EXCELSIOR INSTITUTIONAL TRUST, 485BPOS, 1999-07-29

EXCELSIOR INSTITUTIONAL TRUST
485BPOS, 1999-07-29

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<PAGE>

As filed with the Securities and Exchange Commission on July 29, 1999
Registration Nos. 33-78264, 811-8490
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|

POST-EFFECTIVE AMENDMENT NO. 18 |X|

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|

AMENDMENT NO. 20 |X|

Excelsior Institutional Trust

(Exact Name of Registrant as Specified in Charter)

73 Tremont Street
Boston, Massachusetts 02108-3913
(Address of Principal Executive Offices)

Registrant's Telephone Number: 617-557-8000

W. Bruce McConnel, III, Esq.
Drinker Biddle & Reath LLP
One Logan Square, 18th and Cherry Streets
Philadelphia, Pennsylvania 19103-6996
(Name and Address of Agent for Service)

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

[ ] Immediately upon filing pursuant to paragraph (b)

[X] on August 1, 1999 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.
------------------------------------------

Title of Securities Being Registered...............Shares of Beneficial Interest
<PAGE>

EXCELSIOR FUNDS, INC.

BLENDED EQUITY FUND
VALUE AND RESTRUCTURING FUND
SMALL CAP FUND
LARGE CAP GROWTH FUND
ENERGY AND NATURAL RESOURCES FUND
REAL ESTATE FUND

EXCELSIOR INSTITUTIONAL TRUST

VALUE EQUITY FUND
OPTIMUM GROWTH FUND

PROSPECTUS

AUGUST 1, 1999

INVESTMENT ADVISER
UNITED STATES TRUST COMPANY OF NEW YORK
U.S. TRUST COMPANY

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED ANY FUND
SHARES OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE. IT IS
A CRIME FOR ANYONE TO TELL YOU OTHERWISE.

Page 1 of 50
<PAGE>

TABLE OF CONTENTS

Excelsior Funds, Inc. and Excelsior Institutional Trust are mutual fund families
that offer shares in separate investment portfolios which have individual
investment goals and strategies. This prospectus gives you important information
about the Blended Equity, Value and Restructuring, Small Cap, Large Cap Growth,
Energy and Natural Resources, and Real Estate Funds of Excelsior Funds, Inc. and
the Value Equity and Optimum Growth Funds of Excelsior Institutional Trust
(each, a Fund) that you should know before investing. The Value Equity and
Optimum Growth Funds offer two classes of shares: Shares, which are offered in
this prospectus, and Institutional Shares, which are offered in a separate
prospectus. Please read this prospectus and keep it for future reference.

THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY
REVIEW THIS IMPORTANT INFORMATION. ON THE NEXT PAGE, THERE IS SOME GENERAL
INFORMATION YOU SHOULD KNOW ABOUT THE FUNDS. FOR MORE DETAILED INFORMATION ABOUT
EACH FUND, PLEASE SEE:

<TABLE>
<CAPTION>
PAGE
<S> <C>
BLENDED EQUITY FUND................................................................ 4
VALUE AND RESTRUCTURING FUND....................................................... 7
SMALL CAP FUND..................................................................... 10
LARGE CAP GROWTH FUND.............................................................. 13
ENERGY AND NATURAL RESOURCES FUND.................................................. 16
REAL ESTATE FUND................................................................... 20
VALUE EQUITY FUND.................................................................. 23
OPTIMUM GROWTH FUND................................................................ 26
MORE INFORMATION ABOUT RISK........................................................ 29
EACH FUND'S OTHER INVESTMENTS...................................................... 32
THE INVESTMENT ADVISER AND PORTFOLIO MANAGERS...................................... 32
PURCHASING, SELLING AND EXCHANGING FUND SHARES..................................... 34
DISTRIBUTION OF FUND SHARES........................................................ 38
DIVIDENDS, DISTRIBUTIONS AND TAXES................................................. 39
FINANCIAL HIGHLIGHTS............................................................... 40
HOW TO OBTAIN MORE INFORMATION ABOUT
EXCELSIOR FUNDS, INC. AND EXCELSIOR INSTITUTIONAL TRUST............................ Back Cover
</TABLE>

Page 2 of 50

<PAGE>

INFORMATION COMMON TO ALL FUNDS

Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.

Each Fund has its own investment goal and strategies for reaching that goal. The
investment managers invest Fund assets in a way that they believe will help a
Fund achieve its goal. Still, investing in each Fund involves risk and there is
no guarantee that a Fund will achieve its goal. An investment manager's
judgments about the markets, the economy, or companies may not anticipate actual
market movements, economic conditions or company performance, and these
judgments may affect the return on your investment. In fact, no matter how good
a job an investment manager does, you could lose money on your investment in the
Fund, just as you could with other investments. A Fund share is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation (FDIC) or any government agency.

The value of your investment in a Fund is based on the market value of the
securities the Fund holds. These prices change daily due to economic and other
events that affect particular companies and other issuers. These price
movements, sometimes called volatility, may be greater or lesser depending on
the types of securities a Fund owns and the markets in which they trade. The
effect on a Fund of a change in the value of a single security will depend on
how widely the Fund diversifies its holdings.

THE ADVISER'S EQUITY INVESTMENT PHILOSOPHY:

The Adviser manages each of the Fund's investments with a view toward long-term
success. To achieve this success, the Adviser utilizes two fundamental
investment strategies, value and growth. The Adviser believes that, over the
long-term, the blending of these strategies will result in reduced
volatility. These strategies are blended with "longer-term investment
themes" to assess the investment potential of individual companies. Specific
investment selection is a "bottom-up" approach, guided by these strategies
and themes to ensure proper diversification, risk control and market focus.

VALUE: This long-term strategy consists of searching for, identifying and
obtaining the benefits of present or future investment values. For example,
such values may be found in a company's future earnings potential or in its
existing resources and assets. Accordingly, the Adviser is constantly engaged
in assessing, comparing and judging the worth of companies, particularly in
comparison to the price the markets place on such companies' shares.

GROWTH: This long-term strategy consists of buying and holding equity
securities of companies which it believes to be of high quality and high
growth potential. Typically, these companies are industry leaders with the
potential to dominate their markets by being low-cost, high-quality producers
of products or services. Usually these companies have an identifiable
competitive advantage. The Adviser believes that the earnings growth rate of
these companies is the primary determinant of their stock prices and that
efficient markets will reward consistently above average earnings growth with
greater-than-average capital appreciation over the long-term.

THEMES: To complete the Adviser's investment philosophy in managing the
funds, the investment strategies discussed above are applied in concert with
long-term investment themes to identify investment opportunities. The Adviser
believes these longer-term themes represent strong and inexorable trends
arising from economic, social, demographic and cultural forces. The Adviser
also believes that understanding the instigation, catalysts and effects of
these long-term trends will enable them to identify companies that are
currently or will soon benefit from these trends.

Page 3 of 50

<PAGE>

BLENDED EQUITY FUND

FUND SUMMARY

<TABLE>
<S> <C>
INVESTMENT GOAL Long-term capital appreciation

INVESTMENT FOCUS Common stocks of U.S. companies

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT STRATEGY Invests in common stocks that the Adviser believes are
undervalued in the market

INVESTOR PROFILE Investors seeking growth of capital, and who are willing
to accept the risks of investing in equity securities
</TABLE>

INVESTMENT OBJECTIVE

The Blended Equity Fund seeks long-term capital appreciation by investing in
companies that represent good long-term values not currently recognized in the
market prices of their securities.

INVESTMENT STRATEGY OF THE BLENDED EQUITY FUND

The Blended Equity Fund invests at least 65% of its assets in large
capitalization (i.e., companies with market capitalizations over $5 billion)
common stocks of U.S. and, to a lesser extent, foreign companies that the
Adviser believes have value that is not currently reflected in their market
prices. The Adviser generally diversifies the Fund's investments over a
variety of industries and types of companies. The Fund may invest in
companies of any size, including small, high growth companies.

The Adviser takes a long-term approach to managing the Fund and tries to
identify companies with characteristics that will lead to future earnings growth
or recognition of their true value. The Adviser looks for companies that are
positioned to provide solutions to or benefit from complex social and economic
trends, or whose products are early in their life cycle and will experience
accelerating growth in the future. In addition, the Adviser invests a smaller
portion of the Fund's assets in a quantitatively selected segment of large
capitalization U.S. companies designed to complement the Fund's core holdings by
reducing portfolio volatility and further diversifying the Fund. In considering
whether to sell one or more portfolio holdings, the Adviser will generally seek
to minimize the tax impact of any such sale(s).

PRINCIPAL RISKS OF INVESTING IN THE BLENDED EQUITY FUND

Since it purchases equity securities, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's equity
securities may fluctuate substantially from day-to-day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in

Page 4 of 50
<PAGE>

response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund.

The Fund also may be subject to risks particular to its investments in
foreign, medium and smaller capitalization companies. These risks are
discussed in greater detail in the section entitled "More Information About
Risk."

The Fund is also subject to the risk that undervalued common stocks may
underperform other segments of the equity markets or the equity markets as a
whole.

PERFORMANCE INFORMATION

The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.

This bar chart shows changes in the Fund's performance from year to year.

<TABLE>
<S> <C>
1989 27.65%
1990 (12.28)%
1991 34.98%
1992 16.56%
1993 16.34%
1994 0.22%
1995 28.93%
1996 19.88%
1997 29.73%
1998 28.70%

BEST QUARTER WORST QUARTER
24.92% (25.56)%
(12/31/85) (12/31/87)
</TABLE>

The Fund's performance for the six month period ending June 30, 1999 was 10.79%.

THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1998 TO THOSE OF THE STANDARD & POOR'S 500 COMPOSITE STOCK
PRICE INDEX.

<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
- ------------------------------------------------------------ ----------- --------------- -------------
<S> <C> <C> <C>
BLENDED EQUITY FUND 28.70% 20.90% 18.10%
STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX 28.58% 24.04% 19.21%
</TABLE>

WHAT IS AN INDEX?

An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment adviser
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower.

Page 5 of 50

<PAGE>

FUND FEES AND EXPENSES

EVERY MUTUAL FUND HAS OPERATING EXPENSES TO PAY FOR SERVICES SUCH AS
PROFESSIONAL ADVISORY, SHAREHOLDER, ADMINISTRATION AND CUSTODY SERVICES AND
OTHER COSTS OF DOING BUSINESS. THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT
YOU MAY PAY IF YOU BUY AND HOLD SHARES OF THE FUND.

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

<TABLE>
<S> <C> <C>
Management Fees 0.75%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.22%
Total Other Expenses 0.62%
------
Total Annual Fund Operating Expenses 1.37%*
</TABLE>

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

* The Fund's actual total annual fund operating expenses for the most
recent fiscal year were less than the amount shown above as a result of the
Adviser's voluntary fee waivers. The Adviser has voluntarily agreed to waive its
investment advisory fee or other fees in an amount equal to the administrative
servicing fee paid by the Fund. The Adviser may discontinue all or part of these
waivers at any time. With these fee waivers, the Fund's actual total operating
expenses for the last fiscal year were 0.95%. For more information about these
fees, see "Investment Adviser."

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.

The Example also assumes that each year your investment has a 5% return and Fund
expenses remain the same. Although your actual costs and returns might be
different, your approximate costs of investing $10,000 in the Fund would be:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$139 $434 $750 $1,646
</TABLE>

Page 6 of 50

<PAGE>

VALUE AND RESTRUCTURING FUND

FUND SUMMARY

<TABLE>
<S> <C>
INVESTMENT GOAL Long-term capital appreciation

INVESTMENT FOCUS Equity securities of U.S. issuers

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT STRATEGY Investing in common stocks of companies
which the Adviser believes are undervalued by the market
and whose share price are expected to benefit from the
value created through restructuring or industry
consolidation

INVESTOR PROFILE Investors seeking long-term capital
appreciation, and who are willing to bear the risks of
investing in equity securities
</TABLE>

INVESTMENT OBJECTIVE

The Value and Restructuring Fund seeks long-term capital appreciation by
investing in companies which will benefit from their restructuring or
redeployment of assets and operations in order to become more competitive or
profitable.

INVESTMENT STRATEGY OF THE VALUE AND RESTRUCTURING FUND

The Value and Restructuring Fund invests at least 65% of its assets in common
stocks of U.S. and, to a lesser extent, foreign companies whose share price, in
the opinion of the Adviser, does not reflect the economic value of the company's
assets, but where the Adviser believes restructuring efforts or industry
consolidation will serve to highlight the true value of the company.

In choosing investments for the Fund, the Adviser looks for companies where
restructuring activities, such as consolidations, outsourcing, spin-off or
reorganization, will offer significant value to the issuer and increase its
investment potential. The Adviser may select companies of any size for the Fund
and the Fund invests in a diversified group of companies across a number of
different industries.

PRINCIPAL RISKS OF INVESTING IN THE VALUE AND RESTRUCTURING FUND

The smaller capitalization companies the Fund invests in may be more
vulnerable and adverse business or economic events than larger, more
established companies. In particular, these small companies may have limited
product lines, markets and financial resources, and may depend upon a
relatively small management group. Therefore, small cap stocks may be more
volatile than those of larger companies. These securities may be traded
over-the-counter or listed on an exchange and may or may not pay dividends.

Page 7 of 50
<PAGE>

The Fund also may be subject to risks particular to its investments in
foreign or medium capitalization companies. These risks are discussed in
greater detail in the section entitled "More Information About Risk."

The Fund is also subject to the risk that equity securities of issuers expected
to experience a restructuring or business combination may underperform other
segments of the equity markets or the equity markets as a whole.

PERFORMANCE INFORMATION

This bar chart shows changes in the Fund's performance from year to year.

<TABLE>
<S> <C>
1993 39.95%
1994 2.60%
1995 38.80%
1996 25.05%
1997 33.56%
1998 10.32%

BEST QUARTER WORST QUARTER
22.88% (20.46)%
(12/31/98) (9/30/98)
</TABLE>

The Fund's performance for the six month period ending June 30, 1999 was 22.30%.

THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1998 TO THOSE OF THE RUSSELL 1000 VALUE INDEX.

<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- -------------------------------------------- ------------- ------------- -------------------
<S> <C> <C> <C>
VALUE AND RESTRUCTURING FUND 10.32% 21.26% 24.22%*
RUSSELL 1000 VALUE INDEX 15.63% 20.85% 20.39%**
</TABLE>

* Since December 31, 1992
** Since December 31, 1992

WHAT IS AN INDEX?

Page 8 of 50

<PAGE>

FUND FEES AND EXPENSES

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

<TABLE>
<S> <C> <C>
Management Fees 0.60%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.33%
Total Other Expenses 0.73%
------
Total Annual Fund Operating Expenses 1.33%*
</TABLE>

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

* The Fund's actual total annual fund operating expenses for the most
recent fiscal year were less than the amount shown above as a result of the
Adviser's voluntary fee waivers. The Adviser has voluntarily agreed to waive its
investment advisory fee or other fees in an amount equal to the administrative
servicing fee paid by the Fund. The Adviser may discontinue all or part of these
waivers at any time. With these fee waivers, the Fund's actual total operating
expenses for the last fiscal year were 0.93%. For more information about these
fees, see "Investment Adviser."

EXAMPLE

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$135 $421 $729 $1,601
</TABLE>

Page 9 of 50

<PAGE>

SMALL CAP FUND

FUND SUMMARY
<TABLE>
<S> <C>
INVESTMENT GOAL Capital appreciation

INVESTMENT FOCUS Equity securities of small cap U.S. issuers

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT STRATEGY Investing in equity securities of smaller companies that
are expected to achieve substantial long-term earnings
growth

INVESTOR PROFILE Investors seeking capital appreciation, and who are
willing to tolerate the risks of investing in smaller
companies
</TABLE>

INVESTMENT OBJECTIVE

The Small Cap Fund seeks long-term capital appreciation by investing primarily
in companies with capitalization of $1.5 billion or less.

INVESTMENT STRATEGY OF THE SMALL CAP FUND

The Small Cap Fund invests at least 65% of its assets in equity securities of
smaller U.S.-based companies that are in the early stages of development and
which the Adviser believes have the potential to achieve substantial long-term
earnings growth.

In selecting investments for the Fund, the Adviser applies a bottom-up
investment approach designed to identify innovative companies whose potential is
not yet reflected in their market values. Generally, the Fund invests in
companies with market capitalizations of $1.5 billion or less, but the Adviser
also considers to a lesser degree larger or more mature companies engaged in new
or higher growth operations that the Adviser believes will result in accelerated
earnings growth.

PRINCIPAL RISKS OF INVESTING IN THE SMALL CAP FUND

The smaller capitalization companies the Fund invests in may be more
vulnerable to adverse business or economic events than longer, more
established companies. In particular, these small companies may have limited
product lines, markets and financial resources, and may depend upon a
relatively small management group. Therefore, small cap stocks may be more
volatile than those of larger companies. These securities may be traded
over-the-counter or listed on an exchange and may or may not pay dividends.

The Fund is also subject to the risk that small capitalization growth stocks may
underperform other segments of the equity markets or the equity markets as a
whole.

Page 10 of 50
<PAGE>

PERFORMANCE INFORMATION

This bar chart shows changes in the Fund's performance from year to year.

<TABLE>
<S> <C>
1993 27.91%
1994 5.30%
1995 22.81%
1996 (2.30)%
1997 14.21%
1998 (12.38)%

BEST QUARTER WORST QUARTER
21.58% (24.77)%
(12/31/98) (9/30/98)
</TABLE>

The Fund's performance for the six month period ending June 30, 1999 was 9.73%.

THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1998 TO THOSE OF THE RUSSELL 2000 INDEX.

<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- ----------------------------------------- -------------- ------------- --------------------
<S> <C> <C> <C>
SMALL CAP FUND (12.38)% 4.80% 8.34%*
RUSSELL 2000 INDEX (2.56)% 11.87% 13.01%**
</TABLE>

* Since December 31, 1992
** Since December 31, 1992

WHAT IS AN INDEX?

FUND FEES AND EXPENSES

Page 11 of 50

<PAGE>

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

<TABLE>
<S> <C> <C>
Management Fees 0.60%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.34%
Total Other Expenses 0.74%
------
Total Annual Fund Operating Expenses 1.34%*
</TABLE>

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

* The Fund's actual total annual fund operating expenses for the most
recent fiscal year were less than the amount shown above as a result of the
Adviser's voluntary fee waivers. The Adviser has voluntarily agreed to waive its
investment advisory fee or other fees in an amount equal to the administrative
servicing fee paid by the Fund. The Adviser may discontinue all or part of these
waivers at any time. With these fee waivers, the Fund's actual total operating
expenses for the last fiscal year were 0.94%. For more information about these
fees, see "Investment Adviser."

EXAMPLE

<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$136 $425 $734 $1,613
</TABLE>

Page 12 of 50

<PAGE>

LARGE CAP GROWTH FUND

<TABLE>
<CAPTION>
FUND SUMMARY
<S> <C>
INVESTMENT GOAL Long-term growth of capital

INVESTMENT FOCUS Common stocks of large U.S. companies

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT STRATEGY Invests in common stocks of large companies that the
Adviser believes have above-average growth prospects

INVESTOR PROFILE Investors seeking growth of capital, and who are willing to
accept the risks of investing in equity securities of
larger companies
</TABLE>

INVESTMENT OBJECTIVE

The Large Cap Growth Fund seeks superior, risk-adjusted total return by
investing in larger companies whose growth prospects, in the opinion of the
Adviser, appear to exceed that of the overall market. This objective may be
changed without shareholder approval.

INVESTMENT STRATEGY OF THE LARGE CAP GROWTH FUND

The Large Cap Growth Fund invests at least 65% of its assets in common stocks of
large U.S. companies with market capitalizations over $5 billion that the
Adviser believes have above-average growth prospects.

The Adviser takes a long-term approach to managing the Fund and invests in
companies with characteristics that it believes will lead to future earnings
growth or recognition of their true value. In selecting particular investments,
the Adviser applies a bottom-up investment approach designed to identify the
best companies in the most rapidly growing industries. Frequently, these are
well established companies that are positioned to provide solutions to or
benefit from complex social and economic trends. However, the Fund also may
invest in smaller, high growth companies when the Adviser expects their earnings
to grow at an above-average rate.

PRINCIPAL RISKS OF INVESTING IN THE LARGE CAP GROWTH FUND

Page 13 of 50
<PAGE>

The Fund also may be subject to risks particular to its investments in smaller
capitalization companies. These risks are discussed in greater detail in the
section entitled "More Information About Risk."

The Fund is also subject to the risk that medium to large capitalization
growth stocks may underperform other segments of the equity markets or the
equity markets as a whole.

PERFORMANCE INFORMATION

This bar chart shows changes in the Fund's performance from year to year.

<TABLE>
<CAPTION>
<S> <C>
1998 67.04%

BEST QUARTER WORST QUARTER
39.37% (9.28)%
(12/31/98) (9/30/98)
</TABLE>

The Fund's performance for the six month period ending June 30, 1999 was 21.16%.

THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1998 TO THOSE OF THE STANDARD & POOR'S 500 COMPOSITE STOCK
PRICE INDEX.

<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
- ------------------------------------------------------------- -------------------- -------------------------
<S> <C> <C>
LARGE CAP GROWTH FUND 67.04% 52.41%*
STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX 28.58% 25.08%**
</TABLE>

* Since October 1, 1997
** Since September 30, 1997

WHAT IS AN INDEX?

FUND FEES AND EXPENSES

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

<TABLE>
<S> <C> <C>
Management Fees 0.75%
Other Expenses
Administrative Servicing Fee 0.40%

Page 14 of 50
<PAGE>

Other Operating Expenses 0.29%
Total Other Expenses 0.69%
------
Total Annual Fund Operating Expenses 1.44%*
</TABLE>

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

* The Fund's actual total annual fund operating expenses for the most
recent fiscal year were less than the amount shown above as a result of the
Adviser's voluntary fee waivers. The Adviser has voluntarily agreed to waive its
investment advisory fee or other fees in an amount equal to the administrative
servicing fee paid by the Fund. The Adviser may discontinue all or part of these
waivers at any time. With these fee waivers, the Fund's actual total operating
expenses for the last fiscal year were 1.04%. For more information about these
fees, see "Investment Adviser."

EXAMPLE

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$147 $456 $787 $1,724
</TABLE>

Page 15 of 50

<PAGE>

ENERGY AND NATURAL RESOURCES FUND

<TABLE>
<CAPTION>
FUND SUMMARY
<S> <C>
INVESTMENT GOAL Long-term capital appreciation

INVESTMENT FOCUS Equity securities of U.S. and foreign energy and natural
resources companies

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT STRATEGY Investing in equity securities of U.S. and foreign
issuers engaged in the energy and natural resources
groups of industries

INVESTOR PROFILE Investors seeking long-term growth of capital, and who are
willing to accept the risks of investing in a
non-diversified portfolio of energy and natural resources
companies
</TABLE>

INVESTMENT OBJECTIVE

The Energy and Natural Resources Fund seeks long-term capital appreciation by
investing primarily in companies that are in the energy and other natural
resources groups of industries. The Fund may also invest, to a more limited
extent, in gold and other precious metal bullion and coins.

INVESTMENT STRATEGY OF THE ENERGY AND NATURAL RESOURCES FUND

The Energy and Natural Resources Fund invests at least 65% of its assets in
equity securities of U.S. and foreign companies engaged in the energy and
natural resources industries. These companies include those engaged in the
discovery, development, production or distribution of energy or other natural
resources and companies that develop technologies and furnish energy and natural
resource supplies and services to these companies. In selecting investments for
the Fund, the Adviser takes a long-term approach and seeks to identify companies
whose value is not recognized in the prices of their securities or with
characteristics that will lead to above-average earnings growth.

Energy companies normally will constitute a significant portion of the Fund's
investments, and the Fund typically invests at least 50% of its assets in crude
oil, petroleum and natural gas companies. The Fund also may invest a portion of
its assets in precious metals, such as gold bullion, and companies engaged in
the production of precious metals. The Fund invests in companies of any size,
including small, high growth companies.

PRINCIPAL RISKS OF INVESTING IN THE ENERGY AND NATURAL RESOURCES FUND

The Fund is subject to the risk that the securities of issuers engaged in the
energy and natural resources industries that the Fund purchases will
underperform other market sectors or the market as a whole. To the extent that
the Fund's investments are concentrated in issuers conducting business in the
same industry, the Fund is subject to legislative or regulatory changes, adverse

Page 16 of 50

<PAGE>

market conditions and/or increased competition affecting that industry. The
values of natural resources are affected by numerous factors including events
occurring in nature and international politics. For instance, events in nature
(such as earthquakes or fires in prime natural resources areas) and political
events (such as coups or military confrontations) can affect the overall supply
of a natural resource and thereby the value of companies involved in such
natural resource.

Investing in foreign countries poses additional risks since political and
economic events unique to a country or region will affect those markets and
their issuers. These events will not necessarily affect the U.S. economy or
similar issuers located in the United States. In addition, investments in
foreign countries are generally denominated in a foreign currency. As a result,
changes in the value of those currencies compared to the U.S. dollar may affect
(positively or negatively) the value of a Fund's investments. These currency
movements may happen separately from and in response to events that do not
otherwise affect the value of the security in the issuer's home country.

The Fund also may be subject to risks particular to its investments in smaller
and medium capitalization companies. These risks are discussed in greater
detail in the section entitled "More Information About Risk."

The Fund is non-diversified, which means that it may invest in the securities of
relatively few issuers. As a result, the Fund may be more susceptible to a
single adverse economic or political/regulatory occurrence affecting one or more
of these issuers, and may experience increased volatility due to its investments
in those securities.

PERFORMANCE INFORMATION

This bar chart shows changes in the Fund's performance from year to year.

<TABLE>
<S> <C>
1993 14.69%
1994 (2.70)%
1995 20.11%
1996 38.38%
1997 18.31%
1998 (15.87)%

BEST QUARTER WORST QUARTER
20.04% (13.83)%
(9/30/97) (9/30/98)
</TABLE>

Page 17 of 50
<PAGE>

The Fund's performance for the six month period ending June 30, 1999 was 28.67%.

THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1998 TO THOSE OF THE STANDARD & POOR'S 500 COMPOSITE STOCK
PRICE INDEX.

<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION
- ------------------------------------------------------------ ------------- ------------- --------------------
<S> <C> <C> <C>
ENERGY AND NATURAL RESOURCES FUND (15.87)% 9.99% 10.76%*
STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX 28.58% 24.04% 21.60%**
</TABLE>

* Since December 31, 1992
** Since December 31, 1992

WHAT IS AN INDEX?

FUND FEES AND EXPENSES

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

<TABLE>
<S> <C> <C>
Management Fees 0.60%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.38%
Total Other Expenses 0.78%
------
Total Annual Fund Operating Expenses 1.38%*
</TABLE>

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

* The Fund's actual total annual fund operating expenses for the most
recent fiscal year were less than the amount shown above as a result of the
Adviser's voluntary fee waivers. The Adviser has voluntarily agreed to waive its
investment advisory fee or other fees in an amount equal to the administrative
servicing fee paid by the Fund. The Adviser may discontinue all or part of these
waivers at any time. With these fee waivers, the Fund's actual total operating
expenses for the last fiscal year were 0.98%. For more information about these
fees, see "Investment Adviser."

EXAMPLE

Page 18 of 50

<PAGE>

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$140 $437 $755 $1,657
</TABLE>

Page 19 of 50

<PAGE>

REAL ESTATE FUND
<TABLE>
FUND SUMMARY
<S> <C>
INVESTMENT GOAL Current income and long-term capital appreciation

INVESTMENT FOCUS Equity securities of companies engaged in the real estate
business

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT STRATEGY Investing in equity securities of real
estate investment trusts (REITs) and other
issuers engaged in the real estate industry

INVESTOR PROFILE Investors seeking current income
and long-term growth of capital, and who are
willing to accept the risks of investing in a
non-diversified portfolio of real estate
issuers
</TABLE>

INVESTMENT OBJECTIVE

The Real Estate Fund seeks current income and long-term capital appreciation by
investing in real estate investment trusts and other companies principally
engaged in the real estate business. This objective may be changed without
shareholder approval.

INVESTMENT STRATEGY OF THE REAL ESTATE FUND

The Real Estate Fund invests at least 65% of its assets in REITs and other
publicly-traded equity securities of U.S. and, to a lesser extent, foreign
companies engaged in the real estate industry. REITs pool investors' funds for
investment directly in real estate (equity REITs), real estate loans (mortgage
REITs), or a combination of the two (hybrid REITs). The Fund intends to invest
primarily in equity and hybrid REITs. REITs generally are income producing
investments. The Fund also invests in other issuers engaged in the real estate
business, such as developers, mortgage lenders and servicers, construction
companies and building material suppliers.

The Adviser takes a long-term approach to managing the Fund and seeks to
identify companies with characteristics that will lead to above-average earnings
growth. The Adviser analyzes demographic and macroeconomic factors to determine
regional allocations. Based on its regional allocations, the Adviser selects
particular investments based on its analysis of valuation relative to underlying
real estate values.

PRINCIPAL RISKS OF INVESTING IN THE REAL ESTATE FUND

The Fund is subject to the risk that the securities of issuers in the real
estate industry that the Fund purchases will underperform other market sectors
or the market as a whole. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same industry, the Fund is
subject to legislative or regulatory changes, adverse market conditions and/or
increased competition affecting that industry.

Page 20 of 50
<PAGE>

The Fund's investments in the securities of REITs and companies principally
engaged in the real estate industry may subject the Fund to the risks associated
with the direct ownership of real estate. Risks commonly associated with the
direct ownership of real estate include fluctuations in the value of underlying
properties and defaults by borrowers or tenants. In addition to these risks,
REITs are dependent on specialized management skills and some REITs may have
investments in relatively few properties, or in a small geographic area or a
single type of property. These factors may increase the volatility of the Fund's
investments in REITs.

The Fund also may be subject to risks particular to its investments in foreign
companies. These risks are discussed in greater detail in the section entitled
"More Information About Risk."

PERFORMANCE INFORMATION

This bar chart shows changes in the Fund's performance from year to year.

<TABLE>
<CAPTION>
1998 (13.55)%
<S> <C>
BEST QUARTER WORST QUARTER
3.38% (8.87)%
(12/31/97) (9/30/98)
</TABLE>

The Fund's performance for the six month period ending June 30, 1999 was 4.52%.

THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1998 TO THOSE OF THE MORGAN STANLEY REIT INDEX.

<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
- ----------------------------------------- -------------- -------------------
<S> <C> <C>
REAL ESTATE FUND (13.55)% (8.59)%*
MORGAN STANLEY REIT INDEX (16.90)% (13.09)%**
</TABLE>

* Since October 1, 1997
** Since September 30, 1997

Page 21 of 50

<PAGE>

WHAT IS AN INDEX?

FUND FEES AND EXPENSES

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

<TABLE>
<S> <C> <C>
Management Fees 1.00%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.33%
Total Other Expenses 0.73%
Total Annual Fund Operating Expenses 1.73%*
</TABLE>

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

* The Fund's actual total annual fund operating expenses for the most
recent fiscal year were less than the amount shown above as a result of the
Adviser's voluntary fee waivers. The Adviser has voluntarily agreed to waive its
investment advisory fee or other fees in an amount equal to the administrative
servicing fee paid by the Fund. The Adviser may discontinue all or part of these
waivers at any time. With these fee waivers, the Fund's actual total operating
expenses for the last fiscal year were 1.20%. For more information about these
fees, see "Investment Adviser."

EXAMPLE

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$176 $545 $939 $2,041
</TABLE>

Page 22 of 50

<PAGE>

VALUE EQUITY FUND
<TABLE>
<CAPTION>
FUND SUMMARY
<S> <C>
INVESTMENT GOAL Long-term capital appreciation

INVESTMENT FOCUS Common stocks of U.S. companies

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT STRATEGY Investing in common stocks that the Adviser believes are
undervalued by the market

INVESTOR PROFILE Investors seeking growth of capital, and who are willing
to accept the risks of investing in equity securities
</TABLE>

INVESTMENT OBJECTIVE

The Value Equity Fund seeks long-term capital appreciation. This objective may
be changed without shareholder approval.

INVESTMENT STRATEGY OF THE VALUE EQUITY FUND

The Value Equity Fund invests at least 65% of its assets in common stocks of
U.S. and, to a lesser extent, foreign companies that the Adviser believes are
undervalued at current market prices. The Adviser generally diversifies the
Fund's investments over a variety of industries and the Fund may invest in
companies of any size, including small, high growth companies.

In selecting investments for the Fund, the Adviser combines fundamental research
with valuation constraints to identify companies trading at what the Adviser
believes are reasonable prices and displaying characteristics expected to lead
to greater recognition of true value. The Adviser believes that events such as
restructuring activities and industry consolidations can be the catalysts
necessary to realize this value.

PRINCIPAL RISKS OF INVESTING IN THE VALUE EQUITY FUND

The Fund also may be subject to risks particular to its investments in
foreign, medium and smaller capitalization companies. These risks are discussed
in greater detail in the section entitled "More Information About Risk."

Page 23 of 50
<PAGE>

The Fund is also subject to the risk that its undervalued equity securities may
underperform other segments of the equity markets or the equity markets as a
whole.

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Fund's Shares from year
to year.

<TABLE>
<CAPTION>
1998 20.11%
<S> <C>
BEST QUARTER WORST QUARTER
23.85% (16.39)%
(12/31/98) (9/30/98)
</TABLE>

The Fund's performance for the six month period ending June 30, 1999 was 17.64%.

THIS TABLE COMPARES THE AVERAGE ANNUAL TOTAL RETURNS OF THE FUND'S SHARES FOR
THE PERIODS ENDED DECEMBER 31, 1998 TO THOSE OF THE RUSSELL 1000 VALUE INDEX.

<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
- ----------------------------------------------- ------------ ----------------------
<S> <C> <C>
Value Equity Fund (Shares) 20.11% 24.66%*
Russell 1000 Value Index 15.63% 25.02%**
</TABLE>

* Since January 15, 1997
** Since December 31, 1996

WHAT IS AN INDEX?

FUND FEES AND EXPENSES

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
Management Fees 0.65%
Distribution (12b-1) Fees 0.35%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.33%
Total Other Expenses 0.73%
Total Annual Fund Operating Expenses 1.73%*
</TABLE>

Page 24 of 50
<PAGE>

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

* The Fund's actual total annual fund operating expenses for the most
recent fiscal year were less than the amount shown above as a result of the
Adviser's voluntary fee waivers. The Adviser has voluntarily agreed to waive its
investment advisory fee or other fees in an amount equal to the administrative
servicing fee paid by the Fund. The Adviser may discontinue all or part of these
waivers at any time. With these fee waivers, the Fund's actual total operating
expenses for the last fiscal year were 1.05%. For more information about these
fees, see "Investment Adviser" and "Distribution of Fund Shares."

