and its
affiliates on a securities exchange provided that the commissions paid by the
Trust are "reasonable and fair" compared to commissions received by other
brokers having comparable execution capability and provided that the
transactions are effected pursuant to procedures established by the Board of
Trustees of the Trust. An affiliated broker may transmit, clear and settle
transactions for the Trust that are executed on a securities exchange provided
that the affiliated broker arranges for unaffiliated brokers to execute the
transactions.

(c) Notwithstanding the foregoing, the Board of Trustees periodically
shall review the commissions paid by the Trust and determine whether those
commissions were reasonable in relation to the brokerage and research services
received. In addition, the Board of Trustees of the Trust, in its discretion,
may instruct the Adviser to effect all or a portion of its securities
transactions with one or more brokers and/or dealers selected by the Board of
Trustees, if it determines that the use of such brokers and/or dealers is in the
best interest of the Trust.

(d) When the Adviser deems the purchase or sale of a security to be in
the best interest of the Trust as well as other customers, the Adviser, to the
extent permitted by applicable law, may aggregate the securities to be so sold
or purchased in order to obtain the best execution or lower brokerage
commissions. The Adviser also may purchase or sell a particular security for one
or more customers in different amounts. Allocation of the securities purchased
or sold in either manner, as well as the expenses incurred in the transactions,
will be made by the Adviser in a manner that is equitable and consistent with
applicable law and regulations and with its fiduciary obligations to the Trust
and to such other customers.

5. Expenses.

(a) The Adviser shall furnish at its own expense all office space,
office facilities, equipment and personnel necessary or appropriate to the
performance of its duties under this Agreement. The Adviser also shall pay the
salaries and fees of all personnel of the Trust or the Adviser performing
services related to the Adviser's duties under this Agreement.

3
<PAGE>

and accounts and calculation of the net asset value of beneficial interests of
the Series), transfer agent and registrar and dividend disbursing agent of the
Trust; expenses of preparing and mailing reports to investors and regulatory
agencies; expenses relating to the issuance, registration and qualification of
shares of the Series, and the preparation, printing and mailing of prospectuses
for such purposes; insurance premiums; brokerage and other expenses of executing
portfolio transactions; expenses of investors' and Trustees' meetings;
organization expenses; and extraordinary expenses.

9. Limitations on Liability.

(b) The Adviser shall give the Trust the benefit of its best judgment
and efforts in rendering services under this Agreement. In the absence of
willful

4
<PAGE>

malfeasance, bad faith, gross negligence or reckless disregard of obligations or
duties hereunder on the part of the Adviser, the Adviser shall not be liable to
the Trust or to any shareholder of the Series for any act or omission in the
course of, or connected with, rendering services under this Agreement or for any
losses that may be sustained in the purchase, holding or sale of any security.

10. Effective Date; Termination; Amendments.

(b) This Agreement may be terminated at any time, without the payment
of any penalty, either by: (i) the Trust, by action of the Board of Trustees or
by vote of a majority of the outstanding voting securities of the Series, on 60
days' written notice to the Adviser; or (ii) the Adviser, on 90 days' written
notice to the Trust. This Agreement shall terminate immediately in the event of
its assignment.

(c) This Agreement may be amended only if such amendment is approved by
the vote of a majority of the outstanding voting securities of the Series or by
vote of a majority of the Board of Trustees of the Trust who are not parties to
this Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such amendment.

(d) As used in this Agreement, the terms "specifically approved at
least annually," "majority of the outstanding voting securities," "interested
persons" and "assignment" shall have the same meanings as such terms have in the
Investment Company Act and the regulations thereunder.

12. Miscellaneous. The captions in this Agreement are included for the
convenience of reference only and in no way define or delimit any of the
provisions

5
<PAGE>

hereof or otherwise affect their construction or effect. Should any part of this
Agreement be held or made invalid by a court decision, statute, regulation, or
otherwise, the remainder of this Agreement shall not be affected thereby. This
Agreement shall be binding and shall inure to the benefit of the parties hereto
and their respective successors, to the extent permitted by law.

Attest: EXCELSIOR INSTITUTIONAL
TRUST

/s/ Sharon Whitson By:/s/ Philip Coolidge
- ------------------ -------------------
Name:Philip Coolidge
Title:President

Attest: UNITED STATES TRUST COMPANY
OF THE PACIFIC NORTHWEST

By:/s/ Douglas F. Adams
-----------------------
Name:Douglas F. Adams
Title:President

6
<PAGE>

Exhibit A
to Investment
Advisory Agreement

SCHEDULE OF SERIES AND FEES UNDER INVESTMENT
ADVISORY AGREEMENT

Annual Fee (as a percentage of the
average daily net assets of the
Series Names Series)
- ------------ -----------------------------------------

Excelsior Institutional
Balanced Fund 0.65%

Excelsior Institutional Equity
Growth Fund 0.65%

Excelsior Institutional
International Equity Fund 1.00%

Excelsior Institutional
Bond Index Fund 0.25%

<PAGE>

EXHIBIT 99.5D

INVESTMENT SUBADVISORY AGREEMENT

AGREEMENT made as of November 15, 1995 by and between United States Trust
Company of The Pacific Northwest, a state-chartered limited purpose trust
company (the "Adviser"), and Luther King Capital Management Corporation, a
corporation organized and existing under the laws of the state of Delaware (the
"Subadviser").

In consideration of the promises and the mutual covenants herein contained,
the Adviser and the Subadviser agree as follows:

1. Appointment. The Adviser has been retained by Excelsior Institutional
-----------
Trust, a Delaware business trust (the "Trust"), to act as investment adviser to
the Trust with respect to the series of the Trust listed on Exhibit A hereto
(the "Series"). In accordance with and subject to the Investment Advisory
Agreement between the Trust and the Adviser, attached hereto as Exhibit B (the
"Advisory Agreement"), the Adviser appoints the Subadviser to act as subadviser
with respect to the Series for the period and on the terms set forth in this
Agreement. The Subadviser accepts such appointment and agrees to provide an
investment program for the compensation provided by this Agreement.

2. Duties of the Subadviser. Subject to the direction and control of the
------------------------
Adviser and the Board of Trustees of the Trust, the Subadviser shall:

(b) formulate and continuously review, supervise, and administer an
investment program for each Series;

(c) determine the securities to be purchased by each Series, and
continuously monitor such securities and the issuers thereof to determine
whether and when to sell, exchange, or take any other action concerning such
securities;

(d) determine whether and how to exercise warrants, voting rights, or other
rights with respect to the Series' securities;
<PAGE>

(e) provide valuations with respect to the securities held by each Series
if so requested by the Trustees of the Trust;

(f) render regular reports to the Trust's officers and the Board of
Trustees concerning the investment performance of the Trust, the subadviser's
discharge of its responsibilities under this Agreement, and any other subject as
the Trust's officers or Board of Trustees reasonably may request; and

(g) assist the Adviser and the Trust's officers in connection with the
operation of the Trust and perform any further acts that may be necessary to
effectuate the purposes of this Agreement.

