<PAGE>
As filed with the Securities and Exchange Commission on September 30, 1997
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. 15
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 17
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 LLP
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)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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
24f-2 Notice for the Equity, Income, Total Return Bond, Balanced, International
Equity, Optimum Growth and Value Equity Funds for the fiscal period ended March
31, 1997 was filed on May 29, 1997. Registrant's 24f-2 Notice for the Bond Index
and Equity Growth Funds for the fiscal year ended May 31, 1997 was filed on July
29, 1997.
<PAGE>
EXCELSIOR INSTITUTIONAL TRUST
CROSS-REFERENCE SHEET
(As Required by Rule 495)
Bond Index Fund
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 Objective
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 Bond Index Fund
- --------------------------------------------------------------------------------
For initial purchase and existing account
Excelsior Institutional Trust information, call (800) 909-1989.
73 Tremont Street
Boston, Massachusetts 02108-3913 (From overseas, call (617) 557-1755.)
(617) 557-8000 For current prices and yield information,
call (800) 861-3430.
- --------------------------------------------------------------------------------
This Prospectus describes shares ("Shares") offered by the Bond Index Fund (the
"Fund"), a diversified portfolio offered to institutional investors by Excel-
sior Institutional Trust (the "Trust"), an open-end management investment com-
pany.
The investment objective of EXCELSIOR INSTITUTIONAL BOND INDEX FUND is to pro-
vide investment results that correspond to the investment performance of the
Lehman Brothers Aggregate Bond Index (the "Aggregate Bond Index"), a broad mar-
ket-weighted index which encompasses U.S. Treasury and agency securities, cor-
porate investment grade bonds and mortgage-backed securities each with maturi-
ties greater than one year.
This Prospectus sets forth concisely the information about the Fund that a pro-
spective investor should consider before investing. Investors should read this
Prospectus carefully and retain it for future reference. A Statement of Addi-
tional Information containing additional information about the Fund 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 Information bears the
same date as this Prospectus and is incorporated by reference in its entirety
into this Prospectus. The SEC maintains a World Wide Web site
(http://www.sec.gov) that contains the Statement of Additional Information and
other information regarding the Trust.
Unlike other mutual funds which directly acquire and manage their own portfo-
lios of securities, the Fund seeks to achieve its investment objective by in-
vesting all of its investable assets in the Bond Index Portfolio, a series of
Federated Investment Portfolios (the "Federated Portfolios"), an open-end man-
agement investment company. The Bond Index Portfolio has the same investment
objective and policies as the Fund. Therefore, the Fund's investment experience
will correspond directly
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR EN-
DORSED BY, UNITED STATES TRUST COMPANY OF NEW YORK, U.S. TRUST COMPANY OF CON-
NECTICUT, THEIR PARENT AND AFFILIATES AND THE SHARES ARE NOT FEDERALLY INSURED
BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERN-
MENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE
FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE
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, 1997
<PAGE>
with that of the Bond Index Portfolio. The Fund invests in the Bond Index Port-
folio through a two-tier master/feeder fund structure. See "Special Information
Concerning Hub and Spoke(R) Structure." Because the Fund invests through the
Bond Index Portfolio, all references in this Prospectus to the 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.
Federated Research Corp. is the investment ad-
viser for the Bond Index Portfolio. Federated Research Corp. has delegated the
daily management of the security holdings of the Bond Index Portfolio to United
States Trust Company of New York ("U.S. Trust New York"), acting as sub-advis-
er. U.S. Trust New York and Federated Research Corp. are referred to collec-
tively as the "investment managers." For more information on the investment
managers, please refer below to the section entitled "Management of the Trust--
Investment Managers."
2
<PAGE>
EXCELSIOR INSTITUTIONAL TRUST
SUMMARY OF EXPENSES
The following table provides (i) a summary of expenses relating to purchases
and sales of Fund Shares, and the aggregate annual operating expenses for the
Fund, as a percentage of the Fund's average net assets, and (ii) an example
illustrating the dollar cost of such estimated expenses on a $1,000 investment
in the Fund.
The table illustrates that investors in the Fund incur no shareholder trans-
action expenses imposed by the Trust, although some institutional investors
("Shareholder Organizations") may charge their customers account fees for in-
vestment and other cash management services in connection with purchases and
redemptions of the Fund's Shares. See "How to Purchase, Exchange and Redeem
Shares" below. Customers should contact their Shareholder Organization di-
rectly for further information. Investments in the Fund are subject to the op-
erating expenses set forth below. Expenses of the Fund are discussed below un-
der "Management of the Trust."
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES/1/
Front-End 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>
BOND
INDEX
FUND
-----
<S> <C>
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)/2/
Advisory Fees (after fee waivers)/1/..................................... 0%
12b-1 Fees............................................................... None
Other Operating Expenses (after fee waivers and expense reimburse-
ments)/1/
Administration Fees.................................................... .15
Administrative Servicing Fees.......................................... 0
Other Expenses......................................................... .15
----
Total Other Operating Expenses....................................... .30
----
Total Operating Expenses (after fee waivers and expense
reimbursements)/1/...................................................... .30%
====
</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>
Bond Index Fund................................. $ 3 $10 $17 $38
</TABLE>
- -------
1 The investment managers and administrators have agreed to waive certain
fees, which waivers may be terminated at any time. Until further notice,
the investment managers and administrators intend to voluntarily waive fees
in an amount equal to the administrative servicing fees and to further
waive fees and reimburse expenses during the remainder of the current fis-
cal year as necessary to maintain the Fund's total operating expenses at
the level set forth in the table. Institutional investors may enter into an
asset management services agreement with U.S. Trust New York and its affil-
iates pursuant to which the investor may agree to pay U.S. Trust New York
or its affiliate annual fees calculated as a specified percentage of aver-
age net assets. In addition, Shareholder Organizations may charge their
customers account fees for investment and other cash management services.
See "How to Purchase, Exchange and Redeem Shares" below. Accordingly, the
example does not reflect an amount for any such fees paid directly to U.S.
Trust New York and its affiliates by an institutional investor or to a
Shareholder Organization by its customers.
2 The expenses indicated include the Fund's pro rata share of the aggregate
annual operating expenses of the Bond Index Portfolio, in which all of the
investable assets of the Fund are invested. The Trustees of the Trust be-
lieve that the aggregate per share expenses of the Fund and the Fund's pro
rata share of the expenses for the Bond Index Portfolio will be less than
or approximately the same as the expenses which the Fund would incur if the
Trust retained the services of an investment adviser and the assets of the
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 expense table is to assist investors
in understanding the various costs and expenses that shareholders of the Fund
will bear directly or indirectly. The expense table sets forth advisory and
other expenses payable with respect to Shares of the Fund for the fiscal year
ended May 31, 1997. The expense table and example reflect voluntary undertak-
ings (i) by U.S. Trust New York, Federated Research Corp. and Federated Serv-
ices Company to waive certain of their fees, and (ii) by U.S. Trust New York
to reimburse the Trust for certain expenses. After giving effect to such waiv-
ers and expense reimbursements, the aggregate operating expenses (including
amortization of organizational expenses but exclusive of taxes, interest, bro-
kerage commissions and extraordinary expenses) of the Fund will be as shown
above. Without such fee waivers and expense reimbursements, (a) the advisory
fees paid would equal 0.25% of the Fund's average daily net assets; (b) the
administration fees with respect to the Fund would equal 0.60% of its average
daily net assets; (c) "Total Other Operating Expenses" would equal 0.78% of
the Fund's average daily net assets; and (d) the aggregate "Total Operating
Expenses" would equal 1.63% of the Fund's average daily net assets. For more
information with respect to the Fund's expenses, see "Management of the
Trust." Fee waivers and expense reimbursements are terminable at any time in
the sole discretion of the service providers waiving fees or reimbursing ex-
penses.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables include selected data for a Share outstanding through-
out each period and other performance information derived from the financial
statements included in the Trust's Annual Report to Shareholders for the year
ended May 31, 1997 (the "Financial Statements"). The information contained in
the Financial Highlights for each period has been audited by Ernst & Young
LLP, the Trust's independent auditors. The following tables should be read in
conjunction with the Financial Statements and notes thereto. More information
about the Fund's performance is also contained in the Annual Report to Share-
holders, which may be obtained from the Trust without charge by calling the
number on the front cover of this Prospectus.
<TABLE>
<CAPTION>
BOND INDEX FUND
--------------------------
JULY 11,
YEAR YEAR 1994(A)
ENDED ENDED TO
MAY 31, MAY 31, MAY 31,
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............. $ 6.96 $ 7.26 $ 7.00
------- ------- -------
INVESTMENT OPERATIONS:
Net investment income............................ 0.49 0.50 0.46
Net realized and unrealized gain (loss).......... 0.06 (0.20) 0.28
------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS................ 0.55 0.30 0.74
------- ------- -------
DISTRIBUTIONS:
From net investment income....................... (0.48) (0.50) (0.46)
From net realized gains.......................... (0.06) (0.10) (0.02)
In excess of net realized gains(b)............... (0.01) (0.00) (0.00)(c)
------- ------- -------
TOTAL DISTRIBUTIONS............................. (0.55) (0.60) (0.48)
------- ------- -------
NET ASSET VALUE, END OF PERIOD.................... $ 6.96 $ 6.96 $ 7.26
======= ======= =======
TOTAL RETURN...................................... 8.04% 4.12% 11.03%(d)
RATIOS AND SUPPLEMENTAL DATA:
Ratios to Average Net Assets
Expenses(f)...................................... 0.10% 0.11% 0.12%(e)
Net Investment Income(f)......................... 7.00% 6.91% 7.33%(e)
Portfolio Turnover Rate(g)......................... 49% 43% 67%
Net Assets at end of Period (000's omitted)....... $15,017 $15,005 $15,565
- -------
(a) Commencement of operations.
(b) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These dis-
tributions do not represent a return of capital for Federal income tax
purposes.
(c) Less than one cent per share.
(d) Not annualized.
(e) Annualized.
(f) Reflects: the Fund's proportionate share of the expenses of the Bond Index
Portfolio, in which the Fund currently invests all of its investable as-
sets, and the Bond Market Portfolio of St. James Portfolios, in which the
Fund had invested all of its investable assets prior to January 2, 1996;
voluntary fee waivers and reimbursements by agents of the Bond Market
Portfolio; and voluntary fee waivers and expense reimbursements by agents
of the Trust. 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....................................... 0.68% 0.58% 1.23%(e)
Net Investment Income(Loss).................... 6.42% 6.44% 6.22%(e)
</TABLE>
(g) Reflects the turnover rate for the Bond Index Portfolio.
5
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
INTRODUCTION
Excelsior Institutional Trust was organized as a business trust under the
laws of the State of Delaware, with the Fund established as a separate series
of the Trust, on April 27, 1994. Shares of the Fund are continuously sold to
institutional investors.
Unless otherwise stated, each of the investment objective, policies and
strategies discussed herein and in the Statement of Additional Information are
deemed "non-fundamental," i.e., the approval of the 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
Portfolio is not required to change the Bond Index Portfolio's investment ob-
jective or any of the Bond Index Portfolio's investment policies and strate-
gies. Any changes in the Fund's or the Bond Index Portfolio's investment ob-
jective, policies or strategies could result in the Fund having investment ob-
jectives, policies and strategies different from those applicable at the time
of a shareholder's investment in the Fund.
INVESTMENT OBJECTIVE
The investment objective of the 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 of U.S. in-
vestment grade fixed income securities 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 of the Fund's investable
assets in the Bond Index Portfolio, which is a series of Federated Investment
Portfolios ("Federated Portfolios"), a diversified open-end management invest-
ment company that has the same investment objective, policies and limitations
as the Fund. The Bond Index Portfolio seeks to achieve its invesment objective
by replicating the yield and total return of the Aggregate Bond Index through
a statistically selected sample of debt instruments.
The following is a discussion of the various investment policies and strate-
gies employed by the Fund. Additional information about the Fund's investment
policies and strategies appears in the Statement of Additional Information.
There can be no assurance that the Fund's investment objective will be
achieved. Because the Fund invests through the Bond Index Portfolio and has
the same investment policies and strategies as the Bond Index Portfolio, all
references to the Fund include the Bond Index Portfolio, except as otherwise
noted.
U.S. TRUST NEW YORK'S INVESTMENT PHILOSOPHY AND STRATEGIES
U.S. Trust New York, the sub-adviser for the Bond Index Portfolio, offers a
variety of specialized fiduciary and financial services to high net worth in-
dividuals, institutions and corporations. As one of the largest institutions
of its type, U.S. Trust New York prides itself in offering an attentive and
high level of service to each of its clients.
Investment Philosophy. The Fund is not managed pursuant to traditional meth-
ods of active investment management, which involve the buying and selling of
securities based upon economic, financial, and market analyses and investment
judgment. Instead, the Fund, utilizing a passive or indexing investment ap-
proach, will attempt to duplicate the investment performance of the Aggregate
Bond Index.
The Fund seeks to duplicate the investment performance of the Aggregate 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 expected to per-
form similarly to the Aggregate Bond Index as a whole. This sampling technique
is expected to enable the Fund to track the price movements and performance of
the Aggregate Bond Index, while minimizing brokerage, custodial and accounting
costs.
6
<PAGE>
The Trust expects that there will be a close correlation between the Fund's
performance and that of the Aggregate Bond Index in both rising and falling
markets. The Fund will attempt to maximize the correlation between its perfor-
mance and that of the Aggregate Bond Index. The investment managers seek a cor-
relation 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 review methods for in-
creasing such correlation with the investment managers, such as through adjust-
ments in securities holdings of the Fund. A correlation of 1.0 would indicate a
perfect correlation, which would be achieved when the Fund's net asset value,
including the value of its dividend and capital gains distributions, increases
or decreases in exact proportion to changes in the Aggregate Bond Index. The
investment managers monitor the correlation between the performance of the Fund
and the Aggregate Bond Index on a regular basis. Factors such as the size of
the Fund's securities holdings, transaction costs, management fees and ex-
penses, brokerage commissions and fees, the extent and timing of cash flows
into and out of the Fund, and changes in the securities markets and the Aggre-
gate Bond Index itself, are expected to account for any differences between the
Fund's performance and that of the Aggregate Bond Index.
INVESTMENT POLICIES
The Fund invests at least 80% of its assets in a portfolio of securities con-
sisting of a representative selection of debt instruments included in the Ag-
gregate Bond Index. The Fund intends to remain fully invested, to the extent
practicable, in a pool of securities 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 Aggregate Bond Index measures the total investment return (capital
change plus income) provided by a universe of fixed income securities, weighted
by the market value outstanding of each security. The securities included in
the Aggregate Bond Index generally meet the following criteria, as defined by
Lehman Brothers: an outstanding market value of at least $100 million, and in-
vestment grade quality, rated a minimum of Baa by Moody's Investors Service,
Inc. ("Moody's") or BBB by Standard & Poor's Ratings Group ("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; fixed rate non-
convertible dollar-denominated corporate debt; 15-year and 30-year fixed rate
securities backed by mortgage pools of the Government National Mortgage Associ-
ation (GNMA), the Federal Home Loan Mortgage Corporation (FHLMC) and the Fed-
eral National Mortgage Association (FNMA); and asset-backed pass-through secu-
rities representing pools of credit card receivables and auto or home equity
loans.
As of June 30, 1997, the following classes of fixed
income securities represented the stated proportions of the total market value
of the Aggregate Bond Index:
<TABLE>
<S> <C>
U.S. Treasury and government agency securities........................... 50.63%
Corporate bonds.......................................................... 18.56%
Mortgage-backed and asset-backed securities.............................. 30.81%
</TABLE>
The Fund has a policy of weighting its portfolio so as to approximate the rel-
ative composition of the securities contained in the Aggregate Bond Index under
normal circumstances. Therefore, for each of the three classes of debt instru-
ments listed above, the variation in weighting between the assets held by the
Fund and the assets in the Aggregate Bond Index is not expected to be greater
than plus or minus 5%. These weightings will be monitored at the time that se-
curities are purchased by the Fund. The prices of fixed income securities fluc-
tuate inversely to the direction of interest rates.
7
<PAGE>
U.S. GOVERNMENT AND AGENCY SECURITIES. The Fund may invest in U.S. Government
securities and securities issued or guaranteed by agencies or instrumentali-
ties of the U.S. Government. Securities issued or guaranteed by the U.S. Gov-
ernment 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 guar-
anteed 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 the discretionary authority of the U.S.
Government to purchase certain obligations of the agency or instrumentality;
other securities, such as those issued by the Student Loan Marketing Associa-
tion, are supported only by the credit of the agency or instrumentality. While
the U.S. Government provides financial support to such U.S. Government-spon-
sored agencies or instrumentalities, no assurance can be given that it will
always do so, since it is not so obligated by law. The 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 secu-
rities, see the Statement of Additional Information.
CORPORATE BONDS. The Fund may purchase domestic and foreign corporate and
sovereign debt securities denominated in U.S. dollars. The Fund may purchase
debt securities 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 to be of compara-
ble 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; how-
ever, securities with these ratings 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 payments than is the
case with higher grade bonds. The Fund intends to dispose of, in an orderly
manner, any security which is downgraded below investment grade subsequent to
its purchase. See the Appendix to the Statement of Additional Information 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 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 in-
terest 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 Fund, the result would be that bonds with high
interest rates are called and must be replaced with lower-yielding instru-
ments. In these circumstances, the income of the Fund would decline.
MORTGAGE PASS-THROUGHS AND COLLATERALIZED MORTGAGE OBLIGATIONS. The Fund may
purchase mortgage and mortgage-related securities such as pass-throughs and
collateralized mortgage obligations that meet the Fund's selection criteria
and are investment grade or of comparable quality (collectively, "Mortgage Se-
curities"). Mortgage pass-throughs are securities that pass through to invest-
ors 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 originated and issued by private
limited purpose corporations or conduits. Collateralized mortgage obligation
bonds are obligations of special purpose corporations 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
securities in the Fund may be
8
<PAGE>
subject to a greater degree of market volatility as a result of unanticipated
prepayments of principal. During periods of declining interest rates, the
principal invested in mortgage-backed securities with high interest rates may
be repaid earlier than scheduled, and the Fund will be forced to reinvest the
unanticipated payments at generally lower interest rates. When interest rates
fall and principal prepayments are reinvested at lower interest rates, the in-
come that the Fund derives from mortgage-backed securities is reduced. In ad-
dition, like other fixed income securities, Mortgage Securities generally de-
cline in price when interest rates rise.
Because the Fund will seek to represent all major sectors of the investment
grade fixed income securities market, the Fund may be a suitable vehicle for
those investors seeking ownership in the "bond market" as a whole, without re-
gard to particular sectors. The 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 fluctua-
tions, the Fund may be inappropriate for investors who have short-term objec-
tives or who require stability of principal. Investors should not consider the
Fund a complete investment program.
ADDITIONAL INVESTMENT STRATEGIES AND TECHNIQUES; RISK FACTORS
The Fund may utilize the investment strategies and techniques described be-
low.
SAMPLING AND TRADING IN THE FUND. The Fund does not expect to hold all of the
individual issues which comprise the Aggregate Bond Index because of the large
number of securities involved. Instead, the Fund will hold a representative
sample of securities, selecting one or two issues to represent entire classes
or types of securities in the Index. U.S. Trust New York expects this sampling
technique to be an effective means of substantially duplicating the income and
capital returns provided by the Index.
To reduce transaction costs, the Fund's securities holdings will not be auto-
matically traded or re-balanced to reflect changes in the Aggregate Bond In-
dex. 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 Aggregate Bond Index
weighting or result in its continued ownership by the Fund after its deletion
from the Aggregate Bond Index, thereby reducing the correlation between the
Fund and the Aggregate Bond Index. The Fund is not required to buy or sell se-
curities solely because the percentage of its assets invested in Aggregate
Bond Index securities changes when their market values increase or decrease.
In addition, in order to more closely correlate the return of the Fund to the
Aggregate Bond 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 seek a correlation of 0.95 or bet-
ter between the performance of the Fund and that of the Aggregate Bond Index.
See "U.S. Trust New York's Investment Philosophy and Strategies" above.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may purchase securities
on a "when-issued" basis and may purchase or sell securities on a "forward
commitment" basis in order to hedge against anticipated changes in interest
rates and prices. These transactions involve a commitment by the Fund to pur-
chase or sell particular securities with payment and delivery taking place in
the future, beyond the normal settlement date, at a stated price and yield.
Securities 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 gen-
eral level of interest rates. When such transactions are negotiated, the
price, which is generally expressed in yield terms, is fixed at the time the
commitment is made, but delivery and payment for the securities take place at
a later date. When-issued securities and forward commit -
9
<PAGE>
ments may be sold prior to the settlement date, but the Fund 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 Fund may
dispose of a commitment prior to settlement if the investment managers deem it
appropriate to do so. In addition, the Fund may enter into transactions to sell
such purchase commitments to third parties at current market values and simul-
taneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments. At the time the Fund enters into a transaction on a when-issued or
forward commitment basis, a segregated account consisting of liquid assets
equal to the value of the when-issued or forward commitment securities will be
established and maintained. There is a risk that the securities may not be de-
livered and that the Fund may incur a loss.
REPURCHASE AGREEMENTS. The Fund may engage in repurchase agreement transac-
tions with brokers, dealers or banks that meet the credit guidelines estab-
lished by the Trustees of the Trust. In a repurchase agreement, the 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. The Fund may borrow funds, in an amount up to
one-third of the value of its total assets, for temporary or emergency purpos-
es, such as meeting larger than anticipated redemption requests, and not for
leverage. The Fund may also agree to sell portfolio securities to financial in-
stitutions such as banks and broker-dealers and to repurchase them at a mutu-
ally agreed date and price (a "reverse repurchase agreement"). The SEC views
reverse repurchase agreements as a form of borrowing. At the time the Fund en-
ters into a reverse repurchase agreement, it will place in a segregated custo-
dial account liquid assets having a value equal to the repurchase price, in-
cluding accrued interest. Reverse repurchase agreements involve the risk that
the market value of the securities sold by the Fund may decline below the re-
purchase price of those securities.
INVESTMENT COMPANY SECURITIES. In connection with the management of its daily
cash position, the Fund may invest in securities issued by other investment
companies which invest in high quality, short-term debt securities and which
determine their net asset value per share based on the amortized cost or penny-
rounding method. In addition to the advisory fees and other expenses the Fund
bears directly in connection with its own operations, as a shareholder of an-
other investment company, the Fund would bear its pro rata portion of the other
investment company's advisory fees and other expenses. As such, the Fund's
shareholders would indirectly bear the expenses of the other investment compa-
ny, some or all of which would be duplicated. Securities of other investment
companies may be acquired by the Bond Index Portfolio to the extent permitted
under the 1940 Act, that is, the Bond Index Portfolio may invest a maximum of
up to 10% of its total assets in securities of other investment companies so
long as not more than 3% of the total outstanding voting stock of any one in-
vestment company is held by the Portfolio. In addition, not more than 5% of the
total assets of the Portfolio may be invested in the securities of any one in-
vestment company. The foregoing restrictions do not apply to the
10
<PAGE>
Fund, which invests all its investable assets in the Bond Index Portfolio.
FUTURES CONTRACTS AND OPTIONS. The Fund may purchase put and call options on
securities, indices of securities and futures contracts. The Fund 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, the 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 Fund will not invest
in futures or options as part of a defensive strategy to protect against po-
tential stock market declines. See "Futures Contracts and Options on Futures
Contracts" in the Statement of Additional Information.
The Fund 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) pur-
chase put and call options on futures contracts on securities and indexes of
securities. In addition, the Fund may sell (write) exchange-traded and OTC put
and call options on securities and indexes of securities and on futures con-
tracts on securities and indexes of securities. The staff of the SEC has taken
the position that OTC options are illiquid and, therefore, together with other
illiquid securities held by the Fund, cannot exceed 15% of the Fund's net as-
sets. The Fund intends to comply with this limitation.
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 the Fund's return. While the use of these techniques
by the Fund may reduce certain risks associated with owning its portfolio se-
curities, these investments entail certain other risks. If the investment man-
agers apply a strategy at an inappropriate time or judge market conditions or
trends incorrectly, options and futures strategies may lower the Fund's re-
turn. Certain strategies limit the Fund's potential to realize gains as well
as limit its exposure to losses. The 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, the Fund will incur transaction costs,
including trading commissions and option premiums, in connection with its
futures and options transactions and these transactions could significantly
increase the Fund's turnover rate. For more information on these investment
techniques, see the Statement of Additional Information.
The Fund may purchase and sell put and call options on securities, indexes of
securities and futures contracts, or purchase and sell futures contracts, only
if such options are written by other persons and if (i) the aggregate premiums
paid on all such options which are held at any time do not exceed 20% of the
Fund's total net assets, and (ii) the aggregate margin deposits required on
all such futures and premium on options thereon held at any time do not exceed
5% of the Fund's total assets. The Fund may also be subject to certain limita-
tions pursuant to the regulations of the Commodity Futures Trading Commission.
The Fund does not have 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. The
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 pub-
lic 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
11
<PAGE>
in the normal course of business at approximately the amount at which it is
valued by the Fund. The price the Fund pays for illiquid securities or re-
ceives upon resale may be lower than the price paid or received for similar
securities with a more liquid market. Accordingly, the valuation of these se-
curities will reflect any limitations on their liquidity.
Acquisitions of illiquid investments by the Fund are subject to the following
non-fundamental policies. The 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. The Fund 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 guide-
lines established by the investment managers and approved by the Trustees. The
Trustees will monitor the implementation of these guidelines on a periodic ba-
sis. Because Rule 144A is relatively new, it is not possible to predict how
markets in Rule 144A securities will develop. If trading in Rule 144A securi-
ties were to decline, these securities could become illiquid after being pur-
chased, increasing the level of illiquidity of the Fund. As a result, the Fund
might not be able to sell these securities when the investment managers wish
to do so, or might have to sell them at less than fair value.
SHORT-TERM INSTRUMENTS. The Fund may invest in short-term income securities
in accordance with its investment objective and policies as described above.
The Fund may also make money market investments pending other investments or
settlement, or to maintain liquidity to meet shareholder redemptions. Although
the Fund normally seeks to remain substantially fully invested in securities
selected to match the Aggregate Bond Index consistent with seeking a correla-
tion of 0.95 or better between the Fund's performance and that of the Aggre-
gate Bond Index, the Fund may invest temporarily up to 20% of its assets in
certain short-term fixed income securities.
The Fund will not invest in short-term instruments as part of a defensive
strategy to protect against potential market declines. Short-term investments
include: obligations of the U.S. Government and its agencies or instrumentali-
ties; commercial paper and other debt securities; variable and floating rate
securities; bank obligations; repurchase agreements collateralized by these
securities; and shares of other investment companies that primarily invest in
any of the above-referenced securities. Commercial paper consists of short-
term, unsecured promissory notes issued to finance short-term credit needs.
Other corporate obligations in which the Fund 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
Fund 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
conducted primarily by institutional investors through investment dealers, and
individual investor participation in the commercial paper market is very lim-
ited.