EXAMPLE

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$176 $545 $939 $2,041
</TABLE>

Page 25 of 50

<PAGE>

OPTIMUM GROWTH FUND
<TABLE>
<CAPTION>
FUND SUMMARY
<S> <C>
INVESTMENT GOAL Superior, risk-adjusted total return

INVESTMENT FOCUS Common stocks of U.S. companies

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT STRATEGY Invests in common stocks that the Adviser believes have
strong growth prospects

INVESTOR PROFILE Investors seeking total return, and who are willing to
accept the risks of investing in equity securities
</TABLE>

INVESTMENT OBJECTIVE

The Optimum Growth Fund seeks superior, risk-adjusted total return. This
objective may be changed without shareholder approval.

INVESTMENT STRATEGY OF THE OPTIMUM GROWTH FUND

The Optimum Growth Fund invests at least 65% of its assets in common stocks of
U.S. companies that the Adviser believes have growth prospects that exceed those
of the overall market. The Fund generally invests in mid- to
large-capitalization companies (i.e., companies with market capitalizations over
$1.5 billion) in a variety of industries.

The Adviser takes a long-term approach to managing the Fund and tries to
identify high quality companies with consistent or rising earnings growth
records. Typically, these companies are industry leaders with the potential to
dominate their markets by being the low cost, high quality producers of products
or services. In addition to its core portfolio selections, the Adviser further
diversifies Fund investments with a structured segment of issuers included in
the Russell 1000 Growth Index, which includes growth-oriented issuers selected
from among the 1000 largest U.S. issuers. From this universe, the Adviser
systematically selects companies that it believes, based on quantitative
screening, complements the Fund's core holdings by reducing portfolio volatility
and further diversifying the Fund.

PRINCIPAL RISKS OF INVESTING IN THE OPTIMUM GROWTH FUND

The Fund also may be subject to risks particular to its investment in medium
capitalization companies. These risks are discussed in greater detail in the
section entitled "More Information About Risk."

Page 26 of 50

<PAGE>

The Fund is also subject to the risk that medium to large capitalization U.S.
stocks may underperform other segments of the equity markets or the equity
markets as a whole.

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Fund's Shares from year
to year.

<TABLE>
<CAPTION>
<S> <C>
1997 33.08%
1998 64.66%

BEST QUARTER WORST QUARTER
36.33% (6.08)%
(12/31/98) (9/30/98)
</TABLE>

The Fund's performance for the six month period ending June 30, 1999 was 19.35%.

THIS TABLE COMPARES THE AVERAGE ANNUAL TOTAL RETURNS OF THE FUND'S SHARES FOR
THE PERIODS ENDED DECEMBER 31, 1998 TO THOSE OF THE RUSSELL 1000 GROWTH INDEX.

<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
- -------------------------------------------------- ------------ -------------------
<S> <C> <C>
OPTIMUM GROWTH FUND (SHARES) 64.66% 37.49%*
RUSSELL 1000 GROWTH INDEX 38.65% 31.62%**
</TABLE>

* Since July 3, 1996
** Since June 30, 1996

WHAT IS AN INDEX?

FUND FEES AND EXPENSES

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
Management Fees 0.65%
Distribution (12b-1) Fees 0.35%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.27%
Total Other Expenses 0.67%
-----

Page 27 of 50
<PAGE>

Total Annual Fund Operating Expenses 1.67%*
</TABLE>

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

* The Fund's actual total annual fund operating expenses for the most
recent fiscal year were less than the amount shown above as a result of the
Adviser's voluntary fee waivers. The Adviser has voluntarily agreed to waive its
investment advisory fee or other fees in an amount equal to the administrative
servicing fee paid by the Fund. The Adviser may discontinue all or part of these
waivers at any time. With these fee waivers, the Fund's actual total operating
expenses for the last fiscal year were 1.05%. For more information about these
fees, see "Investment Adviser" and "Distribution of Fund Shares."

EXAMPLE

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$170 $526 $907 $1,976
</TABLE>

Page 28 of 50

<PAGE>

<TABLE>
MORE INFORMATION ABOUT RISK
<S> <C>
EQUITY RISK - Equity securities include public and privately issued All Funds
equity securities, common and preferred stocks, warrants, rights to
subscribe to common stock and convertible securities, as well as
instruments that attempt to track the price movement of equity indices.
Investments in equity securities and equity derivatives in general are
subject to market risks that may cause their prices to fluctuate over
time. The value of securities convertible into equity securities, such
as warrants or convertible debt, is also affected by prevailing interest
rates, the credit quality of the issuer and any call provision.

SMALL CAP RISK - The smaller capitalization companies in which the Fund Blended Equity Fund
may invest in may be more vulnerable to adverse business or economic Value and Restructuring Fund
events than larger, more established companies. In Small Cap Fund
particular, these small companies may have limited product lines, Large Cap Growth Fund
markets and financial resources, and may depend upon a Energy and Natural Resources Fund
relatively small management group. Therefore, Value Equity Fund
small cap stocks may be more volatile than those of larger companies.

MID CAP RISK - The medium capitalization companies that the Fund may Blended Equity Fund
invest in may be more vulnerable to adverse business or economic events Value and Restructuring Fund
than larger companies. In particular, these companies may have limited Energy and Natural Resources Fund
product lines, markets and financial resources, and may depend on a Value Equity Fund
relatively small management group. Therefore, medium capitalization Optimum Growth Fund
stocks may be more volatile than those of larger companies.

MORTGAGE-BACKED SECURITIES - Mortgage-backed securities are fixed income Real Estate Fund
securities representing an interest in a pool of underlying mortgage
loans. They are sensitive to changes in interest rates, but may respond
to these changes differently from other fixed income securities due to
the possibility of prepayment of the underlying mortgage loans. As a
result, it may not be possible to determine in advance the actual
maturity date or average life of a mortgage-backed security. Rising
interest rates tend to discourage refinancings, with the result that the
average life and volatility of the security will increase, exacerbating
its decrease in market price. When interest rates fall, however,
mortgage-backed securities may not gain as much in market value because
of the expectation of additional mortgage prepayments that must be
reinvested at lower interest rates. Prepayment risk may make it
difficult to calculate the average maturity of a portfolio of
mortgage-backed securities and, therefore, to assess the volatility risk
of that portfolio.

Page 29 of 50

<PAGE>

FOREIGN SECURITY RISKS - Investments in securities of foreign companies All Funds
or governments can be more volatile than investments in U.S. companies
or governments. Diplomatic, political, or economic developments,
including nationalization or appropriation, could affect investments in
foreign countries. Foreign securities markets generally have less
trading volume and less liquidity than U.S. markets. In addition, the
value of securities denominated in foreign currencies, and of dividends
from such securities, can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign companies or
governments generally are not subject to uniform accounting, auditing,
and financial reporting standards comparable to those applicable to
domestic U.S. companies or governments. Transaction costs are generally
higher than those in the U.S. and expenses for custodial arrangements of
foreign securities may be somewhat greater than typical expenses for
custodial arrangements of similar U.S. securities. Some foreign
governments levy withholding taxes against dividend and interest
income. Although in some countries a portion of these taxes is
recoverable, the non-recovered portion will reduce the income received
from the securities comprising the portfolio.

CURRENCY RISK - Investments in foreign securities denominated in foreign All Funds
currencies involve additional risks, including:

- A Fund may incur substantial costs in connection with conversions
between various currencies.

- Only a limited market currently exists for hedging transactions
relating to currencies in certain emerging markets.

YEAR 2000 RISK - The Funds depend on the smooth functioning of computer All Funds
systems in almost every aspect of their business. Like other mutual
funds, businesses and individuals around the world, the Funds could be
adversely affected if the computer systems used by their service
providers do not properly process dates on and after January 1, 2000,
and distinguish between the year 2000 and the year 1900. This is
commonly known as the "Year 2000 Problem." The Adviser and the Funds'
other service providers advise that they are taking steps to address the
Year 2000 Problem with respect to the computer systems that they use.
Currently, they do not anticipate that the transition to the 21st
Century will have any material impact on their ability to continue to
service the Funds at current levels. At this time, however, there can
be no assurance that their efforts will be sufficient to avoid any
adverse impact on the Funds as a result of the Year 2000 Problem. In
addition, the Funds and their shareholders may experience losses as a
result of computer difficulties experienced by issuers of portfolio
securities or third

Page 30 of 50

<PAGE>

parties, such as custodians, banks, broker-dealers
or others with which the Funds do business.

Furthermore, many foreign countries are not as prepared as the U.S. for All Funds
the year 2000 transition. As a result, computer difficulties in foreign
markets and with foreign institutions as a result of the Year 2000 Problem may
add to the possibility of losses to the Funds and their shareholders.
</TABLE>

Page 31 of 50

<PAGE>

EACH FUND'S OTHER INVESTMENTS

In addition to the investments and strategies described in this prospectus, each
Fund also may invest in other securities, use other strategies and engage in
other investment practices. These investments and strategies, as well as those
described in this prospectus, are described in detail in our Statement of
Additional Information.

The investments and strategies described in this prospectus are those that we
use under normal conditions. During adverse economic, market or other
conditions, each Fund may take temporary defensive positions such as
investing up to 100% of its assets in investments that would not ordinarily
be consistent with a Fund's objective. The Fund may not achieve its objective
when so invested. A Fund will do so only if the Adviser believes that the
risk of loss outweighs the opportunity for capital gains or higher income. Of
course, a Fund cannot guarantee that it will achieve its investment goal.

INVESTMENT ADVISER

United States Trust Company of New York and U.S. Trust Company (together, U.S.
Trust or the Adviser) serve as investment adviser to each Fund. United States
Trust Company of New York is a state-chartered bank and trust company and a
member bank of the Federal Reserve System. U.S. Trust Company is a Connecticut
state bank and trust company. Each is a wholly-owned subsidiary of U.S. Trust
Corporation, a registered bank holding company.

U.S. Trust is one of the oldest investment management companies in the country.
Since 1853, U.S. Trust has been a leader in wealth management for sophisticated
investors providing trust and banking services to individuals, corporations and
institutions, both nationally and internationally, including investment
management, estate and trust administration, financial planning, corporate trust
and agency banking, and personal and corporate banking. On December 31, 1998,
U.S. Trust had approximately $65 billion in aggregate assets under management.
United States Trust Company of New York has its principal offices at 114 W. 47th
Street, New York, NY 10036. U.S. Trust Company has its principal offices at 225
High Ridge Road, East Building, Stamford, CT 06905.

The Adviser makes investment decisions for the Funds and continuously reviews,
supervises and administers each Fund's investment program.

The Board of Directors of Excelsior Funds, Inc. and the Board of Trustees of
Excelsior Institutional Trust supervise the Adviser and establish policies that
the Adviser must follow in its management activities.

For the fiscal year ended March 31, 1999, U.S. Trust received advisory fees, as
a percentage of average daily net assets, of:

<TABLE>
<S> <C>
BLENDED EQUITY FUND 0.69%
VALUE AND RESTRUCTURING FUND 0.48%
SMALL CAP FUND 0.49%
LARGE CAP GROWTH FUND 0.71%
ENERGY AND NATURAL RESOURCES FUND 0.50%
REAL ESTATE FUND 0.77%
VALUE EQUITY FUND 0.39%

Page 32 of 50
<PAGE>

OPTIMUM GROWTH FUND 0.43%
</TABLE>

PORTFOLIO MANAGERS

Leigh H. Weiss and Bruce Tavel have served as the Blended Equity Fund's
portfolio co-managers since 1997. Mr. Weiss, a Managing Director and Senior
Portfolio Manager, has been with U.S. Trust since 1993. Prior to joining U.S.
Trust, Mr. Weiss was a portfolio manager with Goldman, Sachs & Co. Mr. Tavel, a
Managing Director and head of U.S. Trust's Structured Investments Division, has
been with U.S. Trust since 1980. Mr. Weiss and Mr. Tavel are primarily
responsible for the day to day management of the Blended Equity Fund's
portfolio. Research, analyses, trade execution and other facilities provided by
U.S. Trust and other personnel also play a significant role in portfolio
management and performance.

David J. Williams has served as the Value and Restructuring Fund and Value
Equity Fund portfolio manager since their inceptions. Mr. Williams, a Managing
Director and Senior Portfolio Manager of the Personal Investment Division of
U.S. Trust, has been with U.S. Trust since 1987. Mr. Williams is primarily
responsible for the day to day management of the Value and Restructuring and the
Value Equity Funds' portfolios. Research, analyses, trade execution and other
facilities provided by U.S. Trust and other personnel also play a significant
role in portfolio management and performance.

Timothy Pettee and Margaret Doyle have served as the Small Cap Fund's portfolio
co-managers since 1998. Mr. Pettee, a Managing Director and Director of Equity
Research, has been with U.S. Trust since 1998. Prior to joining U.S. Trust, Mr.
Pettee was a Vice President and fund manager with Alliance Capital Management in
New York. Ms. Doyle, a Vice President in U.S. Trust's equity research division,
has been with U.S. Trust since 1998. From 1996 to 1998, Ms. Doyle was a Vice
President and Investment Officer with J&W Seligman & Co. in New York. From 1994
to 1996, Ms. Doyle was an Equity Research Analyst with Solomon Brothers, Inc. in
New York. Mr. Pettee and Ms. Doyle are primarily responsible for the day to day
management of the Small Cap Fund's portfolio. Research, analyses, trade
execution and other facilities provided by U.S. Trust and other personnel also
play a significant role in portfolio management and performance.

All investment decisions for the Large Cap Growth Fund and the Optimum Growth
Fund are made by a committee of investment professionals and no persons are
primarily responsible for making recommendations to that committee. United
States Trust Company of New York provides its investment advisory services to
the Large Cap Growth Fund and the Optimum Growth Fund primarily through its
Campbell Cowperthwait division.

Michael E. Hoover has served as the Energy and Natural Resources Fund's
portfolio manager since 1995. Mr. Hoover, Senior Vice President and Senior
Analyst, has been with U.S. Trust since 1989. Mr. Hoover is primarily
responsible for the day to day management of the Energy and Natural Resources
Fund's portfolio. Research, analyses, trade execution and other facilities
provided by U.S. Trust and other personnel also play a significant role in
portfolio management and performance.

Joan Ellis has served as the Real Estate Fund's portfolio manager or co-manager
since its inception. Ms. Ellis, Senior Vice President in the Investment Research
Division, has been with U.S. Trust since 1984. Ms. Ellis is primarily
responsible for the day to day management of the Real Estate Fund's portfolio.
Research, analyses, trade execution and other facilities provided by

Page 33 of 50

<PAGE>

U.S. Trust and other personnel also play a significant role in portfolio
management and performance.

PURCHASING, SELLING AND EXCHANGING FUND SHARES

This section tells you how to buy, sell (sometimes called "redeem") or exchange
shares of the Funds.

HOW TO PURCHASE FUND SHARES

You may purchase shares directly by:
- Mail
- Telephone
- Wire, or
- Automatic Investment Program

To purchase shares directly from us, please call (800) 446-1012 (from overseas,
call (617) 557-8280), or complete and send in the enclosed application to
Excelsior Funds, c/o Chase Global Funds Services Company, P.O. Box 2798, Boston,
MA 02208-2798. Unless you arrange to pay by wire or through the automatic
investment program, write your check, payable in U.S. dollars, to "Excelsior
Funds, Inc." (or "Excelsior Institutional Trust" for Shares of the Value Equity
or Optimum Growth Funds) and include the name of the appropriate Fund(s) on the
check. A Fund cannot accept third-party checks, credit cards, credit card checks
or cash. To purchase shares by wire, please call us for instructions. Federal
funds and registration instructions should be wired through the Federal Reserve
System to:

The Chase Manhattan Bank
ABA #021000021
Excelsior Funds, Account Number 9102732915

For Further Credit To:
Excelsior Funds
Wire Control Number
Excelsior Funds Account Registration (including account number)

Investors making initial investments by wire must promptly complete the enclosed
application and forward it to the address indicated on the application.
Investors making subsequent investments by wire should follow the above
instructions.

You may also buy shares through accounts with brokers and other institutions
that are authorized to place trades in Fund shares for their customers. If you
invest through an authorized institution, you will have to follow its
procedures, which may be different from the procedures for investing directly.
Your institution may charge a fee for its services, in addition to the fees
charged by the Fund. You will also generally have to address your correspondence
or questions regarding a Fund to your institution.

The Funds' distributor may institute promotional incentive programs for dealers,
which will be paid for by the distributor out of its own assets and not out of
the assets of the Funds. Under any such program, the distributor may provide
incentives, in the form of cash or other compensation, including merchandise,
airline vouchers, trips and vacation packages, to dealers selling shares of

Page 34 of 50

<PAGE>

a Fund. If any such program is made available to any dealer, it will be made
available to all dealers on the same terms.

GENERAL INFORMATION

You may purchase shares on any day that the New York Stock Exchange (NYSE) and
the Adviser are open for business (a "Business Day"). A Fund may reject any
purchase request if it is determined that accepting the request would not be in
the best interests of the Fund or its shareholders.

The price per share (the offering price) will be the net asset value per share
(NAV) next determined after a Fund receives your purchase request in good order.
We consider requests to be in "good order" when all required documents are
properly completed, signed and received.

Each Fund calculates its NAV once each Business Day at the regularly-scheduled
close of normal trading on the NYSE (normally, 4:00 p.m., Eastern time). So, for
you to receive the current Business Day's NAV, a Fund must receive your purchase
request in good order before 4:00 p.m., Eastern time.

HOW WE CALCULATE NAV

NAV for one Fund share is the value of that share's portion of all of the assets
in the Fund.

In calculating NAV, a Fund generally values its investment portfolio at market
price. If market prices are unavailable or the Adviser thinks that they are
unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Directors. Fixed income investments with remaining
maturities of 60 days or less generally are valued at their amortized cost which
approximates their market value.

Some Funds may hold securities that are listed on foreign exchanges. These
securities may trade on weekends or other days when the Funds do not calculate
NAV. As a result, the market value of a Fund's investments may change on days
when you cannot purchase or sell Fund shares.

MINIMUM PURCHASES

To purchase shares for the first time, you must invest at least $500 ($250 for
IRAs) in any Fund.

Your subsequent investments must be made in amounts of at least $50.

A Fund may accept investments of smaller amounts at its discretion.

AUTOMATIC INVESTMENT PROGRAM

If you have a checking, money market or NOW account with a bank, you may
purchase shares automatically through regular deductions from your account in
amounts of at least $50 per transaction.

With a $50 minimum initial investment, you may begin regularly scheduled
investments once per month, on either the first or fifteenth day, or twice per
month, on both days.

Page 35 of 50
<PAGE>

HOW TO SELL YOUR FUND SHARES

You may sell shares directly by:
- Mail
- Telephone, or
- Systematic Withdrawal Plan

Holders of Fund shares may sell (sometimes called "redeem") shares by following
procedures established when they opened their account or accounts. If you have
questions, call (800) 446-1012 (from overseas, call (617) 557-8280) or for the
Value Equity or Optimum Growth Funds, call (800) 909-1989 (from overseas, call
(617) 557-1755).

You may sell your shares by sending a written request for redemption to:

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

Please be sure to indicate the number of shares to be sold, identify your
account number and sign the request.

If you own your shares through an account with a broker or other institution,
contact that broker or institution to sell your shares.

If you own your shares directly and previously indicated on your account
application or arranged in writing to do so, you may sell your shares on any
Business Day by contacting a Fund directly by telephone at (800) 446-1012 (from
overseas, call (617) 557-8280) or for the Value Equity or Optimum Growth Funds,
call (800) 909-1989 (from overseas, call (617) 557-1755). The minimum amount for
telephone redemptions is $500. We may reject a telephone redemption request if
we deem it advisable to do so.

If you would like to sell $50,000 or more of your shares, or any amount if the
proceeds are to be sent to an address other than the address of record, please
notify the Fund in writing and include a signature guarantee by a bank or other
financial institution (a notarized signature is not sufficient).

The sale price of each share will be the next NAV determined after the Fund
receives your request in good order.

SYSTEMATIC WITHDRAWAL PLAN

If you have at least $10,000 in your account, you may use the systematic
withdrawal plan. Under the plan you may arrange monthly, quarterly, semi-annual
or annual automatic withdrawals from any Fund. The proceeds of each withdrawal
will be mailed to you by check or, if you have a checking or savings account
with a bank, electronically transferred to your account.

RECEIVING YOUR MONEY

Page 36 of 50

<PAGE>

Normally, we will send your sale proceeds within five Business Days after we
receive your request in good order. Your proceeds can be wired to your bank
account (if more than $500) or sent to you by check. IF YOU RECENTLY PURCHASED
YOUR SHARES BY CHECK, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK
HAS CLEARED (WHICH MAY TAKE UP TO 15 BUSINESS DAYS).

REDEMPTIONS IN KIND

We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise, we might pay all or part of
your redemption proceeds in liquid securities with a market value equal to the
redemption price (redemption in kind). It is highly unlikely that your shares
would ever be redeemed in kind, but if they were you would probably have to pay
transaction costs to sell the securities distributed to you, as well as taxes on
any capital gains from the sale as with any redemption.

INVOLUNTARY SALES OF YOUR SHARES

If your account balance drops below $500 because of redemptions, you may be
required to sell your shares. But, we will always give you at least 60 days'
written notice to give you time to add to your account and avoid the sale of
your shares.

SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES

A Fund may suspend your right to sell your shares if the NYSE restricts trading,
the SEC declares an emergency or for other reasons. More information about this
is in our Statement of Additional Information.

HOW TO EXCHANGE YOUR SHARES

You may exchange your shares on any Business Day for shares of any portfolio of
Excelsior Funds, Inc. or Excelsior Tax-Exempt Funds, Inc., or for Shares of any
portfolio of Excelsior Institutional Trust. In order to protect other
shareholders, we may limit your exchanges to no more than six per year, and we
may reject any exchange request. Shares can be exchanged directly by mail, or by
telephone if you previously selected the telephone exchange option on the
account application.

You may also exchange shares through your financial institution. Exchange
requests must be for an amount of at least $500.

IF YOU RECENTLY PURCHASED SHARES BY CHECK YOU MAY NOT BE ABLE TO EXCHANGE YOUR
SHARES UNTIL YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 BUSINESS DAYS).
This exchange privilege may be changed or canceled at any time upon 60 days'
notice.

When you exchange shares, you are really selling your shares and buying other
Fund shares. So, your sale price and purchase price will be based on the NAV
next calculated after the Fund receives your exchange request in good order.

Page 37 of 50

<PAGE>

TELEPHONE TRANSACTIONS

Purchasing, selling and exchanging Fund shares over the telephone is extremely
convenient, but not without risk. Although the Funds have certain safeguards and
procedures to confirm the identity of callers and the authenticity of
instructions, the Funds are not responsible for any losses or costs incurred by
following telephone instructions we reasonably believe to be genuine. If you or
your financial institution transact with a Fund over the telephone, you will
generally bear the risk of any loss.

AUTHORIZED INTERMEDIARIES

Certain intermediaries, such as brokers or other shareholder organizations, are
authorized to accept purchase, redemption and exchange requests for Fund shares.
These intermediaries may authorize other organizations to accept purchase,
redemption and exchange requests for Fund shares. These requests are normally
executed at the NAV next determined after the intermediary receives the request
in good order. Authorized intermediaries are responsible for transmitting
requests and delivering funds on a timely basis.

SHAREHOLDER SERVICING

The Funds are permitted to pay a shareholder servicing fee to certain
shareholder organizations for providing services to their customers who hold
shares of the Funds. These services may include assisting in the processing of
purchase, redemption and exchange requests and providing periodic account
statements. The shareholder servicing fee may be up to 0.40% of the average
daily net asset value of Fund shares held by clients of a shareholder
organization.

DISTRIBUTION OF FUND SHARES

The Value Equity and Optimum Growth Funds have adopted a distribution plan
that allows Shares of the Funds to pay distribution fees for the sale and
distribution of their shares in an amount not to exceed the annual rate of
0.35% of the average daily net asset value of each Funds' outstanding shares.
Currently shares bear the expenses of such distribution fees at the annual
rate of 0.25% of the average daily value of each Fund's outstanding shares.
Because these fees are paid out of a Fund's assets continuously, over time
these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.

Page 38 of 50

<PAGE>

DIVIDENDS, DISTRIBUTIONS AND TAXES

Each Fund distributes dividends from its income quarterly.

Each Fund makes distributions of capital gains, if any, at least annually. If
you own Fund shares on a Fund's record date, you will be entitled to receive the
distribution.

Dividends and distributions for shares held of record by U.S. Trust and its
affiliates or correspondent banks will be paid in cash. Otherwise, dividends and
distributions will be paid in the form of additional Fund shares unless you
elect to receive payment in cash. To elect cash payment, you must notify the
Fund in writing prior to the date of the distribution. Your election will be
effective for dividends and distributions paid after the Fund receives your
written notice. To cancel your election, simply send the Fund written notice.

TAXES

PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Funds and their shareholders. This summary is based on current
tax laws, which may change.

Each Fund will distribute substantially all of its income and capital gains, if
any. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending upon your tax situation. Distributions you
receive from a Fund may be taxable whether or not you reinvest them. Income
distributions are generally taxable at ordinary income tax rates. Capital gains
distributions are generally taxable at the rates applicable to long-term capital
gains. EACH SALE OR EXCHANGE OF FUND SHARES IS A TAXABLE EVENT.

Each Fund may be able to pass along a tax credit for foreign income taxes it
pays. The Fund will notify you if you are entitled to the credit.

MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.

Page 39 of 50

<PAGE>

FINANCIAL HIGHLIGHTS

The following table includes selected data for a Share outstanding throughout
each period and other performance information derived from the financial
statements included in the Trust's Annual Report to Shareholders for the fiscal
year ended March 31, 1999 (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 table should be
read in conjunction with the Financial Statements and notes thereto. More
information about the performance of each Fund is also contained in the Annual
Report to Shareholders which may be obtained from the Trust without charge by
calling the number on the front cover of this Prospectus.

The Funds offer two separate classes of shares--Institutional Shares and Shares.
Institutional Shares and Shares represent equal pro rata interests in each Fund,
except that Shares bear the expense of distribution fees at the maximum annual
rate of 0.75% of the average daily net asset value of the Fund's outstanding
Shares. See "Description of Shares, Voting Rights and Liabilities."

Page 40 of 50

<PAGE>

BLENDED EQUITY FUND

<TABLE>
<CAPTION>
Year Ended March 31,
--------------------

1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $36.12 $25.81 $24.43 $21.40 $19.17
------ ------ ------ ------ ------
Income From Investment Operations
Net Investment Income 0.11 0.16 0.18 0.12 0.07
Net Gains on Securities (both realized and unrealized) 6.90 12.59 2.50 5.21 2.67
------ ------ ------ ------ ------
Total From Investment Operations 7.01 12.75 2.68 5.33 2.74
------ ------ ------ ------ ------
Less Distributions
Dividends From Net Investment Income (0.13) (0.16) (0.14) (0.11) (0.04)
Distributions From Net Realized Gain on Investmentsand Options (0.49) (2.28) (1.16) (2.19) (0.47)
------ ------ ------ ------ ------
Total Distributions (0.62) (2.44) (1.30) (2.30) (0.51)
------ ------ ------ ------ ------
Net Asset Value, End of Year $42.51 $36.12 $25.81 $24.43 $21.40
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total Return 19.65% 50.82% 11.09% 26.45% 14.65%
Ratios/Supplemental Data
Net Assets, End of Period (in millions) $720.27 $594.91 $306.99 $188.57 $137.42
Ratio of Net Operating Expenses to Average Net Assets 0.95% 0.99% 1.01% 1.05% 1.05%
Ratio of Gross Operating Expenses to Average Net Assets(1) 1.01% 1.06% 1.06% 1.12% 1.08%
Ratio of Net Investment Income to Average Net Assets 0.29% 0.55% 0.71% 0.55% 0.36%
Portfolio Turnover Rate 20.0% 28.0% 39.0% 27.0% 23.0%
</TABLE>

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

Notes:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

Page 41 of 50
<PAGE>

VALUE AND RESTRUCTURING FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $23.79 $15.93 $14.03 $10.55 $9.64
------ ------ ------ ------ -----
Income From Investment Operations
Net Investment Income 0.13 0.10 0.13 0.10 0.07
Net Gains on Securities (both realized and unrealized) 0.21 8.12 2.36 3.71 1.02
---- ---- ---- ---- ----
Total From Investment Operations 0.34 8.22 2.49 3.81 1.09
---- ---- ---- ---- ----
Less Distributions
Dividends From Net Investment Income (0.11) (0.09) (0.12) (0.09) (0.06)
Distributions From Net Realized Gain on Investments and Options (0.14) (0.27) (0.47) (0.24) (0.12)
------ ------ ------ ------ ------
Total Distributions (0.25) (0.36) (0.59) (0.33) (0.18)
------ ------ ------ ------ ------
Net Asset Value, End of Period $23.88 $23.79 $15.93 $14.03 $10.55
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total Return 1.48% 52.10% 18.09% 36.48% 11.49%
Ratios/Supplemental Data
Net Assets, End of Period (in millions) $594.62 $388.45 $124.01 $74.05 $30.18
Ratio of Net Operating Expenses to Average Net Asset 0.93% 0.89% 0.91% 0.91% 0.98%
Ratio of Gross Operating Expenses to Average Net Assets(1) 1.07% 0.93% 0.95% 0.95% 1.08%
Ratio of Net Investment Income to Average Net Assets 0.59% 0.54% 0.90% 0.88% 0.83%
Portfolio Turnover Rate 43.0% 30.0% 62.0% 56.0% 82.0%
</TABLE>

- ----------

Notes:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

Page 42 of 50

<PAGE>

SMALL CAP FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $11.95 $8.83 10.78 $9.77 $8.66
------ ----- ----- ----- -----
Income From Investment Operations
Net Investment Income (Loss) 0.00 (0.01) (0.03) (0.02) (0.02)
Net Gains or (Losses) on Securities (both realized and unrealized) (2.56) 3.13 (1.43) 1.72 1.31
------ ---- ------ ---- ----
Total From Investment Operations (2.56) 3.12 (1.46) 1.70 1.29
------ ---- ------ ---- ----
Less Distributions
Distributions From Net Realized Gain on Investments and Options (0.12) 0.00 (0.10) (0.69) (0.18)
Distributions in Excess of Net Realized Gain on Investments and
Options 0.00 0.00 (0.39) 0.00 0.00
---- ---- ------ ---- ----
Total Distributions (0.12) 0.00 (0.49) (0.69) (0.18)
------ ---- ------ ------ ------
Net Asset Value, End of Period $9.27 $11.95 $8.83 $10.78 $9.77
----- ------ ----- ------ -----
----- ------ ----- ------ -----
Total Return (21.41)% 35.33% (14.33)% 18.29% 15.16%
Ratios/Supplemental Data
Net Assets, End of Period (in millions) $43.79 $68.55 $53.26 $78.06 $47.78
Ratio of Net Operating Expenses to Average Net Assets 0.94% 0.94% 0.94% 0.90% 0.96%
Ratio of Gross Operating Expenses to Average Net Assets(1) 1.05% 1.01% 1.02% 0.98% 1.04%
Ratio of Net Investment Income/(Loss) to Average Net Assets (0.04)% (0.14)% (0.26)% (0.17)% (0.23)%

Portfolio Turnover Rate 115.0% 73.0% 55.0% 38.0% 42.0%
</TABLE>

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

Notes:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

Page 43 of 50

<PAGE>

LARGE CAP GROWTH FUND

YEAR ENDED PERIOD ENDED
MARCH 31, 1999 MARCH 31, 1998(1)
---------------- -----------------
<S> <C> <C>
Net Asset Value, Beginning of Period $8.51 $7.00

Income From Investment Operations
Net Investment Income (Loss) (0.03) 0.00(2)
Net Gains or (Losses) on Securities (both realized and unrealized) 5.82 1.51
---- ----
Total From Investment Operations 5.79 1.51
---- ----

Net Asset Value, End of Period $14.30 $8.51
------ ------
------ ------
Total Return 68.04% 21.57%(3)

Ratios/Supplemental Data
Net Assets, End of Period (in millions) $251.55 $47.53
Ratio of Net Operating Expenses to Average Net Assets 1.04% 1.05%(4)
Ratio of Gross Operating Expenses to Average Net Assets(5) 1.08% 1.20%(4)
Ratio of Net Investment Income/(Loss) to Average Net Assets (0.53)% (0.16)%(4)
Portfolio Turnover Rate 4% 12%(4)
</TABLE>

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

Notes:
1. Inception date of the Fund was October 1, 1997.
2. Amount represents less than $0.01 per share.
3. Not annualized.
4. Annualized.
5. Expense ratio before waiver of fees and reimbursement of expenses
(if any) by investment adviser and administrators.

Page 44 of 50
<PAGE>

ENERGY AND NATURAL RESOURCES FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.66 $11.12 $9.55 $7.92 $7.70
------ ------ ----- ----- -----
Income From Investment Operations
Net Investment Income 0.10 0.09 0.09 0.07 0.09
Net Gains or (Losses) on Securities (both realized and unrealized) (1.65) 2.69 2.60 1.63 0.24
------ ---- ---- ---- ----
Total From Investment Operations (1.55) 2.78 2.69 1.70 0.33
------ ---- ---- ---- ----
Less Distributions
Dividends From Net Investment Income (0.09) (0.10) (0.09) (0.07) (0.10)
Distributions From Net Realized Gain on Investments and Options 0.00 (1.07) (1.03) 0.00 (0.01)
Distributions in Excess of Net Realized Gain on Investments and
Options 0.00 (0.07) 0.00 0.00 0.00
---- ------ ---- ---- ----
Total Distributions (0.09) (1.24) (1.12) (0.07) (0.11)

Net Asset Value, End of Period $11.02 $12.66 $11.12 $9.55 $7.92
------ ------ ------ ------ -----
------ ------ ------ ------ -----
Total Return (12.23)% 24.97% 28.28% 21.60% 4.28%
Ratios/Supplemental Data
Net Assets, End of Period (in millions) $43.02 $46.17 $33.39 $23.29 $15.81
Ratio of Net Operating Expenses to Average Net Assets 0.98% 0.99% 0.93% 0.96% 0.98%
Ratio of Gross Operating Expenses to Average Net Assets(1) 1.09% 1.07% 0.98% 1.09% 1.35%
Ratio of Net Investment Income to Average Net Assets 0.97% 0.69% 0.84% 0.88% 1.18%
Portfolio Turnover Rate 96.0% 88.0% 87.0% 43.0% 31.0%
</TABLE>

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

Notes:
1. Expense ratios before waiver of fees and reimbursement of expenses (if any)
by investment adviser and administrators.