3. Supervision and Compliance. Notwithstanding any provision of this
--------------------------
Agreement, the Adviser shall retain all rights and ultimate responsibilities to
supervise, and, in its discretion, conduct investment advisory activities
relating to the Trust. The activities of the Subadviser shall be subject at all
times to the direction and control of the Board of Trustees of the Trust and the
Adviser and shall comply with: (a) the Trust Instrument and By-Laws of the
Trust; (b) the Registration Statement of the Trust, as it may be amended from
time to time, including the investment objectives and policies set forth
therein; (c) the Investment Company Act and the regulations thereunder; (d) the
Internal Revenue Code of 1986 and the regulations thereunder applicable to
regulated investment companies; (e) any other applicable laws or regulations;
and (f) such other limitations as the Adviser or the Board of Trustees of the
Trust may adopt.

4. Purchase and Sale of Securities. The Subadviser shall, at its own
-------------------------------
expense, place orders for the purchase, sale or loan of securities by the Trust
either directly with the issuer or with any broker and/or dealer who deals in
such securities.

(a) In placing orders with brokers and/or dealers, the Subadviser shall use
its best efforts to obtain the best net price and the most favorable execution
of its orders, after taking into account all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker and/or dealer,
and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. Consistent with this obligation, the
Subadviser may, to the extent permitted by law, purchase and sell portfolio
securities to and from brokers who provide brokerage and research services
(within the meaning of Section 28(e) of the Securities and Exchange Act of 1934)
to or for the benefit of the Trust and/or other accounts over which the
Subadviser or the Adviser exercises investment discretion. The Subadviser is
authorized to pay a broker who provides such brokerage and research services a
<PAGE>

commission for effecting a securities transaction which is in excess of the
amount of commission another broker would have charged for effecting that
transaction, if the Subadviser determines in good faith that such commission was
reasonable in relation to the value of brokerage and research services provided
by such broker. This determination may be viewed in terms of either that
particular transaction or of the overall responsibilities of the Subadviser with
respect to the accounts as to which it exercises investment discretion.

(b) The Subadviser may execute transactions through itself and its
affiliates on a securities exchange provided that the commissions paid by the
Trust are "reasonable and fair" compared to commissions received by other
brokers having comparable execution capability and provided that the
transactions are effected pursuant to procedures established by the Board of
Trustees of the Trust. An affiliated broker may transmit, clear and settle
transactions for the Trust that are executed on a securities exchange provided
that the affiliated broker arranges for unaffiliated brokers to execute the
transactions.

(c) Notwithstanding the foregoing, the Board of Trustees and the Adviser
periodically shall review the commissions paid by the Trust and determine
whether those commissions were reasonable in relation to the brokerage and
research services received. In addition, the Board of Trustees of the Trust, in
its discretion, may instruct the Subadviser to effect all or a portion of its
securities transactions with one or more brokers and/or dealers selected by the
Board of Trustees, if it determines that the use of such brokers and/or dealers
is in the best interest of the Trust.

(d) When the Subadviser deems the purchase or sale of a security to be in
the best interest of the Trust as well as other customers, the Subadviser, to
the extent permitted by applicable law, may aggregate the securities to be so
sold or purchased in order to obtain the best execution or lower brokerage
commissions. The Subadviser also may purchase or sell a particular security for
one or more customers in different amounts. Allocation of the securities
purchased or sold in either manner, as well as the expenses incurred in the
transactions, will be made by the Subadviser in a manner that is equitable and
consistent with applicable law and regulations and with its fiduciary
obligations to the Trust and to such other customers.

5. Expenses.
--------

(a) The subadviser shall furnish at its own expense all office space,
office facilities, equipment and personnel necessary or appropriate to the
performance of its duties under
<PAGE>

this Agreement. The Subadviser also shall pay the salaries of all personnel
performing services related to the Subadviser's duties under this Agreement.

(b) It is understood that the Trust will pay all of its expenses and
liabilities, including compensation of its independent Trustees; taxes and
governmental fees; interest charges; fees and expenses of the Trust's
independent auditors and legal counsel; trade association membership dues; fees
and expenses of any custodian (including safekeeping of funds and securities,
maintenance of books and accounts and calculation of the net asset value of
beneficial interests of each Series), transfer agent and registrar and dividend
disbursing agent of the Trust; expenses of preparing and mailing reports to
investors and regulatory agencies; expenses relating to the issuance,
registration and qualification of shares of each Series, and the preparation,
printing and mailing of prospectuses for such purposes; insurance premiums;
brokerage and other expenses of executing portfolio transactions; expenses of
investors' and Trustees' meetings; organization expenses; and extraordinary
expenses.

6. Compensation of the Subadviser. In consideration of the services to be
------------------------------
rendered by the Subadviser under this Agreement, the Adviser shall pay the
Subadviser a fee accrued daily and paid monthly at an annual rate equal to that
specified in Exhibit A to this Agreement for that Series' average daily net
assets. The fee for any period in which the Subadviser serves as investment
adviser pursuant to this Agreement for less than one full month shall be paid
for that portion of the month accrued. For purposes of calculating fees, the
value of the net assets of each Series of the Trust shall be computed in the
manner specified in its Registration Statement on Form N-1A.

7. Services to Others. The services of the Subadviser to the Adviser and
------------------
the Trust are not to be deemed exclusive, and the Subadviser is free to render
services to others and to engage in other activities, provided, however, that
those services and activities do not adversely affect the Subadviser's ability
to perform its obligations under this Agreement.

8. Books, Records, and Information. The Subadviser shall provide the
-------------------------------
Adviser and the Trust with all records concerning the Subadviser's activities
that the Trust is required by law to maintain. Any records required to be
maintained and preserved pursuant to the provisions of Rule 31a-1 and Rule 31a-2
under the Investment Company Act which are prepared or maintained by the
Subadviser on behalf of the Trust are the property of the Trust and will be
surrendered promptly to the Trust on request.
<PAGE>

The Subadviser also shall comply with all reasonable requests for
information by the Adviser or the Trust's officers or Board of Trustees,
including information required for the Trust's filings with the Securities and
Exchange Commission and state securities commissions.

9. Limitations on Liability.
------------------------

(a) The Subadviser hereby is notified expressly of the limitation of
shareholder liability as set forth in the Declaration of Trust and agrees that
any obligation of the Trust or the Series arising in connection with this
Agreement shall be limited in all cases to the Series and their assets, and the
Subadviser shall not seek satisfaction of any such obligation from any Trustee
or shareholder of the Series.

(b) The Subadviser shall give the Adviser and the Trust the benefit of its
best judgment and efforts in rendering services under this Agreement. In the
absence of willful malfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties hereunder on the part of the Subadviser, the
Subadviser shall not be liable to the Trust, to any shareholder of the Series or
to the Adviser for any act or omission in the course of, or connected with,
rendering services under this Agreement or for any losses that may be sustained
in the purchase, holding or sale of any security. The Adviser agrees that the
Subadviser shall not be liable for, and shall be indemnified and held harmless
by the Adviser for, any losses, liabilities, or expenses that the Subadviser may
incur due to errors of judgment, mistakes, acts or omission of the Adviser.

