<PAGE>
Investment Advisers
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
U.S. Trust Company of Connecticut
225 High Ridge Road
Stamford, CT 06905
U.S. Trust Company, N.A.
515 South Flower Street
Los Angeles, CA 90071
Transfer Agent
Chase Global Funds Services Company
73 Tremont Street
Boston, MA 02108
(800) 909-1989
Distributor
Edgewood Services, Inc.
5800 Corporate Drive
Pittsburgh, PA 15237
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, BANK INSURANCE FUND, FEDERAL RESERVE BOARD, OR
ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN A FUND IS SUBJECT TO RISK OF
PRINCIPAL.
US EXITB A99
<PAGE>
EXCELSIOR FUNDS LOGO
Shares
BALANCED FUND
Annual Report
March 31, 1999
<PAGE>
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the annual report for the Excelsior Funds. Fiscal
1999 was an exciting year in the financial markets as a whole and for the fund
family.
Low interest rates and subdued inflation in tandem with turbulent Asian
and Latin American markets proved to be the catalysts for another year of
strong -- though narrowly focused -- domestic equity performance. At the same
time, these factors combined to constrain the returns on fixed-income
investments to modest levels. The search for consistency and predictability
amidst uncertainty -- regarding heightened valuations here at home,
international economic crises, not to mention the course of the U.S. economy --
created a "flight to quality." Continuing the dominant trend of the past few
years, investors redirected much of their money to a relatively small group of
extremely large-capitalized growth companies within the Standard & Poor's 500
Index, leaving the broader market lagging well behind. As a result, small and
mid-sized companies as well as value-oriented investments underperformed
relative to growth-oriented investments. This environment made it difficult for
broadly diversified equity portfolios to meet or exceed the performance of this
narrowly focused market.
On the international front, economic crises and inflationary pressures in
Asia, Eastern Europe, and Latin America temporarily disrupted equity markets
around the world. Many of these troubled economies -- and widespread investor
concerns about them -- have begun to turn around and are showing sign of
recovery. In Western Europe, equity performance in general was strong, and the
conversion to a single currency, the Euro, was completed on time and without
disrupting the financial markets.
The financial markets will present many challenges and opportunities
during the coming year. U.S. fiscal policy continues to be effective in keeping
inflation under control, and we continue to be cautiously optimistic regarding
the domestic equity markets. International markets, while remaining attractive
on a long-term basis, will require continuous evaluation. In our new global
economy, events in international markets will have a direct impact on the U.S.
economy.
I am confident that the Excelsior fund family will continue to provide you
with the appropriate investment vehicles to respond to the always-changing
economic/financial market environment and to pursue your long-term investment
objectives.
Sincerely,
/s/ Frederick S. Wonham
----------------------------------
Frederick S. Wonham
Chairman of the Board and
President
<PAGE>
ADVISER'S INVESTMENT REVIEW
EXCELSIOR INSTITUTIONAL TRUST BALANCED FUND
- --------------------------------------------------------------------------------
For the twelve months ended March 31, 1999 the Fund realized a negative
total return of (5.11)%* compared to positive 18.46%** for the Standard &
Poor's 500 Composite Stock Price Index ("S&P 500") and positive 6.48%*** for
the Lehman Brothers Aggregate Bond Index. During the year the Fund's
performance was impacted by style (value vs. growth), market capitalization
(large vs. mid/small), and sector exposure (the Fund was overweighted in
energy, basic materials, and manufacturing stocks). The Fund manager emphasized
small and mid cap names during the year, with an emphasis on some of the
sectors that underperformed the market. The Fund had little exposure to the
leading sectors, such as technology, communications services and consumer
goods. The Fund ended the year with an asset allocation of 51% equity, 34%
fixed income and 15% cash. At the end of the year the S&P 500 was trading at a
P/E multiple of 27.5x, while the Fund traded at an average 14.9x. The Fund
manager continues to invest the equity portion of the Fund in the value style,
seeking low P/E stocks.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Standard & Poor's 500 Lehman Brothers Aggregate
Date Balanced Fund Composite Stock Price Index** Bond Index***
---- ------------- ----------------------------- -------------------------
<S> <C> <C> <C>
8/25/97 $10,000 $10,000 $10,000
9/30/97 $10,426 $ 9,956 $10,362
3/31/98 $10,942 $11,671 $10,518
9/30/98 $ 9,628 $10,858 $11,219
3/31/99 $10,383 $13,825 $11,199
</TABLE>
Past performance is not predictive of future performance. Investment returns
and principal values will vary and shares may be worth more or less at
redemption than their original cost.