Page 45 of 50
<PAGE>

REAL ESTATE FUND

<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
MARCH 31, 1999 MARCH 31, 1998(1)
-------------- ---------------
<S> <C> <C>
Net Asset Value, Beginning of Period $7.05 $7.00
----- -----
Income From Investment Operations
Net Investment Income 0.33 0.15
Net Gains or (Losses) on Securities (both realized and unrealized) (1.55) 0.01
------ ----
Total From Investment Operations (1.22) 0.16
------ ----
Less Distributions
Dividends From Net Investment Income (0.33) (0.11)
---- ----
Total Distributions (0.33) (0.11)
------ ------

Net Asset Value, End of Period $5.50 $7.05
----- -----
----- -----
Total Return (17.55)% 2.26%(2)

Ratios/Supplemental Data
Net Assets, End of Period (in millions) $32.84 $41.17
Ratio of Net Operating Expenses to Average Net Assets 1.20% 1.20%(3)
Ratio of Gross Operating Expenses to Average Net Assets(4) 1.43% 1.40%(3)
Ratio of Net Investment Income to Average Net Assets 5.37% 5.02%(3)
Portfolio Turnover Rate 28.0% 30.0%(3)
</TABLE>

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

Notes:
1. Inception date of the Fund was October 1, 1997.
2. Not annualized.
3. Annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses
(if any) by investment adviser and administrators.

Page 46 of 50
<PAGE>

VALUE EQUITY FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
PERIOD ENDED
MARCH 31,
1999 1998 1997(1)
---- ---- -------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $16.11 $11.33 $12.08
------ ------ ------
Income From Investment Operations:
Net Investment Income 0.08 0.07 0.01
Net Gains or (Losses) on Securities
(both realized and unrealized) 0.55 5.57 (0.76)
---- ---- ------
Total From Investment Operations 0.63 5.64 (0.75)
---- ---- ------
Less Distributions:
Dividends From Net Investment Income (0.07) (0.06) 0.00
Distributions From Net Realized Gains
on Investments and Options (1.32) (0.80) 0.00
------ ------ ----
Total Distributions (1.39) (0.86) 0.00
------ ------ ----
Net Asset Value, End of Period $15.35 $16.11 $11.33
------ ------ ------
------ ------ ------
Total Return 4.59% 51.09% (6.21)%(2)
----- ------ -------
----- ------ -------
Ratios/Supplemental Data
Net Assets at end of Period (in millions) $125 $78 $56
Ratio of Net Operating Expenses to Average Net Assets 1.05% 1.05% 1.05%(3)
Ratio of Gross Operating Expenses to Average Net Assets(4) 1.32% 1.35% 1.43%(3)
Ratio of Net Investment Income to Average Net Assets 0.53% 0.47% 0.54%(3)
Portfolio Turnover 55% 51% 64%(3)
</TABLE>

1. Inception date of the Fund was January 15, 1997.
2. Not annualized.

3. Annualized.

4. Expense ratios before waiver of fees and reimbursement of expenses
(if any) by investment advisor and administrators.

Page 47 of 50
<PAGE>

OPTIMUM GROWTH FUND

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
PERIOD ENDED
1999 1998 MARCH 31, 1997(1)
---- ---- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $16.31 $10.18 $ 9.87
------ ------ ------
Income From Investment Operations:
Net Investment Income (0.06) (0.01) 0.02
Net Gains or (Losses) on Securities
(both realized and unrealized) 11.15 6.15 0.31(2)
------ ------ ------
Total From Investment Operations 11.09 6.14 0.33
------ ------ ------
Less Distributions:
Dividends From Net Investment Income 0.00 (0.01) (0.02)
Distributions From Net Realized Gains
on Investments and Options 0.00 0.00 0.00
------ ------ ------
Total Distributions 0.00 (0.01) (0.02)
------ ------ ------
Net Asset Value, End of Period $27.40 $16.31 $10.18
------ ------ ------
------ ------ ------
Total Return 68.00% 60.41% 3.31%(3)
------ ------ ------
------ ------ ------
Ratios/Supplemental Data:
Net Assets at end of Period (in millions) $12.41 $ 6.60 $ 3.36
Ratio of Net Operating Expenses to Average Net Assets 1.05% 1.05% 1.05%(5)
Ratio of Gross Operating Expenses to Average Net Assets(4) 1.26% 1.32% 1.47%(5)
Ratio of Net Investment Income (Loss) to Average Net Assets (0.34)% (0.12)% 0.33%(5)
Portfolio Turnover 22% 19% 20%(5)
</TABLE>

1. Inception date of the Fund was July 3, 1996.
2. This amount does not accord with the aggregate net losses on
investments because of the timing of sales and repurchases of the
Shares in relation to fluctuating market value of the investments in
the Fund.
3. Not annualized.
4. Expense ratios before waiver of fees and reimbursement of expenses
(if any) by investment adviser and administrators.
5. Annualized.

Page 48 of 50
<PAGE>

EXCELSIOR FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST

INVESTMENT ADVISER

United States Trust Company of New York
114 W. 47th Street
New York, New York 10036

U.S. Trust Company
225 High Ridge Road
East Building
Stamford, Connecticut 06905

DISTRIBUTOR

Edgewood Services, Inc.
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-5829

More information about each Fund is available without charge through the
following:

STATEMENT OF ADDITIONAL INFORMATION (SAI)

The SAIs dated August 1, 1999 include detailed information about Excelsior
Funds, Inc. and Excelsior Institutional Trust. The SAIs are on file with the SEC
and are incorporated by reference into this prospectus. This means that the
SAIs, for legal purposes, are a part of this prospectus.

ANNUAL AND SEMI-ANNUAL REPORTS

These reports contain additional information about the Funds' investments.
The Annual Report also lists each Fund's holdings and contains information
from the Fund's managers about strategies, and recent market conditions and
trends.

TO OBTAIN MORE INFORMATION:

BY TELEPHONE: Excelsior Funds, Inc. call (800) 466-1012 (FROM OVERSEAS, CALL
(617) 557-8280) Excelsior Institutional Trust call (800) 909-1989 (FROM
OVERSEAS, CALL (617) 577-1755)

BY MAIL:
Excelsior Funds, Inc. or Excelsior Institutional Trust
73 Tremont Street
Boston, Massachusetts 02108-3913

BY INTERNET: http://www.excelsiorfunds.com

Page 49 of 50
<PAGE>

FROM THE SEC: You can also obtain the SAIs or the Annual and Semi-Annual
reports, as well as other information about Excelsior Funds, Inc. and Excelsior
Institutional Trust, from the SEC's website ("http://www.sec.gov"). You may
review and copy documents at the SEC Public Reference Room in Washington, DC
(for information call 1-800-SEC-0330). You may request documents by mail from
the SEC, upon payment of a duplicating fee, by writing to: Securities and
Exchange Commission, Public Reference Section, Washington, DC 20549-6009.
Excelsior Funds, Inc.'s and Excelsior Institutional Trust's Investment Company
Act registration numbers are 811-4088 and 811-8490, respectively.

Page 50 of 50
<PAGE>

EXCELSIOR INSTITUTIONAL TRUST

INSTITUTIONAL SHARES

PROSPECTUS

AUGUST 1, 1999

EQUITY FUND
VALUE EQUITY FUND
OPTIMUM GROWTH FUND
INCOME FUND
TOTAL RETURN BOND FUND
INTERNATIONAL EQUITY FUND

INVESTMENT ADVISER
UNITED STATES TRUST COMPANY OF NEW YORK
U.S. TRUST COMPANY

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED ANY FUND
SHARES OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
IT IS A CRIME FOR ANYONE TO TELL YOU OTHERWISE.

Page 1 of 43

<PAGE>

TABLE OF CONTENTS

Excelsior Institutional Trust is a mutual fund family that offers shares in
separate investment portfolios (Funds). The Funds have individual investment
goals and strategies. This prospectus gives you important information about the
Institutional Shares of the Funds that you should know before investing. Please
read this prospectus and keep it for future reference.

<TABLE>
<CAPTION>
PAGE
<S> <C>
EQUITY FUND............................................... 4
VALUE EQUITY FUND......................................... 7
OPTIMUM GROWTH FUND....................................... 10
INCOME FUND............................................... 13
TOTAL RETURN BOND FUND.................................... 17
INTERNATIONAL EQUITY FUND................................. 20
MORE INFORMATION ABOUT RISK............................... 24
EACH FUND'S OTHER INVESTMENTS............................. 28
THE INVESTMENT ADVISER AND PORTFOLIO MANAGERS............. 28
PURCHASING, SELLING AND EXCHANGING FUND SHARES............ 30
DIVIDENDS, DISTRIBUTIONS AND TAXES........................ 34
FINANCIAL HIGHLIGHTS...................................... 35
HOW TO OBTAIN MORE INFORMATION ABOUT
EXCELSIOR INSTITUTIONAL TRUST.............................Back Cover
</TABLE>

Page 2 of 43

<PAGE>

INFORMATION COMMON TO ALL FUNDS

Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.

Each Fund has its own investment goal and strategies for reaching that goal. The
investment managers invest Fund assets in a way that they believe will help a
Fund achieve its goal. Still, investing in each Fund involves risk and there is
no guarantee that a Fund will achieve its goal. An investment manager's
judgments about the markets, the economy, or companies may not anticipate actual
market movements, economic conditions or company performance, and these
judgments may affect the return on your investment. In fact, no matter how good
a job an investment manager does, you could lose money on your investment in a
Fund, just as you could with other investments. A Fund share is not a bank
deposit and it is not insured or guaranteed by the Federal Deposit Insurance
Corporation (FDIC) or any government agency.

Page 3 of 43

<PAGE>

EQUITY FUND

FUND SUMMARY

INVESTMENT GOAL Long-term capital appreciation

INVESTMENT FOCUS Common stocks of U.S. companies

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT STRATEGY Investing in common stocks that the
Adviser believes are undervalued in
the market

INVESTOR PROFILE Investors seeking growth of capital,
and who are willing to accept the
risks of investing in equity securities

INVESTMENT OBJECTIVE

The Equity Fund seeks to provide long-term capital appreciation. This objective
may be changed without shareholder approval.

INVESTMENT STRATEGY OF THE EQUITY FUND

The Equity Fund invests at least 65% of its assets in larger capitalization
(i.e., companies with market capitalizations over $5 billion) common stocks
of U.S. and, to a lesser extent, foreign companies that the Adviser believes
have value that is not currently reflected in their market prices. The
Adviser generally diversifies the Fund's investments over a variety of
industries and types of companies. The Fund may invest in companies of any
size, including small, high growth companies.

The Adviser takes a long-term approach to managing the Fund and tries to
identify companies with characteristics that will lead to future earnings
growth or recognition of their true value. In particular, the Adviser looks
for companies that its fundamental analysis indicates are positioned to
provide solutions to or benefit from complex social and economic trends, or
whose products are early in their life cycle and will experience accelerating
growth in the future.

PRINCIPAL RISKS OF INVESTING IN THE EQUITY FUND

Page 4 of 43

<PAGE>

The Fund is also subject to the risk that large capitalization U.S. equity
securities may underperform other segments of the equity markets or the equity
markets as a whole.

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Fund's Institutional
Shares from year to year.

<TABLE>
<CAPTION>
BEST QUARTER WORST QUARTER
<S> <C>
22.45% (15.60)%
(12/31/98) (9/30/98)
</TABLE>

The Fund's performance for the six month period ending June 30, 1999 was 14.41%.

THIS TABLE COMPARES THE AVERAGE ANNUAL TOTAL RETURN OF THE FUND'S INSTITUTIONAL
SHARES FOR THE PERIODS ENDED DECEMBER 31, 1998 TO THOSE OF THE STANDARD & POORS
500 COMPOSITE STOCK PRICE INDEX.

<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C>
EQUITY FUND (INSTITUTIONAL SHARES) 24.95% 24.21%*
STANDARD & POORS 500 COMPOSITE STOCK PRICE INDEX 28.58% 30.48%**
</TABLE>

* Since January 16, 1995
** Since December 31, 1994

WHAT IS AN INDEX?

FUND FEES AND EXPENSES

Page 5 of 43

<PAGE>

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
<S> <C> <C>
Management Fees 0.65%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.25%
Total Other Expenses 0.65%
------
Total Annual Fund Operating Expenses 1.30%*
</TABLE>

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

* The Fund's actual total annual fund operating expenses for the most recent
fiscal year were less than the amount shown above as a result of the Adviser's
voluntary fee waivers. The Adviser has voluntarily agreed to waive its
investment advisory fee or other fees in an amount equal to the administrative
servicing fee paid by the Fund. The Adviser may discontinue all or part of these
waivers at any time. With these fee waivers, the Fund's actual total operating
expenses for the last fiscal year were 0.70%. For more information about these
fees, see "Investment Adviser."

EXAMPLE

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$132 $412 $713 $1,568
</TABLE>

Page 6 of 43

<PAGE>

VALUE EQUITY FUND

FUND SUMMARY

INVESTMENT GOAL Long-term capital appreciation

INVESTMENT FOCUS Common stocks of U.S. companies

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT STRATEGY Investing in common stocks that the
Adviser believes are undervalued by
the market

INVESTOR PROFILE Investors seeking growth of capital,
and who are willing to accept the
risks of investing in equity securities

INVESTMENT OBJECTIVE

The Value Equity Fund seeks long-term capital appreciation. This objective may
be changed without shareholder approval.

INVESTMENT STRATEGY OF THE VALUE EQUITY FUND

The Value Equity Fund invests at least 65% of its assets in common stocks of
U.S. and, to a lesser extent, foreign companies that the Adviser believes are
undervalued, at current market prices. The Adviser generally diversifies the
Fund's investments over a variety of industries and may invest in companies of
any size.

PRINCIPAL RISKS OF INVESTING IN THE VALUE EQUITY FUND

The Fund also may be subject to risks particular to its investments in foreign,
medium and smaller capitalization companies. These risks are discussed in
greater detail in the section entitled "More Information About Risk."

Page 7 of 43

<PAGE>

The Fund is also subject to the risk that undervalued equity securities may
underperform other segments of the equity markets or the equity markets as a
whole.

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Fund's Institutional
Shares from year to year.

<TABLE>
<CAPTION>
BEST QUARTER WORST QUARTER
<S> <C>
23.91% (16.32)%
(12/31/98) (9/30/98)
</TABLE>

The Fund's performance for the six month period ending June 30, 1999 was 17.81%.

THIS TABLE COMPARES THE AVERAGE ANNUAL TOTAL RETURNS OF THE FUND'S INSTITUTIONAL
SHARES FOR THE PERIODS ENDED DECEMBER 31, 1998 TO THOSE OF THE RUSSELL 1000
VALUE INDEX.

<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C>
VALUE EQUITY FUND (INSTITUTIONAL SHARES) 20.52% 24.99%*
RUSSELL 1000 VALUE INDEX 15.63% 24.75%**
</TABLE>

* Since June 1, 1996
** Since May 31, 1996

WHAT IS AN INDEX?

FUND FEES AND EXPENSES

Page 8 of 43

<PAGE>

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
<S> <C> <C>
Management Fees 0.65%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.32%
Total Other Expenses 0.72%
------
Total Annual Fund Operating Expenses 1.37%*
</TABLE>

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

* The Fund's actual total annual fund operating expenses for the most recent
fiscal year were less than the amount shown above as a result of the Adviser's
voluntary fee waivers. The Adviser has voluntarily agreed to waive its
investment advisory fee or other fees in an amount equal to the administrative
servicing fee paid by the Fund. The Adviser may discontinue all or part of these
waivers at any time. With these fee waivers, the Fund's actual total operating
expenses for the last fiscal year were 0.70%. For more information about these
fees, see "Investment Adviser."

EXAMPLE

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$139 $434 $750 $1,646
</TABLE>

Page 9 of 43

<PAGE>

OPTIMUM GROWTH FUND

FUND SUMMARY

INVESTMENT GOAL Superior, risk-adjusted total return

INVESTMENT FOCUS Common stocks of U.S. companies

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT STRATEGY Invests in common stocks that the
Adviser believes have strong growth
prospects

INVESTOR PROFILE Investors seeking total return, and
who are willing to accept the risks
of investing in equity securities

INVESTMENT OBJECTIVE

The Optimum Growth Fund seeks superior, risk-adjusted total return. This
objective may be changed without shareholder approval.

INVESTMENT STRATEGY OF THE OPTIMUM GROWTH FUND

The Adviser takes a long-term approach to managing the Fund and tries to
identify high quality companies with consistent or rising earnings growth
records. Typically, these companies are industry leaders with the potential
to dominate their markets by being the low cost, high quality producers of
products or services. In addition to its core portfolio selections, the
Adviser further diversifies Fund investments with a structured segment of
issuers included in the Russell 1000 Growth Index, which includes
growth-oriented issuers selected from among the 1000 largest U.S. issuers.
From this universe, the Adviser systematically selects companies that it
believes, based on quantitative screening, complements the Fund's core
holdings by reducing portfolio volatility and further diversifying the Fund.

PRINCIPAL RISKS OF INVESTING IN THE OPTIMUM GROWTH FUND

Page 10 of 43

<PAGE>

The Fund also may be subject to risks particular to its investments in medium
capitalization companies. These risks are discussed in greater detail in the
section entitled "More Information About Risk."

The Fund is also subject to the risk that medium to large capitalization U.S.
equity securities may underperform other segments of the equity markets or the
equity markets as a whole.

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Fund's Institutional
Shares from year to year.

<TABLE>
<CAPTION>
BEST QUARTER WORST QUARTER
<S> <C>
36.46% (6.27)%
(12/31/98) (9/30/98)
</TABLE>

The Fund's performance for the six month period ending June 30, 1999 was 19.58%.

THIS TABLE COMPARES THE AVERAGE ANNUAL TOTAL RETURNS OF THE FUND'S INSTITUTIONAL
SHARES FOR THE PERIODS ENDED DECEMBER 31, 1998 TO THOSE OF THE RUSSELL 1000
GROWTH INDEX.

<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C>
OPTIMUM GROWTH FUND (INSTITUTIONAL SHARES) 65.23% 38.01%*
RUSSELL 1000 GROWTH INDEX 38.65% 30.52%**
</TABLE>

* Since June 1, 1996
** Since May 31, 1996

WHAT IS AN INDEX?

FUND FEES AND EXPENSES

Page 11 of 43

<PAGE>

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
<S> <C> <C>
Management Fees 0.65%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.28%
Total Other Expenses 0.68%
------
Total Annual Fund Operating Expenses 1.33%*
</TABLE>

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

* The Fund's actual total annual fund operating expenses for the most recent
fiscal year were less than the amount shown above as a result of the Adviser's
voluntary fee waivers. The Adviser has voluntarily agreed to waive its
investment advisory fee or other fees in an amount equal to the administrative
servicing fee paid by the Fund. The Adviser may discontinue all or part of these
waivers at any time. With these fee waivers, the Fund's actual total operating
expenses for the last fiscal year were 0.71%. For more information about these
fees, see "Investment Adviser."

EXAMPLE

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$135 $421 $729 $1,601
</TABLE>

Page 12 of 43

<PAGE>
INCOME FUND

FUND SUMMARY

INVESTMENT GOAL Current income

INVESTMENT FOCUS Investment grade fixed income securities

SHARE PRICE VOLATILITY Medium

PRINCIPAL INVESTMENT STRATEGY Investing in investment grade
government and corporate fixed
income securities

INVESTOR PROFILE Investors seeking current income,
and who are willing to accept the
risks of investing in fixed income
securities of varying maturities

INVESTMENT OBJECTIVE

The Income Fund seeks to provide as high a level of current interest income as
is consistent with moderate risk of capital and maintenance of liquidity. This
objective may be changed without shareholder approval.

INVESTMENT STRATEGY OF THE INCOME FUND

The Income Fund invests at least 65% of its assets in fixed income securities
issued or guaranteed by the U.S. government, its agencies and instrumentalities,
and corporate issuers rated at the time of investment in one of the two highest
rating categories by a major rating agency. However, the Fund may invest without
limit in securities rated at the time of investment in one of the three highest
rating categories by a major rating agency and may place up to 35% of its assets
in fixed income securities that are rated below investment grade. These
securities are sometimes called "high yield" or "junk" bonds. The Fund also may
invest a portion of its assets in dollar-denominated fixed income securities of
foreign issuers and mortgage-backed securities.

There is no limit on the Fund's average maturity or on the maximum maturity of a
particular security. The Adviser manages the Fund's average portfolio maturity
in light of current market and economic conditions to provide a competitive
current yield and reasonable principal volatility. In selecting particular
investments, the Adviser looks for securities that offer relative value, based
on its assessment of real interest rates and the yield curve. The fixed income
securities held by the Fund also may have the potential for moderate price
appreciation.

Due to its investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains tax
liabilities and may affect the Fund's performance.

PRINCIPAL RISKS OF INVESTING IN THE INCOME FUND

The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers,

Page 13 of 43

<PAGE>

including governments. Generally, the Fund's fixed income securities will
decrease in value if interest rates rise, and the volatility of lower rated
securities is even greater than that of higher rated securities. Also, the
average maturity or duration of longer-term securities affects risk which
makes the securities generally more volatile. Duration is a present value
based measure of the expected life of a fixed income security. In contrast to
maturity which measures only time until final payment, duration combines
consideration of yield, interest payments, final maturity and call features.
Typically expressed in years, a one year change in a security's duration will
result in a 1% inverse change in the security's price. The duration of a
fixed income security ordinarily is shorter than its maturity.

Junk bonds involve greater risks of default or downgrade and are more volatile
than investment grade securities. Junk bonds involve greater risk of default or
price declines than investment grade securities due to actual or perceived
changes in an issuer's creditworthiness. In addition, issuers of junk bonds may
be more susceptible than other issuers to economic downturns. Junk bonds are
subject to the risk that the issuer may not be able to pay interest or dividends
and ultimately to repay principal upon maturity. Discontinuation of these
payments could substantially adversely affect the market value of the security.

The mortgages underlying mortgage-backed securities may be paid off early, which
makes it difficult to determine their actual maturity and therefore calculate
how they will respond to changes in interest rates. The Fund may have to
reinvest prepaid amounts at lower interest rates.

The Fund's U.S. Government securities are not guaranteed against price movements
due to changing interest rates. Obligations issued by some U.S. Government
agencies are backed by the U.S. Treasury, while others are backed solely by the
ability of the agency to borrow from the U.S. Treasury or by the agency's own
resources.

The Fund also may be subject to risks particular to its investments in
foreign fixed income securities as well as credit risk. These risks are
discussed in greater detail in the section entitled "More Information About
Risk."

The Fund is also subject to the risk that long-term fixed income securities may
underperform other segments of the fixed income markets or the fixed income
markets as a whole.

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Fund's Institutional
Shares from year to year.

<TABLE>
<CAPTION>
BEST QUARTER WORST QUARTER
<S> <C>
4.85% (2.03)%
(6/30/95) (3/31/96)
</TABLE>

Page 14 of 43

<PAGE>

The Fund's performance for the six month period ending June 30, 1999 was -2.24%.

THIS TABLE COMPARES THE AVERAGE ANNUAL TOTAL RETURNS OF THE FUND'S INSTITUTIONAL
SHARES FOR THE PERIODS ENDED DECEMBER 31, 1998 TO THOSE OF THE LEHMAN BROTHERS
INTERMEDIATE GOVT/CORP BOND INDEX.

<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C>
INCOME FUND (INSTITUTIONAL SHARES) 8.46% 8.74%*
LEHMAN BROTHERS INTERMEDIATE GOVT/CORP BOND INDEX 8.42% 8.84%**
</TABLE>

* Since January 16, 1995
** Since December 31, 1994

WHAT IS AN INDEX?

FUND FEES AND EXPENSES

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
<S> <C> <C>
Management Fees 0.65%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.26%
Total Other Expenses 0.66%
------
Total Annual Fund Operating Expenses 1.31%*
</TABLE>

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

* The Fund's actual total annual fund operating expenses for the most recent
fiscal year were less than the amount shown above as a result of the Adviser's
voluntary fee waivers. The Adviser has voluntarily agreed to waive its
investment advisory fee or other fees in an amount equal to the administrative
servicing fee paid by the Fund. The Adviser may discontinue all or part of these
waivers at any time. With these fee waivers, the Fund's actual total operating
expenses for the last fiscal year were 0.50%. For more information about these
fees, see "Investment Adviser."

EXAMPLE

Page 15 of 43

<PAGE>

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$133 $415 $718 $1,579
</TABLE>

Page 16 of 43

<PAGE>

TOTAL RETURN BOND FUND

FUND SUMMARY

INVESTMENT GOAL Total return

INVESTMENT FOCUS Investment grade fixed income securities

SHARE PRICE VOLATILITY Medium

PRINCIPAL INVESTMENT STRATEGY Investing in investment grade
government and corporate fixed
income securities

INVESTOR PROFILE Investors seeking total return, and who
are willing to accept the risks of
investing in fixed income securities
of varying maturities

INVESTMENT OBJECTIVE

The Total Return Bond Fund seeks to maximize the total rate of return consistent
with moderate risk of capital and maintenance of liquidity. This objective may
be changed without shareholder approval.

INVESTMENT STRATEGY OF THE TOTAL RETURN BOND FUND

The Total Return Bond Fund invests at least 65% of its assets in fixed income
securities issued or guaranteed by the U.S. government, its agencies and
instrumentalities, and corporate issuers rated at the time of investment in one
of the two highest rating categories by a major rating agency. However, the Fund
may invest without limit in securities rated at the time of investment in one of
the three highest rating categories by a major rating agency. The Fund also may
invest a portion of its assets in dollar-denominated fixed income securities of
foreign issuers and mortgage-backed securities.

There is no limit on the Fund's average maturity or on the maximum maturity of a
particular security. The Adviser manages the Fund by balancing yield, average
maturity and risk in light of its assessment of real interest rates and the
yield curve to provide maximum preservation of purchase power. In selecting
particular investments, the Adviser looks for fixed income securities that offer
relative value and potential for moderate price appreciation.

PRINCIPAL RISKS OF INVESTING IN THE TOTAL RETURN BOND FUND

The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund's fixed income securities will decrease in value if interest
rates rise, and the volatility of lower rated securities is even greater than
that of higher

Page 17 of 43
<PAGE>

rated securities. Also, the average maturity or duration of longer-term
securities affects risk which makes the securities generally more volatile.
Duration is a present value based measure of the expected life of a fixed
income security. In contrast to maturity which measures only time until final
payment, duration combines consideration of yield, interest payments, final
maturity and call features. Typically expressed in years, a one year change
in a security's duration will result in a 1% inverse change in the security's
price. The duration of a fixed income security ordinarily is shorter than its
maturity.

The Fund is also subject to the risk that long-term fixed income securities may
underperform other segments of the fixed income markets or the fixed income
markets as a whole.

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Fund's Institutional
Shares from year to year.

<TABLE>
<CAPTION>
BEST QUARTER WORST QUARTER
<S> <C>
7.03% (2.47)%
(6/30/95) (3/31/96)
</TABLE>

The Fund's performance for the six month period ending June 30, 1999 was -2.87%.

THIS TABLE COMPARES THE AVERAGE ANNUAL TOTAL RETURNS OF THE FUND'S INSTITUTIONAL
SHARES FOR THE PERIODS ENDED DECEMBER 31, 1998 TO THOSE OF THE LEHMAN BROTHERS
GOVT/CORP BOND INDEX.

<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C>
TOTAL RETURN BOND FUND (INSTITUTIONAL SHARES) 9.22% 9.79%*
LEHMAN BROTHERS GOVT/CORP BOND INDEX 9.46% 10.19**
</TABLE>

* Since January 19, 1995
** Since December 31, 1994

Page 18 of 43
<PAGE>

WHAT IS AN INDEX?

FUND FEES AND EXPENSES

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
<S> <C> <C>
Management Fees 0.65%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.24%
Total Other Expenses 0.64%
------
Total Annual Fund Operating Expenses 1.29%*
</TABLE>

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

* The Fund's actual total annual fund operating expenses for the most recent
fiscal year were less than the amount shown above as a result of the Adviser's
voluntary fee waivers. The Adviser has voluntarily agreed to waive its
investment advisory fee or other fees in an amount equal to the administrative
servicing fee paid by the Fund. The Adviser may discontinue all or part of these
waivers at any time. With these fee waivers, the Fund's actual total operating
expenses for the last fiscal year were 0.50%. For more information about these
fees, see "Investment Adviser."

EXAMPLE

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$131 $409 $708 $1,556
</TABLE>

Page 19 of 43

<PAGE>

INTERNATIONAL EQUITY FUND

FUND SUMMARY

INVESTMENT GOAL Long-term capital appreciation

INVESTMENT FOCUS Foreign equity securities

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT STRATEGY Investing in a diversified portfolio
of equity securities of issuers in
developed foreign countries and, to a
lesser extent, emerging markets

INVESTOR PROFILE Investors seeking total return, who
are willing to accept the risks of
investing in companies located in
foreign countries

INVESTMENT OBJECTIVE

The International Equity Fund seeks to provide long-term capital appreciation
through investment in a diversified portfolio of marketable foreign securities.
This objective may be changed without shareholder approval.

INVESTMENT STRATEGY OF THE INTERNATIONAL EQUITY FUND

The International Equity Fund invests at least 65% of its assets in equity
securities of larger, more established companies located in developed foreign
markets, which include most nations in western Europe and the more developed
nations in the Pacific Basin and Latin America. The Fund may invest to a lesser
extent in less developed countries and regions to capitalize on opportunities in
emerging markets. Emerging market countries are countries that the World Bank or
the United Nations considers to be emerging or developing. The Adviser generally
does not attempt to hedge the effects of currency value fluctuations on the
Fund's investments on an on-going basis.

The Adviser selects investments for the Fund by applying a bottom-up investment
approach designed to identify companies that the Adviser expects to experience
sustainable earnings growth and to benefit from global economic trends or
promising technologies or products and whose value is not recognized in the
prices of their securities. The Adviser continuously analyzes companies in a
broad range of foreign markets, giving particular emphasis to each company's
scope of operations and economic ties to one or more specific countries. While
the Fund generally invests in companies in a variety of countries, industries
and sectors, the Adviser does not attempt to invest a specific percentage of the
Fund's assets in a given country, region or industry. The Fund will make
investments in companies located in emerging markets only where the Adviser
believes that such companies' growth/appreciation potential transcends their
location or operations in emerging market countries.

Page 20 of 43

<PAGE>

PRINCIPAL RISKS OF INVESTING IN THE INTERNATIONAL EQUITY FUND

Emerging markets may be more likely to experience political turmoil or rapid
changes in market or economic conditions than more developed countries. In
addition, the financial stability of issuers (including governments) in emerging
market countries may be more precarious than in other countries. As a result,
there will tend to be an increased risk of price volatility associated with the
Fund's investments in emerging market countries, which may be magnified by
currency fluctuations relative to the U.S. dollar.

The Fund is also subject to the risk that foreign equity securities may
underperform other segments of the equity markets or the equity markets as a
whole.

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Fund's Institutional
Shares from year to year.

<TABLE>
<CAPTION>
BEST QUARTER WORST QUARTER
<S> <C>
18.21% (16.37)%
(12/31/98) (9/30/98)
</TABLE>

The Fund's performance for the six month period ending June 30, 1999 was 4.75%.

Page 21 of 43

<PAGE>

THIS TABLE COMPARES THE AVERAGE ANNUAL TOTAL RETURNS OF THE FUND'S INSTITUTIONAL
SHARES FOR THE PERIODS ENDED DECEMBER 31, 1998 TO THOSE OF THE FT/S&P -
ACTUARIES WORLD INDICES - WORLD EXCLUDING U.S. INDEX.

<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
INTERNATIONAL EQUITY FUND (INSTITUTIONAL SHARES) 10.13% 9.81%*
FT/S&P - ACTUARIES WORLD INDICES - WORLD EXCLUDING U.S. INDEX 16.17% 8.33%**
</TABLE>

* Since January 24, 1995
** Since December 31, 1994

WHAT IS AN INDEX?

FUND FEES AND EXPENSES

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
<S> <C> <C>
Management Fees 1.00%
Other Expenses
Administrative Servicing Fee 0.40%
Other Operating Expenses 0.53%
Total Other Expenses 0.93%
------
Total Annual Fund Operating Expenses 1.93%*
</TABLE>

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

* The Fund's actual total annual fund operating expenses for the most recent
fiscal year were less than the amount shown above as a result of the Adviser's
voluntary fee waivers. The Adviser has voluntarily agreed to waive its
investment advisory fee or other fees in an amount equal to the administrative
servicing fee paid by the Fund. The Adviser may discontinue all or part of these
waivers at any time. With these fee waivers, the Fund's actual total operating
expenses for the last fiscal year were 0.90%. For more information about these
fees, see "Investment Adviser."

EXAMPLE

Page 22 of 43

<PAGE>

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$196 $606 $1,042 $2,254
</TABLE>

Page 23 of 43
<PAGE>

MORE INFORMATION ABOUT RISK

EQUITY RISK - Equity securities include public and Equity Fund
privately issued equity securities, common and Value Equity Fund
preferred stocks, warrants, rights to subscribe to Optimum Growth Fund
common stock and convertible securities, as well as International Equity Fund
instruments that attempt to track the price movement
of equity indices. Investments in equity securities
and equity derivatives in general are subject to
market risks that may cause their prices to fluctuate
over time. The value of securities convertible into
equity securities, such as warrants or convertible
debt, is also affected by prevailing interest rates,
the credit quality of the issuer and any call
provision.

SMALL CAP RISK - The smaller capitalization Equity Fund
companies in which the Fund may invest in may be Value Equity Fund
more vulnerable to adverse business or economic
events than larger, more established companies. In
particular, these small companies may have limited
product lines, markets and financial resources, and
may depend upon a relatively small management group.
Therefore, small cap stocks may be more volatile
than those of larger companies.

MID CAP RISK - The medium capitalization companies Equity Fund
that the Fund may invest in may be more vulnerable Value Equity Fund
to adverse business or economic events than larger Optimum Growth Fund
companies. In particular, these companies may have
limited product lines, markets and financial
resources, and may depend on a relatively small
management group. Therefore, medium capitalization
stocks may be more volatile than those of larger
companies.