10. Effective Date; Termination; Amendments.
---------------------------------------

(a) This Agreement shall be effective as to each Series on the date the
Series commences investment operations, and, unless terminated sooner as
provided herein, shall continue until the second anniversary of the execution of
this Agreement. Thereafter, unless terminated sooner as provided herein, this
Agreement shall continue in effect as to each Series for successive annual
periods, provided that such continuance is specifically approved at least
annually by the vote of a majority of the Board of Trustees of the Trust who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such continuance, and
either: (i) the vote of a majority of the outstanding voting securities of such
Series; or (ii) the vote of a majority of the full Board of Trustees.

such Series, on 60 days' written notice to the Subadviser; (ii) the Adviser, on
60 days' written notice to the Subadviser; or (iii) the Subadviser, on 90 days'
written notice to the Adviser and the Trust. This Agreement shall terminate
immediately in the event of its assignment.

11. Governing Law. This Agreement shall be construed in accordance with
-------------
the laws of the Commonwealth of Massachusetts without giving effect to the
choice of law provisions thereof, to the extent that such laws are consistent
with provisions of the Investment Company Act and the regulations thereunder.

12. Miscellaneous. The captions in this Agreement are included for the
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. Should any
part of this Agreement be held or made invalid by a court decision, statute,
regulation, or otherwise, the remainder of this Agreement shall not be affected
thereby. This Agreement shall be binding and shall inure to the benefit of the
parties hereto and their respective successors, to the extent permitted by law.
<PAGE>

IN WITNESS WHEREOF, the Adviser and the Subadviser have caused this
Agreement to be executed and delivered in their names and on their behalf by the
undersigned, duly authorized officers, all as of the day and year first above
written.

Attest: UNITED STATES TRUST COMPANY
OF THE PACIFIC NORTHWEST

/s/ Susan M. Oken By:/s/ Douglas F. Adams
- ----------------- --------------------
Name:Douglas F. Adams
Title:President

Attest: LUTHER KING CAPITAL MANAGEMENT
CORPORATION

_______________________ By:/s/ Luther King
---------------
Name:Luther King
Title:
<PAGE>

Exhibit A
to Investment
Subadvisory Agreement

SCHEDULE OF SERIES AND FEES UNDER INVESTMENT
SUBADVISORY AGREEMENT

Annual
Fee (as a percentage of
the average daily net
Series Name assets of a Series)
- ----------- -------------------

Excelsior Institutional
Equity Growth Fund 0.40% of the first $20,000,000
of average daily net assets; 0.30% of the
next $30,000,000 of average daily net
assets; and a percentage to be negotiated of
average daily net assets in excess of
$50,000,000.

<PAGE>

EXHIBIT 99.5E

INVESTMENT SUBADVISORY AGREEMENT

AGREEMENT made as of November 15, 1995 by and between United States Trust
Company of The Pacific Northwest, a state-chartered limited purpose trust
company (the "Adviser"), and Harding, Loevner Management, L.P., a limited
partnership organized and existing under the laws of the State of New Jersey
(the "Subadviser").

In consideration of the promises and the mutual covenants herein contained,
the Adviser and the Subadviser agree as follows:

2. Duties of the Subadviser. Subject to the direction and control of the
------------------------
Adviser and the Board of Trustees of the Trust, the Subadviser shall:

(b) formulate and continuously review, supervise, and administer an
investment program for each Series;

(d) determine whether and how to exercise warrants, voting rights, or other
rights with respect to the Series' securities;
<PAGE>

(e) provide valuations with respect to the securities held by each Series
if so requested by the Trustees of the Trust;

(g) assist the Adviser and the Trust's officers in connection with the
operation of the Trust and perform any further acts that may be necessary to
effectuate the purposes of this Agreement.

-2-
<PAGE>

5. Expenses.
--------

(a) The subadviser shall furnish at its own expense all office space,
office facilities, equipment and personnel necessary or appropriate to the
performance of its duties under

-3-
<PAGE>

this Agreement. The Subadviser also shall pay the salaries of all personnel
performing services related to the Subadviser's duties under this Agreement.

6. Compensation of the Subadviser. In consideration of the services to be
------------------------------
rendered by the Subadviser under this Agreement, the Adviser shall pay the
Subadviser a fee accrued daily and paid monthly at an annual rate equal to that
specified in Exhibit A to this Agreement for that Series' average daily net
assets; provided, however, that the Subadviser shall not be compensated on the
basis of a share of capital gains or upon capital appreciation of the Trust's
funds or assets or any portion thereof unless otherwise specifically provided in
Exhibit A and permitted by law. The fee for any period in which the Subadviser
serves as investment adviser pursuant to this Agreement for less than one full
month shall be paid for that portion of the month accrued. For purposes of
calculating fees, the value of the net assets of each Series of the Trust shall
be computed in the manner specified in its Registration Statement on Form N-1A.

-4-
<PAGE>

under the Investment Company Act which are prepared or maintained by the
Subadviser on behalf of the Trust are the property of the Trust and will be
surrendered promptly to the Trust on request.

9. Limitations on Liability.
------------------------

10. Effective Date; Termination; Amendments.
---------------------------------------

-5-
<PAGE>

(b) This Agreement may be terminated at any time and as to any one or more
Series, without the payment of any penalty, either by: (i) the Trust, by action
of the Board of Trustees or by vote of a majority of the outstanding voting
securities of such Series, on 60 days' written notice to the Subadviser; (ii)
the Adviser, on 60 days' written notice to the Subadviser; or (iii) the
Subadviser, on 90 days' written notice to the Adviser and the Trust. This
Agreement shall terminate immediately in the event of its assignment. The
Subadvisor is a limited partnership, and shall, to the extent required by law,
notify the Advisor and the Trust of any change in the membership of the
Subadvisor within a reasonable time after the change.

-6-
<PAGE>

Attest: UNITED STATES TRUST COMPANY
OF THE PACIFIC NORTHWEST

/s/ Peter Z. Jeremy By:/s/ Douglas F. Adams
- ------------------- -----------------------
Name:Douglas F. Adams
Title:President

Attest: HARDING, LOEVNER MANAGEMENT,
L.P.

_______________________ By:/s/ David Loevner
---------------------------
Name:David Loevner
Title:General Partner

-7-
<PAGE>

Exhibit A
to Investment
Subadvisory Agreement

SCHEDULE OF SERIES AND FEES UNDER INVESTMENT
SUBADVISORY AGREEMENT

Annual
Fee (as a percentage of
the average daily net
Series Names assets of a Series)
- ------------ -----------------------

Excelsior Institutional
International Equity Fund 0.50%

-8-

<PAGE>

EXHIBIT 99.5F

INVESTMENT SUBADVISORY AGREEMENT

AGREEMENT made as of November 15, 1995 by and between United States Trust
Company of The Pacific Northwest, a state-chartered limited purpose trust
company (the "Adviser"), and Becker Capital Management, Inc., an Oregon
corporation (the "Subadviser").

In consideration of the promises and the mutual covenants herein contained,
the Adviser and the Subadviser agree as follows:

2. Duties of the Subadviser. Subject to the direction and control of the
------------------------
Adviser and the Board of Trustees of the Trust, the Subadviser shall:

(b) formulate and continuously review, supervise, and administer an
investment program for each Series;

(d) determine whether and how to exercise warrants, voting rights, or other
rights with respect to the Series' securities;

(e) provide valuations with respect to the securities held by each Series
if so requested by the Trustees of the Trust;
<PAGE>

(g) assist the Adviser and the Trust's officers in connection with the
operation of the Trust and perform any further acts that may be necessary to
effectuate the purposes of this Agreement.