The above illustration compares a $10,000 investment made in Balanced Fund
and two broad-based indices since 8/25/97 (inception date). For comparative
purposes, the value of the indices on 7/31/97 is used as the beginning value on
8/25/97. All dividends and capital gain distributions are reinvested.
The Fund's performance takes into account fees and expenses. The indices do not
take into account charges, fees and other expenses. Further information
relating to Fund performance is contained in the Financial Highlights section
of the Prospectus and elsewhere in this report.
- ------------
* Total return represents the change during the period in a hypothetical
account with dividends reinvested.
** Source: Standard & Poor's Corporation -- Reflects the reinvestment of
income dividends and, where applicable, capital gain distributions. The
Standard & Poor's 500 Composite Stock Price Index is a widely accepted
unmanaged index of U.S. stock market performance.
*** Source: Lehman Brothers -- Lehman Brothers Aggregate Bond Index is an
unmanaged total return performance benchmark commonly used to measure bond
performance. The Index is made up of Lehman's Govt/Corp Bond Index,
Mortgage-Backed Securities Index and Asset-Backed Securities Index which
are comprised of U.S. Government agencies and U.S. Treasury securities,
investment grade corporate debt, mortgage-backed and asset-backed
securities, selected as representative of the market.
+ The Fund is currently waiving certain fees. Had the Fund not waived fees,
returns would have been lower. This voluntary waiver may be modified or
terminated at any time.
<PAGE>
Excelsior Institutional Trust
Schedule of Investments
March 31, 1999
Balanced Fund
Shares Value
- ------------- ----------
COMMON STOCKS -- 60.27%
TECHNOLOGY -- 13.00%
10,000 Avnet, Inc. ........................... $ 366,250
20,000 Columbia/HCA Healthcare Corp. 378,750
25,000 Comdisco, Inc. ........................ 446,875
4,500 Intel Corp. ........................... 534,937
11,000 Lockheed Martin Corp. ................. 414,563
21,000 +Marshall Industries .................... 283,500
10,000 Rockwell International Corp. .......... 424,375
21,000 Tektronix, Inc. ....................... 530,250
6,000 Telebras ADR ........................... 483,750
8,000 Xerox Corp. ........................... 427,000
----------
4,290,250
----------
CONSUMER CYCLICAL -- 10.50%
41,000 +Cabletron Systems, Inc. ............... 335,688
40,000 Clayton Homes, Inc. ................... 442,500
6,000 Eaton Corp. ........................... 429,000
8,000 Ford Motor Co. ........................ 454,000
5,500 General Motors Corp. .................. 477,812
8,000 Goodyear Tire & Rubber Co. ............ 398,500
18,000 +LSI Logic Corp. ....................... 561,375
13,000 Sherwin-Williams Co. .................. 365,625
----------
3,464,500
----------
FINANCIAL -- 8.99%
10,000 Allstate Corp. ........................ 370,625
6,500 Fannie Mae ............................. 450,125
15,000 Mack-Cali Realty Corp. ................ 440,625
8,000 PNC Bank Corp. ........................ 444,500
11,000 Safeco Corp. .......................... 444,812
10,000 SLM Holding Corp. ..................... 417,500
19,000 Washington Federal, Inc. .............. 399,000
----------
2,967,187
----------
ENERGY -- 6.70%
8,000 Atlantic Richfield Co. ................ 584,000
30,000 Enron Oil & Gas Co. ................... 498,750
35,000 Santa Fe International Corp. .......... 654,062
15,000 YPF S.A. ADR ........................... 473,438
----------
2,210,250
----------
CAPITAL GOODS -- 6.68%
11,000 Caterpillar, Inc. ..................... 505,313
10,000 +Gulfstream Aerospace Corp. ............ 433,750
20,000 Halliburton Co. ....................... 770,000
6,000 Koninklijke (Royal) Philips
Electronics N.V. ...................... 494,625
----------
2,203,688
----------
RAW/INTERMEDIATE
MATERIALS -- 4.20%
20,000 Millenium Chemicals Inc. .............. 397,500
9,000 Weyerhaeuser Co. ...................... 499,500
<PAGE>
Shares Value
- ----------- ----------
COMMON STOCKS -- (continued)
RAW/INTERMEDIATE
MATERIALS -- (continued)
13,000 Willamette Industries, Inc. ............ $ 490,750
----------
1,387,750
----------
CONSUMER STAPLES -- 3.73%
14,000 American Greetings Corp., Class A 355,250
16,000 Dole Food Co., Inc. ................... 476,000
15,000 Mallinckrodt, Inc. .................... 399,375
----------
1,230,625
----------
TRANSPORTATION -- 3.71%
7,000 +AMR Corp. ............................. 409,938
7,000 Delta Air Lines, Inc. ................. 486,500
10,000 GATX Corp. ............................ 329,375
----------
1,225,813
----------
MANUFACTURING -- 2.76%
8,000 PPG Industries, Inc. .................. 410,000
18,000 Tenneco, Inc. ......................... 502,875
----------
912,875
----------
TOTAL COMMON STOCKS
(Cost $16,146,197) .................... 19,892,938
----------
Principal
Amount
- --------------
CORPORATE BONDS -- 17.63%
FINANCIAL -- 9.79%
$ 500,000 American General Corp.