The 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 in-
struments 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-nego-
tiable 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 Fund
are not insured by the Federal Deposit Insurance Corporation or any other
agency of the U.S. Government. The Fund will not invest more than 15% of the
value of its net assets in time deposits maturing in longer than seven days
and other instruments which are deemed illiquid or not readily mar -
12
<PAGE>
ketable. Bankers' acceptances 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 maturity. The other short-term obligations in which the Fund
may invest include uninsured, direct obligations which have either fixed,
floating or variable interest rates.
The Fund will limit its short-term investments to those U.S. dollar-denomi-
nated instruments which are determined by or on behalf of the Board of Trustees
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 comparable quality
by the investment managers under the supervision of the Board of Trustees. The
Fund 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. Investments in high
quality short-term instruments may, in many circumstances, result in a lower
yield than would be available from investments in instruments with a lower
quality or longer term.
SECURITIES LENDING. The Fund may seek to increase its income by lending secu-
rities to banks, brokers or dealers and other recognized institutional invest-
ors. Such loans may not exceed 30% of the value of the Fund's total assets. In
connection with such loans, the 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. The Fund can increase its income through
the investment of any such collateral consisting of cash. The 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
terminable at any time upon specified notice. The Fund might experience risk of
loss if the institution with which it has engaged in a portfolio loan transac-
tion breaches its agreement with the Fund.
SHORT SALES "AGAINST THE BOX." In a short sale, the Fund sells a borrowed se-
curity and has a corresponding obligation to the lender to return the identical
security. The 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." The Fund may make a short sale as a hedge, when it be-
lieves that the value of a security owned by it (or a security convertible or
exchangeable for such security) may decline, or when the Fund wants to sell the
security at an attractive current price but wishes to defer recognition of gain
or loss for tax purposes. Not more than 40% of the Fund's total assets would be
involved in short sales "against the box."
CERTAIN OTHER OBLIGATIONS. Consistent with its investment objective, policies
and restrictions, the Fund may also invest in participation interests, guaran-
teed investment contracts and zero coupon obligations. See the Statement of Ad-
ditional Information. In order to allow for investments in new instruments that
may be created in the future, upon the Trust supplementing this Prospectus, the
Fund may invest in obligations other than those listed previously, provided
such investments are consistent with the Fund's investment 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 incor-
porate the performance characteristics of these contracts are also referred to
as "derivatives." The term has also been
13
<PAGE>
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 the Fund's total performance. While the response of certain de-
rivative 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 Fund will only use de-
rivative contracts for the purposes disclosed in the applicable sections above.
To the extent that the Fund invests in securities that could be characterized
as derivatives, such as mortgage pass-throughs and collateralized mortgage ob-
ligations, it will only do so in a manner consistent with its investment objec-
tive, policies and limitations.
PORTFOLIO TURNOVER RATE. Although the Fund is managed to reflect the composi-
tion of the Aggregate Bond Index, the Fund may sell securities irrespective of
how long such securities have been held. Ordinarily, securities will be sold
from the Fund only to reflect certain administrative changes in the Aggregate
Bond Index (including mergers or changes in its composition) or to accommodate
cash flows into and out of the Fund while maintaining the similarity of its
portfolio to the Aggregate Bond Index. The Fund may sell a portfolio investment
immediately after its acquisition if the investment managers believe that such
a disposition is consistent with the investment objective of the Fund. Portfo-
lio investments may be sold for a variety of reasons, such as a more favorable
investment opportunity or other circumstances bearing on the desirability of
continuing to hold such investments.
A high rate of portfolio turnover may involve correspondingly greater broker-
age commission expenses and other transaction costs, which must be borne di-
rectly by the Fund and ultimately by the shareholders of the Fund. High portfo-
lio turnover may result in the realization of substantial net capital gains. To
the extent net short-term capital gains are realized, any distributions result-
ing from such gains are considered ordinary income for Federal income tax pur-
poses. See "Tax Matters" below.
* * *
As a diversified investment company, 75% of the Fund's assets are represented
by cash and cash items (including receivables), government securities, securi-
ties of other investment companies, and other securities which for purposes of
this calculation are subject to the following fundamental limitations: (a) the
Fund may not invest more than 5% of its total assets in the securities of any
one issuer, and (b) the Fund may not own more than 10% of the outstanding vot-
ing securities of any one issuer. In addition, the Fund may not invest 25% or
more of its assets in the securities of issuers in any one industry, unless,
the securities in a single industry were to comprise 25% or more of the Aggre-
gate Bond Index, in which case the Fund will invest 25% or more of its assets
in that industry. These are fundamental investment policies which may not be
changed without investor approval. For purposes of these policies and limita-
tions, the Fund considers certificates of deposit and demand and time deposits
issued 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 in-
vestment to be "cash items."
The Statement of Additional Information includes further discussion of invest-
ment strategies and techniques, and a listing of other fundamental investment
restrictions and non-fundamental investment policies which govern the invest-
ment policies of the Fund. The Fund's fundamental investment restrictions may
not be changed without the approval of the Fund's shareholders. 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 percentage resulting from
changes in the value of the securities held by the Fund or a later change in
the rating of a security held by the Fund is
14
<PAGE>
not considered a violation of the policy. Shareholders of the 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 Fund) in
that Portfolio.
The investment objective of the Fund may be changed without the approval of
the Fund's shareholders, but not without written notice thereof to the Fund's
shareholders thirty days prior to implementing the change. If there were a
change in the 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 the Fund will be achieved. See "Investment Objec-
tive, Policies and Restrictions" in the Statement of Additional Information
for a description of the Fund's fundamental investment policies and restric-
tions that cannot be changed without approval by the holders of a "majority of
the outstanding voting securities" (as defined in the Investment Company Act
of 1940, as amended (the "1940 Act")) of the Fund. Except as stated otherwise,
the investment objective, policies, strategies and restrictions described
herein and in the Statement of Additional Information are non-fundamental.
SPECIAL INFORMATION CONCERNING HUB AND SPOKE(R) STRUCTURE
Unlike other mutual funds which directly acquire and manage their own portfo-
lios of securities, the Fund seeks to achieve its investment objective by in-
vesting all of its investable assets in the Bond Index Portfolio, a separate
series of Federated Portfolios. Consequently, the investment experience of the
Fund will correspond directly with the investment experience of the Bond Index
Portfolio. The Fund invests in the Bond Index Portfolio through Signature Fi-
nancial Group, Inc.'s two-tier master/feeder structure known as the Hub and
Spoke(R) financial services method. Hub and Spoke(R) is a registered service
mark of Signature Financial Group, Inc. and is licensed to Federated Services
Company ("FSC"). The Fund has the same investment objective and policies as
the Bond Index Portfolio. In addition to selling a beneficial interest to the
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 Fund due to variations in sales commissions and
other operating expenses. Investors in the Fund should be aware that these
differences may result in differences in returns experienced by investors in
the different funds that invest in the Bond Index Portfolio. Such differences
in returns are also present in other mutual fund structures. Information con-
cerning other holders of interests in the Bond Index Portfolio (e.g., other
Spoke(R) or feeder funds) is available from FSC at (800) 245-5040.
As with the Fund, 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 Fund's shareholders) thirty days prior to im-
plementing the change. There can, of course, be no assurance that the invest-
ment objective of the Fund or the Bond Index Portfolio will be achieved. See
"Investment Objective, Policies and Restrictions" in the Statement of Addi-
tional Information for a description of the fundamental investment policies
and restrictions of the Bond Index Portfolio that cannot be changed without
approval by the holders of a "majority of the outstanding voting securities"
(as defined in the 1940 Act) of the Bond Index Portfolio. Except as stated
otherwise, the investment objective, policies, strategies and restrictions de-
scribed herein and in the Statement of Additional Information are non-funda-
mental.
Smaller funds investing in the Bond Index Portfolio may be materially af-
fected by the actions of larger
15
<PAGE>
funds investing in the Portfolio. For example, if a large fund withdraws from
the Portfolio, the remaining funds may experience higher pro rata operating ex-
penses, thereby producing lower returns. Additionally, the Portfolio may become
less diverse, resulting in increased portfolio risk. (However, this possibility
also exists for traditionally structured funds which have large or institu-
tional investors.) Also, funds with a greater pro rata ownership in the Portfo-
lio could have effective voting control of the operations of the Portfolio.
When the Fund is required to vote as an investor in the Bond Index Portfolio,
current regulations provide that in those circumstances the Fund may either
seek instructions from its shareholders with regard to the voting of such prox-
ies and vote such proxies in accordance with such instructions, or the Fund may
vote its interests in the Bond Index Portfolio in the same proportion of all
other investors in the Portfolio.
Certain changes in the Bond Index Portfolio's investment objective, policies
or restrictions may require the Trust to withdraw the 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 Port-
folio). If securities are distributed, the Fund could incur brokerage, tax or
other charges in converting the securities to cash. In addition, the distribu-
tion in kind may result in a less diversified portfolio of investments or ad-
versely affect the liquidity of the Fund.
The Trust may withdraw the investment of the Fund from the Bond Index Portfo-
lio at any time, if the Board of Trustees of the Trust determines that it is in
the best interests of the Fund to do so. Upon any such withdrawal, the Board of
Trustees of the Trust would consider what action might be taken, including in-
vesting all of the investable assets of the Fund in another pooled investment
entity having the same investment objective and policies as the Fund or retain-
ing an investment adviser to manage the Fund's assets in accordance with the
investment policies described above.
For descriptions of the investment objective, policies and restrictions of the
Bond Index Portfolio, see "Investment Objective and Policies" herein and 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 the Fund is determined and the Shares of the Fund 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 the Fund are determined on each day both the
NYSE is open for trading and the Fund is open for business ("Business Day").
Currently, the days on which the Fund is closed (other than weekends) are New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving 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 the Fund,
less the liabilities charged to the Fund, by the number of its outstanding
Shares.
16
<PAGE>
Assets in the Fund 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 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 mar-
ket quotations are not readily available, and other assets are valued at fair
value, pursuant to guidelines adopted by the Board of Trustees. Absent unusual
circumstances, debt securities maturing in 60 days or less are valued at amor-
tized cost.
Some of the securities acquired by the Fund may be traded on over-the-counter
markets on days which are not Business Days. In such cases, the net asset
value of the Shares may be significantly affected on days when investors can
neither purchase nor redeem their Shares. The administrators have undertaken
to price the securities held by the Fund, and may use one or more independent
pricing services in connection with this service.
HOW TO PURCHASE, EXCHANGE AND REDEEM SHARES
PURCHASE OF SHARES
Shares of the 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"), or
another entity on behalf of the Trust, and received by the distributor, Edge-
wood Services, Inc. (the "Distributor"), in good order. There is no minimum
amount for initial or subsequent investments. Purchase orders for Shares re-
ceived prior to the close of regular trading on the NYSE on any day that the
Fund's net asset value is calculated are priced according to the net asset
value determined on that day. Purchase orders received in good order 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 the 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")
that has entered into an agreement with the Trust may elect to hold of record
Shares for its customers ("Customers") and to record 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 Distribu-
tor 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 Distributor. Confirmations of all such
purchases and redemptions by Shareholder Organizations for the benefit of
their Customers will be sent by CGFSC to the particular Shareholder Organiza-
tion. In the alternative, a Shareholder Organization may elect to establish
its Customers' accounts of record with CGFSC. In this event, even if the
Shareholder Organization continues to place its Customers' purchase and re-
demption orders with the Funds, CGFSC will send confirmations of such transac-
tions and periodic account statements directly to the shareholders of record.
Shares in the Fund bear the expense of fees payable to Shareholder Organiza-
tions for such services. See "Management of the Trust-- Shareholder Organiza-
tions." Certificates will not be issued for Shares.
17
<PAGE>
Customers may agree with a particular Shareholder Organization to make a min-
imum purchase with respect 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 contact their Shareholder Organization directly for further
information.
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
ABA #021000021
Excelsior Institutional Trust
Credit DDA #910-2-733046
[Account Registration]
[Account Number]
[Wire Control Number]
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. Purchase orders received and accepted after 4:00 p.m. Eastern time will
be effected at the net asset value next determined even if the 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
Institutional Investors may place a purchase order by calling CGFSC at (800)
909-1989 (from overseas, please call (617) 557-1755). The purchase by tele-
phone will be effected at the net asset value per Share next determined after
receipt of the purchase order in good order.
By utilizing the telephone purchase option, the Institutional Investor au-
thorizes CGFSC and the Distributor to act upon telephone instructions believed
to be genuine. THE TRUST, CGFSC AND THE DISTRIBUTOR WILL NOT BE HELD LIABLE
FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR ACTING UPON SUCH INSTRUCTION. AC-
CORDINGLY, INSTITUTIONAL INVESTORS BEAR THE RISK OF LOSS. THE TRUST WILL EM-
PLOY REASONABLE PROCEDURES TO CONFIRM THAT INSTRUCTIONS COMMUNICATED BY TELE-
PHONE ARE GENUINE, INCLUDING, WITHOUT LIMITATION, RECORDING TELEPHONIC IN-
STRUCTIONS AND/OR REQUIRING THE CALLER TO PROVIDE SOME FORM OF PERSONAL IDEN-
TIFICATION.
This option may be modified or terminated at any time. The Trust currently
does not charge a fee for this service, although some Shareholder Organiza-
tions may charge their Customers fees. Customers should contact their Share-
holder Organizations directly for further information.
REDEMPTION OF SHARES
Institutional Investors may redeem all or any portion of the Shares in their
account at the net asset value per Share next determined after proper receipt
in good form of an order for redemption. Proceeds from redemption orders re-
ceived 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.
18
<PAGE>
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 to be in proper form. In some cases,
additional documentation may be requested.
Investment return and principal value of an investment in the 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 Fund in accordance with the procedures gov-
erning their accounts at their Shareholder Organization. It is the responsibil-
ity of the Shareholder Organizations to transmit redemption orders to CGFSC and
credit such Customer accounts with the redemption proceeds on a timely basis.
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 Organizations 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 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 signature guarantees). Further documentation may be
requested.
CGFSC and the Distributor reserve the right to refuse a wire or telephone re-
demption. Procedures for
19
<PAGE>
redeeming Shares by wire or telephone may be modified or terminated at any
time by the Trust or the Distributor. THE TRUST, CGFSC AND THE DISTRIBUTOR
WILL NOT BE LIABLE FOR ANY LOSS, LIABILITY, COST OR EXPENSE FOR ACTING UPON
TELEPHONE INSTRUCTIONS BELIEVED TO BE GENUINE. ACCORDINGLY, SHAREHOLDERS WILL
BEAR THE RISK OF LOSS. THE TRUST WILL EMPLOY REASONABLE 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.
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 $50,000, 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 the 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
the Fund and the balance in such account falls below that minimum, the Cus-
tomer 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
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged without payment of any exchange fee for
shares of the same series ("Institutional Shares") of other investment portfo-
lios of the Trust offered under other prospectuses and for shares of the In-
stitutional Money Fund of Excelsior Funds at their net asset value, provided
that such shares may legally be sold in the state of the investor's residence.
The Trust currently offers Institutional Shares in seven additional portfo-
lios as follows:
Equity Fund, a fund seeking long-term capital appreciation through invest-
ments in companies be -
20
<PAGE>
lieved to represent good long-term values not currently recognized in the
market prices of their securities;
Income Fund, a fund seeking to provide as high a level of current interest
income as is consistent with moderate risk of capital and maintenance of li-
quidity through investments in a broad range of investment-grade fixed income
securities;
Total Return Bond Fund, a fund seeking to maximize the total rate of return
consistent with moderate risk of capital and maintenance of liquidity through
investments in a broad range of investment-grade fixed income securities;
Balanced Fund, a fund seeking to provide a high total return from a diversi-
fied portfolio of equity and fixed income securities;
International Equity Fund, a fund seeking to provide long-term capital ap-
preciation through investment in a diversified portfolio of marketable for-
eign securities;
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' Institutional Money Fund is a money market fund which seeks
to provide shareholders with liquidity and as high a level of current income
as is consistent with the preservation of capital.
An exchange involves a redemption of all or a portion of the Shares in the
Fund and the investment of the redemption proceeds in shares of another portfo-
lio of the Trust or Excelsior Funds. The redemption will be made at the per
Share net asset value of the Shares being redeemed next determined after the
exchange request is received in good order. The shares of the portfolio to be
acquired will be purchased at the per share net asset value of those shares
next determined after receipt of the exchange request in good order.
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 the Fund for shares
of another portfolio should carefully review the prospectus relating to the ac-
quired shares 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 Share-
holder Organizations may charge their Customers fees. Customers should contact
their Shareholder Organizations 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). By establishing the telephone
exchange option, the Institutional Investor authorizes CGFSC and the Distribu-
tor to act upon telephone instructions believed to be genuine. THE TRUST, EX-
CELSIOR FUNDS, CGFSC AND THE DISTRIBUTOR ARE NOT RESPONSIBLE FOR THE AUTHENTIC-
ITY OF EXCHANGE REQUESTS RECEIVED BY TELEPHONE THAT ARE REASONABLY BELIEVED TO
BE GENUINE. IN ATTEMPTING TO CONFIRM THAT TELEPHONE INSTRUCTIONS ARE GENUINE,
THE TRUST AND EXCELSIOR FUNDS WILL USE SUCH PROCEDURES AS ARE CONSIDERED REA-
SONABLE, INCLUDING RECORDING THOSE IN -
21
<PAGE>
STRUCTIONS AND REQUESTING INFORMATION AS TO ACCOUNT REGISTRATION.
During periods of substantial economic or market change, telephone exchanges
may be difficult to com- plete. If an Institutional Investor is unable to con-
tact CGFSC by telephone, the Institutional Investor may also deliver the ex-
change request to CGFSC in writing at the address noted above under "Redemption
by Mail."
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;
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 the Fund and elect that the Fund be
treated as a "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). Provided the Fund meets all in-
come, distribution and diversification requirements of the Code, and distrib-
utes all of its net investment income and net realized capital gains to share-
holders in accordance with the timing requirements imposed by the Code, no Fed-
eral income or excise taxes will be required to be paid from the Fund, although
foreign-source income of the Fund may be subject to foreign withholding taxes.
If the Fund fails to qualify as a "regulated investment company" in any year,
the Fund would incur a regular corporate Federal income tax upon its investment
company taxable income. Whether or not the Fund qualifies as a "regulated in-
vestment company," the Fund's distributions will generally be taxable as ordi-
nary dividend income to shareholders. The Bond Index Portfolio is also not ex-
pected to be required to pay any Federal income or excise taxes.
To satisfy various requirements in the Code, the Fund expects to distribute
virtually all of its net income each year. Shareholders of the Fund normally
will have to pay Federal income taxes and any state or local taxes on the divi-
dends and net capital gain distributions, if any, they receive from the Fund.
Dividends from ordinary income and any distributions from net short-term capi-
tal 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 sharehold-
ers will be treated in the same manner for Federal income tax purposes whether
received in cash or reinvested in additional Shares of the 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 the 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
22
<PAGE>
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 the
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.
In general, any gain or loss realized upon a taxable disposition of Shares of
the Fund by a shareholder that holds such Shares as a capital asset will be
treated as 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 the Fund held for six months or
less will be treated as a long-term capital loss to the extent of any distribu-
tions 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.
The Taxpayer Relief Act of 1997 significantly modifies the taxation of capital
gains realized by individuals, providing reduced rates for gain from the sale
of certain assets held for specified periods. Fund Shares are eligible for such
reduced rates if held for the requisite period. Portions of distributions from
the Fund may also qualify for reduced rates.
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 Rev-
enue Service that they are subject to backup withholding. Such withholding is
not an additional tax. Any amounts withheld may be credited against the share-
holder's Federal income tax liability.
Under current law, neither the Trust, as a Delaware business trust, nor the
Fund are liable for any income or franchise tax in the State of Delaware as
long as the Fund continues to qualify as a "regulated investment company" under
the Code.
The foregoing discussion is intended for general information only. An investor
should consult with his own tax advisor as to the tax consequences of an in-
vestment in the Fund, including the status of distributions from the Fund under
applicable state and local laws.
MANAGEMENT OF THE TRUST
The Board of Trustees of the Trust provides general supervision over the af-
fairs of the Trust. The Trustees decide upon matters of general policy and re-
view the actions of service providers such as the investment managers, the ad-
ministrators, the Distributor and others.
INVESTMENT MANAGERS
The Trust seeks to achieve the Fund's investment objective by investing all of
its investable assets in the Bond Index Portfolio, which has the same invest-
ment objective, policies and limitations as the Fund. Federated Research Corp.
is responsible for the management of the assets of the Bond Index Portfolio,
pursuant to an investment advisory agreement (the "Federated Advisory Agree-
ment") with Federated Portfolios on behalf of the Bond Index Portfolio. Feder-
ated Research Corp. has delegated daily management of the security holdings of
the Bond Index Portfolio to U.S. Trust New York, 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 New York. Federated Re-
search Corp. closely monitors U.S. Trust New York's application of the Bond In-
dex Portfolio's investment policies and strategies, and regularly evaluates
U.S. Trust New York's investment results and trading practices.
23
<PAGE>
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 .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.
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 $110 billion in assets under management as
of December 31, 1996.
Pursuant to an investment sub-advisory agreement, U.S. Trust New York makes
the day-to-day investment decisions and portfolio selections for the Bond In-
dex Portfolio, consistent with general guidelines and policies established by
Federated Research Corp. and the Board of Trustees of Federated Portfolios.
For the investment management services U.S. Trust New York provides to the
Bond Index Portfolio, U.S. Trust New York is compensated only by Federated Re-
search Corp. and receives no fees directly from the Fund or Federated Portfo-
lios. For its services under the sub-advisory agreement, U.S. Trust New York
is entitled to receive from Federated Research Corp. a fee, accrued daily and
paid monthly, at an annual rate equal to .12% of the Bond Index Portfolio's
average daily net assets. U.S. Trust New York has agreed to waive all sub-ad-
visory fees with respect to the Bond Index Portfolio, which waiver may be ter-
minated at any time. U.S. Trust New York 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.
U.S. Trust New York is a state-chartered bank and trust company which pro-
vides trust and banking services to individuals, corporations and institu-
tions, both nationally and internationally, including investment management,
estate and trust administration, financial planning, corporate trust and
agency services, and personal and corporate banking. U.S. Trust New York 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, 1997, U.S. Trust New York's Asset Management Group
had approximately $53 billion in assets under management. U.S. Trust New York,
which has its principal offices at 114 West 47th Street, New York, NY 10036,
is a subsidiary of U.S. Trust Corporation, a registered bank holding company.
U.S. Trust New York also serves as an investment adviser to Excelsior Funds,
Inc. and Excelsior Tax-Exempt Funds, Inc., which are registered investment
companies.
Bruce Tavel, Senior Vice President, and Cyril M. Theccanat, Vice President,
of U.S. Trust New York, Structured Investment Management Department, have been
portfolio managers of the Bond Index Portfolio since its inception and are
primarily responsible for the day-to-day management of the Bond Index Portfo-
lio. Mr. Theccanat has been managing structured investment portfolios at U.S.
Trust New York since January 1990. Mr. Tavel designs, develops and implements
analytic procedures and services utilizing quantitative and financial informa-
tion. He has over 19 years of experience in the execution of decision support
systems at U.S. Trust New York and previously at Lehman Asset Management,
where he was Director of Institutional Computer Services.
For the period from October 1, 1996 through May 31, 1997, Federated Research
Corp. and U.S Trust New York waived all advisory and sub-advisory fees with
respect to the Bond Index Portfolio.
Prior to September 30, 1996, Federated Management served as investment ad-
viser to the Bond Index Portfolio. For the period from June 1, 1996 through
September 30, 1996, Federated Management and U.S. Trust New York waived all
advisory and sub-advisory fees with respect to the Bond Index Portfolio.
24
<PAGE>
ADMINISTRATORS
CGFSC, Federated Administrative Services ("FAS"), a subsidiary of Federated
Investors and U.S Trust Company of Connecticut (U.S. Trust Connecticut), an
affiliate of U.S. Trust New York, serve as the Fund's administrators (the "Ad-
ministrators") and provide it with general administrative and operational as-
sistance. The Administrators also serve as administrators of all of the port-
folios of Excelsior Funds, Inc. and Excelsior Tax-Exempt Funds, Inc., which
are advised by U.S. Trust New York, U.S. Trust Connecticut and their affili-
ates, and distributed by the Distributor. For the services provided to all
portfolios of the Trust, Excelsior Funds, Inc. and Excelsior Tax-Exempt Funds,
Inc. (except the international portfolios of the Trust and Excelsior Funds,
Inc.), the Administrators are entitled jointly to annual fees, computed daily
and paid monthly, based on the combined aggregate average daily net assets of
the three companies (excluding the international portfolios of the Trust and
Excelsior Funds, Inc.) as follows:
<TABLE>
<CAPTION>
COMBINED AGGREGATE AVERAGE DAILY
NET ASSETS OF THE TRUST, EXCELSIOR FUNDS, INC. AND EXCELSIOR TAX-
EXEMPT FUNDS, INC. (EXCLUDING THE INTERNATIONAL PORTFOLIOS OF THE
TRUST AND
EXCELSIOR FUNDS, INC.) ANNUAL FEE
----------------------------------------------------------------- ----------
<S> <C>
first $200 million................................................. .200%
next $200 million.................................................. .175%
over $400 million.................................................. .150%
</TABLE>
Administration fees payable to the Administrators by each portfolio of the
Trust, Excelsior Funds, Inc. and Excelsior Tax-Exempt Funds, Inc. pursuant to
the fee schedule above are allocated in proportion to their relative average
daily net assets at the time of determination. From time to time, the Adminis-
trators may voluntarily waive all or a portion of the administration fees pay-
able to them by the Fund, which waivers may be terminated at any time. See
"Management of the Trust---Shareholder Organizations" for additional informa-
tion on fee waivers.
Prior to May 16, 1997, CFGSC, FAS and U.S. Trust New York served as the
Fund's administrators pursuant to an administration agreement substantially
similar to the administration agreement currently in effect for the Fund. For
the period from June 1, 1996 to May 15, 1997, CFGSC, FAS and U.S. Trust New
York received an aggregate administration fee at the effective annual rate of
0.15% of the Fund's average daily net assets. For the period from May 16, 1997
to May 31, 1997, the Administrators received an aggregate administration fee
at the effective annual rate of 0.15% of the Fund's average daily net assets.
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 reg-
istered broker-dealer and a wholly-owned subsidiary of Federated Investors, is
unaffiliated with U.S. Trust New York or any of its affiliates.
At various times the Distributor may implement programs under which a deal-
er's sales force may be eligible to win nominal awards for certain sales ef-
forts or under which the Distributor will make payments to any dealer that
sponsors sales contests or recognition programs conforming to criteria estab-
lished by the Distributor, or that participates in sales programs sponsored by
the Distributor. The Distributor in its discretion may also from time to time,
pursuant to objective criteria established by the Distributor, pay fees to
qualifying dealers for certain services or activities which are primarily in-
tended to result in sales of Shares of the Fund. If any such program is made
available to any dealer, it will be made available to all dealers on the same
terms and conditions. Payments made under such programs will be made by the
Distributor out of its own assets and not out of the assets of the Fund.