2
<PAGE>

determines in good faith that such commission was reasonable in relation to the
value of brokerage and research services provided by such broker. This
determination may be viewed in terms of either that particular transaction or of
the overall responsibilities of the Subadviser with respect to the accounts as
to which it exercises investment discretion.

5. Expenses.
--------

(a) The subadviser shall furnish at its own expense all office space,
office facilities, equipment and personnel necessary or appropriate to the
performance of its duties under this Agreement. The Subadviser also shall pay
the salaries of all personnel performing services related to the Subadviser's
duties under this Agreement.

3
<PAGE>

4
<PAGE>

9. Limitations on Liability.
------------------------

10. Effective Date; Termination; Amendments.
---------------------------------------

5
<PAGE>

6
<PAGE>

Attest: UNITED STATES TRUST COMPANY
OF THE PACIFIC NORTHWEST

[signature illegible] By:/s/ Douglas F. Adams
- --------------------- --------------------
Name:Douglas F. Adams
Title:President

Attest: ` BECKER CAPITAL MANAGEMENT,
INC.

/s/Cyndi L. Askew By:/s/ Janeen S. McAninch
- ----------------- ----------------------
Name:Janeen S. McAninch
Title:Executive Vice President

7
<PAGE>

Exhibit A
to Investment
Subadvisory Agreement

SCHEDULE OF SERIES AND FEES UNDER INVESTMENT
SUBADVISORY AGREEMENT

Annual
Fee (as a percentage of
the average daily net
Series Name assets of a Series)
- ----------- -------------------

Excelsior Institutional
Balanced Fund 0.425% of the first
$20,000,000 of average daily
net assets; 0.20% of average
daily net assets in excess of
$20,000,000.

<PAGE>

Exhibit 99.6B
SCHEDULE I (Continued)

Name of Series
- --------------

Excelsior Institutional Optimum Growth Fund
Excelsior Institutional Value Equity Fund

ATTEST: EXCELSIOR INSTITUTIONAL TRUST

________________________ /s/ A. C. Tannachion
--------------------
Title: President, Chairman and
Treasurer

ATTEST: EDGEWOOD SERVICES, INC.

/s/ Jeanette Fisher-Garber /s/ R. Jeffrey Niss
- -------------------------- -------------------
Title:Senior Vice President

Agreed to and accepted on: February 9, 1996

-1-

<PAGE>

EXHIBIT 99.8B

EXHIBIT A (CONTINUED)
---------

Series covered by the Custody Agreement dated December 18, 1995
between The Chase Manhattan Bank, N.A. and Excelsior Institutional Trust:

Institutional Value Equity Fund
Institutional Optimum Growth Fund

THE CHASE MANHATTAN BANK, N.A.

By:___________________________

Address for record:

_____________________________
_____________________________

EXCELSIOR INSTITUTIONAL TRUST

By:__________________________

Address for record:

____________________________
____________________________
____________________________

Agreed to and accepted on: February 9, 1996

<PAGE>

EXHIBIT 99.9C

MUTUAL FUNDS TRANSFER AGENCY AGREEMENT

AGREEMENT made as of June 22, 1994 by and between The Excelsior
Institutional Trust (the "Fund"), an open-end diversified management investment
company and Mutual Funds Service Company (the "Transfer Agent"), a Delaware
Corporation.

WITNESSETH

WHEREAS, the Fund is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and

WHEREAS, the Fund wishes to retain the Transfer Agent to provide
certain transfer agent services with respect to the Fund, and the Transfer Agent
is willing to furnish such services:

NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:

1. APPOINTMENT. The Fund hereby appoints the Transfer Agent to provide
transfer agent services for the Fund, subject to the supervision of the Board of
Trustees of the Fund (the "Board"), for the period and on the terms set forth in
this Agreement. The Transfer Agent accepts such appointment and agrees to
furnish the services set forth herein in return for the compensation as provided
in Schedule A to this Agreement. The Fund will initially consist of the
portfolios, funds and/or classes of shares (each an "Investment Fund";
collectively the "Investment Funds") listed in Schedule B attached hereto. The
Fund shall notify the Transfer Agent in writing of each additional Investment
Fund established by the Fund. Each new Investment Fund shall be subject to the
provisions of this Agreement, except to the extent that the provisions
(including those relating to the compensation and expenses payable by the Fund
and its Investment Funds) may be modified with respect to each new Investment
Fund in writing by the Fund and the Transfer Agent at the time of the addition
of the new Investment Fund.

2. REPRESENTATIONS AND WARRANTIES.

(a) The Transfer Agent represents and warrants to the Fund that:

(i) the Transfer Agent is a corporation organized and existing and in
good standing under the laws of the State of Delaware;
<PAGE>

(ii) the Transfer Agent is duly qualified to carry on its business in
the State of New York;

(iii) the Transfer Agent is empowered under applicable laws and by its
charter document and By-Laws to enter into and perform this
Agreement;

(iv) all requisite corporate proceedings have been taken to authorize
the Transfer Agent to enter into and perform this Agreement.

(v) the Transfer Agent has, and will continue to have, access to the
facilities, personnel and equipment required to fully perform its
duties and obligations hereunder;

(vi) no legal or administrative proceedings have been instituted or
threatened which would impair the Transfer Agent's ability to
perform its duties and obligations under this Agreement; and

(vii) the Transfer Agent's entrance into this Agreement shall not cause
a material breach or be in material conflict with any other
agreement or obligation of the Transfer Agent or any law or
regulation applicable to the Transfer Agent;

(b) The Fund represents and warrants to the Transfer Agent that:

(i) the Fund is an open-end diversified management investment company
duly organized as a business trust under the laws of the State of
Delaware;

(ii) the Fund is empowered under applicable laws and by its Charter
Document and By-Laws to enter into and perform this Agreement;

(iii) all requisite proceedings have been taken to authorize the Fund
to enter into and perform this Agreement;

(iv) the Fund is an investment company properly registered under the
1940 Act;

(v) a registration statement under the Securities Act of 1933, as
amended (the "1933 Act") and the 1940 Act on Form N-1A has been
filed and will be effective and will remain effective during the
term of this Agreement, and all necessary filings under the laws
of the states will have been made and will be current during the
term of this Agreement;

2
<PAGE>

(vi) no legal or administrative proceedings have been instituted or
threatened which would impair the Fund's ability to perform its
duties and obligations under this Agreement; and

(vii) the Fund's entrance into this Agreement shall not cause a
material breach or be in material conflict with any other
agreement or obligation of the Fund or any law or regulation
applicable to it.

3. DELIVERY OF DOCUMENTS. The Fund will promptly furnish to the Transfer
Agent such copies, properly certified or authenticated, of
contracts, documents and other related information that the
Transfer Agent may request or requires to properly discharge its
duties. Such documents may include but are not limited to the
following.