7.75%, 4/01/05 ........................ 534,219
600,000 Associates Corp. of North America
5.75%, 11/01/03 ....................... 594,418
500,000 Conseco, Inc.
6.80%, 6/15/05 ........................ 483,044
810,000 Safeco Corp.
7.875%, 4/01/05 ....................... 849,547
750,000 Transamerica Corp.
6.75%, 11/15/06 ....................... 768,817
---------
3,230,045
---------
RAW/INTERMEDIATE
MATERIALS -- 3.86%
750,000 Phelps Dodge Corp.
7.75%, 1/01/02 ........................ 778,579
500,000 Willamette Industries, Inc.
7.00%, 2/01/18 ........................ 497,096
---------
1,275,675
---------
UTILITIES -- 2.41%
750,000 Citizens Utilities Co.
7.45%, 1/15/04 ........................ 794,002
---------
See Notes to Financial Statements.
<PAGE>
Excelsior Institutional Trust
Schedule of Investments
March 31, 1999
Balanced Fund -- (continued)
Principal
Amount Value
- -------------- ---------
CORPORATE BONDS -- (continued)
CONSUMER STAPLES -- 1.57%
Tenneco, Inc.
$ 500,000 7.50%, 4/15/07.................. $ 519,308
---------
TOTAL CORPORATE BONDS
(Cost $5,819,288)............... 5,819,030
---------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 19.62%
Federal Home Loan Mortgage
Corp.
650,000 6.40%, 12/13/06 ................. 671,402
Federal National Mortgage
Association
300,000 5.45%, 10/10/03 ................. 298,196
750,000 7.50%, 4/16/07 .................. 785,469
U.S. Treasury Notes
750,000 7.50%, 10/31/99 ................. 761,485
500,000 7.75%, 11/30/99 ................. 509,531
300,000 6.375%, 9/30/01 ................. 308,906
775,000 6.125%, 12/31/01 ................ 794,618
750,000 6.625%, 3/31/02 ................. 780,235
1,000,000 6.25%, 8/31/02 .................. 1,032,813
Principal
Amount Value
- -------------- ------- ---------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- (continued)
$ 500,000 6.50%, 10/15/06 ................. $ 532,812
---------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $6,423,873)............... 6,475,467
---------
DEMAND NOTES -- 2.65%
Associates Corp. of North America
400,000 Master Notes.................... 400,000
General Electric Co.
473,000 Promissory Notes ............... 473,000
---------
TOTAL DEMAND NOTES
(Cost $873,000)................. 873,000
---------
TOTAL INVESTMENTS
(Cost $29,262,358) ......... 100.17% $33,060,435
OTHER ASSETS AND
LIABILITIES (NET) .......... (0.17) (55,790)
------ -----------
NET ASSETS ................... 100.00% $33,004,645
====== ===========
- -------------------------
+ Non-income producing security
ADR--American Depositary Receipt
See Notes to Financial Statements.