FIXED INCOME RISK - The market value of fixed Income Fund
income investments change in response to interest Total Return Bond Fund
rate changes and other factors. During periods of
falling interest rates, the values of outstanding
fixed income securities generally rise. Moreover,
while securities with longer maturities tend to
produce higher yields, the prices of longer maturity
securities are also subject to greater market
fluctuations as a result of changes in interest rates.

CALL RISK - During periods of falling Income Fund
interest rates, certain debt obligations Total Return Bond Fund
with high interest rates may be prepaid (or
"called") by the issuer prior to maturity.
This may cause a Fund's average weighted
maturity to fluctuate, and may require a
Fund to invest the resulting proceeds at
lower interest rates.

CREDIT RISK - The possibility that an issuer Income Fund
will be unable to make timely payments of Total Return Bond Fund
either principal or interest.

Page 24 of 43

<PAGE>

EVENT RISK - Securities may suffer declines Income Fund
in credit quality and market value due to Total Return Bond Fund
issuer restructurings or other factors. This
risk should be reduced because of a Fund's
multiple holdings.

HIGH-YIELD, LOWER RATED SECURITIES (or Income Fund
"junk bonds") are subject to additional
risks associated with investing in high-yield
securities, including:

- - Greater risk of default or price declines due
to changes in the issuer's creditworthiness.

- - A thinner and less active market which may
increase price volatility and limit the
ability of a Fund to sell these securities
at their carrying values.

- - Prices for high-yield, lower rated securities
may be affected by investor perception of
issuer credit quality and the outlook for
economic growth, such that prices may move
independently of interest rates and the
overall bond market.

MORTGAGE-BACKED SECURITIES - Mortgage-backed Income Fund
securities are fixed income securities representing Total Return Bond Fund
an interest in a pool of underlying mortgage loans.
They are sensitive to changes in interest rates, but
may respond to these changes differently from other
fixed income securities due to the possibility of
prepayment of the underlying mortgage loans. As a
result, it may not be possible to determine in
advance the actual maturity date or average life of
a mortgage-backed security. Rising interest rates
tend to discourage refinancings, with the result that
the average life and volatility of the security will
increase, exacerbating its decrease in market price.
When interest rates fall, however, mortgage-backed
securities may not gain as much in market value
because of the expectation of additional mortgage
prepayments that must be reinvested at lower interest
rates. Prepayment risk may make it difficult to
calculate the average maturity of a portfolio of
mortgage-backed securities and, therefore, to assess
the volatility risk of that portfolio.

Page 25 of 43

<PAGE>

FOREIGN SECURITY RISKS - Investments in securities All Funds
of foreign companies or governments can be more
volatile than investments in U.S. companies or
governments. Diplomatic, political, or economic
developments, including nationalization or
appropriation, could affect investments in foreign
countries. Foreign securities markets generally have
less trading volume and less liquidity than U.S.
markets. In addition, the value of securities
denominated in foreign currencies, and of dividends
from such securities, can change significantly when
foreign currencies strengthen or weaken relative to
the U.S. dollar. Foreign companies or governments
generally are not subject to uniform accounting,
auditing, and financial reporting standards
comparable to those applicable to domestic U.S.
companies or governments. Transaction costs are
generally higher than those in the U.S. and expenses
for custodial arrangements of foreign securities may
be somewhat greater than typical expenses for
custodial arrangements of similar U.S. securities.
Some foreign governments levy withholding taxes
against dividend and interest income. Although in
some countries a portion of these taxes is
recoverable, the non-recovered portion will reduce
the income received from the securities comprising
the portfolio.

CURRENCY RISK - Investments in foreign securities All Funds
denominated in foreign currencies involve additional
risks, including:

- - A Fund may incur substantial costs in
connection with conversions between various
currencies.
- - Only a limited market currently exists for
hedging transactions relating to currencies
in certain emerging markets.

Page 26 of 43

<PAGE>

YEAR 2000 RISK - The Funds depend on the smooth All Funds
functiong of computer systems in almost every
aspect of their business. Like other mutual funds,
businesses and individuals around the world, the
Funds could be adversely affected if the computer
systems used by their service providers do not
properly process dates on and after January 1,
2000, and distinguish between the year 2000 and
the year 1900. This is commonly known as the
"Year 2000 Problem." The Adviser and the Funds'
other service providers advise that they are
taking steps to address the Year 2000 Problem with
respect to the computer systems that they use.
Currently, they do not anticipate that the
transition to the 21st Century will have any
material impact on their ability to continue to
service the Funds at current levels. At this time,
however, there can be no assurance that their
efforts will be sufficient to avoid any adverse
impact on the Funds as a result of the Year 2000
Problem. In addition, the Funds and their
shareholders may experience losses as a result of
computer difficulties experienced by issuers of
portfolio securities or third parties, such as
custodians, banks, broker-dealers or others with
which the Funds do business.

Furthermore, many foreign countries are not as All Funds
prepared as the U.S. for the year 2000
transition. As a result, computer difficulties
in foreign markets and with foreign institutions as
a result of the Year 2000 Problem may add to the
possibility of losses to the Funds and their
shareholders.

Page 27 of 43

<PAGE>

EACH FUND'S OTHER INVESTMENTS

INVESTMENT ADVISER

The Adviser makes investment decisions for the Funds and continuously reviews,
supervises and administers each Fund's investment program.

The Board of Trustees of Excelsior Institutional Trust supervises the Adviser
and establishes policies that the Adviser must follow in its management
activities.

For the fiscal year ended March 31, 1999, U.S. Trust received advisory fees, as
a percentage of average daily net assets, of:

<TABLE>
<S> <C>
EQUITY FUND 0.45%
VALUE EQUITY FUND 0.39%
OPTIMUM GROWTH FUND 0.43%
INCOME FUND 0.24%
TOTAL RETURN BOND FUND 0.26%
INTERNATIONAL EQUITY FUND 0.40%
</TABLE>

Page 28 of 43

<PAGE>

From June 22, 1998, to December 28, 1998, U.S. Trust Company, N.A. served as the
International Equity Fund's investment adviser, pursuant to an advisory
agreement substantially similar to the advisory agreement currently in effect
for the Fund. Prior to June 22, 1998, U.S. Trust Company of The Pacific
Northwest served as the Fund's investment adviser pursuant to an advisory
agreement substantially similar to the advisory agreement currently in effect
for the Fund. For the fiscal year ended March 31, 1999, U.S. Trust Company, N.A.
received an advisory fee (after voluntary fee waivers) from the Fund at the
effective annual rate of 0.40% of the Fund's average daily net assets, and U.S.
Trust Company of The Pacific Northwest received an advisory fee (after voluntary
fee waivers) from the Fund at the effective annual rate of 0.425% of the Fund's
average daily net assets.

Prior to December 28, 1998, Harding Loevner Management, L.P. (Harding) served as
the International Equity Fund's investment sub-adviser and made the day-to-day
investment decisions and portfolio selections for the Fund. For the services it
provided to the Fund, Harding was paid only by the adviser, and did not receive
any fees directly from the Fund.

PORTFOLIO MANAGERS

Leigh H. Weiss has served as portfolio manager for the Equity Fund since January
1996. Mr. Weiss is a Managing Director and Senior Portfolio Manager of U.S.
Trust and has been with U.S. Trust since 1993. Mr. Weiss is primarily
responsible for the day to day management of the Equity Fund's portfolio.
Research, analyses, trade execution and other facilities provided by U.S. Trust
and other personnel also play a significant role in portfolio management and
performance.

David J. Williams has served as portfolio manager for the Value Equity Fund
since its inception. Mr. Williams is a Managing Director and Senior Portfolio
Manager for U.S. Trust and has been with U.S. Trust since 1987. Mr. Williams is
primarily responsible for the day to day management of the Value Equity Fund's
portfolio. Research, analyses, trade execution and other facilities provided by
U.S. Trust and other personnel also play a significant role in portfolio
management and performance.

All investment decisions for the Optimum Growth Fund are made by a committee of
investment professionals and no persons are primarily responsible for making
recommendations to that committee. United States Trust Company of New York
provides its investment advisory services to the Optimum Growth Fund primarily
through its Campbell Cowperthwait division.

Alexander R. Powers has served as portfolio manager for the Income and Total
Return Bond Funds since December 1996. Mr. Powers is a Managing Director of U.S.
Trust's Taxable Fixed-Income Investments and has been with U.S. Trust since July
1996. From 1988 to 1996, Mr. Powers was the Manager of Taxable Fixed-Income
Investments at Chase Asset Management. Mr. Powers is primarily responsible for
the day to day management of the Income and Total Return Bond Funds' portfolios.
Research, analyses, trade execution and other facilities provided by U.S. Trust
and other personnel also play a significant role in portfolio management and
performance.

Rosemary Sagar has served as portfolio manager for the International Equity Fund
since December 1998. Ms. Sagar is the Managing Director of U.S. Trust's Global
Investment Division and she has been with U.S. Trust since 1996. From 1991 to
1996, Ms. Sagar was Senior Vice President for international equity investments
for General Electric Investments Corp. in Stamford, CT. Ms. Sagar is primarily
responsible for the day to day management of the International Equity

Page 29 of 43

<PAGE>

Fund's portfolio. Research, analyses, trade execution and other facilities
provided by U.S. Trust and other personnel also play a significant role in
portfolio management and performance.

PURCHASING, SELLING AND EXCHANGING FUND SHARES

This section tells you how to buy, sell (sometimes called "redeem") or exchange
Institutional Shares of the Funds.

INSTITUTIONAL SHARES
- NO SALES CHARGE
- NO 12b-1 FEES
- NO MINIMUM INITIAL OR SUBSEQUENT INVESTMENT

Institutional Shares are offered only to financial institutions investing for
their own or their customers' accounts. For information on how to open an
account and set up procedures for placing transactions call (800) 909-1989 (from
overseas, call (617) 557-1755). Customers of financial institutions should
contact their institutions for information on their accounts.

HOW TO PURCHASE FUND SHARES

You may purchase shares directly by:
- - Mail
- - Telephone

To purchase shares directly from us, please call (800) 909-1989 (from overseas,
call (617) 557-1755, or complete and send in the enclosed application to
Excelsior Funds, c/o Chase Global Funds Services Company, P.O. Box 2798, Boston,
MA 02208-2798. Unless you arrange to pay by wire, write your check, payable in
U.S. dollars, to "Excelsior Institutional Trust" and include the name of the
appropriate Fund(s) on the check. A Fund cannot accept third-party checks,
credit card checks or cash. To purchase shares by wire, please call us for
instructions. Federal funds and registration instructions should be wired
through the Federal Reserve System to:

The Chase Manhattan Bank
ABA#021000021
Excelsior Institutional Trust
Credit DDA 910-2-733046
[Account Registration]
[Account Number]
[Wire Control Number]

You may also buy shares through accounts with brokers and other institutions
that are authorized to place trades in Fund shares for their customers. If you
invest through an authorized institution, you will have to follow its
procedures. Your institution may charge a fee for its services, in addition to
the fees charged by the Fund. You will also generally have to address your
correspondence or questions regarding a Fund to your institution.

Page 30 of 43

<PAGE>

GENERAL INFORMATION

HOW WE CALCULATE NAV

NAV for one Fund share is the value of that share's portion of all of the assets
in the Fund.

In calculating NAV, a Fund generally values its investment portfolio at market
price. If market prices are unavailable or the Adviser thinks that they are
unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Trustees. Fixed income investments with remaining
maturities of 60 days or less generally are valued at their amortized cost,
which approximates their market value.

Some Funds may hold securities that are listed on foreign exchanges. These
securities may trade on weekends or other days when the Funds do not calculate
NAV. As a result, the market value of these securities may change on days when
you cannot purchase or sell Fund shares.

HOW TO SELL YOUR FUND SHARES

You may sell shares directly by:
- - Mail, or
- - Telephone

Holders of Institutional Shares may sell shares by following procedures
established when they opened their account or accounts. If you have questions,
call (800) 909-1989 (from overseas, call (617) 557-1755).

You may sell your shares by sending a written request for redemption to:

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

Page 31 of 43

<PAGE>

Please be sure to indicate the number of shares to be sold, identify your
account number and sign the request.

If you own your shares directly and previously indicated on your account
application or arranged in writing to do so, you may sell (sometimes called
"redeem") your shares on any Business Day by contacting a Fund directly by
telephone at (800) 909-1989 (from overseas, call (617) 557-1755). We may reject
a telephone redemption request if we deem it advisable to do so.

The sale price of each share will be the next NAV determined after the Fund
receives your request in good order.

RECEIVING YOUR MONEY

Normally, we will send your sale proceeds the Business Day after we receive your
request in good order. Your proceeds can be wired to your bank account or sent
to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES BY CHECK, REDEMPTION
PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO
15 BUSINESS DAYS).

REDEMPTIONS IN KIND

INVOLUNTARY SALES OF YOUR SHARES

SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES

Page 32 of 43

<PAGE>

HOW TO EXCHANGE YOUR SHARES

You may exchange your shares on any Business Day for Institutional Shares of any
portfolio of Excelsior Institutional Trust, or for Institutional Shares of the
Money or Government Money Funds of Excelsior Funds, Inc. In order to protect
other shareholders, we may limit your exchanges to no more than six per year,
and we may reject any exchange request. Shares can be exchanged directly by
mail, or by telephone if you previously selected the telephone exchange option
on the account application.

IF YOU RECENTLY PURCHASED SHARES BY CHECK, YOU MAY NOT BE ABLE TO EXCHANGE YOUR
SHARES UNTIL YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 BUSINESS DAYS).
This exchange privilege may be changed or canceled at any time.

TELEPHONE TRANSACTIONS

AUTHORIZED INTERMEDIARIES

Certain intermediaries, such as brokers or other shareholder organizations, are
authorized to accept purchase, redemption and exchange requests for Funds
shares. These intermediaries may authorize other organizations to accept
purchase, redemption and exchange requests for Fund shares. These requests are
normally executed at the NAV next determined after the intermediary receives the
request in good order. Authorized intermediaries are responsible for
transmitting requests and delivering funds on a timely basis.

SHAREHOLDER SERVICING

The Funds are permitted to pay a shareholder servicing fee to certain
shareholder organizations for providing services to their customers who hold
shares of the Funds. These services may include assisting in the processing of
purchase, redemption and exchange request and providing periodic account
statements. The shareholder servicing fee may be up to 0.40% of the average
daily net asset value of Fund shares held by clients of a shareholder
organization.

Page 33 of 43

<PAGE>

DIVIDENDS, DISTRIBUTIONS AND TAXES

Each Fund distributes its income as follows:

Equity Fund Declared and Paid Quarterly
Value Equity Fund Declared and Paid Quarterly
Optimum Growth Fund Declared and Paid Quarterly
Income Fund Declared Daily and Paid Monthly
Total Return Bond Fund Declared Daily and Paid Monthly
International Equity Fund Declared and Paid Quarterly

Each Fund makes distributions of capital gains, if any, at least annually. If
you own Fund shares on a Fund's record date, you will be entitled to receive the
distribution.

TAXES

Each Fund may be able to pass along a tax credit for foreign income taxes it
pays. The Fund will notify you if it gives you the credit.

MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.

Page 34 of 43

<PAGE>

FINANCIAL HIGHLIGHTS

The following tables include selected data for an Institutional Share
outstanding throughout each period and other performance information derived
from the financial statements included in the Trust's Annual Report to
Shareholders for the fiscal year ended March 31, 1999 (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 performance of each Fund is also
contained in the Annual Report to Shareholders, which may be obtained from the
Trust without charge by calling the number on the front cover of this
Prospectus.

The Value Equity, Optimum Growth and Balanced Funds offer two separate classes
of shares--Institutional Shares and an additional class of shares. Each class of
shares represents equal pro rata interests in each such Fund, except that the
additional class of shares bears the additional expense of distribution fees.
See "Description of Shares, Voting Rights and Liabilities."

Page 35 of 43

<PAGE>

EQUITY FUND

<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
Ten Months Ended
1999 1998 March 31, 1997(a)
---- ---- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $12.69 $9.65 $8.93
------ ----- -----
Investment Operations:
Net investment income 0.04 0.05 0.05
Net realized and unrealized gain 2.47 4.67 0.86
---- ---- ----
Total from Investment Operations 2.51 4.72 0.91
---- ---- ----
Distributions:
From net investment income (0.04) (0.06) (0.07)
From net realized gains (0.20) (1.62) (0.12)
------ ------ ------
Total Distributions (0.24) (1.68) (0.19)
------ ------ ------
Net Asset Value, End of Period $14.96 $12.69 $9.65
------ ------ ------
------ ------ ------
Total Return 20.13% 51.58% 10.22%(c)

Ratios - Supplemental Data:

Ratios to Average Net Assets
Net Expenses 0.70% 0.70% 0.70%(e)

Gross Expenses(d) 0.90% 0.90% 0.92%(e)

Net Investment Income 0.28% 0.46% 0.70%(e)

Portfolio Turnover Rate 37% 26% 32%(e)

Net Assets at End of Period (in millions) $180.11 $138.33 $118.56

Year Ended January 16, 1995(b)
May 31, 1996 To May 31, 1995
------------ -------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $7.73 $7.00
----- -----
Investment Operations:
Net investment income 0.11 0.05
Net realized and unrealized gain 1.20 0.70
---- ----
Total from Investment Operations 1.31 0.75
---- ----
Distributions:
From net investment income (0.11) (0.02)
From net realized gains -- --
-- --
Total Distributions (0.11) (0.02)
------ ------
Net Asset Value, End of Period $8.93 $7.73
------ ------
------ ------
Total Return 17.04% 10.80%(c)

Ratios - Supplemental Data:

Ratios to Average Net Assets
Expenses 0.36% 0.12%(e)

Gross Expenses(d) 1.49% 2.67%(e)

Net Investment Income 1.32% 2.44%(e)

Portfolio Turnover Rate 113% 34%(e)

Net Assets at End of Period (in millions) $23.50 $15.41
</TABLE>

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

(a) The Fund changed its fiscal year end to March 31.
(b) Commencement of operations.
(c) Not annualized.
(d) Expense ratios before waiver of fees and reimbursement of expenses
(if any) by the investment adviser and administrators.
(e) Annualized.

Page 36 of 43

<PAGE>

VALUE EQUITY FUND

<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
June 1, 1996(a)
1999 1998 To March 31, 1997
---- ---- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $16.12 $11.33 $10.00
------ ------ ------
Investment Operations:
Net investment income 0.13 0.11 0.08
Net realized and unrealized gain 0.52 5.59 1.31
---- ---- ----
Total from Investment Operations 0.65 5.70 1.39
---- ---- ----
Distributions:
From net investment income (0.12) (0.11) (0.06)
From net realized gains (1.32) (0.80) --
------ ------ --
Total Distributions (1.44) (0.91) (0.06)
------ ------ ------
Net Asset Value, End of Period $15.33 $16.12 $11.33
------ ------ ------
------ ------ ------
Total Return 4.80% 51.67% 13.91%(b)
Ratios - Supplemental Data:

Ratios to Average Net Assets
Net Expenses 0.70% 0.70% 0.70%(c)

Gross Expenses(d) 0.97% 1.00% 1.12%(c)

Net Investment Income 0.87% 0.81% 0.94%(c)

Portfolio Turnover Rate 55% 51% 64%(c)

Net Assets at End of Period (in millions) $39.31 $34.77 $23.69
</TABLE>

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

(a) Commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Expense ratios before waiver of fees and reimbursement of expenses
(if any) by the investment adviser and administrators.

Page 37 of 43

<PAGE>

OPTIMUM GROWTH FUND

From net realized gains -- -- --
-- -- --
Total Distributions (0.04) (0.03)
-- ------ ------
Net Asset Value, End of Period $27.55 $16.33 $10.19
------ ------ ------
------ ------ ------
Total Return 68.74% 60.85% 2.23%(b)

Ratios and Supplemental Data:

Ratios to Average Net Assets
Net Expenses 0.71% 0.70% 0.70%(c)

Gross Expenses(d) 0.93% 0.97% 1.11%(c)

Net Investment Income 0.00% 0.23% 0.66%(c)

Portfolio Turnover Rate 22% 19% 20%(c)

Net Assets at End of Period (in millions) $88.05 $51.44 $27.18
</TABLE>

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

(a) Commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Expense ratios before waivers of fees and reimbursements of expenses
(if any) by the investment adviser and administrators.
(e) Amount represents less than $0.01 per share.

Page 38 of 43

<PAGE>

INCOME FUND

<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
Ten Months Ended
1999 1998 March 31, 1997(a)
---- ---- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $7.23 $6.90 $6.99
----- ----- -----
Investment Operations:
Net investment income 0.40 0.44 0.38
Net realized and unrealized gain (loss) 0.03 0.35 (0.01)
---- ---- ------
Total from Investment Operations 0.43 0.79 0.37
---- ---- ----
Distributions:
From net investment income (0.41) (0.44) (0.38)
In excess of net investment income (f) (f) --
-- -- --
From net realized gains (0.25) (0.02) (0.08)
------ ------ ------
Total Distributions (0.66) (0.46) (0.46)
------ ------ ------
Net Asset Value, End of Period $7.00 $7.23 $6.90
------ ------ ------
------ ------ ------
Total Return 5.94% 11.78% 5.39%(c)

Ratios and Supplemental Data:

Ratios to Average Net Assets
Net Expenses 0.50% 0.50% 0.50%(e)

Gross Expenses(d) 0.91% 0.91% 0.96%(e)

Net Investment Income 5.57% 6.14% 6.50%(e)

Portfolio Turnover Rate 196% 190% 107%(e)

Net Assets at End of Period (in millions) $67.24 $61.38 $51.08

Year Ended January 16, 1995(b)
May 31, 1996 To May 31, 1995
------------ -------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $7.33 $7.00
----- -----
Investment Operations:
Net investment income 0.51 0.19
Net realized and unrealized gain (loss) (0.27) 0.33
------ ----
Total from Investment Operations 0.24 0.52
---- ----
Distributions:
From net investment income (0.51) (0.19)
In excess of net investment income
-- --
From net realized gains (0.07) --
------ --
Total Distributions (0.58) (0.19)
------ ------
Net Asset Value, End of Period $6.99 $7.33
------ ------
------ ------
Total Return 3.18% 7.51%(c)

Ratios and Supplemental Data:

Ratios to Average Net Assets
Net Expenses 0.26% 0.12%(e)

Gross Expenses(d) 1.35% 1.65%(e)

Net Investment Income 6.99% 7.17%(e)

Portfolio Turnover Rate 67% 34%(e)

Net Assets at End of Period (in millions) $24.00 $33.23
</TABLE>

Page 39 of 43

<PAGE>

TOTAL RETURN BOND FUND

<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
Ten Months Ended
1999 1998 March 31, 1997(a)
---- ---- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $7.51 $7.16 $7.18
----- ----- -----
Investment Operations:
Net investment income 0.42 0.44 0.37
Net realized and unrealized gain (loss) 0.03 0.41 0.01
---- ---- ----
Total from Investment Operations 0.45 0.85 0.38
---- ---- ----
Distributions:
From net investment income (0.42) (0.44) (0.37)
From net realized gains (0.20) (0.06) (0.03)
In excess of net realized gains (0.02) -- --
------ -- --
Total Distributions (0.64) (0.50) (0.40)
------ ------ ------
Net Asset Value, End of Period $7.32 $7.51 $7.16
------ ------ ------
------ ------ ------
Total Return 6.07% 12.21% 5.29%(c)

Ratios and Supplemental Data:

Ratios to Average Net Assets
Net Expenses 0.50% 0.50% 0.50%(e)

Gross Expenses(d) 0.89% 0.90% 0.92%(e)

Net Investment Income 5.53% 5.95% 6.08%(e)

Portfolio Turnover Rate 234% 196% 200%(e)

Net Assets at End of Period (in millions) $251.61 $167.71 $138.40

Year Ended January 19, 1995(b)
May 31, 1996 To May 31, 1995
------------ -------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $7.47 $7.00
----- -----
Investment Operations:
Net investment income 0.48 0.18
Net realized and unrealized gain (loss) (0.17) 0.47
------ ----
Total from Investment Operations 0.31 0.65
---- ----
Distributions:
From net investment income (0.48) (0.18)
From net realized gains (0.12) --
In excess of net investment income -- --
-- --
Total Distributions (0.60) (0.18)
------ ------
Net Asset Value, End of Period $7.18 $7.47
------ ------
------ ------
Total Return 4.20% 9.40%(c)

Ratios - Supplemental Data:

Ratios to Average Net Assets
Net Expenses 0.32% 0.12%(e)

Gross Expenses(d) 1.33% 1.93%(e)

Net Investment Income 6.47% 7.09%(e)

Portfolio Turnover Rate 127% 84%(e)

Net Assets at End of Period (in millions) $65.02 $24.91
</TABLE>

Page 40 of 43

<PAGE>

INTERNATIONAL EQUITY FUND

<TABLE>
<CAPTION>
Year Ended March 31,
-------------------- Ten Months Ended
1999 1998 March 31, 1997(a)
---- ---- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $9.67 $9.03 $8.99
----- ----- -----
Investment Operations:
Net investment income 0.16 0.09 0.01
Net realized and unrealized gain (loss) (0.79) 0.79 0.21
------ ---- ----
Total from Investment Operations (0.63) 0.88 0.22
------ ---- ----
Distributions:
From net investment income (0.16) (0.07) (0.06)
In excess of net investment income 0.00 (0.02) (0.03)
From net realized gains (0.30) (0.15) (0.09)
In excess of net realized gains (0.13) ------ ------
------ ------ ------
Total Distributions (0.59) (0.24) (0.18)
------ ------ ------
Net Asset Value, End of Period $8.45 $9.67 $9.03
------ ------ ------
------ ------ ------
Total Return (6.60)% 9.90% 2.41%(c)

Ratios / Supplemental Data:

Ratios to Average Net Assets
Net Expenses 0.90% 0.90% 0.90%(e)
Gross Expenses(d) 1.53% 1.43% 1.49%(e)
Net Investment Income 1.18% 1.05% 0.45%(e)

Portfolio Turnover Rate 107% 52% 45%(e)

Net Assets at End of Period (in millions) $78.80 $40.44 $38.47

Year Ended January 24, 1995(b) to
May 31, 1996 May 31, 1995
------------ ----------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $7.88 $7.00
----- -----
Investment Operations:
Net investment income 0.09 0.08
Net realized and unrealized gain (loss) 1.20 0.80
---- ----
Total from Investment Operations 1.29 0.88
---- ----
Distributions:
From net investment income (0.12) 0.00
In excess of net investment income 0.00 0.00
From net realized gains (0.06) 0.00
In excess of net realized gains ---- ----

Total Distributions (0.18) 0.00
------ ----
Net Asset Value, End of Period $8.99 $7.88
------ ----
------ ----
Total Return 16.58% 12.57%(c)

Ratios / Supplemental Data:

Ratios to Average Net Assets(e)
Net Expenses 0.60% 0.25%(e)
Gross Expenses(d) 2.05% 3.32%(e)
Net Investment Income 1.71% 3.47%(e)

Portfolio Turnover Rate 19% 8%(e)

Net Assets at End of Period (in millions) $24.52 $8.80
</TABLE>

(a) The Fund changed its fiscal year end to March 31.
(b) Commencement of Operations.
(c) Not annualized.
(d) Expense ratios before waiver of fees and reimbursement of expenses
(if any) by the investment adviser and administrators.
(e) Annualized.

Page 41 of 43

<PAGE>

EXCELSIOR INSTITUTIONAL TRUST

INVESTMENT ADVISER

United States Trust Company of New York
114 W. 47th Street
New York, New York 10036

U.S. Trust Company
225 High Ridge Road
East Building
Stamford, Connecticut 06905

DISTRIBUTOR

Edgewood Services, Inc.
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-5829

More information about each Fund is available without charge through the
following:

STATEMENT OF ADDITIONAL INFORMATION (SAI)

The SAI dated August 1, 1999 includes detailed information about Excelsior
Institutional Trust. The SAI is on file with the SEC and is incorporated by
reference into this prospectus. This means that the SAI, for legal purposes, is
a part of this prospectus.

ANNUAL AND SEMI-ANNUAL REPORTS

These reports contain additional information about the Funds' investments. The
Annual Report also lists each Fund's holdings and contains information from the
Fund's managers about strategies, and recent market conditions and trends.

TO OBTAIN MORE INFORMATION:

BY TELEPHONE: CALL (800) 909-1989 (FROM OVERSEAS, CALL (617) 557-1755)

BY MAIL:
Excelsior Institutional Trust
P.O. Box 2798
Boston, Massachusetts 02208-2798

BY INTERNET: http://www.excelsiorfunds.com

<PAGE>

FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual
reports, as well as other information about Excelsior Institutional Trust,
from the SEC's website ("http://www.sec.gov"). You may review and copy
documents at the SEC Public Reference Room in Washington, DC (for information
call 1-800-SEC-0330). You may request documents by mail from the SEC, upon
payment of a duplicating fee, by writing to: Securities and Exchange
Commission, Public Reference Section, Washington, DC 20549-6009. Excelsior
Institutional Trust's Investment Company Act registration number is 811-8490.

Page 43 of 43
<PAGE>

EXCELSIOR INSTITUTIONAL TRUST

Equity Fund
Value Equity Fund
Optimum Growth Fund
International Equity Fund
Income Fund
Total Return Bond Fund

STATEMENT OF ADDITIONAL INFORMATION

August 1, 1999

This Statement of Additional Information pertains to the Shares and
Institutional Shares of the Value Equity and Optimum Growth Funds, and the
Institutional Shares of the Equity, Income, Total Return Bond and International
Equity Funds (each, a "Fund" and collectively, the "Funds") of Excelsior
Institutional Trust. This Statement of Additional Information is not a
prospectus but should be read in conjunction with the current prospectuses for
the Funds dated August 1, 1999 (the "Prospectuses"). Copies of the Prospectuses
may be obtained by writing Excelsior Institutional Trust c/o Chase Global Funds
Services Company, 73 Tremont Street, Boston, MA 02108-3913 or by calling (800)
446-1012 (Shares) or (800) 909-1989 (Institutional Shares). Capitalized terms
not otherwise defined have the same meaning as in the Prospectuses.

The audited financial statements and related reports of Ernst & Young LLP,
independent auditors, contained in the annual reports to the Funds' shareholders
for the fiscal year ended March 31, 1999 are incorporated herein by reference in
the section entitled "Financial Statements." No other parts of the annual
reports are incorporated herein by reference. Copies of the annual reports may
be obtained upon request and without charge by calling (800) 446-1012 (Shares)
or (800) 909-1989 (Institutional Shares).

<PAGE>

TABLE OF CONTENTS

PAGE
<S> <C>
CLASSIFICATION AND HISTORY . . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS. . . . . . . . . . . . . . . . . 1
Investment Philosophy and Strategies. . . . . . . . . . . . . . . . . . 1
Additional Investment Policies. . . . . . . . . . . . . . . . . . . . . 3
Additional Information on Portfolio Instruments . . . . . . . . . . . . 6
Investment Limitations. . . . . . . . . . . . . . . . . . . . . . . . .28
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .30
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . .34
PORTFOLIO VALUATION AND DETERMINATION OF NET ASSET VALUE . . . . . . . . . .39
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . .40
Purchase of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . .41
Redemption Procedures . . . . . . . . . . . . . . . . . . . . . . . . .43
Other Redemption Information. . . . . . . . . . . . . . . . . . . . . .45
INVESTOR PROGRAMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Systematic Withdrawal Plan. . . . . . . . . . . . . . . . . . . . . . .46
Exchange Privilege. . . . . . . . . . . . . . . . . . . . . . . . . . .47
Retirement Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . .47
Automatic Investment Program. . . . . . . . . . . . . . . . . . . . . .48
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . .48
RULE 12B-1 DISTRIBUTION PLAN . . . . . . . . . . . . . . . . . . . . . . . .48
MANAGEMENT OF THE FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . . .49
Investment Advisory Services. . . . . . . . . . . . . . . . . . . . . .56
Administrators. . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
Banking Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
Shareholder Organizations . . . . . . . . . . . . . . . . . . . . . . .60
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
Transfer Agent and Custodian. . . . . . . . . . . . . . . . . . . . . .61
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
DESCRIPTION OF THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . .65
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>

-i-
<PAGE>

CLASSIFICATION AND HISTORY

Excelsior Institutional Trust (the "Trust") is an open-end, management
investment company. Each Fund is a separate series of the Trust and is
classified as diversified under the Investment Company Act of 1940, as amended
(the "1940 Act"). The Trust was organized as a business trust under the laws of
the State of Delaware on April 27, 1994. Prior to March 15, 1999, the Equity
Fund, Value Equity Fund, Optimum Growth Fund, Income Fund, Total Return Bond
Fund and International Equity Fund were known as the Institutional Equity Fund,
Institutional Value Equity Fund, Institutional Optimum Growth Fund,
Institutional Income Fund, Institutional Total Return Bond Fund and
Institutional International Equity Fund, respectively.

INVESTMENT OBJECTIVES, STRATEGIES AND RISKS

The following information supplements the description of the
investment objectives, strategies and risks of the Funds as set forth in the
Prospectuses. The investment objective of each Fund may be changed without
shareholder approval. Except as expressly noted below, each Fund's investment
policies also may be changed without shareholder approval.

INVESTMENT PHILOSOPHY AND STRATEGIES

In managing investments for the Funds, the Adviser follows a long-term
investment philosophy which generally does not change with the short-term
variability of financial markets or fundamental conditions. Its approach begins
with the conviction that all worthwhile investments are grounded in value. The
Adviser believes that an investor can identify fundamental values that
eventually should be reflected in market prices, such that over time, a
disciplined search for fundamental value will achieve better results than
attempting to take advantage of short-term price movements.

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

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

-1-

<PAGE>

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

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

2. TRANSACTION VALUE COMPANIES. In the opinion of the Adviser, the stock
market frequently values the aggregate ownership of a company at a substantially
lower figure than its component assets would be worth if they were sold off
separately over time. Such assets may include intangible assets such as product
and market franchises, operating know-how, or distribution systems, as well as
such tangible properties as oil reserves, timber, real estate, or production
facilities. Investment opportunities in these companies are determined by the
magnitude of difference between economic worth and current market price.

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

Income derived from investing in undervalued companies is expected to
be moderately greater than that derived from investments in either the
Problem/Opportunity or Early Life Cycle companies.