In addition, the Distributor may offer to pay a fee from its own assets to
financial institutions for the continuing investment of customers' assets in
the Fund or for providing substantial marketing, sales and operational sup-
port. The support may include initiating cus -
25
<PAGE>
tomer accounts, participating in sales, educational and training seminars, pro-
viding sales literature, and engineering computer software programs that empha-
size the attributes of the Fund. Such payments will be predicated upon the
amount of Shares the financial institution sells or may sell, and/or upon the
type and nature of sales or marketing support furnished by the financial
institution.
SHAREHOLDER ORGANIZATIONS
As described above under "Purchase Procedures," the Trust may enter into
agreements with certain Shareholder Organizations--firms that provide services,
which may include acting as record shareholder, to their Customers who benefi-
cially own Shares. As a consideration for these services, the Fund will pay the
Shareholder Organization an administrative service fee up to the annual rate of
.40% of the average daily net asset value of its Shares held by the Shareholder
Organization's Customers. Such services may include assisting in processing
purchase, exchange and redemption requests; transmitting and receiving funds in
connection with Customer orders to purchase, exchange or redeem Shares; and
providing periodic statements. It is the responsibility of Shareholder Organi-
zations to advise Customers of any fees that they may charge in connection with
a Customer's investment. Until further notice, U.S. Trust New York and the Ad-
ministrators have voluntarily agreed to waive fees payable by the Fund in an
aggregate amount equal to administrative service fees payable by the Fund.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase") serves as custodian of the Fund's assets.
Communications to the custodian should be directed to Chase, Mutual Funds Serv-
ice Division, 3 Chase MetroTech Center, 8th Floor, Brooklyn, NY 11245. CGFSC,
73 Tremont Street, Boston, Massachusetts 02108, serves as the Fund's transfer
agent, providing transfer 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 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. receives no
fee for its services as placement agent for the Bond Index Portfolio. Federated
Securities Corp. is a wholly-owned subsidiary of Federated Investors.
FSC, through its subsidiary, Federated Administrative Services, Inc., provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Bond Index Portfolio. FSC is enti-
tled 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. Feder-
ated Investors and its subsidiaries have agreed to waive fees and reimburse ex-
penses in order to maintain total operating expenses (after waivers and reim-
bursements) of the Bond Index Portfolio at no greater than .20% of average net
assets.
26
<PAGE>
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 Fund.
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 Fund Shares and the preparation, printing and mailing of pro-
spectuses for such purposes; and membership dues in the Investment Company In-
stitute allocable to the Trust.
The Fund invests through the Bond Index Portfolio, which is a series of Fed-
erated 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, inter-
est charges; taxes; fees and expenses of independent auditors, of legal coun-
sel 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 the Bond Index Portfo-
lio, 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 New York and U.S. Trust Connecticut from engaging in the business of un-
derwriting securities of open-end investment companies such as the Trust. U.S.
Trust New York and U.S. Trust Connecticut believe that the services performed
by U.S. Trust New York as sub-adviser to the Bond Index Portfolio and the ac-
tivities performed by U.S. Trust Connecticut as one of the administrators for
the Fund do not constitute underwriting activities and are consistent with the
requirements of the Glass-Steagall Act. In addition, U.S. Trust New York and
U.S. Trust Connecticut believe that this combination of individually permissi-
ble activities is consistent with the Glass-Steagall Act and other Federal or
state legal and regulatory precedent. There is presently no controlling prece-
dent regarding the performance of a combination of investment advisory, admin-
istrative and/or shareholder servicing activities by banks. State laws on this
issue may differ from the interpretations of relevant Federal 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 continuing to perform all or part
of its servicing or investment management activities. If a bank were prohib-
ited from so acting, its shareholder customers would be permitted to remain
Fund shareholders and alternative means for continuing the servicing of such
shareholders would be sought. In such event, changes in the operation of the
Fund might occur and a share -
27
<PAGE>
holder serviced by such bank might no longer be able to avail himself of any
automatic investment or other services then being provided by such bank. The
Trustees of the Trust do not expect that shareholders of the Fund would suffer
any adverse financial consequences as a result of these occurrences.
Certain Relationships and Activities. U.S. Trust New York and its affiliates
may have deposit, loan and other commercial banking relationships with the is-
suers of securities which may be purchased on behalf of the Fund, 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 New York has informed
the Trust that, in making investment decisions, it does not obtain or use ma-
terial inside information in its possession or in the possession of any of its
affiliates. In making investment recommendations, U.S. Trust New York will not
inquire or take into consideration whether an issuer of securities proposed
for purchase or sale by the Fund is a customer of U.S. Trust New York, its
parent or its subsidiaries or affiliates. When dealing with its customers,
U.S. Trust New York, its parent, subsidiaries, and affiliates will not inquire
or take into consideration whether securities of such customers are held by
any portfolio managed by U.S. Trust New York or any of its affiliates.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Dividends equal to all or substantially all of the Fund's net investment in-
come will be declared daily and paid at least monthly.
Long-term capital gains, if any, for the Fund will be distributed once a
year, usually in December, if the 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 the
Fund's fiscal year will also be distributed during such year. The Fund's net
income for dividend purposes consists of (i) all accrued income, whether tax-
able or tax-exempt, plus discount earned on the Fund's assets, less (ii) amor-
tization of premium on such assets, accrued expenses directly attributable to
the Fund, and the general expenses or the expenses common to more than one of
the Trust's portfolios (e.g., legal, administrative, accounting, and Trustees'
fees) prorated to the Fund on the basis of its relative net assets. Dividends
and distributions will reduce the net asset value of the Fund by the amount of
the dividend or distribution.
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.
Investors will receive dividends and distributions in additional Shares of
the Fund, unless they have requested in writing (received by CGFSC prior to
the payment date) to receive dividends and distributions in cash.
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 the Fund. The Trust reserves the right to cre-
ate and issue any number of series or classes; investments in each series par-
ticipate equally in the earnings, dividends and assets of the particular se-
ries only and no other series. Currently, the Trust has eight active series.
The active series include: Excelsior Institutional Equity Fund, Excelsior In-
stitutional Income Fund, Excelsior Institutional Total Return Bond Fund, Ex-
celsior Institutional Bond Index Fund, Excelsior Institutional Balanced Fund,
Excelsior Institutional International Equity Fund, Excelsior Institu -
28
<PAGE>
tional Value Equity Fund and Excelsior Institutional Optimum Growth Fund.
Each Share of the Fund represents an interest in the 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
and will vote in the aggregate and not by class or series, except as otherwise
expressly required by law. The Trust is not required to and has no current in-
tention to hold annual meetings of shareholders, although the Trust will hold
special meetings of shareholders when in the judgment of the Board of Trustees
of the Trust it is necessary 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. Shareholders also have the right to remove one or more Trustees of
the Trust without a meeting by a declaration in writing by a specified number
of shareholders. Upon liquidation or dissolution of the Fund, shareholders
would be entitled to share pro rata in the net assets of the 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 the
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
the Fund, of appropriate insurance (for example, fidelity bond and errors and
omissions insurance) for the protection of the Trust and the Fund, its share-
holders, 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 apply, inadequate insurance existed and the 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 Fund invests in the Bond Index Portfolio, a series of Federated Portfo-
lios, which is a business trust organized under the laws of the Commonwealth
of Massachusetts. The interests in Federated Portfolios are divided into sepa-
rate series or portfolios (each a "Portfolio" and collectively, the "Portfo-
lios"). Investors in each Portfolio of Federated Portfolios will vote sepa-
rately or together in the same manner as shareholders of the Trust's series.
Federated Portfolios' Declaration of Trust provides that the Fund and other
entities investing in the Bond Index Portfolio and the other Portfolios of
Federated Portfolios (e.g., other investment companies, insurance company sep-
arate accounts and common and commingled trust funds) will each be liable for
all obligations of the Portfolio in which they invest and the overall obliga-
tions of Federated Portfolios. However, the Trustees of the Trust believe that
the risk of the Fund incurring financial loss on account of such liability is
limited to circumstances in which neither the Bond Index Portfolio nor the
Federated Portfolios were able to meet their obligations.
As of July 14, 1997, U.S. Trust New York and its affiliates held of record
substantially all of the Trust's outstanding shares as agent or custodian for
their customers, but did not own such shares beneficially because
29
<PAGE>
they did not have voting or investment discretion with respect to such shares.
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
Fund 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. The 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 the Fund. The "total rate of return" refers
to the change in the value of an investment in the Fund over a stated period
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 to-
tal rate of return is a compounded total rate of return which assumes that the
period total rate of return is generated over a one-year period, and that all
dividends and capital gains distributions are reinvested in Fund Shares.
The Trust may provide annualized "yield" quotations for the Fund. The "yield"
of the Fund refers to
the income generated by an investment in the Fund over a thirty day or one
month period. The dates of any such period are identified in all advertise-
ments or communications containing yield quotations. Income is then
annualized; that is, the amount of income generated by an investment in the
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 Fund may also advertise the "effective yield,"
which is calculated similarly but, when annualized, income is assumed to be
reinvested, thereby making the effective yield slightly higher because of the
compounding effect of the assumed reinvestment. See "Performance Information"
in the Statement of Additional Information. These methods of calculating
"yield" and "total rate of return" are determined by regulations of the SEC.
Since the Fund's yield and total rate of return quotations are based on his-
torical earnings and since such yields and total rates of return fluctuate
over time, such quotations should not be considered as an indication or repre-
sentation of the future performance of the Fund. Shareholders should remember
that performance is generally a function of the kind and quality of the in-
struments held in the Fund, Fund maturity, operating expenses, and market con-
ditions. Any fees charged by Shareholder Organizations to Customers that have
invested in Shares and any charges to institutional investors for asset man-
agement and related services will not be included in calculations of perfor-
mance. From time to time, Fund rankings may be quoted from various sources,
such as Lipper Analytical Services, Inc.
MISCELLANEOUS
Shareholders of record will receive unaudited semi-annual reports and annual
reports audited by the Fund's independent auditors.
30
<PAGE>
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION
OPENING YOUR ACCOUNT:
Complete the Application(s) and mail (regular or overnight) to:
Excelsior Institutional Trust
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
Please enclose with the Application(s) your check made payable to the "Ex-
celsior Institutional Trust" in the amount of your investment.
For direct wire purchases please refer to the section of the Prospectus en-
titled "How to Purchase and Redeem Shares--Purchase Procedures."
MINIMUM INVESTMENTS:
Except as provided in the Prospectus, there is no minimum amount required
for an initial or subsequent investment.
REDEMPTIONS:
Shares can be redeemed in any amount and at any time in accordance with pro-
cedures described in the Prospectus. In the case of Shares recently purchased
by check, redemption proceeds will not be made available until the transfer
agent is reasonably assured that the check has been collected in accordance
with applicable banking regulations.
Certain legal documents will be required from corporations or other organi-
zations, executors and trustees, or if redemption is requested by anyone other
than the shareholder of record. Written redemption requests of $5,000 or more
must be accompanied by signature guarantees.
SIGNATURES: Please be sure to sign the Application(s).
If the shares are registered in the name of:
- a corporation or other organization, an authorized officer should sign
(please indicate corporate office or title).*
- a trustee or other fiduciary, the fiduciary or fiduciaries should sign
(please indicate capacity).*
* A corporate resolution or appropriate certificate may be required.
TAXPAYER IDENTIFICATION NUMBER:
Institutional Investors and other entities must provide a tax identification
or social security number on the application. Investors who do not supply this
information or who have been notified by the Internal Revenue Service that
they are subject to backup withholding will be subject to a withholding rate
of 31% from all taxable distributions paid to the shareholder.
QUESTIONS:
If you have any questions regarding the Application or redemption require-
ments, please contact your shareholder servicing agent.
31
<PAGE>
CHASE GLOBAL FUNDS SERVICES COMPANY NEW
CLIENT SERVICES ACCOUNT
LOGO P.O. Box 2798 APPLICATION
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
City/State/Zip Code (specify) ___________________
-----------------------------------------------------------------------------
FUND SELECTION MAKE CHECKS PAYABLE TO "EXCELSIOR INSTITUTIONAL TRUST."
-----------------------------------------------------------------------------
<TABLE>
<S> <C>
FUND INITIAL INVESTMENT
[_] Bond Index Fund $ ___________3107
[_] 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 ------------------ ---------------
Desk. ((617) 557- Name of Bank Wire Control
1755 from Overseas) Number
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
-----------------------------------------------------------------------------
ACCOUNT PRIVILEGES
-----------------------------------------------------------------------------
TELEPHONE EXCHANGE AND AUTHORITY TO TRANSMIT
REDEMPTION REDEMPTION PROCEEDS TO PRE-
[_] I/We appoint CGFSC as DESIGNATED ACCOUNT.
my/our agent to act upon I/We hereby authorize CGFSC to
instructions received by act upon instructions received
telephone in order to effect by telephone to withdraw from
the telephone exchange and my/our account in the
redemption privileges. I/We Excelsior Institutional Trust
hereby ratify any and to wire the amount
instructions given pursuant withdrawn to the following
to this authorization and commercial bank account.
agree that Excelsior Title on Bank Account*_________
Institutional Trust, Name of Bank __________________
Excelsior Funds, CGFSC and Bank A.B.A. Number ____ Account
their directors, trustees, Number ________________________
officers and employees will Bank Address __________________
not be liable for any loss, City/State/Zip Code ___________
liability, cost or expense (attach voided check here)
for acting upon instructions
believed to be genuine and A corporation, trust or
in accordance with the partnership must also submit a
procedures described in the "Corporate Resolution" (or
then current prospectus. To "Certificate of Partnership")
the extent that Excelsior indicating the names and
Institutional Trust or titles of officers authorized
Excelsior Funds fail to use to act on its behalf.
reasonable procedures as a * TITLE ON BANK AND FUND
basis for their belief, they ACCOUNT MUST BE IDENTICAL.
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 Fund's 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.
<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 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 U.S. Trust
New York, U.S. Trust Connecticut, their parent and
affiliates, and the Shares are not federally insured by,
guaranteed by, obligations of or otherwise supported by the
U.S. Government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other governmental agency;
and that an investment in the Fund 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 Fund.
----------------------------- -------------------------------
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
----
<S> <C>
SUMMARY OF EXPENSES........................................................ 3
FINANCIAL HIGHLIGHTS....................................................... 5
INVESTMENT OBJECTIVE AND POLICIES.......................................... 6
SPECIAL INFORMATION CONCERNING HUB AND SPOKE (R) STRUCTURE ................ 15
PRICING OF SHARES.......................................................... 16
HOW TO PURCHASE, EXCHANGE AND REDEEM SHARES................................ 17
INVESTOR PROGRAMS.......................................................... 20
TAX MATTERS................................................................ 22
MANAGEMENT OF THE TRUST.................................................... 23
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.................................. 28
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES....................... 28
PERFORMANCE INFORMATION.................................................... 30
MISCELLANEOUS.............................................................. 30
INSTRUCTIONS FOR NEW ACCOUNT APPLICATION................................... 31
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S 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.
EITBI930
LOGO
BOND INDEX FUND
Prospectus
September 30, 1997
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 30, 1997
EXCELSIOR INSTITUTIONAL TRUST
73 TREMONT STREET
BOSTON, MASSACHUSETTS 02108
(617) 557-8000
EXCELSIOR INSTITUTIONAL BOND INDEX FUND
Excelsior Institutional Trust (the "Trust") is comprised of eight funds.
This Statement of Additional Information describes the shares ("Shares") of the
Excelsior Institutional Bond Index Fund (the "Fund").
<TABLE>
<CAPTION>
Table of Contents Page
- ---------------------------------------------------------------- ----
<S> <C>
Excelsior Institutional Trust 2
Investment Objective, Policies and Restrictions 2
Performance Information 22
Determination of Net Asset Value; Valuation of Securities 26
Additional Purchase, Exchange, and Redemption Information 27
Management of the Trust 28
Independent Auditors 43
Counsel 43
Taxation 43
Description of the Trust; Fund Shares 46
Miscellaneous 49
Financial Statements 49
Appendix A A-1
</TABLE>
This Statement of Additional Information sets forth information which may
be of interest to investors but which is not necessarily included in the Fund's
Prospectus 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.
<PAGE>
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 eight separate
series, one of which is described herein. Additional series may be added to the
Trust from time to time.
The Trust seeks to achieve the Fund's investment objective by
investing all of the 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 United States Trust Company of New York ("U.S. Trust New York"),
acting as sub-adviser. Because the Fund invests through the Bond Index
Portfolio, all references in this Statement of Additional Information to the
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.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVE
The investment objective of the Fund is described in the Prospectus.
There can, of course, be no assurance that the Fund will achieve its investment
objective.
INVESTMENT POLICIES
The following supplements the discussion of the various investments of
and techniques employed by the Fund set forth in the Prospectus.
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. 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.
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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 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.
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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.
The 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.
SECURITIES LENDING
When the Fund lends its portfolio securities, it continues to receive
interest or dividends on the securities lent and may simultaneously earn
interest on the investment of the cash loan collateral, which will be invested
in readily marketable, high-quality, short-term obligations. Although voting
rights, or rights to consent, attendant to securities lent pass to the borrower,
such loans may be called at any time and will be called so that the securities
may be voted by the Fund if a material event affecting the investment is to
occur.
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VARIABLE RATE AND FLOATING RATE SECURITIES
The 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 the 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, the 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 the 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 investment managers will
consider on an ongoing basis the creditworthiness of the issuers of the floating
and variable rate demand obligations held by the Fund. The 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 deemed illiquid. See "Investment
Restrictions" below.
PARTICIPATION INTERESTS
The Fund may purchase from financial institutions participation
interests in securities in which the Fund may invest. A participation interest
gives the 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 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 must have determined
that the instrument is of comparable quality to those instruments in which the
Fund may invest. For certain participation interests, the Fund
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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. The 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 deemed illiquid. Currently, the Fund does not
intend 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.
The investment managers will monitor the liquidity of Rule 144A
securities for the Fund under the supervision of the 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
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in 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
The 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 the Fund's investment objective
and policies. The 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, the Fund does not intend 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. The 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 the 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 Fund are fully collateralized, with such collateral being marked to
market daily.
The 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
the Fund enters into a reverse repurchase agreement it will place in a
segregated custodial account cash or other liquid assets having a value equal to
the repurchase price, including accrued interest. Reverse repurchase agreements
involve the risk that the market value of the securities sold by the Fund may
decline below the repurchase price of those securities.
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GUARANTEED INVESTMENT CONTRACTS
The Fund may invest in guaranteed investment contracts ("GICs") issued
by insurance companies. Pursuant to such contracts, the 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 the 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 the Fund which are deemed illiquid, 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, the
Fund intends to invest 5% or less of its net assets in GICs during the current
year.
WHEN-ISSUED SECURITIES
The Fund may purchase securities on a "when-issued" or on a "forward
delivery" basis. It is expected that, under normal circumstances, the 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 Fund will
establish procedures consistent with the relevant policies of the SEC. Those
policies currently recommend that an amount of the 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 Fund expects always to have liquid assets
sufficient to cover any purchase commitments or to limit any potential risk.
Although the Fund does not intend to make such purchases for speculative
purposes and intends 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, the Fund may have to sell assets
which have been set aside in order to meet redemptions. Also, if the 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 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 the 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.
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The market value of the securities underlying a when-issued purchase
or a forward commitment to purchase securities and any subsequent fluctuations
in their market value are taken into account when determining the market value
of the Fund starting on the day the Fund agrees to purchase the securities. The
Fund does not earn interest on the securities it has committed to purchase until
they are paid for and delivered on the settlement date.
ZERO COUPON OBLIGATIONS
The 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, the 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
The 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 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.
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FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
General. The successful use of such instruments by the Fund may
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depend in part upon the 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 will not be
perfect and could produce unanticipated losses.
Futures Contracts. The Fund may enter into contracts for the purchase
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or sale for future delivery of securities, 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.
The 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. The Fund may also enter into futures contracts which are
based on fixed income securities issued by entities other than the U.S.
Government, including corporate debt securities, or contracts based on financial
indices including any index of U.S. Government securities, or corporate debt
securities.
Purchases or sales of stock index futures contracts are used to
attempt to protect the 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 the 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.
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.
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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,
the 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 where the Fund holds or intends to acquire fixed-income securities, is to
attempt to protect the Fund from fluctuations in interest rates without actually
buying or selling fixed-income securities. For example, if interest rates were
expected to increase, the 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 the 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 the 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, the
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 the 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 or other liquid assets 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.
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
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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 Fund, if the
judgment of the investment managers about the general direction of interest
rates is incorrect, the Fund's overall performance would be poorer than if it
had not entered into any such contract. For example, if the 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 the 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. The Fund may have to sell
securities at a time when it may be disadvantageous to do so.
The risk of loss in trading futures contracts in some strategies can
be substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit, before any deduction for the
transaction costs, if the contract were closed out. Thus, a purchase or sale of
a futures contract may result in losses in excess of the amount invested in the
contract.
Options on Futures Contracts. The Fund may purchase and write options
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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 the 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.
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The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is below the exercise price, the 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 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 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, the 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 the 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 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 Board of Trustees without considering
the policies and concerns of the various applicable federal and state regulatory
agencies.
OPTIONS ON SECURITIES
The Fund may write (sell) covered call and put options to a limited
extent on its portfolio securities ("covered options"). However, the 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.
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<PAGE>
When the 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 the 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, the 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 the 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 the 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, the 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. The 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.
The 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 the 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 the 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 closing bid 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
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.
The Fund may purchase call and put options on any securities in which
it may invest. The 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,
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in exchange for the premium paid, to purchase a security at a specified price
during the option period. The 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.
The 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 the 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 the Fund for the
purpose of affirmatively benefiting from a decline in the price of securities
which the Fund does not own. The 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.
The Fund has adopted certain other non-fundamental policies concerning
option transactions which are discussed below. The 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.
The 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, the 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 expiration. The investment managers will monitor the
creditworthiness of dealers with whom the Fund enters into such options
transactions, under the general supervision of the Board of Trustees.
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<PAGE>
OPTIONS ON SECURITIES INDICES
In addition to options on securities, the 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 the
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. The 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 the Fund's settlement obligations.
SHORT SALES "AGAINST THE BOX"
In a short sale, the Fund sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
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 the 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, the 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.
The Fund will not engage in short sales against the box for investment
purposes. The 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
the Fund wants to sell the security at an attractive current price, but also
wishes to defer recognition of gain or loss for federal
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<PAGE>
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 the Fund's long position should be reduced by a gain in the short 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 the Fund owns.
There are certain additional transaction costs associated with short sales
against the box, but the 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 the 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 Fund's Prospectus, the
Fund may invest in obligations other than those listed previously, provided such
investments are consistent with the 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. After purchase
by the 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 the Fund to dispose of the obligation, but the investment managers will
consider such an event in their determination of whether the Fund should
continue to hold the obligation. A description of the ratings used herein and
in the Fund's 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
the Fund and may not be changed 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 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.
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<PAGE>
Shareholders of the 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., 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 Fund's shareholders and will cast its vote as instructed by the
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 the
Fund's total assets or the value of the 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, the Fund may not (except that no
investment restriction of the Fund shall prevent the 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 the 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
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<PAGE>
course of business (the Trust may hold and sell, for the 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 the bonds issued by companies in a single
industry were to comprise 25% or more of Lehman Brothers Aggregate Bond Index,
in which case the Fund will invest 25% or more of its assets in that industry;
or
(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.
Non-Fundamental Restrictions. The Fund will not as a matter of
----------------------------
operating policy (except that no operating policy shall prevent the 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 of any investment company 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 than 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; or
(v) 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.
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<PAGE>
Policies (i) through (v) may be changed by the Board of Trustees of the
Trust without shareholder approval.
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. The Fund
may engage in short-term trading to achieve its investment objective. Portfolio
turnover may vary greatly from year to year as well as within a particular year.
The Fund's portfolio turnover rate may also be affected by cash requirements for
redemptions of shares and by regulatory provisions which enable the Fund to
receive certain favorable tax treatment. Portfolio turnover will not be a
limiting factor in making portfolio decisions. Portfolio trading is engaged in
for the Fund if the investment managers believe that a transaction net of costs
(including custodian charges) will help achieve the Fund's investment objective.
The 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 Fund does not anticipate
paying brokerage commissions in such transactions. Purchases and sales of the
Fund's portfolio securities will usually be principal transactions without
brokerage commissions. Any transactions for which the 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 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 Sub-Advisory Agreements with respect to the Bond Index
Portfolio 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 Sub-Advisory Agreements authorize the
investment managers, to the extent permitted by law and subject to the review of
the Board of Trustees of Federated Portfolios, to cause the Bond Index Portfolio
to pay a broker which furnishes brokerage and research services a higher
commission than that which might be
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<PAGE>
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 they
exercise 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 Bond Index
Portfolio. Such information may be useful to the investment managers in serving
the Bond Index Portfolio and other clients and, conversely, supplemental
information obtained by the placement of business of other clients may be useful
to the investment managers in carrying out their obligations to the Bond Index
Portfolio.
Investment decisions for the Bond Index Portfolio will be made
independently from those for any other account or investment company that is or
may in the future become managed by the investment managers or any of their
affiliates. If, however, the Bond Index Portfolio 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 the Bond Index Portfolio or the size of the position obtainable for
the Portfolio. In addition, when purchases or sales of the same security for
the Bond Index Portfolio 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 the Bond Index Portfolio.
Such an event might also adversely affect the Bond Index Portfolio.
For the fiscal years ended May 31, 1997 and 1996, and for the period from
July 11, 1994 (commencement of operations) to May 31, 1995, the Bond Index
Portfolio paid no brokerage commissions./1/
/1/ The brokerage commissions paid include those paid by the Bond Market
Portfolio of the St. James Portfolios, the portfolio in which the Bond
Index Fund invested all of its investable assets prior to January 2,
1996.
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The Trust (or Federated Portfolios) 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 Fund (or the Bond Index Portfolio) as of the close
of the most recent fiscal year. As of May 31, 1997, the Bond Index Portfolio
owned approximately $262,840 of debt securities of Lehman Brothers, Inc., one of
the Portfolio's regular brokers that derives more than 15% of gross revenues
from securities-related activities.
PERFORMANCE INFORMATION
STANDARD PERFORMANCE INFORMATION
From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or shareholder reports. These performance
figures are calculated in the following manner:
YIELD. The Fund may quote the standardized effective 30-day (or one month)
yield for its Shares, calculated in accordance with the method prescribed by the
SEC for mutual funds. Such yield will be calculated for the 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).
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), the 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. The Fund
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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 the Fund to all shareholder accounts in proportion to
the length of the base period and the 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).
For the 30-day period ended May 31, 1997, the standardized effective yield
for the Fund was 7.09%.
TOTAL RETURN. The 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).
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.
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<PAGE>
Based on the foregoing calculations, the Fund's average annual total
returns for the fiscal year ended May 31, 1997 and for the period from July 11,
1994 (commencement of operations) to May 31, 1997 were 8.04% and 8.00%,
respectively.
PERFORMANCE RESULTS. Any yield or total return quotation provided for the
Fund should not be considered as representative of the performance of the Fund
in the future since the net asset value of Shares of the 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 the 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. The 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 the Fund will not be used in advertising unless accompanied by standard
performance measures.
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 the Fund with
performance quoted with respect to other investment companies or types of
investments.