<PAGE>
Excelsior Institutional Trust
Balanced Fund
Statement of Assets and Liabilities
March 31, 1999
<TABLE>
<S> <C>
Assets:
Investments, at cost -- see accompanying
Schedule of Investments ................................................... $ 29,262,358
=============
Investments in securities, at value (Note 1a) ............................... $ 33,060,435
Cash ........................................................................ 210
Dividends receivable ........................................................ 40,424
Interest receivable ......................................................... 262,538
Receivable for investment securities sold ................................... 814,448
Receivable for fund shares sold ............................................. 402
Deferred organization expenses (Note 1e) .................................... 2,508
Other assets ................................................................ 1,891
-------------
Total assets .............................................................. 34,182,856
Liabilities:
Payable for investments purchased ........................................... 368,725
Payable for fund shares redeemed ............................................ 686,746
Investment advisory fees payable (Note 2a) .................................. 28,936
Administration fees payable (Note 2b) ....................................... 5,213
Trustees' fees and expenses payable (Note 2f) ............................... 1,235
Accrued expenses and other liabilities ...................................... 87,356
-------------
Total liabilities ......................................................... 1,178,211
-------------
Net Assets ................................................................... $ 33,004,645
=============
Net Assets Consist of:
Par value ................................................................... $ 41
Paid-in capital in excess of par value ...................................... 25,095,269
Undistributed net investment income ......................................... 553,154
Accumulated net realized gain on investments ................................ 3,558,104
Unrealized appreciation of investments ...................................... 3,798,077
-------------
Net Assets ................................................................... $ 33,004,645
=============
Net Assets:
Institutional Shares ........................................................ $ 32,996,343
Shares ...................................................................... 8,302
Shares outstanding (Unlimited number of $0.00001 par value shares authorized):
Institutional Shares ........................................................ 4,093,503
Shares ...................................................................... 1,025
Net Asset Value Per Share (net assets / shares outstanding):
Institutional Shares ........................................................ $ 8.06
=============
Shares ...................................................................... $ 8.10
=============
</TABLE>
See Notes to Financial Statements.
<PAGE>
Excelsior Institutional Trust
Balanced Fund
Statement of Operations
For the Year Ended March 31, 1999
<TABLE>
<S> <C>
Investment Income
Dividend income .............................................................. $ 824,522
Interest income .............................................................. 1,901,267
-------------
Total Income ............................................................... 2,725,789
Expenses (Note 1f):
Investment advisory fees (Note 2a) ........................................... 427,031
Administration fees (Note 2b) ................................................ 100,517
Custodian fees ............................................................... 20,178
Legal and audit fees ......................................................... 15,463
Shareholder reports .......................................................... 16,097
Trustees' fees and expenses (Note 2f) ........................................ 5,069
Shareholder servicing agent fees ............................................. 11,136
Insurance expense ............................................................ 1,967
Registration fees ............................................................ 27,960
Amortization of organization expenses (Note 1e) .............................. 5,683
Distribution fees -- Shares (Note 2e) ........................................ 33,141
Miscellaneous ................................................................ 4,777
-------------
Total Expenses ............................................................. 669,019
Less: Waiver of fees (Note 2c) ............................................. (175,998)
-------------
Net Expenses ............................................................... 493,021
-------------
Net Investment Income ......................................................... 2,232,768
-------------
Realized and Unrealized Gain (Loss) (Note 1):
Net realized gain on investments ............................................. 5,203,710
Change in unrealized appreciation/depreciation of investments during the year. (13,305,418)
-------------
Net Realized and Unrealized Loss .............................................. (8,101,708)
-------------
Net Decrease in Net Assets Resulting from Operations .......................... $ (5,868,940)
=============
</TABLE>
See Notes to Financial Statements.