(a) Resolutions of the Board authorizing the appointment of the
Transfer Agent to provide certain transfer agency services to the
Fund and approving this Agreement;

(b) The Fund's Charter Document;

(d) The Fund's Notification of Registration on Form N-8A under the
1940 Act as filed with the Securities and Exchange Commission
("SEC");

(e) The Fund's registration statement including exhibits, as amended,
on Form N-1A (the "Registration Statement") under the 1933 Act
and the 1940 Act, as filed with the SEC;

(f) Copies of the Investment Advisory Agreement between the Fund and
its investment adviser (the "Advisory Agreement");

(g) Opinions of counsel and auditors reports;

(h) The Fund's Prospectus(es) and Statement(s) of Additional
Information relating to all Investment Funds and all amendments
and supplements thereto (such Prospectus(es) and Statement(s) of
Additional Information and supplements thereto, as presently in
effect and as from time to time hereafter amended and
supplemented, herein called the "Prospectuses"); and

(i) Such other agreements as the Fund may enter into from time to
time including securities lending

3
<PAGE>

agreements, futures and commodities account agreements, brokerage
agreements, and options agreements.

4. SERVICES PROVIDED BY THE TRANSFER AGENT.

(a) The Transfer Agent will provide the following services subject to the
control, direction and supervision of the Board and in compliance with the
objectives, policies and limitations set forth in the Fund's Registration
Statement, Charter Document and By-Laws; applicable laws and regulations; and
all resolutions and policies implemented by the Board;

(i) Transfer Agency

A detailed description of the above service is contained in Schedule C to this
Agreement.

(ii) Dividend Disbursing. The Transfer Agent will serve as the Fund's
dividend disbursing agent. The Transfer Agent will prepare and mail checks,
place wire transfers of credit income and capital gain payments to shareholders.
The Fund will advise the Transfer Agent of the declaration of any dividend or
distribution and the record and payable date thereof at least five (5) days
prior to the record date. The Transfer Agent will, on or before the payment
date of any such dividend or distribution, notify the Fund's Custodian of the
estimated amount required to pay any portion of such dividend or distribution
payable in cash, and on or before the payment date of such distribution, the
Fund will instruct its Custodian to make available to the Transfer Agent
sufficient funds for the cash amount to be paid out. If a shareholder is
entitled to receive additional shares by virtue of any such distribution or
dividend, appropriate credits will be made to each shareholder's account and/or
certificates delivered where requested. A shareholder not electing issuance of
certificates will receive a confirmation from the Transfer Agent indicating the
number of shares credited to his/her account.

(b) The Transfer Agent will also:

(i) provide office facilities with respect to the provision of
the services contemplated herein (which may be in the
offices of the Transfer Agent or a corporate affiliate of
the Transfer Agent);

(ii) provide the services of individuals to serve as officers of
the Fund who will be designated by the Transfer Agent and
elected by the Board subject to reasonable Board approval;

4
<PAGE>

(iii) provide or otherwise obtain personnel sufficient, in the
Transfer Agent's sole discretion, for provision of the
services contemplated herein;

(iv) furnish equipment and other materials, which the Transfer
Agent, in its sole discretion, believes are necessary or
desirable for provision of the services contemplated herein;
and

(v) keep records relating to the services provided hereunder in
such form and manner as set forth in Schedule C, and as the
Transfer Agent may otherwise deem appropriate or advisable,
all in accordance with the 1940 Act. To the extent required
by Section 31 of the 1940 Act and the rule thereunder, the
Transfer Agent agrees that all such records prepared or
maintained by the Transfer Agent relating to the services
provided hereunder are the property of the Fund and will be
preserved for the periods prescribed under Rule 31a-2 under
the 1940 Act, maintained at the Fund's expense, and made
available in accordance with such Section and rules. The
Transfer Agent further agrees to surrender promptly to the
Fund upon its request and cease to retain in its records and
files those records and documents created and maintained by
the Transfer Agent pursuant to this Agreement.

5. FEES; EXPENSES; EXPENSE REIMBURSEMENT.

(a) As compensation for the services rendered to the Fund pursuant to this
Agreement the Fund shall pay the Transfer Agent monthly fees determined as set
forth in Schedule A to this Agreement. Such fees are to be billed monthly and
shall be due and payable upon receipt of the invoice. Upon any termination of
this Agreement before the end of any month, the fee for the part of the month
before such termination shall be prorated according to the proportion which such
part bears to the full monthly period and shall be payable upon the date of
termination of this Agreement.

(b) For the purpose of determining fees calculated as a function of the
Fund's assets, the value of the Fund's assets and net assets shall be computed
as required by its Prospectuses, generally accepted accounting principles and
resolutions of the Board.

5
<PAGE>

(c) The Transfer Agent will from time to time employ or associate with such
person or persons as may be appropriate to assist the Transfer Agent in the
performance of this Agreement. Such person or persons may be officers and
employees who are employed or designated as officers by both the Transfer Agent
and the Fund. The compensation of such person or persons for such employment
shall be paid by the Transfer Agent and no obligation will be incurred by or on
behalf of the Fund in such respect.

(d) The Transfer Agent will bear all of its own expenses in connection with
the performance of the services under this Agreement except as otherwise
expressly provided herein. The Fund agrees to promptly reimburse the Transfer
Agent for any equipment and supplies specially ordered by or for the Fund
through the Transfer Agent and for any other expenses not contemplated by this
Agreement that the Transfer Agent may incur on the Fund's behalf at the Fund's
request or as consented to by the Fund. Such other expenses to be incurred in
the operation of the Fund and to be borne by the Fund, include, but are not
limited to: taxes; interest; brokerage fees and commissions; salaries and fees
of officers and directors who are not officers, directors, shareholders or
employees of the Service Agent, or the Fund's investment adviser or distributor;
SEC and state Blue Sky registration and qualification fees, levies, fines and
other charges; advisory and administration fees; charges and expenses of
custodians; insurance premiums including fidelity bond premiums; auditing and
legal expenses; costs of maintenance of corporate existence; expenses of
typesetting and printing of prospectuses for regulatory purposes and for
distribution to current shareholders of the Fund (the Fund's distributor to bear
the expense of all other printing, production, and distribution of prospectuses,
statements of additional information, and marketing materials); expenses of
printing and production costs of shareholders' reports and proxy statements and
materials; costs and expenses of Fund stationery and forms; costs and expenses
of special telephone and date lines and devices; costs associated with
corporate, shareholder, and Board meetings; and any extraordinary expenses and
other customary Fund expenses. In addition, the Service Agent may utilize one
or more independent pricing services, approved from time to time by the Board,
to obtain securities prices and to act as backup to the primary pricing
services, in connection with determining the net asset values of the Fund, and
the Fund will reimburse the Service Agent for the Fund's share of the cost of
such services based upon the actual usage, or a pro-rata estimate of the use, of
the services for the benefit of the Fund.

(e) The Fund may request additional services, additional processing, or
special reports. Such requests may be provided by the Transfer Agent at
additional charges. In this event, the Fund shall submit such requests in
writing together with such specifications as may be reasonably required by the
Transfer

6
<PAGE>

Agent, and the Transfer Agent shall respond to such requests in the form of a
price quotation. The Fund's written acceptance of the quotation must be
received prior to implementation of such request. Additional services will be
charged at the Transfer Agent's standard rates.