In connection with communicating its performance to current or prospective
shareholders, the 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. The Fund 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 the
Fund's performance made by independent sources may also be used in
advertisements concerning the Fund. Sources for the 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.
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mutual funds investing internationally.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
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periodically reviews mutual fund performance data.
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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.
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.
-25-
<PAGE>
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 Fund's Shares each day both
the Fund and the New York Stock Exchange (the "NYSE") are open for business (a
"Business Day"). As a result, the 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, Thanksgiving Day and Christmas. Daily determinations of the
Fund's net asset value are made at 4:00 p.m. (Eastern time) by dividing the
Fund's total assets less all of its liabilities, by the Fund's total number of
Shares 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. The 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, 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 the 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.
-26-
<PAGE>
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
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 the 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 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 beneficial
interest in the Bond Index Portfolio will be determined by multiplying the net
asset value of the Portfolio by the percentage representing that investor's
share of the aggregate beneficial interests in the Portfolio. Any additions or
reductions which are to be effected on that day will then be 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
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 the 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
that 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 to
institutional investors ("Institutional Investors"). Shares may be purchased
directly from the Distributor or through Shareholder Organizations. Different
types of Customer accounts at certain Shareholder Organizations 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.
-27-
<PAGE>
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 pursuant
to the exchange program described in the Prospectus.
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 SEC; (b) the
NYSE is closed for other than customary weekend and holiday closings; (c) the
SEC has by order permitted such suspension; or (d) an emergency exists as
determined by the SEC.
In the event that Shares are redeemed in cash at their net asset value, a
shareholder may receive in payment for such Shares an amount that is more or
less than his original investment due to changes in the market prices of the
Fund's portfolio securities.
OTHER INVESTOR PROGRAMS
As described in the Prospectus, Shares of the Fund may be purchased in
connection with certain Retirement Programs. Customers of Shareholder
Organizations may obtain information on the availability of, and the procedures
and fees relating to, such programs directly from their Shareholder
Organizations.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS OF THE TRUST
Trustees and Officers
- ---------------------
The Trustees and officers of the Trust, their addresses, ages, principal
occupations during the past five years, and other affiliations are as follows:
Position Principal Occupation
with the During Past 5 Years and
Name and Address Trust Other Affiliations
- ---------------- ------- -----------------------
Frederick S. Wonham* Chairman of the Retired; Director of
* This Trustee is considered to be an "interested person" of the Trust as
defined in the 1940 Act.
-28-
<PAGE>
Position Principal Occupation
with the During Past 5 Years and
Name and Address Trust Other Affiliations
- ---------------- ------- -----------------------
238 June Road Board, President and Excelsior Funds, Inc. and
Stamford, CT 06903 Treasurer Excelsior Tax-Exempt Funds,
Age: 66 Inc. (since 1995); Trustee
of Excelsior Funds and the
Trust (since 1995); Vice
Chairman of U.S. Trust
Corporation and U.S. Trust
New York (from February 1990
until September 1995); and
Chairman, U.S. Trust
Connecticut (from March 1993
to May 1997).
Alfred C. Tannachion* Trustee Retired; Director of
6549 Pine Meadows Drive Excelsior Funds, Inc. and
Spring Hill, FL 34606 Excelsior Tax-Exempt Funds,
Age 71 Inc. (since 1985); Chairman
of the Board, President and
Treasurer of UST Master
Variable Series, Inc. (from
1994 to June 1997); and
Trustee of the Trust (since
1995).
Donald L. Campbell Trustee Retired; Director of
333 East 69th Street Excelsior Funds, Inc. and
Apt. 10-H Excelsior Tax-Exempt Funds,
New York, NY 10021 Inc. (Since 1984); Director
Age: 71 of UST Master Variable
Series, Inc. (from 1994 to
June 1997); Trustee of the
Trust (since 1995); and
Director, Royal Life
Insurance Co. of New York
(since 1991).
Rodman L. Drake Trustee Trustee, Excelsior Funds and
485 Park Avenue the Trust (since 1994);
New York, NY 10022 Director of Excelsior Funds,
Age: 54 Inc. and Excelsior Tax-
Exempt Funds, Inc. (since
December 1996); Director,
Parsons Brinkerhoff Energy
Services Inc.
- -----------
* This Trustee is considered to be an "interested person" of the Trust as
defined in the 1940 Act.
-29-
<PAGE>
Position Principal Occupation
with the During Past 5 Years and
Name and Address Trust Other Affiliations
- ---------------- ------- -----------------------
(since 1996); Director,
Parsons Brinkerhoff, Inc.
(engineering firm) (since
1995); President, Mandrake
Group (investment and
consulting firm) (since
1994); Director, Hyperion
Total Return Fund, Inc. and
four other funds for which
Hyperion Capital Management,
Inc. serves as investment
adviser (since 1991); Co-
Chairman, KMR Power
Corporation (power plants)
(from 1993 to 1996);
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).
Joseph H. Dugan Trustee Retired; Director of
913 Franklin Lakes Road Excelsior Funds, Inc. and
Franklin Lakes, NJ 07417 Excelsior Tax-Exempt Funds,
Age: 72 Inc. (since 1984); Director
of UST Master Variable
Series, Inc. (from 1994 to
June 1997); and Trustee of
the Trust (since 1995).
Wolfe J. Frankl Trustee Retired; Director of
2320 Cumberland Road Excelsior Funds, Inc. and
Charlottesville, VA 22901 Excelsior Tax-Exempt Funds,
Age: 76 Inc. (since 1986); Director
of UST Master Variable
Series, Inc. (from 1994 to
June 1997); Trustee of the
Trust (since 1995);
Director, Deutsche Bank
Financial, Inc. (since
1989); Director, The Harbus
Corporation (since 1951);
and Trustee, HSBC Funds
Trust and HSBC Mutual Funds
Trust (since 1988).
-30-
<PAGE>
Position Principal Occupation
with the During Past 5 Years and
Name and Address Trust Other Affiliations
- ---------------- ------- -----------------------
W. Walker McDowell, Jr. Trustee Director of Excelsior Funds,
c/o Prospect Capital Inc. and Excelsior Tax-
Corp. Exempt Funds, Inc. (since
43 Arch Street 1996); Trustee of Excelsior
Greenwich, CT 06830 Funds and the Trust (since
Age: 60 1994); Private Investor
(since 1994); Managing
Director, Morgan Lewis
Githens & Ahn (from 1991 to
1994); and Director, U.S.
Homecare Corporation (since
1992), Grossmans, Inc. (from
1993 to 1996), Children's
Discovery Centers (since
1984), ITI Technologies,
Inc. (since 1992) and Jack
Morton Productions (since
1987).
Jonathan Piel Trustee Director of Excelsior Funds,
558 E. 87th Street Inc. and Excelsior Tax-
New York, NY 10128 Exempt Funds, Inc. (since
Age: 58 1996); Trustee of Excelsior
Funds and the Trust (since
1994); Vice President and
Editor, Scientific American,
Inc. (from 1986 to 1994);
Director, Group for The
South Fork, Bridgehampton,
New York (since 1993); and
Member, Advisory Committee,
Knight Journalism
Fellowships, Massachusetts
Institute of Technology
(since 1984).
Robert A. Robinson Trustee Director of Excelsior Funds,
Church Pension Fund Inc. and Excelsior Tax-
800 Second Avenue Exempt Funds, Inc. (since
New York, NY 10017 1987); Director of UST
Age: 71 Master Variable Series, Inc.
(from 1994 to June 1997);
Trustee of the Trust (since
1995); President Emeritus,
The Church Pension Fund and
its affiliated companies
(since 1966); Trustee, H.B.
and F.H. Bugher Foundation
and Director of its wholly
owned subsidiaries --
Rosiclear Lead and Flourspar
Mining Co. and The Pigmy
Corporation
-31-
<PAGE>
Position Principal Occupation
with the During Past 5 Years and
Name and Address Trust Other Affiliations
- ---------------- ------- -----------------------
(since 1984); Director,
Morehouse Publishing Co.
(since 1974); Trustee, HSBC
Funds Trust and HSBC Mutual
Funds Trust (since 1982);
and Director, Infinity
Funds, Inc. (since 1995).
W. Bruce McConnel, III Secretary Partner of the law firm of
Philadelphia National Drinker Biddle & Reath LLP.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age: 54
Gregory Sackos Assistant Second Vice President,
Chase Global Funds Secretary Senior Manager of Blue Sky
Services Company Compliance and Financial
73 Tremont Street Reporting, Chase Global
Boston, MA 02108-3913 Funds Services Company
Age: 32 (March 1997 to present);
Second Vice President,
Senior Manager of Financial
Reporting, Chase Global
Funds Services Company
(September 1996 to March
1997); and Assistant Vice
President, Assistant Manager
of Financial Reporting,
Scudder, Stevens & Clark
Inc. (October 1992 to
September 1996).
John M. Corcoran Assistant Vice President, Director of
Chase Global Funds Treasurer Administration Client Group,
Services Company Chase Global Funds Services
73 Tremont Street Company (since July 1996);
Boston, MA 02108-3913 Second Vice President,
Age: 32 Manager of Administration,
Chase Global Funds Services
Company (from October 1993
to July 1996); and Audit
Manager, Ernst & Young LLP
(from August 1987 to
September 1993).
-32-
<PAGE>
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, 1997 is set forth below. The Trustees may hold various other directorships
unrelated to the Fund.
-33-
<PAGE>
<TABLE>
<CAPTION>
PENSION OR TOTAL
RETIREMENT COMPENSATION
BENEFITS FROM THE
ACCRUED AS ESTIMATED TRUST AND
AGGREGATE PART OF ANNUAL FUND
COMPENSATION TRUST BENEFITS UPON COMPLEX* PAID
FROM THE TRUST EXPENSES RETIREMENT TO TRUSTEES
--------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Frederick S. Wonham*** $5,000 None None (4)**$35,000
Rodman L. Drake**** $4,750 None None (4)**$34,750
W. Wallace McDowell**** $4,750 None None (4)**$31,750
Jonathan Piel**** $5,000 None None (4)**$35,000
Alfred Tannachion*** $5,000 None None (4)**$45,000
Donald L. Campbell $4,750 None None (4)**$31,750
Joseph C. Dugan $5,000 None None (4)**$35,000
Wolfe J. Frankl $5,000 None None (4)**$35,000
Robert A. Robinson $5,000 None None (4)**$35,000
- -----------------------------
</TABLE>
* The "Fund Complex" consists of the Trust, Excelsior Funds, 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 served
as director or trustee.
*** Mr. Tannachion served as the Trust's Chairman of the Board, President and
Treasurer until February 13, 1997. On that date, Mr. Wonham was elected to
serve as the Trust's Chairman of the Board, President and Treasurer.
**** Messrs. Drake, McDowell and Piel were elected to the Board of Excelsior
Funds, Inc. and Excelsior Tax-Exempt Funds, Inc. on December 9, 1996.
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 period.
-34-
<PAGE>
TRUSTEES
--------
JOHN F. DONAHUE/1,2/ -- Chairman of the Board and Trustee of Federated
Portfolios; Chairman and Trustee, Federated Investors, Federated Advisers,
Federated Management and 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; Director, MED 3000 Group, Inc.;
Director, Member of Executive Committee, University of Pittsburgh. His date of
birth is February 3, 1934 His address is 15 Old Timber Trail, 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 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.; Director, Ryan Homes, Inc. His date of birth is July 4, 1918. His
address is One PNC Plaza, 23rd Floor, Pittsburgh, PA.
J. CHRISTOPHER DONAHUE/1/ -- 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.
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.
-35-
<PAGE>
LAWRENCE D. ELLIS, M.D./1/ -- 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./2/ -- 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, 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 -- Retired from the law firm of Miller, Ament, Henny &
Kochuba; Chairman, Meritcare, 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 203 Kensington Ct.,
Pittsburgh, PA.
JOHN E. MURRAY, JR., J.D., S.J.D. -- President, Law Professor, Duquesne
University; Consulting Partner, Mollica & Murray; 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 and U.S. Space
Foundation; Director or Trustee of investment companies within the Federated
Fund Complex; President Emeritus, University of Pittsburgh; Founding Chairman,
National Advisory Council for Environmental Policy and Technology, Federal
Emergency Management Advisory Board and Czech Management Center, Prague. 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; 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.
-36-
<PAGE>
______________________
/1/ This Trustee is deemed to be an "interested person" as defined in the 1940
Act.
/2/ Member of Federated Portfolios' Executive Committee. The Executive
Committee of the Board of Trustees handles the responsibilities of the
Board between meetings of the Board.
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 date of birth is May 17, 1923.
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 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; Trustee or Director of certain investment
companies within the Federated Fund Complex; President, Executive Vice President
and Treasurer of investment companies within the Federated Fund Complex. His
date of birth is October 22, 1930. His address is Federated Investors Tower,
Pittsburgh, PA.
JOHN W. MCGONIGLE -- Executive Vice President, Secretary and Treasurer,
Federated Portfolios; Executive Vice President, Secretary 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 date of birth is October 26, 1938. 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 Federated Investors.
The compensation paid to the Trustees of Federated Portfolios for the fiscal
year ended May 31, 1997 is set forth below. The Trustees may hold various other
directorships unrelated to the Federated Portfolios.
-37-
<PAGE>
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL
BENEFITS COMPENSATION
ACCRUED AS ESTIMATED FROM FEDERATED
AGGREGATE PART OF ANNUAL PORTFOLIOS AND
COMPENSATION FEDERATED BENEFITS FUND COMPLEX
FROM FEDERATED PORTFOLIO'S UPON PAID TO
PORTFOLIOS EXPENSES RETIREMENT TRUSTEES*
-------------- ------------ ---------- ---------------
<S> <C> <C> <C> <C>
John F. Donahue $ 0 None None $ 0
Thomas G. Bigley $767 None None $108,725
John T. Conroy, Jr. $843 None None $119,615
William J. Copeland $843 None None $119,615
James E. Dowd $843 None None $119,615
Lawrence D. Ellis, M.D. $766 None None $108,725
Edward L. Flaherty, Jr. $843 None None $119,615
Peter E. Madden $766 None None $108,725
Gregor F. Meyer $766 None None $108,725
John E. Murray, Jr., S.D., $766 None None $108,725
S.J.D.
Wesley W. Posvar $766 None None $108,725
Marjorie P. Smuts $766 None None $108,725
J. Christopher Donahue $ 0 None None $ 0
</TABLE>
______________________
* The term "Fund Complex" shall collectively refer to Federated Portfolios and
up to 56 other mutual funds for which subsidiaries of Federated Investors
serve as investment adviser. This information is provided for the last
calendar year. Federated Portfolios has no pension plan.
* * * * *
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
-38-
<PAGE>
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
adjudicated that they engaged in willful malfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in their offices.
As of September 25, 1997, the Trustees and officers of the Trust and Federated
Portfolios as a group owned beneficially less than 1% of the outstanding shares
of the Fund and the Bond Index Portfolio. Shareholders owning 25% or more of
the outstanding Shares of the Fund may have the ability to take actions without
the approval of any other investor in the Fund.
INVESTMENT ADVISORY SERVICES
Federated Research Corp. is responsible for the management of the assets of
the Bond Index Portfolio, in which the assets of the Fund are invested, pursuant
to an investment advisory agreement (the "Advisory Agreement") with Federated
Portfolios, subject to the general supervision and guidance of the Trustees of
Federated Portfolios.
Federated Research Corp. has entered into an investment sub-advisory agreement
(the "Sub-Advisory Agreement") with U.S. Trust New York as sub-adviser. It is
the responsibility of U.S. Trust New York 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 New
York 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 New York
provided advisory and sub-advisory services to the Bond Index Portfolio pursuant
to agreements which were substantially identical to the current Advisory
Agreement and Sub-Advisory Agreement relating to the Bond Index Portfolio.
The Advisory Agreement and the Sub-Advisory Agreement (collectively, the
"Advisory Agreements") will continue in effect with respect to the Bond Index
Portfolio as long as such continuance is specifically approved at least annually
by the Board of Trustees of Federated Portfolios or by a majority vote of the
investors in the Bond Index Portfolio and, in either case, by a majority of the
Trustees of Federated Portfolios who are not parties to the Advisory Agreement,
the Sub-Advisory Agreement or interested persons of any such party, at a meeting
called for the purpose of voting on the Advisory Agreement or Sub-Advisory
Agreement. The investment managers and administrators have agreed to waive
certain fees.
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The Advisory Agreements provide that the investment managers may render
services to others, and each Agreement is terminable by 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 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 Federated Portfolios, or by the investment managers on not more than 60 days'
nor less than 30 days' written notice. Each Agreement will automatically
terminate in the event of its assignment. The Advisory Agreements provide that
neither the investment managers nor their 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 the Bond Index Portfolio, except for willful misfeasance, bad faith, gross
negligence or reckless disregard of their obligations and duties under the
Advisory Agreements.
The Prospectus contains a description of the fees payable to the investment
managers under the Advisory Agreements.
For the fiscal year ended May 31, 1997, Federated Research Corp. and Federated
Management collectively earned investment advisory fees of $73,686 with respect
to the Bond Index Portfolio, all of which was voluntarily waived. For the same
period, U.S. Trust New York earned sub-advisory fees of $35,369 with respect to
the Bond Index Portfolio, all of which was voluntarily waived.
For the period from January 2, 1996 through May 31, 1996, Federated Management
and U.S. Trust New York voluntarily waived all of their advisory and sub-
advisory fees with respect to the Bond Index Portfolio, which amounted to
$17,632 and $8,463, respectively.
Prior to January 2, 1996, the Fund pursued its investment objective by
investing all of its investible assets in the Bond Market Portfolio of St. James
Portfolios. United States Trust Company of the Pacific Northwest ("U.S. Trust
Pacific") and U.S. Trust New York served as investment adviser and sub-adviser,
respectively, to the Bond Market Portfolio. For the period from June 1, 1995
through January 2, 1996, U.S. Trust Pacific and U.S. Trust New York waived their
entire advisory and sub-advisory fees totalling $23,111 and $23,111,
respectively, and U.S. Trust New York reimbursed expenses totalling $55,998 with
respect to the Bond Market Portfolio. For the period from July 11, 1994
(commencement of operations) through May 31, 1995, U.S. Trust Pacific and U.S.
Trust New York waived their entire advisory and sub-advisory fees totalling
$47,955 and $47,955, respectively. For the same period, U.S. Trust New York
reimbursed expenses totalling $83,454 with respect to the Bond Market Portfolio
and U.S. Trust New York reimbursed expenses totalling $16,494 with respect to
the Fund.
ADMINISTRATORS
Chase Global Funds Services Company ("CGFSC"), Federated Administrative
Services ("FAS") and U.S. Trust Company of Connecticut ("U.S. Trust
Connecticut") serve as the Fund's administrators (the "Administrators") pursuant
to an agreement between
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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 Fund, furnish the Fund with statistical and research
data, clerical, accounting, and bookkeeping services, and certain other services
required by the Fund, and to compute the Fund's net asset value, net income and
realized capital gains or losses, if any. The Administrators prepare semi-
annual reports to the SEC, prepare Federal and state tax returns, prepare
filings with state securities commissions, arrange for and bear the cost of
processing Share purchase and redemption orders, maintain the Fund's financial
accounts and records, and generally assist in the Fund's operations.
For the period from May 16, 1997 to May 31, 1997, the Administrators received
administration fees of $2,631 with respect to the Fund. For the same period,
the Administrators waived fees totalling $1,015 with respect to the Fund.
Prior to May 16, 1997, CGFSC, FAS and U.S. Trust New York served as the Fund's
administrators pursuant to an administration agreement substantially similar to
the administration agreement currently in effect for the Fund.
For the period from June 1, 1996 to May 15, 1997, CGFSC, FAS and U.S. Trust
New York received administration fees of $57,369 with respect to the Fund. For
the same period, CGFSC, FAS and U.S. Trust New York waived fees totalling
$35,260 with respect to the Fund.
For the period from January 1, 1996 to May 31, 1996, CGFSC, FAS and U.S. Trust
New York received administration fees of $9,951 with respect to the Fund. For
the same period, U.S. Trust New York reimbursed expenses totalling $26,527 with
respect to the Fund.
Prior to January 1, 1996, Signature Financial Services, Inc. ("SFSI") served
as servicing agent and fund accounting agent to the Fund. 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 the Fund. For its fund accounting services,
SFSI was entitled to receive a per annum fee of $12,000 from the Fund. For the
period from June 1, 1995 to January 1, 1996, SFSI received fund accounting and
servicing agent fees of $15,694 with respect to the Fund.
For the fiscal year ended May 31, 1995, SFSI received fund accounting and
servicing agent fees of $64,946 with respect to the Fund.
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SHAREHOLDER ORGANIZATIONS
As stated in the Prospectus, the Trust may enter into agreements with certain
Shareholder Organizations. Such agreements require the Shareholder Organizations
to provide shareholder administrative services to their Customers who
beneficially own Shares in consideration for the Fund's payment of not more than
the annual rate of .40% of the average daily net assets of the Fund's Shares
beneficially owned by Customers of the Shareholder Organization. Such services
may include: (a) acting as recordholder of Shares; (b) assisting in processing
purchase, exchange and redemption transactions; (c) providing periodic
statements showing a Customer's account balances and confirmations of
transactions by the Customer; (d) providing tax and dividend information to
shareholders as appropriate; (e) transmitting proxy statements, annual reports,
updated prospectuses and other communications from the Trust to Customers; and
(f) providing or arranging for the provision of other related services.
The Trust's agreements with Shareholder Organizations are governed by an
Administrative Services Plan (the "Plan") adopted by the Trust. Pursuant to the
Plan, the Trust's Board of Trustees will review, at least quarterly, a written
report of the amounts expended under the Trust's agreements with Shareholder
Organizations and the purposes for which the expenditures were made. In
addition, the arrangements with Shareholder Organizations will be approved
annually by a majority of the Trust's Trustees, including a majority of the
Trustees who are not "interested persons" of the Trust (as defined in the 1940
Act) and have no direct or indirect financial interest in such arrangements (the
"Disinterested Trustees").
Any material amendment to the Trust's arrangements with Shareholder
Organizations must be approved by a majority of the Trust's Board of Trustees
(including a majority of the Disinterested Trustees). So long as the Trust's
arrangements with Shareholder Organizations are in effect, the selection and
nomination of the members of the Trust's Board of Trustees who are not
"interested persons" of the Trust (as defined in the 1940 Act) will be committed
to the discretion of such Disinterested Trustees.
For the fiscal year ended May 31, 1997, the Fund did not make any payments to
Shareholder Organizations.
TRANSFER AGENT AND CUSTODIAN
The Chase Manhattan Bank ("Chase") serves as custodian of the Fund's assets.
Under the Custodian Agreement, Chase has agreed to (i) maintain a separate
account or accounts in the name of the Fund; (ii) make receipts and
disbursements of money on behalf of the Fund; (iii) collect and receive all
income and other payments and distributions on account of the Fund's portfolio
securities; (iv) respond to correspondence from securities brokers and others
relating to its duties; (v) maintain certain financial accounts and records; and
(vi) make periodic reports to the Trust's Board of Trustees concerning the
Fund's operations. Chase may, at its own expense, open and maintain custody
accounts with respect to the
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Fund with other banks or trust companies, provided that Chase shall remain
liable for the performance of all its custodial duties under the Custodian
Agreement, notwithstanding any delegation.
CGFSC serves as transfer agent for the Fund pursuant to a Transfer Agency
Agreement. Under this Agreement, CGFSC will perform the following functions,
among others: (i) issue and redeem shares of the Fund; (ii) address and mail all
communications by the Fund to its shareholders, including reports to
shareholders, dividend and distribution notices, and proxy materials for its
meetings of shareholders; (iii) respond to correspondence by shareholders and
others relating to its duties; (iv) maintain shareholder accounts; and (v) make
periodic reports to the Trust's Board of Trustees concerning the Fund's
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.
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 Fund, as an investor in the Bond Index Portfolio, bears its pro rata share
of the fees and expenses 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. Prior to June 5, 1996, the Portfolio's custodian was Investors Bank
& Trust Company.
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 expenses. The fee for administrative personnel and services is at an
annual rate as specified below:
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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, which
waiver may be terminated at any time. For the fiscal year ended May 31, 1997,
FSC waived all administrative fees with respect to the Bond Index Portfolio,
which amounted to $60,000. For the period from January 2, 1996 through May 31,
1996, FSC waived all administrative fees with respect to the Bond Index
Portfolio, which amounted to $24,754.
Prior to January 2, 1996, the Fund invested all of its investable assets in
the Bond Market Portfolio of the St. James Portfolios. SFSI provided
administrative and portfolio accounting services to the Bond Market Portfolio.
For the period from June 1, 1995 through January 2, 1996, SFSI earned
administrative fees of $33,589 with respect to the Bond Market Portfolio. For
the period from July 11, 1994 (commencement of operations) through May 31, 1995,
SFSI earned administrative fees of $54,279 with respect to the Bond Market
Portfolio.
INDEPENDENT AUDITORS
Ernst & Young LLP ("E&Y"), 1 Oxford Centre, Pittsburgh, PA 15219, serve as the
independent auditors for the Fund and Federated Portfolios. E&Y provides audit
services and assistance and consultation with respect to the preparation of
filings with the SEC.
COUNSEL
Drinker Biddle & Reath LLP (of which Mr. McConnel, Secretary of the Trust, is
a partner), Philadelphia National Bank Building, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107, is counsel to the Trust and will pass upon the
legality of the Shares offered by the Prospectus.
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").
The Fund has elected to be treated and intends to qualify each year as a
"regulated investment company" under
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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 the Fund intends to distribute
all of its net investment income and net realized capital gains to its
shareholders in accordance with the timing requirements imposed by the Code, it
is not expected that the Fund will be required to pay any federal income or
excise taxes. If the Fund fails to qualify as a RIC in any year, the Fund would
incur a regular corporate federal income tax upon its 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 Fund
satisfies the income and diversification requirements to maintain its status as
a RIC, the Fund, as an investor in the Bond Index Portfolio, will be deemed to
own a proportionate share of the Portfolio's assets and will be deemed to be
entitled to the Portfolio's income or loss attributable to that share. The Bond
Index Portfolio has advised the Fund that it intends to conduct its operations
so as to enable its investors, including the Fund, to satisfy those
requirements.
Any Fund 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 the Fund in zero coupon bonds, certain securities purchased
at a market discount, and similar instruments will cause the 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, the Fund may be
required to liquidate portfolio securities that it might otherwise have
continued to hold.
The Fund's transactions in options and futures contracts will be subject to
special tax rules that may affect the amount, timing, and character of Fund
income and distributions to shareholders.
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 the
Portfolio.
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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 the 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, the 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 the
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 January of the following calendar year. Accordingly, those distributions
will be taxable to shareholders for the taxable year in which that December 31
falls.
Withdrawals by the Fund from the Bond Index Portfolio generally will not
result in the 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 the 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 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.
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OTHER TAXATION
The Trust is organized as a Delaware business trust and, under current law,
neither the Trust nor the Fund are liable for any income or franchise tax in the
State of Delaware, provided that the Fund continues to qualify as a RIC for
federal income tax purposes.