<PAGE>
Excelsior Institutional Trust
Balanced Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended March 31,
1999 1998
---------------- ---------------
<S> <C> <C>
Operations:
Net investment income .................................... $ 2,232,768 $ 3,368,479
Net realized gain on investments ......................... 5,203,710 12,929,382
Change in unrealized appreciation/depreciation of
investments during the year ............................ (13,305,418) 5,190,357
------------- -----------
Net increase (decrease) in net assets resulting from
operations .......................................... (5,868,940) 21,488,218
Distributions to Shareholders:
From net investment income
Institutional Shares ................................... (1,976,559) (3,042,093)
Shares ................................................. (430,454) (319,761)
From net realized gains
Institutional Shares ................................... (1,935,917) (7,725,226)
Shares ................................................. (301) (1,876,320)
------------- -----------
Total distributions to shareholders ................... (4,343,231) (12,963,400)
------------- -----------
Transactions in Shares of Beneficial Interest:
Net proceeds from shares sold
Institutional Shares ................................... 11,765,678 21,742,743
Shares ................................................. 703,946 20,319,193
Reinvestment of dividends
Institutional Shares ................................... 896 3,590
Shares ................................................. 292,046 2,196,081
Cost of shares redeemed
Institutional Shares ................................... (40,693,170) (57,967,499)
Shares ................................................. (18,755,099) (1,878,906)
------------- -----------
Net decrease in net assets from
beneficial interest transactions .................... (46,685,703) (15,584,798)
------------- -----------
Total Decrease in Net Assets ........................ (56,897,874) (7,059,980)
Net Assets:
Beginning of Year ........................................ 89,902,519 96,962,499
------------- -----------
End of Year (a) .......................................... $ 33,004,645 $89,902,519
============= ===========
Capital Share Transactions:
Shares sold:
Institutional Shares ................................... 1,427,074 2,483,939
Shares (b) ............................................. 79,974 2,179,728
Shares issued for dividend reinvestment:
Institutional Shares ................................... 107 418
Shares (b) ............................................. 32,797 256,143
Shares redeemed:
Institutional Shares ................................... (5,010,073) (6,477,987)
Shares (b) ............................................. (2,342,728) (204,889)
------------- -----------
Net Decrease in Shares Outstanding ........................ (5,812,849) (1,762,648)
============= ===========
------------
(a) Including undistributed net investment income ......... $ 553,154 $ 726,375
(b) Initial offering of Shares commenced on August 25, 1997
for Balanced Fund.
</TABLE>
See Notes to Financial Statements.
<PAGE>
Excelsior Institutional Trust
Balanced Fund
Financial Highlights
<TABLE>
<CAPTION>
Selected data for a share outstanding throughout each period are as follows:
Year August 25,
Ended 1997(a) to
March 31, March 31,
1999+ 1998
---- ----
<S> <C> <C>
Net Asset Value, Beginning of Period ............................ $ 9.07 $ 9.33
------- --------
Investment Operations:
Net investment income .......................................... 0.26 0.16
Net realized and unrealized gain (loss) on investments ......... (0.73) 0.65
------- --------
Total From Investment Operations ............................. (0.47) 0.81
------- --------
Distributions:
From net investment income ..................................... (0.20) (0.15)
From net realized gains ........................................ (0.30) (0.92)
------- --------
Total Distributions .......................................... (0.50) (1.07)
------- --------
Net Asset Value, End of Period .................................. $ 8.10 $ 9.07
======= ========
Total Return .................................................... (5.11)% 9.42%(b)
======= ========
Ratios and Supplemental Data:
Ratios to Average Net Assets
Net Expenses ................................................... 1.05% 1.05%(d)
Gross Expenses (c) ............................................. 1.28% 1.27%(d)
Net Investment Income .......................................... 3.03% 3.03%(d)
Portfolio Turnover .............................................. 44% 75%(d)
Net Assets at end of Period
(000's omitted) ................................................ $ 8 $ 20,235
</TABLE>
- ------------
(a) Commencement of Operations
(b) Not annualized
(c) Expense ratios before waiver of fees and reimbursement of expenses, if
any, by the adviser and administrators.
(d) Annualized
+ For comparative purposes per share amounts for the year ended March 31,
1999 are based on average shares outstanding.
See Notes to Financial Statements.
<PAGE>
Excelsior Institutional Trust
Notes to Financial Statements
1. Significant Accounting Policies:
Excelsior Institutional Trust ("Trust") is registered under the Investment
Company Act of 1940 ("Act") and the Securities Act of 1933 as an open-end
diversified management investment company. The Trust currently offers shares in
the following seven funds (each a "Fund", collectively, the "Funds"), each
having its own investment objectives and policies: Excelsior Equity Fund
("Equity Fund"), Excelsior Income Fund ("Income Fund"), Excelsior Total Return
Bond Fund ("Total Return Bond Fund"), Excelsior Balanced Fund ("Balanced
Fund"), Excelsior International Equity Fund ("International Equity Fund"),
Excelsior Optimum Growth Fund ("Optimum Growth Fund") and Excelsior Value
Equity Fund ("Value Equity Fund"). With regard to Balanced Fund, International
Equity Fund, Optimum Growth Fund and Value Equity Fund, the Trust offers two
classes of shares: Institutional Shares and Shares (formerly, "Trust Shares").