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

To complete the Adviser's investment philosophy in managing the Funds,
the three portfolio strategies discussed above are applied in concert with other
longer-term investment "themes" to identify investment opportunities. The
Adviser believes these longer-term themes represent strong and inexorable
trends. The Adviser also believes that

2
<PAGE>

understanding the instigation, catalysts and effects of these longer-term trends
should help to identify companies that are beneficiaries of these trends.

ADDITIONAL INVESTMENT POLICIES

EQUITY, VALUE EQUITY AND OPTIMUM GROWTH FUNDS

Under normal market and economic conditions, the Equity, Value Equity
and Optimum Growth Funds will invest at least 65% of their respective total
assets in common stock, preferred stock and securities convertible into common
stock. Normally, not more than 35% of each Fund's total assets may be invested
in other securities and instruments including, e.g., investment-grade debt
securities, warrants, options, and futures instruments as described in more
detail below. The Funds may hold cash or invest without limitation in
U.S. government securities, high quality money market instruments and repurchase
agreements collateralized by the foregoing obligations, if deemed appropriate by
the Adviser for temporary defensive purposes.

Portfolio holdings will include equity securities of companies having
capitalizations of varying amounts, and the Funds may invest in the securities
of high growth, small companies when the Adviser expects earnings and the price
of the securities to grow at an above-average rate. The equity securities of
small companies have historically been characterized by greater volatility of
returns, greater total returns and lower dividend yields than equity securities
of large companies. As a result, there may be a greater fluctuation in the
value of a Fund's shares, and a Fund may be required, in order to satisfy
redemption requests or for other reasons, to sell these securities at a discount
from market prices, to sell during periods when such disposition is not
desirable, or to make many small sales over a period of time.

The Equity, Value Equity and Optimum Growth Funds may invest directly
or indirectly in the securities of foreign issuers. The Funds currently do not
expect to invest more than 30% of their respective total assets at the time of
purchase in such securities.

INCOME AND TOTAL RETURN BOND FUNDS

The Income and Total Return Bond Funds may invest in the following
types of securities: corporate debt obligations such as bonds, debentures,
obligations convertible into common stocks and money market instruments;
preferred stocks; and obligations issued or guaranteed by the U.S. government
and its agencies or instrumentalities. The Funds are also permitted to enter
into repurchase agreements, and may from time to time invest in debt obligations
issued by or on behalf of states, territories and possessions of the United
States, the District of Columbia and their respective authorities, agencies,
instrumentalities and political subdivisions, the interest of which is, in the
opinion of bond counsel to the issuer, exempt from federal income tax
("Municipal Obligations"). The Adviser will consider investments in Municipal
Obligations for the Funds when the Adviser believes that the total return on
such securities is attractive relative to that of taxable securities.

3
<PAGE>

Under normal market conditions, at least 65% of the Income and Total
Return Bond Funds' respective total assets will be invested in investment-grade
bonds that are rated within the three highest ratings of Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's Ratings Services ("S&P") (or are
unrated obligations considered to be of comparable credit quality by the
Adviser). "Investment-grade bonds" are bonds and other debt instruments that
are rated within the four highest ratings of Moody's or S&P (or are unrated
obligations considered to be of investment grade by the Adviser) and
U.S. government obligations and money market instruments of the types described
below. When, in the opinion of the Adviser, a defensive investment posture is
warranted, each of these Funds may invest temporarily and without limitation in
high quality, short-term money market instruments.

The Income Fund may invest up to 35% of its total assets, and the
Total Return Bond Fund may invest up to 5% of its total assets, in bonds rated
below investment grade. Investments in obligations rated below the four highest
ratings of S&P and Moody's ("junk bonds") have different risks than investments
in securities that are rated investment grade. Risk of loss upon default by the
borrower is significantly greater because lower-rated securities are generally
unsecured and are often subordinated to other creditors of the issuer, and
because the issuers frequently have high levels of indebtedness and are more
sensitive to adverse economic conditions, such as recessions, individual
corporate developments and increasing interest rates, than are investment grade
issuers. As a result, the market price of such securities, and the net asset
value of a Fund's shares, may be particularly volatile. Additional risks
associated with lower-rated fixed-income securities are (a) the relative youth
and growth of the market for such securities, (b) the sensitivity of such
securities to interest rate and economic changes, (c) the lower degree of
protection of principal and interest payments, (d) the relatively low trading
market liquidity for such securities, (e) the impact that legislation may have
on the high yield bond market (and, in turn, on a Fund's net asset value and
investment practices), (f) the operation of mandatory sinking fund or
call/redemption provisions during periods of declining interest rates whereby a
Fund may be required to reinvest premature redemption proceeds in lower yielding
portfolio securities, and (g) the creditworthiness of the issuers of such
securities. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may experience financial stress which
would adversely affect their ability to service their principal and interest
payment obligations, to meet projected business goals and to obtain additional
financing. An economic downturn could also disrupt the market for lower-rated
bonds generally and adversely affect the value of outstanding bonds and the
ability of the issuers to repay principal and interest. If the issuer of a
lower-rated debt obligation held by a Fund defaulted, the Fund could incur
additional expenses to seek recovery. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may also decrease the
values and liquidity of lower-rated securities, especially in a thinly traded
market. Finally, a Fund's trading in fixed-income securities to achieve capital
appreciation entails risks that capital losses rather than gains will result.

The Income and Total Return Bond Funds may invest up to 25% of their
respective total assets in (a) preferred stocks and (b) U.S. dollar-denominated
debt obligations of (i) foreign issuers, including foreign corporations and
foreign governments, and (ii) U.S. companies issued outside the United States.
The Funds will not invest in common stocks,

4
<PAGE>

and any common stocks received through conversion of convertible debt
obligations will be sold in an orderly manner as soon as possible.

INTERNATIONAL EQUITY FUND

Under normal market and economic conditions, the International Equity
Fund will invest at least 75% of its assets in foreign equity securities.
Foreign equity securities may include common stock, preferred stock, securities
convertible into common or preferred stock and warrants issued by companies
domiciled outside of the United States and shares of U.S. registered investment
companies that invest primarily in foreign securities. While there are no
prescribed limits on geographic distributions, the Fund normally will hold
securities of issuers collectively having their principal place of business in
no fewer than three foreign countries. For cash management purposes, the Fund
may invest up to 25% of its assets on a continuous basis in cash or short-term
instruments such as commercial paper, bank obligations, U.S. government and
agency securities maturing within one year, notes and other investment-grade
debt securities of various maturities, and repurchase agreements collateralized
by these securities. Under unusual economic and market conditions, the Fund may
restrict the securities markets in which its assets are invested and may invest
without limitation in any combination of high quality domestic or foreign money
market instruments.

Convertible debt securities purchased by the Fund will be rated
investment grade by Moody's or S&P if such a rating is available. To be deemed
investment grade, debt securities must carry a rating of at least "Baa" from
Moody's or "BBB" from S&P. If unrated, as is the case with most foreign
securities, convertible debt securities purchased by the Fund will be deemed to
be comparable in quality to securities rated investment grade by the Adviser
under the supervision of the Board of Trustees of the Trust. With respect to
securities rated "Baa" by Moody's or "BBB" by S&P (the lowest of the top four
investment rankings), or deemed to be comparable in quality to such securities,
interest and principal payments are regarded as adequate for the present;
however, these securities may have speculative characteristics, and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make interest and principal payments than is the case with higher
grade bonds. The Fund will sell in an orderly fashion as soon as possible any
debt securities it holds if they are downgraded below "Baa" by Moody's or "BBB"
by S&P. The Fund may purchase securities both on recognized stock exchanges and
in over-the-counter markets. Most of the Fund's portfolio transactions will be
effected in the primary trading market for the given security.

The countries in which the Fund may invest, include but are not
limited to: Japan, France, the United Kingdom, Germany, Italy, the Netherlands,
Switzerland, Singapore, Australia, Canada, Sweden, Ireland, Hong Kong, Thailand,
Spain, Portugal, Israel, Chile, Argentina and Hungary.

5
<PAGE>

ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS

GOLD BULLION

The International Equity Fund may invest up to 5% of its total assets
in gold bullion by purchasing gold bars primarily of standard weight
(approximately 400 troy ounces) at the best available prices in the New York
bullion market. However, the Adviser will have discretion to purchase or sell
gold bullion in other markets, including foreign markets, if better prices can
be obtained. Gold bullion is valued by the Fund at the mean between the closing
bid and asked prices in the New York bullion market as of the close of the New
York Stock Exchange each business day. When there is no readily available
market quotation for gold bullion, the bullion will be valued by such method as
determined by the Trust's Board of Trustees to best reflect its fair value. For
purpose of determining net asset value, gold held by the Fund will be valued in
U.S. dollars. Investments in gold will not produce dividends or interest
income, and the Fund can look only to price appreciation for a return on such
investments.

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, such as 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, are supported by the right of the issuer to borrow from the Treasury;
others, such as those issued by the Federal National Mortgage Association, are
supported by the discretionary authority of the U.S. government to purchase
certain obligations of the agency or instrumentality; and others are supported
only by the credit of the agency or instrumentality. While the U.S. government
provides financial support to such U.S. government-sponsored agencies or
instrumentalities, no assurance can be given that it will always do so, since it
is not so obligated by law.

SECURITIES LENDING

To increase return on its portfolio securities, each Fund may
lend its portfolio securities to broker/dealers pursuant to agreements requiring
the loans to be continuously secured by collateral equal at all times in value
to at least the market value of the securities loaned. Collateral for such
loans may include cash, securities of the U.S. government, its agencies or
instrumentalities, or an irrevocable letter of credit issued by a bank, or any
combination thereof. Such loans will not be made if, as a result, the aggregate
of all outstanding loans of a Fund exceeds 30% of the value of its total assets.
When a Fund lends its securities, it continues to receive interest or dividends
on the securities lent and may simultaneously earn interest on the investment of
the cash loan collateral, which will be invested in readily marketable,
high-quality, short-term obligations. Although voting rights, or rights to
consent, attendant to lent securities

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pass to the borrower, such loans may be called at any time and will be called so
that the securities may be voted by a Fund if a material event affecting the
investment is to occur.

There may be risks of delay in receiving additional collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be of good standing and when, in the
Adviser's judgment, the income to be earned from the loan justifies the
attendant risks.

VARIABLE RATE AND FLOATING RATE SECURITIES

Each Fund may purchase floating and variable rate demand notes and
bonds, which are obligations ordinarily having stated maturities in excess of
397 days, but which permit the holder to demand payment of principal at any
time, or at specified intervals not exceeding 397 days, in each case upon not
more than 30 days' notice. Variable rate demand notes include master demand
notes which are obligations that permit a Fund to invest fluctuating amounts,
which may change daily without penalty, pursuant to direct arrangements between
the Fund, as lender, and the borrower. The interest rates on these notes
fluctuate from time to time. The issuer of such obligations normally has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon a
specified number of days' notice to the holders of such obligations.

The interest rate on a floating rate demand obligation is based on a
known lending rate, such as a bank's prime rate, and is adjusted automatically
each time such rate is adjusted. The interest rate on a variable rate demand
obligation is adjusted automatically at specified intervals. Frequently, such
obligations are collateralized by letters of credit or other credit support
arrangements provided by banks. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that such
instruments generally will be traded, and there generally is no established
secondary market for these obligations, although they are redeemable at face
value. Accordingly, where these obligations are not secured by letters of
credit or other credit support arrangements, a Fund's right to redeem is
dependent on the ability of the borrower to pay principal and interest on
demand. Such obligations frequently are not rated by credit rating agencies and
a Fund may invest in obligations which are not so rated only if the Adviser
determines that at the time of investment the obligations are of comparable
quality to the other obligations in which the Fund may invest. The Adviser will
consider on an ongoing basis the creditworthiness of the issuers of the floating
and variable rate demand obligations held by the Funds. Each Fund will not
invest more than 15% of the value of its net assets in floating or variable rate
demand obligations as to which it cannot exercise the demand feature on not more
than seven days' notice if there is no secondary market available for these
obligations, and in other securities that are deemed illiquid. See "Investment
Restrictions" below.

PARTICIPATION INTERESTS

Each Fund may purchase from financial institutions participation
interests in securities in which such Fund may invest. A participation interest
gives a Fund an undivided

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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 Adviser must have determined that the instrument is
of comparable quality to those instruments in which the Fund may invest. For
certain participation interests, a Fund will have the right to demand payment,
on not more than seven days' notice, for all or any part of the Fund's
participation interest in the security, plus accrued interest. As to these
instruments, the Fund intends to exercise its right to demand payment only upon
a default under the terms of the security, as needed to provide liquidity to
meet redemptions, or to maintain or improve the quality of its investment
portfolio. Each Fund will not invest more than 15% of its net assets in
participation interests that do not have this demand feature, and in other
securities that are deemed illiquid. Currently, no Fund intends to invest more
than 5% of its net assets in participation interests during the current year.
See "Investment Restrictions" below.

ILLIQUID SECURITIES

Each Fund may acquire investments that are illiquid or have limited
liquidity, such as private placements or investments that are not registered
under the Securities Act of 1933, as amended (the "1933 Act"), and cannot be
offered for public sale in the United States without first being registered
under the 1933 Act. An illiquid investment is any investment that cannot be
disposed of within seven days in the normal course of business at approximately
the amount at which it is valued by the Fund. The price a Fund pays for
illiquid securities or receives upon resale may be lower than the price paid or
received for similar securities with a more liquid market.

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

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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.

Each Fund may not invest in additional illiquid securities if, as a
result, more than 15% of the market value of its net assets would be invested in
illiquid securities. Each Fund may also purchase Rule 144A securities sold to
institutional investors without registration under the 1933 Act. Rule 144A
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.

Rule 144A securities may be determined to be liquid in accordance with
guidelines established by the Adviser and approved by the Trustees of the Trust.
The Trustees will monitor the implementation of these guidelines on a periodic
basis. Because Rule 144A is relatively new, it is not possible to predict how
markets in Rule 144A securities will develop. If trading in Rule 144A
securities were to decline, these securities could become illiquid after being
purchased, increasing the level of illiquidity of a Fund. As a result, a Fund
holding these securities might not be able to sell these securities when the
Adviser wishes to do so, or might have to sell them at less than fair value.

The Adviser will monitor the liquidity of Rule 144A securities for
each Fund under the supervision of the Trust's Board of Trustees. In reaching
liquidity decisions, the Adviser will consider, among other things, the
following factors: (1) the frequency of trades and quotes for the security;
(2) the number of dealers and other potential purchasers wishing to purchase or
sell the security; (3) dealer undertakings to make a market in the security; and
(4) the nature of the security and of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).

UNSECURED PROMISSORY NOTES

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

REPURCHASE AGREEMENTS

Each Fund may agree to purchase portfolio securities subject to the
seller's agreement to repurchase them at a mutually agreed upon date and
price ("repurchase agreements"). The Funds will enter into repurchase
agreements only with financial institutions that are deemed to be
creditworthy by the Adviser, pursuant to guidelines established by the

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Trust's Board of Trustees. The Funds will not enter into repurchase agreements
with the Adviser or any of its affiliates. Repurchase agreements with remaining
maturities in excess of seven days will be considered illiquid securities and
will be subject to the limitations described above under "Illiquid Securities."
The repurchase price under a repurchase agreement generally equals the price
paid by a Fund plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the securities underlying the
repurchase agreement).

Securities subject to repurchase agreements are held by the Funds'
custodian (or sub-custodian) or in the Federal Reserve/Treasury book-entry
system. The seller under a repurchase agreement will be required to maintain
the value of the securities which are subject to the agreement and held by a
Fund at not less than the repurchase price. Default or bankruptcy of the seller
would, however, expose a Fund to possible delay in connection with the
disposition of the underlying securities or loss to the extent that proceeds
from a sale of the underlying securities were less than the repurchase price
under the agreement. Repurchase agreements are considered loans by a Fund under
the 1940 Act.

BORROWING AND REVERSE REPURCHASE AGREEMENTS

Each Fund may borrow funds, in an amount up to one-third of the value
of its total assets, for temporary or emergency purposes, such as meeting larger
than anticipated redemption requests, and not for leverage. Each Fund may also
agree to sell portfolio securities to financial institutions such as banks and
broker-dealers and to repurchase them at a mutually agreed date and price (a
"reverse repurchase agreement"). The Securities and Exchange Commission (the
"SEC") views reverse repurchase agreements as a form of borrowing. At the time
a Fund enters into a reverse repurchase agreement, it will place in a segregated
custodial account 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 a Fund may decline below the
repurchase price of those securities.

MUNICIPAL OBLIGATIONS

The Income and Total Return Bond Funds may, when deemed appropriate by
the Adviser in light of the Funds' investment objectives, invest in Municipal
Obligations. Although yields on Municipal Obligations can generally be expected
under normal market conditions to be lower than yields on corporate and
U.S. government obligations, from time to time municipal securities have
outperformed, on a total return basis, comparable corporate and federal debt
obligations as a result of prevailing economic, regulatory or other
circumstances. Dividends paid by the Income and Total Return Bond Funds that
are derived from interest on municipal securities would be taxable to the Funds'
shareholders for federal income tax purposes.

Municipal Obligations include debt obligations issued by governmental
entities to obtain funds for various public purposes, including the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses, and the extension of loans to public
institutions and facilities. Private activity bonds that are issued by or on
behalf of public authorities to finance various privately operated facilities
are included within the term "Municipal Obligations" only if the interest paid
thereon is exempt

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from regular federal income tax and not treated as a specific tax preference
item under the federal alternative minimum tax.

The two principal classifications of Municipal Obligations which may
be held by the Income and Total Return Bond Funds are "general obligation"
securities and "revenue" securities. General obligation securities are secured
by the issuer's pledge of its full faith, credit, and taxing power for the
payment of principal and interest. Revenue securities are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source such as user fees of the facility being financed.

The Income and Total Return Bond Funds' portfolios may also include
"moral obligation" securities, which are usually issued by public authorities.
If the issuer of moral obligation securities is unable to meet its debt service
obligations from current revenues, it may draw on a reserve fund -- the
restoration of which is a moral commitment, but not a legal obligation of the
state or municipality which created the issuer. There is no limitation on the
amount of moral obligation securities that may be held by the Funds.

There are, of course, variations in the quality of Municipal
Obligations, both within a particular classification and between
classifications, and the yields on Municipal Obligations depend upon a variety
of factors, including general market conditions, the financial condition of the
issuer, conditions of the municipal bond market, the size of a particular
offering, the maturity of the obligation, and the rating of the issue. The
ratings of nationally recognized statistical rating organizations ("NRSROs")
such as Moody's and S&P described in Appendix A hereto represent their opinion
as to the quality of Municipal Obligations. It should be emphasized that these
ratings are general and are not absolute standards of quality, and Municipal
Obligations with the same maturity, interest rate, and rating may have different
yields while Municipal Obligations of the same maturity and interest rate with
different ratings may have the same yield. Subsequent to its purchase by a
Fund, an issue of Municipal Obligations may cease to be rated, or its rating may
be reduced below the minimum rating required for purchase by that Fund. The
Adviser will consider such an event in determining whether a Fund should
continue to hold the obligation.

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

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of its Municipal Obligations may be materially adversely affected by litigation
or other conditions.

Private activity bonds are issued to obtain funds to provide, among
other things, privately operated housing facilities, pollution control
facilities, convention or trade show facilities, mass transit, airport, port or
parking facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Private activity bonds are also
issued to privately held or publicly owned corporations in the financing of
commercial or industrial facilities. State and local governments are authorized
in most states to issue private activity bonds for such purposes in order to
encourage corporations to locate within their communities. Private activity
bonds held by the Funds are in most cases revenue securities and are not payable
from the unrestricted revenues of the issuer. The principal and interest on
these obligations may be payable from the general revenues of the users of such
facilities. Consequently, the credit quality of these obligations is usually
directly related to the credit standing of the corporate user of the facility
involved.

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

Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Funds
nor the Adviser will review the proceedings relating to the issuance of
Municipal Obligations or the bases for such opinions.

STAND-BY COMMITMENTS

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

The Income and Total Return Bond Funds expect that stand-by
commitments will generally be available without the payment of any direct or
indirect consideration. However, if necessary or advisable, either Fund may pay
for a stand-by commitment either separately in cash

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or by paying a higher price for securities which are acquired subject to the
commitment (thus reducing the yield to maturity otherwise available for the same
securities). Where a Fund has paid any consideration directly or indirectly for
a stand-by commitment, its cost will be reflected as unrealized depreciation for
the period during which the commitment was held by the Fund.

The Income and Total Return Bond Funds intend to enter into stand-by
commitments only with banks and broker/dealers which, in the Adviser's opinion,
present minimal credit risks. In evaluating the creditworthiness of the issuer
of a stand-by commitment, the Adviser will review periodically the issuer's
assets, liabilities, contingent claims and other relevant financial information.
The Funds will acquire stand-by commitments solely to facilitate portfolio
liquidity and do not intend to exercise their rights thereunder for trading
purposes. Stand-by commitments acquired by a Fund will be valued at zero in
determining the Fund's net asset value.

FOREIGN SECURITIES

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

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

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

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

Dividends and interest paid by foreign issuers may be subject to
withholding and other foreign taxes. To the extent that such taxes are not
offset by credits or deductions allowed to investors under the federal income
tax laws, they may reduce the net return to investors.

Each of the Equity, Value Equity, Optimum Growth and International
Equity Funds may invest indirectly in the securities of foreign issuers through
sponsored and unsponsored American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), Global Depository Receipts ("GDRs") and other
similar instruments. ADRs typically are issued by an American bank or trust
company and evidence ownership of underlying securities issued by a foreign
corporation. EDRs, which are sometimes referred to as Continental Depository
Receipts, are receipts issued in Europe, typically by foreign banks and trust
companies, that evidence ownership of either foreign or domestic underlying
securities. GDRs are depository receipts structured like global debt issues to
facilitate trading on an international basis. Unsponsored ADR, EDR and GDR
programs are organized independently and without the cooperation of the issuer
of the underlying securities. As a result, available information concerning the
issuer may not be as current as for sponsored ADRs, EDRs and GDRs, and the
prices of unsponsored ADRs, EDRs and GDRs may be more volatile than if such
instruments were sponsored by the issuer.

The International Equity Fund may also invest indirectly in foreign
securities through share entitlement certificates. Share entitlement
certificates are transferable securities similar to depository receipts which
are structured like global debt issues to facilitate trading on an international
basis. The holder of a share entitlement certificate holds a fully
collateralized obligation of the issuer the value of which is linked directly to
that of the underlying foreign security.

The introduction of a single currency, the euro, on January 1, 1999
for participating nations in the European Economic and Monetary Union presents
unique uncertainties, including the legal treatment of certain outstanding
financial contracts after January 1, 1999 that refer to existing currencies
rather than the euro; the establishment and maintenance of exchange rates for
currencies being converted into the euro; the fluctuation of the euro relative
to non-euro currencies during the transition period from January 1, 1999 to
December 31, 2001 and beyond; whether the interest rate, tax and labor regimes
of European countries participating in the euro will converge over time; and
whether the conversion of the currencies of other countries in the European
Union ("EU"), such as the United Kingdom and Denmark, into the euro and the
admission of other non-EU countries such as Poland, Latvia and Lithuania as
members of the EU may have an impact on the euro. These or other factors,
including political and economic risks, could cause market disruptions and could
adversely affect the value of securities held by a Fund.

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FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

In accordance with their respective investment objectives and
policies, the Funds may buy and sell securities (and receive interest, dividends
and sale proceeds) in currencies other than the U.S. dollar. Therefore, the
Funds may from time to time enter into foreign currency exchange transactions to
convert to and from different foreign currencies and to convert foreign
currencies to and from the U.S. dollar. The Funds either enter into these
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or use forward contracts to purchase or sell
foreign currencies. The cost of a Fund's spot currency exchange transactions
will generally be the difference between the bid and offer spot rate of the
currency being purchased or sold.

A forward foreign currency exchange contract is an obligation by a
Fund to purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are transferable in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward foreign
currency exchange contract generally has no deposit requirement and is traded at
a net price without commission. A Fund maintains with its custodian a
segregated account of liquid assets in an amount at least equal to its
obligations under each forward foreign currency exchange contract. Neither spot
transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Fund's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.

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

At or before the maturity of a forward foreign currency exchange
contract when a Fund has agreed to deliver a foreign currency, the Fund may sell
a portfolio security and make delivery of the currency, or retain the security
and offset its contractual obligation to deliver the currency by purchasing a
second contract pursuant to which the Fund will obtain, on the same

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maturity date, the same amount of the currency which it is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund, at the time of execution of the offsetting transaction,
will incur a gain or a loss to the extent that movement has occurred in forward
contract prices. Should forward prices decline during the period between a
Fund's entering into a forward contract for the sale of a currency, and the date
it enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, the Fund will suffer a loss to the extent of the price
of the currency it has agreed to sell is less than the price of the currency it
has agreed to purchase in the offsetting contract.

While these contracts are not presently regulated by the Commodity
Futures Trading Commission ("CFTC"), the CFTC may in the future assert authority
to regulate forward contracts. In such event, a Fund's ability to utilize
forward contracts may be restricted. Forward contracts may reduce the potential
gain from a positive change in the relationship between the U.S. dollar and
foreign currencies. Unanticipated changes in currency prices may result in
poorer overall performance for a Fund than if it had not entered into such
contracts. The use of foreign currency forward contracts may not eliminate
fluctuations in the underlying U.S. dollar equivalent value of the prices of or
rates of return on a Fund's foreign currency denominated portfolio securities
and the use of such techniques will subject the Fund to certain risks.

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

GUARANTEED INVESTMENT CONTRACTS

Each Fund may invest in guaranteed investment contracts ("GICs")
issued by insurance companies. Pursuant to such contracts, a Fund makes cash
contributions to a deposit fund of the insurance company's general account. The
insurance company then credits to the fund guaranteed interest. The GICs
provide that this guaranteed interest will not be less than a certain minimum
rate. The insurance company may assess periodic charges against a GIC for
expenses and service costs allocable to it, and the charges will be deducted
from the value of the deposit fund. Because a Fund may not receive the
principal amount of a GIC from the insurance company on seven days' notice or
less, the GIC is considered an illiquid investment and, together with other
instruments in a Fund which are 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

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<PAGE>

of time remaining until the principal amount can be recovered from the issuer
through demand. Currently, each Fund intends to invest 5% or less of its
respective net assets in GICs during the current year.

WHEN-ISSUED AND FORWARD TRANSACTIONS

Each Fund may purchase eligible securities on a "when-issued" basis
and may purchase or sell securities on a "forward commitment" basis. These
transactions involve a commitment by a Fund to purchase or sell particular
securities with payment and delivery taking place in the future, beyond the
normal settlement date, at a stated price and yield. Securities purchased on a
"forward commitment" or "when-issued" basis are recorded as an asset and are
subject to changes in value based upon changes in the general level of interest
rates. When a Fund agrees to purchase securities on a "when-issued" or "forward
commitment" basis, the custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment and, in such case, the Fund may be required subsequently to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that a Fund's net assets will fluctuate to a greater degree when
it sets aside portfolio securities to cover such purchase commitments than when
it sets aside cash. Because a Fund will set aside cash or liquid assets to
satisfy its purchase commitments in the manner described, its liquidity and
ability to manage its portfolio might be affected in the event its forward
commitments or commitments to purchase "when-issued" securities ever exceed 25%
of the value of its assets.

It is expected that "forward commitments" and "when-issued" purchases
will not exceed 25% of the value of a Fund's total assets absent unusual market
conditions, and that the length of such commitments will not exceed 45 days.
The Funds do not intend to engage in "when-issued" purchases and "forward
commitments" for speculative purposes, but only in furtherance of their
investment objectives.

A Fund will purchase securities on a "when-issued" or "forward
commitment" basis only with the intention of completing the transaction. If
deemed advisable as a matter of investment strategy, however, a Fund may dispose
of or renegotiate a commitment after it is entered into, and may sell securities
it has committed to purchase before those securities are delivered to the Fund
on the settlement date. In these cases, the Fund may realize a taxable capital
gain or loss.

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

The market value of the securities underlying a "when-issued" purchase
or a "forward commitment" to purchase securities and any subsequent fluctuations
in their market value are taken into account when determining the market value
of a Fund starting on the day the

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<PAGE>

Fund agrees to purchase the securities. The Fund does not earn interest on the
securities it has committed to purchase until they are paid for and delivered on
the settlement date.

ZERO COUPON OBLIGATIONS

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

ASSET-BACKED SECURITIES

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

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

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

MORTGAGE PASS-THROUGHS AND COLLATERALIZED MORTGAGE OBLIGATIONS

The Income and Total Return Bond Funds may purchase mortgage and
mortgage-related securities such as pass-throughs and collateralized mortgage
obligations that meet each Fund's selection criteria and are investment grade or
of comparable quality (collectively, "Mortgage Securities"). Mortgage
pass-throughs are securities that pass through to investors an undivided
interest in a pool of underlying mortgages. These are issued or guaranteed by
U.S. government agencies such as the Government National Mortgage Association
("GNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") and the Federal
National Mortgage Association ("FNMA"). 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.

Mortgage Securities may be 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 Funds 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 income that the Funds derive from
mortgage-backed securities is reduced. In addition, like other fixed income
securities, Mortgage Securities generally decline in price when interest rates
rise.

FUTURES CONTRACTS AND RELATED OPTIONS

Each Fund may invest in futures contracts and options thereon. They
may enter into interest rate futures contracts and other types of financial
futures contracts, including foreign currency futures contracts, as well as any
index or foreign market futures which are available on recognized exchanges or
in other established financial markets. A futures contract on foreign currency
creates a binding obligation on one party to deliver, and a corresponding
obligation on another party to accept delivery of, a stated quantity of a
foreign currency for an amount fixed in U.S. dollars. Foreign currency futures,
which operate in a manner similar to interest rate futures contracts, may be
used by the Funds to hedge against exposure to fluctuations in exchange rates
between the U.S. dollar and other currencies arising from multinational
transactions.

Futures contracts will not be entered into for speculative purposes,
but to hedge risks associated with a Fund's securities investments. The Funds
will engage in futures transactions only to the extent permitted by the
Commodity Futures Trading Commission ("CFTC") and the SEC. When investing in
futures contracts, the Funds must satisfy certain asset segregation requirements
to ensure that the use of futures is unleveraged. When a Fund takes a long
position in a futures contract, it must maintain a segregated account containing
liquid assets equal to the purchase price of the contract, less any margin or
deposit. When a Fund takes a short position in a futures contract, the Fund
must maintain a segregated account containing liquid assets in an amount equal
to the market value of the securities underlying such contract (less any margin
or deposit), which amount must be at least equal to the market price at which
the short position was established. Asset segregation requirements are not
applicable when a Fund "covers" an options or futures position generally by
entering into an offsetting position. Each Fund will limit its hedging
transactions in futures contracts and related options so that,

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<PAGE>

immediately after any such transaction, the aggregate initial margin that is
required to be posted by the Fund under the rules of the exchange on which the
futures contract (or futures option) is traded, plus any premiums paid by the
Fund on its open futures options positions, does not exceed 5% of the Fund's
total assets, after taking into account any unrealized profits and unrealized
losses on the Fund's open contracts (and excluding the amount that a futures
option is "in-the-money" at the time of purchase). An option to buy a futures
contract is "in-the-money" if the then-current purchase price of the underlying
futures contract exceeds the exercise or strike price; an option to sell a
futures contract is "in-the-money" if the exercise or strike price exceeds the
then-current purchase price of the contract that is the subject of the option.
In addition, the use of futures contracts is further restricted to the extent
that no more than 10% of a Fund's total assets may be hedged.

Positions in futures contracts may be closed out only on an exchange
which provides a secondary market for such futures. However, there can be no
assurance that a liquid secondary market will exist for any particular futures
contract at any specific time. Thus, it may not be possible to close a futures
position. In the event of adverse price movements, a Fund would continue to be
required to make daily cash payments to maintain its required margin. In such
situations, if the Fund has insufficient cash, it may have to sell portfolio
securities to meet daily margin requirements at a time when it may be
disadvantageous to do so. In addition, the Fund may be required to make
delivery of the instruments underlying futures contracts it holds. The
inability to close options and futures positions also could have an adverse
impact on the Fund's ability to effectively hedge.

Transactions in futures as a hedging device may subject a Fund to a
number of risks. Successful use of futures by a Fund is subject to the ability
of the Adviser to correctly predict movements in the direction of the market.
For example, if a Fund has hedged against the possibility of a decline in the
market adversely affecting securities held by it and securities prices increase
instead, the Fund will lose part or all of the benefit to the increased value of
its securities which it has hedged because it will have approximately equal
offsetting losses in its futures positions. There may be an imperfect
correlation, or no correlation at all, between movements in the price of the
futures contracts (or options) and movements in the price of the instruments
being hedged. In addition, investments in futures may subject a Fund to losses
due to unanticipated market movements which are potentially unlimited. Further,
there is no assurance that a liquid market will exist for any particular futures
contract (or option) at any particular time. Consequently, a Fund may realize a
loss on a futures transaction that is not offset by a favorable movement in the
price of securities which it holds or intends to purchase or may be unable to
close a futures position in the event of adverse price movements. In addition,
in some situations, if a Fund has insufficient cash, it may have to sell
securities to meet daily variation margin requirements at a time when it may be
disadvantageous to do so. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising market.

As noted above, the risk of loss in trading futures contracts in some
strategies can be substantial, due both to the low margin deposits required, and
the extremely high degree of leverage involved in futures pricing. As a result,
a relatively small price movement in a futures contract may result in immediate
and substantial loss (as well as gain) to the investor. For example, if at the
time of purchase, 10% of the value of the futures contract is deposited as

20
<PAGE>

margin, a subsequent 10% decrease in the value of the futures contract would
result in a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15% decrease would
result in a loss equal to 150% of the original margin deposit, before any
deduction for the transaction costs, if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the contract.

Utilization of futures transactions involves the risk of loss by a
Fund of margin deposits in the event of bankruptcy of a broker with whom such
Fund has an open position in a futures contract or related option.

Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.

The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.

OPTIONS ON FUTURES CONTRACTS

Each Fund may purchase options on the futures contracts described
above. A futures option gives the holder, in return for the premium paid, the
right to buy (call) from or sell (put) to the writer of the option a futures
contract at a specified price at any time during the period of the option. Upon
exercise, the writer of the option is obligated to pay the difference between
the cash value of the futures contract and the exercise price. Like the buyer
or seller of a futures contract, the holder, or writer, of an option has the
right to terminate its position prior to the scheduled expiration of the option
by selling, or purchasing, an option of the same series, at which time the
person entering into the closing transaction will realize a gain or loss.

Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
of an option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option
purchased. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the instruments
being hedged, an option may or may not be less risky than ownership of the
futures contract or such instruments. In general, the market prices of options
can be expected to be more volatile than the market prices on the underlying

21
<PAGE>

futures contract. Compared to the purchase or sale of futures contracts,
however, the purchase of call or put options on futures contracts may frequently
involve less potential risk to a Fund because the maximum amount at risk is the
premium paid for the options (plus transaction costs). Although permitted by
their fundamental investment policies, the Funds do not currently intend to
write futures options, and will not do so in the future absent any necessary
regulatory approvals.

OPTIONS

Each Fund may purchase put and call options listed on a national
securities exchange and issued by the Options Clearing Corporation. Such
purchases would be in an amount not exceeding 5% of each such Fund's net assets.
Such options may relate to particular securities or to various stock and bond
indices. Purchase of options is a highly specialized activity which entails
greater than ordinary investment risks, including a substantial risk of a
complete loss of the amounts paid as premiums to the writer of the options.
Regardless of how much the market price of the underlying security increases or
decreases, the option buyer's risk is limited to the amount of the original
investment for the purchase of the option. However, options may be more
volatile than the underlying securities, and therefore, on a percentage basis,
an investment in options may be subject to greater fluctuation than an
investment in the underlying securities. A listed call option gives the
purchaser of the option the right to buy from a clearing corporation, and the
writer has the obligation to sell to the clearing corporation, the underlying
security at the stated exercise price at any time prior to the expiration of the
option, regardless of the market price of the security. The premium paid to the
writer is in consideration for undertaking the obligations under the option
contract. A listed put option gives the purchaser the right to sell to a
clearing corporation the underlying security at the stated exercise price at any
time prior to the expiration date of the option, regardless of the market price
of the security. Put and call options purchased by the Funds will be valued at
the last sale price or, in the absence of such a price, at the mean between bid
and asked prices.

Each Fund may engage in writing covered call options (options on
securities owned by the particular Fund) and enter into closing purchase
transactions with respect to such options. Such options must be listed on a
national securities exchange and issued by the Options Clearing Corporation.
The aggregate value of the securities subject to options written by each Fund
may not exceed 25% of the value of its net assets. By writing a covered call
option, a Fund forgoes the opportunity to profit from an increase in the market
price of the underlying security above the exercise price except insofar as the
premium represents such a profit, and it will not be able to sell the underlying
security until the option expires or is exercised or the Fund effects a closing
purchase transaction by purchasing an option of the same series.

When a Fund writes a covered call option, it may terminate its
obligation to sell the underlying security prior to the expiration date of the
option by executing a closing purchase transaction, which is effected by
purchasing on an exchange an option of the same series (i.e., same underlying
security, exercise price and expiration date) as the option previously written.
Such a purchase does not result in the ownership of an option. A closing
purchase transaction will ordinarily be effected to realize a profit on an
outstanding call option, to prevent an underlying security from being called, to
permit the sale of the underlying security or to permit

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<PAGE>

the writing of a new call option containing different terms on such underlying
security. The cost of such a liquidation purchase plus transaction costs may be
greater than the premium received upon the original option, in which event the
writer will have incurred a loss on the transaction. An option position may be
closed out only on an exchange which provides a secondary market for an option
of the same series. There is no assurance that a liquid secondary market on an
exchange will exist for any particular option. A covered option writer, unable
to effect a closing purchase transaction, will not be able to sell the
underlying security until the option expires or the underlying security is
delivered upon exercise, with the result that the writer in such circumstances
will be subject to the risk of market decline in the underlying security during
such period. A Fund will write an option on a particular security only if the
Adviser believes that a liquid secondary market will exist on an exchange for
options of the same series, which will permit the Fund to make a closing
purchase transaction in order to close out its position.

When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by that Fund is included in the liability
section of that Fund's statement of assets and liabilities as a deferred credit.
The amount of the deferred credit will be subsequently marked to market to
reflect the current value of the option written. The current value of the
traded option is the last sale price or, in the absence of a sale, the average
of the closing bid and asked prices. If an option expires on the stipulated
expiration date, or if the Fund involved enters into a closing purchase
transaction, the Fund will realize a gain (or loss if the cost of a closing
purchase transaction exceeds the net premium received when the option is sold),
and the deferred credit related to such option will be eliminated. If an option
is exercised, the Fund involved may deliver the underlying security from its
portfolio or purchase the underlying security in the open market. In either
event, the proceeds of the sale will be increased by the net premium originally
received, and the Fund involved will realize a gain or loss. Premiums from
expired call options written by the Funds and net gains from closing purchase
transactions are treated as short-term capital gains for Federal income tax
purposes, and losses on closing purchase transactions are short-term capital
losses. The use of covered call options is not a primary investment technique
of the Funds and such options will normally be written on underlying securities
as to which the Adviser does not anticipate significant short-term capital
appreciation.

SHORT SALES "AGAINST THE BOX"

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

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

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<PAGE>

A Fund will not engage in short sales against the box for investment
purposes. A Fund may, however, make a short sale as a hedge, when it believes
that the price of a security may decline, causing a decline in the value of a
security (or a security convertible or exchangeable for such security), or when
a Fund wants to sell the security at an attractive current price, but also
wishes to defer recognition of gain or loss for federal income tax purposes or
for purposes of satisfying certain tests applicable to regulated investment
companies under the Internal Revenue Code of 1986, as amended (the "Code"). In
such case, any future losses in a 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 a Fund owns. There are certain additional transaction costs
associated with short sales against the box, but a Fund will endeavor to offset
these costs with the income from the investment of the cash proceeds of short
sales.

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

INVESTMENT COMPANY SECURITIES

Each 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 a
Fund bears directly in connection with its own operations, as a shareholder of
another investment company, a Fund would bear its pro rata portion of the other
investment company's advisory fees and other expenses. As such, the Fund's
shareholders would indirectly bear the expenses of the Fund and the other
investment company, some or all of which would be duplicative. Such securities
will be acquired by each Fund within the limits prescribed by the 1940 Act,
which include, subject to certain exceptions, a prohibition against a Fund
investing more than 10% of the value of its total assets in such securities.

SHORT-TERM INSTRUMENTS

Each Fund may invest in short-term income securities in accordance
with its investment objective and policies. The Funds may also make money
market investments pending other investments or settlement, or to maintain
liquidity to satisfy redemption requests. In adverse market conditions and for
temporary defensive purposes only, each Fund may temporarily invest its assets
without limitation in short-term investments. Short-term investments include:
obligations of the U.S. government and its agencies or instrumentalities;
commercial paper, variable amount master demand notes and other debt securities,
including high quality U.S. dollar-denominated short-term bonds and notes issued
by domestic and foreign corporations; 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.

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<PAGE>

The Funds may invest in commercial paper issued by major corporations
in reliance on the exemption from registration afforded by Section 3(a)(3) of
the 1933 Act. Commercial paper consists of short-term (usually from 1 to 270
days) unsecured promissory notes issued by corporations in order to finance
their current operations. A variable amount master demand note (which is a type
of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under an agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts. Each Fund may purchase three types of
commercial paper, as classified by exemption from registration under the 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" 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" 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" 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.

Each Fund may invest in U.S. dollar-denominated certificates of
deposit, time deposits, bankers' acceptances and other short-term obligations
issued by domestic banks and domestic or foreign branches or subsidiaries of
foreign banks. Certificates of deposit are certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time. Such instruments include Yankee Certificates of Deposit ("Yankee CDs"),
which are certificates of deposit denominated in U.S. dollars and issued in the
United States by the domestic branch of a foreign bank. Time deposits are
non-negotiable deposits maintained in a banking institution for a specified
period of time at a stated interest rate. Time deposits which may be held by
the Funds are not insured by the Federal Deposit Insurance Corporation or any
other agency of the U.S. government. A 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 marketable.
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.

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

25
<PAGE>

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.

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.

The Funds will limit their short-term investments to those
U.S. dollar-denominated instruments which are determined by or on behalf of the
Board of Trustees of the Trust to present minimal credit risks and which are of
"high quality" as determined by an NRSRO (e.g., 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 Adviser under the supervision of the Board of Trustees
of the Trust. The Funds may invest in obligations of banks which at the date of
investment have capital, surplus and undivided profits (as of the date of their
most recently published financial statements) in excess of $100 million.
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.

26
<PAGE>

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 incorporate the
performance characteristics of these contracts are also referred to as
"derivatives." The term has also been applied to securities derived from the
cash flows from underlying securities, mortgages or other obligations.

Derivative contracts and securities can be used to reduce or increase
the volatility of a Fund's total performance. To the extent that a Fund invests
in securities that could be characterized as derivatives, such as mortgage
pass-throughs and collateralized mortgage obligations, it will only do so in a
manner consistent with its investment objective, policies and limitations.

CERTAIN OTHER OBLIGATIONS

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

PORTFOLIO TURNOVER RATE

Each Fund may sell a portfolio investment immediately after its
acquisition if the Adviser believes that such a disposition is consistent with
the investment objective of the particular Fund. Portfolio investments may be
sold for a variety of reasons, such as a more favorable investment opportunity
or other circumstances bearing on the desirability of continuing to hold such
investments. A high rate of portfolio turnover may involve correspondingly
greater brokerage commission expenses and other transaction costs, which must be
borne directly by a Fund and ultimately by its shareholders. High portfolio
turnover may result in the realization of substantial net capital gains. To the
extent net short-term capital gains are realized, any distributions resulting
from such gains are considered ordinary income for federal income tax purposes.
See "Taxation" below.

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 Adviser also makes its own evaluations of these
securities, subject to review by the Board of Trustees of the Trust. After
purchase by a Fund, an obligation may cease to be rated or its rating may be
reduced below the minimum required for purchase by the Fund. Neither event
would require a Fund to dispose of the obligation, but the Adviser will consider
such an event in its determination of whether the Fund should continue to hold
the obligation. A description of the ratings used herein is set forth in the
Appendix to this Statement of Additional Information.

27
<PAGE>

INVESTMENT LIMITATIONS

The investment limitations enumerated below are matters of fundamental
policy. Fundamental investment limitations may be changed with respect to a
Fund only by a vote of the holders of a majority of such Fund's outstanding
shares. As used herein, a "vote of the holders of a majority of the outstanding
shares" of the Trust or a particular Fund means, with respect to the approval of
an investment advisory agreement or a change in a fundamental investment policy,
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Trust or such Fund, or (b) 67% or more of the shares of the Trust
or such Fund present at a meeting if more than 50% of the outstanding shares of
the Trust or such Fund are represented at the meeting in person or by proxy.
Investment limitations which are "operating policies" with respect to a Fund may
be changed by the Trust's Board of Trustees without shareholder approval.

As a matter of fundamental policy, each Fund may not:

(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 Equity, Income, Total Return Bond and
International Equity Funds will not purchase securities while borrowings exceed
5% of their respective total assets;

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

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

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

(5) invest 25% or more of its assets in any one industry (excluding
U.S. government securities); or

28
<PAGE>

(6) issue any senior security (as that term is defined in the 1940 Act) if
such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements with
respect to options and futures, including deposits of initial deposit and
variation margin, are not considered to be the issuance of a senior security for
purposes of this restriction.

With respect to the Equity, Income, Total Return Bond and
International Equity Funds, none of the above-referenced fundamental investment
restrictions shall prevent a Fund from investing all of its investable assets in
an open-end management investment company with substantially the same investment
objective and policies as the Fund.

Each Fund will not as a matter of operating policy:

(7) 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;

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

(9) purchase securities issued by any other investment company except by
purchase in the open market where no commission or profit to a sponsor or dealer
results from such purchase other than the customary broker's commission, or
except when such purchase, though not made in the open market, is part of a plan
of merger or consolidation; provided, however, that securities of any investment
company will not be purchased for the Fund if such purchase at the time thereof
would cause (a) more than 10% of the Fund's total assets (taken at the greater
of cost or market value) to be invested in the securities of such issuers;
(b) more 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;

(10) 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;

(11) purchase or retain in the Fund's portfolio any securities issued by an
issuer any of whose officers, directors, trustees or security holders is an
officer or Trustee of the Trust, or is an officer or partner of the investment
adviser of the Fund, if after the purchase of the securities of such issuer for
the Fund one or more of such persons owns beneficially more than 1/2 of 1% of
the shares or securities, or both, all taken at market value, of such issuer,
and such persons owning more than 1/2 of 1% of such shares or securities
together own beneficially more than 5% of such shares or securities, or both,
all taken at market value;

29
<PAGE>

(12) invest more than 5% of the Fund's net assets in warrants (valued at
the lower of cost or market);

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

(14) 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.

Policies (7) through (14) may be changed by the Board of Trustees of
the Trust without shareholder approval.

As diversified portfolios, 75% of the assets of each Fund are
represented by cash and cash items (including receivables), government
securities, securities 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 voting securities of any one issuer. In addition, each Fund may
not invest 25% or more of its assets in the securities of issuers in any one
industry. These are fundamental investment policies of each Fund which may not
be changed without shareholder approval. For purposes of these policies and
limitations, each Fund considers certificates of deposit and demand and time
deposits issued by a U.S. branch of a domestic bank or savings association
having capital, surplus and undivided profits in excess of $100,000,000 at the
time of investment to be "cash items."

If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in value
of a Fund's securities will not constitute a violation of such limitation.

PORTFOLIO TRANSACTIONS

Subject to the general control of the Trust's Board of Trustees, the
Adviser is responsible for, makes decisions with respect to, and places orders
for all purchases and sales of all portfolio securities of the Funds.

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

30
<PAGE>

profit or loss. Each Fund may engage in short-term trading to achieve its
investment objective(s). Portfolio turnover may vary greatly from year to year
as well as within a particular year. It is expected that the Income Fund's and
Total Return Bond Fund's turnover rates may remain higher than those of many
other investment companies with similar investment objectives and policies;
however, since brokerage commissions are not normally paid on instruments
purchased by these Funds, portfolio turnover is not expected to have a material
effect on the net asset value of either Fund. Each Fund's portfolio turnover
rate may also be affected by cash requirements for redemptions of shares and by
regulatory provisions which enable a Fund to receive certain favorable tax
treatment. Portfolio turnover will not be a limiting factor in making portfolio
decisions. Portfolio trading is engaged in for a Fund if the Adviser believes
that a transaction net of costs (including custodian charges) will help achieve
the Fund's investment objective.

A Fund's purchase and sales of securities may be principal
transactions, that is, securities may be purchased directly from the issuer or
from an underwriter or market maker for the securities. There usually are no
brokerage commissions paid for such purchases and, therefore, the Funds do not
anticipate paying brokerage commissions in such transactions. Purchases and
sales of the Income Fund's and Total Return Bond Fund's portfolio securities
will usually be principal transactions without brokerage commissions. Any
transactions for which a Fund pays a brokerage commission will be effected at
the best price and execution available. Purchases from underwriters of
securities include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers serving as market makers include the
spread between the bid and the asked price.

Allocations of transactions, including their frequency, to various
dealers is determined by the Adviser in its best judgment and in a manner deemed
to be in the best interest of the investors in the applicable Fund rather than
by any formula. The primary consideration is prompt execution of orders in an
effective manner at the most favorable price. In executing portfolio
transactions for the Funds, the Adviser may use affiliated brokers in accordance
with the requirements of the 1940 Act. The Adviser may also take into account
the sale of Fund shares in allocating brokerage transactions.

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

In addition, the Advisory Agreements authorize the Adviser, to the
extent permitted by law and subject to the review of the Trust's Board of
Trustees, to cause the Funds to pay a broker which furnishes brokerage and
research services a higher commission than that which might be charged by
another broker for effecting the same transaction, provided that the Adviser
determines in good faith that such commission is reasonable in relation to the
value of

31
<PAGE>

the brokerage and research services provided by such broker, viewed in terms of
either that particular transaction or the overall responsibilities of the
Adviser to the accounts as to which it exercises investment discretion. Such
brokerage and research services might consist of reports and statistics on
specific companies or industries, general summaries of groups of stocks and
their comparative earnings, or broad overviews of the stock market and the
economy. 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 Adviser and does not
reduce the investment advisory fees payable by the Funds. Such information may
be useful to the Adviser in serving the Funds and other clients and, conversely,
supplemental information obtained by the placement of business of other clients
may be useful to the Adviser in carrying out its obligations to the Funds.

During the fiscal year ended March 31, 1999, the Adviser directed Fund
brokerage transactions to brokers because of research services provided. The
amounts of such transactions and their related commissions were as follows:

Fund Amount of Transactions Related Commission
---- ---------------------- ------------------
<S> <C> <C>
Equity Fund $________ $________
Value Equity Fund $________ $________
Optimum Growth Fund $________ $________
International Equity Fund $________ $________
Income Fund $________ $________
Total Return Bond Fund $________ $________

</TABLE>

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

For the fiscal years ended March 31, 1999 and 1998, the Equity Fund
paid brokerage commissions aggregating $114,325, and $118,960, respectively, of
which $0, and

32
<PAGE>

$9,474, respectively, was paid to UST Securities Corp., an affiliate of the
Adviser. For the same periods, the percentages of total commissions paid by the
Fund to UST Securities Corp. were 0%, and 7.96%, respectively, and the
percentages of the total amount of the Fund's brokerage transactions involving
the payment of commissions that was effected through UST Securities Corp. were
0% and 8.44%, respectively. For the same periods, the average commissions per
share paid by the Fund to UST Securities Corp. and other unaffiliated brokers
were $0 and $0.06, and $0.09 and $0.07, respectively. For the fiscal period
ended March 31, 1997 the Fund paid brokerage commissions aggregating $71,134,
none of which was paid to affiliates of the Adviser.

For the fiscal years or periods ended March 31, 1999, 1998 and 1997,
the Value Equity Fund paid brokerage commissions aggregating $48,291, $43,969
and $59,569, respectively, of which $0, $1,377 and $2,177, respectively, was
paid to UST Securities Corp. For the same periods, the percentages of total
commissions paid by the Fund to UST Securities Corp. were 0%, 3.13% and 3.65%,
respectively, and the percentages of the total amount of the Fund's brokerage
transactions involving the payment of commissions that was effected through UST
Securities Corp. were 0%, 3.93% and 6.16%, respectively. For the same periods,
the average commissions per share paid by the Fund to UST Securities Corp. and
other unaffiliated brokers were $0 and $0.05, $0.09 and $0.06, and $0.09 and
$0.08, respectively.

For the fiscal year ended March 31, 1999, the Optimum Growth Fund paid
brokerage commissions aggregating $20,032, of which $0 was paid to UST
Securities Corp. For the same period, the percentage of total commissions paid
by the Fund to UST Securities Corp. was 0%, and the percentage of the total
amount of the Fund's brokerage transactions involving the payment of commissions
that was effected through UST Securities Corp. was 0%. For the same period, the
average commissions per share paid by the Fund to UST Securities Corp. and other
unaffiliated brokers were $0 and $0.04, respectively. For the fiscal year ended
March 31, 1998 and for the fiscal period ended March 31, 1997, the Optimum
Growth Fund paid brokerage commissions aggregating $15,289 and $11,787,
respectively, none of which was paid to affiliates of the Adviser.

For the fiscal year ended March 31, 1999, the International Equity
Fund paid brokerage commissions aggregating $248,086, of which $0 was paid to
UST Securities Corp. For the same period, the percentage of total commissions
paid by the Fund to UST Securities Corp. was 0%, and the percentage of the total
amount of the Fund's brokerage transactions involving the payment of commissions
that was effected through UST Securities Corp. was 0%. For the same period, the
average commissions per share paid by the Fund to UST Securities Corp. and other
unaffiliated brokers were $0 and $0.03, respectively. For the fiscal year ended
March 31, 1998 and for the fiscal period ended March 31, 1997, the International
Equity Fund paid brokerage commissions aggregating $108,548 and $95,258,
respectively, none of which was paid to affiliates of the Adviser.

The Trust is required to identify any securities of its regular
brokers or dealers (as defined in Rule 10b-1 under the 1940 Act) or their
parents held by the Funds as of the close of the most recent fiscal year. As of
March 31, 1999, the following Funds held the following securities of the Trust's
regular brokers or dealers or their parents: the Equity Fund held 34,489

33
<PAGE>

shares of common stock of Morgan Stanley Dean Witter & Co.; the Optimum Growth
Fund held 32,000 shares of common stock of Merrill Lynch & Co.; the Income Fund
held a corporate bond issued by Merrill Lynch & Co. With a principal amount of
$1,550,000; and the Total Return Bond Fund held a corporate bond issued by
Merrill Lynch & Co. with a principal amount of $4,160,000 and a corporate bond
issued by Morgan Stanley Dean Witter & Co. with a principal amount of
$3,950,000.

PERFORMANCE INFORMATION

STANDARD PERFORMANCE INFORMATION

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

YIELD. The Trust may provide annualized "yield" quotations for
Institutional Shares of the Income and Total Return Bond Funds. The "yield" of
a Fund refers to the income generated by an investment in such Fund over a
thirty day or one month period. The dates of any such period are identified in
all advertisements or communications containing yield quotations. Income is
then annualized; that is, the amount of income generated by an investment in
Institutional Shares of a Fund over a period is assumed to be generated (or
remain constant) over one year and is shown as a percentage of the net asset
value on the last day of that year-long period. The Funds may also advertise
the "effective yields," which are calculated similarly but, when annualized,
income is assumed to be reinvested, thereby making the effective yields slightly
higher because of the compounding effect of the assumed reinvestment. The
Income and Total Return Bond Funds may quote the standardized effective 30-day
(or one month) yield for their respective Institutional Shares, calculated in
accordance with the method prescribed by the SEC for mutual funds. Such yield
will be calculated for each Fund's Institutional Shares according to the
following formula:
6
Yield = 2 (ab/cd + 1)

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), each Fund computes the yield to maturity of any
debt obligation held by it based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest). Such yield is then
divided by 360, and the

34
<PAGE>

quotient is multiplied by the market value of the obligation (including actual
accrued interest) in order to determine the interest income on the obligation
for each day of the subsequent month that the obligation is in the portfolio.
It is assumed in the above calculation that each month contains 30 days. Also,
the maturity of a debt obligation with a call provision is deemed to be the next
call date on which the obligation reasonably may be expected to be called or, if
none, the maturity date. Each Fund calculates interest gained on tax-exempt
obligations issued without original issue discount and having a current market
discount by using the coupon rate of interest instead of the yield to maturity.
In the case of tax-exempt obligations with original issue discount, where the
discount based on the current market value exceeds the then-remaining portion of
original issue discount, the yield to maturity is the imputed rate based on the
original issue discount calculation. Conversely, where the discount based on
the current market value is less than the remaining portion of the original
issue discount, the yield to maturity is based on the market value.

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

For the 30-day period ended March 31, 1999, the standardized effective
yield for Institutional Shares of the Income and Total Return Bond Funds was as
follows: Income Fund, 5.54%; and Total Return Bond Fund, 5.38%.

TOTAL RETURN. The Trust may provide period and annualized "total
rates of return" and non-standardized total return data for Institutional Shares
or Retail Shares of a Fund. The "total rate of return" refers to the change in
the value of an investment in Institutional Shares or Retail Shares of a Fund
over a stated period which reflects any change in net asset value per share and
includes the value of any such Shares purchased with any dividends or capital
gains declared during such period. Period total rates of return may be
annualized. An annualized total rate of return is a compounded total rate of
return which 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 Shares of the same class. The "average annual total return" for
Institutional Shares and Retail Shares of a Fund 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:

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

35
<PAGE>

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

A Fund may also advertise the "aggregate total return" for its
Institutional Shares and Retail Shares which is computed by determining the
aggregate compounded rates of return during specified periods that likewise
equate the initial amount invested to the ending redeemable value of such
investment. The formula for calculating aggregate total return is as follows:

Aggregate Total Return = [(ERV/P)] - 1

The above calculations are 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 a
Fund during the periods is reflected. The ending redeemable value (variable
"ERV" in the formula) is determined by assuming complete redemption of the
hypothetical investment after deduction of all nonrecurring charges at the end
of the measuring period.

Based on the foregoing calculations, the average annual total returns
for Institutional Shares of the Equity, Value Equity, Optimum Growth,
International Equity, Income and Total Return Bond Funds for the one year period
ended March 31, 1999 and the period from commencement of operations* to March
31, 1999 were: 20.13% and 4.80%; 68.74% and -6.60%; 5.94% and 6.07%; 25.54% and
23.29%; 43.32% and 7.99%; and 8.04% and 8.87%, respectively.

The average annual total returns for Retail Shares of the Value Equity
and Optimum Growth Funds for the one year period ended March 31, 1999 and the
period from commencement of operations* to March 31, 1999 were: 4.59% and 68.0%;
and 23.03% and 42.83%, respectively.

* Institutional Shares of the Equity and Income Funds commenced
operations on January 16, 1995; Institutional Shares of the Total Return
Bond Fund commenced operations on January 19, 1995; Institutional Shares of
the Optimum Growth Fund commenced operations on June 1, 1996; Retail Shares
of the Optimum Growth Fund commenced operations on July 3, 1996;
Institutional Shares of the Value Equity Fund commenced operations on June
1, 1996; Retail Shares of the Value Equity Fund commenced operations on
January 15, 1997; and Institutional Shares of the International Equity Fund
commenced operations on January 24, 1995.

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

36
<PAGE>

Shares in a Fund have different expenses than Institutional Shares which may
affect performance. Any fees charged by shareholder organizations to customers
that have invested in Shares and any charges to institutional investors for
asset management and related services will not be included in calculations of
performance.

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

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 Institutional
Shares and Retail Shares of a 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, each Fund also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs. Some Funds may
invest in some instruments not eligible for inclusion in such an index, and may
be prohibited from investing in some instruments included in this index.
Rankings and other evaluations of a Fund's performance made by independent
sources may also be used in advertisements concerning such Fund. Sources for a
Fund's performance information may include, but are not limited to, the
following:

ASIAN WALL STREET JOURNAL, a weekly Asian newspaper that often reviews
U.S. mutual funds investing internationally.

BARRON'S, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.

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

CHANGING TIMES, THE KIPLINGER MAGAZINE, a monthly investment advisory
publication that periodically features the performance of a variety of
securities.

CONSUMER DIGEST, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.

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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.

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'

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<PAGE>

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.

PORTFOLIO VALUATION AND DETERMINATION OF NET ASSET VALUE

The Trust determines the net asset value of the Institutional Shares
and Retail Shares of a Fund each day both the New York Stock Exchange (the
"NYSE") and the Adviser are open for business (a "Business Day"). As a result,
each Fund will normally determine its net asset value every weekday except for
the following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans Day, Thanksgiving Day and Christmas.

Daily determinations of net asset value for each Fund are made at the
close of regular trading hours on the NYSE, currently 4:00 p.m. (Eastern time),
and are calculated separately for each class of Shares by dividing the total
assets of a Fund that are allocated to a particular class of Shares less all of
its liabilities charged to that class, by the total number of Shares of the
class that are outstanding at the time the determination is made. As discussed
below, purchases, exchanges and redemptions will be effected at the net asset
value per share next computed after a request is received in good order.

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

Securities of the Funds which are primarily traded on foreign
securities exchanges are generally valued at the preceding closing values of
such securities on their respective exchanges, except that when an event
subsequent to the time when value was so established is likely to have changed
such value, then the fair value of those securities will be determined after
consideration of such events and other material factors, all under the direction
and guidance of the Board of Trustees of the Trust. A security which is listed
or traded on more than one exchange is valued at the quotation on the exchange
determined to be the primary market for such security. Absent unusual
circumstances, investments in foreign debt securities having a

39
<PAGE>

maturity of 60 days or less are valued based upon the amortized cost method.
All other foreign securities are valued at the last current bid quotation if
market quotations are available, or at fair value as determined in accordance
with policies established by the Board of Trustees of the Trust. For valuation
purposes, quotations of foreign securities in foreign currency are converted to
U.S. dollars equivalent at the prevailing market rate on the day of conversion.
Some of the securities acquired by the Funds may be traded on foreign exchanges
or over-the-counter markets on days which are not Business Days. In such cases,
the net asset value of the Shares may be significantly affected on days when
investors can neither purchase nor redeem a Fund's Shares. The administrators
have undertaken to price the securities held by the Funds, and may use one or
more independent pricing services in connection with this service. The methods
used by the pricing services and the valuations so established will be reviewed
by the Adviser and the administrators under the general supervision of the Board
of Trustees of the Trust.

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

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Shares are continuously offered for sale by Edgewood Services, Inc.
(the "Distributor"), a registered broker-dealer and the Trust's sponsor and
distributor. The Distributor is a wholly-owned subsidiary of Federated
Investors, Inc. and is located at 5800 Corporate Drive, Pittsburgh, PA
15237-5829. The Distributor has agreed to devote its best efforts to effect the
sale of Shares, but is not obligated to sell any certain number of Shares.

At various times the Distributor may implement programs under which a
dealer's sales force may be eligible to win nominal awards for certain sales
efforts or under which the Distributor will make payments to any dealer that
sponsors sales contests or recognition programs conforming to criteria
established by the Distributor, or that participates in sales programs sponsored
by the Distributor. The Distributor in its discretion may also from time to
time, pursuant to objective criteria established by the Distributor, pay fees to
qualifying dealers for certain services or activities which are primarily
intended to result in sales of Shares of the Funds. If any such program is made
available to any dealer, it will be made available to all

40
<PAGE>

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 Funds.

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 Funds or for providing substantial marketing, sales and
operational support. The support may include initiating customer accounts,
participating in sales, educational and training seminars, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Funds. Such assistance will be predicated upon the amount of
Shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution.

As described below, Shares may be sold to customers ("Customers") of
financial institutions ("Shareholder Organizations"). Shares are also offered
for sale directly to institutional investors or to members of the general
public. Different types of Customer accounts at the Shareholder Organizations
may be used to purchase Shares, including eligible agency and trust accounts.
In addition, Shareholder Organizations may automatically "sweep" a Customer's
account not less frequently than weekly and invest amounts in excess of a
minimum balance agreed to by the Shareholder Organization and its Customer in
Shares selected by the Customer. Investors purchasing Shares may include
officers, directors, or employees of the particular Shareholder Organization.

The Trust has authorized certain brokers to accept on its behalf
purchase, exchange and redemption requests. Such brokers are authorized to
designate other intermediaries to accept purchase, exchange and redemption
requests on behalf of the Trust . The Trust will be deemed to have received a
purchase, exchange or redemption request when the request is received by an
authorized broker or designated intermediary in good order.

PURCHASE OF SHARES

Shares of the Funds are offered for sale at their net asset value per
Share next computed after a purchase request is received in good order by the
Trust's transfer agent or by an authorized broker or designated intermediary.
The Distributor has established several procedures for purchasing Shares in
order to accommodate different types of investors.

Institutional Shares may be purchased directly only by financial
institutions ("Institutional Investors"). Retail Shares may be purchased
directly by individuals ("Direct Investors") or by Institutional Investors
(collectively with Direct Investors, "Investors"). Retail Shares may also be
purchased by Customers of the Adviser, its affiliates and correspondent banks,
and other Shareholder Organizations that have entered into agreements with the
Trust.

A Shareholder Organization may elect to hold of record Shares for its
Customers and to record beneficial ownership of Shares on the account statements
provided by it to its Customers. If it does so, it is the Shareholder
Organization's responsibility to transmit to the Distributor all purchase
requests for its Customers and to transmit, on a timely basis, payment for such
requests to Chase Global Funds Services Company ("CGFSC"), the Funds' transfer
agent,

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<PAGE>

in accordance with the procedures agreed to by the Shareholder Organization and
the Distributor. Confirmations of all such Customer purchases (and redemptions)
will be sent by CGFSC to the particular Shareholder Organization. As an
alternative, a Shareholder Organization may elect to establish its Customers'
accounts of record with CGFSC. In this event, even if the Shareholder
Organization continues to place its Customers' purchase (and redemption)
requests with the Funds, CGFSC will send confirmations of such transactions and
periodic account statements directly to the shareholders of record. Shares in
the Funds bear the expense of fees payable to Shareholder Organizations for such
services. See "Shareholder Organizations."

Customers wishing to purchase Shares through their Shareholder
Organization should contact such entity directly for appropriate instructions.
(For a list of Shareholder Organizations in your area, call (800) 446-1012.) An
Investor purchasing Shares through a registered investment adviser or certified
financial planner may incur transaction charges in connection with such
purchases. Such Investors should contact their registered adviser or certified
financial planner for further information on transaction fees. Investors may
also purchase Shares directly from the Distributor in accordance with procedures
described in the Prospectus.

Investors may purchase Shares by completing the Application
accompanying the Prospectus and mailing it, together with a check payable to
Excelsior Institutional Trust, to:

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

Subsequent investments in an existing account in a Fund may be made at
any time by sending to the above address a check payable to Excelsior
Institutional Trust along with: (a) the detachable form that regularly
accompanies the confirmation of a prior transaction; (b) a subsequent order form
which may be obtained from CGFSC; or (c) a letter stating the amount of the
investment, the name of the Fund and the account number in which the investment
is to be made. Institutional Investors may purchase Shares by transmitting
their purchase orders to CGFSC by telephone at (800) 446-1012 or by terminal
access. Institutional Investors must pay for Shares with federal funds or funds
immediately available to CGFSC.

Investors may also purchase Shares by wiring federal funds to CGFSC.
Prior to making an initial investment by wire, an Investor must telephone CGFSC
at (800) 446-1012 (from overseas, call (617) 557-8280) for instructions.
Federal funds and registration instructions should be wired through the Federal
Reserve System to:

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<PAGE>

The Chase Manhattan Bank
ABA #021000021
Excelsior Funds, Account No. 9102732915
For further credit to:
Excelsior Funds
Wire Control Number
Account Registration
(including account number)

Investors making initial investments by wire must promptly complete
the Application accompanying the Prospectus and forward it to CGFSC.
Redemptions by Investors will not be processed until the completed Application
for purchase of Shares has been received by CGFSC and accepted by the
Distributor. Investors making subsequent investments by wire should follow the
above instructions.

Except as provided below, the minimum initial investment by an
Investor or initial aggregate investment by a Shareholder Organization investing
on behalf of its Customers in Retail Shares is $500 per Fund. The minimum
subsequent investment in Retail Shares for both types of investors is $50 per
Fund. There is no minimum initial or subsequent investment for an Institutional
Investor investing in Institutional Shares of a Fund. Customers may agree with
a particular Shareholder Organization to make a minimum 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. The Trust reserves the right to reject
any purchase order, in whole or in part, or to waive any minimum investment
requirements. Third party checks will not be accepted as payment for Fund
Shares.