The Bond Index Portfolio is organized as series of 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
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 the Fund. Shareholders are advised to consult their
own tax advisers with respect to the particular tax consequences to them of an
investment in the Fund.
DESCRIPTION OF THE TRUST; FUND SHARES
The Trust is a Delaware business trust established under a Trust Instrument
dated April 27, 1994. Its authorized capital consists of an unlimited number of
shares of beneficial interest of $0.00001 par value, which may be issued in
separate series. Currently, the Trust has eight active series, although
additional series may be established from time to time. Each share
(irrespective of class designation) of each series represents an interest in
that series that is proportionate with the interest represented by each other
share.
The assets of the Trust received for the issue or sale of the shares of each
class of each series and all income, earnings, profits and proceeds thereof,
subject only to the rights of creditors, are specifically allocated to such
class and series and constitute the underlying assets of such class and 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 class or 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
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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 series entitle their holder to one vote per share and shareholders
will vote in the aggregate and not by class or series, except as otherwise
expressly required by law. Separate votes, however, are taken by each class or
series on matters affecting an individual class or 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 for
indemnification and reimbursement of expenses out of Fund property for any
shareholder held personally liable for the obligations of the Fund solely by
reason of his being or having been a shareholder. The Trust Instrument also
provides for the maintenance, by or on behalf of the Trust and the Fund, of
appropriate insurance (for example, fidelity bonding and errors and omissions
insurance) for the protection of the Trust and the 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
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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. Any amendment
submitted to investors of a Portfolio which the Trustees determine would affect
solely the investors of such Portfolio shall be authorized by vote of the
investors of such Portfolio and no vote will be required of investors in a
Portfolio not affected.
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 of (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
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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.
MISCELLANEOUS
As of September 25, 1997, U.S. Trust New York and its affiliates held of
record substantially all of the Trust's outstanding shares as agent or custodian
for their customers, but did not own such shares beneficially because they did
not have voting or investment discretion with respect to such shares.
As of September 25, 1997, no person beneficially owned 5% or more of the
outstanding Shares of the Fund.
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, 1997 (the "1997 Annual
Report") are incorporated into this Statement of Additional Information by
reference. No other parts of the 1997 Annual Report are incorporated by
reference herein. The financial statements included in the 1997 Annual Report
have been audited by Ernst & Young LLP, whose
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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 1997
Annual Report may be obtained at no charge by telephoning CGFSC at (800) 909-
1989.
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, 1997 (the "1997 Federated Annual Report") are
incorporated into this Statement of Additional Information by reference. No
other parts of the 1997 Federated Annual Report are incorporated by reference
herein. The financial statements included in the 1997 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 1997 Federated Annual Report may be
obtained at no charge by telephoning Federated Portfolios at (800)
341-7400.
Prior to January 2, 1996, the Fund invested substantially all of its
investable assets in the Bond Market Portfolio of the St. James Portfolios.
Effective January 2, 1996, the Fund withdrew its interest in the Bond Market
Portfolio of the St. James Portfolios, 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 Portfolios.
-51-
<PAGE>
APPENDIX A
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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" - The highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
"A-2" - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
"A-3" - Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.
"B" - Issues are regarded as having only a speculative capacity for timely
payment.
"C" - This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
"D" - Issues are 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" - Issuers or related supporting institutions 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" - Issuers or related supporting institutions 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
A-1
<PAGE>
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained.
"Prime-3" - Issuers 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.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade commercial
paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps employs
three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses 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.
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<PAGE>
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" ratings.
"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.
"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 are 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
A-3
<PAGE>
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 good 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.
"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
A-4
<PAGE>
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.
"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 that 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.
A-5
<PAGE>
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.
"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.
A-6
<PAGE>
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 revised 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-7
<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-8
<PAGE>
"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 business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
other 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 below "AAA" 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
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<PAGE>
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 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.
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<PAGE>
"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.
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<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
(1) Included in Part A :
(i) Audited Financial Highlights for the Bond Index Fund for the
fiscal year ended May 31, 1997.
(2) Incorporated by reference into Part B are the following audited
financial statements:
(i) With respect to the Bond Index Fund:
Statement of Assets and Liabilities - May 31, 1997;
Statement of Operations for the Year Ended May 31, 1997;
Statement of Changes in Net Assets for the Year Ended May
31, 1997;
Report of Ernst & Young LLP, Independent Auditors, for the
Fiscal Year Ended May 31, 1997;
Notes to Financial Statements.
(ii) With respect to the Bond Index Portfolio of Federated
Investment Portfolios:
Portfolio of Investments - May 31, 1997;
Statement of Assets and Liabilities - May 31, 1997;
Statement of Operations for the Fiscal Year Ended May 31,
1997;
Statement of Changes in Net Assets for the Fiscal Year
Ended May 31, 1997;
Report of Ernst & Young LLP, Independent Auditors, for the
Fiscal Year Ended May 31, 1997;
<PAGE>
Notes to Financial Statements.
<TABLE>
<S> <C> <C>
(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 May 16, 1997 among Registrant,
U.S. Trust Company of Connecticut and United States Trust Company of
New York with respect to the Equity, Income, Total Return Bond, Value
Equity and Optimum Growth Funds. 11
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 and International Equity Funds. 10
5(c). 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(d). 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. Distribution Agreement dated August 1, 1995 between the Registrant and
Edgewood Services, Inc. (as amended and restated on February 9, 1996
and July 25, 1997). 11
8. Custody Agreement dated September 1, 1995 (as amended and restated on
August 1, 1997) between the Registrant and The Chase Manhattan Bank. 12
9(a). Administration Agreement dated May 16, 1997 among the Registrant,
Chase Global Funds Services Company, Federated Administrative Services
and U.S. Trust Company of Connecticut. 11
9(b). Form of Fund Accounting and Servicing Agreement dated February 2, 1996
between the Registrant and Federated Services Company. 8
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
9(c). Mutual Funds Transfer Agency Agreement dated June 22, 1994 between the
Registrant and Chase Global Funds Services Company. 10
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. 10
9(e). Amended and Restated Administrative Services Plan and Related Form of
Shareholder Servicing Agreement. 12
10. Opinion of Counsel./1/
11(a). Consent of Drinker Biddle & Reath LLP. 12
(b). Consent of Ernst & Young LLP. 12
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
13(c). Purchase Agreement between the Registrant and Edgewood
Services, Inc. dated August 22, 1997 relating to Trust
Shares of the Balanced and International Equity Funds. 12
15. Amended and Restated Distribution Plan and Form of Distribution
Agreement. 12
16. Schedule for Computation of Performance Quotations. 2
17(a). Financial Data Schedule as of March 31, 1997 for the Institutional
Equity Fund. 11
(b). Financial Data Schedule as of March 31, 1997 for the Institutional
Income Fund. 11
(c). Financial Data Schedule as of March 31, 1997 for the Institutional
Total Return Bond Fund. 11
</TABLE>
/1/ Filed with the SEC as part of Registrant's Rule 24f-2 Notice.
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<TABLE>
<S> <C> <C>
(d). Financial Data Schedule as of March 31, 1997 for the Institutional
Value Equity Fund. 11
(e). Financial Data Schedule as of March 31, 1997 for the Institutional
Balanced Fund. 11
(f). Financial Data Schedule as of March 31, 1997 for the Institutional
Optimum Growth Fund. 11
(g). Financial Data Schedule as of March 31, 1997 for the Institutional
International Equity Fund. 11
(h). Financial Data Schedule as of May 31, 1997 for the Institutional
Bond Index Fund. 12
(i). Financial Data Schedule as of May 31, 1997 for the Institutional
Bond Index Portfolio. 12
18. Amended and Restated Plan Pursuant to Rule 18f-3 for Operation of a
Multi-Class System. 12
24(a). Registrant's Annual Report dated May 31, 1997 is incorporated herein
by reference to Registrant's filing including such Annual Report and
filed with the Securities and Exchange Commission on July 30, 1997
(Accession No. 0000950116-97-001367).
24(b). Annual Report for Federated Investment Portfolios (File No. 811-07461)
dated May 31, 1997 with respect to the Bond Index Portfolio is
incorporated herein by reference to Federated Investment Portfolios'
filing including such Annual Report and filed on July 30, 1997
(Accession No. 0001001525-97-000004).
</TABLE>
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.
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<PAGE>
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 Incorporated herein by reference from Post-Effective Amendment No. 11 to
the Registration Statement, as filed with the SEC on September 30, 1996.
11 Incorporated herein by reference from Post-Effective Amendment No. 14 to
the Registration Statement, as filed with the SEC on July 31, 1997.
12 Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Registrant is controlled by its Board of Trustees.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Shares of Beneficial Interest (par value $.00001).
The following information is as of July 14, 1997:
Title of Class: Number of Record Holders
Excelsior Institutional Equity Fund: 99
Excelsior Institutional Income Fund: 22
Excelsior Institutional Total Return Bond Fund: 126
Excelsior Institutional Balanced Fund: 119
Excelsior Institutional International Equity Fund: 0
Excelsior Institutional Value Equity Fund: 24
-5-
<PAGE>
Trust Shares: 3
Excelsior Institutional Optimum Growth Fund: 42
Trust Shares: 31
Excelsior Institutional Bond Index Fund: 41
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) and 5(b). 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(c) and 5(d).
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, suit or proceeding) is
asserted against the 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 ADVISER.
(a) U.S. Trust Company of Connecticut ("U.S. Trust CT") is a Connecticut
State Bank and Trust Company located in Stamford, Connecticut. Set forth below
are the names and principal businesses of the trustees and certain senior
executive officers of U.S. Trust CT,
-6-
<PAGE>
including those who are engaged in any other business, profession, vocation or
employment of a substantial nature.
-7-
<PAGE>
<TABLE>
<CAPTION>
Position
with U.S. Principal Type of
Trust CT Name Occupation Business
- -------- ---- ---------- --------
<S> <C> <C> <C>
Director John N. Irwin Lawyer
1133 Avenue of the
Americas
New York, NY 10035
Director June Noble Larkin Foundation Not-for-Profit
Edward John Noble Director Organization
Foundation, Inc.
32 East 57th Street
New York, NY 10022
Director Tucker H. Warner Co-Founder, Consulting Firm
The Nutmeg Financial Partner &
Group, LLC Director
1157 Highland Avenue
West
Cheshire, CT 06903
Director Thomas C. Clark Managing Director, Asset Management,
United States Trust United States Trust Investment and
Company of New York Company of New York Fiduciary Services
11 West 54th Street
New York, NY 10019
Director Maribeth S. Rahe Vice Chairman, Asset Management,
United States Trust United States Trust Investment and
Company of New York Company of New York Fiduciary Services
114 West 47th Street
New York, NY 10036
Director Frederick B. Taylor Vice Chairman, Asset Management,
United States Trust United States Trust Investment and
Company of New York Company of New York Fiduciary Services
114 West 47th Street
New York, NY 10036
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
Position
with U.S. Principal Type of
Trust CT Name Occupation Business
- -------- ---- ---------- --------
<S> <C> <C> <C>
Director Kenneth G. Walsh Executive Vice Asset Management,
United States Trust President, United Investment and
Company of New York States Trust Company Fiduciary Services
114 West 47th Street of New York
New York, NY 10036
Director, William V. Ferdinand Managing Director Asset Management,
Managing U.S. Trust Company & CIO Fiduciary Services
Director & of Connecticut and Private Banking
CIO 225 High Ridge Road
Stamford, CT 06905
Director, W. Michael Funck President & CEO Asset Management,
President & U.S. Trust Company Fiduciary Services
CEO of Connecticut and Private Banking
225 High Ridge Road
Stamford, CT 06905
Vice Presi- Neil M. McDonnell Vice President & Asset Management,
dent & U.S. Trust Company Treasurer Fiduciary Services
Treasurer of Connecticut and Private Banking
225 High Ridge Road
Stamford, CT 06905
Vice Presi- Alberto Rodriguez Vice President & Asset Management,
dent & U.S. Trust Company Secretary Fiduciary Services
Secretary of Connecticut and Private Banking
225 High Ridge Road
Stamford, CT 06905
</TABLE>
(b) United States Trust Company of New York.
United States Trust Company of New York ("U.S. Trust NY") is a full-service
state-chartered bank located in New York, New York. Set forth below are the
names and principal businesses of the trustees and certain senior executive
officers of U.S. Trust NY, including those who are engaged in any other
business, profession, vocation, or employment of a substantial nature.
-9-
<PAGE>
<TABLE>
<CAPTION>
Position
with U.S. Principal Type of
Trust NY Name Occupation Business
- -------- ---- ---------- --------
<S> <C> <C> <C>
Director Eleanor Baum Dean of School Academic
The Cooper Union for of Engineering
the Advancement
of Science & 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
Director Antonia M. Grumbach Partner in Patter- Law Firm
Patterson, Belknap, son, Belknap, Webb
Webb & Tyler LLP & Tyler
1133 Avenue of the
Americas
New York, NY 10036
Director, H. Marshall Schwarz Chairman of the Asset Management,
Chairman United States Trust Board & Chief Exe- Investment and
of the Board Company of New York cutive Officer of Fiduciary Services
and Chief 114 West 47th Street U.S. Trust Corp. and
Executive New York, NY 10036 U.S. Trust NY
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
Position
with U.S. Principal Type of
Trust NY Name Occupation Business
- -------- ---- ---------- --------
<S> <C> <C> <C>
Director Philippe de Montebello Director of the Art Museum
The Metropolitan Museum Metropolitan
of Art Museum of Art
1000 Fifth Avenue
New York, NY 10028-0198
Director Paul W. Douglas Retired Chairman of Coal Mining,
250 Park Avenue The Pittston Company Transportation
Suite 1800 and Security
New York, NY 10177 Services
Director Frederic C. Hamilton Chairman of the Investment and
The Hamilton Companies Board Venture Capital
1560 Broadway
Suite 2000
Denver, CO 80202
Director John H. Stookey Corporate Director
Per Scholas Inc. and Trustee
131 Walnut Avenue
Bronx, New York 10454
Director Robert N. Wilson Vice Chairman of Health Care
Johnson & Johnson the Board of Johnson Products
One Johnson & & Johnson
Johnson Plaza
New Brunswick, NJ 08933
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
Position
with U.S. Principal Type of
Trust NY Name Occupation Business
- -------- ---- ---------- --------
<S> <C> <C> <C>
Director Peter L. Malkin Chairman of Law Firm
Wein, Malkin LLP Wein, Malkin & Bettex
Lincoln Building
60 East 42nd Street
New York, NY 10165
Director David A. Olsen Vice Chairman Risk & Insurance
Marsh & McLennan, Inc. Services
125 Broad Street
New York, NY 10004
Director Richard F. Tucker Retired Vice Chairman- Petroleum
P.O.Box 2072 Mobil Oil Corporation and Chemicals
New York, NY 10163
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 & CEO Not for
The Advertising Profit Public
Council, Inc. Service
261 Madison Avenue Advertising
11th Floor
New York, NY 10016
Executive Paul K. Napoli Executive Asset Management,
Vice United States Trust Vice President Investment and
President Company of New York Fiduciary Services
114 West 47th Street
New York, NY 10036
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
Position
with U.S. Principal Type of
Trust NY Name Occupation Business
- -------- ---- ---------- --------
<S> <C> <C> <C>
Director & Maribeth S. Rahe Vice Chairman Asset Management,
Vice Chair- United States Trust Investment and
man Company of New York Fiduciary Services
114 West 47th Street
New York, NY 10036
Director Frederick B. Taylor Vice Chairman and Asset Management,
Vice Chair- United States Trust Chief Investment Of- Investment and
man and Company of New York ficer of U.S. Trust Fiduciary Services
Chief Invest- 114 West 47th Street Corporation and United
ment Officer New York, NY 10036 States Trust Company
of New York
Director, Jeffrey S. Maurer President and Asset Management,
President, United States Trust Chief Operating Investment and
and Chief Company of New York Officer Fiduciary Services
Operating 114 West 47th Street
Officer New York, NY 10036
Trustee/ Daniel P. Davison Chairman, Christie, Fine Art
Director Christie, Manson Manson & Woods Auctioneer
& Woods International, Inc.
International,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
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
Position
with U.S. Principal Type of
Trust NY Name Occupation Business
- -------- ---- ---------- --------
<S> <C> <C> <C>
Executive John L. Kirby Executive Asset Management,
Vice United States Trust Vice President Investment and
President Company of New York Fiduciary Services
114 West 47th Street
New York, NY 10030
Executive Kenneth G. Walsh Executive Asset Management,
Vice United States Trust Vice President Investment and
President Company of New York Fiduciary Services
114 West 47th Street
New York, NY 10030
Director Philip L. Smith Corporate Director and
P.O. Box 386 Trustee
Ponte Verde Beach, FL 32004
Executive John C. Hoover, II Executive Asset Management,
Vice United States Trust Vice President Investment and
President Company of New York Fiduciary Services
114 West 47th Street
New York, NY 10030
Executive John M. Deignan Executive Asset Management,
Vice United States Trust Vice President Investment and
President Company of New York Fiduciary Services
114 West 47th Street
New York, NY 10030
</TABLE>
(c) 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.
-14-
<PAGE>
DOUGLAS F. ADAMS -- Trustee/Director; United States Trust Company of the
Pacific Northwest, 4380 SW Macadam Avenue, Suite 450, Portland, OR 97201;
President and Chief Operating Officer of United States Trust Company of the
Pacific Northwest (bank).
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).
(d) Becker Capital Management, Inc.
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 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).
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).
-15-
<PAGE>
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).
(e) Harding, Loevner Management, L.P.
Harding, Loevner Management, L.P. ("Harding Loevner") is a registered
Investment Adviser 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).
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Edgewood Services, Inc. (the "Distributor") currently serves as
distributor for Registrant. The Distributor acts as principal underwriter for
the following open-end investment companies: BT Advisor Funds, BT Pyramid
Mutual Funds, BT Investment Funds, BT Institutional Funds, Excelsior Funds,
Excelsior Funds, Inc., Excelsior Tax-Exempt Funds, Inc., FTI Funds, FundManager
Portfolios, Great Plains Funds, Marketvest Funds, Marketvest Funds, Inc., Old
Westbury Funds, Inc. and WesMark Funds.
<TABLE>
<CAPTION>
(b) Names and Principal Positions and Offices with Offices with
Business Addresses the Distributor Registrant
--------------------- -------------------------- ------------
<S> <C> <C>
Lawrence Caracciolo Director and President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Arthur L. Cherry Director, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
J. Christopher Donahue Director, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
Names and Principal Positions and Offices with Offices with
Business Addresses the Distributor Registrant
--------------------- -------------------------- ------------
<S> <C> <C>
Ronald M. Petnuch Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Thomas P. Sholes Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Thomas P. Schmitt 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
Thomas J. Ward 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
</TABLE>
(c) Not Applicable.
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:
-17-
<PAGE>
(1) UNITED STATES TRUST COMPANY OF NEW YORK, 114 West 47th Street, New York,
New York 10036 (records relating to its functions as investment adviser).
(2) U.S. TRUST COMPANY OF CONNECTICUT, 225 High Ridge Road, East Building,
Stamford, Connecticut 06905 (records relating to its function as investment
adviser and co-administrator).
(3) 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).
(4) BECKER CAPITAL MANAGEMENT, INC., 2185 PacWest Center, Portland, Oregon
97204 (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, 3 Chase MetroTech Center, 8th Floor, Brooklyn, NY
11245 (records relating to its function as custodian).
(10) STATE STREET BANK & TRUST COMPANY, P.O. Box 8600, Boston, Massachusetts
02266-8600 (records relating to its function as custodian of Bond Index
Portfolio of Federated Investment Portfolios).
(11) DRINKER BIDDLE & REATH LLP, Philadelphia National Bank Building, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496 (Registrant's
Articles of Incorporation, Bylaws, and Minute Books).
ITEM 31. MANAGEMENT SERVICES.
Inapplicable.
-18-
<PAGE>
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 upon request and without charge.
-19-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 (the "1933
Act") and the Investment Company Act of 1940, Excelsior Institutional Trust
certifies that it meets all of the requirements for effectiveness of this Post-
Effective Amendment No. 15 to its Registration Statement on Form N-1A
("Amendment No. 15") pursuant to Rule 485(b) under the 1933 Act and has duly
caused this Amendment No. 15 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, 1997.
EXCELSIOR INSTITUTIONAL TRUST
Registrant
* Frederick S. Wonham
---------------------------
Frederick S. Wonham, President
(Signature and Title)
Pursuant to the requirements of the 1933 Act, this Amendment No. 15
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Frederick S. Wonham
- -----------------------
Frederick S. Wonham Chairman of the September 30, 1997
Board, President
and Treasurer
* Joseph H. Dugan
- -----------------------
Joseph H. Dugan Trustee September 30, 1997
* Donald L. Campbell
- ----------------------
Donald L. Campbell Trustee September 30, 1997
* Wolfe J. Frankl
- ----------------------
Wolfe J. Frankl Trustee September 30, 1997
* Robert A. Robinson
- ----------------------
Robert A. Robinson Trustee September 30, 1997
</TABLE>
-20-
<PAGE>
<TABLE>
<S> <C> <C>
* Alfred Tannachion
- ----------------------
Alfred Tannachion Trustee September 30, 1997
* Rodman L. Drake
- ----------------------
Rodman L. Drake Trustee September 30, 1997
* W. Wallace McDowell, Jr.
- --------------------------
W. Wallace McDowell, Jr. Trustee September 30, 1997
* Jonathan Piel
- ----------------------
Jonathan Piel Trustee September 30, 1997
*By:/s/W. Bruce McConnel, III
-------------------------
W. Bruce McConnel, III
Attorney-in-Fact
</TABLE>
-21-
<PAGE>
SIGNATURES
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, 1997.
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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
*/John F. Donahue Chairman, Chief Executive Officer and September 30, 1997
- --------------------------
John F. Donahue Trustee
*/J. Christopher Donahue President and Trustee September 30, 1997
- --------------------------
J. Christopher Donahue
*/John W. McGonigle Executive Vice President, Secretary September 30, 1997
- --------------------------
John W. McGonigle and Treasurer (Principal Financial
and Accounting Officer)
*/Thomas G. Bigley Trustee September 30, 1997
- --------------------------
Thomas G. Bigley
*/John T. Conroy, Jr. Trustee September 30, 1997
- --------------------------
John T. Conroy, Jr.
*/William J. Copeland Trustee September 30, 1997
- --------------------------
William J. Copeland
*/James E. Dowd Trustee September 30, 1997
- --------------------------
James E. Dowd
</TABLE>
-22-
<PAGE>
<TABLE>
<S> <C> <C>
*/Lawrence D. Ellis, M.D. Trustee September 30, 1997
- ---------------------------
Lawrence D. Ellis, M.D.
*/Edward L. Flaherty, Jr. Trustee September 30, 1997
- ---------------------------
Edward L. Flaherty, Jr.
*/Peter E. Madden Trustee September 30, 1997
- ---------------------------
Peter E. Madden
*/Gregor F. Meyer Trustee September 30, 1997
- ---------------------------
Gregor F. Meyer
*/John E. Murray, Jr. Trustee September 30, 1997
- ---------------------------
John E. Murray, Jr.
*/Wesley W. Posvar Trustee September 30, 1997
- ---------------------------
Wesley W. Posvar
*/Marjorie P. Smuts Trustee September 30, 1997
- ---------------------------
Marjorie P. Smuts
</TABLE>
*By:/s/Victor R. Siclari
--------------------
Victor R. Siclari
Attorney-in-fact
-23-
<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
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s, 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: May 16, 1997 /s/ Alfred C. Tannachion
-------------------------
Alfred C. Tannachion
<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
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s, 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: May 16, 1997 /s/ Donald L. Campbell
-----------------------
Donald L. Campbell
<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
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s, 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: May 16, 1997 /s/ Joseph H. Dugan
--------------------
Joseph H. Dugan
<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
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s, 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: May 16, 1997 /s/ Robert A. Robinson
-----------------------
Robert A. Robinson
<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
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s, 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: May 16, 1997 /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: May 16, 1997 /s/ Frederick S. Wonham
------------------------
Frederick S. Wonham
<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
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 Funds, Inc.'s,
Excelsior Tax-Exempt Fund'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 either of said attorneys shall have full power and authority, to
do and perform in the name and on behalf of the undersigned in any and all
capacities, every act whatsoever requisite or necessary to be done, as fully and
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that either of said attorneys may lawfully do or cause to be
done by virtue hereof.
Dated: May 16, 1997 /s/ Rodman L. Drake
---------------------
Rodman L. Drake
<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
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 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 either of said attorneys shall have full power and
authority, to do and perform in the name and on behalf of the undersigned in any
and all capacities, every act whatsoever requisite or necessary to be done, as
fully and to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that either of said attorneys may lawfully do or
cause to be done by virtue hereof.
Dated: May 16, 1997 /s/ W. Wallace McDowell
------------------------
W. Wallace McDowell
<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
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 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 either of said attorneys shall have full power and
authority, to do and perform in the name and on behalf of the undersigned in any
and all capacities, every act whatsoever requisite or necessary to be done, as
fully and to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that either of said attorneys may lawfully do or
cause to be done by virtue hereof.
Dated: May 17, 1997 /s/ Jonathan Piel
-------------------
Jonathan Piel
<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.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/ Chairman and Trustee September 3, 1997
- ------------------------ (Chief Executive Officer)
John F. Donahue
/s/ President and Trustee September 3, 1997
- ------------------------
J. Christopher Donahue
/s/ Treasurer, Executive September 3, 1997
- ------------------------ Vice President and Secretary
John W. McGonigle (Principal Financial and
Accounting Officer)
/s/ Trustee September 3, 1997
- ------------------------
Thomas G. Bigley
/s/ Trustee September 3, 1997
- ------------------------
John T. Conroy, Jr.
/s/ Trustee September 3, 1997
- ------------------------
William J. Copeland
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/ Trustee September 3, 1997
- ----------------------------
James E. Dowd
/s/ Trustee September 3, 1997
- ----------------------------
Lawrence D. Ellis, M.D.
/s/ Trustee September 3, 1997
- ----------------------------
Edward L. Flaherty, Jr.
/s/ Trustee September 3, 1997
- ----------------------------
Peter E. Madden
/s/ Trustee September 3, 1997
- ----------------------------
Gregor F. Meyer
/s/ Trustee September 3, 1997
- ----------------------------
John E. Murray, Jr.
/s/ Trustee September 3, 1997
- ----------------------------
Wesley W. Posvar
/s/ Trustee September 3, 1997
- ----------------------------
Marjorie P. Smuts
</TABLE>
Sworn to and subscribed before me this 3rd day of September, 1997.
(NOTARY SEAL)
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
(8) Custody Agreement dated September 1, 1995 (as amended and
restated on August 15, 1997) between the Registrant and The
Chase Manhattan Bank.
(9)(e) Amended and Restated Administrative Services Plan and Related
Form of Shareholder Servicing Agreement.
(11)(a) Consent of Drinker Biddle & Reath LLP.
(b) Consent of Ernst & Young LLP.
(13)(c) Purchase Agreement between the Registrant and Edgewood
Services, Inc. dated August 22, 1997 relating to Trust Shares
of the Balanced and International Equity Funds.
(15) Amended and Restated Distribution Plan and Form of
Distribution Agreement.