(f) All fees, out-of-pocket expenses, or additional charges of the Transfer
Agent shall be billed on a monthly basis and shall be due and payable upon
receipt of the invoice.

The Transfer Agent will render, after the close of each month in which
services have been furnished, a statement reflecting all of the charges for such
month. Charges remaining unpaid after thirty (30) days shall bear interest in
finance charges equivalent to, in the aggregate, the Prime Rate (as determined
by U.S. Trust Company of New York) plus two (2) points per year and all costs
and expenses of effecting collection of any such sums, including reasonable
attorney's fees, shall be paid by the Fund to the Transfer Agent.

In the event that the Fund is more than sixty (60) days delinquent in
its payments of monthly billings in connection with this Agreement (with the
exception of specific amounts which may be contested in good faith by the Fund),
this Agreement may be terminated upon thirty days' written notice to the Fund by
the Transfer Agent. The Fund must notify the Transfer Agent in writing of any
contested amounts within thirty (30) days of receipt of a billing for such
amounts. Disputed amounts are not due and payable while they are being
investigated.

6. PROPRIETARY AND CONFIDENTIAL INFORMATION. The Transfer Agent
agrees on behalf of itself and its employees to treat confidentially and as
proprietary information of the Fund, all records and other information relative
to the Fund's prior, present of potential shareholders, and to not use such
records and information for any purpose other than performance of the Transfer
Agent's responsibilities and duties hereunder. The Transfer Agent may seek a
waiver of such confidentiality provisions by furnishing reasonable prior notice
to the Fund and obtaining approval in writing from the Fund, which approval
shall not be unreasonably withheld and may not be withheld where the Transfer
Agent may be exposed to civil or criminal contempt proceedings for failure to
comply, when requested to divulge such information by duly constituted
authorities. Waivers of confidentiality are automatically effective without
further action by the Transfer Agent with respect to Internal Revenue Service
levies, subpoenas and similar actions, or with respect to any request by the
Fund.

7
<PAGE>

7. DUTIES, RESPONSIBILITIES, AND LIMITATION OF LIABILITY.

(a) In the performance of its duties hereunder, the Transfer Agent
shall be obligated to exercise due care and diligence, and to act in good faith
in performing the services provided for under this Agreement. In performing its
services hereunder, the Transfer Agent shall be entitled to rely on any oral or
written instructions, notices or other communications from the Fund and its
custodians, officers and directors, investors, agents and other service
providers which the Transfer Agent reasonably believes to be genuine, valid and
authorized. The Transfer Agent shall also be entitled to consult with and rely
on the advice and opinions of outside legal counsel retained by the Fund, as
necessary or appropriate.

(b) The Transfer Agent shall not be liable for any error of judgment
or mistake of law or for any loss or expense suffered by the Fund, in connection
with the matters to which this Agreement relates, except for a loss or expense
solely caused by or resulting from willful misfeasance, bad faith or gross
negligence on the Transfer Agent's part in the performance of its duties or from
reckless disregard by the Transfer Agent of its obligations and duties under
this Agreement. The Transfer Agent's liability under this Agreement for any
cause whatsoever shall be limited to the total amount of fees paid to the
Transfer Agent under this Agreement for the prior year. Any person, even though
also an officer, director, partner, employee, or agent of the Transfer Agent,
who may be or become an officer, director, partner, employee, or agent of the
Fund, shall be deemed when rendering services to the Fund or acting on any
business of the Fund (other than services or business in connection with the
Transfer Agent's duties hereunder) to be rendering such services to or acting
solely for the Fund and not as an officer, director, partner, employee or agent
or person under the control or direction of the Transfer Agent even though paid
by the Transfer Agent.

(c) Subject to Paragraph 7(b) above, the Transfer Agent shall not be
responsible for, and the Fund shall indemnify and hold the Transfer Agent
harmless from and against, any and all losses, damages, costs, reasonable
attorneys' fees and expenses, payments, expenses and liabilities arising out of
or attributable to:

(i) all actions of the Transfer Agent or its officers or
agents required to be taken pursuant to this Agreement;

(ii) the reliance on or use by the Transfer Agent or its
officers or agents of information, records, or
documents which

8
<PAGE>

are received by the Transfer Agent or its officers or
agents and furnished to it or them by or on behalf of
the Fund, and which have been prepared or maintained by
the Fund or any third party on behalf of the Fund;

(iii) The Fund's refusal or failure to comply with the terms
of this Agreement or the Fund's lack of good faith, or
its actions, or lack thereof, involving negligence or
willful misfeasance;

(iv) the breach of any representation or warranty of the
Fund hereunder;

(v) the taping or other form of recording of telephone
conversations or other forms of electronic
communications with investors and shareholders, or
reliance by the Transfer Agent on telephone or other
electronic instructions of any person acting on behalf
of a shareholder or shareholder account for which
telephone or other electronic services have been
authorized;

(vi) the reliance on or the carrying out by the Transfer
Agent or its officers or agents of any proper
instructions reasonably believed to be duly authorized,
or requests of the Fund or recognition by the Transfer
Agent of any share certificates which are reasonably
believed to bear the proper signatures of the officers
of the Fund and the proper countersignature of any
transfer agent or registrar of the Fund;

(vii) any delays, inaccuracies, errors in or omissions from
data provided to the Transfer Agent by data and pricing
services;

(viii) the offer or sale of shares by the Fund in violation of
any requirement under the Federal securities laws or
regulations or the securities laws or regulations of
any state, or in violation of any stop order or other
determination or ruling by any Federal agency or any
state agency with respect

9
<PAGE>

to the offer or sale of such shares in such state
resulting from activities, actions, or omissions by the
Fund's distributor or existing or arising out of
activities, actions or omissions by or on behalf of the
Fund prior to the effective date of this Agreement; and

(ix) the compliance by the Fund, its investment adviser, and
its distributor with applicable securities, tax,
commodities and other laws, rules and regulations.

8. TERM. This Agreement shall become effective on the date first
herein above written. This Agreement may be modified or amended from time to
time by mutual agreement between the parties hereto. This Agreement shall
continue in effect unless terminated by either party on 90 days' prior notice.
Upon termination of this Agreement, the Fund shall pay to the Transfer Agent
such compensation and any reimbursable expenses as may be due under the terms
hereof as of the date of termination or the date that the provision of services
ceases, whichever is later.

9. HIRING OF EMPLOYEES. The Fund and the Transfer Agent agree that
they will not enter into discussions of employment or make offers of employment
to each others' employees without written approval from the other.

10. NOTICES. Any notice required or permitted hereunder shall be in
writing and shall be deemed to have been given when delivered in person or by
certified mail, return receipt requested, to the parties at the following
address (or such other address as a party may specify by notice to the other):

If to the Fund:

Excelsior Institutional Trust
6 St. James Avenue
Boston, Massachusetts 02116
Attn: Philip W. Coolidge
Fax: (617) 542-5815

If to the Transfer Agent:

Mutual Funds Service Company
73 Tremont Street
Boston, Massachusetts 02108-3913
Attn: Karl Hartmann, General Counsel

10
<PAGE>

Fax: (617) 557-8816

Notice shall be effective upon receipt if by mail, on the date of
personal delivery (by private messenger, courier service or otherwise) or upon
confirmed receipt of telex or facsimile, whichever occurs first.