The Financial Highlights of the Institutional Shares of Balanced Fund as well
as the financial statements for the remaining Funds of Excelsior Institutional
Trust are presented separately.
The following is a summary of the significant accounting policies of the
Fund. Such policies are in conformity with generally accepted accounting
principles for investment companies and are consistently followed by the Fund
in the preparation of the financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect the
reported amounts and disclosures on the financial statements. Actual results
could differ from these estimates.
a) Valuation of Investments -- Investments in securities that are traded
on a recognized domestic stock exchange are valued at the last sale price on
the exchange on which such securities are primarily traded or at the last sale
price on a national securities market. Securities traded over-the-counter are
valued each business day on the basis of closing over-the-counter bid prices.
Securities for which there were no transactions are valued at the average of
the most recent bid and asked prices (as calculated by an independent pricing
service (the "Service") based upon its evaluation of the market for such
securities) when, in the judgment of the Service, quoted bid and asked prices
for securities are readily available and are representative of the market. Bid
price is used when no asked price is available. Investments in securities that
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 occurrence subsequent to the time a value is so established
is likely to have changed such value, then a fair value of those securities
will be determined by consideration of other factors under the direction of the
Fund's Trustees. A security which is traded on more than one exchange is valued
at the quotation on the exchange determined to be the primary market on which
the security is traded.
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. Investment
valuations, other assets, and liabilities initially expressed in foreign
currencies are converted each business day into U.S. dollars based upon current
exchange rates. Purchases and sales of foreign investments and income and
expenses are converted into U.S. dollars based upon currency exchange rates
prevailing upon the respective dates of such transactions. Gains and losses
attributable to foreign currency exchange rates are recorded for financial
statement purposes as net realized gains and losses on investments. That
portion of both realized and unrealized gains and losses on investments that
results from fluctuations in foreign currency exchange rates is not separately
disclosed.
<PAGE>
Excelsior Institutional Trust
Notes to Financial Statements -- (Continued)
Securities for which market quotations are not readily available are
valued at fair value pursuant to guidelines adopted by the Funds' Trustees.
Short-term debt instruments with remaining maturities of 60 days or less are
valued at amortized cost, which approximates market value.
b) Security transactions and investment income -- Security transactions
are recorded on a trade date basis. Realized gains and losses on investments
sold are recorded on the basis of identified cost. Interest income, including
where applicable, amortization of discounts and premiums on investments, is
recorded on the accrual basis. Dividend income is recorded on the ex-dividend
date, except for certain dividends from foreign securities, which are recorded
as soon as the Fund is informed of the dividend.
c) Dividends to Shareholders -- Dividends equal to all or substantially
all of the Fund's net investment income will be declared and paid at least
quarterly. Distributions to shareholders of net realized capital gains, if any,
are normally declared and paid annually, but the Fund may make distributions on
a more frequent basis to comply with the distribution requirements of the
Internal Revenue Code. To the extent that net realized capital gain can be
offset by capital loss carryovers, if any, it is the policy of the Trust not to
distribute such gain.
Dividends and distributions are determined in accordance with Federal
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
foreign currency transactions, passive foreign investment companies, deferral
of losses on wash sales, and net capital losses incurred after October 31 and
within the taxable year ("Post-October losses").
In order to avoid a Federal excise tax, the Fund is required to distribute
certain minimum amounts of net realized capital gain and net investment income
for the respective periods ending October 31 and December 31 in each calendar
year.
d) Repurchase agreements -- The Fund may purchase portfolio securities
from financial institutions deemed to be creditworthy by the investment adviser
subject to the seller's agreement to repurchase and the Fund's agreement to
resell such securities at mutually agreed upon prices. Securities purchased
subject to such repurchase agreements are deposited with the Fund's custodian
or are maintained in the Federal Reserve/Treasury book-entry system and must
have, at all times, an aggregate market value not less than the repurchase
price.