(18) Amended and Restated Plan Pursuant to Rule 18f-3 for Operation
of a Multi-Class System.
(27)(h) Financial Data Schedule as of May 31, 1997 for the
Bond Index Fund.
(27)(i) Financial Data Schedule as of May 31, 1997 for the
Bond Index Portfolio.
<PAGE>
EXHIBIT 99.8
CUSTODY AGREEMENT
-----------------
AGREEMENT effective as of September 1, 1995 (as amended and restated on
August 1, 1997) between THE CHASE MANHATTAN BANK ("Bank") and EXCELSIOR
INSTITUTIONAL TRUST, a Delaware business trust (the "Fund").
WITNESSETH:
WHEREAS, the Fund wishes to retain Bank to provide custodian services to
the Fund for the benefit of the investment portfolios of the Fund listed on
Exhibit A hereto, as the same may be amended from time to time by the parties
hereto (each a "Portfolio," collectively, "Portfolios"), and Bank 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. Custody Account. The Bank agrees to establish and maintain (a) a
---------------
separate custody account for each Portfolio of the Fund ("Custody Account") for
any and all stocks, shares, bonds, debentures, notes, mortgages or other
obligations for the payment of money and any certificates, receipts, warrants or
other instruments representing rights to receive, purchase or subscribe for the
same or evidencing or representing any other rights or interests therein and
other similar property (hereinafter called "Securities") from time to time
received by the Bank or any subcustodian (as defined in the second paragraph of
Section 3 hereof) for the account of the particular Portfolio of the Fund and
(b) a separate deposit account(s) in the
<PAGE>
name of each Portfolio of the Fund ("Deposit Account") for any and all cash and
cash equivalents in any currency received by the Bank or any subcustodian for
the account of the particular Portfolio of the Fund, which cash shall not be
subject to withdrawal by draft or check. The term "Property" as used herein
shall mean all Securities, cash, cash equivalents and other assets of the Fund.
2. Maintenance of Property Domestically and Abroad. Securities in a
-----------------------------------------------
Custody Account shall be held in the country or other jurisdiction in which the
principal trading market for such Securities is located or the country of other
jurisdiction in which such Securities are to be presented for payment or are
acquired for the Custody Account, and cash in a Deposit Account shall be
credited to an account in such country or other jurisdiction in which such cash
may be legally deposited or is the legal currency for the payment of public or
private debts. Cash may be held pursuant to Instructions (as defined in Section
9 hereof) in either interest or non-interest bearing accounts as may be
available for the particular currency. To the extent Instructions are issued
and the Bank can comply with such Instructions, the Bank is authorized to
maintain cash balances on deposit for the Fund with itself or one of its
affiliates at such reasonable rates of interest as may from time to time be paid
on such accounts, or in non-interest bearing accounts as the Fund may direct, if
acceptable to the Bank.
3. Eligible Foreign Custodians and Securities Depositories. The Board of
-------------------------------------------------------
Trustees of the Fund authorizes the Bank to hold the Securities in the Custody
Account(s) and the cash in the Deposit Account(s) in custody and deposit
accounts, respectively, which have been established by the Bank with one of its
branches, a branch of a qualified U.S.
-2-
<PAGE>
bank, an eligible foreign custodian or an eligible foreign securities
depository; provided, however, that the Board of Trustees of the Fund has
approved the use of, and the Bank's contract with, such eligible foreign
custodian or eligible foreign securities depository by resolution, and
Instructions to such effect have been provided to the Bank. Furthermore, if a
branch of the Bank, a branch of a qualified U.S. bank or an eligible foreign
custodian is selected to act as the Bank's subcustodian to hold any Property,
such entity is authorized to hold such Property in its account with any eligible
foreign securities depository in which it participates so long as such foreign
securities depository has been approved by the Board of Trustees of the Fund.
For purposes of this Agreement, "qualified U.S. bank" and "eligible foreign
custodian" shall have the same meanings as given in Rule 17f-5 under the
Investment Company Act of 1940, as amended ("Rule 17f-5"), and "eligible foreign
securities depository" shall be a depository within the meaning of Rule 17f-
5(c)(2)(iii) and (iv) as said Rule 17f-5 was in effect on September 1, 1995.
Hereinafter the term "subcustodian" will refer to any Bank branch, any
branch of a qualified U.S. bank, any eligible foreign custodian or any eligible
foreign securities depository with which the Bank has entered into an agreement
of the type contemplated hereunder regarding Securities and/or cash held in or
to be acquired for a Custody Account or a Deposit Account.
If, after the initial approval of the subcustodians by the Board of
Trustees of the Fund in connection with this Agreement, the Bank wishes to
appoint other subcustodians to hold the Fund's Property, it will so notify the
Fund and will provide it with information reasonably necessary to determine any
such new subcustodian's eligibility under Rule 17f-5,
-3-
<PAGE>
including a copy of the proposed agreement with such subcustodian. The Fund
shall within 30 days after receipt of such notice give a written approval or
disapproval of the proposed action.
If the Bank intends to remove any subcustodian previously approved, it
shall so notify the Fund and shall move the Property deposited with such
subcustodian to another subcustodian previously approved or to a new
subcustodian, provided that the appointment of any new subcustodian will be
subject to the requirements set forth in the preceding paragraph. The Bank
shall take steps as may be required to remove any subcustodian which has ceased
to meet the requirements of Rule 17f-5.
4. Use of Subcustodians. With respect to Property which is maintained by
--------------------
the Bank in the custody of a subcustodian pursuant to Section 3:
(a) The Bank will identify on its books as belonging to the particular
Portfolio of the Fund any Property held by such subcustodian.
(b) In the event that a subcustodian permits any of the Securities
placed in its care to be held in an eligible foreign securities depository, such
subcustodian will be required by its agreement with the Bank to identify on its
books such Securities as being held for the account of the Bank as a custodian
for its customers.
(c) Any Securities in a Custody Account held by a subcustodian of the
Bank will be subject only to the instructions of the Bank or its agents; and any
Securities held in an eligible foreign securities depository for the account of
a subcustodian will be subject only to the instructions of such subcustodian.
-4-
<PAGE>
(d) The Bank will only deposit Securities in an account with a
subcustodian which includes exclusively the assets held by the Bank for its
customers, and the Bank will cause such account to be designated by such
subcustodian as a special custody account for the exclusive benefit of customers
of the Bank.
(e) Any agreement the Bank shall enter into with a subcustodian with
respect to the holding of Securities shall require that (i) the Securities are
not subject to any right, charge, security interest, lien or claim of any kind
in favor of such subcustodian or its creditors except for a claim of payment for
its safe custody or administration and (ii) beneficial ownership of such
Securities is freely transferable without the payment of money or value other
than for safe custody or administration; provided, however, that the foregoing
shall not apply to the extent that any of the above-mentioned rights, charges,
etc. result from any compensation or other expenses arising with respect to the
safekeeping of Securities pursuant to such agreement.
(f) The Bank shall allow independent public accountants of the Fund
such reasonable access to the records of the Bank relating to Property held in a
Custody Account and a Deposit Account as required by such accountants in
connection with their examination of the books and records pertaining to the
affairs of the Fund. The Bank shall, subject to restrictions under applicable
law, also obtain from any subcustodian with which the Fund maintains the
physical possession of any Property an undertaking to permit independent public
accountants of the Fund such reasonable access to the records of such
subcustodian as may be required in connection with their examination of the
books and records pertaining to the affairs of the Fund or to supply a
verifiable confirmation of the contents of such records.
-5-
<PAGE>
The Bank shall furnish the Fund such reports (or portions thereof) of the Bank's
external auditors as relate directly to the Bank's system of internal accounting
controls applicable to the Bank's duties under this Agreement. The Bank shall
request for and furnish to the Fund such similar reports as may be furnished to
it with respect to each subcustodian and securities depository holding the
Fund's assets.
(g) The Bank will supply to the Fund, care of its investment adviser,
at least monthly a statement in respect to any Property in a Custody and a
Deposit Account held by each subcustodian, including an identification of the
entity having possession of such Property, and the Bank will send to the Fund an
advice or notification of any transfers of Property to or from the Custody
Account and Deposit Account, indicating, as to Property acquired for an
investment portfolio of the Fund, the identity of the entity having physical
possession of such Property. In the absence of the filing in writing with the
Bank by the Fund of exceptions or objections to any such statement within sixty
(60) days of the Fund's receipt of such statement, or within sixty (60) days
after the date that a material defect is reasonably discoverable, the Fund shall
be deemed to have approved such statement and in such case or upon written
approval of the Fund of any such statement the Bank shall, to the extent
permitted by law and provided the Bank has met the standard of care in Section
12 hereunder, be released, relieved and discharged with respect to all matters
and things set forth in such statement as though such statement has been settled
by the decree of a court of competent jurisdiction in an action in which the
Fund and all persons having any equity interest in the Fund were parties.
-6-
<PAGE>
(h) The Bank hereby warrants to the Fund that in its opinion, after
due inquiry, the established procedures to be followed by each of its branches,
each branch of a qualified U.S. bank and each eligible foreign custodian holding
Securities of the Fund pursuant to this Agreement afford protection for such
Securities at least equal to that afforded by the Bank's established procedures
with respect to similar Securities held by the Bank (and its securities
depositories) in New York.
(i) The Bank hereby warrants to the Fund that as of the date of this
Agreement it is maintaining a Bankers Blanket Bond sufficient to cover any of
its reasonably anticipated liabilities hereunder and hereby agrees to notify the
Fund in the event its Bankers Blanket Bond is canceled or otherwise lapses.
5. Deposit Account Payments. Subject to the provisions of Section 7, the
------------------------
Bank shall make, or cause its subcustodian to make, payments of cash credited to
a Deposit Account only:
(a) in connection with the purchase of Securities for the particular
Portfolio of the Fund involved and the delivery of such Securities to, or the
crediting of such Securities to, the particular Custody Account of the Bank or
its subcustodian, each such payment to be made at prices as confirmed by
Instructions from Authorized Persons (as defined in Section 10 hereof);
(b) for the purchase or redemption of shares of the capital stock of
the particular Portfolio of the Fund involved and the delivery to, or crediting
to the account of, the Bank or its subcustodian of such shares to be so
purchased or redeemed;
-7-
<PAGE>
(c) for the payment for the account of the particular Portfolio of the
Fund involved of dividends, interest, taxes, management or supervisory fees,
capital distributions or operating expenses;
(d) for the payments to be made in connection with the conversion,
exchange or surrender of Securities held in a Custody Account;
(e) for spot or forward foreign exchange transactions to facilitate
security trading, receipt of income from Securities or related transactions;
(f) for other proper corporate purposes of the particular Portfolio of
the Fund involved; or
(g) upon the termination of this Custody Agreement as hereinafter set
forth.
All payments of cash for a purpose permitted by subsection (a), (b), (c),
(d) or (e) of this Section 5 will be made only upon receipt by the Bank of
Instructions from Authorized Persons which shall specify the purpose for which
the payment is to be made and the applicable subsection of this Section 5. In
the case of any payment to be made for the purpose permitted by subsection (f)
of this Section 5, the Bank must first receive a certified copy of a resolution
of the Board of Trustees of the Fund adequately describing such payment,
declaring such purpose to be a proper corporate purpose, and naming the person
or persons to whom such payment shall be made. Any payment pursuant to
subsection (g) of this Section 5 will be made in accordance with Section 17
hereof.
In the event that any payment for a Portfolio of the Fund made under this
Section 5 exceeds the funds available in that Portfolio's Deposit Account, the
Bank may, in its
-8-
<PAGE>
discretion, advance the Fund on behalf of that Portfolio an amount equal to such
excess and such advance shall be deemed a loan from the Bank to that Portfolio
payable on demand, bearing interest at the rate of interest customarily charged
by the Bank on similar loans. If the Bank causes a Deposit Account to be
credited on the payable date for interest, dividends or redemptions, the
particular Portfolio of the Fund involved will promptly return to the Bank any
such amount or property so credited upon oral or written notification that such
amount has not been received in the ordinary course of business or that such
amount was incorrectly credited. The Bank or its subcustodian, as the case may
be, shall have no duty or obligation to institute legal proceedings, file a
claim or proof of claim in any insolvency proceeding or take any other action
with respect to the collection of such amount or property.
6. Custody Account Transactions. Subject to the provisions of Section 7,
----------------------------
Securities in a Custody Account will be transferred, exchanged or delivered by
the Bank or its subcustodians only:
(a) upon sale of such Securities for the particular Portfolio of the
Fund involved and receipt by the Bank or its subcustodian of payment therefor,
each such payment to be in the amount confirmed by Instructions from Authorized
Persons;
(b) when such Securities are called, redeemed or retired, or otherwise
become payable;
(c) in exchange for or upon conversion into other Securities alone or
other Securities and cash pursuant to any plan of merger, consolidation,
reorganization, recapitalization or readjustment;
-9-
<PAGE>
(d) upon conversion of such Securities pursuant to their terms into
other Securities;
(e) upon exercise of subscription, purchase or other similar rights
represented by such Securities;
(f) for the purpose of exchanging interim receipts or temporary
Securities for definitive Securities;
(g) for the purpose of redeeming in-kind shares of the capital stock
of the particular Portfolio of the Fund involved against delivery to the Bank or
its subcustodian of such shares to be redeemed;
(h) in connection with any borrowings by the particular Portfolio
requiring a pledge of Securities, but only against receipt of amounts borrowed;
(i) in connection with any loans, but only against receipt of adequate
collateral as specified in Instructions which shall reflect any restrictions
applicable to the Fund;
(j) for delivery in accordance with the provisions of any agreement
among the Fund, the Bank and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of the National
Association of Securities Dealers, Inc. relating to compliance with the rules of
The Options Clearing Corporation and of any registered national securities
exchange, or of any similar organizations, regarding escrow or other
arrangements in connection with transactions by the particular Portfolio;
(k) for release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only upon
payment to the
-10-
<PAGE>
Bank of monies for the premium due and a receipt for the Securities which are to
be held in escrow. Upon exercise of the option, or at expiration, the Bank will
receive the Securities previously deposited from brokers. The Bank will act
strictly in accordance with Instructions in the delivery of Securities to be
held in escrow and will have no responsibility or liability for any such
Securities which are not returned promptly when due other than to make proper
request for such return.
(l) for other proper corporate purposes of the particular Portfolio of
the Fund involved; or
(m) upon the termination of this Custody Agreement as hereinafter set
forth.
All transfers, exchanges or deliveries of Securities in a Custody Account
for a purpose permitted by either subsection (a), (b), (c), (d), (e) or (f) of
this Section 6 will be made, except as provided in Section 8 hereof, only upon
receipt by the Bank of Instructions from Authorized Persons which shall specify
the purpose of the transfer, exchange or delivery to be made and the applicable
subsection of this Section 6. In the case of any transfer or delivery to be
made for the purpose permitted by subsection (g) of this Section 6, the Bank
must first receive Instructions from Authorized Persons specifying the
Securities held by the Bank or its subcustodian to be so transferred or
delivered and naming the person or persons to whom transfers or delivery of such
Securities shall be made. In the case of any transfer, exchange or delivery to
be made for the purpose permitted by subsections (h) or (l) of this Section 6,
the Bank must first receive a certified copy of a resolution of the Board of
Trustees of the Fund adequately describing such transfer, exchange or delivery,
declaring
-11-
<PAGE>
such purpose to be a proper corporate purpose, and naming the person or persons
to whom delivery of such Securities shall be made. Any transfer or delivery
pursuant to subsection (m) of this Section 6 will be made in accordance with
Section 17 hereof.
7. Custody Account Procedures. With respect to any transaction involving
--------------------------
Securities held in or to be acquired for a Custody Account, the Bank in its
discretion may cause the Deposit Account for the particular Portfolio of the
Fund involved to be credited on the contractual settlement date with the
proceeds of any sale or exchange of Securities from the particular Custody
Account and to be debited on the contractual settlement date for the cost of
Securities purchased or acquired for the particular Custody Account. The Bank
may reverse any such credit or debit if the transaction with respect to which
such credit or debit was made fails to settle within a reasonable period,
determined by the Bank in its discretion, after the contractual settlement date,
except that if any Securities delivered pursuant to this Section 7 are returned
by the recipient thereof, the Bank may cause any such credits and debits to be
reversed at any time. With respect to any transactions as to which the Bank does
not determine so to credit or debit the particular Deposit Account, the proceeds
from the sale or exchange of Securities will be credited and the cost of such
Securities purchased or acquired will be debited to the particular Deposit
Account on the date such proceeds or Securities are received by the Bank.
Notwithstanding the preceding paragraph and Section 6 hereof, settlement
and payment for Securities received for, and delivery of Securities out of, a
Custody Account may be effected in accordance with the customary or established
securities trading or securities processing practices and procedures in the
jurisdiction or market in which the
-12-
<PAGE>
transaction occurs, including, without limitation, delivering Securities to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser or
dealer) against a receipt with the expectation of receiving later payment for
such Securities from such purchaser or dealer.
8. Actions of the Bank. Until the Bank receives Instructions from
-------------------
Authorized Persons to the contrary, the Bank will, or will instruct its
subcustodian, to:
(a) present for payment any Securities in a Custody Account which are
called, redeemed or retired or otherwise become payable and all coupons and
other income items which call for payment upon presentation to the extent that
the Bank or subcustodian is aware of such opportunities for payment, and hold
cash received upon presentation of such Securities in accordance with the
provisions of Sections 2, 3 and 4 hereof;
(b) in respect of Securities in a Custody Account, execute in the name
of the Fund on behalf of the particular Portfolio involved such ownership and
other certificates as may be required to obtain payments in respect thereof;
(c) exchange interim receipts or temporary Securities in a Custody
Account for definitive Securities;
(d) (if applicable) convert monies received with respect to Securities
of foreign issue into United States dollars or any other currency necessary to
effect any transaction involving the Securities whenever it is practicable to do
so through customary banking channels, using any method or agency available,
including, but not limited to, the facilities of the Bank, its subsidiaries,
affiliates or subcustodians;
-13-
<PAGE>
(e) (if applicable) appoint brokers and agents for any transaction
involving the Securities in a Custody Account, including, without limitation,
affiliates of the Bank or any subcustodian; and
(f) apply for a reduction of withholding tax and any refund of any tax
paid or tax credits which apply in each applicable market in respect of income
payments or Securities for the benefit of each Portfolio of the Fund which the
Bank believes may be available to such Portfolio. The provision of tax reclaim
services by the Bank is conditioned upon the Bank receiving from the Fund (A) a
declaration of its identity and place of residence and (B) certain other
documentation (pro forma copies of which are available from the Bank) requested
--- -----
by the Bank. The Fund shall provide to the Bank such documentation and
information as it may request in connection with taxation, and warrants that,
when given, this information shall be true and correct in every respect, not
misleading in any way, and shall contain all material information. The Fund
undertakes to notify the Bank immediately if any such information requires
updating or amendment. The Bank shall not be liable to the Fund or any third
party for any tax fines or penalties payable by the Bank or the Fund, and shall
be indemnified accordingly, whether these result from the inaccurate completion
of documents by the Fund or any third party, or as a result of the provision to
the Bank or any third party of inaccurate or misleading information or the
withholding of material information by the Fund or any other third party, or as
a result of any delay of any revenue authority or any other matter beyond the
control of the Bank. The Fund confirms that the Bank is authorized to deduct
from any cash received or credited to the Deposit Account any taxes or levies
required by any revenue or governmental authority in respect of
-14-
<PAGE>
the Securities or Deposit Accounts. The Bank shall perform tax reclaim services
only with respect to taxation levied by the revenue authorities of the countries
notified to the Fund from time to time and the Bank may, by notification in
writing, at its absolute discretion, supplement or amend the markets in which
the tax reclaim services are offered. Other than as expressly provided in this
clause, the Bank shall have no responsibility with regard to the Fund's tax
position or status in any jurisdiction. The Fund confirms that the Bank is
authorized to disclose any information requested by any revenue authority or any
governmental body in relation to the Fund or the Securities and/or cash held for
the Fund. Tax reclaim services may be provided by the Bank or, in whole or in
part, by one or more third parties appointed by the Bank (which may be
affiliates of the Bank), provided that the Bank shall be liable for the
performance of any such third party to the same extent as the Bank would have
been if it performed such services itself.
9. Instructions. As used in this Agreement, the term "Instructions" means
------------
instructions of the Fund received by the Bank via telephone, telex, TWX,
facsimile transmission, bank wire or other teleprocess or electronic instruction
system acceptable to the Bank which the Bank believes in good faith to have been
given by Authorized Persons or which are transmitted with proper testing or
authentication pursuant to terms and conditions which the Bank may specify.
Any Instructions delivered to the Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which confirmation
may bear the facsimile signature of such Person), but the particular Portfolio
of the Fund involved will hold the Bank harmless for the Fund's (i) failure to
send such confirmation in writing, or (ii) the
-15-
<PAGE>
failure of such confirmation to conform to the telephone Instructions received.
Unless otherwise expressly provided, all Instructions shall continue in full
force and effect until canceled or superseded. If the Bank requires test
arrangements, authentication methods or other security devices to be used with
respect to Instructions, any Instructions given by the Fund thereafter shall be
given and processed in accordance with such terms and conditions for the use of
such arrangements, methods or devices as the Bank may put into effect and modify
from time to time. The Fund shall safeguard any testkeys, identification codes
or other security devices which the Bank shall make available to them. The Bank
may electronically record any Instructions given by telephone, and any other
telephone discussions, with respect to a Custody Account.
10. Authorized Persons. As used in this Agreement, the term "Authorized
------------------
Persons" means such officers or such agents of the Fund as have been designated
by a resolution of the Board of Trustees of the Fund, a certified copy of which
has been provided to the Bank, to act on behalf of the Fund in the performance
of any acts which Authorized Persons may do under this Agreement. Such persons
shall continue to be Authorized Persons until such time as the Bank receives
Instructions from Authorized Persons that any such officer or agent is no longer
an Authorized Person.
11. Nominees. Securities in a Custody Account which are ordinarily held
--------
in registered form may be registered in the name of the Bank's nominee or, as to
any Securities in the possession of an entity other than the Bank, in the name
of such entity's nominee. The particular Portfolio of the Fund involved agrees
to hold any such nominee harmless from any liability as a holder of record of
such Securities, but not if such liability is a result of
-16-
<PAGE>
such nominee's negligence. The Bank may without notice to the Fund cause any
such Securities to cease to be registered in the name of any such nominee and to
be registered in the name of the Fund. In the event that any Securities
registered in the name of the Bank's nominee or held by one of its subcustodians
and registered in the name of such subcustodian's nominee are called for partial
redemption by the issuer of such Security, the Bank may allot, or cause to be
allotted, the called portion to the respective beneficial holders of such class
of security in any manner the Bank deems to be fair and equitable.
12. Standard of Care.
----------------
(a) The Bank shall be obligated to perform only such duties as are set
forth in this Agreement or expressly contained in Instructions given to Bank
which are consistent with the provisions of this Agreement.
(i) The Bank will use reasonable care with respect to its
obligations under this Agreement and the safekeeping of Property.
The Bank shall be liable to the Fund for any loss which shall
occur as the result of the failure of a subcustodian to exercise
reasonable care with respect to the safekeeping of such Property
to the same extent that the Bank would be liable to the Fund if
the Bank were holding such Property in New York. In the event of
any loss to the Fund by reason of the failure of the Bank or its
subcustodian to exercise reasonable care, the Bank shall be
liable to the Fund only to the extent the Fund's direct damages
and expenses, to be determined based on, but not limited to, the
market value of the Property which is the subject of the loss at
the date of
-17-
<PAGE>
discovery of such loss, and without reference to any special
conditions or circumstances. For purposes of this Section
12(a)(i), the term "subcustodian" shall not include any
securities depository or clearing agency the use of which is
compulsory because: (a) its use is required by law or regulation,
(b) securities cannot be withdrawn from the depository, or (c)
maintaining securities outside the depository is not consistent
with prevailing custodial practices in the country which the
depository serves.
(ii) The Bank will not be responsible for any act, omission,
default or for the solvency of any broker or agent (other than as
provided herein) which it or a subcustodian appoints and uses
unless such appointment and use were made or done negligently or
in bad faith.
(iii) The Bank shall be indemnified by, and without liability
to, the Fund and the particular Portfolio of the Fund involved
for any action taken or omitted by the Bank whether pursuant to
Instructions or otherwise within the scope of this Agreement if
such act or omission was in good faith and without negligence.
In performing its obligations under this Agreement, the Bank may
rely on the genuineness of any document which it believes in good
faith to have been validly executed.
(iv) The Fund, on behalf of the particular Portfolio of the
Fund involved, agrees to cause such Portfolio to pay for and hold
the Bank harmless from any liability or loss resulting from the
imposition or
-18-
<PAGE>
assessment of any taxes or other governmental charges, and any
related expenses, with respect to income from or Property in such
Portfolio's Custody Account and Deposit Account.
(v) The Bank shall be entitled to rely, and may act upon the
advice of counsel (who may be counsel for the Fund) on all
matters and shall be without liability for any action reasonably
taken or omitted in good faith and without negligence pursuant to
such advice.
(vi) The Bank need not maintain any insurance for the exclusive
benefit of the Fund.
(vii) Without limiting the foregoing, the Bank shall not be
liable for any loss which results from:
(1) the general risk of investing, or
(2) subject to Section 12(a)(i) hereof, investing or holding
Property in a particular country including, but not limited to,
losses resulting from nationalization, expropriation or other
governmental actions; regulation of the banking or securities
industry; currency restrictions, devaluations or fluctuations;
and market conditions which prevent the orderly execution of
securities transactions or affect the value of Property.
(viii) No party shall be liable to the other for any loss due to
forces beyond its control including but not limited to strikes or
work
-19-
<PAGE>
stoppages, acts of war or terrorism, insurrection, revolution,
nuclear fusion, fission or radiation, or acts of God.
(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that the Bank shall have no duty or
responsibility to:
(i) Question Instructions or make any suggestions to the Fund
or an Authorized Person regarding such Instructions;
(ii) Supervise or make recommendations with respect to
investments or the retention of Securities;
(iii) Advise the Fund or an Authorized Person regarding any
default in the payment of principal or income of any Security
other than as provided in the last paragraph of Section 5 hereof;
(iv) Subject to Section 12(a)(ii) hereof, evaluate or report to
the Fund or an Authorized Person regarding the financial
condition of any broker, agent or other party to which Securities
are delivered or payments are made pursuant to this Agreement; or
(v) Review or reconcile trade confirmations received from
brokers. The Fund or its Authorized Persons issuing Instructions
shall bear any responsibility to review such confirmations
against Instructions issued to and statements issued by the Bank.
(c) The Bank shall provide to the Fund, on an annual basis, a report
confirming that the arrangements hereunder remain in compliance with the rules
of the Securities and Exchange Commission governing such arrangements.
-20-
<PAGE>
(d) The Fund authorizes the Bank to act under this Agreement
notwithstanding that the Bank or any of its divisions or affiliates may have a
material interest in a transaction, or circumstances are such that the Bank may
have a potential conflict of duty or interest, including the fact that the Bank
or any of its affiliates may provide brokerage services to other customers, act
as financial advisor to the issuer of Securities, act as a lender to the issuer
of Securities, act in the same transaction as agent for more than one customer,
have a material interest in the issue of Securities, or earn profits from any of
the activities listed herein.