11. ASSIGNABILITY. This Agreement shall not be assigned by any of
the parties hereto without the prior consent in writing of the other party;
provided, however, that the Transfer Agent may in its own discretion and without
limitation or prior consent of the Fund, whenever and on such terms and
conditions as the Transfer Agent deems necessary or appropriate, subcontract,
delegate or assign its rights, duties, obligations and liabilities to
subsidiaries or affiliates of the Transfer Agent; provided, further, that any
such subcontract, agreement or understanding shall not discharge the Transfer
Agent or its affiliates or subsidiaries, as the case may be, from its
obligations hereunder. Similarly, the Transfer Agent or its affiliated
subcontractor, designee, or assignee may at its discretion, without notice to
the Fund, enter into such subcontracts, agreements and understandings, whenever
and on such terms and conditions as the Transfer Agent or they deem necessary or
appropriate to perform services hereunder, with non-affiliated third parties;
provided, that such subcontract, agreement or understanding shall not discharge
the Transfer Agent, or its subcontractor, designee, or assignee, as the case may
be, from the Transfer Agent's obligations hereunder. The Transfer Agent or its
affiliated subcontractor, designee, or assignee shall, however, be discharged
from the Transfer Agent's obligations hereunder, if the Fund or its sponsor,
investment adviser or distributor require the Transfer Agent or its affiliated
subcontractor, designee, or assignee to enter into any subcontractor, agreement
or understanding to perform services hereunder with any non-affiliated third
party; and the Fund shall indemnify and hold harmless the Transfer Agent and its
affiliated subcontractor, designee, or assignee from and against, any and all
losses, damages, costs, reasonable attorneys' fees and expenses, payments,
expenses and liabilities arising out of or attributable to such subcontract,
agreement or understanding.

12. WAIVER. The failure of a party to insist upon strict adherence
to any term of this Agreement on any occasion shall not be considered a waiver
nor shall it deprive such party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver must be in
writing signed by the waiving party.

13. FORCE MAJEURE. The Transfer Agent shall not be responsible or
liable for any failure or delay in performance of its obligations under this
Agreement arising out of or caused,

11
<PAGE>

directly or indirectly, by circumstances beyond its control, including without
limitation, acts of God, earthquakes, fires, floods, wars, acts of civil or
military authorities, or governmental actions, not shall say such failure or
delay give the Fund the right to terminate this Agreement.

14. USE OF NAME. The Fund and the Transfer Agent agree not to use
the other's name nor the names of such other's affiliates, designees, or
assignees in any prospectus, sales literature, or other printed material written
in a manner not previously, expressly approved in writing by the other or such
other's affiliates, designees, or assignees except where required by the SEC or
any state agency responsible for securities regulation.

15. AMENDMENTS. This Agreement may be modified or amended from time
to time by mutual written agreement between the parties. No provision of this
Agreement may be changed, discharged, or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, discharge or termination is sought.

16. SEVERABILITY. If any provision of this Agreement is invalid or
unenforceable, the balance of the Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance it shall nevertheless
remain applicable to all other persons and circumstances.

17. GOVERNING LAW. This Agreement shall be governed by the laws of
the State of New York.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below as of the date first written
above.

EXCELSIOR INSTITUTIONAL TRUST

Attest: /s/ Andres Saldana By: /s/ Philip Coolidge
------------------ -------------------

Name: /s/ Andres Saldana Name: /s/ Philip Coolidge
------------------ -------------------

Title: President
---------

MUTUAL FUNDS SERVICE COMPANY

Attest: /s/ Karl O. Hartmann By: /s/ Kenneth Boschen
-------------------- -------------------

Name: /s/ Karl O. Hartmann Name: /s/ Kenneth Boschen
-------------------- -------------------

Title: President
---------

12
<PAGE>

MUTUAL FUNDS TRANSFER AGENCY AGREEMENT
EXCELSIOR INSTITUTIONAL TRUST

SCHEDULE A

FEES AND EXPENSES

$18,000 per annum/per Fund.

13
<PAGE>

MUTUAL FUNDS TRANSFER AGENCY AGREEMENT
EXCELSIOR INSTITUTIONAL TRUST

SCHEDULE B

LISTING OF INVESTMENT FUNDS SUBJECT TO THIS AGREEMENT

Excelsior Institutional Equity Index Fund

Excelsior Institutional Bond Index Fund

Excelsior Institutional Small Capitalization Fund

Excelsior Institutional Balanced Fund

Excelsior Institutional Equity Growth Fund

Excelsior Institutional Equity Index Fund

Excelsior Institutional Value Equity Fund

Excelsior Institutional Income Fund

Excelsior Institutional Equity Fund

Excelsior Institutional Total Return Bond Fund

Excelsior Institutional International Equity Fund

14
<PAGE>

MUTUAL FUNDS TRANSFER AGENCY AGREEMENT
EXCELSIOR INSTITUTIONAL TRUST

SCHEDULE C

DESCRIPTION OF TRANSFER AGENCY SERVICES

The following is a general description of the transfer agency services
the Transfer Agent shall provide to the Fund.

A. SHAREHOLDER RECORDKEEPING. Maintain records showing for each Fund
shareholder the following: (i) name, address and tax identifying number; (ii)
number of shares of each Investment Fund; (iii) historical information
including, but not limited to, dividends paid and date and price of all
transactions including individual purchases and redemptions; and (iv) any
dividend reinvestment order, application, dividend address and correspondence
relating to the current maintenance of the account.

B. SHAREHOLDER ISSUANCE. Record the issuance of shares of each
Investment Fund. Except as specifically agreed in writing between the Transfer
Agent and the Fund, the Transfer Agent shall have no obligation when
countersigning and issuing and/or crediting shares to take cognizance of any
other laws relating to the issue and sale of such shares except insofar as
policies and procedures of the Stock Transfer Association recognize such laws.

C. PURCHASE ORDERS. Process all orders for the purchase of shares of the
Fund in accordance with the Fund's current registration statement. Upon receipt
of any check or other payment for purchase of shares of the Fund from an
investor, the Transfer Agent will (i) stamp the envelope with the date of
receipt, (ii) forthwith process the same for collection, (iii) determine the
amounts thereof due the Fund, and notify the Fund of such determination and
deposit, such notification to be given on a daily basis of the total amounts
determined and deposited to the Fund's custodian bank account during such day.
The Transfer Agent shall then credit the share account of the investor with the
number of Investment Fund shares to be purchased made on the date such payment
is received by the Transfer Agent, as set forth in the Fund's current prospectus
and shall promptly mail a confirmation of said purchase to the investor, all
subject to any instructions which the Fund may give to the Transfer Agent with
respect to the timing or manner of acceptance of orders for shares relating to
payments so received by it.