If the value of the underlying security falls below the value of the
repurchase price, the Fund will require the seller to deposit additional
collateral by the next business day. Default or bankruptcy of the seller may,
however, expose the Fund to possible delay in the connection with the
disposition of the underlying securities or loss to the extent that proceeds
from the sale of the underlying securities were less than the repurchase price
under the agreement.
e) Deferred Organization Expense -- Expenses incurred by the Fund in
connection with its organization are being amortized on a straight-line basis
over a five year period.
<PAGE>
Excelsior Institutional Trust
Notes to Financial Statements -- (Continued)
f) Expense Allocation -- Expenses incurred by the Trust with respect to
any two or more Funds in the Trust are allocated in proportion to the average
net assets of each Fund, except where allocations of direct expenses to each
Fund can otherwise be fairly made. Expenses directly attributable to a Fund are
charged to that Fund and expenses directly attributable to a particular class
of shares in a Fund are charged to such class.
g) Federal Income Taxes -- It is the policy of the Fund to continue to
qualify as a regulated investment company, if such qualification is in the best
interest of the shareholders, by complying with the requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated investment
companies, and by distributing substantially all of its taxable earnings to its
shareholders.
At March 31, 1999, the aggregate cost and gross unrealized appreciation
and gross unrealized depreciation in the value of investments owned by the
Fund, as computed on a federal tax basis, were as follows:
Aggregate Cost ........................ $29,262,358
===========
Gross unrealized appreciation ......... $ 4,630,131
-----------
Gross unrealized depreciation ......... (832,054)
-----------
Net unrealized appreciation ........... $ 3,798,077
===========
2. Investment Advisory Fee, Administration Fee, Distribution Expenses and
Related Party Transactions:
a) U.S. Trust Company, N.A. ("U.S. Trust, N.A.") serves as the investment
adviser to the Fund. U.S. Trust, N.A. has delegated the daily management of the
security holdings of the Fund to Becker Capital Management, Inc., acting as
sub-adviser.
For the services provided pursuant to the Investment Advisory Agreement,
U.S. Trust, N.A. is entitled to receive a fee, computed daily and paid monthly,
at the annual rate of 0.65% of the average daily net assets for the Fund.
Pursuant to a separate sub-advisory agreement between U.S. Trust, N.A. and the
sub-adviser, sub-advisory fees are payable monthly by U.S. Trust, N.A.,
computed on the average daily value of the Fund's net assets at the annual rate
of 0.425% for the Fund. The sub-adviser is compensated only by U.S. Trust,
N.A., and receives no fee directly from the Fund. Prior to June 22, 1998,
United States Trust Company of The Pacific Northwest served as the investment
adviser to the Fund pursuant to an investment advisory agreement substantially
similar to the one currently in effect for the Fund.
<PAGE>
Excelsior Institutional Trust
Notes to Financial Statements -- (Continued)
b) U.S. Trust Company of Connecticut (U.S. Trust CT), Chase Global Funds
Services Company, a corporate affiliate of The Chase Manhattan Bank, and
Federated Administrative Services, a wholly-owned subsidiary of Federated
Investors, Inc., (collectively, the "Administrators") provide administrative
services to the Trust. For the services provided to the Fund, the
Administrators are entitled jointly to annual fees, computed daily and paid
monthly, based on the combined aggregate average daily net assets of the Funds
(excluding International Equity Fund), Excelsior Funds, Inc. (excluding its
international equity portfolios), and Excelsior Tax-Exempt Funds, Inc., all of
which are affiliated investment companies, as follows: 0.200% of the first $200
million, 0.175% of the next $200 million, and 0.150% over $400 million.
Administration fees payable by the Fund of the three investment companies are
determined in proportion to the relative average daily net assets of the
respective Fund for the period paid. For the year ended March 31, 1999,
administration fees charged by U.S. Trust CT were $24,114 for the Fund.