13. Compliance with Securities and Exchange Commission Rules and Orders.
-------------------------------------------------------------------
Except to the extent the Bank has specifically agreed pursuant to this Agreement
or in an exemptive order to comply with a condition of Rule 17f-5 or any
interpretation or exemptive order promulgated thereunder by or under the
authority of the Securities and Exchange Commission, the Fund shall be solely
responsible to assure that the maintenance of Securities and cash under this
Agreement complies with such Rule 17f-5.
14. Corporate Actions.
-----------------
(a) With respect to domestic U.S. and Canadian Securities (the latter
only when held with DTC), the Bank will send to the Fund or the Authorized
Person for a Custody Account such proxies (signed in blank, if issued in the
name of the Bank's nominee or the nominee of a central depository) and
communications with respect to Securities in the Custody Account as call for
voting or relate to legal proceedings within a reasonable time after sufficient
copies are received by the Bank for forwarding to its customers. In addition,
the Bank will follow coupon payments, redemptions, exchanges or similar matters
with
-21-
<PAGE>
respect to Securities in the Custody Account and advise the Fund or the
Authorized Person for such account of rights issued, tender offers or any other
discretionary rights with respect to such Securities, in each case, of which the
Bank has received notice from the issuer of the Securities, or as to which
notice is published in publications routinely utilized by the Bank for this
purpose.
(b) With respect to proxies and Corporate Actions (as defined below)
not covered by paragraph (a) of this Section 14:
(i) Whenever the Bank or its subcustodian receives information
concerning the Securities which requires discretionary action by
the beneficial owner of the Securities (other than a proxy), such
as subscription rights, bonus issues, stock repurchase plans and
rights offerings, or legal notices or other material intended to
be transmitted to securities holders ("Corporate Actions"), the
Bank will give the Fund notice of such Corporate Actions to the
extent that the Bank's central corporate actions department has
actual knowledge of a Corporate Action in time to notify its
customers.
(ii) When a rights entitlement or a fractional interest
resulting from a rights issue, stock dividend, stock split or
similar Corporate Action is received which bears an expiration
date, the Bank or its subcustodians will endeavor to obtain
Instructions from the Fund or its Authorized Persons, but if
Instructions are not received in time for the Bank to take timely
action, or actual notice of such Corporate Action was
-22-
<PAGE>
received too late to seek Instructions, the Bank is authorized to
sell such rights entitlement or fractional interest and to credit
the applicable Deposit Account with the proceeds and to take any
other action it deems in good faith to be appropriate in which
case, provided it has met the standard of care in Section 12
hereof, it shall be held harmless by the particular Portfolio of
the Fund involved for any such action.
(iii) Proxies will only be voted pursuant to special
arrangements which may have been agreed to in writing between the
parties hereto.
15. Fees and Expenses. The Fund agrees to pay the Bank from time to time
-----------------
such compensation for its services pursuant to this Agreement as may be mutually
agreed upon in writing from time to time and the Bank's out-of-pocket or
incidental expenses, including (but without limitation) reasonable legal fees.
The Fund hereby agrees on behalf of its respective Portfolios to cause the
particular Portfolio of the Fund involved to hold the Bank harmless from any
liability or loss resulting from any taxes or other governmental charges, and
any expenses related thereto, which may be imposed or assessed with respect to
such Portfolio's Custody Account and also agrees on behalf of its respective
Portfolios to cause the particular Portfolio of the Fund involved to hold the
Bank, its subcustodians, and their respective nominees harmless from any
liability as a record holder of Securities in such Portfolio's Custody Account.
The Bank is authorized to charge any account of the particular Portfolio of the
Fund involved for such items specified in the previous sentence and the Bank
shall have a lien on Securities in such Portfolio's Custody Account and on cash
in such Portfolio's
-23-
<PAGE>
Deposit Account for any amount owing to the Bank in connection with such
Portfolio from time to time under this Agreement.
16. Effectiveness. This Agreement shall be effective on the date first
-------------
noted above.
17. Termination. This Agreement may be terminated by the Fund or the Bank
-----------
by 60 days' written notice to the other, sent by registered mail. If notice of
termination is given by the Bank, the Fund shall, within 60 days following the
giving of such notice, deliver to the Bank a certified copy of a resolution of
the Board of Trustees of the Fund specifying the names of the persons to whom
the Bank shall deliver such Securities and cash, after deducting therefrom any
amounts which the Bank determines to be owed to it under Section 15 hereof. If
within 60 days following the giving of a notice of termination by the Bank, the
Bank does not receive from the Fund a certified copy of a resolution of the
Board of Trustees of the Fund specifying the names of the persons to whom the
cash in each Deposit Account shall be paid and to whom the Securities in each
Custody Account shall be delivered, the Bank, at its election, may deliver such
Securities and pay such cash to a bank or trust company doing business in the
State of New York and qualified as a custodian under the Investment Company Act
of 1940 and other applicable rules and regulations to be held and disposed of
pursuant to the provisions of this Agreement, or to Authorized Persons, or may
continue to hold such Securities and cash until a certified copy of one or more
resolutions as aforesaid is delivered to the Bank. The obligations of the
parties hereto regarding the use of reasonable care, indemnities and payment of
fees and expenses shall survive the termination of this Agreement, and the
obligations of each Portfolio of the Fund
-24-
<PAGE>
to indemnify and/or hold harmless other persons or entities under this Agreement
shall be the several (and not the joint or joint and several) obligation of each
Portfolio of the Fund.
18. Notices. Any notice or other communication from the Fund to the Bank
-------
is to be sent to the office of the Bank at:
The Chase Manhattan Bank
Mutual Funds Service Division
3 Chase MetroTech Center
Brooklyn, New York 11245
or such other address as may hereafter be given to the Fund in accordance with
the notice provisions hereunder, and any notice from the Bank to the Fund is to
be mailed postage prepaid, addressed to the Fund at the addresses appearing
below, or as the same may hereafter be changed on the Bank's records in
accordance with notice hereunder from the Fund.
19. Governing Law and Successors and Assigns. This Agreement shall be
----------------------------------------
governed by the law of the State of New York and shall not be assignable by any
party without the prior written consent of the other party, and shall bind the
successors and assigns of the Fund and the Bank.
20. Names. The names "Excelsior Institutional Trust" and "Board of
------
Trustees of Excelsior Institutional Trust" refer respectively to the business
trust created and the Trustees, as trustees but not individually or personally,
acting from time to time under a Trust Instrument dated April 27, 1994, which is
hereby referred to and a copy of which is on file at the office of the Secretary
of State of the State of Delaware and at the principal office of the Fund. The
obligations of "Excelsior Institutional Trust" entered into in the name or on
-25-
<PAGE>
behalf thereof by any of its Trustees, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, shareholders or representatives of the Fund personally, but bind only
the Fund's Property, and all persons dealing with any Portfolio of the Fund must
look solely to the Property belonging to such Portfolio for the enforcement of
any claims against the Portfolio.
21. Headings. The headings of the paragraphs hereof are included for
--------
convenience of reference only and do not form a part of this Agreement.
22. Counterpart Execution. This Agreement may be executed in any number
---------------------
of counterparts with the same effect as if all parties hereto had signed the
same document. All counterparts shall be construed together and shall
constitute one agreement.
23. Confidentiality. Bank agrees on behalf of itself and its employees to
---------------
treat confidentially all records and other information relative to the Fund and
its prior, present, or potential shareholders, except, after prior notification
to and approval in writing by the Fund (which approval shall not be unreasonably
withheld and may not be withheld where Bank may be exposed to civil or criminal
contempt proceedings for failure to comply) when requested to divulge such
information by duly constituted authorities, or when so requested by the Fund.
-26-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below effective as of the day and year
first above written.
THE CHASE MANHATTAN BANK
By:/s/Christopher Lynch
--------------------------------------------
Address for record:
3 Chase MetroTech Center
Brooklyn, New York 11245
EXCELSIOR INSTITUTIONAL TRUST
By:/s/Frederick S. Wonham
--------------------------------------------
Address for record:
73 Tremont Street
Boston, Massachusetts 02108
-27-
<PAGE>
EXHIBIT A
---------
Portfolios covered by the Custody Agreement between The Chase Manhattan
Bank and Excelsior Institutional Trust
Institutional Equity Fund
Institutional Income Fund
Institutional Total Return Bond Fund
Institutional Balanced Fund
Institutional International Equity Fund
Institutional Optimum Growth Fund
Institutional Value Equity Fund
Institutional Bond Index Fund
-28-
<PAGE>
EXHIBIT 99.9E
EXCELSIOR INSTITUTIONAL TRUST
-----------------------------
AMENDED AND RESTATED ADMINISTRATIVE SERVICES PLAN
Section 1. Upon the recommendation of Chase Global Funds Service Company,
---------
Federated Administrative Services or U.S. Trust Company of Connecticut (each a
"Co-Administrator") as Co-Administrator of Excelsior Institutional Trust (the
"Company"), any officer of the Company (or any other person authorized by the
Company's Board) is authorized to execute and deliver, in the name and on behalf
of the Company, written agreements in substantially the form attached hereto or
in any other form duly approved by the Board of Trustees ("Servicing
Agreements") with institutions that are shareholders of record or that have
clients that are shareholders of record or beneficial owners of any of the Funds
of the Company, including without limitation the Company's service providers and
their affiliates ("Service Organizations"). Such Servicing Agreements shall
require the Service Organizations to provide or arrange for the provision of
support services as set forth therein to their clients who beneficially own
Shares of any Fund offered by the Company in consideration of a fee, computed
and paid in the manner set forth in the Servicing Agreements, at the annual rate
of up to .40% of the applicable net asset value of Shares beneficially owned by
such clients. Among other institutions, any bank, trust company, thrift
institution or broker-dealer is eligible to become a Service Organization and to
receive fees under this Plan. All expenses incurred by the Company with respect
to a particular class or series of Shares of a particular Fund in connection
with Servicing Agreements and the implementation of this Plan shall be borne
entirely by the holders of that class or series.
Section 2. The Co-Administrators shall monitor the arrangements pertaining
---------
to the Company's Servicing Agreements with Service Organizations in accordance
with the terms of the Co-Administration Agreement by and among the Co-
Administrators and the Company. The Co-Administrators shall not, however, be
obliged by this Plan to recommend, and the Company shall not be obliged to
execute, any Servicing Agreement with any qualifying Service Organization.
Section 3. So long as this Plan is in effect, the Co-Administrators shall
---------
provide to the Company's Board of Trustees, and the Trustees shall review, at
least quarterly, a written report of the amounts expended pursuant to this Plan
and the purposes for which such expenditures were made.
<PAGE>
Section 4. This Plan shall become effective immediately upon the approval
---------
of the Plan (and the form of Servicing Agreement attached hereto) by a majority
of the Board of Trustees, including a majority of the trustees who are not
"interested persons" as defined in the Investment Company Act of 1940 (the
"Act") of the Company and have no direct or indirect financial interest in the
operation of this Plan or in any Servicing Agreement or other agreements related
to this Plan (the "Disinterested Trustees"), pursuant to a vote cast in person
at a meeting called for the purpose of voting on the approval of this Plan (or
form of Servicing Agreement).
Section 5. Unless sooner terminated, this Plan shall continue until July
---------
31, 1996 and thereafter shall continue automatically for successive annual
periods provided such continuance is approved at least annually in the manner
set forth in Section 4.
Section 6. This Plan may be amended at any time by the Board of Trustees,
---------
provided that any material amendments of the terms of this Plan shall become
effective only upon the approvals set forth in Section 4.
Section 7. This Plan is terminable at any time by vote of a majority of
---------
the Disinterested Trustees.
Section 8. While this Plan is in effect, the selection and nomination of
---------
the new trustees of the Company who are not "interested persons" (as defined in
the Act) of the Company shall be committed to the discretion of the existing
Disinterested Trustees.
Section 9. The Company initially adopted this Plan as of February 9, 1996,
---------
and amended this Plan as of May 16, 1997.
-2-
<PAGE>
SHAREHOLDER SERVICING AGREEMENT
THIS AGREEMENT, by and between Excelsior Institutional Trust (the "Trust")
and the shareholder service organization (the "Organization") listed on the
signature page hereof;
WITNESSETH:
WHEREAS, certain transactions in shares of beneficial interest, $0.00001
par value, of the Trust or of any series now existing or later created of the
Trust ("Shares") may be made by investors who are customers of, and using the
services of or arranged by, an Organization, including without limitation the
Company's service providers and their affiliates, that has entered into a
shareholder servicing agreement with the Trust; and
WHEREAS, the Organization wishes to make it possible for its customers (the
"Customers") to purchase Shares and wishes to act as the Customers' agent in
performing or arranging for the performance of certain administrative functions
in connection with purchases, exchanges and redemptions of Shares from time to
time upon the order and for the account of Customers and to provide related
services to its Customers in connection with their investments in the Trust; and
WHEREAS, it is in the interest of the Trust to make the services of the
Organization available to Customers who are or may become beneficial owners of
Shares of the Trust;
NOW, THEREFORE, the Trust and the Organization hereby agree as follows:
1. Appointment. The Organization, as an independent contractor, hereby
-----------
agrees to perform or to have performed certain services for Customers as
hereinafter set forth. The Organization's appointment hereunder is non-
exclusive, and the parties recognize and agree that, from time to time, the
Trust may enter into other shareholder servicing agreements with others without
the Organization's consent. For the purposes of this Agreement, the
Organization is deemed an independent contractor and will have no authority to
act as the Trust's agent in any respect.
2. Service to be Performed.
-----------------------
2.1 Type of Service. The Organization shall be responsible for performing
---------------
or having performed shareholder account administrative and servicing functions,
which shall include
<PAGE>
without limitation/1/: (a) assisting Customers in designating and changing
dividend options, account designations and addresses; (b) providing necessary
personnel and facilities to establish and maintain certain shareholder accounts
and records, as may reasonably be requested from time to time by the Trust; (c)
assisting in processing purchases, exchange and redemption transactions; (d)
arranging for the wiring of funds; (e) transmitting and receiving funds in
connection with Customer orders to purchase, exchange or redeem Shares; (f)
verifying and guaranteeing Customer signatures in connection with redemption
orders, transfers among and changes in Customer-designated accounts; (g)
providing periodic statements showing a Customer's account balances and, to the
extent practicable, integration of such information with information concerning
other client transactions otherwise effected with or through the Organization;
(h) furnishing on behalf of the Trust's distributor (either separately or on an
integrated basis with other reports sent to a Customer by the Organization)
periodic statements and confirmations of all purchases, exchanges and
redemptions of Shares in a Customer's account required by applicable federal or
state law, all such confirmations and statements to conform to Rule 10b-10 under
the Securities Exchange Act of 1934 and other applicable federal or state law;
(i) transmitting proxy statements, annual reports, updating prospectuses and
other communications from the Trust to Customers; (j) receiving, tabulating and
transmitting to the Trust proxies executed by Customers with respect to annual
and special meetings of shareholders of the Trust; (k) providing reports (at
least monthly, but more frequently if so requested by the Trust's distributor)
containing state-by-state listings of the principal residences of the beneficial
owners of the Shares; and (l) providing or arranging for the provision of such
other related services as the Trust or a Customer may reasonably request. The
Organization shall provide or arrange for all personnel and facilities to
perform the functions described in this paragraph with respect to its Customers.
2.2 Standard of Services. All services to be rendered or arranged for by
--------------------
the Organization hereunder shall be performed in a professional, competent and
timely manner. The details of the operating standards and procedures to be
followed in performance of the services described above shall be determined from
time to time by agreement between the Organization and the Trust. The Trust
acknowledges that the Organization's ability to perform on a timely basis
certain of its obligations under this Agreement depends upon the Trust's timely
delivery of certain materials
- ---------------
/1/ Services may be modified or omitted in a particular case and items
relettered or renumbered.
-2-
<PAGE>
and/or information to the Organization. The Trust agrees to use its best
efforts to provide such materials to the Organization in a timely manner.
3. Fees.
----
3.1 Fees from the Trust. In consideration for the services described in
-------------------
Section 2 hereof and the incurring of expenses in connection therewith, the
Organization shall receive fees set forth in Appendix A hereto, such fees to be
paid in arrears periodically (but in no event less frequently than semi-
annually) at annual rates of up to .40% of the average daily net assets of the
Trust's Shares owned during the period for which payment has been made by
Customers for whom the Organization is the holder or agent of record or with
whom it maintains a servicing relationship. For purposes of determining the
fees payable to the Organization hereunder, the value of the Trust's net assets
shall be computed in the manner specified in the Trust's then-current prospectus
for computation of the net asset value of the Trust's Shares. The above fees
constitute all fees to be paid to the Organization by the Trust with respect to
the transactions contemplated hereby. The Trust may at any time in its
discretion suspend or withdraw the sale of its Shares.
3.2 Fees from Customers. It is agreed that the Organization may impose
-------------------
certain conditions on Customers, in addition to or different from those imposed
by the Trust, such as requiring a minimum initial investment or charging
Customers direct fees for the same or similar services as are provided hereunder
by the Organization (which fees may either relate specifically to the
Organization's services with respect to the Trust or generally cover services
not limited to those with respect to the Trust). The Organization shall bill
Customers directly for such fees. In the event the Organization charges
Customers such fees, it shall notify the Trust in advance and make appropriate
prior written disclosure (such disclosure to be in accordance with all
applicable laws) to Customers of any such fees charged to the Customer. To the
extent required by applicable rules and regulations of the Securities and
Exchange Commission, the Trust shall make written disclosure of the fees paid or
to be paid to the Organization pursuant to Section 3.1 of this Agreement. It is
understood, however, that in no event shall the Organization have recourse or
access to the account of any shareholder of the Trust except to the extent
expressly authorized by law or by such shareholder, or to any assets of the
Trust, for payment of any direct fees referred to in this Section 3.2.
4. Information Pertaining to the Shares. The Organization and its
------------------------------------
officers, employees and agents are not authorized to make any representations
concerning the Trust or the Shares to Customers or prospective Customers,
excepting only accurate
-3-
<PAGE>
communication of any information provided by or on behalf of any administrator
or distributor of the Trust or any factual information contained in the then-
current prospectus relating to the Trust or to any series of the Trust. In
furnishing such information regarding the Trust or the Shares, the Organization
shall act as agent for the Customer only and shall have no authority to act as
agent for the Trust. Advance copies or proofs of all materials which are
generally circulated or disseminated by the Organization to Customers or
prospective Customers which identify or describe the Trust shall be provided to
the Trust at least 10 days prior to such circulation or dissemination (unless
the Trust consents in writing to a shorter period), and such materials shall not
be circulated or disseminated or further circulated or disseminated at any time
after the Trust shall have given written notice within such 10 day period to the
Organization of any objection thereto.
Nothing in this Section 4 shall be construed to make the Trust liable for
the use (or accuracy unless prepared by the Trust for the specific use) of any
information about the Trust which is disseminated by the Organization.
5. Use of the Organization's Name. The Trust shall not use the name of
------------------------------
the Organization (or any of its affiliates or subsidiaries) in any prospectus,
sales literature or other material relating to the Trust in a manner not
approved by the Organization prior thereto in writing; provided, however, that
the approval of the Organization shall not be required for any use of its name
which merely refers in accurate and factual terms to its appointment hereunder
and the terms hereof or which is required by law, including without limitation,
by the Securities and Exchange Commission or any state securities authority or
any other appropriate regulatory, governmental or judicial authority; provided,
further, that in no event shall such approval be unreasonably withheld or
delayed.
6. Use of the Trust's Name. The Organization shall not use the name of
-----------------------
the Trust on any checks, bank drafts, bank statements or forms for other than
internal use in a manner not approved by the Trust prior thereto in writing;
provided, however, that the approval of the Trust shall not be required for the
use of the Trust's name in connection with communications permitted by Section 4
hereof or (subject to Section 4, to the extent the same may be applicable) for
any use of the Trust's name which merely refers in accurate and factual terms to
the Trust in connection with the Organization's role hereunder or which is
required by law, including without limitations, by the Securities and Exchange
Commission or any state securities authority or any other appropriate
regulatory, governmental or judicial authority; provided, further, that in no
event shall such approval be unreasonably withheld or delayed.
-4-
<PAGE>
7. Security. The Organization represents and warrants that to the best of
--------
its knowledge, the various procedures and systems which it has implemented
(including provision for twenty-four hours a day restricted access) with regard
to safeguarding from loss or damage attributable to fire, theft or any other
cause the Trust's records and other data and the Organization's records, data,
equipment, facilities and other property used in the performance of its
obligations hereunder are adequate and that it will make such changes therein
from time to time as in its judgment are required for the secure performance of
its obligations hereunder. The parties shall review such systems and procedures
on a periodic basis, and the Trust shall from time to time specify the types of
records and other data of the Trust to be safeguarded in accordance with this
Section 7.
8. Compliance with Laws. The Organization shall comply with all
--------------------
applicable federal and state laws and regulations, including without limitation
securities laws. The Organization represents and warrants to the Trust that the
performance of all its obligations hereunder will comply with all applicable
laws and regulations, the provisions of its charter documents and by-laws and
all material contractual obligations binding upon the Organization. The
Organization furthermore undertakes that it will promptly, after the
Organization becomes so aware, inform the Trust of any change in applicable laws
or regulations (or interpretations thereof) or in its charter or by-laws or
material contracts which would prevent or impair full performance of any of its
obligations hereunder.
9. Reports. Quarterly, and more frequently to the extent requested by the
-------
Trust from time to time, the Organization agrees that it will provide the
administrator of the Trust with a written report of the amounts expended by the
Organization pursuant to this Agreement and the purposes for which such
expenditures were made. Such written reports shall be in a form satisfactory to
the Trust and shall supply all information necessary for the Trust to discharge
its responsibilities under applicable laws and regulations.
-5-
<PAGE>
10. Record Keeping.
--------------
10.1 Section 31. The Organization shall maintain records in a form
----------
reasonably acceptable to the Trust and in compliance with applicable laws and
the rules and regulations of the Securities and Exchange Commission, including
but not limited to the record-keeping requirements of Section 31 of the
Investment Company Act of 1940, as amended (the "1940 Act") and the rules
thereunder. Such records shall be deemed to be the property of the Trust and
will be made available at the Trust's request for inspection and use by the
Trust, representatives of the Trust and governmental authorities. The
Organization agrees that, for so long as it retains any records of the Trust, it
will meet all reporting requirements pursuant to the 1940 Act and applicable to
the Organization with respect to such records. Upon termination of this
Agreement, the Organization shall deliver to the administrator of the Trust all
books and records maintained by the Organization and deemed to be the Trust's
property hereunder.
10.2 Rules 17a-3 and 17a-4. The Organization shall maintain accurate and
---------------------
complete records with respect to services performed by the Organization in
connection with the purchase and redemption of Shares. Such records shall be
maintained in form reasonably acceptable to the Trust and in compliance with the
requirements of all applicable laws, rules and regulations, including without
limitation, Rules 17a-3 and 17a-4 under the Securities Exchange Act of 1934, as
amended, pursuant to which any dealer of the Shares must maintain certain
records. All such records maintained by the Organization shall be the property
of such dealer and will be made available for inspection and use by the Trust or
such dealer upon the request of either. The Organization shall file with the
Securities and Exchange Commission and other appropriate governmental
authorities, and furnish to the Trust and any such dealer copies of, all reports
and undertakings as may be reasonably requested by the Trust or such dealer in
order to comply with the said rules. If so requested by any such dealer, the
Organization shall confirm to such dealer its obligations under this Section
10.2 by a writing reasonably satisfactory to such dealer.
10.3 Transfer of Customer Data. In the event this Agreement is terminated
-------------------------
or a successor to the Organization is appointed, the Organization shall transfer
to such designee as the Trust may direct a certified list of the shareholders of
the Trust serviced by the Organization (with name, address and tax
identification or Social Security number, if any), a complete record of the
account of each such shareholder and the status thereof, and all other relevant
books, records, correspondence, and other data established or maintained by the
Organization under this Agreement. In the event this Agreement is terminated,
the Organization will use its best efforts to cooperate in the orderly transfer
of such duties and responsibilities, including
-6-
<PAGE>
assistance in the establishment of books, records and other data by the
successor.
10.4 Survival of Record-Keeping Obligations. The record-keeping
--------------------------------------
obligations imposed in this Section 10 shall survive the termination of this
Agreement for a period of three years.
10.5 Obligations Pursuant to Agreement Only. Nothing in this Section 10
--------------------------------------
shall be construed so that the Organization would, by virtue of its role
hereunder, be required under applicable law to maintain the records required to
be maintained by it under this Section 10, but is understood that the
Organization has agreed to do so in order to enable the Trust and its dealer or
dealers to comply with laws and regulations applicable to them.
10.6 Organization's Rights to Copy Records. Anything in this Section 10
-------------------------------------
to the contrary notwithstanding, except to the extent otherwise prohibited by
law, the Organization shall have the right to copy, maintain and use any records
maintained by the Organization pursuant to this Section 10, except as otherwise
prohibited by Sections 4 and 6 hereof.
11. Force Majeure. The Organization shall not be liable or responsible
-------------
for delays or errors by reason of circumstances beyond its reasonable control,
including, but not limited to, acts of civil or military authority, national
emergencies, labor difficulties, fire, mechanical breakdown, flood or
catastrophe, Acts of God, insurrection, war, riots or failure of communication
or power supply.
12. Indemnification.
---------------
12.1 Indemnification of the Organization. The Trust will indemnify and
-----------------------------------
hold the Organization harmless from all losses, claims, damages, liabilities or
expenses (including reasonable counsel fees and expenses) from any claim,
demand, action or suit (collectively, "Claims") arising in connection with
material misstatements or omissions in the Trust's Prospectus. Notwithstanding
anything herein to the contrary, the Trust will indemnify and hold the
Organization harmless from any and all losses, claims, damages, liabilities or
expenses (including reasonable counsel fees and expenses) resulting from any
Claim as a result of its acting in accordance with any written instructions
reasonably believed by the Organization to have been executed by any person duly
authorized by the Trust, or as a result of acting in reliance upon any
instrument or stock certificate reasonably believed by the Organization to have
been genuine and signed, countersigned or executed by a person duly authorized
by the Trust, excepting only the negligence or bad faith of the Organization.
-7-
<PAGE>
In any case in which the Trust may be asked to indemnify or hold the
Organization harmless, the Trust shall be advised of all pertinent facts
concerning the situation in question and the Organization shall use reasonable
care to identify and notify the Trust promptly concerning any situation which
presents or appears likely to present a claim for indemnification against the
Trust. The Trust shall have the option to defend the Organization against any
Claim which may be the subject of indemnification hereunder. In the event that
the Trust elects to defend against such Claim, the defense shall be conducted by
counsel chosen by the Trust and satisfactory to the Organization. The
Organization may retain additional counsel at its expense. Except with the
prior written consent of the Trust, the Organization shall not confess any Claim
or make any compromise in any case in which the Trust will be asked to indemnify
the Organization.