15
<PAGE>

D. REDEMPTION ORDERS. Receive and stamp with the date of receipt all
requests for redemptions or repurchase of shares held in certificate or non-
certificate form, and process redemptions and repurchase requests as follows:
(I) if such certificate or redemption request complies with the applicable
standards approved by the Fund, the Transfer Agent shall on each business day
notify the Fund of the total number of shares presented and covered by such
requests received by the Transfer Agent on such day; (ii) on or prior to the
seventh calendar day succeeding any such requests received by the Transfer Agent
shall notify the Custodian, subject to instructions from the Fund, to transfer
moneys to such account as designated by the Transfer Agent for such payment to
the redeeming shareholder of the applicable redemption or repurchase price;
(iii) if any such certificate or request for redemption of repurchase does not
comply with applicable standards, the Transfer Agent shall promptly notify the
investor of such fact, together with the reason therefor, and shall effect such
redemption at the Fund's price next determined after receipt of documents
complying with said standards of, at such other time as the Fund shall so
direct.

E. TELEPHONE ORDERS. Process redemptions, exchanges and transfers of
Fund shares upon telephone instructions from qualified shareholders in
accordance with the procedures set forth in the Fund's current prospectus. The
Transfer Agent shall be permitted to redeem, exchange and/or transfer Fund
shares from any account for which such services have been authorized.

F. TRANSFER FOR SHARES. Upon receipt by the Transfer Agent of
documentation in proper form to effect a transfer of shares, including in the
case of shares for which certificates have been issued the share certificates in
proper form for transfer, the Transfer Agent will register such transfer on the
Fund's shareholder record maintained by the Transfer Agent pursuant to
instructions received from the transferor, cancel the certificates representing
such shares, if any, and if so requested, countersign, register, issue and mail
by first class mail new certificates for the same or a smaller whole number of
shares.

G. SHAREHOLDER COMMUNICATIONS AND MEETING. Address and mail all
communications by the Fund to its shareholders promptly following the delivery
by the Fund of the material to be mailed. Prepare shareholder lists, mail and
certify as to the mailing of proxy materials, receive the tabulated proxy cards,
render periodic reports to the Fund on the progress of such tabulation, and
provide the Fund with inspectors of election at any meeting of shareholders.

H. SHARE CERTIFICATES. If a shareholder of the Fund requests a
certificate representing his shares, the Transfer Agent, will countersign and
mail by first class mail with receipt

16
<PAGE>

confirmed, a share certificate to the investor at his/her address as it appears
on the Fund's transfer books. The Transfer Agent shall supply, at the expense
of the Fund, a supply of blank share certificates. The certificates shall be
properly signed, manually or by facsimile, as authorized by the Fund, and shall
bear the Fund's seal or facsimile; and notwithstanding the death, resignation or
removal of any officers of the Fund authorized to sign certificates, the
Transfer Agent may, until otherwise directed by the Fund, continue to
countersign certificates which bear the manual or facsimile signature of such
officer.

I. RETURNED CHECKS. In the event that any check or other order for the
payment of money is returned unpaid for any reason, the Transfer Agent will take
such steps, including redepositing the check for collection or returning the
check to the investor, as the Transfer Agent may, at its discretion, deem
appropriate and notify the Fund of such action, or as the Fund may instruct.

J. SHAREHOLDER CORRESPONDENCE. Acknowledge all correspondence from
shareholders relating to their share accounts and undertake such other
shareholder correspondence as may from time to time be mutually agreed upon.

<PAGE>

EXHIBIT 99.9D

MUTUAL FUNDS TRANSFER AGENCY AGREEMENT
EXCELSIOR INSTITUTIONAL TRUST

SCHEDULE B

LISTING OF INVESTMENT FUNDS SUBJECT TO THIS AGREEMENT

Excelsior Institutional Equity Index Fund
Excelsior Institutional Bond Index Fund
Excelsior Institutional Small Capitalization Fund
Excelsior Institutional Balanced Fund
Excelsior Institutional Equity Growth Fund
Excelsior Institutional Value Equity Income Fund
Excelsior Institutional Income Fund
Excelsior Institutional Equity Fund
Excelsior Institutional Total Return Bond Fund
Excelsior Institutional International Equity Fund
Excelsior Institutional Value Equity Fund
Excelsior Institutional Optimum Growth Fund

Agreed to and accepted as of February 9, 1996:

EXCELSIOR INSTITUTIONAL TRUST

By:___________________________

CHASE GLOBAL FUNDS SERVICES COMPANY

By:___________________________

<PAGE>

EXIBIT 99.11A

CONSENT OF COUNSEL

We hereby consent to the use of our name and to the reference to our Firm
under the caption "Counsel" in the Statement of Additional Information that is
included in Post-Effective Amendment No. 11 to the Registration Statement (No.
33-78264) on Form N-1A under the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, of Excelsior Institutional Trust. This consent
does not constitute a consent under section 7 of the Securities Act of 1933, and
in consenting to the use of our name and the references to our Firm under such
caption we have not certified any part of the Registration Statement and do not
otherwise come within the categories of persons whose consent is required under
said section 7 or the rules and regulations of the Securities and Exchange
Commission thereunder.

/s/ Drinker Biddle & Reath
--------------------------
DRINKER BIDDLE & REATH

Philadelphia, Pennsylvania
September 30, 1996

<PAGE>

Exhibit 99.11(b)

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Independent Auditors" and "Financial
Statements" in the Statement of Additional Information, to the incorporation by
reference therein of our report on the financial statements and financial
highlights of the Excelsior Institutional Equity Fund, Excelsior Institutional
Income Fund, Excelsior Institutional Total Return Bond Fund, Excelsior
Institutional Balanced Fund, Excelsior Institutional Equity Growth Fund and
Excelsior Institutional International Equity Fund, six of the Funds comprising
Excelsior Institutional Trust, dated July 15, 1996, to the incorporation by
reference therein of our report on the financial statements and financial
highlights of the Excelsior Institutional Bond Index Fund, one of the Funds
comprising the Excelsior Institutional Trust, dated July 18, 1996, and to the
incorporation by reference therein of our report on the financial statements and
financial highlights of the Bond Index Portfolio, a series of Federated
Investment Portfolios, dated July 18, 1996, in this Post-Effective Amendment
Number 11 to the Registration Statement (Form N-1A No. 33-78264) dated September
30, 1996.

ERNST & YOUNG LLP

Boston, Massachusetts
September 27, 1996

<PAGE>

EXHIBIT 99.13B

PURCHASE AGREEMENT
------------------

Excelsior Institutional Trust (the "Company"), a Delaware business trust,
and Edgewood Services, Inc. ("Edgewood"), a New York corporation, hereby agree
with each other as follows:

1. The Company hereby offers Edgewood and Edgewood hereby purchases one
Institutional Share and one Trust Share of each of the Optimum Growth
and Value Equity Funds of the Company at $10 per share (collectively,
the "Shares"). The Company hereby acknowledges receipt from Edgewood
of funds in the total amount of $40 in full payment for the Shares.

2. Edgewood represents and warrants to the Company that the Shares are
being acquired for investment purposes and not with a view to the
distribution thereof.

IN AGREEMENT WHEREOF, and intending to be legally bound hereby, the parties
hereto have executed this Agreement as of the 1st day of May, 1996.

EXCELSIOR INSTITUTIONAL TRUST

By:/s/ A. C. Tannachion
--------------------
its President

EDGEWOOD SERVICES, INC.

By:/s/ R. Jeffrey Niss
-------------------
its Senior Vice President