U.S. Trust CT and U.S. Trust, N.A. are each wholly-owned subsidiaries of
U.S. Trust Corporation, a registered bank holding company.
c) From time to time, as they may deem appropriate in their sole
discretion, U.S. Trust, N.A. and the Administrators may undertake to waive a
portion or all of the fees payable to them and also may reimburse the Fund for
a portion of other operating expenses. Until further notice, U.S. Trust, N.A.
has agreed to voluntarily waive fees and reimburse expenses to the extent
necessary to maintain an annual operating expense ratio of not more than 0.70%
of average daily net assets of the Institutional Shares of the Fund and 1.05%
of average daily net assets of the Shares of the Fund. For the year ended March
31, 1999, U.S. Trust, N.A. voluntarily waived fees amounting to $175,998 for
the Fund.
d) The Trust, on behalf of the Fund, may enter into administrative
servicing agreements with various service organizations (which may include
affiliates of U.S. Trust, N.A.) requiring them to provide administrative
support services to their customers owning shares of the Fund. As a
consideration for the administrative services provided by each service
organization to its customers, the Fund will pay the service organizations an
administrative service fee at the annual rate of up to 0.40% of the average
daily net asset value of its shares held by the service organization's
customers. Such services may include assisting in processing purchase, exchange
or redemption requests; transmitting and receiving funds in connection with
customer orders to purchase, exchange or redeem shares; and providing periodic
statements. U.S. Trust, N.A. and the Administrators intend to voluntarily waive
investment advisory and administration fees payable by the Fund in an amount
equal to the administrative service fees payable by the Fund. For the year
ended March 31, 1999, no administrative service fees have been charged to the
Fund.
e) Pursuant to a Distribution Agreement, Edgewood Services, Inc. (the
"Distributor") serves as the Trust's distributor. Under the Fund's Distribution
Plan, adopted pursuant to Rule 12b-1 under the Act, the Shares of the Fund, may
compensate the Distributor monthly for its services which are intended to
result in the sale of Shares, in an amount not to exceed the annual rate of
0.75% of the average daily net asset value of the Fund's outstanding Shares.
Shares currently bear the expense of such distribution fees at the annual rate
of 0.35% of the average daily net asset value of the Fund's outstanding Shares.
For the year ended March 31, 1999, such fees amounted to $33,141.
<PAGE>
Excelsior Institutional Trust
Notes to Financial Statements -- (Continued)
f) Independent Trustees receive an annual fee of $4,000, plus a meeting
fee of $250 for each meeting attended. In addition, the Trust reimburses
independent Trustees for reasonable expenses incurred when acting in their
capacity as Trustees. Officers and Trustees of the Trust, deemed to be
affiliated or "interested persons" under the Act, receive no compensation from
the Trust for their services.
3. Purchases and Sales of Investment Securities:
For the year ended March 31, 1999, purchases and sales (excluding
short-term investments) were $27,363,765 and $74,814,594, respectively. In
addition, purchases and sales of U.S. Government and Agency Obligations
(excluding short-term investments) were $6,139,399 and $14,141,104,
respectively.
4. Line of Credit:
The Fund and other affiliated funds participate in a $250 million
unsecured line of credit provided by a syndication of banks under a line of
credit agreement. Borrowings may be made to temporarily finance the repurchase
of Fund shares. Interest is charged to the Fund, based on its borrowings, at a
rate equal to the Federal Funds Rate plus 2% per year. In addition, a
commitment fee, based on the average daily unused portion of the line of
credit, is allocated among the participating Funds at the end of each quarter.
For the year ended March 31, 1999, the Fund had no borrowings under the
agreement.
5. Year 2000 Risk (Unaudited):
Like other investment companies, financial and business organizations and
individuals around the world, the Fund could be affected adversely if the
computer systems used by the investment managers and the Fund's other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The investment managers and the Fund's other service providers have
informed the Trust 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 Fund 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 Fund as a result of the Year 2000
Problem.
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees
Excelsior Institutional Trust
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of the Excelsior Balanced Fund, one of
the Portfolios of Excelsior Institutional Trust (the "Trust") as of March 31,
1999, and the related statement of operations for the year then ended, the
statements of changes in net assets and the financial highlights for each of
the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
March 31, 1999 by correspondence with the custodian and brokers or other
appropriate auditing procedures where replies from brokers were not received.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
the Excelsior Balanced Fund of Excelsior Institutional Trust at March 31, 1999,
the results of its operations for the year then ended and the changes in its
net assets and the financial highlights for each of the periods indicated
therein, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
May 7, 1999
<PAGE>
Federal Tax Information (Unaudited):
For the year ended March 31, 1999, the percentage of dividends paid that
qualify for the 70% dividends received deduction for corporate shareholders was
23% for the Fund, the designation of long-term capital gains for the Fund was
approximately $3,580,000 and the percentage of income earned from direct
Treasury obligations was 33% for the Fund.