12.2 Indemnification of the Trust. Without limiting the rights of the
----------------------------
Trust under applicable law, the Organization will indemnify and hold the Trust
harmless from all losses, claims, damages, liabilities or expenses (including
reasonable counsel fees and expenses) from any Claim (a) arising from (i) the
bad faith or negligence of the Organization, its officers, employees or agents,
(ii) any breach of applicable law by the Organization, its officers, employees
or agents, (iii) any action of the Organization, its officers, employees or
agents which exceeds the legal authority of the Organization or its authority
hereunder, or (iv) any actions, inactions, errors or omissions of the
Organization, its officers, employees or agents with respect to the purchase,
redemption, transfer and registration of Customers' Shares or the Trust's
verification or guarantee of any Customer signature.
In any case in which the Organization may be asked to indemnify or hold the
Trust harmless, the Organization shall be advised of all pertinent facts
concerning the situation in question and the Trust shall use reasonable care to
identify and notify the Organization promptly concerning any situation which
presents or appears likely to present a claim for indemnification against the
Organization. The Organization shall have the option to defend the Trust
against any Claim which may be the subject of indemnification hereunder. In the
event that the Organization elects to defend against such Claim, the defense
shall be conducted by counsel chosen by the Organization and satisfactory to the
Trust. The Trust may retain additional counsel at its expense. Except with the
prior written consent of the Organization, the Trust shall not confess any Claim
or make any compromise in any case in which the Organization will be asked to
indemnify the Trust.
-8-
<PAGE>
12.3 Survival of Indemnities. The indemnities granted by the parties in
-----------------------
this Section 12 shall survive the termination of this Agreement.
13. Notices. All notices or other communications hereunder to either party
-------
shall be in writing and shall be deemed sufficient if mailed to such party at
the address of such party set forth on the signature page of this Agreement or
at such other address as such party may have designated by written notice to the
other.
14. Further Assurances. Each party agrees to perform such further acts
------------------
and execute such further documents as are necessary to effectuate the purposes
hereof.
15. Termination. Unless sooner terminated, this Agreement will continue
-----------
until February 8, 1997 and thereafter will continue automatically for successive
annual periods provided such continuance is specifically approved at least
annually by vote of a majority of (i) the Board of Trustees of the Trust and
(ii) those Trustees who are not "interested persons" (as defined in the 1940
Act) of the Trust and have no direct or indirect financial interest in the
operation of the Trust's Administrative Services Plan or in any agreement
related thereto cast in person at a meeting called for the purpose of voting on
such approval ("Disinterested Trustees"). This Agreement is terminable, without
penalty, at any time by the Trust (which termination may be by a vote of a
majority of the Disinterested Trustees) or by you upon notice to the Trust.
16. Changes; Amendments. This Agreement may be changed or amended only by
-------------------
written instrument signed by both parties hereto.
17. Subcontracting By Organization. The Organization may, with the
------------------------------
written approval of the Trust (such approval not to be unreasonably withheld),
subcontract for the performance of the Organization's obligations hereunder with
any one or more persons, including but not limited to any one or more persons
which is an affiliate of the Organization; provided, however, that the
Organization shall be as fully responsible to the Trust for the acts and
omissions of any subcontractor as it would be for its own acts or omissions.
18. Compliance with Laws and Policies; Cooperation. The Trust hereby
----------------------------------------------
agrees that it will comply with all laws and regulations applicable to its
operations and the Organization agrees that it will comply with all laws and
regulations applicable to its operations hereunder. Each party understands that
the other may from time to time adopt or modify policies relating to the subject
matter of this Agreement, in which case the party adopting or modifying such a
policy shall notify the other thereof and the parties shall consider the
applicability
-9-
<PAGE>
thereof and endeavor to comply therewith to the extent not impracticable or
unreasonably burdensome. Each of the parties agrees to cooperate with the other
in connection with the performance of this Agreement and the resolution of any
problems, questions or disagreements in connection herewith.
18.1 Annual Financial Reports. At least once a year, the Trust shall send
------------------------
to the record owners of its Shares the Trust's audited financial statements.
18.2 Annual Certification. At least once a year, the Organization shall
--------------------
certify to the Trust that it is conducting its business in accordance with the
terms and conditions of the Agreement.
19. Single Portfolio. Notwithstanding anything in this Agreement to the
----------------
contrary, any amount owed by the Trust to the Organization under this Agreement
or otherwise with respect to any matter hereunder shall be paid only from and
shall be limited to the assets and property of the particular investment
portfolio of the Trust to which the matter relates.
20. Miscellaneous. This Agreement shall be construed and enforced in
-------------
accordance with and governed by the laws of the State of Delaware. The captions
in this Agreement are included for convenience of reference only and in no way
define or limit any of the provisions hereof or otherwise affect their
construction or effect. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same instrument. The terms of this
Agreement shall become effective as of the date set forth below.
IN WITNESS WHEREOF, intending to be legally bound hereby, the parties
hereto have caused this Agreement to be executed and delivered in their names
and on their behalf by the undersigned, thereunto duly authorized, all as of the
day and year set forth below.
Dated as of: ___________________
Excelsior Institutional Trust Address for Notices:
_________________________
_________________________
_________________________
By: ___________________________ _________________________
(Authorized Officer)
-10-
<PAGE>
_________________________________ Address for Notices:
[Service Organization] ________________________
________________________
________________________
________________________
By: _______________________________
(Authorized Officer)
-11-
<PAGE>
APPENDIX A
----------
EXCELSIOR INSTITUTIONAL TRUST
Pursuant to the terms and conditions set forth in the attached Shareholder
Servicing Agreement, the Organization will receive the fees set forth below in
consideration for the services described in Section 2 of said Agreement and the
incurring of expenses in connection therewith, such fees (calculated pursuant to
Section 3.1 of said Agreement) to be paid in arrears periodically (but in no
event less frequently than semi-annually):
FUND SHAREHOLDER
SERVICING
FEE
Institutional Equity Fund __ BP
Institutional Equity Growth Fund __ BP
Institutional International Equity Fund __ BP
Institutional Value Equity Fund __ BP
Institutional Income Fund __ BP
Institutional Total Return Bond Fund __ BP
Institutional Bond Index Fund __ BP
Institutional Balanced Fund __ BP
Institutional Optimum Growth Fund __ BP
-12-
<PAGE>
EXHIBIT 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. 15 to the Registration Statement
(No. 33-78264; 811-8490) on Form N-1A of Excelsior Institutional Trust under the
Securities Act of 1933 and the Investment Company Act of 1940, respectively.
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 LLP
-----------------------------
DRINKER BIDDLE & REATH LLP
Philadelphia, Pennsylvania
September 30, 1997
<PAGE>
EXHIBIT 99.11B
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 dated July 15, 1997 on the financial statements
and financial highlights of the Excelsior Institutional Bond Index Fund, a
portfolio of Excelsior Institutional Trust, and to the incorporation by
reference therein of our report dated July 15, 1997 on the financial statements
and financial highlights of the Bond Index Portfolio, a series of Federated
Investment Portfolios, in Post-Effective Amendment Number 15 to the Registration
Statement (Reg. Nos. 33-78264/811-8490) of Excelsior Institutional Trust.
/s/Ernst & Young LLP
--------------------
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
September 25, 1997
<PAGE>
EXHIBIT 99.13C
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
Trust Share each of the Company's Balanced and International Equity
Funds at $10 per share (collectively, the "Shares"). The Company
hereby acknowledges receipt from Edgewood of funds in the total amount
of $20 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 22nd day of August, 1997.
EXCELSIOR INSTITUTIONAL TRUST
By:/s/Frederick S. Wonham
--------------------------------
EDGEWOOD SERVICES, INC.
By:/s/Kenneth W. Pegher, Jr.
---------------------------------
<PAGE>
EXHIBIT 99.15
EXCELSIOR INSTITUTIONAL TRUST
AMENDED AND RESTATED DISTRIBUTION PLAN
--------------------------------------
October 25, 1996
This Distribution Plan (the "Plan") has been adopted by the Board of
Trustees of Excelsior Institutional Trust (the "Trust") in conformance with Rule
12b-1 under the Investment Company Act of 1940 (the "Act").
Section 1. Payments. The Trust may compensate its Distributor (or any
---------- --------
other person) for services relating to the offering and sale of Trust Shares of
each of the Trust's Funds (all such shares, hereinafter called "Shares" and all
such Funds hereinafter called "Funds"). Payments by the Trust under the Plan
will be calculated daily and paid monthly at a rate or rates set from time to
time by the Trust's Board of Trustees, provided that no rate set by the Board
for any Fund may exceed the annual rate of .75% of the average daily net asset
value of Shares of such Fund. For purposes of determining the compensation
payable under the Plan, the net asset value of the outstanding Shares of the
respective Fund shall be computed in the manner specified in the Trust's
prospectuses and statements of additional information for such Shares.
Section 2. Payments Under the Plan. Payments to the Distributor under
---------- -----------------------
Section 1 of the Plan will be to compensate the Distributor for its services
which are intended to result in the sale of the Shares. Such amounts may be
spent by the Distributor on any activities or expenses primarily intended to
result in the sale of the Shares, including, without limitation: (a) direct out-
of-pocket promotional expenses incurred by the Distributor in connection with
the advertising and marketing of Shares; and (b) payments to one or more
securities dealers, financial institutions or other industry professionals and
financial intermediaries, such as but not limited to investment advisers,
accountants and estate planning firms, including affiliates of the Distributor
(severally, a "Distribution Organization") for distribution assistance. As used
herein, "direct out-of-pocket promotional expenses" include without limitation
amounts spent by the Distributor in connection with advertising via radio,
television, newspapers, magazines and otherwise; preparing, printing and mailing
sales materials, brochures and prospectuses (except for prospectuses used for
regulatory purposes or for distribution to existing shareholders); and other
out-of-pocket expenses incurred in connection with the promotion of the Shares.
Payments made by a particular Fund must be for distribution services
rendered for or on behalf of such Fund. However, joint distribution financing
with respect to Shares of the Funds (which
<PAGE>
financing may also involve other investment portfolios or companies that are
affiliated persons of such a person, or affiliated persons of the Distributor)
shall be permitted in accordance with applicable regulations of the Securities
and Exchange Commission as in effect from time to time.
Section 3. Reports of Distributor. So long as the Plan is in effect, the
---------- ----------------------
Distributor shall provide to the Trust's Board of Trustees, and the Trustees
shall review, at least quarterly, a written report of the amounts expended
pursuant to the Plan and the purposes for which such expenditures were made.
Section 4. Approval of Plan. The Plan will become effective immediately,
---------- ----------------
as to any series of Shares, upon its approval by (a) a majority of the
outstanding Shares of such series, and (b) a majority of the Board of Trustees,
including a majority of the Trustees who are not "interested persons" (as
defined in the Act) of the Trust and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements entered into in
connection with the Plan, pursuant to a vote cast in person at a meeting called
for the purpose of voting on the approval of the Plan.
Section 5. Continuance of Plan. The Plan shall continue in effect for so
---------- -------------------
long as its continuance is specifically approved at least annually by the
Trust's Board of Trustees in the manner described in Section 4.
Section 6. Amendments. The Plan may be amended at any time by the Board
---------- ----------
of Trustees provided that (a) any amendment to increase materially the costs
which any series of Shares may bear for distribution pursuant to the Plan shall
be effective only upon approval by a vote of a majority of the outstanding
Shares of such series, and (b) any material amendments of the terms of the Plan
shall become effective only upon approval as provided in paragraph 4(b) hereof.
Section 7. Termination. The Plan is terminable, as to any series of
---------- -----------
Shares, without penalty at any time by (a) a vote of a majority of the Trustees
who are not "interested persons" (as defined in the Act) of the Trust and who
have no direct or indirect financial interest in the operation of the Plan or in
any agreements entered into in connection with the Plan, or (b) a vote of a
majority of the outstanding Shares of such series.
Section 8. Selection/Nomination of Trustees. While this Plan is in
---------- --------------------------------
effect, the selection and nomination of those Trustees who are not "interested
persons" (as defined in the Act) of the Trust shall be committed to the
discretion of such non-interested Trustees.
-2-
<PAGE>
Section 9. Miscellaneous. The captions in this Agreement are included for
---------- -------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the Trust has executed the Plan as of October 25, 1996
on behalf of each of the Funds.
EXCELSIOR INSTITUTIONAL TRUST
By:/s/Frederick S. Wonham
-----------------------
President
-3-
<PAGE>
DISTRIBUTION AGREEMENT
Gentlemen:
We wish to enter into this Distribution Agreement ("Agreement") with
you concerning the provision of distribution services in connection with Trust
Shares ("Shares") of each Fund offered by Excelsior Institutional Trust (the
"Trust"), of which we are the principal underwriter as defined in the Investment
Company Act of 1940 (the "Act") and the exclusive agent for the continuous
distribution of said Shares.
The terms and conditions of this Agreement are as follows:
Section 1. You agree to provide reasonable assistance in connection
with the distribution of Shares to your Clients as requested from time to time
by us, which assistance may include without limitation forwarding sales
literature and advertising provided by us for Clients, and such other similar
services as we may reasonably request to the extent you are permitted to do so
under applicable statutes, rules and regulations.
Section 2. You will provide such office space and equipment,
telephone facilities and personnel (which may be any part of the space,
equipment and facilities currently used in your business, or any personnel
employed by you) as may be reasonably necessary or beneficial in order to
provide the aforementioned services and assistance to Clients.
Section 3. Neither you nor any of your officers, employees or agents
are authorized to make any representations concerning us or the Shares except
those contained in the Trust's applicable prospectus and statement of additional
information for the Shares, copies of which will be supplied by us to you, or in
such supplemental literature or advertising as may be authorized by us in
writing.
Section 4. For all purposes of this Agreement you will be deemed to
be an independent contractor, and will have no authority to act as agent for us
or the Trust in any matter or in any respect. By your written acceptance of
this Agreement, you agree to and do release, indemnify and hold us harmless and
the Trust harmless from and against any and all direct or indirect liabilities
or losses resulting from requests, directions, actions or inactions of or by you
or your officers, employees or agents regarding your responsibilities hereunder
or the purchase, redemption, transfer of registration of Shares (or orders
relating to the same) by or on behalf of Clients. You and your employees will,
upon request, be available during normal business hours to consult with us or
our designees concerning the performance of your responsibilities under this
Agreement.
<PAGE>
Section 5. In consideration of the services and facilities provided
by you hereunder, we will pay to you, and you will accept as full payment
therefor, a fee at the annual rate of __% of the average daily net asset value
of the Shares beneficially owned by your Clients for whom you are the dealer of
record or holder of record (the "Clients' Shares"), which fee will be computed
daily and payable monthly. For purposes of determining the fees payable under
this Section 5, the average daily net asset value of the Clients' Shares will be
computed in the manner specified in the Trust's Registration Statement (as the
same is in effect from time to time) in connection with the computation of the
net asset value of the particular Shares involved for purposes of purchases and
redemptions. The fee rate stated above may be prospectively increased or
decreased by us, in our sole discretion, at any time upon notice to you.
Further, we may, in our discretion and without notice, suspend or withdraw the
sale of Shares, including the sale of Shares for the account of any Client or
Clients.
Section 6. Any person authorized to direct the disposition of monies
paid or payable by us pursuant to this Agreement will provide to us and the
Trust, and the Trust's Trustees will review, at least quarterly, a written
report of the amounts so expended and the purposes for which such expenditures
were made. In addition, you will furnish us or our designees with such
information as we or they may reasonably request (including, without limitation,
periodic certifications confirming the provision to Clients of the services
described herein), and will otherwise cooperate with us and our designees
(including, without limitation, any auditors designated by us), in connection
with the preparation of reports to the Trust's Board of Trustees concerning this
Agreement and the monies paid or payable by us pursuant hereto, as well as any
other reports or filings that may be required by law.
Section 7. We may enter into other similar Agreements with any other
person or persons without your consent.
Section 8. By your written acceptance of this Agreement, you
represent, warrant and agree that this Agreement has been entered into pursuant
to Rule 12b-1 under the Act, and is subject to the provisions of said Rule, as
well as any other applicable rules or regulations promulgated by the Securities
and Exchange Commission.
Section 9. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by us or our designee. Unless
sooner terminated, this Agreement will continue until _______________, 199__
and thereafter will continue automatically for successive annual periods
provided such continuance is specifically approved at least annually by the
-2-
<PAGE>
Trust in the manner described in Section 12. This Agreement is terminable with
respect to any series of Shares, without penalty, at any time by the Trust
(which termination may be by a vote of a majority of the Disinterested Trustees
as defined in Section 12 or by vote of the holders of a majority of the
outstanding Shares of such series) or by us or you upon notice to the other
party hereto. This Agreement will also terminate automatically in the event of
its assignment (as defined in the Act).
Section 10. All notices and other communications to either you or us
will be duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address stated herein, or to such
other address as either party shall so provide the other.
Section 11. This Agreement will be construed in accordance with the
laws of the State of Delaware.
Section 12. This Agreement has been approved by vote of a majority of
(i) the Trust's Board of Trustees and (ii) those Trustees of the Trust who are
not "interested persons" (as defined in the Act) of the Trust and have no direct
or indirect financial interest in the operation of the Distribution Plan adopted
by the Trust regarding the provision of distribution services in connection with
the Shares or in any agreement related thereto cast in person at a meeting
called for the purpose of voting on such approval ("Disinterested Trustees").
-3-
<PAGE>
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us, at the following address:
- -------------------------------------------------------------------------------.
Very truly,
EDGEWOOD SERVICES, INC.
By: _________________________
Date: ________________ (Authorized Officer)
Accepted and Agreed to:
[Distribution Organization]
By: ________________________
Date: ________________ (Authorized Officer)
Address of Distribution _______________________
Organization _______________________
_______________________
-4-
<PAGE>
Schedule I to the Distribution Agreement
Name of Series
- --------------
Excelsior Institutional Optimum Growth Fund
Excelsior Institutional Value Equity Fund
Excelsior Institutional Balanced Fund
Excelsior Institutional International Equity Fund
EDGEWOOD SERVICES, INC.
By: _________________________
Date: ________________ (Authorized Officer)
Accepted and Agreed to:
[Distribution Organization]
By: ________________________
Date: ________________ (Authorized Officer)
Address of Distribution _______________________
Organization _______________________
_______________________
-5-
<PAGE>
EXHIBIT 99.18
EXCELSIOR INSTITUTIONAL TRUST
(THE "TRUST")
AMENDED AND RESTATED PLAN PURSUANT TO RULE 18F-3 FOR OPERATION OF
A MULTI-CLASS SYSTEM
--------------------
I. INTRODUCTION
----------------
On February 23, 1995, the Securities and Exchange Commission (the
"Commission") promulgated Rule 18f-3 under the Investment Company Act of 1940,
as amended (the "1940 Act"), which permits the creation and operation of a
multi-class distribution structure without the need to obtain an exemptive order
under Section 18 of the 1940 Act. Rule 18f-3, which became effective on April
3, 1995, requires an investment company to file with the Commission a written
plan specifying all of the differences among the classes, including the various
services offered to shareholders, the different distribution arrangements for
each class, the methods for allocating expenses relating to those differences
and any conversion features or exchange privileges. On May 7, 1996, the Board
of Trustees of the Trust initially authorized the Trust to operate a multi-class
distribution structure in compliance with Rule 18f-3. This Plan pursuant to
Rule 18f-3 for operation of a multi-class system is hereby amended and restated
as of May 16, 1997.
II. ATTRIBUTES OF CLASSES
--------------------------
A. Generally
---------
Each investment portfolio of the Trust (each a "Fund" and,
collectively, the "Funds") shall initially offer two classes of shares: Trust
Shares and Institutional Shares (collectively referred to as "Shares").
In general, Shares shall be identical except for different expense
variables (which may result in different yields or total returns for each
class), certain related rights and certain shareholder services. More
particularly, the Trust Shares and Institutional Shares of each Fund shall
represent interests in the same portfolio of investments of the particular Fund,
and shall be identical in all respects, except for: (a) the impact of (i)
expenses assessed to the Trust Shares pursuant to the Distribution Plan adopted
for such class and (ii) other incremental expenses identified from time to time
that should be properly allocated to one class so long as any changes in expense
allocations are reviewed and approved by a vote of the Board of
<PAGE>
Trustees, including a majority of the non-interested trustees; (b) the fact that
(i) Trust Shares shall vote separately on any matter submitted to shareholders
that pertains to the Distribution Plan adopted for such class and (ii) each
class shall vote separately on any matter submitted to shareholders that
pertains to the class expenses borne by such class; (c) the exchange privileges
of each class of Shares; (d) the designation of each class of Shares; and (e)
the different shareholder services relating to each class of Shares.
B. Expenses and Distribution Arrangements
--------------------------------------
TRUST SHARES
Trust Shares of each Fund shall be available for purchase by individual
investors.
Trust Shares of each Fund initially shall not be subject to a sales charge
but shall be subject to a fee payable pursuant to the Distribution Plan adopted
for that class which shall not initially exceed .75% (on an annual basis) of the
average daily net asset value of the Fund's outstanding Trust Shares. Payments
under the Distribution Plan will be used to compensate the Trust's distributor
for its services which are intended to result in the sale of Trust Shares.
Trust Shares of each Fund shall initially be subject to a fee payable
pursuant to the Administrative Services Plan adopted for such Shares which shall
not initially exceed .40% (on an annual basis) of the average daily net asset
value of the Fund's Trust Shares held by customers of institutions that have
entered into agreements with the Trust pursuant to such Plan. Shareholder
services provided under the Administrative Services Plan may include: (i)
assisting in processing purchase, exchange and redemption requests; (ii)
transmitting and receiving funds in connection with customer orders to purchase,
exchange or redeem Shares; and (iii) providing periodic statements.
INSTITUTIONAL SHARES
Institutional Shares of each Fund shall be available for purchase by
institutional investors.
Institutional Shares of each Fund initially shall not be subject to any
sales charge or fee payable pursuant to a distribution plan.
Institutional Shares of each Fund shall initially be subject to a fee
payable pursuant to the Administrative Services Plan adopted for such Shares
which shall not initially exceed .40% (on an annual basis) of the average daily
net asset
-2-
<PAGE>
value of the Fund's Institutional Shares held by customers of institutions that
have entered into agreements with the Trust pursuant to such Plan. Shareholder
services provided under the Administrative Services Plan may include: (i)
assisting in processing purchase, exchange and redemption requests; (ii)
transmitting and receiving funds in connection with customer orders to purchase,
exchange or redeem Shares; and (iii) providing periodic statements.
C. Exchange Privileges
-------------------
TRUST SHARES
Holders of Trust Shares generally shall be permitted to exchange those
Shares for: (i) Trust Shares of another Fund offered by the Trust; (ii) non-
Trust Shares of any investment portfolio of Excelsior Funds, Inc. and Excelsior
Tax-Exempt Funds, Inc. (provided that the Trust Shares being exchanged were not
received in an exchange for Trust Shares of any investment portfolio of
Excelsior Funds, Inc. or Excelsior Tax-Exempt Funds, Inc.); and (iii) in the
case of Trust Shares of the Trust that were received in an exchange for Trust
Shares of any investment portfolio of Excelsior Funds, Inc. and Excelsior Tax-
Exempt Funds, Inc., Trust Shares of any investment portfolio of Excelsior Funds,
Inc. and Excelsior Tax-Exempt Funds, Inc. without paying any exchange fee or
sales charge.
INSTITUTIONAL SHARES
Holders of Institutional Shares generally shall be permitted to exchange
those Shares for: (i) Institutional Shares of another Fund offered by the Trust;
and (ii) shares of any investment portfolio of Excelsior Funds without paying
any exchange fee or sales charge.
D. Conversion Features
-------------------
The Trust shall not initially offer a conversion feature to holders of
Shares.
E. Shareholder Services
--------------------
1. Automatic Investment Program
----------------------------
The Trust shall initially offer an automatic investment program whereby, in
general, an individual investor may arrange to have Trust Shares purchased
automatically by authorizing the Trust's transfer agent to withdraw funds from
the investor's bank account.
-3-
<PAGE>
2. Systematic Withdrawal Plan
--------------------------
The Trust shall initially offer a systematic withdrawal plan whereby, in
general, an individual investor may arrange to have Trust Shares redeemed
automatically.
F. Methodology for Allocating Expenses Between Classes
---------------------------------------------------
Class-specific expenses of a Fund shall be allocated to the specific class
of Shares of that Fund. Non-class-specific expenses of the Funds shall be
allocated in accordance with paragraph (c) of Rule 18f-3.
-4-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> EXCELSIOR FUNDS EXCELSIOR INSTITUTIONAL BOND INDEX FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 15,076,097
<INVESTMENTS-AT-VALUE> 15,076,097
<RECEIVABLES> 0
<ASSETS-OTHER> 37,541
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15,113,638
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 96,858
<TOTAL-LIABILITIES> 96,858
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,921,422
<SHARES-COMMON-STOCK> 2,156,910
<SHARES-COMMON-PRIOR> 2,154,485
<ACCUMULATED-NII-CURRENT> 16,180
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (25,170)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 104,348
<NET-ASSETS> 15,016,780
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,088,013
<OTHER-INCOME> 0
<EXPENSES-NET> 15,016
<NET-INVESTMENT-INCOME> 1,042,907
<REALIZED-GAINS-CURRENT> 22,401
<APPREC-INCREASE-CURRENT> 126,992
<NET-CHANGE-FROM-OPS> 1,192,300
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,026,727
<DISTRIBUTIONS-OF-GAINS> 103,881
<DISTRIBUTIONS-OTHER> 25,170
<NUMBER-OF-SHARES-SOLD> 901,579
<NUMBER-OF-SHARES-REDEEMED> 899,375
<SHARES-REINVESTED> 221
<NET-CHANGE-IN-ASSETS> 11,427
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 81,480
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 101,657
<AVERAGE-NET-ASSETS> 14,993,605
<PER-SHARE-NAV-BEGIN> 6.960
<PER-SHARE-NII> 0.490
<PER-SHARE-GAIN-APPREC> 0.060
<PER-SHARE-DIVIDEND> 0.480
<PER-SHARE-DISTRIBUTIONS> 0.060
<RETURNS-OF-CAPITAL> 0.010
<PER-SHARE-NAV-END> 6.960
<EXPENSE-RATIO> 0.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> FEDERATED INVESTMENT PORTFOLIOS BOND INDEX PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 40,135,376
<INVESTMENTS-AT-VALUE> 40,097,705
<RECEIVABLES> 554,892
<ASSETS-OTHER> 2,371
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 40,654,968
<PAYABLE-FOR-SECURITIES> 398,940
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25,687
<TOTAL-LIABILITIES> 424,627
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 40,230,345
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 40,230,345
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,115,565
<OTHER-INCOME> 0
<EXPENSES-NET> 58,949
<NET-INVESTMENT-INCOME> 2,056,616
<REALIZED-GAINS-CURRENT> 55,787
<APPREC-INCREASE-CURRENT> (65,788)
<NET-CHANGE-FROM-OPS> 2,178,191
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 17,630,903
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 73,686
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 277,156
<AVERAGE-NET-ASSETS> 27,882,912
<PER-SHARE-NAV-BEGIN> 0.000
<PER-SHARE-NII> 0.000
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 0.000
<EXPENSE-RATIO> 0.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