REDEMPTION PROCEDURES

A request for the redemption of Shares will receive the net asset
value per share next computed after the request is received in good order by the
Trust's transfer agent or an authorized broker or designated intermediary.

Customers of Shareholder Organizations holding Shares of record may
redeem all or part of their investments in a Fund in accordance with procedures
governing their accounts at the Shareholder Organizations. It is the
responsibility of the Shareholder Organizations to transmit redemption requests
to CGFSC and credit such Customer accounts with the redemption proceeds on a
timely basis. Redemption requests for Institutional Investors must be
transmitted to CGFSC by telephone at (800) 446-1012 or by terminal access. No
charge for wiring redemption payments to Shareholder Organizations or
Institutional Investors is imposed by the Trust, although Shareholder
Organizations may charge a Customer's account for wiring redemption proceeds.
Information relating to such redemption services and charges, if any, is
available from the Shareholder Organizations. An Investor redeeming Shares
through a registered investment adviser or certified financial planner may incur
transaction charges in connection with such redemptions. Such Investors should
contact their registered investment adviser or certified financial planner for
further information on transaction fees. Investors may

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<PAGE>

redeem all or part of their Shares in accordance with any of the procedures
described below (these procedures also apply to Customers of Shareholder
Organizations for whom individual accounts have been established with CGFSC).

Shares may be redeemed by an 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
identification number, and (iii) be signed by each registered owner exactly as
the Shares are registered. If the Shares to be redeemed were issued in
certificate form, the certificates must be endorsed for transfer (or accompanied
by a duly executed stock power) and must be submitted to CGFSC together with the
redemption request. A redemption request for an amount in excess of $50,000 per
account, or for any amount if the proceeds are to be sent elsewhere than the
address of record, must be accompanied by signature guarantees from any eligible
guarantor institution approved by CGFSC in accordance with its Standards,
Procedures and Guidelines for the Acceptance of Signature Guarantees ("Signature
Guarantee Guidelines"). Eligible guarantor institutions generally include
banks, broker/dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations. All
eligible guarantor institutions must participate in the Securities Transfer
Agents Medallion Program ("STAMP") in order to be approved by CGFSC pursuant to
the Signature Guarantee Guidelines. Copies of the Signature Guarantee
Guidelines and information on STAMP can be obtained from CGFSC at (800) 446-1012
or at the address given above.

CGFSC may require additional supporting documents for redemptions. A
redemption request will not be deemed to be properly received until CGFSC
receives all required documents in good order. Payment for Retail Shares
redeemed will ordinarily be made by mail within five Business Days after receipt
by CGFSC of the redemption request in good order. Payment for Institutional
Shares redeemed will normally be sent the next Business Day after receipt by
CGFSC of the redemption request in good order. Questions with respect to the
proper form for redemption requests should be directed to CGFSC at (800)
446-1012 (from overseas, call (617) 557-8280).

Investors who have so indicated on the Application, or have
subsequently arranged in writing to do so, may redeem Shares by instructing
CGFSC by wire or telephone to wire the redemption proceeds directly to the
Investor's account at any commercial bank in the United States. Direct
Investors who are shareholders of record may also redeem Shares by instructing
CGFSC by telephone to mail a check for redemption proceeds of $500 or more to
the shareholder of record at his or her address of record. Institutional
Investors may also redeem Shares by instructing CGFSC by telephone at (800)
446-1012 or by terminal access. Only redemptions of $500 or more will be wired
to a Direct Investor's account. The redemption

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<PAGE>

proceeds for Direct Investors must be paid to the same bank and account as
designated on the Application or in written instructions subsequently received
by CGFSC.

In order to arrange for redemption by wire or telephone after an
account has been opened or to change the bank or account designated to receive
redemption proceeds, an Investor must send a written request to the Trust c/o
CGFSC, at the address listed above. Such requests must be signed by the
Investor, with signatures guaranteed, as discussed above. Further documentation
may be requested.

CGFSC and the Distributor reserve the right to refuse a wire or
telephone redemption if it is believed advisable to do so. Procedures for
redeeming Shares by wire or telephone may be modified or terminated at any time
by the Trust, CGFSC 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 that are reasonably believed to be genuine. In attempting
to confirm that telephone instructions are genuine, the Trust will use such
procedures as are considered reasonable, including recording those instructions
and requesting information as to account registration.

If any portion of the Shares to be redeemed represents an investment
made by personal 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, which may take up to 15
days. Investors who anticipate the need for more immediate access to their
investment should purchase Shares by federal funds or bank wire or by certified
or cashier's check. Banks normally impose a charge in connection 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 cancelled and CGFSC will
charge a fee of $25.00 to the Investor's account.

During periods of substantial economic or market change, telephone
redemptions may be difficult to complete. If an Investor is unable to contact
CGFSC by telephone, the Investor may also deliver the redemption request to
CGFSC in writing at the address noted above.

OTHER REDEMPTION INFORMATION

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

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

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<PAGE>

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
that Fund's portfolio securities.

The Trust reserves the right to honor any request for redemption or
repurchase of a Fund's Shares by making payment in whole or in part in
securities chosen by the Trust and valued in the same way as they would be
valued for purposes of computing a Fund's net asset value (a "redemption in
kind"). If payment is made in securities, a shareholder may incur transaction
costs in converting these securities into cash.

Under certain circumstances, the Trust may, in its discretion, accept
securities as payment for Shares. Securities acquired in this manner will be
limited to securities issued in transactions involving a BONA FIDE
reorganization or statutory merger, or other transactions involving securities
that meet the investment objective and policies of any Fund acquiring such
securities.

INVESTOR PROGRAMS

SYSTEMATIC WITHDRAWAL PLAN

An Investor who owns Retail Shares with a value of $10,000 or more may
begin a Systematic Withdrawal Plan. The withdrawal can be on a monthly,
quarterly, semiannual or annual basis. There are four options for such
systematic withdrawals. The Investor may request:

(1) A fixed-dollar withdrawal;

(2) A fixed-share withdrawal;

(3) A fixed-percentage withdrawal (based on the current value of the
account); or

(4) A declining-balance withdrawal.

Prior to participating in a Systematic Withdrawal Plan, the Investor
must deposit any outstanding certificates for Retail Shares with CGFSC. Under
this Plan, dividends and distributions are automatically reinvested in
additional Retail Shares of a Fund. Amounts paid to investors under this Plan
should not be considered as income. Withdrawal payments represent proceeds from
the sale of Retail Shares, and there will be a reduction of the shareholder's
equity in the Fund involved if the amount of the withdrawal payments exceeds the
dividends and distributions paid on the Retail Shares and the appreciation of
the Investor's investment in the Fund. This in turn may result in a complete
depletion of the shareholder's investment. An Investor may not participate in a
program of systematic investing in a Fund while at the same

46
<PAGE>

time participating in the Systematic Withdrawal Plan with respect to an account
in the same Fund. Customers of Shareholder Organizations may obtain information
on the availability of, and the procedures and fees relating to, the Systematic
Withdrawal Plan directly from their Shareholder Organizations.

EXCHANGE PRIVILEGE

Investors and Customers of Shareholder Organizations may exchange
Retail Shares having a value of at least $500 for Retail Shares of any other
portfolio of the Trust or for Shares of any portfolio of Excelsior Funds, Inc.
or Excelsior Tax-Exempt Funds, Inc. Institutional Shares may be exchanged for
Institutional Shares of any portfolio of Excelsior Institutional Trust or
Excelsior Funds, Inc. An exchange involves a redemption of all or a portion of
the shares in a Fund and the investment of the redemption proceeds in shares of
another portfolio. The redemption will be made at the per share net asset value
of the shares being redeemed next determined after the exchange request is
received in good order. The shares of the portfolio to be acquired will be
purchased at the per share net asset value of those shares next determined after
receipt of the exchange request in good order.

Shares may be exchanged by wire, telephone or mail and must be made to
accounts of identical registration. There is no exchange fee imposed by the
Trust, Excelsior Funds, Inc. or Excelsior Tax-Exempt Funds, Inc. In order to
prevent abuse of this privilege to the disadvantage of other shareholders, the
Trust, Excelsior Funds, Inc. and Excelsior Tax-Exempt Funds, Inc. reserve the
right to limit the number of exchange requests of Investors to no more than six
per year. The Trust, Excelsior Funds, Inc. and Excelsior Tax-Exempt Funds, Inc.
may modify or terminate the exchange program at any time upon 60 days' written
notice to shareholders, and may reject any exchange request. Customers of
Shareholder Organizations may obtain information on the availability of, and the
procedures and fees relating to, such program directly from their Shareholder
Organizations.

For federal income tax purposes, exchanges are treated as sales on
which the shareholder will realize a gain or loss, depending upon whether the
value of the shares to be given up in exchange is more or less than the basis in
such shares at the time of the exchange.

RETIREMENT PLANS

Shares are available for purchase by Investors in connection with the
following tax-deferred prototype retirement plans offered by United States Trust
Company of New York ("U.S. Trust New York"):

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

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

Keogh Plans for self-employed individuals.

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<PAGE>

Investors investing in the Funds pursuant to Profit Sharing and
Money-Purchase Plans and Keogh Plans are not subject to the minimum investment
and forced redemption provisions described above. The minimum initial
investment for IRAs is $250 per Fund and the minimum subsequent investment is
$50 per Fund. Detailed information concerning eligibility, service fees and
other matters related to these plans can be obtained by calling (800) 446-1012
(from overseas, call (617) 557-8280). Customers of Shareholder Organizations
may purchase Shares of the Funds pursuant to retirement plans if such plans are
offered by their Shareholder Organizations.

AUTOMATIC INVESTMENT PROGRAM

The Automatic Investment Program permits Investors to purchase Retail
Shares (minimum of $50 per Fund per transaction) at regular intervals selected
by the Investor. The minimum initial investment for an Automatic Investment
Program account is $50 per Fund. Provided the Investor's financial institution
allows automatic withdrawals, Retail Shares are purchased by transferring funds
from an Investor's checking, bank money market or NOW account designated by the
Investor. At the Investor's option, the account designated will be debited in
the specified amount, and Retail Shares will be purchased, once a month, on
either the first or fifteenth day, or twice a month, on both days.

ADDITIONAL INFORMATION

Customers of Shareholder Organizations may obtain information on the
availability of, and the procedures and fees relating to, the above programs
directly from their Shareholder Organizations.

RULE 12B-1 DISTRIBUTION PLAN

Pursuant to Rule 12b-1 of the 1940 Act, the Trust has adopted a
Distribution Plan (the "Distribution Plan") which permits the Retail Shares of
the Value Equity and Optimum Growth Funds to bear certain expenses in connection
with the distribution of such Shares. As required by Rule 12b-1, the Funds'
Distribution Plan and related distribution agreement have been approved, and are
subject to annual approval by, a majority of the Trust's Board of Trustees, and
by a majority of the trustees who are not interested persons of the Trust and
have no direct or indirect interest in the operation of the Distribution Plan or
any agreement relating to the Distribution Plan, by vote cast in person at a
meeting called for the purpose of voting on the Distribution Plan and related
agreement. Rule 12b-1 also requires that persons authorized to direct the
disposition of monies payable by a Fund (in the Funds' case, the Distributor)
provide for the trustees' review of quarterly reports on the amounts expended
and the purposes for the expenditures.

Under the Distribution Plan, the Retail Shares of the Value Equity and
Optimum Growth Funds may compensate the Distributor monthly for its services
which are intended to result in the sale of Retail Shares. The compensation may
not exceed the annual rate of 0.35% of

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<PAGE>

the average daily net asset value of each Fund's outstanding Retail Shares.
Retail Shares of the Funds currently bear the expenses of such distribution fees
at the annual rates of 0.25% of the average daily net asset value of the
outstanding Retail Shares of each of the Value Equity and Optimum Growth Funds.
The Distributor may also use the distribution fees to defray direct and indirect
marketing expenses such as: (i) the expense of preparing, printing and
distributing promotional materials and prospectuses (other than prospectuses
used for regulatory purposes or for distribution to existing shareholders);
(ii) the expense of other advertising via radio, television or other print or
electronic media; and (iii) the expense of payments to financial institutions
("Distribution Organizations") for distribution assistance (including sales
incentives). Payments under the Distribution Plan are not tied directly to
out-of-pocket expenses and therefore may be used by the Distributor as it
chooses (for example, to defray its overhead expenses).

Any material amendment to the Trust's arrangements with Distribution
Organizations must be approved by a majority of the Trust's Board of Trustees
(including a majority of the disinterested trustees). Any change in the
Distribution Plan that would materially increase the distribution expenses of
Retail Shares requires approval by holders of those Shares, but otherwise, the
Distribution Plan may be amended by the trustees, including a majority of the
disinterested trustees. So long as the Distribution Plan is in effect, the
selection and nomination of the members of the Trust's Board of Trustees who are
not "interested persons" (as defined in the 1940 Act) of the Trust will be
committed to the discretion of such non-interested trustees.

The Distribution Plan will continue in effect for successive one year
periods, provided that such continuance is specifically approved by the vote of
a majority of the trustees who are not parties to the Distribution Plan or
interested persons of any such party and who have no direct or indirect
financial interest in the Distribution Plan or any related agreement and the
vote of a majority of the entire Board of Trustees. The Distribution Plan and
related agreement may be terminated as to a particular Fund by a vote of a
majority of the Trust's disinterested trustees or by vote of the holders of a
majority of the Retail Shares of the Fund.

For the fiscal year ended March 31, 1999, the Retail Shares of the
Value Equity and Optimum Growth Funds bore distribution fees under the
Distribution Plan of $273 and $27,903, respectively, to compensate the
Distributor for distribution-related services.

MANAGEMENT OF THE FUNDS

TRUSTEES AND OFFICERS

The business and affairs of the Funds are managed under the direction
of the Trust's Board of Trustees. The trustees and executive officers of the
Trust, their addresses, ages, principal occupations during the past five years,
and other affiliations are as follows:

49
<PAGE>

Position Principal Occupation
with the During Past 5 Years and
Name and Address Trust Other Affiliations
---------------- -------- -----------------------
<S> <C> <C>
Frederick S. Wonham* Chairman of the Retired; Director of
238 June Road Board, President Excelsior Funds, Inc. and
Stamford, CT 06903 and Treasurer Excelsior Tax-Exempt Funds,
Age: 68 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 Company
(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 73 Inc. (since 1985); Chairman
of the Board of Excelsior
Funds, Inc. and Excelsior
Tax-Exempt Funds, Inc.
(1991-1997) and the Trust
(1996-1997); President and
Treasurer of Excelsior
Funds, Inc. and Excelsior
Tax-Exempt Funds, Inc.
(1994-1997) and the Trust
(1996-1997); Chairman of the
Board, President and
Treasurer of UST Master
Variable Series, Inc. (1994-
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: 73 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).

</TABLE>

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

50
<PAGE>

Position Principal Occupation
with the During Past 5 Years and
Name and Address Trust Other Affiliations
---------------- -------- -----------------------
<S> <C> <C>
Rodman L. Drake Trustee Trustee, Excelsior Funds and
Continuation Investments the Trust (since 1994);
Group, Inc. Director of Excelsior Funds,
1251 Avenue of the Inc. and Excelsior Tax-
Americas, Exempt Funds, Inc. (since
9th Floor December 1996); Director,
New York, NY 10020 Parsons Brinkerhoff, Inc.
Age: 56 (engineering firm) (since
1995); President,
Continuation Investments
Group, Inc. (since 1997);
President, Mandrake Group
(investment and consulting
firm) (1994-1997); 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 America
Smaller Companies Fund, Inc.
(1993-1998); Member of
Advisory Board, Argentina
Private Equity Fund L.P.
(from 1992 to 1996) and
Garantia L.P (Brazil) (from
1993 to 1996); and Director,
Mueller Industries, Inc.
(from 1992 to 1994).

Joseph H. Dugan Trustee Retired; Director of
913 Franklin Lake Road Excelsior Funds, Inc. and
Franklin Lakes, NJ Excelsior Tax-Exempt Funds,
07417 Inc. (since 1984); Director
Age: 74 of UST Master Variable
Series, Inc. (from 1994 to
June 1997); and Trustee of
the Trust (since 1995).

</TABLE>

51
<PAGE>

Position Principal Occupation
with the During Past 5 Years and
Name and Address Trust Other Affiliations
---------------- -------- -----------------------
<S> <C> <C>
Wolfe J. Frankl Trustee Retired; Director of
2320 Cumberland Road Excelsior Funds, Inc. and
Charlottesville, VA Excelsior Tax-Exempt Funds,
22901-7726 Inc. (since 1986); Director
Age: 78 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).

Jonathan Piel Trustee Director of Excelsior Funds,
558 E. 87th Street Inc. and Excelsior Tax-
New York, NY 10128 Exempt Funds, Inc. (since
Age: 60 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).

</TABLE>

52
<PAGE>

Position Principal Occupation
with the During Past 5 Years and
Name and Address Trust Other Affiliations
---------------- -------- -----------------------
<S> <C> <C>
Robert A. Robinson Trustee Director of Excelsior Funds,
Church Pension Group Inc. and Excelsior Tax-
445 Fifth Avenue Exempt Funds, Inc. (since
New York, NY 10016 1987); Director of UST
Age: 73 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 (since 1984);
Director, Morehouse
Publishing Co. (1974-1998);
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
One Logan Square Drinker Biddle & Reath LLP.
18th and Cherry Streets
Philadelphia, PA
19103-6996
Age: 56

Michael P. Malloy Assistant Partner of the law firm of
One Logan Square Secretary Drinker Biddle & Reath LLP.
18th and Cherry Streets
Philadelphia, PA
19103-6996
Age: 40

Eddie Wang Assistant Manager of Blue Sky
Chase Global Funds Secretary Compliance, Chase Global
Services Company Funds Services Company
73 Tremont Street (November 1996 to present);
Boston, MA 02108-3913 and Officer and Manager of
Age: 38 Financial Reporting,
Investors Bank & Trust
Company (January 1991 to
November 1996).

</TABLE>

53
<PAGE>

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

Patricia M. Leyne Assistant Assistant Vice President,
Chase Global Funds Treasurer Senior Manager of Fund
Services Company Administration, Chase Global
73 Tremont Street Funds Services Company
Boston, MA 02108-3913 (Since July 1998);
Age: 32 Assistant Treasurer, Manager
of Fund Administration,
Chase Global Funds Services
Company (from November 1996
to July 1998); Supervisor,
Chase Global Funds Services
Company (from September 1995
to November 1996); Fund
Administrator, Chase Global
Funds Services Company (from
February 1993 to September
1995).

</TABLE>

Each trustee of the Trust receives an annual fee of $4,000 plus a
meeting fee of $250 for each meeting attended and is reimbursed for expenses
incurred in connection with service as a trustee. The trustees may hold various
other directorships unrelated to the Funds. Drinker Biddle & Reath LLP, of
which Messrs. McConnel and Malloy are partners, receives legal fees as counsel
to the Trust. The employees of CGFSC do not receive any compensation from the
Trust for acting as officers of the Trust. No person who is currently an
officer, director or employee of the Adviser serves as an officer, director or
employee of the Trust. As of July 13, 1999, the trustees and officers of the
Trust as a group owned beneficially less than 1% of the outstanding shares of
each Fund, and less than 1% of the outstanding shares of all Funds in the
aggregate.

The following chart provides certain information about fees received
by the trustees in the most recently completed fiscal year.

54
<PAGE>

PENSION OR TOTAL
RETIREMENT ESTIMATED COMPENSATION
AGGREGATE BENEFITS ANNUAL FROM THE TRUST
COMPENSATION ACCRUED AS BENEFITS AND FUND
FROM THE PART OF TRUST UPON COMPLEX* PAID TO
TRUST EXPENSES RETIREMENT TRUSTEES
------------ ------------- ----------- ----------------
<S> <C> <C> <C> <C>
Frederick S. Wonham $5,000 None None $51,500(4)**
Rodman L. Drake $5,000 None None $41,250(4)**
W. Wallace McDowell *** $3,500 None None $28,000(4)**
Jonathan Piel $5,000 None None $41,500(4)**
Alfred Tannachion $5,000 None None $36,500(3)**
Donald L. Campbell $4,750 None None $33,250(3)**
Joseph C. Dugan $5,000 None None $36,500(3)**
Wolfe J. Frankl $5,000 None None $36,500(3)**
Robert A. Robinson $5,000 None None $36,500(3)**

</TABLE>

- --------------------
* The "Fund Complex" consists of the Trust, Excelsior Funds, Excelsior Funds,
Inc. and Excelsior Tax-Exempt Funds, Inc. The Trust has no pension plan.

** Number of investment companies in the Fund Complex for which trustee served
as director or trustee.

*** Mr. McDowell resigned from the Trust, Excelsior Funds, Excelsior Funds,
Inc. and Excelsior Tax-Exempt Funds, Inc. on May 21, 1999.

The Trust Instrument of the Trust provides 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.

55
<PAGE>

INVESTMENT ADVISORY SERVICES

U.S. Trust New York and U.S. Trust Company (collectively with
U.S. Trust New York, "U.S. Trust" or the "Adviser") serve as investment advisers
to the Funds, subject to the general supervision and guidance of the Board of
Trustees of the Trust. In the Advisory Agreements, the Adviser has agreed to
provide the services described in the Prospectuses.

Each Advisory Agreement will continue in effect with respect to each
Fund as long as such continuance is specifically approved at least annually by
the Board of Trustees of the Trust or by a majority vote of the shareholders in
the applicable Fund and, in either case, by a majority of the Trustees of the
Trust who are not parties to the Advisory Agreement or interested persons of any
such party, at a meeting called for the purpose of voting on the Advisory
Agreement. Each investment adviser and administrator has agreed to waive
certain fees.

Each Advisory Agreement provides that the Adviser may render services
to others, and each Advisory Agreement is terminable by the Trust without
penalty on not more than 60 days' nor less than 30 days' written notice when
authorized either by majority vote of the Fund or by a vote of a majority of the
Board of Trustees of the Trust, or by the Adviser on not more than 60 days' nor
less than 30 days' written notice, and will automatically terminate in the event
of its assignment. Each Advisory Agreement provides that neither the Adviser
nor its personnel shall be liable for any error of judgment or mistake of law or
for any loss arising out of any investment, or for any act or omission in the
execution of security transactions for a Fund, except that U.S. Trust New York
and U.S. Trust Company shall be jointly, but not severally, liable for willful
misfeasance, bad faith, gross negligence or reckless disregard of their
obligations and duties under the Advisory Agreement.

For the services provided and expenses assumed pursuant to the
Advisory Agreements, the Adviser is entitled to be paid a fee computed daily and
paid monthly, at the annual rate of 0.65% of the average daily net assets of
each of the Equity, Value Equity, Optimum Growth, Income and Total Return Bond
Funds, and 1.00% of the average daily net assets of the International Equity
Fund.

From time to time, the Adviser may voluntarily waive all or a portion
of the advisory fees payable to it by a Fund, which waiver may be terminated at
any time.

Prior to May 16, 1997, U.S. Trust New York served as investment
adviser to the Equity, Income, Total Return Bond, Value Equity and Optimum
Growth Funds pursuant to an advisory agreement substantially similar to the
Advisory Agreement currently in effect for such Funds.

For the fiscal year ended March 31, 1999, U.S. Trust received advisory
fees of $684,933, $135,038, $304,737, $150,590 and $530,461 with respect to the
Equity, Value Equity, Optimum Growth, Income and Total Return Bond Funds,
respectively. For the same period, U.S. Trust waived advisory fees of $298,579,
$91,255 $155,809, $262,853 and $781,974, with respect to the Equity, Value
Equity, Optimum Growth, Income and Total Return Bond Funds, respectively.

56
<PAGE>

For the fiscal year ended March 31, 1998, U.S. Trust received advisory
fees of $573,251, $104,281, $162,368, $129,938 and $375,215 with respect to the
Equity, Value Equity, Optimum Growth, Income and Total Return Bond Funds,
respectively. For the same period, U.S. Trust waived advisory fees of $250,968,
$91,692, $119,069, $219,452 and $600,960, with respect to the Equity, Value
Equity, Optimum Growth, Income and Total Return Bond Funds, respectively.

For the fiscal period ended March 31, 1997, U.S. Trust New York
received advisory fees of $438,147, $41,543, $48,831, $71,647, and $252,506 with
respect to the Equity, Value Equity, Optimum Growth, Income and Total Return
Bond Funds, respectively. For the same period, U.S. Trust New York waived
advisory fees of $223,185, $76,512, $82,357, $173,417 and $457,871 with respect
to the Equity, Value Equity, Optimum Growth, Income and Total Return Bond Funds,
respectively.

From June 22, 1998 to December 28, 1998, U.S. Trust Company, N.A.
("U.S. Trust, N.A.") served as the International Equity Fund's investment
adviser, pursuant to an advisory agreement substantially similar to the Advisory
Agreement currently in effect for such Fund. Prior to June 22, 1998, U.S. Trust
Company of The Pacific Northwest ("U.S. Trust Pacific") served as investment
adviser to the International Equity Fund pursuant to an advisory agreement
substantially similar to the Advisory Agreement currently in effect for the
Fund.

For the period from December 29, 1998 to March 31, 1999, U.S. Trust
received advisory fees of $214,663 with respect to the International Equity
Fund. For the same period, U.S. Trust waived advisory fees of $355,644 with
respect to the International Equity Fund.

For the period from June 22, 1998 to December 28, 1998, U.S. Trust,
N.A. received advisory fees of $141,527 with respect to the International
Equity Fund. For the same period, U.S. Trust, N.A. waived advisory fees of
$209,295 with respect to the International Equity Fund.

For the period from April 1, 1998 to June 21, 1998, U.S. Trust
Pacific received advisory fees of $38,550 with respect to the International
Equity Fund. For the same period, U.S. Trust Pacific waived advisory fees of
$51,988 with respect to the International Equity Fund.

For the fiscal year ended March 31, 1998, U.S. Trust Pacific received
advisory fees of $215,112 with respect to the International Equity Fund. For
the same period, U.S. Trust Pacific waived advisory fees of $221,324 with
respect to the International Equity Fund.

For the fiscal period ended March 31, 1997, U.S. Trust Pacific
received advisory fees of $119,788 with respect to the International Equity
Fund. For the same period, U.S. Trust Pacific waived advisory fees of $173,028
with respect to the International Equity Fund.

Prior to December 28, 1998, Harding, Loevner Management, L.P.
("Harding Loevner") served as the International Equity Fund's sub-adviser,
pursuant to an investment sub-

57
<PAGE>

advisory agreement (a "Sub-Advisory Agreement") with U.S. Trust, N.A. Under the
Sub-Advisory Agreement, Harding Loevner was entitled to receive from U.S. Trust,
N.A. fees at a maximum annual rate equal to 0.50% of the International Equity
Fund's average daily net assets.

Harding Loevner made the day-to-day investment decisions for the
International Equity Fund and placed the purchase and sales orders for
securities transactions of such Fund, subject in all cases to the general
supervision of U.S. Trust, N.A. Harding Loevner furnished at its own expense
all services, facilities and personnel necessary in connection with managing the
International Equity Fund's investments and effecting securities transactions
for such Fund.

For the fiscal year ended March 31, 1999, Harding Loevner received
sub-advisory fees of $135,769 with respect to the International Equity Fund.
For the same period, Harding Loevner waived sub-advisory fees of $84,911 with
respect to the International Equity Fund.

For the fiscal year ended March 31, 1998, Harding Loevner received
sub-advisory fees of $216,523 with respect to the International Equity Fund.

For the fiscal period ended March 31, 1997, Harding Loevner received
sub-advisory fees of $145,572 with respect to the International Equity Fund.

ADMINISTRATORS

CGFSC, Federated Administrative Services (an affiliate of the
Distributor) and U.S. Trust Company (collectively, the "Administrators") serve
as the Trust's administrators and provide the Funds with general administrative
and operational assistance. Under the Administration Agreement, the
Administrators have agreed to maintain office facilities for the Funds, furnish
the Funds with statistical and research data, clerical, accounting, and
bookkeeping services, and certain other services required by the Funds, and to
compute the net asset values, net income and realized capital gains or losses,
if any, of the Funds. The Administrators prepare semiannual reports to the SEC,
prepare federal and state tax returns, prepare filings with state securities
commissions, arrange for and bear the cost of processing Share purchase and
redemption orders, maintain the Funds' financial accounts and records, and
generally assist in the Funds' operations.

The Administrators also provide administrative services to the
investment portfolios of Excelsior Funds, Inc. and Excelsior Tax-Exempt Funds,
Inc., which are also advised by U.S. Trust and its affiliates and distributed by
the Distributor. For services provided to all of the investment portfolios of
the Trust, Excelsior Funds, Inc. and Excelsior Tax-Exempt Funds, Inc. (except
for the international portfolios of Excelsior Funds, Inc. and Excelsior
Institutional Trust), the Administrators are entitled jointly to fees, computed
daily and paid monthly, based on the combined aggregate average daily net assets
of the three companies (excluding the international portfolios of the Trust and
Excelsior Funds, Inc.) as follows:

58
<PAGE>

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.)

<TABLE>
<CAPTION>
ANNUAL FEE
<S> <C>

First $200 million . . . . . . . . . . . . . . . . . . . . . . . . . 0.200%
Next $200 million. . . . . . . . . . . . . . . . . . . . . . . . . . 0.175%
Over $400 million. . . . . . . . . . . . . . . . . . . . . . . . . . 0.150%
</TABLE>

Administration fees payable to the Administrators by each portfolio of
the Trust, Excelsior Funds, Inc., and Excelsior Tax-Exempt Funds, Inc. are
allocated in proportion to their relative average daily net assets at the time
of determination. From time to time, the Administrators may voluntarily waive
all or a portion of the administration fee payable to them by a Fund, which
waivers may be terminated at any time.

Prior to May 16, 1997, CGFSC, Federated Administrative Services and
U.S. Trust New York served as the Trust's administrators pursuant to an
administration agreement substantially similar to the administration agreement
currently in effect for the Trust.

For the fiscal year ended March 31, 1999, the Administrators received
administration fees of $231,504, $53,266, $108,405, $83,501, $97,318 and
$308,927 with respect to the Equity, Value Equity, Optimum Growth, International
Equity, Income and Total Return Bond Funds, respectively. For the same period,
the Administrators waived fees of $0, $0, $0, $0, $0 and $0 with respect to the
Equity, Value Equity, Optimum Growth, International Equity, Income and Total
Return Bond Funds.

For the fiscal year ended March 31, 1998, CGFSC, Federated
Administrative Services and U.S. Trust received administration fees of $194,009,
$46,129, $66,246, $87,287, $82,241 and $229,777 with respect to the Equity,
Value Equity, Optimum Growth, International Equity, Income and Total Return Bond
Funds, respectively. For the same period, CGFSC, Federated Administrative
Services and U.S. Trust waived administration fees of $12,243 for the
International Equity Fund.

For the fiscal period ended March 31, 1997, CGFSC, Federated
Administrative Services and U.S. Trust New York received administration fees of
$155,310, $27,893, $30,991, $58,563, $57,907 and $167,883 with respect to the
Equity, Value Equity, Optimum Growth, International Equity, Income and Total
Return Bond Funds, respectively.

BANKING LAWS

Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing or controlling a
registered, open-end investment company continuously engaged in the issuance of
its shares, and prohibit banks generally from

59
<PAGE>

issuing, underwriting, selling or distributing securities such as shares of the
Funds, but such banking laws and regulations do not prohibit such a holding
company or affiliate or banks generally from acting as investment adviser,
transfer agent, or custodian to such an investment company, or from purchasing
shares of such company for and upon the order of customers. The Adviser, CGFSC
and certain Shareholder Organizations may be subject to such banking laws and
regulations. State securities laws may differ from the interpretations of
federal law discussed in this paragraph and banks and financial institutions may
be required to register as dealers pursuant to state law.

Should legislative, judicial, or administrative action prohibit or
restrict the activities of the Adviser or other Shareholder Organizations in
connection with purchases of Fund shares, the Adviser and such Shareholder
Organizations might be required to alter materially or discontinue the
investment services offered by them to Customers. It is not anticipated,
however, that any resulting change in the Funds' method of operations would
affect their net asset values per share or result in financial loss to any
shareholder.

SHAREHOLDER ORGANIZATIONS

The Trust has entered into agreements with certain Shareholder
Organizations. Such agreements require the Shareholder Organizations to provide
shareholder administrative services to their Customers who beneficially own
Shares in consideration for a Fund's payment of not more than the annual rate of
0.40% of the average daily net assets of the Fund's Shares beneficially owned by
Customers of the Shareholder Organization. Such services may include: (a)
acting as recordholder of Shares; (b) assisting in processing purchase, exchange
and redemption transactions; (c) transmitting and receiving funds in connection
with Customer orders to purchase, exchange or redeem Shares; (d) providing
periodic statements showing a Customer's account balances and confirmations of
transactions by the Customer; (e) providing tax and dividend information to
shareholders as appropriate; (f) transmitting proxy statements, annual reports,
updated prospectuses and other communications from the Trust to Customers; and
(g) providing or arranging for the provision of other related services. It is
the responsibility of Shareholder Organizations to advise Customers of any fees
that they may charge in connection with a Customer's investment. Until further
notice, the Adviser and Administrators have voluntarily agreed to waive fees
payable by a Fund in an aggregate amount equal to administrative service fees
payable by that Fund.

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

60
<PAGE>

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 March 31, 1999, payments to Shareholder
Organizations totaled $0, $0, $0, $0, $0, and $0 with respect to the Equity,
Value Equity, Optimum Growth, Income, Total Return Bond and International Equity
Funds. Of these amounts, $0, $0, $0, $0, $0, and $0 was paid to affiliates of
U.S. Trust with respect to the Equity, Value Equity, Optimum Growth, Income,
Total Return Bond and International Equity Funds, respectively. For the fiscal
year or period ended March 31, 1998 and 1997, the Funds did not make any
payments to Shareholder Organizations.

EXPENSES

The expenses of the Trust include the compensation of its trustees who
are not affiliated with the Adviser; governmental fees; interest charges; taxes;
fees and expenses of the Adviser and Administrators, of independent auditors, of
legal counsel and of any transfer agent, custodian, registrar or dividend
disbursing agent of the Trust; insurance premiums; and expenses of calculating
the net asset value of, and the net income on, Shares of each 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 shareholders and to governmental offices and commissions; expenses of
shareholder and Trustee meetings; expenses relating to the issuance,
registration and qualification of Shares of each Fund and the preparation,
printing and mailing of prospectuses for such purposes; and membership dues in
the Investment Company Institute allocable to the Trust.

TRANSFER AGENT AND CUSTODIAN

The Chase Manhattan Bank ("Chase"), a wholly-owned subsidiary of
The Chase Manhattan Corporation, serves as custodian of the Funds' assets.
Under the Custodian Agreement, Chase has agreed to: (i) maintain a separate
account or accounts in the name of the Funds; (ii) make receipts and
disbursements of money on behalf of the Funds; (iii) collect and receive all
income and other payments and distributions on account of the Funds' 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
Funds' operations. Chase may, at its own expense, open and maintain custody
accounts with respect to the Funds with other banks or trust companies, provided
that Chase shall remain liable for the performance of all its custodial duties
under the Custodian Agreement, notwithstanding any delegation. Communications
to the custodian should be directed to Chase, Mutual Funds Service Division, 3
Chase MetroTech Center, 8th Floor, Brooklyn, NY 11245.

CGFSC serves as transfer agent for the Funds pursuant to a Transfer
Agency Agreement. Under this Agreement, CGFSC has agreed to perform the
following functions,

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among others: (i) issue and redeem Shares of the Funds; (ii) address and mail
all communications by the Funds to their shareholders, including reports to
shareholders, dividend and distribution notices, and proxy materials for their
meetings of shareholders; (iii) respond to correspondence by shareholders and
others relating to its duties; (iv) maintain shareholder accounts; and (v) make
periodic reports to the Trust's Board of Trustees concerning the Funds'
operations. For its transfer agency and dividend disbursement services, CGFSC
is entitled to receive from the Trust such compensation as may be agreed upon
from time to time between the Trust and CGFSC. In addition, CGFSC is entitled
to be reimbursed for its out-of-pocket expenses for the cost of forms, postage,
processing purchase and redemption orders, handling of proxies, and other
similar expenses in connection with the above services.

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.

INDEPENDENT AUDITORS

Ernst & Young LLP, independent auditors, 200 Clarendon Street, Boston,
MA 02116 serve as auditors of the Trust. The Funds' Financial Highlights
included in the Prospectuses and the financial statements for the fiscal year
ended March 31, 1999 incorporated by reference in this Statement of Additional
Information have been audited by Ernst & Young LLP for the periods included in
their reports thereon which appear therein.

COUNSEL

Drinker Biddle & Reath LLP (of which Mr. McConnel, Secretary of the
Trust, and Mr. Malloy, Assistant Secretary of the Trust, are partners), One
Logan Square, 18th and Cherry Streets, Philadelphia, Pennsylvania 19103, is
counsel to the Trust and will pass upon the legality of the Shares offered by
the Prospectuses.

TAXATION

The following supplements the tax information contained in the
Prospectus.

For federal income tax purposes, each series of the Trust is treated
as a separate corporate entity and has qualified and intends to continue to
qualify as a regulated investment company under the Internal Revenue Code of
1986, as amended (the "Code"). Such qualification generally relieves a Fund of
liability for federal income taxes to the extent its earnings are distributed in
accordance with applicable requirements. If, for any reason, a Fund does not
qualify for a taxable year for the special federal tax treatment afforded
regulated investment companies, such Fund would be subject to federal tax on all
of its taxable income at regular corporate rates, without any deduction for
distributions to shareholders. In such event, dividend distributions would be
taxable as

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ordinary income to shareholders to the extent of the Fund's current and
accumulated earnings and profits and would be eligible for the dividends
received deduction in the case of corporate shareholders.

A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income (excess
of capital gains over capital losses). The Funds intend to make sufficient
distributions or deemed distributions of their ordinary taxable income and any
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.

Each Fund will distribute substantially all of its taxable income
including its net capital gain (the excess of long-term capital over short-term
capital loss), if any. As noted in the Funds' Prospectus, the dividends and
distributions you receive may be subject to federal, state and local taxation,
depending upon your tax situation. Distributions you receive from a Fund will
generally be taxable regardless of whether they are paid in cash or reinvested
in additional shares. Distributions attributable to the net capital gain of a
Fund will be taxable to you as long-term capital gain, regardless of how long
you have held your shares. Other Fund distributions will generally be taxable
as ordinary income.

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

You should note that if you purchase shares just before a
distribution, the purchase price will reflect the amount of the upcoming
distribution, but you will be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of capital. This is known as "buying into a dividend."

You will recognize taxable gain or loss on a sale, exchange or
redemption of your shares, including an exchange for shares of another Fund,
based on the difference between your tax basis in the shares and the amount you
receive for them. To aid in computing your tax basis, you generally should
retain your account statements for the periods during which you held shares.

Any loss realized on shares held for six months or less will be
treated as a long-term capital loss to the extent of any capital gain dividends
that were received on the shares.

The one major exception to these tax principles is that distributions
on, and sales, exchanges and redemptions of share held in an IRA (or other
tax-qualified plan) will not be currently taxable.

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<PAGE>

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

Each Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends or gross proceeds realized upon sale
paid to shareholders who have failed to provide a correct tax identification
number in the manner required, who are subject to withholding by the Internal
Revenue Service for failure properly to include on their return payments of
taxable interest or dividends, or who have failed to certify to the Fund when
required to do so either that they are not subject to backup withholding or
that they are "exempt recipients."

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

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

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

The tax principles applicable to transactions in financial instruments
and futures contacts and options that may be engaged in by the International
Equity Fund, and investments in passive foreign investment companies ("PFICS"),
are complex and, in some cases, uncertain. Such transactions and investments
may cause a Fund to recognize taxable income prior to the receipt of cash,
thereby requiring the Fund to liquidate other positions, or to borrow money, so
as to make sufficient distributions to shareholders to avoid corporate-level
tax. Moreover, some or all of the taxable income recognized may be ordinary
income or short-term capital gain, so that the distributions may be taxable to
Shareholders as ordinary income.

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<PAGE>

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

The foregoing discussion is based on federal tax laws and regulations
which are in effect on the date of this Statement of Additional Information;
such laws and regulations may be changed by legislative or administrative
action. Shareholders are advised to consult their tax advisers concerning their
specific situations and the application of state, local and foreign taxes.

DESCRIPTION OF THE TRUST

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 class of each Fund and to divide or
combine the shares into a greater or lesser number of shares without thereby
changing the proportionate beneficial interest in each Fund. The Trust reserves
the right to create and issue any number of series or classes; investments in
each series participate equally in the earnings, dividends and assets of the
particular series only and no other series. Currently, the Trust has six active
series, although additional series may be established from time to time.

The shares of the Value Equity and Optimum Growth Funds are classified
into two separate classes of shares representing Retail Shares and Institutional
Shares. Retail Shares have different expenses than Institutional Shares which
may affect performance.

Each share (irrespective of class designation) of a Fund represents an
interest in that Fund that is proportionate with the interest represented by
each other share. Shares have no preference, 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. Separate
votes, however, are taken by each class or series on matters affecting an
individual class or series. For example, a change in

65
<PAGE>

investment policy for a series would be voted upon only by shareholders of the
series involved. 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 Trust is not required to and has no current intention 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 a 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 a Fund, shareholders would be
entitled to share pro rata in the net assets of such Fund available for
distribution to shareholders.

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 Instrument, the Trustees may, without shareholder approval, (i) 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 (ii) cause the Trust to
incorporate under the laws of the State of Delaware.

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

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<PAGE>

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. However, the courts of other states
may not apply Delaware law and shareholders may, under certain circumstances be
held personally liable for the obligations of the Trust. The Trust Instrument
contains an express disclaimer of shareholder liability for acts or obligations
of the Trust and provides for indemnification and reimbursement of expenses out
of Fund property for any shareholder held personally liable for the obligations
of a Fund solely by reason of his being or having been a shareholder. The Trust
Instrument also provides for the maintenance, by or on behalf of the Trust and
each Fund, of appropriate insurance (for example, fidelity bonding and errors
and omissions insurance) for the protection of the Trust and each Fund, their
shareholders, Trustees, officers, employees and agents, covering possible tort
and other liabilities. 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 a Fund itself was
unable to meet its obligations.

MISCELLANEOUS

As of July 13, 1999, U.S. Trust 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 share beneficially because they did not
have voting investment discretion with respect to such shares.

As of July 13, 1999, the name, address and percentage ownership of
each person that owned beneficially or of record 5% or more of the outstanding
Institutional Shares of a Fund were as follows: EQUITY FUND: Olympus America
Inc. Pension Plan, c/o United States Trust Company of New York, 114 West 47th
Street, New York, New York 10036, 5.67%; and PJM Interconnection DB Plan, c/o
United States Trust Company of New York, 114 West 47th Street, New York, New
York 10036, 10.05%; VALUE EQUITY FUND: U.S. Trust Retirement Fund, c/o United
States Trust Company of New York, 114 West 47th Street, New York, New York
10036, 79.45%; and F.P. Bolton for Payne Fund Inc. c/o United States Trust
Company of New York, 114 West 47th Street, New York, New York 10036, 5.17%;
OPTIMUM GROWTH FUND: Education Association Pension Plan, c/o United States
Trust Company of New York, 114 West 47th Street, New York, New York 10036,
5.39%; and U.S. Trust Retirement Fund, c/o United States Trust Company of New
York, 114 West 47th Street, New York, New York 10036,

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<PAGE>

53.19%; INTERNATIONAL EQUITY FUND: The Liberty Fund, c/o United States Trust
Company of New York, 114 West 47th Street, New York, New York 10036, 12.79%; and
The Flourence Gould Foundation, c/o United States Trust Company of New York, 114
West 47th Street, New York, New York 10036, 12.79%; INCOME FUND: Eugene Higgins
Residuary, c/o United States Trust Company of New York, 114 West 47th Street,
New York, New York 10036, 68.98%; M.S. Paine Foundation, c/o United States Trust
Company of New York, 114 West 47th Street, New York, New York 10036, 8.62%; and
Planned Parenthood N.Y., c/o United States Trust Company of New York, 114 West
47th Street, New York, New York 10036, 10.05%; TOTAL RETURN BOND FUND: the
Flourence Gould Foundation, c/o United States Trust Company of New York, 114
West 47th Street, New York, New York 10036, 14.98%; and The Liberty Fund, c/o
United States Trust Company of New York, 114 West 47th Street, New York, New
York 10036, 11.74%.

As of July 13, 1999, the name, address and percentage ownership of
each person that owned beneficially or of record 5% or more of the outstanding
Retail Shares of a Fund were as follows: VALUE EQUITY FUND: Cameron B. Masson,
717 C Avenue, Unit C, Coronado, California 92118, 23.22%; Christine M. Du Rona,
P.O. Box 7, Montgomery, Vermont 05470, 10.02%; and Heather Bruce, P.O. Box 8162,
Portland, Maine 04104, 9.04%; OPTIMUM GROWTH FUND: CIBC Bank and Trust Company
Cayman Limited, P.O. Box 694GT Edward Grand Cayman, Cayman Islands, 20.08%; and
Averett Free & Ginsberg, Attn: William Lahr, 800 Third Avenue, New York, New
York 10022, 19.21%.

FINANCIAL STATEMENTS

The audited financial statements and notes thereto in the Trust's
Annual Report to Shareholders for the fiscal year ended March 31, 1999 (the
"1999 Annual Report") are incorporated into this Statement of Additional
Information by reference. No other parts of the 1999 Annual Report are
incorporated by reference herein. The financial statements included in the 1999
Annual Report have been audited by the Trust's independent auditors, Ernst &
Young LLP, whose reports thereon also appear in the 1999 Annual Report and are
incorporated herein by reference. Such financial statements have been
incorporated herein in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing. Additional copies of the 1999
Annual Report may be obtained at no charge by telephoning CGFSC at the telephone
number appearing on the front page of this Statement of Additional Information.

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APPENDIX A

COMMERCIAL PAPER RATINGS

A Standard & Poor's ("S&P") commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:

"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.

"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.

"A-3" - Obligations exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.

"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.

"C" - Obligations are currently vulnerable to nonpayment and are
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.

"D" - Obligations are in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.

Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:

"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be

A-1
<PAGE>

evidenced by many of the following characteristics: leading market positions in
well-established industries; high rates of return on funds employed;
conservative capitalization structure with moderate reliance on debt and ample
asset protection; broad margins in earnings coverage of fixed financial charges
and high internal cash generation; and well-established access to a range of
financial markets and assured sources of alternate liquidity.

"Prime-2" - Issuers (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

"Prime-3" - Issuers (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.

"Not Prime" - Issuers do not fall within any of the Prime rating
categories.

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 the 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 issues as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is expected.

A-2
<PAGE>

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

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

Fitch IBCA short-term ratings apply to debt obligations that have time
horizons of less than 12 months for most obligations, or up to three years for
U.S. public finance securities. The following summarizes the rating categories
used by Fitch IBCA for short-term obligations:

"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.

"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of the higher ratings.

"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.

"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.

"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.

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

Thomson Financial BankWatch short-term ratings assess the likelihood
of an untimely payment of principal and interest of debt instruments with
original maturities of one year or less. The following summarizes the ratings
used by Thomson Financial BankWatch:

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

"TBW-2" - This designation represents Thomson Financial BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."

A-3
<PAGE>

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

"TBW-4" - This designation represents Thomson Financial BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.

CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS

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

"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.

"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.

"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.

"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.

Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have
some quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.

"BB" - An obligation rated "BB" is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to the obligor's inadequate capacity to meet its financial commitment on the
obligation.

"B" - An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB", but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.

A-4
<PAGE>

"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.

"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.

"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.

"D" - An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The "D" rating also will
be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.

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

"r" - This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.

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

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

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

A-5
<PAGE>

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

"Baa" - Bonds are considered as medium-grade obligations, (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate 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 speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.

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

Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic
rating classification from "Aa" through "Caa." The modifier 1 indicates that
the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.

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 to be 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 in periods of greater
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.

A-6
<PAGE>

"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.

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

"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of credit risk and
are assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.

"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and
indicate very strong capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events.

"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of credit risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.

"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.

"BB" - Bonds considered to be speculative. These ratings indicate
that there is a possibility of credit risk developing, particularly as the
result of adverse economic change over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.

"B" - Bonds are considered highly speculative. These ratings indicate
that significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.

A-7
<PAGE>

"CCC," "CC" and "C" - Bonds have high default risk. Default is a real
possibility, and capacity for meeting financial commitments is solely reliant
upon sustained, favorable business or economic developments. "CC" ratings
indicate that default of some kind appears probable, and "C" ratings signal
imminent default.

"DDD," "DD" and "D" - Bonds are in default. The ratings of
obligations in this category are based on their prospects for achieving partial
or full recovery in a reorganization or liquidation of the obligor. While
expected recovery values are highly speculative and cannot be estimated with any
precision, the following serve as general guidelines. "DDD" obligations have
the highest potential for recovery, around 90% - 100% of outstanding amounts
and accrued interest. "DD" indicates potential recoveries in the range of 50% -
90%, and "D" the lowest recovery potential, i.e., below 50%.

Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for redemption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D"are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy a
higher portion of their outstanding obligations, while entities rated "D" have a
poor prospect for repaying all obligations.

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

Thomson Financial BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:

"AAA" - This designation indicates that the ability to repay principal
and interest on a timely basis is extremely high.

"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk compared
to issues rated in the highest category.

"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.

"BBB" - This designation represents the lowest investment-grade
category and indicates an acceptable capacity to repay principal and interest.
Issues rated "BBB" are more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.

A-8
<PAGE>

"BB," "B," "CCC," and "CC" - These designations are assigned by
Thomson Financial BankWatch to non-investment grade long-term debt. Such issues
are regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.

"D" - This designation indicates that the long-term debt is in
default.

PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.

MUNICIPAL NOTE RATINGS

A Standard and Poor's rating reflects the liquidity factors and market
access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's for municipal notes:

"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess a
very strong capacity to pay debt service are given a plus (+) designation.

"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.

"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.

Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:

"MIG-1"/"VMIG-1" - This designation denotes best quality. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.

"MIG-2"/"VMIG-2" - This designation denotes high quality, with margins
of protection that are ample although not so large as in the preceding group.

"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with
all security elements accounted for but lacking the undeniable strength of the
preceding grades.

A-9
<PAGE>

Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.

"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.

"SG" - This designation denotes speculative quality. Debt instruments
in this category lack margins of protection.

Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.

A-10
<PAGE>

EXCELSIOR INSTITUTIONAL TRUST

FORM N-1A
---------

PART C. OTHER INFORMATION

ITEM 23. EXHIBITS

(a) (1) Trust Instrument of the Registrant dated as of April 27, 1994
(2).

(2) Amended and Restated Schedule A to Trust Instrument of the
Registrant (11).

(b) By-Laws of the Registrant (2).

(d) (1) Investment Advisory Agreement dated December 28, 1998 among the
Registrant, U.S. Trust Company of Connecticut and United
States Trust Company of New York with respect to the
International Equity Fund (11).

(2) Investment Advisory Agreement dated May 16, 1997 among the
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 (8).

(3) Assumption Agreement dated June 19, 1998 among the Registrant,
U.S. Trust Company of The Pacific Northwest and U.S. Trust
Company of California (11).

(4) Assumption Agreement dated June 19, 1998 among the Registrant,
U.S. Trust Company of the Pacific Northwest, U.S. Trust Company
of California and Becker Capital Management, Inc. (11).

(e) Distribution Agreement dated August 1, 1995 (as amended and
restated on February 9, 1996, July 25, 1997 and July 31, 1998)
between the Registrant and Edgewood Services, Inc. (11).

(f) None.

<PAGE>

(g) (1) Custody Agreement dated September 1, 1995 (as amended and
restated on August 1, 1997) between the Registrant and The Chase
Manhattan Bank (9).

(2) Amendment No. 1 dated May 22, 1998 to the Custody Agreement
dated September 1, 1995 (as amended and restated on
August 1, 1997) between the Registrant and The Chase Manhattan
Bank (11).

(3) Amendment No. 2 dated May 22, 1998 to the Custody Agreement dated
September 1, 1995 (as amended and restated on August 1, 1997)
between the Registrant and The Chase Manhattan Bank (11).

(4) Amendment No. 3 dated July 31, 1998 to the Custody Agreement
dated September 1, 1995 (as amended and restated on August 1,
1997) between the Registrant and The Chase Manhattan Bank (11).

(h) (1) Amended and Restated Administration Agreement dated July 31, 1998
among the Registrant, Chase Global Funds Services Company,
Federated Administrative Services and U.S. Trust Company of
Connecticut (11).

(2) Amended and Restated Mutual Funds Transfer Agency Agreement dated
July 31, 1998 between the Registrant and Chase Global Funds
Services Company (11).

(3) Amended and Restated Administrative Services Plan and Related
Form of Shareholder Servicing Agreement (9).

(i) Opinion of Counsel (10).

(j)(1) Consent of Drinker Biddle & Reath LLP (12).

(2) Consent of Ernst & Young LLP (12).

(k) None.

(l) (1) Investor Representation Letter of Initial Shareholder (1).

(2) Purchase Agreement between the Registrant and Edgewood Services,
Inc. dated March 1, 1996 relating to shares of the Optimum Growth
and Value Equity Funds (7).

-2-
<PAGE>

(3) Purchase Agreement between the Registrant and Edgewood Services,
Inc. dated August 22, 1997 relating to Trust Shares of the
Balanced and International Equity Funds (9).

(m) Amended and Restated Distribution Plan and Form of Distribution
Agreement (9).

(n) None.

(o) Amended and Restated Plan Pursuant to Rule 18f-3 for Operation of
a Multi-Class System (11).

NOTES:

(1) Incorporated herein by reference to Pre-Effective Amendment No. 2
to Registrant's Registration Statement, as filed with the SEC on
June 22, 1994.

(2) Incorporated herein by reference to Post-Effective Amendment No.
3 to Registrant's Registration Statement, as filed with the SEC
on June 13, 1995.

(3) Incorporated herein by reference to Post-Effective Amendment No.
4 to Registrant's Registration Statement, as filed with the SEC
on October 2, 1995.

(4) Incorporated herein by reference to Post-Effective Amendment No.
5 to Registrant's Registration Statement, as filed with the SEC
on December 19, 1995.

(5) Incorporated herein by reference to Post-Effective Amendment No.
7 to Registrant's Registration Statement, as filed with the SEC
on February 23, 1996.

(6) Incorporated herein by reference to Post-Effective Amendment No.
10 to Registrant's Registration Statement, as filed with the SEC
on March 7, 1996.

(7) Incorporated herein by reference to Post-Effective Amendment No.
11 to Registrant's Registration Statement, as filed with the SEC
on September 30, 1996.

(8) Incorporated herein by reference to Post-Effective Amendment No.
14 to Registrant's Registration Statement, as filed with the SEC
on July 31, 1997.

-3-
<PAGE>

(9) Incorporated herein by reference to Post-Effective Amendment No.
15 to Registrant's Registration Statement, as filed with the SEC
on September 30, 1997.

(10) Incorporated herein by reference to Post-Effective Amendment No.
16 to Registrant's Registration Statement, as filed with the SEC
on July 29, 1998.

(11) Incorporated herein by reference to Post-Effective Amendment No.
17 to Registrant's Registration Statement, as filed with the SEC
on May 28, 1999.

(12) Filed herewith.

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

Registrant is controlled by its Board of Trustees.

ITEM 25. INDEMNIFICATION

Article IX of Registrant's Trust Instrument, incorporated herein by
reference to Exhibit (a)(1) hereto, provides for the indemnification of
Registrant's trustees and officers.

Indemnification of Registrant's principal underwriter against certain
losses is provided for in Section IV of the Distribution Agreement incorporated
herein by reference to Exhibit (e) hereto. Limitations on the liability of the
Registrant's investment advisers are provided for in Section 9 of the Investment
Advisory Agreements incorporated herein by reference to Exhibits (d)(1), (d)(2)
and (d)(3) hereto. Indemnification of Registrant's sub-adviser against certain
losses is provided for in Section 9 of the Investment Sub-Advisory Agreement
incorporated herein by reference to Exhibit (d)(6) hereto.

The trustees and officers of the Registrant and the personnel of the
Registrant's administrators 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

-4-
<PAGE>

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 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER

(a) U.S. Trust Company of Connecticut:

U.S. Trust Company of Connecticut ("U.S. Trust CT") is a
Connecticutstate bank and trust company located in Stamford, Connecticut. Set
forth below are the names and principal businesses of the directors and certain
senior executive officers of U.S. Trust CT, including those who are engaged in
any other business, profession, vocation or employment of a substantial nature.

<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
</TABLE>

-5-
<PAGE>

Position
with U.S. Principal Type of
Trust CT Name Occupation Business
- ------------- ---- ---------- --------

<S> <C> <C> <C>
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

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
</TABLE>

-6-
<PAGE>

Position
with U.S. Principal Type of
Trust CT Name Occupation Business
- -------- ---- ---------- --------

<S> <C> <C> <C>
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 directors 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.

-7-
<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
4 Arleigh Road
Great Neck, NY 11021

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 of Venture
Venrock Inc. Venrock, Inc.; Capital
103 Horseshoe Road Retired
Mill Neck, NY 11765

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 Company of
Officer New York

Director Philippe de Montebello Director of the Art Museum
The Metropolitan Museum Metropolitan
of Art Museum of Art
1000 Fifth Avenue
New York, NY 10028-0198
</TABLE>

-8-
<PAGE>

<TABLE>
<CAPTION>
Position
with U.S. Principal Type of
Trust NY Name Occupation Business
- -------- ---- ---------- --------

<S> <C> <C> <C>
Director Paul W. Douglas Retired Chairman of Coal Mining,
60 E. 42nd Street The Pittston Company Transportation
Suite 4603 and Security
New York, NY 10165 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 Chairman of Petrochemicals
Per Scholas Inc. Suburban Propane Pts. and Propane
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

Director Peter L. Malkin Chairman of Law Firm
Wein & Malkin LLP Wein & Malkin LLP
Lincoln Building
60 East 42nd Street
New York, NY 10165

Director David A. Olsen Retired Chairman of Risk & Insurance
1120 Park Avenue Johnson & Higgins Services
New York, NY 10128

Director Richard F. Tucker Retired Vice Chairman- Petroleum
11 Over Rock Lane Mobil Corporation and Chemicals
Westport, CT 06880
</TABLE>

-9-
<PAGE>

<TABLE>
<CAPTION>
Position
with U.S. Principal Type of
Trust NY Name Occupation Business
- -------- ---- ---------- --------

<S> <C> <C> <C>
Director Ruth A. Wooden President & CEO, Not for
The Advertising The Advertising Profit Public
Council, Inc. 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 of Investment and
President Company of New York U.S. Trust Corporation Fiduciary Services
114 West 47th Street and United States Trust
New York, NY 10036 Company of New York

Director and Maribeth S. Rahe Vice Chairman of Asset Management,
Vice Chair- United States Trust U.S. Trust Corporation Investment and
man Company of New York and United States Trust Fiduciary Services
114 West 47th Street Company of New York
New York, NY 10036

Director, Frederick B. Taylor Vice Chairman and Asset Management,
Vice Chair- United States Trust Chief Investment Of- Investment and
man and Company of New York ficer of U.S. Trust Fiduciary Services
Chief Invest- 114 West 47th Street Corporation and U.S.
ment Officer New York, NY 10036 Trust NY

Director, Jeffrey S. Maurer President and Asset Management,
President United States Trust Chief Operating Investment and
and Chief Company of New York Officer of U.S. Trust Fiduciary Services
Operating 114 West 47th Street Corporatrion and United
Officer New York, NY 10036 States Trust Company
of New York

Executive John L. Kirby Executive Asset Management,
Vice United States Trust Vice President Investment and
President Company of New York Chief Financial Fiduciary Services
114 West 47th Street Officer of U.S. Trust
New York, NY 10030 Corporation and United
States Trust Company of
New York
</TABLE>

-10-
<PAGE>

Position
with U.S. Principal Type of
Trust NY Name Occupation Business
- -------- ---- ---------- --------

<S> <C> <C> <C>
Executive Kenneth G. Walsh Executive Asset Management,
Vice United States Trust Vice President of Investment and
President Company of New York U.S. Trust Corporation Fiduciary Services
114 West 47th Street and United States Trust
New York, NY 10030 Company of New York

Director Philip L. Smith Corporate Director and
P.O. Box 386 Trustee
Ponte Verde Beach, FL 32004

Executive John M. Deignan Executive Investment
Vice United States Trust Vice President Management,
President Company of New York Fiduciary Services
114 West 47th Street and Private
New York, NY 10030 Banking
</TABLE>

ITEM 27. PRINCIPAL UNDERWRITERS

(a) Edgewood Services, Inc., the Distributor for shares of the
Registrant, also acts as principal underwriter for the following open-end
investment companies: Deutsche Portfolios, Deutsche Funds, Inc., Excelsior
Funds, Inc., Excelsior Tax-Exempt Funds, Inc., Excelsior Funds, FTI Funds,
FundManager Portfolios, Great Plains Funds, Old Westbury Funds, Inc., The
Riverfront Funds, Robertsons Stephens Investment Trust, WesMark Funds and WCT
Funds.

-11-
<PAGE>

(b) Names and Principal Positions and Offices with Offices with
Business Addresses the Distributor Registrant
------------------ -------------------------- ------------
<S> <C> <C>

Lawrence Caracciolo Director and President, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-5829

Arthur L. Cherry Director, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-5829

J. Christopher Donahue Director, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-5829

Thomas P. Sholes Vice President, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-5829

Ernest L. Linane Assistant Vice President, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-5829

Christine T. Johnson Assistant Vice President, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-5829

Denis McAuley Treasurer, --
5800 Corporate Drive Edgewood Services, Inc
Pittsburgh, PA 15237-2829

Leslie K. Ross Secretary, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-2829

Amanda J. Reed Assistant Secretary, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-2829
</TABLE>

-12-
<PAGE>

ITEM 28. LOCATIONS OF ACCOUNTS AND RECORDS

All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder will be maintained at the
offices of:

(1) UNITED STATES TRUST COMPANY OF NEW YORK, 114 West 47th Street, New York,
New York 10036 (records relating to its functions as investment adviser and
transfer agent).

(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) U.S. TRUST COMPANY, N.A., 515 South Flower Street, Los Angeles, California
90071 (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) EDGEWOOD SERVICES, INC., Clearing Operations, 5800 Corporate Drive,
Pittsburgh, PA 15237-5829 (records relating to its function as
distributor).

(6) CHASE GLOBAL FUNDS SERVICES COMPANY, 73 Tremont Street, Boston, MA
02108-3913 (records relating to its functions as co-administrator and
transfer agent).

(7) FEDERATED ADMINISTRATIVE SERVICES, Federated Investors Tower, Pittsburgh,
PA 15222-3779 (records relating to its function as co-administrator).

(8) THE CHASE MANHATTAN BANK, 3 Chase MetroTech Center, 8th Floor, Brooklyn, NY
11245 (records relating to its function as custodian).

(9) DRINKER BIDDLE & REATH LLP, One Logan Square, 18th and Cherry Streets,
Philadelphia, Pennsylvania 19103-6996 (Registrant's Articles of
Incorporation, Bylaws, and Minute Books).

ITEM 29. MANAGEMENT SERVICES

Inapplicable.

<PAGE>

ITEM 30. UNDERTAKINGS

Not Applicable.

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.

-14-
<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
Registration Statement pursuant to Rule 485(b) under the 1933 Act and has duly
caused this Post-Effective Amendment No. 18 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Philadelphia and the
Commonwealth of Pennsylvania on the 29th day of July, 1999.

EXCELSIOR INSTITUTIONAL TRUST
Registrant

* Frederick S. Wonham
Frederick S. Wonham, President and Treasurer
(Signature and Title)

Pursuant to the requirements of the 1933 Act, this Post-Effective
Amendment NO. 18 to Excelsior Institutional Trust's Registration Statement on
Form N-1A has been signed below by the following persons in the capacities and
on the dates indicated.

Signature Title Date
--------- ----- ----
<S> <C> <C>

* Frederick S. Wonham Chairman of the
- ------------------------- Board, President
Frederick S. Wonham and Treasurer July 29, 1999

* Joseph H. Dugan
- -------------------------
Joseph H. Dugan Trustee July 29, 1999

* Donald L. Campbell
- -------------------------
Donald L. Campbell Trustee July 29, 1999

* Wolfe J. Frankl
- -------------------------
Wolfe J. Frankl Trustee July 29, 1999

* Robert A. Robinson
- -------------------------
Robert A. Robinson Trustee July 29, 1999

* Alfred Tannachion
- -------------------------
Alfred Tannachion Trustee July 29, 1999

* Rodman L. Drake
- -------------------------
Rodman L. Drake Trustee July 29, 1999

* Jonathan Piel
- -------------------------
Jonathan Piel Trustee July 29, 1999

-15-
<PAGE>

*By: /s/ W. Bruce McConnel, III
-----------------------------
W. Bruce McConnel, III
Attorney-in-Fact
</TABLE>

<PAGE>

EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST

POWER OF ATTORNEY
-----------------

KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s and Excelsior Institutional Trust's
(collectively, the "Companies") respective Registration Statements on Form N-1A
pursuant to the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended (the "Acts") and all instruments necessary or incidental
in connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and said attorney
shall have full power and authority, to do and perform in the name and on behalf
of the undersigned in any and all capacities, every act whatsoever requisite or
necessary to be done, as fully and to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorney may
lawfully do or cause to be done by virtue hereof.

Dated: May 21, 1999 /s/ Alfred C. Tannachion
------------------------
Alfred C. Tannachion
<PAGE>

EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST

POWER OF ATTORNEY
-----------------

KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s and Excelsior Institutional Trust's
(collectively, the "Companies") respective Registration Statements on Form N-1A
pursuant to the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended (the "Acts") and all instruments necessary or incidental
in connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that either
of said attorneys may lawfully do or cause to be done by virtue hereof.

Dated: May 21, 1999 /s/ Donald L. Campbell
----------------------
Donald L. Campbell
<PAGE>

EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST

POWER OF ATTORNEY
-----------------

KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s and Excelsior Institutional Trust's
(collectively, the "Companies") respective Registration Statements on Form N-1A
pursuant to the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended (the "Acts") and all instruments necessary or incidental
in connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that either
of said attorneys may lawfully do or cause to be done by virtue hereof.

Dated: May 21, 1999 /s/ Joseph H. Dugan
-------------------
Joseph H. Dugan
<PAGE>

EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST

POWER OF ATTORNEY
-----------------

KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s and Excelsior Institutional Trust's
(collectively, the "Companies") respective Registration Statements on Form N-1A
pursuant to the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended (the "Acts") and all instruments necessary or incidental
in connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that either
of said attorneys may lawfully do or cause to be done by virtue hereof.

Dated: May 21, 1999 /s/ Robert A. Robinson
----------------------
Robert A. Robinson

<PAGE>

EXCELSIOR FUNDS, INC.
EXCELSIOR TAX-EXEMPT FUNDS, INC.
EXCELSIOR INSTITUTIONAL TRUST

POWER OF ATTORNEY
-----------------

KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
Frederick S. Wonham and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
director/trustee or officer, or both, to execute amendments to Excelsior Funds,
Inc.'s, Excelsior Tax-Exempt Funds, Inc.'s and Excelsior Institutional Trust's
(collectively, the "Companies") respective Registration Statements on Form N-1A
pursuant to the Investment Company Act of 1940, as amended, and the Securities
Act of 1933, as amended (the "Acts") and all instruments necessary or incidental
in connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that either
of said attorneys may lawfully do or cause to be done by virtue hereof.

Dated: May 21, 1999 /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 21, 1999 /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
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 21, 1999 /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
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 21, 1999 /s/ Jonathan Piel
-----------------
Jonathan Piel
<PAGE>

EXHIBIT INDEX

EXHIBIT NO. DESCRIPTION

(j)(1) Consent of Drinker Biddle & Reath LLP.

(j)(2) Consent of Ernst & Young LLP.

<PAGE>

Exhibit (j)(1)

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. 18 and Amendment
No. 20 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
July 29, 1999

<PAGE>

Exhibit(j)(2)

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the references to our firm under the captions "Financial
Highlights" in each Prospectus and "Financial Statements" and "Independent
Auditors" in the Statement of Additional Information and to the incorporation by
reference in Post-Effective Amendment Number 18 to Registration Statement (Form
N-1A, No. 33-78264) of Excelsior Institutional Trust of our report dated May 7,
1999 on the financial statements and financial highlights included in the 1999
Annual Report to Shareholders.

/s/Ernst & Young LLP
--------------------
Ernst & Young LLP

Boston, Massachusetts
July 28, 1999